Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

GOLDFINE v. SICHENZIA

September 14, 2000

ERIC GOLDFINE, ERIC GOLDFINE SELF-EMPLOYED RETIREMENT PLAN AND TRUST, AND ADZA, LLC, PLAINTIFFS,
V.
MICHAEL SICHENZIA, LISA SICHENZIA, PATRICK COTTRELL, CATHERINE N. COUGHLIN, TERENCE M. COUGHLIN, FRANK E. DEESSO, BETTY GRAHN, DENISE GRAHN, DUTCHESS CAPITAL CORP., MODUTEK, INC., ELLENVILLE APARTMENTS, INC., RENWICK ROW ASSOCIATES, L.L.C., CARRERA EQUITIES, LTD., PJC EQUITIES, INC., MAIN STREET HOLDINGS USA, LTD., AEGEAN EQUITIES, LLC, ARTESIAN ABSTRACT, INC., OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, "JOHN DOE", SAID NAME BEING FICTITIOUS AND INTENDED WEST PAGE 393 TO REPRESENT ONE OR MORE UNNAMED CO-CONSPIRATORS, AIDERS AND ABETTERS, PARTICIPANTS, OR EMPLOYEES OF THE ENTERPRISE NAMED HEREIN WHOSE NAMES AND ADDRESSES ARE CURRENTLY UNKNOWN TO THE PLAINTIFFS, DEFENDANTS. MICHAEL SICHENZIA, LISA SICHENZIA, PATRICK COTTRELL, BETTY GRAHN, DENISE GRAHN, DUTCHESS CAPITAL CORP., MODUTEK, INC., ELLENVILLE APARTMENTS, INC., RENWICK ROW ASSOC., L.L.C., S/H/A RENWICK ROW ASSOCIATES, L.L.C., CARRERA EQUITIES, LTD., PJC EQUITIES, INC., MAIN STREET HOLDINGS USA, LTD., AND AEGEAN EQUITIES, LLC, THIRD PARTY PLAINTIFFS, V. CHRIS GEDNEY AND RICHARD E. GRAYSON, ESQ., THIRD PARTY DEFENDANTS.



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.

2000 WL 533293 at *1.

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.

STATEMENT OF FACTS

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. Cottrell.

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. 1).

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.

CONCLUSIONS OF LAW

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).

Of course, where the Complaint fails to properly set forth any element of a claim, the Court must dismiss the complaint. See Redtail Leasing, Inc. v. Bellezza, 1999 WL 32941 at *3, RICO Bus. Disp. Guide 9670 (S.D.N.Y. 1999) ("The Complaint must contain allegations concerning each of the material elements necessary to sustain recovery under a cognizable legal theory."). Moreover, the Court is not required to accept as true mere "conclusions of law or unwarranted deductions". First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994).

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 trendy garb.

16 F. Supp.2d at 346 (internal citations and quotations omitted).

For the reasons set forth below, Plaintiffs' action is dismissed.

I

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.
In determining fraud damages, any amount recovered by the fraudulently induced lender necessarily reduces the damages that can be claimed as a result of the fraud. Because the fraud defendant is not liable for all losses that may occur, but only for those actually suffered, only after the lender has exhausted the bargained-for remedies available to it can the lender assert that it was damaged by the fraud, and then only to the extent of the deficiency.

First Nationwide, 27 F.3d 763, 768 (2d Cir. 1994) (internal citations omitted).

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 RICO.

Id. at 1050-1052.

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 injury.

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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.