United States District Court, Eastern District of New York
August 10, 1991
FLORENCE WIENER, AS EXECUTRIX OF THE ESTATE OF SAMUEL WIENER, PLAINTIFF,
JOSEPH P. NAPOLI, ESQ., MORRIS J. EISEN, ESQ., MORRIS J. EISEN, P.C., AND MORRIS J. EISEN & JOSEPH P. NAPOLI, DEFENDANTS.
The opinion of the court was delivered by: Spatt, District Judge.
OPINION AND ORDER
The defendants' motion to dismiss the amended complaint in this
case raises the issue of whether the defendants' alleged
fraudulent activity as trial counsel for the plaintiff's
attorney-decedent in tort litigation is sufficient to state a
claim for relief under the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. § 1961-1968. Taking the
allegations of the amended complaint as true for the purposes
of these motions, and for the reasons discussed below, the
Court finds that the plaintiff has sufficiently pled two
predicate acts of "mail fraud" racketeering activity as well as
two acts of bank fraud with the requisite particularity so as
to state a claim for relief under RICO. Therefore, the
defendants' motions to dismiss the amended complaint are
I. PRELIMINARY STATEMENT
A description of the factual background of this action is set
forth in detail in this Court's memorandum decision, which
ruled on the parties' earlier motions to dismiss the complaint
(see Wiener v. Napoli, 760 F. Supp. 2 [E.D.N.Y. 1991]). At
that time, the defendants moved to dismiss on the grounds,
inter alia, that the plaintiff had failed to plead fraud with
the requisite particularity and that the alleged RICO violation
failed to state a claim upon which relief could be granted. The
defendants, Joseph P. Napoli, Esq. and Morris J. Eisen & Joseph
P. Napoli also moved to dismiss the complaint, pursuant to
Rules 9(b), 12(b)(1), 12(b)(6) and 12(b)(7) of the Federal
Rules of Civil Procedure on the grounds that the alleged state
law claims could not be sustained by pendent jurisdiction. The
Court agreed with the defendants and dismissed the complaint,
without prejudice to the plaintiff filing an amended complaint
within thirty (30) days. The plaintiff's amended complaint is
now before the Court.
II. FACTUAL BACKGROUND
Although set forth at length at 760 F. Supp. 278, the Court
briefly reiterates only those facts relevant to the instant
motions to dismiss.
This action stems from financial arrangements between Samuel
Wiener, an attorney at law, and the defendants-attorneys,
whereby the defendants acted as trial counsel for Wiener. By
letter agreement, Wiener retained defendant Napoli as trial
counsel in a number of civil actions and made specific
arrangements for fees and disbursements. The amended complaint
alleges that Napoli practiced individually and also in
association and partnership with defendants Eisen and Eisen &
After Wiener's death on August 20, 1982, Florence Wiener, as
the Executrix of Samuel Wiener's estate, retained Napoli and
the other defendants as attorneys in a substantial number of
additional cases. The plaintiff alleges that the defendants
took advantage of a personal and confidential relationship with
her as Executrix of her husband's estate, and that such a
violation constituted a breach of fiduciary duty as well as a
fraudulent scheme to cheat and defraud the plaintiff of monies
belonging to the Estate of Samuel Wiener. According to the
plaintiff, this scheme was effectuated through racketeering
activities prohibited by 18 U.S.C. § 1961-1968 which included
acts of mail fraud (18 U.S.C. § 1341) and bank fraud (18 U.S.C. § 1344).
The object of this racketeering activity was to obtain
by fraudulent means certain fees and disbursements due to the
estate from the settlement of cases for which the defendants
provided legal representation after Samuel Wiener's death.
The amended complaint provides, in part, as follows:
"¶ 29. After the transfer of the files, and pursuant to the
fraudulent scheme and racketeering activities set forth herein,
defendants committed the following acts, concealments and
breaches, without limitation:
(a) A continuing failure to advise of settlements or
recoveries and resulting failure to remit fees and
disbursements due or to remit fees in proper amounts.
Defendants had a duty to so advise and remit fees both under
the confidential relationship between the parties and by
reason of the covenant of good faith implied into the fee
arrangements. This act was committed by all of the
defendants. For example, no status has been provided on the
following matters since transfer: . . . (list of affected
clients follows) . . .
(b) The forging of estate endorsements upon settlement drafts
made payable to one or more of the defendants and the Estate
of Samuel Wiener. One known example of forged endorsements
upon settlement drafts made payable to `M. Eisen & S. Wiener'
is in connection with a matter entitled `V. Jones v. The City
of New York.' The City issued two payment warrants in
settlement of the case, both payable to `M.J. Eisen & S.
