Since that time however, there has been no effort made to implement these plans.
The plaintiff further asserts that he was told that Nathan's would approve all site locations and menus to maximize use of space and customer preferences. Protter contends that these approvals falsely implied that the plaintiff could expect their sales to reach the national average. Moreover, with respect to the store located at 389 Avenue of the Americas, the defendants never informed the plaintiffs of the failure of a company owned store located across the street ten years earlier.
In addition to the material misrepresentations and omissions stated above, the plaintiff also alleges numerous other omissions of material facts by the defendants to induce the sales of the franchises. Among these alleged omissions are the defendants' failure to disclose significant hidden costs associated with running the franchises and the severity of sales declines that other stores were experiencing over the last several years; that other franchises had found themselves in a variety of financial difficulties at the time the plaintiff entered into the franchise agreements; that prior to entering the franchise agreements the defendants failed to admit that they were parties to lawsuits; and that the defendants received kickbacks from third parties, presumably for referring the plaintiff to these third parties for services rendered while operating the franchises.
The plaintiff claims, that as a result of these misrepresentations they have incurred over $ 1.8 million dollars in damages including franchise fees, construction and equipment expenses, legal expenses, and rental expenses as a result of delays in opening the restaurants. Protter also claims that, based on the promised twenty-five percent return, he has lost $ 1 million in profits and stands to lose another $ 10 million. As a result, the plaintiff seeks $ 13,088,359 in monetary damages.
On a motion to dismiss for failure to state a claim, "the court should not dismiss the complaint pursuant to Rule 12(b)(6) unless it appears 'beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief'". Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)); see also IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052-53 (2d Cir. 1993). The Second Circuit stated that in deciding a Rule 12(b)(6) motion a Court may consider "only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings and matters of which judicial notice may be taken". Samuels v. Air Transport Local 504, 992 F.2d 12, 15 (2d Cir. 1993); also see Rent Stabilization Ass'n of the City of New York v. Dinkins, 5 F.3d 591, 593-94 (2d Cir. 1993) (citing Samuels, 992 F.2d at 15).
It is not the Court's function to weigh the evidence that might be presented at a trial, the Court must merely determine whether the complaint itself is legally sufficient, see Goldman, 754 F.2d at 1067, and in doing so, it is well settled that the court must accept the allegations of the complaint as true, see LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991); Procter & Gamble Co. v. Big Apple Indus. Bldgs, Inc., 879 F.2d 10, 14 (2d Cir. 1989), cert. denied, 493 U.S. 1022, 107 L. Ed. 2d 743, 110 S. Ct. 723 (1990), and construe all reasonable inferences in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1099 (2d Cir. 1988), cert. denied, 490 U.S. 1007, 104 L. Ed. 2d 158, 109 S. Ct. 1642 (1989).
In addition to the foregoing standard governing Rule 12(b)(6) motions, the Court must be mindful of the relevant rules of pleading. In general, a plaintiff need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), and that "all pleadings shall be so construed as to do substantial justice". Fed. R. Civ. P. 8(f). However, because the two RICO claims at issue are based on allegations of mail fraud, the more stringent requirements of Rule 9(b) apply, requiring that "all averments of fraud . . . shall be stated with particularity." Fed. R. Civ. P. 9(b).
The Plaintiff's RICO Claim
(i) The RICO allegations and the fraud allegations
Allegations of the predicate act of mail fraud, must pass muster under Fed. R. Civ. P. 9(b), which requires 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.
One of the primary purposes of the specificity requirement of Rule 9(b) "is to insure that the defendant receives fair notice of plaintiff's claim, and is thus able to prepare a defense," Hutton v. Klabal, 726 F. Supp. 67, 72 (S.D.N.Y. 1989), citing, Di Vittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987), as well as to protect a defendant's reputation and to avoid strike suits. See Ross v. Bolton, 904 F.2d 819, 823 (2d Cir. 1990); Philan Ins., Ltd. v. Frank B. Hall & Co., 712 F. Supp. 339, 342 (S.D.N.Y. 1989); United States v. Rivieccio, 661 F. Supp. 281, 290 (E.D.N.Y. 1987). To satisfy the particularity requirement of Rule 9(b), the allegations should "specify the time, place, speaker, and content of the alleged misrepresentations." Di Vittorio, 822 F.2d at 1247, citing, Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir. 1986). "These concerns are even more immediate in civil RICO actions, because such suits 'implicate the reputation interests of defendants accused of committing racketeering offenses.'" Atlantic Gypsum Co., Inc. v. Lloyds International Corp., 753 F. Supp. 505, 512 (S.D.N.Y. 1990) (quotation omitted). However, "because it would be unrealistic to expect a plaintiff to read a defendant's actual state of mind, . . . [Rule] 9(b) permits plaintiffs to allege fraudulent intent generally while the circumstances amounting to fraud must be averred with particularity. Power v. British Vita P.L.C., 59 F.3d 176, 184 (2d Cir. 1995).
Moreover, 9(b) allegations may not be based upon information and belief. Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972). An exception to this rule exists where the facts at issue are "peculiarly within the opposing party's knowledge, in which event the allegations must be accompanied by a statement of facts upon which the belief is based." Di Vittorio, 822 F.2d at 1247.
