First City Nat. Bank v. Federal Dep. Ins. Co.

Decision Date16 January 1990
Docket NumberNo. 88 CV 0469.,88 CV 0469.
Citation730 F. Supp. 501
PartiesFIRST CITY NATIONAL BANK AND TRUST COMPANY, Plaintiff, v. FEDERAL DEPOSIT INSURANCE COMPANY, as receiver for First Inter-County Bank of New York, Tiberiu Horovitz, James Hurtig, Luis Electrical Contracting Corp., Domenico Rabuffo, Roadworks Industries, Inc., Richard Caplan, Georgian Motel Corp., Orval Penrose, Philip Wolitzer, Michael Zinman, Marvin J. Levine, Marvin J. Meyer, Averell H. Fisk, Steven A. Sanders, Paul A. Schwartz, Jack Graff and Bard & Glassman, Defendants.
CourtU.S. District Court — Eastern District of New York



Kraver & Parker, New York City, for plaintiff.

Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant Federal Deposit Ins. Corp. as receiver for First Inter-County Bank of New York.

Rosner & Goodman, New York City, for defendants Tiberiu Horovitz and Philip Wolitzer.

Snitow & Pauley, New York City, for defendants Roadworks Industries, Inc. and Richard Caplan.

LaRossa, Mitchell & Ross, New York City, for defendants Orval Penrose and Georgian Motel Corp.

Jacobs, Persinger & Parker, New York City, for defendant Marvin J. Meyer and Steven A. Sanders.

Gold & Wachtel, New York City, for defendants Michael Zinman, Marvin J. Levine, Paul A. Schwartz and Averell H. Fisk.

Sukenik, Segal & Graff, P.C., New York City, for defendant Jack Graff.

D'Amato & Lynch, New York City, for defendant Bard & Glassman.


McLAUGHLIN, District Judge.

Defendants move pursuant to: (i) Fed.R. Civ.P. 12(b)(6) to dismiss RICO claims under Count One for failure to state an actionable claim; (ii) Fed.R.Civ.P. 12(b)(1) to dismiss common law fraud claims under Count Two for lack of subject matter jurisdiction; (iii) Fed.R.Civ.P. 9(b) to dismiss the Complaint for failure to plead fraud with sufficient particularity; (iv) Fed.R.Civ.P. 12(f) to strike portions of the complaint as immaterial, impertinent or scandalous; (v) Fed.R.Civ.P. 12(g) to amend prior motions; (vi) Fed.R.Civ.P. 21 for misjoinder; (vii) Fed.R.Civ.P. 42(b) for separate trials; and (viii) Fed.R.Civ.P. 11 for sanctions against plaintiff. Plaintiff requests leave to replead in the event portions of the Amended Complaint are dismissed.


On August 8, 1987, Irwin Schiff was assassinated while dining at the Bravo Sergio restaurant in New York City. An investigation into his murder peeled back layers of criminal fraud like the skin of an onion. One of these skins involved First Inter-County Bank of New York ("First Inter-County"), a federally chartered banking association that is owned outright by GHW Associates, a bank holding company. Schiff, a convicted felon, was a partner at GHW who subsequently sold his interest to Domenico Rabuffo, a defendant named in the complaint.

Although Schiff sold his partnership interest in First Inter-County, he apparently never lost his influence. Working through First Inter-County's president, Tiberiu Horovitz, Schiff secured excess financing for various corporations — most of which Schiff controlled through disclosed and undisclosed interests. The investigation into Schiff's murder suggested that he was profoundly corrupt, involved in check kiting, fraud, money laundering and organized crime.

Plaintiff alleges that, for his role in the lending scheme, Horovitz was showered with lavish gifts from clients — a yacht, a chauffeur and car. As president of First Inter-County, Horovitz allegedly sought to spread the costs of this excess financing by encouraging other banks to participate through direct loans or participation agreements.

Plaintiff is a bank. Based upon what it alleges were outright lies and misrepresentations, principally by Horovitz, it lent over two million dollars to two of Schiff's rogue corporations and participated in an existing loan worth one and a half million dollars to a third Schiff corporation, all of which are named as defendants. Because the keystone of Schiff's financing empire, First Inter-County, became insolvent early in 1988, the Federal Deposit Insurance Corporation ("FDIC") took over as receiver, and it too is a defendant.1

In its sixty-six page Amended Complaint, plaintiff First City National Bank and Trust Company ("FCNB") alleges that First Inter-County, its directors, officers and accountants, along with several other First Inter-County clients, committed common law fraud and conducted a fraudulent lending scheme in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The nub of the charge is that, in early summer 1986, the president of First Inter-County, defendant Tiberiu Horovitz, embarked on his elaborate scheme to obtain excess financing from FCNB for three corporate defendants named in the Amended Complaint.

