The opinion of the court was delivered by: David G. Larimer United States District Judge
This civil action is brought by Eastman Kodak Company ("Kodak") and three of its wholly-owned subsidiaries, asserting claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., and related state-law claims, against various defendants. The gist of plaintiffs' claims is that defendants engaged in a scheme ("the scheme") in which they conspired to inflate the tax assessments on certain real property owned by Kodak in the Town of Greece, New York ("Greece"), in order to induce Kodak to hire appraisers--particularly defendant John Nicolo and certain companies owned and controlled by him--to perform what would otherwise have been unnecessary work, to reduce the artificially high assessments. The appraisers then "kicked back" a portion of the millions of dollars in appraisal fees received from Kodak to some of the other defendants, including Charles A. Schwab, a former tax assessor for Greece, and two insiders in Kodak's Corporate Tax Department, David N. Finnman and Mark S. Camarata, who were responsible for hiring the appraisers.
One of the defendants, Constance Roeder, who is also Nicolo's wife, has moved to dismiss the claims against her under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, Roeder's motion is granted in part and denied in part.
The bulk of the allegations relating specifically to Roeder are set forth in Paragraph 497 (which is broken up into numerous subparagraphs) of the amended complaint.*fn1 Many of these allegations relate to alleged payments to Roeder by Nicolo of funds that had been paid to Nicolo's business entities by Kodak, at the direction of some of the coconspirators who worked at Kodak.
For example, the complaint alleges that on November 5, 2002, Camarata directed the payment of $156,000 from Kodak to American Valuation Services, Inc. ("AVS"), which was owned and controlled by Nicolo, in connection with the appraisal services relating to an industrial park owned by Kodak in Greece. Complaint ¶ 497(A). On November 8, Nicolo allegedly issued a check to Roeder drawn on an AVS bank account in the amount of $142,500. The memo portion of the check bore the notation, "Fees -- Kodak Park Greece." Complaint ¶ 497(C). Roeder allegedly deposited this check into one of her bank accounts on November 11. Complaint ¶ 497(D).
Similarly, the complaint alleges that on various dates, Finnman directed the payment from Kodak to AVS of about $93,830 in furtherance of the scheme. Complaint ¶¶ 81-95, 497(E). Nicolo allegedly issued a check from AVS to Roeder on August 18, 1999, in the amount of $86,332, drawn on those funds, which Roeder again deposited into one of her accounts. Complaint ¶¶ 497(G), (H). Similar allegations are set forth concerning other payments to Roeder originating from payments by Kodak to Nicolo's businesses. Complaint ¶¶ 497(I)-(QQ).
The complaint also alleges that Roeder herself transferred some funds to other scheme participants in furtherance of the scheme. In particular, plaintiffs allege that on December 14, 2000, Roeder issued a check from one of her bank accounts to Camarata in the amount of $11,875, representing a kickback of money fraudulently obtained from Kodak. Complaint ¶ 497(RR).
Plaintiffs also allege that Roeder paid kickbacks in the form of transfers of real estate to other scheme participants. For example, the complaint alleges that in December 1996, South Slope Holding Corp. ("South Slope"), a business owned by Nicolo, conveyed real property in Yates County, New York to Roeder for no consideration, and that about three years later, Roeder conveyed a portion of that property to Schwab and his wife. Complaint ¶ 497(ZZ-AAA). Although the deed reflected that the Schwabs paid Roeder $20,000 for the property, plaintiffs allege that the property was worth far more than that, and that in May 2004, the Schwabs sold most of that same property to a third party in an arm's-length transaction for $340,000, which was more indicative of the property's fair market value. Complaint ¶ 497(BBB-DDD).
The complaint also alleges certain RICO predicate acts by Roeder. For instance, plaintiffs allege that Roeder used the mails and interstate wires to send or receive checks representing proceeds of the scheme. Complaint ¶ 497(JJJ, KKK). Plaintiffs also allege that Roeder conducted financial transactions affecting interstate commerce in furtherance of the scheme, such as "laundering" funds derived from the scheme by depositing those funds in financial institutions, and making interstate payments to other participants in the scheme. Complaint ¶ 497(LLL-NNN). Roeder is also alleged to have aided and abetted similar conduct by the other participants in the scheme. Complaint ¶ 497(JJJ-QQQ).
At the outset, it is well to remember what issues are raised by filing a motion to dismiss, especially at the early stage of litigation. This motion is addressed only to the sufficiency of the pleading. It is not a vehicle to mine the merits of the case, including the strength of plaintiffs' claims. Such an examination is reserved for trial or perhaps summary judgment.
The test now is whether there is any set of facts that could, if proven, support plaintiffs' claim or claims. What occurred concerning defendant Roeder may well be nefarious, as plaintiffs suggest, or could merely be innocent, unknowing conduct. All of that, though, is for another day and it is not to be resolved on a motion to dismiss.
