Morin v. Trupin, 88 Civ. 5743 (RWS)

• Decision Date: 15 September 1993
• Docket Number: 90 Civ. 3475 (RWS).,No. 88 Civ. 5743 (RWS),88 Civ. 5743 (RWS)
• Citation: 832 F. Supp. 93
• Parties: Simeon MORIN, et al., Plaintiffs, v. Barry H. TRUPIN, et al., Defendants. Michael P. ALBERTI, M.D., et al., Plaintiffs, v. Barry E. TRUPIN, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

832 F. Supp. 93

Simeon MORIN, et al., Plaintiffs, v. Barry H. TRUPIN, et al., Defendants.

Michael P. ALBERTI, M.D., et al., Plaintiffs, v. Barry E. TRUPIN, et al., Defendants.

Nos. 88 Civ. 5743 (RWS), 90 Civ. 3475 (RWS).

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

September 15, 1993.

COPYRIGHT MATERIAL OMITTED

Fink Weinberger, P.C., New York City (Neal A. DeYoung, Stephen E. Powers, Farrell C. Glasser, of counsel), for plaintiffs.

D'Amato & Lynch, New York City (Robert E. Kushner, Stephen F. Willig, of counsel), for defendants Mintz, Fraade & Zeiger, Frederick M. Mintz and Alan Fraade.

Serchuk & Zelermyer, White Plains, NY (Steven A. Coploff, of counsel), for defendants Jackson-Cross Co., George C. Hoez and Russell E. Snyder.

OPINION

SWEET, District Judge.

Mintz, Fraade, and Zeigler, P.C. ("the Mintz, Fraade Defendants" or "the law firm") have moved for the dismissal of the Plaintiffs' RICO claims in light of the recent decision of the Supreme Court in Reves v. Ernst & Young, ___ U.S. ___, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). For the reasons given below, this motion is granted. Counsel for another group of defendants named only in the Alberti action, the real estate appraisers Jackson-Cross Company, Russell Snyder and George Hoez (the "Jackson-Cross Defendants"), originally joined in this motion by letter to the court dated May 12, 1993, but have since settled with the Plaintiffs, rendering their motion moot.

The Parties

The Alberti Plaintiffs are investors in a New York limited partnership known as the Sacramento Office Park Associates ("Sacramento Associates"), organized to own, operate and lease a two-building office park complex in Sacramento, California referred to as the Butano Buildings (the "Butano Property"). The Morin plaintiffs are investors in other real estate limited partnerships, referred to as the 118, 119, 119M, 130 and 218 syndications, formed to divide up and offer to the public interests in three office buildings located in Sarasota, Florida, Grand Rapids, Michigan, Dallas, Texas, and in warehouses in Indianapolis, Indiana. Apart from the manner in which interlocking interests in the four properties were distributed among the different limited partnerships, the Morin plaintiffs alleged that the syndications were structured in precisely the same way as the Sacramento offering in Alberti.

Mintz, Fraade is a New York law firm which is alleged to have acted as counsel to partnerships and corporations controlled by Barry H. Trupin ("Trupin"), the founder promoter of all these tax shelters, and it has been named as a defendant in both the Morin and the Trupin actions. Mintz, Fraade is alleged to have provided tax opinions and tax information in private placement memoranda prepared for these offerings, and to have represented Trupin in partnership audit proceedings before the I.R.S.

Background

Familiarity with the underlying disputes and principal parties in these actions is assumed. See, e.g., Morin v. Trupin, 711 F.Supp. 97 (S.D.N.Y.1989) (filed April 13, 1989); Morin v. Trupin, 728 F.Supp. 952 (S.D.N.Y.1989) (filed December 13, 1989); Morin v. Trupin, 738 F.Supp. 98 (S.D.N.Y. 1990) (filed May 4, 1990); Morin v. Trupin, 747 F.Supp. 1051 (S.D.N.Y.1990) (filed September 29, 1990); Morin v. Trupin, 778 F.Supp. 711 (S.D.N.Y.1991) (filed November 18, 1991); and Morin v. Trupin, 799 F.Supp. 342 (S.D.N.Y.1992) (filed July 28, 1992). See also Ahmed v. Trupin, 781 F.Supp. 1017 (S.D.N.Y.1992); Ahmed v. Trupin, 809 F.Supp. 1100 (S.D.N.Y.1993)

In brief, in both actions the Plaintiffs have alleged that Trupin organized, ran, and syndicated limited partnerships in the businesses of real estate and equipment leasing in order to generate profits and tax losses for limited partners. The Alberti action involves the syndication of limited partnership shares in one commercial property located in Sacramento, California. The Morin action involves the syndication of limited partnership shares in four commercial real estate properties and shares in certain equipment leasing trusts. Certain of the tax benefits alleged promises to investors in the equipment leasing trusts have apparently been disallowed by the I.R.S. All of the commercial properties have been foreclosed upon. The Plaintiffs in Alberti and Morin have filed suit alleging violations of Section 10(b) of the 1934 Securities Exchange Act (the "10(b) action"), 15 U.S.C. § 78j(b) and Rule 10(b)-5, 17 C.F.R. § 240.10(b)-5, violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(a)-(d), and common law claims including misrepresentations and commonlaw fraud.

