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December 21, 1999


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


The plaintiff Blue Chip Mortgage Corporation ("Blue Chip") is a defunct mortgage banking corporation. The plaintiff Keith Asdourian ("Asdourian") was the sole shareholder and President of Blue Chip. According to the plaintiffs' amended complaint, as a result of a series of fraudulent transactions committed by the defendants, Blue Chip lost its banking license, monetary assets and goodwill. The amended complaint alleges that the defendant Gary Konstantin ("Konstantin"), on behalf of Blue Chip, sold a series of fraudulent mortgages to various banks. In an effort to make the applicant appear creditworthy, Konstantin is alleged to have falsified various documents such as tax returns, employment records and bank verifications. It is further alleged that this scheme was orchestrated by Konstantin in an effort to defraud the banks who paid for the mortgages, divert money from Blue Chip, repay personal loans and purchase real estate for himself. Also, it is alleged that three of the other named defendants, Ruthven Prithwie ("Prithwie"), Adi Okeon ("Okeon") and Rahim Ali ("Ali") (collectively, the "Konstantin Group"), assisted and participated with Konstantin in his scheme to defraud the banks and divert money from Blue Chip for their personal use.

Presently before the Court are two separately filed motions. Ali moves pursuant to Rule 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P.") to dismiss the plaintiffs' amended complaint. Similarly, Konstantin, Reliance Mortgage Corp., the Hip Hop Café, Reliance Management Corp. and Reliance Mortgage Banking Corp move pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) seeking dismissal of the plaintiffs' amended complaint.


Based on these representations, Blue Chip and the Konstantin Group entered into a written joint venture agreement dated July 18, 1996, in which they agreed to join forces and pursuant to which, Konstantin was named Chief Executive Officer of Blue Chip and added as a signatory to Blue Chip's bank accounts and warehouse lines. According to the amended complaint, warehouse lines are lines of credit given by a "warehouse" bank to fund the mortgages given by Blue Chip to its clients, the loan applicants. The plaintiffs allege that in October, 1997 they discovered substantial withdrawals for personal use by the Konstantin Group of Blue Chip funds, including the purchase of properties in Pennsylvania. Upon learning of this, Asdourian removed Konstantin as a signatory on the Blue Chip bank accounts.

The plaintiffs allege that when Asdourian confronted Konstantin with this, he became enraged and threatened to kill him. In addition, Konstantin revealed that he had a criminal record and had been arrested for insurance fraud in the past. Despite these alarming statements, the plaintiffs agreed to reinstate Konstantin as signatory to the bank account. Thereafter, the plaintiffs allege that the Konstantin Group falsified documents such as tax returns, and employment and bank verifications for mortgage applicants so as to make such applicants more credit worthy than they actually were, thereby generating funds for their own benefits. In addition, the plaintiffs contend that Konstantin sold loans to another company for $100,000, far below the loans' fair market value.

Despite this activity by the Konstantin Group, the plaintiffs continued to work with them in order to rectify problems such as a number of banks who requested that Blue Chip buy-back the mortgages that they were sold due to irregularities. In April, 1998, Blue Chip's office in Westbury was burglarized. The plaintiffs allege "upon information and belief" that the Konstantin Group orchestrated this break in to recover records that would have exposed their unlawful conduct regarding the buy-back loans. Approximately 1½ years after learning of Konstantin's unscrupulous conduct, in May, 1998 Asdourian finally moved out of Blue Chip's Westbury offices and entered into an agreement to sell Blue Chip to the Konstantin Group. Some time later, Asdourian learned that the Konstantin Group had purchased multiple parcels of land in New York and Pennsylvania with Blue Chip funds. As a result of the conduct outlined above, the plaintiffs filed a twelve count complaint alleging violations of RICO, conversion, an action for indemnification, breaches of fiduciary duties, common law fraud, breach of contract, and fraudulent conveyances.


A. Fed.R.Civ.P. 12(b)(6)

On a motion to dismiss for failure to state a claim, the Court should dismiss the complaint pursuant to Rule 12(b)(6) if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Northrop v. Hoffman of Simsbury, Inc., 134 F.3d 41, 44 (2d Cir. 1997) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 [1957]); see also IUE AFL — CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052 (2d Cir. 1993), cert. denied, 513 U.S. 822, 115 S.Ct. 86, 130 L.Ed.2d 38 (1994). The Second Circuit stated that in deciding a Rule 12(b)(6) motion, "a district court must limit itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference." Newman & Schwartz v. Asplundh Tree Expert Co., Inc., 102 F.3d 660, 662 (2d Cir. 1996) (quoting Kramer v. Time Warner, Inc., 937 F.2d 767, 773 [2d Cir. 1991]); see also International Audiotext Network, Inc. v. AT & T Co., 62 F.3d 69, 72 (2d Cir. 1995); Paulemon v. Tobin, 30 F.3d 307, 308-09 (2d Cir. 1994).

