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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 1 of 24

Civil Action No. 12-cv-08551 (LLS)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

CORNWALL MANAGEMENT LTD and OLEG
SOLOVIEV a/k/a OLEG VALENTINOVICH
SOLOVIEV

Plaintiffs,

V.

THOR UNITED CORP. a/k/a THOR UNITED
CORPORATION, JOHN DOE THOR ENTITIES,
ATLANT CAPITAL HOLDINGS, LLC, OLEG
BATRACHENKO a/k/a OLEG
BATRATCHENKO a/k/a O.V.
BATRACHENKOV, PETER KAMBOLIN
NORTH 3RD DEVELOPMENT, LLC and
ABRAHAM BENNUN,

Defendants.

MEMORANDUM OF LAW OF DEFENDANTS ATLANT CAPITAL HOLDINGS, LLC

AND PETER KAMBOLIN IN SUPPORT OF THEIR MOTION TO DISMISS

TANNENBAUM HELPERN
SYRACUSE & HIRSCHTRITT LLP
900 Third Avenue
New York, New York I 0022
(212) 508-6700 (phone)
(212) 371-1084 (fax)

Attorneys for Defendants
At/ant Capital Holdings, LLC
and Peter Kambolin

Of Counsel: Paul D. Sarkozi

Zev F. Raben

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 2 of 24

TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................................................ .i

TABLE OF AUTHORITIES .......................................................................................................... ii

PRELIMINARY STATEMENT ..................................................................................................... !

STATEMENT OF FACTS .............................................................................................................. 5

ARGUMENT ................................................................................................................................. lO

I.

II.

III.

IV.

THIS COURT LACKS SUBJECT MATTER JURISDICTION ...................................... 10

LEGAL STANDARD FOR MOTION TO DISMISS UNDER 12(B)(6) ......................... 11

PLAINTIFFS' FRAUD CLAIM MUST BE DISMISSED AS A MATTER OF LAW
AGAINST ATLANT AND KAMBOLIN BECAUSE PLAINTIFFS DO NOT AND
CANNOT PLEAD REASONABLE RELIANCE ............................................................ 12

PLAINTIFFS CANNOT PLEAD ANY DAMAGES IN CONNECTION WITH THE
2010 ARRANGEMENT AND THEREFORE THE FRAUD CLAIM MUST BE
DISMISSED AS A MATTER OF LAW AGAINST ATLANT AND KAMBOLIN ........ 13

V.

PLAINTIFFS' ALTER EGO LIABILITY CLAIM FAILS AS A MATTER OF LAW
AS AGAINST DEFENDANT KAMBOLIN AND ATLANT ......................................... 15

A.

B.

. C.

The Complaint Fails to Plead a Plausible Basis for Kambolin to be the Alter Ego
of Thor USA ................................................................................................................ 17

The Complaint Fails to Plead a Plausible Basis for Kambolin to be Held As The
Alter Ego of North 3rd ................................................................................................. l8

The Complaint Fails to Plead a Plausible Basis fofKal1lbolih to be the Alter Ego
of Atlant ....................................................................................................................... l8

CONCLUSION ............................................................................................................................. 20

1

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 3 of 24

TABLE OF AUTHORITIES

Cases
904 Tower Apt. LLC v. Mark Hotel LLC, 853 F. Supp. 2d 386 (S.D.N.Y. 2012) ................... 11, 12

Ashcroft v. Iqbal, 556 US 662 (2009) ...................................................................................... 11, 18

Bell Atl. Corp. v. Twombly, 550 US 544 (2007) ............................................................................ 12

Capmark Fin. Group Inc. v. Goldman Sachs Credit Partners LP,

No. II Civ. 7511 (RWS) 2013 US Dist. LEXIS 50992 (S.D.N.Y. Apr. 9, 2013) .................... 15

Citibank, NA. v. K-H Corp., 968 F.2d 1489 (22 Cir. 1992) ......................................................... 14

Cresswell v. Sullivan & Cromwell, 922 F.2d 60 (2d Cir. 1990) .............................................. 10, II

Cumb. Oil Corp. v. Thropp, 791 F.2d 1037 (2d Cir. 1986) ........................................................... 14

Damianos Realty Group, LLC v. Fracchia, 35 A.D.3d 344 (N.Y. App. Div. 2006) .................... 20

DirecTV Latin Am., LLC v. Park 6i 0, LLC, 691 F. Supp. 2d 405 (S.D.N.Y. 201 0) ..................... 16

DynCorp v. GTE Corp., 215 F. Supp. 2d 308 (S.D.N.Y. 2002) .................................................... 13

ESPN, inc. v. Quiksilver, inc., 586 F. Supp. 2d 219 (S.D.N.Y. 2008) .......................................... 12

Eurycleia Partners, LP v. Seward & Kissel, L.L.P., 12 N.Y.3d 553 (N.Y. 2009) ........................ 12

Gant v. Wallingford Ed of Educ., 69 F.3d 669 (2d Cir. 1995) ..................................................... 13

Goulds bury v. Dan's Supreme Supermarket, Inc. 154 A.D.2d 509 (N.Y. App. Div. 1989) ......... 14

Harsco Corp. v. Segui, 91 F. 3d 337 (2d Cir. 1996) ....................................................................... 13

In re Euginia VI Venture Holdings, Ltd Litigation, 649 F. Supp. 2d I 05 (S.D.N.Y. 2008) ......... 13

Jiaxing Hongyu Knitting Co., Ltd v. Allison Morgan LLC,

No. 11 Civ. 9342 (AJN) 2013 US Dist. LEXIS 2852 (S.D.N.Y. Jan. 8, 2013) ........................ 19

Kiobel v. Royal Dutch Petrol. Co., 621 F.3d 111 (2d Cir. 2010) .................................................. 16

Kregos v. Associated Press, 3 F.3d 656 (2d Cir. 1993) ........................................................... 13, 14

Morris v. State Dept. a/Taxation & Fin., 82 N.Y.2d 135 (N.Y. 1993) ........................................ 16

Nat!. Artists Mgmt. Co. v. Weaving, 769 F. Supp. 1224 (S.D.N.Y. 1991) .................................... 11

