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October 22, 1990


The opinion of the court was delivered by: Kevin Thomas Duffy, District Judge.


Plaintiff, O & K Trojan, Inc. ("Trojan"), seeks, inter alia, general and punitive damages from defendants Municipal & Contractors Equipment Corporation ("Contractors"), Municipal Machinery Company, Inc. ("Machinery Co."), Joseph Muratore Jr., and Joseph Muratore Sr. (collectively, "Municipal defendants"), based on alleged violations of: (1) the Racketeer Influenced and Corrupt Organizations Act, ("RICO") 18 U.S.C. § 1961 et seq.; (2) New York's Consumer Protection Act, N.Y.Gen.Bus.L. Art. 22-A § 349 (McKinney's 1988); (3) common law fraud; and (4) breach of contract arising from payments made into an escrow fund on forged documents. After issue was joined as to Muratore Sr., he impleaded the City of New York ("the City") for contribution.*fn1 Default judgment was entered on July 24, 1989 against Contractors, Machinery Co., and Muratore Jr. based on a failure to answer or move with respect to the complaint. On October 19, 1989, a hearing on Muratore Sr.'s order to show cause was conducted before me in order to determine whether Muratore Sr.'s litigation position would be compromised should he be found to be jointly and severally liable with the defaulters.*fn2 Trojan assured the court at that hearing that Muratore Sr. would not be held accountable to pay any part of the defaulter's judgment. The City now moves pursuant to Fed.R.Civ.P. 12(b)(1) and (b)(6) to dismiss the third-party complaint.


Trojan is a manufacturer of construction equipment. Contractors and Machine Co. are corporations engaged in the business of selling, distributing, servicing, repairing, and modifying construction equipment and other large commercial vehicles and equipment. Complaint ¶¶ 2, 3. Muratore Jr. is the president of Contractors and vice-president of Machinery Co. Complaint ¶ 4. Muratore Sr. is president of Machinery Co. and vice-president of Contractors. From January 1986 until June 1987, Trojan entered into a series of agreements with the City in which Contractors agreed to provide certain construction equipment to the City. Complaint ¶¶ 15-21. The equipment was to be manufactured by Trojan in compliance with the City's specifications. Complaint ¶¶ 15-21. Thus, two separate sets of contracts were created, one between Trojan and Contractors ("the Trojan/Contractors agreement") for the manufacture of the equipment, and one between Contractors and the City ("the Contractors/City agreement") for the sale of the equipment.

Because Trojan had previous dealings with Machinery Co. which resulted in payment problems, it insisted on further payment assurances in the above mentioned contracts. Complaint ¶¶ 10-14, 59. Therefore, under the Contractors/Trojan agreements, Trojan, Contractors, and Marine Midland Bank, N.A. ("Bank"), entered into a series of escrow agreements whereby the Bank would act as escrowee for the funds of the Contractors/City contracts. Complaint ¶¶ 15-21. Distributions by the Bank from the escrow accounts were to be made only in accordance with letters of instruction signed by both Trojan and Contractors. The escrow agreements provided that Trojan require the City to mail the disbursements due and owing under the Contractors/City contracts directly to an escrow account at the Bank. Trojan alleges that it would have refused to manufacture the equipment required to fulfill Contractor's contractual obligations to the City without this agreement. Complaint ¶¶ 10-14, 59.

Disbursements were properly made under the escrow arrangement for the City's purchase of the first 36 front end loaders. Trojan was properly paid. With respect to its purchase of an additional 22 units, however, the City made payments directly to Contractors and it, in turn, failed to remit payment to Trojan for the manufacture of the units. Specifically, Trojan avers that the Municipal defendants: (1) executed escrow agreements with the knowledge that they did not intend to perform pursuant to the agreements; (2) forged letters to Trojan, purporting to set forth agreements by the City to remit its payments to the Bank with the knowledge that the signatures of the Bank's Deputy of Accounts and Audits of the Department of General Services of the City, Joaquin Capestany, would also be forged thereon; (3) accepted and used the disbursements sent by the City without advising Trojan that the payments from the City had been received and without paying Trojan the purchase price due on the equipment; and (4) concealed their fraudulent acts by representing to Trojan that any attempt by it to contact the City of New York would jeopardize the Contractors/City contracts. Complaint ¶¶ 28-68.


a.  RICO

A defendant cannot obtain contribution for RICO liability. Minpeco, S.A. v. Conticommodity Services, Inc., 677 F. Supp. 151, 155-56. (S.D.N.Y. 1988). This prohibition against contribution follows from the omissions in the statute. In enacting RICO, Congress created a comprehensive list of civil remedies available to a plaintiff for a defendant's violation of the Act. See 18 U.S.C. § 1961 et seq. (1982). Contribution is not listed among the remedies. This is significant in that Congress did explicitly provide an extensive list of remedies within the statute, thus, any omissions therein are indicative of an intent to preclude. See Seminole Electric Cooperative, Inc. v. Tanner, 635 F. Supp. 582, 583 (M.D.Fla. 1986) ("Nothing in RICO's statutory language or legislative history suggests that Congress intended federal courts to expand the civil remedies already created by RICO").

