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SCHEINER v. WALLACE

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK


August 16, 1994

RANDY SCHEINER, ROYCE SCHEINER, CINDY ROYCE CREATIONS, INC. and MAXIMUS CREATIONS LIMITED, Plaintiffs,
v.
DEREK WALLACE, BRIAN DANIELS, PAUL HUNT, and DAVID WILLIAMS, sued on their own behalf and on behalf of all other Lloyd's Underwriters subscribing to Policy Numbers ZJB8901346 251NM and ZJB900233 255M, WHITE, FLEISCHNER, FINO & WADE, DENNIS WADE, HOLMES PROTECTION OF NEW YORK, INC., HARTLEY COOPER ASSOCIATES, LTD., LEVMORE-FINCH, INC., GRAHAM MILLER, INC., SHAUN COYNE, KARL ALIZADE, CITY SAFE, INC. and J.M. McNICHOLAS, Defendants.

SWEET

The opinion of the court was delivered by: ROBERT W. SWEET

OPINION

Defendants Derek Wallace, Brian Daniels, Paul Hunt, David Williams, Lloyd's Underwriters Subscribing to Policy Numbers ZJB8901346 251NM and ZJB900233 255M ("Lloyd's"), White, Fleischner, Fino & Wade ("WFFW"), Holmes Protection of New York, Inc. ("Holmes"), Graham Miller, Inc. ("Miller"), Shaun Coyne, Karl Alizade, City Safe, Inc. ("City Safe") and Detective John M. McNicholas ("McNicholas") (collectively the "Defendants") have moved, pursuant to Rule 12(b), Fed. R. Civ. P., for an order dismissing the Complaint of Randy Scheiner, Royce Scheiner, Cindy Royce Creations, Inc. ("Cindy Royce"), and Maximus Creations Limited ("Maximus") (collectively the "Plaintiffs"). Defendant Hartley Cooper Associates, Limited ("Hartley Cooper") has moved separately, pursuant to Rule 12(b)(6), for an order dismissing all claims against it based upon the collateral effect of the prior proceedings in this action.

 The Defendants and Hartley Cooper further seek Rule 11 sanctions, pursuant to Fed. R. Civ. P. 11, against the Plaintiffs.

 For the reasons set forth below, the Defendants' motion to dismiss the Plaintiffs' federal RICO claim with prejudice is granted. The remaining motions to dismiss are temporarily stayed in conformance with the findings set forth below. Defendants' motions for sanctions are denied.

 The Parties

 Plaintiff Cindy Royce is a New York corporation. Its principal office is in New York City and its primary business is the manufacture and sales of jewelry.

 Plaintiff Maximus is a New York corporation. Its principal office is in New York City and its primary business is the manufacture and sales of jewelry.

 Samuel Scheiner was and is Secretary/Treasurer and fifty-percent shareholder of Cindy Royce and Secretary/Treasurer and one-third owner of Maximus. Samuel Scheiner supervised the overall operations and finances of both Cindy Royce and Maximus.

 Randy Scheiner is a New York citizen and resident residing in Cedarhurst, New York. He was a salesman for Maximus. He is the son of Samuel Scheiner and Plaintiff Royce Scheiner, the wife of Samuel Scheiner.

 Derek Wallace, Brian Daniels, Paul Hunt and David Williams are citizens of the United Kingdom, with their principal place of business in London. As Lloyd's underwriters, they subscribed to the insurance policies in this case.

 WFFW, a law firm, is a general partnership organized and existing under the laws of the State of New York. Attorneys in WFFW are licensed to practice law in the State of New York. Dennis Wade is a partner in WFFW. Dennis Wade worked first as an Assistant District Attorney and second as Deputy Chief of the Rackets Bureau in the New York County District Attorney's Office.

 Holmes is a corporation organized and existing under the laws of New York. Cindy Royce and Maximus contracted Holmes to provide security services.

 Hartley Cooper, an insurance brokerage, is an English Corporation with its principal place of business in England. Hartley Cooper acted as a "placing broker" by placing primary and excess insurance policies for Cindy Royce and Maximus on the London market.

 Levmore-Finch, an insurance brokerage, is a New York corporation with its principal place of business in New York City.

 Miller is an adjustment firm retained by Lloyd's. Shaun Coyne is a loss adjuster at Miller.

 City Safe, a New Jersey corporation, has its principal place of business in New Jersey and New York. The firm provides safe expertise for Lloyd's. Karl Alizade is a principal of City Safe.

 Detective McNicholas, formerly with the New York City Police Department, helped investigate the reported burglary of Cindy Royce and Maximus.

 Prior Proceedings

 The prior proceedings and facts in this diversity action are set forth in the previous opinion of this Court, familiarity with which is presumed. See Scheiner v. Wallace, 832 F. Supp. 687 (S.D.N.Y. 1993) (Scheiner I or the "Opinion"). A brief review of the pertinent facts and prior proceedings follow.

