Gross v. Waywell

• Decision Date: 16 June 2009
• Docket Number: No. 08 Civ. 9498.,08 Civ. 9498.
• Citation: 628 F.Supp.2d 475
• Parties: Herman GROSS et al., Plaintiffs, v. Roderick WAYWELL et al., Defendants.
• Court: U.S. District Court — Southern District of New York

628 F.Supp.2d 475

Herman GROSS et al., Plaintiffs, v. Roderick WAYWELL et al., Defendants.

No. 08 Civ. 9498.

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

June 16, 2009.

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A. Jared Silverman, Law Offices of A. Jared Silverman, West Orange, NJ, James Bruce Daniels, Budd Larner, P.C., New York, NY, Alfred Michael Covino, Budd Larner Rosenbaum Greenberg & Sade, P.C., Short Hills, NJ, for Plaintiffs.

Gail McLemore Rodgers, Palmina M. Fava-Pastilha, DLA Piper U.S. LLP, Claudia Alejandra Costa, Stryker Tams & Dill, LLP, New York, NY, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Plaintiffs Herman Gross ("Gross") and R.A.K. Tennis Corp., ("RAK") (collectively "Plaintiffs") brought this action against defendants Roderick Waywell ("Waywell") and Lisa Waywell (together, the "Waywells"), Hugo Costa ("Costa"), Barbara Errigo¹ ("Errigo"), and Jeffrey Shapiro² ("Shapiro") (collectively, "Defendants") alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, as well as various state law causes of action. The unlawful conduct the complaint describes arises from Defendants' operation of Plaintiffs' tennis club and related premises in Long Island City, New York. Arguing that the pleadings fail to state a plausible RICO claim and that no other recognized ground exists to litigate this case in federal court, the Waywells and Costa oppose Plaintiffs' filing of a proposed First Amended Complaint and renew their motions to dismiss it for lack of subject matter jurisdiction. For the reasons stated below, the Plaintiffs' request to file a proposed First Amended Complaint is DENIED and Defendants' renewed motions to dismiss are GRANTED.

I. BACKGROUND

Samuel Johnson, upon learning that a gentleman who had been very unhappy in marriage had rewed immediately after his wife's death, characterized the husband's new vows as "the triumph of hope over experience."³ Plaintiffs' pursuit of their RICO claims in this suit, repeating the similarly failed experiences of a large majority of RICO plaintiffs, illustrates the litigants' version of Johnson's insight. These introductory notes provide the historical backdrop that served as context for the Court's assessment of the underlying dispute.

At the initial conference with the parties, following Defendants' filing of a motion to dismiss the original complaint and before considering any further briefing, the Court expressed concurrence with Defendants' objections challenging the sufficiency of Plaintiffs' pleadings of their RICO counts. Based on its review of the controversy as portrayed in the complaint and elaborated at the conference, the Court also voiced substantial doubt about the likelihood that—other than through lawyerly sleight of hand, shoehorned pleadings or Procrustean means—Plaintiffs would be able to reshape their factual allegations enough to cure the fundamental deficiencies that flawed their original complaint, and thus to satisfy the standards that govern the statement of plausible RICO claims. Since RICO comprises the only ground for federal jurisdiction that Plaintiffs invoked, the Court warned that if the litigation were to advance on the basis of the RICO counts as pled, a dismissal of the complaint at a later stage of the proceedings would be wasteful of the parties' and the Court's time, energies and resources, and in addition potentially could place at risk Plaintiffs' ability to further prosecute their arguably viable state law claims.

As regards those other causes of action, the Court notes that even if only a portion of the egregious wrongs Plaintiffs complain about were borne out by a trial on the merits, the adjudication conceivably could yield recovery, counting possible punitive damages, approaching any award Plaintiffs might obtain if their RICO claims were sufficient and ultimately prevailed in this Court. With these observations and admonitions, the Court granted Plaintiffs time to ponder whether to seek to amend their complaint, or withdraw it in favor of proceeding with the litigation of their common law claims in state court. Plaintiffs, as do so many other claimants enticed by the charm of a RICO verdict, chose to try again to fit insufficient factual allegations into RICO's complex pleading standards. They submitted the proposed Amended Complaint, prompting Defendants' opposition to the filing of the amended pleadings and a renewal of their motions to dismiss. Here, the Court denies Plaintiffs request to file the Amended Complaint and grants Defendants' motions.

