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FIRST CITY NAT. BANK v. FEDERAL DEP. INS.
January 16, 1990
FIRST CITY NATIONAL BANK AND TRUST COMPANY, PLAINTIFF,
FEDERAL DEPOSIT INSURANCE COMPANY, AS RECEIVER FOR FIRST INTER-COUNTY BANK OF NEW YORK, TIBERIU HOROVITZ, JAMES HURTIG, LUIS ELECTRICAL CONTRACTING CORP., DOMENICO RABUFFO, ROADWORKS INDUSTRIES, INC., RICHARD CAPLAN, GEORGIAN MOTEL CORP., ORVAL PENROSE, PHILIP WOLITZER, MICHAEL ZINMAN, MARVIN J. LEVINE, MARVIN J. MEYER, AVERELL H. FISK, STEVEN A. SANDERS, PAUL A. SCHWARTZ, JACK GRAFF AND BARD & GLASSMAN, DEFENDANTS.
The opinion of the court was delivered by: McLAUGHLIN, District Judge.
Defendants move pursuant to: (i) Fed.R.Civ.P. 12(b)(6) to
dismiss RICO claims under Count One for failure to state an
actionable claim; (ii) Fed.R.Civ.P. 12(b)(1) to dismiss common
law fraud claims under Count Two for lack of subject matter
jurisdiction; (iii) Fed.R.Civ.P. 9(b) to dismiss the Complaint
for failure to plead fraud with sufficient particularity; (iv)
Fed.R.Civ.P. 12(f) to strike portions of the complaint as
immaterial, impertinent or scandalous; (v) Fed.R.Civ.P. 12(g)
to amend prior motions; (vi) Fed.R.Civ.P. 21 for misjoinder;
(vii) Fed.R.Civ.P. 42(b) for separate trials; and (viii)
Fed.R.Civ.P. 11 for sanctions against plaintiff. Plaintiff
requests leave to replead in the event portions of the Amended
Complaint are dismissed.
On August 8, 1987, Irwin Schiff was assassinated while
dining at the Bravo Sergio restaurant in New York City. An
investigation into his murder peeled back layers of criminal
fraud like the skin of an onion. One of these skins involved
First Inter-County Bank of New York ("First Inter-County"), a
federally chartered banking association that is owned outright
by GHW Associates, a bank holding company. Schiff, a convicted
felon, was a partner at GHW who subsequently sold his interest
to Domenico Rabuffo, a defendant named in the complaint.
Although Schiff sold his partnership interest in First
Inter-County, he apparently never lost his influence. Working
through First Inter-County's president, Tiberiu Horovitz,
Schiff secured excess financing for various corporations
— most of which Schiff controlled through disclosed and
undisclosed interests. The investigation into Schiff's murder
suggested that he was profoundly corrupt, involved in check
kiting, fraud, money laundering and organized crime.
Plaintiff alleges that, for his role in the lending scheme,
Horovitz was showered with lavish gifts from clients — a
yacht, a chauffeur and car. As president of First Inter-County,
Horovitz allegedly sought to spread the costs of this excess
financing by encouraging other banks to participate through
direct loans or participation agreements.
Plaintiff is a bank. Based upon what it alleges were
outright lies and misrepresentations, principally by Horovitz,
it lent over two million dollars to two of Schiff's rogue
corporations and participated in an existing loan worth one
and a half million dollars to a third Schiff corporation, all
of which are named as defendants. Because the keystone of
Schiff's financing empire, First Inter-County, became
insolvent early in 1988, the Federal Deposit Insurance
Corporation ("FDIC") took over as receiver, and it too is a
In its sixty-six page Amended Complaint, plaintiff First
City National Bank and Trust Company ("FCNB") alleges that
First Inter-County, its directors, officers and accountants,
along with several other First Inter-County clients, committed
common law fraud and conducted a fraudulent lending scheme in
violation of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"). The hub of the charge is that, in
early summer 1986, the president of First Inter-County,
defendant Tiberiu Horovitz, embarked on his elaborate scheme
to obtain excess financing from FCNB for three corporate
defendants named in the Amended Complaint.
