Justice Eileen Bransten dealt a partial setback to named beneficiaries of two long-term investment accounts swept up in an alleged scam by a now-defunct investment firm by dismissing claims against the firm’s co-founders and then-legal counsel.
The $4.5 million lawsuit, Steven Goldin v. TAG Virgin Islands, 651021/2013, centers on the administration of two accounts—the Bernice Goldin IRA and the Paul Goldin marital trust—by TAG Virgin Islands. The Goldins’ children, Steven Goldin and Rochelle Goldin, are the co-executors and co-trustees of the accounts.
They sued TAG, co-founders James Tagliaferri and Patricia Cornell in their individual capacity and TAG’s legal counsel Barry Feiner, among others, alleging they unlawfully invested their family’s funds into struggling private companies and unsecured loans that had ties to a family led by John Peter Galanis, who was convicted in the late 1980s for orchestrating a $400 million Ponzi scheme.
The complaint states that TAG was supposed to “invest conservatively for moderate growth while maintaining principal” of the Goldin accounts. The complaint further states that Tagliaferri and Cornell “exercised complete dominion over TAG,” including the Goldin accounts, and “used those powers to perpetuate the fraud” that caused an alleged $4.5 million in damages.
The plaintiffs say the scheme began in mid-2007 when TAG began liquidating the more conservative investments and transferring these funds to “struggling” companies specializing in private horse-racing, technology and business intelligence. This scheme was achieved, the plaintiffs allege, through the design of convertible note instruments drafted by Feiner—former attorney to Galanis.
The complaint alleges that the notes were drafted in such a way to prevent recovery for the plaintiffs and that the only parties who benefitted were TAG and the account managers who earned 5 percent commissions on the notes without disclosing this fact.
In Feb. 2012, Tagliaferri was charged by The Securities and Exchange Commission and criminally indicted by the U.S. Attorney’s Office for the Southern District of New York for allegedly defrauding clients through his St. Thomas-based investment advisory firm.
He is representing himself pro se in this civil matter in state court.
According to the Goldin plaintiffs’ attorney Barry Lax of the boutique litigation firm Lax & Neville, the Goldin family was among the victims of the alleged fraud scheme run through TAG Virgin Islands.
“Tagliaferri was clearly our [clients’] fiduciary and always invested in very suitable, conservative instruments,” Lax said. “All of a sudden, he went off the reservation.”
The Goldins’ complaint includes claims of fraud, breach of contract and alter ego against Tagliaferri and Cornell individually and claims of legal malpractice, aiding and abetting breach of fiduciary duty, unjust enrichment and fraud against Feiner.
These three parties moved to dismiss the action.
In a May 20 decision, Bransten dismissed all claims against attorney Feiner and the individual TAG defendants, but granted the plaintiffs leave to amend their complaint.
Bransten held that the legal malpractice claim against Feiner could not survive for two reasons: First, it was untimely because the first-filed complaint fell outside the three-year statute of limitations. Second, there was no direct attorney-client relationship between Feiner and the plaintiffs.
Although the Goldins alleged that Feiner should be held liable for malpractice since he presumably was representing their interests when drafting the notes, Bransten disagreed, saying the circumstances did not give rise to a duty to the plaintiffs by the attorney, citing the 2011 First Department decision, Fortress Credit Corp. v. Dechert, 89 A.D.3d 615, 616-17.
“To hold otherwise potentially would render any transactional attorney liable for legal malpractice to all parties to a contract that he or she drafted where the contract somehow inured to the other parties’ benefit,” she stated.
Bransten also dismissed the claims against Tagliaferri and Cornell individually, saying that the complaint included only “conclusory statements” as to their involvement in the scheme and did not establish a factual predicate for claims for piercing the corporate veil.
Stating the complaint is “replete with non-particularized assertions” against these fund managers, the judge wrote, “plaintiffs even fail to allege facts of which they themselves should have knowledge.”
Nevertheless, Bransten allowed the Goldin plaintiffs leave to replead claims against Tagliaferri and Cornell.
In March 2012, TAG Virgin Islands filed for Chapter 7 bankruptcy, according to the complaint. The action is pending before the U.S. Bankruptcy Court, District of The Virgin Islands.
Cornell was formerly represented by Whiteman Osterman & Hanna, but the firm late last year moved to withdraw as counsel, citing a “substantial unpaid balance for attorneys’ fees.”
Lax, the Goldins’ counsel, told CLI that his firm intends to file an amended complaint although it finds issue with the outcome of this latest decision.
“We disagree with [Bransten’s] ruling and we are contemplating appealing the decision on the grounds that we believe we met the pleading standards and that there was no statute of limitations concerning our claims against Mr. Feiner,” he said.