these deficiencies, defendants now renew their motion to
A. Sufficiency of Predicate Acts Under Rule 9(b)
In considering the instant motion, the Court first examines
the sufficiency of the pleading of the individual predicate
acts alleged against WIS. In examining the face of the
complaint, the Court is controlled by the dictates of
Fed.R.Civ.P. 9(b), which provides that: "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." There are three purposes behind Rule 9(b):
ensuring that the complaint provides the defendant with fair
notice of plaintiffs' claims; protecting the defendant's
reputation from unfounded allegations of improper conduct; and
preventing institution of strike suits. See O'Brien, supra, 936
F.2d at 676; Ross v. Bolton, 904 F.2d 819, 823 (2d Cir. 1990).
For the purposes of this motion, the Court must "read the
complaint generously, and draw all inferences in favor of the
pleader." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989).
However, even though Fed.R.Civ.P. 8(a) "requires only a `short
and plain statement' of the claims for relief," Rule 9(b)
requires that "the time, place, speaker, and sometimes even the
content of the alleged misrepresentation" must be alleged
specifically. Ouaknine v. MacFarlane, 897 F.2d 75, 79 (2d Cir.
1990) (quoting Divittorio, supra, 822 F.2d at 1247); accord
Ross, supra, 904 F.2d at 823. If "defendants are insiders or
affiliates participating in the offer," Ouaknine, supra, 897
F.2d at 80, a reference to the offering memorandum is
sufficient to identify the "time, place, content and speaker"
requirement. However, plaintiffs have not alleged that WIS is
an insider. Rather, they allege that WIS merely prepared
reports that would be used by the principals in the purportedly
fraudulent scheme. The role of WIS parallels the roles of Price
Waterhouse and Howard Jackson Associates in O'Brien, supra, 936
F.2d at 675, where the Court found these parties to be
outsiders, based on their limited roles of providing opinions
and preparing reports for the use of the principals.
Turning to the allegations in Paragraph 13 of the Second
Amended Complaint, concerning market analyses of the oil
reclamation industry and of the Aquanetics Mini-Reclamation
Unit. Paragraph 13 provides information supporting an inference
that the report was false. However, the Court is unable to
determine, from the face of the pleadings, which documents form
the basis for the allegations in Paragraph 13, or when the
allegedly false statements in the documents were made.
Moreover, the Complaint does not adequately plead facts
supporting an inference of scienter.
While Rule 9(b) provides that scienter can be pleaded
"generally," plaintiffs must specify "some factual basis for
conclusory allegations of intent. Allegations of scienter are
[only] sufficient if supported by facts giving rise to a
`strong inference' of fraudulent intent." Ouaknine, supra, 897
F.2d at 79-80 (citations omitted); see also Breard v. Sachnoff
& Weaver, Ltd., 941 F.2d 142, 143-44 (2d Cir. 1991); Wexner v.
First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990). The
allegations in Paragraph 13 do not provide any facts from which
scienter can be inferred. Rather, Paragraph 13 relies on the
assertion that WIS "knew or recklessly disregarded" that the
assumptions on which it was relying were unreasonable. These
conclusory allegations are insufficient to support a strong
inference of scienter, and the Court finds nothing fraudulent
on the face of the assertion that the alleged Report
purportedly focused on the potential market instead of the
feasibility of the oil reclamation system. See Kramer v. Time
Warner, Inc., 937 F.2d 767, 776 (2d Cir. 1991) (finding
inference of scienter from drop in market price of security to
be "sheer speculation"); O'Brien, supra, 936 F.2d at 677
(rejecting inference of scienter in absence of particular facts
demonstrating defendant's knowledge of falsity of
representations); Wexner, supra, 902 F.2d
at 173 (rejecting chain of inferences where first claim, that
defendants leaked confidential information, was insupportable).