The first corporate defendant, Luis Electrical Contracting
Corp. ("Luis Electrical"), is wholly owned by Luis Equipment
Corp. ("Luis Equipment"). Defendant Domenico Rabuffo owns 48%
of Luis Equipment and he served as the corporation's
The second corporate defendant, Roadworks Industries, Inc.
("Roadworks"), is engaged in leasing luxury automobiles.
Defendant Richard Caplan was both president and principal
shareholder of Roadworks.
Defendant Georgian Motel Corp. ("Georgian") is the third
corporate defendant allegedly involved in the fraud. Defendant
Orval Penrose is the principal owner of Georgian, although it
is alleged that Rabuffo and Luis Electrical have a
multi-million dollar interest in the motel.
The first two corporate defendants borrowed substantial sums
directly from FCNB; and the third, Georgian, benefited from
FCNB's participation in an existing loan. Upon discovering
that all three corporations had fallen behind in scheduled
payments, plaintiff notified First Inter-County of the
delinquent loans and demanded that First Inter-County
repurchase the loans and also repay the amounts borrowed
under the participation agreement, as orally promised during
earlier negotiations. Soon after, in August 1987, defendant
Horovitz allegedly offered Robert Reddington, a senior vice
president of plaintiff FCNB, a $30,000 bribe. Amend. Complaint
at 39. Subsequently, the loans fell into default, and this
Most of the remaining defendants are former members of First
Inter-County's board of directors. They are defendants Zinman,
Levine, Meyer, Fisk, Sanders and Schwartz. The Amended
Complaint also names as defendants former Inter-County board
chairman Philip Wolitzer, former bank president Jack Graff and
former bank vice president James Hurtig. Defendant Bard &
Glassman ("B & G"), a certified Public Accounting firm,
performed professional services for First Inter-County and for
For purposes of these motions the Court must accept as true
all factual allegations in the Amended Complaint. Procter &
Gamble Co. v. Big Apple Industrial Bldgs. Inc., 879 F.2d 10, 18
(2d Cir. 1989). Jurisdiction rests upon a federal question
involving the RICO statute and pendent jurisdiction over
predicate acts involving common law fraud.
I. MOTION TO DISMISS RICO CLAIMS
Defendant FDIC, as receiver for First Inter-County, moves to
dismiss the entire complaint. All but three remaining
defendants — Hurtig, Luis Electrical and Rabuffo — move
pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss Count One of the
Amended Complaint for failure to state a claim. Movants argue
that FCNB has failed to plead the statutory elements of civil
RICO prohibits all of the following: (i) using or investing
income derived from a pattern of racketeering activity to
acquire an interest in an enterprise engaged in interstate
commerce, (ii) acquiring or maintaining an interest in an
enterprise through a pattern of racketeering activity, (iii)
participating in the conduct of an enterprise affecting
interstate commerce through a pattern of racketeering
activity, and (iv) conspiring to do any of the above.
18 U.S.C. § 1962(a)-(d). Predicate acts alleged in the Amended
Complaint to establish a pattern of racketeering activity
include mail fraud, wire fraud, and commercial bribery.
18 U.S.C. § 1341, 1343; N.Y. Penal Law § 180.03 (McKinney 1988).
A. Investing Income And Acquiring Interests In A RICO
RICO section 1962(a) renders criminally and civilly liable
"any person who has received any income derived, directly or
indirectly, from a pattern of racketeering activity . . . to
use or invest . . . such income . . . in acquisition of any
interest in, or the establishment or operation of, any
enterprise which is engaged in interstate or foreign
commerce." 18 U.S.C. § 1962(a). Section 1962(b) proscribes the
acquisition of an interest in or control of any such enterprise
through a pattern of Racketeering activity.*fn2 Section 1962
is intended to prevent racketeering activity from infiltrating
legitimate business enterprises, as well as to halt the
investing or reinvesting of income derived from a pattern of
racketeering in illegal enterprises. See United States v.
