to file a Fourth Amended Complaint. Plaintiffs in the related action of Morin v. Trupin (the "Morin Plaintiffs"), by the same motion, request the Court to grant them leave to amend their Third Amended Complaint. By these amendments, the Plaintiffs seek, among other things, to plead claims for relief under the Racketeer Influenced and Corrupt Organizations Act (RICO) against Frederick Mintz, Alan Fraade, and the law firm of Mintz Fraade & Zeiger, P.C. (collectively, the "Mintz Fraade Defendants") as aiders and abetters of primary violations under 18 U.S.C. §§ 1962(a) and (b) ("Section 1962(a)" and "Section 1962(b)") and as primary violators of 18 U.S.C. §§ 1962(c) and (d) ("Section 1962(c)" and "Section 1962(d)").
The Mintz Fraade Defendants have filed a motion to dismiss the Alberti Plaintiffs' Fourth Amended Complaint as alleged against them, which motion was made conditional upon the court's granting the Alberti Plaintiffs leave to file their Fourth Amended Complaint. Stuart Becker & Co., P.C., also defendants in this matter, have submitted an affidavit in opposition to the Alberti and Morin Plaintiffs' motions, but did not join in the Mintz Fraade Defendants' motion to dismiss. For the reasons set forth below, the Court grants the Alberti Plaintiffs leave to file a Fourth Amended Complaint and the Morin Plaintiffs leave to amend their complaint. Defendants' motion to dismiss is granted in part and denied in part.
The Alberti Plaintiffs are investors in a New York limited partnership known as the Sacramento Office Park Associates, organized to own, operate and lease a two-building office park complex in Sacramento, California referred to as the Butano Buildings (the "Butano Property").
The Morin plaintiffs are investors in other real estate limited partnerships, referred to as the 118, 119, 119M, 130 and 218 syndications, formed to divide up and offer to the public interests in office buildings and warehouses in a variety of locations.
Mintz, Fraade & Zeiger, P.C. is a New York law firm which is alleged to have acted as counsel to partnerships and corporations controlled by Barry H. Trupin ("Trupin"), who is the founder and promoter of all the tax shelters involved in these actions. Mintz, Fraade & Zeiger has been named as a defendant in both the Morin and Alberti actions.
The Alberti and Morin actions have been the subject numerous opinions issued by this Court, familiarity with which is assumed. See, e.g., Morin v. Trupin, 711 F. Supp. 97 (S.D.N.Y. 1989); Morin v. Trupin, 728 F. Supp. 952 (S.D.N.Y. 1989); Morin v. Trupin, 738 F. Supp. 98 (S.D.N.Y. 1990); Morin v. Trupin, 747 F. Supp. 1051 (S.D.N.Y. 1990); Morin v. Trupin, 778 F. Supp. 711 (S.D.N.Y. 1991); Morin v. Trupin, 799 F. Supp. 342 (S.D.N.Y. 1992); Morin v. Trupin, 832 F. Supp. 93, 1993 U.S. Dist. LEXIS 12805, 1993 WL 369054 (S.D.N.Y. 1993); see also Ahmed v. Trupin, 781 F. Supp. 1017 (S.D.N.Y. 1992); Ahmed v. Trupin, 809 F. Supp. 1100 (S.D.N.Y. 1993); Aquino v. Trupin, 833 F. Supp. 336, 1993 U.S. Dist. LEXIS 13085, 1993 WL 376775 (S.D.N.Y. 1993). Argument on the present motions was heard on September 29, 1993, and the motions were considered fully submitted as of that date.
Briefly, in both actions the Plaintiffs have alleged that Trupin organized, ran, and syndicated limited partnerships in the businesses of real estate and equipment leasing in order to generate profits and tax losses for limited partners. Certain of the tax benefits allegedly promised to investors in the equipment leasing trusts have apparently been disallowed by the I.R.S. All of the commercial properties have been foreclosed upon. The plaintiffs in both actions have filed suit alleging violations of Section 10(b) of the 1934 Securities Exchange Act, 15 U.S.C. § 78j (b) and Rule 10(b)-5, violations of RICO, 18 U.S.C. § 1962(a)-(d), and various common law claims.
