The opinion of the court was delivered by: Sweet, D.J.
In three separate motions, defendants Congregation Kahl Minchas Chinuch ("KMC"), Chaim Babad ("Babad"), C. Babad Management, LLC and Babad Management Co. (collectively,"Babad Management"), Sheldon Becker ("Becker"), Alan Berenbaum ("Berenbaum"), Rick Lesch ("Lesch"), the Board of Managers of the Atrium Condominium (the"Atrium Board"), Signature Properties NY, LLC ("Signature"), Alon Vaknin ("Alon"), Blake Vaknin ("Blake"), Linda Coughlin ("Coughlin") and Metro-Home NY LLC ("Metro-Home") (sued herein as A Hospitality Co. Inc. ("Hospitality") d/b/a/ Metro-Home.com ("Metro-Home.com")) (collectively,"Defendants") have moved to dismiss the complaint of plaintiff West 79th Street Corp. ("W79") pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, the motions are granted, and this case is closed.
W79 is a corporation organized under the laws of the State of New York with its principal place of business at 276 Fifth Avenue, Suite 708, New York, New York.
The Atrium Board is alleged to be the statutory representative of The Atrium Condominium ("The Atrium" or the"Cond-op"), a condominium/cooperative created pursuant to a Declaration of Condominium recorded on April 17, 1984 (the"Declaration"), and located at 160 Bleeker Street, New York, New York. The Cond-op consists of a Commercial Unit and a Residential Unit.
KMC is alleged to be a not-for-profit religious corporation organized under the laws of the State of New York as a domestic not-for-profit organization. KMC is owned and/or controlled by Babad.
Babad is an individual residing in Brooklyn, New York. He is alleged to be President of the Atrium Board as well as President of the Board of Directors of the Residential Unit (the"Residential Unit Board") and the owner of Babad Management.
C. Babad Management, LLC, is alleged to be a corporation organized under the laws of the State of New York. Babad Management Co. is allegedly a domestic business whose address is in Brooklyn, New York.
Becker is an individual residing in Brooklyn, New York, who, it is alleged, previously resided at The Atrium and is a member of the Atrium Board and of the Residential Unit Board. He is allegedly employed by Babad Management.
Berenbaum is an individual residing in New York, New York, and an alleged member of the Atrium Board and of the Residential Unit Board.
Lesch is an individual residing in Scarsdale, New York, who is alleged to have previously resided at The Atrium and to be a member of the Atrium Board and of the Residential Unit Board.
Signature is alleged to be a domestic business whose corporate address is care of Alon in New York, New York. Alon and Blake are individuals both residing in New York, New York and both are alleged to be principals of Signature.
Metro-Home is alleged to be a domestic business with offices located at 515 Madison Avenue, New York, New York. Coughlin is an individual residing in New York, New York, and an alleged principal of Metro-Home.
W79 commenced this action on October 31, 2003,*fn1 alleging, as a first cause of action against all Defendants and the basis for this Court's subject matter jurisdiction under 28 U.S.C. § 1331, civil violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), as codified in 18 U.S.C. § 1962. The complaint further asserts claims against KMC, Babad, Babad Management, Becker, Berenbaum, Lesch, and the Atrium Board (collectively, the"Board Defendants") for breach of fiduciary duty, breach of contract and of the implied covenant of good faith and fair dealing, ultra vires acts, an accounting, and conversion, and seeks a declaratory judgment. A final claim of common-law trespass is asserted against all Defendants.
Signature, Alon, and Blake (collectively, the"Signature Defendants"), and Coughlin and Metro-Home (collectively, the"Metro-Home Defendants") separately moved to dismiss W79's complaint on December 22, 2003, on the grounds that W79 failed to state a RICO claim against them, failed to satisfy Fed. R. Civ. P. 9(b) in its RICO claim, and, with regard to the Metro-Home Defendants, failed to state a claim for common-law trespass against them. The Board Defendants thereafter filed a motion to dismiss W79's complaint raising similar grounds. Following further briefing by the parties, oral arguments were heard on March 24, 2004, at which time the motions were deemed fully submitted.
The following facts are drawn from W79's complaint and do not constitute findings of fact by the Court.
According to the complaint, the Cond-op is a two-unit condominium/cooperative located in Greenwich Village, consisting of a Commercial Unit owned by W79 and a Residential Unit owned by a coop corporation named 160 Bleeker Street Owners Corp. (the"Coop Corporation"). The Commercial Unit consists of space in the basement and first floor of the building, including several retail stores, two apartments and space in the ground floor cellar which contains a club or theater space and storage spaces for the retail stores above. The Residential Unit consists of 189 apartments on floors 2 through 10 of the Cond-op.
