as administrator, it is somewhat short on detail. While it alleges that about $ 1 million was paid to members of the advisory board for work that in fact was for the account of the Wolfs, not Shalom, it identifies no specific payments and gives no dates. The allegations of late mortgage payments similarly are vague. No dates are given, and the extent of the delays is not mentioned -- a curious omission in light of the allegation elsewhere that BNY never imposed a late fee. Indeed, the complaint does not even allege that Shalom had sufficient funds to make any late payments on a timely basis. Moreover, while the complaint is ambiguous in this respect, it appears that the assertion that the payments to the advisory board members were not for work done for Shalom is made on information and belief without any supporting facts justifying the allegation. (Cpt PP 21-22)
Rule 9(b) requires that the circumstances of the fraud be alleged with particularity. This requires reasonable detail as well as the allegation of facts from which a strong inference of fraud reasonably may be drawn. E.g., Chill v. General Electric Co., 101 F.3d 263, 267 (2d Cir. 1996); San Leandro Emergency Medical Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 812 (2d Cir. 1996); Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994). Moreover, allegations made on information and belief are insufficient "unless the facts are peculiarly within the knowledge of the defendants, in which case the complaint must allege facts demonstrating the basis for the information and belief." Spira v. Nick, 876 F. Supp. 553, 557 (S.D.N.Y. 1995) (citing Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 379 (2d Cir. 1974), cert. denied, 421 U.S. 976, 44 L. Ed. 2d 467, 95 S. Ct. 1976 (1975); Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972)).
The allegations regarding the alleged late payments and the payments to the advisory board members do not meet this standard. As Howard Wolf was discharged as administrator of Shalom some time ago, the books and records appear to be in the control of the plaintiff, not the defendants. There is no reason to suppose that plaintiff is unable to provide substantially all of the relevant details of the actions alleged -- the dates and amounts of each advisory board and mortgage payment, Shalom's financial condition when the allegedly late mortgage payments were made, and so on. While it may not have all of the facts underlying the assertion that the advisory board members did nothing to earn the payments made to them, it is obliged to do more than make the bald assertion that this was the case. Accordingly, so much of the Section 1962(c) claim as rests on Howard Wolf's actions while administrator of Shalom fails to allege fraud with the particularity required by Rule 9(b).
The claim with respect to David Wolf's alleged deduction of late fees stands somewhat differently. The complaint alleges that Wolf, with the assistance of Neiman and his son, asserted in December 1995 that the mortgage balance was $ 1.1 million higher than it actually was on the basis of his application, without plaintiff's knowledge, of monthly payments to unauthorized late fees which he knew he had no right to charge. There is no lack of detail. Although defendants are correct in referring to the reluctance of courts to countenance the conversion of claims of breach of contract into fraud claims, the allegations with respect to this incident are quite sufficient.
The question then is the proper disposition of the motion, given that one of the fraud allegations is sufficient and others are not. In another sort of case, the motion to dismiss would be granted as to the insufficient allegations and denied as to the other, and the case simply would proceed. In this RICO case, however, the matter is not so simple. RICO requires that the plaintiff plead and prove a pattern of racketeering activity. While defendants on these motions did not challenge the sufficiency of the pattern allegations, they probably did not do so because the allegations regarding Howard Wolf's actions over a period of years, coupled with David Wolfs December 1995 action, appeared sufficient in this respect. Absent the Howard Wolf allegations, however, defendants well might be disposed to raise the pattern issue with regard to David Wolf. It therefore appears that the appropriate course of action is to dismiss the complaint in its entirety with leave to amend, thus affording plaintiff a further opportunity to plead its best case and defendants a further opportunity to challenge the result.
The Motion to Strike
Defendants David Wolf and Neiman move also to strike allegedly scandalous portions of the complaint pursuant to FED. R. CIV. P. 12(f) -- specifically, the description of Wolf as a convicted felon and a reference to charges of embezzlement and a contempt adjudication against Neiman. The motions of course are mooted, as a technical matter, by the dismissal of the complaint. Nevertheless, it is appropriate to provide some guidance with respect to the framing of the amended complaint.
Rule 12(f) motions have been described aptly as disfavored and "time wasters." 5A CHARLES ALAN WRIGHT AND ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1382 (1990). Inasmuch as the Court does not submit pleadings to the jury in civil cases, it is difficult to see how a defendant is prejudiced by the presence in the complaint of material such as that at issue here. It is equally difficult to see how the plaintiff is benefitted unless, of course, the plaintiff seeks to use copies of the complaint as a vehicle for defaming the defendant to audiences outside the courthouse, a course of conduct that carries its own risks. In all the circumstances, plaintiff might be well advised to omit the material at issue in any amended complaint.
The Neiman Release and the Cross-Motion to Amend
In January 1995, in the settlement of another matter, the plaintiff executed a general release in favor of defendant Marvin Neiman. Neiman here seeks summary judgment dismissing the complaint against him on the basis of that release. Plaintiff cross-moves to amend to add a cause of action to set aside the release.
To begin with, it is clear that plaintiff seeks recovery against Neiman for events subsequent to January 1995. In consequence, the release would not be a complete defense to this action even if it were of unquestioned validity.
Nor is the release of unquestioned validity. Plaintiff claims that Neiman was acting as an attorney for plaintiff at the time the release was executed. If that is so, Neiman bears the burden of proving affirmatively that the release was "in every respect free from fraud on the attorney's [i.e., Neiman's] part." Mergler v. Crystal Properties Ass'n, 179 A.D.2d 177, 181, 583 N.Y.S.2d 229, 232 (1st Dept. 1992). There manifestly are genuine issues of fact as to whether Neiman was plaintiff's attorney at the time plaintiff executed the release and, if so, whether he made the disclosures necessary to sustain his burden.
Accordingly, Neiman's motion for summary judgment will be denied. Plaintiff may include the claim for cancellation of the release in any amended complaint.
Defendants' motions to dismiss the amended complaint for failure to plead the RICO claims with the particularity required by Rule 9(b) are granted with leave to serve and file an amended complaint within 21 days of the date of this order. The state law claims are dismissed for lack of jurisdiction without prejudice to their reassertion in any amended complaint. Defendant Neiman's motion for summary judgment dismissing the complaint is denied. The motion of certain defendants to strike portions of the complaint pursuant to Rule 12(f) and plaintiff's cross-motion for leave to amend both are denied as moot.
In deciding whether to file an amended complaint, plaintiff would do well to consider the likelihood that doing so appears quite likely to result in another round of motion practice in which defendants' object presumably would be to obtain dismissal of the RICO claims for insufficiency, which almost surely would require dismissal of the state law causes of action for lack of subject matter jurisdiction. Plaintiff could spare itself at least some and perhaps all of this additional burden by proceeding in the state courts, which would have unquestioned jurisdiction over both the state law and RICO claims. Tafflin v. Levitt, 493 U.S. 455, 107 L. Ed. 2d 887, 110 S. Ct. 792 (1990).
Dated: May 5, 1997
Lewis A. Kaplan
United States District Judge