Beauford v. Helmsley, 86 Civ. 7115 (RWS).

Decision Date12 December 1986
Docket NumberNo. 86 Civ. 7115 (RWS).,86 Civ. 7115 (RWS).
PartiesRoslyn O. BEAUFORD, Joseph C. Palmento, Maria Valle, Joseph Decesare, Jr., and Elsie Decesare, individually and on Behalf of others similarly situated, Plaintiffs, v. Harry B. HELMSLEY, Supervisory Management Corp., Avenue of America Realty Corp., Benenson Capital Co., Sanford G. Bluestein, Felice Earley, Estate Associates, Joan Konner, Peter L. Malkin, John J. Reynolds, Inc., Saul S. Silverman, William C. Warren, William C. Breed III, Ralph W. Felsten, Lillian M. Gelfman, Robert W. Gelfman, Donald L. Jonas, Jeffrey D. Klein, Norman R. Klein, Alvin S. Lane, Fred Linden, Gertrude G. Malkin, Peter L. Malkin, Claire W. Morse, Lester S. Morse, Jr., Richard P. Morse, Ivan Shapiro, Alvin Silverman, Harold L. Strudler, Brown, Harris, Stevens, Inc., Meyer, Strong and Jones, P.C., Marcel P. Aillery, J.G. White Engineering Corp., Defendants.
CourtU.S. District Court — Southern District of New York

Edward S. Kanbar, Esq., New York City, for plaintiffs.

Parcher, Arisohn & Hayes, P.C., New York City, for defendants; L. Peter Parcher, Steven M. Hayes, John Carney, of counsel.

SWEET, District Judge.

This is a class action brought by the five named plaintiffs, individually and on behalf of others similarly situated, for damages and injunctive relief in connection with alleged fraud and misrepresentation in the conversion of a large residential complex in the Bronx known as the Parkchester. By order to show cause, plaintiffs have requested an order restraining defendants from engaging in any further sales or sales efforts of any condominium apartments in Parkchester. Certain defendants have cross-moved for an order dismissing the complaint. For the reasons discussed below, the motion to dismiss is granted, thereby rendering the request for a preliminary injunction moot.

Prior Proceedings

The complaint in this action, alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., the federal securities laws, and various state laws, was filed on September 16, 1986. That same day, plaintiffs sought by order to show cause an order restraining the defendants from engaging in any further sales or sales efforts of any condominium apartments in Parkchester. The order to show cause was scheduled for argument on September 19, and subsequently adjourned by consent of all parties to October 3, 1986. Several of the defendants subsequently made a motion, returnable on October 24, to dismiss the complaint. In response to defendants' moving papers, plaintiffs amended the complaint by repleading the RICO claim and dropping the claims under the securities laws. The two motions were argued on October 24, at which time the court granted the parties permission to submit additional papers. The last of those papers were received by the court on November 13, 1986.

The Amended Complaint

According to the amended complaint, the Parkchester is an apartment complex in the Bronx owned by Parkchester Apartments Co. ("Parkchester Co.") and consisting of 51 buildings and 12,271 apartments. The complex is divided into the North, South, East, and West Quadrants. The North Parkchester condominium plan was declared effective in approximately 1973 as a non-eviction plan. At the present time, 20% of the apartments have been sold. The condominium plan for conversion of the South, East, and West Quadrants (collectively the "South Condominium") was accepted by the State of New York on or about June, 1984. At present, 60% of the South Condominium apartments have been sold.

The plaintiffs in this action reside in the Parkchester apartment complex. Joseph C. Palmento ("Palmento") has purchased an apartment in the complex's South Condominium and the remaining four plaintiffs, two of which are in the South Condominium and two in the North, are tenants who did not elect to purchase their apartments pursuant to the offering plan.

Defendants fall into several categories. According to the complaint, the first group consists of the individual partners of Parkchester Co., which is the owner of Parkchester and the sponsor of the conversion of the property condominium ownership. Defendant Brown, Harris, Stevens, Inc. is the selling agent for Parkchester Co. The remaining defendants are engineering firms that provided engineering reports and studies as part of the conversion of Parkchester to condominium ownership.

