Case 04-cv-05736 - John G. Pitman et al v. Seed ...

Case 04-cv-05736 - John G. Pitman et al v. Seed International, Ltd. et al - Complaint - U. S. District Court for the District of New Jersey - November 19, 2004Case 3:04-cv-05736-JAP Document 1 Filed 11/19/04 Page 1 of 29 PageID: 1 "
Shannon M. Engelman, Esq. (SE 7680) McELROY, DEUTSCH, MULVANEY & CARPENTER, LLP 1300 Mount Kemble Avenue Post Office Box 2075 Morristown, New Jersey 07962 (973) 993-8100 Attorneys for Plaintiffs, John G. Pitman and Susan Pitman
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
\ ECEPJED
\t-\~M AT 8:3Q-----vJAi .~ .... I FRK WIl..Uf!,M T.
JOHN G. PITMAN & SUSAN PITMAN, CIVIL ACTION NO.: 04- 513& C~AP)
Plaintiffs,
v.
SEED INTERNATIONAL, LTD., OCEAN INTERNATIONAL MARKETING, LTD., ARCIIITECTS OF WINE, LTD., A.V.E. INTERNATIONAL, LTD., DISNEY LIMITED, KENSINGTON CORPORATION, LTD., PARADIGM HOLDINGS LTD., OPTIDISC INTERNATIONAL LTD., CHURCIIILL ASSOCIATES, LTD., ROBIN LOXTON, HEROS GLOBAL MARKETING SERVICES, LTD., PARADIGM WINE SERVICES, LTD., NEW FINE WINES INTERNATIONAL, LTD., PAUL FREEMAN, ROBERT JOHN MIDDLEMISS, DENVER ANDERSSON, DAVID WILCOCK, PHILLIP BEASLEY, FRED HAGELI3ERG, TREVOR BURROUGIIS, GiLES CADMAN, CRAIG GARRETT, DESMOND JACKSON, ANIL KOHLI, JOHN DOES I through IO (fictitious individuals), and ABC ENTITlES I through 10 (fictitious entities),
Defendants.
COMPLAINT AND DEMAND FOR .JURY TRIAL
Case 3:04-cv-05736-JAP Document 1 Filed 11/19/04 Page 2 of 29 PageID: 2
PlaintitTs, Dr. John G. Pitman and Mrs. Susan Pitman., by and through their attorneys,
McElroy, Deutsch, Mulvaney & Carpenter, LLP, as and for their Complaint and Jury Demand
against defendants, Seed International, Ltd., Ocean International Marketing, Ltd., Architects of
Wine, Ltd., A.V.E. International, Disney Limited, Kensington Corporation, Ltd., Paradigm
Holdings Limited, OptiDise International Limited, Churchill Associates, Ltd., Heros Global
Marketing Services, Ltd., Paradigm Wine Services, Ltd., New Fine Wines International, Ltd.,
Paul Freeman, Robert John Middlemiss, Denver Andersson, David Wilcock, Phillip Beasley,
Fred Hagelberg, Trevor Burroughs, Giles Cadman, Craig Garrett, Desmond Jackson, Anil Kohli,
Robin Loxton, John Does 1 through 10, and ABC Entities 1 through 10, allege and say:
NATURE OF THE ACTION
1, This is an action for securities fraud, breach of contract, breach of fiduciary duty.
breach of the implied covenant of good faith and fair dealing, common law fraud, negligence,
control person liability, negligent misrepresentation, violations of the New Jersey civil RICO
statute and civil conspiracy and violations of the New Jersey Consumer Fraud Aet pursuant to:
(i) Section lOeb) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b), Rule 10b-5, 17
C.F.R. §240.lOb-S(b); (ii) Section 20(a) of the Securities Exchange Act of 1934, 15 U.S,C,
§78t(a); (iii) the New Jersey Uniform Securities Law, NJ.S.A. §49:3-47, et 8eg.; (iv) the New
Jersey civil RICO statute, NJ.S.A. §2C:41-1, et seq.; (v) the New Jersey Consumer Fraud Act,
NJ.S.A. §56:8-1, et seg.; and (vi) New Jersey common law.
2. This action arises from the defendants' unlicensed sale of securities, civil
racketeering activities, creation of false business entities, fraudulent lTIisrepresentations and
omissions in connection with the defendants' successful attempt to persuade the plaintiffs to
purchase securities from the defendants, defendants' breach of the terms of the afore~aid
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securities, fraudulent misrepresentations and omissions in connection with the defendants'
successful attempt to persuade the plaintiffs to purchase goods and contracts for the sale of goods
from the defendants, and the creation of business entities by the defendants for the purpose of
perpetrating Iraudulcnt activities, defeating the ends of justice and/or evading the law.
