Giuliano v. Fulton

• Decision Date: 07 March 2005
• Docket Number: No. 04-1168.,04-1168.
• Parties: Louis J. GIULIANO; GTWO, LLC, A Massachusetts Limited Liability Company, Plaintiffs, Appellants, v. Stanley FULTON; My Way Holdings, LLC; Anchor Partners, LLC., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 381

399 F.3d 381

Louis J. GIULIANO; GTWO, LLC, A Massachusetts Limited Liability Company, Plaintiffs, Appellants, v. Stanley FULTON; My Way Holdings, LLC; Anchor Partners, LLC., Defendants, Appellees.

No. 04-1168.

United States Court of Appeals, First Circuit.

Heard October 8, 2004.

Decided March 7, 2005.

Robert S. Ovoian, for appellants.

Thomas A. Reed, with whom J. Owen Todd, David H. Rich, and Todd & Weld LLP were on brief, for appellees.

Before TORRUELLA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and HOWARD, Circuit Judge.

HOWARD, Circuit Judge.

Louis Giuliano and GTWO, LLC ("GTWO/MA") brought this civil action alleging that defendants Stanley Fulton, Anchor Partners, LLC ("Anchor"),¹ and My Way Holdings, LLC ("My Way") conspired to participate and participated, through repeated acts of mail and wire fraud, in an illegal racketeering scheme in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(b)-(d). The district court dismissed the amended complaint for failure to state a claim. See Fed.R.Civ.P. 12(b)(6). We affirm.

I.

We take as true the facts alleged in the complaint when reviewing a dismissal for failure to state a claim. Soto-Negron v. Taber Partners I, 339 F.3d 35, 36 (1st Cir.2003). At the heart of this lawsuit is a joint venture gone sour. We note that the parties who were principally involved in the venture, and in the subsequent conduct that has been alleged to constitute a RICO violation, are not defendants in this action. Indeed, the defendants here are accused of financing and furthering the racketeering scheme only after it had already been initiated by these other parties, who have been sued by the plaintiffs in state court, and whom we shall, at times, refer to as the "alleged conspirators."

The dispute centers around a 92-acre property in Massachusetts that Giuliano and an associate, Gary Piontkowski, discussed purchasing in 1997 for the purpose of operating a harness racing track. Piontkowski entered into a purchase and sale agreement with the owner of the property and, in 1998, formed Plainville Racing Company, LLC ("PRC") to operate the proposed racetrack. Shortly thereafter, Piontkowski assigned his rights in the property to Giuliano with the understanding that Giuliano, through his company GTWO/MA, would secure financing to complete the purchase of the property and to build the necessary facilities. Before acquisition of the property was complete, Giuliano executed a sublease whereby PRC leased, for the purpose of operating the racetrack, a 52-acre portion of the property from GTWO/MA for below-market rent. An addendum to the sublease granted PRC the right to exercise an option to purchase the subleased premises for fair market value.

Following execution of the sublease, the Massachusetts Racing Commission ("Commission") granted PRC a 1999 harness racing license (racing licenses are awarded annually by the Commission) conditioned on Giuliano completing acquisition of the property by December 1, 1998. Giuliano obtained the necessary financing and a deed to the property was executed in favor of GTWO/MA on November 16, 1998. Shortly after closing, however, and less than two weeks before expiration of the purchase and sale agreement, Giuliano's lender threatened to back out if the loan was not restructured under new terms. Given that both the Commission's deadline and the expiration of the purchase and sale agreement were fast approaching, Giuliano agreed to the new terms.

Under the restructured loan, a nominee of the lender, a limited liability company formed by the lender under Rhode Island law, GTWO, LLC ("GTWO/RI"), took title to the property. Giuliano received an option to purchase the property and a master lease giving him control of the property during the pendency of the option. Giuliano could exercise the option, at any time before January 28, 2000, by paying back his loan advancement in full plus interest. The lender required GTWO/MA and PRC to execute a First Amendment to Lease ("First Amendment") to confirm that the sublease between GTWO/MA and PRC was subordinate to the master lease between GTWO/RI and GTWO/MA. The First Amendment also converted PRC's option to purchase the subleased premises into an option to purchase GTWO/MA's one-year leasehold interest. Giuliano and Piontkowski signed the First Amendment with Russell Paige, an employee of GTWO/MA, serving as an attesting witness.

