article, first admitting that he had read it after receiving it from RCI but later saying that he did not remember reading the portion of the article that explained that "consultants" was a term used by RCI to identify its salespeople. Id. at 10. Either way, the article itself does not clear up the ambiguity that exists regarding the term. It does not say that RCI's salespeople are referred to as "architectural consultants." It only says that its salespeople are called "consultants."
Thus, we return to the question of whether defendants' continued use of the term, which plaintiffs now challenge as fraudulent, represented acts of fraudulent concealment. Defendants plainly knew that such persons were not part of their staff of licensed architects. However, mere repetition of the term "architectural consultant" represented no new act of concealment aimed at forestalling plaintiffs bringing suit. Nor did it obstruct plaintiffs from discovering the fact that they were not architects. To accept plaintiffs' argument would mean viewing the underlying fraud as an act of concealment itself. In fact, this is the crux of plaintiffs' argument on self-concealing fraud which we address below.
Indeed, plaintiffs were never deterred from commencing suit. In 1986, they commenced an action for fraud in state court. When RCI filed for bankruptcy, plaintiffs filed a federal action against the present defendants. The delay in bringing the present claims under RICO and common law fraud had nothing to do with any active concealment by defendants and everything to do with the automatic stay that resulted from RCI's bankruptcy, and the likelihood that they would be no recovery from the insolvent company. Further, had plaintiffs pursued discovery in the state case more expeditiously, they would undoubtedly have discovered that Zeug and Friedmutter were not licensed architects.
Ultimately, plaintiffs rest their tolling argument on the notion that "architectural consultant" is a "self-concealing" term. In New York v. Hendrickson Bros., Inc., 840 F.2d 1065 (2d Cir.), cert. denied, 488 U.S. 848, 102 L. Ed. 2d 101, 109 S. Ct. 128 (1988), the Second Circuit held in the context of an anti-trust suit that fraudulent concealment may be proved "by showing either that the defendant took affirmative steps to prevent the plaintiff's discovery of his claim or injury or that the wrong itself was of such a nature as to be self-concealing." Id. at 1083.
In Hendrickson Bros., the court stated that "the passing off of a sham article as one that is genuine is an inherently self-concealing fraud, whether what is passed off is a fake vase sold as a real antique . . . or a collusive bid purporting to reflect genuine competition." Id. (citations omitted). The court went on the describe how a bid-rigging conspiracy to be successful requires, by definition, concealment and is likely to exist for an extended period of time where subsequent fraudulent bid-rigging amounts to an affirmative concealment of the underlying scheme. Id. at 1084.
Plaintiffs argue that continued use of the term "architectural consultant" in mailings and business cards was an ongoing fraud. We do not believe that this case presents an analogous scenario. Here, the alleged fraudulent scheme involved using architectural consultants to design and supervise remodelling projects while deceiving customers into believing they are licensed architects. The later alleged acts--new brochures mailed to other prospective customers--were not designed to obscure the original fraudulent scheme from the plaintiffs' eyes. Unlike the situation in Hendrickson Bros., where later bid-rigging was necessary to hide the earlier fraudulent bid-rigging, later mailings to other people using the term "architectural consultants" would not tend to conceal from the plaintiffs the alleged fraudulent nature of the term. We are unconvinced that simply continuing to use the term "architectural consultants" is a self-concealing fraud that justifies tolling Connecticut's statute of limitations for fraud. We grant defendants' summary judgment motion against plaintiffs' fraud claim.
C. RICO Claim on the Merits
"To have standing under RICO, plaintiffs must show that their injuries were proximately caused by defendants' RICO predicate acts." Trautz v. Weisman, 809 F. Supp. 239, 243 (S.D.N.Y. 1992) (citing Sedima S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 495, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985)); see also Hecht v. Commerce Clearing House, Inc., 897 F.2d 21 (2d Cir. 1990) (injury must be proximately caused by either the RICO pattern of racketeering or the predicate acts). In cases involving mail fraud, plaintiffs must also show reliance upon the misrepresentations and injuries caused by that reliance. See Metromedia, 983 F.2d at 368 (2d Cir. 1992) (citing County of Suffolk v. LILCO, 907 F.2d 1295, 1311 (2d Cir. 1990)).
The RICO pattern or predicate acts are a proximate cause of plaintiffs' injuries if "they are a substantial factor in the sequence of responsible causation, and it the injury is reasonably foreseeable or anticipated as a natural consequence." Hecht, 897 F.2d at 24. Factual causation is immaterial.