The allegations in Paragraph 13 therefore fail the test of Rule
The Court next considers Paragraphs 14-16 of the Second
Amended Complaint, wherein plaintiffs allege that WIS prepared
a projection of profits that allegedly was included in a
document entitled "Business Plan & Income Proforma Scenario."
In these paragraphs the plaintiffs also allege the content of
this document, and why it allegedly was false. However, as
above, the Court finds no basis from which a finder of fact
could infer scienter. Paragraphs 15 and 16 merely allege that
the Business Plan was false and misleading. There is no
allegation that WIS knowingly fabricated the profit projections
that purportedly were included in the document, and the
complaint alleges no facts from which a finder of fact could
infer knowledge or intent. Thus, although the Complaint gives
the title of the document and the reasons for its falsity, it
fails to sufficiently allege scienter. The Court therefore
cannot renew its previous holding, that the allegations in
Paragraphs 14-16 are sufficient to survive a motion under Rule
9(b). See Landy, supra, 734 F. Supp. at 621.*fn3
The Court next considers Paragraph 17, and finds that all of
its allegations fail the Rule 9(b) standard. Plaintiffs first
allege that, sometime between 1980 and 1982, WIS prepared "an
inflated appraisal for Finesod-promoted offerings which
involved overvalued assets and which were abusive tax shelters,
such as Terra Drill." Then, plaintiffs allege that "subsequent
to the Petro-Tech Partnerships, WIS prepared inflated and false
reports for Finesod for the World Nurseries Program in late
1984." From the face of the pleading, the Court is unable to
discern what documents plaintiffs are referring to. The content
of these unspecified, allegedly "inflated" appraisals and
reports are unclear, and how they are false is not
demonstrated. The pleading suggests that the offerings were
overvalued and abusive, but offers no facts to support this; in
fact, the complaint appears to attribute the abuses in the
Terra Drill matter to the actions of Finesod, and not to WIS.
Paragraph 17 also fails to plead any facts yielding a strong
inference of scienter. The allegations in Paragraph 17 are
patently insufficient under Fed.R.Civ.P. 9(b), and must be
dismissed for failure to plead fraud with particularity.
B. Motion to Dismiss RICO Claim
The Court next turns to consider the sufficiency of the RICO
claims asserted by plaintiffs under Fed.R.Civ.P. 12(b)(6). "The
court's function on a Rule 12(b)(6) motion is not to weigh the
evidence that might be presented at a trial but merely to
determine whether the complaint itself is legally sufficient."
Festa v. Local 3 International Brotherhood of Electrical
Workers, 905 F.2d 35, 37 (2d Cir. 1990); see also Ryder Energy
Distribution Corp. v. Merrill Lynch Commodities, Inc.,
748 F.2d 774, 779 (2d Cir. 1984) ("The function of a motion to dismiss
`is merely to assess the legal feasibility of the complaint,
not to assay the weight of the evidence which might be offered
in support thereof.'" (quoting Geisler v. Petrocelli,
616 F.2d 636, 639 (2d Cir. 1980))).
Thus, a motion to dismiss must be denied "unless it appears
beyond a doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief."
Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40
L.Ed.2d 90 (1974) (citing Conely v. Gibson, 355 U.S. 41, 45-46,
78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957)); see also Morales v.
New York State Dep't of Corrections, 842 F.2d 27, 30 (2d Cir.
1988). In deciding a motion to dismiss, the Court must limit
analysis to the four corners of the complaint, see Kopec v.
Coughlin, 922 F.2d 152, 154-55 (2d Cir. 1991), and must accept
the plaintiffs' allegations of fact as true, together with such
reasonable inferences as may be drawn in his favor. Papasan v.
Allain, 478 U.S. 265, 283, 106 S.Ct. 2932, 2943, 92 L.Ed.2d 209
(1986); Murray v. Milford, 380 F.2d 468, 470 (2d Cir. 1967);
Hill v. Sullivan, 125 F.R.D. 86, 90 (S.D.N.Y. 1989) ("[A]ll
allegations in plaintiffs' amended complaint must be accepted
as true and liberally construed."); see also Scheuer, supra,
416 U.S. at 236, 94 S.Ct. at 1686.
1. Conducting the Affairs of a RICO Enterprise
The Court first turns to the RICO claim under 18 U.S.C. § 1962(c).
