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MORIN v. TRUPIN

November 18, 1991

SIMEON MORIN, ET AL., PLAINTIFFS,
v.
BARRY H. TRUPIN, ET AL., DEFENDANTS. NORMAN E. GAAR, PLAINTIFFS, V. BARRY H. TRUPIN, ET AL., DEFENDANTS. MICHAEL P. ALBERTI, M.D., ET AL., PLAINTIFFS, V. BARRY H. TRUPIN, ET AL., DEFENDANTS.



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

    OPINION

Defendants Robert Abrams ("Abrams"); Mintz, Fraade & Zeiger, P.C., Frederick M. Mintz and Alan Fraade (the "Mintz Fraade Defendants"); and Stuart Becker and Stuart Becker & Co., P.C. (the "Becker Defendants") (collectively the "Moving Defendants"), have moved to dismiss the second amended consolidated complaint of the plaintiffs in Morin v. Trupin, 88 Civ. 5743 (the "Morin action" and the "Morin plaintiffs"), and the second amended complaint in the related action of Alberti v. Trupin, 90 Civ. 3475 (the "Alberti action" and the "Alberti plaintiffs"), pursuant to Rules 12(b)(1), 12(b)(6) and 9(b), Fed.R.Civ.P.

The underlying disputes and principal parties which are the subject of these actions are recounted in prior opinions of the court, familiarity with which is assumed. See, e.g., Morin v. Trupin, 711 F. Supp. 97 (S.D.N.Y. 1989); Morin v. Trupin, 728 F. Supp. 952 (S.D.N.Y. 1989); Morin v. Trupin, 738 F. Supp. 98 (S.D.N.Y. 1990); Morin v. Trupin, 747 F. Supp. 1051 (S.D.N Y 1990).

I. THE ALBERTI ACTION

A. Facts

The Alberti action involves an allegedly unlawful securities offering by defendants Barry Trupin ("Trupin"), Rothschild Reserve International, Inc. ("Rothschild Reserve") and others, including the Moving Defendants. The plaintiffs are fifty three investors in a New York limited partnership known as Sacramento Office Park Associates ("Sacramento Associates"). Sacramento Associates was organized for the stated purpose of acquiring, owning, operating and leasing commercial real property consisting of a two-building office park complex known as the Butano Buildings in Sacramento, California (the "Butano Property"). Plaintiffs allege that in making their investments in Sacramento Associates, they relied upon false and misleading representations contained in the Sacramento Office Park Associates Series Private Placement Memorandum (the "Sacramento PPM"), solicitation letters, and sales and promotional literature (collectively the "Sacramento Offering Materials") and on oral representations by various defendants. The Sacramento Offering Materials allegedly contained misrepresentations regarding the manner in which the Butano Property was acquired for syndication, the value and commercial viability of the Butano Property, the application of the proceeds of the offering of limited partnership interests in Sacramento Associates, and the basis for and availability of the tax benefits described in the Sacramento PPM. All of the plaintiffs in the Alberti action are alleged to have purchased their limited partnership interests in Sacramento Associates by February of 1985. Alberti Comp. ¶ 147.

B. Prior Proceedings

The original complaint in the Alberti action was filed on May 22, 1990. An amended complaint naming an additional eighteen plaintiffs was filed on June 28, 1990. The second amended complaint (the "Alberti complaint"), which is the subject of the present motions, was deemed filed on February 1, 1991 in response to this court's dismissal of the complaint in the related action of Morin v. Trupin, 88 Civ. 5743 and pursuant to an order of this court dated February 20, 1991.

C. Discussion

  1.  10(b) Claims Against all Moving Defendants are Barred by
      the Statute of Limitations

Recently, in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), the Supreme Court recently held that private actions under Section 10(b) of the 1934 Act must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation. Id. 111 S.Ct. at 2781-82. The Supreme Court applied that statute of limitations retroactively to bar a complaint that may otherwise have been timely under prior law. The retroactivity of the Lampf rule was confirmed by the Court's subsequent holding in James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 2447-48, 115 L.Ed.2d 481 (1991) (when Court applies rule of law to litigants in one case it must do so with respect to all others not barred by procedural requirements or res judicata), and by the Second Circuit in Welch v. Cadre Capital, 946 F.2d 185 (2d Cir. 1991) (Lampf to be applied retroactively to all cases not finally adjudicated on date Lampf decided).