The link between the design defect in plaintiffs' roof and the alleged deception regarding the professional status of Zeug or Friedmutter is fairly attenuated. The alleged injuries--the monetary costs and design defects requiring repairs--most directly connected to the representations themselves made in RCI's brochures or by any of its sales representatives (otherwise called "architectural consultants") regarding their professional status.
The design error could have occurred whether or not defendants made false representations in mailings or interstate telephone calls regarding the professional qualifications of its staff. Whether Zeug and Friedmutter were held out to the public as salespersons, architects, or "architectural consultants" would play no proximate role in the injuries ultimately suffered by plaintiffs unless plaintiffs offer evidence that they would not have hired RCI but for their belief that licensed architects would design and supervise their remodelling.
Obviously, the most direct cause of the plaintiffs' injuries was the faulty design of the roof and possibly the shoddy workmanship of its construction, not any misrepresentations regarding "architectural consultants." However, if defendants intentionally mislead plaintiffs into believing that they would be dealing with an architect in the design and supervision of their remodelling to induce them to hire RCI, knowing that an architect would not actually design and supervise the project, and the roof's design defect resulted from the failure to use an architect, plaintiffs' injuries might be proximately traceable to defendant's fraudulent misrepresentations. Under such circumstances, plaintiffs might be able to make out a RICO claim against any of the defendants who participated in at least two predicate acts.
Though we tend to doubt such considerations were on their mind at the time, plaintiffs do claim that their belief that licensed architects would design their addition partly motivated their decision to hire RCI. This factual issue, resting in large measure on the Moellers' credibility, must be resolved by the jury.
The architect retained by plaintiffs in connection with their state court action gave his expert opinion that the design of the addition did not appear to be the work of an architect. Moreover, defendants have been unable to provide the identity of the architect who supposedly designed the addition. During discovery, defendants produced two internal documents which identified Eric Jacobson as the "Arch." on the Moeller project. See Moeller Aff., Exhibits H and I. However, the evidence submitted by defendants showing the employment contracts of RCI's architects does not include any such contract with Eric Jacobson. Taken together, this evidence could support an inference that the plans for the addition were not in fact designed by a licensed architect.
It is undisputed that RCI employed, at least at one time, a staff of licensed architects. Defendants claim that the design defect in the addition's roof was the fault of one of their staff architects. Factual questions exist as to whether the Moellers' project was designed by a licensed architect and, if not, whether defendants actions were designed to deceive plaintiffs into believing that Zeug and Friedmutter, described as "architectural consultants," were architects.
No architects were ever identified to plaintiffs as associated with the remodelling. As envisioned by the brochures, Zeug and Friedmutter were personally involved in discussing the plans and drawings for the addition. Zeug worked with plaintiffs to design the addition before the plans were drafted. Friedmutter was later involved in reviewing the "each and ever word on the drawings" and making "all the changes as indicated on the supplement." Friedmutter Dep. at 47-48.
Regarding the deceptive nature of the mailings, plaintiffs highlight representations made by RCI in its brochures proclaiming that its "Architectural Consultants have the skill to design a client's once-in-a-lifetime project." See Moeller Aff., Exhibit A. One of the brochures sent as part of RCI's mass mailing, under the heading "Estimate, Specifications & Plans," describes the duties of the architectural consultant to include development of a final set of plans and detailed specifications, and review of the plans and contract specifications. Beside this description is a sketch of a man seated at a drafting table drawing. A later section entitled "Architectural Working Drawings" reads:
Our Consultant with one of our Staff Architects will visit your home to measure the job for all existing conditions and then proceed to prepare a complete set of working drawings showing even the smallest details.
Moeller Aff., Exhibit B. Grammatically, the above quoted paragraph says that the consultant visits a project site with a staff architect, but it leaves unclear who drafts the working drawings. Since the consultant is the subject of the sentence, the implication is that the verb "prepare" applies to the consultant.
We do not agree that use of the term "architectural consultant" by RCI was fraudulent on its face as a matter of law, though we do find the brochures ambiguous concerning the function and duties of the consultants and the architects. By designating a salesperson as an architectural consultant, a reasonable person might infer that he would provide advice and services relating to the architecture of a project. If in fact such an individual performed duties one might expect of an architect, such conduct, when considered in combination with verbal representations and the title, could mislead a reasonable person in thinking that the consultant performed work as an architect. We also note that defendant Zaccaria admitted in his response to Plaintiffs' Rule 3(g) Statement that RCI referred to its architects as "licensed architectural consultants."
