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CROWN HEIGHTS JEWISH COMMUNITY COUNCIL v. FISCHER

August 10, 1999

CROWN HEIGHTS JEWISH COMMUNITY COUNCIL, INC. AND CHEVRA MACHZIKET H' SHECHUNA, INC., PLAINTIFFS,
v.
DAVID FISCHER, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gershon, District Judge.

  ORDER

In this action brought under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and New York State law, the Fischer defendants*fn1 ("defendants") and the plaintiffs seek summary judgment. Their motions were referred to the Honorable Steven M. Gold, Magistrate Judge, for report and recommendation. Judge Gold, who has a thorough familiarity of this case through his supervision of lengthy pretrial proceedings and involvement in prior motions, has now filed a Report recommending that defendants' motion be granted. Judge Gold found that plaintiffs have failed to identify admissible evidence sufficient to raise genuine questions of fact for trial with respect to their claims that defendants violated RICO and that the remaining claims, brought under the court's supplemental jurisdiction, should be dismissed without prejudice. For the reasons stated below, the Report and its recommendations are adopted in their entirety.

Judge Gold properly rejected plaintiffs' claim that his rulings on discovery excused them from submitting deposition transcripts. Plaintiffs claim that defendants had the burden of submitting accurate copies of the deposition transcripts upon which plaintiffs rely. Such a claim has no basis in law, nor in any of the rulings made by Judge Gold to accommodate the plaintiffs by requiring the defendants to make available to plaintiffs any transcripts upon which defendants were relying.

Turning to the merits, Judge Gold found that:

  This Court's concern with plaintiffs' failure to
  support their opposition to summary judgment with
  deposition transcripts is substantive as well as
  procedural. To the limited extent that, although not
  submitted by plaintiffs, the actual transcripts of
  the testimony cited in the Joseph affidavit have been
  made available to the Court, comparisons between the
  testimony "quoted" in the Joseph affidavit and the
  original transcripts reveals that significant words
  have been omitted, sentences have been quoted out of
  order, and statements have been taken out of context.

Report at 19. Judge Gold then proceeded to analyze each of plaintiffs' claims in detail, noting that either there is a total failure of proof or that the claimed proof, upon examination, does not support the plaintiffs' position. Among other things, he correctly found that findings in other cases which plaintiffs claim are usable against the defendants under the doctrines of res judicata or collateral estoppel are not determinative of the issues presented in this case.

In plaintiffs' objections to the Report, they continue to rely on the inadmissible Joseph affidavit's hearsay allegations as to the content of depositions. As before, plaintiffs rely on unsupported allegations of fact, proffer as facts grossly misleading characterizations of the evidence, challenge the credibility of witnesses whose depositions are relied upon by the defendants without offering countervailing admissible proof, and refer to still further inadmissible evidence such as newspaper articles.

In addition, they now point to what they claim is additional evidence of the defendants' wrongdoing and ask the court to consider it even though it was not presented to Judge Gold. Plaintiffs claim that they should be permitted to supplement the record and, finally, offer what they assert will be evidentiary facts to defeat the summary judgment motion. They offer no sound basis in support of supplementation. For example, they suggest that, since the complaint refers the court to "the public record" of various deeds and mortgages, they "were uncertain whether or not the Magistrate in such an instance, would appoint a master to investigate the records in question," see Letter of Peter A. Joseph, Esq., dated December 11, 1998, and use this as an excuse for why they did not previously produce the deeds and mortgages themselves. Their claim that they were prejudiced by Judge Gold's failure to rule on a contempt motion for sanctions against the defendants and other parties and non-parties made in early 1997 is equally meritless. Even assuming arguendo that the motion was not fully resolved (but see Docket Entry # 185 of April 10, 1997), its lack of resolution was never presented to Judge Gold as a basis for denying defendants' motion for summary judgment. That is, plaintiffs neither claimed that resolution of the contempt motion for sanctions was necessary to their ability to respond to the motion for summary judgment, nor did they claim that the absence of particular discovery prejudiced their ability to respond to the motion. On the contrary, plaintiffs themselves moved for summary judgment on the ground that the facts prove defendants' liability.

