The opinion of the court was delivered by: McMAHON, District Judge.
MEMORANDUM DECISION AND ORDER DISMISSING ACTION
In the recent case of Spoto v. Herkimer County Trust, 2000 WL
533293 *1 (N.D.N.Y. Apr.27, 2000), Judge Howard G. Munson of my
sister Court made the following prescient observation:
Plaintiffs' instant action is a superlative example
of why some legal minds posit that the civil
provisions of [RICO] are the most misused statutes in
the federal corpus of law.
Judge Munson knew whereof he spoke. I surmise that every member
of the federal bench has before him or her at least one — and
possibly more — garden variety fraud or breach of contract cases
that some Plaintiff has attempted to transform into a vehicle for
treble damages by resort to what another respected jurist, Judge
Allan Schwartz of this Court has referred to as "the litigation
equivalent of a thermonuclear device" — a civil RICO suit.
Schmidt v. Fleet Bank 16 F. Supp.2d 340, 346 (S.D.N Y
1998) (quoting Miranda v. Ponce Fed. Bank, 948 F.2d 41, 44 (1st
Cir. 1991)). All too frequently, these damning actions are
commenced without the Plaintiff's (or his lawyer's) being aware
of the most fundamental
principles of the law that governs allegations of racketeering in
a civil action. This case is more of the same.
The reasons why these Plaintiffs' claims for violation of the
civil RICO statute must be dismissed are legion. The Plaintiffs
have brought their complaint prematurely, in that they have not
yet suffered any RICO injury. The complaint also fails to allege
that they were injured by reason of the use or investment of
racketeering income in a RICO enterprise, or indeed that any RICO
enterprise exists separate and apart from the acts that,
according to Plaintiffs, constitute the alleged racketeering
activity. To the extent that Plaintiffs allege mail and wire
fraud as predicate acts their contentions are legally
insufficient; and to the extent they assert that certain of the
defendants aided and abetted racketeering activity, they fail to
state a claim because the law recognizes no such claim. Finally,
to the extent they allege conspiracy, the claim fails because the
substantive counts themselves are deficient.
Plaintiffs' briefs in opposition to the pending motions to
dismiss betray either a woeful ignorance of these settled
principles of law or a blithe disregard of them. Whatever the
reason, the mere fact that Plaintiffs have appended RICO claims
to some 118 separate state law claims is not sufficient to
catapult them into federal court. The federal claims (Counts 119
and 120) are dismissed, and the Court declines to exercise
supplemental jurisdiction over those 118 state law claims.
Plaintiffs Eric Goldfine Self-employed Retirement Plan and
Trust, (hereinafter "SERPT") and Adza, LLC (hereinafter "ADZA"),
were the lenders on a series of several loans to various
defendants which were secured by mortgages and notes. The secured
loans were made between February, 1998 and January, 1999.
Plaintiff Eric Goldfine is identified in the pleadings only as
the Trustee of SERPT. There is no allegation that Plaintiff
Goldfine personally ever made any loans, or has any other
connection to the defendants with respect to this case.
The Defendants Michael Sichenzia and Lisa Sichenzia are husband
and wife. Defendant Patrick Cottrell, is a business associate of
the Sichenzias, originally introduced to them as a mortgage
broker. Mr. Cottrell and Mr. and Mrs. Sichenzia, individually or
through companies they owned, subsequently made real estate
investments, some of which are at issue in this action.
The remaining "Sichenzia defendants" include Denise Grahn, Lisa
Sichenzia's sister, and Betty Grahn, Lisa and Denise's mother, as
well as Dutchess Capital Corp., ("Dutchess"), Modutek, Inc.,
("Modutek"), Ellenville Apartments, Inc., ("Ellenville"), Renwick
Row Assoc. L.L.C., s/h/a Renwick Row Associates, L.L.C.,
("Renwick"), Carrera Equities, Ltd., ("Carrera"), PJC Equities,
Inc., ("PJC"), Main Street Holdings, USA, Ltd., ("Main Street")
and Aegean Equities, L.L.C., ("Aegean") — all of which are
entities that were or are owned by the Sichenzias and/or Mr.
The Amended Complaint alleges that loans were made by SERPT
and/or ADZA to Lisa Sichenzia, (Def. Exh A, ¶¶ 54-56, 177),
Michael Sichenzia, (Id. ¶¶ 284, 324, 362, 440, 493) Renwick,
(Id. ¶¶ 238, 410), Carrera, (Id. ¶¶ 284, 324, 362) and Main
Street, (Id. ¶¶ 440, 493).
