they involve the same victims and scheme. The question of whether these predicate acts have the requisite continuity merits closer scrutiny. The complaint fails to establish the existence of a threat that Defendants' racketeering will continue in the future. The alleged predicate acts do not inherently require further criminal activity, and the complaint does not raise an inference that the prohibited conduct is a method of doing business regularly employed by Defendants. The Court does not credit Plaintiffs' bare allegation that Defendants engaged in similar fraudulent conduct with respect to other borrowers because Plaintiffs fail to state a factual basis for this belief as required by Rule 9(b) of the Federal Rules of Civil Procedure. Plaintiffs' suggestion that Defendants could continue to employ fraud and extortion to collect the remaining unpaid balance is also insufficient to establish a threat of continuity, as it is wholly speculative and appears unlikely in light of Plaintiffs' allegation that Garvey instructed Plaintiffs to stop making payments.
The Court must therefore evaluate continuity based on the predicate acts alleged to have already occurred. A plaintiff can establish continuity notwithstanding the absence of a threat of continuing criminal conduct by pleading a basis from which to infer that the alleged racketeering activity was neither isolated nor sporadic. Procter & Gamble Co. v. Big Apple Industrial Bldgs, Inc., 879 F.2d 10, 18 (2d Cir. 1989), cert. denied, 493 U.S. 1022, 110 S. Ct. 723, 107 L. Ed. 2d 743 (1990); Beauford, 865 F.2d at 1391. Reading the complaint in the light most favorable to Plaintiffs, the alleged predicate activity spanned a period of over ten years, beginning with the execution of the 1979 documents and continuing with the repeated misrepresentations of Plaintiff's loan obligations in subsequent bank statements. Moreover, Simon's alleged extortion in 1980, and Bank Leumi's repeated unlawful debits in 1979 and 1980, support an inference of continuing deceptive conduct.
Although Plaintiffs' allegations might not have withstood scrutiny at an earlier time in the RICO jurisprudence that binds this Court, the broad reading afforded the pattern requirement in recent decisions supports an inference that the alleged acts were sufficiently continuous to constitute a pattern. See, e.g., Beauford, 865 F.2d at 1392 (allegations of one fraudulent mailing to over 8,000 intended victims, and subsequent amended mailings, sufficient to plead a pattern); Kuczynski v. Ragen Corp., 732 F. Supp. 378, 386 (S.D.N.Y. 1989) (misrepresentations and omissions over a period of six years in furtherance of a single fraudulent scheme established continuity); cf. North Star Contracting Corp. v. Long Island R. R. Co., 723 F. Supp. 902, 907 (E.D.N.Y. 1989) (finding six separate mailings in furtherance of one fraudulent scheme sufficient to form a pattern, and noting that "although this Court would once have described the present dispute as an ordinary construction dispute, the broad interpretation afforded RICO by higher Courts binds this Court"). Whether Defendants' actions in fact satisfy the continuity requirement will be the subject of later proof, but the Court is not inclined to dismiss the complaint at this stage of the proceedings for failure to plead a pattern of racketeering.
C. Enterprise Requirement
An "enterprise" is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). Plaintiffs allege two alternative enterprises: (1) an "association-in-fact" between Bank Leumi, the individual defendants, and Mr. Zohar; and (2) Bank Leumi Le-Israel, a corporation alleged to be the direct or indirect parent company of Bank Leumi.
A group of persons associated together for a common purpose of engaging in a course of conduct may constitute an association-in-fact enterprise, even though they are not a legal entity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985). In order to establish an association-in-fact, a plaintiff must show that the members of the enterprise function as a continuing unit. Procter & Gamble Co. v. Big Apple Indus. Bldgs. Inc., 879 F.2d 10, 15 (2d Cir. 1989) (citing Turkette, 452 U.S. at 583, 101 S. Ct. at 2528). The enterprise must also be an entity separate and apart from the pattern of activity in which it engages. Perez-Rubio v. Wyckoff, 718 F. Supp. 217 (S.D.N.Y. 1989).
The complaint alleges that Defendants functioned as a continuing unit for the common purpose of perpetrating fraud and extortion on Plaintiffs. Although Simon, Robinson, Levine, and Piper all allegedly left Bank Leumi in 1986, the complaint alleges that they continued to function as a unit with a common purpose after joining New York Bank. Defendants' disagreement with the veracity of this allegation is an issue properly raised in a motion for summary judgment, not in a motion to dismiss on the pleadings. A court may not dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure "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." Scheuer v. Rhodes, 416 U.S. 232, 236 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-102, 2 L. Ed. 2d 80 (1957)). Moreover, plaintiffs are not required to plead the existence of the enterprise with particularity, and may allege a short and plain statement of the enterprise under Rule 8 of the Federal Rules of Civil Procedure. Azurite Corp. v. Amster & Co., 730 F. Supp. 571, 577 (S.D.N.Y. 1990). The complaint also alleges that the enterprise's activities, including the making of false representations regarding Plaintiffs' loan obligations, the extortionate purchase of a car, and the use of blank and incomplete documents, are sufficiently distinguishable from the regular activities of Bank Leumi to permit the existence of an enterprise. Whether Plaintiffs can establish the existence of facts to support these allegations is an issue for later consideration.
