there any delineation of what materials other than the
offering memoranda and supporting reports were mailed to
plaintiffs, particularly after 1983. Plaintiffs allege that
these false materials were mailed to them. Thus, plaintiffs'
implied allegation that the knowledge of which documents were
mailed is uniquely in the possession of defendants is not well
taken. Plaintiffs must identify which allegedly fraudulent
documents, other than the offering memoranda, were mailed to
Further, where there are multiple defendants, plaintiffs
must identify with particularity the roles of the individual
defendants in the mail fraud. The lumping together of the
defendants in the instant amended complaint is confusing as
well as insufficient. For example, it is unclear what, if any,
contact the Friedman & Shaftan defendants had with plaintiffs
after the distribution of the offering memoranda and the tax
opinion letter. Yet read literally, plaintiffs' pleading
states that all defendants mailed misleading materials during
the entire period of 1983 to 1986. It is just this sort of
uncertainty in pleadings of fraud claims that Rule 9(b) was
designed to prevent. Accordingly, plaintiffs' mail fraud claim
as underlying the formal RICO claim is dismissed pursuant to
Plaintiffs' pleading must also be examined in light of the
Supreme Court's ruling in H.J. Inc. A threshold issue for the
Court is whether plaintiffs have sufficiently pled the
existence of a RICO enterprise. The statute defines
"enterprise" as "[A]ny individual, partnership, corporation,
association, or other legal entity, and any union or group of
individuals associated in fact though not a legal entity."
18 U.S.C. § 1961(4). "`[An] enterprise is an entity, for present
purposes a group of persons associated together for a common
purpose of engaging in a course of conduct.'" United States v.
Indelicato, 865 F.2d 1370, 1376 (2d Cir.), cert. denied sub
nom. Furnari v. United States, ___ U.S. ___, 109 S.Ct. 3192,
105 L.Ed.2d 700 (1989), quoting United States v. Turkette,
452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (1981).
Reading the amended complaint in the light most favorable to
plaintiffs, it is apparent that they have sufficiently pled the
existence of an association-in-fact enterprise.
Having found that there is an enterprise, the Court next
turns to the question of the existence of a pattern of
racketeering. The Court is guided both by H.J. Inc. and the
Second Circuit's recent ruling in Beauford v. Helmsley,
865 F.2d 1386 (2d Cir.) vacated and remanded, 109 S.Ct. 3236
(1989), reaff'd by order dated Sept. 15, 1989 (2d Cir.), cert.
denied, ___ U.S. ___, 110 S.Ct. 539, 107 L.Ed.2d 537 (1989).
The Supreme Court found that the definition of a RICO pattern
has two elements: relationship and continuity. "[T]o prove a
pattern of racketeering activity a plaintiff . . . must show
that the racketeering predicates are related, and that they
amount to or pose a threat of continued criminal activity."
H.J. Inc., 109 S.Ct. at 2900 (emphasis in original).
The requirement of relationship among predicate acts is
intended to limit the broad reach of the RICO statute.
"Congress's goal in fashioning its definition of `pattern of
racketeering' was to exclude from the reach of RICO criminal
actions that were merely `isolated' or `sporadic.'"
Beauford, supra, 865 F.2d at 1391. But this does not mean that
the term relationship should be read too narrowly. "[A] RICO
pattern may be established without proof of multiple schemes,
multiple episodes, or multiple transactions; and [ ] acts that
are not widely separated in time or space may nonetheless
properly be viewed as separate acts of racketeering activity
for purposes of establishing a RICO pattern." Id. The Supreme
Court stated, "`[C]riminal conduct forms a pattern if it
embraces criminal acts that have the same or similar purposes,
results, participants, victims, or methods of commission, or
otherwise are interrelated by distinguishing characteristics
and are not isolated events.'" H.J. Inc., 109 S.Ct. at 2901.
Assuming that, the predicate acts had been sufficiently
pled, plaintiffs would have alleged multiple acts of
securities and mail fraud. These alleged acts all involve
the distribution of materials related to the partnerships and
the sale of interests in those partnerships to plaintiffs. The
partnerships all related to the same underlying transactions
which plaintiffs allege were fraudulent. Accordingly, the
Court finds that plaintiffs have sufficiently pled
The more difficult question is whether plaintiffs have
sufficiently pled continuity. The concept of continuity has
proven to be the most indistinct of all the interpretations
given to the statutory frame of RICO by the courts. Justice
Blackmun, writing for the Court, addressed the definition of
continuity in a RICO enterprise in detail in H.J. Inc.,
indicating that the term should be read broadly.
"Continuity" is both a closed- and open-ended
concept, referring either to a closed period of
repeated conduct, or to past conduct that by its
nature projects into the future with a threat of
repetition. . . . A party alleging a RICO
violation may demonstrate continuity over a
closed period by proving a series of related
predicates extending over a substantial period of
time. Predicate acts extending over a few weeks
or months and threatening no future criminal
conduct do not satisfy this requirement: Congress
was concerned in RICO with long-term criminal
conduct. Often a RICO action will be brought
before continuity can be established in this way.
In such cases, liability depends on whether the
threat of continuity is demonstrated.