PARTIES
3. Plaintiff 101m G. Pitman is a natural person residing at 2 Coppell Drive, Tenatly,
New Jersey 07670.
4. Plaintiff Susan Pitman is a natural person residing at 2 Coppell Drive, Tenafly,
New Jersey 07670.
5. Defendant Seed International, Ltd. ("Seed") is a corporation organized under the
laws of the Cayman Islands with a principal place of business at Buckingham House, 174 South
Church Street, Grand Cayman, Cayman Islands, British West Indies. Seed was formerly known
as Chmchill Associates, Ltd. ("Churchill"), whose primary office was at the same address.
6. Defendant Ocean International Marketing, Ltd. ("Ocean") is a foreign business
entity with a principal place of business at DeLeuvc, Schiedamsedijk 42, 3011 ED Rotterdam,
The Netherlands. Ocean was formerly known as IIeros Global Marketing Services, Ltd. ("IIeros
Global"), whose primary office was at the same address.
7. Defendant Architects of Wine, Ltd. ("Architects of Wine") is a limited liability
company organized under the laws of the Cayman Islands with a principal place of business
located at Strathvale House, NOlth Chmch Street, George Town, Grand Cayman, Cayman
Islands. Architects of Wine is a wholly o\~l1ed subsidiary of Paradigm Holdings Limited
("Paradib'lll"), another limited liability company organized under the laws of the Cayman Islands.
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8. Defendant A.V.E. International, Ltd. ("A.V.E. International") is a limited liability
company organized under the laws of the Cayman Islands with a principal place of business
located at Strathvale House, North Church Street, George Town, Grand Cayman, Cayman
Islands. A.V.E. International is also a wholly-owned subsidiary of Paradigm.
9. Defendant Disney Ltd. ("Disney") is a foreign corporation that conducts business
in Guernsey, England, and is licensed by the Guernsey Financial Services Commission to do
fiduciary business in Guernsey, England. Disney is also a subsidiary of Kensington Corporation
Ltd. Disney has been a corporate director of Seed and has executed documents on Seed's behalf.
10. Defendant Kensington Corporation Ltd. ("Kensington") is a foreign corporation
organized under the laws of Guernsey. Kensington is licensed by the Guernsey Financial
Services Commission to carryon fiduciary business in Guernsey. Kensington has provided
company administration services to Seed.
II. Defendant Paradigm Holdings Limited ("Paradigm") is a limited liability
company organized under the laws of the Cayman Islands and engaged in the business of
procuring, marketing, and selling wine and wine-related products.
12. Defendant OptiDisc International Limited ("OptiDisc") is a foreign corporation
organized under the laws of the Cayman Islands with a principal place of business located at
West Wind Building, Grand Cayman, Cayman Islands, British West Indies. OptiDisc was
formerly known as CD Fender, and was established by defendant Trevor Burroughs, defendant
Heros Global and Churchill Investments, an a11iliate of defendant Churchill Associates Limited.
OptiDisc is the manufacturer and patent owner of CDfender, a cohesive film that protects CDS
and repairs minor damage.
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13. Defendant Churchill Associates Limited ("Churchill"), formerly known as
Churchill Portfolio Management, Limited and otherwise known as Churchill Limited, was a
foreign corporation organized under the laws of the Cayman Islands. In or about June 2000,
Churchill Associates changed its name to Seed International Limited.
14. At all times relevant herein, defendant Robin Loxton was the managing director
of OptiDisc.
15. Defendant Heros Global was a foreign business entity with its principal place of
business formerly located at De Lcuvc, Schtcdamsedijk 42, 3011 ED Rotterdam, The
Netherlands. Heros Global was the marketing agent for and is ai11liated with defendants
OptiDisc and Seed,
16. Upon information and belief, defendant Paradigm Wine Services is a foreign
business entity and afliliated with defendant Paradigm.
17. Defendant New Fine Wines International, Ltd. ("New Fine Wines") is a foreign
business entity with its principal place of business located at Evert Van De Beekstraat 310,
IIIBCX SchiphoJ, Netherlands, New Fine Wines is the marketing agent for Paradigm.
18. Upon information and belief, defendant Pa~ll Freeman ("Freeman") was the Chief
Executive Officer of Seed at all times relevant herein.
19. Freeman was a co-founder of Seed (formerly known as Churchill Associates,
Ltd.) together with defendant Ani! Kohli.
20. At all times relevant herein, defendant Robert Johu Middlemiss ("Middlemiss")
was the Managing Director and Chainnan of defendant Architects of Wine.
