Complaint Review: Energy Automation Systems Inc. (aka) EASI - Hendersonville Tennessee

Ponzi Scheme, see http://en.wikipedia.org/wiki/Ponzi_scheme ......

Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business, named after Charles Ponzi. Taken from the above Link.

Could a "Business Opportunity" be a Ponzi Scheme? Could you have a couple of dealers, (wearing a Tie?) telling potential new dealers how much money he has made in this business?

"[IN THE UNITED STATES District COURT

FOR THE MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

Case No. 3-03-0700

Judge Echols

Magistrate .Judge Brown

SIGNSTRUT LIMITED and ENERGY

MANAGEMENT RESOURCES, LLC,

Plaintiffs,

V.

ENERGY AUTOMATION SYSTEMS,

INC., and .JOSEPH C. MERLO,

Defendants.

DEFENDANTS' FIRST MOTl0N IN LIMINE TO EXCLUDE EVIDENCE

Defendants Energy Automation Systems, Inc. ("EASY') and Joseph C. Merlo ("Merlo"), request the Court to exclude any testimony or other evidence concerning the conviction of Robert A. Luongo in the 1970's. Defendants seek to exclude any reference to Joe Merlo's involvement with an enterprise operated by Mr. Luongo ("the Luongo matter.

Defendants filed and this Court previously granted similar motions in two prior related cases.(1) The Court granted Defendants' motions in those cases on the grounds that the Luongo matter was too remote in time to be admissible under the Federal Rules of Evidence 404(b) and

403. (LaPrade Order at; 3; Briggs Order 3). Defendants submit that for the reasons stated below, as well as in the LaPrade and Briggs Motions, the Court should exclude from trial any evidence of the Luongo conviction and Merlo's affiliation with Mr. Luongo.

I. INTRODUCTION

In 1971 Joseph Merlo (EASI's current Chief Executive Officer and sole shareholder) met Robert Luongo. Mr. Luongo hired Merlo as his solicitor of investor funds. New York v.Luongo.391 N.E.2d 1341, 1343 (NY Ct. App. 1979) (copy attached).(2) The reported decision reflects that Merlo worked for Luongo until Luongo fled the country for Sweden in March of 1974. M. at 1344. Luongo was subsequently arrested, extradited to the United Stales, and convicted of larceny by false promise for the creation of an apparent pyramid or "Ponzi" scheme relating to investments in various companies. ID. at 1344-5.

Merlo was never implicated, arrested or prosecuted for the events surrounding Luongo's conviction. ID. at 1343-5. Accordingly, evidence of any alleged involvement by Merlo in the actions that resulted in the prosecution of Robert A. Luongo is irrelevant, will serve no purpose other than to prejudice Defendants unfairly and mislead the jury, and is inadmissible as improper character evidence. Accordingly, Defendants request that the Court exclude from trial any reference to Robert Luongo or Merlo's relationship with him pursuant to Rules 402, 403 and 404 of the Federal Rules of Evidence.

II. AGRUMENT

Plaintiffs assert four fraud claims and an unfair trade practice claim under the Tennessee Consumer Protection Act (TCPA").(3) Under Rule 401 of the Federal Rules of Evidence, relevant evidence must have a "tendency to make the existence of any fact that is of consequence to the determination of the matter more probable or less probable than it would be without the evidence." Rule 402 provides, "Evidence which is not relevant is not admissible."

The fact that Merlo may have been employed by Luongo over thirty (30) years ago has no bearing on alleged representations made to Plaintiffs in 2002. That relationship has no tendency to make "the existence of any fact" with respect to those representation more or less probable. Further, the alleged activity in the instant case bears no relationship to the events

surrounding Luongo's prosecution. Finally, Luongo was apparently arrested and tried some thirty (30) years ago. Evidence of Mr. Merlo's alleged relationship with Luongo is not relevant, is remote, and thus not admissible under Rule 402 of the Federal Rules of Evidence.

Even assuming such evidence were relevant, any probative value of thirty-year-old allegations against a third-party is substantially outweighed by the danger of unfair prejudice to Defendants. The Court should, therefore, exclude such evidence pursuant to Rule 403 of the Federal Rules of Evidence. Mr. Luongo's investment scheme and conduct was characterized by the New York Court of Appeals as a pyramid or "Ponzi" scheme, the mention of which is highly likely to prejudice, confuse and mislead the jury.

Finally, Rule 404(b) of the Federal Rules of Evidence provides that:

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident. . . .

Testimony regarding Mr. Merlo's employment with Luongo is just the sort of "other acts" evidence contemplated by Rule 4O4{b). Such evidence is not admissible to show that the representations upon which Plaintiff claims to have relied are "actions in conformity" with Mr. Merlo's actions as an employee of Mr. Luongo thirty (30) years ago.

Even the mention of Luongo's "scheme" would unfairly place Defendants in a negative light. The Court should preclude Plaintiff from mentioning Robert Luongo and Merlos alleged relationship with him. Finally, because Merlo was never implicated or convicted in connection with the Luongo matter, his relationship with Mr. Luongo cannot be used as impeachment evidence under Rules 608 or 609. In sum, evidence of the Luongo matter should not be admitted for any purpose.

Ill. CONCLUSION

For the reasons set forth above, and because this Court previously granted two virtually identical motions, Defendants respectfully request the Court to preclude Plaintiffs from making any reference to the Luongo matter or Merlos relationship or employment with Mr. Luongo.

(1) See Defendants First Motion in Limine, Case No. 3:03-0469, LaPrade v. Energy Automation Systems,

Inc., Docket Entry No.101(Laprade Motion; Order, Case No. 3:03-0469, LaPrade v. Energy Automation Systems, Inc, Docket Entry No. 127 (Laprade Order); Defendants First Motion in Limine, Case No. 3:03-0791, Briggs v. energy Automation Systems, Inc., Docket Entry No. 90 (Briggs Order).

(2)The only evidence related to the Luongo matter produced by Plaintiffs in discovery was the case citation, which was provided in Plaintiffs' First Amended Complaint. No other documentary or testimonial evidence has been offered by Plaintiffs on the Luongo matter.

(3) The Court previously dismissed Plaintiff Signstrut Ltd.'s TCPA claim because Signstrut did not purchase a dealership from EASI and thus could not be considered a "franchisee." (See Docket Entry No. 54). The Court also dismissed Defendants' claim under the Ohio Business Opportunity Plans Act (see id.).]"

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