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INTERNATIONAL BROTH. OF TEAMSTERS v. CAREY

October 1, 2001

THE INTERNATIONAL BROTHERHOOD OF TEAMSTERS, PLAINTIFF,
V.
RON CAREY, WILLIAM HAMILTON, JERE NASH, THE NOVEMBER GROUP, INC., MARTIN DAVIS, THE SHARE GROUP, INC., MICHAEL ANSARA, BARBARA ARNOLD, CITIZEN ACTION MANAGEMENT FUND, IRA ARLOOK, CHARLES BLITZ, ROCHELLE DAVIS, COHEN, WEISS AND SIMON, AND NATHANIEL CHARNY, DEFENDANTS.



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

OPINION AND ORDER

Plaintiff, the International Brotherhood of Teamsters ("IBT"), brings this action pursuant to the Racketeering Influenced and Corrupt Organizations Act ("RICO"), alleging that Defendants defrauded the IBT of funds which were used improperly to promote Defendant Ron Carey's ("Carey") 1996 candidacy for re-election as the IBT's General President. In addition, the IBT asserts malpractice claims against Defendant Cohen, Weiss and Simon ("Cohen Weiss") and Defendant Nathaniel Charny ("Charny"). Defendants Carey and William Hamilton ("Hamilton") have moved pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss the IBT's complaint. Defendants Martin Davis, Michael Ansara, Ira Arlook, Rochelle Davis, Charles Blitz, Cohen Weiss and Charny have moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the IBT's complaint. Defendants the Share Group, Inc. and Barbara Arnold have moved pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) to dismiss the complaint. In addition, Defendants Carey and Charles Blitz have moved for sanctions against Plaintiff pursuant to Rule 11 of the Federal Rules of Civil Procedure.

For the reasons set forth below, the motions of Defendants Carey, Hamilton, Martin Davis, Michael Ansara, Barbara Arnold, Ira Arlook, Rochelle Davis, Charles Blitz and the Share Group, Inc. are granted insofar as they are brought pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The motions of Defendants Carey and William Hamilton are denied insofar as they are brought pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. The Court declines to exercise supplemental jurisdiction over the state law claims against Defendants Cohen Weiss and Charny. Given that the Court's resolution of Barbara Arnold's and the Share Group, Inc.'s motions to dismiss of pursuant to Rule 12(b)(6) is dispositive, the Court will not address their arguments under Rule 9 of the Federal Rules of Civil Procedure. The motions of Defendants Carey and Charles Blitz for sanctions under Rule 11 of the Federal Rules of Civil Procedure are denied.

BACKGROUND*fn1

In 1988, the Government filed a civil RICO action against the IBT and its leadership. In connection with the 1988 lawsuit against the IBT the Government sought, among other relief, to establish Government supervision of the election of IBT officials. Complaint, ¶ 27. In March 1989, the Government and the IBT entered into a consent decree settling the Government's claims against IBT. The consent decree provided, among other things, for direct, secret ballot, elections of IBT officers and further provided that the Court would appoint an election officer (the "Election Officer") to supervise the election in 1991 for IBT national officers and, if the Government so requested, the 1996 election. Id. ¶ 28. The consent decree also authorized court-appointed officers to investigate and sanction IBT members and officers for violations of the IBT constitution and federal law. Id. Beginning in 1992, pursuant to the terms of the consent decree, a panel called the Independent Review Board ("IRB") assumed responsibility for determining whether members or officers had violated the IBT Constitution and federal law. Id.

The Government exercised its right to have the 1996 IBT election supervised pursuant to the consent decree. Id. ¶ 30. The court gave the Election Officer authority to supervise the 1996 election and approved rules governing the conduct of the 1996 election. The election rules prohibited the use of IBT funds to promote the candidacy of any individual and barred employers from contributing to the election campaign or soliciting contributions for any candidate. Id. ¶ 31.

Defendant Carey and James P. Hoffa campaigned in the 1996 election for IBT General President. Carey was declared the winner in a close and hotly contested election. Id. ¶¶ 32-33.