Ningbo Prods. Imp. & Exp. Co. v. Eliau, No. 11 Civ. 650 (PKC),

2011 U.S.Dist.LEXIS 125789(S.D.N.Y.Oct.31,2011) ................................ 16, 17, 18,19,20

11

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 4 of 24

Rescuecom Corp. v. Google, Inc., 562 F.3d 123 (2d Cir. 2009) ............................................. 11, 12

Smith v. Carter, 545 F.2d 909 (5th Cir. 1977) ............................................................................... 11

Societe d' Assurance de ['Est SPRL v. Citigroup, Inc.,

No. 10 Civ. 4754 (JGK), 2011 US Dist. LEXIS 103375 (S.D.N.Y. Sep. 13, 2011) ................. 15

State Emples. Bargaining Agent Coal. v. Rowland, 494 F.3d 71 (2d Cir. 2007) .......................... 1 0

William Wrigley Jr. Co. v. Waters, 890 F.2d 594 (2d Cir. 1989) .................................................. 16

Wm. Passalacqua Builders v. Resnick Developers S., 933 F.2d 131 (2d Cir. 1991) ..................... 17

Statutes
28 u.s.c. § 1332 ..................................................................................................................... 1 0, 11

7 U.S.C. § 25 ................................................................................................................................. 10

Federal Rules of Civil Procedure, Rule 12(b)(1) ................................................................. 1, 10,20

Federal Rules of Civil Procedure, Rule 12(b)(6) ............................................................. 1, 5, 11,20

Federal Rules of Civil Procedure, Rule 9(b) ....................................................................... 1, 16,20

Ill

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 5 of 24

Defendants Atlant Capital Holdings, LLC ("Atlant") and Peter Kambolin ("Kambolin"),

by their attorneys, Tannenbaum Helpern Syracuse & Hirschtritt LLP, submit this memorandum

of law in support of their motion to dismiss the Amended Complaint ("Complaint") filed by

Cornwall Management Ltd. ("Cornwall") and Oleg Soloviev a/k/a Oleg Valentinovich Soloviev,

("Soloviev" and collectively, "Plaintiffs") pursuant to Fed. R. Civ. P. 9(b), 12(b)(1) and 12(b)(6).

PRELIMINARY STATEMENT

This action represents the third concurrent action in this Courthouse in which the

Plaintiffs are seeking redress on account of loans that they allegedly made to Thor United Corp.

("Thor USA") in connection with a plan to develop certain property in the Williamsburg

neighborhood of Brooklyn. The first two actions- Soloviev v. Thor United Corp., 12-cv-8236

(JMF) and Cornwall Management Ltd. v. Thor United Corp., 12-cv-8237 (LTS)- are actions to

domesticate and enforce Russian judgments already obtained against Thor USA for the full

amount of the unpaid loans- plus interest. Apparently frustrated that the loans remain unpaid,

Plaintiffs are lashing out at any individual or entity that appeared to have any connection to the

development and Thor USA, and have cobbled together purported fraud and alter ego theories to

attempt to ensnare them in costly litigation.

Plaintiffs' Complaint, however, lacks any basis to proceed against defendants Atlant and

Kambolin- both procedurally and substantively- and should, therefore, be dismissed. First and

foremost, Plaintiffs' Complaint may not proceed because this Court lacks subject matter

jurisdiction over this action. Although the Complaint purports to allege alienage jurisdiction on

the basis of the diversity between the foreign Plaintiffs and the American defendants, Plaintiffs'

own submissions to this Court undermine this claim. For example, while Plaintiffs allege

defendant Oleg Batrachenko is an American citizen who resides in New Jersey, the April 19,

2012 Russian Court decision attached as Exhibit 6 to the Complaint, notably dated prior to the

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 6 of 24

commencement of this action, states that Batrachenko "resides in the jurisdiction of Khamovniki

district court of Moscow." Moreover, in another document Plaintiffs have filed in this action,

Plaintiffs effectively admit that Batrachenko has maintained his Russian residency- noting that

the only place Batrachenko has been seen since the April19, 2012 Russian judgment has been in

Moscow. (Dkt. 24.) Finally, as Peter Kambolin attests, Batrachenko is also a Russian citizen

and has been domiciled in Russia since 2005. Based on this record, alienage jurisdiction is not

present and the case must be dismissed.

In addition, the Complaint must be dismissed against Atlant and Kambolin because it

fails to state a claim. The Complaint first purports to assert a fraud claim against Atlant and

Kambolin. Atlant and Kambolin contest that they made any misrepresentation or possessed the

requisite scienter, but do not seek dismissal on that ground given the difficulty of challenging the

sufficiency of Plaintiffs' self-serving contentions on a motion to dismiss. However, to plead

fraud Plaintiffs must also allege (!)reasonable reliance on the purported misrepresentation

and (2) that the alleged misrepresentation directly and proximately caused the loss.

Because Plaintiffs do not and cannot plead these last two elements, the Complaint must be

dismissed for failure to state a claim.

To understand why the Complaint fails to allege reasonable reliance or direct and

proximate causation, it is important to focus on the 20 I 0 Arrangement that Plaintiffs themselves

state constitute the gravamen of their fraud claim. 1 Plaintiffs contend that in 2010, Atlant,

through Kambolin, dissuaded Plaintiffs from filing a lawsuit to collect on loans they had made to

Thor USA "by persuading plaintiffs to enter into a contract [the 2010 Arrangement] when they

did not have the intent of performing it" and "promis[ing] plaintiffs [defendants] would pay them

1 See Plaintiffs' Opposition Brief to Defendants Abraham Bennun and North 3'' Development LLC's Motion to
Dismiss at I ("Pis.' Opp.").

2

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 7 of 24

back such monies from the sale proceeds of the Williamsburg Property." (Pis.' Opp. at 1).

Plaintiffs contend that this 2010 Arrangement is set forth in Exhibit I to the Complaint.

The 20 I 0 Arrangement is a document involving four entities: Cornwall, Atlant, and two

parties affiliated with defendant Batrachenko that Plaintiffs have selectively omitted from the

Complaint- Thor United Corp. of Nevis ("Thor Nevis") and Thor Real Estate Master Fund Ltd.

