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ADENA, INC. v. COHN

March 30, 2001

ADENA, INC. AND DAVID M. LONG JR., M.D., PH.D., AND DONNA RAE LONG AND CAROLYN RAE LONG,
V.
CLIFFORD B. COHN, ESQUIRE AND COHN & ASSOCIATES AND PHILIPPE MALECKI.



The opinion of the court was delivered by: Kelly, District Judge.

  MEMORANDUM AND ORDER

Presently before the Court is the Motion by Defendants Clifford B. Cohn, Esquire and Cohn & Associates ("the Cohn Defendants"): (1) to Dismiss the Complaint of the Plaintiffs, Adena, Inc. ("Adena") and David, Donna and Carolyn Long ("the Longs") pursuant to Federal Rule of Civil Procedure 12(b)(6); (2) in the alternative, for Summary Judgment pursuant to Federal Rule of Civil Procedure 56(c); and (3) in the alternative, for a Stay Pending Arbitration before the Fee Disputes Committee of the Philadelphia Bar Association.*fn1 On June 15, 2000, the Plaintiffs filed suit in federal court, alleging various violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962(b)(c)(d), breach of fiduciary duty, malpractice and civil conspiracy.*fn2 On September 7, 2000, the Cohn Defendants filed the present motion. For the following reasons, the motion is denied.

I. BACKGROUND

Accepting as true the facts alleged in the Plaintiffs' Complaint and all reasonable inferences that can be drawn therefrom, the facts of the case are as follows. Sometime after his marriage to Plaintiff Carolyn Long, Defendant Philippe Malecki ("Malecki") proposed the idea of funding the establishment of a Hermes store in the Philadelphia area to his in-laws, Plaintiffs David and Donna Long. They agreed and underwrote the establishment of Adena, the corporation that would own and control the store. From Adena's inception until December 3, 1998, Malecki owned 660 of the 1000 shares, and the Longs owned the remaining 340 shares. In addition to being Adena's majority shareholder, Malecki also acted as Adena's sole director, president, secretary and treasurer.

From May 1997 to May 1998, Malecki drew fourteen checks on Adena's account to pay for office rent and for his separate satellite dish decal business, which he owned and operated for his own personal pecuniary gain. Malecki claimed that these checks were for secretarial services for Adena. In 1997 Malecki drew another check on Adena's account to pay for a mass mailing conducted on behalf of his business. This check was justified as Adena postage expenses. Similarly, Malecki issued six more checks for mass mailings, this time claiming that they were for sales promotions for Adena. From June 1997 to May 1998, Malecki also made eight wire transmissions from Adena's credit accounts to pay for patent applications on behalf of his business.

In addition, Malecki used Adena's store facilities and personnel to further his satellite dish decal business. On approximately six occasions in 1997 and 1998, Malecki used cash proceeds from Adena, totaling $600, to pay delivery bills on behalf of his personal business. In September of 1997, Malecki wrote a check on Adena's account payable in the amount of $10,000 to an Adena employee who deposited the check in her personal account and periodically withdrew the money, giving the cash to Malecki; Malecki represented to auditors that this money had been repaid to Adena. Malecki exceeded his agreed upon salary by $29,102.70 in 1998. Malecki used Adena's credit accounts to make personal expenditures unrelated to Adena totaling $33,842.35 in 1996, $56,921.90 in 1997 and $23,560.37 in 1998. He at no time disclosed that they were unrelated to the corporation. During those three years, Malecki used the United States Mail to make payments relating to those expenditures.

In 1997, Malecki initiated divorce proceedings against Carolyn Long. He engaged the services of an attorney to represent him in the matter and used Adena's assets to pay the attorney. Also in 1997, the United States Immigration and Naturalization Service initiated deportation services against Malecki, a citizen of France. He hired another attorney to represent him in that matter and issued six checks, drawn on Adena's account and deposited in the United States Mail, to pay that attorney. Malecki recorded the checks as being for legal and accounting fees.

In September of 1997, Malecki entered into an agreement with the Cohn Defendants whereby the law firm would represent both Malecki and Adena. Consent to such joint representation was neither sought from, nor given by, the minority shareholders. In addition, at no time were the terms of the joint representation or the billing arrangement disclosed to the minority shareholders. The Cohn Defendants performed legal services for the personal benefit of Malecki, including representing him in his deportation proceedings, his divorce and the transfer of Malecki's Adena stock to Plaintiffs David and Donna Long. The Cohn Defendants billed, and received payment from, Adena for these services.

In August of 1997, David and Donna Long made repeated demands on Malecki and the Cohn Defendants for access to Adena's books and financial records. These demands were denied. David and Donna Long filed a Verified Complaint in Equity in the Court of Common Pleas of Montgomery County, Pennsylvania seeking access to the financial records. From that time until December 3, 1998, the Cohn Defendants purported to represent Adena in that action. The equity action was eventually discontinued on December 22, 1998, as a result of Malecki's transferring his controlling shares to Plaintiffs David and Donna Long and resigning from his corporate offices on December 3rd. That was the first time that the minority shareholders obtained partial books and records of Adena.

In 1998, Malecki drew three checks on Adena's account, totaling over $27,000, and deposited them in the United States Mail, payable to the Cohn Defendants. Also in 1998, the Cohn Defendants billed Adena on five separate occasions, through the United States Mail, for legal services rendered to the corporation. These checks and bills, while purporting to be for the legal representation of the firm, were for services rendered personally to Malecki.

In the fall of 1998, Hermes stopped delivery to Adena for Malecki's failure to pay $201,965.17. The Cohn Defendants and Malecki negotiated with the minority shareholders to have them pay that money to Hermes. In exchange for that payment and for a loan to Adena totaling almost $152,000, the Cohn Defendants and Malecki agreed to transfer Malecki's Adena stock to David and Donna Long. The Cohn Defendants and Malecki prepared the Stock Transfer Agreement and attached various financial documents setting forth the financial condition of Adena, which they warranted to be complete and accurate. Those documents, however, concealed or omitted more than $220,000 in expenditures from Adena's accounts which were for Malecki's personal or business use.

Deloitte and Touche, at the direction of Adena's new counsel, conducted an internal corporate investigation. Malecki threatened an Adena employee with arrest and criminal prosecution if she complied with the investigation. During the course of the investigation, Malecki's previously discussed activities were discovered.

The Plaintiffs sued Malecki and the Cohn Defendants, claiming RICO violations, breach of fiduciary duty and civil conspiracy. In addition, they sued the Cohn Defendants ...


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