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GRAMERCY 222 RESIDENTS CORP. v. GRAMERCY REALTY AS

August 8, 1984

GRAMERCY 222 RESIDENTS CORP., RICHARD BLOCH, and STEVEN MULLER, Plaintiffs,
v.
GRAMERCY REALTY ASSOCIATES, EDWARD FRANKEL, SAMUEL FRANKEL, JULES JACOBS, HERMAN RUBINSTEIN, EUGENE SCHWEITZER, BARBARA SCHWEITZER, ABSALOM KOFMAN, STANLEY R. ROSENBERG, ROKOFF REALTY CORP., BERNARD ROTHZEID & PARTNERS, P.C., ABRAHAM JOSELOW, PROCIDA CONSTRUCTION CORP. and REUBEN MILLER, Defendants.



The opinion of the court was delivered by: GOETTEL

GOETTEL, D.J.:

This suit arises from the conversion of a commercial loft building into a residential property owned by a cooperative corporation. The cooperative and two of its shareholders are suing numerous defendants (all of whom were, however tangentially, involved in the conversion of the property) for, inter alia, mail fraud, common law fraud, negligence, malpractice, breach of contract, and violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. (1982) ("RICO"). The Court's jurisdiction is invoked solely on the basis of RICO. The plaintiffs also contend that there is pendent jurisdiction over the state law claims and over those defendants who may be found not to have violated RICO.

 Presently before the Court are motions by two of the fourteen defendants seeking dismissal of the RICO charges pursuant to Fed. R. Civ. P. 12(b)(1) (lack of subject matter jurisdiction); 12(b)(2) (failure to state a claim upon which relief can be granted). Once the RICO charges are dismissed, the movants assert, pendent jurisdiction is no longer available over either the state causes of action or the defendants who are not reachable under RICO.

 The movants also request that the Court award attorneys' fees as permitted under Fed. R. Civ. P. 11.

 For the reasons set forth below, the Court grants the defendants' motion to dismiss, but denies their motions for attorneys' fees.

 BACKGROUND

 The cooperative corporation, Gramercy 222 Residents Corp., and two of its shareholders, Richard Block and Steven Muller, (hereinafter referred to collectively as "the Residents") filed a complaint against a number of defendants, *fn1" including the two movants in the instant proceeding, Bernard Rothzeid & Partners, P.C. ("Rothzeid"), the architectual firm that inspected the building before renovation and whose report was included in the selling prospectus for the cooperative, and Reuben Miller ("Miller"), the architect who inspected and approved the work of the construction firm that renovated the building.

 In a nutshell, the Residents complain that, after the creation of the cooperative corporation and the purchase of their shares, they discovered that there were extensive problems with the building's structure and components, that some substandard materials had been used in the remodelling work, and that they had been deceived as to the tax status of the cooperative. The Residents allege that the failure by Rothzeid and Miller to discover some of these allegedly defective conditions constitutes mail fraud, *fn2" common law fraud, negligence, professional malpractice, breach of contract, *fn3" and RICO violations. As a result of these failures, the plaintiffs seek $2.5 million in actual damages to cover the amount they claim has been or will be spent to repair the allegedly defective conditions in the building. Under RICO, this amount would be trebled to $7.5 million and the plaintiffs would be eligible for attorneys' fees as well.

 Before turning to a discussion of the law, the Court notes that the complaint in this case has already been dismissed once upon similar motions made by Rothzeid and Miller. Gramercy 222 Residents Corp. v. Gramercy Realty Associates, 591 F. Supp. 1408 (S.D.N.Y. 1984) (Duffy, J.). In their amended complaint, the plaintiffs have done little more than add pro forma language charging all of the defendants with mail fraud, thus laying what they hoped would be a proper foundation for the RICO complaint.Despite this effort to infuse new life into their RICO complaint, the amended complaint still falls far short of successfully stating a RICO cause of action.

 DISCUSSION

 There are two basic problems with the plaintiffs' amended complaint. First, it fails to meet the requirements needed to state a claim under RICO. Second, it fails to allege a RICO-type injury that goes beyond the injuries suffered as a result of the predicate acts.

 A. The Plaintiffs Fail to Allege the Elements of a RICO Cause of Action

 To make out a RICO cause of action, a plaintiff must "allege the existence of seven constituent elements: (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 as interest in (6) an "enterprise" (7) the activities of which affect interstate or foreign commerce." *fn4" Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983) (citing 18 U.S.C. & 1962(a)-(c) (1976)), cert. denied sub nom. Moss v. Newman, 465 U.S. 1025, 104 S. Ct. 1280, n.4, 79 L. Ed. 2d 684 (1984).

 In dismissing the original complaint, Judge Duffy stated: "Plaintiffs have clearly failed to allege the existence of elements 2 through 7." Gramercy 222 Residents Corp. v. Gramercy Realty Associates, 591 F. Supp. 1408 at 1411. In the amended complaint, it appears that the plaintiffs may have corrected some of the deficiencies of the original complaint, but it is clear that they have failed to correct all of them, and for this reason the complaint must be dismissed. This opinion will focus only on two of the shortcomings of the complaint -- that the plaintiffs failed to allege that Rothzeid and Miller invested in, maintained ...


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