Burke v. Dowling
| Decision Date | 06 November 1995 |
| Docket Number | No. 94-CV-3412.,94-CV-3412. |
| Citation | 944 F.Supp. 1036 |
| Parties | William M. BURKE, et al., Plaintiffs, v. William Q. DOWLING, et al., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Michael A. Spero, McCarthy and Schatzman, P.A., Princeton, NJ, for Jay F. Higgins.
Richard M. Kraver, Kraver & Levy, New York City, for William Q. Dowling.
Dennis Drebsky, Rogers & Wells, New York City, for Adams H. Nickerson, Daniel P. Davison, Ashford Hotels Ltd.
C. William Phillips, Howard, Darby & Levin, New York City, for Walter J.P. Curley.
Dennis Drebsky, Rogers & Wells, New York City, Richard M. Kraver, Kraver & Levy, New York City, for Ashford Castle, Inc., Dromoland Castle, Inc., Dowmar Securities Inc.
Roger J. Hawke, Brown & Wood, New York City, Daniel Adam Osborn, Brown & Wood, New York City, for Allied Irish Banks, P.L.C.
Michael Schuster, White & Case, New York City, for Wilde Sapte.
The principal plaintiffs in this case are American investors who sought shelter from U.S. tax laws in Irish castles. These plaintiffs contend that the defendants induced them to purchase interests in a scheme to convert these castles into luxury hotels — a project designed to produce tax benefits to upper income investors. They claim that in reality, defendants were perpetrating a type of Ponzi scheme, continually starting new hotel projects in order to pay off the debts of the old. When the project was near collapse, they claim that defendants looted the assets of their enterprise, leaving their creditors — several of whom are also plaintiffs here — unable to collect on their debts.
Plaintiffs commenced this action against defendants in the Supreme Court of the State of New York, Nassau County, alleging violations of sections 1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), as well as charges of common law fraud, breach of fiduciary duty, and breach of contract. Defendants removed the action to this court on July 20, 1994. Subsequently, all defendants moved to dismiss the amended complaint pursuant to Rules 8, 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons discussed below, defendants' motions are granted in part and denied in part.
The factual allegations made by plaintiffs are set out at length in the amended complaint. Since it is assumed that the parties are familiar with the details of these allegations, only a summary of the essential facts is provided below. Naturally, for the purposes of this motion, the court must accept the facts alleged in the amended complaint as true and draw all reasonable factual inferences in favor of the plaintiffs. See, e.g., IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052 (2d Cir.1993), cert. denied, ___ U.S. ___, 115 S.Ct. 86, 130 L.Ed.2d 38 (1994).
Ashford Castle ("Ashford") is an eighteenth century castle located on the western coast of Ireland that was converted into a luxury resort hotel and later acquired by Allied Irish Bank ("AIB") as a result of a failed loan. In 1985, defendants Dowling, Nickerson, and Curley decided to purchase Ashford from AIB and sell interests in the castle to investors for profit. Defendants Ashford Castle, Inc. ("ACI") and Dowmar Securities, Inc. ("Dowmar"), corporations owned and directed by Dowling, Nickerson, and Curley, handled most of the financial matters regarding the Ashford syndication. AIB agreed to be the primary lender for the project.
Numerous American investors were successfully solicited via mail by letters and a private placement memorandum ("Ashford PPM"). Among these investors are plaintiffs Burke, Casey, Connor, Higgins, Joyce, Kane, Kaufman, Keelan, Kirkwood, McGouran, McSorley, Millard, and Mulcahy ("Ashford plaintiffs"). ¶ 71.
The Ashford PPM described the layout of Ashford and detailed the terms and conditions of the syndication. However, it contained some misrepresentations, which form the basis of the Ashford plaintiffs' claims. Most significantly, the Ashford plaintiffs claim that the syndication of Ashford was consummated even though the requisite minimum subscription level stated in the Ashford PPM, was never actually reached. Instead, the offerors of Ashford used at least eight "stand-in" investors to meet the minimum subscription level.1 These investors lent their names to be used as names of bona fide investors, and like the bona fide investors, secured loans from AIB. However, the "stand-ins" never used any of their own money. Their obligations were paid by the offerors of Ashford, using the money from the general revenue of the castle. ¶ 78. AIB accepted and processed these "stand-in" payments, and credited the accounts of the "stand-ins" on behalf of whom the checks were being written. The Ashford offerors also received unexplained payments that were taken from the proceeds of the Ashford syndication. Pl.Ex.C.
In 1987, a second fraudulent scheme similar to the Ashford scheme was perpetrated using another Irish castle called Dromoland Castle ("Dromoland"). The Dromoland plaintiffs are Connor, Feeley, Gilgan, Joyce, Kaufman, Keelan, Levine, Loftus, Loughran, McWeeney, Millard, Charles Milligan, Phoebe Milligan, Moore, and Quinlan ("Dromoland plaintiffs").
The Dromoland private placement memorandum ("Dromoland PPM") contained misrepresentations about the financing and the use of proceeds with regard to the Dromoland project. Also, the syndication of Dromoland was consummated even though the requisite minimum subscription level stated in the Dromoland PPM, was never achieved on account of a "stand-in" fraud that resembled the one at Ashford. ¶ 94. In addition to all the defendants implicated in the Ashford scheme, Dromoland Castles, Inc. ("DCI"), a corporation formerly owned and directed by Dowling, Nickerson, and Curley, is implicated in the Dromoland scheme. Again, revenue from the castles was used to pay the "stand-in" obligations at Dromoland, and for the unexplained personal expenses of the Dromoland offerors. ¶ 102, Pl.Ex.C.
Plaintiffs charge that defendants also perpetrated additional fraudulent schemes, but do not allege any injury from these schemes in this action. In 1988, Dowling, Nickerson and Curley formed Ashford Hotels, Ltd. ("AHL"). The complaint is unclear as to the precise relationship between AHL and the other corporations run by these defendants. Plaintiffs simply state that AHL was formed to "consolidate" the management contracts of ACI and DCI, as well as other projects of the defendants. ¶¶ 47, 55. Defendant Davison joined AHL as a shareholder and director some months after its formation....
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