Wiener' in 1987. Both drafts (nos. 758453 and 758462) are
endorsed by `Morris J. Eisen' and `Sam Wiener,'
that decedent was deceased approximately five years at the
time. Plaintiff was never presented said drafts for
endorsement and has never received the estate's portion of
the fee and disbursement, due and owing.
(c) By advising prospective settlement defendants that
settlement drafts should be made out only to EISEN, P.C. and
that hold harmless agreements would be provided as to any
claim that the WIENER Estate may have against the settlement
proceeds. One known specific instance pertains to the matter
entitled `Haber v. Carlma Associates' where Eisen, P.C.
agreed to hold harmless Crum & Forster Commercial Insurance
from any attorney lien which may be asserted by the estate
from the settlement of said case. Said agreement is confirmed
by Crum & Forster to defendants pursuant to Crum & Forster's
letter of September 11, 1990 to Mr. Chris Caputo, `Morris J.
Eisen, Attorneys' . . .
(e) By preparing, mailing and filing closing statements of
cases which understated the fees due to the estate. This act
was performed by EISEN, P.C. under the direction of NAPOLI
and EISEN. Examples of this practice are contained in closing
statements obtained from Eisen, P.C. concerning the `Quinones
v. Pepsico' matter, the `Patricia Crispino' matter, the
`Philip Schultz v. Daniels' matter, the `Ancona v. Cohen'
matter and many other matters.
(f) By failing to file closing statements with the New York
State Office of Court Administration in an effort to conceal
the terms of settlements and fees due the WIENER Estate. This
act was performed by EISEN, P.C., the law offices of EISEN &
NAPOLI, and EISEN and NAPOLI as partners, individually,
depending on what entity handled a particular matter.
Examples of this are the `Virginia Faro v. DiBenedetto'
matter, the `Faustein v. Dendy' matter, the `Lescaille v. 360
Bedford Market, Inc.' matter, and others unknown at this time
. . . ."
The amended complaint sets forth five claims for relief: (1)
RICO, 18 U.S.C. § 1962(c) [including mail fraud and bank
fraud]; (2) common law fraud; (3) accounting and constructive
trust; (4) monies had and received; and (5) breach of contract.
In contrast to the original complaint, the plaintiff has set
forth specific factual allegations in support of these claims,
an example of which is cited below.
A. Acts of Mail Fraud
"¶ 35. On or about the dates set forth below, the defendants
unlawfully, willfully and knowingly, and for the purpose of
furthering and executing their fraudulent scheme, did place and
cause to be placed in the United States Post Offices and
authorized depositories for mail matter, and did cause to be
delivered by mail, according to the directions thereon, certain
mail matter to be sent and delivered by the United States
Postal Service, all in violation of 18 U.S.C. § 1341, as
(A) Melvina Smith, Administratrix of the Estate of Valeane
Jones v. The City of New York
(a) Pursuant to agreement in August 1982, defendant NAPOLI
agreed to share with SAMUEL WIENER the fees on the
above-noted matter on a 50-50 basis. Said agreement was on
behalf of himself and all of the defendants.
(b) In furtherance of the agreement, the matter was handled
by MORRIS J. EISEN & JOSEPH P. NAPOLI.
(c) Upon resolution of the matter, the Honorable Marie M.
Lambert, Surrogate, New York County, issued a `Decree
Authorizing Compromise and Settling Account,' dated October
26, 1984, which specifically ordered that the defendant City
of New York pay to `Morris J. Eisen, P.C.' and `Samuel
Wiener,' attorneys for plaintiffs, the sums of $1,894.13 in
disbursements and $12,701.96 in fees.
(d) Pursuant to said decree, the City of New York issued its
payment draft nos. 758453 and 758462 to `M.J. Eisen & S.
Wiener' about July 10, 1987.
(e) As set forth more fully in paragraph 29(b) supra, and
paragraphs 43-49, infra, said drafts were never presented
for endorsement to the Estate and no payment made to the
Estate for fees due.
(f) As set forth more fully in the complaint at ¶¶ 29(b) and
43-49, said endorsement of `S. Wiener' was forged by
(g) Upon information and belief, in furtherance of said
fraud, defendant NAPOLI mailed or caused to be mailed a
closing statement to both the client, Melvina Smith, and to
the Office of Court Administration which falsely stated that
a fee in the amount of $4,233.99 was paid to the Estate. Said
mailing and fraudulent statement was intended as a cover-up
of the nonpayment to the Estate in order to falsely represent
compliance with the order of Surrogate Lambert and a settling
of account to the client.
(h) The information upon which said belief is based as to
NAPOLI's mailing of the fraudulent matter is a series of
documents obtained from defendants' offices which include a
closing statement prepared on behalf of `Morris J.