21. At all times relevant herein, defendant Middlemiss was the Managing Director
and Chainmm of defendant Paradigm.
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22, At all times relevant herein, defendant Middlemiss was the sole shareholder of
Paradigm,
23, At all times relevant herein, defendant Denver Andersson was an officer, director,
employee, agent, and/or controlling person of Heros Global.
24, At all times relevant herein, defendant David Wilcock was the Vice President of
defendant Seed,
25, At all times relevant herein, defendant Phillip Beasley was the Executive Portfolio
Manager for defendant Ocean,
26, At all times relevant herein, defendant Fred Hagelberg was an omcer, director,
employee, agent, and/or controlling person of defendants Architects of Wine, New Fine Wines,
and Ocean,
27, At all times relevant herein, defendant Trevor Burroughs ("Burroughs") was an
officer, director, employee, agent, and/or controlling person of defendant OptiDise, Burroughs
founded Opti-Disc (fonnedy known as CD Fcndcr) and defendants Heros Global and Churchill,
28, At all times relevant herein, defendant Craig Garrett waS the Managing Director
of defendant Heros Global and was a director of defendant Ocean,
29, At all times relevant herein, defendant Desmond Jackson was an officer, director,
employee, agent, and/or controlling person at defendant Ocean,
30. Upon information and belief, defendant Ani! Kohli was a co-lounder, ol'l1cer,
director, employee, agent, and/or controlling person of defendant Churchill, now known a~
defendant Seed,
31. At all times relevant herein, derendant Giles Cadman was an officer, director,
employee, agent, and/or controlling person of Ocean,
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32. At all times relevant hereto, fictitiously named individuals John Does 1 through
10 were employed by defendants as employees, officers, directors, or agents, who participated in
and/or aided and abetted the wrongful conduct of defendants as sct forth herein.
33. At all times relevant hereto, fictitiously named entities ABC Entities I through 10
were entities who, upon information and belief, succeeded to the interests, rights and/or liabilities
of Defendants, were affiliates, subsidiaries, principals or agents of Defendants, and/or
participated in and/or aided and abetted the wrongful conduct of Defendants as set forth herein,
as will be further explored through discovery.
ALLEGATIONS AS TO VENUE AND JURISDICTION
34. Venue is proper in this District pursuant to 28 U.S.C. § 1391 because the
plaintiffs are residents of this District and a substantial part of the events giving rise to the claim
took place in this District.
35. The court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §
1332 because this is a diversity action between citizens of New Jersey and foreign defendants
and the amount in controversy exceeds $75,000.00, exclusive of interest and costs.
36. This Court has personal jurisdiction over the defendants because the individual
defendants, acting on behal r of the corporate defendants, solicited plaintiffs in New Jersey and
the resulling business transactions had an economic effect in New Jersey.
FACTUAL ALLEGATIONS
37. Defendant Heros Global, its otlicers, agents, directors, employees, !Ind affiliates,
promoted, sold and provided advice with respect to investments in wine and wine futures to
plaintiffs John O. Pitman and Susan Pitman without possessing a license to sell securities in the
State of New Jersey or any other state.
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38. Defendant Churchill, its oflkers, agents, directors, employees, and affiliates,
plaintiffs John G. Pitman and Susan Pitman without possessing a license to sell securities in the
State of New Jersey Of any other state.
39. Defendant Ocean, its officers, agents, directors, employees, and affiliates,
plaintiffs John G. Pitman and Susan Pitman without possessing a license to sell securities in the
40. Defendant Seed, its officers, agents, directors, employees, and afliliales,
plaintifIs Jolm G. Pitman and Susan Pitman without possessing a license to sell securities in the
41. Defendant Architects of Wine, its o111cers, agents, directors, employees, and
affiliates, promoted, sold and provided advice with respect to investments in wine and wine
futures to plaintiffs John G. Pitman and Susan Pitman without possessing a license to sell
securities in the State of New Jersey or any other state.
42. Defendants initially contacted plaintiffs by telephone and encouraged them to
commit manics for investment Champagne, Bordeaux and Spanish wines under an investment
program referred to as the Collectables Program.
43. Once plaintifi's expressed an interest in investing in the Collectables Program,
defendants distributed a brochure and reqnired plaintiffs to complete an Account Opening Form
which solicited detailed financial inlormation from plaintifl's.
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44. After falsely promising plaintiffs substantial returns on their investments,
defendants accepted from plaintiffs investments totaling approximately $1,000,000.00 in value
into the purported investment program.
45. Plaintiffs received ownership certificates from defendants reflecting their
investment holdings in terms of numbers of bottles.
46. In or about 2002, defendants advised plaintiffs to enter into what they termed a
new and attractive Italian wine investment program.