Defendants Artesian Abstract, Inc., Catherine Coughlin and
Terence Coughlin (collectively, the Artesian defendants) are
alleged to have failed to record in a timely manner various
instruments, including mortgages, deeds, and agreements
consolidating, modifying and extending loans, all of which
document the various loans described above between Plaintiffs and
the Sichenzia defendants. Plaintiffs contend that, by failing to
timely record these instruments, the Artesian defendants lost
priority on certain mortgages, and certain of the properties were
purchased by third parties without any notice of encumbrance.
According to Plaintiffs' Civil RICO Statement, the Artesian
defendants' actions allowed the Sichenzia defendants to "default
on the loans, obtain additional monies from third parties who
took title to the property or gave mortgages without constructive
knowledge of Plaintiffs' (supposedly) prior liens." (Plaintiffs'
Civil RICO Statement, Def. Exhibit B, at p. 24).
Defendant Old Republic National Title Insurance Company,
through its agent, Artesian Abstracts, allegedly caused mortgage
priority insurance policies to be issued with respect to the
various mortgaged properties. In the main, it appears that Old
Republic is alleged to be vicariously liable for the actions of
Artesian and the Coughlins.
Defendant Frank DeEsso is an attorney. He represented various
of the Sichenzia defendants and/or Artesian (it is not clear
which, or whether the client differed in different deals) in
connection with some of the loan transactions at issue. DeEsso
allegedly took various actions in connection with those
presentations, including the provision of opinion letters, that
Plaintiffs allege were wrongful as to them, even though DeEsso
was not Plaintiff's lawyer.
Plaintiffs allege, in wholly conclusory fashion, that these
various co-defendants were involved in an "enterprise" under
18 U.S.C. § 1962 (the "RICO Statute"), and that they purportedly
engaged in the extensive series of real estate transactions with
the Plaintiffs that are documented in the complaint for the
sole purpose of "obtain[ing] monies from the Plaintiffs under
false pretenses" (Def.Exh. B, § 5[e], p. 25). The Complaint and
the RICO Statement allege violations of 18 U.S.C. § 1962(a),
(c), and (d). (Def. Exh. A, ¶¶ 529-545, pp. 86-89; Exh. B, § 1 p.
Plaintiffs originally alleged that Michael Sichenzia, Lisa
Sichenzia and Patrick Cottrell were the only "members" of the
enterprise. (Exhibit "B", § 5[e], p. 25). In an Amended Civil
RICO Statement, they added the Artesian defendants also members
of the enterprise. (§ 5(e), Amended Civil RICO Statement).
Plaintiffs nebulously describe the remaining Sichenzia defendants
and everybody else as being "associated with the alleged
enterprise". (Def.Exh. B, § 5[d], p. 25), although in the Amended
Civil RICO statement DeEsso is described as being "employed by
all the members of the Enterprise." At section 5(b)(A) of their
original Civil RICO Statement, Plaintiffs further describe the
defendants other than Michael and Lisa Sichenzia and Patrick
Cottrell as "corporate shells of the defendants, participants, or
aiders and abetters [sic], in the scheme, employed by the
enterprise, or  liable for the activities of the enterprise".
(Def.Exh. B, pp. 3-4).
The complaint alleges, in addition to substantive violations of
Sections 1962(a), (c) and (d) of RICO, numerous violations of
State law, sounding in fraud, breach of contract, negligence and
breach of fiduciary duty.
On a motion pursuant to FRCP 12(b)(6), a Complaint should be
dismissed when it fails to state a claim upon which relief can be
granted. Although the factual allegations of this pleading are
presumed to be true, and the non-moving party is entitled to all
reasonable inferences, a pleading fails to state a cause of
action where it appears beyond doubt that the Plaintiff can prove
no set of facts which would entitle him to relief. See, H.J.
Inc., v. Northwestern Bell Telephone Co., 492 U.S. 229, 109
S.Ct. 2893, 106 L.Ed.2d 195 (1989). For those purposes, the Civil
RICO statement is deemed to be part of the Complaint. See A.
Terzi Productions, Inc. v. Theatrical Protective Union,
2 F. Supp.2d 485, 508 n. 16 (S.D.N.Y. 1998).
This Court looks with particular scrutiny at Civil RICO claims
to ensure that the Statute is used for the purposes intended by
Congress. In an exhaustive examination of the Court's role in
such cases, Judge Schwartz stated in Schmidt:
In considering RICO claims, courts must strive to
achieve results consistent with Congress's goal of
protecting legitimate businesses from infiltration by
organized crime. As one district court within this
circuit has stated, Civil RICO is an unusually potent
weapon — the litigation equivalent of a thermonuclear
device. Because the mere assertion of a RICO claim .
. . has an almost inevitable stigmatizing effect on
those named as defendants, . . . courts should strive
to flush out frivolous RICO allegations at an early
stage of the litigation. To this end, a court's focus
must be to ensure that RICO's severe penalties are
limited to enterprises consisting of more than simple
conspiracies to perpetuate the acts of racketeering.