Subsequently, on August 21, 1997, the Election Officer invalidated the 1996 election on several grounds, one of which was that the Carey re-election campaign had engaged in improper fund-raising that involved the use of IBT funds to promote Carey's candidacy. The Election Officer ordered a rerun election. Id. ¶ 34. In July 1998, the IRB permanently barred Carey from IBT membership after finding that Carey had violated his fiduciary duties and knowingly derived personal benefit from improper election campaign contributions in connection with the 1996 election. Id. ¶ 35. The IRB also permanently barred Defendant Hamilton from holding any office or having any employment relationship with the IBT upon finding that Hamilton had embezzled IBT funds and had brought reproach on the IBT. Id. ¶ 36.

In connection with the 1996 election, Defendants devised a scheme to defraud the IBT by causing the IBT to contribute IBT funds to certain organizations in exchange for contributions to the Carey reelection campaign by certain individuals. Id. ¶ 40. In furtherance of this scheme, Jere Nash,*fn2 after consulting with Cohen Weiss, established a fund-raising committee, Teamsters for a Corruption Free Union ("TCFU"), to accept donations to the Carey campaign. Id. ¶ 42. TCFU established a separate bank account for deposit of donations to Carey's campaign. Id. ¶ 43. Defendants Martin Davis, Michael Ansara and Charles Blitz agreed to solicit donors for Carey's re-election campaign. Id. ¶ 44. The Defendants induced donors to make contributions by promising that the IBT would make contributions to certain political organizations designated by the donors in return for contributions to the campaign. Id. ¶ 45.

Michael Ansara and Martin Davis met in furtherance of the scheme and agreed that Charles Blitz would send the donors' checks to Michael Ansara, who would hold the checks pending confirmation that a reciprocal IBT contribution had been made. Id. ¶ 46. Michael Ansara agreed that, once the IBT approved the reciprocal contribution, he would forward the donors' check to the TCFU in New York. Id. ¶ 47. Martin Davis notified Jere Nash of the scheme, who in turn contacted Defendant Hamilton. Hamilton agreed to seek Carey's approval of the IBT donations to the political organizations selected by the donors. The IBT could not make the contributions without Carey's approval. Id. ¶ 48-51.

In or about October 1996, Charles Blitz asked Defendant Rochelle Davis, the Financial and Administrative Director of Defendant Citizen Action, a lobbying organization concerned with federal, state and local issues, to request a $225,000 contribution from the IBT. Id. ¶ 55. On or about October 14, 1996, Rochelle Davis directed a Citizen Action employee to send a written request for $225,000 to Hamilton with a copy to Michael Ansara. On or about October 23, 1996, Rochelle Davis, at Hamilton's direction, sent a request to Hamilton seeking a second contribution in the amount of $250,000. The total amount requested by Citizen Action was $475,000. Id. ¶¶ 56-57.

Martin Davis thereafter asked Jere Nash to ask Hamilton to recommend to Carey that the IBT make the contributions to Citizen Action. Nash met with Carey's executive secretary in mid-October 1996 in order to explain the scheme. Then, on or about October 16, 1996, Nash spoke with Carey by telephone and explained that the IBT contributions to Citizen Action would benefit Carey's re-election campaign. Carey told Nash that he would approve the contribution to Citizen Action. Id. ¶¶ 58-61. On or about October 23, 1996, Hamilton sent Carey a memo recommending approval of the Citizen Action contributions. On or about October 24, 1996, Carey approved the check request for Citizen Action. Id. ¶¶ 62-63. In or about October 1996, the IBT contributed $475,000 in IBT General Treasury funds to Citizen Action. Id. ¶ 64.

At the time Carey approved the IBT contributions to Citizen Action, Defendant Michael Ansara sent Defendant Charny, an attorney who was then associated with Defendant Cohen Weiss, the donor contributions to TCFU, which Charny deposited in TCFU's bank account in New York City. Id. ¶¶ 66-67. Cohen Weiss was responsible for determining whether the contributions to TCFU were permissible under federal law and the elections rules promulgated pursuant to the consent decree. Id. ¶ 68. Cohen Weiss assigned Charny, a junior associate, to interview contributors to the TCFU and determine whether the donors were allowed to make the contributions. Cohen Weiss failed, however, to conduct an adequate investigation to determine whether the contributions to TCFU complied with federal law and the election rules. Id. ¶¶ 69-70.

