Greenview Trading Co., Inc. v. Hershman & Leicher, P.C.

• Decision Date: 05 March 1984
• Court: New York Supreme Court
• Parties: GREENVIEW TRADING CO., INC., Plaintiff, v. HERSHMAN & LEICHER, P.C., Harold M. Hershman, Indu Craft, Inc. PLC of New York, Inc. and Richard Rottman, Defendants.

Page 722

473 N.Y.S.2d 722

123 Misc.2d 152

GREENVIEW TRADING CO., INC., Plaintiff, v. HERSHMAN & LEICHER, P.C., Harold M. Hershman, Indu Craft Inc. PLC of New York, Inc. and Richard Rottman, Defendants.

Supreme Court, New York County.

March 5, 1984.

Kreindler & Relkin, New York City (Sidney S. Goldstein, S. Robert Schrager, Donald D. Casale, New York City, of counsel), for plaintiff.

Hershman & Leicher, P.C., New York City (Jacqueline Taubes, New York City, of counsel), for defendants.

DAVID B. SAXE, Acting Justice.

Do state courts have concurrent jurisdiction with federal courts to hear private civil actions for damages under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961 et seq., 1964(c) or are these actions exclusively within the federal domain?

The lawsuit concerns an agreement ("Agreement") entered into between the plaintiff Greenview and defendant Indu Craft, Inc. ("Indu Craft") under which the plaintiff agreed to assign its lease of premises located at 1407 Broadway in New York City to defendant Indu Craft. Indu Craft also agreed to purchase for $15,000 from Greenview furniture and fixtures located at the premises.

Also, under this Agreement, Indu Craft's attorneys, Hershman & Leicher, P.C. agreed to act as escrow agent for the parties, holding the sum of $14,500 from Indu Craft in escrow which was to be released to Greenview when the lease between the landlord and Indu Craft was executed. The Agreement also provided that other property of Greenview's, consisting of samples and other items, which was not being sold to Indu Craft could remain on the premises until September 15, 1983 at which time Greenview would remove them.

Paragraph 8 of the Agreement is crucial. It provides that if the landlord of the building failed to execute a written lease with Indu Craft, or if the landlord executed a lease with anyone other than Indu Craft, then the sum held in escrow by the attorneys was to be returned to Indu Craft. The landlord executed a lease with P.L.C. of New York, Inc., (i.e. a corporation other than Indu Craft) and the sum held in escrow by Hershman & Leicher, P.C. was returned to Indu Craft.

In essence, the issue underlying this action is whether P.L.C. is a corporation "other than" Indu Craft. Plaintiff contends that P.L.C. is the alter ego of Indu Craft and that P.L.C. was craftily formed by the defendants for the purpose of effectuating a fraud against the plaintiff. This scheme, according to plaintiff, was to have a lease executed between the landlord and P.L.C. (rather than Indu Craft) thereby invoking Paragraph 8 of the Agreement which stated that under such circumstances the escrow monies were not required to be remitted to the plaintiff. It is alleged that P.L.C. is controlled and operated by the same principals as Indu Craft and that defendant Richard Rottman, a principal of Indu Craft, informed the landlord that Indu Craft and P.L.C. were the same entity and instructed the landlord to execute the lease with P.L.C. Additionally, the Certificate of Incorporation for P.L.C. designates Indu Craft as the party to receive service of process.

Plaintiff thus contends that a lease by P.L.C. is the functional equivalent of a lease by Indu Craft, and therefore paragraph 8 of the Agreement was never triggered. That being said, the plaintiff alleges that the defendants breached the Agreement and further that the defendant attorneys acted improperly by releasing the escrow funds to Indu Craft under the pretext that the landlord had executed a lease with a corporation "other than" Indu Craft. They therefore contend that the defendants are liable for damages for breach of contract, conversion, fraud, and violation of the RICO statute, 18 U.S.C. 1964(c). I have determined, in an unpublished decision that causes of action are properly stated for breach of contract, conversion and fraud.

The defendants also move to dismiss the cause of action asserted against them alleging that they have violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961, 1964(c).