Thus, courts must always be on the lookout for the
putative RICO case that is really nothing more than
an ordinary fraud case clothed in the Emperor's
16 F. Supp.2d at 346 (internal citations and quotations omitted).
For the reasons set forth below, Plaintiffs' action is
PLAINTIFF HAS NOT YET SUFFERED ANY COGNIZABLE RICO DAMAGES AND
THE COMPLAINT IS PREMATURE
Plaintiffs admit in their Amended Complaint, as well as their
Civil RICO Statement, that each and every loan was secured by a
mortgage and note, most of which bind the individual Sichenzia
defendants personally. They also admit that each mortgage was
insured through defendants Old Republic and/or Artesian Abstract.
However, Plaintiffs have made no effort to enforce those rights
prior to instituting this action. Nonetheless, Plaintiffs allege
that they were "deprived of money or property", as a result of
the alleged acts of the Defendants, totaling the full amount of
proceeds of each and every loan (Def. Exh B, § 12[a]). Because
the Plaintiffs have not exhausted the bargained-for remedies,
which they admit are available to them, they have not satisfied
RICO's requirement of alleging damages that are clear and
definite. As a result, Plaintiffs lack standing to sue under
RICO, and their claims must be dismissed.
In First Nationwide, the Second Circuit Court of Appeals
addressed the issue of the ripeness of First Nationwide's alleged
RICO damage claims on unforeclosed loans. The Court first
reviewed the applicable law relating to fraud damages in general:
The general role of fraud damages is that the
defrauded Plaintiff may recover out-of-pocket losses
caused by the fraud. In this case, the damages issue
arises in the specific context of a fraudulently
induced loan. In such cases, although the loan is
procured through fraud, any amounts paid on the debt
reduce the amount the Plaintiff can claim as damages
resulting from the fraud. Thus, the amount of loss
cannot be established until it is finally determined
whether the collateral is insufficient to make the
Plaintiff whole, and if so, by how much.
First Nationwide, 27 F.3d 763, 768 (2d Cir. 1994) (internal
Applying the general rule specifically in RICO context, the
Court in First Nationwide held:
The rule of fraud damages described above has been
adopted by this Court in the context of deciding
whether a defrauded Plaintiff has standing under
RICO. A RICO Plaintiff only has standing if, and can
only recover to the extent that, he has been injured
in his business or property by the conduct
constituting the violation. Furthermore, as a general
rule, a cause of action does not accrue under RICO
until the amount of damages becomes clear and
definite. Thus a Plaintiff who claims that a debt is
uncollectible because of the defendant's conduct can
only pursue the RICO treble damages remedy after his
contractual rights to payment have been frustrated.
Id. (internal citations and quotations omitted).
Similarly, in Burke v. Dowling, 944 F. Supp. 1036 (E.D.N Y
1995), the Court dismissed the RICO claims of the "creditor
Plaintiffs" because of their failure to plead frustration of
their contractual rights:
Based on a careful reading of the Amended Complaint,
the Court concludes that in this case, the creditor
Plaintiffs have not adequately alleged such
frustration of their contractual rights, and that
their RICO claim is not yet ripe.
[T]here remains — so far as the Court can tell from
the pleadings — a real possibility that the creditor
Plaintiffs may be able to recover all or part of
their losses. Yet they have not chosen to do so
through the traditional legal means available to
them. Rather, they seek to recover three times what
they are owed by application of the Federal
Anti-racketeering Statute . . . Until these
Plaintiffs can demonstrate that the orthodox methods
of recovery have failed them, and that defendants'
acts of racketeering have in fact caused them a loss,
they should not be entitled to treble damages under
In the instant case, the Plaintiffs admit that there are
mortgages and notes underlying the subject loans. However,
nowhere do Plaintiffs allege that they made any effort whatsoever
to recover their alleged losses, or even any part of such losses,
by seeking to enforce any of their admitted contractual rights.
Plaintiffs cannot claim that their loans are uncollectible
before making any effort to collect them "through the
traditional legal means available to them". Burke, 944 F. Supp.
at 1051. The Plaintiffs' conclusory allegations that the notes,
mortgages, and insurance policies underlying their loans are
unenforceable, and that the debts are therefore uncollectible,
are, simply put, legal conclusions that must be reached by a
court of competent jurisdiction before they will suffer any RICO
Plaintiffs' 118 separate State law claims sounding in breach of
contract, breach of fiduciary duty, negligence, gross negligence,
constructive trust, conversion and fraud are the very claims that
Plaintiffs must pursue in order to determine whether or not they
suffered any injury compensable under RICO. Plaintiffs cannot
come to this Court, with only a RICO claim as a jurisdictional
predicate, and obtain adjudication of the State law claims that
are a necessary predicate to ripeness and standing under the very
statute they claim gives this Court jurisdiction in the ...