The Alberti plaintiffs' 10(b)/10b-5 claims against the Moving Defendants are untimely under Lampf and are therefore dismissed. According to the complaint, all of the plaintiffs in the Alberti action purchased their interests in Sacramento Associates by February of 1985. The original complaint in that action was filed on May 22, 1990. Because the Alberti plaintiffs' 10(b)/10b-5 claims against the Moving Defendants are premised on the allegedly fraudulent Sacramento Offering Materials, these claims accrued no later than February of 1985. Therefore, the action was commenced outside of the three-year statute of limitations established in Lampf. Moreover, the Alberti plaintiffs' claim that they did not discover, and indeed could not have discovered, the alleged fraud until August of 1989 does not save their claims under the one-year discovery prong of Lampf. Lampf specifically rejected the application of equitable tolling principles to the three-year cutoff as "fundamentally inconsistent with the 1-and-3-year structure." Lampf, 111 S.Ct. at 2782.

Having thus dismissed the federal securities fraud claims, the following discussion addresses the motions of each Moving Defendant as to the remaining claims against them.

2. Abrams

The Alberti Plaintiffs allege that Abrams violated multiple provisions of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"). In addition, the Alberti complaint asserts a number of pendent claims, including violation of the Blue Sky Laws of ten states, common law fraud, conspiracy to defraud, negligent misrepresentation and breach of fiduciary duty. Because plaintiffs have failed to state a claim for which relief can be granted, their RICO claims against Abrams are dismissed. Because plaintiffs' federal claims against Abrams are hereby dismissed, their state law claims likewise are dismissed for lack of pendent jurisdiction.

a. RICO Claims Against Abrams Are Dismissed

In Claims I through V of their complaint, the Alberti plaintiffs assert violations by Abrams of RICO based on his participation in the preparation of the Sacramento PPM and his supervision of the Mintz Fraade Defendants' activities in connection with the Sacramento Offering Materials. Specifically, the Albertti complaint alleges violations of 18 U.S.C. § 1962(a) (use of income or proceeds of income derived directly or indirectly from pattern of racketeering activity in acquisition of interest in or establishment of enterprise engaged in interstate commerce); 18 U.S.C. § 1962(b) (direct or indirect acquisition or maintenance of interest in or control of enterprise engaged in interstate commerce through pattern of racketeering activity); 18 U.S.C. § 1962(c) (direct or indirect conduct of or participation in conduct of enterprise by person employed by or associated with enterprise engaged in interstate commerce); and 18 U.S.C. § 1962(d) (conspiracy to violate 18 U.S.C. § 1962(a)-(c)). The predicate acts allegedly committed by Abrams are securities fraud, mail and wire fraud and fraudulent concealment. See Alberti Comp. ¶¶ 272, 288, 294, 299, 306-07.

To state a cause of action under RICO, plaintiffs must allege:

  (1) that the defendant (2) through the commission
  of two or more acts (3) constituting a "pattern"
  (4) of "racketeering activity" (5) directly or
  indirectly invests in, or maintains an interest
  in, or participates in (6) an "enterprise" (7) the
  activities of which affect interstate commerce.

Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir. 1983), cert. denied sub nom., Moss v. Newman, 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984). Moreover, it is well-settled that where, as here, the predicate crimes of a RICO claim sound in fraud, the pleading of those predicate acts must satisfy the particularity requirement of Rule 9(b), Fed.R.Civ.P. ("Rule 9(b)" or "9(b)"). See Morin v. Trupin, 711 F. Supp. 97, 111 (S.D.N.Y. 1989) (citing The Limited, Inc. v. McCrory Corp., 645 F. Supp. 1038, 1041 (S.D.N.Y. 1986); Equitable Life Assurance Society v. Alexander Grant & Co., 627 F. Supp. 1023, 1028 (S.D.N.Y. 1985)); Fidenas AG v. Honeywell, Inc., 501 F. Supp. 1029, 1042-43 (S.D.N.Y. 1980). The pleading of the predicate crime of mail fraud must also specify the use of the mails or wires. Frota v. Prudential-Bache Secs., Inc., 639 F. Supp. 1186, 1192 (S.D.N.Y. 1986). In fact, "all of the concerns that dictate that fraud be pleaded with particularity exist with even greater urgency in civil RICO actions." Plount v. American Home Assurance Co., 668 F. Supp. 204, 206 (S.D.N.Y. 1987).

