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ATLANTIC GYPSUM CO. v. LLOYDS INTERN.

December 20, 1990

ATLANTIC GYPSUM COMPANY, INC., GNK ENTERPRISES, INC., KAHN LUMBER & MILLWORK CO., INC., POLARIS PROPERTIES, INC., GERHARD KAHN AND REGINA KAHN, HUSBAND AND WIFE, AND GERHARD KAHN, INDIVIDUALLY, PLAINTIFFS,
v.
LLOYDS INTERNATIONAL CORPORATION, INDIVIDUALLY AND AS AGENT, UNITED JERSEY BANK, INDIVIDUALLY AND AS AGENT, BARCLAYS BANK. PLC, LLOYDS BANK PLC, DNC AMERICA BANKING CORPORATION, WOODWARD & DICKERSON, INC., FLAKT, INC., AND GARY RIDDELL, DEFENDANTS.



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

  OPINION AND ORDER

This case is one of at least seven actions arising out of plaintiffs' inability to repay loans by defendants that financed construction of a gypsum wallboard manufacturing plant.*fn1 Plaintiffs have asserted various state law claims for breach of fiduciary duty, breach of contract, common law fraud, tortious interference with contracts, and usury, and have infused this apparently ordinary business dispute with overtones of criminality by invoking the Racketeering Influenced and Corrupt Organization Act, 18 U.S.C. § 1961-68 (1984 & Supp.), with allegations that the entire loan transaction was actually part of a fraudulent scheme by the lenders and others to gain control of the borrower. Defendants have moved to dismiss all claims pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6). For the reasons set forth below, the RICO counts are dismissed against all defendants for failure to plead the predicate acts of mail and wire fraud with the particularity required by Rule 9(b). All state law claims are also dismissed against all defendants for lack of jurisdiction. As plaintiffs have already amended their complaint, the dismissal is without leave to replead.

The facts set forth below are based on the amended complaint.

I.

A.Factual Allegations

Plaintiff Atlantic Gypsum Company, Inc. ("AGC"), a New Jersey Corporation, is the borrower in the loan underlying this action, and plaintiffs GNK Enterprises, Inc., Kahn Lumber and Millwork Co., Inc., Polaris Properties, Inc., Gerhard Kahn and Regina Kahn are guarantors of that loan. All plaintiffs are related.

Defendants United Jersey Bank ("UJB"), Barclays Bank Plc. ("Barclays"), Lloyds Bank Plc. ("Lloyds"), and DnC America Banking Corporation ("DNC") were the principal lenders. Defendant Lloyds International Corporation ("LIC"), a New York corporation, helped arrange the loan and is referred to as an agent for plaintiff in some of the instruments governing the transaction. Together, LIC, UJB, Barclays, Lloyds, and DNC are referred to collectively as the "Consortium." Defendant Woodward & Dickerson, Inc. ("W & D"), is a supplier of gypsum ore. Defendant Flakt, Inc. was the general contractor supervising construction of the gypsum wallboard manufacturing plant. Flakt and W & D were also subordinated lenders in the transaction. Defendant Gary Riddell is an officer of LIC.

In 1985, AGC applied to LIC to arrange financing for the long-term lease of a plot of land under the control of the Port Authority of New York and New Jersey ("PA"), the construction of a modern gypsum wallboard manufacturing plant at the site, and start-up operation of the plant. (Complaint ¶¶ 17, 18).

The lender-borrower relationship soured after the lenders insisted on continued payments to the contractor, Flakt, notwithstanding a dispute between AGC and Flakt over the latter's performance. It is these efforts by the lenders to make AGC keep paying Flakt rather than withholding payment, as AGC apparently would have preferred to do, and the lenders' subsequent attempts to obtain repayment from AGC, that give rise to the claims in this case. As is apparent even from this cursory description of how the disagreement started, this is at most a business dispute involving breach of contract*fn2 and, giving plaintiffs the benefit of several doubts about governing law, breach by LIC of a fiduciary duty to plaintiff. But see Boley v. Pineloch Associates, Ltd., 700 F. Supp. 673, 681 (S.D.N.Y. 1988) ("[a]llegations of reliance on another party with superior expertise, standing by themselves, will not suffice [to establish a fiduciary duty]"). Yet, as set forth in some detail below, the facts in the complaint consist mainly of the contents of various documents and other communications among the parties, to set up and effect the transaction, that passed through the mail and over the wires. Plaintiffs garnish this recitation with conclusory allegations that defendants' conduct was fraudulent and was designed to permit defendants to dominate plaintiffs' business, and then whip this bland mixture into a froth of RICO claims.

Thus, we are told that "defendants or some of them undertook to and did, directly or indirectly, represent and purport to protect the interests of plaintiffs," as allegedly evidenced by ten letters, all from LIC to certain of plaintiffs, offering initially to "`act as sole and exclusive agent to arrange financing for the project,'" to "`be available to assist Kahn Lumber in negotiating one or more key Project documents," and then to "`engage local counsel to arrange the Project financing,'" "`arrange satisfactory commercial bank financing for a portion of the referenced project,'" and the like. (Complaint ¶ 20).

AGC alleges that such "representations were false, in that defendants did not protect the interests of plaintiffs but, instead, acted contrary to the interests of the plaintiffs both during said negotiation, development and formulation of said financing and of the documentation in connection therewith, and thereafter. . . ." (Complaint ¶ 27). Nowhere are we told the facts from which a reasonable person could conclude that the quoted statements, apparently made by LIC but attributed promiscuously to other unnamed defendants, were false when made, and known to be so.

The complaint also alleges that prior to the incorporation of AGC, defendants recommended to AGC's promoter an attorney, Marcia H. Goodwillie, Esq., without disclosing that she was the wife of the partner in the law firm of White & Case who was representing both plaintiffs and defendants in the proposed financing transaction. (Complaint ¶ 29). However, we are not told how, if at all, that non-disclosure injured plaintiff.

Eventually, LIC arranged for the commitment of nearly $20 million from members of the Consortium to finance the project. In connection with that commitment, the Consortium "insisted" upon the procurement of additional contracts to which Consortium members were not parties, including a gypsum ore supply agreement between AGC and W & D, various subordinated financing and security agreements, and a "turn-key" construction agreement between AGC and Flakt. (Complaint ¶¶ 30, 31). The Consortium drafted the above agreements and participated substantially in drafting the lease of the construction site from PA to AGC. (Complaint ¶ 31). The complaint alleges no additional facts from which one can reasonably infer that the motive for these additional contracts was other than the Consortium's reasonable interest in assuring the success of the venture and repayment of the loan.

In numerous paragraphs, the complaint goes on to describe provisions in agreements among the parties, including conditions precedent to AGC's ability to exercise certain rights. (Complaint ΒΆΒΆ 32-35, 42-44). Essentially, the agreements allowed the Consortium, inter alia, to exercise substantial power over the advancement of loans to Flakt in the event of a dispute between Flakt and AGC and also provided that any default by AGC in the ...


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