Opinion
04 Civ. 3388 (MHD).
June 23, 2006
MEMORANDUM ORDER
Popular singer Ashanti Douglas and Shanshia Touring, Inc., the entity through which she contracts for professional engagements, commenced this lawsuit in May 2004 against Louise Ferguson, alleging that Ms. Ferguson had defrauded them in connection with three concert contracts between plaintiffs and two entities known as Tom Moffatt Production, Inc. and SRM and Associates ("SRM"). Plaintiffs assert claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., based on both defendant's alleged violation of federal mail-fraud, wire-fraud, and bank-fraud statutes, 18 U.S.C. §§ 1341, 1343 1344, and her violations of state law, including use of a scheme to defraud, grand larceny, and breach of fiduciary duties. Plaintiffs also assert separate claims for the alleged predicate acts themselves.
In substance plaintiffs complain that Ms. Ferguson fraudulently induced them to enter into those contracts, pursuant to which Ms. Douglas performed three concerts, which generated certain amount of performance fees, and that Ferguson improperly retained a portion of the fees without Ms. Douglas's approval, after having received the fees on plaintiffs' behalf. Defendant has now moved to dismiss the amended complaint under Fed.R.Civ.P. 12(b) (1), 12(b) (6) and 9(b), for lack of subject-matter jurisdiction, failure to state a claim, and failure to plead fraud with particularity. For the reasons given below, we grant defendant's motion, and the amended complaint is dismissed without prejudice and with leave to replead.
The amended complaint does not suggest that Ms. Ferguson was a party to these contracts. Neither Tom Moffatt nor SRM is a party to this case.
Neither the complaint nor the amended complaint states the total amount of the fees.
BACKGROUND
According to the amended complaint, sometime in July 2003 Louise Ferguson placed a telephone call from Atlanta, Georgia to Ashanti Douglas, who lived in Roslyn, New York. During the conversation, Ferguson represented herself to be the agent of SRM and solicited Douglas's performance at a concert to be arranged by SRM in Tokyo, Japan in October 2003. Plaintiffs allege that, "in order to induce plaintiff[s] into entering into a contract for an ongoing business relationship," Ferguson "knowingly and falsely represented" to Douglas that she had been directed to open an office for SRM in New York. (Am. Compl. at ¶ 13).
Following that initial communication, the parties engaged in a series of interstate negotiations via telephone, mail and email, and, "in reliance upon representations made by defendant" in those communications, plaintiffs entered into a contract for a concert by Douglas in Tokyo in October 2003. (Id. at ¶¶ 12, 14). Plaintiffs maintain that the contract provided that SRM would deposit Douglas's performance fees into a "trust account" under Ferguson's name in a bank in Georgia, and that Ferguson was to act as a trustee and to forward the full amount of the fees to Douglas in New York immediately upon receipt. (Id. at ¶ 16).
As recounted in the amended complaint, the parties subsequently engaged in another series of interstate negotiations, which led to similar agreements for two additional concerts: one in Fukuoka, Japan, and the other in Honolulu, Hawaii. (Id. at ¶¶ 18-22). After the three concerts had been performed, performance fees were deposited into a "performance account" under Ferguson's name. Plaintiffs allege that Ferguson retained $25,000 of those fees without their consent, forwarding only the remaining portion to plaintiffs. (Id. at ¶ 23). When they demanded the remission of the $25,000, plaintiffs allege, Ferguson refused to comply and "falsely represented that the funds withheld were agency fees" for her services in obtaining the contracts. (Id. at ¶ 26).
This lawsuit followed. Plaintiffs assert seven causes of action: (1) mail fraud, (2) wire fraud, (3) bank fraud, (4) violation of N.Y. Penal Law § 155.35 (Grand Larceny in the Third Degree), (5) violation of N.Y. Penal Law § 190.65 (Scheme to Defraud in the First Degree), (6) breach of fiduciary duty, and (7) civil RICO. The first six counts are asserted both as independent claims and as predicate acts for the RICO claim. Plaintiffs seek to recover $86,000 in compensatory damages, an unspecified amount in punitive damages, and costs and attorney's fees.
