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FLEISHMAN v. HYMAN

United States District Court, S.D. New York


September 30, 2004.

BARTON FLEISHMAN, as Assignee of Mir-Bar Realty Corporation CO Miriam Fleishman, Howard Fleishman, Plaintiff,
v.
VICTORIA PESLAK HYMAN, ET AL., Defendants.

The opinion of the court was delivered by: KEVIN FOX, Magistrate Judge

REPORT AND RECOMMENDATION

TO THE HONORABLE GEORGE B. DANIELS, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

  Plaintiff Barton Fleishman ("Fleishman") filed this action pro se, as the assignee of Mir-Bar Realty Corporation ("Mir-Bar"), alleging usury and violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq., ("RICO" or "RICO Act") against defendants Victoria Peslak Hyman ("V. Hyman"); Platinum Designs, Inc. ("Platinum Designs"); Steven Hyman ("S. Hyman"); Bruce D. Friedberg ("Friedberg"); Friedberg & Associates ("F&A"); Jack Hollander ("Hollander"); Robert L. Rattet ("Rattet"); Jonathan S. Pasternak ("Pasternak"); Rattet, Hollander & Pasternak, L.L.P. ("RHP"); Northern Equity, Inc.*fn1 ("Northern Equity"); Lawrence I. Linksman ("Linksman"); Bridge Funding, Inc. ("Bridge Funding"); New York Urban, Inc. ("New York Urban"); Fundex Capital Corporation ("Fundex"); Liberty Finance Corporation ("Liberty Finance"); and Anglo African Shipping Company of New York, Inc. ("Anglo African") (collectively, "defendants").*fn2 The defendants have all filed motions to dismiss the complaint, pursuant to Fed.R. Civ. P. 9(b) and 12(b)(6). S. Hyman, V. Hyman, and Platinum Designs (collectively, "Hyman defendants") have also moved for sanctions, pursuant to Fed.R. Civ. P. 11 ("Rule 11").

  II. BACKGROUND

  The plaintiff alleges that in 1997, Mir-Bar sought to prevent the sale, upon a foreclosure judgment, of real estate it owned, located at 27-A Harrison Street, New York, New York ("Property"). According to the complaint, Mir-Bar was referred by Hollander to Linksman for assistance in this effort, and Linksman, in turn, referred Mir-Bar to V. Hyman. For these referrals, Hollander and Linksman allegedly demanded fees of $25,000 each, and were paid $25,000 and $12,500, respectively, by Mir-Bar.*fn3 On April 4, 1997, Mir-Bar entered into an agreement with V. Hyman ("Hyman Agreement"),*fn4 the text of which is incorporated into the complaint and a copy of which is attached thereto. According to the Hyman Agreement, Mir-Bar arranged for V. Hyman to purchase the mortgage, note and foreclosure judgment for the Property from their previous holder. In exchange for a one-time payment of $85,000 and eleven monthly payments of $9,375 by Mir-Bar to V. Hyman, the Hyman Agreement granted Mir-Bar the right, for a period of one year, to purchase the mortgage, note and foreclosure judgment from V. Hyman for $750,000, plus an amount equal to certain costs incurred by V. Hyman in purchasing these instruments from their previous holder. Additionally, the Hyman Agreement required Mir-Bar to place in escrow, inter alia, a fully executed deed transferring title of the Property to V. Hyman. The escrowed items were to be held by Friedberg, an attorney who was an agent of V. Hyman. The complaint characterizes the Hyman Agreement as a $750,000 loan and the payments by Mir-Bar to V. Hyman, Hollander and Linksman as interest. The complaint also alleges that, pursuant to the Hyman Agreement, Fleishman placed certain "equities" in escrow, whose total value was $300,000.

  According to the complaint, Mir-Bar also owned A Café, a business that operated in Manhattan and which was under bankruptcy protection in early 1998. The plaintiff alleges that the bankruptcy court issued an order that would have resulted in the dismissal of the bankruptcy petition had Mir-Bar deposited $125,000 with that court on or before February 5, 1998, at 5:00 p.m. ("bankruptcy order"). Mir-Bar entered into an agreement with Bridge Funding ("Bridge Agreement"), under which Bridge Funding was to lend Mir-Bar $350,000,*fn5 to be used, in part, to make the payment required by the bankruptcy order. The complaint alleges that Linksman, who was president of Bridge Funding, entered into the Bridge Agreement "through his companies," defendants Bridge Funding, Fundex, Liberty Finance and Anglo African. The Bridge Agreement also required Mir-Bar to pay to Bridge Funding a commitment fee of $21,000, of which $3,500 was paid immediately. The Bridge Agreement also required that the loan be secured by a second mortgage upon the Property, and by unspecified assets owned by the plaintiff and Miriam Fleishman, valued at no less than $250,000. The terms of the Bridge Agreement permitted Bridge Funding to cancel that agreement if Mir-Bar did not meet these security requirements.

