If plaintiffs have any cognizable RICO injury, it will most likely be the fact that they received less stock than promised on their initial investments in the defendant corporations, not any later losses resulting from defendants Saleeby and Horowitz's alleged conversion of corporate assets or mismanagement. Those injuries are not proximately caused by the RICO predicate acts and should not be pleaded in the RICO claim.
As noted above, the complaint does not state with any clarity when each plaintiff invested in each corporation and when they could have discovered that they had received smaller percentage holdings than they were promised. But the court will charge plaintiffs with knowledge of their percentage holdings as listed in the K-1 forms they received.
Defendants have provided the court with many of these K-1's. The court will consider K-1 forms on a motion to dismiss without converting to a motion for summary judgment, see Fed. R. Civ. P. 12, because these forms are required by the Internal Revenue Service, are equally accessible to plaintiffs, and plaintiffs were on notice of them when defendants introduced them and had a chance to respond to their introduction. Cf. Cortec Indus., Inc. v. Sum holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991), cert. denied, Cortec Indus., Inc. v. Westinghouse Credit Corp., U.S. , 112 S. Ct. 1561, 118 L. Ed. 2d 208, 112 S. Ct. 1561 (1992) (plaintiff had notice of stock purchase agreements and other SEC-required documents introduced by defendant on motion to dismiss). Indeed, plaintiffs' only response to the K-1 forms is that plaintiffs are unsophisticated and cannot be expected to have read these forms. But the forms are one page long, and the relevant percentages of stock holdings are clearly indicated at the top of each form. Even if plaintiffs did not read and understand these forms, they should have.
Most of the investments occurred from 1986 to 1989, and plaintiffs must have known by the end of each of those years what percentage holdings they had in each corporation in order to file their tax returns in those years. Thus, plaintiffs should not include in an amended complaint injuries arising from any investments made prior to 1989.
3. Rule 9(b)
Finally, the amended complaint must state concisely any particular circumstances showing fraud.
The complaint asserts mail and wire fraud, 18 U.S.C. § 1341 & 1343, as the only cognizable "racketeering activity" underlying its RICO claim. Fed. R. Civ. P. 9(b) requires "the circumstances constituting fraud" to be pleaded with particularity. Rule 9(b) applies to RICO cases where the predicate acts are based on fraud. Bonanno Organized Crime Family, 683 F. Supp. at 1427. See also Connors v. Lexington Ins. Co., 666 F. Supp. 434, 450 (E.D.N.Y. 1987). The minimum requirements of Rule 9(b) are that "the time, place, and content of the alleged misrepresentations, as well as the speaker, must be identified." Id.
The complaint, despite its length, does not fulfill those requirements. Any amended complaint will include only the relevant predicate acts in the RICO claim and will provide in concise fashion the details required by Rule 9(b).
The court dismisses claims eight and nine of the complaint with prejudice. The first claim is dismissed without prejudice. The court will not assess the state law claims until plaintiffs have established its jurisdiction over the case.
Within 60 days plaintiffs may file and serve an amended complaint plainly stating the bases for the relief they seek. Plaintiffs' request for relief in their Order to Show cause is denied. The court reserves the decision as to what sanctions, if any, it should impose on plaintiffs and their attorney.
Dated: Brooklyn, New York
January 25, 1994
Eugene H. Nickerson, U.S.D.J.
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