Rolo v. City Investing Co. Liquidating Trust

• Decision Date: 24 August 1995
• Docket Number: Civ. A. No. 90-4420 (DRD).
• Citation: 897 F. Supp. 826
• Parties: Jose and Rosa ROLO; and Dr. William and Roseanne Tenerelli, Plaintiffs, v. CITY INVESTING COMPANY LIQUIDATING TRUST, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

897 F. Supp. 826

Jose and Rosa ROLO; and Dr. William and Roseanne Tenerelli, Plaintiffs, v. CITY INVESTING COMPANY LIQUIDATING TRUST, et al., Defendants.

Civ. A. No. 90-4420 (DRD).

United States District Court, D. New Jersey.

August 24, 1995.

Roy A. Heimlich, Herbert I. Deutsch, Vincent R. Coffey, Alfred N. Metz, Deutsch & Frey, New York City, William O'Brien, Glenn P. Callahan, Callahan, Delany & O'Brien, Voorhees, NJ, for plaintiff.

Paul M. Dodyk, Cravath, Swaine & Moore, New York City, Douglas S. Eakeley, Lowenstein, Sandler, Kohl, Fisher & Boylan, Roseland, NJ, for defendants City Investing Co., Liquidating Trust, AmBase Corp., Carteret Bancorp. Inc., George T. Scharffenberger, Marshall Manley, Edwin I. Hatch and Eben W. Pyne.

Steven M. Edwards, Davis, Scott, Weber & Edwards, New York City, for defendant David F. Brown.

Joel Hirschhorn, Coral Cables, FL, for defendant Robert Ehrling.

Robert T. Wright, Elizabeth C. Barber, Mershon, Sawyer, Johnston Dunwody & Cole, Miami, FL, Joseph L. Buckley, Sills Cummis Zuckerman Radin Tischman Epstein & Gross, Newark, NJ, for defendants Reubin O'D. Askew, Howard L. Clark, Jr., Charles J. Simons and Peter R. Brinckerhoff.

Peter Perretti, Nicholas DeB. Katzenbach, Jeffrey J. Miller, Riker Danzig Scherer Hyland & Perretti, Morristown, NJ, for defendants Cravath, Swaine & Moore and David G. Ormsby.

Joseph J. Schiavone, Budd Larner Gross Rosenbaum Greenberg & Sade, Short Hills, NJ, John W. Little, III, Steel Hector & Davis, West Palm Beach, FL, for defendant Federal National Mortgage Association.

George T. Ford, Siff Rosen & Parker, Newark, NJ, George Kielman, Federal Home Loan Mortgage Co., McLean, VA, for defendant Federal Home Loan Mortgage Corp.

Peter Homer, Homer & Bonner, Miami, FL, Edward J. Boccher, Mudge Rose Guthrie Alexander & Ferdon, Parsippany, NJ, for defendant Citizens and Southern Trust Company (Florida), N.A.

Gerald J. Houlihan, Greenberg Traurig Hoffman Lipoff Rosen & Quentel, Miami, FL, Keith Harris, Braff Harris & Sukoneck, Livingston, NJ, for defendant Chase Federal Bank.

Kevin M. Hart, Stark & Stark, Princeton, NJ, for defendant Federal Deposit Insurance Corporation.

Steven M. Richman, Herrick, Feinstein, Princeton, NJ, George J. Wade, Thomas F. Swift, Shearman & Sterling, New York City, for defendant Citicorp Real Estate, Inc.

Herschel E. Sparks, Jr., Hughes, Hubbard & Reed, Miami, FL, Clyde A. Szuch, Pitney Hardin Kipp & Szuch, Morristown, NJ, for defendant The Home Insurance Company.

Vincent E. Reilly, McElroy, Deutsch & Mulvaney, Morristown, NJ, for defendant Secor National Bank.

Louis Mrachek, Gunster, Yoakley & Stewart, West Palm Beach, FL, for defendant National Bank of Canada.

Louis W. Childress, Brown Childress & Lofton, East Orange, NJ, John H. Denton, Connell, Foley & Geiser, Roseland, NJ, for defendant RTC, as Receiver for defendant Carteret Savings Bank, F.A.

Steven H. Reisberg, Wilkie, Farr & Gallagher, New York City, Robert E. Bartkus, Pinto, Rodgers & Kopf, Morristown, NJ, for defendant Prudential Insurance Company of America.

Steven I. Adler, Cole, Schotz, Bernstein, Meisel & Forman, Hackensack, NJ, for defendant First National Bank of Boston.

James J. Hagan, Simpson Thacher & Bartlett, New York City, for defendant Paine-Webber, Inc.

Warren H. Colodner, Kirkpatrick & Lockhart, New York City, for Merrill Lynch, Pierce, Fenner & Smith, Inc.

Joseph A. Boyle, Kelley Drye & Warren, Parsippany, NJ, Alan J. Kluger, Kluger Peretz Kaplan & Berlin, Miami, FL, for defendant Greyhound Financial Corporation.

Robert L. Young, Carlton Fields Ward Emmanuel Smith & Cutler, Orlando, FL, Peter J. Boyer, Blank Rose Comisky & McCauley, Cherry Hill, NJ, for defendant Harbor Federal Savings and Loan Association.