Shortly after the restructuring, and in response to the negative cash flow created by PRC's below-market rent,² Giuliano insisted that Piontkowski provide him with an option to purchase all of Piontkowski's shares of PRC stock for $1 million. Piontkowski agreed and a stock purchase agreement was executed in favor of Giuliano. When Giuliano subsequently learned that another Piontkowski-owned company was also a part-owner of PRC, Giuliano had Piontkowski execute a second stock purchase agreement that gave Giuliano the option to purchase all of the shares of that company. Piontkowski then asked Giuliano to sign a Lease Confirmation and Acknowledgment agreement ("Lease Confirmation") that essentially stated, in contravention of the First Amendment, that PRC's option to purchase the subleased premises was binding upon GTWO/RI. Giuliano refused to sign the Lease Confirmation, believing that he did not have authority to sign for GTWO/RI.

Beginning in June of 1999, PRC began breaching its obligations under the terms of the sublease and GTWO/MA provided PRC with several written notices of default. According to Giuliano, this is when Piontkowski hatched a scheme to seize Giuliano's property. On June 25, 1999, Piontkowski sent a letter to Giuliano asserting PRC's purported right to purchase the subleased premises. Attached to the letter was a copy of the Lease Confirmation (that Giuliano had previously refused to sign, but which seemingly bore his signature), that PRC asserted created privity between PRC and the record title owner of the property. Giuliano denied the authenticity of the document, alleging that it was a "switched-page" forgery — the attached signature page actually coming from the First Amendment that Giuliano had previously signed for his lender.

In two separate letters in the fall of 1999, Giuliano notified Piontkowski first, of his intent to exercise his options under the stock purchase agreements to acquire all of Piontkowski's interests in PRC and in the other Piontkowski-owned entity, and second, of the termination of PRC's sublease due to PRC's defaults. Piontkowski, however, refused to sell his ownership interest in PRC and refused to surrender the subleased premises.

In late September 1999, Piontkowski called a meeting of PRC's investors to discuss PRC's application, to be filed in competition with Giuliano, for a year 2000 racing license. After the investors concluded that the switched-page Lease Confirmation was not authentic, Paige, now employed by PRC, manufactured a new version of the Lease Confirmation by cutting and pasting Giuliano's signature onto a blank Lease Confirmation form. Paige forwarded this "cut-and-paste" forgery to Piontkowski, who later circulated it to the PRC investors.

In October 1999, PRC submitted a year 2000 application stating that PRC had long-term control of the subleased premises. At a series of Commission hearings in October and November 1999, Piontkowski and PRC presented the switched-page forgery as evidence of PRC's rights to the property. Piontkowski and Paige testified that Piontkowski had never signed the First Amendment and had never agreed to subordinate PRC's sublease to Giuliano's master lease. Moreover, they testified that Giuliano had signed the Lease Confirmation, which acknowledged that PRC had a 30-year lease with an option to purchase the premises. Piontkowski asserted that it was Giuliano who had perpetrated the fraud by attaching the signature page from the Lease Confirmation onto the First Amendment. When the authenticity of the switched-page Lease Confirmation was questioned, Piontkowski submitted the cut-and-paste Lease Confirmation. Relying on the forged documents and perjured testimony, the Commission concluded that PRC's sublease had not been subordinated to the master lease and thus PRC had a long-term right to control of the premises. Accordingly, on November 15, 1999, the Commission granted a year 2000 racing license to PRC.

Piontkowski and PRC then filed a complaint in Massachusetts state court seeking a declaration that PRC had validly exercised its option to purchase the subleased premises. On November 1, 1999, PRC used the cut-and-paste forgery and perjured testimony to obtain a Memorandum of Lis Pendens from the court that effectively clouded title to the property. Throughout the course of these state proceedings, PRC submitted numerous fraudulent filings to the court. The state court relied on these fraudulent misrepresentations in denying Giuliano's motion to dismiss.

On November 12, 1999, Giuliano filed his own Massachusetts state court action against Piontkowski and PRC seeking specific performance of the stock purchase agreements. In their answer, Piontkowski and PRC again relied on the cut-and-paste forgery. Because the ultimate objective of the racketeering scheme was to unite the alleged conspirators' control of both the racing license and the racetrack property, and since PRC was the entity they were using to achieve that end, the alleged conspirators' misrepresentations in this state action were intended to further the scheme by preventing Giuliano from seizing control of PRC.

In December 1999, anticipating the expiration of Giuliano's option, Alfred Ross, one of PRC's investors, solicited financing from Stanley Fulton and Anchor. Fulton and senior management from Anchor met with Ross and Piontkowski in Arizona later that month to discuss financing the acquisition of the property. Fulton was apprised of the fraudulent basis of...