Section 1962(c) provides that:
It shall be unlawful for any person employed by or
associated with any enterprise . . . to conduct or
participate, directly or indirectly, in the
conduct of such enterprise's affairs through a
pattern of racketeering activity . . .
To state a claim for violation of § 1962(c), a plaintiff must
allege "(1) that the defendant (2) through the commission of
two or more acts (3) constituting a `pattern' (4) of
`racketeering activity' (5) . . . participates in (6) an
`enterprise' (7) the activities of which affect interstate or
foreign commerce." Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17
(2d Cir. 1983), cert. denied, 465 U.S. 1025, 104 S.Ct. 1280, 79
L.Ed.2d 684 (1984); see also Ouaknine, supra, 897 F.2d 75, 83
(section 1962(c) "prohibits conducting the affairs of an
enterprise through a pattern of racketeering. . . . [T]he
violation of § 1962(c) is the commission of racketeering acts
in connection with conducting the affairs of an enterprise . .
."); Clapp v. Greene, 743 F. Supp. 273, 277 (S.D.N.Y. 1990)
(quoting Moss, supra, 719 F.2d at 17), aff'd,
930 F.2d 912 (2d Cir.), cert. denied, ___ U.S. ___, 112 S.Ct. 197, 116
L.Ed.2d 157 (1991).
A pattern of racketeering activity involves two elements: "a
plaintiff or prosecutor must show that the racketeering
predicates are related, and that they amount to or pose a
threat of continued criminal activity." H.J. Inc. v.
Northwestern Bell Telephone Co., 492 U.S. 229, 239, 109 S.Ct.
2893, 2900, 106 L.Ed.2d 195 (1989); see also Beauford v.
Helmsley, 865 F.2d 1386, 1390-91 (2d Cir.) (en banc), vacated,
492 U.S. 914, 109 S.Ct. 3236, 106 L.Ed.2d 584 and adhered to,
893 F.2d 1433 (2d Cir.), cert. denied, 493 U.S. 992, 110 S.Ct.
539, 107 L.Ed.2d 537 (1989). The relationship element is
satisfied by allegations of "`criminal acts that have the same
or similar purposes, results, participants, victims, or methods
of commission, or otherwise are interrelated by distinguishing
characteristics and are not isolated events.'" Id. 492 U.S. at
240, 109 S.Ct. at 2901 (quoting 18 U.S.C. § 3575(e) (repealed
1984)); see also United States v. Indelicato, 865 F.2d 1370,
1382 (2d Cir.) ("An interrelationship between acts, suggesting
the existence of a pattern, may be established in a number of
ways. These include proof of their temporal proximity, or
common goals, or similarity of methods, or repetitions."),
cert. denied, 493 U.S. 811, 110 S.Ct. 56, 107 L.Ed.2d 24, 25
(1989); Friedman v. Arizona World Nurseries Limited
Partnership, 730 F. Supp. 521, 547-48 (S.D.N.Y. 1990).
Continuity is the more difficult element to define and prove.
As explained by the Supreme Court:
`Continuity' is both a closed- and open-ended
concept, referring either to a closed period of
repeated conduct, or to past conduct that by its
nature projects into the future, with a threat of
repetition. . . . A party alleging a RICO
violation may demonstrate continuity over a closed
period by proving a series of related predicates
extending over a substantial period of time.
Predicate acts extending over a few weeks or
months and threatening no future criminal conduct
do not satisfy this requirement: Congress was
concerned in RICO with long-term criminal
activity. Often a RICO action will be brought
before continuity can be established in this way.
In such cases, liability depends on whether the
threat of continuity is demonstrated.