Beauford v. Helmsley
| Decision Date | 01 April 1988 |
| Docket Number | D,No. 40,40 |
| Citation | 843 F.2d 103 |
| Parties | RICO Bus.Disp.Guide 6900, RICO Bus.Disp.Guide 6919 Roslyn O. BEAUFORD, Joseph C. Palmento, Maria Valle, Joseph DeCesare, Jr., and Elsie DeCesare, Appellants, 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., Marcel P. Aillery, J.G. White Engineering Corp., Appellees. ocket 87-7216. |
| Court | U.S. Court of Appeals — Second Circuit |
Edward S. Kanbar, New York City, for appellants.
Steven M. Hayes (Parcher Arisohn & Hayes, P.C., Brian D. Caplan, of counsel), for appellees.
Before LUMBARD, OAKES, and KEARSE, Circuit Judges.
Despite the Supreme Court's decision in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), courts generally, and courts in the Second Circuit in particular, remain confused (and certainly confusing) in their construction of the statutes governing so-called civil RICO, the provision of a private civil remedy of treble damages for injury "by reason of a violation of" the substantive provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO), Pub.L. No. 91-452, Title IX, 84 Stat. 941, codified as amended, 18 U.S.C. Secs. 1961-68 (1982 & Supp. IV 1986). See 18 U.S.C. Sec. 1964(c). Here, the United States District Court for the Southern District of New York, Robert W. Sweet, Judge, 650 F.Supp. 548, dismissed an amended complaint alleging RICO and state law violations in connection with the conversion of an apartment complex into condominiums, and refused to allow the plaintiffs to file a second amended complaint. It is important here to recite the allegations of both the amended and proposed second amended complaint, because both must be construed in the light most favorable to plaintiffs. Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1848, 23 L.Ed.2d 404 (1969); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101, 2 L.Ed.2d 80 (1957).
The Amended Complaint (dismissed by the district court).
The plaintiffs consist of five tenants, one who bought and four who did not buy their respective apartments in Parkchester, a Bronx residential complex. Each was given the opportunity to purchase after Parkchester Apartments Co. filed an offering plan for the conversion under New York's General Business Law Article 23-A (the Martin Act) (McKinney 1984 & Supp.1988), particularly N.Y.Gen.Bus.Law Sec. 352-e. Parkchester is a complex of fifty-one apartment buildings in four separate quadrants containing a total of 12,271 apartments. Defendants are the sponsor, Parkchester Apartments Co. (a New York real estate partnership), the individual partners (both individuals and entities), the sponsor's sales agent (Brown, Harris, Stevens, Inc.), and two engineering firms which, and an individual engineer who, supplied engineering reports and studies as part of the conversion.
The North Quadrant at Parkchester was converted to condominium ownership in 1973, though the sponsor retains and continues to sell apartments in it. The sponsor filed an offering plan for the conversion of the East, West, and South Quadrants, consisting of 8,286 apartments in June 1984. It is in connection with this offering that allegations of fraud are made on behalf of various classes of tenants, insider purchasers, and outside purchasers. While repetition of all the allegations is not necessary, a somewhat detailed sampling is appropriate.
Count One alleges a material misrepresentation, in that the sponsor concealed that some buildings had serious structural defects and that their plumbing and electrical systems needed replacement.
Count Two alleges that the engineering defendants made willful misstatements by omitting information as to the plumbing and electrical systems and the structural defects from their reports.
Count Eleven, the RICO count, alleges not only the false and misleading offering plans, but also the denial of tenants' claims of damage caused by inadequate plumbing and electrical service or structural defects, false statements made in legal actions, and harassment of tenants to effect their eviction, all achieved by use of the mails and telephone. As amended, the complaint also alleges misrepresentations as to the identity of the sponsor and claims (A) that the cost of plumbing repairs was absorbed by management, thereby appearing to lower the maintenance cost of each apartment and creating an artificial condition of lower maintenance costs and higher sales prices, (B) that the insulation of the plumbing pipes was asbestos, and (C) that the plumbing leaks caused electrical short circuits. There are said to be two RICO enterprises--Parkchester Apartments Co. and the defendants as a group.
The Proposed Second Amended Complaint (motion for leave to file denied for "failure ... to allege properly an injury directly caused by the so called RICO allegations under Sedima, S.P.R.L. v. Imrex Co., U.S. 105 S.Ct. [3275] 3276 (1985)").
The proposed second amended complaint, after incorporating the original and amended complaints by reference, alleges that Parkchester Apartments Co. is the "enterprise" for RICO purposes and purports to amplify the "racketeering activity" and the "pattern of such racketeering activity" by reference to an "overview" of racketeering acts. In addition to the acts previously alleged, the revised complaint lists the following illegal acts: (A) denial of liability for the maintenance of Parkchester's central malls; (B) improper curtailing of landscape maintenance; (C) making false statements concerning liability for water damage; (D) manipulating costs among different quadrants within the complex; (E) making illegal financial statements; (F) withdrawing hot water, electrical, and elevator services; (G) failing to disclose that the cost of plumbing and electrical repairs are borne by the enterprise; (H) reducing painting services; (I) failing to disclose the purchase of supplies through a related company; (J) selective enforcement of rules and regulations, leading to discriminatory action against certain tenants; (K) illegal destruction of documents; and (L) tax evasion by defendant Helmsley in allocating personal expenses as business expenses. The complaint then alleges specifics as to each claim, although in respect to (K) and (L) above they are "on information and belief."
Sedima held that there is no requirement that a private civil RICO action proceed only against a defendant who already has been convicted of the predicate act or of a RICO violation. 473 U.S. at 493, 105 S.Ct. at 3284. Nor is there any requirement that the plaintiff establish a "racketeering injury," as opposed to an injury resulting from a predicate act. 473 U.S. at 497, 105 S.Ct. at 3286. In so holding, the Court did say that:
A violation of Sec. 1962(c) ... requires (1) conduct (2) of an enterprise (3) through a pattern 14 (4) of racketeering activity. The plaintiff must, of course, allege each of these elements to state a claim. Conducting an enterprise that affects interstate commerce is obviously not in itself a violation of Sec. 1962, nor is mere commission of the predicate offenses. In addition, the plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation.
473 U.S. at 496, 105 S.Ct. at 3285-86.
Footnote 14, attached to element (3) above, pointed out that 473 U.S. at 496 n. 14, 105 S.Ct. at 3285. The footnote goes on to refer to legislative history and concludes by stating:
Significantly, in defining "pattern" in a later provision of the same bill, Congress was more enlightening: "criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." 18 U.S.C. Sec. 3575(e). This language may be useful in interpreting other sections of the Act. Cf. Iannelli v. United States, 420 U.S. 770, 789, 95 S.Ct. 1284, 1295, 43 L.Ed.2d 616 (1975).
Since Sedima a number, but by no means all, of the district courts and courts of appeal have been guided by the text just quoted and footnote 14, and by Justice Powell's dissent, 473 U.S. at 523, 105 S.Ct. at 3304, to impose one limitation or another upon civil RICO. These courts have focused on the statement in the Senate Report highlighted in footnote 14 (as well as in the Powell dissent) which says: " 473 U.S. at 496 n. 14, 105 S.Ct. at 3285 n. 14. Footnote 14 added emphasis to the words "continuity plus...
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