I. RICO Pleading Requirements
To state a claim under RICO, a plaintiff must allege: (1) a violation of the RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) causation of the injury by the violation of § 1962. Pinnacle Consultants, Ltd. v. Leucadia Nat'l Corp., 101 F.3d 900, 904 (2d Cir. 1996). Section 1962 prohibits: (a) the use of income "derived ... from a pattern of racketeering activity" to acquire an interest in, establish, or operate an enterprise engaged in or whose activities affect interstate commerce; (b) the acquisition of any interest in or control of such an enterprise "through a pattern or racketeering activity"; (c) the conduct or participation in the conduct of such an enterprise's affairs "through a pattern of racketeering activity"; and (d) conspiring to do any of the above. 18 U.S.C. § 1962; see also GICC Capital Corp. v. Technology Finance Group, Inc., 67 F.3d 463, 465 (2d Cir. 1995), cert. denied, 518 U.S. 1017 (1996). The existence of a "pattern of racketeering activity" is therefore a requirement under any prong of § 1962. See id. at 465. To establish such a pattern, "a plaintiff must plead at least two predicate acts, show that the acts are related and that they amount to, or pose a threat of, continuing criminal activity. Id.; H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989).
II. Conducting or Participating in the Affairs of the Alleged Enterprise
Plaintiffs' first cause of action alleges a violation of 18 U.S.C. § 1962(c), which makes it "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." A RICO "enterprise" is defined to "include[ ] any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity ... ." First Capital Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 173 (quoting 18 U.S.C. § 1961(4)). The alleged enterprise here ("the enterprise") is the association of the defendants for the purpose of executing the alleged scheme to defraud Kodak.
Roeder contends that plaintiffs have not adequately alleged that she "conducted or participated" in the affairs of the enterprise. In that regard, both the Supreme Court and the Court of Appeals for the Second Circuit have made clear that "[f]or RICO purposes, simply establishing the presence of an enterprise is not enough. Plaintiffs must also allege that the defendants 'conduct[ed] or participate[d], directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." Id. at 175-76 (citing 18 U.S.C. § 1962(c); Reves v. Ernst & Young, 507 U.S. 170, 177-79 (1993)).
In Reves, the Supreme Court explained that this requirement means that the defendant must have had "some part in directing [the enterprise's] affairs." 507 U.S. at 179. The Court added that "the word 'participate' makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase 'directly or indirectly' makes clear that RICO liability is not limited to those with a formal position in the enterprise[;] but some part in directing the enterprise's affairs is required." Id. (footnote omitted).
This requirement is often explained in terms of the "operation or management" test. First Capital, 385 F.3d at 176. "Simply put, 'one is liable under RICO only if he participated in the operation or management of the enterprise itself.'" Id. (quoting Azrielli v. Cohen Law Offices, 21 F.3d 512, 521 (2d Cir. 1994)) (additional internal quotes omitted). "In this Circuit, the 'operation or management' test typically has proven to be a relatively low hurdle for plaintiffs to clear, especially at the pleading stage." First Capital, 385 F.3d at 176 (citations omitted). Except where the facts and inferences to be drawn from them are "indisputabl[e]," a civil RICO defendant's actions taken to advance the enterprise's objectives typically "must be assessed by a fact-finder" to determine whether those actions, "assessed in the context of all the relevant circumstances, constitutes participation in the operation or management of the enterprise's affairs." United States v. Allen, 155 F.3d 35, 42 (2d Cir. 1998). I find that plaintiffs have cleared this "relatively low hurdle" in the case at bar as to defendant Roeder.
Roeder contends that plaintiffs' allegations suggest, at most, that she was a beneficiary of the enterprise, which is not enough. In support of that contention, Roeder cites case law to the effect that "[t]he knowing receipt of fraudulently obtained funds does not constitute participation in the 'operation and management' of the enterprise." Congregacion de la Mision Provincia de Venezuela v. Curi, 978 F.Supp. 435, 450 (E.D.N.Y 1997) (citing Amalgamated Bank of New York v. Marsh, 823 F.Supp. 209, 220 (S.D.N.Y. 1993)).
While that may be true as a general principle, the complaint here at least alleges more than simply Roeder's receipt of fraudulently obtained funds. Rather, as outlined above, plaintiffs allege that Roeder paid kickbacks to other participants in the scheme, at least in part by transferring some of the funds or property that she had received from the proceeds of the scheme. If true, such activity could certainly be found to constitute conducting or participating in the affairs of the enterprise.
