The opinion of the court was delivered by: Leisure, District Judge.
This is an action under section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b), the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968,
and principles of common law fraud. Defendant World
Information Systems ("WIS") now moves the Court to dismiss the
RICO claim against it pursuant to Fed.R.Civ.P. 9(b) and
12(b)(6), for failure to plead fraud with particularity and for
failure to state a claim upon which relief can be granted. For
the following reasons, the motion is granted.
As originally filed in 1988, this was an action by 56
investors in Petro-Tech Limited Partnerships I, II, III & V
("the partnerships"), against 12 defendants that allegedly
established and solicited investments in the partnerships. By
Opinion and Order dated April 5, 1990, see Landy v. Mitchell
Petroleum Technology Corp., 734 F. Supp. 608 (S.D.N.Y. 1990),
this Court dismissed certain of the causes of action asserted
in the First Amended Complaint. On May 22, 1990, plaintiffs
filed a Second Amended Complaint; subsequently, on August 9,
1990, the Court received the instant motion to dismiss the
Second Amended Complaint. Although it became fully submitted on
October 30, 1990, the motion was stayed while the parties
attempted to negotiate settlements in these matters. In fact,
the parties' discussions resulted in stipulations, signed by
this Judge on September 11, 1990 and December 6, 1991,
dismissing the action as against all defendants except
In considering WIS' instant motion, the Court examines the
face of the complaint, assuming the truth of the facts alleged
by plaintiffs. See O'Brien v. National Property Analysts
Partners, 936 F.2d 674, 677 (2d Cir. 1991); DiVittorio v.
Eguidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir.
1987). The Second Amended Complaint, like the two Complaints
before it, alleges the existence of a scheme perpetrated by
Henry Finesod ("Finesod"), and various others, to sell
interests in the partnerships. The partnerships allegedly
sought to exploit the exclusive marketing rights in a patented
oil reclamation process; they were seen as an attractive
investment based on the tax benefits to be reaped from the
probable losses that would be suffered by the partnerships in
their first years. However, in July 1986, three years after the
partnerships were formed, one of the major risk factors cited
in the offering memorandum came to pass, when the Internal
Revenue Service disallowed all income tax deductions associated
with the partnerships. Soon thereafter, this litigation ensued.
The Court next turns to examine the role of WIS, the only
defendant remaining in this suit. Plaintiffs allege that "WIS
provided consulting services to Mitchell Petroleum and provided
Mitchell Petroleum with . . . summar[ies] of market analys[es
and] with information which was included in a document entitled
`Business Plan & Income Proforma Scenario.'" Second Amended
Complaint ¶ 6(B). It is thus clear, from the face of the
complaint, that WIS played only a minor role in the purported
scheme, limited to the alleged production of a small number of
reports and to the provision of consulting services.
The Second Amended Complaint alleges that WIS participated in
preparing the following documents:
Second Amended Complaint ¶ 13.
WIS prepared a projection of profits which was
included in a document entitled `Business Plan &
Income Proforma Scenario,' which was circulated to
brokers and advisors of plaintiffs. . . . The
Business Plan concluded that the Petro-Tech II's
net profits over a five-year period would be
approximately 19.5 million dollars. The Business
Plan was false and misleading in that the value of
the Limited Partnership's sublicense was, in fact,
nil or minimal . . .
Second Amended Complaint ¶¶ 14-16.
Prior to the Petro-Tech Partnership, WIS had
previously prepared for Finesod in or about 1980,
1981 and 1982 an inflated appraisal for
Finesod-promoted offerings which involved
overvalued assets and which were abusive tax
shelters, such as the Terra Drill . . . and
subsequent to the Petro-Tech Partnerships, WIS
prepared inflated and false reports for Finesod
for the World Nurseries Program in late 1984. . .
. The promoters, with the knowledge of WIS . . .
used these reports to substantiate the potential
revenues that Mitchell Petroleum and [the
partnerships] could expect to receive. . . .
Without these reports the fraudulent scheme could
not have been perpetrated.
Second Amended Complaint ¶¶ 17-18.
Plaintiffs further allege that:
Defendants conspiring with and aiding and abetting
each other, also committed two or more
racketeering acts [of mail fraud, using the mails]
in furtherance of the schemes and artifices to
defraud plaintiffs. . . . The uses of the mails
included, but were not limited to, transmittal of
the private placement memoranda [and] the WIS . .
. Report to the plaintiffs in 1983; the World
Nurseries private placement memoranda and the WIS
report for ...