The opinion of the court was delivered by: LORETTA A. PRESKA
LORETTA A. PRESKA, U.S.D.J.
Plaintiff, the Tribune Company ("Tribune"), has brought this action against defendants alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), (d), common law fraud and unjust enrichment. Tribune's action names numerous defendants: Robert A. Purcigliotti, an attorney ("Purcigliotti"); Cascione, Chechanover & Purcigliotti, a law firm of which Purcigliotti is a member ("CCP"); Dr. Walter Stingle, a medical doctor ("Stingle"); New York Newspaper Printing Pressmen's Union No. 2 ("Pressmen's Union"), Newspaper and Mail Deliverers' Union-New York and Vicinity ("Drivers' Union") and New York Mailers' Union No. 6-Printing Publishing and Media Workers Sector of the Communication Workers of America ("Mailers' Union") (collectively "Union defendants"); and 585 union members and employees of the New York Daily News ("Individual defendants").
The defendants have moved to dismiss on numerous grounds. I heard oral argument on the motions on July 8, 1994. For the following reasons, the motions to dismiss are granted in part and denied in part.
The Amended Complaint alleges the following claims for monetary relief: violations of RICO by all defendants; fraud, aiding and abetting and conspiracy to commit fraud by all defendants; unjust enrichment by all defendants; and negligent misrepresentation by defendant Stingle. These allegations arise out of the filing of workers' compensation claims by former New York News
workers against the New York News for hearing loss allegedly caused by exposure to harmful noise at Daily News facilities. (Amended Complaint P 2.)
Plaintiffs allege that defendants, "motivated by greed and ill-will engendered by a bitter 1990-91 strike by unionized workers" against the New York News, engaged in a scheme to defraud the New York News and Tribune "by filing and prosecuting workers' compensation claims." (Id. P 2.) The Amended Complaint includes the following allegations regarding the fraudulent scheme: the Union defendants directed the Individual defendants to retain defendant CCP; defendant Purcigliotti was the lawyer primarily responsible for this matter, (Id. P 3); in order to implement the fraudulent scheme, the Union defendants, CCP and Purcigliotti directed the Individual defendants to retain defendant Dr. Stingle to examine them in support of their claims for hearing loss, (Id. P 61), and defendant Stingle performed audiograms and took no steps to ensure that the audiograms were accurate, though he knew they were not. (Id. P 62.)
Under New York Workers' Compensation Law, the last employer who exposes an employee to harmful noise is liable in full for the employee's occupationally-related hearing loss, regardless how long the employee worked for previous employers or how short a time he or she worked for the last employer. See N.Y. Work. Comp. Law § 49-ee. In addition, the Workers' Compensation Law requires the claimant to show that he or she was removed from harmful noise for a period of three months and was not re-exposed to harmful noise thereafter with another employer. See N.Y. Work. Comp. Law § 49-bb. An employee effectively is "removed" if he or she physically is excluded from the workplace or begins wearing hearing protectors. Id. Because of the strike against the New York News, union workers had been removed from exposure to occupational noise at the Daily News plants for more than three months.
have moved to dismiss on the ground that abstention is required. In addition, the Attorney General for the State of New York intervenes in this action on behalf of the New York State Workers' Compensation Board in order to move to dismiss this action on the ground of abstention. The defendants move to dismiss the Amended complaint based on numerous other grounds as well: the Union defendants, CCP and Purcigliotti move to dismiss on the ground that the Amended Complaint fails to allege the RICO claims with the particularity required by Fed. R. Civ. P. 9(b); the Individual defendants, CCP and Purcigliotti move to dismiss the RICO claims on the ground that their conduct in filing and prosecuting workers' compensation claims is immunized and cannot constitute predicate acts; Dr. Stingle similarly argues that all claims against him should be dismissed because, as a witness, he is absolutely immune from civil liability.
The defendants make the following arguments that the Amended Complaint fails to state a cause of action under RICO: (i) the Individual defendants argue that the Amended Complaint fails to allege a "pattern"; (ii) the Union defendants argue that the Amended Complaint fails to allege an "association-in-fact" enterprise; (iii) all defendants argue that the Amended Complaint fails to allege that any of them "operated or managed" any of the alleged RICO enterprises; (iv) CCP, Purcigliotti, Stingle and the Unions assert that the Amended Complaint fails to allege causation; (v) all defendants assert that the Complaint fails sufficiently to allege either "aiding or abetting" liability or a RICO conspiracy. Finally, as to the non-RICO claims, the defendants argue the following: that the state law fraud claims should be dismissed for failure to comply with Fed. R. Civ. P. 9(b) and for failure to state a cause of action under Fed. R. Civ. P. 12(b)(6); Stingle also argues that the negligent misrepresentation claim should be dismissed for failure to state a claim; the Union and Individual defendants assert that the unjust enrichment claims should be dismissed for failure to state a cause of action; all defendants also argue that plaintiffs should be collaterally estopped from relitigating claims that have already settled.
