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April 9, 1990


The opinion of the court was delivered by: Robert J. Ward, District Judge.


Plaintiff Mishal Bin Saud ("Bin Saud"), filed a civil action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq., alleging that defendants' fraudulent activity resulted in his decision to guaranty a $42 million development loan and his subsequent $19,071,196.51 liability under that guaranty.*fn1 The Bank of New York ("BONY") has moved to dismiss the amended complaint, arguing that plaintiff is barred by the doctrine of res judicata from asserting this claim. For the reasons that follow, BONY's motion is granted and plaintiff's amended complaint against BONY is dismissed.


Bin Saud, a Saudi Arabian prince, guarantied a $42 million loan by defendant BONY, a New York corporation, to Indeco Holdings Solymar, Inc. ("Indeco Solymar"), a development company in the State of Florida. Indeco Solymar is wholly owned by its corporate parent, Indeco Holdings, Ltd. ("Indeco Limited"), which is in turn owned 50%-50% by two corporations each of which is either owned by Bin Saud or his partner Lester Colodny ("Colodny"). According to BONY, Bin Saud is an officer and director of Indeco Solymar and Bin Saud, or his agents, had joint control over all of Indeco Limited's operations relating to Indeco Solymar. Defendant Michael J. Fitzpatrick ("Fitzpatrick") is a former BONY Assistant Vice President and loan officer. Defendant John Does 1-10 are unidentified employees of Indeco Solymar.

In the amended complaint, Bin Saud alleges that Fitzpatrick accepted bribes from the John Doe employees of Indeco Solymar in return for ignoring or modifying certain loan conditions and standards. In 1980 and 1981, Fitzpatrick allegedly negotiated and obtained approval from BONY for land acquisition loans and a $35.2 million building construction loan for the development of Solymar Place, a high rise condominium in Miami Beach, Florida.*fn2 In or around 1981, two land acquisition loans were made to Indeco Limited in the amounts of $4.2 and $2.6 million. The construction loan was not disbursed at that time. Fitzpatrick allegedly caused $120,000 of the initial land acquisition funds to be diverted to his own use, and deposited this money in a Panamanian bank account.

Fitzpatrick's diversion of loan proceeds was not limited to the Indeco Solymar loans. Plaintiff maintains that Fitzpatrick also diverted portions of loans from a number of other projects he was supervising which were unrelated to Indeco Solymar or to Bin Saud. After an internal investigation in or about November 1982, BONY uncovered that Fitzpatrick had been diverting loan proceeds, and asked him to resign from his position with the bank.*fn3 Bin Saud maintains that while Fitzpatrick resigned from the bank in November 1982, BONY never informed him of the diversion of funds or the failure of Indeco Solymar to meet certain conditions specified in the loan agreements.

In or about December 1982, BONY, through James Hamilton, Fitzpatrick's supervisor, signed a commitment letter for the approval of the $35.2 million loan. The $6.8 million in prior land acquisition loans to Indeco Limited were consolidated and assigned to Indeco Solymar, bringing Indeco Solymar's total indebtedness to $42 million. Upon the closing of the loan on or about June 30, 1983, Bin Saud signed a guaranty obligating himself for the full value of the consolidated loan in the event of Indeco Solymar's default.

Indeco Solymar subsequently defaulted on the loan. BONY served Indeco Solymar with notice of acceleration of the loan and a demand for payment in full of the outstanding principal and interest. When no payment was forthcoming, BONY commenced a lawsuit against Indeco Solymar in the Circuit Court for the Eleventh Judicial District for Dade County, Florida. In that action, Indeco Solymar consented to a final judgment of foreclosure and admitted its default under the financing agreements with BONY in the amount of $24,398,086.43.

At the same time, BONY commenced an action on Bin Saud's guaranty in the United States District Court for the Southern District of New York.*fn4 Bin Saud filed an answer and impleaded Indeco Limited, co-guarantor of the loan, and Indeco Solymar. Indeco Limited and Indeco Solymar answered and filed counterclaims against Bin Saud alleging his breach of fiduciary duties as an officer and director of these entities. No counterclaims or crossclaims were filed against BONY.

On February 24, 1987, BONY moved for summary judgment in the Guaranty Action. The return date for the motion was adjourned until April 17, 1987. Shortly before the adjourned date, Bin Saud discharged his attorneys. He then failed to retain replacement counsel and failed to submit any papers in opposition to BONY's motion. Accordingly, the court entered an order, dated April 21, 1987, granting BONY's summary judgment motion on default, but providing that a motion to open the default would be entertained if made on or before May 8, 1987.

On May 8, 1987, an attorney, Alexander Aghayan ("Aghayan"), submitted a letter to the court on Bin Saud's behalf. The letter explained that Aghayan was not acting as Bin Saud's counsel of record, but stated that Bin Saud would be properly represented by counsel shortly. The court treated Aghayan's letter as a motion to open the default, returnable May 22, 1987.

On May 22, 1987, Aghayan caused two letters, both signed by Bin Saud and dated May 19, 1987, to be delivered to the court. These letters specifically requested that the court treat them as motion papers, and then proceeded to outline Bin Saud's arguments for opening the default.

After considering these letters, the court found no basis for opening the default and entered judgment, on June 24, 1987, in favor of BONY against Bin Saud in the principal amount of $19,071,196.51 plus interest. Bin Saud did not appeal from this judgment.*fn5

Plaintiff originally filed this RICO complaint on January 9, 1989. In a Memorandum Decision dated June 23, 1989, this Court denied BONY's motion to dismiss the complaint for failure to plead fraud with particularity. This denial was without prejudice to renewal pending completion of limited discovery and the filing of an amended complaint. At that time, the parties had not fully addressed the question of whether res judicata might bar this claim in the event plaintiff was able to replead the fraud allegations with sufficient particularity to satisfy Rule 9(b), Fed.R.Civ.P. The Court noted that ...

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