The amended complaint counts them as six causes of action, with bank fraud and grand larceny both enumerated as "THIRD CAUSE OF ACTION." (See Am. Compl. at ¶¶ 39-42).
Defendant has moved to dismiss the amended complaint. She argues (1) that plaintiffs' RICO claim is insufficient to provide a basis for federal-question jurisdiction under 28 U.S.C. § 1331, (2) that the amended complaint fails to plead fraud under RICO with particularity, as required by F.R.C.P. 9(b), (3) that the New York penal law claims do not constitute predicate acts for purposes of maintaining a RICO action, (4) that the amended complaint fails to plead a "pattern" of racketeering activity as required by 18 U.S.C. § 1962, (5) that this court lacks diversity jurisdiction over plaintiffs' state-law claims because plaintiffs cannot satisfy the amount-in-controversy required by 28 U.S.C. § 1332, and (6) that the amended complaint fails to state a claim for fiduciary-duty breach.
ANALYSIS
I. RICO Claims — Motion to Dismiss Pursuant to Rule 12(b) (1)
Generally, courts determine a motion to dismiss under Rule 12(b) (1) before ruling on a Rule 12(b) (6) motion, because dismissal of an action for lack of subject-matter jurisdiction will moot all other defenses and motions. See, e.g., Bell v. Hood, 327 U.S. 678, 682 (1946); see also Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir. 1990); Hason v. Office of Prof'l Med. Conduct, 314 F. Supp. 2d 241, 246 (S.D.N.Y. 2004). In considering a challenge to subject-matter jurisdiction, the court "must accept as true all material factual allegations in the complaint," but is "not to draw inferences from the complaint favorable to plaintiffs."J.S. ex rel. N.S. v. Attica Cent. Sch., 386 F.3d 107, 110 (2d Cir. 2004) (citing Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998)). "Although courts are generally limited to examining the sufficiency of the pleadings on a motion to dismiss, `on a challeng[e] [to] the district court's subject matter jurisdiction, the court may resolve disputed jurisdictional fact issues by reference to evidence outside the pleadings.'" Flores v. S. Peru Copper Corp., 414 F.3d 233, 255 n. 30 (2d Cir. 2003) (quoting Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 932 (2d Cir. 1998)); see also J.S. ex rel. N.S., 386 F.3d at 110.
If the complaint "is so drawn as to seek recovery directly under the Constitution or laws of the United States," the district court must entertain the suit unless the federal claim "clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous." Bell, 327 U.S. at 681-83. "[I]n 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 or the Constitution. 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)). See, e.g., Takeda Chem. Indus. Ltd. v. Watson Pharm., Inc., 329 F. Supp. 2d 394, 401 (S.D.N.Y. 2004); Int'l Bhd. of Teamsters v. Carey, 163 F. Supp. 2d 271, 278 (S.D.N.Y. 2001).
Plaintiffs' amended complaint seeks recovery directly under 18 U.S.C. § 1962(c) (see Am. Compl. at ¶ 52), which makes it 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." 18 U.S.C. § 1962(c). Section 1961(1) defines "racketeering activity" as certain criminal acts under federal and state laws, including, inter alia, mail fraud, 18 U.S.C. § 1341, wire fraud, 18 U.S.C. § 1343, bank fraud, 18 U.S.C. § 1344, and various state-law violations warranting imprisonment for more than one year. 18 U.S.C. § 1961(1) (A) (B). Section 1961(5) defines "pattern of racketeering activity" as "at least two acts of racketeering activity." 18 U.S.C. § 1961(5).