Given the history of this case, it would be an abuse of the invaluable role played by magistrate judges in reviewing dispositive motions to reopen the record to give plaintiffs yet another opportunity to fulfill their obligation to submit admissible evidence. This court's review of a magistrate judge's report and recommendation is de novo, and the court is permitted, in its discretion, to accept supplemental evidence. See 28 U.S.C. § 636(b)(1); Fed. R.Civ.P. 72(b); Hynes v. Squillace, 143 F.3d 653, 656 (2d Cir. 1998), cert. denied, ___ U.S. ___, 119 S.Ct. 246, 142 L.Ed.2d 202 (1998). But it is well established that the court may also decline to exercise its discretion to allow such supplementation. Thus, the Second Circuit in Hynes noted that:

  [W]e have upheld the exercise of the district court's
  discretion in refusing to allow supplementation of
  the record upon the district court's de novo review.
  See, e.g., Paddington Partners v. Bouchard,
  34 F.3d 1132, 1137-38 (2d Cir. 1994) (finding no abuse of
  discretion in district court's refusal to consider
  supplemental evidence); Pan American World Airways,
  Inc. v. International Bhd. of Teamsters,
  894 F.2d 36, 40 n. 3 (2d Cir. 1990) (holding that district
  court did not abuse its discretion in denying
  plaintiff's request to present additional testimony
  where plaintiff "offered no justification for not
  offering the testimony at the hearing before the
  magistrate"); see also Wallace v. Tilley,
  41 F.3d 296, 302 (7th Cir. 1994) ("It is not in the interests
  of justice to allow a party to wait until the Report
  and Recommendation or Order has been issued and then
  submit evidence that the party had in its possession
  but chose not to submit. Doing so would allow parties
  to undertake trial runs of their motion, adding to
  the record in bits and pieces depending upon the
  rulings or recommendation they received.") (internal
  quotation marks and citations omitted).

143 F.3d at 656. As similarly noted in Paterson-Leitch Co. v. Massachusetts Mun. Wholesale Elec. Co., 840 F.2d 985 (1st Cir. 1988):

  Systemic efficiencies would be frustrated and the
  magistrate's role reduced to that of a mere dress
  rehearser if a party were allowed to feint and weave
  at the initial hearing, and save its knockout punch
  for the second round. In addition, it would be
  fundamentally unfair to permit a litigant to set its
  case in motion before the magistrate, wait to see
  which way the wind was blowing, and — having received
  an unfavorable recommendation — shift gears before
  the district judge.

840 F.2d at 991. Here, plaintiffs offer no sound basis for reopening the record. The request to reopen is denied.

CONCLUSION

For the above-stated reasons, I adopt Magistrate Judge Gold's Report and Recommendation in its entirety and direct that the Complaint against the Fischer defendants be dismissed.

SO ORDERED.

REPORT AND RECOMMENDATION

Introduction

Plaintiffs, the Crown Heights Jewish Community Council, Inc. (the "Council") and Chevra Machziket H'Shechuna, Inc. ("CMH"), bring this action pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., alleging that, together with others, defendant David Fischer engaged in a scheme to defraud plaintiffs in connection with various real estate transactions involving property in the Crown Heights section of Brooklyn, New York.*fn1 Plaintiffs also claim, pursuant to New York State law, that defendant Fischer breached a fiduciary duty he owed to them, and that Fischer committed various state law crimes, including grand larceny, falsification of business records, and filing of false instruments.

The "Fischer Defendants"*fn2 now move for summary judgment, claiming that plaintiffs have failed to raise a genuine issue of material fact for trial and that defendants are therefore entitled to judgment as a matter of law. Defendants also seek dismissal of the complaint pursuant to Federal Rule of Civil Procedure 37, arguing that plaintiffs have failed to comply with proper discovery demands and have provided false and misleading disclosure to defendants. Finally, defendants seek an order dismissing the complaint on the grounds that plaintiffs lacked the requisite authority to bring this lawsuit, and an order disqualifying the law firm of Israel Weinstock from representing plaintiffs in this action based on that firm's alleged violation of Disciplinary Rule 5-105.

Plaintiffs cross-move for summary judgment, claiming that the evidence relied upon by defendants in support of their motion fully proves the allegations of plaintiffs' complaint. See Aff. of Peter A. Joseph in Opp'n to "Fischer Defs.'" Mot. for Summ.J. and in Support of Pls' Cross-Mot. For Summ.J. ¶ 1(ii) ("Joseph Aff."). Plaintiffs also seek sanctions against defendants' counsel, pursuant to Federal Rules of Civil Procedure 56(g) and 11(c), claiming that defendants' attorney Eli Feit submitted his affidavit in support of defendants' motions in bad faith.

