Plount v. American Home Assur. Co., Inc., 87 Civ. 2002 (RWS).
| Decision Date | 07 August 1987 |
| Docket Number | No. 87 Civ. 2002 (RWS).,87 Civ. 2002 (RWS). |
| Citation | 668 F. Supp. 204 |
| Parties | Sherry PLOUNT and Frank Williams, on behalf of themselves and all others similarly situated, Plaintiffs, v. AMERICAN HOME ASSURANCE COMPANY, INC., Dealer Choice Automotive Planning Inc., Jesus A. Soto, Losas Brokerage, Dante C. Senise, John Senise, American Physical Damage Plan & Purchasing Group, Inc., d/b/a American Auto Plan, Senise Brokerage Inc., DCAP Agency Inc., AMT Motor Club Inc. and Auto Care Institute Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Glatzer & Belovin, P.C., Bronx, N.Y., for plaintiffs; William Kirchhofer, of counsel.
Rosner & Goodman, New York City, for defendants Dante C. Senise, John Senise, American Physical Damage Plan & Purchasing Group, Inc., d/b/a American Auto Plan and Senise Brokerage; Andrew J. Goodman, Marianne F. Murray, of counsel.
In this class action fraud case, a civil RICO action has been alleged as a basis of federal jurisdiction, and the defendants have moved pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) for an order dismissing the complaint. For the reasons set forth below, the motion is granted and the complaint dismissed.
On a motion to dismiss for failure to state a claim upon which relief can be granted, the facts as alleged in the complaint must be taken as true. In essence, plaintiffs Sherry Plount ("Plount") and Frank Williams ("Williams") allege that the defendants Jesus Soto, Losas Brokerage, Dante Senise, John Senise, Senise Brokerage, DCAP Agency, Dealer Choice Automotive Planning Inc, American Home Assurance Co., AMT Motor Club, Auto Care Institute and American Physical Damage Plan & Purchasing Group Inc., d/b/a American Auto Plan ("defendants") advertised and sold to them and similarly situated class members what defendants said was auto insurance. However, what the defendants were selling as insurance had not been approved by the State of New York Insurance Department, and the defendants were unlicensed to sell it, and as a result, what the plaintiffs purchased was not auto insurance at all. The defendants have refused to return to plaintiffs the premiums collected.
The only claimed basis for federal jurisdiction is federal question jurisdiction, 28 U.S.C. § 1331, conferred pursuant to an alleged violation of the Racketeer Influenced and Corrupt Organizations Act, Pub.L. No. 91-452 Tit. IX, 84 Stat. 941 () ("RICO").
The main issue in this case is the pleading requirements for civil RICO cases. Defendants have attacked the RICO claim for both failure to state a claim and failure to plead certain of the predicate acts with sufficient particularity.
The many problems with civil RICO have been cataloged at length elsewhere, and need not be rehearsed in detail here. However, two problems are particularly relevant in every civil RICO case, and, consequently, bear on the issue of pleading requirements raised in this case. First, merely bringing a RICO action against a defendant can unfairly stigmatize him as a "racketeer." This, of course, increases the leverage of plaintiffs who are bringing "strike suits." Second, the civil RICO has resulted in a flood of what are and should be state court cases that are being reframed and brought in federal court as RICO actions because of the carrot of treble recovery and the availability of a federal forum.
In other areas of prosecuting lawsuits, the law has been sensitive to the damage to reputation that even the simple initiation of a lawsuit can wreak. For instance, Rule 9(b) of the Federal Rules of Civil Procedure requires that "the circumstances constituting fraud ... shall be stated with particularity." As this court has said: "The irreparable damage to reputations and goodwill, which inevitably results from charges of fraud, and the threat of baseless strike suits are ample reasons for careful judicial review of claims alleging fraud." Somerville v. Major Exploration, Inc., 576 F.Supp. 902, 909 (S.D.N.Y.1983) (Carter, J.). Wright and Miller have noted: "It has been said that the requirement is necessary to safeguard potential defendants from lightly made claims charging commission of acts that involve some degree of moral turpitude." C. Wright & A. Miller, 5 Federal Practice and Procedure: Civil § 1296 (1969). If this sensitivity toward a defendant's reputation is called for in every garden variety fraud, then surely equal solicitude for defendants' good names is necessary in an action which goes much further and labels them "racketeers."
The other reason for requiring specificity in RICO pleading is to eliminate frivolous suits at the threshold of litigation. Because of the breadth of the underlying predicate acts and the lack of any of the constraints present for criminal RICO (), "the courts have seen a flood of cases under the RICO label which have nothing at all to do with organized crime as it is understood commonly or was understood by Congress at the time of the enactment of the statute." Terra Resources I v. Burgin, 664 F.Supp. 82 (S.D.N.Y.1987).
Because of this caseload explosion, courts have sought ways to limit the reach of civil RICO, while remaining within the bounds of appropriate judicial exercise of power and the sometimes ambiguous language of the statute. This Circuit's most recent effort is Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46 (1987), which addressed how the "enterprise" element of civil RICO must be pled to be adequate. After discussing the elements of enterprise that a plaintiff must prove at trial, the Circuit upheld the dismissal of the complaint on the grounds that those elements had been inadequately alleged. Id. at 50. The rule of Beck thus presupposes that the elements of RICO must be pled with specificity. A court can reach the kind of conclusion that the Beck court reached only if sufficient facts are alleged about the existence of the enterprise to measure the complaint against the applicable legal "enterprise" standard.
For instance, this case involves ten defendants, several individuals, several brokerage firms, and several corporations. With respect to the "enterprise" element, the complaint alleges only:
The defendants each of them formed an association in fact to sell to plaintiffs what purported to be insurance and defendants each of them received income from the pattern of racketeering activity.
Missing are factual allegations from which it could be inferred that the defendants did belong to the "association." Missing...
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