("Thor Real Estate Fund"). According to the terms of Exhibit I, At! ant makes no direct

commitment to Cornwall. Rather, Atlant agrees to remit funds realized from the sale of the

Williamsburg property to repay loans Atlant owes to Thor Real Estate Fund. Thor Real Estate

Fund then agrees to use such funds to redeem shares of Thor Nevis, who in turn agrees to

discharge $1.1 million of indebtedness of Thor USA to Cornwall.

The text of Exhibit I undermines any possibility that reliance by Cornwall on any

purported promise by Atlant was reasonable. First, Atlant, through Kambolin, wrote at the end

of the document: "The Party-2 [Atlant] shall not guarantee the successful completion of the

[Williamsburg] project and not be held liable before the Party-! [Cornwall]." In other words,

Atlant stated that it had no intention of being directly liable to Cornwall, making any reliance by

Cornwall per se unreasonable. Moreover, the 20 I 0 Arrangement (Exhibit I) made it clear that

the completion (and thus sale) of the Williamsburg project was uncertain and that Atlant would

not and did not guarantee the project would generate funds. Against this background, Cornwall

could not reasonably rely on a sale for repayment.

Plaintiffs also do not and cannot plead that the 20 I 0 Arrangement was a direct and

proximate cause of their loss. Plaintiffs had loaned funds to Thor USA almost three years before

the 20 I 0 Arrangement was executed and there was nothing in the 20 I 0 Arrangement that is

alleged to have diminished their rights under their 2007 loan arrangements with Thor USA.

3

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 8 of 24

Although the Complaint asserts Plaintiffs delayed bringing a lawsuit as a result of the 2010

Arrangement, Plaintiffs do not allege that any such delay directly and proximately caused a loss.

To the contrary, the allegations ofthe Complaint and the Exhibits indicate that delay caused no

harm. Plaintiffs allege in paragraph 70 of the Complaint that "Defendants have sufficient,

immediately available funds to repay plaintiffs' [sic] their loans." There is no allegation that

Thor USA is bankrupt; to the contrary, Exhibits 3-6 to the Complaint indicate that Thor USA and

Batrachenko appeared to aggressively defend and appeal Plaintiffs' claims in the Russian

actions. Moreover, according to Plaintiffs' own pleading, the September 10, 2007 Cornwall loan

did not even expire until June 10, 2011 and Plaintiffs do not allege that they had a basis to sue to

enforce the loan prior to that time; thus even if alleged misrepresentations induced Plaintiffs to

defer suit from July 2010 until sometime in 2011, they did not act to their detriment or suffer

damage because they do not allege they had grounds to sue prior to that time. Therefore, as a

matter oflaw, the fraud claim must be dismissed.

Finally, in addition to their defective fraud claim, Plaintiffs attempt to assert a claim for

declaratory relief against Kambolin on the grounds that he is purportedly an alter ego of the

entity defendants- most significantly judgment debtor Thor USA. As set forth in more detail

below, Plaintiffs' conclusory allegations of alter ego do not suffice. Plaintiffs fail to make

allegations sufficient to establish a plausible basis for the conclusion that Kambolin so controlled

or dominated any of the entity defendants, or abused the corporate form, and that such

domination was used to commit a fraud or wrong against the plaintiffs which resulted in their

injury that he should be held liable for the conduct of any of the entities. Indeed, the allegations

are no different here than would apply to any employee or agent. While Kambolin allegedly

formed Atlant and signed on its behalf, there are no allegations of the intermingling of corporate

4

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 9 of 24

and personal funds by Kambolin, undercapitalization of any of the entity defendants, and a

failure to maintain separate books and records or other formal legal requirements for the

companies. As to Thor USA, Kambolin allegedly provided certain materials to Plaintiffs on its

behalf, but there are even fewer allegations to support control and domination. For example,

there are no allegations that Kambolin used Thor USA's assets for personal purposes, or that

there was a complete absence of any corporate formalities. To the contrary, the Complaint

alleges that Batrachenko signed both of the 2007 loan agreements on behalf of Thor USA, and

signed the 20 I 0 Arrangement on behalf of Thor USA, as its president. And the Complaint offers

no allegations that Kambolin treated Thor USA like a shell or a "dummy" corporation. Lastly,

there are no allegations other than a conclusory statement that Kambolin controlled North 3'd.

There are no allegations setting forth the purported basis of a theory that Kambolin dominated

North 3'd, used North 3'd's assets for his own purposes, or even had any interest in North 3'd

whatsoever. In fact, the complaint alleges that Kambolin specifically agreed not to hold any

interest in North 3'd following the sale of the Williamsburg property by Atlant.

Accordingly, the Complaint against Atlant and Kambolin should be dismissed in its

entirety and with prejudice.

The Parties

STATEMENT OF FACTS2

Plaintiffs here are both foreign. Cornwall is a Nevis corporation with its principal place

of business in Charlestown, Nevis, and Mr. Soloviev is a Russian citizen who currently resides in

Moscow, Russia. (See Plaintiffs' Amended Complaint at~~ 9, l 0, hereinafter "Am. Compl.")

2 Except where noted, the Statement of Facts is based on the allegations set forth in the Complaint, many of which
Atlant and Kambolin contest, but which the Court is constrained to consider on a Rule 12(b)(6) motion.

5

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 10 of 24

Although Defendant Oleg Batrachenko is alleged to be a United States citizen residing in

New Jersey (Am. Compl. ~ 14), the documents attached to the Complaint indicate that, in fact, he

resides in Moscow. (Batrachenko "resides in the jurisdiction of Khamovniki district court of

Moscow." See Ex. 6 to Am. Compl. at 4). Moreover, other averments Plaintiffs have made in

this action indicate Batrachenko has maintained his Russian residency. (See Declaration of

Cherish A. Thompson Esq. in Support of Motion to Authorize Alternative Service on Defendant,

Oleg Batrachenko at~ 7) (Dkt. 24) ("As recent as December 24, 2012, Batrachenko was seen at

Thor USA headquarters in Moscow at Malaya Pirogovskaya Street 18, office 201, Moscow,

Russia. On December 25,2012, at the demand of a Moscow Arbitration Court usher,

Batrachenko appeared in Moscow Arbitration Court, Bolshaya Tulskaya Street #17, Moscow,

Russia 115191.") Finally, according to the Declaration of Peter Kambolin in Support of

Defendants' Motion to Dismiss ("Kambolin Dec!."), Mr. Batrachenko has resided in Russia

since 2005. (Kambolin Dec!. at~ 4.)