  According to the complaint, Linksman demanded that the equities owned by Fleishman that were being held in escrow, pursuant to the Hyman Agreement, be released to Bridge Funding. The complaint alleges that S. Hyman demanded a fee of $100,000 in exchange for the release of the equities.*fn6 Mir-Bar alleges that because it refused to pay this fee, Bridge Funding advised Mir-Bar by telephone on the morning of February 5, 1998, that the Bridge Agreement was canceled and that Bridge Funding would retain the $3,500 commitment fee paid to it by Mir-Bar.

  The plaintiff alleges that, later that day, Friedberg contacted Mir-Bar by telephone and offered to deposit the required funds with the bankruptcy court by the end of the day if Mir-Bar agreed to deed the Property to V. Hyman. Mir-Bar rejected this offer.

  Thereafter, according to the complaint, V. Hyman declared the Hyman Agreement to be null and void, and caused a foreclosure sale of the Property to be scheduled for February 24, 1998. The complaint alleges that Friedberg demanded — apparently on V. Hyman's behalf — a payment of $850,000 in order to satisfy the mortgage on the Property. Mir-Bar, which had obtained funds from another source, paid that amount to V. Hyman on February 19, 1998, in satisfaction of the mortgage and note that encumbered the Property.*fn7

  The complaint claims that defendants' actions constitute: 1) usury; 2) violations of New York, New Jersey, California, Arizona and Pennsylvania criminal laws proscribing extortionate credit transactions; and 3) violations of federal criminal laws against mail fraud and wire fraud. In support of the mail fraud and wire fraud allegations, the plaintiff alleges that the defendants made use of the mails, the telephone and other wire communication facilities for the purpose of defrauding Mir-Bar. The complaint contends further that the defendants' conversion of escrow funds to their own use violated an unspecified "State Statute" against theft.

  In further support of his RICO claims, the plaintiff also makes the following allegations: 1) V. Hyman is an enterprise, and all of the defendants, collectively, are an enterprise, within the meaning of 18 U.S.C. § 1961; 2) the defendants' alleged violations of state criminal laws occurred on more than one occasion, within the ten year period preceding the filing of the complaint, and constitute a pattern of racketeering activity, in violation of 18 U.S.C. § 1962; 3) the defendants' alleged violations of federal mail fraud and wire fraud statutes occurred on more than one occasion, within the ten year period preceding the filing of the complaint, and constitute a pattern of racketeering activity, in violation of 18 U.S.C. § 1962; and 4) the defendants "used income derived from a pattern of racketeering activity in the operation of business."

  Also included in the complaint are allegations that the defendants conspired to violate the RICO statute, in violation of 18 U.S.C. § 1964(c), and that the defendants are each liable as principals because they "aided, abetted, [c]ounseled, commanded, induced or procured the commissions of the violations" of the federal mail fraud, wire fraud, and RICO statutes.

  On January 27, 2000, the district judge then assigned to this action issued an order directing the plaintiff to file a RICO statement no later than February 28, 2000 ("RICO Order"). Thereafter, the plaintiff filed an undated RICO statement, which the docket sheet maintained for this action by the Clerk of Court indicates was filed on March 7, 2000. Attached to the RICO statement is a certificate of service indicating that the plaintiff served the RICO statement upon his adversaries on February 24, 2000.

