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August 29, 1990


The opinion of the court was delivered by: Conboy, District Judge:


This civil RICO action, to which various state law claims are appended, arises out of an employment relationship between the plaintiff and certain of the defendants.


Plaintiff William Miller ("Miller") was hired as an Executive Vice President of Brown Harris Stevens, Inc. ("BHS") in February 1984, and subsequently became the president of BHS, in January of 1986. Complaint ¶ 3. BHS, a residential real-estate management and brokerage firm, is owned by Helmsley Enterprises, Inc. and Harry B. Helmsley ("Mr. Helmsley"). In addition to a salary, Miller's compensation as president of BHS included a bonus of 5% of BHS' pre-tax profits and a 20% commission on BHS' net commissions on sales of all Helmsley properties. Compalint ¶ ¶ 3, 53-56. It is also alleged that Mr. Helmsley promised an additional reward to Miller for BHS's de facto acquisition of the prime personnel and business of a competitor Douglas Elliman-Gibbon & Ives. Complaint ¶¶ 57-58. In a memorandum dated April 17, 1989, Miller voluntarily resigned as president of BHS, although he alleges that his departure was ordered by Mrs. Leona Helmsley, Harry Helmsley's wife. Complaint ¶ 41.

The federal jurisdictional predicate for this action is the civil RICO law, 18 U.S.C. § 1961 et seq. (1982). Miller has appended to the RICO claims in count 1 of his complaint twelve state law claims: that BHS breached its employment agreement with Miller (counts 2-7); that BHS breached an implied convenant of good faith in its dealings with Miller (count 8); that Mrs. Helmsley tortiously interfered with the employment agreement between BHS and Miller (count 9); that Mrs. Helmsley removed Miller as president of BHS with the sole intent of inflicting economic damage on Miller, thereby committing a prima facie tort (count 10); that Mrs. Helmsley made false representations regarding her corporate authority to fire Miller and thereby defrauded him when she forced him to resign (count 11); that Mrs. Helmsley made false and defamatory statements about Miller (count 12); and that Mrs. Helmsley violated her duties to BHS, "wasting" BHS's assets, and entitling BHS to an accounting (count 13).

The RICO claims are brought under section 1962(a)-(d) of Title 18 of the United States Code and against all of the defendants in the complaint except BHS. Plaintiff's Memorandum of Law in Opposition to the Defendants' Motions to Dismiss ("Pltf. Mem.") at 4. All of the defendants, including BHS, but excepting Joseph Licari ("Licari") are referred to by the parties as the Helmsley defendants*fn2 and have collectively moved to dismiss the federal claims in the complaint pursuant to Rules 8(a), 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and for sanctions pursuant to Rule 11. These defendants also move to dismiss the state law claims for lack of subject matter jurisdiction or, in that alternative, pursuant to Rules 8(a), 9(b) and 12(b)(6). We observe that defendant Licari has submitted a separate motion to dismiss, arguing a lack of standing on a slightly different theory than the branch of the Helmsley defendants' motion directed to lack of standing. Licari also joins in the motions submitted by his co-defendants to the extent "applicable to him and not inconsistent with his own arguments." Defendant Joseph Licari's Memorandum in Support of His Motion to Dismiss the Complaint at 6. Accordingly, in this opinion, we will refer to all of the defendants collectively as having made the motion to dismiss, and will acknowledge Licari's separate arguments when necessary.

Count 1 of the complaint specifically alleges that the RICO defendants formed an association-in-fact enterprise through which they committed various offenses constituting predicate acts under RICO. Mrs. Helmsley and the other defendants are alleged to have used the enterprise in a "number of ways to defraud the IRS, to fraudulently wrest wealth, power, and control away from Mr. Helmsley, and to fraudulently injure or eliminate Miller, who could impede the pursuit of such purpose." Plft.Mem. at 4. There are three so-called "schemes" alleged; the "Extortion and Tax-Fraud Scheme"; the "Fraudulent-Transfer Scheme"; and the "Fraudulent Scheme Against Miller." The "Extortion and Tax-Fraud Scheme" basically rehashes the Government's criminal income tax case against Mrs. Helmsley, in which she was convicted of 33 of 47 counts, but, significantly, not of conspiracy to commit extortion, and makes the additional assertion that the defendant allocated certain business expenses and salaries to BHS instead of other Helmsley entities, thus deflating BHS's pre-tax profits. The "FraudulentTransfer Scheme" alleges that Mrs. Helmsley, in an attempt to circumvent a pre-nuptial agreement, defrauded Mr. Helmsley out of certain real property including 230 Riverside Drive and the Leslie Building and certain personal property including a corporate jet and bearer bonds valued at greater than $90 million. Compliant ¶ ¶ 34-36. Miller also asserts that Mrs. Helmsley thwarted Mr. Helmsley's plans to convert those buildings to cooperatives or condominiums, thereby causing BHS to lose sales commissions. Finally, the "Fraudulent Scheme Against Miller" alleges, in substance, that the defendants devised a plan to reduce BHS's profits, thereby reducing Miller's bonus and commissions, and that Mrs. Helmsley misrepresented her corporate authority to certain corporate officers, i.e., she stated that she had Mr. Helmsley's authorization to ask for Miller's resignation when she did not have such authority, thereby forcing Miller to resign his position as president of BHS.


