The opinion of the court was delivered by: J. Paul Oetken, District Judge:
Plaintiffs Leo Rosenson and Dora Bergstein, as the Executor of the Estate of Jack Bergstein ("Plaintiffs"), initiated this action in the Supreme Court of the State of New York, County of New York. Defendants Abraham M. Mordowitz , 1030 Carroll St. Corp., Victor Mordowitz, Marlene Mordowitz, and the Mordowitz Family Limited Partnership ("Defendants") removed the action to this Court on September 1, 2011. On September 30, 2011, Plaintiffs filed an Amended Complaint against Defendants asserting two claims for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, against distinct RICO enterprises, in addition to various state law claims. Plaintiffs' claims stem from the allegation that Abraham Mordowitz siphoned funds from a bank account connected to a property in Brooklyn that he was charged with managing.
Defendants have moved to dismiss the first, second, third, fourth, and eighth causes of action of Plaintiffs' Amended Complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. In addition, Plaintiffs and Defendants have each moved separately for Rule 11 sanctions. The Court heard oral argument on the motions on August 21, 2012.
For the reasons set forth below, Defendants' motion to dismiss the first and second causes of action is granted. The Court declines to exercise pendent jurisdiction over the remaining state law claims and remands this matter to New York Supreme Court. Both Defendants' and Plaintiffs' motions for sanctions are denied.
The following facts are taken from the Amended Complaint and are presumed true for purposes of this motion.
The dispute arises from the management of a multiunit apartment building at 1030 Carroll Street, Brooklyn, NY (the "Property"). The Property is owned as a tenancy in common. (Amended Complaint, Dkt. No. 9 ("Compl.") at ¶ 16.) Plaintiffs, the Bergstein Estate and Leo Rosenson, each own a 25% share in the Property, or 50% jointly. (Id. at ¶ 17-18.)*fn1 The remaining 50% is owned collectively by parties who have been named as nominal defendants in this action, Victor Mordowitz, Marlene Mordowitz, and the Mordowitz Family Limited Partnership. (Id. at ¶ 19.)
Abraham M. Mordowitz is a New York real estate attorney and partner at the law firm of Mordowitz & Lemberg LLP ("M&L"). Abraham Mordowitz has managed the Property since approximately June 2005. Prior to Abraham Mordowitz's tenure as property manager, between 1998 and 2004, the Property was managed by Abraham Mordowitz's father and then briefly by his mother. (Id. at ¶ 22.)
Nominal Defendant Victor Mordowitz is a close relative of Abraham Mordowitz, and Nominal Defendant Marlene Mordowitz is the wife of Abraham Mordowitz. (Id. at ¶ 10, 11.) They are both New York residents. (Id.) The Mordowitz Family Limited Partnership is a New York limited partnership. (Id. at 14.)
Abraham Mordowitz managed and controlled the Property pursuant to a management agreement (the "Management Agreement"). His services included making recommendations with respect to significant capital expenditures, retaining contractors, supervising repair and maintenance, collecting rent, and maintaining an agency bank account (the "Agency Account"). (Id. at ¶ 26-27.) As compensation for managing the Property, Abraham Mordowitz has collected a management fee equal to six percent of the gross annual rents for the Property, payable from the Agency Account. The Management Agreement is terminable at will by the owners of the Property. (Id. at ¶ 32.)
Under the Management Agreement, all of the income and monetary assets of the Property were to be deposited into the Agency Account, and expenditures for the benefit of the Property were to be made from the Agency Account. (Id. at ¶ 28.) The Agency Account is registered in the name of Defendant 1030 Carroll St. Corp. ("1030 Corp."). (Id. at ¶ 29.)
1030 Corp. was formerly a closely and privately held New York corporation with a principal place of business in Queens County, NY. In 1993, it was dissolved by proclamation of the New York Secretary of State, but continues to operate. (Id. at ¶ 6.) Abraham Mordowitz has been the Vice President of 1030 Corp. at all times relevant to this action. (Id. at ¶ 7.) At some point, Abraham Mordowitz, as Vice President of 1030 Corp., signed a deed to the Property pursuant to which the "numerous parties" obtained their status as tenants in common, although it is not clear from the Amended Complaint whether this occurred before or after 1030 Corp.'s dissolution. (Id. at ¶ 7.) The Agency Account has been in the name of 1030 Corp. and under the control of Abraham Mordowitz as long as he has managed the Property. (Id. at ¶¶ 29-30.)