  In the instant motions, the defendants contend, inter alia, that: 1) the plaintiff has not pleaded adequately that he is the assignee of Mir-Bar's claims against the defendants and, therefore, this court lacks subject matter jurisdiction over the claims asserted in the complaint; 2) the defendants' alleged violations of state laws do not constitute a pattern of racketeering activities within the meaning of 18 U.S.C. § 1961; 3) the plaintiff's allegations, that the defendants committed mail fraud and wire fraud, are not pleaded with the specificity required by Fed.R. Civ. P. 9(b); 4) the plaintiff's allegations of conspiracy are too general and, thus, are insufficient to support the claim that the defendants conspired to violate the RICO statute; and 5) the plaintiff failed to file his RICO statement timely and, therefore, pursuant to the terms of the RICO Order, the plaintiff's RICO claims should be dismissed with prejudice. In addition, all defendants contend that the plaintiff's usury claim, which is based on state law, should be dismissed, although they urge the court to do so for different reasons: Some defendants contend that the claim should be dismissed because the plaintiff has failed to state a claim upon which relief can be granted. Other defendants maintain that, instead of, or in addition to the reason noted above, if the RICO claims are dismissed, the court should decline to exercise supplemental jurisdiction over the usury claim and should dismiss it for that reason. Furthermore, the Hyman defendants contend that Fleishman should be sanctioned, pursuant to Rule 11, for making frivolous RICO claims and for invoking the subject matter jurisdiction of this court improperly.

  The plaintiff submitted several affirmations in response to the motions to dismiss the complaint. In them, the plaintiff contends that: 1) he has standing to maintain this action against the defendants as the assignee of Mir-Bar; 2) the complaint sets forth a prima facie case of RICO Act violations, by alleging that the defendants engaged in a pattern of racketeering activity and that the defendants collected an unlawful debt; and 3) the Hyman Agreement was, in effect, a loan, and the payments alleged to have been demanded of Mir-Bar, by the various defendants, were usurious interest charges. The plaintiff's affirmations also state that he sent his RICO statement to the court by Federal Express and that it was received by the Clerk of Court on February 25, 2000. The affirmations indicate that, thereafter, the RICO statement was forwarded to the Pro Se Office of the court. Attached to the plaintiff's affirmations is a copy of a Federal Express air bill. It bears the February 28, 2000 "RECEIVED" stamp of the Pro Se Office of this court. Accordingly, the plaintiff maintains that the RICO statement was filed timely. The plaintiff maintains further that, because his pleadings are legally sufficient, there is no basis upon which to sanction him pursuant to Rule 11, as the Hyman defendants demand

  III. DISCUSSION

  Motions to Dismiss

  A court may dismiss an action pursuant to Fed.R. Civ. P. 12(b)(1), for lack of subject matter jurisdiction, or Fed.R.Civ. P. 12(b)(6), for failure to state a claim upon which relief can be granted, only if "it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff can prove no set of facts which would entitle him to relief." Jaghory v. New York State Dept. of Education, 131 F.3d 326, 329 (2d Cir. 1997). In considering a motion pursuant to these rules, "the court must accept all factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff." Id. The court may also consider all papers and exhibits appended to the complaint, as well as any matters of which judicial notice may be taken. See Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1092 (2d Cir. 1995). Furthermore, in a case such as this, in which the plaintiff is a pro se litigant, a court must be mindful that the plaintiff's pleadings "are [to be] held `to less stringent standards than formal pleadings drafted by lawyers.'" Hughes v. Rowe, 449 U.S. 5, 9, 101 S. Ct. 173, 176 (1980) (quoting Haines v. Kerner, 404 U.S. 519, 520, 92 S. Ct. 594, 595 [1972]).

  1. Standing

  Some of the defendants contend that the court lacks subject matter jurisdiction over this action because any harm suffered as a consequence of the conduct attributed to the defendants was suffered by Mir-Bar, not by Fleishman and, furthermore, Fleishman has not alleged sufficiently that he is the assignee of Mir-Bar's claims.

  "It is clear law that an assignee steps into the shoes of the assignor and gains only that to which the assignor is entitled." Bronx Entertainment v. St. Paul's Mercury Ins., 265 F. Supp. 2d 359, 361 (S.D.N.Y. 2003). Fed.R. Civ. P. 8(a) requires that "[a] pleading which sets forth a claim for relief . . . contain . . . a short and plain statement of the grounds upon which the court's jurisdiction depends. . . ." However, "the caption of the complaint is not part of the statement of the claim under Rule 8," but rather "is something apart, being mandated by a different rule: Fed.R. Civ. P. 10." Marsh v. Butler County, Ala., 268 F.3d 1014, 1024 n. 4 (11th Cir. 2001).