47. Defendants promised plaintiffs that investment returns would be fully liquid and
available lIl1der the Italian wine program shortly aCler a sale of some or all of the wines had been
effectuated by defcndants to third parties on the plaintiffs' behalf.
48. In reliance upon defendants' promises of liquidity and availability of funds,
plaintiffs rolled over their existing investments into the Italian wine program and introduced new
funds as required by defendants.
49. Only after collecting their investments did defendants notify plaintiffs that the
Italian wine investment program involved a tcn (10) year payment commitment with an
obligation to pay additional funds in excess of$1 ,000,000.00.
50. Defendants have since sent numerous invoices Cor installment payments to
plaintiffs and have repeatedly tht'eatened that the plaintiffs' entire investment will be lost if they
do not send additional funds to the defendants.
51. Defendants have denied plaintiffs access to their funds despite promises of
liquidity and availability ofthe same.
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52. Defendants' unlicensed sale of securities has been the subject of investigations
conducted by the Commissioners of Sec·urities and other governmental officials in the States of
Arkansas, Wisconsin, Iowa, North Dakota, Arizona, Kansas and Mississippi.
53. After investigating the defendants' activities, the States of Arkansas, Wisconsin,
Iowa, North Dakota, Arizona, Kansas and Mississippi issued Cease and Desist Orders or their
equivalent against defendants.
FIRST COUNT (Common Law Fraud)
54. Plaintiffs repeat and incorporate each and every allegation set forth in paragraphs
I through 53 of the Complaint with the same force and effect as if set forth at length herein.
55. Defendants made false and material misrepresentations to plaintiffs with respect
to the purported investment programs.
56. Defendants promoted and sold investments to the plaintiffs without possessing a
license to sell securities in the State of New Jersey or any other state.
57. Defendants were aware that plaintiffs' funds would not be liquid or available and
nonetheless promised the plaintiffs liquidity and availability of funds.
58. Defendants have denied plaintiffs access to their funds despite promises of
liquidity and availability of the same.
59. Defendants used plaintiffs' funds for their own benefit after falsely promising
access to the principal and substantial returns on plaintiffs' investments.
60. Defendants' material misrepresentations were intended to secure fllrrhcr
investments from plaintiffs into the purported investment programs.
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61. As a result of their reliance on defendants' material misrepresentations, plaintiffs
invested funds totaling approximately $) ,000,000.00 in value into the investment programs.
62. As a direct and proximate result of the defendants' material misrepresentations,
plaintiffs have sustained damages and continue to sustain damages.
WHEREFORE, the plaintiffs respectfully request that the Court cnter judgment against
defendants awarding;
(b) Pre-judgment and post-judgment Interest;
(c) Attorneys' fees and costs orthe within lawsuit; and
(d) Such other and further relief as the Court deems just and proper.
SECOND COUNT (Violations of the Securities Exchange Act of 1934,15 U.S.C. §78a, et!!!W
63. Plaintifi's repeat and incorporate each and every allegation set forth in parab'faphs
1 through 62 ofthe Complaint with the same force and effect as if set forth at length herein.
64. Defendants engaged in a course of conduct consisting of acts, transactions,
practices and a course of business that operated as a fraud upon plaintif1s.
65. Defendants made materially false andlor misleading statements to plaintiffs in
connection with defendants' due diligence whcn advising plaintiffs with respect to the
investment programs.
66. SpecillcaI1y, deil,mdants represented to plaintiffs that their investment funds
would be liquid and available when, in fact, they were not
67. Defendants further represented that the proceeds from any sale of investments
would be used to expand the plaintiffs' investment portfolio.
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68. The foregoing statements made by defendants were false because plaintiffs'
investment was not liquid or available, and the defendants used the plaintifIs' investment funds
for their own benefit.
69. The atoresaid misrepresentations andlor omissions were material insofar as they
were important to plaintiffs in deciding whether or not to invest in the investment programs
promoted by the defendants.
70. If plaintifl's had been aware of the falsity of stlch statements or omission of the
aforesaid material facts, then they would not have invested in the investment programs promoted
by the defendants.
71. The aforesaid misrepresentations were made with knowledge that such statements
were false.
72. Defendants were motivated to commit fraud in order to obtain cash to cover the
exorbitant general and administrative expenses ofthcir business entities as well as their own bad
investments.
73. Defendants had the opportunity to perpetrate this fraud prior to the time when
plaintiffs learned of defendants' failure to possess a license to sell securities in the State of New
Jersey and of the irregularities surrounding the investment programs, including but not limited to
individual defendants holding positions with business entities on both sides of the alleged
investment transactions,
74. The aforesaid misrepresentations occurred during the time when the plaintiffs
were deciding whether to commit additional funds into the defendants' investment programs.