Here plaintiffs allege that defendant, by participating in the affairs of SRM and Tom Moffatt Production as their agent, committed a variety of predicate acts: violation of 18 U.S.C. §§ 1341, 1343, and 1344, violation of N.Y. Penal Law §§ 155.35 190.65, and breach of fiduciary duty. (See Am. Compl. at ¶ 52). Because the asserted basis for subject-matter jurisdiction is also an element of the plaintiff's allegedly federal cause of action and the amended complaint is so drawn as to seek recovery directly under RICO, we assume jurisdiction, even though plaintiffs' vague and conclusory allegations are vulnerable to defendant's challenge that they are merely a device to dress up an ordinary contract or tort claim as a RICO action in order to obtain federal jurisdiction. We therefore proceed to evaluate the RICO and other federal claims under Rules 12(b) (6) and 9(b). See, e.g., Nowak, 81 F.3d at 1189.
II. RICO and Other Federal-Law Claims — Motion to Dismiss Pursuant to Rule 12(b) (6) A. General Standards for 12(b) (6) Dismissal
The court may dismiss a claim under Rule 12(b) (6) only if "plaintiff can prove no set of facts upon which relief may be granted." Anatian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir. 1999). In making this decision, the court may consider only the facts alleged in the pleadings and its exhibits, other documents expressly incorporated in it or information of which the court may take judicial notice. See, e.g., Cohen v. Keonig, 25 F.3d 1168, 1172 (2d Cir. 1994);see also Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985); Brown v. Resolution Trust Corp., 1995 WL 43674, at *3 (S.D.N.Y. Feb. 2, 1995). Moreover, the court must accept the factual allegations of the complaint as true, and draw all reasonable inferences in plaintiff's favor. IUE AFL-CIO Pension Fund v. Harrmann, 9 F.3d 1049, 1052 (2d Cir. 1993).
B. Establishing a RICO Claim
To state a civil RICO claim under 18 U.S.C. § 1962(c), a plaintiff must allege "(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 . . . participate[d] in (6) an `enterprise' (7) the activities of which affect interstate or foreign commerce." Moss v. Morgan Stanley Inc. 719 F.2d 5, 17 (2d Cir. 1983); see also DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001). Defendant contends that plaintiffs fail adequately to plead the "racketeering activity" and the "pattern" elements. We agree.
1. Pleading Predicate Acts of Racketeering Activity
As noted, "racketeering activity" is defined as criminal acts under enumerated federal laws and various state-law violations warranting imprisonment for more than one year. 18 U.S.C. §§ 1961(1) (A) (B). Here plaintiffs predicate their RICO claim on six asserted violations of federal and state law. First, plaintiffs allege that defendant violated the federal mail-fraud and wire-fraud statutes, 18 U.S.C. §§ 1341 1343, by inducing them to enter into the concert contracts. (See Am. Compl. at ¶¶ 33-38, 52). Second, they allege that defendant, by retaining a portion of the performance fees, violated the federal bank-fraud statute, 18 U.S.C. § 1344, a state-law prohibition of grand larceny, N.Y. Penal Law § 155.35, and the criminal prohibition against schemes to defraud, N.Y. Penal Law § 190.65. (See id. at ¶¶ 39-44, 52). Finally, they allege the existence of a fiduciary relationship between plaintiffs and Ferguson, and contend that Ferguson breached her fiduciary duties by retaining a portion of the performance fees. (See id. at ¶¶ 45-46, 52). We address these arguments one by one.
The provisions of the mail- and wire-fraud statutes are similar, and the cases construing one statute are applicable to the other. See United States v. Reifler, 446 F.3d 65, 95 (2d Cir. 2006) (citing Carpenter v. United States, 484 U.S. 19, 25 n. 6 (1987)). To maintain the chronological order of the events alleged in the amended complaint, we examine plaintiffs' claim of wire fraud first.
