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AMALGAMATED BANK OF NEW YORK v. ASH

June 4, 1993

AMALGAMATED BANK OF NEW YORK, Plaintiff,
v.
RAYMOND J. ASH and 86 UNIVERSITY REST. CORP. d/b/a VIVA PANCHO (a/k/a MARIA SANCHEZ), ROSEMARY F. MARSH, ALEXANDRA MARSH, GERALD MARSH, CINDY MARSH, MARTINIANO CHAPA, LUDOVINA CHAPA, CHARLES MALLIA, MARY MALLIA, and LAREDO, INC., Defendants.



The opinion of the court was delivered by: ROBERT J. WARD

 WARD, District Judge.

 Defendant 86 University Rest. Corp. d/b/a Viva Pancho ("Viva Pancho") moves for an order, alternatively: (1) dismissing plaintiff Amalgamated Bank of New York's ("the bank") second amended complaint (the "amended complaint"), pursuant to Rule 12(b)(6), Fed. R. Civ. P.; (2) granting judgment on the pleadings, pursuant to Rule 12(c), Fed. R. Civ. P.; or (3) granting summary judgment on the pleadings pursuant to Rule 56(c), Fed. R. Civ. P. Defendants Martiniano Chapa and Ludovina Chapa (collectively "the Chapas") move for an order dismissing the amended complaint for failure to state a claim against them upon which relief can be granted, pursuant to Rule 12(b)(6), Fed. R. Civ. P. For the following reasons, Viva Pancho's motion is granted and the Chapas' motion is denied.

 BACKGROUND

 In the amended complaint, plaintiff alleges that defendant Raymond Marsh ("Marsh") masterminded a scheme through which he embezzled over $ 8,000,000 from the bank. Employed by the bank for over nine years, from July 21, 1980 through November 8, 1989, Marsh's responsibilities included supervision of the Clearance Loan Department and work in the Commercial Loan and Mortgage Department. At the time he left the bank, Marsh was assistant vice president. Together with Martiniano Chapa, Marsh also owned and controlled a New York corporation known as Viva Pancho which operated a restaurant at 86 University Place. Plaintiff claims that the remaining defendants all received, directly or indirectly, funds embezzled by Marsh from the bank.

 In April 1991, Marsh pleaded guilty to embezzlement in violation of 18 U.S.C. § 656. He was sentenced to 37 months in prison, fined $ 1,000,000 and ordered to pay $ 1,500,000 in restitution. Marsh is presently incarcerated.

 The Amended Complaint

 According to the amended complaint, Marsh devised a scheme whereby he used his position within the bank in order to divert funds to his personal account, Viva Pancho's account, and the accounts of other defendants. Creating false entries in the bank's books and altering other entries and bank documents, Marsh caused the issuance of 350 official checks totalling more than $ 8,000,000. These official bank checks were made payable to a number of accounts at other banks. Attached to the amended complaint as Exhibit A, the bank submitted a list of all the issued checks and specifically indicated with an asterisk all the checks received by Viva Pancho.

 The amended complaint contains five counts against Marsh and Viva Pancho. In Count I, plaintiff claims that Marsh and Viva Pancho conducted and participated, directly and indirectly, in the conduct of the affairs of certain enterprises through a pattern of racketeering activity in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c). Specifically, Count I alleges that Marsh and Viva Pancho engaged in fraudulent conduct resulting in a "pattern of racketeering activity" which would be indictable under 18 U.S.C. §§ 1341 and 1343 and 18 U.S.C. §§ 1956 and 1957. In violation of §§ 1341 and 1343, Marsh and Viva Pancho are alleged to have repeatedly engaged in a scheme or artifice to defraud the bank through mail or wire fraud. With respect to §§ 1956 and 1957, Marsh and Viva Pancho are alleged to have engaged in money laundering in that they conducted financial transactions involving the proceeds of theft, embezzlement or misapplication by a bank employee.

 Count II alleges that Marsh and Viva Pancho participated in a fraud. According to the amended complaint, both Marsh and Viva Pancho consistently and intentionally made material misrepresentations to the bank. The amended complaint claims that Marsh and Viva Pancho made these false representations in an effort to deceive the bank and prevent it from discovering and terminating the scheme. The bank reasonably relied on the representations and as a direct and proximate result of these intentional misrepresentations, it suffered $ 8,963,967.57 in damages.

 In Count III, the amended complaint alleges that Marsh and Viva Pancho's wrongful appropriation of the bank's funds constituted conversion. Counts IV and V refer exclusively to Marsh. In the former, plaintiff alleges that Marsh, as an employee of the bank, owed a duty of loyalty not to misappropriate bank property intentionally for his own use and for the use of others, and that he breached the duty. In Count V, the amended complaint alleges that by failing to repay any of the wrongfully appropriated funds, Marsh should be held in breach of quasi contract.

 Counts VI and VII are directed to the Chapas and the other defendants. The amended complaint alleges in Count VI that the transfer of funds to these defendants amounted to fraudulent conveyances as they were made without fair consideration and, at the time of the conveyances, Marsh intended or believed that he would incur debts beyond his ability to pay. In Count VII, the amended complaint alleges that under principles of equity, defendants should not be permitted to retain any moneys they had received.