Batrachenko is alleged to be the co-founder and principal of defendant Thor USA, a New

York corporation. (Am. Compl. ~~II, 14.) Atlantis a Delaware limited liability company with

its principal place of business in New York, New York. (Am. Compl. ~ 13.) North 3'd

Development LLC ("North 3'd") is a New York limited liability company with it principal place

of business in New York, New York. (Am. Compl. ~ 16.) Peter Kambolin is a United States

citizen who resides in New York, New York, and Abraham Bennun ("Bennun") also resides in

New York, New York. (Am. Compl. ~~ 15, 17.)

The 2007 Loans to Thor USA

On September I 0, 2007, Thor USA entered into a $1.1 million loan agreement with

Cornwall, which was to be repaid at 14% interest per annum on June 10,2011 (the "Cornwall

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 11 of 24

Loan"). (Am. Compl. ~ 37.) Cornwall transferred $1.1 million to Thor USA through Thor Nevis.

(Am. Compl. ~ 38.) Then, on September 12, 2007, Thor USA, represented by Batrachenko,

entered into a second Joan agreement with Soloviev for a term of three years with interest

accruing at 14% annually (the "Soloviev Loan," and, collectively with the Cornwall Loan, the

"2007 Loans"). (Am. Compl. ~~ 39, 40.) Soloviev delivered $1.1 million in connection with the

Soloviev Loan to Batrachenko in a suitcase full of cash in Moscow, Russia. (Am. Compl. ~~ 41,

42.) The 2007loan proceeds were earmarked to be used in connection with the development of

certain real property located in Williamsburg, Brooklyn (the "Williamsburg Property"), though

the Complaint does not allege that Plaintiffs sought or were given any security interest in the

Williamsburg Property. (Am. Compl. ~~ 37, 40.)

Thor USA made interest payments to Cornwall and Soloviev at various times from

December 2007 through November 2010. (Am. Compl. ~~ 46, 47.) Thor USA paid $181,399.50

to Cornwall on the Cornwall Loan and $211,143.00 to Soloviev on the Soloviev Loan. (Am.

Compl. ~~ 46, 47.)

The July 2010 Arrangement

In July 2010, defendants, through Kambolin and Batrachenko, allegedly proposed that

Plaintiffs extend the 2007 Loans for a period of one year so as to avoid any lawsuit that might

affect the value of the Williamsburg Property. (Am. Compl. ~52.) On or about July 20, 2010,

the 2010 Arrangement was executed. (Ex. 1 to Am. Compl.) The Complaint alleges, "On July

20, 2010, plaintiffs and defendants Thor United Corp., Atlant, Batrachenko, and Kambolin

entered into an arrangement under which Kambolin, on behalf of himself and the other

defendants, agreed to repay the funds owing to plaintiffs under the 2007 Contracts from the gross

sale proceeds ofthe Williamsburg Property, and in exchange plaintiffs agreed to postpone

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 12 of 24

prosecuting legal actions to enforce their rights under the 2007 Contracts to be repaid the monies

due them under the 2007 Contracts." (Am. Compl. ~58.)

Notably, however, the 20 I 0 Arrangement that Plaintiffs attach to the Complaint as

Exhibit I contains no provisions that requires Plaintiffs to postpone legal actions, nor do they

allege that Thor USA was even in a position to bring a lawsuit to compel payment on the 2007

Loan that was the subject of the 2010 Arrangement. To the contrary, the allegations in the

Complaint and the text of the 2010 Arrangement establish that almost a year remained on the

Cornwall loan referenced in the 2010 Arrangement: The 2010 Arrangement refers only to the

September 10, 2007 Cornwall loan. (See Ex. 1 to Am. Comp. at 1 ("The Party-4 [Thor United

Corp.] is indebted to the Party-] [Cornwall] on Loan Agreement No. 040589 dated September

10,2007 ... ")(emphasis added)). Paragraph 37 of the Complaint states, "On September 10,

2007, Thor USA entered into a contract numbered, no. 040589, in favor of plaintiff Cornwall

wherein Cornwall would loan monies to Thor USA until June 10, 2011 ... "(Am. Compl. ~ 37

(emphasis added))- almost a year after the July 20,2010 Arrangement.

The July 2010 Arrangement involved four entities, Cornwall, Atlant, the Thor Real Estate

Fund, and Thor Nevis. (Ex. 1 to Am. Compl.) Soloviev signed as President of Cornwall,

Batrachenko signed on behalf of both Thor parties, and Kambolin signed in his role as Director

of Atlant. Id The 2010 Arrangement provided that Atlant would send $1.1 million raised in the

realization of the sale of the first phase of the Williamsburg Property to discharge indebtedness

to the Thor Real Estate Fund. (Id at 1.) The document also provided that Atlant would not pay

additional funds to the Thor Real Estate Fund before such time that Thor Nevis paid the $1.1

million owed by Thor USA to Cornwall under the Cornwall 2007 Loan. Id

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 13 of 24

Significantly, the 2010 Arrangement expressly stated, "The Party-2 [Atlant] shall not

guarantee the successful completion ,of the [Williamsburg] project and not be held liable before

the Party-! [Cornwall]." !d.

The Sale of the Williamsburg Property

Four months later, in November 20 I 0, the Williamsburg Property was sold at a loss.

(Am. Compl ~ 91.) Atlant and Kambolin warrantied that they had not received, or will not

receive, any consideration in connection with the sale of the Williamsburg Property, nor would

they acquire any direct or indirect ownership and/or beneficial interest in the Williamsburg

Property. (Am. Compl. ~~ 63, 65.) According to the Complaint, Defendants, Bennun, and North

3'ct, not Atlant or Kambolin, retain complete control of the Williamsburg Property. (Am. Compl.

