In paragraph 169 of the complaint, Dana alleges:
That since or about 1988 and continuing to 1990, defendants SCHLESINGER, WEINSTEIN, [M.D.A. and D.M.D. LP] and each of them, . . . conspired and formed a deliberate illegal and unlawful . . . conspiracy to acquire an interest in the Candlewood Lake and Marina Property and thereafter defraud plaintiff of its interest therein by gaining control of said property through a joint venture limited partnership arrangement, by making unauthorized loans and mortgages secured by said property and an illegal and unauthorized transfer of said property to their "enterprise" all through a continuous pattern of racketeering activity.
"Because the core of a RICO civil conspiracy is an agreement to commit predicate acts, a RICO civil conspiracy complaint, at the very least, must allege specifically such an agreement." Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir. 1990). Accord Beverly Hills Design Studio, Inc. v. Morris, 1990 U.S. Dist. LEXIS 6099 (S.D.N.Y. 1990) (complaint must allege that each defendant agreed to commit two or more predicate crimes); Morin, 711 F. Supp. 97 at 111.
The properly pleaded predicate acts are bank fraud and interstate transportation of fraudulently obtained money. Dana therefore must, but does not, allege specifically that each defendant agreed to commit both these acts. The alleged agreement to commit common law fraud cannot be the basis for a RICO conspiracy claim, because common law fraud is not a predicate act. Claim IV fails to state a claim, and is therefore dismissed.
V. THE PENDENT STATE LAW CLAIMS
Claims V, VI, VII, VIII, IX, and XVI assert state law claims pendent to federal claims I and II (the Valeria claims). Because claims I and II were dismissed, these pendent claims are dismissed for lack of an independent basis of subject matter jurisdiction. See 28 U.S.C. § 1367(c)(3). Claim XV is dismissed to the extent that it relates to the Valeria transaction.
The parties have stipulated to dismiss claims X, XI, and XII, against defendant Friedman Alpern & Green, without prejudice.
28 U.S.C. § 1367(a) allows supplemental jurisdiction over pendent state claims which "form part of the same case or controversy" as the federal claims asserted, even if the state claims involve additional parties. Therefore, this court has supplemental jurisdiction over claim XIII (against the principals and FC Bank), claim XIV (against FC Bank), and claim XV (against the principals, Balbec Corp. and Questco), which are part of the same case or controversy as the RICO claim (claim III) which was sustained.
1. Claim XIII -- Declaratory Judgment and Injunction
In Claim XIII, Dana seeks a declaratory judgment that D.M.D. LP's quitclaim deeds and FC Bank's mortgage on the Marina property are invalid, and an injunction against further transfer of the property and against enforcement or transfer of the mortgage. FC Bank has already commenced foreclosure proceedings on the mortgage in the Connecticut state court. (Complaint § 217).
FC Bank argues that this court cannot enjoin state foreclosure proceedings. See 28 U.S.C. § 2283 (federal court "may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.").
Dana argues that the requested injunction is necessary in aid of this court's jurisdiction and to protect or effectuate this court's judgment because if FC Bank forecloses on the mortgage and this court later finds the mortgage invalid, that judgment would be ineffective.
However, neither of those exceptions apply. The "necessary in aid of its jurisdiction" exception applies when a state court proceeding threatens to dispose of property which is the basis for federal in rem jurisdiction. Consequently, it does not apply to this case, where Dana asserts in personam jurisdiction over FC Bank. See Phillips v. Chas. Schreiner Bank, 894 F.2d 127, 131-32 (5th Cir. 1990) (federal court cannot enjoin ongoing state foreclosure proceedings; injunction not necessary in aid of jurisdiction where "lawsuit is . . . an ordinary in personam action, and the mere fact that debts secured by real property are at issue . . . does not transform it into an in rem proceeding.").
