Hellman v. Jacob

Background

Mordechai Hellman alleged that he was a victim of a Ponzi scheme involving Gershon Barkany. Investors formed Barkany Asset Recovery & Management, LLC (BARM) to recover assets. BARM engaged Shalom Jacob and Locke Lord LLP as counsel, and Locke Lord retained CPA David Belsky in or about December 2010 to perform forensic accounting. Hellman hoped to recover $1,375,000 from Barkany or entities affiliated with him.

BARM later recorded a judgment against Barkany and related entities. In 2017, BARM proposed interim distributions or a buyout by Cortland Realty Investments, LLC. Hellman accepted the proposed buyout. He previously sued the same defendants in New York state court, asserting state-law claims against Belsky, and that court dismissed those claims.

In this federal action, Hellman asserted claims under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), as well as claims for breach of the duty of good faith and fair dealing, accounting, and unjust enrichment. Belsky moved to dismiss under Federal Rule of Civil Procedure 12(b)(5), which addresses insufficient service of process, and Rule 12(b)(6), which addresses failure to state a legally sufficient claim.

Service of Process

Hellman filed the complaint on November 7, 2022, making service due by February 5, 2023. Belsky was served on February 20, 2023, 15 days late. Hellman stated that the process server had made multiple earlier attempts but did not provide supporting facts.

The court found no good cause for the delay. However, it exercised its discretion to extend the service deadline because Belsky had not shown that the 15-day delay caused prejudice. The court therefore granted an extension retroactively, denied Belsky’s Rule 12(b)(5) motion, and held that the late service did not warrant dismissal.

RICO Claims

The court dismissed Hellman’s RICO claims under Rule 12(b)(6). To state a civil RICO claim, a plaintiff must adequately allege a substantive RICO violation, injury to business or property, and a causal connection between the violation and the injury. The court focused on whether Hellman sufficiently alleged a pattern of racketeering activity and a RICO enterprise.

The court held that Hellman had not pleaded the alleged racketeering acts with enough detail. Hellman alleged that Belsky and Jacob misrepresented the risks associated with the bankruptcy proceedings and advised him to accept the buyout. But the court noted that Hellman entered the buyout agreement with Cortland, not Belsky; Locke Lord, rather than Belsky, was Hellman’s legal counsel; and the complaint did not sufficiently allege that Belsky was a party to the buyout agreement or that he committed wire fraud, extortion, or another qualifying violation. The court found Hellman’s allegations too conclusory to establish a pattern of racketeering activity.

The court also held that Hellman had not alleged a RICO enterprise separate from the alleged scheme. According to the court, the alleged enterprise and the scheme to retain recovered assets from the Barkany Ponzi scheme were the same thing. Because Hellman had not adequately alleged an enterprise, the court did not need to decide whether Belsky participated in operating or managing one.

State-Law Claims and Disposition

After dismissing the federal RICO claims, the court declined to exercise supplemental jurisdiction, meaning authority to decide related state-law claims, over Hellman’s remaining claims for breach of the duty of good faith and fair dealing, accounting, and unjust enrichment.

The court stated that Belsky’s motion was GRANTED in part. It DENIED the Rule 12(b)(5) motion, GRANTED the Rule 12(b)(6) motion, and DISMISSED Hellman’s complaint under Rule 12(b)(6). The court gave Hellman an opportunity to amend and set April 10, 2024, as the deadline for filing an amended complaint.