If multiple defendants are involved in the alleged fraud, it is especially important that the fraud be particularized as to each one of them. See, e.g., Lou v. Belzberg, 728 F. Supp. 1010, 1022 (S.D.N.Y. 1990); United States v. Rivieccio, supra; Laterza v. American Broadcasting Co., 581 F. Supp. 408, 413 (S.D.N.Y. 1984). However, specific connection need not necessarily be made between the fraudulent representations and the specific defendants where the defendants are insiders. Di Vittorio, 822 F.2d at 1247.
Nathan's argues that the plaintiff has failed to meet the strict pleading requirements of Rule 9(b) for two reasons. First, the defendants argue that the Complaint fails to specifically set forth the time, place and manner of the alleged misrepresentations as required under Rule 9(b). While the Court agrees that the Complaint is pleaded in a general, cursory fashion, more acceptable under Fed. R. Civ. P. 8, governing pleadings for causes of action other than fraud, the Court does not find the Complaint so insufficient as to warrant dismissal of the fraud claim for lack of particularity. The Complaint is forty-one pages long, containing 163 paragraphs. While 161 of them refer to the defendants collectively, in violation of certain Rule 9(b) pleading requirements, see Lou, supra, and allege general references to misrepresentations without offering the time at which those misrepresentations occurred, see Di Vittorio, supra, paragraph 125, which contains eight subparagraphs, and paragraph 126 do make specific references to alleged misrepresentations made by defendants Norbitz and Dioguardi during January 1993 in order to induce the plaintiffs to purchase the Nathan's franchises. The Court finds that these allegations under Rule 9(b) are sufficient to survive Nathan's Rule 12(b)(6) motion to dismiss.
Second, the defendants assert that the Complaint fails to plead facts sufficient to give rise to an inference of fraudulent intent. Again, while the facts alleged are pled generally, the Court declines to find that they fail to state a cause of action when read in the light most favorable to the plaintiff. Some of the so-called representations alleged in the Complaint address reasonable expectations, such as profits and labor and food costs, which may be understood to be the defendants' opinions rather than misrepresentations of fact, which would not give rise to an inference of fraudulent intent. However, the Complaint also states that defendant Dioguardi made representations that eight company stores were highly profitable in an effort to portray Nathan's franchises as successful when most of the restaurants were operating at a loss. In addition, the Complaint alleges that Norbitz told the plaintiffs that the money raised during the public offering was going to be used to improve the franchisor's infrastructure, when in fact none of the money was applied for that purpose. These allegations are sufficient to give rise to an inference of fraudulent intent. Accordingly, the Court declines to dismiss the plaintiff's fraud claims under Rules 12(b)(6) and 9(b).
(ii) RICO Elements
The defendants also move to dismiss the causes of action based on alleged RICO violations under 18 U.S.C. § 1962(a), (b) and (c). The threshold pleading requirements of a private action under § 1962 of RICO were set forth in Moss v. Morgan Stanley, Inc., 719 F.2d 5 (2d Cir. 1983), cert. denied sub nom. Moss v. Newman, 465 U.S. 1025, 79 L. Ed. 2d 684, 104 S. Ct. 1280 (1984), as follows:
To state a claim for damages under RICO a plaintiff has two pleading burdens. First, he must allege that the defendant has violated the substantive RICO statute, 18 U.S.C. § 1962 (1976), commonly known as 'criminal RICO.' In so doing, he must allege the existence of seven constituent elements: (1) that the defendant (2) through the commission of two or more acts (3) constituting a 'pattern' (4) of 'racketeering activity' (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an 'enterprise' (7) the activities of which affect interstate or foreign commerce. . . . Plaintiff must allege adequately defendant's violation of section 1962 before turning to the second burden--i.e., invoking RICO's civil remedies of treble damages, attorneys fees and costs. . . . To satisfy this latter burden, plaintiff must allege that he was 'injured in his business or property by reason of a violation of section 1962'" ( id. at p. 17. [citations omitted]).
The defendants contend that the plaintiff has not pled the required elements necessary to establish a civil RICO claim. Specifically, the defendants argue that the plaintiff has failed to plead the requisite predicate acts of racketeering activity, in this case mail and wire fraud, with sufficient particularity under Rule 9(b), that the plaintiff has failed to plead a pattern of racketeering activity, and failed to sufficiently plead that the alleged RICO violations are the proximate cause of the plaintiff's injuries. The Court will address each of these arguments in turn.
(A) Mail and wire fraud
Racketeering activity is defined under RICO to include mail and wire fraud in 18 U.S.C. § 1961(1)(B). As the Second Circuit has noted:
To be guilty of mail fraud, a defendant must have used the mail as a means to obtain "money or property by means of false or fraudulent pretenses, representations, or promises" or for purposes of executing a scheme to defraud. A showing of intentional fraud, Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46, 49 (2d Cir. 1987), cert. denied, 484 U.S. 1005, 98 L. Ed. 2d 650, 108 S. Ct. 698 (1988), or "reckless indifference to the truth" is necessary to satisfy "the requisite knowledge and criminal intent" element of mail fraud. United States v. Sheiner, 273 F. Supp. 977, 983 (S.D.N.Y. 1967), aff'd, 410 F.2d 337 (2d Cir.), cert. denied, 396 U.S. 825, 24 L. Ed. 2d 76, 90 S. Ct. 68 (1969). Acts done inadvertently, mistakenly, or in good faith without an intent to defraud do not satisfy the requirements of the statute. O'Malley v. New York City Transit Authority, 896 F.2d 704, 706 (2d Cir. 1990).