On September 15, 1993, (the "September 15th Opinion") this Court granted the Mintz Fraade Defendants' motion to dismiss the Plaintiffs' claims under Section 1962(c) as alleged against them in light of the recent decision of the United States Supreme Court in Reves v. Ernst & Young, 122 L. Ed. 2d 525, 113 S. Ct. 1163 (1993). In addition, the Plaintiffs' other claims under the RICO statute were dismissed pursuant to Fed. R. Civ. P. 12(b)(6). See Morin v. Trupin, 832 F. Supp. 93, 1993 U.S. Dist. LEXIS 12805, 1993 WL 369054 (S.D.N.Y. 1993). The Plaintiffs now move the Court for leave to amend their complaint under Fed. R. Civ. P. 15(a) in order to correct the flaws in their RICO pleadings that provoked their dismissal, and to bring before the Court information that was lately unearthed through discovery.
I. Leave to Amend under Rule 15(a)
In accordance with Rule 15(a) of the Federal Rules of Civil Procedure, "leave to amend 'shall be freely given when justice so requires'; this mandate is to be heeded." Foman v. Davis, 371 U.S. 178, 182, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962) (quoting Rule 15(a)); Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990). The Court in Foman added further that "if the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits." Foman, 371 U.S. at 182.
Plaintiffs claim that the timing of this motion is occasioned by the September 15 Opinion. Plaintiffs had sought to incorporate certain facts related to their RICO claims into their pleadings through the submission of a joint pretrial Order. The dismissal of their RICO claims in the September 15 Opinion made this strategy untenable, and plaintiffs now seek to bring these facts before the Court in a Fourth Amended Complaint.
This Court considered an analogous motion in Journal Publishing Co. v. American Home Assurance Co., 771 F. Supp. 632 (S.D.N.Y. 1991). In that case, after denying cross motions for summary judgment, the court ordered the parties to submit a pretrial order. During the preparation of the order, the defendants refused their consent to the inclusion of additional claims based on actions taken and facts that had come to light during the discovery process. The court allowed the plaintiffs to amend their complaint to include the newly discovered allegations.
The Mintz Fraade Defendants' principal opposition to this motion is that the Fourth Amended Complaint fails to state legally sufficient RICO claims. "A trial court does not abuse its discretion in denying leave to amend a complaint which even as amended would fail to state a cause of action." S.S. Silberblatt, Inc. v. East Harlem Pilot Block-Bldg. 1 Hous. Dev. Fund Co., 608 F.2d 28, 42 (2d Cir. 1979). As discussed below, however, the Fourth Amended Complaint states a cause of action under 18 U.S.C. § 1962(d).
Stuart Becker & Co. P.C. protest that responding to the claims raised in the Fourth Amended Complaint will subject them to additional expense. Particularly in light of the resolution of the Mintz Fraade Defendants' motion to dismiss, however, any burden that the defendants may bear in responding to these claims "hardly amounts to prejudice outweighing the policy of Rule 15(a) in favor of permitting the parties to obtain an adjudication of the merits." S.S. Silberblatt, Inc., 608 F.2d at 43.
The plaintiffs' motion to amend their pleadings in the Alberti action and file a Fourth Amended Complaint is therefore granted. The plaintiffs in the Morin action are granted leave to amend their pleadings to incorporate factual matters obtained through discovery, to the extent that such amendments are consistent with the following resolution of the Mintz Fraade Defendants' motion to dismiss under Fed. R. Civ. P. 12(b)(6) and 9(b).
II. Standards for Dismissal Under Rule 12(b)(6)
On a Rule 12(b)(6) motion to dismiss, the factual allegations of the complaint are presumed to be true and all factual inferences must be drawn in the plaintiffs' favor and against the defendants. See Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); Dwyer v. Regan, 777 F.2d 825, 828-29 (2d Cir. 1985). Accordingly, the factual allegations considered here and set forth below are taken from the Plaintiffs' complaint and do not constitute findings of fact by the Court. They are presumed to be true only for the purpose of deciding the present motion.
A court may not dismiss a complaint unless the movant demonstrates "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); accord Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984); H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989).
The substantive provisions of RICO, 18 U.S.C. § 1962(a)-(d), outlaw four types of racketeering-related activities. The Court of Appeals for the Second Circuit has described the statute in the following manner:
Section 1962(a) prohibits using income received from a "pattern of racketeering activity" to acquire an interest in or establish an enterprise engaged in or affecting interstate commerce. Section 1962(b) proscribes the acquisition or maintenance of any interest in an enterprise "through" a pattern of racketeering activity. Section 1962(c) prohibits conducting or participating in the conduct of an enterprise through a pattern of racketeering activity. Section 1962(d) proscribes conspiring to violate subsection (a), (b), or (c).