Eisen/Joseph P. Napoli, Esqs.' which states a copy was
forwarded to the client on August 31, 1987, and an affidavit
dated August 31, 1987 for Joseph P. Napoli's signature for
submission to the Office of Court Administration in
connection with the late filing of a retainer statement."
In all, plaintiff cites seventeen instances of similar alleged
acts of mail fraud. Thereafter, the amended complaint alleges
"42. Those uses of the mail constituted a pattern of
racketeering activity by the repeated presentation of checks
to plaintiffs representing underpayment, misrepresentations
that the underpayments were the Estate's actual share of
fees, requests by defendants for and receipt of settlement
drafts and funds from insurance companies, which failed to
account for the Estate's interest in the settlement proceeds,
defendants' use of the mails to forward closing statements
which misrepresented that payments were made when they in
fact were not, and defendants' causing the use of mails
setting forth the terms of and, invoking performance under,
hold harmless agreements they gave to settling parties to the
lawsuits and claims against fee claims by SAMUEL WIENER's
B. Bank Fraud
The plaintiff alleges an additional predicate act under RICO
based on bank fraud in violation 18 U.S.C. § 1344(b).*fn1
Citing defendant's acquisition of funds under the custody and
control of the 20 Pine Street branch of Chemical Bank, the
plaintiff alleges forged endorsements on two payment drafts
from the City of New York:
"43. In connection with the case entitled V. Jones v. The
City of New York, defendants committed two separate acts of
Bank Fraud under 18 U.S.C. § 1344(b) in that defendants
obtained funds under the custody and control of Chemical
Bank, 20 Pine Street, New York, New York, by forging
endorsements on checks payable `S. Wiener,' as set forth more
44. Pursuant to agreement, NAPOLI agreed to pay 50% of the
fee due from the Jones mater[sic]. The agreement was entered
into by NAPOLI on behalf of all of the defendants.
45. Upon settlement of the case, the defendants received two
payment warrants/drafts from the city of New York, as
(i) Draft no. 758453, payable to `M.J. Eisen & S. Wiener,'
dated July 10, 1987, in the amount of $1,894.13; and
(ii) Draft no. 758462, dated July 10, 1987, payable to `M.J.
Eisen & S. Wiener,' in the amount of $12,701.96.
46. Both checks were endorsed by `Morris J. Eisen' and `Sam
Wiener' and deposited into account no. 104-219-0426 of MORRIS
J. EISEN, P.C. at Irving Trust Company, New York upon payment
by Chemical Bank.
47. As to each check, the endorsement of `Sam Wiener' was
forged in that
(i) Samuel Wiener was decreased five years and (ii) plaintiff
never endorsed said drafts.
48. Each of said forgeries constituted a separate act of Bank
fraud per § 1344(b) in that under each draft, monies under
the control and custody of Chemical Bank were obtained by
EISEN, P.C. under false pretenses.
49. Said fraudulent endorsements furthered the fraudulent
scheme and racketeering activity since plaintiffs to this day
have been deprived of said monies."
III. DEFENDANTS' MOTIONS TO DISMISS
Defendants Morris J. Eisen, Esq. and Morris J. Eisen, P.C. move
to dismiss the amended complaint pursuant to Rules 8, 9(b),
12(b)(1), and 12(b)(6) of the Federal Rules of Civil Procedure
on four grounds: (1) the amended complaint fails to plead fraud
with requisite particularity; (2) the amended complaint fails
to give fair notice of the claim asserted; (3) the alleged RICO
claim fails to state a claim upon which relief can be granted;
and (4) the alleged state law claims cannot be sustained by
pendent jurisdiction. These defendants also contend that the
amended complaint contains a newly pleaded act of financial
institution fraud, noting that at the time of the incident
alleged, the "so-called predicate act was not yet an act
prohibited by 18 U.S.C. § 1961" (see Defendants' Memorandum of
Law, pp. 22-23). On that basis, defendants claim there was no
violation of Section 1962 and hence the plaintiff does not have
standing to establish a RICO violation.
Defendant Joseph P. Napoli cross-moves to dismiss the amended
complaint, pursuant to Rules 9(b), 12(b)(1) and 12(b)(6) of the
Federal Rules of Civil Procedure on the same grounds alleged by
the other defendants and adds that the plaintiff's state law
claims are barred by the statute of limitations.
IV. STANDARD OF REVIEW
"The court's function on a Rule 12(b)(6) motion is not to weigh
the evidence that might be presented at trial, but merely to
determine whether the complaint itself is legally sufficient"
(Festa v. Local 3 Intern. Broth. of Elec. Workers,
905 F.2d 35, 37 [2d Cir. 1990]). It is well settled that "the court
should not dismiss the complaint pursuant to Rule 12(b)(6)
unless it appears `beyond doubt that the plaintiff can prove no
set of facts in support of his claim which would entitle him to
relief'" (Goldman v. Belden, 754 F.2d 1059, 1065 [2d Cir.