We do note that evidence exists in the record to support an inference that plaintiffs should have been aware that Zeug and Friedmutter were not licensed architects and that their title of "architectural consultant" meant they were RCI's sales representatives. As we mentioned, the brochure discusses the consultant and the architect as two separate people. The two applications for building permits submitted to the Town of Greenwich, signed by Inge Moeller on October 9, 1985 and November 7, 1988 respectively, while identifying the persons supervising compliance with the drawings and ordinances, listed no information beside the line that read, "If architect or professional engineer give Connecticut Registration Number." This not only could have placed the plaintiffs on notice that the listed supervisor was not an architect but also that architects are persons registered with the state. Also, the working architectural drawings dated October 2, 1985 that were signed by plaintiffs named the project's draftsman and consultant but no name was listed in the space beside the word "Architect."
Yet, as we have noted, two internal RCI documents identify Eric Jacobsen as the architect for the Moeller project. The conflicting statements regarding the identity of an architect for the Moellers' addition would seem to be a significant, and one that might lead a reasonable person concerned with the professional status of the project personnel, as plaintiffs claim they were, to make further inquiries.
The fact that there might be sufficient evidence to might support plaintiffs' RICO claim does not end our inquiry. Plaintiffs have not offered any evidence connecting defendants Friedmutter, Mingione, and Branca with two predicate acts as is required to make out a RICO claim against each of them. Since the focus of § 1962(c) is on the individual pattern of racketeering engaged in by a defendant rather than the collective activities of an enterprise, United States v. Persico, 832 F.2d 705, 714 (2d Cir. 1987), a RICO claim under § 1962(c) must allege that each defendant committed two or more predicate acts. See Morin v. Trupin, 747 F. Supp. 1051, 1064 (S.D.N.Y. 1990).
When the predicate acts pled concern fraud, the concerns associated with pleading fraud with particularity take on even greater importance. Plount v. American Home Assur. Co., 668 F. Supp. 204, 206 (S.D.N.Y. 1987). The pleading requirements of Fed.R.Civ.P. 9(b) apply to allegations of mail and wire fraud as predicate RICO civil offenses. Morin, 747 F. Supp. at 1065.
In the case of defendant Friedmutter, regardless of the nature of the term "architectural consultant," the motion papers do not establish that he performed any services that could have led plaintiffs to believe that an architect designed their addition. Plaintiffs allege that Friedmutter was a shareholder and member of RCI's board of directors. But the record contains no evidence that Friedmutter had any responsibilities or connection to the drafting of plans, marketing, or mailing of RCI's brochures. Indeed, in their Rule 3(g) Statement, plaintiffs states that it was Zeug who helped develop the designs for their project and that his signature was on the plans. Pl.'s 3(g) Statement at P 23 and 26.
The most plaintiffs have said is that Friedmutter, whose business card identified him as an architectural consultant, explained the final set of drawings and plans to them. This, however, does not connect him with any of the alleged acts of mail or wire fraud, nor does it proximately connect him to the design defect in the roof. Further, at his deposition, Friedmutter specifically stated that defendant Zaccaria was responsible for producing and disseminating RCI's promotional literature. Friedmutter Dep. at 17. Moreover, he stated that his only involvement in the Moeller project after the plans were signed involved adding some cabinets above a refrigerator. Id. at 41. None of this amounts to two predicate acts by Friedmutter. His involvement in plaintiffs' project occurred only after the plans were drawn up. Nothing links him to the design defect that forms plaintiffs' RICO injury. Therefore, plaintiffs' RICO claims against Friedmutter must therefore be dismissed since no evidence exists tying him to two predicate acts of mail or wire fraud.
Where moving party has made a properly supported motion, non-moving party must come forward with specific facts to show is genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); L & L Started Pullets, Inc. v. Gourdine, 762 F.2d 1, 3, (2d Cir. 1985). The non-moving party may not rest on allegations or denials in its pleading. Fed.R.Civ.P. 56(e) but must produce sufficient evidence to reasonably support a jury verdict. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986).
Plaintiffs have also offered no evidence to support a finding that defendants Mingione or Branca were associated with two predicate acts. At oral argument, defendants identified Mingione as the field supervisor on the Moeller project and Branca as the head of RCI's production department who visited the project after work stopped. In his deposition, Hans Moeller said that he discussed the lack of supervision at the job site and concerns about the project's progress with Branca on numerous occasions. Plaintiffs also point out that the "House and Home" article described Mingione as a Construction Superintendent. In their Rule 3(g) Statement, plaintiffs allege that Mingione and Branca are RCI shareholders and members of its board of directors.