 On January 5, 1989, underwriters from Lloyd's issued to Cindy Royce and Maximus Jewelers' Block Policy No. ZJB8901346 251NM which insured their premises for the 12 month period beginning July 10, 1989 against loss by theft up to a maximum of $ 2,500,000, with a $ 25,000 deductible. On February 9, 1989, Plaintiffs took out an additional "excess policy" for losses in excess of $ 2,500,000.

 On August 18, 1989, while both policies were still in effect, the premises of Cindy Royce and Maximus were burglarized. On November 2, 1989, Samuel Scheiner, in his capacity as Secretary/Treasurer for Cindy Royce and Maximus, filed a Proof of Loss with Lloyd's for more than $ 5 million which was rejected by Lloyd's on December 19, 1989.

 On February 7, 1990, Cindy Royce and Maximus filed a law suit in London against Lloyd's for breach of contract (the "English Action"). In defense, Lloyd's alleged: (1) an employee or a principal of Cindy Royce and Maximus was dishonestly involved in the burglary, which entitled the Underwriters to refuse to make payment under the false swearing clause; (2) the Underwriters were entitled to reject the Proof of Loss because there was no burglary; the outer vault door was "torched" while in the open position and other physical evidence reasonably indicated that the theft was staged and perpetrated by someone on the inside with access to the premises, alarm system, safe and vault combinations; (3) Samuel Scheiner, a principal of Cindy Royce and Maximus, was fraudulently involved with the burglary; (4) Cindy Royce and Maximus breached the policies by failing to properly maintain a detailed and itemized inventory of their property; (5) Cindy Royce and Maximus fraudulently inflated the amount of their claim; (6) Cindy Royce and Maximus breached a condition of their policies by keeping inadequate records; and (7) Cindy Royce and Maximus committed a variety of breaches of warranty, misrepresentations and nondisclosures, which entitled the Underwriters to avoid their policies.

 The English action began on April 23, 1991. The English judge, Justice Waller, travelled to New York, visited the premises, the vault and safe. On October 2, 1991, the thirtieth day of trial, the Plaintiffs asked for a discontinuance on terms that they would not bring other proceedings elsewhere and that the court should order costs accordingly. Justice Waller denied their application for discontinuance. The next day, the Plaintiffs abandoned their claims and Justice Waller entered a dismissal in favor of the Defendants. The Plaintiffs later lost their appeal of the denial of discontinuance in the English Court of Appeal.

 On March 25, 1992, Samuel Scheiner, Morton Gold, Daniel Squillante, Benoit Dreyfus, Randy Scheiner, Cindy Royce, and Maximus were indicted by the Grand Jury of the County of New York on three counts: (1) Conspiracy in the Fourth Degree, in violation of Penal Law § 105.10(1); (2) Insurance Fraud in the First Degree, in violation of Penal Law § 176.30; and (3) Attempted Grand Larceny in the First Degree, in violation of Penal Law §§ 110.00, 155.42.

 In a plea agreement entered into on October 16, 1992, all charges against the Plaintiffs -- Randy Scheiner, Cindy Royce and Maximus -- were dismissed. At the same time, Samuel Scheiner, Morton Gold and Daniel Squillante pled guilty to Attempted Grand Larceny in the Fourth Degree, which the Plaintiffs claim merely represents an admission to the inflation of their insurance claim by an amount between one and three thousand dollars.

 Also in 1992, Cindy Royce and Maximus filed suit in the Southern District of New York against their English counsel, Simmons & Simmons. On July 27, 1993, the Honorable Robert P. Patterson granted Simmons & Simmons' motion for summary judgment against Cindy Royce and Maximus' claims of professional malpractice, breach of contract, and violation of New York Judiciary Law § 487 and denied summary judgment on their claims of unjust enrichment. Judge Patterson also granted Simmons & Simmons' motion to dismiss pursuant to the doctrine of forum non conveniens.

 On January 6, 1993, Plaintiffs Randy Scheiner, Royce Scheiner, Cindy Royce and Maximus filed their first Complaint in this action against the Defendants. The Complaint alleged the following: (1) Lloyd's breached its contract for both the primary and excess policies; (2) Lloyd's practiced deceptive business policies and acts proscribed by New York General Business Law of New York § 349; (3) Defendants maliciously prosecuted Randy Scheiner, Cindy Royce and Maximus for their personal unjust enrichment and benefit; (4) Defendants intentionally inflicted emotional distress upon Randy Scheiner; (5) Defendants intentionally inflicted emotional distress upon Royce Scheiner; (6) Defendants initiated a criminal investigation of Randy Scheiner, Cindy Royce and Maximus constituting an abuse of process; (7) Defendants violated the federal RICO statute; (8) Defendants Hartley Cooper and Levmore-Finch committed acts of negligence and malpractice by failing to perform their brokerage services according to generally accepted principles; (9) Defendant Holmes breached its contract to protect the Plaintiffs' premises because other premises they protected were burglarized; (10) Defendant Holmes defrauded Cindy Royce and Maximus by failing to provided contracted and paid for security devices; and (11) Defendants violated Cindy Royce's and Maximus' civil rights under § 1983 by conspiring to commit perjury and tampering with evidence in order to prevent Cindy Royce and Maximus from presenting truthful witnesses.