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 v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985), and in doing so, it is well settled that the Court must accept the factual allegations of the complaint as true, see Strom v. Goldman, Sachs & Co., 202 F.3d 138, 140 (2d Cir. 1999); 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, 110 S.Ct. 723, 107 L.Ed.2d 743 (1990), and construe all reasonable inferences in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996); LaBounty, 933 F.2d at 123; Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1098 (2d Cir. 1988), cert. denied, 490 U.S. 1007, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989).

The Court is mindful that under the modern rules of pleading, 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 "[a]ll pleadings shall be so construed as to do substantial justice," Fed.R.Civ.P. 8(f).

The issue before the Court on a Rule 12(b)(6) motion "is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995), cert. denied, 519 U.S. 808, 117 S.Ct. 50, 136 L.Ed.2d 14 (1996) (quoting Scheuer, 416 U.S. at 236, 94 S.Ct. 1683). Recovery may appear remote and unlikely on the face of the pleading, but that is not the test for dismissal under Rule 12(b)(6). Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995) (quoting Weisman v. LeLandais, 532 F.2d 308, 311 [2d Cir. 1976] [per curiam]).

B. Fed.R.Civ.P. 9(b)

When pleading a claim for fraud or misrepresentation, the plaintiff must aver the alleged fraudulent acts with particularity as required by Fed.R.Civ.P. 9(b). See Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir. 1986). Although "knowledge" and "condition of mind" may be stated in general terms (see Fed.R.Civ.P. 9[b]), the circumstances surrounding the alleged fraud must be pled with particularity. See Moore v. Painewebber, Inc., 189 F.3d 165, 173 (2d Cir. 1999); Farley v. Baird, Patrick & Co., 750 F. Supp. 1209, 1217 (S.D.N.Y. 1990) (quoting Eickhorst v. American Completion & Dev. Corp., 706 F. Supp. 1087, 1091 [S.D.N.Y. 1989]).

To satisfy the particularity requirement of Rule 9(b), the "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." Moore, 189 F.3d at 173 (quoting Cosmas v. Hassett, 886 F.2d 8, 11 [2d Cir. 1989]). Specifically, "the complaint must allege the time, place, speaker, and sometimes even the content of the alleged misrepresentation." Ouaknine v. MacFarlane, 897 F.2d 75, 79 (2d Cir. 1990).

Facts must be pled with sufficient particularity to support a "strong inference" that the defendant possessed the requisite fraudulent intent or scienter. See Shields v. Citytrust Bancorp, 25 F.3d 1124, 1128 (2d Cir. 1994). Moreover, such allegations may not merely rest upon statements based on "information and belief." See Di Vittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987) (citations omitted).

The particularity requirement of Rule 9(b) is designed to serve several important policies, such as to afford the defendant fair notice of the claims, to safeguard the defendant's reputation and also to inhibit the institution of "strike suits." See Campaniello Imports v. Saporiti Italia S.p.A., 117 F.3d 655, 663 (2d Cir. 1997).

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 Lou v. Belzberg, 728 F. Supp. 1010, 1022 (S.D.N.Y. 1990). However, specific connection need not necessarily be made between the fraudulent representations and the specific defendants where the defendants are insiders. DiVittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987).

C. Ali's Motion to Dismiss

Ali essentially makes three arguments in support of his motion to dismiss. First, Ali argues that the amended complaint amounts to a "group pleading" and thus fails to provide specific allegations of any wrongdoing. In particular, Ali claims that "in virtually every paragraph the Amended Complaint alleges that various wrongs and frauds were committed by `the Konstantin Group,' without making any attempt to particularize the allegedly wrongful conduct of each `member' of the Group, such as defendant Ali." Ali's second argument in favor of dismissal is that even if the amended complaint complies with Rule 9(b), it fails to state a RICO claim since the intended target of the alleged wrongs was not Blue Chip or Asdourian, but were the third party lenders/banks that were enticed into making the loans to customers with falsified records. Finally, Ali claims that the state law causes of action should be dismissed under the "group pleading" theory. In addition, Ali asserts that the claims for breach of contract, breach of fiduciary duty and indemnification should be dismissed as they are based upon a 1996 Joint venture Agreement that was never approved by the New York State Superintendent of Banking.

1. Group Pleading

As previously stated, where multiple defendants are involved in the alleged fraud, it is especially important that the fraud be particularized as to each of them. See Lou v. ...

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