Whatever their titles or financial interests in RCI, plaintiffs have not offered any specific allegations connecting Mingione or Branca to any predicate acts of mail or wire fraud. Conversations with Branca about problems at the job site do not amount to mail or wire fraud. Nothing suggests they had any role in RCI's marketing or mailings.
The few particular facts plaintiffs have offered concerning Mingione and Branca do not proximately connect them to the design defect injury to their property, nor do they establish their involvement in two predicate acts. Plaintiffs' claim that defendants, including Mingione and Branca, as officers, directors and shareholders of RCI, made representations regarding the professional qualifications of the architectural consultants. In particular, Inge Moeller at her deposition stated that at RCI's offices Mingione represented, in the presence of Branca, that licensed architects would design and supervise the project. Inge Moeller Dep. at 123. Hans Moeller also stated that Mingione would get involved in the project when plaintiffs asked for supervision. Hans Moeller Dep. at 143.
Such allegations do not support connect Mingione or Branca to two predicate acts of mail or wire fraud or proximately connect their actions to the RICO injury suffered by plaintiffs to their property. For this reason, we grant their motions for summary judgment on the RICO claim.
The record differs somewhat with respect to Zaccaria. There is evidence linking defendant Zaccaria to the allegedly fraudulent mailings. Plaintiffs allege receiving through the mail several RCI brochures. As we noted, Friedmutter stated that Zaccaria was responsible for RCI's marketing and promotions. Since the brochures, particularly when considered in the context of the conduct of RCI's salespeople, were arguably fraudulent, one could draw an inference that Zaccaria was directly connected to at least two predicate acts of mail and wire fraud that proximately led to the design flaw that caused plaintiffs injury to their property. Plaintiffs allege that each mailing was in furtherance of the defendants' scheme to fraudulently persuade people in believing they were receiving the services of architects.
We note that the separate mailings in this case were directed toward a single fraud. This raises the issue of whether these mailings constitute two or more predicate acts of mail fraud, or whether they would represent only a single predicate act of mail fraud. This issue has not been briefed by the parties, and we do not decide it at this point.
The elements of mail fraud are: (1) the existence of a scheme to defraud and (2) use of interstate mails or transmission facilities in furtherance of the fraud. United States v. Corey, 566 F.2d 429, 430 n. 2 (2d Cir. 1977). In criminal RICO cases, "each mailing in furtherance of a scheme to defraud is a separate mail fraud offense." United States v. Weinberg, 656 F. Supp. 1020, 1026 n. 5 (E.D.N.Y. 1987) (citing United States v. Eskow, 422 F.2d 1060, 1064 (2d Cir.), cert. denied, 398 U.S. 959, 26 L. Ed. 2d 544, 90 S. Ct. 2174 (1970) ("each mailing pursuant to an alleged scheme to defraud constitutes a separate offense."). The Second Circuit has held in Beauford v. Helmsley, 865 F.2d 1386 (2d Cir. 1989), that "the substantive standards as to what must be proven in a criminal RICO prosecution also govern civil RICO actions." Id. at 1391. Additionally, the court in North Star Contracting v. Long Island Rail Road, 723 F. Supp. 902, 906 (E.D.N.Y. 1989), held that individual mailings furthering one scheme to defraud constitute separate predicate acts of mail fraud applies to civil RICO actions. As we said, we do not decide this issue without the benefit of additional briefing by the parties.
In sum, the facts are somewhat convoluted; the representations made, in the context of the services being performed, might have been misleading. Reading the record in a light most favorable to the plaintiffs on defendant Zaccaria's motion for summary judgment, Ramseur v. Chase Manhattan Bank, 865 F.2d 460, 465 (2d Cir. 1989), reasonable inferences regarding Zaccaria's connection with the arguably fraudulent mailings and his intent to defraud could be drawn in favor of the plaintiffs. Since summary judgment is ordinarily inappropriate where a defendant's intent is implicated, Donahue v. Windsor Locks Bd. of Fire Comrs., 834 F.2d 54, 59 (2d Cir. 1987), we leave these issues to the jury. Zaccaria's motion for summary judgment on the RICO claim is denied.
To conclude, we grant defendants' motions for summary judgment on plaintiffs' state law fraud claims in their entirety. On their RICO claims, we grant the summary judgment motions of defendants Branca, Friedmutter, Mingione. We deny plaintiffs' motion for summary judgment and defendant Zaccaria's motion on the RICO claim.
Dated: White Plains, New York.
August 30, 1993.
GERARD L. GOETTEL