RICO was enacted in order to "halt organized crimes infiltration of the American economy by creating enhanced sanctions and new remedies against defendants who engage in racketeering activity to operate or gain control of business enterprises. In addition to the substantial criminal penalties and harsh civil remedies that the government can seek, Section 1964(c) offers a private right of action for treble damages to anyone injured 'by reason of' a violation of the Act." See generally, Note, Civil RICO: The Temptation and Impropriety of Judicial Restriction, 95 Harv.L.Rev. 1101 (1982).

18 U.S.C. Sec. 1964 provides in pertinent part:

"(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States District Court and shall recover threefold the damages he sustains and the costs of the suit, including a reasonable attorney's fee."

Although the statute specifically vests jurisdiction in the United States District Courts, it does not state whether state courts may maintain concurrent jurisdiction over these claims. The defendants maintain that jurisdiction for this private civil action exists exclusively in the federal courts and therefore this cause of action must be dismissed.

The issue of whether state courts have concurrent jurisdiction to adjudicate private civil actions for damages based upon this federally created cause of action under the RICO statute, 18 U.S.C. Sec. 1964, is one of first impression in this state. See Brodsky, Corporate and Securities Litigation: RICO, N.Y.L.J. February 15, 1984, p. 1, col. 1, n. 32. This issue has only been addressed twice. See Letters to the Editor, N.Y.L.J., Feb. 21, 1984, p. 2 col. 6. In Luebke v. Marine National Bank of Neenan, 567 F.Supp. 1460 (E.D.Wisc.1983) in dicta, the court noted that, although unclear, state courts and federal courts probably could exercise concurrent jurisdiction over cases arising under Sec. 1964(c). An unreported case, County of Cook v. Midcon Corp., 574 F.Supp. 902, (N.D.Ill.1983), concluded that federal courts have exclusive jurisdiction over cases arising under this section. For the reasons that follow this court adopts the view in favor of concurrent jurisdiction.

The United States Supreme Court has enunciated the rule that:

"The general principle of state-court jurisdiction over cases arising under federal laws is straight-forward: state courts may assume subject-matter jurisdiction over a federal cause of action absent provision by Congress to the contrary or disabling incompatibility between the federal claim and the state-court adjudication." (cit. omitted).

Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 478-479, 101 S.Ct. 2870, 2875, 69 L.Ed.2d 784 (1981).

The Court went on to state:

"... the court begins with the presumption that state courts enjoy concurrent jurisdiction. Congress, however, may confine jurisdiction to the federal courts either explicitly or implicitly. Thus, the presumption of concurrent jurisdiction can be rebutted by an explicit statutory direction, by unmistakable implication from legislative history, or by a clear incompatibility between state-court jurisdiction and federal interests...." (cit. omitted). Id.

Thus, exclusive federal jurisdiction does not arise merely because the litigated controversy involves rights arising under the federal constitution or the laws of the United States. 10 Am.Jur.2d, Courts, Sec. 13.

Consistent with this rule, courts have repeatedly found that state courts have concurrent jurisdiction to hear civil claims arising under various federal statutes. See Gulf Offshore Co. v. Mobil Oil Corp., supra (Personal injury claims arising out of the Outer Continental Shelf Lands Act); Charles Dowd Box Co. v. Courtney, 368 U.S. 502, 82 S.Ct. 519, 7 L.Ed.2d 483 (1962) (contract claims based on section 301(a) of the Labor Management Relations Act of 1947), Sands v. Weingrad, 99 Misc.2d 598, 416 N.Y.S.2d 969 (Sup.Ct.N.Y.Co.1979) (civil causes of action for unlawful disclosure of income tax returns under Section 7217 of the Internal Revenue Code). In each of these cases, as here, the federal statute creating the civil claim stated that jurisdiction was vested in the United States district courts but was silent regarding state court jurisdiction.

In an effort to rebut the presumption of concurrent jurisdiction, the defendants have attempted to show Congressional intent to vest federal courts with exclusive jurisdiction over private RICO claims. They contend that the legislative history reveals that the RICO statute is an outgrowth of the Antitrust statutes where jurisdiction has consistently been held to be exclusively in the federal courts. It is the defendants' position that an analogy must be drawn to the antitrust laws for the purpose of interpreting the RICO state, its enforcement and the determination of the appropriate forum for entertaining RICO claims.

While the RICO statute may be rooted in the...