Procedural History

The complaint in this case was filed on July 2, 1992. On August 28, 1992, defendants moved to dismiss the complaint on a variety of grounds, including their contention that plaintiffs' RICO claims were time-barred because they were not brought within the applicable four-year statute of limitations. Defendants also sought to strike various portions of the complaint, to disqualify plaintiffs' counsel, and to impose sanctions on plaintiffs. See Defs.' Notice of Motion, Docket Entry 7.

On September 4, 1992, United States District Judge Carol B. Amon referred defendants' motion to dismiss to the magistrate judge then assigned to this case for report and recommendation.*fn3 On July 7, 1994, I issued a report recommending that the case be dismissed on the ground that plaintiffs' RICO claims were time-barred. I did not reach the other grounds for dismissal advanced by defendants. By Memorandum and Order dated July 3, 1995, United States District Judge Joanna Seybert declined to adopt the report and recommendation and denied defendants' motion in its entirety.

The parties engaged in extensive discovery from July 1995 until April 1997. On June 16, 1997, the Fischer Defendants filed the motion for summary judgment now pending before the Court. See Docket Entry 216. Plaintiffs did not serve their opposition to defendants' motion, or their own cross-motion for summary judgment, until March 16, 1998, and these documents were not filed with the Clerk of the Court until May 7, 1998. See Docket Entry 221.

For the reasons stated below, I respectfully recommend that defendants' motion for summary judgment be granted. I therefore do not reach the other pending motions.

Discussion

Plaintiffs, invoking this Court's federal question jurisdiction pursuant to 28 U.S.C. § 1331, allege in this action that defendants have violated RICO, and seek relief in the form of treble damages and attorney's fees pursuant to 18 U.S.C. § 1964(c). The Fischer Defendants contend that, despite four years of discovery, plaintiffs are unable to point to any admissible evidence to support the central allegations of their complaint. See Aff. of Eli Feit in Supp. of Mot. for Summ.J. and Other Relief ("Feit Aff.") ¶¶ 3-4. Specifically, defendants contend that plaintiffs have failed to come forward with any admissible evidence indicating that defendants in fact engaged in a "pattern of racketeering activity" by committing the underlying predicate acts charged in the complaint. Defendants further contend that plaintiffs lack standing because they are unable to demonstrate that they suffered any particular injury to their business or property which was proximately caused by defendants' conduct. Thus, defendants argue, no genuine issue of material fact remains for trial, and they are entitled to judgment as a matter of law.

A. Elements of a RICO Claim

To maintain a civil RICO claim, a plaintiff must establish: 1) that a RICO "enterprise" existed; 2) that the defendant committed predicate acts falling within one or more of the categories enumerated in Section 1961; 3) that these predicate acts constituted a "pattern of racketeering activity;" and 4) that there is a nexus between the defendant, the pattern of racketeering activity, and the enterprise. See 18 U.S.C. § 1961, 1962; Bernstein v. Misk, 948 F. Supp. 228, 234 (E.D.N Y 1997). Further, plaintiffs pleading a RICO violation must demonstrate standing, by showing that they were injured in their business or property, and that these injuries were proximately caused by the conduct constituting the alleged pattern of racketeering activity. See 18 U.S.C. § 1964(c); Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 1317, 117 L.Ed.2d 532 (1992); Bernstein, 948 F. Supp. at 234.

A "pattern of racketeering activity" consists of at least two predicate racketeering acts, occurring within ten years of each other. See 18 U.S.C. § 1961(5). Violations of any of a wide variety of state and federal laws may qualify as "racketeering activity" under the RICO statute. See 18 U.S.C. § 1961(1). Plaintiffs in this case assert that defendants have engaged in racketeering activity by violating the mail fraud statute, 18 U.S.C. § 1341, and by conducting monetary transactions in property derived from "specified unlawful activity" in violation of 18 U.S.C. § 1957. See Compl. ¶¶ 151, 152, 161-63, 175-77, 188-90, 216-18.