~ 68.)

Plaintiffs Obtain Judgments Against Thor USA in Russia

In November of 20 II, Soloviev brought an action against Thor USA seeking to enforce

its rights under the Soloviev Loan in the Khamnovniki District Court in Moscow, Russia. (Am.

Compl. ~ 118.) On April 19, 2012, the Russian court entered a judgment in favor of Soloviev

against Thor USA in the amount of $1.3 million. (Ex. 5. to Am. Com!.) Thor USA, the only

defendant in that action, appealed the judgment, but it was upheld on appeal. (Ex. 6 to Am.

Compl.) Soloviev is currently seeking to enforce that foreign judgment in the Southern District

of New York, in an action bearing index number 12-cv-8237.

In December 20 II, Cornwall filed a cause of action against Thor USA for breach of the

Cornwall Loan in the Moscow Arbitral Court, in Moscow, Russia. That court entered judgment

in favor of Cornwall against Thor USA in the amount of $1.9 million. (Ex. 3 to Am. Compl.)

Thor USA appealed that decision, but it was upheld on appeal. (Ex. 4. to Am. Compl.)

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 14 of 24

Cornwall is currently seeking to enforce that foreign judgment in the Southern District ofNew

York, in an action bearing index number 12-cv-8236.

ARGUMENT

I.

THIS COURT LACKS SUBJECT MATTER JURISDICTION

This court lacks subject matter jurisdiction to hear this dispute since one of the

indispensable defendants, Oleg Batrachenko, although a United States citizen, permanently

resides in Moscow, Russia. Plaintiffs claim that this Court has subject matter jurisdiction

pursuant to 28 U.S.C. § 1332 (a), which "gives the district courts jurisdiction ... over cases

between 'citizens of a State' and 'citizens or subjects of a foreign State."' Cresswell v.

Sullivan & Cromwell, 922 F.2d 60, 68 (2d Cir. 1990) (quoting 28 U.S.C. § 1332 (a)). 3 Plaintiffs

are a foreign corporation and a foreign individual respectively, and are alleging that each

defendant is a citizen of a State.

However, in order for that provision of28 U.S.C. § 1332 (a) to be an effective basis for

diversity jurisdiction, all of the defendants must be "citizens of a State." Cresswell, 922 F.2d 60,

68. On a 12(b)(l) motion this Court may properly consider evidence beyond the face of the

pleading. State Emples. Bargaining Agent Coal. v. Rowland, 494 F.3d 71, 77 n. 4 (2d Cir. 2007)

("in adjudicating a motion to dismiss for lack of subject-matter jurisdiction, a district court may

resolve disputed factual issues by reference to evidence outside the pleadings, including

affidavits.") Based on the Complaint and the record on this motion, Defendant Oleg

Batrachenko does not qualify as a "citizen of a State."

"United States citizens who are domiciled abroad are neither citizens of any state of the

United States nor citizens or subjects of a foreign state, and§ 1332(a) does not provide that the

3 Plaintiffs assert jurisdiction in this Court pursuant to 7 U.S.C. § 25 (c), but they fail to plead any cause of action
under the Commodity Exchange Act, and therefore this is not a proper basis for jurisdiction in this Court.

10

Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 15 of 24

courts have jurisdiction over a suit to which such persons are parties." Cresswell, 922 F.2d 60,

68. This is exactly the scenario present in this action. Since 2005, Mr. Batrachenko, an

American citizen, has permanently resided in Moscow, Russia with his wife and family. (See

Kambolin Dec!.~~ 2-5.) Courts in this circuit apply the "'totality of the evidence' approach ...

and no single factor is conclusive, although the residence of a married person's spouse and

children (if the couple has not separated) is given considerable weight." Nat!. Artists Mgmt. Co.

v. Weaving, 769 F. Supp. 1224, 1228 (S.D.N.Y. 1991). In addition, Plaintiffs' counsel has

admitted that Mr. Batrachenko was seen twice in the last few months in Moscow, Russia. 4 (See

Thompson Dec!.~ 7.) Mr. Batrachenko's foreign domicile is further supported by the findings of

the Russian court, which held that he resides in the jurisdiction of Khamovniki, district court of

Moscow. (See Ex. 6 to Am. Campi. at 4.) Therefore, since "the language of§ 1332(a) is

specific and requires the conclusion that a suit by or against United States citizens domiciled

abroad may not be premised on diversity," this Court lacks subject matter jurisdiction and

dismissal is required. Cresswell, 922 F.2d at 68 (citing Smith v. Carter, 545 F.2d 909 (5th Cir.),

cert. denied, 431 US 955 (1977)).

II.

LEGAL STANDARD FOR MOTION TO DISMISS UNDER 12(B)(6)

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of a pleading to state

a claim upon which relief may be granted. "When reviewing a motion to dismiss, a court must

accept as true all of the factual allegations set out in plaintiffs complaint, draw all inferences

from those allegations in the light most favorable to plaintiff, and construe the complaint

4 Indeed, in seeking to serve Batrachenko by email, Plaintiffs' counsel has cited for this court similar efforts to serve
Batrachenko in yet another action in the Southern District of New York. Notably, in that case, plaintiffs' counsel
declared under the penalties of perjury that "[t]o the best of plaintiffs' knowledge and information, defendant
Batrachenko no longer resides at his last-known U.S. address ... and has for several years been residing in Moscow,
Russia." See Ex A to the Declaration of Paul D. Sarkozi in Support of Defendants' Motion to Dismiss (attaching a
copy of Elena A. Agarkova's declaration in connection with Starshinova et a/. v. 0/eg Batrachenko et a/. I I Civ.
09498 in the Southern District of New York.

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liberally." 904 Tower Apt. LLC v. Mark Hotel LLC, 853 F. Supp. 2d 386, 391-392 (S.D.N.Y.

2012) (quoting Rescuecom Corp. v. Google, Inc., 562 F.3d 123, 127 (2d Cir. 2009)). "To

survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true,

to 'state a claim to relief that is plausible on its face."' Ashcroft v. Iqbal, 556 US 662,678 (2009)

(quoting Bell At/. Corp. v. Twombly, 550 US 544, 570 (2007)). Failure to allege all of the

elements of a claim requires dismissal. See ESP N, Inc. v. Quiksilver, Inc., 5 86 F. Supp. 2d 219,

225 (S.D.N.Y. 2008) (internal citations omitted).