The amended complaint alleges a variety of claims sounding in fraud and arising out of the offering plans of the North and South Condominiums. According to the amended complaint, the defendants made willful misrepresentations in the offering plan in omitting information that the entire plumbing and electrical systems had to be replaced, that there were serious structural defects in some of the buildings, and that the insulation on the hot water pipes was "asbestos and impregnated." In addition, the offering plan allegedly misstates the identities of the principals of Parkchester Co. and does not disclose that plumbing repairs are made without cost to the owners of the condominium units. As a result of these misrepresentations, Palmento was allegedly induced to purchase an apartment in the South Condominium. The other four named defendants have allegedly been injured directly by being induced not to buy their apartments, or indirectly by being forced out of the buying market by high prices made possible by the fraud on other buyers.

The Motion To Dismiss

The asserted basis for jurisdiction in this action is the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Although plaintiffs, in response to defendants' motion to dismiss, have amended their complaint to replead the RICO claim, the allegations are still deficient and the complaint is dismissed for lack of jurisdiction.

The elements of a RICO claim are the existence of an enterprise engaged in or affecting interstate commerce, a pattern of racketeering activity engaged in by the defendants, a nexus between the pattern of racketeering and the enterprise, and an injury to the plaintiff in his business or property by reason of the violation of the RICO statute. Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir.1983), cert. denied, 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984). To adequately allege a pattern of racketeering activity, a plaintiff must allege both that the defendants engaged in "racketeering activity" and that the commission of those acts comprised a "pattern." "Racketeering activity" is the violation of one or more enumerated state and federal offenses, including mail and securities fraud. 18 U.S.C. § 1961(1).

Plaintiffs apparently rely on allegations of mail fraud under 18 U.S.C. § 1343 and securities fraud under Section 10(b) of the Securities Act of 1934 to make out the requisite pattern of racketeering activity under RICO. The allegations of securities fraud are deficient as a matter of law. To state a claim under Section 10(b), a plaintiff must allege fraud "in connection with the purchase or sale of a security." 15 U.S.C. § 78j(b) (1982). Apparently recognizing that the sale of condominium units on these facts does not constitute the sale of a security for...

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4 cases
  • Cullen v. Paine Webber Group, Inc.
    • United States
    • U.S. District Court — Southern District of New York
    • June 23, 1988
    ...1984; and the defendants continue to engage in sales and sales efforts pursuant to the allegedly fraudulent plan. Beauford v. Helmsley, 650 F.Supp. 548, 549 (S.D.N.Y.1986), aff'd, 843 F.2d 103 (2d Cir.1988). See also Procter & Gamble Co. v. Big Apple Industrial Bldgs, Inc., 655 F.Supp. 1179......
  • Beauford v. Helmsley
    • United States
    • U.S. District Court — Southern District of New York
    • June 6, 1990
    ...court dismissal on the ground that the complaint adequately pleaded RICO elements of pattern and continuity. See Beauford v. Helmsley, 650 F.Supp. 548 (S.D.N.Y.1986), aff'd, 843 F.2d 103 (2d Cir. 1988), reversed upon rehearing en banc, 865 F.2d 1386 (2d Cir.1989), vacated, ___ U.S. ___, 109......
  • Beauford v. Helmsley
    • United States
    • U.S. Court of Appeals — Second Circuit
    • April 1, 1988
    ... ...         473 U.S. at 496, 105 S.Ct. at 3285-86 ...         Footnote 14, attached to element (3) above, pointed ... ...
  • Beauford v. Helmsley
    • United States
    • U.S. Court of Appeals — Second Circuit
    • January 13, 1989
    ...U.S.C. Sec. 1961(4); and that plaintiffs were entitled to recover under civil RICO, 18 U.S.C. Sec. 1964(c). In an opinion reported at 650 F.Supp. 548 (1986), the district court granted defendants' motion to dismiss the amended complaint for failure to state a federal claim on which relief c......

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