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noting that allegations of transportation of stolen property, mail fraud, and wire fraud must be pleaded with particularity
Summary of this case from Egerique v. ChowaikiOpinion
No. 00 Civ. 3671 (LTS) (RLE)
February 24, 2003
JEFFREY M. CASSUTO, New York, NY., DAVID T. SCHULICK, Philadelphia, PA., for Plaintiff.
KRANTZ BERMAN, Marjorie E. Berman, New York, NY., for Defendant Julien Studley Inc.
DAVIS GILBERT, Paul F. Corcoran, New York, NY., for Defendants W.F. Realty, Howard Wendy, and Lee Feld.
MAYER, BROWN PLATT, Heather Lane, New York, NY., for Defendants Organic Inc., Jonathan Nelson, Marita Scarfi, Colleen Brennan and Michael Hudes.
NIXON PEABODY LLP, Marc L. Fried, New York, NY., for Defendant Insignia/ESG, Inc.
OPINION AND ORDER
This litigation arises from a real estate brokerage agreement and services rendered in connection with the acquisition of commercial real estate for a then-expanding internet company, Organic Inc. The Second Amended Complaint (the "Complaint") in this action asserts that Plaintiff Eric Kades, an individual named Craig Miller ("Miller"), and Stone Commercial Brokerage. Inc. d/b/a Stone Company (the "Stone Company") were defrauded out of certain brokerage commissions in connection with services rendered to Organic Inc. Kades, individually and as assignee of Miller and the Stone Company (Kades, Miller and the Stone Company are referred to herein collectively as "Plaintiffs"), have asserted claims under the federal Racketeering Influenced and Corrupt Organizations Act ("RICO") and state law for fraudulent misrepresentation, tortious interference, negligent misrepresentation, unjust enrichment, and conspiracy, as well as claims under the New York Wage Act (Labor Law §§ 191 and 191-b (West 2002). Organic Inc., successor in interest to Organic Online, Inc. ("Organic"), Jonathan Nelson, Marita Scarfi, Colleen Brennan, Michael Hudes, Julien J. Studley, Inc. ("Studley Inc."), W.F. Realty Inc. ("W.F. Realty"), Lee Feld, Howard Wendy and Insignia/ESG, Inc. ("Insignia") (together, "Defendants") have moved pursuant Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure to dismiss the Complaint with prejudice, arguing that the Complaint fails to state a claim. Defendants further contend that the Complaint should be dismissed pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure because the Court lacks subject matter jurisdiction of the action, arguing that there is no basis for diversity jurisdiction and that the Second Amended Complaint does not present a federal question.
Cf. Second Amended Complaint, ¶ 1 ("For purposes of clarity the terms `Kades,' `Miller,' and `Stone Company' shall collectively refer to "Plaintiff in this action when used throughout this document.")
Plaintiff brings the RICO claims against all Defendants except Insignia and Studley Inc. The allegations in the Second Amended Complaint concerning Insignia and Studle V. Inc. relate to state law claims which the Court, as explained below, declines to entertain.
For the reasons set forth below, the motions of Defendants are granted in their entirety and the Complaint will be dismissed.
Plaintiffs amended the complaint in this action twice before the instant motion to dismiss was filed and have not requested further leave to amend the complaint. Further, the docket in this case reflects that in granting Plaintiffs' prior application to amend the complaint, the Court (Mukasey, J.) directed Defendants to provide Plaintiffs with detailed notice of the defects perceived in the complaint and directed Plaintiffs to file a "final" amended complaint after receiving such notice. This Second Amended Complaint was filed thereafter. Under these circumstances, the Court finds that dismissal of the Complaint without further leave to amend is appropriate.
BACKGROUND
Plaintiff's contend that Defendants Organic, W.F. Realty Wendy and Feld designed a scheme in which they induced Plaintiffs to perform services in finding and procuring real estate, whereupon "[W.F. Realty], Wendy and Feld [would] step in at the last minute to receive the commissions." (Id. 92.) Plaintiffs assert that the Defendants implemented this scheme through by forming a series of association-in-fact enterprises for the purposes of defrauding Plaintiffs. According to the Complaint, Defendants used Plaintiffs to locate commercial space in Chicago from March 1998 through September 1998, in Michigan from March 1999 through October 1999, in New York from March 1999 through November 1999 and San Francisco from December 1999 through March 2000. Defendants fraudulently represented that Plaintiffs were brokers of record for Organic, fraudulently induced Plaintiffs to perform services in procuring commercial space, and lulled Plaintiffs into believing that they would receive commissions for their services. The particulars of this alleged conduct are set forth in the Complaint as follows:Plaintiff Eric Kades worked as a real estate broker from 1996 until about April of 1999. (Complaint, ¶¶ 20, 38, 48.) Kades is a resident and citizen of Pennsylvania. (Id. ¶ 1.) Plaintiff Craig Miller is the executive vice president of the Stone Company, a California-licensed real estate brokerage company. (Id. ¶¶ 1, 19.) Pursuant to an assignment agreement, Miller and the Stone Company assigned their claims against the Defendants to Kades, who agreed to litigate the claims in this case. (Id. 18.)
Defendant Organic is a Delaware corporation whose principal place of business is in California. (Id. ¶ 4.) Defendants Jonathan Nelson, Marita Scarfi, Colleen Brennan and Michael Hudes are officers or employees of Organic and are citizens of California. (Id. ¶¶ 5, 6, 7, and 8.) Defendant Studley Inc. is New York real estate brokerage firm with its principal place of business in New York. (Id. ¶ 10.) Defendant W.F. Realty is a New York real estate brokerage company with its principal place of business in New York. (Id. ¶ 11.) Defendants Lee Feld and Howard Wendy are licensed real estate brokers who are employees or officers of W.F. Realty. (Id. ¶¶ 12, 13.) Defendant Insignia is a New York real estate brokerage company with its principal place of business in New York. (Id. ¶ 14.)