Defendants move to dismiss this action, arguing that "this Court should decline plaintiffs' invitation to disrupt the New York State Workers' Compensation scheme, and should abstain" under Burford v. Sun Oil Co., 319 U.S. 315, 87 L. Ed. 1424, 63 S. Ct. 1098 (1943). (Defendants' Memorandum of Law in Support of Motion to Dismiss on the Grounds of Abstention at 2 ("Def. Abstention Mem.").) Likewise, the intervenor moves for dismissal in order "to avoid an unwarranted and unnecessary interference with the State's administration of its internal affairs." (Memorandum of Law on Behalf of Intervenor New York State Workers' Compensation Board in Support of Abstention at 1 ("Intervenor's Mem.").)
The Board already has ruled, in favor of plaintiffs, that approximately 250 prior audiograms are admissible in evidence at the hearings. These audiograms may be used by plaintiffs to challenge the percentage of hearing loss reported by the claimants' physicians. ( Id. P 15.) Presently, the Board is in the process of holding hundreds of hearings on the individual defendants' claims, at which the examining physicians for both the individual defendants and the Daily News will appear as witnesses. ( Id. P 16.) It is predicted that these hearings will continue well into 1995. (Id.)
As restated by the Supreme Court, a federal court's obligation to adjudicate claims within its jurisdiction is "'virtually unflagging.'" New Orleans Public Service v. Council of the City of New Orleans, 491 U.S. 350, 359, 105 L. Ed. 2d 298, 109 S. Ct. 2506 (1989) ("NOPSI") (quoting Deakins v. Monaghan, 484 U.S. 193, 203, 98 L. Ed. 2d 529, 108 S. Ct. 523 (1988)). Furthermore, "'the presence of a federal basis for jurisdiction,'" as in this case, "'may raise the level of justification needed for abstention.'" County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1309 (2d Cir. 1990) ("LILCO ") (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 815 n.21, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976)). I am mindful that abstention "remains 'the exception, not the rule.'" NOPSI, 491 U.S. at 359 (quoting Colorado River, 424 U.S. at 813 (1976)).
Defendants and the intervenor nevertheless assert that I should abstain under the Burford doctrine, which provides,
Where timely and adequate state-court review is available, a federal court . . . must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are 'difficult questions of state law bearing upon public problems of substantial public import whose import transcends the result in the case at bar'; or (2) where the 'exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish coherent policy with respect to a matter of substantial public concern.'
NOPSI, 491 U.S. at 361 (1989) (quoting Colorado River, 424 U.S. at 814 (1976)). The intervenor argues that I should abstain because (i) the New York's workers' compensation system is a complex matter of substantial public concern, and the system's unified decision-making would be disrupted by my exercise of jurisdiction, and (ii) the state administrative and judicial procedures available to plaintiffs are adequate and would be timely. Both defendants and the intervenor point out the risk that the Board and I will make inconsistent factual determinations and reach different results regarding the alleged fraudulent hearing loss claims. Plaintiffs, on the other hand, argue that the strict requirements for invoking Burford abstention are not present here and that "timely and adequate state-court review" of plaintiffs' RICO claims is not available.
As noted above, plaintiffs allege a massive fraud orchestrated and participated in by three unions, a law firm and a doctor, resulting in the filing of some 600 fraudulent workers' compensation hearing loss claims. The crux of the Amended Complaint is the various claims for relief (there are eight) alleging federal RICO violations based on, inter alia, various acts of mail fraud as predicate acts. Rather than presenting complex or unsettled questions of state law, this case presents difficult and serious issues arising under a federal statute. Indeed, the federal questions presented in this case bear on policy problems of substantial public import," as exemplified by the treble damage provision that Congress chose to include in the RICO statute, "whose importance transcends the results" of the individual claims before the Workers' Compensation Board. See NOPSI, 491 U.S. at 361.