75. Plaintiffs, in fact, relied on the aforesaid misrepresentations made by the
defendants in deciding to commit additional lunds into the defendants' investment programs.
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76. Plaintiffs relied on what they perceived as the liquidity and availability of the
funds which they committed into defendants' investment programs.
77. As a direct and proximate cause DC plaintiffs' reliance on the aforesaid
misrepresentations and/or the absence of material information to the contrary, plaintiffs sustained
significant losses.
WHEREFORE, the plaintiffs respectfully request that the Court entcr judgment against
defendants awarding:
(0) Attorneys' fees and costs oftha within lawsuit; and
THIRD COUNT (Control Person Liability Under Securities Exchange Act of 1934)
I through 77 of the Complaint with the samc force and effect as if set forth at length herein.
79. Defendants Paul Freeman, Robert John Middlemiss, Denver Andersson, David
Wilcock, Phillip Beasley, Fred Hagelberg, Trevor Burroughs, Giles Cadman, Craig Garrett,
Desmond Jackson, Anil Kohli, Giles Cadman and John Does 1 through 10 (collectively
"individual defendants") were controlling persons of Seed International, Ltd., Ocean
International Marketing, Ltd., Architects of Wine, Ltd., A.V.E. International, Disney Limited,
Kensington Corporation, Ltd., Paradigm Holdings Limited, OptiDisc International Limited,
Churchill Associates, Ltd., Heros Global Marketing Services, Ltd., Paradigm Wine Services,
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Ltd., New Fine Wines International, Ltd., and ABC Entities I through 10 (collectively "corporate
deiendants") at all times relevant herein.
80. As controlling persons, the individual defendants participated in the management
of the corporate defendants and were privy to confidential proprietary information concerning
the corporate defendants and their business operations.
81. As controlling persons, the individual defendants enjoyed actual power of
influence over the corporate defendants and provided material aid to them in connection with
their violations of the Securities Exchange Act of 1934.
82. Accordingly, the individual defendants are jointly and severally liable for the
damages sustained by plaintiffs as a result of the corporate defendants' violation of the Securities
Exchange Act of 1934.
WHEREFORE, the plaintiffs respectfully request that the Court enter judgment against
(b) Pre-judgment and post..,jud!,'1nent Interest;
(e) Attorneys' fees and costs ofthe within lawsuit; and
FOURTH COUNT (Violation of the New Jersey Uniform Securities Law, N.J.S.A. § 49:3·47 et seq.)
1 through 82 of the Complaint with the same force and effect as ifset forth at length herein.
84. As described more fully above, defendants engaged in a course of conduct
consisting of acts, transactions, practices and a course of business that operated as a fraud upon
plaintiffs.
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85. Defendants made num~rous misrepresentations to plaintiffs and omitted certain
material facts in connection with plaintiffs' due diligence in deciding whether to invest in the
investment programs promoted by defendants.
86. Defendants intended (0 defraud, dec.eive and/or manipulate plaintiffs when
making the aforesaid misrepresentations or omitting the aforesaid material facts.
87. Plaintiffs relied on the defendants' misrepresentations in deciding to invest in the
investment programs promoted by defendants.
88. As a direct and proximate result of plaintiffs' reliance on the aforesaid
misrepresentations and/or omissions, plaintiffs sustained significant losses.
89. Defendants' acts and/or omissions constitute a violation of the New Jersey
Uniform Securities Law.
WHEREFORE, the plaintiffs respectlhlly request that the Court enter judgment against
(c) Attorneys' fees and costs of the within lawsuit; and
FU'TII COUNT (Control Person Liability under New Jersey Uniform Securities Law, N.J.S.A. § 49:3-71)
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91. The individual defendants were controlling persons, at all times relevant herein,
who participated in the management of the corporate defendants and were privy to conl1dential
proprietary information concerning the corporate defendants and their business operations.
92. As controlling persons, the individual defendants enjoyed actual power of
influence over the corporate defendants and provided material aid to them in connection with
their violations of the New Jersey Uniform Securities Law.
detimdants awarding:
(h) Pre-judgment and post-judgment Interest;
(d) Such other and further relief as the Court deems jus! and proper.
SIXTH COUNT (Breach of Contract)
94. Defendants contracted with plaintiffs to purchase investments for plaintiffs and to
act as their agents in connection with the sale or thdr investment holdings to third parties.
95. Defendants represented that, in accordance with (he aforesaid contracts, they
purchased and sold investments on behalf of plaintiffs to third parties.