Defendants also challenge the association-in-fact enterprise on the grounds that it is not sufficiently distinct from the Defendants because all of the named Defendants are also allegedly members of the enterprise. It is well-established that the "person" engaging in racketeering activity and the "enterprise" must be separate and distinct entities. Jacobson v. Cooper, 882 F.2d 717, 719-20 (2d Cir. 1989); Bennett v. United States Trust Co., 770 F.2d 308, 315 (2d Cir. 1985), cert. denied, 474 U.S. 1058, 106 S. Ct. 800, 88 L. Ed. 2d 776 (1986). This "non-identity rule" stems from the statutory language requiring that the liable person be "employed by or associated with any enterprise" which affects interstate commerce, and the principle that one cannot associate with oneself. In recent years, however, the Second Circuit has relaxed the non-identity rule to permit the existence of an enterprise where the overlap between the persons and the enterprise is only partial. Jacobson, 882 F.2d at 720; Cullen v. Margiotta, 811 F.2d 698, 730 (2d Cir.), cert. denied, 483 U.S. 1021, 107 S. Ct. 3266, 97 L. Ed. 2d 764 (1987). The inclusion of Zohar in the alleged enterprise satisfies the non-identity requirement. To the extent that Defendants argue that Zohar was not in fact part of any continuing association, this remains a factual dispute that can not be resolved based solely on the pleadings.
Moreover, an association-in-fact enterprise may still exist even if the pleadings did not include Zohar as a member of the enterprise. A defendant may be both a RICO "person" and a member of the enterprise. Cullen, 811 F.2d at 730. The fact that each member of the enterprise is also a defendant does not preclude the existence of a valid enterprise. United States v. Paccione, 738 F. Supp. 691, 705 (S.D.N.Y. 1990); Connors v. Lexington Ins. Co., 666 F. Supp. 434, 453 (E.D.N.Y. 1987). If Zohar is not considered as part of the alleged enterprise, the association-in-fact would be limited to Bank Leumi and several of its current and former employees. The law in this Circuit is clear that a corporation may not be both a person and an enterprise. Official Publications, Inc. v. Kable News Co., 884 F.2d 664, 669 (2d Cir. 1989). However, the Second Circuit has not specifically ruled on the issue of whether a corporation and its employees may form a RICO enterprise. Three courts in this Circuit have indicated that an enterprise composed of & corporation and one or more of its employees may be valid, Kuczynski v. Ragen Corp., 732 F. Supp. 378 (S.D.N.Y. 1989); Richardson Greenshields Secur., Inc v. Mui-hin Lau, 693 F. Supp. 1445, 1449 n.6 (S.D.N.Y. 1988); Metzner v. D.H. Blair & Co., 663 F. Supp. 716, 722 (S.D.N.Y. 1987), and one court has squarely held that a corporation and its principle officers can not form an enterprise, Official Publications, Inc. v. Kable News Co., 775 F. Supp. 631 (S.D.N.Y. 1991). This Court holds that where the alleged enterprise consists of a corporation and its present and former employees, who allegedly continued their racketeering activity after leaving their employment in the corporation, the pleadings sufficiently allege an enterprise separate and distinct from the RICO persons.