Rule 9(b) provides that "[i]n 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." Allegations of fraud thus must specify the fraudulent statement, the time, place, speaker and content of the alleged misrepresentations, Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir. 1986); Conan Properties, Inc. v. Mattel, Inc., 619 F. Supp. 1167, 1172 (S.D.N.Y. 1985); Quintel Corp., N.V. v. Citibank, N.A., 589 F. Supp. 1235, 1243 (S.D.N.Y. 1984) (citing, inter alia, Ross v. A.H. Robins Co., 607 F.2d 545, 557 (2d Cir. 1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980)), and factual circumstances giving rise to a strong inference that the defendant had the requisite fraudulent intent. Ouaknine v. MacFarlane, 897 F.2d 75, 80 (2d Cir. 1990); Stern v. Leucadia Nat'l Corp., 844 F.2d 997, 1004 (2d Cir.), cert. denied, 488 U.S. 852, 109 S.Ct. 137, 102 L.Ed.2d 109 (1988) (although Rule 9(b) provides for general pleading of state of mind, such general pleading must be supported by the allegation of "circumstances . . . that provide a factual foundation for otherwise conclusory allegations of scienter"). Under Rule 9(b), the complaint must allege "(1) specific facts; (2) sources that support the alleged specific facts; and (3) a basis from which an inference of fraud may fairly be drawn." Crystal v. Foy, 562 F. Supp. 422, 425 (S.D.N.Y. 1983).

This court has held that the unamended complaint in the substantially similar case of Morin v. Trupin adequately pleaded the existence of two enterprises (as translated here, the Sacramento Enterprise and the Syndication Enterprise) and of the "continuity" necessary to establish a "pattern" of racketeering activity. Morin v. Trupin, 747 F. Supp. 1051, 1066 (S.D.N.Y. 1990). In the same opinion, the court held, however, that the unamended complaint failed to plead with the requisite particularity:

  the relation of individual defendant to predicate
  act and to the conduct supporting ascription of
  such act to the defendant. As pleaded, it is
  simply too difficult a task to determine the
  specific predicate acts each defendant is charge
  with

  committing (or aiding and abetting) and which
  factual allegations establish their connection to
  such predicate acts.

Id. at 1065. More specifically, the opinion in Morin demanded that the amended complaint plead the "time, place, speaker and content of the alleged misrepresentations" as required in Luce v. Edelstein, 802 F.2d at 54, "a sufficient showing of fraudulent intent," and, with respect to the charges of mail fraud, the specifics of the use of the mails and wires. Id. at 1065-66 n. 8.

The Alberti complaint does not plead Abrams's commission of at least two predicate acts in the manner contemplated by Morin. The Alberti complaint alleges that through his preparation of sections of the Sacramento PPM and his supervision of the Mintz Fraade Defendants in connection with their preparation of the Sacramento Offering Materials Abrams committed securities fraud under § 10(b) and Rule 10b-5, mail and wire fraud and fraudulent concealment. The following paragraphs of the Alberti complaint specifically address Abrams.

