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NORSTAR BANK v. PEPITONE

July 17, 1990

NORSTAR BANK, PLAINTIFF,
v.
JAMES A. PEPITONE, LAWRENCE AMATURO, MARINA DEL MAR, INC., AND RIVKIN, RADLER, DUNNE & BAYH, DEFENDANTS.



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

AMENDED MEMORANDUM AND ORDER

Defendants James A. Pepitone and Marina Del Mar move to dismiss plaintiff's complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. Plaintiff's complaint claims that (i) defendant Pepitone violated the Racketeer Influenced and Corrupt Organizations Act, ("RICO")*fn1, (ii) defendant Pepitone committed fraud, (iii) defendant Pepitone committed conversion, (iv) a constructive trust should be applied to certain funds in defendant Pepitone's possession, and (v) defendant Pepitone was the alter ego of Portjeff Development Corporation. In this motion, defendants primarily contest plaintiff's RICO claims*fn2 arguing that if plaintiff's RICO claims are dismissed, then this Court has no subject matter jurisdiction over plaintiff's other claims and hence, the entire complaint should be dismissed. For the reasons stated below, this Court holds that plaintiff's RICO claims may stand and thus we need not address whether this Court would have subject matter jurisdiction based on diversity.

BACKGROUND

In September, 1985, plaintiff Norstar agreed to lend Portjeff Development Corporation fourteen million dollars for the construction of condominium units as part of a real estate development called Fox Meadow. Defendant Pepitone is the president of Portjeff Development Corporation.

This "Fox Meadow loan" involved plaintiff making two advancements, the first in October, 1985 and the second in December, 1985. Both advances are secured by mortgages on the real property owned by Portjeff Corporation. The mortgages create a lien in plaintiff's favor in each condominium unit to be built and sold at the project. Defendant Pepitone signed the documents underlying the loan in his capacity as President.

The loan was to be repaid, in part with the closing proceeds from the sale of the condominium units. Pending the closing of an individual condominium unit, plaintiff was to deliver a release of its lien on that unit to defendant Rivkin, Radler, Dunne, and Bayh, ("Rivkin Radler") which was to hold the release in escrow pending the closing. After the closing, defendant Rivkin Radler was to pay plaintiff a portion of the sales price as repayment on the loan. Following this procedure, Portjeff has repaid over eighty percent of the loan.

In March, 1989, certain creditors of Portjeff filed an involuntary bankruptcy petition against Portjeff. In April, 1989 that proceeding was converted into a voluntary Chapter 11 proceeding by Portjeff.

In December, 1989, plaintiff filed this suit. In its complaint, plaintiff alleges that beginning in June, 1987, defendants Pepitone and Amaturo got defendant Rivkin, Radler to permit Portjeff to obtain the full closing proceeds without simultaneously making a loan payment to Norstar. The payment was delayed from a few days to a couple of weeks. The complaint alleges that this occurred approximately 60 times. According to the complaint, in the interim between the closing and the payment, defendants Pepitone and Amaturo would divert the funds to defendant Pepitone's other businesses, defendant Marina Del Mar, Inc. and Hampton Bays.

The complaint further alleges that between September, 1988 and February, 1989, closings on 22 condominium units had occurred for which releases were given but for which the loan payments were never received. According to the complaint, defendants permanently converted 2.5 million in loan payments which belongs to plaintiff.

DISCUSSION

Defendants move pursuant to Federal Rules 12(b)(6) and 9(b) of Civil Procedure to dismiss plaintiff's RICO claims. Defendants argue that plaintiff has failed to state any RICO claim because (i) its complaint does not allege a "pattern of racketeering" and (ii) the predicate acts of fraud have not been sufficiently pled. Defendants further argue that even if plaintiff has stated claims under the RICO statute, they must be dismissed because the RICO statute is unconstitutional.

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, 2232-33, 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).

The RICO statute renders civilly liable persons (i) who use or invest income derived from a "pattern of racketeering activity" to acquire an interest in or operate the enterprise engaged in interstate commerce, 18 U.S.C. § 1962(a)*fn3, (ii) who acquire an interest in or control such an enterprise "through a pattern of racketeering", 18 U.S.C. § 1962(b), (iii) who as employees or associates of such an enterprise, conduct or participate in the conduct of that enterprise's affairs "through a pattern of racketeering activities", 18 U.S.C. § 1962(c)*fn4, or (iv) who conspire to violate any of those prohibited activities, 18 U.S.C. § 1962(d).

Plaintiff in its complaint alleges that defendants Pepitone and Amaturo (i) used income derived from a pattern of racketeering activity to operate an enterprise engaged in interstate commerce in violation of Section 1962(a)*fn5, (ii) were employees and associates of an enterprise engaged in interstate commerce and conducted that enterprise's activities through a pattern of racketeering in violation of Section 1962(c)*fn6, and (iii) conspired to violate Sections 1962(a) and (c)*fn7. Defendants argue that plaintiff's complaint fails to allege a "pattern of racketeering" and hence fails to state any RICO claim. Specifically, defendants contend that plaintiff has not alleged evidence of continuity or threat of continuity as ...


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