Efron v. Embassy Suites (Puerto Rico), Inc., Civ. 97-2547(HL).
| Decision Date | 14 April 1999 |
| Docket Number | No. Civ. 97-2547(HL).,Civ. 97-2547(HL). |
| Citation | 47 F.Supp.2d 200 |
| Parties | David EFRON, Plaintiff, v. EMBASSY SUITES (PUERTO RICO), INC., et al., Defendants. |
| Court | U.S. District Court — District of Puerto Rico |
Ruben T. Nigaglioni, McConnell Valdes, San Juan, PR, Guy B. Bailey, Jr., Bailey & Jones, Miami, FL, for plaintiff.
Arturo Diaz-Angueira, Cancio, Nadal, Rivera & Diaz, San Juan, PR, for Embassy Suites, (Puerto Rico), Inc., Embassy Suites, (Isla Verde), Inc., Promus Hotel Corporation, defendants.
Luis Sanchez-Betances, Sanchez Betances & Sifre, San Juan, PR, for Mora Development Corporation, A Puerto Rico corporation, individually and as managing partner of ES Hotel Isla Verde, S.E., a Puerto Rico civil partnership, Cleofe Rubi-Gonzalez, Moraima Cintron-De-Rubi, defendants.
Salvador Antonetti-Zequeira, Fiddler, Gonzalez & Rodriguez, San Juan, PR, for First Big Island Steakhouse, Inc., A Puerto Rico corporation, Emma M. Cancio-Santos, defendants.
Juan R. Marchand-Quintero, San Juan, PR, for Es Hotel Isla Verde, S.E., A Puerto Rico civil partnership, defendant.
Jorge A. Pierluisi-Jr., Pierluisi Law Offices, PSC, Hato Rey, PR, for Corporacion De Desarrollo Hotelero, A Puerto Rico corporation, defendant.
Roberto Lefranc-Morales, Santurce, PR, for Fundacion Segarra Boerman E. Hijos, Inc., A Puerto Rico corporation, defendant.
Before the Court are the motions of several defendants to dismiss the nine-count first amended complaint and the plaintiff's response thereto. Dkt. Nos. 43, 56, 58, 60 For the reasons discussed in this opinion, the motions are granted.
This lawsuit involves a limited partnership in which plaintiff invested. The partnership, known as E.S. Hotel Isla Verde, S.E. [the "Partnership"], was organized for the purpose of developing and operating an Embassy Suites Hotel in Carolina, Puerto Rico. The partnership was formed under the laws of Puerto Rico between plaintiff and the following parties: Cleofe Rubi Gonzalez ["Rubi"] and his wife Moraima Cintron de Rubi ["Cintron"]; Mora Development Corporation ["MDC"]; Embassy Suites (Isla Verde), Inc. ["ESIV"]; Corporacion De Desarrollo Hotelero ["CDH"]; and Fundacion Segarra Boerman E Hijos, Inc. ["FSBH"]. All partners were "special" or limited partners under Puerto Rico law.2 MDC, a corporation headed by Rubi, was designated managing partner and given the concomitant authority to conduct administrative duties on behalf of the Partnership. Plaintiff alleges that the Partnership is a legitimate business entity that is being used as an enterprise to conduct an unlawful racketeering scheme.
In general, plaintiff alleges that limited partners ESIV, MDC, Rubi, and Cintron have joined with other defendants in an effort to bilk the Partnership of funds. The other defendants are: Embassy Suites (Puerto Rico), Inc. ["ESPR"] a Delaware corporation hired by the Partnership to manage the hotel; another Delaware corporation identified only as Promus, the parent corporation of ESPR and ESIV; First Big Island Steakhouse, Inc. ["Outback"], a Rubi-controlled corporation leasing restaurant space from the Partnership; Emma M. Cancio Santos ["Cancio"], attorney-in-fact for the Partnership and agent for several of the defendants.
Specifically, the alleged scheme plays out as described below. Rubi, as president of managing partner MDC, conspired with Promus and ESIV to hire ESPR to manage the Partnership property. ESPR intentionally caused the hotel to under-perform by incurring in construction overruns, overpricing rooms, engaging in sweetheart leases, and other acts of mismanagement. According to the complaint, ESPR acted purposefully in order to create cash shortfalls which would have to be covered by capital calls to the limited partners. A limited partner who failed to provide the required capital would then have its interest in the Partnership reduced proportionally.