Defendants next argue that Bank Leumi must be dismissed as a defendant because a bank is not liable under RICO for the acts of its employees. Although the Second Circuit has not yet ruled on this issue, several district courts in this Circuit have addressed the question of whether to impose respondeat superior liability under RICO. Metro Furniture Rental, Inc. v. Alessi, 770 F. Supp. 198, 202 (S.D.N.Y. 1991); Kahn v. Chase Manhattan Bank N.A. 760 F. Supp. 369 (S.D.N.Y. 1991); In re Citisource, Inc. Secur. Litigation, 694 F. Supp. 1069 (S.D.N.Y. 1988); Banque Worms v. Luis A. Duque Pena E. Hijos, Ltda, 652 F. Supp. 770 (S.D.N.Y. 1986). These courts have generally declined to impose vicarious liability under RICO where to do so would in effect penalize an innocent entity which is itself victimized by its employees' racketeering activity. However, these cases are easily distinguishable from the present allegations. In Metro Furniture, the court based its decision on the lack of any allegation that other employees knew of or were involved in the alleged racketeering activity, or that the employer benefitted from or authorized the wrongdoing. Similarly, in Kahn, the court refused to hold a bank liable for the actions of an employee who had knowingly accepted fraudulently endorsed checks where there was no allegation that any other bank employee knew of or was involved in the fraudulent activity, or that the bank did or could have benefitted from it. In re Citisource involved an attempt to impose vicarious RICO liability on a municipal corporation, and the court reasoned, in part, that because a municipality cannot possess the requisite intent to be liable for committing the predicate acts itself, it therefore should not be liable when those same acts are committed by an employee. Finally, in Banque Worms, the court relied on the absence of any allegation that officers or management-level employees knew of or benefitted from the alleged racketeering. Unlike these cases, the present case involves allegations that the employer benefitted from and actively participated in the alleged wrongdoing. Where the employer allegedly benefits from the predicate acts, respondeat superior liability under RICO is appropriate. Amendolare v. Schenkers International Forwarders, Inc., 747 F. Supp. 162, 168-69 (E.D.N.Y. 1990); Connors v. Lexington Ins. Co., 666 F. Supp. 434, 453 (E.D.N.Y. 1987). Plaintiffs' allegations justify the inclusion of Bank Leumi as a defendant.
Plaintiffs allege as an alternative enterprise Bank Leumi Le-Israel B.M. ("Le-Israel"), which is allegedly the direct or indirect parent company of Bank Leumi. Defendants argue that Le-Israel is not a valid enterprise because the individual defendants and Bank Leumi did not participate in the conduct of the affairs of Le-Israel, as required for liability under RICO. The Second Circuit has stated:
one conducts the activities of an enterprise through a pattern of racketeering when (1) one is enabled to commit the predicate offenses solely by virtue of his position in the enterprise or involvement in or control over the affairs of the enterprise, or (2) the predicate offenses are related to the activities of that enterprise.
United States v. Scotto, 641 F.2d 47, 54 (2d Cir. 1980). The predicate acts need not be in furtherance of the affairs of the criminal enterprise to satisfy this requirement. United States v. Simmons, 923 F.2d 934, 951 (2d Cir. 1991).
The complaint alleges that the individual Defendants' positions as employees of Bank Leumi, which is directly or indirectly owned by Le-Israel, and Bank Leumi's position as a direct or indirect subsidiary of Le-Israel, enabled Defendants to participate in the conduct of the enterprise's affairs. Other courts have found a parent corporation to be a proper enterprise based on allegations that a subsidiary participated in the conduct of the affairs off its parent corporation. Haroco, Inc. v. American National Bank & Trust Co., 747 F.2d 384, 402-403 (7th Cir. 1984), aff'd, 473 U.S. 606, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985); Pappas v. NCNB Nat'l Bank, 653 F. Supp. 699 (M.D.N.C. 1987). The Court finds Plaintiff's allegations as to the Le-Israel enterprise sufficient.
D. Conspiracy Requirement
To state a claim under 18 U.S.C. § 1962(d), a plaintiff must allege that each defendant agreed to commit two or more predicate acts. United States v. Ruggiero, 726 F.2d 913, 921 (2d Cir.), cert.denied, 469 U.S. 831, 105 S. Ct. 118, 83 L. Ed. 2d 60 (1984); Reinfeld v. Riklis, 722 F. Supp. 1077, 1083 (S.D.N.Y. 1989). Conclusory allegations that defendants conspired with each other to violate 18 U.S.C. § 1962(c) are insufficient. Morin v. Trupin, 711 F. Supp. 97, 110 (S.D.N.Y. 1989). Rather, the complaint must "allege facts implying an agreement involving each of the defendants to commit at least two predicate acts." Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir. 1990).
Plaintiffs have failed to allege a factual basis for a RICO conspiracy with respect to Defendants Robinson, Piper
and Bergsohn for the reasons discussed above. Plaintiffs are granted leave to replead the conspiracy allegations with respect to these three Defendants if they can, in good faith, allege a factual basis for finding that each Defendant personally agreed to commit two or more predicate acts. The conspiracy allegations with respect to the remaining Defendants are sufficient.
Defendants' motion to dismiss Plaintiffs' state law fraud and breach of contract claims is granted. Defendants' motion to dismiss Plaintiffs' claims under 18 U.S.C. §§ 1962(c) and 1962(d) is granted with respect to Defendants Robinson, Piper and Bergsohn. Defendants' motion to dismiss Plaintiffs' RICO claims with respect to the remaining Defendants is denied. Plaintiffs have ten days to amend the complaint to replead RICO allegations with respect to Defendants Robinson, Piper and Bergsohn.
DATED: April 13, 1992
New York, New York
Constance Baker Motley, U.S.D.J.