OJ ROBERT P. PATTERSON, Jr., District Judge.
By use of RICO claims, plaintiffs seek to invoke this
Court's jurisdiction for the third time. Defendants, in
separate motions, move for an order dismissing the Second
Amended Complaint on several grounds. This Court (Walker, J.),
dismissed plaintiffs' First Amended Complaint in an Opinion
and Order dated April 17, 1989, invoking Rules 12(b)(1),
12(b)(6) and 9(b) of the Federal Rules of Civil Procedure.
Philan Ins. Ltd. v. Frank B. Hall & Co., 712 F. Supp. 339
(S.D.N.Y. 1989). Judge Walker granted leave to replead, but
admonished plaintiffs that if they chose to replead, the court
would strictly scrutinize the Second Amended Complaint for
compliance with those rules. Id., 712 F. Supp. at 346.
The Second Amended Complaint alleges that the purpose of the
scheme was to embezzle 10% of the premium payments for Smith
and Maloney, and also to earn commission income for the Hall
companies on reinsurance business placed with plaintiffs that
plaintiffs would not have accepted absent the conspiracy. In
total, Smith and Maloney are alleged to have diverted more
than $1 million to themselves.
Smith and Maloney allegedly falsely represented to a
principal shareholder of plaintiffs' parent and a director of
plaintiff that the insurance brokerage firm of Frank B. Hall
& Co., Inc. ("Hall") had agreed to act as plaintiffs'
underwriting managers and consultants, and that by utilizing
Hall, plaintiffs would be able to attract business. It is
alleged that "[i]n truth and in fact, Hall and its various
subsidiaries never agreed to act as underwriting managers or
consultants for plaintiffs and, in fact, acted as reinsurance
intermediaries (i.e., agents) for ceding insurers placing
business with reinsurers like plaintiffs." Second Amended
Complaint ¶ 29(b).*fn2
The fraudulent scheme involved alleged diversions of the
premiums, received by the Hall entities allegedly in a
fiduciary capacity for plaintiffs, to "conduit" off-shore
corporations creating "the appearance of an insurance
`manager,'"*fn3, see Second Amended Complaint ¶ 32, which
would (1) deduct the 10 percent to be stolen by Smith and
Maloney and transfer those sums to their accounts, and (2)
transfer the remainder of 90%, as premiums to plaintiffs, whose
principals apparently believed the plaintiffs were receiving
payment in full.
As a part of their scheme, Smith and Maloney allegedly first
contacted John Lorhan, the president and director of defendant
Rollins Burdick Hunter (Bermuda) Ltd. ("RBH Bermuda"), a
wholly-owned subsidiary of defendant Rollins Burdick Hunter
Company ("RBH"), and outlined the scheme to him. Lorhan
allegedly provided a subsidiary of RBH Bermuda, Mansion
Management Services, Ltd. ("Mansion"), to serve as the
"conduit" corporation, with the understanding that in return
Mansion would receive 1%, of the premiums received by Smith
and Maloney as a fee.
Under this arrangement, it is alleged that Maloney acting on
plaintiffs' behalf would accept from brokers certain
reinsurance business, and Smith, acting for Hall Re
International, would direct the brokers to transmit the
premium to Mansion rather than to plaintiffs; Mansion would
then forward 90% of the premiums to plaintiffs, 9% to Smith
and Maloney and 1% to itself. The complaint sets forth a
number of payments received by Mansion in the form of wire
transfers from New York into its account at the Bank of
The Second Amended Complaint further alleges that Smith also
induced employees of two London reinsurance brokers,
defendants Fielding and Partners ("Fielding") and PWS Marine
Limited ("PWS"), to take part in the scheme. Callum Stewart,
a director of Fielding, and Brian Sounes, the managing
director of PWS, are alleged to have diverted to Mansion
premiums collected by them on plaintiffs' behalf. Fielding and
PWS allegedly thereby received fees for premiums that those
companies otherwise would not have earned. Later, plaintiffs
allege, Peter Leddy, Fielding's Chief Financial Officer,
agreed to send the 10 per cent of the premiums directly into
an account at the Bank of Bermuda, the MTM Trust Account,
controlled by Maloney. Thereafter, it is alleged that in a
meeting between Brian Sounes and Maloney "An agreement similar
to the one Smith and Maloney reached with Fielding was also
reached with defendant PWS." Second Amended Complaint ¶ 46.
The Second Amended Complaint further alleges that
thereafter, in or about November, 1984, Smith resigned from
Hall Re International and, with Maloney and Keough-Kirby
Associates, Inc. ("Keough-Kirby"), formed Keough Kirby Re Ltd.
("Keough Kirby Re"), a reinsurance intermediary. Smith and
Maloney allegedly continued the conspiracy while at Keough
Kirby Re, which included the formation in the Cayman Islands,
and utilization, of Island Corporate Services, Ltd.
("Island"), another "conduit" corporation posing as an
insurance manager. Unlike Mansion, which received the entire
premium owed to plaintiffs and then diverted 10% to Smith,
Maloney and itself, Island allegedly received 10%, only of
each premium, the remainder being sent directly to the
Smith, through his influence with the Hall defendants, is
alleged to have produced a substantial amount of reinsurance
business for plaintiffs from Union Indemnity Insurance Company
of New York ("Union"), a wholly-owned subsidiary of Hall. In
return, defendant Monroe Birnberg, president of Union,
allegedly demanded and received a portion of the diverted 10%
of premiums in excess of $100,000.
Finally, it is also alleged that Maloney and Smith met with
Francisco Martinez del Rio, Chief Financial Officer of another
Hall subsidiary, Hall Mexico, who agreed to divert 10% of
plaintiffs' reinsurance premiums through Island, and to
conceal the diversions.
Based on these allegations, plaintiffs assert eight claims:
two RICO counts and six state law counts, including common law
fraud, conversion, breach of fiduciary duty, and negligence.
Plaintiffs' pleading has again resulted in an avalanche of
motion papers from the defendants. As will become evident, the
Court does not reach every issue raised by the papers.
1. Subject Matter Jurisdiction over the claims against Hall
Mexico, PWS, Fielding and RBH Bermuda
Hall Mexico, PWS, Fielding and RBH Bermuda argue that this
Court does not have subject matter jurisdiction over
plaintiffs' claims against them because all of their alleged
conduct is acknowledged to have occurred entirely outside ...