Jordan (Bermuda) Inv. V. Hunter Green Investments

• Decision Date: 19 June 2002
• Docket Number: No. 00 CIV. 9214(RWS).,00 CIV. 9214(RWS).
• Citation: 205 F.Supp.2d 243
• Parties: THE JORDAN (BERMUDA) INVESTMENT COMPANY, LTD., Plaintiff, v. HUNTER GREEN INVESTMENTS LTD., Hunter Green Investments LLC, John Shilling, Ilya Kaminsky, Jonathan Vinnik, International Fund Services (Ireland), International Fund Services, Inc., Investment Management Services Inc., Thomas F. Grizzetti, Mark William Solly, William James Cowell, European Fund Services Limited, Susana Byrne, Rosenman & Colin LLP and Fred M. Santo, Defendants.
• Court: U.S. District Court — Southern District of New York

205 F.Supp.2d 243

THE JORDAN (BERMUDA) INVESTMENT COMPANY, LTD., Plaintiff, v. HUNTER GREEN INVESTMENTS LTD., Hunter Green Investments LLC, John Shilling, Ilya Kaminsky, Jonathan Vinnik, International Fund Services (Ireland), International Fund Services, Inc., Investment Management Services Inc., Thomas F. Grizzetti, Mark William Solly, William James Cowell, European Fund Services Limited, Susana Byrne, Rosenman & Colin LLP and Fred M. Santo, Defendants.

No. 00 CIV. 9214(RWS).

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

June 19, 2002.

Butler, Fitzgerald & Potter by Raymond Fitzgerald, New York City, for Plaintiff.

Rosenman & Colin by Joseph Zuckerman, New York City, for Defendants Fred M. Santo and Rosenman & Colin, Pro Se.

Skadden, Arps, Slate, Meagher & Flom by Seth Schwartz, New York City, for Defendants Investment Management Services, Inc., International Fund Services, Inc., International Fund Services (Ireland), European Fund Services Limited, and Thomas F. Grizzetti.

Debevoise & Plimpton by Edwin G. Schallert, Frances L. Kellner, Amy K. Orange, New York City, for Defendant Jonathan Vinnik.

OPINION

SWEET, District Judge.

The defendants Investment Management Services, Inc. ("IMS"), International Fund Services (Ireland) ("IFSI"), International Fund Services, Inc. ("IFS"), European Fund Services Limited ("EFS") and Thomas Grizzetti ("Grizzetti") (collectively, the "IMS defendants"), defendant Jonathan Vinnik ("Vinnik"), and defendants Rosenman & Colin LLP and Fred M. Santo ("Santo") (collectively the "Rosenman defendants"), have moved pursuant to Rules 9(b) and 12(b) 6, Fed.R.Civ.P. to dismiss the Amended Complaint of plaintiff The Jordan (Bermuda) Investment Company, Ltd. ("Jordan"). For the reasons set forth below, the motion is granted.

The Amended Complaint

The initial complaint in this action (the "Complaint") was dismissed by opinion of this Court on July 18, 2001 (the "July 18 Opinion"), The Jordan (Bermuda) Investment Co., Ltd. v. Hunter Green Investments Ltd., 154 F.Supp.2d 682 (S.D.N.Y. 2001), and the issue presented is whether or not Jordan has cured the previously held defects. The parties and the background of the litigation, including the prior proceedings, were set forth in the July 18 Opinion and will not be repeated here since familiarity with that opinion is presumed.

Count I of the Amended Complaint alleges a Racketeer Influenced and Corrupt Organization ("RICO") claim under 18 U.S.C.1962(b) only against "the Investment Manager Defendants, Administrator Defendants and Director Defendants," which include Vinnik and each of the IMS Defendants, but not the Rosenman defendants.¹ The Amended Complaint asserts that Vinnik and the IMS Defendants "maintained, directly or indirectly, an interest in" Beacon Emerging Debt Fund, Ltd. ("Beacon" or the "Fund") and Beacon Emerging Growth Fund LP ("Beacon Growth") "through a pattern of racketeering activity." (Am. Compl. at ¶ 71).

The Amended Complaint repeats the allegations in the Complaint that there existed a scheme to induce The Jordan Trust² to invest $5,000,000 through Beacon by misrepresenting that Beacon Class J common stock (the "Class J shares") existed and that all potential investments would be presented to The Jordan Trust for its consideration and its written approval; by misleading The Jordan Trust as to the types of investments Beacon would make with the Trust's monies; and by omitting to disclose that the Trust's monies would be subjected to the claims and liens of Beacon's creditors. Like the original Complaint, the Amended Complaint also alleges that the defendants refrained from withdrawing the $5,000,000 by continuing to misrepresent the existence of the Class J shares and by concealing the fact that prohibited investments were being made with The Jordan Trust's monies.