The "protect or effectuate its judgments" exception, also referred to as the "relitigation" exception, applies only to matters already fully adjudicated, and judgments already entered, by a federal court. "This does not permit a federal court to enjoin state proceedings to protect a judgment that the federal court may make in the future but has not yet made." 17 Wright, Miller & Cooper, Federal Practice and Procedure § 4226 at 548-49; Bruce v. Martin, 724 F. Supp. 124, 131 n.11 (S.D.N.Y. 1989).
Accordingly, no injunction can issue. See Ungar v. Mandell, 471 F.2d 1163, 1165 (2d Cir. 1972) (no exception to the anti-injunction act applies, and federal court cannot enjoin ongoing state court foreclosure and sale proceedings). Accord, Millonzi v. Bank of Hillside, 605 F. Supp. 140, 143-44 (N.D. Ill. 1985). Consequently, Claim XIII is dismissed in part, to the extent that it seeks an injunction against FC Bank.
2. Claim XIV -- Against FC Bank for Negligence
In claim XIV Dana alleges that FC Bank owed it a duty to investigate the circumstances of the quitclaim deeds before issuing the mortgage loan, and failed to exercise due care in issuing the loan and in allowing disbursements under it (Complaint PP227-30).
FC Bank argues that it had no duty to Dana, and that its alleged duty is not pleaded with particularity. However, claim XIV states a claim, does not need to be pleaded with particularity as it does not allege fraud or mistake, and is properly pleaded in accordance with Fed. R. Civ. P. 8(a).
3. Summary Judgment (Claims XIII and XIV)
FC Bank moves for summary judgment dismissing claim XIII, to the extent that it seeks a declaratory judgment that FC Bank's lien on the Marina Property is invalid, and claim XIV. Under Fed. R. Civ. P. 56(c) the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).
FC Bank has not established its entitlement to judgment as a matter of law with respect to claim XIII. It argues that it acted as a "bona fide lender for value, without any prior notice whatsoever of any facts or circumstances which would have put a prudent lender . . . on notice as to any alleged fraud or as to any other right, title or interest in conflict with [FC Bank's] position as a first mortgagee." (FC Bank's Rule 3(g) Stmnt. P11). However, FC Bank's submission is insufficient because it fails to set forth the legal elements it must establish to show that its mortgage is valid, and to show that there is no factual dispute with respect to each element.
FC Bank is entitled as a matter of law to summary judgment dismissing claim XIV. The elements of a claim for negligence are a duty to plaintiff and breach of that duty. FC Bank had no direct dealings with Dana, the limited partner of its borrower, and did not owe Dana a duty of care. Cf. National Union Fire Ins. Co. v. Eaton, 701 F. Supp. 1031, 1040 (S.D.N.Y. 1988). In any event, there is no showing that FC Bank's failure to discover the fraud was negligent. In order to defeat FC Bank's motion, Dana was required to, but did not, submit factual or legal support for its allegation that FC Bank owed it a duty and breached that duty. See R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir. 1984) (non-movant may not rest upon conclusory allegations or denials to defeat summary judgment motion, but rather must provide "concrete particulars" in the form of supporting facts or arguments in opposition); Markowitz v. Republic Nat. Bank, 651 F.2d 825, 828 (2d Cir. 1981) (same).
The motions of all parties to dismiss claims I, II, IV, V, VI, VII, VIII, IX, and XVI are granted.
The principals' motion to dismiss claims III and XV is granted in part and denied in part; their motion to dismiss claim XIII is denied.
FC Bank's motion to dismiss claim III is granted; its motion to dismiss claim XIII pursuant to Rules 12(b) and 56(c) is granted in part and denied in part; and its motion for summary judgment dismissing claim XIV is granted.
Balbec Corp. and Questco's motion to dismiss claim III is granted and their motion to dismiss claim XV is granted in part and denied in part. Claim XV is dismissed against all the other affiliates.
Plaintiffs have leave to replead the dismissed claims within 30 days.
Dated: New York, New York
March 19, 1992
LOUIS L. STANTON