1985] quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct.
99, 101-02, 2 L.Ed.2d 80 ; see also Branum v. Clark,
927 F.2d 698 [2d Cir. 1991]). In assessing the sufficiency of
the amended complaint, the Court must accept the allegations of
the pleading as true (see Branum v. Clark, supra; Procter &
Gamble Co. v. Big Apple Indust. Bldgs., Inc., 879 F.2d 10, 14
[2d Cir. 1989], cert. denied, 493 U.S. 1022, 110 S.Ct. 723,
107 L.Ed.2d 743 ; North Star Contracting Corp. v. Long
Island R.R. Co., 723 F. Supp. 902, 905 [E.D.N.Y. 1989]), and
must construe all reasonable inferences in favor of the
plaintiff (see Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct.
1683, 1686, 40 L.Ed.2d 90 ). A motion to dismiss is
addressed solely to the face of the pleading, and "[t]he
court's function . . . is not to weigh the evidence that might
be presented at a trial but merely to determine whether the
complaint itself is legally sufficient" (Goldman v. Belden,
supra, 754 F.2d at p. 1067).
In addition, the Court may not consider matters submitted
outside the pleading at issue, unless, according to Rule 12(b),
notice is given to all parties that the motion to dismiss is
being converted to a motion for summary judgment and the
parties are afforded a reasonable opportunity to present
additional pertinent material (see Krijn v. Pogue Simone Real
Estate Co., 896 F.2d 687, 689 [2d Cir. 1990]). This rule is
mandatory as to Rule 12(b)(6) motions (see Festa v. Local 3
Int'l Brotherhood of Elec. Workers, 905 F.2d 35, 38 [2d Cir.
In this regard, the defendants Morris J. Eisen, Esq. and Morris
J. Eisen, P.C., have again submitted an affirmation which is
replete with material not within the pleading at issue,
including but not limited to allegations that the agreements
between the parties were invalid fee-splitting arrangements
which are void as a matter of public policy. Accordingly, the
Court declines to consider this affirmation in determining the
A. Governing Law
(i) Mail Fraud
Section 1962(c) of RICO makes it unlawful to participate in the
conduct of the affairs of an "enterprise" through a "pattern of
racketeering activity" in interstate or foreign commerce (see
Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105
S.Ct. 3275, 3285, 87 L.Ed.2d 346  ["A violation of §
1962(c) . . . requires (1) conduct (2) of an enterprise (3)
through a pattern (4) of racketeering activity."]) A "pattern
of racketeering activity" must include the commission of at
least "two acts of racketeering activity" within a ten year
period (see 18 U.S.C. § 1961). Mail fraud is an "act of
racketeering activity" under RICO. 18 U.S.C. § 1964(c)
expressly creates a private right of action for any person
injured by reason of a section 1962 violation.
(ii) Bank Fraud
Plaintiffs have alleged "racketeering activity" under 18 U.S.C. § 1961
based on bank fraud. 18 U.S.C. § 1961(1)(B) defines as
racketeering activity "any act which is indictable under any of
the following provisions of title 18, United States Code . . ."
One of those provisions is section 1344, "relating to financial
institution fraud," which is defined as follows:
"Whoever knowingly executes, or attempts to execute, a scheme
or artifice —
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets,
securities, or other property owned by, or under the custody
or control of, a financial institution, by means of false or
fraudulent pretenses, representations, or promises; shall be
fined not more than $1,000,000 or imprisoned not more than 30
years, or both."
18 U.S.C. § 1344, 1961(1)(B).
The defendants claim that bank fraud was not an enumerated
racketeering activity prohibited by § 1961(1)(B) at the time of
the alleged fraud, noting that "financial institution fraud"
was only added to the statute by amendment in 1989. See 18
U.S.C.A. § 1961, Par. (1) Pub.L. 101-73 inserted "section 1344
(relating to financial institution fraud)." Neither party
provides any authority in support of retroactive or prospective
application of the statutory change.
When a court is asked to address a challenge to a particular
rule's retroactive application, it begins with the assumption
that "the rule of law in force at the time a decision is
rendered is the law to be applied" (Lund v.
Shearson/Lehman/American Exp., Inc., 852 F.2d 182, 183 [6th
Cir. 1988]). The Supreme Court has stated that this practice is
"overwhelmingly the norm, and is in keeping with the
traditional function of the courts to decide cases before them
based upon their current understanding of the law" (James B.
