Windsor Associates, Inc. v. Greenfeld

• Citation: 564 F. Supp. 273
• Decision Date: 18 May 1983
• Docket Number: Civ. A. No. M-82-3737.
• Parties: WINDSOR ASSOCIATES, INC. and Lakeview Associates, Inc. v. Alvin E. GREENFELD; Joel Y. Zenitz; Frank F. Favazza, Jr.; Frank F. Favazza & Son, Inc.; Housing Consultants, Incorporated.
• Court: U.S. District Court — District of Maryland

564 F. Supp. 273

WINDSOR ASSOCIATES, INC. and Lakeview Associates, Inc. v. Alvin E. GREENFELD; Joel Y. Zenitz; Frank F. Favazza, Jr.; Frank F. Favazza & Son, Inc.; Housing Consultants, Incorporated.

Civ. A. No. M-82-3737.

United States District Court, D. Maryland.

May 18, 1983.

Paul Walter, Barbara S. Brewer, Tydings & Rosenberg, Baltimore, Md., for plaintiffs.

James M. Kramon, Paul W. Nolan, Kramon & Graham, P.A., Baltimore, Md., for defendants Alvin E. Greenfeld, Joel Y. Zenitz and Housing Consultants, Inc.

Arnold M. Weiner, D. Christopher Ohly, M. Melinda Thompson, Melnicove, Kaufman, Weiner & Smouse, P.A., Baltimore, Md., for defendants Frank F. Favazza, Jr. and Frank F. Favazza & Son, Inc.

MEMORANDUM AND ORDER

JAMES R. MILLER, Jr., District Judge.

This is a civil action for damages, injunctive and declaratory relief brought by Windsor Associates, Inc. (Windsor) and Lakeview Associates, Inc. (Lakeview) under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (RICO) and the common law of fraud, fraudulent concealment, negligent misrepresentation, breach of contract, and conversion. Currently pending before the court in the instant case is the joint motion of Alvin E. Greenfeld, Joel Y. Zenitz, Housing Consultants, Inc., Frank F. Favazza, and Frank F. Favazza & Son, Inc., defendants, to dismiss plaintiffs' complaint pursuant to Rules 9(b), 12(b), and 12(h), of the Federal Rules of Civil Procedure.

I

Windsor and Lakeview are Maryland corporations, each having its principal place of business in Maryland. Both firms are engaged in the business of real estate development. Windsor possesses contractual rights to develop a housing project for the Housing Authority of Baltimore City known as Windsor Gardens Turnkey Housing for the Elderly (Windsor Gardens). Lakeview possesses similar rights with respect to Lakeview Towers Extension Turnkey Housing for the Elderly (Lakeview Towers). Both firms obtained their respective development rights from defendants Zenitz and Greenfeld by agreements executed on November 19, 1976.

Defendants Zenitz and Greenfeld are Maryland residents who are officers and stockholders of defendant Housing Consultants, Inc., a Virginia corporation with its principal place of business in Virginia. Defendant Frank F. Favazza is also a Maryland resident who is president, principal stockholder, and director of defendant Frank F. Favazza & Son, Inc., a Maryland corporation with its principal place of business in Maryland.

The allegations contained in plaintiffs' complaint may be simply stated. Plaintiffs allege that on December 3, 1976, they entered into agreements with Zenitz and Greenfeld wherein those defendants agreed to act as consultants with respect to the two housing projects. Specifically, plaintiffs claim that Zenitz and Greenfeld agreed "to aid and assist Windsor Associates and Lakeview Associates in the management, development, construction and completion of Windsor Gardens and Lakeview Towers, including the negotiation of contracts with all contractors, architects, engineers, and others." Complaint at 6.

Plaintiffs further allege that defendants, acting together, devised a scheme to defraud plaintiffs in which Zenitz and Greenfeld would recommend Frank F. Favazza & Son, Inc. as the general contractor for the two housing projects in return for substantial kickbacks. Pursuant to this scheme, Favazza allegedly submitted inflated contract prices for the construction of the projects to plaintiffs which they accepted in reliance upon Zenitz and Greenfeld's "false representations regarding the reasonableness and legitimacy" of those prices. Complaint at 8. Once construction began, Favazza is alleged to have submitted "padded" requisitions for progress payments from which the kickbacks were paid to Zenitz and Greenfeld.