"A complaint alleging mail and wire fraud must show (1) the existence of a scheme to defraud, (2) defendant's knowing or intentional participation in the scheme, and (3) the use of interstate mails or transmission facilities in furtherance of the scheme." S.O.K.F.C., Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629, 633 (2d Cir. 1996). The wire communications "themselves need not contain misrepresentations, nor must they contribute directly to the deception of the plaintiffs," as long as they are "part of the execution of the [underlying fraudulent] scheme."Weizmann Institute of Science v. Neschis, 421 F. Supp. 2d 654 (S.D.N.Y. 2005) (citing Center Cadillac, Inc. v. Bank Leumi Trust Co. of New York, 808 F. Supp. 213, 228 (S.D.N.Y. 1992),aff'd, 99 F.3d 401 (2d Cir. 1995)). The complaint must also allege that the defendant "have made misrepresentations that are material to the harm to the victim" as part of the scheme to defraud. Moore v. PaineWebber, Inc., 189 F.3d 165, 179 (2d Cir. 1999).
In addition, the pleading of RICO predicate acts that sound in fraud must satisfy the strictures of Fed.R.Civ.P. 9(b). See Moore, 189 F.3d at 172-173. Rule 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b). To satisfy Rule 9(b), a complaint alleging a claim of wire fraud or mail fraud under RICO must "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 v. Anderson, 962 F.2d 187, 191 (2d Cir. 1992) (citing Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989)). The plaintiff must also "identify the purpose of the [wire communication] within the defendant's fraudulent scheme." Id. In addition, the plaintiff must "allege facts that give rise to a strong inference of fraudulent intent." Moore, 189 F.3d at 173 (citing San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 812 (2d Cir. 1996)).
Plaintiffs' claim of wire fraud falls far short of the requirements of Rules 12(b) (6) and 9(b). In fact, all their fraud claims are based on a single alleged misrepresentation made by defendant regarding an apparently irrelevant matter, namely, that defendant "knowingly and falsely represented to plaintiff[s] that she had been directed to open offices in New York for the purpose of facilitating her ongoing role as managing agent for SRM and Associates." (Am. Compl. at ¶ 13). Plaintiffs assert that defendant made that statement "in an effort to further induce plaintiff[s] into entering into a contract for an ongoing business relationship." (Id.). Aside from this one allegation, plaintiffs allege only that "defendant used interstate wire communications . . . for the purpose and in furtherance of a scheme to defraud plaintiff." (Id. at ¶ 10).
Plaintiffs' isolated allegation of defendant's one misrepresentation fails to state a claim of wire fraud. First, they fail to identify a scheme to defraud. In fact, all they are alleging is that defendant had one. That is clearly insufficient to survive a 12(b) (6) motion — they must "show the existence of a scheme to defraud." S.Q.K.F.C., Inc., 84 F.3d at 633. Similarly, their conclusory assertion that "defendant used interstate wire communications . . . for the purpose and in furtherance of a scheme to defraud plaintiff" (Am. Compl. at ¶ 10) does not satisfy their burden of identifying defendant's purpose in lying about a plan to open an office in New York,see McLaughlin, 962 F.2d at 191, because they are merely paraphrasing a general legal standard without pleading any facts specific to their own case.
Moreover, the amended complaint does not explain how defendant's alleged misrepresentation was "material to the harm to the victim." See Moore, 189 F.3d at 169. We are offered no indication as to why the opening of an office in New York by defendant was important to Ms. Douglas, or how this representation contributed, if at all, to whatever harm plaintiffs suffered.
Finally, although plaintiffs do identify an alleged false statement, they fail to "give particulars as to the respect in which plaintiffs contend the statements were fraudulent." See McLaughlin, 962 F.2d at 191. A false statement is not necessarily fraudulent — it could as well be negligent or reckless. Plaintiffs proffer nothing to inform us as to why defendant's alleged representation could be construed as fraudulent. Notably, they fail to allege any facts that give rise to a strong inference of fraudulent intent. These failures are fatal to plaintiffs' wire fraud claim. See Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972) ("the mere assertion that wrongful statements were made, without more, is wholly insufficient to support a claim of fraud"); Frooks v. Town of Cortlandt, 997 F. Supp. 438, 457-458 (S.D.N.Y. 1998) ("conclusory allegations that . . . conduct was fraudulent or deceptive are insufficient to satisfy [Rule] 9(b)"; the facts alleged "must support an inference of fraudulent intent.") (citing cases).
