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AWILDA MOY v. ADELPHI INST.

October 14, 1994

AWILDA MOY, HORATIO FRANCIS, MARGARET BEAULIEU, and OLIVIA LEWIS, individually and on behalf of all others similarly situated, Plaintiffs,
v.
ADELPHI INSTITUTE, INC., ALBERT A. TERRANOVA, DAVID RUGGIERI, JULE J. GOLDBERG, RICHARD D. GRIFFITHS, THOMAS C. CREASY, JR., GASPAR V. GARCIA, JOHN DOE, JANE DOE and JOHN DOE, INC., Defendants.



The opinion of the court was delivered by: STERLING JOHNSON JR.

 JOHNSON, District Judge:

 INTRODUCTION

 Albert Terranova and Melany Terranova [hereinafter "Defendants"] move to dismiss the first, second, fourth, fifth, seventh, and eighth claims of the Complaint brought by Awilda Moy, Horatio Francis, Margaret Beaulieu, Jeanette Mitchell, and Olivia Lewis, individually and on behalf of all others similarly situated [hereinafter "Plaintiffs"]. Defendants assert that the Complaint must be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a cause of action upon which relief can be granted.

 For the foregoing reasons, the Court grants Defendants' motion to dismiss claims two, five, and eight for failure to state a cause of action for which relief may be granted. The Court, however, denies Defendants' motion to dismiss claims one, four, and seven, and also denies Defendants' motion to strike particular averments of the Complaint as immaterial.

 BACKGROUND

 On May 15, 1987, Awilda Moy, Horatio Francis, Margaret Beaulieu, Jeanette Mitchell, and Olivia Lewis individually and on behalf of all others similarly situated, brought a class action suit against Adelphi Institute, Inc. ("Adelphi") Albert Terranova, Melany Terranova, David Ruggieri, Jule J. Goldberg, Richard D. Griffiths, Thomas C. Creasy, Jr., Gaspar V. Garcia, John Doe, Jane Doe, and John Doe, Inc., alleging eight causes of action. Plaintiffs allege that Adelphi marketed itself as a respectable vocational school equipped to train students in areas that would improve their candidacy for employment. Plaintiffs assert that Defendants engaged in a fraudulent interstate scheme which detrimentally affected Plaintiffs, and that the Defendants unjustly enriched themselves without providing the skills and jobs promised to the students.

 The named Plaintiffs share characteristics with each other and with the majority of Adelphi's student body. As illustrated by the following brief biographies, all Plaintiffs have little or no education and most rely on governmental assistance as a primary source of income.

 Plaintiff Awilda Moy enrolled at Adelphi from approximately February 1984 through March 1985 in the Junior Computer Programming program. Ms. Moy, whose educational background is the eighth grade, supports herself and her two children on public assistance benefits.

 Plaintiff Horatio Francis enrolled at Adelphi from approximately June 1986 through March 1987 in the Junior Computer Programming and Junior Accounting programs. Mr. Francis does not have a high school diploma or G.E.D.

 Plaintiff Margaret Beaulieu enrolled at Adelphi from approximately September 1985 through January 1987 in the Computer Programming/ Business Administration program. Ms. Beaulieu supports herself and her two minor children on public assistance benefits.

 Plaintiff Jeanette Mitchell enrolled as a student from approximately May 1985 through July 1985 in the Executive Secretarial program. Ms. Mitchell does not have a high school diploma or G.E.D. Plaintiff Olivia Lewis enrolled in the school from approximately May 1984 through March 1986 in the Clerk Typist program. Ms. Lewis does not have a high school diploma or G.E.D.

 Defendant Adelphi is a corporation organized and existing under the laws of New York with its principal place of business in New York City. Adelphi directs private business and data processing schools throughout the United States, claiming to provide training to prepare students for occupations in accounting, business administration, secretarial services, computer programming, and word processing. Adelphi owned and operated six branches in New York City, and some or all of Defendants own and operate an interstate network of business and vocational schools throughout the United States.

 Defendant Albert A. Terranova is the Chairman of the Board of Directors and the Chief Executive Officer of Adelphi. Defendant Melany K. Terranova is the Secretary and a Director of Adelphi. Mr. Terranova and Mrs. Terranova are husband and wife and own 100% of the outstanding capital stock of Adelphi.

 Defendant David T. Ruggieri is a Vice President and Marketing Director of Adelphi and is responsible for training and supervising Adelphi's New York City admissions representatives. Defendant Jule J. Goldberg is the President and a director of Adelphi. Defendant Richard D. Griffiths is the Comptroller and a director of Adelphi. Defendant Thomas C. Creasy, Jr. is Vice President, legal counsel, and a director for several Adelphi facilities. Defendant Gaspar V. Garcia has served as the director of two of Adelphi's branches.

 Defendants John Doe, Jane Doe, and John Doe, Inc. are individuals and business organizations whose identities are presently unknown to Plaintiffs, but whose activities are alleged to violate RICO. In addition, all or some of the Defendants were involved with and/or held positions at Adelphi's out-of-state affiliates.

 Plaintiffs allege that Adelphi did not provide the vocational training and placement services promised to enrolling students. Instead, Adelphi allegedly served as a vehicle through which Defendants unlawfully obtained large sums of federal and state student grant monies and federally guaranteed student loan funds. Plaintiffs further allege that Defendants' income was derived primarily from government grants and student loans.