Outside conclusory statements, however, defendants and the intervenor have not demonstrated how retaining federal jurisdiction in this case will interfere with the state's efforts to establish a coherent workers' compensation policy. (Intervenor's Reply Mem. at 3 ("if this Court proceeds, the Board will be precluded from administering the law uniformly and coherently because federal review of the same issues will be ongoing simultaneously with the risk of inequitable, inconsistent treatment of claimants.").) As recently stated by the Second Circuit, "the mere existence of concurrent state and federal actions concerning similar matters is not enough to warrant abstention." Sheerbonnet, Ltd. v. American Express Bank Ltd., 17 F.3d 46 (2d Cir.), cert. denied, 1994 U.S. LEXIS 5497, 115 S. Ct. 67 (1994); see also, NOPSI, 491 U.S. at 362. ("While Burford is concerned with protecting complex state administrative processes from undue federal interference, it does not require abstention whenever there exists such a process, or even in all cases where there is a 'potential for conflict' with state regulatory law or policy.'").
In addition, in the context of a Colorado River abstention issue, the Third Circuit, for example, stated,
the general rule regarding simultaneous litigation of similar issues in both state and federal courts is that both actions may proceed until one has come to judgment, at which point that judgment may create a res judicata or collateral estoppel effect on the other action.
University of Maryland v. Peat Marwick Main & Co., 923 F.2d 265, 275-76 (3d Cir. 1991) (citing McClellan v. Carland, 217 U.S. 268, 282, 54 L. Ed. 762, 30 S. Ct. 501 (1910)). That court found that, while certain issues to be litigated in the federal action would be similar to those raised in the state proceeding, "the lack of identity of all issues necessarily precluded) Colorado River abstention." Univ. of Maryland, 923 F.2d at 276. In the instant case, although some of the underlying factual issues will be the same as issues in the Board proceedings, the two proceedings are by no means duplicative. Moreover, as stated above, the importance of the federal questions presented in this case transcends the results of the factual issues presented by the individuals' claims before the Workers' Compensation Board.
The intervenor's strongest argument for abstention -- amplified at oral argument -- centers around the exclusive nature of the workers' compensation scheme. When an employee is injured on the job, his or her only recourse is to bring a workers' compensation claim. (Dais Aff. P 3); N.Y. Work. Comp. Law § 11.
The system provides a nonfault-based liability system, where the basic test of liability is work-connection rather than fault. (Dais Aff. P 3.) An employer is prohibited from discharging or discriminating in any manner against an employee as to his or her employment because the employee brings a workers' compensation claim, unless some "other valid reason" is shown to exist for such action by the employer. N.Y. Work. Comp. Law § 120. The exclusivity of the scheme ensures that the employer is relieved of the prospect of a large damage award, and the employee is certain to obtain compensation.
(Dais Aff. P 3.)
The intervenor argues that to allow this action to proceed in federal court would establish an exception to the compensation exclusivity of the workers' compensation scheme; employers and employees would be able to subvert the policy of exclusivity behind the scheme merely by bringing federal RICO actions. The intervenor further points out that the Board has made it a primary goal to prevent fraud in the workers' compensation process and argues that the state system provides a sufficient deterrent to and remedy for fraud in the workers' compensation process through actions before the Board and state criminal prosecution.
However, while the intervenor and defendants cast this action in terms of employees' alleged fraud upon the Workers' Compensation Board -- something that could be addressed ably by the Board itself -- the Amended Complaint paints a more complex picture. Accepting the allegations as true as required, this action involves a massive fraudulent scheme perpetrated against plaintiffs by almost 600 employees working in concert with a law firm, a doctor and three unions. Thus, on the other side of the equation from defendants' and the intervenor's concerns about creating an exception to exclusivity is the responsibility of a federal court to hear cases, such as these RICO claims, that are within its federal question jurisdiction. This is particularly true while addressing issues that Congress has found to implicate important questions of federal policy. Under Colorado River, when there is a concurrent state proceeding, abstention would be appropriate only in exceptional and narrow situations, "'with the balance heavily in favor of the exercise of jurisdiction.'" University of Maryland, 923 F.2d at 276 (quoting Moses H. Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983)). Where a federal jurisdictional basis is present, an increased level of justification is required for abstention. See LILCO, 907 F.2d at 1308. Moreover, "the unusual remedy of treble damages [in a RICO action] . . . suggests the importance of the federal interest involved, again raising the level of justification needed to abstain." Id. at 1309 (emphasis added).
On balance, to allow this action to proceed would not be disruptive of state efforts to create a coherent (and here, exclusive) workers compensation scheme because not every defrauded employer or claimant will be able to meet the demanding pleading requirements of a RICO action, particularly the requirements of alleging an enterprise and a pattern. Although this federal proceeding may interfere with the exclusivity of the state workers' compensation proceeding to some extent, such interference is not sufficient to meet the heightened level of justification required to compel abstention. Alternatively, placed in the state statutory context, plaintiffs have alleged "other valid reasons" for bringing this federal RICO action as contemplated by § 120 of the New York Workers' Compensation Law because of the uniqueness of their claim and the substantial federal interest in having claims brought pursuant to a federal statute heard and adjudicated.
