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MORROW v. BLACK

July 3, 1990

DAVID MORROW AND JAMES WHALEN, PLAINTIFFS,
v.
BRUCE BLACK, MICHAEL REVIEN, PAUL COHEN, SHEP MESSING, JEROME ELLENBOGEN, ROGER CURYLO, JEFFREY BERG, MATTHIAS & BERG, A CALIFORNIA PARTNERSHIP, AND JOHN DOES 1 THROUGH 10.



The opinion of the court was delivered by: Platt, Chief Judge.

  MEMORANDUM AND ORDER

Defendants Revien, Cohen, Ellenbogen, Curylo, Berg, and Matthias & Berg move pursuant to Federal Rules 12(b)(6) and 9(b) of Civil Procedure to dismiss plaintiffs' complaint.

Plaintiff's complaint asserts ten claims against all defendants*fn1: (i) civil conspiracy to defraud, (ii) violation of Section 1962(c) of the Racketeer Influenced and Corrupt Organizations Act, ("RICO"), i.e., employees or associates of an enterprise which engages in interstate commerce who conduct or participate in that enterprises affairs through a pattern of racketeering, (iii) violation of Section 1962(d) of RICO, i.e., conspiracy to violate RICO, (iv) Section 17 of the Securities Act of 1933, i.e., fraud in the sale of securities, and (v)-(x) fraudulent misrepresentation.*fn2

The complaint bases these claims on defendants' alleged participation in six "transactions" with plaintiffs. According to the complaint, the first transaction involved defendants investing $200,000 of plaintiffs money in non-existent Repo Bonds between February and May, 1989. Cmplt ¶ 18-26.

In the second alleged transaction, plaintiffs gave defendants $150,000 in exchange for defendants' enterprise, D.L.Cabot*fn3, promising to provide $2,350,000 to fund the purchase of a parking garage; plaintiffs' money which was supposed to be held in trust, has not been returned and the purchase was not funded. Cmplt. ¶ 27-38. This transaction took place between March, 1989 and June 26, 1989.

A third transaction, the "D.K. Investors transaction", took place between December 1988 and May, 1989 and involved plaintiffs investing in a private offering of securities. Cmplt. ¶ 39-45. Plaintiffs allegedly made out checks totalling $200,000 payable to D.L. Cabot to invest in the offering but the offering never closed and the money was never returned. Cmplt. ¶ 40, 41 and 45.

In the fourth transaction, plaintiffs gave a deposit of $200,000 payable to D.L. Cabot in reliance upon defendants' promise that D.L. Cabot would fund plaintiffs' purchase of residential property units in Houston, Texas. Cmplt ¶ 46, 47. The $200,000 was not returned to plaintiffs and the checks given plaintiffs in order to fund the deal were returned for insufficient funds. Cmplt. ¶ 47, 48.

The fifth transaction involved a cattle feed operation in Alabama. Cmplt ¶ 50, 51. Plaintiffs executed an assignment to D.L. Cabot of $300,000 supposedly representing money due from the Repo Bond deal and the D.K. Investors transaction. Cmplt ¶ 51. The Alabama cattle deal never took place.

Finally, in the sixth transaction, which took place in May and June, 1989, defendants agreed to make a public offering of plaintiffs' company Alumni Plumbing & Heating Corp. Cmplt ¶ 53. Again plaintiffs assigned to D.L. Cabot money supposedly due from the D.K. Investors deal; there was no return of the money and the public offering never occurred.*fn4

DISCUSSION

Defendants move pursuant to Federal Rule 12(b)(6) of Civil Procedure to dismiss plaintiffs' claims of (i) civil conspiracy to defraud, (ii) violation of Section 1962(c) of RICO, (iii) violation of Section 1962(d) of RICO, and (iv) violation of Section 17 of the Securities Act of 1933, on the ground that they fail to state a claim upon which relief may be granted. Defendants also move pursuant to Federal Rule 9(b) of Civil Procedure to dismiss plaintiffs claims of (ii) violation of Section 1962(c) of RICO and (v)-(x) fraudulent misrepresentation on the ground that they fail to plead claims of fraud with requisite particularity.

During oral argument, this Court dismissed pursuant to Federal Rule 12(b)(6) of Civil Procedure plaintiffs' claim (i) for civil conspiracy on the ground that no claim for civil conspiracy to defraud exists in New York. At that time, this Court also ruled that plaintiffs' claims (v)-(x) for fraudulent misrepresentation were sufficiently pled to satisfy the dictates of Federal Rule 9(b) of Civil Procedure and therefore would not be dismissed unless plaintiffs' remaining federal claims are dismissed and no basis exists for ancillary jurisdiction. We now address those federal claims, i.e., claim (ii) brought under Section 1962(c) of the RICO statute, claim (iii) brought under Section 1962(d) of the RICO statute, and claim (iv) brought under Section 17 of the Securities Act of 1933.

A complaint may be dismissed pursuant to Federal Rule 12(b)(6) for failure to state a claim, only if, taking the allegations of the complaint in the light most favorable to the plaintiff, the Court nonetheless concludes that "no relief could be granted under any set of facts that could be proved consistent with the allegations." H.J. Inc. v. Northwestern Bell Telephone Co., ___ U.S. ___, 109 S.Ct 2893, 2906, 106 L.Ed.2d 195 (1989) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)); see also Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). As the Third Circuit recently emphasized, "this standard of review does not distinguish between RICO and non-RICO claims." Rose v. Bartle, 871 F.2d 331, 355 (3rd Cir. 1989).


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