Kades commenced employment with the Stone Company in California as a real estate sales person in or about 1996. (Id. ¶ 20.) In 1997, the Stone Company and Studley Inc. agreed to obtain space for Organic, then a fast-growing Internet web site design company. (Id. ¶¶ 23-25.) Subsequently, Organic signed a five-year lease for commercial space at 38 West 21st Street, New York, New York. (Id. ¶ 26.) On May 7, 1998. Studley Inc. entered into a letter agreement with the Stone Company in which the parties agreed to split on a 50-50 basis fees earned on any real estate transaction with Organic. Studle V. Inc. was to be the lead party in the transaction, with "decision approval through the Stone Company." (Id. 28. Ex. C to Complaint.) In or about May 1998, Organic leased a larger commercial space through the Stone Company and Studley, Inc. (Id. ¶ 29.) The fees on this transaction were split 50-50 in accordance with the fee-splitting agreement. (Id.)
In or about May of 1998, Organic sought additional commercial real estate in Chicago. (Id. ¶ 30.) Kades, Miller and the Stone Company performed substantial services to procure commercial space for Organic at 400 West Fulton Street in Chicago. (Id. ¶¶ 31- 33.) At or about the same time, W.F. Realty pressured an employee of Studley Inc. for a commission in respect of the West Fulton Street property in Chicago. (Id. ¶ 34.) W.F. Realty, with the assistance of Organic and Defendants Nelson, Scarfi, Brennan and Hudes, interfered with the Chicago real estate transaction by splitting with Studley Inc. the commission to be paid under the real estate transaction. (Id. ¶ 35.)
The Complaint alleges that a letter, signed by Lawrence D. Nowakowski of U.S. Equities Realty, LLC and attached as Ex. F, confirms that approximately $50,000,000 was paid to W.F. Realty and Studley Inc. Ex. F, however, recites that U.S. Equities Realty received three commissions of $6,601.20, $14,632.03 and $37,683.13, respectively, in connection with the West Fulton Street property, and that $25,122.09 was paid to Studley Inc., with U.S. Equities retaining the balance. On a motion to dismiss for failure to state a claim, the court may consider any documents attached to the complaint as exhibits or incorporated into the complaint by reference. Newman Schwartz v. Asplundh Tree Expert Co., Inc., 102 F.3d 660, 662 (2d Cir. 1996). The court may also consider any documents upon which a plaintiff "solely relies" and which are "integral" to its claims. Int'l Audiotext Network, Inc. v. AT T, 62 F.3d 69, 72 (2d Cir. 1995); see also Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42 (2d Cir. 1991). U.S. Equities was originally a defendant, but was dismissed from the action.
A company called Omnicom International had substantial investments in Organic at the time of the foregoing transactions. (Id. ¶ 36.) Omnicom International owns W.F. Realty and Omnicom's president is a personal friend of Defendants Feld and Wendy, who are officers of W.F. Realty. (Id. ¶ 36.)
Plaintiff's allegations concerning Omnicom International are made on information and belief.
In late 1998 or early 1999, because of his mother's serious illness, Kades left the Stone Company, moved to New York and commenced employment with Studley, Inc. (Id. ¶ 38.) Kades' employment agreement with Studley Inc. provided that he would receive 60% of any real estate commissions earned by Studley Inc. (The Complaint does not specify the type of transaction to which this agreement allegedly applied.) (Id. ¶ 39.) During 1998 and 1999, Organic treated Miller, Kades and the Stone Company as their tenant representation brokers of record. (Id. ¶ 43.)
In April of 1999, Kades began to spend significant time in suburban Philadelphia in order to care for his sick mother. (Id. ¶ 44.) In or about April 1999, Kades obtained a written agreement from Studley Inc. providing that Kades was entitled to 35% of any monies earned by Studley Inc. relating to three Organic-related transactions concluded in 1999. (Id. ¶ 45; Ex. I to Complaint.)
In or about March or April of 1999, Kades met with Defendant Scarfi, the Vice President of Finance of Organic, to discuss future real estate leasing activities of Organic and to discuss the 1998 Chicago real estate transaction. (Id. ¶ 48.) Scarfi assured Miller and Kades that the Chicago problem would not recur. Miller and the Stone Company then delivered an exclusive working agreement to Scarfi. Scarfi indicated that it was not Organic's policy to sign exclusive agreements, but Scarfi affirmed that Miller and the Stone Company were Organic's brokers of record. (Id. ¶ 50.)
In or about the summer of 1999, Organic sought to expand its New York Office space. Organic's New York office manager and Scarfi contacted Miller about Organic office space needs. (Id. ¶ 51.) Miller contacted Organic's New York landlord and the landlord's broker agreed to lease additional space to Organic. (Id. ¶ 52.) Miller waived any claim regarding commissions for the New York real estate transaction because he had previously earned a commission arising from leasing Organic's original space in the building and because Miller desired to maintain his relationship with Organic. (Id. ¶ 52.) In connection with this New York real estate deal, Miller worked closely with Organic to procure additional office space in New York City, investing "thousands upon thousands" of hours. (Id. ¶¶ 53-56.)
