McCaffrey v. Gatekeeper USA, Inc

Background

Timothy Andrew McCaffrey sued Gatekeeper USA, Inc., Asgard International, Inc., Ares Ventures Inc., A. John Leontakianakos, and John Seetoo. McCaffrey proceeded without a lawyer, as did the two individual defendants at the time of this ruling. He asserted claims involving securities fraud, negligent misrepresentation, and New York General Business Law § 349, seeking compensation for the $50,000 he paid for 50,000 shares of Gatekeeper stock.

Seetoo told McCaffrey that Gatekeeper was raising money, that its stock could be purchased for $1 per share, and that its stock would become freely tradeable after a registration filing. Seetoo and Leontakianakos also provided materials describing Gatekeeper’s CAMS product and its business prospects. McCaffrey relied on those assurances and the materials, signed a stock transfer agreement, and wired $50,000 to Ares on May 30, 2012.

The record showed that Gatekeeper never developed CAMS into a marketable product, never manufactured products, and did not receive financing. The record also included evidence that Howard Richards manipulated Gatekeeper’s stock price and that the individual defendants knew about his trading activity. Leontakianakos owned Ares, personally generated the stock transfer agreement, and used the $50,000 for personal purposes. The shares transferred to McCaffrey came from Leontakianakos or his family rather than from Ares or Gatekeeper.

The entity defendants—Gatekeeper, Asgard, and Ares—had previously defaulted on liability. McCaffrey later moved for summary judgment against Leontakianakos and Seetoo. Summary judgment is a decision without a trial when the evidence shows no genuine dispute over a fact that could affect the result and the moving party is entitled to judgment under the law.

Negligent Misrepresentation

The court applied New York law. A negligent-misrepresentation claim required McCaffrey to show that the defendants had a special relationship creating a duty to provide accurate information, gave incorrect information, and that he reasonably relied on it.

The court found no genuine dispute about duty. Seetoo communicated directly with McCaffrey and sought to influence his purchase. Leontakianakos also spoke with McCaffrey about acquiring Gatekeeper shares and personally prepared the stock transfer agreement. The court further found that Seetoo acted as Leontakianakos’s agent in soliciting investors, so Seetoo’s relevant acts and knowledge could be attributed to Leontakianakos. In addition, the court found a direct contractual relationship because the shares transferred to McCaffrey came from Leontakianakos or his family and Leontakianakos used the money for personal purposes.

The court identified two categories of inaccurate information or omissions. First, the defendants’ materials described CAMS as an existing, marketable product even though it had never reached a marketable stage and Gatekeeper never began manufacturing products. Second, the defendants knew about Richards’s activity to support Gatekeeper’s stock price, while Seetoo represented that the stock’s market price was approximately $2.75 to $3.25 per share. The court concluded that the defendants failed to provide McCaffrey with accurate information about CAMS and the true nature of Gatekeeper’s stock price.

The defendants expressly conceded that McCaffrey relied on Seetoo’s assurances and the materials when he signed the agreement and wired the money. The court found that the relevant facts were particularly within the defendants’ knowledge and that McCaffrey’s reliance was reasonable. It therefore held that the individual defendants breached their duty to McCaffrey. Because McCaffrey’s causes of action sought recovery for the same injury, the court did not separately analyze his other claims.

Relief and Disposition

The court awarded McCaffrey $50,000 in compensatory damages, representing the money he paid for the stock. It also awarded prejudgment interest at nine percent annually starting May 30, 2012, and post-judgment interest at the rate required by federal law. The court directed entry of judgment against all defendants, jointly and severally, meaning the judgment applies to all of them together and each may be responsible for the full amount.

The court denied McCaffrey’s request for attorney’s fees because he was not an attorney. It allowed him to seek recoverable costs by submitting a bill of costs under the court’s local rule. The court denied his sanctions request without prejudice because it was too general and conclusory, while allowing him to file a more specific sanctions motion within 60 days. The court did not award punitive damages at that time and scheduled a conference to discuss whether the case would proceed to trial solely on that issue.

Judge Vernon S. Broderick’s conclusion granted McCaffrey’s motion for summary judgment, directed the Clerk to enter judgment for $50,000 plus prejudgment interest and costs, and terminated the open motions.