The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge
The plaintiffs, G&T Terminal Packaging Co., Inc. ("G&T"), a
corporation that purchases potatoes for sale to wholesalers and
retailers, and Anthony Spinale, the president of G&T, bring this
action in the aftermath of a bribery scandal at Hunts Point Terminal
Market in the Bronx. The plaintiffs allege that the defendants coerced
monetary payments or facilitated such extortion in violation of Section
1962(c) of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. § 1961 et sea. Certain defendants namely
the United States, the United States Department of Agriculture (the
"USDA"), and Ann M. Veneman, Secretary of the USDA (collectively, the
"Federal Defendants"), as well as Paul I. Cutler and Elias Malavet
have moved to dismiss
the Complaint pursuant to Rules (12)(b)(1) and (12)(b)(6) of the
Federal Rules of Civil Procedure.
For the reasons stated below, I recommend that the motions be granted.
G&T is a New York corporation with its principal place of business
at the Hunts Point Terminal Market. (Complaint ("Compl.") 1 29). G&T
purchases potatoes from shippers across the country and either sells them
to various wholesalers and retailers or repackages them for sale to
consumers in various supermarkets. (Compl. ¶ 29). Anthony Spinale was
the president and sole stockholder of G&T from 1964 through 2002.
(Compl. ¶ 31).
Pursuant to the Agricultural Marketing Act of 1946 (the "AMA"),
7 U.S.C. § 1622(h), the USDA provides inspection services for a fee to
wholesale produce dealers such as G&T to determine whether their
agricultural products meet the quality standards of both the shipper and
the dealer. (Compl. ¶¶ 13-14). The inspection certifies that "the
produce is free from damage due to various germs, worms and insects," as
well as other defects that would render it unsafe for consumption.
(Compl. ¶ 15). The Agricultural Marketing Service (the "AMS"), an arm
of the USDA, is responsible for issuing regulations establishing quality
grades for a wide variety of agricultural products pursuant to the
Perishable Agricultural Commodities Act (the "PACA"), 7 U.S.C. § 499a
(Compl. ¶¶ 4, 16). Any person with a financial interest in the produce
can request an inspection from a licensed USDA agricultural inspector.
(Compl. ¶¶ 17, 19). A grower or shipper of produce, for instance, may
call for an inspection before a product is delivered in order to document
its quality at its place of origin. (Compl. ¶ 19). Similarly, a
dealer may request an inspection at the time the product arrives if it
contests the quality of the product. (Compl. ¶ 19). The AMS has
exclusive jurisdiction over these inspections, and AMS inspectors act as
impartial referees in resolving disputes about the quality of delivered
produce. (Indictment in United States v. Ball, 99 Cr. 1085 ("Ball
Indictment"), attached as Exh. A to Compl., ¶ 4). The AMS inspection
office for New York City is located at the Hunts Point Terminal Market.
(Compl. ¶¶ 18, 21). An application for an inspection is generally
received by the AMS office the night before the inspection is to take
place. (Ball Indictment ¶ 9). During the inspection, the inspector
will examine random samples of the produce to determine the official AMS
grade for the shipment. (Ball Indictment ¶ 11). The inspection
certificate is filed with the AMS office at the Hunts Point Terminal
Market, and copies are provided to the applicant and the grower whose
produce is at issue. (Ball Indictment ¶ 12).
Defendants David L. Ball, William Cashin, Paul I. Cutler, Edmund R.
Esposito, Glenn A. Jones, Elias Malavet, Michael
Strusiak, Michael Tsamis, and Thomas C. Vincent (collectively, the
"Inspector Defendants") were all employed by the USDA as inspectors
assigned to the Hunts Point office during the relevant time periods.
(Compl. ¶¶ 32-40). In March 1999, William Cashin became a confidential
informant for the government and was ultimately indicted and convicted
for bribery of a public official in violation of 18 U.S.C. § 201(b).