In or about October 1996, Martin Davis asked Nash to ask Hamilton to recommend an IBT contribution to National Council of Senior Citizens ("NCSC"), an organization that promoted the interests of senior citizens. Id. ¶¶ 84-85. On or about October 16, 1996, Hamilton sent Carey a memorandum recommending that the IBT contribute $85,000 to NCSC. Carey spoke with his secretary about the contribution on the telephone and approved the request. The IBT then contributed $85,000 to NCSC. Id. ¶¶ 87-89. NCSC then sent one half of the $85,000 amount to the November Group and TCFU. Id. ¶ 91. Under the IBT election rules, employers were not eligible to contribute or solicit funds for any IBT candidate. Id. ¶ 92. Plaintiff alleges that Defendant Barbara Arnold, Michael Ansara's wife, violated the election rules by donating money to the Carey re-election campaign. Id. ¶¶ 93-94. Barbara Arnold was a director of Defendant the Share Group, a telemarketing firm that employed hundreds of people. Id. ¶ 94. Her contribution was solicited by Michael Ansara, also an employer. Id. In connection with Arnold's contribution, Martin Davis and Ansara agreed to obtain funds from the IBT to reimburse Arnold. At the same at time, Charny advised Ansara that Arnold's contribution was acceptable. Id. ¶¶ 95-96.

On November 11, 1996, Ansara arranged for Arnold to contribute $45,000 to the TCFU. On December 4, 1996, Ansara arranged for Arnold to contribute an additional $50,000 to the TCFU. Id. ¶¶ 97, 99. In order to reimburse Arnold for the contribution, Martin Davis and Ansara caused Share Consulting, Ansara's consulting business, to submit a padded invoice to the IBT for a telephone "get out the vote" campaign. Arnold was reimbursed through the excess funds paid by the IBT for the inflated bill. Id. ¶ 102. In addition, Martin Davis and Ansara agreed that Share Consulting would submit a fraudulent invoice for $75,000 to Citizen Action for consulting work that had never been performed. Id. ¶ 103. Citizen Action paid the bill, which was used to reimburse Arnold for her contribution to Carey's reelection campaign. Id. ¶¶ 103-104.

In addition to the foregoing schemes, in or about October 1996, Martin Davis sought to obtain an additional $100,000 from the IBT to pay a Carey re-election campaign debt owed to the November Group, a Washington, D.C. based consulting group that performed direct mail campaigns.*fn3 Id. ¶ 105. Plaintiff alleges that Martin Davis first attempted to have the November Group debt paid by causing IBT to make another contribution to Citizen Action, which would then have paid the November Group. Martin Davis informed Defendant Ira Arlook, Executive Director of Citizen Action, that he would raise funds from the IBT for Citizen Action if Citizen Action would use $100,000 of those funds to pay the November Group. Arlook then sent a memo to Hamilton requesting a $150,000 contribution from the IBT. Id. ¶¶ 106-107. Hamilton, however, believed that an additional contribution to Citizen Action could not be justified. Id. ¶ 108. Hamilton and Martin Davis then agreed to disguise the Citizen Action contribution by arranging with an AFL-CIO official to have the IBT contribute $150,000 to the AFL-CIO, which would then contribute $150,000 to Citizen Action. At Martin Davis' request, Nash asked Hamilton to recommend a $150,000 contribution from the IBT to the AFL-CIO. Id. ¶¶ 108-110. On or about October 31, 1996, Hamilton sent Carey a memo recommending that the IBT contribute $150,000 to the AFLCIO. Shortly thereafter, Carey spoke with his executive secretary by telephone and approved the AFL-CIO contribution. Id. ¶¶ 112-113. In or about November 1996, the IBT contributed $150,000 in IBT funds to the AFL-CIO; the AFL-CIO then sent $150,000 to Citizen Action, which used the funds to pay the expenses of the Carey re-election campaign. Id. ¶¶ 115-117.

In 1997, the Election Officer began investigating whether contributions to TCFU had violated the election rules. Id. ¶ 118. Charny attempted to cover up Defendants' actions in connection with the contributions. Plaintiff alleges that, during a telephone interview with the Election Officer, Arnold, with Charny present, stated falsely that no one had solicited her contributions. Charny did not inform the Election Officer that Arnold's statement was false and that he had spoken with Ansara about Arnold's contributions in October 1996. On or about February 20, 1997, Charny stated in an affidavit submitted to the Election Officer that he had spoken personally with each of the TCFU contributors in order to determine whether the contributions complied with federal law and the election rules. In addition, Cohen Weiss submitted a position paper, which Charny helped prepare, that falsely stated that Charny had spoken with each of the donors to TCFU to determine whether their contributions complied with the election rules and federal law and that Cohen Weiss had fully investigated the Arnold contribution. Id. ¶¶ 120-125. On or about March 19, 1997, Cohen Weiss submitted a revised position paper that purported to correct statements in the first paper. The second position paper also falsely stated that Charny had personally interviewed each of the TCFU contributors. Id. ¶¶ 126-127.