  62. Defendant Robert D. Abrams ("Abrams") resides
  in New York, New York. Abrams was an in-house
  lawyer for the entities within the Rothschild
  Group, participated in the preparation of the
  Sacramento Associates Private Placement Memorandum
  and was responsible for supervising and directing
  the activities of defendants Mintz, Fraade &
  Zeiger, P.C., Frederick M. Mintz and Alan Fraade
  in connection with the Sacramento Associates
  offering.
  156. Abrams was an in-house attorney for each of
  the Rothschild Group entities involved in the
  Sacramento Associates Offering. Abrams supervised
  the Mintz Fraade defendants' services in
  connection with the Sacramento Associates Private
  Placement Memorandum and participated in the
  drafting of the Terms of the Offering, the Summary
  of the Offering and the Business of the
  Partnership sections.
  246. Barry and Bennet Trupin agreed with Rogers in
  approximately November 1986 that Rogers would
  assume responsibility for Sacramento Associates
  and the Butano Property. Trupin, with the
  assistance of Abrams, personally negotiated and
  implemented the transfer of control to Rogers.
  278. . . . Abrams is liable for establishing the
  Sacramento Enterprise because he was a controlling
  person of Rothschild Reserve and gave legal advice
  regarding the structure of the Sacramento
  Associates syndication.

10(b) Claim

To state a cause of action under § 10(b) and Rule 10b-5, the complaint must allege with particularity (1) a misstatement or omission by the defendant; (2) as to a material fact; (3) upon which plaintiff relied; (4) and which caused plaintiff to suffer damages. In addition, the plaintiff must show that (5) defendant acted with scienter; and that (6) the misstatement or omission was made in connection with the purchase or sale of securities. See In re Columbia Secs. Litig., 747 F. Supp. 237, 240-41 (S.D.N.Y. 1990). Because the Alberti complaint fails to do so, the alleged 10(b) violation cannot be asserted as a predicate act.

Although the identification of alleged misrepresentations in offering materials, such as the Sacramento PPM in which Abrams allegedly participated in preparing, has been held to satisfy the "when, where, and what" prongs of that rule, see Luce, 802 F.2d at 55; see also Morin, 747 F. Supp. at 1061 (second amended complaint must meet this requirement), Rule 9(b) requires that all defendants be apprised of the nature of their alleged participation in the fraud individually, except those defendants who are "controlling persons" or "insiders," as to whom the Rule's stringency is relaxed. Di Vittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); Quintel, 589 F. Supp. at 1243. Indeed, in dismissing the complaint in Morin, this court required that, in repleading the complaint, the plaintiffs must "establish[] a sufficient nexus between an individual defendant and the memorandum in the manner contemplated by the noted case law." Morin, 747 F. Supp. at 1062.

Despite their conclusory allegation that Abrams is a "controlling person," see, e.g., Alberti Comp. ¶ 278, the Alberti plaintiffs have failed to plead facts that establish such a status. See Morin, 747 F. Supp. at 1061 ("As to any defendant to whom cannot fairly be ascribed insider or affiliate status, a more precise connection to, or role in preparation of, the Memorandum must be pleaded to sustain a claim against Rule 9(b) challenge."). Instead, they balance this conclusion on Abrams's position as in-house counsel to entities in the Rothschild Group. However, the cases they cite (enigmatically) as authority for equating the roles of in-house counsel and "controlling persons" indicate that the Alberti plaintiffs have not alleged sufficient facts to support their characterization of Abrams. See, e.g., Steinberg v. Illinois Co., 659 F. Supp. 58, 61 (N.D.Ill. 1987) (account executive could be controlling person because complaint alleged he had ability to influence brokerage firm); In re Diasonics Secs. Litig., 599 F. Supp. 447, 459-60 (N.D.Cal. 1984) (officers liable as controlling persons if in position to assert influence and control); Westlake v. Abrams, 504 F. Supp. 337, 349-50 (N.D.Ga. 1980) (to be controlling person must be involved in day-to-day operations of offering entity). Nowhere does the Alberti complaint allege that Abrams exercised influence over, participated in the day-to-day operations of, or was a principal of Sacramento Associates.

Thus, the many paragraphs of the Alberti complaint implicating Abrams in the allegedly fraudulent scheme, either by name as one of multiple defendants or under the general term "defendants," do not satisfy 9(b) because they fail to inform Abrams of the nature of his alleged participation in the fraud. See Di Vittorio, 822 F.2d at 1247. The four paragraphs addressed specifically to Abrams also fail under the standards of 9(b).