Also, at about the same time, Defendant Scarfi informed Miller that Organic needed office space in Michigan. (Id. ¶ 57.) Miller hired a Michigan broker to co-broker the transaction. Miller was the primary broker. (Id. ¶¶ 58- 58B.) Organic chose a site in Michigan and Miller provided extensive services in negotiating the leases for the site. (Id. ¶ 60.) Prior to closing, the Organic personnel working on the deal were replaced by other Organic employees. (Id. ¶¶ 61-62.) At about this time, Miller received a "mysterious call" from the Michigan landlord-broker, who asked Miller: "How well do you know Organic?" (Id. ¶ 63.) Miller contacted Organic personnel, asking if there was a problem with the Michigan site. (Id. ¶ 64.) Miller was assured that the Stone Company was Organic's broker of record and that there had been no "backhanded dealing." (Id.) Subsequently, Miller learned that Organic had been negotiating for a different property in Michigan through a Studley representative. (Id. ¶ 65).
Also, in connection with the New York real estate transaction and, at about the same time, Scarfi told Miller that Organic would use W.F. Realty to broker the real estate transaction because W.F. Realty would be able to negotiate a better deal, although Miller and/or Craig Lemle (Studley Inc.'s managing director), had shown Organic office space in the Woolworth Building in New York. Scarfi told Miller that Miller and the Stone Company would be compensated. (Id. ¶ 70.)
At or about the same time, an Organic employee sent Miller a generic letter requesting information about the Stone Company and a non-disclosure agreement, despite the fact that Organic had been dealing with Miller for years. Later the employee admitted that Organic knew about Miller and the Stone Company's efforts concerning the Michigan property. (Id. ¶ 71.)
When Miller asked Feld of W.F. Realty about the Woolworth Building transaction in New York, Feld claimed that he did not know that Miller and Stone Company had previously shown the Woolworth Building site to Organic. (Id. ¶ 72.) Feld then asked about Miller's position on obtaining compensation for the Woolworth Building deal and informed Miller that Miller would "not get a penny" if Miller maintained that he had a legal claim to any commissions. (Id. ¶ 73.) Miller then told Scarfi of the conversation with Feld. In that conversation, Miller told Scarfi that he was entitled to 50% of the commission on the Woolworth deal. Scarfi informed Miller that Feld was considering "more like 10% to 20%." (Id. ¶ 74.) Subsequently, Miller asked Feld for a 30% commission and Feld refused. (Id. ¶ 75.) Miller attempted to resolve the dispute with Wendy, Feld's partner in W.F. Realty. Wendy never responded to Miller's inquiries. (Id. ¶ 76.) Miller also attempted to resolve the commission dispute by contacting Scarfi and Brennan of Organic, but the matter was never resolved. (Id. ¶¶ 77-78.)
After the New York transaction. Miller was told by Organic that the sites in Michigan located for Organic were "dead" and that Organic was starving with the current landlord, but moving to a different property. (Id. ¶ 79.)
Shortly thereafter, Miller and Kades discovered that Organic had leased space through Studley Inc. in San Francisco. Studley Inc. never notified Plaintiffs of the transaction. (Id. ¶ 80.)
In early 2000, Studley Inc. ran full-page advertisements in several major newspapers thanking its clients and listing Organic as a Studley Inc. client. (Id. ¶ 81.)
Studley Inc. considered suing Organic concerning the activities surrounding the New York deal and forwarded a draft complaint to Organic in an effort to resolve the matter. The litigation did not proceed. (Id. ¶ 82.)
DISCUSSION
Subject Matter Jurisdiction — Motion to Dismiss Pursuant to Rule 12(b)(1)
Plaintiff's allege that the Court has jurisdiction under 28 U.S.C. § 1332 and 28 U.S.C. § 1331, alleging diversity of citizenship of the parties and because the Complaint presents a federal question. For the following reasons, the Court finds that it does not have subject matter jurisdiction under 28 U.S.C. § 1332 or 1331.
Diversity of Citizenship
"It is well established that for a case to come within the diversity statute there must be complete diversity among all parties; that is, no plaintiff and no defendant may be citizens of the same state." Airlines Reporting Corporation v. S and N Travel, Inc., 58 F.3d 857, 861 (2d Cir. 1995) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806)). There is no dispute that Plaintiffs Craig Miller and the Stone Company are California citizens, as are Defendant Organic and certain of the individual Defendants. The Complaint asserts, however, that the action is brought by Plaintiff Kades, who is alleged to be a citizen of Pennsylvania, "individually and as assignee of Craig Miller, individually and the Stone Commercial Brokerage" and, apparently on that basis, alleges that the Court has diversity jurisdiction because "Plaintiff and Defendants are residents, citizens and are incorporated and have their principal place [sic] of business in different states." (Complaint at Introduction and ¶¶ 1 and 15.)
Pursuant 28 U.S.C. § 1359, "a district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." 28 U.S.C.A. § 1359 (West 1993 and Supp. 2002.) Courts in the Second Circuit have recognized that "[s]ection 1359 should . . . be construed broadly to bar any attempt to create federal diversity jurisdiction." Prudential Oil Com. v. Phillips Petroleum Co., 546 F.2d 469, 475 (2d Cir. 1976). In addition, "there is a presumption against diversity jurisdiction. and when defendants raise the issue, the burden rests on the plaintiff to prove proper invocation of this Court's jurisdiction." Traeer v. New Rochelle Hosp. Med. Ctr., 453 F. Supp. 516, 519 (S.D.N.Y. 1978) (dismissing complaint where assignment did not provide genuine basis for federal diversity jurisdiction); Airlines Reporting Corp., 58 F.3d at 863 (2d Cir. 1995) (upon a defendant's challenge, the party asserting diversity must "demonstrate that the reason given for the assignment is legitimate, not pretextual."). Furthermore, if the assertion of proper diversity is premised on an assignment of the claim to a named plaintiff, the business reason asserted by the plaintiff for the assignment must be sufficiently compelling, such that it is clear that the assignment would have been made absent the purpose of gaining a federal forum. Ferrara v. Philadelphia Labs. Inc., 272 F. Supp. 1000, 1007-08, aff'd, 393 F.2d 934 (2d Cir. 1967) (finding presumption against diversity jurisdiction and dismissing complaint for improper or collusive invocation of federal diversity jurisdiction). Here; Kades purports to bring this action "individually and as assignee on behalf of" Miller and the Stone Company.
