Leung v. Law

• Decision Date: 30 May 2005
• Docket Number: No. 04-CV-0568 (NGG).,04-CV-0568 (NGG).
• Citation: 387 F.Supp.2d 105
• Parties: Chi Y. LEUNG, Plaintiff, v. Wing T. LAW, Tze N. Chan, Lai M. Wong Chan, Mei C. Law, Su Chan, Pui Wong and Linda Lee Ng, Defendants.
• Court: U.S. District Court — Eastern District of New York

387 F.Supp.2d 105

Chi Y. LEUNG, Plaintiff, v. Wing T. LAW, Tze N. Chan, Lai M. Wong Chan, Mei C. Law, Su Chan, Pui Wong and Linda Lee Ng, Defendants.

No. 04-CV-0568 (NGG).

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

May 30, 2005.

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Michael G. Dowd, Terrence Michael Randell, Law Offices of Michael G. Dowd, New York, NY, for Plaintiff.

Anthony J. Costantini, David S. Tannenbaum, Duan Morris LLP, New York, NY, Joseph Battaglia,Jr., Esquire, Brooklyn, NY, for Defendants.

MEMORANDUM & ORDER

GARAUFIS, District Judge.

The defendants in the above-captioned action have moved, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the claims filed against them under the civil provision of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964, with prejudice, and to dismiss plaintiff Chi Y. Leung's ("Leung") state law claims, without prejudice, pursuant to Fed.R.Civ.P. 12(b)(1). For the reasons set forth below, Leung's RICO claims are dismissed with prejudice because Leung lacks standing to sue under 18 U.S.C. § 1964(c) and has failed to adequately plead that the defendants engaged in a pattern of racketeering activities. Leung's various state law claims are also dismissed without prejudice, as this court declines to further exercise pendent jurisdiction over these allegations following the dismissal of Leung's federal claims.

I. BACKGROUND

Leung and defendants Wing T. Law ("Law") and Tze N. Chan ("Chan") are longtime business partners who formed SDJ Trading Inc. ("SDJ" or "SDJ Trading") a New York corporation specializing in the purchase and wholesale sale of meat, in or about 1988. (Amend.Compl.¶ 14.) Law, Chan and Leung were and are president, secretary and treasurer of the corporation, respectively, and each hold a 1/3 share in the corporation. (Id.) Leung, Chan and Law subsequently formed a number of other for-profit corporations, organized under the laws of New York and New Jersey, to hold real property purchased with the profits of SDJ in which, with one exception, they also hold equal shares. (Id. ¶¶ 19-25.) The complaint also alleges that in 2001, Law and Chan formed a corporation called SDJ Trading (N.Y.) Inc., an entity separate from SDJ, utilizing accrued profits from SDJ to do so. (Id. ¶ 28.)

Leung alleges that beginning in about 2000, his erstwhile business partners, along with a number of employees of SDJ Trading and the corporation's outside accountant, formed a conspiracy to defraud Leung of his fair share of the profits of SDJ Trading and the other entities that he had formed with Law and Chan. (Id. ¶¶ 30-31.) Essentially, Leung alleges that the defendants "omitted substantial cash receipts from the corporate books and records of SDJ and its related corporate entities; failed to document transactions between SDJ and its related entities; failed to document related-party cash transfers; [and] failed to document substantial reimbursements for [defendants'] personal expenditures." (Id. ¶ 37.) Leung further alleges that in order to conceal this extensive misfeasance, the defendants made false statements, including by use of the interstate wires and mails, to law enforcement authorities, federal, state and local taxing authorities, and banking institutions, and then refused to permit him access to the books and records of SDJ or any other company in which he is a part-owner despite his position as SDJ's treasurer. (Id. ¶¶ 33-36.)

Thus frozen out of the financials of these corporations, Leung instituted a special proceeding in New York Supreme Court, New York County in July 2002 seeking dissolution of SDJ and the related corporate entities. (Id. ¶ 38.) Leung alleges that his subsequent review of the books, records and filings produced by these corporate entities revealed the extent of the fraud that had been orchestrated and committed by the defendants. (Id. ¶ 40.) Seeking to recover his damages from this alleged fraud, Leung then filed the original complaint in the instant suit on February 10, 2004, in which he alleged that the defendants were liable under civil RICO for injuries caused by predicate acts of mail fraud, wire fraud and bank fraud, and also raised a number of pendent state law claims allegedly arising from this same fraudulent scheme. Leung then filed an amended complaint on June 16, 2004, in which he added additional money laundering allegations in support of his civil RICO claim. (Id. ¶ 73(d).) The defendants subsequently filed this joint motion to dismiss on September 14, 2004.

