Luzerne County Retirement Bd. v. Makowski, Civil Action No. 3:CV-03-1803.

Citation627 F.Supp.2d 506
Decision Date27 November 2007
Docket NumberCivil Action No. 3:CV-03-1803.
PartiesThe LUZERNE COUNTY RETIREMENT BOARD, Plaintiff, v. Thomas MAKOWSKI, et al., Defendants.
CourtUnited States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
627 F.Supp.2d 506
The LUZERNE COUNTY RETIREMENT BOARD, Plaintiff,
v.
Thomas MAKOWSKI, et al., Defendants.
Civil Action No. 3:CV-03-1803.
United States District Court, M.D. Pennsylvania.
November 27, 2007.

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Albert S. Dandridge, III, Elizabeth Ainslie, Stephen J. Shapiro, Theresa E. Loscalzo, Wilbur L. Kipnes, Vincent A. Lamonaca, Carl A. Solano, Schnader Harrison Segal & Lewis LLP, Louis J. Isaacsohn, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, Philadelphia, PA, Christopher P. Cullen, Dunmore, PA, for Plaintiff.

Aaron Krauss, Cozen O'Connor, Charles J. Vinicombe, Stephen C. Baker, Drinker Biddle & Reath LLP, David L. Braverman, Braverman Daniels Kaskey Ltd., Philadelphia, PA, Peter John Moses, Moses & Gelso, LLP, Robert J. Gillespie, Jr., Mylotte, David & Fitzpatrick, Wilkes-Barre, PA, Luigi Spadafora, Matthew Tracy, Winget Spadafora & Schwartzberg, LLP, New York, NY, Matthew J. Van Dusen, Richard N. Freeth, Winget, Spadafora & Schwartzberg LLP, Stamford, CT, Cody H. Brooks, Kreder, Brooks, Hailstone & Ludwig, John B. Dempsey, Myers, Brier & Kelly, LLP, Scranton, PA, Kevin M, Kinross, Quintin F. Lindsmith, Brickner & Eckler, LLP, Columbus, OH, Richard E. Miller, Chadds Ford, PA, Richard L. Bush, Powell, Trachtman, Logan, Carrle, Bowman & Lombardo, P.C., King of Prussia, PA, for Defendants.

MEMORANDUM

A. RICHARD CAPUTO, District Judge.


 TABLE OF CONTENTS
                BACKGROUND...........................................................................512
                 I. Factual History...............................................................512
                 A. Introduction...............................................................512
                 B. The Luzerne County Retirement Fund.........................................512
                 C. The Joyce-Williamson Agreement.............................................513
                 D. The Joyce and Williamson Campaign Contributions............................517
                 E. The Safeco Investments.....................................................517
                 F. The Provident Annuities....................................................519
                 G. The Manulife Annuity Contracts.............................................524
                 H. The FSI Bonds..............................................................527
                 I. The Wells Agreement........................................................527
                 J. Rochdale...................................................................528
                 K. LPL........................................................................528
                 L. The Fund's Accountants—Snyder & Clemente.............................529
                 M. The Fund's Auditors—Zavada & Associates..............................529
                 N. The Fund's Actuaries—The Hay Group...................................530
                 O. ASCO's Annual Reports......................................................531
                 P. The Retirement Office......................................................531
                 Q. The Annual Meetings............................ ...........................533
                 R. Alleged Concealment of the Scheme..........................................533
                 S. Urban and Flood Elected; Investigation Commences...........................534
                 T. The Board Terminates ASCO..................................................535
                 1. The September 5, 2002 Board Meeting.....................................535
                 2. The September 17, 2002 Board Meeting....................................536
                