While the Alberti complaint as a whole does identify the allegedly misleading statements and when they were made, it does not adequately plead a connection between Abrams and these statements. The complaint alleges that Abrams "participated" in drafting the "Terms of the Offering," "Summary of the Offering" and "Business of the Partnership" sections of the Sacramento PPM and "supervis[ed] and direct[ed]" the activities of the Mintz Fraade Defendants in connection with the Sacramento Offering Materials. Alberti Comp. ¶¶ 62, 156. Nevertheless, the Alberti complaint does not allege that any false statements appeared in the sections allegedly drafted by Abrams. Plaintiffs erroneously cite this court's opinion in Bruce v. Martin, 691 F. Supp. 716, 722 (S.D.N.Y. 1988), claiming that they need not further particularize Abrams's responsibility for misrepresentations because where allegations of fraud relate to a group product, "specific allegations as to each [defendant] are unnecessary." The rule articulated in Bruce, however, applies only where the defendant is a controlling person, see id., which Abrams is not. See supra.

The Alberti complaint's primary failing with respect to its allegations of 10(b) violations against Abrams is that it does not set forth a "factual basis for [plaintiffs'] conclusory allegations" that Abrams knew that any of the alleged misstatements were fraudulent that "give[s] rise to a strong inference" that he did. See Ross v. A.H. Robins Co., 607 F.2d 545, 558 (2d Cir. 1979). In their memorandum in opposition to the present motion, the Alberti plaintiffs contend that their complaint's allegation that Abrams was an in-house attorney for the various entities involved in the syndication gives rise to an inference that he was "well aware of the factual misrepresentations in these materials."

Abrams was not an insider of the Rothschild Group or Sacramento Associates, and his knowledge cannot be inferred solely from the fact that he served as assistant in-house counsel for the entities involved in the syndication. See Morin v. Trupin, 711 F. Supp. at 110 ("merely alleging that a professional has performed services for other defendants is an insufficient basis for inferring scienter"); Dannenberg v. Dorison, 603 F. Supp. 1238, 1241 (S.D.N.Y. 1985) (same); cf. The Limited, Inc. v. McCrory Corp., 683 F. Supp. 387, 394 (S.D.N Y 1988) (role as auditor does not imply scienter). Moreover, simply reciting the talismanic formula that "these defendants . . . willfully, knowingly or recklessly intended that plaintiffs and other investors would rely thereon in purchasing the Sacramento Associates Limited Partnership interests," see e.g., Alberti Comp. ¶ 314, does not constitute an adequate pleading of scienter. The Alberti complaint fails to specify how or when Abrams became aware of facts that made the Offering Materials misleading. Because Abrams's scienter has not been properly pleaded, the 10(b) claim cannot be asserted as a predicate act under RICO.

Mail and Wire Fraud Claim

To establish that a defendant has committed an indictable offense under the federal mail and wire fraud statutes, a plaintiff must allege and prove "(1) the existence of a scheme to defraud, and (2) the use of the mails or interstate wires in furtherance of the fraudulent scheme." In re Gas Reclamation, Inc., Secs. Litig., 659 F. Supp. 493, 512 (S.D.N.Y. 1987) (citations omitted). Mail and wire fraud must be pleaded in conformity with Rule 9(b). Rich-Taubman Assocs. v. Stamford Restaurant Operating Co., 587 F. Supp. 875, 878 (S.D.N.Y. 1984).

Because the mail and wire fraud claims premised on inadequately pleaded securities fraud violations must be dismissed, see Bresson v. Thomson McKinnon Secs., Inc., 641 F. Supp. 338, 348 (S.D.N.Y. 1986), the Alberti plaintiffs claims of mail fraud based on misrepresentations in the PPM cannot constitute a predicate act here. The Alberti plaintiffs also claim, however, that Abrams and other defendants committed mail fraud by concealing the status of Sacramento Associates and the Butano Property after obtaining the Alberti plaintiffs' investments in the limited partnership, Alberti Comp. ¶¶ 258-61, 288, and by assisting Trupin in negotiating and implementing the transfer of control over Sacramento Associates to Gary Rogers ("Rogers") in 1986. Alberti Comp. ¶¶ 246-52, 288. This claim fails to satisfy Rule 9(b), as set forth below.