Plaintiffs additionally argue that abstention would be inappropriate because the state proceeding does not provide them with "timely and adequate" review. NOPSI, 491 U.S. at 361. They contend that the Board lacks jurisdiction to hear RICO claims, and such claims could not be raised on appeal of any Board decisions to the Supreme Court of the State of New York, Appellate Division, Third Department.
In addition, plaintiffs argue that the Board could not award plaintiffs the treble damages provided for under the RICO statute. Courts have found adequate review, as required by Burford and NOPSI, both where federal question jurisdiction is based upon a constitutional issue that the state tribunal is required to consider, see, e.g., Bethphage Lutheran Serv. v. Weicker, 965 F.2d 1239, 1244 (2d Cir. 1992), and where jurisdiction is based on diversity, and thus the issue before the state tribunal is identical to the issue that would be before the federal court. See, e.g., Glen 6 Assoc. v. Dedaj, 770 F. Supp. 225, 228 (S.D.N.Y. 1991).
LILCO, 907 F.2d 1295, involved allegations that defendant violated RICO by fraudulently causing the New York State Public Service Commission to grant defendant unwarranted and excessive rate increases. The defendant argued that the federal court should have abstained under the Burford doctrine. See id. at 1308. In reviewing the "'complex of considerations' that should inform a federal court's decision to abstain," id., the Court of Appeals found, among other things, that "the unavailability of treble damages and attorneys' fees in an action before the [state tribunal] also militates against the application of the Burford doctrine." Id. at 1309. Similarly, in the instant case, although a state court generally could hear plaintiffs' RICO claims, Tafflin v. Levitt, 493 U.S. 455, 458, 107 L. Ed. 2d 887, 110 S. Ct. 792 (1990), the workers' compensation board does not. Moreover, even if this were not true, because of the inability to assess treble damages, both the Board and, therefore, the appellate court that sits in review of the Board decisions involved here lack jurisdiction to hear plaintiffs' RICO claims fully. While this might not bar abstention in and of itself, I note the Supreme Court's admonition that the obligation of the federal court to adjudicate claims within its jurisdiction is "'virtually unflagging,'" NOPSI, 491 U.S. at 359 (quoting Deakins v. Monaghan, 484 U.S. at 203), and its observation that "Congress drafted RICO broadly enough to encompass a wide range of criminal activity, taking many different forms and likely to attract a broad array of perpetrators operating in many different ways." H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 248-49, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989). It is my duty to consider allegations of such activity even though such consideration may involve some overlap with matters before the New York State Workers' Compensation Board. Accordingly, I find abstention to be inappropriate, and thus the motions to dismiss of intervenor and defendants on the ground of abstention are denied.
Fed. R. Civ. P. 9(b) provides that
in all averments of fraud . . ., the circumstances constituting fraud . . . shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
To comport with Rule 9(b), the complaint must specify the statements contended to be fraudulent, identify the speaker, state where and when the statements were made, and explain why the statements were fraudulent. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993) (citing Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989)). The rule is designed to provide a defendant with fair notice of a plaintiff's claim, enable preparation of a defense, protect a defendant from harm to his reputation, and reduce the number of strike suits. See DiVittorio v. Equidyne Extractive Industries, 822 F.2d 1242, 1247 (2d Cir. 1987) (citing Reingold v. Deloitte Haskins & Sells, 599 F. Supp. 1241, 1266 (S.D.N.Y. 1984)). For purposes of this motion, the factual allegations of the Amended Complaint are accepted as true, and all inferences are drawn in favor of the pleader. See Mills, 12 F.3d at 1174.
In order to state a RICO claim, a plaintiff must allege that defendants "conducted or participated . . . in the conduct of [an] enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). A "pattern of racketeering activity" consists of "at least two acts of racketeering activity" within a ten year period. See 18 U.S.C. § 1961(5); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985); McLaughlin v. Anderson, 962 F.2d 187, 190 (2d Cir. 1992). Among the predicate acts enumerated in § 1961(1) is any act of mail fraud indictable under the federal mail fraud statute, 18 U.S.C. § 1341. Plaintiffs allege that the defendants committed acts of mail fraud, constituting the predicate acts for the RICO claims. (Amended Complaint PP 81-83.)