Abraham Mordowitz is alleged to have knowingly misappropriated funds from the Agency Account. (Id. at ¶¶ 48-49.) In connection with the misappropriation, Abraham Mordowitz sent or caused to be sent Operating Statements via U.S. Mail from 2006 to 2011 on March 31st of each year containing false and inflated statements about expenses related to the Property. (Id. at ¶¶ 44-45.) The fraudulent Operating Statements were prepared by an accountant who relied on data obtained from the Agency Account. (Id. at ¶ 87.)
In the amended complaint, Plaintiffs provide several reasons why they believe that the expenses, as reflected in the Operating Statements, are inflated. (Id. at ¶ 46.) When Rosenson's son-in-law demanded documentation to support the expenditures disclosed in operating statements, Abraham Mordowitz provided bills that failed to indicate the location of the expenditures. (Id. at ¶ 46(a).) No significant renovations were apparent despite the high levels of purported expenditures. (Id. at ¶ 46(b).) Abraham Mordowitz failed to apply to increase the rent as a result of the purported expenditures pursuant to 9 N.Y.C.R.R. § 2522.4. (Id. at ¶ 46(c).) There was a precipitous increase in the annual ratio of total expenses associated with the Property to rental income of the Property during Abraham Mordowitz's tenure as property manager. (Id. at ¶ 46(d).)
With regard to Abraham Mordowitz's law firm, M&L, Plaintiffs allege that Abraham Mordowitz used M&L's fax machine to send a fax from the office to Rosenson in Florida on March 31, 2006; the fax contained a copy of the 2005 Operating Statement. (Id. at ¶¶ 63, 56.)*fn2
Abraham Mordowitz periodically received phone calls from Rosenson at M&L's offices and sometimes met with Ronsenson at M&L's offices to discuss the Property. On more than one occasion, Rosenson's call to Abraham Mordowitz was answered by a secretary who connected Rosenson to Abraham Mordowitz if he was available. (Id. at ¶¶ 65, 74.) On April 6, 2009, in response to a request made by Kerry Gotlib, Esq. (counsel to Rosenson and the Bergstein Estate), a secretary prepared a letter at M&L's offices, using M&L stationery, which was mailed to Gotlib on April 6, 2009; this letter enclosed a copy of the 2008 Operating Statement, which, like the other Operating Statements, contained fraudulent representations. (Id. at ¶ 55(a)). Abraham Mordowitz also maintained files concerning the management of the Property at M&L's offices. (Id. at ¶ 55(b).)
As the "RICO person," Abraham Mordowitz is alleged to have committed acts of mail fraud by using the U.S. mail to send fraudulent operating statements to Plaintiffs annually from 2006 to 2011. It is further alleged that Abraham Mordowitz committed wire fraud by faxing or causing to be faxed a fraudulent Operating Statement for the year 2006 from M&L's offices in New York to Plaintiff Rosenson in Florida. (Id. at ¶¶ 40, 44, 67.)
II. Legal Standard for Motion to Dismiss
To survive a motion to dismiss, a plaintiff must allege "only enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, ---, 129 S.Ct. 1937, 1949 (2009). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal quotations, citations, and alterations omitted). Where a plaintiff has not "nudged [his or her] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Id. at 570.
The Court must accept as true all well-pleaded factual allegations in the complaint and "draw [ ] all inferences in the plaintiff's favor." Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006) (internal citations omitted). On the other hand, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1949; see also Twombly, 550 U.S. at 555 (noting that a court is "not bound to accept as true a legal conclusion couched as a factual allegation" (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986))).
Additionally, claims sounding in fraud must meet Rule 9(b)'s heightened pleading standard. See Fed.R.Civ.P. 9(b). To comply with Rule 9(b), "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." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d ...