The opinion of the court was delivered by: CHIN
In this case brought by First Interregional Advisors Corp. ("FIAC") pursuant to the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1961 et seq. ("RICO"), defendants Emanuel Wolff ("Wolff"), Slovie Wolff, Mark Karasick, Rachell Skydell, Manhattan Management, Inc., Chadwick Funding Company and Burham Corp., N.V. (collectively, the "Wolff Defendants") move pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure to dismiss the complaint. The Wolff Defendants challenge the sufficiency of almost every aspect of FIAC's claims. The complaint, however, describes in detail a highly complex, multi-faceted, RICO scheme. Hence, the motion to dismiss is denied, except that it is granted with respect to several defendants as to whom the allegations of the complaint are insufficient. In addition, the Wolff Defendants have moved to disqualify Patterson, Belknap, Webb & Tyler LLP as counsel for FIAC. That motion is denied.
Defendant Capital Information Company ("CIC") was in the business of buying and financing accounts receivable from companies known as "information providers." (Compl. P 7). Information providers receive telephone calls from customers and, for a fee, provide various types of information over the telephone lines. The information is either provided by the information provider itself, or by a subcontractor called a "service bureau." (Id. at P 24). The billing for each of these telephone calls is recorded on a computer tape, which is readable only by sophisticated computer equipment. (Id.).
The information provider takes these tapes and sends them to the telephone company, which pays for them upon receipt. (Id. at P 25). The telephone company, however, does not pay for these tapes in full, but instead holds back a percentage -- based on the information provider's past history of collection -- as security for any calls recorded on the tape that turn out to be uncollectible. (Id. at P 26). The telephone company then bills its customers for the calls provided by the information provider. Once the telephone company gets paid for the calls on the tape, it reimburses the provider for the percentage that was held back as security. (Id. at P 27). Because of the steps involved between the telephone company's receipt of the tapes and payment from the customer, it may take several months for the information provider to receive the total revenues it is entitled to from any one tape. (Id. at P 28).
To avoid this delay in payment, information providers sell the amount they are owed by the telephone companies in the form of "accounts receivable." (Id.). These accounts receivable -- which are also recorded on computer tapes -- are sold to telephone finance companies. The finance companies purchase the tapes at a discount and then realize the difference between this discounted sales price and the full payment from the telephone companies as profit. (Id.).
In May 1994, CIC and defendant Tyndall met FIAC to discuss the possibility of FIAC financing CIC's purchase of accounts receivable. (Id. at P 29). FIAC alleges that at this meeting, Tyndall "painted a picture of a sterling financial and business record of . . . CIC . . . and claimed that the business was characterized by tremendous growth." (Id.). FIAC claims that over the next several weeks, defendants CIC, Tyndall, and Karasick committed acts of mail and wire fraud in an effort to obtain financing from FIAC. For example, FIAC alleges that during a phone conversation on June 13, 1994, defendants Karasick and Tyndall represented to FIAC that the accounts receivable were "99% collectible" and that numerous other companies had been very successful as a result of their dealings with CIC. (Id. at P 31).
FIAC alleges that this scheme continued into late May and early June 1994, when the defendants committed additional acts of mail fraud by sending FIAC inaccurate income statements purporting to show the success that other companies were having financing CIC's purchase of accounts receivable. (Id. at P 33). FIAC claims that the income statements were fraudulent in a number of ways and were sent by defendants in an effort to convince FIAC to loan money to CIC. FIAC states that based on these and other misrepresentations communicated to it through the mail and over the telephone, it agreed to loan large amounts of money to CIC. (Id. at P 37). The complaint goes on to allege that over the course of the next several months, FIAC was defrauded into making seven or eight additional loans totalling some $ 3 million, again through a pattern of mail and wire fraud. (Id. at PP 41-43).
Based on this information, FIAC demanded that CIC turn over the money securing FIAC's loans. (Id. at P 90). FIAC also demanded payment from Tyndall, who had signed a guaranty covering the loans that FIAC made to CIC. (Id. at P 91). In February 1995, FIAC withdrew whatever money was available in CIC's accounts. FIAC alleges, however, that as a result of the fraudulent acts of the defendants, FIAC lost nearly $ 2.2 million in principal and interest. (Id. at P 94).
FIAC commenced this action on October 12, 1995. The complaint alleges, inter alia, that defendants, through a pattern of mail and wire fraud, acquired an interest in, controlled, and invested in a criminal enterprise consisting of the named defendants and other individuals, corporations and partnerships associated in fact (the "Enterprise"). FIAC further alleges that the defendants used this Enterprise to defraud several lenders and investors, including FIAC, into loaning several million dollars to CIC. In addition, FIAC alleges nine separate counts of state law violations.
I. Standards for Motion to Dismiss
In analyzing a motion to dismiss pursuant to Rule 12(b)(6), I must view the complaint in the light most favorable to plaintiff and accept all allegations contained in the complaint as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); see also Annis v. County of Westchester, 36 F.3d 251, 253 (2d Cir. 1994). A complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that plaintiff can prove no set of facts that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Thus, when deciding whether to grant the Wolff defendants' motion, the issue "is not whether [FIAC] will ultimately prevail, but whether [FIAC] is entitled to offer evidence to support the claims" it alleges in its complaint. Scheuer, 416 U.S. at 236.
Further, because FIAC's claims are based on allegations of fraud, they must satisfy the pleading requirements of Fed. R. Civ. P. 9(b). Rule 9(b) states in part that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Thus, to satisfy the particularity requirement of Rule 9(b), FIAC's complaint must "adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989).
With these standards in mind, I turn to the Wolff Defendants' motion to dismiss.
II. Challenges to Count I - RICO
Section 1964(c) of the RICO statute authorizes a private cause of action for "any person injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(a). Thus, to state a claim for damages under § 1964(c), a plaintiff must first allege a violation of the substantive RICO statute, 18 U.S.C. § 1962. That section requires a plaintiff to allege (1) that the defendants, through the commission of two or more acts constituting a "pattern of racketeering activity," (2) violated sub-sections (a), (b), or (c) of § 1962 by directly or indirectly investing in, maintaining an interest in, or participating in an "enterprise" the activities of which affect interstate or foreign commerce. 18 U.S.C. § 1962(a) - (c); Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 ...