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April 6, 1993

GERRY TRAUTZ, FLOYD RHEIN, individually and on behalf of all others similarly situated, and DISABILITY ADVOCATES, INC., Plaintiffs,


The opinion of the court was delivered by: GERARD L. GOETTEL


 Plaintiffs Gerry Trautz and Floyd Rhein were formerly residents of an adult care facility located in Spring Valley, New York. On behalf of themselves and a purported class of residents, plaintiffs challenge the operation of the adult home as a long-standing venture that has illegally subjected its residents to dangerous, degrading conditions while bilking them of their money.


 This action arises out of allegedly deplorable conditions which exist at Weisman's Rockland Manor (the "Manor"), an adult care facility regulated by the state which provides long-term residential care to mentally and emotionally disturbed people. The Manor is actually a partnership comprised of defendants Eugene Weisman, Leon Weisman and Mollie Weisman. The partnership leases the property used by the Manor from Weisman's Rest Hotel, a corporation. The Weismans are alleged to be owners, operators and administrators of the adult home; defendant Kones Paramananthan manages the home as an employee of the partnership.

 The individual defendants have been licensed to operate the Rockland Manor for at least twenty years. According to the amended complaint, since 1972 Rockland Manor has been cited by the Department of Social Services ("DSS"), a state agency charged with the regulation of adult homes, for countless violations for state regulations. These violations cover areas such as admission standards, resident protection, food service, resident services, and environmental standards.

 The Manor serves various individuals including former residents of county and state-run psychiatric facilities, homeless persons, and private citizens who arrive on their own accord. Defendants describe the Manor as a sort of half-way house for mentally and emotionally disturbed people. Approximately half of its residents are dischargees from the nearby Rockland County Psychiatric Hospital. The Manor charges its residents a monthly rent of $ 732 for room and board. Many of its residents receive financial assistance from state and/or federal programs in the form of Supplemental Social Security Income ("SSI").

 Plaintiffs' complaints about the standard of services provided by Rockland Manor are extensive. A mere sampling of the allegations in the complaint describes a dirty, poorly operated facility with little regard for the care of the adults who live there because they are incapable of caring for themselves. For example, general allegations in the complaint are that, among other things, the defendants fail to provide adequate meals, that food is improperly stored, that the facility is in a deplorable state of disrepair, and that staff, insufficient in number, is inadequately trained. In addition, the plaintiffs claim that illegal drug transactions take place at the facility and that crack vials routinely litter the floors there.

 Trautz asserts that he was a resident of Rockland Manor from November 1989 until July 1990. While he was there, he claims that his living conditions bordered on the inhumane. Plaintiffs describe the Manor as a place thoroughly infested with all varieties of vermin, rife with theft, and littered with every sort of filth imaginable. Other allegations involve the lack of security, the lack of privacy, inadequate heating and food, and the presence of drugs and prostitutes in the facility. Floyd Rhein, the other named plaintiff, claims that he lived at Rockland Manor for roughly five years and experienced similar conditions. In sum, plaintiffs allege unsanitary conditions at the Manor which more closely resemble a tenement than a habitable adult care facility.

 Plaintiffs filed an amended complaint on January 5, 1993 in which they replead their cause of actions pursuant to 18 U.S.C. §§ 1962(b)-(d). As before, plaintiffs allege numerous acts of mail and wire fraud as the underlying predicate acts of racketeering.

 Before the court today is the defendants' motion to dismiss the RICO claims in plaintiffs' amended complaint. Defendants concede that the alleged acts of mail and wire fraud have been pled with sufficient particularity pursuant to Fed.R.Civ.P. 9(b). *fn1" Instead, they make three primary arguments: (1) plaintiffs' RICO claims must again fail because they have not adequately pled a proximate cause between the fraud committed on the federal and state governments and the injuries to the plaintiff residents of the Manor; (2) plaintiffs continue to improperly confuse the Manor as a RICO person and an enterprise under 18 U.S.C. § 1962(c); and (3) plaintiffs have not properly alleged that each defendant agreed to participate in a conspiracy under 18 U.S.C. § 1962(d) and 42 U.S.C. § 1985(3). At bottom, defendants contend that plaintiff's action sounds in contract, not racketeering fraud.


 It is commonly known that a court can only dismiss a complaint where "it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Branum v. Clark, 927 F.2d 698 (2d Cir. 1991). In deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6), we must accept the allegations of the plaintiffs' amended complaint as true. Corcoran v. American Plan Corp., 886 F.2d 16, 17 (2d Cir. 1989) (citing Cruz v. Beto, 405 U.S. 319, 322, 31 L. Ed. 2d 263, 92 S. Ct. 1079 (1972)).