(Compl. ¶ 41). On October 27, 1999, the other eight Inspector
Defendants were charged with engaging in a pattern of racketeering
activity with a RICO enterprise the AMS office at the Hunts Point
Terminal in violation of 18 U.S.C. § 201(b)(2) and
18 U.S.C. § 1962(c). (Compl. ¶¶ 42-48). It was alleged that these
defendants "accepted cash payments (usually $50 per lot) from owners and
employees of wholesale produce firms in exchange for agreeing to alter
the results of produce inspections by `downgrading' produce." (Ball
Indictment at 1, 7, 11, 12). On February 9, 2000, Mr. Ball, Mr. Cutler,
Mr. Esposito, Mr. Jones, Mr. Malavet, Mr. Strusiak, and Mr. Tsamis pled
guilty to bribery, and the RICO charges were dropped with respect to
these defendants. (Transcript of pleas, attached as Exh. B to Compl., at
14-15, 28). Mr. Vincent pled guilty to the RICO charge on December 13,
1999. (Transcript of Vincent plea, attached as Exh. B to Compl., at
According to the plaintiffs, "[i]t was common knowledge that for many
years complaints had been made to senior administrators in
the USDA that Receivers in the Hunts Point Market could not obtain timely
or fair inspections." (Compl. ¶ 48). Because of the bribery scheme
among the inspectors, Mr. Spinale claims that the inspection reports he
received were not accurate. (Compl. ¶ 51). For instance, when G&T
"ordered an inspection of a load of produce which they received at Hunts
Point, the inspections would not reflect the true condition of the
produce; that is, the inspections would fail to show all the defects,
decay and other existing problems in the product." (Compl. ¶ 53).
Moreover, "inspectors would not arrive to conduct the inspections in a
timely fashion," which is pertinent given the perishable nature of the
goods. (Compl. ¶ 54). Mr. Spinale attempted to report these
fraudulent inspections to AMS supervisors at Hunts Point and to AMS
officials in Washington, B.C. (Compl. ¶ 56). However, since he
required "fair and accurate inspections immediately in order to properly
run [his] business, [his] only option was to pay the inspectors."
(Compl. ¶ 58). In support of the RICO claim, the plaintiffs allege 85
specific racketeering acts committed by the Inspector Defendants. The
alleged acts span the period from November 4, 1998 through August 12,
1999, and involve payoffs ranging from $50.00 to $360.00. (Compl. ¶
86(a)-(gggg)). Six of the specifically alleged racketeering acts involve
bribes that were given to William Cashin by Mr. Spinale himself. (Compl.
¶ 86(u), (x), (tt), (ooo), (bbbb), (ffff)). Mr. Spinale was ultimately
indicted on nine counts of
bribing a public official, which included five of the incidents alleged
in the Complaint. (Indictment in United States v. Spinale, 99 Cr. 1093,
attached as Exh. D to Compl.; Compl. ¶ 86 (u), (x), (tt), (ooo),
On January 26, 2001, Mr. Spinale pled guilty to one count of bribing a
public official in violation of 18 U.S.C. § 201(b)(1)(A). (Transcript
of plea ("Plea Tr."), attached as Exh. A to Declaration of Jonathan Marks
dated September 19, 2003) ("Marks Decl."), at 2nd unnumbered page). In
his plea, Mr. Spinale stated that he "paid money to [USDA Inspector] Bill
Cashin for the purpose of influencing the outcome of his inspection
report on a load of potatoes," telling the inspector "the specific amount
I wanted him to put in the inspection report." (Plea Tr. at 10th-11th
unnumbered pages). Although Mr. Spinale has never appealed or attempted
to vacate his conviction, the plaintiffs devote a substantial portion of
the complaint in this case to a collateral attack on Mr. Spinale's guilty
plea. According to the plaintiffs, it was Mr.Spinale's "fervent desire to
go to trial with the case in order to prove his innocence of the charges,
and, in order to prove that he was extorted by the Defendant inspectors
into making the payments," but his attorney "coerced him" into pleading
guilty. (Compl. ¶¶ 64, 66). "Immediately after accepting the plea
arrangement, after having had an opportunity to think about what
happened, [Mr.] Spinale realized that he had made a grievous error,
and that he had desired all along to go to trial." (Compl. ¶ 67).
Mr. Spinale "maintains that he was not guilty of any of the charges
against him." (Compl. ¶ 68). He attempts to explain that he was
coerced into paying the bribes and did not attempt to take advantage of
the inspections to seek excessive downgrades from suppliers. (Compl.
¶¶ 59, 84). The plaintiffs argue that Mr. Spinale was "not himself" at
the time of his plea due to a "medical condition." (Compl. ¶ 66).