Moreover, the common-law remedy of contribution is antithetical to the statute's purpose. Section 1964(c) authorizes private suits by "[a]ny person injured in his business or property by reason of a violation. . . ." 18 U.S.C. § 1964(c) (emphasis added). Muratore, Sr. was never injured by any purported acts or omissions by the City. Section 1962 makes it unlawful for any person to use money derived from a pattern of racketeering activity to invest in an enterprise, to acquire control of an enterprise through a pattern of racketeering activity or to conduct an enterprise through a pattern of racketeering activity. 18 U.S.C. § 1962(a)-(c). If such a violation occurs, § 1964 authorizes such injured persons to recover treble damages. 18 U.S.C. § 1964(c). Because Muratore Sr.'s liability to Trojan, under its first and second causes of action, are predicated upon the Muratores' having committed RICO violations, permitting Muratore Sr. to receive contribution would have the effect of ameliorating the liability of a wrongdoer and necessarily align the wrongdoer with the class that Congress intended to protect. Furthermore, the right to seek contribution would serve to dilute the impact of assessing treble damages against the RICO violator. Treble damages are to punish past unlawful conduct. To allow contribution under the circumstances would soften the punishment in contravention of Congressional intent.

Standing for civil RICO relief requires that the plaintiff demonstrate the defendant has committed a predicate offense as delineated in 18 U.S.C. § 1961. In Re Citisource, Inc. Secur. Litigation, 694 F. Supp. 1069, 1079 (S.D.N.Y. 1988). This mandates that the plaintiff prove the defendant had the requisite scienter for the underlying predicate offense. United States v. Scotto, 641 F.2d 47, 55-56 (2d Cir. 1980), cert. denied, 452 U.S. 961, 101 S.Ct. 3109, 69 L.Ed.2d 971 (1981). To the extent that Muratore, Sr. claims the City is liable for negligently and inadvertently paying Contractors instead of remitting payment to escrow is of no moment and does not rise to the level of scienter anticipated under the statute. Moreover, the City, a municipal corporation, is incapable of having the criminal intent to support RICO's predicate offense requirement. See In Re Citisource, Inc. Secur. Litigation, 694 F. Supp. at 1079. As a final note on this issue, Murature Sr.'s argument for impleader defies logic because it presumes that blame should be laid on the City for the City's failure to trust the Muratores to pay for work that they had commissioned and that liability for failure to place money in escrow is attributable to the City.


The only federal claims asserted in Trojan's complaint are predicated upon RICO violations. Since contribution is not available for RICO liability, there is no federal question jurisdiction over the third-party action. In addition, since Muratore is a citizen of New York State, there is no diversity jurisdiction over the third-party action and, thus no independent basis for subject matter jurisdiction over the impleader. However, the doctrine of ancillary jurisdiction allows a federal court to entertain a claim asserted after a complaint is filed, even if the claim may lack an independent basis for the exercise of federal jurisdiction, provided the court has jurisdiction over the subject matter of the action. See Harris v. Steinem, 571 F.2d 119, 122 n. 7 (2d Cir. 1978). This court has no jurisdiction over the subject matter of the action once the federal claims fall.

Muratore Sr. avers that federal courts have long recognized that a defendant's claim for contribution and indemnity against a third-party defendant, pursuant to Fed.R.Civ.P. 14(a), are deemed within the court's ancillary jurisdiction. Oneida Indian Nation v. County of Oneida, 719 F.2d 525, 542 (2d Cir. 1983). This proposition is short-sighted and not reconcilable with the current trend, for all practical purposes, towards limiting pendent party jurisdiction and restricting ancillary jurisdiction. Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989); Staffer v. Bouchard Transportation Co., 878 F.2d 638, 643 n. 5 (2d Cir. 1989); Bruce v. Martin, 724 F. Supp. 124, 129 (S.D.N Y 1989). Rule 14(a) cannot confer the federal court with subject matter jurisdiction, regardless that it contemplates the type of claim raised here. "The Rules provide for many things, liberality of joinder included, but the Rules only apply to disputes within the court's subject matter jurisdiction." Aetna Casualty & Surety Insur. Co. v. Spartan Mechanical ...

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