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May 16, 1991


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


This case involves allegations of violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), and of the Wire and Electronic Communications Interception and Interception of Oral Communications Law, 18 U.S.C. § 2510 et seq. (the "Wiretapping Statute"), as well as common law fraud.

Defendants David Norkin, American Mechanical Corporation, Starr Construction Services, Inc., Bruckner Associates (collectively, the "Norkin Defendants"), Cousins Metal Industries Inc. ("Cousins"), Wenco Machinery Corp. ("Wenco") and William Shouten ("Shouten") now move for dismissal of Counts II, III and IV of the amended complaint (the "Amended Complaint") as against each of them.*fn1 Defendant Daniel Groben moves for summary judgment dismissal of Count I as against him.


Plaintiff in this case, Farberware, Inc. ("Farberware"), is a Delaware corporation with its principal place of business in the Bronx, New York. Farberware manufactures kitchenware items, such as pots and pans. Farberware commenced this action on September 21, 1989, alleging a number of fraudulent schemes perpetrated by certain of its employees acting in concert with some of its product and service vendors. Farberware's Amended Complaint, against which the instant motions have been made, was filed February 13, 1990.

The central figure in these allegations, who is named as a participant or instigator in every wrongful act contained in the Amended Complaint, is defendant William Groben ("Groben"), Farberware's Vice President for Operations at the time of the alleged fraudulent schemes. In Counts II, III, and IV, Farberware alleges several types of schemes, including the payment of kickbacks to Groben in exchange for his arrangement of contracts between the vendor in question and Farberware, contracts that allegedly involved either inflated prices or goods and services that were never received, and the removal of Farberware's property by certain defendants without proper compensation to plaintiff. Count II is brought pursuant to 18 U.S.C. § 1962(c), and alleges predicate acts of mail and wire fraud. Count III is brought pursuant to 18 U.S.C. § 1962(d), and alleges a conspiracy to violate RICO. Count IV alleges pendent common law fraud claims.

In Count I, Farberware alleges that Groben, along with others of the non-moving defendants, installed an illegal wiretap and recording device on the office telephone of Farberware's President. Farberware further alleges that Daniel Groben, Groben's son, assisted in the assembly and mailing of packages of copies of tapes made by the recording device to members of Farberware's management, current and former Farberware employees, employees of affiliated companies, and various competitors and members of the media.

The Norkin Defendants, Cousins, Wenco and Shouten*fn2 move to dismiss Counts II and III for failure to plead fraud with particularity, as required by Fed.R.Civ.P. 9(b). In addition, these defendants contend that the RICO counts should be dismissed under Fed.R.Civ.P. 12(b)(6) for failing to state a claim upon which relief can be granted. The Norkin Defendants also argue for dismissal of the Rico counts on the ground that the RICO "pattern" requirement is unconstitutionally vague. Upon dismissal of the RICO counts, defendants seek dismissal of the common law claims for lack of subject matter jurisdiction.

Daniel Groben, invoking Fed.R.Civ.P. 12(c) and 56, asks the Court to sever him from the other Count I defendants, and to dismiss Count I, the only count in which he is named, against him.


I. Count II: RICO

The moving defendants challenge the sufficiency of the claims against them under both Fed.R.Civ.P. 9(b) and 12(b)(6). The facts alleged against each defendant will be set forth separately below.

A. Sufficiency Under Rule 9(b)

Federal Rule of Civil Procedure 9(b) provides:

  In all averments of fraud or mistake, the
  circumstances constituting fraud or mistake shall
  be stated with particularity. Malice, intent,
  knowledge, and other condition of mind of a
  person may be averred generally.

As in a motion to dismiss a claim pursuant to Fed.R.Civ.P. 12(b)(6), the plaintiff's allegations must be taken as true, see Luce v. Edelstein, 802 F.2d 49, 52 (2d Cir. 1986), and the Court must limit its consideration to those facts alleged on the face of the pleading. See Cosmas v. Hassett, 886 F.2d 8, 13 (2d Cir. 1989); Raffaele v. Designers Break, Inc., 750 F. Supp. 611, 612 (S.D.N.Y. 1990).

The pleading's fraud allegations must be specific enough to allow the defendant "a reasonable opportunity to answer the complaint" and must give "adequate information" to allow the defendant to frame a response. Ross v. A.H. Robins Co., 607 F.2d 545, 557-58 (2d Cir. 1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980). Rule 9(b) is designed to provide the defendant fair notice of the plaintiff's claim so as to enable the defendant to prepare a suitable defense, to protect the defendant's reputation from harm, and to reduce the number of strike suits. See Ross v. Bolton, 904 F.2d 819, 823 (2d Cir. 1990); Di Vittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987). Thus, "fraud allegations ought to specify the time, place, speaker, and content of the alleged misrepresentations. Where multiple defendants are asked to respond to allegations of fraud, the complaint should inform each defendant of the nature of his alleged participation in the fraud." Di Vittorio, supra, 822 F.2d at 1247; see also Luce, supra, 802 F.2d at 54.