Beam Distilling Co. v. Georgia, U.S. ___, ___, 111 S.Ct. 2439,
2443, 115 L.Ed.2d 481 ). Until recently, most courts have
applied the three-factor test set out in Chevron Oil Co. v.
Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971):
"First, the decision to be applied nonretroactively must
establish a new principle of law, either by overruling clear
past precedent on which litigants may have relied . . . or by
deciding an issue of first impression whose resolution was not
clearly foreshadowed . . . Second, it has been stressed that
`we must * * * weigh the merits and demerits in each case by
looking to the prior history of the rule in question, its
purpose and effect, and
whether retrospective application will further retard its
operation' . . . Finally, we have weighed the inequity imposed
by retroactive application for `[w]here a decision of this
Court could produce substantial inequitable results if applied
retroactively, there is ample basis in our case for avoiding
the "injustice or hardship" by a holding of non retroactivity'"
Id. at pp. 106-107, 92 S.Ct. at 355 [citation omitted].
In the Chevron Oil case, the Court held that the Louisiana
one-year statute of limitations in a personal injury case
should not be applied retroactively because the case was one of
first impression (concerning the Lands Act), which, in effect,
overruled a long line of decisions by the Court of Appeals for
the Fifth Circuit. Id. at p. 107, 92 S.Ct. at 355-56. Chevron
Oil made it clear that that there were circumstances in which
it would be appropriate to apply a decision in a completely
In line with the Chevron Oil decision, it has generally been
held that the "new pronouncement of a legal principle must be a
`clear break' from past precedent or with what is recognized as
settled authority" (Lund, supra, 852 F.2d at 183), otherwise,
the rule will automatically be applied retrospectively (United
States v. Johnson, 457 U.S. 537, 550 n. 12, 102 S.Ct. 2579,
2587 n. 12, 73 L.Ed.2d 202 ).
In the instant case, the incorporation of the bank fraud
provision of 18 U.S.C. § 1344 into the list of prohibited
racketeering activities in the RICO statute does not introduce
a new crime. The bank fraud statute was originally added to
Title 18 of the United States Code in 1984, prior to the
incidents charged in the amended complaint (see 18 U.S.C. § 1344).
The incorporation itself does not "overrule past
precedent on which litigants may have relied" nor does it
"decide an issue whose resolution was not clearly foreshadowed"
as set forth in the Chevron Oil test.
At the time of the alleged offenses, bank fraud was clearly a
statutorily punishable offense. Consequently, the defendants
were on notice that such a violation constituted a crime and
could subject them to potentially heavy penalties. To argue
that the defendants regulated their conduct based on the fact
that there were no associated civil penalties attached to §
1344 on the date of the alleged acts is disingenuous.
(ii) Recent Decisions
The Supreme Court narrowed the Chevron Oil test in its most
recent decision on the retroactivity of statutory changes. In
James B. Beam Distilling Co. v. Georgia, supra, ___ U.S. ___,
111 S.Ct. 2439, 115 L.Ed.2d 481 (1991) (O'Connor, J.,
dissenting), a strongly divided Court ruled 6-3, with three
concurring opinions, that its ruling in Bacchus Imports, Ltd.
v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984),
should apply retroactively to claims arising on facts
antedating that decision (id. 111 S.Ct. at 2441).
In Bacchus, the Court had held that a Hawaii law which
imposed an excise tax on imported liquor at a higher rate than
that imposed on liquor manufactured from home-grown products
violated the Commerce Clause (Bacchus Imports, Ltd. v. Dias,
supra). Georgia had a similar law which the petitioner in
Beam Distilling sought to have declared unconstitutional. The
petitioner was seeking a refund of taxes it had paid under
Georgia's law for the preceding three years (James B. Beam
Distilling Co. v. Georgia, supra, 111 S.Ct. at p. 2442). The
state court declared the statute unconstitutional but refused
to apply its ruling retroactively based on the Chevron Oil
test. The Supreme Court reversed and remanded the case, stating
that "retroactivity is properly seen in the first instance as a
matter of choice of law, `a choice . . . between the principle
of forward operation and that of relation backward.'" James B.
Beam Distilling v. Georgia, supra, quoting Great Northern R.
Co. v. Sunburst Oil & Refining Co., 287 U.S. 358, 364, 53
S.Ct. 145, 148, 77 L.Ed. 360 ).