In more detail, the conspirators allegedly caused construction cost overruns by: making payments to a Rubi-owned company in excess of the value of goods and services received, shifting subcontractor bills from other projects onto the Partnership, and delaying construction by adding plans for a specialty restaurant, Outback, late in the construction phase. After the hotel was built, the conspirators allegedly overpriced the rooms and failed to adequately market the hotel's services to create cash shortfalls. Additionally, the conspirators caused the Partnership to engage in a sweetheart lease deal with Outback to the benefit of Rubi and ESPR and to the detriment of the Partnership. The conspirators executed another lease to the hotel's gift shop that was below market value. Finally, MDC and Rubi allegedly sought to prevent plaintiff from reviewing the Partnership's records in an effort to cover up their scheme.
By all of these activities, and the predicate acts of mail and wire fraud attached to them, the amended complaint charges that the defendants violated The Racketeer influenced and Corrupt Organizations Act ["RICO"], 18 U.S.C. § 1962(c), (d). Defendants have moved to dismiss the complaint and have raised several grounds for doing so, including: (1) the complaint's failure to states a claim for RICO violations due to lack of a pattern; (2) plaintiff's lack of standing; (3) the complaint's failure to meet the heightened pleading requirements imposed by Fed.R.Civ.P. 9(b); and (4) lack of supplemental jurisdiction over the local law claims.
Rule 9(b) requires plaintiffs to plead the circumstances of alleged fraud with particularity. This heightened pleading requirement extends also to the pleading of RICO mail and wire fraud allegations as in the case at bar. New England Data Services v. Becher, 829 F.2d 286 (1st Cir.1987). The purpose of Rule 9(b)'s particularity requirement are threefold; (1) to place defendants on notice and allow them to prepare a meaningful response, (2) to preclude the use of groundless fraud claims as pretext for discovery or "strike suits", and (3) to safeguard defendants from the reputation damage of frivolous charges. Id. at 289. In this case, plaintiff has filed a RICO Case Statement, Dkt. No. 23, pursuant to an order of the Court. In that case statement, and also in the complaint, plaintiff has briefly set forth the dates, contents, and circumstances surrounding each alleged incident of mail or wire fraud. These detailed summaries, rather than general accusatory language, adequately serves to place defendants on notice of which conduct is at issue and to assure the Court that the charges are not of wholly spurious character. As such, the Court finds that plaintiff has satisfied the particularity requirement of 9(b).
Plaintiff's RICO claim is brought under 18 U.S.C. § 1962(c) and (d). Plaintiffs allege that all of the defendants violated the RICO act by participation in the purported scheme to siphon money away from the Partnership and squeeze out the interests of the limited partners who refused to make capital contributions. To plead a violation of § 1962(c), plaintiffs must allege the defendants' conduct of an enterprise through a pattern of racketeering activity. Sedima S.P.R.L v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). Plaintiffs have not sufficiently pleaded the predicate acts necessary to show a pattern of racketeering, and their RICO claims must be dismissed accordingly.
A. Inadequacy of the Alleged Pattern of Racketeering
A RICO plaintiff needs to allege at least two predicate acts of racketeering within a 10-year period. 18 U.S.C. § 1961(5) The predicate acts must consist of offenses indictable under specifically listed criminal statutes, including, mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343. 18 U.S.C. §§ 1961(1)(A), 1961(1)(D). Additionally, the plaintiff must show that the predicate acts are related, and that they amount to or pose a threat of continued criminal activity. H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 2900-01, 106 L.Ed.2d 195 (1989).
The Court looks to plaintiff's RICO case statement, Dkt. No. 23 pp. 16-21, wherein plaintiff set forth his allegations regarding predicate activity. The RICO case statement contains allegations of mail fraud and wire fraud as the predicate acts, and the question is whether those allegations are sufficient to provide a basis for the RICO claims. The allegations can only be predicate acts if they are indictable under the respective criminal statutes. 18 U.S.C. § 1961(1)(B). Plaintiff has alleged several facsimile transmissions in an effort to show that wire fraud was committed. However, none of these facsimile transmissions are alleged to have traveled on interstate phone lines, a necessary component of the actus reus needed for indictment under the wire fraud statute. 18 U.S.C. § 1343. Bernstein v. Misk, 948 F.Supp. 228 (E.D.N.Y.1997); Brooke v. Schlesinger, 898 F.Supp. 1076 (S.D.N.Y.1995) (); H.G. Gallimore, Inc. v. Abdula, 652 F.Supp. 437 (N.D.Ill.1987) (); Harris Trust and Sav. Bank v. Ellis, 609 F.Supp. 1118 (N.D.Ill.), aff'd, 810 F.2d 700 (1987) (). Because plaintiff has not alleged that any of the facsimile transmissions went outside of Puerto Rico, the allegations concern only intrastate telephone communications unreachable by the statute. As such, all of the wire fraud allegations must be discounted as RICO predicate acts as a matter of law.
The remaining ten allegations consist of...
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