However, during his plea, Mr. Spinale stated that his ability to see,
hear, and understand the proceedings was not affected by any medical
condition, that he was satisfied with his attorney, and that he
understood his right to plead not guilty and go to trial; he confirmed
that he was pleading "voluntarily, . . . of [his] own free will and
choice." (Plea Tr. at 5th-10th unnumbered pages).
The Complaint contains three claims for relief. The first alleges a
RICO violation under 18 U.S.C. § 1962(c). (Compl. ¶¶ 71-153). The
Complaint states that "the association in fact of the [Federal
Defendants] and [the Inspector Defendants] constituted a "RICO'
"enterprise' within the meaning of 18 U.S.C. § 1961(4)." (Compl.
¶ 72). The defendants "engaged in a pattern of conduct which furthered
the scheme to coerce bribes, extort money, loans and illegal gratuities
from the produce Wholesalers at the Hunts Point Terminal Market."
(Compl. ¶ 72). The Complaint also alleges that the Federal Defendants
aided and abetted the Inspector
Defendants in the RICO enterprise by under-staffing Hunts Point, staffing
it with under-qualified inspectors, giving inspectors excessive
discretion in determining the produce grade, and providing insufficient
training and supervision of inspectors. (Compl. ¶ 80, 137, 140,
142-43, 145-46, 153). In the second claim for relief, the plaintiffs
allege that the Federal Defendants "breach [ed] [their] contract with
Plaintiffs" by failing to provide timely inspections without the use of
"coercion and extortion." (Compl. ¶ 154). In the third claim, they
accuse the Federal Defendants of fraud based on misrepresentations that
the government would provide "timely, fair and accurate inspections," as
well as the government's failure to inform the plaintiffs that they would
not receive fair inspections "without being subjected to extortion."
(Compl. M 161, 163-64). As a result of the alleged RICO violations, the
plaintiffs claim the following injuries: (1) "anxiety and mental anguish"
based on the coercion that motivated Mr. Spinale to plead guilty; (2)
damage to Mr. Spinale's health "as a result of his home confinement term
of one year, which was the outcome of his conviction of charges of which
he was innocent;" (3) "enormous monetary losses" suffered by Mr. Spinale
personally "as a direct and proximate result of the racketeering
activities;" (4) and "enormous losses" suffered by G&T "as a result
of the actions of the [Federal Defendants], and the actions of the
[Inspector Defendants]." (Compl. ¶¶ 149-52). The total amount of
alleged to be "in the hundreds of thousands of dollars." (Compl.
The defendants have moved to dismiss the Complaint pursuant to Rules
12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure "A case is
properly dismissed for lack of subject matter jurisdiction under Rule
12(b)(1) when the district court lacks the statutory or constitutional
power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d
Cir. 2000). Although the court must afford the complaint a "broad and
liberal" construction, "argumentative inferences favorable to the party
asserting jurisdiction should not be drawn." Cole v. Aetna Life &
Casualty, 70 F. Supp.2d 106, 109 (D. Conn. 1999) (internal quotation
marks and citation omitted); see also Klein & Vibber, P.C. v. Collard
& Roe P.C., 3 F. Supp.2d 167, 169 (D. Conn. 1998), aff'd, 201 F.3d 431
(2d Cir. 1999). The burden of proving subject matter jurisdiction rests
with the plaintiff, see Makarova, 201 F.3d at 113, and the court may look
to evidence outside the pleadings when determining whether the plaintiff
has met its burden. See City of New York v. Federal Deposit Insurance
Corp., 40 F. Supp.2d 153, 160 (S.D.N.Y. 1999) (citing Kamen v. American
Telephone & Telegraph Co., 791 F.2d 1006, 1011 (2d Cir. 1986)).
On a motion to dismiss pursuant to Rule 12(b)(6), the court's function
is to rule on the legal sufficiency of the claim as stated
in the complaint. See Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.
1985). A court should not dismiss a claim unless it appears "beyond doubt
that the plaintiff can prove no set of facts in support of his claim
which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46
(1957); see also Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
In deciding the motion, the court must accept the complaint's factual
allegations as true and draw all reasonable inferences in the plaintiff's
favor. Bolt Electric Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir.