On this basis plaintiffs make two RICO Act and numerous state law claims. With regard to RICO, plaintiffs assert that in effecting their fraudulent scheme, defendants committed acts indictable under both the federal mail fraud statute, 18 U.S.C. § 1341, and the Travel Act, 18 U.S.C. § 1952, which proscribes interstate and foreign travel or transportation in aid of racketeering enterprises; that such acts constitute "racketeering activity" within the meaning of 18 U.S.C. § 1961(1)(B); that defendants acted as an "enterprise" within the meaning of 18 U.S.C. § 1961(4) and engaged in a "pattern of racketeering activity" pursuant to 18 U.S.C. § 1961(5); that consequently defendant violated 18 U.S.C. §§ 1962(c) and 1962(d) which prohibit such activity; and that plaintiffs are therefore entitled to obtain declaratory and injunctive relief and to recover treble damages, court costs, and attorney's fees under 18 U.S.C. §§ 1964(a) and 1964(c) which provide civil remedies for any person injured in his business or property by reason of a violation of § 1962. Additionally, plaintiffs seek to invoke the court's pendent jurisdiction to assert state claims.

Defendants primarily assert that plaintiffs have failed to state a federal claim upon which relief may be granted, and that as a result, the court lacks proper subject matter jurisdiction to hear plaintiffs' state common law claims. In addition, defendants contend that plaintiffs have pleaded their fraud claims with insufficient particularity, thereby justifying dismissal under F.R.Civ.P. 9(b). Finally, defendants argue that dismissal is warranted because 18 U.S.C. § 1964(c) is unconstitutional on its face and as applied to this case.

II

The relevant RICO provisions are as follows. Sections 1964(a) and 1964(c) provide:

(a) The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons.

. . . . . .

(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

18 U.S.C. §§ 1964(a), 1964(c).

Sections 1962(c) and 1962(d) provides:

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section.

18 U.S.C. §§ 1962(c), 1962(d).

RICO also provides definitions for the material terms contained in section 1962 as they relate to the interest dispute.

§ 1961. Definitions

As used in this chapter ... —

(1) "racketeering activity" means ... (B) any act which is indictable under any of the following provisions of Title 18, United States Code: ... section 1341 (relating to mail fraud) ... and section 1952 (relating to racketeering) ...;

. . . . .

(3) "person" includes any individual or entity capable of holding a legal or beneficial interest in property;

(4) "enterprise" includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity;

(5) "pattern of racketeering activity" requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter enacted Oct. 15, 1970 and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity ....

18 U.S.C. §§ 1961(1)(B), 1961(3), 1961(4), 1961(5).

Applying these statutory provisions to the facts alleged in plaintiffs' complaint, the court concludes that plaintiffs have stated a claim under RICO. Windsor and Lakeview allege that they have been defrauded out of substantial sums of money, thereby suffering injury in "their business or property" within the meaning of section 1964(c). Plaintiffs further contend that they were defrauded by the defendants acting jointly as an "enterprise," and that defendants conducted the affairs of that enterprise "through a pattern of racketeering activity." 18 U.S.C. § 1961(5). There also appear to be sufficient allegations of fact contained in the complaint to defeat defendants' motion insofar as it is based on F.R.Civ.P. 12(b)(6).

Defendants nevertheless assert that plaintiffs have failed to state a federal claim with respect to the statutory scheme outlined above, and in support of that assertion, they argue (1) that the complaint fails to allege that defendants are associated with organized crime; and (2) that the complaint does not set forth a "racketeering enterprise injury." With regard to the first of these arguments, defendants contend that the proscriptions of RICO are aimed directly at organized criminals, and that in promulgating the statute, Congress intended solely to root out organized crime in the United States. Defendants therefore urge that unless they are charged with being somehow affiliated with organized crime, no action may be brought against them on the basis of RICO.

There is no doubt that RICO represents, in large measure, a Congressional attempt to combat the forces of organized crime in this country. In examining the legislative history behind the...