Opinion
Index No. 158183-2022 MOT. SEQ. No. 002
01-11-2024
Atlas Aeon Electric Service Corp. v. Sabitri Laforest, et. al.
Unpublished Opinion
PRESENT: HON.LYNN R. KOTLER, J.S.C.
Lynn R. Kotler Judge:
The following papers were read on this motion to/for default judgment
Notice of Motion/Petition/O.S.C. - Affidavits - Exhibits NYSCEF DOC No(s). 34-56
Notice of Cross-Motion/Answering Affidavits - Exhibits NYSCEF DOC No(s).__
Replying Affidavits NYSCEF DOC No(s).__
This action arises from an alleged fraud perpetrated against the plaintiff, Atlas Aeon Electric Service Corp., ("Atlas") by its former employee and controller, Sabitri Laforest ("Sabitri"). Atlas accuses Sabitri of directing significant payments, without authorization, from Aeon's bank account to a credit card company to pay off unauthorized credit card accounts owned by the defendants, Sabitri, Tatiana Laforest ("Tatiana") and Garry Laforest ("Garry"). Additionally, Acon accuses Sabitri of fraudulently and falsely recording these money transfers in the cash disbursements journal under fake invoice numbers and assigning the payments to actual ongoing customer jobs that the plaintiff was performing. Plaintiff claims that Tatiana, Garry and defendant Sanjay Laforest ("Sanjay") were all aware of the fraud that Sabitri was perpetrating and acted in concert with her.
Plaintiff now moves for an order pursuant to CPLR § 3215 granting it a default judgment against defendants Sabitri, Tatiana, Garry and Sanjay (collectively the "defendants") and damages in the amount of $11,381,493.27 for restitution of the unauthorized transfers.
In a prior order, dated June 22, 2023, this court permitted a renewal of the motion for default judgment within ninety days. Plaintiff filed this motion on September 18, 2022. Therefore, the motion was renewed within the ninety days provided by the court. Plaintiff has successfully submitted proof of service of notice of the motion on the defendants via FedEx tracked shipping. Therefore, the motion is considered on default.
Atlas has provided proof of service of the summons and complaint upon both Garry and Sabitri via personal service to a "Lucy Doe," a person of suitable age and discretion at Garry and Sabitri's last known home address of 221-14 101st Avenue, Queens, New York and by mailing of the summons and complaint to the same address. (CPLR § 308[2]). Atlas has provided proof that the summons and complaint were served upon Tatiana via personal service on "Jane Doe," a person of suitable age and discretion at Tatiana's last known home address of 11715 222nd Street, Cambria Heights, Queens, New York and by mailing of the summons and complaint to the same address. (CPLR § 308[2]). Atlas has provided proof of service of the summons and complaint upon Sanjay by personally serving the documents upon him at his home address of 505 West 37th Street, Apartment 2205, New York, New York (CPLR § 308(1 ]). Despite such service, none of the defendants have answered the complaint and their time to do so has not been extended by the court. Therefore, Atlas has established that the defendants have defaulted in appearing in this action.
While a default in answering the complaint constitutes an admission of the factual allegations therein, and the reasonable inferences which may be made therefrom (Rokina Optical Co., Inc. v. Camera King, Inc., 63 N.Y.2d 728 [1984]), plaintiff is entitled to default judgment in its favor, provided it otherwise demonstrates that it has a prima facie cause of action (Gagen v. Kipany Productions Ltd., 289 A.D.2d 844 [3d Dept 2001]). An application for a default judgment must be supported by either an affidavit of facts made by one with personal knowledge of the facts surrounding the claim (Zelnick v. Biderman Industries U.S.A., Inc., 242 A.D.2d 227 [1st Dept 1997]; and CPLR § 3215[f]) or a complaint verified by a person with actual knowledge of the facts surrounding the claim (Hazim v. Winter, 234 A.D.2d 422 [2d Dept 1996]; and CPLR § 105 [u]).
Atlas' motion is supported by the affidavit of William Kremer, the President of Atlas. In the affidavit, Kremer states, based upon personal knowledge, the following. On or about the year 1986, Atlas hired Sabitri as an employee. Sabitri is the wife of Garry and mother of Tatiana and Sanjay. On or around 1992, Atlas promoted Sabitri to the position of controller. As controller, Sabitri was responsible for Atlas' finances and bookkeeping including payroll, accounting, accounts payable and receivable. By virtue of her position, Sabitri had access to Atlas' bank accounts and had the ability and authority to make payments towards business expenses for the company. She also had access to Atlas' various credit card accounts ("Atlas cards") that were used for related expenses.