III.

PLAINTIFFS' FRAUD CLAIM MUST BE DISMISSEDAS A MATTER OF LAW
AGAINST ATLANT AND KAMBOLIN BECAUSE PLAINTIFFS DO NOT AND
CANNOT PLEAD REASONABLE RELIANCE

Plaintiffs' fraud claim must be dismissed as a matter oflaw because the Complaint does

not and cannot allege that Plaintiffs reasonably relied on the alleged misrepresentation,

purportedly set forth in the 2010 Arrangement, that Atlant and Kambolin would repay the 2007

Loans through the sale of the Williamsburg Property. In order to plead a fraud claim under New

York law a plaintiff must plead "a material misrepresentation of a fact, knowledge of its falsity,

an intent to induce reliance, justifiable reliance by the plaintiff and damages." Eurycleia

Partners, LP v. Seward & Kissel, L.L.P., 12 N.Y.3d 553, 559 (N.Y. 2009). As will be

demonstrated below, Plaintiffs cannot plead reasonable reliance as a matter of law since the

document that is at the center oftheir fraud claim expressly disclaims any such reliance.

As Plaintiffs acknowledge, the gravamen of Plaintiffs' fraud claim is that at the time that

the parties entered into the 2010 Arrangement, defendants concealed their preparations to sell the

Williamsburg Property at a loss. (Am. Compl. ~~54, 125; Pis.' Opp. at 1.) Plaintiffs allege that

their arrangement not to sue was provided in exchange for the assurances that their 2007 Loans

would be paid from the sale of the Williamsburg Property. (Am. Compl. ~58.)

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The express terms of the 2010 Agreement provided that Atlant shall not guarantee the

successful completion of the project, and not be held liable to Cornwall, and the document was

signed by Soloviev on behalf of Cornwall. (Ex. I to Am. Compl.) However, that is exactly what

Plaintiffs are seeking to do in this action. Plaintiffs' fraud claim fails since it was unreasonable,

as a matter of law, for Plaintiffs to have relied on the alleged oral misrepresentations in

connection with the 2010 Arrangement when the signed document contained explicit language to

the contrary. See DynCorp v. GTE Corp., 215 F. Supp. 2d 308, 319 (S.D.N.Y. 2002) quoting

Harsco Corp. v. Segui, 91 F.3d 337, 345 (2d Cir. 1996) ("A party to a contract cannot allege that

it reasonably relied on a parol representation when, in the same contract, it 'specifically

disclaims reliance upon [that] particular representation."') When there is a dispute between an

allegation in the Complaint and the exhibit that is made a part of the complaint, the exhibit's text

shall be controlling. See Gant v. Wallingford Ed of Educ., 69 F.3d 669, 674 (2d Cir. 1995). The

plain language of the 2010 Arrangement expressly disclaims what Plaintiffs are alleging here,

and that is fatal to their fraud claim. Thus, the fraud claim should be dismissed as against

Kambolin and Atlant.

IV.
PLAINTIFFS CANNOT PLEAD ANY DAMAGES IN CONNECTION WITH THE
······· ····2010 ARRANGEMENTANDTHEREFORE···THEFRAUD··CLAIMMUST·BE

DISMISSEDASAMATTEROFLAW AGAINST ATLANT ANDKAMBOLIN

Plaintiffs' fraud claim also fails since they do not, and cannot, allege how the 20 I 0

Arrangement directly and proximately caused them damages. Plaintiffs allege that their damages

stem from the fact that they "would have commenced earlier legal actions to recover their

monies" if not for the alleged fraud. (Am. Compl. '1[128.) New York adheres to the "out of

pocket" rule in connection with fraud damages and under the "out of pocket" rule "(t]hose losses

must be the direct, immediate, and proximate result of the misrepresentation, [and] [t]he damages

must also be independent of other causes." Kregos v. Associated Press, 3 F.3d 656, 665 (2d Cir.

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 18 of 24

1993) (internal citations omitted); see also In re Euginia VI Venture Holdings, Ltd Litigation,

649 F. Supp. 2d 105, 121 (S.D.N.Y. 2008). Plaintiffs' Complaint falls short of that showing.

Plaintiffs' allege that absent the 20 I 0 Arrangement they would have commenced earlier

legal action, which would have somehow enabled them to recover their debt owed under the

2007 Loans with Thor USA. However, prior to the 2010 Arrangement, Plaintiffs' do not allege

that they had some secured interest in the Williamsburg Property, and the 20 I 0 Arrangement did

nothing to change their legal relationship to the Williamsburg Property. (See Ex. I to Am.

Compl.) "Under New York law, an 'injury is proximately caused if it is the natural and probable

consequence of the defrauder's misrepresentation or if the defrauder ought reasonably to have

foreseen that the injury was a probable consequence of his fraud."' Citibank, NA. v. K-H Corp.,

968 F.2d 1489, 1496 (22 Cir. 1992) (quoting Cumb. Oil Corp. v. Thropp, 791 F.2d 1037, 1044

(2d Cir.), cert. denied, 479 US 950 (1986)). Plaintiffs' claim to the success of any earlier legal

actions is speculative at best, and under New York law, those damage are too remote, and courts

"are not permitted to speculate what potential award [Plaintiffs] might have obtained from

winning" a case. Kregos, 3 F.3d at 665; see also Goulds bury v. Dan's Supreme Supermarket,

Inc. 154 A.D.2d 509 (N.Y. App. Div. 1989).

Moreover, as set forth above, the 20 I 0 Arrangement, set forth in Exhibit 1 to the

Complaint, contains no reference whatsoever to any prohibition on Plaintiffs bringing a suit.

Furthermore, the Complaint identifies no right to sue that Plaintiff surrendered; the Cornwall

Loan extended until June 10, 2011, almost a year after the 2010 Arrangement was entered into in

July 20 I 0. Consequently, even if Plaintiffs gave up a hypothetical right to sue for a year as a

result of the alleged misrepresentation, they did not act to their detriment because no cause of

action existed.