96. Defendants further represented that the proceeds of the investment sales would be
fully liquid and available shortly after a sale of some or all of the wines had been effectuated by
defendants to third parties on the plaintiffs' behalf.
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97. Defendants breached their contracts with plaintiffs insofar as they failed to
purchase and sell certain investments on behalf of pia inti ITs,
98, Despitc their failure to purchase and sell certain investments pursuant to the
contracts, defendants issued certificates of ownership to plaintiffs, purporting to show, for
example, plaintiffs' wine holdings in numbers of bottles.
99. The purchase and sale of investments of plaintiffs' behalf is a material covenant
and condition of each contract between plaintiffs and defendants,
100. As a direct and proximate result of the aforementioned breach of contract,
plaintiffs have suffered and continue to suffer damages.
SEVENTH COUNT (Negligent Misrepresentation)
1 through 100 of the Complaint with the same force and effect as if set forth at length herein.
102. Defendants represented to plaintiffs that the proceeds of the investment sales
would be fully liquid and available shortly after a ~ale of some or all of the investments had been
effectuated by defendants to third parties on the plainti nil' behaJ r,
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103. Defendants further represented that they had actually sold investment holdings to
third parties on the plaintiffs' behalf at a substantial profit.
104. Defendants knew that the aforesaid representations were material to plaintiffs and
that plaintiffs would rely on the representations in deciding whether or not to commit funds to
the defendants' investment programs.
105. At the time the defendants' made these representations to the plaintiffs, the
defendants should have known that plaintiffs would rely on the representations in deciding
whether or not to commit funds to the defendants' investment programs.
106. Plaintiffs relied on defendants' negligent misrepresentations and have thereby
suffered and continue to suffer losses.
WHEREFORE, the plaintiiTs respectfully request that the Court enter judgment against
(c) Attorneys' fees and costs ofthe within lawsuit; and
EIGHTH COUNT (Breach of Covenant of Good Faith and Fair Dealing)
1 through 106 of the Complaint with the same lorce and effect as if sct forth at length herein.
108. The investment contracts between plaintiffs and defendants included not only
express written provisions, but also those terms and conditions which, although not formally
expressed, are implied by law and such implied terms are as binding as the terms that are actually
written into the contracts.
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109. One implied contractual term that is a part of every contract between plaintiffs
and defendants is the covenant of good faith and fair dealing.
110. The obligations of the defendants to abide by the covenant of good faith and fair
dealing is heightened by the substantial imbalance of knowledge as between plaintiffs and
defendants regarding the investment programs.
111. Defendants breached the covenant of good faith and fair dealing by failing to
disclose material facts including but not limited to the defendants' failure to possess a license to
sell securities in the State of New Jersey and the fact that individual defendants held positions
with business entities on both sides of the alleged investment transactions.
112. As a direct and proximate result of the defendants' breach of the covenant of good
faith and fair dealing, plaintiffs have sustained and continue to sustain losses.
NINTH COUNT (Breach of Fiduciary Duty and Duty of Loyalty)
I through 112 oftha Complaint with the same force and effect as ifset forth at length herein.
114. The corporate defendants and the individual defendants, as officers, directors,
employees, agents and/or controlling persons of the corporate defendants, owed a fiduciary duty
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and duty of loyalty to the plaintiffs as creditors of the corporate defendants and participants in
their investment programs.
115. The corporate defendants and individual defendants breached their fiduciary duty
and duty of loyalty to the plaintiffs by deteriorating their assets via mismanagement of funds,
unlicensed sale of securities, and otherwise failing to carry out their duties as corporate officers
and directors.
116. As a direct and proximate result of the defendants' breach of their J1duciary duty
and duty of loyalty to the plaintiffs, the plaintiffs have been and will continue to be damaged.
WHEREFORE, the plaintiffs respectfully request that the Court cnter judgment against
TENTH COUNT (Violations of New .Jersey CMI Racketeering Act, N.J.S.A. § 2C:41-1, ~ W
117. Plaintiffs repeat and incorporate each and evcry allegation set forth in
paragraphs I through 116 of the Complaint with the same force and effect as if set forth
at length herein.
118. Each defendant is a "person" within the meaning ofN.1.S.A. § 2C:41-1 b.
119. The association among each of the defendants constitutes an "enterprise"
within the meaning ofN.1.S.A. § 2C:41·1c engaged in the activities which affect trade or
commerce.
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120. The association among the defendants arises from the corporate relations
of the corporate defendants and the employment of the individual detendants as officers
of said entities.