Discussion

I. Standards for Dismissal Under Rule 12(b)(6)

On a Rule 12(b)(6) motion to dismiss, the factual allegations of the complaint are presumed to be true and all factual inferences must be drawn in the plaintiff's favor and against the defendants. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989); Dwyer v. Regan, 777 F.2d 825, 828-29 (2d Cir.1985). Accordingly, the factual allegations considered here and set forth below are taken from the Plaintiffs' Complaints and do not constitute findings of fact by the Court. They are presumed to be true only for the purpose of deciding the present motions.

A court may not dismiss a complaint unless the movant demonstrates "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). Accord Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984) (quoted in H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 109 S.Ct. 2893, 2905-06, 106 L.Ed.2d 195 (1989).

II. RICO

The substantive provisions of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962(a)-(d), outlaw four types of racketeering-related activities in the sections which the Plaintiffs allege have been violated. The Court of Appeals for the Second Circuit has described the statute in the following manner:

Section 1962(a) prohibits using income received from a "pattern of racketeering activity" to acquire an interest in or establish an enterprise engaged in or affecting interstate commerce. Section 1962(b) proscribes the acquisition or maintenance of any interest in an enterprise "through" a pattern of racketeering activity. Section 1962(c) prohibits conducting or participating in the conduct of an enterprise through a pattern of racketeering activity. Section 1962(d) proscribes conspiring to violate subsection (a), (b), or (c).

Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23 n. 1 (2d Cir.1990). To state a claim under RICO, a plaintiff must allege, in addition to the defendant's violation of 18 U.S.C. § 1962, that there has been some injury to his business or property by reason of a defendant's violation of § 1962, see 18 U.S.C. § 1964(c); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985); Hecht, 897 F.2d at 23; Burdick v. American Express Co., 865 F.2d 527, 529 (2d Cir.1989); In re Gas Reclamation, Inc. Secur. Litig., 659 F.Supp. 493, 518 (S.D.N.Y.1987).

In addition, the United States Supreme Court has interpreted § 1961(5) to require, in addition to a showing of "at least two acts of racketeering activity," allegations supporting continuity plus relationship. Continuity is both a closed and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct which threatens repetition. H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). Although,

the threat of continued activity of the sort of conduct alleged in the amended complaint is particularly unlikely, given the fact ... that the Tax Reform Act of 1986 came close to eliminating the deductibility of losses claimed by participants in tax shelter investments such as this Partnership,

Ochs v. Shearson Lehman Hutton Inc., 768 F.Supp. 418, 426 (S.D.N.Y.1991), this Court need not and will not reach the issue. Because the Plaintiffs have failed to state any claims under § 1962(a)-(d), they do not have standing under Hecht to bring any claims under civil RICO.

The Plaintiffs' complaints in both Morin and Alberti do not distinguish the racketeering activities of the lawyers and accountants from the other defendants associated with Trupin's organization. Both complaints allege that the racketeering activity attributable to all defendants consists of "the series of securities frauds" and the "multiple acts of indictable mail fraud in connection with these securities frauds," (Morin Complaint at ¶ 384; Alberti Complaint at ¶ 278) set forth in each Complaint. According to the Plaintiffs, the partnerships themselves and the Trupin organization form the enterprises and the association-in-fact required by RICO. In the Morin complaint, "the defendants organized" the corrupt organizations partly by "(v) retaining attorneys and accountants with preexisting affiliations with the Rothschild Group to perform services for the 118-119, 130 Series and 218 Limited Partnerships and paying their fees out of the proceeds of these offerings," (Morin Complaint at ¶ 387), although the lawyers and accountants are reincluded among the racketeering defendants by "knowingly" receiving "payments described as professional fees," Morin complaint at ¶ 390. In the Alberti complaint, where the partnership Sacramento Associates is alleged to be the enterprise, the Plaintiffs simply list "the accountants and the Mintz, Fraade Defendants, the attorneys, who were employed by the Sacramento Associates Limited Partnership and who received professional fees," in the general list of defendants responsible for the control of and investment in the enterprise. The conspiracy claim in each is that all the "Defendants agreed...