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Finally, even if the alleged misrepresentations caused Plaintiffs to delay in commencing a

lawsuit to force repayment under the 2007 Loans, plaintiffs do not offer a single allegation to

indicate how such a delay caused them any damages. Assuming they had a right to sue in 20 I 0,

Plaintiffs would have been able to bring an action to get a judgment that Thor USA owed them

the unpaid amounts under the 2007 Loans plus interest. The suit would not guarantee

repayment; any judgment would have to be enforced.

That is exactly the position Plaintiffs find themselves in today. They have obtained the

same judgment that they purportedly were induced to delay seeking. Now, as then, they still

need to seek enforcement against Thor USA and that is exactly what Plaintiffs are doing in the

two other actions they have brought in this Courthouse - Soloviev v. Thor United Corp., 12-cv-

8236 (JMF) and Cornwall Management Ltd. v. Thor United Corp., 12-cv-8237 (LTS). Plaintiffs

do not allege that Thor USA is bankrupt. Indeed, Plaintiffs allege in paragraph 70 of the

Complaint that "Defendants have sufficient, immediately available funds to repay plaintiffs' [sic]

their loans." Furthermore, Exhibits 3-6 to the Complaint indicate that Thor USA and

Batrachenko appeared to aggressively defend and appeal Plaintiffs' claims in the Russian

actions, thus suggesting that both have assets. Thus, Plaintiffs cannot plead any damages under

their fraud claim against Kambolin or Atlant, and the claim must be dismissed.

V.

PLAINTIFFS' ALTER EGO LIABILITY CLAIM FAILS AS A MATTER OF
LAW AS AGAINST DEFENDANT KAMBOLIN AND ATLANT

Courts have repeatedly held that "the standard for veil-piercing is very demanding."

Cap mark Fin Group Inc. v. Goldman Sachs Credit Partners LP, No. II Civ. 7511 (RWS), 2013

US Dist. LEXIS 50992, at* 24 (S.D.N.Y. Apr. 9, 2013). Thus, disregarding "the corporate form

is warranted only in extraordinary circumstances, and conclusory allegations of dominance and

control will not suffice to defeat a motion to dismiss." !d. (quoting Societe d' Assurance de l'Est

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SPRL v. Citigroup, Inc., No. 10 Civ. 4754 (JGK), 2011 US Dist. LEXIS 103375, at *5 (S.D.N.Y.

Sep. 13, 2011)). "The unadorned invocation of dominion and control is simply not enough to

state a claim premised on veil piercing." Id (internal citations and quotations omitted).

A party seeking to pierce the corporate veil and hold an individual
liable for the debts of a corporation must satisfy a two-part test by
showing: (I) that the owners exercised complete domination of the
corporation in respect to the transaction attacked; and (2) that such
domination was used to commit a fraud or wrong against the
plaintiff which resulted in plaintiffs injury.

Ningbo Prods. Imp. & Exp. Co. v. Eliau, No. II Civ. 650 (PKC), 2011 U.S. Dist. LEXIS

125789, at *14-15 (S.D.N.Y. Oct. 31, 2011) (quoting Morris v. State Dept. ofTaxation & Fin.,

82 N.Y.2d 135, 141 (N.Y. 1993) (internal quotations omitted). "[A] plaintiff ... must plausibly

allege both elements" in order to avoid dismissal of its alter ego claim seeking to pierce the

corporate veil. ld at* 15, * 18 (citing DirecTV Latin Am., LLC v. Park 610, LLC, 691 F. Supp.

2d 405,432 (S.D.N.Y. 2010)).

Courts making this determination consider factors such as "(I) the intermingling of

corporate and personal funds, (2) undercapitalization of the corporation, and (3) failure to

maintain separate books and records or other formal legal requirements for the corporation."

WilliamWrigleyJr. Co. v. Waters, 890 F.2d 594, 600-01 (2d Cir. 1989) (internal citations

omitted). Other factors such as "failure to pay dividends, insolvency at the time of a transaction,

siphoning of corporate funds by the dominant shareholder and nonfunctioning of other officers

and directors, either individually or in combination," have also been considered in making this

inquiry. Id at 601; see also Kiobel v. Royal Dutch Petrol. Co., 621 F.3d Ill, 195 (2d Cir. 2010).

While "the basic pleading standard of Rule 8," applies to allegations concerning the

"domination element" of the two-part test, allegations concerning the defendant's fraudulent acts

"are subject to the heightened pleading standard of Rule 9(b)." Ningbo Prods. Imp. & Exp. Co.,

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 21 of 24

2011 U.S. Dist. LEXIS 125789, at *16-17 (quoting Wm. Passalacqua Builders v. Resnick

Developers S., 933 F.2d 131, 139 (2d Cir. 1991)). When a plaintiff"seeks to pierce the

corporate veil based on allegations of fraud, the heightened pleading standard of Rule 9(b) is the

lens through which those allegation[s] must be examined." !d. at *17 (internal citations and

quotations omitted). Therefore, conclusory allegations cannot suffice to state a claim based on

alter-ego liability under either pleading standard. !d.

A.

The Complaint Fails to Plead a Plausible Basis for Kambolin to be the Alter Ego
of Thor USA

Other than their conclusory allegations, Plaintiffs have utterly failed to plead that alter

ego veil piercing is warranted in this case. There are no allegations that Kambolin used Thor

USA's cash for his own personal purposes, that Kambolin used Thor USA as a shell to protect

himself from liability, or that Thor USA had inadequate capitalization. Further, Plaintiffs fail to

plausibly allege any basis for the conclusion that Kambolin dominated Thor USA in any respect.

While there are certain allegations in the Complaint that Kambolin acted on behalf of Thor USA

in making certain alleged misrepresentations, those allegations fall short of the establishing any

of the factors set forth above.

