Bosteve, Ltd. v. Marauszwski

• Decision Date: 14 July 1986
• Docket Number: No. 84 CV 3929.,84 CV 3929.
• Citation: 642 F. Supp. 197
• Parties: BOSTEVE, LTD. and Steven J. Tannenbaum, Plaintiffs, v. William F. MARAUSZWSKI, Defendant.
• Court: U.S. District Court — Eastern District of New York

642 F. Supp. 197

BOSTEVE, LTD. and Steven J. Tannenbaum, Plaintiffs, v. William F. MARAUSZWSKI, Defendant.

No. 84 CV 3929.

United States District Court, E.D. New York.

July 14, 1986.

Sheldon Rosen, Cilluffo, Cama, Rosen and Danzi, Commack, N.Y., for plaintiffs Bosteve Ltd. and Stephen Tannenbaum.

Neil Cahn, Newman & Cahn, Carle Place, N.Y., for defendant William F. Marauszwski.

MEMORANDUM and ORDER

SHIRA A. SCHEINDLIN, United States Magistrate.

In August or September, 1982, plaintiffs, Bosteve Ltd. ("Bosteve")¹ and Steven J. Tannenbaum ("Tannenbaum"), made an oral agreement with defendant, William F. Marauszwski ("Marauszwski"), whereby plaintiffs would sell a yacht to defendant in return for which defendant would pay the amount remaining due on the boat's mortgage to the Chemical Bank. As so often happens, the deal fell apart with each side accusing the other of breach of contract, fraudulent misrepresentation, and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. (1982).

Prior to the trial each side moved to dismiss the other's RICO claims. Plaintiffs' RICO claims were dismissed by the court but defendant was granted leave to replead his claim with the required specificity. See Fed.R.Civ.P. 9(b). A complaint alleging RICO-mail fraud must specify, inter alia, precisely what statements were made, when and by whom they were made, the content of such statements and the manner in which they were misleading. See Moss v. Morgan Stanley Inc., 719 F.2d 5, 19 (2d Cir.1983), cert. denied, 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984); see also Conan Properties, Inc. v. Mattel, Inc., 619 F.Supp. 1167, 1172 (S.D.N.Y. 1985).

By consent of the parties a trial was held before this court. A jury of six returned a verdict in favor of the defendant on all claims and counterclaims including the RICO charge. Specifically, the jury awarded $9,361.00 as incidental breach of contract damages, "relief from any and all commitments to Chemical Bank as consequential breach of contract damages, $8,504.00 as damages for fraudulent misrepresentation and $1,500.00 as damages for violations of RICO.²

Plaintiffs now move for judgment notwithstanding the verdict or, in the alternative, for a new trial. Plaintiffs assert that the evidence presented at trial failed to state a claim for relief under RICO. Plaintiffs also argue that defendant lacks standing to assert a RICO claim since the predicate acts, if proven, were not directed at defendant. Finally, plaintiffs assert that there can be no claim under RICO where there is no underlying felony conviction.³ Additionally, plaintiffs argue that the jury was confused with respect to the awarding of damages for both breach of contract and fraud. Plaintiffs urge that all of defendant's counterclaims be dismissed as a matter of law because the jury's findings were against the weight of the evidence.

Defendant has cross-moved to correct and clarify the judgment entered on April 11, 1986 by entering a specific dollar amount for the contract and fraud claims, computing treble damages for the RICO award and awarding attorneys' fees under RICO.

I. DISCUSSION

A. RICO

18 U.S.C. § 1964 (1982) provides a civil remedy for violations of RICO. Under this statute, an injured party may recover treble damages and attorneys' fees. 18 U.S.C. § 1964(c)(1982). In his amended counterclaim Marauszwski alleges that Tannenbaum and Bosteve violated 18 U.S.C. § 1962(c)(1982).⁴

In order to prevail on his RICO claim Marauszwski must prove, inter alia, that Tannenbaum conducted the affairs of Bosteve through a "pattern of racketeering activity" as defined in § 1961(5).

(5) "pattern of racketeering activity" requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.

Id.

Prior to Sedima S.P.R.L. v. Imrex Co., Inc., ___ U.S. ___, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) a number of courts held that a RICO violation could be established based on proof of at least two predicate acts, even if they were both part of a single scheme to defraud. See e.g., United States v. Starnes, 644 F.2d 673, 678 (7th Cir.), cert. denied, 454 U.S. 826, 102 S.Ct. 116, 70 L.Ed.2d 101 (1981) (two logically connected acts constituted a pattern); United States v. Weatherspoon, 581 F.2d 595, 601-02 (7th Cir.1978)(five mailings within one scheme was held sufficient); Beth Israel Medical Center v. Smith, 576 F.Supp. 1061, 1066 (S.D.N.Y.1983) (the mere allegation of two predicate acts was sufficient to constitute a pattern).