109 S.Ct. at 2902 (emphasis in original) (citations omitted).
Just as Justice Blackmun indicates that "continuity" should
not be defined narrowly, Justice Blackmun's own efforts to
provide guidance should not be given too constricted a reading
or be read in isolation. Thus, a court should not merely look
at the duration of the enterprise and activities alleged,
check that against the time periods outlined by the Supreme
Court, and decide whether community exists. The determination
of the existence or non-existence of continuity requires the
court to look beyond the bare enterprise and predicate acts.
It is necessary for the court to examine the "overall context
in which the acts took place" in order to ascertain whether
sufficient continuity exists. United States v. Kaplan,
886 F.2d 536, 542 (2d Cir. 1989), cert. denied, ___ U.S. ___, 110 S.Ct.
1127, 107 L.Ed.2d 1033 (1990); Procter & Gamble v. Big Apple
Industrial Buildings, Inc., 879 F.2d 10, 17 (2d Cir. 1989),
cert. denied, ___ U.S. ___, 110 S.Ct. 723, 107 L.Ed.2d 743
(1990); Amsler v. Corwin Petroleum Corp., 715 F. Supp. 103, 104
(S.D.N.Y. 1989). See Beauford, supra, 865 F.2d at 1391.
In the instant case, the Court finds that continuity has
been sufficiently alleged as to defendants Friedman & Shaftan,
Worldco, Aquanetics, Hachadoorian, Finesod and Mitchell
Petroleum. The amended complaint as a whole clearly alleges
that these defendants acted in concert to the detriment of
plaintiffs over a period of years, and plaintiffs further
allege that these same defendants undertook similar actions
prior to the creation of the instant partnerships, and that
fraudulent activity has continued through the alleged
enterprise to the current date. However, plaintiffs have not
sufficiently alleged continuity as to the other defendants. It
is impossible to determine from the face of the complaint
what, if any role, the remaining defendants had in the alleged
racketeering activity beyond the creation and distribution of
the offering materials, an event which occurred at best over
a few months and which has long since ceased. Accordingly, the
RICO claims against the remaining defendants must be dismissed
for failure to plead continuity.
Defendants have also challenged plaintiffs' RICO claim as
untimely under the applicable statute of limitation. In
Agency Holding Corp. v. Malley-Duff & Associates, Inc.,
483 U.S. 143, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), the Supreme
Court set a uniform federal statute of limitation for civil
RICO actions of four years. However, the Supreme Court in
Malley-Duff explicitly declined to decide when a civil RICO
cause of action is deemed to accrue. The various circuit courts
have addressed this issue since. In Bankers Trust Co. v.
Rhoades, 859 F.2d 1096 (2d Cir. 1988), cert. denied, ___ U.S.
___, 109 S.Ct. 1642, 1643, 104 L.Ed.2d 158 (1989), the Second
Circuit explored the question of the accrual of civil RICO
claims in some depth. The Court held that "each time a
plaintiff suffers an injury caused by a violation of 18 U.S.C. § 1962,
a cause of action to recover damages based on that
injury accrues to plaintiff at the time he discovered or should
have discovered that injury." Id. at 1102.
The focus of accrual in a RICO action is different from that
for a fraud claim where the focus is on the acts of
defendants. In a RICO action, the focus is on the injury to
plaintiff. Indeed, a plaintiff may not recover under RICO
until he or she has been injured as a result of the alleged
racketeering activity. Thus, "[u]ntil such injury occurs,
there is no right to sue for damages under § 1964(c), and until
there is a right to sue under § 1964(c), a civil RICO action
cannot be said to have accrued." Id. Thus, it is the injury,
not the racketeering activity which triggers the statute of
limitation for a RICO action.
In this case, plaintiffs cannot be said to have learned of
their injury, the loss of their investment and any possible
benefits from that investment, until 1986, when the Internal
Revenue Service disallowed their tax deductions. Thus,
plaintiffs' RICO claim cannot be said to be time barred. This
is not inconsistent with the Court's finding above that
plaintiffs' securities law claim accrued at the time of
purchase. The statute of limitation for the securities law
violation focuses on plaintiffs' knowledge of defendants'
actions, while the RICO statute of limitation focuses on
plaintiffs' knowledge of when they were actually harmed by
Despite the fact the plaintiffs' RICO claim was filed in a
timely fashion, it must nonetheless be dismissed. The only
predicate act surviving scrutiny under Rules 9(b) and 12(b) is
a single § 10(b) claim of plaintiff Steven L. Ezzes against
defendants WIS, Finesod, the partnerships, and Mitchell
Petroleum. Such is not sufficient to support a RICO claim.
H) State Law Claims
Defendants maintain the plaintiffs' state law claims must be
dismissed pursuant to Fed.R.Civ.P. 12(b)(1) due to the
insufficiency of plaintiffs' federal law claims. Defendants
are correct, in part. All federal claims have been dismissed
above except plaintiff Steven L. Ezzes' § 10(b) claim against
defendants WIS, Finesod, the partnerships, and Mitchell
Petroleum. Thus, only the state law claims of plaintiff Steven
L. Ezzes against defendants WIS, Finesod, the partnerships, and
Mitchell Petroleum are cognizable by this Court. The only basis
on which the state claims of all other plaintiffs could survive
is under a theory of pendant party jurisdiction to plaintiff
Ezzes' surviving claims. The Supreme Court has recently
eliminated the type of pendant party jurisdiction that might be
asserted in the instant case. See Finley v. United States, ___
U.S. ___, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989). See also
Rocco Carriers, Ltd. v. M/V Nurnberg Express,