First, although the Alberti plaintiffs list a number of letters that allegedly comprise "indictable acts of mail fraud" designed to conceal the status of Sacramento Associates and the Butano Property, they do not even purport that Abrams himself was responsible for any of them. Alberti Comp. ¶ 259 (enumerating letters from Rothschild Registry, Rothschild Reserve, and Marvin Schaffer). As discussed above, even though Abrams was in-house counsel to the Rothschild Group entities, the letters from Rothschild Registry and Rothschild Reserve cannot be imputed to Abrams because he is not a controlling person. Likewise, the paragraphs of the Alberti complaint addressing the transfer of control of Sacramento Associates to Rogers are completely devoid of any particular reference to acts by Abrams.

Even if this claim was properly pleaded against Abrams, however, it could not stand as a RICO predicate act because the complaint does not sufficiently allege that the Alberti plaintiffs were "injured in [their] business or property by reason of a violation of Section 1962." 18 U.S.C. § 1964(c). The injury allegedly suffered by the Alberti plaintiffs consists of the amounts invested in Sacramento Associates and amounts incurred by reason of any adverse tax consequences resulting from the investments. See Alberti Comp. ¶ 389. Any damage leading to these alleged injuries was done as of the date the Alberti plaintiffs were induced to purchase limited partnership interests. The letters and the transfer of control of Sacramento Associates all post-date this event.

Because the Alberti complaint fails to plead successfully two or more predicate acts constituting a "pattern of racketeering activity" by Abrams, the RICO claims against him are dismissed.

b. State Law Claims

The Alberti plaintiffs also have asserted claims of common law fraud, state law securities violations, negligent misrepresentation and breach of fiduciary duty against Abrams. Because the federal claims against Abrams conferring jurisdiction on this court are hereby dismissed, to the extent that the issues discussed herein would not independently dispose of the pendent claims, they are dismissed for lack of pendent jurisdiction. See United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966).

c. Rule 11 Sanctions

Abrams has moved for an award of sanctions under Rule 11, Fed.R.Civ.P. Rule 11 requires an attorney to make a "reasonable inquiry" to determine that pleadings and motions are "well grounded in fact" and "warranted by existing law" or constitute "a good faith argument for the extension, modification, or reversal of existing law," and that they are not interposed for the purpose of harassment or delay. According to the Court of Appeals for the Second Circuit, "[i]f the inquiry was objectively reasonable under the circumstances and disclosed a reasonable factual basis for the claim, then sanctions are not appropriate." Calloway v. Marvel Entertainment Group, 854 F.2d 1452, 1470 (2d Cir. 1988), rev'd in part sub nom. Pavelic & Leflore v. Marvel Entertainment Group, 493 U.S. 120, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989), on remand sub nom. Calloway v. Marvel Entertainment Group, 907 F.2d 145 (2d Cir. 1990). Nothing in the facts indicates that the Alberti plaintiffs (or the Morin plaintiffs, see below) have failed to make an objectively reasonable inquiry into the basis of their claims. Thus, Abrams's motion for Rule 11 sanctions is denied.

3. The Mintz Fraade Defendants

The Alberti complaint charges the Mintz Fraade Defendants with violations of RICO, violations of Section 10(b) and Rule 10b-5, violations of state securities laws, common law fraud, negligent misrepresentation, legal malpractice and breach of fiduciary duty. Because the 10(b) claim is hereby dismissed as untimely, the following discussion relates to the remaining claims.

a. RICO Claims

The Alberti complaint charges the Mintz Fraade Defendants with violating 18 U.S.C. § 1962(a)-(d), claiming as predicate acts the securities frauds set forth in paragraphs 166 through 237, the "multiple acts of indictable mail fraud" set forth in paragraphs 147 through 237, and the acts of fraudulent concealment set forth in paragraphs 246 through 261. Because the Alberti complaint fails to plead with particularity at least two predicate acts by the Mintz Fraade Defendants, the RICO claims are dismissed.