121. Each detendant, in violation of N.J.S.A. § 2C:41-ld, participated in the
conduct of the enterprise's affairs through a pattern of racketeering activity including but
not limited to the following incidents of racketeering activity within the meaning of
NJ.S.A. § 2C:41-ld:
(a) In violation of N.J.SA § 49:3-52, each defendant engaged in
incidents of racketeering activity within the meaning of NJ.S.A. § 2C:41-la(1)(p)
consisting of fraud in the purchase of securities by making untrue statements of material
fact andJor omitting to state material facts necessary in order to make the statements that
were made, in light of the circumstances under which they were made, not misleading.
These false statements andlor omissions consist of those statements and omissions
referred to in Counts One through Nine of the within Complaint which are incorporated
with the same force and effect as i r set lorth at length herein.
(b) In violation of 18 U.S.C. § 1343, which constitutes a predicate act
under 18 U.S.C. § 1961(1)(A) and, therefore, a racketeering activity under N.J.SA §
2C:41" I (2), defendants, with the knowledge of each individual defendant, engaged in
wire fraud consisting of transmitting fraudulent statements andJor omissions of material
facts.
(c) Tn violation of 18 U.S.C. § 1341, which constitutes a predicate act
under 18 U.S.C. § 1961 (1 )(B) and, therefore, a racketeering activity under NJ.S.A. §
2C:41-1(2), defendants, with the knowledge of each individual defendant, engaged in
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mail fraud consisting of use of the United States Postal Service to transmit fraudulent
statements andlor omissions or material facts with specific intent to defl'aud the plainti frs.
122. The incidents of racketeering activity enumerated in Paragraph 121 hereof
constituted the conduct of the enterprise's affairs through a pattern of racketeering
activity.
123. The incidents of racketeering activity enumerated in Paragraph 121 hereof
had the common purpose of inducing the plaintiffs to commit funds into the defendants'
investment programs in violation ofN.J.S.A. § 2C:41-2c.
124. By the foregoing acts, all defendants violated ~~-'" § 2C:41,2c.
125. As a direct and proximate result of said violations ofNJ.S.A. § 2C:41-2c,
plaintiffs have been sustained damages and will continue to sustain damages.
(d) Such other and further relief as the Court deemsjusl and proper.
ELEVENTH COUNT (Civil Conspiracy)
126. Plaintiffs repeat and incorporate each and every allegation set forth in
paragraphs 1 through 125 of the Complaint with the same force and effect as if set forth
at length herein.
127. Defendants acted in concert as outlined above to violate the securities laws
of the United States and the State of New Jersey.
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128. Defendants agreed to participate in conduct that violated the aforesaid
securities laws, which violation inflicted a severe injury on plaintiffs.
129. Defendants made misrepresentations and/or omissions that constituted
overt acts that resulted in damage to the plaintitl's.
(d) Such other and further relieC as the Court deems just and proper.
TWELFTH COUNT (Piercing the Corporate Veil)
paragraphs I through 129 of tlle Complaint with the same force and effect as if set forth
at length herein,
131, Defendants created the business entities involved in the within litigation
for the purpose of perpetrating the IruuduJent activities described more fully above,
defeating the ends of justice and/or evading the law.
132. The individual defendants have maintained pervasive control over the
corporate defendants at all times relevant herein.
133. Defendants intermingled the activity of the business entities involved in
the within litigation with substantial disregard of the separate nature of the legal
corporate entity.
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134. Upon information and belief, the funds collected for investment purposes
by the defendants were commingled between (he business entities andlor commingled
with the personal assets of the individual del'endants.
135. As described more fully above, certain individual defendants were
simultaneously owners, directors, managers, employees, agents and/or controlling
persons of more than one of the corporate defendants at all times relevant herein.
136. Several of the corporate defendants shared telephone numbers, facsimile
numbers andlor ofilce addresses.
13 7. The corporate defendants purported to represent plaintiffs in connection
with the sale of investment holdings to third parties when, in fact, the defendants were
actually selling the investment holdings to each other.
138. By maintaining the appearance of separate business entities, the corporate
defendants persuaded plaintiff~ to invest substantial fW1ds into their investment programs.
139. As a direct and proximate result of defendants' activities, the plaintiffs
have sustained damages and will continue to sustain damages.
140. Accordingly, the corporate veil should be pierced in order to allow
plaintiffs to fully recover their damages.
(b) Pre-judgment and posH udgment Interest;
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THIRTEENTH COUNT (Violations of the New Jersey Consumer Fraud Act, N.J.S.A. §56:8-1, £t!!l!lJ
at length herein.
142. Plaintiffs are within the statutory definition of "consumers" contained in
the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, e( seq.
143. At all relevant times herein, defendants sought to defraud and deprive
plaintiffs of their contractual expectations and benefits in connection with the purchase of
bottles of wine and other goods though false pretense, misrepresentation, and other
practices prohibited by the New Jersey Consumer Fraud Act.
