as "persons" subject to RICO liability. P 153. The defendants and the Smith partnerships, however, cannot be both RICO "persons" and the RICO enterprise. Therefore, PP 157 and 158, which allege that the defendants individually and collectively themselves constituted enterprises, and PP 155 and 156, which allege that the Smith partnerships individually and collectively constituted enterprises, are wholly inadequate to support the RICO claims.
The only named enterprise which is not also alleged to be a RICO "person" is the "association in fact" of the defendants. P 154. That paragraph, however, suffers from the other defects discussed above. The enterprise allegations in the amended complaint do not comply with Rule 9(b).
There are additional problems with plaintiff's allegations concerning § 1962(a). To state a claim under § 1962(a), a plaintiff must make two basic allegations: first, that the defendants used or invested racketeering income to acquire or maintain an interest in the alleged enterprise, and second, that the plaintiff suffered injury as a result of that investment by the defendants. Bingham v. Zolt, 683 F. Supp. 965, 971 (S.D.N.Y. 1988); In re Gas Reclamation, Inc. Securities Litigation, 659 F. Supp. 493 (S.D.N.Y. 1987).
The amended complaint does not contain either allegation. There are no factual allegations to support the proposition that defendants invested racketeering income to acquire or maintain interests in any of the five named enterprises. The vast majority of the allegations in the amended complaint relate to investments made by plaintiffs, not defendants. Plaintiffs point to vague allegations of excessive accountant's fees paid to Berenson and excessive legal fees paid to the Berson defendants. PP 29, 30. The Berenson and Berson defendants, however, are not alleged to have violated § 1962(a). P 160. Moreover, there is no allegation that these purportedly excessive fees were invested to acquire or maintain an interest in any of the named enterprises.
Plaintiffs also point to PP 43, 61, 118-122 and 146 in support of the § 1962(a) claim. While these paragraphs allege various improper sales, expenditures and bills, they do not contain any allegations of the requisite investment of racketeering income for a § 1962(a) claim.
Paragraphs 43 and 61 allege that the Smith defendants sold assets of the 1983-G and 1984-J partnerships to an "affiliated party" without plaintiffs' consent or an independent appraisal. There is no attempt to identify the "affiliated party," however, so that it is impossible to tell whether any of the defendants profited from the purportedly improper sales. Assuming, despite this vagueness, that one of the defendants received income from these sales, there is no allegation that this income was invested to acquire or maintain an interest in one of the named enterprises.
Paragraphs 118-122 allege that the Smith and Luck defendants "expended all of the available income from the [Texas] wells which were operating, in an unsuccessful and uneconomical attempt to cause well B-5 to produce oil. . . . It is also alleged that the Smith and Luck defendants spent more money than was "economically justified" to cause well B-2 to operate after it had ceased to function. The only allegation that any of the defendants received any income from these purportedly improper expenditures is in P 121, which alleges that the Luck defendants benefitted from the "uneconomical work . . . in that Luck Petroleum charged a supervisory drilling rate of $ 200.00 a day for each of the wells." Again, however, there is no allegation that this income was used to acquire or maintain an interest in one of the named enterprises.
Paragraph 146 alleges that Smith sent false bills to O & G Carriers, but there is no allegation that Smith received any money as a result of these bills, or, if he did, that the money was invested to acquire or maintain an interest in one of the named enterprises. Hence none of the paragraphs pointed to by plaintiffs properly pleads a § 1962(a) claim.
Additionally, the amended complaint does not allege the requisite injury for a § 1962(a) claim. Plaintiffs' claim is not that they were injured by defendants' investment in or acquisition of an enterprise. Instead, the claim is that the alleged predicate acts induced plaintiffs to invest in the Smith partnerships. "As the [amended] complaint does not . . . allege any damages other than the loss of their investments, and since it is clear that these injuries arise out of the commission of the [alleged] predicate acts, and not from any investment by the defendants of the racketeering proceeds," plaintiffs have not alleged a § 1962(a) claim. Friedman v. Arizona World Nurseries Ltd., 730 F. Supp. 521, 549 (S.D.N.Y. 1990).
Plaintiffs' § 1962(b) claim suffers from the same defects as the § 1962(a) claim. To state a § 1962(b) claim, a plaintiff must make two basic allegations: first, that the defendants acquired or maintained an interest in the alleged enterprise through a pattern of racketeering activity, and second, that the plaintiff suffered injury as a result of the acquisition of the enterprise. Bingham, supra.
The amended complaint is entirely devoid of factual allegations that would support a claim that any of the defendants acquired or maintained an interest in any of the named enterprises through racketeering activity. There is also no claim that plaintiffs were injured as a result of defendants' acquisition of an enterprise. Plaintiffs' claim that the alleged predicate acts induced them to invest does not afford a basis for § 1962(b) liability.
Because, as discussed above, the enterprise allegations are wholly inadequate, it is simply impossible to tell whether plaintiffs might conceivably have a viable § 1962(c) claim.
Section 1962(d) makes it unlawful to conspire to violate § 1962(a), (b) or (c). "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).
The only allegation in the amended complaint setting forth a conspiracy claim is P 163: "All of the defendants conspired with each other and with one or more of the Smith partnerships to violate 18 U.S.C Sec. 1962(a), (b) and (c). . . ." It is difficult to imagine a vaguer or more conclusory conspiracy allegation. There is nothing in the amended complaint that even approaches the threshold pleading requirements for a § 1962(d) claim.
Therefore, plaintiffs have not sufficiently alleged a violation of any of RICO's provisions. The RICO count of the complaint is dismissed.
C. State law claims
Because the court dismisses the federal claims, the court declines to exercise jurisdiction over the pendent state law claims. Therefore, all state law claims are dismissed.
D. Leave to replead
The court dismisses plaintiffs' federal claims under Rule 9(b) and dismisses the Texas securities fraud claim under Rule 12(b)(6). Plaintiffs have requested leave to replead.
In Luce v. Edelstein, 802 F.2d 49, 56 (2d Cir. 1986), the Court of Appeals stated:
Complaints dismissed under Rule 9(b) are "almost always" dismissed with leave to amend. In cases where such leave has not been granted, plaintiffs have usually already had one opportunity to plead fraud with greater specificity, or the defective allegations were made after full discovery in a related case.
Here, the court dismissed plaintiffs initial complaint for failure to plead fraud adequately. The court granted plaintiffs an opportunity to replead and instructed them to provide clear and specific allegations of fraud. It is also worth noting that there has been substantial discovery in this case. Indeed, the amended complaint refers explicitly to material submitted by some of the defendants on the prior summary judgment motions. PP 110, 111. Despite the court's admonition and the discovery available to plaintiffs, however, the amended complaint is rife with vague and conclusory allegations.
Under these circumstances, there is no basis for allowing further amendment. The amended complaint is dismissed without leave to replead.
Defendants have requested sactions against plaintiffs for filing inadequate pleadings. Plaintiffs have requested sanctions against defendants for making the present motion to dismiss.
The court has considered the requests for sanctions and has concluded that sanctions would be inappropriate. Therefore, the applications for sanctions are denied.
The action is dismissed without leave to replead. Both motions for sanctions are denied.
Dated: New York, New York
August 20, 1992
THOMAS P. GRIESA
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