b. Mail Fraud
In attempting to make out a mail-fraud claim, plaintiffs allege that subsequent to the initial telephone conversation in which defendant mentioned her company's plan to open an office in New York, she made further "representations" to Douglas — with no indication whatsoever that those representations were false — "via a series of interstate negotiations conducted via telephone, U.S. mail and the Internet." (Am. Compl. at ¶ 14). Plaintiffs assert that they entered into a contract with SRM for the Tokyo concert in reliance upon those unspecified representations. (Id.). Subsequently, according to plaintiffs, "defendant used the U[.]S[.] Postal Service to forward contracts and materials to plaintiff[s] in furtherance of her scheme to defraud." (Id. at ¶ 15). Finally, plaintiffs allege, again in conclusory terms, that Ferguson contacted Douglas through "a series of interstate communications via telephone, U[.]S[.] mail and the internet," to solicit her performance at two other concerts, and that this was "part of an overall scheme to fraudulently obtain funds belonging to plaintiff." (Id. at ¶ 18).
As with wire fraud, plaintiffs' mail-fraud allegations also fail to meet the pleading requirements of Rules 12(b) (6) and 9(b). Although the mailings themselves need not contain misrepresentations or contribute directly to the deception of the plaintiffs, Weizmann Inst. of Sci., 2005 WL 3434602, at *25, their contents must be specifically described so as to allow the court to infer that they may be "part of the execution of the [underlying fraudulent] scheme." Id. Plaintiffs merely allege that defendant made some "representations" "via telephone, U.S. mail and the Internet" and "used the U[.]S[.] Postal Service to forward contracts and materials." But none of these activities has been made unlawful by RICO (or any other law). Since plaintiffs have given us no clue as to what defendant said in those "representations," what was said on the phone and what in the mailings, or in what respect they were false or fraudulent, their mail-fraud claim must fail. See Atlantic Gypsum Co, Inc. v. Lloyds Intern. Corp., 753 F. Supp. 505, 513 (S.D.N.Y. 1990) (mail and wire fraud claims dismissed because "the complaint consists of little more than a description of routine business communications").
c. Bank Fraud
The bank-fraud statute makes it unlawful for anyone to "knowingly execute . . . a scheme or artifice (1) to defraud a financial institution; or (2) to obtain any of the moneys . . . under the control of a financial institution, by means of false or fraudulent pretenses, representations, or promises." 18 U.S.C. § 1344. Plaintiffs' case is not based on an allegation that Ferguson defrauded a financial institution, and they fail to set forth their grounds for claiming that Ferguson obtained money from a financial institution "by means of false or fraudulent pretenses, presentations, or promises."
Plaintiffs allege that "[d]efendant's conduct as described in paragraphs 21 through 31 above constitutes Bank Fraud in violation of 18 U.S.C. § 1344." (Am. Compl. at ¶ 40). Nowhere in those paragraphs, however, do plaintiffs identify any "false or fraudulent pretenses, representations, or promises" by defendant in order to obtain funds from a financial institution. In those paragraphs plaintiffs complain about two things that defendant did: one is that defendant retained $25,000.00 from Douglas's performance fees when forwarding the remainder to plaintiffs (id. at ¶ 23), and the other is that defendant initiated a wire transfer of funds to plaintiffs and later attempted to reverse the transfer. (Id. at ¶¶ 27-29). Neither drawing money from a bank nor reversing a bank transaction, however, violates the bank-fraud statute; only doing those things "by means of false or fraudulent pretenses, representations, or promises" does. 18 U.S.C. § 1344. See, e.g., United States v. Blackmon, 839 F.2d 900, 905 (2d Cir. 1988) (holding that withdrawals of money from banks did not violate bank-fraud statute because "the withdrawals were not undertaken `by means of false or fraudulent pretenses'") (citing 18 U.S.C. § 1344). Plaintiffs' bank-fraud allegations fail because plaintiffs plead no fraudulent element.