 On March 9, 1993, *fn1" the collective Defendants filed a motion for summary judgment, on the grounds of res judicata and/or collateral estoppel, as to all asserted claims or, in the alternative, a motion to dismiss all asserted claims for failure to state a claim and failure to plead two of the claims sounding in fraud, and requesting an order requiring Plaintiffs to post a security bond for $ 250,000. On May 14, 1993, Defendants Hartley Cooper filed a separate motion for summary judgment as to all claims asserted against it on the grounds of collateral estoppel, or in the alternative, an order dismissing all claims against Hartley Cooper for lack of pendant jurisdiction. Defendant Levmore-Finch did not answer or file motions to dismiss in this action.

 In Scheiner I, this Court held: (1) the English Action did not reach a final judgment on the merits which could be pleaded as res judicata; (2) the English Action did, however, collaterally estop the Plaintiffs from pursuing their breach of contract claim; (3) the guilty pleas of the insureds' principals to attempted grand larceny in the Fourth Degree does not bar civil litigation; (4) the Plaintiffs failed to state federal RICO and civil rights claims; and (6) as a result, the remaining state based claims were dismissed for lack of jurisdiction. Accordingly, the Complaint was dismissed with leave to replead.

 On March 7, 1994, the Clerk of the Court entered a judgment of dismissal and closed this case. On March 17, the Plaintiffs moved to vacate the judgment and filed their Amended Complaint *fn2" on April 11, 1994. Three days later, the Plaintiffs' motion to vacate the judgment of dismissal was granted, over opposition, and this action was reinstated.

 The Defendants initiated the filing of their motions to dismiss the Amended Complaint on June 1, 1994 and for Rule 11 sanctions on June 30, 1994. Oral argument on the motions were consolidated and heard by the Court on July 20, 1994. Supplemental affidavits and submissions were received by the Court through August 1, 1994, at which time the motions were considered fully submitted.

 Discussion

 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 their favor and against the defendants. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); 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 are taken from the Plaintiffs' Amended 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 motions.

 Rule 12(b)(6) also imposes a substantial burden of proof upon the moving party. 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 entitled 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) (quoted in H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 250, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989)).

 I. RICO

 As set forth in detail in Scheiner I, to sustain a RICO claim, a plaintiff must allege that the defendants committed two or more predicate acts which constitute a "pattern" of "racketeering activities" that directly or indirectly invests, maintains or participates in an enterprise affecting interstate commerce. Scheiner I, 832 F. Supp. at 699 (citations omitted).

 In Scheiner I, the Court dismissed the Plaintiffs' initial RICO allegations that "at best . . . center around a business dispute involving a breach of contract." Scheiner I, 832 F. Supp. at 702. Specifically, the Court held that the Plaintiffs inadequately pleaded predicate acts with any "taint of illegality," that Plaintiffs' mail and wire fraud claims failed to "articulate a single fraudulent statement that was allegedly transmitted or received," and that the Defendants' acts did not constitute a pattern of racketeering activity entailing the requisite "indictable criminal conduct." Id. at 699-702.

 Plaintiffs' Amended Complaint fails to cure the pleading deficiencies identified in Scheiner I. The Amended Complaint alleges that the "association-in-fact" between the Defendants constitutes a RICO enterprise within the meaning of 18 U.S.C. § 1961(4) which allegedly made a series of payments to WFFW, Homes, Miller, Coyne, Alizade, City Safe and McNicholas. (Am. Compl. P 98.) As no facts are alleged demonstrating that such payments are illegal they are accordingly presumed not to be alleged by the Plaintiffs as predicate acts within the meaning of the RICO statute. As the basis for their RICO allegations, the Plaintiffs appear to only allege that the Defendants engaged in "two or more predicate acts of mail and/or wire fraud" in violation of 18 U.S.C. §§ 1341, 1343 (Am. Compl. P 100, 108). n3 The interstate communications listed are letters and telephone calls between Wade and Wallis (presumably Derek Wallace) and Wade and City Safe or Alizade, presumably compiled from WFFW's billing records: 9/1/89 Letter from Dennis Wade to Mr. Wallis. 10/25/89 Telephone conference between Dennis Wade and Mr. Derek Wallis. 11/1/89 Receipt and review of proof of loss. 11/2/89 Telephone conference between Dennis Wade and Mr. Derek Wallis (decision not to pay claim?). 11/30/89 Telephone conference between Dennis Wade and Mr. Derek Wallis. 4/10/90 Telephone conference between Dennis Wade and City Safe. 6/12/90 Receipt and review by Dennis Wade of Alizade statement. 3/25/91 Telephone conference between Dennis Wade and City Safe. 4/3/91 Receipt and review of fax of Karl Alizade's report by CLM.

19940816

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