Indeed, the Complaint's allegations suggestthatMr. Batrachenko played a much more

central role in Thor USA. Mr. Batrachenko signed both of the 2007loan agreements on behalf

of Thor USA, and signed the 2010 Arrangement on behalf of the Thor Real Estate Fund and

Thor Nevis. (See Ex. 1 to Am. Compl.) In fact, when the actions were commenced by Plaintiffs

to recover under their 2007 Loans in Russia, Thor USA, through Mr. Batrachenko defended

those actions. (Exs. 3-6 to Am. Compl.) Kambolin was not made a party to those proceedings,

or alleged to have any obligations in connection with the 2007 Loans between Cornwall,

Soloviev and Thor USA. Thus, Plaintiffs' alter ego claim is lacking the necessary allegations of

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 22 of 24

complete domination of Thor USA by Kambolin, and that Thor USA was a mere instrumentality

of Kambolin, and cannot survive a motion to dismiss. See id at * 18 (dismissing alter ego cause

of action where plaintiff had "not plausibly alleged the absence of corporate formalities, [the] use

of corporate funds for personal purposes, inadequate capitalization, or any other indicia of abuse

ofthe corporate form.")

B.

The Complaint Fails to Plead a Plausible Basis for Kambolin to be Held As The
Alter Ego of North 3rd

Plaintiffs' claim that Kambolin should be held to be the alter ego of North 3'd fails for the

same reasons as it failed with respect to Thor USA. The Complaint is entirely devoid of any

allegations that Kambolin controlled North 3'd, other than a single conclusory allegation. (Am.

Compl. '1[132.) Plaintiffs do not allege that Kambolin acted on North 3'd's behalf, that he used

any of its corporate assets for personal purposes, or that he dealt with North 3'd in any way but at

arms length. In fact, the Complaint makes clear that Kambolin signed an agreement preventing

him from acquiring any ownership in the Williamsburg Property after it was sold for a loss, and

that property is now owned by North 3rd. (Am. Compl. '1['1[65, 68.) Therefore, this Court should

not declare that North 3'd is the alter ego of Kambolin. Ningbo Prods. Imp. & Exp. Co., 20 II

U.S .... Dist.LEXIS125789,at*J6,J7 ..

C.

The Complaint Fails to Plead a Plausible Basis for Kambolin to be the Alter Ego
of Atlant

Finally, Plaintiffs attempt to pierce the corporate veil of Atlant, and hold Kambolin liable

for its alleged debts, also fails. Plaintiffs admit that Kambolin created Atlant as a separate and

distinct entity in order to implement the Williamsburg Project. (Am. Compl. '1[27.) While

Plaintiffs later allege that Atlant was formed to fraudulently hinder and delay them from

discovering the use of their funds, (Am. Compl. '1[75) they set forth no facts that explain how

Atlant played that role. They fail to make any allegations that would move their complaint from

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 23 of 24

possible to plausible, as they must. Ashcroft, 556 US at 678. The fact that Atlant, through Mr.

Kambolin as its director, entered into the 20 I 0 Arrangement, and made certain representations in

connection with that agreement, cannot form the basis for an alter ego cause of action warranting

piercing the corporate veil. (Ex. I to Am. Compl.) Ningbo Prods. Imp. & Exp. Co., 2011 U.S.

Dist. LEXIS 125789, at *16-17.

The analysis in Jiaxing Hongyu Knitting Co., Ltd. v. Allison Morgan LLC, No. II Civ.

9342 (AJN) 2013 US Dist. LEXIS 2852 at* 22-24 (S.D.N.Y. Jan. 8, 2013) is instructive. There,

as here, plaintiffs attempted to rely on the fact that the individual, Eig, acted on behalf of an

entity that he had formed. The Court dismissed the alter ego claim:

The sole allegation in the Complaint that relates to Eig's
domination of Allison Morgan is Jiaxing's repeated assertion that
Eig "is the principal, owner, and I 00% member of his sole
proprietary and alter ego of his company, the corporate Defendant
Allison Morgan." However, the mere fact that Eig acted as the
controlling shareholder of Allison Morgan is insufficient to pierce
the corporate veil. Nor do Jiaxing's conclusory assertions that
Allison Morgan is Eig's "alter ego" add to this inquiry ....

Nor has Jiaxing alleged facts from which the Court could conclude
that Eig abused the corporate form to perpetuate a fraud. First, as
discussed above, Jiaxing's fraud claim is deficient, both as a
substantive matter and because it was not adequately pleaded .
. Second, even were the Court to deny Defendants' motions on
Jiaxing's fraud claim, the facts alleged still do not support the
conclusion that the corporate form was in any way used to achieve
the fraud -
there are no allegations that, for example, that Allison
Morgan is undercapitalized and Eig used the corporate form to
avoid payment of money owed to Jiaxing.

!d. (internal citations omitted).

As in Jiaxing, there are no allegations in the Complaint that Kambolin disregarded

corporate formalities with respect to Atlant, that Atlant was inadequately capitalized, or that

Kambolin used Atlant's property for his own personal purposes. !d. As with Thor USA and

North 3'ct, Plaintiffs' failure to plead these elements requires dismissal of this declaratory

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Case 1:12-cv-08551-LLS Document 33 Filed 04/26/13 Page 24 of 24

judgment, alter ego, cause of action. "The mere claim that the corporation was dominated by the

defendants ... without more, will not suffice to support the equitable relief of piercing the

corporate veil." See Ningbo Prods. Imp. & Exp. Co., 2011 U.S. Dist. LEXIS 125789, at *18

(quoting Damianos Realty Group, LLC v. Fracchia, 35 AD .3d 344, 344 (N.Y. App. Div. 2006)).

CONCLUSION

For all the foregoing reasons this Court should dismiss this case for lack of subject matter

jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(l), or in the alternative, dismiss

the amended complaint as to Kambolin and Atlant for failure to state a claims pursuant to

Federal Rules of Civil Procedure 9(b) and 12(b)(6).

Dated: New York, New York

April 26, 2013

TANNENBAUM HELP ERN
SYRACUSE & HIRSCHTRITT LLP

By:

Is/ Paul D. Sarkozi
Paul D. Sarkozi
[email protected]
Zev F. Raben
[email protected]
900 Third A venue

. NewYork,NewYork10022

(212) 508-6700

Attorneys for Defendants Peter Kambolin
and Atlant Capital Holdings, LLC

20