 A. Proximate Cause and the Convergence Theory

 Defendants' primary objection to plaintiffs' set of RICO claims is that the injuries claimed by plaintiffs were not proximately caused by the racketeering acts they allege. In essence, defendants contend that there is no convergence between the alleged fraud committed on the DSS and the alleged substandard care provided to the plaintiffs.

 The predicate acts of racketeering alleged by plaintiffs are mail frauds indictable under IS U.S.C. § 1341 (1982) and wire frauds indictable under 18 U.S.C. § 1343. The mail frauds identified in the amended complaint involve a series of written assurances mailed to DSS responding to reports of inspections issued by DSS to the Manor. According to the amended complaint, between 1985 and 1992 DSS cited over 260 violations of DSS regulations regarding the operation of adult homes. With each report of inspection, plaintiffs contend that, after consultation with defendant Paramananthan, Eugene Weisman mailed DSS either a letter assuring DSS that the necessary corrections had been made or a proposed compliance plan promising to institute the needed changes. Relying on these representations, plaintiffs claim that DSS continued to issue renewals of the Manor's operating certificate. In their amended complaint, plaintiffs allege that this stream of written assurances from defendants was done with no intention of correcting any regulatory violations, but for the sole purpose of retaining the Manor's operating certificate. By maintaining their operating certificate through these fraudulent practices, plaintiffs contend that the defendants were able to carry out their scheme to defraud the Manor's residents into paying good money for substandard care.

 To have standing to raise a claim under RICO, plaintiffs must show that their injuries were proximately caused by the predicate acts committed by the defendants. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 495, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985). The key issue raised by defendants is whether the scheme outlined above satisfies the proximate cause test for RICO claims. Defendants take the position that there is no proximate cause between the fraud committed against DSS and the horrendous living conditions plaintiffs were allegedly subjected to. Defendants contend that RICO requires a convergence or causal connection between the deceived and the injured.

 The genesis of the convergence theory, in this Circuit at least, rests in dicta from the Second Circuit's decision in United States v. Evans, 844 F.2d 36 (2d Cir. 1988). In Evans, the court interpreting the Supreme Court's decision in McNally v. United States, 483 U.S. 350, 97 L. Ed. 2d 292, 107 S. Ct. 2875 (1987), stated:

as we read McNally, the Supreme Court did not focus on whether the person deceived also had to lose money or property. Nonetheless, this may be the correct view of the statute. If a scheme to defraud must involve the deceptive obtaining of property, the conclusion seems logical that the deceived party must lose some money or property.

 Id. at 39. The court in Evans, however, concluded that "the case before us today does not require us to decide this general question." Id. at 40.

 After surveying the caselaw, it seems clear that the question of whether the mail or wire fraud statutes, and by extension RICO, require that the party deceived also be the party injured remains unsettled in this circuit. In our research we have found no cases which hold that a convergence of the deceived and injured is required to demonstrate proximate causation for a RICO claim.

 The Second Circuit in Corcoran, 886 F.2d 16, following its earlier decision in Evans found it unnecessary to reach the issue. Id. at 20. Instead, the Corcoran court affirmed the dismissal of the mail fraud claims after concluding that the governmental regulator who received false reports had no property interest at stake; he was deceived only in his role as regulator. See id. at 20-21.

 Most recently, the Second Circuit in United States v. Eisen, 974 F.2d 246 (2d Cir. 1992), cert. denied, 61 U.S.L.W. 365 (1993), again expressed no opinion on whether the convergence theory is applicable to allegations of mail fraud. See id. at 253. The court simply recognized that a split currently exists amongst the federal district courts. See id. at n. 2.

 Following other decisions in this district, we decline to read a convergence theory into the RICO statute. RICO requires that a claimant's injuries be proximately caused by the conduct constituting the RICO violation. Section 1964(c) of RICO provides for civil remedies and states, "Any person injured by reason of a violation of section 1962" may bring an action to recover damages. 18 U.S.C. § 1964(c) (1984). This language imposes a causation requirement on a plaintiff seeking to sue under RICO. Shaw v. Rolex Watch U.S.A., Inc., 726 F. Supp. 969, 972 (S.D.N.Y. 1989) (citing Sperber v. Boesky, 849 F.2d 60, 64 (2d Cir. 1988)). In other words, proximate cause, not convergence, is the operable test.

 Plaintiffs allege that they have been injured by the inadequate living conditions and services offered by defendants at the Manor as well as the loss of their payments drawn from their SSI funds. We do view as too attenuated the causal link between the fraudulent communications to DSS that were essential to securing renewals of the Manor's operating certificate and the ...

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