Courts in the Second Circuit consider the following non-exclusive factors in determining whether an assignment is improper for purposes of establishing diversity: (i) lack of meaningful consideration; (ii) assignee's lack of previous connection to the claim; (iii) the underlying purpose of the assignment; (iv) whether the assignor actually controls the litigation; (v) the remittance of any recovery to the assignor; and (vi) the timing of the assignment. Airlines Reporting, 58 F.3d at 863. In addition, courts have found assignments improper where plaintiffs "paid no meaningful consideration for the assignments." Id. at 864; see also Kramer v. Carribean Mills, 394 U.S. 823, 828 (1969) (affirming dismissal of claim where the consideration was only one dollar).
An Assignment Agreement wherein Defendants Miller and the Stone Company assign to Kades their claims in this litigation for the sum of one dollar is attached to the Complaint as Exhibit B. That Agreement refers to Kade's prosecution of "the claims of Craig Miller and the Stone Company, as well as [Kade's] own, in the litigation." (Ex. B to the Complaint.) Paragraph 18 of the Complaint makes the conclusory assertion that the assignment was entered into for "business purposes" and that Kades "agreed to manage the litigation and actively pursue the claims set forth herein, since he is in a geographic position to do so . . ." (Complaint ¶ 18.) There is no explanation or business purpose provided for the assignment, other than that Kades agrees to serve as plaintiff in the litigation on behalf of Miller and the Stone Company.
Where litigation is brought in a representative capacity, "the citizenship of . . . the represented individuals controls for diversity purposes as they are the real and substantial parties to the dispute."Airlines Reporting, 58 F.3d at 862. Here, Kades has sued in his individual capacity and as assignee "on behalf" of Miller and the Stone Company, thus indicating that he is not the sole intended beneficiary of any recovery in respect of the assigned claims. Further, paragraph 18 of the Complaint refers to a litigation management agreement entered into along with the Assignment Agreement, thus suggesting that Miller and the Stone Company retain some control of the litigation. Moreover, a substantial portion of the allegations in the Complaint concern Miller and the Stone Company's dealings with the Defendants. It is thus clear that Miller and the Stone Company are "real and substantial parties to the dispute." See Airlines Reporting, 58 F.3d at 862 (finding that where a party is "a mere conduit for the remedies of others," the parties injured by defendant's conduct "break out of the limits of the diversity jurisdiction" by enlisting a representative to pursue their claims); In re Thomas and Agnes Carvel Found., 36 F. Supp.2d 144, 148 (S.D.N.Y. 1999) (finding that where parties have a personal interest in the controversy they should be considered for diversity purposes and jurisdiction was therefore lacking).
In light of the foregoing, the Court finds that the assignment by Miller and the Stone Company is insufficient to establish a proper basis for excluding the citizenship of Miller and the Stone Company from consideration in the diversity jurisdiction analysis. Because Miller and the Stone Company, like Defendants Nelson, Scarfi, Brennan and Hudes, are citizens of California and Organic's principal place of business is in California, the requisite complete diversity of plaintiffs and defendants is lacking and the Court does not have subject matter jurisdiction of the state law claims in this case pursuant to 28 U.S.C. § 1332.
Federal Question
The Complaint also asserts that the Court has subject matter jurisdiction of the federal claims asserted in this case pursuant to 18 U.S.C. § 1962 et seq. ("RICO"). Defendants move to dismiss the RICO claims pursuant to Rules 12(b)(1) and 12(b)(6), arguing that the claims are insufficiently substantial to provide a basis for the exercise of federal subject matter jurisdiction and that the Complaint fails, in any event, to state a cause of action under RICO. Generally, courts determine a motion to dismiss under Rule 12(b)(1) before ruling on a Rule 12(b)(6) motion to dismiss, because dismissal of an action for lack of subject matter jurisdiction will render all other defenses and motions moot. See United States. ex rel. Kreindler Kreindler v. United Technologies Corp., 985 F.2d 1148, 1155-56 (2d Cir.), cert. denied,Kreindler Kreindler v. United Technologies Corp., 508 U.S. 973 (1993); see also Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir. 1990). However, "in cases where the asserted basis for subject matter jurisdiction is also an element of the plaintiff's allegedly federal cause of action, [the court will] ask only whether — on its face — the complaint is drawn so as to seek recovery under federal law . . . If so, then we assume or find a sufficient basis for jurisdiction, and reserve further scrutiny for an inquiry on the merits." Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1189 (2d Cir. 1996) (citing Spencer v. Casavilla, 903 F.2d 171, 173 (2d Cir. 1990)). Because Plaintiffs assert a federal claim and Defendants attack is focused on the sufficiency of that claim, the Court will assume subject matter jurisdiction and proceed to evaluate Plaintiffs' federal claim under Rule 12(b)(6).
Motion to Dismiss RICO Claims Pursuant to Rule 12(b)(6)
For the following reasons, the Court finds that the Complaint fails to state a cause of action under RICO.
Dismissal of a complaint for failure to state a claim pursuant to Rule 12(b)(6) is proper where "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999). "The task of the court in ruling on a Rule 12(b)(6) motion is merely to assess the legal feasability of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (internal quotations omitted). Accordingly, in deciding a Rule 12(b)(6) motion, the court must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the nonmovant's favor. Harris v. City of New York, 186 F.3d at 247. However, "[a] complaint which consists of conclusory allegations unsupported by factual assertions fails even the liberal standard of Rule 12(b)(6)." De Jesus v. Sears, Roebuck Co., 87 F.3d 65, 70, cert. denied 519 U.S. 1007 (1996) (internal quotations omitted).
