Not what you're
looking for? Try an advanced search.
Buy This Entire Record For
FARBERWARE, INC. v. GROBEN
May 16, 1991
FARBERWARE, INC., PLAINTIFF,
WILLIAM GROBEN, BARBARA GROBEN, DAVID GROBEN, DANIEL GROBEN, PAUL MORANO'S COMMUNICATION SYSTEMS, PAUL MORANO, SCI CORP., LOUIS MISENTI, AMERICAN MECHANICAL CORPORATION, DAVID NORKIN, INTERNATIONAL MACHINERY CORP., FRED PARSONS, STARR CONSTRUCTION SERVICES, INC., WENCO MACHINERY CORP., WILLIAM SHOUTEN, COUSINS METAL INDUSTRIES, GLOBE FENCE CO., INC., BRUCKNER ASSOCIATES, MARVIN E. (A/K/A GEORGE) LOURAMORE AND JOHN DOES 1-10, DEFENDANTS.
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.
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
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
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
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.
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
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).
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 ...