II. LEGAL STANDARDS

Motions to dismiss for subject matter jurisdiction under Rule 12(b)(1) are reviewed under the same standard as are motions to dismiss for failure to state a claim under Rule 12(b)(6). See Gambino v. Rubenfeld, 179 F.Supp.2d 62, 67 (E.D.N.Y.2002) (citing Moore v. PaineWebber, Inc., 189 F.3d 165, 169 n. 3 (2d Cir.1999) and Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir.1997)). In most cases, the court will consider a 12(b)(1) motion before ruling on any other motions to dismiss, since dismissal of an action for lack of subject matter jurisdiction will render all other defenses and motions moot. See United States ex rel Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1155-56 (2d Cir.1993); see also Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir.1990). However, here, the RICO claims that provide the sole basis for Leung's claim that this court may exercise subject matter jurisdiction over the claims in his amended complaint are the subject of a 12(b)(6) motion, and the defendants' 12(b)(1) motion is entirely contingent upon the success of its assertion that the plaintiff's RICO claims are not properly before this court. In such a case, the district court must first resolve the 12(b)(6) motion before turning to the 12(b)(1) motion. Casio Computer Co, Ltd. v. Sayo, No. 98 Civ. 3772, 1999 U.S. Dist. LEXIS 14675, at *30 (S.D.N.Y. Sept. 20, 1999) (Report and Recommendation of Ellis, M.J.) (adopted in full Casio Computer Co, Ltd. v. Sayo, No. 98 Civ. 3772, 2000 WL 1877516, 2000 U.S. Dist. LEXIS 15411 (S.D.N.Y. Oct. 13, 2000) (Knapp, J.)).

In reviewing a motion to dismiss brought under either Rule 12(b)(1) or 12(b)(6), the court must accept all factual allegations in the complaint as true and draw all reasonable inferences from those allegations in the light most favorable to the plaintiff. See Albright v. Oliver, 510 U.S. 266, 268, 114 S.Ct. 807, 127 L.Ed.2d 114 (1994); Burnette v. Carothers, 192 F.3d 52, 56 (2d Cir.1999). The complaint may be dismissed only if "it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Hoover v. Ronwin, 466 U.S. 558, 587, 104 S.Ct. 1989, 80 L.Ed.2d 590 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). In deciding such a motion, the "issue is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996) (internal quotations omitted).

Plaintiffs such as Leung who raise claims involving allegations of fraud must also satisfy the stringent pleading burden set forth in Fed.R.Civ.P. 9(b), which demands that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." This requirement governs civil RICO complaints alleging predicate acts of mail fraud, wire fraud and bank fraud. Morrow v. Black, 742 F.Supp. 1199, 1203 (E.D.N.Y.1990) (discussing pleading requirements for predicate acts of mail fraud and wire fraud); Bank of Vermont v. Lyndonville Sav. Bank & Trust Co., 906 F.Supp. 221, 227 (D.Vt.1995) (bank fraud). In order to satisfy the particularity standard set forth in Rule 9(b), a plaintiff's complaint must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Anatian v. Coutts Bank (Switz.) Ltd., 193 F.3d 85, 88 (2d Cir.1999) (citations omitted). Allegations of fraud which fail to conform to this standard must be dismissed. Id. at 88-89. However, plaintiffs whose "complaints [are] dismissed under Rule 9(b) are almost always granted leave to amend unless plaintiffs have already had one opportunity to plead fraud with greater specificity." Bank of Vermont, 906 F.Supp. at 228 (quotation marks omitted).

In addition, the courts of this Circuit have frequently noted that alleged RICO violations "must be reviewed with appreciation of the extreme sanctions it provides, so that actions traditionally brought in state courts do not gain access to treble damages and attorneys fees in federal court simply because they are cast in terms of RICO violations." Mathon v. Marine Midland Bank, N.A., 875 F.Supp. 986, 1001 (E.D.N.Y.1995); see also Schmidt v. Fleet Bank, 16 F.Supp.2d 340, 346 (S.D.N.Y.1998) ("[Civil RICO] is an unusually potent weapon — the litigation equivalent of a thermonuclear device ... courts must always be on the lookout for the putative RICO case that is really nothing more than an ordinary fraud case clothed in the Emperor's trendy garb.").

III. DISCUSSION

A. RICO Allegations

A plaintiff asserting a civil RICO claim must allege that he was injured in his business or property because of a defendant's acts in violation of any of the provisions of 18 U.S.C. § 1962. See 18 U.S.C. § 1964(c). The Supreme Court has interpreted the injury clause of this statute as limiting standing to plaintiffs whose injuries were caused proximately by the RICO predicate acts. Holmes v. SEC Investor Prot. Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d...