In addition to the violations of federal law described above, plaintiffs contend that defendants engaged in various acts prohibited under New York State law that constitute further "racketeering activity" under Section 1961(1). Specifically, plaintiffs claim that defendants committed grand larceny in the first degree in violation of New York Penal Law Section 155.42; falsified business records in violation of New York Penal Law Section 175.10; and offered false instruments for filing in violation of New York Penal Law Section 175.35. See Compl. ¶¶ 164-168. However, the only state law crimes which constitute predicate acts of racketeering activity under Section 1961 are those acts "chargeable under State law and punishable by imprisonment for more than one year," which involve "murder, kidnaping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical." 18 U.S.C. § 1961(1)(A). None of the state law crimes enumerated by plaintiff fall within this definition.*fn4 Nor do any of these state law offenses constitute "specified unlawful activity" as defined by Section 1956(c)(7). Accordingly, the only viable predicate acts of racketeering activity charged in the complaint are the alleged violations of Sections 1341, pertaining to mail fraud, and 1957, pertaining to monetary transactions in property derived from specified unlawful activity.

1. Section 1341: Mail Fraud

To prove that defendants committed mail fraud in violation of 18 U.S.C. § 1341, plaintiffs must show the following: 1) the existence of a scheme or artifice to defraud; 2) defendants' knowing or intentional participation in the scheme; and 3) use of the mails in furtherance of the scheme. See S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629, 633 (2d Cir. 1996) (citing United States v. Gelb, 700 F.2d 875, 879 (2d Cir. 1983), cert. denied, 464 U.S. 853, 104 S.Ct. 167, 78 L.Ed.2d 152 (1983)); Congregacion de la Mision Provincia de Venez. v. Curi, 978 F. Supp. 435, 445 (E.D.N.Y. 1997). To establish intent, plaintiff must demonstrate that some actual harm or injury was contemplated by the schemer. See United States v. Chandler, 98 F.3d 711, 714 (2d Cir. 1996); In re Seizure of All Funds in Accounts in Names Registry Pub. Inc., 68 F.3d 577, 580 (2d Cir. 1995). Although intent may be inferred from circumstantial evidence, see S.Q.K.F.C. Inc., 84 F.3d at 634; United States v. William Savran & Assocs., Inc., 755 F. Supp. 1165 (E.D.N Y 1991), acts done inadvertently or in good faith do not constitute mail fraud. See O'Malley v. New York City Transit Auth., 896 F.2d 704, 706 (2d Cir. 1990).

  2. Section 1957: Monetary Transactions in Property Derived
    from Specified Unlawful Activity

In addition to their allegations of mail fraud, plaintiffs contend that defendants engaged in racketeering activity by committing violations of Section 1957. To establish that defendants have engaged in money laundering activity prohibited by Section 1957, plaintiffs must prove 1) that defendants knowingly conducted a monetary transaction in criminally derived property; 2) that the property had a value greater than $10,000; and 3) that the property was in fact derived from "specified unlawful activity." See 18 U.S.C. § 1957(a).

In this case, plaintiffs' allegations of "specified unlawful activity" include mail fraud, which as indicated above is itself a RICO predicate act, see 18 U.S.C. § 1961(1), and may also form the basis of a money laundering charge. See 18 U.S.C. § 1956(c)(7)(A) (listing violations of RICO as "specified unlawful activity"). Plaintiffs' allegations of "specified unlawful activity" also include violations of 18 U.S.C. § 1014, see 18 U.S.C. § 1956(c)(7)(D) (listing a violation of Section 1014 as a specified unlawful activity for money laundering). Section 1014 makes it unlawful for a person knowingly to make a false statement to a financial institution for the purpose of influencing a financial institution's decision. However, the false statement need not be material. See United States v. Wells, 519 U.S. 482, 117 S.Ct. 921, 137 L.Ed.2d 107 (1997).

As discussed above, violations of Section 1014 do not by themselves qualify as RICO predicate acts. See 18 U.S.C. ยง 1961(1); see also Meridian Mortgage Corp. v. Spivak, No. Civ.A 91-3932, 1993 WL 193364, at *8 n. 4 (E.D.Pa. 1993). Therefore, to maintain a RICO claim against defendants, plaintiffs must prove not only that defendants violated Section 1014, but also that defendants knowingly engaged ...


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