  In this action, the caption of the complaint states that Fleishman is the assignee of Mir-Bar, but the text of the complaint makes no allegations regarding the assignment of Mir-Bar's claims to Fleishman. However, the complaint appears to use the word "plaintiff" to refer to Mir-Bar, rather than to Fleishman, whom the complaint typically references by name. Although not accurate, this nomenclature suggests that Fleishman is asserting the claims of Mir-Bar, and does not purport to assert claims of his own. In such a circumstance, it "may . . . sometimes be useful to look at the caption — when the Rule 8 statement of a claim is ambiguous about a party's capacity — to settle pleading ambiguities." Id. The caption of the instant complaint makes clear the ground upon which Fleishman's standing to assert Mir-Bar's claims rests. Thus, the purpose of Fed.R.Civ. P. 8 (notice) has been served. For this reason, and because the "plaintiff's pleadings "are [to be] held `to less stringent standards than formal pleadings drafted by lawyers,'" Hughes, 449 U.S. at 9, 101 S. Ct. at 176, the complaint should not be dismissed for lack of subject matter jurisdiction at this juncture. However, in order to fulfill the court's independent obligation to ensure that it has subject matter jurisdiction over this action, cf. Members For a Better Union v. Bevona, 152 F.3d 58 (2d Cir. 1998), the plaintiff should be required to amend his complaint to make a more definite statement of the grounds upon which the court's jurisdiction depends.

  2. Usury

  Under New York law, "[t]he rudimentary element of usury is the existence of a loan or forbearance of money." Feinberg v. Old Vestal Road Assocs., 157 A.D.2d 1002, 1003, 550 N.Y.S.2d 482, 483 (N.Y.App. Div., 3rd Dep't 1990). "`[W]here there is no loan, there can be no usury.'" Id. (quoting Oxhandler Structural Enterprises, Inc. v. Billard, 104 Misc.2d 38, 39, 427 N.Y.S.2d 569, 570 [N.Y. Sup. Ct. 1980]). "In order for a transaction to constitute a loan, there must be a borrower and a lender; and it must appear that the real purpose of the transaction was, on the one side, to lend money at usurious interest reserved in some form by the contract and, on the other side, to borrow upon the usurious terms dictated by the lender." Donatelli v. Siskind, 170 A.D.2d 433, 434, 565 N.Y.S.2d 224, 226 (App. Div., 2d Dep't 1991). In addition to providing a civil cause of action for recovery of interest in excess of the maximum permissible rate, New York also makes usury a criminal offense. See N.Y. General Obligations Law § 5-521(1)-(2); N.Y. Penal Law § 190.40-190.42.

  In this action, the complaint incorporates the Hyman Agreement expressly. By its terms, the Hyman Agreement is an option agreement, under which Mir-Bar gave consideration to V. Hyman in exchange for the right to purchase the mortgage, note and foreclosure judgment that encumbered the Property. Nevertheless, "[w]hen a transaction is challenged as usurious, courts traditionally look beyond the standard form of the transaction and attempt to ascertain its true nature. . . . In other words, [a] transaction must be considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it." Feinberg, 157 A.D.2d at 1003, 550 N.Y.S.2d at 483 (quotation marks and citation omitted).

  Fleishman contends that the Hyman Agreement is actually an agreement to make a $750,000 loan to Mir-Bar. In support of this contention, the plaintiff notes that the Hyman Agreement refers to Mir-Bar and other associated parties collectively as the "borrower." However, this terminology appears to derive not from Mir-Bar's status as a party to the Hyman Agreement, but rather from its status as a borrower under the mortgage and note that encumbered the Property. Indeed, the Hyman Agreement refers to V. Hyman as "Hyman" (not as "lender"), and it is only in the context of her new role as holder of the note and mortgage that V. Hyman is described as the "lender" by other documents attached to the Hyman Agreement.

  Moreover, the Hyman Agreement contains terms and conditions that are different from those of a loan agreement. The principal feature of the Hyman Agreement is the grant to Mir-Bar of the right to purchase the mortgage, note and foreclosure judgment that encumbered the Property, in exchange for a one-time $85,000 "option payment." Under the Hyman Agreement, V. Hyman is not required to deliver any funds to Mir-Bar. The only delivery of funds that could conceivably be considered a "loan" to Mir-Bar would be the $750,000 paid by V. Hyman to purchase the note, mortgage and foreclosure judgement from their previous holder, a third party. Under this scenario, the $750,000 payment by V. Hyman to a third party would be considered a loan to Mir-Bar because Mir-Bar, in turn, would have the right to purchase the mortgage and note from V. Hyman for essentially the same price as V. Hyman paid to acquire these instruments. Moreover, under that same scenario, the eleven "monthly payments" of $9,375 called for by the Hyman Agreement might be considered interest payments.

