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July 10, 1990


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


Plaintiff commenced this suit on January 10, 1990 seeking treble damages, costs and attorneys fees for defendants' alleged violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Defendants move to dismiss plaintiff's complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction, Rule 12(b)(6) for failure to state a claim on which relief may be granted, and Rule 9(b) for failure to allege fraud with sufficient particularity. Defendants also move for sanctions pursuant to Rule 11. For the reasons stated below defendants' motion to dismiss is granted and defendants' motion for Rule 11 sanctions is denied.


On October 14, 1986 plaintiff sold 83 acres of property in Ulster County, New York to defendant Charrim Development Corporation ("Charrim")*fn1. Charrim paid plaintiff $180,000 in cash and gave plaintiff a purchase money mortgage for the remaining $639,000. Among other conditions of the sale plaintiff contracted to develop the property. In addition, defendants represented that they would obtain financing for said development. In the event that defendants could obtain financing (i.e. a construction loan) plaintiff agreed that he would authorize the subordination of his $639,000 purchase money mortgage to the lender. Upon receipt of the first payment of monies from the lender, defendants were to pay plaintiff $202,800 for work already completed.

"Certain difficulties arose" (¶ 15 of complaint) and plaintiff filed a breach of contract action against corporate defendant Charrim in the Supreme Court of Nassau County ("Nassau Contract Case"). Charrim defaulted.

On or about April 12, 1988, subsequent to Charrim's default in the Nassau Contract Case, defendant Charles Dinolfo mailed a letter to plaintiff alleging that they had received a "commitment" for financing from Morsemere Federal Savings & Loan Association ("Morsemere")*fn2. (¶ 28). Thereafter, defendants sent plaintiff, by mail, additional communications which contained additional alleged fraudulent representations concerning defendants'"commitment" from Morsemere.

Thereafter, defendants' counsel sent plaintiff's counsel a letter dated May 6, 1988. The letter stated that failure to authorize subordination of the $639,000 purchase money mortgage would result in defendants' failure to obtain financing.(¶ 29)

On May 16, 1988 corporate defendant Charrim filed an action in Ulster County Supreme Court to direct plaintiff to authorize subordination ("Ulster County Case"). Under the cover of a letter dated May 19, 1988, defendant's counsel forwarded copies of their pleadings in the Ulster County Case to plaintiff's counsel. Charrim's pleadings included several representations that defendants had received a loan "commitment" from Morsemere.(¶ 30-¶ 35).

Subsequent to further communications between the parties they came to an agreement. On or about July 1, 1988, defendants' counsel sent to plaintiff's counsel copies of a proposed Order with Notice of Settlement and a copy of an undertaking from Aetna Casualty & Surety*fn3 in the Ulster County Case. The proposed order directed the authorization of subordination of the purchase money mortgage "as may be required by Morsemere . . . in connection with the construction loan financing." (¶ 38-¶ 39).

Under the cover of a letter dated July 15, 1988, defendants' counsel sent to plaintiff's counsel additional copies of subordination documents for plaintiff's signature. The letter also stated that plaintiff's "refusal to sign these documents has, and continues to, impede [defendants'] ability to process the financing necessary to the success of this project."(¶ 36-¶ 37).

On July 18, 1988 Ulster County Supreme Court Judge Joseph Torraca directed plaintiff to authorize the subordination to Morsemere.*fn4

On or about August 31, 1988 defendants' counsel mailed a copy of an Order to Show Cause filed in Ulster County which sought to discharge the bond of Aetna Casualty and Surety Co.*fn5 (¶ 44).

On or about December 22, 1988 defendants' counsel mailed a letter to the Ulster County Court which stated that "construction financing was not granted." Said letter further stated that defendants had, however, been loaned $300,000 which did not require the subordination of plaintiff's purchase money mortgage.(¶ 48-¶ 49). In an order dated January 27, 1989, the Court ordered that the bond be discharged.(¶ 50).

Plaintiff claims that 1) defendants never obtained financing for the development of the property, 2) the $639,000 purchase money mortgage is subordinated to a $300,000 personal loan made to defendants by Morsemere which is unrelated to the development, 3) defendants fraudulently obtained the authorization of subordination, 4) defendants have fraudulently obtained the discharge of the Aetna bond which was originally contemplated as security for the authorization of subordination and 5) that defendants' ...

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