d. New York Penal Law Violations as RICO Predicate Acts
Plaintiffs also base their civil RICO claim on two alleged state Penal Law violations: grand larceny, in violation of N.Y. Penal Law § 155.35, and a scheme to defraud, in violation of N.Y. Penal Law § 190.65. (See Am. Compl. at ¶ 52). Neither of these alleged state-law violations constitutes a predicate act for purposes of civil RICO liability, however, because "the only state law crimes which constitute predicate acts of racketeering activity under Section 1961 are those acts `chargeable under State law and punishable by imprisonment for more than one year,' which involve `murder, kidnaping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical.'" Crown Heights Jewish Community Council, Inc. v. Fischer, 63 F. Supp. 2d 231, 238 (E.D.N.Y. 1999) (citing 18 U.S.C. § 1961(1) (A)), aff'd mem., 216 F.3d 1071 (2d Cir. 2000).
Neither of the state-law criminal violations alleged by plaintiffs falls within this definition. See, e.g., Oak Bevs., Inc. v. Tomra of Mass., L.L.C., 96 F. Supp. 2d 336, 348 (S.D.N.Y. 2000) (scheme to defraud, in violation of N.Y. Penal Law § 190.65, does not constitute a predicate act for purpose of alleging "racketeering activity" under RICO); Browning Ave. Realty Corp. v. Rosenshein, 774 F. Supp. 129, 137 (S.D.N.Y. 1991) (first-degree grand larceny, in violation N.Y. Penal Law § 155.42, does not constitute a RICO predicate act).
e. Breach of Fiduciary Duty as RICO Predicate Act
Plaintiffs' allegation of a fiduciary breach as a predicate act under RICO also fails, because breach of fiduciary duty does not fall within the definition of "racketeering activity" found in 18 U.S.C. § 1961(1). See, e.g., Leung v. Law, 387 F. Supp. 2d 105, 123 (E.D.N.Y. 2005); Behette v. Saleeby, 842 F. Supp. 657, 661 (E.D.N.Y. 1994) (citing Manion v. Freund, 967 F.2d 1183, 1186 (8th Cir. 1992)).
2. Pattern of Predicate Acts
As noted, plaintiffs must allege that defendant engaged in a pattern of predicate acts. Since plaintiffs have failed adequately to plead the commission by Ferguson of any predicate acts, they have necessarily failed as well to satisfy the "pattern" requirement. It also bears mention that plaintiffs' allegations in any event refer only to a one-time misappropriation of funds, and this type of allegations cannot satisfy the continuity requirement for pleading a RICO pattern of racketeering activity. See, e.g., Schlaifer Nance Co. v. Estate of Warhol, 119 F.3d 91, 98 (2d Cir. 1997) (explaining that alleged fraudulent negotiation of a contract did not satisfy the continuity requirement because it was only one act); United States v. Indelicato, 865 F.2d 1370, 1383 (2d Cir. 1989) (en banc) (cautioning that courts must take care to ensure that a RICO plaintiff is not artificially "fragment[ing] an act that plainly is unitary into multiple acts in order to invoke RICO").Cf. Beauford v. Helmsley, 865 F.2d 1386, 1392 (2d Cir.) (en banc) (holding that alleged one-time mailing of 8,000 copies of fraudulent documents in connection with a condominium conversion plan was sufficient to plead a "pattern," where there was a basis to infer that similar mailings would occur in the future),vacated and remanded, 492 U.S. 914, adhered to on remand, 893 F.2d 1433 (1989).
C. Other Federal-Law Claims under Rule 12(b) (6)
In addition to plaintiffs' RICO claims, they reiterate a number of their alleged predicate acts as independent federal claims. These include claims for mail fraud, wire fraud, and bank fraud. (See Am. Compl. ¶¶ 33-40). None states a claim.
