The opinion of the court was delivered by: MORRIS E. LASKER
During the years 1987-1990, Chase Manhattan Bank advanced money to be used as a construction fund by Bay Property Associates ("BPA"), a partnership created in 1984 for the purpose of owning and developing a specific parcel of land in Brooklyn, New York. Laro, Inc. ("Laro"), a 50.01% limited partner in BPA, brings suit on behalf of BPA, claiming that Chase advanced these funds to BPA's general partner, Jonathan Eichner, in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962, subsections (c) and (d). Laro also alleges state law claims, including aiding and abetting of fraud and gross negligence. See Complaint, P 30-32. Chase moves for summary judgment dismissing the complaint, contending that, under the Supreme Court's decision in Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), Laro has not submitted evidence permitting a reasonable inference of fraudulent intent. The motion is granted.
Laro's principal allegations are that Chase violated RICO by participating, with Jonathan Eichner and various Eichner-controlled entities, in a scheme to defraud BPA by (1) funding the construction of BPA property development and advancing funds to Eichner in disregard of prudent and accepted lending procedures, despite Laro's warnings that Eichner was fraudulently misappropriating loan proceeds, (2) diverting $ 500,000 of the BPA loan proceeds for the personal benefit of Eichner, and (3) creating a lien on the BPA property in favor of a partnership controlled by Eichner.
In 1983, Laro, Inc. (then known as "Wescon Realty Inc.") purchased a 22-acre tract of unimproved waterfront property from Bankers Trust Company ("Bankers Trust") for a price of $ 1,500,000. In September 1984, Wescon and Jonathan Eichner formed Bay Property Associates (BPA), a limited partnership of which Jonathan Eichner was the sole general partner. Wescon contributed to BPA the property acquired from Bankers Trust in 1983, receiving in exchange a 50.01% interest in the partnership. Sometime after the formation of BPA, Wescon changed its name to Laro, Inc.
In 1986, Laro Realty Corp., an entity which Laro claims is indistinguishable from Laro Inc., commenced an action in New York State Court, unrelated to the case at bar, seeking the dissolution of the BPA partnership on the grounds that Eichner, as general partner, had breached his fiduciary and contractual obligations to BPA. This dispute remains unresolved.
In 1987, Chase approved a construction loan of $ 14,600,000 to BPA for "Phase One" construction on the BPA property.
Disbursements of the Chase loan, the first of which was made at the loan closing on October 1, 1987, continued through mid-1990, when development of the BPA property was abandoned. Funds were advanced to Eichner, in his capacity as BPA's general partner, through a requisition process that required BPA to submit forms to Chase detailing project costs.
Laro asserts that, motivated by an "aggressive mode for doing business," and a desire to continue its favorable business relationship with BPA's general partner Jonathan Eichner, Chase assisted Eichner at the expense of the BPA partnership through acts of fraud, described below, accomplished in part through the use of interstate mail and wire. In addition, Laro argues that the fact that a number of Chase Bank's loan officers purchased apartments in separate property developed by Mr. Eichner suggests additional motivation on the part of Chase Bank to defraud BPA, and that these personal investments subject Chase to liability on a respondeat superior theory.
Second, Laro alleges that Chase fraudulently repaid itself, from partnership funds, over $ 500,000 that was owed Chase by Eichner personally. As explained by a memorandum written by a Chase loan officer, this money had been borrowed from Chase by Mr. Eichner in order to "pay down" the Banker's Trust note that financed the property owned by BPA. Silverman Aff. Ex. 15 at C-001030. Laro disputes that Eichner made a payment in this amount to Bankers, arguing "had Eichner applied his Chase credit line to pay down the Bankers Trust mortgage note, no more than $ 261,034 could have been used for that purpose since that was the total paid to Bankers Trust in the applicable period."
Third, Laro claims that Chase improperly helped to create a lien on the BPA property in favor of Rose Hill Associates, an Eichner-controlled partnership. Although it is undisputed that the lien was a component of a mortgage-spreading device used to enable BPA to avoid costly mortgage-recording fees, plaintiff maintains that the structure of the agreement at issue favored Rose Hill to an extent not commonly found in such agreements.
The Chase loan to BPA matured on August 1, 1990. Later that month, Chase commenced an action to foreclose upon the BPA property. The foreclosure action was pending at the time the present action was commenced. At the time the foreclosure action was begun, Chase records showed that the bank had advanced more than $ 18,600,000 to BPA for construction of the Brooklyn property. At the July, 30, 1992 foreclosure sale, Chase -- the only bidder -- purchased the BPA property for $ 3,500,000. In 1994, Chase sold the property for $ 1,650,000. The total loss to Chase on the construction loan, including over $ 4,000,000 in interest due, appears to have been about $ 21,000,000.
Laro brought this action in 1992, asserting claims against Chase Bank, Jonathan Eichner and several entities under his control, and two parties which provided engineering services to the BPA project. Claims against the latter two have been withdrawn with prejudice. Default judgments have been entered against Jonathan Eichner and the related entities, all of whom are presently moving to vacate the defaults.
Based on the allegations detailed above, Laro asserts two civil RICO claims and two state law claims against Chase.
In Claim Nine of the complaint, Laro alleges that Chase and Eichner engaged in numerous acts of mail and wire fraud, all of which were part of "said defendants' scheme to defraud BPA by creating illegal liens upon its property, by concealing the Laro action and by recklessly funding the Chase loan in a manner designed to enable Eichner to convert the proceeds of such loan," in violation of 18 U.S.C. § 1962(c). Complaint P 116-118. In Claim Ten, Laro alleges that Chase and Eichner conspired to violate 18 U.S.C. § 1962(a) and (c), in violation of 18 U.S.C. § 1962 (d). As relief for the alleged RICO violations, Laro seeks damages in the amount of $ 19,642,500, trebled, as well as attorneys' fees.
Under the Federal Rules of Civil Procedure, summary judgment is appropriate if the record establishes that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). All justifiable inferences and ambiguities must be drawn or resolved in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp. 475 U.S. 574, 587-88, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). Moreover, "when the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts . . . where the record taken as a whole could not lead a ...