In writing for the majority, Justice Souter, joined by Justice
Stevens, discussed retroactivity in the context of choice of
law and outlined three ways in which the choice of law problem
may be resolved:
"First, a decision may be made fully retroactive, applying
both to the parties before the court and to all others by and
against whom claims may be pressed, consistent with res
judicata and procedural barriers such as statutes of
limitations. This practice is overwhelmingly the norm . . . and
is in keeping with the traditional function of the courts to
decide cases before them based upon their best current
understanding of the law . . . Second, there is the purely
prospective method of overruling, under which a new rule is
applied neither to the parties in the law-making decision nor
to those others against or by whom it might be applied to
conduct or events occurring before that decision . . . . This
Court has, albeit infrequently, resorted to pure prospectivity,
see Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30
L.Ed.2d 296 (1971); . . . Finally, a court may apply a new rule
in the case in which it is pronounced, then return to the old
one with respect to all others arising on facts predating the
pronouncement. This method, which we may call modified or
selective, prospectivity, enjoyed its temporary ascendancy in
the criminal law during a period in which the Court formulated
new rules, prophylactic or otherwise, to insure protection of
the rights of the accused." Id. 111 S.Ct. at 2443-2444
[citation omitted; emphasis supplied].
Comparing the criminal context, Justice Souter went on to
comment that the Court "abandoned the possibility of selective
prospectivity" in Griffith v. Kentucky, 479 U.S. 314, 328,
107 S.Ct. 708, 716, 93 L.Ed.2d 649 (1987), "even where the new
rule constituted a `clear break' with previous law" (id.).
Though the issue of retroactivity in the civil area was not
disposed of in Griffith, Justice Souter notes that "selective
prospectivity appears never to have been endorsed in the civil
context" (James B. Beam Distilling v. Georgia, supra, citing
American Trucking Assns. Inc. v. Smith, ___ U.S. ___, 110
S.Ct. 2323, 110 L.Ed.2d 148 .
In the case of the Georgia statute, the Supreme Court held that
it was error to refuse to apply a rule of federal law
retroactively after the case announcing the rule had already
done so (id.). The Court further stated that principles of
equality and stare decisis prevailed over any claim based on
a Chevron Oil analysis.
Referring again to Griffith v. Kentucky, supra the Court
found that "Griffith cannot be confined to the criminal law.
Its equality principle, that similarly situated litigants
should be treated the same, carries comparable force in the
civil context" (id.). In effect, the Court has substantially
limited the third prong of the Chevron Oil test:
"Because the rejection of modified prospectivity precludes
retroactive application of a new rule to some litigants when it
is not applied to others, the Chevron Oil test cannot
determine the choice of law by relying on the equities of the
particular case" (id. 111 S.Ct. at p. 2447 [citation
However, the Court did note that it was not speculating as to
the "bounds or propriety of pure prospectivity" (id. at p.
In a lengthy dissent, joined by Justices Rehnquist and Kennedy,
Justice Sandra Day O'Connor criticized the majority for
discarding the Chevron Oil analysis (id. at p. 2451).
According to Justice O'Connor, to hold that all decisions must
be applied retroactively in all cases "ignores a wellsettled
precedent in which this Court has refused repeatedly to apply
new rules retroactively in civil cases". James B. Beam
Distilling Co. v. Georgia, supra, at 2451). In concluding that
nonretroactivity was the correct choice in this case, Justice
O'Connor stated that "a proper application of the Chevron Oil
test" to the Beam Distilling case would clearly have
established that the Bacchus rule "should not be applied
retroactively" because it established a new principle of law
(id. at p. 2453).
In the instant case, the defendants disclaim any liability for
bank fraud and argue that the RICO provision for bank fraud is
not retroactive. However, applying the analysis of the Supreme
Court in Beam Distilling, supra, it is clear that the
amendment of 18 U.S.C. § 1961(1)(B) to
include § 1344 does have retroactive effect and should be
applied to the litigants before this Court.
Even if this Court were to apply a Chevron Oil analysis to
the present case the same result would be reached. Under the
first prong of the Chevron Oil test, the amendment to the
RICO statute would have to have established a new principle of
law in order to be applied prospectively. This threshold
requirement has not been met because the amendment did not
"overrule" any precedent on which litigants may have relied,
nor does it decide an issue whose resolution was not clearly
foreshadowed. The history of the RICO statute comports with the
eventual inclusion of bank fraud and retroactive application of
the amended provision. The RICO statute makes it unlawful to
participate in the conduct of the affairs of an "enterprise"
through a pattern of "racketeering activity" in interstate or
foreign commerce (see Sedima S.P.R.L. v. Imrex Co., Inc.,
473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 ).
Retroactive application of the bank fraud provision furthers
the operation and legislative intent of the underlying statute.
Finally, the retroactive application of the bank fraud section
does not create substantial inequitable results. There has been
no "creation" of a new offense but merely the inclusion of an
existing offense as an "act of racketeering activity" under a
specific provision of the RICO statute.