As a general matter, unless a criminal statute specifically authorizes a private right of action, none exists. See Thompson v. Thompson, 484 U.S. 174, 179 (1988); Cort v. Ash, 422 U.S. 66, 79 (1975) (no private right of action exists under criminal statutes unless there is a clear statutory basis for such an inference); Nashville Milk Co. v. Carnation Co., 355 U.S. 373 (1958). It is well established that no private right of action exists under the federal mail-fraud, wire-fraud, or bank-fraud statutes, 18 U.S.C. §§ 1341, 1343, 1344 (except in RICO cases). See Official Publications, Inc. v. Kable News Co., 884 F.2d 664, 667 (2d Cir. 1989) (no private right of action exists under 18 U.S.C. § 1341 or § 1343); Rivera v. Golden Nat'l Mortg. Banking Corp., 2001 WL 716908, at *3 (S.D.N.Y. June 26, 2001) (no private right of action exists under 18 U.S.C. § 1344). Accordingly, we cannot entertain plaintiffs' claims under these statutes.
III. State-Law Claims — Diversity Jurisdiction
Having dismissed plaintiffs' RICO and other federal-law claims, we must still consider the viability of their state-law claims. These include: violation of N.Y. Penal Law § 155.35 (Grand Larceny in the Third Degree), violation of N.Y. Penal Law § 190.65 (Scheme to Defraud in the First Degree), and breach of fiduciary duty.
The amended complaint asserts that this court has subject-matter jurisdiction over these claims under 28 U.S.C. § 1332 because there is complete diversity of citizenship between the parties and "[t]he total amount expected to be recovered exceeds $75,000." (Am. Compl. at ¶¶ 7-8). Defendant contends that this court lacks diversity jurisdiction because there is a legal certainty that plaintiffs cannot recover more than $75,000. (Deft's Opp. Memo at pp. 16-19). Plaintiffs have chosen not to respond to this challenge, asserting that "the court does not have to entertain diversity jurisdiction issues" "[b]ecause this action arises out of federal subject matter." (Pltffs' Reply Memo at p. 10). Nonetheless, it is necessary to resolve the issue of diversity jurisdiction, as it determines whether this court may hear plaintiffs' state-law claims after dismissing their RICO claims. See Pennoyer v. Neff, 95 U.S. 714, 733 (1877) (a court must be "competent by its constitution — that is, by the law of its creation — to pass upon the subject-matter of the suit"); U.S. Const., Art. III, § 2 (setting out the permissible scope of the judicial power of federal courts).
It is well established that the party invoking diversity jurisdiction must show by a "reasonable probability" that the minimum amount-in-controversy requirement of section 1332 is satisfied. See, e.g., Colavito v. New York Organ Donor Network, Inc., 438 F.3d 214, 221 (2d Cir. 2006) (quotingTongkook Am., Inc. v. Shipton Sportswear Co., 14 F.3d 781, 784 (2d Cir. 1994)). The Second Circuit recognizes "a rebuttable presumption that the face of the complaint is a good faith representation of the actual amount in controversy." Id. (citing Wolde-Meskel v. Vocational Instruction Project Cmty. Servs., Inc., 166 F.3d 59, 63 (2d Cir. 1999)) (internal quotation marks omitted). To rebut this presumption, the opposing party must show that the complaint "was so patently deficient as to reflect to a legal certainty that [the invoking party] could not recover the amount alleged or that the damages alleged were feigned to satisfy jurisdictional minimums."Id.