When deciding a Rule 12(b)(6) motion, the court generally limits itself to the facts stated in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint.See Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999).
Plaintiff's RICO Claims
Section 1962 of Title 18 of the United States Code prohibits: (a) the use of income "derived . . . from a pattern of racketeering activity" to acquire an interest in, establish, or operate an enterprise engaged in or whose activities affect interstate commerce; (b) the acquisition of any interest in or control of such an enterprise "through a pattern or racketeering activity;" (c) the conduct or participation in the conduct of such an enterprise's affairs "through a pattern of racketeering activity;" and (d) conspiring to do any of the above. 18 U.S.C.A. § 1962 (West 2001).
"Racketeering activity," as defined under 18 U.S.C. § 1961(1), encompasses acts chargeable under certain state criminal laws and acts indictable under numerous specific federal criminal provisions, including, inter alia, mail and wire fraud and transportation of stolen property. 18 U.S.C.A. § 1961 (West 2000); see also Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 481-82 (1985). The state law offenses include murder, kidnaping, gambling, arson, robbery, bribery, extortion, and drug offenses. The federal offenses include bribery, counterfeiting, theft, embezzlement, extortion, and obstruction of criminal investigations and enforcement. See 18 USCA. § 1961; Sedima, S.P.R.L. v. Imrex Co., 473 U.S. at 482, n. 3.
Plaintiffs assert claims under section 1962(c) of RICO in Count I of the Complaint, alleging that Defendants W.F. Realty, Wendy, Feld, and Organic formed a series of association-in-fact enterprises for the purpose of committing acts of racketeering activity. (See Complaint, ¶ 86.) Plaintiffs allege that these association-in-fact enterprises committed various racketeering acts of mail and wire fraud and engaged in the transportation of stolen money. (See id. ¶¶ 86-95.) Plaintiffs further allege that these racketeering acts constituted a pattern of racketeering activity within the meaning of RICO. (See id. ¶ 100.)
Plaintiffs assert, in Count II of the Complaint, that Defendants conspired to derive substantial proceeds through the racketeering activity and used or invested the proceeds in the operation of the association-in-fact enterprises in violation of section 1962(a) and (d).
In order to state a civil claim for damages under RICO, "a plaintiff has two pleading burdens." Moss v. Morgan Stanley, 719 F.2d 5, 17 (2d Cir. 1983). First, a plaintiff must establish: "(1) that the defendant (2) through the commission of two or more acts (3) constituting a `pattern' (4) of `racketeering activity' (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an `enterprise' (7) the activities of which affect interstate or foreign commerce." Id. Second, a plaintiff must allege "causation," i.e., that he or she was "injured in his [or her] business or property by reason of a violation of section 1962." Id. These "requirements . . . must be established as to each individual defendant." DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001); see also United States v. Persico, 832 F.2d 705, 714 (2d Cir. 1987) (The focus of section 1962(c) is on the individual patterns of racketeering engaged in by a defendant, rather than the collective activities of the members of the enterprise, which are proscribed by section 1962(d)."). If the Plaintiffs fail to plead sufficiently each of the elements of a civil RICO claim, they fail to state a claim. See Tavakoli-Azar v. Crescent Management, Inc., No. 97 Civ. 0696, 1999 WL 1052016, at *1 (S.D.N.Y. Nov. 19, 1999).
A cause of action under section 1962(d) requires that a plaintiff plead a conspiracy to violate one or more of the substantive RICO provisions.Cofacredit, S.A. v. Windsor Plumbing Supply Co. Inc., 187 F.3d 229, 244 (2d Cir. 1999).
Association-in-Fact Enterprise
Under 18 U.S.C. § 1962(c), it is unlawful "for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." "Enterprise" is defined under the statute as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C.A. § 1961(4) (West 2000). "For an association of individuals to constitute an `enterprise,' the individuals must `share a common purpose to engage in a particular fraudulent course of conduct and work together to achieve such purposes.'" First Nationwide Bank v. Gelt Funding, Corp., 820 F. Supp. 89, 98 (S.D.N.Y. 1993) (quoting Moll v. U.S. Life Title Ins. Co., 654 F. Supp. 1012, 1031 (S.D.N.Y. 1987)).
Here, the Complaint alleges merely that Defendants participated in a scheme to defraud Plaintiffs. The Complaint does not assert that the Defendants worked together to achieve a common purpose. Moreover, Plaintiffs' factual allegations concerning the Chicago, Michigan. San Francisco and New York transactions involve different combinations of Defendants and involve different conduct, thus failing to depict the requisite concerted action. See First Nationwide Bank v. Gelt Funding, Corp., 820 F. Supp. at 98 (complaint did not allege how defendants were associated in an enterprise); Moll v. U.S. Life Title Insurance Co. of New York, 654 F. Supp. 1012, 1032 (S.D.N.Y. 1987) (complaint alleged that members of enterprise shared a common purpose but did not "specify how those members joined together as a group to achieve those purposes"). Accordingly, the Court finds that the Complaint does not allege the requisite enterprise.
Racketeering Activity
In the Complaint, Plaintiffs allege that Defendants W.F. Realty, Wendy, Feld, Organic, and the individual Organic Defendants Jonathan Nelson, Marita Scarfi, Colleen Brennan and Michael Hudes, committed or aided and abetted in the commission of at least four acts of racketeering activity. Plaintiffs assert that these Defendants fraudulently represented to Plaintiffs that Plaintiffs were brokers of record of Organic, inducing Plaintiffs to perform services in connection with the procurement of real estate and lulling Plaintiffs into believing that they would be paid commissions for their services, only to have W.F. Realty "step in at the last minute to receive the commissions." (Complaint, ¶ 92.) In furtherance of this activity, Plaintiffs allege. Defendants W.F. Realty, Wendy, Feld and Organic "on numerous occasions" used the mails in violation of 18 U.S.C. § 1341 (id. ¶ 93), transported funds in interstate commerce in violation of 18 U.S.C. § 2314 (id. ¶ 94), and transmitted by wire certain communications in furtherance of the scheme to defraud plaintiffs (id. ¶ 95.)