C. The RICO Claim for Mail Fraud
As noted, on a Rule 12(b)(6) and Rule 9(b) motion, the Court
must limit its analysis to the four corners of the complaint
(Kopec v. Coughlin, 922 F.2d 152, 154-55 [2d Cir. 1991]).
Although citing both Rules as the basis for their motion to
dismiss, the defendants have addressed their challenges to the
"particularity" requirement of Rule 9(b). Specifically, the
defendants allege that the amended complaint "attempts to put a
veneer of particularity on the allegations of the original
Complaint" (see Defendant's Affirmation in Support of Motion
to Dismiss the Amended Complaint) and fails to provide facts
which support a reasonable inference of fraudulent intent.
Previously, this Court held that the original Complaint
sufficiently characterized (1) the general purposes of the
alleged fraudulent scheme, (2) the general means by which the
defendants allegedly defrauded the plaintiff, and (3) the
identified "mail matter," (Wiener v. Napoli, supra at p.
284). The Court also found that the Complaint did allege a
motive for the defendants having undertaken fraudulent activity
— namely, a "scheme to deprive the Estate of Samuel Wiener of
its rightful share of fees due Wiener — and a `clear
opportunity' for them to commit fraud" (id.).
Accepting the allegations of the amended complaint as true, and
construing all reasonable inferences in the plaintiff's favor,
the Court finds that the Amended Complaint satisfies Rule 9(b)
with respect to its allegations of mail fraud.
Rule 9(b) is designed to provide the defendant with fair notice
of the plaintiff's claim so as to enable the defendant to
prepare a suitable defense (see Ross v. Bolton, 904 F.2d 819,
823 [2d Cir. 1990]). Therefore, "fraud allegations ought to
specify the time, place, speaker, and content of the alleged
misrepresentations" (Farberware, Inc. v. Groben, 764 F. Supp. 296,
301 [S.D.N.Y. 1991]), quoting DiVittorio v. Equidyne
Extractive Indus., Inc., 822 F.2d 1242, 1247 [2d Cir. 1987]).
In the instant case, the plaintiff has alleged both mail and
bank fraud as predicate acts. The defendants rely on a
generalized claim that the allegations lack the requisite
particularity to survive a Rule 9(b) challenge. In alleging
mail fraud, the plaintiff must set forth "the content 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]).
The allegations against the defendants include: failure to
advise the plaintiff of settlements or recoveries; failure to
remit fees and disbursements due and owing;
failure to remit fees in proper amounts; forging of estate
endorsements upon settlements drafts; advising prospective
settlement defendants that drafts should be made payable only
to the defendants; preparing, mailing and filing understated
fees due the estate; failure to file closing statements with
the New York State Office of Court Administration, etc. (see
amended complaint, ¶ 29[a] — [j]).
There are numerous examples of the specific time, place,
participants, and contents of the alleged misrepresentations in
the amended complaint. One example has already been outlined in
"Valeane Jones v. City of New York" (Point II(A), supra). In
addition, in ¶ 35(c) of the amended complaint, plaintiffs
allege, in an action captioned "Haber v. Carlma Associates"
that in a letter sent from their New York office [place] dated
September 24, 1990 [time], the defendants sent a closing
statement to a client, Cindy Haber, which fraudulently stated
that a fee was paid to the estate of Mr. Wiener "per agreement"
[content of the alleged misrepresentation]. Plaintiff alleges
that the closing statement was fraudulent because it made
reference to a nonexistent fee payment to the Estate
[contents]. In addition, it is also alleged that the mailing of
the statement furthered the fraud by "concealing the fact of
nonpayment to a Wiener personal friend in hope of inducing
forbearance by Haber to contact plaintiff" [contents] (id).
In relation to the same case, plaintiff alleges that the
defendants agreed to hold harmless Crum & Forster Commercial
Insurance, a prospective settlement defendant, from any
attorney lien by the estate. This agreement was confirmed by a
letter dated September 11, 1990, from Crum & Forster to Mr.
Chris Caputo, "Morris J. Eisen, Attorneys" (see Amended
Complaint, ¶ 29[c]). Plaintiff contends that the hold harmless
agreement provided further evidence of concealment of
settlement because it served no purpose but to induce a
settlement draft which eliminated the estate as a payee.
The District Courts in this Circuit have repeatedly required
plaintiffs to "plead the factual basis which gives rise to a
`strong inference' of fraudulent intent" (O'Brien v. National
Property Analysts Partners, 936 F.2d 674 [2d Cir. 1991],
quoting Wexner v. First Manhattan Co., 902 F.2d 169, 172 [2d
Cir. 1990]; Beck v. Manufacturers Hanover Trust Co.,
820 F.2d 46, 50 [2d Cir. 1987], cert. denied, 484 U.S. 1005, 108 S.Ct.
698, 98 L.Ed.2d 650 ). The plaintiffs have demonstrated
the required scienter in the amended complaint. In sum, the
predicate acts are pled with sufficient particularity as to the
alleged mail fraud and as to each defendant's participation
(see Atlantic Gypsum Co., Inc. v. Lloyds Intern. Corp.,
753 F. Supp. 505 [S.D.N.Y. 1990]). Therefore, plaintiff's RICO claim
withstands scrutiny under Rule 9(b).