Upon conclusion of the Election Officer's investigation concerning the Carey re-election campaign's fund-raising, the Election Officer imposed sanctions against certain of the Defendants. Jere Nash, Martin Davis, Michael Ansara, the November Group and the Share Group, Inc. were barred from performing any work for the IBT or its affiliates. Id. ¶ 129. Citizen Action was barred from obtaining, or attempting to obtain contributions from the IBT or its affiliates. Id. ¶ 130. Charny was barred from any further participation in the 1996 IBT election. Id. ¶ 134. On July 27, 1998, the IRB permanently barred Carey from IBT membership and from holding any office or having any employment relationship with the IBT. Id. ¶ 135. The complaint asserts that the IRB found that Carey had violated his fiduciary duties to the IBT and had knowingly derived a personal benefit from the improper election campaign contributions. Id.

In 1998, a rerun election was held and James Hoffa was elected IBT General President. The IBT expended at least 2.2 million dollars in connection with the supervision of the 1998 rerun election. Id. ¶ 37.

Hamilton, Jere Nash, Martin Davis, Michael Ansara, Charles Blitz and Charny were subsequently prosecuted on federal criminal charges. Jere Nash, Martin Davis, Michael Ansara Charny and Charles Blitz pled guilty to some or all of the criminal charges, including mail fraud and embezzlement of IBT funds. Id. ¶¶ 137-138. Following a jury trial, Hamilton was convicted of conspiracy, embezzlement, mail fraud, wire fraud, making false statements to the Election Officer and perjury. Id. 139.

DISCUSSION

Rule 12(b)(1)

Defendants Carey and Hamilton move to dismiss the complaint pursuant to Rules 12(b)(1) and 12(b)(6). Generally, courts determine a motion to dismiss under Rule 12(b)(1) before ruling on a Rule 12(b)(6) motion to dismiss because dismissal of an action for lack of subject matter jurisdiction will render all other defenses and motions moot. See United States, ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1155-56 (2d Cir.), cert. denied, Kreindler & Kreindler v. United Technologies Corp., 508 U.S. 973, 113 S.Ct. 2962, 125 L.Ed.2d 663 (1993); see also Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir. 1990).

However, "in cases where the asserted basis for subject matter jurisdiction is also an element of the plaintiffs allegedly federal cause of action, [the court will] ask only whether — on its face — the complaint is drawn so as to seek recovery under federal law . . . If so, then we assume or find a sufficient basis for jurisdiction, and reserve further scrutiny for an inquiry on the merits." Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1189 (2d Cir. 1996) (citing Spencer v. Casavilla, 903 F.2d 171, 173 (2d Cir. 1990)). Accordingly, "when the contested basis of jurisdiction is also an element of the plaintiffs federal claim, the claim should not be dismissed for lack of subject matter jurisdiction." Rivanna Trawlers Unlimited v. Thompson Trawlers, 840 F.2d 236, 239 (4th Cir. 1988) (citing Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946)).

A plaintiff asserting a civil claim under RICO has standing if the plaintiff demonstrates "(1) a violation of section 1962; (2) injury to business or property; and (3) causation of the injury by the violation." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 767 (2d Cir.), cert. denied, 513 U.S. 1079, 115 S.Ct. 728, 130 L.Ed.2d 632 (1995) (quoting Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23 (2d Cir. 1990)). Because subject matter jurisdiction in this action is invoked by alleging an adequate federal claim under RICO, the Court "must entertain the suit unless the [RICO] claim `clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous.'" Spencer v. Casavilla, 903 F.2d at 173 (citing Bell v. Hood, 327 U.S. at 682, 66 S.Ct. 773). Plaintiffs complaint alleges a RICO violation that is neither immaterial nor insubstantial and does not appear to have been made solely for the purpose of obtaining federal jurisdiction. Thus, "`the proper course of action is for [the Court] to accept jurisdiction and address the objection as an attack on ...


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