The first corporate defendant, Luis Electrical Contracting Corp. ("Luis Electrical"), is wholly owned by Luis Equipment Corp. ("Luis Equipment"). Defendant Domenico Rabuffo owns 48% of Luis Equipment and he served as the corporation's secretary-treasurer.

The second corporate defendant, Roadworks Industries, Inc. ("Roadworks"), is engaged in leasing luxury automobiles. Defendant Richard Caplan was both president and principal shareholder of Roadworks.

Defendant Georgian Motel Corp. ("Georgian") is the third corporate defendant allegedly involved in the fraud. Defendant Orval Penrose is the principal owner of Georgian, although it is alleged that Rabuffo and Luis Electrical have a multi-million dollar interest in the motel.

The first two corporate defendants borrowed substantial sums directly from FCNB; and the third, Georgian, benefited from FCNB's participation in an existing loan. Upon discovering that all three corporations had fallen behind in scheduled payments, plaintiff notified First Inter-County of the delinquent loans and demanded that First Inter-County repurchase the loans and also repay the amounts borrowed under the participation agreement, as orally promised during earlier negotiations. Soon after, in August 1987, defendant Horovitz allegedly offered Robert Reddington, a senior vice president of plaintiff FCNB, a $30,000 bribe. Amend. Complaint at 39. Subsequently, the loans fell into default, and this action followed.

Most of the remaining defendants are former members of First Inter-County's board of directors. They are defendants Zinman, Levine, Meyer, Fisk, Sanders and Schwartz. The Amended Complaint also names as defendants former Inter-County board chairman Philip Wolitzer, former bank president Jack Graff and former bank vice president James Hurtig. Defendant Bard & Glassman ("B & G"), a certified Public Accounting firm, performed professional services for First Inter-County and for Luis Electrical.

For purposes of these motions the Court must accept as true all factual allegations in the Amended Complaint. Procter & Gamble Co. v. Big Apple Industrial Bldgs. Inc., 879 F.2d 10, 18 (2d Cir.1989). Jurisdiction rests upon a federal question involving the RICO statute and pendent jurisdiction over predicate acts involving common law fraud.


Defendant FDIC, as receiver for First Inter-County, moves to dismiss the entire complaint. All but three remaining defendants — Hurtig, Luis Electrical and Rabuffo — move pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss Count One of the Amended Complaint for failure to state a claim. Movants argue that FCNB has failed to plead the statutory elements of civil RICO.

RICO prohibits all of the following: (i) using or investing income derived from a pattern of racketeering activity to acquire an interest in an enterprise engaged in interstate commerce, (ii) acquiring or maintaining an interest in an enterprise through a pattern of racketeering activity, (iii) participating in the conduct of an enterprise affecting interstate commerce through a pattern of racketeering activity, and (iv) conspiring to do any of the above. 18 U.S.C. § 1962(a)-(d). Predicate acts alleged in the Amended Complaint to establish a pattern of racketeering activity include mail fraud, wire fraud, and commercial bribery. 18 U.S.C. § 1341, 1343; N.Y. Penal Law § 180.03 (McKinney 1988).

A. Investing Income And Acquiring Interests In A RICO Enterprise

RICO section 1962(a) renders criminally and civilly liable "any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest ... such income ... in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in interstate or foreign commerce." 18 U.S.C. § 1962(a). Section 1962(b) proscribes the acquisition of an interest in or control of any such enterprise through a pattern of Racketeering activity.2 Section 1962 is intended to prevent racketeering activity from infiltrating legitimate business enterprises, as well as to halt the investing or reinvesting of income derived from a pattern of racketeering in illegal enterprises. See United States v. Turkette, 452 U.S. 576, 584, 101 S.Ct. 2524, 2529, 69 L.Ed.2d 246 (1981); Moll v. U.S. Life Title Ins. Co., 654 F.Supp. 1012, 1033 (S.D.N.Y.1987).

Under section 1962(a) and (b), plaintiff must allege that defendants invested, acquired or maintained interests in an enterprise through a pattern of racketeering activity. Bingham v. Zolt, 683 F.Supp. 965, 971 (S.D.N.Y.1988). Additionally, plaintiff must allege injury to his business or property by reason of the racketeering activity. Id. at 971; Anitora Travel, Inc. v. Lapian, 677 F.Supp. 209, 218 (S.D.N.Y. 1988); DeMuro v. E.F. Hutton, 643 F.Supp. 63, 66 (S.D.N.Y.1986).

Plaintiff makes only conclusory allegations that each defendant violated section 1962(a) and (b). Amend. Complaint at 54-64. Plaintiff does not allege that any defendant invested racketeering income in an enterprise through racketeering activity. DeMuro, 643 F.Supp. at 66. Consequently, the Amended Complaint does not state an actionable...

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