D. The RICO Claim for Bank Fraud
The allegations of the bank fraud claim have been laid out in
detail in Point II B, supra. The two payment drafts in
question, dated July 10, 1987, were made payable to "M.J. Eisen
& S. Wiener," were endorsed by "Morris J. Eisen" and "Sam
Weiner," were deposited in an Irving Trust account in the name
of "Morris J. Eisen, P.C." and were drawn from Chemical Bank.
The checks reflect an endorsement by "Sam Weiner" despite the
fact that Samuel Wiener died in August 1982. Plaintiff
executrix alleges that she did not sign for the decedent.
The bank fraud statute permits charging each execution of a
scheme to defraud as a separate act (see U.S. v. Poliak,
823 F.2d 371 [9th Cir. 1987] [defendant who wrote ten separate
checks was properly charged with ten separate counts of bank
fraud], cert. denied, 485 U.S. 1029, 108 S.Ct. 1586, 99
L.Ed.2d 901 ). Under the statutory definition of
18 U.S.C. § 1344, "it is an offense to execute a scheme or
artifice to defraud a federally chartered or insured financial
institution or to obtain money from it `by means of false or
fraudulent pretenses, representations, or promises'" (U.S. v.
Schwartz, 899 F.2d 243, 246 [3d Cir. 1990], cert. denied,
___ U.S. ___, 111 S.Ct. 259, 112 L.Ed.2d 217
). It has been held that, since these two provisions are
clearly disjunctive, an individual may commit a bank fraud
without making false or fraudulent pretenses, representations
or promises, "as this is the `plain meaning' of the statute"
The plaintiff's claim of a violation of 18 U.S.C. § 1344(b)
comports with the statutory definition in that the defendants
allegedly knowingly executed a scheme to obtain funds under the
custody and control of a financial institution by means of
false or fraudulent pretenses. For purposes of the bank fraud
statute, the terms "scheme" and "artifice" are defined to
include any plan, pattern or cause of action, including false
and fraudulent pretenses and misrepresentations, intended to
deceive others in order to obtain something of value, such as
money, from the institution to be deceived (United States v.
Goldblatt, 813 F.2d 619 [3d Cir. 1987]).
The plaintiffs have alleged two predicate acts with sufficient
particularity, providing the time, place participants, and
contents of the alleged misrepresentations concerning the
drafts. If proven, the defendants' actions clearly fall within
the bank fraud provision. Interestingly, the defendants have
not addressed the merits of the bank fraud claim as failing to
state a cause of action, but have relied instead on their
argument that a RICO violation for bank fraud could not be
E. The Pendent State Law Claims
Pendent jurisdiction involves additional claims asserted by the
plaintiff which have no independent basis for federal
jurisdiction (see United Mine Workers of Am. v. Gibbs,
383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 ). Under Gibbs,
if a federal claim is sufficient to confer subject matter
jurisdiction over a controversy, then it is discretionary for a
court to exercise jurisdiction over state-law claims that do
not have an independent basis for jurisdiction, so long as the
state and federal claims "derive from a common nucleus of
operative fact" (United Mine Workers of Am. v. Gibbs, supra,
383 U.S. at p. 725, 86 S.Ct. at 1138). In the instant case, it
is clear that the remaining state law claims (i.e., breach of
contract) "derive from a common nucleus of operative fact"
(id.). Consequently, this Court finds that there is a
sufficient basis upon which to exercise its pendent
jurisdiction to adjudicate those claims.
F. Defendant Napoli's Cross-Motion
Defendant Napoli cross-moves for dismissal of the Amended
Complaint based on Rules 9(b), 12(b)(1) and 12(b)(6) and adopts
the arguments of his co-defendant. He alleges one additional
ground, namely that the plaintiff's state law fraud claim is
barred by the statute of limitations. However, defendant Napoli
has filed no memorandum of law in support of this contention.
In light of this Court's rules, the Court declines to address
Contrary to the defendant's contention, this Court finds that
the amended complaint does state a federal cause of action
under 18 U.S.C. § 1961 and 1962. For the reasons stated above,
the defendants' motion to dismiss the amended complaint
pursuant to Rules 8, 9(b), 12(b)(1) and 12(b)(6) is denied.