"[I]f punitive damages are permitted under the controlling law, the demand for such damages may be included in determining whether the jurisdictional amount is satisfied." A.F.A. Tours, Inc. v. Whitchurch, 937 F.2d 82, 87 (2d Cir. 1991). The use of punitive damages to satisfy the jurisdictional amount, however, is subject to "special judicial scrutiny." Miller v. European Am. Bank, 921 F. Supp. 1162, 1167 (S.D.N.Y. 1996) (quotingCareer Initiatives Corp. v. Palmer, 893 F. Supp. 295, 296 (S.D.N.Y. 1995)); see also Zahn v. Int'l Paper Co., 469 F.2d 1033, 1034 n. 1 (2d Cir. 1972) ("in computing jurisdictional amount, a claim for punitive damages is to be given closer scrutiny . . . than a claim for actual damages." (citation omitted)). Notably, "[a] trial court is not compelled to accept a claim for punitive damages made for the purposes of conferring jurisdiction." Career Initiatives Corp., 893 F. Supp. at 296.
The amended complaint itself suggests that plaintiffs' actual loss was only $25,000 (see Am. Compl. at ¶ 23), far below the $75,000 threshold, and plaintiffs have proffered no explanation whatsoever as to how compensatory damages could actually amount to the $86,000 alleged in the amended complaint. Thus, plaintiffs have failed to establish with a "reasonable probability" that they can recover more than $75,000 in compensatory damages.
As for punitive damages, under certain circumstances they are allowed under New York law for torts such as breach of fiduciary duty, fraud, and conversion. See, e.g., Action House, Inc. v. Koolik, 54 F.3d 1009, 1013 (2d Cir. 1995) (fiduciary duty and misappropriation claims) (citing Bryce v. Wilde, 39 A.D.2d 291, 294, 333 N.Y.S.2d 614, 617 (3d Dep't 1972)); Jones v. Dana, 2006 WL 1153358, at *26 (S.D.N.Y. May 2, 2006) (fraud claims) (citing V.J.V. Transp. v. Santiago, 173 A.D.2d 537, 538, 570 N.Y.S.2d 138, 139 (2d Dep't 1991)); Giblin v. Murphy, 73 N.Y.2d 769, 772, 536 N.Y.S.2d 54, 56 (1988) (fraud claims). To be eligible for such exemplary damages, however, the plaintiff must demonstrate "the existence of circumstances of aggravation or outrage, such as spite or malice, or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that the conduct may be called wilful or wanton." Carvel Corp. v. Noonan, 350 F.3d 6, 24 (2d Cir. 2003) (citing Prozeralik v. Capital Cities Communications, Inc., 82 N.Y.2d 466, 479, 605 N.Y.S.2d 218, 225-26 (1993)) (internal quotation marks omitted).
When we apply this standard to the present case, it is clear that the amended complaint does not plead any facts warranting a conclusion that, even assuming that plaintiffs could establish tort liability, punitive damages would follow. Moreover, plaintiffs' case could be viewed as a breach-of-contract claim recast as an action in tort. See generally Becker v. Poling Transp. Corp., 356 F.3d 381, 390 (2d Cir. 2004) (court looks to facts alleged, rather than legal label, to determine nature of claim) (citing Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991)). Since New York law permits punitive damages in contract claims only when a defendant's conduct is "part of a pattern directed at the public generally," TVT Records v. Island Def Jam Music Group, 412 F.3d 82, 93 (2d Cir. 2005) (citing New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316, 639 N.Y.S.2d 283, 287 (1995)), a requirement not even remotely satisfied in this case if we credit the allegations of the amended complaint, plaintiffs cannot recover punitive damages based on the facts pled. See id. Thus, we do not have diversity jurisdiction, and plaintiffs therefore cannot maintain their remaining state-law claims in this court.
CONCLUSION
For the reasons stated, we grant defendant's motion to dismiss plaintiffs' amended complaint in its entirety. Since the pleading failures are, at least in part, potentially remediable, the appropriate disposition of the motion is to dismiss the amended complaint with leave to replead. See, e.g., Cortec Industries, Inc. v. Sun Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991); Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990). Plaintiffs are to file any such amended pleading within thirty days, or the dismissal will be deemed to be with prejudice, save for plaintiffs' assertion of the state-law claims in the state court.
SO ORDERED.