The opinion of the court was delivered by: Swain, District Judge.
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.
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.
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.
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, Nash asked Hamilton to recommend an
IBT contribution to Project Vote, an organization whose goal was
to mobilize low income and minority voters. On or about October
17, 1996, Hamilton sent a memo to Carey seeking approval of a
$75,000 contribution to Project Vote. Id. ¶¶ 71-74. On or about
October 17, 1996, Carey's executive
secretary telephoned Carey and Carey approved the request.
Shortly thereafter, Hamilton caused the IBT to donate $75,000 to
Project Vote. Id. ¶¶ 75-76. On or about October 23, 1996,
Hamilton sent a second memo to Carey asking for another
contribution of $100,000 for Project Vote. Carey's executive
secretary contacted Carey by telephone and Carey approved the
$100,000 check request for Project Vote. The IBT then donated
$100,000 to Project Vote. Id. ¶¶ 77-79. Michael Ansara then
mailed Charny the donor contributions to TCFU that Blitz had
solicited in return for the IBT's Project Vote contribution and
Charny deposited the funds in the TCFU account. Id. ¶¶ 81-82.
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
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.
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 ...