Kremer states that on or about September 24, 2020, Atlas received an alert from the security department of a global financial services company that offers and maintains credit card accounts (the "credit card company"). The credit card company advised Atlas that it noticed suspicious transactions on the Atlas cards in which substantial sums of money where being moved from Atlas' business account to certain unknown credit card accounts over a prolonged period. After receiving this notice, Atlas conducted a review of its bank statements for its business operating account and compared it to expenditures made on its credit cards to identify the existence and scope of any unauthorized payments. Kremer asserts that this investigation demonstrated that a substantial amount of funds was directed, without authorization, from the business operating account to pay for charges incurred on unknown credit cards that were not authorized by Atlas. It was also revealed that these unauthorized payments had been made by, or at the direction of, Sabitri.
Kremer next alleges that on October 7, 2020, Atlas terminated Sabitri from her employment for "her involvement in this scheme." After her termination, Atlas conducted a full audit of payments by comparing bank account statements to account statements from the credit card company of monthly charges due and owing on accounts owned by Atlas and its shareholders. This audit spanned from December 2011 to September 2020 and examined four separate accounts that Atlas held with the credit card company.
The audit and investigation also demonstrated that the unknown credit cards that were being paid off with Atlas funds were owned and controlled by Tatiana and Sabitri and were utilized by all defendants. Kremer asserts that Tatiana opened at least one of the credit cards accounts that received funds from the Atlas business operating account (the "Laforest account") in or around 2006 and added Sabitri as a secondary cardholder to the account in or around November 2007. Garry was also added as a secondary cardholder to Laforest account in or around 2013. Sabitri and Tatiana would secure the transfer of funds to Laforest account by directly calling the credit card company, accessing the credit card company's websites, or using the mobile app. Sabitri conducted many of these transfers while at work for Atlas through her office computer. Kremer states that the defendants used the transferred funds to charge personal expenses including purchases of clothing, electronics, luxury goods, travel, rent and home improvements, and to make purchases from the restaurants that they owned. They also used the funds to obtain cash withdrawals from ATMs, and to create investment accounts with an online brokerage company. These fund transfers occurred during the period of at least December 2011 through and until 2020.
To hide the transactions, Sabitri would create a fictitious entity in the Atlas Purchase Expense Distribution Journal ("Expense Journal") and would create an invoice to an actual vendor or subcontractor. Kremer claims that these entries would be assigned an invoice number which Sabitri would allocate to an actual ongoing customer job being performed by Atlas, creating a debt on the accounting books. Sabitri then recorded these false invoices in the Atlas Cash Disbursements Journal (the "Register") and would assign each Register entry an actual check number. An actual check would be written for the fake expenses but would never be tendered for payment. Sabitri would then reassign each entry in the Expense Journal to an old and/or closed job to avoid the appearance that a current job was unprofitable in order to avoid potentially raising suspicion. Kremer alleges that the money from these checks that were never tendered was actually transferred in lump sums to the Laforest account. Between 2011 and 2020, Sabitri transferred $17,550,570.98 to the from Atlas' business account to the Laforest account through this scheme.
On or about April 26, 2021, a grand jury sitting in the U.S. District Court for the Southern District of New York (USSDNY) returned an indictment charging the defendants with Conspiracy to Commit Wire Fraud in violation of 18 U.S.C. 1349; Wire Fraud in violation of 18 U.S.C. 1343; and Conspiracy to Commit Money Laundering in violation of 18 U.S.C. 1956(h). On or about February 7, 2023, Sabitri and Garry pled guilty to count 2 of the indictment charging wire fraud. On or about February 21, 2023, Tatiana and Sanjay pled guilty to count 2 of the indictment charging wire fraud. As part of the fraud recovery process, Atlas recovered $6,169,077.71 from defendants as follows: a payment of $714,630.73 from Valley National Bank on October 9, 2020; a payment of $5,254,446.98 from Valley National Bank on December 22, 2020; and a payment of $200,000 from Utica Insurance on November 30, 2021.
Atlas has submitted a schedule of all payments made from the Atlas business expenses account to the Laforest account between 2011-2020. Atlas has also submitted a copy of the grand jury indictment from the USSDNY, and the plea forms of all defendants from that case. Finally, Atlas submits a schedule of the amounts recovered during the fraud recovery process.
