contract and that 15% of the bulbs were not functioning. (Id.)
IV. The Alleged Scheme to Draw-Down the Letter of Credit
At this time, the remaining unpaid portion of the contract price was
approximately $228,000. (Id. ¶ 62.) The letter of credit was to
expire on July 31, 2001. (Id.) Plaintiffs allege that the following
communications reveal defendants' scheme to obtain final payment,
ultimately leading to defendants' draw-down on the letter of credit. In
an email sent on July 26, 2001, defendants attempted to characterize
Slater's July 16th email as concerning a "final check to complete the
installation," which check they might have used to argue that the
contract had been fully performed. (Id. ¶ 61, 63.) However, Slater
immediately corrected the misunderstanding in a return email by stating
that his original email represented "a list of things that are open as of
the last visit to get us to the point we can view and test 64K colors."
(Id. ¶ 63.) On July 27, 2001, Coury sent Fedele a letter, stating
that "Display Solutions is committed to completing your project next
week, starting Monday July 30th" and offered to discount the final
contract price from $228,151.72 to $171,113.79. (Id. ¶ 64.)
Plaintiffs allege that Coury's letter noted that the letter of credit was
about to expire and therefore characterized the remaining work to be done
on the sign as the routine replacement of bulbs under a warranty
agreement. (Id. ¶ 65.) Plaintiffs allege that they were not fooled
by the "warranty agreement ploy," and refused to pay the remaining
portion under the contract until the sign had been fully installed and
operational for thirty days. (Id.) When payment was not forthcoming,
plaintiffs allege that defendants then resorted to their final scheme
— the draw-down on the letter of credit.
On July 31, 2001, Rogers signed and faxed to Fleet National Bank a
"Drawing Certificate STATEMENT" certifying that the amount remaining
under the contract — $228,151.72 — was "Due and Unpaid under
the Agreement Dated May 1, 2000 and held in Escrow by a Court of
Competent Jurisdiction [sic] pending final resolution and full payment."
(Id. ¶ 66.) Fleet then sent a bank check to the law firm of
Cadwalader, Wickersham & Taft, which was "apparently then transmitted
to US Traffic but was not `put into Escrow with the Court,' as required
by the terms of the letter of credit." (Id. ¶ 67.) A few days
letter, Fleet charged plaintiffs' bank account for the requisite amount.
V. The Alleged Admissions of Fraud
The complaint alleges that, on August 13, 2001, after obtaining the
full $1.3 million, Coury met with Fedele and Slater and admitted to the
The sign could not possibly work the way it had been "designed" and
would require a completely different configuration even to have the
possibility of working. Mulligan lied when he said that Display Solutions
had built a sign of this size. Display Solutions had stopped trying to
develop a plan for the sign by August 2000. The sign, as installed, was
not capable of displaying even the most rudimentary textual messages
without "glitches." Mulligan (who by then had left the company) "had
defrauded FD Property Holding from the beginning of their contacts."
"Coury would do nothing more, since his hands `were tied by the owner,'
presumably defendant Rogers, who controlled US Traffic and Display
Solutions." (Id. ¶ 68.)
On August 24, 2001, Coury sent Fedele an email letter, allegedly
admitting that he and Rogers "had never intended to honor the obligations
under the contract." (Id.
¶ 69.) The letter, which was copied to Rogers, stated the following:
Sometimes the most difficult thing to do is tell a
client the product he has received meets the criteria
the manufacturer intended to provide. I know your
expectations for your sign far exceed what Display
Solutions intended to provide for the agreed upon
price. As you are well aware the technology required
to meet your expectations is currently available in
the market. We could hire a third party to convert our
ISO slots to the faster PCI slots. This would require
an additional charge of $98,000 and approximately 6
months of intense development time.
If you agree let me know so that we can proceed
immediately. Based on all the information currently
available I am convinced this added feature would then
meet your expectations.
(Id.) Plaintiffs rejected Coury's offer, and, instead, filed the present
In the complaint, plaintiffs first cause of action alleges a violation
of Section 1962(c) of the RICO Act in that each defendant participated
in the scheme to obtain the contract through deliberate
misrepresentations, to collect the amount specified therein by hiding
facts or making misleading or false statements about Display Solutions'
experience, expertise and progress, and all defendants with the exception
of Mulligan participated in the scheme to draw-down the letter of credit
through fraudulent misrepresentations. (Id. ¶ 78.) Plaintiffs allege
that defendants executed these scheme by using the mail and wires in
violation of the federal mail-fraud and wire-fraud statutes. (Id.)
Plaintiffs' second cause of action alleges a RICO conspiracy in violation
of Section 1962(d) of the RICO Act. (Id. ¶ 82-84.) Plaintiffs'
third and fourth claims allege breach of contract and fraudulent
inducement. (Id. ¶ 85-95.)
The amended complaint makes two minor changes to the RICO claim.
First, plaintiffs add a specific reference to the bank fraud statute,
18 U.S.C. § 1344 (2), in paragraph 78(b). Second, plaintiffs add the
The character of these acts shows that it was
defendants' regular way of conducting business to
misrepresent their past activities as well as their
present capabilities and to insist on letters of
credit at the beginning of a transaction, knowing
(many months or even years in advance) that they would
thus have an independent (albeit fraudulent) means to
obtain the maximum amount from the transaction.
(Id. ¶ 81.)