Where a RICO claim includes allegations of fraudulent conduct, the Second Circuit has required that the pleading of fraud meet the requirements of Rule 9(b). See Hecht v. Commerce Clearing House, Inc., 897 F.2d 21 (2d Cir. 1990). The Second Circuit has made a distinction between the pleading of fraud in a RICO conspiracy, and the pleading of the conspiracy itself. "Rule 9(b) applies only to fraud or mistake, not to conspiracy. [The] pleading of a conspiracy, apart from the underlying acts of fraud, is properly measured under the more liberal requirements of Rule 8(a)." Id. at 26 n. 4; see also Rose v. Bartle, 871 F.2d 331, 366 (3d Cir. 1989); Andreo v. Friedlander, Gaines, Cohen, Rosenthal & Rosenberg, 660 F. Supp. 1362, 1372 (D.Conn. 1987).

In the case before the Court, plaintiff alleges both mail and wire fraud as predicate acts. "In alleging mail fraud, the plaintiff must set forth the contents of the items mailed and specify how each of the items was false and misleading." Official Publications, Inc. v. Kable News Co., 692 F. Supp. 239, 245 (S.D.N.Y. 1988), aff'd in part and rev'd in part, 884 F.2d 664 (2d Cir. 1989). Wire fraud is a separate act from mail fraud and must, itself, be pled with particularity.

Plaintiff has based most of its allegations of mail and wire fraud on information and belief and not on actual knowledge. See Complaint ¶ 1. In general, allegations of fraud cannot be based on information and belief. See Di Vittorio, supra, 822 F.2d at 1247; Luce, supra, 802 F.2d at 54. However, where the matter pled is peculiarly within the knowledge of the defendant, that requirement is relaxed, "in which event the allegations must be accompanied by a statement of the facts upon which the belief is based." Di Vittorio, supra, 822 F.2d at 1247.

1. Cousins Metal

Farberware alleges that "[o]n various occasions during the period 1986 to at least January 1989," Amended Complaint ¶ 53(f), Cousins underpaid for scrap metal purchased from Farberware. According to the Amended Complaint, it was Cousins's practice to transport the scrap metal to its own offices, where Cousins weighed the metal and then mailed a check to Farberware based upon an agreed price per pound. Farberware alleges that Groben allowed Cousins to remove scrap metal on the understanding that it would not be accounted for, in exchange for kickbacks, "which Cousins knew were retained by Groben for his personal benefit." Id. ¶ 53(f)(i). Farberware further alleges that "[o]n numerous occasions during this period, in furtherance of a scheme to defraud Farberware, Cousins mailed checks to Farberware purportedly in full satisfaction for the scrap metal purchased." Id. ¶ 53(f)(ii).

Cousins challenges this pleading for failure to identify specific shipments, purchase orders, checks or wire communications in furtherance of the alleged scheme, for failure to identify individual agents of Cousins as participants, and for failure to identify specifics of any single kickback. The Court agrees that Farberware has not alleged sufficient detail. While the Amended Complaint gives notice of the type of scheme alleged by plaintiff, it provides no insight into the grounds upon which the claim rests. Particularly where, as here, the allegations are based on information and belief, they must be supported by a statement of facts on which plaintiff's belief of fraud is founded. Here, plaintiff has given no indication as to why it believes that scrap metal was removed by Cousins without full reimbursement.

Plaintiff argues that the details of these allegedly fraudulent acts are particularly within the knowledge of the defendants, and that therefore the strict pleading standard of Rule 9(b) should be relaxed. While plaintiff is undoubtedly correct as to certain details of the alleged scheme, it is clear from the pleadings that the checks at issue were mailed to plaintiff, and that plaintiff presumably should have some information in its possession regarding the receipt of those checks, the dates and amounts of payments made, and, perhaps, some indication of the amount of scrap metal generated by plaintiff and the amount believed missing. Accordingly, Count II of the Amended Complaint against Cousins is dismissed without prejudice, for failure to comply with the pleading requirements of Rule 9(b).

2. Norkin Defendants

The allegations against the Norkin Defendants involve inflated charges for materials and services. David Norkin ("Norkin") himself is not charged separately, but is alleged to have taken part, either personally or through agents, in the alleged frauds perpetrated by these companies, in which he was either an officer or a partner. In a joint memorandum, the Norkin Defendants assert that plaintiff has inadequately pled the content and number of allegedly fraudulent invoices sent by them, as well as the dates on which they were sent and the identity of the senders. They contend that the ...

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