  However, this would not be a reasonable construction of the Hyman Agreement. The Hyman Agreement does not require that V. Hyman be repaid the $750,000 that she expended to purchase the note, mortgage and foreclosure judgment. Furthermore, the agreement does not call for any payments to be made beyond a period of eleven months. Moreover, the agreement does not vest in Mir-Bar any permanent right to "repay" V. Hyman by exercising the option to purchase the note, mortgage and foreclosure judgment. Although V. Hyman would be entitled to an additional payment if Mir-Bar failed to exercise its option, that additional payment would be made pursuant to the mortgage and note, not pursuant to the Hyman Agreement. If Mir-Bar declined to exercise the option granted to it by the Hyman Agreement, that agreement would cease to have any practical effect after a period of one year. Thereafter, Mir-Bar would no longer have a "debt" to repay, apart from that which it already owed to V. Hyman in her capacity as the holder of the mortgage, note and foreclosure judgment.

  In light of the above, it is not reasonable to construe the Hyman Agreement as memorializing the terms of a loan made to Mir-Bar by V. Hyman, or by any of the other defendants in this action. Therefore, the allegations in the complaint foreclose the possibility that the plaintiff could prove the existence of a loan. As noted above, where there is no loan, there can be no usury. See Feinberg, 157 A.D.2d at 1003, 550 N.Y.S.2d at 483. Consequently, as it does not appear that the plaintiff can prove any set of facts consistent with the complaint that would entitle him to relief on his claim of usury, dismissal of that claim is warranted.*fn8 3. RICO

  The RICO Act provides, in pertinent part, that:

* * *
(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 or collection of unlawful debt.
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.
18 U.S.C. § 1962(c), (d).

  To establish a civil RICO claim under 18 U.S.C. § 1962(c), a plaintiff must prove: "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285 (1985). A "`pattern of racketeering activity' requires at least two acts of racketeering activity, one of which occurred after the effective date of [The RICO Act] 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 lieu of a pattern of racketeering activity, a plaintiff may also prove the collection of an unlawful debt. See 18 U.S.C. § 1962(a). The RICO Act, in pertinent part, defines "racketeering activity" as:

(A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year; [and]
(B) any act which is indictable under any of the following provisions of title 18, United States Code: . . . sections 891-894 (relating to extortionate credit transactions), . . . section 1341 (relating to mail fraud), section 1343 (relating to wire fraud). . . .
18 U.S.C. § 1961(1).

  Fleishman contends that the predicate acts of racketeering activity that support his RICO claims are: 1) violations of various states' laws against usury, conversion of funds, extortionate credit transactions, and other unspecified "fraudulent offenses;" and 2) violations of the federal laws against mail fraud and wire fraud. The violations of state law that the plaintiff ascribes to the defendants are not among the state-law offenses enumerated in 18 U.S.C. § 1961(1). The RICO Act's recognition of extortionate credit transactions as racketeering activity is limited to acts prohibited by 18 U.S.C. §§ 891-894. Only circumstances in which it is "the understanding of the creditor and the debtor at the time [an extension of credit] is made that delay in making repayment or failure to make repayment could result in the use of violence or other criminal means to cause harm" to a person are within the ambit of the statute. See 18 U.S.C. § 891(6). Here, the plaintiff does not allege that any understanding existed among the parties that violence or other harm would ensue if Mir-Bar did not make the requisite payments to any of the defendants. Accordingly, the plaintiff has not alleged that the parties were involved in "extortionate credit transactions," as that phrase is used in the RICO Act. The only other predicate acts that the plaintiff has alleged are mail fraud and wire fraud. Fed.R. Civ. P. 9(b) provides that "the circumstances constituting fraud or mistake shall be stated with particularity." Therefore, in order to state a claim for fraud with the requisite particularity, "the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993). The allegations in the complaint respecting fraud are general in nature and, therefore, do not comport with the requirements of Fed.R. Civ. P. 9(b). As a result, the complaint's fraud allegations are not well pleaded and do not provide a basis for the complaint's RICO claims.

  Under these circumstances, the plaintiff has failed to allege adequately that the defendants engaged in racketeering activity. While the plaintiff contends in his opposing affirmations that the defendants also engaged in the collection of an unlawful debt, cf. 18 U.S.C. § 1962(a), this allegation is not made in the complaint or in the exhibits attached thereto. As the allegation is a matter outside the pleadings, the Court declines to consider it. Cf. Fed.R. Civ. P. 12(b).