10(b) Claim

The complaint alleges that the Mintz Fraade Defendants are liable under 10(b) for the following acts:

  335. The Mintz Fraade Defendants intentionally
  caused the following material misrepresentations
  in and omissions from the Sacramento Associates
  Private Placement Memorandum with the specific
  intention that plaintiffs would rely on them:
    (a) The false and/or misleading tax opinions and
  tax information described in paragraphs 211-216;
    (b) The false and/or misleading representations
  that North American and Stern were independent of
  and not affiliated with the Rothschild Group;
    (c) The material omission of the negative IRS
  audit history of prior tax shelters organized and
  promoted by the Rothschild Group, as set forth in
  paragraphs 167-169;
    (d) The false and misleading statements
  regarding the manner in which the Butano Property
  was acquired, as set forth in paragraphs 171-180.
  336. Specifically, the representations by the
  Mintz Fraade Defendants were intentionally false
  because the Mintz Fraade Defendants knew that: (i)
  the assumptions purportedly underlying the
  Financial Projections and the information
  contained in the schedules was not accurate; (ii)
  the Butano Property was far less valuable than the
  amounts reflected in the appraisal letters; and
  (iii) the persons affiliated with the Rothschild
  Group had included numerous false and misleading

  statements in the Sacramento Associates Private
  Placement Memorandum.
  337. As attorneys for SRC, Sacramento Associates,
  and North American, the Mintz Fraade Defendants
  also knew or should have known that these
  purported transactions involving North American
  had not occurred but were designed to fraudulently
  conceal that the price paid for the Butano
  Property was significantly in excess of fair
  market value or the actual arm's-length
  acquisition price in order (i) to fraudulently
  inflate the disclosed acquisition price of the
  Butano Property and (ii) to create a fraudulently
  inflated basis for the interest deductions and the
  depreciation deductions disclosed in the
  Sacramento Associates Private Placement
  Memorandum.

The cross-referenced paragraphs in turn provide that:

  167. The Sacramento Associates Private Placement
  Memorandum failed to disclose any material
  information concerning (i) the background of the
  actual promoters and sponsors of the Sacramento
  Associates Offering, i.e., Barry Trupin, Rothschild
  Reserve and the other persons and entities
  affiliated with the Rothschild Group and (iii) the
  prior audit history of the tax shelter investments
  sponsored by the Rothschild Group.
  168. At the time of the Sacramento Associates
  Offering, many tax-shelter entities previously
  organized and promoted by the Rothschild Group had
  been audited by the IRS and additional audits were
  in progress. These audits resulted in disallowing
  tax deductions based on investments in the
  Rothschild Group's tax shelters and, since the
  early 1980's, the IRS had adhered to the routine
  policy of disallowing tax deductions based on
  investments organized and promoted by the
  Rothschild Group.
  169. The adverse audit history of prior Rothschild
  Group tax shelters was known to all defendants
  participating in the preparation of the Sacramento
  Associates Private Placement Memorandum but
  concealed from prospective investors. Instead, the
  Sacramento Associates Private Placement Memorandum
  contained the misleading statement that each of
  the six real estate tax shelters and four
  equipment leasing tax shelters that had been
  sponsored by MHT Corp. or its affiliates since
  July 1983 had met its material obligations as set
  forth in the private placement memorandum for
  each. In fact, the IRS had repeatedly determined,
  all Rothschild Group tax shelters had been funded
  on unrealistic economic assumptions which
  precluded them from sustaining IRS scrutiny.
  171. According to the Sacramento Associates
  Private Placement Memorandum, the Butano Property
  was to be acquired from a third-party seller ("the
  initial seller") by defendant SRC.
  172. The terms of SRC's $11,250,000 acquisition
  were disclosed in the Sacramento Associates
  Private Placement Memorandum as follows: (a)
  $100,000 paid as a cash deposit to the initial
  seller; (b) $6,369,000 representing the net
  proceeds of a loan from a lender, which was
  referred to in the private placement memorandum ...

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