To plead a violation of the federal mail fraud statute sufficiently under Rule 9(b), a complaint must allege "the existence of a fraudulent scheme and a mailing in furtherance of the scheme." McLaughlin, 962 F.2d at 191 (citing Schmuck v. United States, 489 U.S. 705, 712, 103 L. Ed. 2d 734, 109 S. Ct. 1443 (1989); Pereira v. United States, 347 U.S. 1, 8, 98 L. Ed. 435, 74 S. Ct. 358 (1954)). The mailing is violative of the mail fraud statute if the defendant "caused" the mailing and the mailing was "'incident to an essential part of the scheme.'" United States v. Bortnovsky, 879 F.2d 30, 36 (2d Cir. 1989) (quoting Pereira, 347 U.S. at 8-9). The defendant need not personally initiate or receive the mailing to be liable for mail fraud, so long as the use of the mails by others was reasonably foreseeable. See Bortnovsky, 879 F.2d at 38. Any mailing "incidental" to an essential part of the scheme will be regarded as reasonably foreseeable. See Helly v. Pyle, No. 89 Civ. 6027, 1992 WL 80775, at *4 (S.D.N.Y. March 31, 1992).
The Union defendants argue that plaintiffs' RICO claims are not pled in accordance with Fed. R. Civ. P. 9(b) because the Amended Complaint insufficiently alleges that the Unions "caused" the mails to be used and that the Unions acted with fraudulent intent. CCP and Purcigliotti assert that the Amended Complaint fails to meet Rule 9(b)'s dictates because it insufficiently alleges that CCP and Purcigliotti acted with fraudulent intent.
1. Commission of Predicate Acts by Union Defendants
Fed. R. Civ. P. 9(b), which requires that "in all averments of fraud . . . the circumstances constituting fraud . . . shall be stated with particularity," is simply designed to allow the "defendant 'a reasonable opportunity to answer the complaint'" and "frame a response." Connolly v. Havens, 763 F. Supp. 6, 12 (S.D.N.Y. 1991); see Mann v. Levy, 776 F. Supp. 808, 813 (S.D.N.Y. 1991). Rule 9(b) must be read in conjunction with Rule 8(a), which requires a plaintiff to plead only a short, plain statement upon which he is entitled to relief. See Connolly, 763 F. Supp. at 12. Rule 9(b) does not require the pleading of evidence but instead only that plaintiff plead the circumstances constituting the fraud so that defendant can respond. See Pellman v. Cinerama, 503 F. Supp. 107, 111 (S.D.N.Y. 1980).
In order to satisfy Rule 9(b) in a RICO claim, where the predicate acts alleged are mail fraud, the alleged fraudulent mailings must be linked to particular defendants, and may not be attributed vaguely to "defendants." See Mills, 12 F.3d at 1175 (citing Luce v. Edelstein, 802 F.2d 49, 55 (2d Cir. 1986)); see also DiVittorio, 822 F.2d at 1247 ("Where multiple defendants are asked to respond to allegations of fraud, the complaint should inform each defendant of the nature of his alleged participation in the fraud"); Merrill Lynch, Pierce, Fenner & Smith v. Young, No. 91 Civ. 2923, 1994 WL 88129, at *11, *16, *20 (S.D.N.Y. March 15, 1994) (under Rule 9(b), complaint may not "collectivize" or "lump" defendants together); Landy v. Mitchell Petroleum Tech. Corp., 734 F. Supp. 608, 623 (S.D.N.Y. 1990) (same).
The Amended Complaint alleges that each of the defendants, including the defendant Unions, "caused" each of the "thousands of mailings to occur," (Amended Complaint PP 81, 82), then sets out ten different types of mailings allegedly caused by the defendants and identifies as to each mailing the sender, type of mailing, date of mailing and recipient. (Amended Complaint PP 81, 82, App. B.) None of the Union defendants is identified in this appendix as a sender or recipient. (Id.) The Amended Complaint goes on to make the following allegations of direct conduct, among others,
by the three Union defendants in which they are alleged to have caused fraudulent mailings:
To advance the [criminal] goals [of filing and prosecuting false individual workers compensation claims against the Daily News], . . . the defendant unions directed individual defendants to retain [CCP]
The Pressman's Union, the Driver's Union, and the Mailers' Union . . . participated in the development and implementation of the fraudulent scheme.
Defendant Unions . . . directed claimants to [CCP], Purcigliotti, and Stingle for the filing and prosecution of fraudulent hearing loss claims . . . .
Other allegations are made upon information and belief:
Before bringing their fraudulent claims, the Individual Defendants took part in discussions between and among themselves and, on information and belief, with the defendant Unions, many of the officials of which themselves participated in the scheme by filing fraudulent hearing loss claims. Through these discussions, Individual Defendants were referred to CC&P and Purcigliotti for the filing and ...