  As the acts allegedly undertaken by the defendants do not constitute a pattern of racketeering activity, the plaintiff's RICO conspiracy claim, which rests on the same allegations, also lacks adequate support. Moreover, even if the defendants conspired to engage in the activities alleged in the complaint, those activities, as discussed above, either do not constitute a violation of 18 U.S.C. § 1962(a)-(c), or are not pleaded adequately.

  Therefore, the Court finds that the plaintiff cannot prove any set of facts consistent with the complaint that would entitle him to relief on his RICO claims. Some of the defendants contend that the plaintiff failed to file a RICO statement timely, and that this provides an additional ground upon which the court may rely for dismissing the RICO claims. The RICO Order issued in this case required Fleishman to file and serve a RICO statement on or before February 28, 2000. The order advises that the plaintiff's RICO claims would be dismissed if he failed to comply with its directive. Although the docket sheet maintained for this action by the Clerk of Court indicates that the plaintiff filed his RICO statement on March 7, 2000, the plaintiff has submitted persuasive evidence in the form of a mail courier receipt that bears a reception stamp affixed by the court's Pro Se Office that shows the date February 28, 2000. The record before the Court is devoid of any evidence that suggests the above-noted receipt is forged. Accordingly, the Court finds that the plaintiff filed the RICO statement timely.

  Rule 11 Sanctions

  In its most pertinent parts, Rule 11 provides the following:

* * *
(b) Representations to Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, —
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.
Fed.R. Civ. P. 11(b), (c).

  The main objective of Rule 11 sanctions is to deter baseless filings in the district court. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 S. Ct. 2447, 2454 (1990). "Under Fed.R. Civ. P. 11, sanctions may be imposed on a person who signs a pleading, motion, or other paper for an improper purpose such as to delay or needlessly increase the cost of litigation, or does so without a belief, formed after reasonable inquiry, that the position espoused is factually supportable and is warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law." Caisse Nationale de Credit Agricole-CNCA, New York Branch v. Valcorp, Inc., 28 F.3d 259, 264 (2d Cir. 1994). A litigant's pro se status is no shield to Rule 11 sanctions. See Segarra v. Messina, 153 F.R.D. 22, 30 (N.D.N.Y. 1994). However, a court "may consider the special circumstances of litigants who are untutored in law" when considering whether imposing Rule 11 sanctions on a pro se litigant is warranted. See Maduakolam v. Columbia Univ., 866 F.2d 53, 56 (2d Cir. 1989). The Hyman defendants contend that Fleishman should be sanctioned, pursuant to Rule 11, because: 1) he has improperly invoked the subject matter jurisdiction of this court; and 2) his RICO claims are frivolous. For the reasons discussed above, which will not be repeated here, the Court finds that the first ground upon which the Hyman defendants rely in arguing that the plaintiff be sanctioned, is without merit. With respect to the second ground, while it is true that the plaintiff's RICO claims are not pleaded adequately, the Court perceives no basis upon which to conclude that the deficiencies in these claims are a result of a failure to conduct a reasonable inquiry into relevant law. Rather, it is more likely that the deficiencies are the result of Fleishman's lack of legal training. Moreover, the Hyman Agreement, while not a loan agreement, does refer to Mir-Bar as "borrower." Indeed, Fleishman's affirmations, submitted in opposition to the defendants' motions, evidence a misreading of — but not an inattention to — the Hyman Agreement, as well as relevant statutes and case law. The Court has considered the special circumstance present here — that the plaintiff is "untutored in law" — and finds that Rule 11 sanctions are not appropriate.

  IV. RECOMMENDATION

  For the reasons set forth above, I recommend that: 1) the defendants' motions to dismiss the action for lack of subject matter jurisdiction be denied; 2) the defendants' motions to dismiss the plaintiff's RICO and usury claims for failure to state a claim be granted; 3) the Hyman defendants' motion for sanctions be denied; and 4) the plaintiff be given an opportunity to file a second amended complaint, so that he may set forth more fully the jurisdictional basis, if any, upon which the court might exercise jurisdiction over his legal malpractice claim. V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION

  Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R. Civ. P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable George B. Daniels, 40 Centre Street, Room 410, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Daniels, and to the chambers of the undersigned, 40 Centre Street, Room 540, New York, New York, 10007. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).


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