described above constitute a "pattern of racketeering activity" within the meaning of RICO. First, it alleges that UAL's commingling of its security deposits in Switzerland constituted conversion under New York law, and that UAL's disbursement of the funds through foreign commerce therefore amounted to transportation of converted money in violation of 18 U.S.C. § 2314. (Complt PP 19-20, 35) Second, Thai Airways alleges that the defendants obtained the two security deposits by means of a fraudulent scheme utilizing the mails and wires of the United States. (Complt P 35, 38) Third, Thai Airways alleges that the defendants conspired to violate RICO. (Complt PP 34, 44)
United Aviation contends that this court lacks subject matter jurisdiction over this action, arguing that RICO does not apply to conduct outside the United States. There is no need here to measure the extraterritorial reach of RICO, however, because the complaint alleges that racketeering activities occurred in the United States. Thai Airways expressly alleges that "defendants have conducted their fraudulent scheme and their racketeering enterprise through the use of the U.S. wires and mail, including the sending or receipt of . . . communications from or to the United States." (Complt P 38) In particular, Thai Airways alleges that the defendants used the United States wires to transfer the security deposits into UAL's New York bank account and that "all correspondence related to the negotiation and execution of the Lease Agreements and the Guarantee Agreements" was sent or received via the United States wires or mails. (Complt P 38) Thai Airways also alleges that specified letters in which Thai Airways or its counsel demanded the return of its security deposits from UAL were sent or received by United States mail. (Complt P 38) However, letters to UAL from Thai Airways or its counsel that merely demanded the return of the security deposit did not further the defendants' alleged scheme, and therefore do not fall within the mail fraud statute. See United States v. LaFerriere, 546 F.2d 182, 184-87 (5th Cir. 1977).
In addition, the alleged violations of 18 U.S.C. § 2314 can be traced to UAL's alleged wire transfer of the security deposits from a New York bank account to a Swiss bank account, where the security deposits allegedly were commingled with UAL's general funds. This wire transfer was not merely a preparatory act, but rather was an integral part of the alleged conversion. Further, the transfer necessarily involved conduct in the United States for which the principal causing it may be held criminally liable. See 18 U.S.C. § 2(b). Accordingly, Thai Airways has alleged sufficient conduct within the United States to provide this court with subject matter jurisdiction over any properly pleaded RICO claims. However, as discussed next, Thai Airways has failed to state a claim under RICO.
A. Mail and Wire Fraud Allegations
RICO claims sounding in fraud must satisfy Federal Rule of Civil Procedure 9(b). See, e.g., DiVittorio v. Equidyne Extractive Indus., 822 F.2d 1242, 1247 (2d Cir. 1987); Sable v. Southmark/Envicon Capital Corp., 819 F. Supp. 324, 341 (S.D.N.Y. 1993). In order to plead fraud with particularity, "a complaint must adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). Such allegations cannot be conclusory, but must be supported by assertions of fact. See Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir. 1986). Thai Airways' allegations of mail fraud and wire fraud neither identify any particular communications in which the allegedly fraudulent statements were made nor specify the contents of any allegedly fraudulent statements. To the extent the opinion of counsel that apparently misled Thai Airways about the separateness of UAS and UAS-Delaware could be considered fraudulent, there is no allegation that Thai Airways suffered any legally cognizable harm from its confusion between the two entities. Moreover, Thai Airways has not alleged any facts giving rise to a strong inference that the defendants acted with the required fraudulent intent. See Atlantic Gypsum Co. v. Lloyds Int'l Corp., 753 F. Supp. 505, 507 (S.D.N.Y. 1990). In sum, Thai Airways' allegations of predicate acts involving fraud fall far short of the requirements of Rule 9(b).