 Viva Pancho's Motion

 As its first ground for seeking dismissal of the amended complaint, Viva Pancho contends that plaintiff does not plead allegations of fraud with particularity as is required by Rule 9(b), Fed. R. Civ. P. According to Viva Pancho, the amended complaint: fails to differentiate among the defendants; presents no facts as to how, when, or to what extent any particular defendant joined the alleged conspiracy; and, most importantly, neglects to specify the time, place, and contents of false representations and by whom or to whom such representations were made. In Viva Pancho's view, plaintiff's vague allegations regarding the existence of a conspiracy amount to an attempt to circumvent the requirements of Rule 9(b).

 Viva Pancho also seeks dismissal of the amended complaint because, it maintains, plaintiff has not complied with the statutory requirements of RICO set out in 18 U.S.C. § 1962(c). In particular, Viva Pancho argues that the amended complaint fails to: (1) allege the existence of an "enterprise" within the meaning of 18 U.S.C. § 1961(4); (2) demonstrate that it was "associated with" plaintiff or any of its departments; (3) prove sufficiently that it participated in the conduct of any enterprise violating § 1962(c); and (4) plead allegations of mail fraud and wire fraud with particularity. Viva Pancho also argues that plaintiff's § 1962(c) claim is not within the legislative intent of the RICO statute, and that once the federal RICO claim is dismissed, all pendent state law claims should be dismissed as well for lack of jurisdiction.

 The Chapas' Motion

 The bank alleges that the Chapas received embezzled money from Marsh with knowledge of the fraud and therefore the transfers were fraudulent conveyances. The Chapas argue that in raising state law causes of action against them, the bank relies on sections of New York's Debtor-Creditor Law, which are inappropriate since Marsh did not assume a debtor-creditor relationship with the bank. The Chapas further contend that they did not engage in fraudulent transfers with Marsh. According to the Chapas, all of the transfers were made for full consideration, the negotiations with Marsh were at arms length, and they had no knowledge of any fraud or embezzlement. Finally, the Chapas maintain that they are precluded from liability because any losses sustained by plaintiff were the result of the bank's failure to supervise its employees.

 DISCUSSION

 A. Standards for Dismissing a Complaint Under the Federal Rules of Civil Procedure

 Viva Pancho seeks dismissal of the claims against it in the alternative pursuant to Rules 12(b)(6), 12(c), or 56(c), Fed. R. Civ. P. The Chapas move for dismissal of the amended complaint exclusively under Rule 12(b)(6). A motion for failure to state a claim brought under Rule 12(b) is made only "before pleading if a further pleading is permitted." In contrast, a motion for judgment on the pleadings pursuant to Rule 12(c) is made "after the pleadings are closed." In both contexts, however, if "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Rules 12(b) and (c), Fed. R. Civ. P.

 Because the Chapas have submitted the affidavit of Martiniano Chapa in support of their motion, the Court converts their motion to dismiss into a motion for summary judgment. *fn1" Conversely, inasmuch as Viva Pancho has presented no affidavits or other matters outside of the pleadings along with its motion, the Court need not convert its motion to dismiss into a summary judgment motion.

 Moreover, regardless of whether Viva Pancho's motion was made before or after the pleadings were closed, the standards for determining its outcome are the same. *fn2" According to Fed. R. Civ. P. 12(h)(2), the defense of failure to state a claim upon which relief may be granted, typically raised pursuant to Rule 12(b)(6), may be interposed after an answer has been filed by moving for judgment on the pleadings pursuant to Rule 12(c). Although Rule 12(h)(2) requires that in moving to dismiss for failure to state a claim after filing an answer, the movant invoke Rule 12(c) rather than Rule 12(b)(6), the Second Circuit instructs that "the same standards that are employed for dismissing a complaint for failure to state a claim under Fed. R. Civ. P. 12(b)(6) are applicable" on a motion to dismiss the complaint for failure to state a claim under Rule 12(c). Ad-hoc Comm. of Baruch Black and Hispanic Alumni Ass'n v. Bernard M. Baruch College, 835 F.2d 980, 982 (2d Cir. 1987); 5A C. Wright & A. Miller, Federal Practice and Procedure § 1367, at 515 (1990). Accordingly, the Court will employ the standards for reviewing a Rule 12(b)(6) motion in determining Viva Pancho's Rule 12(c) motion and the standards for summary judgment under Rule 56(c) in reviewing the Chapas' motion.

 1. Motion to Dismiss Under Rule 12(b)(6)

 In considering a motion to dismiss for failure to state a claim upon which relief may be granted, a court is limited to the facts stated in the complaint. Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991). However, The complaint includes any written instrument attached to it as an exhibit and any statements or documents incorporated into it by reference. Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, 118 L. Ed. 2d 208, 112 S. Ct. 1561 (1992); Goldman v. Belden, 754 F.2d 1059, 1065-66 (2d Cir. 1985).

 The court is required to accept the facts alleged in the complaint as true, Easton v. Sundram, 947 F.2d 1011, 1014-15 (2d Cir. 1991), cert. denied, 118 L. Ed. 2d 548, 112 S. Ct. 1943 (1992), read the complaint generously, and draw all reasonable inferences in favor of the plaintiff. Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989) (citing Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d Cir. 1985)). The complaint may be dismissed only if "it appears beyond doubt that the 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, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Branum v. Clark, 927 F.2d 698, 705 (2d Cir. 1991). In short, "the function of a motion to dismiss 'is merely to asses the legal feasibility of the complaint, not to assay the weight of the ...


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