Not surprisingly, RICO's enchantment, like the siren's song, has again drawn another crew of spellbound plaintiffs foundering against the rocks. This outcome should come as no surprise to any counsel versed in the formidable intricacies and pitfalls inherent in RICO litigation. These challenges bear out in the minimal rate of success plaintiffs have achieved in prosecuting RICO actions. A survey of 145 appellate decisions nationwide rendered from 1999 to 2001 in connection with RICO civil actions provides hard evidence of those failed expectations. It revealed that about 70 percent of the cases were finally disposed of on defendants' motions to dismiss or for summary judgment, and that in about 80 percent of those in which the appellate Court resolved a RICO issue the ruling was favorable to defendants. See Pamela H. Bucy, Private Justice, 76 S. Cal. L.Rev. 1, 22 (2002). Of the 9.6 percent of the suits in which plaintiffs obtained a favorable verdict after a jury trial, only 25 percent of the judgments were affirmed on appeal. See id. In consequence, plaintiffs achieved a final victory in only three of 145 cases—a or final success rate of a mere two percent.

Framed another way, the statistical record indicates that in 98 percent of the RICO appellate cases surveyed, which do not include RICO actions dismissed by the district courts but not appealed, plaintiffs and counsel invested extensive time and energies in litigation only to come away with a total loss. Arguably, in some of these actions the resources plaintiffs expended were probably far greater, and yielded poorer outcomes, than the potential corresponding outlays and results had they litigated any related common law claims in state courts.

To further examine this statistical record with more recent data, and also contrast it with a sample of RICO results at the district court level, this Court conducted a rough survey of the 145 cases filed in the Southern District of New York from 2004 through 2007 in which the complaints asserted civil RICO claims. The study revealed that of the 36 cases that to date have been resolved on the merits, all resulted in judgments against the plaintiffs. Thirty were dismissed on defendants' motions pursuant to Fed.R.Civ.P. 12(b)(6), three dismissed by the district court sua sponte for lack of merit, and three dismissed on summary judgment for the defendants. Only four of the 30 Rule 12(b)(6) dismissals were appealed and each was affirmed by Second Circuit. Two of the three dismissals on summary judgment were appealed and both were affirmed.⁴ Hence, experience bears out that overwhelmingly the RICO plaintiffs' gilded vision of threefold damages and attorney's fees dispels into a mirage.

Of course, Plaintiffs' perseverance against such heavy odds derives predominantly from RICO's prospect of treble damages and attorneys fees for the successful claimant. Litigants' general preference for proceeding in federal courts adds another consideration. Tactical and economic reasons also play a role. The terrorizing aspect of a RICO charge conjures dreadful images of the defendant's involvement in the racketeering schemes of the prototypical colorful mobsters and violent thugs who ordinarily fill the plots of organized crime. For plaintiffs seeking to score a tactical edge or to deal the heaviest possible vengeful blow to the defendant's personal reputation, shocking RICO accusations may serve to strengthen their hand or induce sooner capitulation in any settlement discussions. The extraordinary costs associated with defending complex charges may also inflict added pain and provide defendants greater incentive to curtail RICO litigation.

Ironically, the attractions that explain the magnetlike pull which induces plaintiffs into filing RICO charges also generate counter-forces that repel them. In the final analysis, these pluses and minuses point to some reasons why the incidence of favorable judgments for RICO plaintiffs is so "stunningly awful." Id. Fundamentally, as many courts and commentators have noted, RICO plaintiffs have overreached well beyond the bounds of the law's reasonable construction and fair-game litigation. RICO simply was not designed by Congress to encompass many of the creative, and even "extraordinary, if not outrageous uses" for which plaintiffs have labored the statute. Sedima, S.P.R.L. v. Imrex Co., Inc., 741 F.2d 482, 487 (2d Cir.1984), rev'd on other grounds, 473 U.S. 479, 500, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); see also William H. Rehnquist, Diversity Jurisdiction and Civil RICO, 21 St. Mary's L.J. 5, 11 (1989) (noting that "civil RICO claims have been raised in actions relating to divorce, trespass, legal and accounting malpractice, inheritance among family members, employment benefits, and sexual harassment by a union."); see also id. at 9 ("Virtually everyone who has addressed the question agrees that civil RICO is now being used in ways that Congress never intended when it enacted the statute in 1970."); Sedima, 473 U.S. at 500, 105 S.Ct. 3275 (recognizing that "in its private civil version, RICO is evolving into something quite different from the original conception of its enactors.").

Rather, as manifested by the references to "racketeer" and "racketeering" in the legislation act as well as by its exceptional treble damages remedy, Congress...