One difference between the Complaint and the Amended Complaint is the addition of new allegations (i) that a scheme existed to induce an investor other than The Jordan Trust, Baldwin Enterprises, Inc. ("Baldwin"), to invest $5,000,000 in Beacon on or about July 10, 1997, based on a misrepresentation as to the existence of non-existent "Series 9" shares, and (ii) that a scheme existed to induce that same investor one year later—on or about June 11, 1998—to invest an additional $14,000,000 based on similar misrepresentations in yet another non-existent class of Beacon shares (the "Class H shares").

The Amended Complaint also contains allegations that (i) a scheme existed consisting of the misappropriation of $472,945 of Beacon's money for the benefit of the Beacon Growth to the detriment of Beacon, its creditors, its investors and The Jordan Trust; and (ii) a similar corporate waste scheme existed, which consisted of the misappropriation of $751,384 of Beacon's participatory interests in currency instruments for the benefit of United European Securities Ltd., a company affiliated with the IMS defendants, and to the detriment of Beacon, its creditors, its investors, and The Jordan Trust. The Amended Complaint alleges that the alleged corporate waste schemes were separate and apart from the scheme directed specifically at the Trust.³

In all other respects, Count I of the Amended Complaint appears to be identical with the allegations of the Complaint, except, as noted earlier, Count I of the Amended Complaint is not brought against and, thus seeks no relief, from the Rosenman defendants.

Count II of the Amended Complaint repeats all of the prior allegations and then alleges that Vinnik and the IMS Defendants (again included within the categories Investment Manager Defendants, Administrator Defendants, and Director Defendants) conducted the operations and affairs of Beacon and Beacon Growth through a pattern of racketeering activity. Count II is not brought against the Rosenman defendants.

Count III alleges a RICO conspiracy claim against the Rosenman defendants and all of the other defendants. After realleging all of the prior allegations, Jordan alleges that the defendants "unlawfully and wilfully conspired, combined, confederated and agreed with each other to violate 18 U.S.C. § 1962(b) and/or (c)" and that as "part of and in furtherance of this conspiracy, each of the defendants committed two or more predicate acts, agreed to the commission of two or more predicate acts by some member of the conspiracy or knew, or should have known, that the predicate acts were part of a pattern of racketeering in violation of 18 U.S.C. § 1962(b) or (c)." (Am.Compl.¶¶ 83-84).

The Amended Complaint also alleges four common law fraud counts (including concerted action, conspiracy, and aiding and abetting), negligent misrepresentation and omission, four counts of breach of fiduciary duty, negligence, and conversion, all of which are identical to the allegations of the original Complaint. The Amended Complaint also adds a new claim under New York's Consumer Protection Law, Section 349 of the General Business Law. As to the state law claims, the Amended Complaint alleges diversity and supplemental jurisdiction.

The instant motions to dismiss were filed on October 5, 2001. The parties submitted briefing papers through January 2001, and argument was held on February 13, 2002, at which time the motions were deemed fully submitted.

Discussion

I. Standards for Motion to Dismiss

In analyzing a motion to dismiss pursuant to Rule 12(b)(6), a court must view the complaint in the light most favorable to plaintiff and accept all allegations contained in the complaint as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Annis v. County of Westchester, 36 F.3d 251, 253 (2d Cir.1994). A complaint should not be dismissed for failure to state a claim unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

To the extent the claims in Jordan's Amended Complaint are based on allegations of fraud, they must also satisfy the pleading requirements of Fed.R.Civ.P. 9(b), which states that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Thus, to satisfy Rule 9(b), the Amended Complaint must "adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989).

II. The RICO Claims Are Dismissed

Section 1962 of RICO prohibits (a) the use of income "derived ... from a pattern of racketeering activity" to acquire an interest in, establish, or operate an enterprise engaged in or affecting interstate commerce; (b) the acquisition of any interest in or control of such an enterprise "through a pattern of racketeering activity;" (c) the conduct or participation in the conduct of such an enterprise's affairs "through a pattern of racketeering activity;" and (d) conspiring to do any of the above. GICC Capital Corp. v. Technology Finance Group, Inc., 67 F.3d 463, 465 (2d Cir.1995), cert. denied, 518 U.S. 1017, 116 S.Ct. 2547, 135 L.Ed.2d 1067 (1996).

In its Amended Complaint, Jordan has repeated its allegations from the original Complaint that certain defendants committed RICO violations within the meaning of 18 U.S.C. §§ 1962(b), (c), and (d). The IMS Defendants and Vinnik have been named in the Section 1962(b) and (c) substantive claims, and all defendants, including the Rosenman defendants, have been named in the Section 1962(d) conspiracy claim. For the reasons that follow, each of these claims must be dismissed.

A. The RICO Claims Are Barred By 18 U.S.C. § 1964(c)

Each of the defendants has...