Marbury Rainer, Parker Hudson Rainer & Dobbs, Atlanta, GA, James A. Scarpone, Stephen L. Dreyfuss, Hellring, Lindeman, Goldstein, & Siegal, Newark, NJ, for defendant StanChart Business Credit, Inc.

David T. Eames, G. Wade Leak, Bodian & Eames, New York City, for Lloyds Bank, PLC.

DEBEVOISE, Senior District Judge.

On April 4, 1995, the Court of Appeals vacated the order of dismissal in this case and remanded for reconsideration in light of Jaguar Cars, Inc. v. Royal Oaks Motor Car. Co., 46 F.3d 258 (3d Cir.1995). The parties submitted extensive briefs to assist reconsideration of the order of dismissal. In addition, plaintiffs filed a motion for leave to serve a second amended and supplemental complaint and to add and drop parties.

I conclude that (i) Jaguar changed the law of this Circuit upon which I relied as one of the grounds for dismissal of plaintiff's RICO claims; (ii) other grounds for the dismissal of the RICO claims were unaffected by Jaguar; (iii) Jaguar has no effect upon the grounds for dismissal of plaintiffs' non-RICO claims; (iv) the remand order did not contemplate that plaintiffs be allowed to reconstitute and restructure their action through the vehicle of an amended complaint and the addition and deletion of parties; (v) the motion to serve a second amended and supplemental complaint and to add and drop parties should not be considered; and (vi) although the ruling in Jaguar requires modification of the December 27, 1993 opinion, it does not require modification of the order of dismissal. A new order will be entered dismissing the action as to all defendants.

I. BACKGROUND

A detailed procedural history of this case ("Rolo II") and its predecessor case ("Rolo I") is set forth in the opinion which accompanied the order of dismissal under reconsideration here. Rolo v. City Investing Company Liquidating Trust, 845 F.Supp. 182 (D.N.J. 1993). Similarly, there is contained in that opinion a recital of the facts upon which plaintiffs rely to establish their various claims. Except as necessary to explain the reasons for the conclusions on reconsideration, these facts will not be repeated here.

In essence, the plaintiffs in this action (Jose and Rosa Rolo and Dr. William and Roseanne Tenerelli) were among the thousands of persons who purchased Florida real estate from General Development Corporation ("GDC"). The final version of their complaint, which was dismissed on December 27, 1993, asserted claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), The Interstate Land Sales Full Disclosure Act ("Land Sales Act"), § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder ("Securities Act"), as well as various state law causes of action.

The complaint named 35 defendants, each of whom fell into one or more categories. The defendants and the categories are described in some detail in the 1993 opinion.¹ The categories are: (i) "City Defendants," consist of corporations and individuals alleged to have owned or exercised control over GDC. (ii) "Inside Director Defendants," consist of the four persons alleged to have had the greatest control over GDC. They are also characterized as City Defendants and Director Defendants. (iii) "Director Defendants" are the persons who were directors of GDC. (iv) "Financing Defendants" are the banks and brokerage houses which provided loans and other forms of financing to GDC, often receiving as security blocks of mortgages given by land purchasers. (v) "Mortgagee Defendants" are the institutions which purchased large blocks of purchase money mortgages derived from GDC land sales. (vi) "Lot Contract Defendants" are corporations which purchased large blocks of lot contracts and notes derived from GDC land sales.

In May 1993, the defendants moved to dismiss the First Amended Complaint in Rolo II under Fed.R.Civ.P. 12(b)(6) and certain defendants moved to dismiss the Land Sales Act and common law claims under Rule 12(b)(2) for lack of jurisdiction. At the same time, plaintiffs filed a motion for class certification. By that time plaintiffs had dropped many of their state law claims and the only remaining claims were claims under RICO, the Land Sales Act, the Securities Act and common law fraud.

In the course of responding to the motions to dismiss, plaintiffs in their brief revised their RICO allegations which defined the "enterprise" involved. Rather than requiring plaintiffs to move formally to file another amended complaint, I treated the revised RICO allegations as a proposed Second Amended Complaint and decided the motions as if they were directed to the Second Amended Complaint as well as the First Amended Complaint.

The December 27, 1993 opinion contained the following determinations:

Land Sales Act (Count III)

1. Persons who can be held liable under the Land Sales Act include not only a developer (such as GDC) and its agents, but also a person who provides knowing assistance to or engages in active participation in a fraudulent land sale scheme. Rolo, supra at 219, 220.

2. Applying that standard to the allegations of the Second Amended Complaint, (i) the motions of the Mortgagee Defendants, the Lot Contract Defendants and the financing Defendants to dismiss the Land Sales Act claims relying on the aiding and abetting theory were granted, (ii) the similar motions of defendants Askew, Clark, Simons, Brinckerhoff and AmBase were granted, (iii) the similar motions of defendants City Trust, Scharffenberger, Manley, Hatch and Pyne were denied, and (iv) the similar motions of defendants Cravath and Ormsby were denied.

3. All of plaintiffs' claims against all defendants under the Land Sales Act were barred by the Land Sales Act statute of limitations.

Civil RICO (Count I)

1. The amended complaint failed to allege the existence of a RICO enterprise because it defined the enterprise as the racketeering activity itself.

2. Plaintiffs' revised RICO allegations set forth in their briefs (which were deemed to have become a part of an amended complaint) effectively redefined the enterprise by asserting that the enterprise was GDC and its subsidiaries.

3. However, plaintiffs failed to plead that the RICO "persons" (GDC's officers,...