144. Defendants had no intention of completing the sales of large quantities of
bottles of wine to third parties on the plaint! frs' behal r as they had promised both verbally
and pursuant to cOntract.
145. Defendants failed to purchase the particular bottles of wine that had been
paid for by plaintiffs, which bottles of wine were necessary to complete the promised
sales to third parties on the plaintiffs' behalf.
146. By feigning agreement with plaintiffs and an intention to perform under
the contracts for the sale of wine, defendant~ engaged in fraud and deception, made
affirmative misrepresentations of present and future intent, made false promises, and/or
engaged in unconscionable commercial practices, in violation ofNJ.S.A. 56:8-1, et seq ..
147. The defendants' subsequent conduct likewise misrepresented the facts to
plaintiffs and misled plaintiffs in violation of the New Jersey Consumer Fraud Act.
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FOURTEENTH COUNT (Negligence)
at length herein.
149. Defendants owed a duty to the plaintiffs to exercise reasonahle care in the
handling of investment transactions and transactions in the sale of goods to third parties
on thc plaintiffs' behalf.
150. Defendants breached their duty to the plaintilTs by failing to exercise
reasonable Care in their handling of the aforesaid transactions, including but not limited to
negligent selection of buyers and business partners, failure to perform due diligence in
connection with (he investments that defendants promoted and sold, and failure to
complete transactions within the time and in the manner agreed upon by (he parties.
151. As a direct and proximate result of defendants' breach of the aforesaid
duty to the plaintiffs, the plaintiffs have sustained damages, are presently sustaining
damages and will continue to sustain damages.
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(d) Such other and further relier as the Court deems just and proper.
FIFTEENTH COUNT (Injunctive Rclief)
152, Plaintiffs repeat and incorporate each and every allegation set forth in
paragraphs I through 151 of the Complaint with the same force and efTect as if set forth
at length herein.
153. Defendants have represented to plaintiffs without providing any proof th,,'tt
they are holding large quantities of goods on the plaintiffs' behalf, for which the plaintiffs
have paid to defendants large sums of money, in long-term storage facilities overseas.
154. The individual defendants wrongfully exploited and misused their
positions with the corporate defendants by grossly mismanaging the corporate funds and
assets and otherwise violating their fiduciary duties to plaintiff creditors.
155, As creditors, plaintiffs can establish that (he business of the corporate
defendants is being conducted at a great loss and with substantial prejudice to the
interests of its creditors.
156. The defendants' assets are being dissipated at a rapid rate as a result of
their fraudulent activities, thereby jeopardizing the defendants' abilities to satisfy their
outstanding obligations to the plaintiffs.
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157. Plaintiffs have sutTered, continue to suffer and shall suffer irreparable
harm if the defendants arc pemlitted to continue to manage the funds invested by
plaintiffs into their investment programs without providing a full accounting thereof.
158. Accordingly, plaintiffs are entitled to injunctive relief, including a full
accounting of all derendants' assets, liabilities, expenditures, investments, gains and
losses so that a judicial detel1l1ination can be made as to whether a receiver should be
appointed as to any and all defendants.
WHEREFORE, the plaintiffs respectfully request that the COI!!t enter judgment against
the defendants:
(a) Ordering defendants, their officers, directors, agents, servants, employees,
successors, assigns, any third parties acting on their behalf, and all individuals and entities in
active concert or participation with them to provide plaintiffs with a full accounting of all assets,
liabilities, expenditures, investments, gains and losses from January I, 1996 through the present
and immediate and continuing access to the defendants' books and records and those of any
other entity affiliated with or owned or controlled by defendants, including their officers,
directors, agents, servants, employees, successors, assigns, any third parties acting on their behalf
and all individuals and entities in active concert or participation with them;
(b) Restraining, enjoining, and/or preventing defendants their officers, directors,
agents, servants, employees, successors, assigns, and any third parties acting on their behalf from
taking any further action that could exacerbate certain corporate defendants' deepening financial
problems and irom expending any funds other than such funds that have been pre-approved for
expenditure by the Court pending a full and final resolution of this matter; and
(c) Such other and further relief as the Court deems just and proper.
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JURY DEMAND
Plaintiffs hereby demand a trial by jury on all issues.
Dated: November 1'3, 2004
McELROY, DEUTSCH, MULVANEY & CARPENTER, LLP, Attorneys for Plaintiffs, JaM O. Pitman and Susan Pitman
By: ~~.~ Shannon M. Engelman (7680)
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Case 04-cv-05736 - John G. Pitman et al v. Seed ...

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