In Sedima, while addressing the issue of establishing a "racketeering injury" the Court, in a footnote, defined the term "pattern of racketeering."

As many commentators have pointed out, the definition of a "pattern of racketeering activity" differs from the other provisions in § 1961 in that it states that a pattern "requires at least two acts of racketeering activity," § 1961(5)(emphasis added), not that it "means" two such acts. The implication is that while two acts are necessary, they may not be sufficient.

Indeed, in common parlance two of anything do not generally form a "pattern." The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: "The target of RICO is thus not sporadic activity. The infiltration of legitimate business normally requires more than one `racketeering activity' and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern." S.Rep. No. 91-617, p. 158 (1969)(emphasis added). Similarly, the sponsor of the Senate bill, after quoting this portion of the Report, pointed out to his colleagues that "the term `pattern' itself requires the showing of a relationship.... So, therefore, proof of two acts of racketeering activity, without more, does not establish a pattern...." 116 Cong.Rec. 18940 (1970) (statement of Sen. McClellan). See also id., at 35193 (statement of Rep. Poff) (RICO "not aimed at the isolated offender"); House Hearing, at 665. 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. § 3575(e). This language may be useful in interpreting other sections of the Act.

___ U.S. at ___, 105 S.Ct. at 3285 n. 14.

In Northern Trust Bank/O'Hare, N.A., v. Inryco, Inc., 615 F.Supp. 828 (N.D.Ill. 1985), which followed closely on the heels of Sedima, the court concluded that the alleged fraudulent mailings, all of which were connected to a singe kickback scheme, failed to establish a "pattern of racketeering activity." Id. at 833. Several courts in this Circuit have now adopted this definition. In a Memorandum and Order dated April 24, 1986, the Honorable Eugene H. Nickerson stated:

here the predicate acts upon which plaintiffs rely all arise from an alleged single unlawful scheme: the mailing of false and misleading financial and proxy statements. Multiple mailings that are part of the same criminal activity do not constitute a pattern of racketeering activity.

Eisenberger v. Spectex Industries, Inc., 644 F.Supp. 48 (E.D.N.Y.1986).

Similarly, in Furman v. Cirrito, No. 82 Civ. 4428 (S.D.N.Y. Mar. 12, 1986) (Cooper, J.) (available on Lexis), available on WESTLAW, DCTU database the court concluded:

we are compelled to conclude that the alleged activities of defendants herein did not establish a pattern. Although each of the separate acts of mail fraud were related to each other ... all of the claimed acts were committed in furtherance of one scheme.

Id.; see also, Commercial Agropequaria Menichetti Fuente S.A.C.I. v. Heather Trading Corp., No. 85 Civ. 3240 (Sweet J.)(S.D.N.Y. Mar. 27, 1986)(available on Lexis) Available on WESTLAW, DCTU database (the court, after citing the Sedima footnote, concluded that one fraudulent misrepresentation in one transaction in one time frame was not a pattern despite multiple allegations of predicate acts); Utz v. Correa, 631 F.Supp. 592 (S.D.N.Y.1986)(no "pattern" exists under RICO where every predicate act was part of one isolated fraudulent episode); Richardson Greenshields of Canada Limited v. Patel, 643 F.Supp. 672 (S.D.N.Y.1986)(Walker, J.)

RICO is frequently pled in lawsuits involving commercial disputes, breach of contract and state law fraud. See Haroco, Inc. v. American National Bank & Trust Co., 747 F.2d 384, 386-87 (7th Cir.1984), aff'd, ___ U.S. ___, 105 S.Ct. 3292, 87 L.Ed.2d 361 (1985)(per curiam)(discussing the misuse of civil RICO); Zola v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 84 Civ. 8522 (S.D.N.Y. Jan. 23, 1986)(Haight, J.)(available on Lexis) Available on WESTLAW, DCTU database (the court noted in a securities fraud case that plaintiff pled the "now inevitable civil RICO claim.").

In the present action, assuming all of defendant's claims are true as found by the jury, the RICO claim cannot stand. The underlying predicate acts proved at trial concerned a single scheme to defraud the New York State Department of Taxation and Finance by incorporating Bosteve out of state prior to the purchase of the boat in order to evade the payment of New York State sales tax on the boat. There was no evidence or allegation of any other scheme to defraud.⁵

As noted in Sedima, RICO was not meant to provide redress for "sporadic activity" but rather for the "infiltration of legitimate business." Sedima, ___ U.S. ___, 105 S.Ct. 3275 n. 14. RICO was not intended to combat "isolated events." Id. As the Senate...