The mail and wire fraud statutes prohibit use of the mail or wire communications for the purposes of executing a "scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses." 18 U.S.C. § 1341 and 1343. "A complaint alleging mail or wire fraud must show (1) the existence of a scheme to defraud. (2) the defendant's knowing or intentional participation in the scheme, and (3) the use of interstate mails or transmission facilities in furtherance of the scheme." Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp.2d 282, 301 (S.D.N.Y. 2000) (citingS.K.F.C. Inc. v. Bell Atlantic Tricon Leasing Com., 84 F.3d 629, 633 (2d Cir. 1996)).
The Complaint includes conclusory assertions that Defendants placed or caused to be placed in post offices and mail depositories certain matters in connection with scheme to defraud Plaintiffs by allegedly stealing commissions. There are, however, no specific factual allegations in the Complaint concerning the use of the mail or wire communications to transmit any communications to any identifiable individual or entity.
In addition, the Complaint fails to allege specific facts sufficient to demonstrate any violation of 18 U.S.C. § 2314. To establish a violation of the section 2314, it must be shown (1) that the defendant transported "goods, wares, or merchandise" in interstate or foreign commerce; (2) that those goods have a value of S5,000 or more; and (3) that the defendant knew "the same to have been stolen, converted or taken by fraud. See Dowling v. United States, 473 U.S. 207, 214 (1985). In paragraph 94 of the Complaint, Plaintiffs merely assert that Defendants violated section 2314 "on numerous occasions," without alleging specific facts relating to the three elements set forth above.
In addition, it is well established that allegations of mail fraud, wire fraud, and transportation of stolen property must be made with the particularity required by Federal Rule of Civil Procedure 9(b). See McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir. 1992) (mail fraud);Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993) (wire fraud); Philan Ins. Ltd. v. Hall, 748 F. Supp. 190, 195 (S.D.N.Y. 1990) (transportation of stolen monies plus mail and wire fraud). "[T]he complaint must adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiffs contend the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements."McLaughlin, 962 F.2d at 191 (internal quotations omitted). Further, "[p]laintiffs asserting mail fraud must also identify the purpose of the mailing within the defendant's fraudulent scheme." Plaintiffs' generalized and conclusory allegations of mail fraud, wire fraud and transportation of stolen monies as the purported predicate acts for their RICO claims fail to meet the pleading requirements Rule 9(b). See Odyssey Re (London) Ltd, 85 F. Supp.2d at 301 ("Where a complaint does not delineate specifics regarding the defendant's use of mail or wire, there can be no predicate act of mail or wire fraud.") (citations omitted);Philan Ins., 748 F. Supp. at 195 (dismissing a RICO claim based on transportation of stolen property, mail fraud and wire fraud where plaintiffs did not plead each of the elements of these acts with sufficient particularity "to withstand a motion to dismiss under Rules 12(b)(6) and 9(b)").
Pattern of Racketeering Activity
To establish a "pattern" of racketeering activity within the meaning of the RICO statute, a plaintiff must allege facts tending to show that "the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989). "The continuity necessary to prove a pattern can be either `closed-ended continuity,' or `open-ended continuity.'" Cofacredit. S.A. v. Windsor Plumbing Supply Co., Inc., 187 F.3d at 242.
The Alleged Predicate Acts Are Insufficiently Related
The Complaint does not allege sufficiently a pattern of racketeering activity because Plaintiffs do not allege facts tending to show that the racketeering predicate acts are related. In order to satisfy the RICO relatedness requirement, the plaintiff must allege predicate acts having "the same purposes, results, participants, victims, or methods of commission, or [that] otherwise are interrelated by distinguishing characteristics and are not isolated events." Id. at 240.
The allegations in the Complaint concern real estate transactions occurring in Chicago, New York Michigan and San Francisco. Plaintiffs allege that Organic, Studley Inc., and W.F. Realty made fraudulent representations which induced Plaintiffs to search for property until, "shortly before the leases [were] signed, [Defendants] [swept] in and [stole] the commissions." (Complaint ¶ 37.) The Complaint contains allegations concerning this alleged activity with respect to the Chicago real estate transaction, but does not contain factual allegations concerning such activity with respect to other real estate transactions.
Concerning the San Francisco transaction, the Complaint asserts that fees were owed to Kades pursuant to his commission-sharing agreement with Studley, Inc. and that Organic breached its exclusivity agreement with Plaintiffs. There are no allegations that W.F. Realty was involved in the San Francisco transaction.
Concerning the Michigan transaction, the Complaint alleges that, while Miller performed services in seeking out a location, Organic was "secretly negotiating on a different property in Michigan through a Studley representative." (Id. ¶ 65.) There are no allegations that W.F. Realty was involved with, or reaped any benefit from, the Michigan transaction.
Concerning the New York transaction, the Complaint alleges that Plaintiffs provided services in locating commercial space for Organic and that W.F. Realty was involved in the transaction. The Complaint alleges that, before the lease was to be signed, Organic notified the Stone Company that it had decided to use W.F. Realty rather than the Stone Company and Studley Inc. because W.F. Realty could negotiate a better deal with the owner of the Woolworth building. (Id. ¶ 70.) The factual allegations in the Complaint do not demonstrate and cannot, even when construed in the light most favorable to Plaintiffs, support a reasonable inference that the Defendants' activities in the foregoing real estate transactions "have the same purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." H.J. Inc. at 240. Accordingly, the Complaint fails to allege the "relatedness" required to establish a "pattern of racketeering" pursuant to the RICO statute.