 Adelphi published catalogs in 1983-86 which detailed Adelphi's primary objective as providing the "highest quality of training for entry level and advanced positions in business." Later editions represented Adelphi as "the highest quality training for entry level positions in business." The catalogs also asserted that Adelphi was approved for student loan eligibility and that its students might be eligible for financial aid programs such as the Tuition Assistance Program ("TAP"). The catalogs further represented Adelphi's faculty as certified teachers selected for their technical knowledge, practical experience, and teaching ability. Catalogs and other written materials produced by Adelphi allegedly exaggerated the available curricula, instructional equipment, and the placement services.

 The Complaint claims that Defendants' recruiters were not licensed by the New York State Department of Education and therefore violated ยง 5004 of the New York State Education Law. These unlicensed recruiters of Adelphi solicited new students primarily in areas where the poor or the unemployed may be found, such as public assistance income maintenance centers. For example, Ms. Moy was approached by a recruiter while waiting to obtain a check at the New York City Human Resources Administration's Linden Income Maintenance Center. The recruiter allegedly showed Ms. Moy newspaper clippings purporting to illustrate how much money she could make as a computer programmer. Recruiters convinced Ms. Moy to borrow money to finance a $ 2,850 study program at Adelphi.

 The unlicensed recruiters capitalized on the vulnerability of Plaintiffs who were dependant on government assistance. For instance, when Ms. Lewis was approached by recruiters she told them that in an effort to end her dependence on public assistance she had already enrolled in a free job training program. Adelphi recruiters persuaded Ms. Lewis to forego the free training and to incur indebtedness to finance a $ 3,611 Adelphi program instead.

 The Complaint avers that Defendants and/or their agents systematically made fraudulent representations to potential students by advising that (1) jobs were available which they would be qualified for upon completion of their studies at Adelphi; (2) state and federal grants would cover the costs; and (3) a G.E.D. would be given as part of Adelphi's program. Plaintiffs allege that these representations violate both the federal education laws and the rules and regulations promulgated thereunder.

 Plaintiffs allege that Adelphi breached its enrollment agreements and contradicted its written representations by failing to provide the vocational training promised. Among the breaches alleged are: (1) assigning classes to teachers who were often absent and were not replaced by qualified substitutes; (2) assigning classes to teachers who were not licensed, not competent English-speakers, or not trained or educated in the area in which they were purportedly instructing; (3) not providing the specific course and numbers of hours of instruction promised; and (4) not furnishing the equipment required to complete the curriculum or denying students sufficient access to available equipment. In addition, Adelphi allegedly did not provide students the promised placement services.

 Once recruited, Plaintiffs obtained student loans to pay for their classes. Adelphi is a participant in the TAP program and the Guaranteed Student Loan program, and the majority of its students are recipients of Pell federal grants. The Office of the State Comptroller of New York prepared an audit report in February 1986, in which it determined that $ 2.9 million of TAP funds provided to Adelphi were subject to refund to the State of New York because Adelphi had not followed the pertinent rules and regulations of the Commissioner of Education of the State of New York. The Comptroller based its determination on the fact that students were not receiving the minimum hours of instruction, Adelphi's records were poorly maintained, course were held for fewer hours than the number for which they were approved, and that students were graduating despite incomplete and failing grades and dropped courses. Further audits revealed that Adelphi had certified TAP grants for approximately seventy-six students after they had withdrawn from Adelphi. In addition, Adelphi utilized the United States Postal Service and interstate wire to process and receive student loans.

 Plaintiffs allege that because they did not receive the education promised, they suffered damages which include the value of their lost time while enrolled in Adelphi, monies paid toward tuition, and the amount of their indebtedness as a result of the loans.

 DISCUSSION

 I. Standard of Review

 A motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure should be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Green v. Maraio, 722 F.2d 1013, 1015-16 (2d Cir. 1983) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)). The court must accept as true all material facts well-pleaded in the complaint and must make all reasonable inferences in the light most favorable to the plaintiff. In re Energy Sys. Equip. Leasing Sec. Litig., 642 F. Supp. 718, 723 (E.D.N.Y. 1986).

 II. Civil RICO

 
A. Rule 9(b) Fraud Must be Pled with Particularity

 Defendants seek to dismiss Plaintiffs' first claim pursuant to Rule 9(b) of the Federal Rules of Civil Procedure *fn1" for failure to plead fraud with particularity. Defendants assert that Plaintiffs fail to identify where, when, and by whom the allegedly fraudulent statements were made. Def.'s Mem. in Supp. of Its Mot. to Dismiss at 7 [hereinafter Def.'s Mem.]. Defendants also contend that the Complaint does not provide adequate notice because it fails to articulate the specific fraudulent acts committed by each Defendant as required for a RICO claim. Id. at 8.

 Rule 9(b) requires pleadings to specify "the statements it claims were false or misleading, [to] give particulars as to the respect in which the plaintiff contends the statements were made fraudulent, [to] state when and where the statements were made, and [to] identify those responsible for them." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The purpose of Rule 9(b) is twofold. First, it "protect[s] potential defendants from the harm that comes to their reputations when they are charged with the commission of acts involving moral turpitude." Gross v. Diversified Mortgage Investors, 431 F. Supp. 1080, 1087 (S.D.N.Y. 1977). Second, Rule 9(b) serves to ensure that the allegations of fraud are concrete and particularized enough to give notice to the defendants of "what conduct is complained of and to prepare a defense to such claim of misconduct." Rich v. Touche Ross & Co., 68 F.R.D. 243, 245 (S.D.N.Y. 1975); Airlines Reporting Corp. v. Aero Voyagers, Inc., 721 F. ...


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