1995). "[A] complaint must include only `a short and plain statement of
the claim showing that the pleader is entitled to relief.'" Swierkiewicz
v. Sorema N.A., 534 U.S. 506, 512 (2002)(quoting Fed.R.Civ.P. 8(a)(2)). A
complaint is sufficient if it "give[s] the defendant fair notice of what
the plaintiff's claim is and the grounds upon which it rests." Id.
(quoting Conley, 355 U.S. at 47).
The plaintiffs allege that this Court has subject matter jurisdiction
over their RICO claim pursuant to 28 U.S.C. § 1331 because the claim
"arise[s] under the laws and Constitution of the United States," and also
pursuant to 18 U.S.C. § 1964(c) since the claim seeks recovery for
violations of Section 1962. (Compl. ¶ 27(a), (b)). The plaintiffs
assert that subject matter jurisdiction is available for the remainder of
their claims under 28 U.S.C. § 1367(a), since the breach of contract
and fraud claims are part of
the same case or controversy as the claims arising under federal
law. (Compl. ¶ 27(c)).
Since the Federal Defendants have moved to dismiss on different grounds
from those advanced by Mr. Malavet and Mr. Cutler, I will discuss their
A. Federal Defendants' Motion to Dismiss
RICO authorizes a private cause of action for "[a]ny person injured in
his business or property by reason of a violation of section 1962."
18 U.S.C. § 1964(c). To state a claim for damages based upon a
violation of section 1962, plaintiffs must establish that "a defendant,
through the commission of two or more acts constituting a pattern of
racketeering activity, directly or indirectly participated in an
enterprise, the activities of which affected interstate or foreign
commerce." De Falco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001); see also
Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983). An
"enterprise" is defined as "any individual, partnership, corporation,
association, or other legal entity, and any union or group of individuals
associated in fact although not a legal entity." 18 U.S.C. § 1961(4).
A "pattern of racketeering activity" may be found if plaintiffs allege
"at least two acts of racketeering activity, one of which occurred after
[October 15, 1970] and the last of which occurred within ten years
(excluding any period of imprisonment) after the
commission of a prior act of racketeering activity."
18 U.S.C. § 1961(5). In addition, the United States Supreme Court has
held that RICO plaintiffs must show that "racketeering predicates are
related, and that they amount to or pose a threat of continued criminal
activity." H. J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229,
239 (1989). Predicate acts include violations of various state and
federal criminal statutes, including those prohibiting extortion, mail
fraud, wire fraud, and bank fraud. 18 U.S.C. § 1961(1). Section
1962(c) requires that the "persons" liable and the "enterprise" be
distinct entities. De Falco, 244 F.3d at 307; Bennett v. United States
Trust Co. of New York, 770 F.2d 308, 315 (2d Cir. 1985); cf. B.F. Hirsch
v. Enricrht Refining Co., 751 F.2d 628, 634 (3d Cir. 1984).
Claims for violations of RICO generally need only meet the notice
pleading requirements of Rule 8(a) of the Federal Rules of Civil
Procedure. See McLaucrhlin v. Anderson, 962 F.2d 187, 194 (2d Cir. 1992)
(extortion as predicate act); Hecht v. Commerce Clearing House, Inc.,
897 F.2d 21, 26 n.4 (2d Cir. 1990) (RICO conspiracy claim). However, any
alleged predicate acts involving fraud must be pled with the specificity
required by Rule 9(b). See Mills v. Polar Molecular Corp., 12 F.3d 1170,
1176 (2d Cir. 1993). Plaintiffs must specify the allegedly fraudulent
statements, identify the speaker, state where and when the statements
were made, and explain why the statements were fraudulent. See id.
Plaintiffs must also plead facts that give rise to a strong inference
that the defendant possessed fraudulent intent. See id.
The Federal Defendants assert that the plaintiffs' RICO claims should
be dismissed for failure to state a claim pursuant to Rule 12(b)(6). They
argue that the plaintiffs "frame their RICO claim against the [Federal
Defendants] as one of `aiding and abetting' a RICO enterprise," and that
"courts in this district have routinely declined to recognize [this] as a
cause of action." (Memorandum of Law in Support of the Federal
Defendants' Motion to Dismiss the Complaint ("Fed. Def. Memo.") at 5).
The Federal Defendants also argue ...