Closed-Ended Continuity
Even if the Complaint alleged sufficiently related predicate acts, it fails to sufficiently alleged closed-ended continuity. "Closed-ended continuity is demonstrated by predicate acts that `amount to continued criminal activity' by a particular defendant." De Falco v. Bernas, 244 F.3d at 321 (quoting H.J. Inc., 492 U.S. at 242). In order to adequately plead closed-ended continuity, a plaintiff must allege "a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months . . . do not satisfy this requirement." H.J. Inc., at 242. Closed-ended continuity requires that "a plaintiff must provide some basis for a court to conclude that defendants' activities were `neither isolated nor sporadic.'" GICC Capital Corp. v. Technology Finance Group, Inc., 67 F.3d 463, 467 (2d Cir. 1995).
"Since the Supreme Court decided H.J. Inc., the Second Circuit has never held a period of less than two years to constitute a `substantial period of time'" for purposes of the closed-ended continuity test. DeFalco v. Bernas, at 321; Cofacredit, 187 F.3d at 242 (finding allegations of activity over a period of 1 1/2 years insufficient to establish closed-ended continuity); see also GICC Capital Corp., 67 F.3d at 466 (period of less than one year insufficient to demonstrate closed-ended continuity); cf. Metromedia Co. v. Fugazy, 983 F.2d 350, 369 (2d Cir. 1992) (finding closed-ended continuity when predicate acts occurred over a period of two years); Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989) (finding closed-ended continuity when predicate acts occurred over a "matter of years").
The allegations in the Complaint assert four acts "within a period of two years", (Complaint ¶ 80), beginning with the Chicago transaction and extending through to the signing of the lease on the San Francisco property. The Complaint first alleges that Organic contacted Kades concerning office space in Chicago "at or around the same time that the second New York deal . . . was closing," (id. ¶ 30) which was in May of 1998. (Id. ¶ 29.) The Complaint further asserts that the "pattern of racketeering" extended through the consummation of the San Francisco transaction, which allegedly occurred in March, 2002 (Id. ¶ 90).
In considering whether the Plaintiffs have met the continuity requirement, courts determine "which predicate acts were pled with the requisite particularity and what time-frame those acts can be said to span." CPF Premium Funding, Inc. v. Ferrarini, No. 95 Civ. 4621, 1997 WL 158361, at *7 (S.D.N.Y. Apr. 3, 1997) (granting motion to dismiss where complaint fails to aver facts supporting claims for either closed-ended or open-ended continuity). The Complaint makes factual allegations concerning the beginning date of the alleged predicate acts, asserting that the Chicago transactions occurred "at or around the same time as the second New York deal," which occurred in May 1998. (Id. ¶¶ 29-30.) The Complaint does not contain specific allegations concerning the date of the San Francisco transaction. Plaintiffs assert in paragraph 80 of the Complaint that Organic leased the San Francisco property "shortly after" Organic decided to lease the Michigan property. (Id. ¶ 80.) The Michigan property was leased at some time subsequent to September 1999. The Complaint is replete with paragraphs indicating a time period "shortly after" (Id. ¶ 73), "a few weeks later" (id. ¶ 75.), and "at or about the same time" (Id. ¶ 79) in connection with events leading up to the Michigan transaction. Thus, the Complaint provides insufficient detail to establish a firm date for the Michigan transaction. However, subsequent to the paragraph describing the San Francisco transaction, Plaintiffs allege that "shortly thereafter, in or around early 2000, Studley ran full page advertisements . . ." (Id. ¶ 81.) Based on these allegations, it would appear that the San Francisco transaction was completed by early 2000. Thus, the specific allegations concerning the predicate RICO acts in the Complaint indicate that those acts occurred within substantially less than a two year time period.
In addition, as the Second Circuit has stated, it is necessary to consider whether the continuity allegations have been satisfied as to each defendant, taking into account the duration of the continuity allegations and "other factors such as the number and variety of predicate acts, the number of both participants and victims, and the presence of separate schemes." De Falco v. Bernas, 244 F.3d at 321, 322 n. 22. Here, aside from unsupported allegations that each of the Defendants other than Insignia engaged in the alleged predicate acts, the Complaint does not allege sufficiently the existence of such other factors that could, under appropriate circumstances, warrant a finding of closed-ended continuity with respect to each of the Defendants.Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d at 242. As explained in the previous section, the Complaint fails to set forth facts showing that the predicate acts were related or indeed that all of the Defendants were involved in them. Accordingly, the Court finds that, with respect to each Defendant, Plaintiffs have failed to allege sufficiently closed-ended continuity.
Open-Ended Continuity
To allege open-ended continuity, "the plaintiff need not show that the predicates extended over a substantial period of time but must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed." Cofacredit, 187 F.3d at 242 (citing H.J. Inc., 492 U.S. at 242-43). In the Second Circuit, "cases assessing whether a threat of continuity exists have looked first to the nature of the predicate acts alleged or to the nature of the enterprise at whose behest the predicate acts were performed." DeFalco v. Bernas, at 323 (quoting GICC Capital Corp., 67 F.3d at 466 (collecting cases) (internal quotations omitted. See also Cofacredit, 187 F.3d at 242;Schlaifer Nance Co. v. Estate of Andy Warhol, 119 F.3d 91, 97 (2d Cir. 1997). "Where an inherently unlawful act is performed at the behest of an enterprise whose business is racketeering activity, there is a threat of continued criminal activity, and thus open-ended continuity."DeFalco v. Bernas, at 323 see H.J. Inc., 492 U.S. at 242-43 ("the threat of continuity is sufficiently established where the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes."); see also Cofacredit, 187 F.3d at 242; GICC Capital Corp., 67 F.3d at 466. However, "where the enterprise primarily conducts a legitimate business, there must be some evidence from which it may be inferred that the predicate acts were the regular way of operating that business, or that the nature of the predicate acts themselves implies a threat of continued criminal activity." DeFalco v. Bernas, at 321 (quoting Cofacredit, 187 F.3d at 243); see also H.J. Inc., 492 U.S. at 243; GICC Capital Corp., 67 F.3d at 466; Azrielli, 21 F.3d at 521.