The Cond-op, it is alleged, is governed by the Declaration and By-Laws that were filed with the State of New York at the time of conversion of the property into a Cond-op in 1984. Pursuant to the Cond-op's By-Laws, the affairs of the Condominium are to be governed by the Board, which at all relevant times was comprised of Babad, Becker, Lesch, Berenbaum, as well as a single representative from W79's Commercial Unit. Pursuant to Section 9(a) of the Declaration,"[n]o commercial business shall be permitted in the Residential Unit." (Compl. at ¶ 50 (internal quotation marks omitted).)
W79 alleges that in or about 1984, 160 Bleeker Street Associates, the original coop sponsor, converted the building from a rental building into a cooperative apartment complex pursuant to an Offering Plan for the Cooperative Ownership of the Residential Unit of the Atrium Condominium (the"Offering Plan") filed with the Attorney General of the State of New York. The Offering Plan was subsequently amended to a non-eviction plan. Of the 189 apartments in the Residential Unit, 115 of the apartments (the"Unsold Shares") are owned by KMC, a successor to 160 Bleeker Street Associates. Babad purchased these 115 Unsold Shares through KMC in or about March 1995. KMC is owned by Babad, whose father founded KMC in the 1950's.
As part of the transaction to purchase the unsold shares, according to the complaint, Babad insisted that the Coop Corporation discharge existing building management and instead retain Babad Management to manage the property. The Coop Corporation, acting in the name of the Cond-op Board, executed a contract with Babad Management to run the building. Babad Management named Becker to be responsible for management of the building.
Babad is alleged to have acted in violation of the Cond op's By-Laws and the Offering Plan in various ways, including by exercising voting control over the Residential Unit Board since taking controlling ownership of the Residential Unit and electing and appointing his own Residential Unit Board, including himself, Becker, Berenbaum and Lesch. It was on this basis that Babad was able to take control of the Atrium Board pursuant to Article III, § 1 of the By-Laws, which provides that the Residential Unit has the right to designate four members of the Atrium Board.
Becker, Berenbaum and Lesch are all allegedly beholden to and controlled by Babad. Becker is employed by Babad's management company and Berenbaum and Lesch also receive financial remuneration from Babad or entities controlled by Babad.
According to the complaint, the Board Defendants' control of both the Residential Unit Board and the Atrium Board has allowed them to operate a"short stay" hotel in The Atrium, and they have combined apartments (a structural modification) in violation of the Declaration and applicable law. It is alleged upon information and belief that KMC and Babad purchased the Unsold Shares for the purpose of retaining the Unsold Shares and leasing apartments and/or operating a hotel while sheltering the profits through a tax-exempt religious corporation, KMC, for the benefit and profit of all Defendants.
Signature and Metro-Home, through the control of Alon, Blake and Coughlin, are alleged to be acting in concert with the Board Defendants and to be facilitating the advertising and booking of Babad's apartments through the use of the World Wide Web. Signature is further alleged to be a party to the Board Defendants' violations of the Declaration, By-Laws and Certificate of Occupancy, inter alia, through its maintenance of an office at 160 Bleeker Street in a suite that Signature rents from Babad through KMC or owns as a result of a transfer from Babad or KMC.
It is alleged upon information and belief that KMC's tax exempt status as a religious corporation allows"them" to avoid paying various state and local taxes that a hotel would normally pay. (Compl. at ¶ 83.) It is further alleged upon information and belief that none of the proper fire and safety permits necessary to run a hotel have been procured.
W79 claims that it has been injured as a result of the alleged hotel operation in that the purported hotel operation damages the interests of W79 as owner of the Commercial Unit, leads to increased wear and tear, thereby causing Defendants to charge higher maintenance fees assessed in the form of common charges, and decreases the value of the property. W79 further claims that increased fees have resulted from expenses such as maid service and towel service necessitated by the claimed hotel operation and that W79 has been injured by the hotel operation insofar as its apartment has been used to run the hotel housekeeping services, thus interfering with its property rights and depriving W79 of rental income. W79 also alleges that it has been forced to incur the expense of over $1 million in infrastructure improvements and repairs.
In considering a motion to dismiss pursuant to Rule 12(b)(6), Fed. R. Civ. P., the court should construe the complaint liberally,"accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor," Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (citing Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001)), although"mere conclusions of law or unwarranted deductions" need not be accepted. First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994)."The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). Dismissal is appropriate when"it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief." Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir. 2000).
I. W79 Has Not Adequately Pled a Violation of the RICO Statute
W79's first cause of action against Defendants arises under RICO, which provides a private right of action for"[a]ny person injured in his business or property by reason of a violation of Section 1962 [of Title 18]." 18 U.S.C. § 1964(c). W79 has alleged that Defendants violated Section 1962(a), Section 1962(c), and Section 1962(d).*fn2
Section 1962 provides, in relevant part:
(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce....
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity....
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), ...