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PIER CONNECTION, INC. v. LAKHANI

September 28, 1995

PIER CONNECTION, INC. and PIER SALES CORP., Plaintiffs,
v.
NARENDRA V. LAKHANI, a/k/a NORMAN LAKHANI, LAKHANI ENTERPRISES, INC., NEUTRAL, INC., DECCAN ENTERPRISES USA, INC., DECCAN ENTERPRISES, DECCAN OVERSEAS EXPORT (Pvt.) LTD., THIRUPURA EXPORTS, DECCAN DESIGNS, DECCAN CREATIONS, DECCAN APPARELS, DECCAN INTERNATIONAL, DECCAN FASHIONS, BONCOMM, KRISHNAMOORTHY, CHARLES H. ROSS, JR., a/k/a HANK ROSS, NANCY J. MADDEN, ANITA FRIEDMAN, OZVALDO A. MOJICA, and JACQUELINE GREEN, Defendants.



The opinion of the court was delivered by: SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.

 I. Introduction

 Plaintiffs Pier Connection, Inc. and Pier Sales Corporation (together, "Pier Connection") filed suit against the Defendants in the Supreme Court of New York, New York County in June 1994. Pier Connection filed an amended complaint (the "Complaint") on April 12, 1995, alleging two violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., as well as numerous pendent state law claims. With the addition of the RICO claims, Defendants removed the action to federal court on May 23, 1995. The two RICO claims comprise alleged violations of § 1962(c) (conducting the affairs of an enterprise through a pattern of racketeering activity) and of § 1962(d) (conspiring to commit RICO violations). Defendants have moved to dismiss the two RICO counts of the complaint pursuant to Fed. R. Civ. P. 12(b)(6). *fn1"

 II. Facts2

 In considering a motion to dismiss, the court must presume all factual allegations in the complaint to be true. Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994). Moreover, the court must draw all reasonable inferences in favor of the non-moving party. Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). Only if "it appears beyond doubt that the plaintiffs can prove no set of facts in support of [the] claim which would entitle [them] to relief" should the court grant a motion to dismiss. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The relevant facts as alleged by Plaintiffs are as follows.

 Pier Connection designs, contracts for the manufacture of, imports and sells clothing. Complaint P 17. *fn3" Its products are manufactured in India and sold to retailers throughout the United States. Id. P 1.

 Defendant Norman Lakhani was one of four stockholders who owned the plaintiff corporations from 1987 to 1989. Complaint PP 21, 23. In 1989, Lakhani redeemed his shares and resigned from Plaintiffs' boards of directors. However, he continued to work for the companies and to earn more than $ 500,000 per year from Pier Connection. Id. PP 24, 26, 27. From 1987 to 1993, Lakhani was the chief financial officer of Pier Connection. In this capacity, he was primarily responsible for "all financial, banking, credit and administrative decisions." Id. P 28. Lakhani had the exclusive authority to enter into financial agreements with Pier Connection's financial backers on behalf of Pier Connection. In addition, Lakhani maintained Pier Connection's financial relationship with the Deccan Companies (Plaintiffs' primary manufacturer from 1978 through March 1994) and with the United Jersey Bank (Pier Connection's former trade bank). Id. PP 19, 28.

 After working with others to build Pier Connection, Lakhani then "sought to seize control of [Pier Connection's] business." Complaint P 1. His goal was to take Plaintiffs' assets and divert them to another company owned exclusively by the individual Defendants. Id. P 65. Lakhani's plan involved "assembling a team of manufacturers, marketers and designers to recreate the company." Id. P 1. This team comprised the remaining Defendants: account executives of Pier Connection (Madden, Friedman and Green), the manufacturer for Pier Connection (the Deccan Companies), the owner of the Deccan Companies (Krishnamoorthy), a Vice President of Merchandising of Pier Connection (Ross), and a designer for Pier Connection (Mojica). RICO Statement at 3-6. *fn4" Lakhani is now a financial advisor and guarantor of Defendant Neutral, Inc. ("Neutral") Id. at 3. Neutral is the corporation that Plaintiffs allege was formed specifically to misappropriate the assets of and compete unlawfully with Pier Connection. Id. at 4.

 Plaintiffs describe several ways in which Lakhani and the other Defendants implemented his plan. First, Defendants stripped Pier Connection of its production capabilities by causing the Deccan companies not to ship goods to Pier Connection while sending false telexes stating that the goods would be shipped. Id. at 8-9. Second, Defendants "sabotaged [Pier Connection's] revenues and customer relationships by repeatedly shipping only partial orders of goods to Plaintiffs" while representing falsely via telexes that Plaintiffs' entire orders would be shipped, and by shipping goods to plaintiffs by one method while representing falsely via telexes that the goods would be shipped by another method. Id. at 14, 17. Moreover, through telephone conversations with a bank representative, Lakhani convinced United Jersey Bank that Pier Connection was a high default risk and that the bank should terminate Pier Connection's line of credit. Id. at 20. Plaintiffs further allege that the individual Defendants, via telephone, defamed Pier Connection to its customers and solicited Pier Connection's customers on behalf of Neutral while the Defendants were still employed by Pier Connection. Id. at 21, 23.

 Plaintiffs contend that the foregoing actions constitute wire fraud under 18 U.S.C. § 1343, which prohibits the use of interstate wires in furtherance of a scheme to defraud. Under 18 U.S.C. § 1961(1)(A), the substantive crime of wire fraud constitutes a RICO predicate act. The above-described actions of Defendants form the basis of Plaintiffs' RICO claims. RICO Statement at 27.

 III. Plaintiffs' Pleading Burden

 To state a civil RICO claim under 18 U.S.C. § 1962(c), a plaintiff must allege injury resulting from "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985); Azrielli v. Cohen Law Offices, 21 F.3d 512, 520 (2d Cir. 1994). In clarifying the requirement that the RICO allegations must constitute a pattern, the statute defines only a minimum: a complaint must set forth two predicate acts that occurred within ten years of each other. 18 U.S.C. § 1961(5). The Supreme Court has further explained that the two-act minimum represents, at best, a broad outer limit on what may constitute a pattern. See H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 237, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989). The legislative history of RICO reveals that Congress did not intend that "'proof of two acts of racketeering activity, without more,'" would establish a pattern. H.J. Inc., 492 U.S. at 238 (citation omitted). Rather, the numerical minimum "assumes that there is something to a RICO pattern beyond simply the number of predicate acts involved." Id. at 238 (emphasis in original). According to the Court, Congress intended plaintiffs to prove a pattern of racketeering activity by "show[ing] that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." Id. at 239.

 Thus the pattern element of a RICO claim consists of two prongs: relatedness and continuity. Defendants do not contest that the predicate acts alleged by Plaintiffs are related; they argue only that Plaintiffs have failed adequately to plead the required continuity. See ...


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