See, e.g., United States v. Castro, 89 F.3d 1443, 1451 (11th Cir. 1996) (evidence supported finding that defendants agreed to participate in RICO conspiracy by, inter alia, agreeing to pay kickbacks in exchange for public-defender appointments), cert. denied, 519 U.S. 1118 (1997); United States v. Lee Stoller Enterprises, 652 F.2d 1313, 1320-21 (7th Cir.) (businessman paying kickbacks to sheriff in exchange for lucrative contracts held to participate in sheriff's office affairs), cert. denied, 454 U.S. 1082 (1981); Twenty First Century L.P.I.. v. LaBianca, 19 F.Supp.2d 35, 43 (E.D.N.Y. 1998) (fact issues existed as to whether contractor's payment of kickbacks as part of larger kickback scheme was sufficient to constitute participation in operation or management of RICO enterprise); see also In re Sumitomo Copper Litigation, 104 F.Supp.2d 314, 318 (S.D.N.Y. 2000) ("[t]he RICO statute has been repeatedly construed to cover both insiders as well as those peripherally connected to a RICO enterprise, particularly where the 'outsiders' are alleged to have engaged in kickbacks in order to influence the enterprise's decision") (quoting Mason Tenders District Council Pension Fund v. Messera, No. 95 Civ. 9341, 1996 WL 351250 at *6 (S.D.N.Y. June 26, 1996)).
In support of her motion to dismiss, Roeder contends that "there could be any number of explanations" why she might have written a particular check to Camarata, for example. Defendant's Reply Memorandum of Law (Dkt. #131-1) at 5. That may be so, but it is not plaintiffs' burden at the pleading stage to prove that a particular payment was a kickback, only to allege that it was. See Lumbermens Mut. Cas. Ins. Co. v. Maffei, No. 3:03-cv-00262, 2006 WL 2032607, at *4 (D.Ala. July 18, 2006) ("While it may be highly questionable that plaintiff's allegations of the degree of participation by Goerig in the operation or management of the alleged enterprise will survive a motion for summary judgment, they are sufficient to withstand a motion to dismiss under Rule 12(b)(6)"); Levine v. Torino Jewelers, Ltd., No. 05 Civ. 3159, 2006 WL 709098, at *4 (S.D.N.Y. Mar. 22, 2006) ("In order to survive a motion to dismiss, the complaint must simply make allegations that, if true, would allow a fact-finder to deem defendant liable for plaintiff's injury; it need not, however, show that no other interpretation of the facts is possible"); Planned Parenthood of Columbia/Willamette, Inc. v. American Coalition of Life Activists, 945 F.Supp. 1355, 1385 (D.Or. 1996) (allegation that "[e]ach defendant agreed with some or all of the other defendants to conduct or participate in the operation, conduct or management of the affairs of" RICO enterprise adequately supported RICO conspiracy claim to survive motion to dismiss; stating that "[a]t this stage of the litigation [the court] may not resolve the issue of whether all Defendants, in fact, agreed to participate in the management of the enterprise to commit racketeering activity").
III. Commission of Predicate Acts
Roeder next argues that plaintiffs have not adequately pleaded any predicate acts on her part. "To show a RICO violation, the plaintiff must plead at least two predicate acts, show that the predicate acts are related, and that they amount to, or pose a threat of, continuing criminal activity." Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91, 97 (2d Cir. 1997). The predicate acts must be acts of "racketeering activity," which, for purposes of the instant case, include mail fraud, wire fraud, interstate travel in aid of racketeering activity, money laundering, and interstate transportation of stolen property. See 18 U.S.C. § 1961(1) (enumerating predicate acts). An analysis of this issue requires separate consideration of the various alleged predicate acts alleged by plaintiffs.
Plaintiffs allege that Roeder personally engaged in money laundering by funneling money both through federally insured financial institutions and among the other defendants, in order to conceal the unlawful nature of those funds, i.e., the fact that they represented proceeds of a scheme to defraud.
The money laundering statutes, 18 U.S.C. §§ 1956 and 1957, proscribe a number of acts, several of which are relevant here. First, § 1956(a)(1)(A)(I) makes it an offense to conduct or attempt to conduct a financial transaction with knowledge that the property involved in the transaction represents the proceeds of unlawful activity, "with the intent to promote the carrying on of specified unlawful activity ... ." Similarly, § 1956(a)(1)(B)(I) makes it an offense to conduct or attempt such a transaction with knowledge that the transaction is designed in whole or in part "to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity ... ."*fn2
Section 1957 makes it an offense to "knowingly engage[ ] or attempt[ ] to engage in a monetary transaction in criminally derived property of a value greater than $10,000 ... ." Conspiring to engage in any of the above conduct is made punishable under § 1956(h).
As stated, the complaint alleges a number of specific occasions on which Roeder received, deposited, or transferred moneys or other property constituting proceeds of the scheme. Roeder, however, contends that the complaint does not adequately ...