The Complaint alleges that the "Defendants . . . stole . . . brokerage commission[s] further evidencing a continuing pattern" and that "the pattern of illegality and fraud . . . will continue well into the future." (Id. ¶¶ 80, 37, 98 and 106.) Assuming, without deciding, that the Complaint alleges sufficiently open-ended continuity, the Complaint nonetheless fails to allege sufficiently a pattern of racketeering activity because, as explained above, the Complaint fails sufficiently to frame the requisite enterprise and fails to sufficiently allege that the predicate acts are related.
For all of the foregoing reasons, Plaintiffs' claims under section 1962(c) of the RICO statute will be dismissed.
Section 1962(a)
Plaintiffs also assert claims for relief in Count II of the Complaint under section 1962(a) of RICO. 18 U.S.C. § 1962(a) prohibits "any person who has received any income, directly or indirectly, from a pattern of racketeering activity . . . to use or invest, directly or indirectly, any part of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce." 18 U.S.C.A. § 1962(a) (West 2000) "Section 1962(a) is reserved for situations in which the plaintiffs' injuries result not `from the predicate acts of racketeering, but `from defendants' investment of racketeering income."Tavakoli-Azar v. Crescent Management, Inc., 1999 WL 1052016, at *2. "To state a claim under section 1962(a) a plaintiff must make two basic allegations: first that defendants used or invested racketeering income to acquire or maintain an interest in the alleged enterprise, and second, that the plaintiff suffered an injury as a result of that investment by the defendants." Pyke v. Laughing, 1998 WL 37599, at *2 (N.D.N.Y. Jan. 26, 1998). The Complaint asserts that Defendants were engaged in a pattern of racketeering and proffers conclusory allegations that "Defendants conspired to derive and did derive, substantial proceeds through the above-described pattern of racketeering activity and conspired to invest, and used or invested, such proceeds in the operation of the association-infact enterprises detailed above." (Complaint ¶ 104.) Because Plaintiff has failed to allege sufficiently that Defendants' use of the alleged racketeering income injured Plaintiffs, Plaintiff's claims under section 1962(a) will be dismissed.
Section 1962(d)
Defendants also move to dismiss Plaintiffs' section 1962(d) claim, on the grounds that Plaintiffs have (i) failed to state a claim under section 1962(c), and (ii) failed to plead facts showing the existence of a RICO conspiracy. Section 1962(d) prohibits any person from conspiring to violate any of the substantive provisions of Section 1962(a)-(c). To state a claim under section 1962(d), a plaintiff must allege that "each defendant, by words or actions, manifested an agreement to commit two predicate acts in furtherance of the common purpose of the RICO enterprise," Colony at Holbrook, Inc. v. Strata, G.C., Inc., 928 F. Supp. 1224, 1238 (E.D.N.Y. 1996).
There can be no RICO conspiracy without a substantive RICO violation.See Schmidt v. Fleet Bank, 16 F. Supp.2d 340, 353 (S.D.N.Y. 1998). "Thus, if the prior claims do not state a cause of action for substantive violations of RICO, then a RICO conspiracy claim necessarily does not set forth a conspiracy to commit such violations." Id. (quoting Discon v. NYNEX Corp., 93 F.3d 1055, 1064 (2d Cir. 1996), rev'd on other grounds, 525 U.S. 128 (1998)); Katzman v. Victoria's Secret Catalogue, 167 F.R.D. 649, 658 (S.D.N.Y. 1996) ("failure to adequately plead facts that would satisfy the pleading requirements of 1962(a), 1962(b) or 1962(c) necessarily dooms any claim that the [plaintiff] might assert arising under 1962(d)"). Accordingly, because Plaintiffs have failed to assert a substantive RICO claim for each Defendant, Plaintiffs' claim under section 1962(d) must be dismissed.
State Law Claims
The Complaint asserts state law claims against Defendants for fraudulent misrepresentation, tortious interference, negligent misrepresentation. breach of contract, unjust enrichment, and violation of the New York Wage Act. Because all of Plaintiffs' federal claims will be dismissed, the Court declines to exercise its supplemental jurisdiction over these State law claims. See 28 U.S.C.A. § 1367 (West 2002). Therefore, they will be dismissed, without prejudice.
Plaintiffs request that, if the Court dismisses the RICO claims, the Court "remand" the state law claims to the Supreme Court of the State of New York. Because this case originated in federal court, no such diversion to state court is available. See Doyle v. City of New York, 580 F. Supp. 59, 60 (S.D.N.Y. 1984) (recognizing that a federal court remands cases to state court only when they are originally filed in state court and improperly removed to federal court).
CONCLUSION
For the foregoing reasons, the Defendants' motions to dismiss the Second Amended Complaint are granted pursuant to Fed.R.Civ.P. 12(b)(6) as to the RICO claims and pursuant to Fed.R.Civ.P. 12(b)(1) as to the state law claims. In addition, the Court declines to exercise its supplemental jurisdiction over the state law claims against Defendants. The Clerk of the Court shall issue judgment dismissing the Second Amended Complaint.SO ORDERED.