Page 511

 3. The October 1, 2002 Board Meeting.......................................537
                 U. The Board Liquidates the Fund's Investments................................538
                 V. Solicitor Hassey's Letters.................................................539
                 W. Schnader, Harrison's Investigation.........................................540
                 X. The County Sues the Board..................................................541
                 II. Procedural History............................................................541
                 A. The Gnmnlaint..............................................................541
                 B. The Motions to Dismiss the Complaint.......................................542
                 C. Counterclaims and Crossclaims..............................................542
                 D. Stinnlatinns of Dismissal..................................................543
                 E. The Motions to Dismiss the Counterclaims and Crossclaims...................543
                 F. Flood Dropped as a Plaintiff...............................................543
                 G. The Instant Motions for Summary Judgment...................................543
                LEGAL STANDARD.......................................................................544
                DISCUSSION...........................................................................545
                 I. Defendants' Motions for Summary Judgment—Plaintiff's Federal Claims.....545
                 A. RICO Claims (Counts III, IV and VI)........................................545
                 1. RICO—In General...................................................545
                 2. Conducting/Participating in a RICO Enterprise (Count III)...............545
                 a. PSLRA................................................................546
                 i. Are the Annuities "Securities"?..................................546
                 ii. Rule 151 Safe Harbor.............................................554
                 iii. Section 3(a)(2)..................................................554
                 iv. Are the Annuities "Investment Contracts"?........................555
                 v. Actionable Securities Fraud......................................556
                 vi. Conclusion as to PSLRA...........................................559
                 b. Scheme to Defraud....................................................559
                 i. Bribery...........................................................560
                 ii. Failure to Disclose a Conflict of Interest........................563
                 iii. Conclusion as to Scheme to Defraud................................570
                 c. Conclusion as to Count III...........................................570
                 3. RICO Conspiracy Claims (Counts IV and VI)...............................571
                 a. Count IV.............................................................571
                 b. Count VI.............................................................571
                 B. Violation of the Investment Advisors Act (Count VII).......................572
                 1. Introduction............................................................572
                 2. Legal Standard..........................................................572
                 3. Analysis................................................................572
                 II. State Law Claims, Counterclaims and Third-party Claims.......................574
                CONCLUSION...........................................................................574
                

Presently before the Court are eleven (11) motions for summary judgment. (Docs. 390, 391, 400, 403, 406, 409, 414, 419, 420, 426, 427.) Defendants Nationwide Life Insurance Company (Doc. 390), Manufacturers Life Insurance Company (U.S.A.) (Doc. 391), Thomas Makowski, Thomas Pizano, Frank Crossin and Joseph Jones (Doc. 414), Joseph J. Joyce Associates, Inc., John Joyce and William Joyce (Doc. 419), Safeco Life Insurance Corporation (Doc. 420), ASCO Financial Group, Inc. and Donald Williamson (Doc. 426), and Joseph Perfilio (Doc. 427), have filed motions for summary judgment as to Plaintiff the Luzerne County Retirement Board's Complaint (Doc. 1).

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Third-party Defendant Michael Morreale has filed a motion for summary judgment as to the third-party complaints filed against him by Makowski, Pizano, Crossin and Jones, as well as by Williamson, ASCO Financial Group, Inc. and Perfilio. (Docs. 400, 406.) Counterclaim Defendant, and former Plaintiff, Stephen Flood has filed a motion for summary judgment as to the counterclaims of Williamson, ASCO Financial Group, Inc. and Perfilio. (Doc. 403.) Plaintiff has also filed a motion for summary judgment as to the counterclaims of Williamson, ASCO Financial Group, Inc. and Perfilio. (Doc. 409.)

For the reasons set forth below, Defendants' motions will be granted as to Plaintiff's federal claims (Counts III, IV, VI and VII). Summary judgment will be entered in favor of Defendants as to these claims. The Court has jurisdiction over Plaintiff's federal claims pursuant to 28 U.S.C. § 1331. The Court will decline to exercise its supplemental jurisdiction, pursuant to 28 U.S.C. § 1367, over Plaintiff's state law claims (Counts I and VIII), as well as the various state law counterclaims and third-party claims. As such, these claims will be dismissed without prejudice.

BACKGROUND

I. Factual History

A. Introduction

This action focuses on investment contracts entered into by the Luzerne County Retirement Board (the "Board") and/or its members between 1988 and 2002. The current Board ("Plaintiff") has alleged that several of its former members engaged in a pay-to-play scheme, awarding contracts to invest or manage retirement fund assets and, in exchange, receiving political contributions to finance their reelection campaigns. The former Board members allegedly involved in the scheme are Thomas Makowski, Thomas Pizano, Frank Crossin and Joseph Jones (collectively, at times, the "former Board members"). (Compl. ¶¶ 2-5, Doc. 1 at 7.)

B. The Luzerne County Retirement Fund

Luzerne County maintains a retirement fund (the "Fund") to provide its employees with income upon their retirement. See County of Luzerne v. Luzerne County Retirement Board, 882 A.2d 531, 533 (Pa. Commw.Ct.2005). The Fund is a legal entity which was created, and is governed, by the County Pension Law, 16 P.S. § 11651 et seq. See County of Luzerne, 882 A.2d at 534. Employees of Luzerne County make contributions to the Fund through payroll deductions and, upon retirement, qualify to receive payments from the Fund. 16 P.S. § 11657(a), (b); McCarrell v. Cumberland County Employees Retirement Board, 120 Pa.Cmwlth. 94, 547 A.2d 1293, 1294-95 (1988); (Def.'s Ex. 95 at ZAV2095, Doc. 443 at 8.) The Fund is a "defined benefit plan," which...

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