In order to maintain a private RICO action "a plaintiff must show (1) a violation of section 1962; (2) injury to business or property; and (3) causation of the injury by the violation." Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23 (2nd Cir. 1990) (citing O'Malley v. O'Neill, 887 F.2d 1557, 1561 (11th Cir. 1989). cert. denied,___ U.S. ___, 110 S.Ct. 2620, 110 L.Ed.2d 641 (1990)). The motions in this case are directed to the lack of causation. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985) (the plaintiff must show injury "by the conduct constituting the violation"). It is imperative that the plaintiff show that he was injured by the conduct constituting the violation because "[a] defendant who violates section 1962 is not liable for treble damages to everyone he might have injured by other conduct.'" Sedima, supra, 473 U.S. at 496, 105 S.Ct. at 3285 (quoting Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F.2d 384, 398 (7th Cir. 1984), aff'd, 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985)). In this way, the standing section of the statute, section 1964(c), which allows private civil RICO suits to be brought only by "[a]ny person injured in his business or property by reason of a violation of section 1962," is directly intertwined with the causation element.

The injury must be caused by a pattern of racketeering activity violating section 1962 or by individual RICO predicate acts. See Hecht, 897 F.2d at 23; Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1100 (2d Cir. 1988), cert. denied, ___ U.S. ___, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989). However, "factual causation (e.g., `cause-in-fact' or `but for' causation) is not sufficient" by itself Hecht, supra, 897 F.2d at 23, see Department of Economic Development v. Arthur Anderson & Co., et al., No. 85 Civ. 1292 (CES), 1990 U.S. Dist. LEXIS 67 (S.D.N.Y. Jan. 8, 1990) ("The Second Circuit has asserted that legal liability under RICO does not extend as far as factual causation, only proximate causation."). The RICO pattern or acts must proximately cause plaintiff's injury. Hecht, supra, 897 F.2d at 23 (citing Sperber v. Boesky, 849 F.2d 60, 64 (2d Cir. 1988)). For the RICO pattern or acts to proximately cause a plaintiff's injury, they must be "a substantial factor in the sequence of responsible causation, and . . . the injury [must be] reasonably foreseeable or anticipated as a natural consequence." Hecht, 897 F.2d at 23-24 (citing Bonsignore v. City of New York, 683 F.2d 635, 637 (2d Cir. 1982); Restatement (Second) of Torts §§ 431, 435 comment b (1965)).

Defendants argue that Miller does not have standing to assert a RICO action "because the predicate acts of fraud and extortion that he has attempted to plead were not `directed at him.'" Memorandum of the Helmsley Defendants in Support of Their Motion to Dismiss the Complaint ("Dfts. Memo."), at 8 (quoting Burdick v. American Express Co., 865 F.2d 527, 529 (2d Cir. 1989)). The predicate acts alleged by Miller are: (1) extortion, in violation of New York law and the Hobbs Act. 18 U.S.C. § 1951; (2) mail fraud, in violation of 18 U.S.C. § 1341; and, (3) wire fraud, in violation of 18 U.S.C. § 1343. Complaint ¶ 27. The defendants argue that even if the plaintiff's "far-fetched allegations" are true, Miller lacks standing because the conduct complained of allegedly was intended to harm and had the consequence of injuring BHS and/or Mr. Helmsley and/or the IRS, not Miller. Defendants claim that Miller's injury is at best derivative of the injury to BHS, to whom the fraud was directed, and thus too remote to confer standing. Thus, the defendants assert that while Miller may be able to demonstrate factual causation, he has not established and cannot establish the requisite proximate cause, and therefore the RICO claims should be dismissed. We will proceed to examine the relevant case authority before we consider Miller's specific claims.

Since the parties submitted their memoranda of law, the Second Circuit decided Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23 (2nd Cir. 1990), which we believe is completely on point. In Hecht, the court of appeals affirmed the trial court's holding that the plaintiff lacked standing to assert a civil RICO action despite his allegations that: (1) defendants' racketeering conduct proximately caused him to lose not only his job but also business commissions; and (2) that an overt act in furtherance of defendants' RICO conspiracy was his discharge from employment. Id. at 23. We believe that Hecht provides direct support for the defendants' argument and, in combination with the other cases cited by the defendants and upon which the Hecht court relied, is dispositive of the standing issue in this case.

In Hecht, the plaintiff argued that because he would not go along with the fraudulent practices of his employer directed at customers of the company, he lost commissions as well as his job. 897 F.2d at 22-23. With regard to Hecht's first claim, that the defendants' ...

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