Turkette, 452 U.S. 576, 584, 101 S.Ct. 2524, 2529, 69 L.Ed.2d
246 (1981); Moll v. U.S. Life Title Ins. Co., 654 F. Supp. 1012,
1033 (S.D.N.Y. 1987).
Under section 1962(a) and (b), plaintiff must allege that
defendants invested, acquired or maintained interests in an
enterprise through a pattern of racketeering activity.
Bingham v. Zolt, 683 F. Supp. 965, 971 (S.D.N.Y. 1988).
Additionally, plaintiff must allege injury to his business or
property by reason of the racketeering activity. Id. at 971;
Anitora Travel, Inc. v. Lapian, 677 F. Supp. 209, 218 (S.D.N Y
1988); DeMuro v. E.F. Hutton, 643 F. Supp. 63, 66 (S.D.N Y
Plaintiff makes only conclusory allegations that each
defendant violated section 1962(a) and (b). Amend. Complaint
at 54-64. Plaintiff does not allege that any defendant
invested racketeering income in an enterprise through
racketeering activity. DeMuro, 643 F. Supp. at 66. Consequently,
the Amended Complaint does not state an actionable claim under
section 1962(a) and must be dismissed.
FCNB alleges that a pattern of racketeering activity
furthered an enterprise's common purpose through arranging
"additional financing for Luis Electrical, Roadworks, Georgian
and others." Clearly, this constitutes acquisition or
maintenance of an interest in or control of an enterprise as
required under section 1962(b). Amend. Complaint at 22. The
Amended Complaint also alleges that plaintiff suffered a
resultant injury in that the loans are now in default. Thus,
if it is sufficiently alleged that defendants engaged in a
pattern of racketeering activity, as discussed below, I
conclude that the Amended Complaint also alleges a sufficient
claim for acquiring an interest in an enterprise under section
B. Participation In The Conduct Of A RICO
Section 1962(c) prohibits the conduct of an enterprise
through a pattern of rack-eteering activity. H.J. Inc. v.
Northwestern Bell Telephone Co., ___ U.S. ___, 109 S.Ct. 2893,
2897, 106 L.Ed.2d 195 (1989). Section 1962(c) specifically
It shall be unlawful for any person employed by
or associated with any enterprise engaged in, or
the activities of which affect, interstate or
foreign commerce, to conduct or participate,
directly or indirectly, in the conduct of such
enterprise's affairs through a pattern of
racketeering activity or collection of unlawful
An "enterprise," includes a union or group of individuals
"associated in fact although not a legal entity."
18 U.S.C. § 1961(4). The enterprise is generally a group of persons
associated together for the common purpose of engaging in a
course of conduct. Procter & Gamble Co. v. Big Apple Industrial
Bldg., 879 F.2d at 15. Taken together, defendants' actions in
the three transactions — Luis Electrical, Roadworks, and
Georgian — demonstrate the "association in fact" needed to
establish an enterprise as defined in section 1961(4). Based
solely on the pleadings, one may reasonably conclude that
defendants Horovitz, Hurtig, Luis Electrical, Rabuffo,
Roadworks, Caplan, Georgian and Penrose associated with each
other for the common purpose of engaging in a course of conduct
— an enterprise.
A pattern of "racketeering activity" is typically a series
of criminal acts as defined in section 1961(1). Procter &
Gamble, 879 F.2d at 15. The racketeering or predicate criminal
acts must occur within ten years of each other.
18 U.S.C. § 1961(5). In this case the predicate acts alleged include
instances of mail fraud, wire fraud, and attempted bribery. See
18 U.S.C. § 1341, 1343, 1961(1); N.Y.Penal Law § 180.03
(McKinney 1988). Amend. Complaint at 36, 43-44.
Case law establishes that "for a pattern to exist, the
alleged criminal acts should be characterized by their
relatedness and continuity." Procter & Gamble, 879 F.2d at 15.
In H.J. Inc. the Court stated that "[f]or analytic purposes
these two constituents of RICO's pattern requirement must be