Atlas asserts five causes of action against the defendants in this case. The first cause of action is for conversion against all defendants. The second cause of action is for fraud and is asserted against Sabitri. The third cause of action is for civil conspiracy and is asserted against all defendants. The fourth cause of action is for breach of fiduciary duty and duty of loyalty and is also asserted against Sabitri. The fifth cause of action is for aiding and abetting fraud, breach of fiduciary duty and duty of loyalty and is asserted against Garry, Tatiana and Sanjay.
A "conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession" (Abacus Fed. Sav. Bank v. Lim, 75 A.D.3d 472 [1st Dept 2010]; quoting Colavito v. New York Organ Donor Network, Inc., 8 N.Y.3d 43 [2006]). In order to make out a prima facie cause of action for fraud, plaintiff must demonstrate that: 1) there was a material misrepresentation of fact; 2) with knowledge of its falsity; 3) and intent to induce reliance; 4) that there was justifiable reliance by plaintiff; and 5) that there are damages as a result of the reliance (Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553 [2009]).
Based upon the above, Atlas has demonstrated that Sabitri materially misrepresented facts in both the Expense Journal and the Register by creating phony invoices and fake Registry entries and by cutting checks that were never actually tendered for payments. Atlas has demonstrated that Sabitri did this purposefully and with the intention of inducing reliance on these false representations. Atlas relied on these false representations justifiably because Sabitri was the controller for the corporation and thus part of her job duties were to keep true and full records of the Expense Journal and the Register, to write checks to satisfy the corporations' expenses, and to ensure that the books were balanced. As a result of the reliance, Atlas was damaged in the amount of $17,550,570.98 that Sabitri transferred to personal accounts. Therefore, Atlas has made out a prima facie cause of action for fraud as against Sabitri.
Atlas has also demonstrated a prima facie case for conversion as against Garry, Tatiana and Sanjay through the affidavit of Kremer and the guilty pleas of these defendants. Collateral estoppel precludes parties from relitigating an issue which has previously been decided against them in which they had a fair opportunity to fully litigate the point (Liddle, Robinson & Shoemaker v. Shoemaker, 309 A.D.2d 688 [1st Dept 2003]). When defendant have entered a guilty plea in a criminal case, collateral estoppel may apply in a civil arising from the same incident (National Bank of Pakistan v. Basham, 148 A.D.2d 399 [1st Dept 1989]). Here, the guilty pleas of Garry, Tatiana and Sanjay that Atlas submitted demonstrate that all three pled guilty to violating 18 USC §1343. This section of the USC states that:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.
In his affidavit Kremer asserts that Tatiana opened the Laforest account, and that Garry was added as secondary cardholders. He also asserts that Tatiana, Garry and Sanjay spent the money on personal expenses, thereby exercising control over the money that was the personal property belonging to Atlas. He claims that all the transactions from the Atlas business expenses account to the Laforest account were unauthorized. The guilty pleas of Garry, Tatiana and Sanjay to 18 USC § 1343 demonstrate the necessary intent because through the pleas they admitted to devising the scheme to defraud. Therefore, Atlas has made out a prima facie cause of action for conversion as to Garry, Tatiana and Sanjay.
In light of this result, the motion is denied as to the third, fourth and fifth causes of action for civil conspiracy, breach of fiduciary duty and duty of loyalty and aiding and abetting since the relief sought on these claims is duplicative of the relief already granted herein. Accordingly, the third, fourth and fifth causes of action are severed and dismissed.
Atlas has also demonstrated through the affidavit of Kremer and the schedules of Sabitri's unauthorized transfers that the defendants transferred a total of $17,550,570.98 between the years of 2011 to 2020. Kremer's affidavit and the schedule of the fraud recovery process demonstrates that Atlas has already recovered $6,169,077.71. Therefore, to be made fully whole, Atlas has demonstrated that it is entitled to $11,381,493.27.
In accordance herewith, it is hereby
ORDERED that the motion is granted on the first and second causes of action; and it is further
ORDERED that the Clerk is directed to enter a money judgment in favor of plaintiff Atlas Acon Electric Service Corp and against defendants Sabitri Laforest, Garry Laforest, Tatiana Laforest a/k/a Tatiana Mays and Sanjay Laforest, joint and severally, for $11,381,493.27; and it is further
ORDERED that the balance of the motion is denied as duplicative and the third, fourth and fifth causes of action are severed and dismissed.
Any requested relief not expressly addressed herein has nonetheless been considered and is hereby expressly denied and this constitutes the Decision and Order of the court.