B. Allegations of Continuing Criminal Activity
RICO claims also must "allege facts showing a threat of continuing racketeering activity." Passini v. Falke-Gruppe, 745 F. Supp. 991, 993 (S.D.N.Y. 1990). Such facts must support an inference that "the acts of racketeering activity were neither isolated nor sporadic." Dymm v. Cahill, 730 F. Supp. 1245, 1261 (S.D.N.Y. 1990) (citing Beauford v. Helmsley, 865 F.2d 1386, 1391-92 (2d Cir.) (en banc), vacated, 492 U.S. 914, 106 L. Ed. 2d 584, 109 S. Ct. 3236, adhered to upon further consideration, 893 F.2d 1433 (2d Cir.), cert. denied, 110 S. Ct. 539 (1989)). Thus, courts have found that "there is insufficient threat of continuity to support a RICO cause of action where the racketeering acts involved a brief period of time, relatively few criminal acts, an uncomplicated scheme, few participants, and few victims." Airlines Reporting Corp. v. Aero Voyagers, Inc., 721 F. Supp. 579, 584 (S.D.N.Y. 1989) (citations omitted).
In this action, Thai Airways has made only the following factually barren allegation of continuity: "Upon information and belief, the [alleged] racketeering activity . . . is continuing by reason of the continuing transport and concealment of Thai Airways's funds" and "the UAS Group conducts its usual business by engaging in the [alleged racketeering activities], and has converted and will continue to convert funds of other lessees of airplanes who pay downpayments or security deposits to a member of the UAS Group." (Complaint P 37) While Thai Airways argues that these generalized allegations made upon information and belief are sufficient, it undercuts this argument by attempting to have this court improperly consider facts not incorporated in the complaint. See Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991).
Even if it were proper to look beyond the complaint to decide this motion, the additional facts proffered by Thai Airways fail to support any inference of criminal activity. The bulk of the supplemental materials filed by Thai Airways are unexceptional legal documents relating to the bankruptcy of certain U.S. affiliates of UAS. Significantly, these materials do not show that any other lessee has had its security deposit converted by any of the defendants. Moreover, Thai Airway's own description of their contents reveals that they contain only unremarkable facts -- essentially, that UAS and its affiliates, including the bankrupt U.S. affiliates, continue to engage in the business of leasing aircraft (Pltf. Opp. Mem. at 19-20), and that certain control and financial relationships among the Kuzbaris, UAS, and affiliates of UAS indicate they "are all linked in a common enterprise aimed at pooling revenues and expenses in furtherance of the UAS Group's leasing business." (Pltf. Opp. Mem. at 20-25) Thai Airways contends, in the most generalized fashion, that the activities of the defendants documented in the supplemental materials are illegal. But Thai Airways specifies no actions that appear to be criminal, and I detect nothing in these materials that shows criminal activities.
Finally, even if Thai Airways were to plead facts that support its allegation that the defendants are continuing to conceal and transport the already converted security deposits of Thai Airways, such activities do not constitute continuing criminal conduct. The defendants' alleged scheme to defraud Thai Airways was essentially accomplished upon the commingling of the security deposits with UAL's general funds. Cf. USA Network v. Jones Intercable, Inc., 729 F. Supp. 304, 318 (S.D.N.Y. 1990) (scheme to fraudulently mislead contract party about intentions to terminate contract "essentially accomplished" upon termination, and subsequent efforts to conceal fraud did not constitute "continuing criminal activity"). Any continuing concealment or transfer of the security deposits would not cause any additional harm to Thai Airways and would not enlarge the scope of the isolated alleged fraud. Because the alleged concealment and transfer constitute, at most, additional "actions . . . narrowly directed toward a single allegedly fraudulent goal," Continental Realty Corp. v. J.C. Penney Co., 729 F. Supp. 1452, 1455 (S.D.N.Y. 1990), they would not constitute continuing criminal activity even if properly pleaded.
* * *
For the foregoing reasons, Thai Airways has failed to state a RICO claim and, as a result, this court lacks subject matter jurisdiction over Thai Airway's pendent state-law claims. Accordingly, the complaint is dismissed in its entirety against the moving defendants. A conference will be scheduled to determine whether plaintiff can allege sufficient facts to warrant leave to replead.
Dated: New York, New York
February 7, 1994
Michael B. Mukasey,
U.S. District Judge