18 U.S.C. § 1962 · C relations

fact · cuts-against Plaintiffs admit, at Section 8(b) of their Amended Civil RICO Statement, that they have no idea whether any alleged income was ever invested by any defendant at all, let alone that it was invested in the alleged enterprise and that they were injured as a result of that investment.

fact · cuts-against In the instant case, neither Plaintiffs’ Amended Complaint nor their Civil RICO Statement sets forth a single allegation relating to any investment whatsoever made by any Defendant, in the alleged enterprise or anywhere else, much less that the Plaintiffs were damaged or injured as a result of such investment.

rule Because injury by reason of investment of racketeering income in an enterprise is the very foundation of a § 1962(a) claim, Plaintiffs’ allegations are insufficient as a matter of law.

held This sweepingly general allegation that the defendants either “retained” or “disposed of’ any income they received plainly fails to allege the required: (I) investment, (2) of any income, (3) in an enterprise.

fact · supports Plaintiffs originally alleged that Michael Sichenzia, Lisa Sichenzia and Patrick Cott-rell were the only “members” of the enterprise.

fact · cuts-against In the case at bar, the Plaintiffs unequivocally stated, at section 5(b)(B) of their original Civil RICO Statement, that “[t]he purpose of the enterprise was to obtain monies from the Plaintiffs under false pretenses.”

fact · cuts-against There is no allegation in the Amended Complaint or the Civil RICO Statement of what activity, if any, the alleged enterprise ever engaged-in other than the alleged predicate acts.

fact · cuts-against Additionally, Plaintiffs fail to allege any chain of command of the enterprise, or how, if at all the alleged “members” functioned as an integrated group or directed the affairs of the alleged enterprise apart from the predicate acts themselves.

rule Further, in a fraud-based RICO claim, if the sole purpose of the alleged enterprise is to perpetrate the alleged fraud, there can be no enterprise for RICO purposes.

rule The test is whether the predicate acts differed from the usual and daily activities of the enterprise itself.

held Plaintiff identifies no purpose of the enterprise except to engage in the racketeering activity, no group (as opposed to individual) activity other than the racketeering activity, and no on-going structure except the conduct of racketeering.

held As the Plaintiffs failed to allege the existence of an enterprise that has any existence separate and apart from the purported predicate acts, they fail to state a claim under 18 U.S.C. § 1962(c), and their Claim 119, brought under that provision must be dismissed as a matter of law.

fact · cuts-against The only allegations against Betty and Denise Grahn are that Betty Grahn purchased two of the parcels several months after the Plaintiffs made the loans, and that Denise Grahn notarized the signatures of other defendants.

held But there is no allegation that the other Defendants were leaders or managers of the enterprise.

fact · supports The specific allegations of the complaint identify what they did as, in essence, failing to record mortgages and other instruments affecting the loans made by Plaintiffs, wrongfully issuing priority of title insurance, offering false documents for filing, and engaging in various acts of negligence and breach of duty.

fact · cuts-against He represented various of the Sichenzia defendants and/or Artesian (it is not clear which, or whether the client differed in different deals) in connection with some of the loan transactions at issue.

rule In addition, the mere fact that a defendant may have aided in the alleged scheme to defraud, even if that aid was intentional, does not give rise to liability under § 1962(c).

held None of those pages and pages of contentions remotely suggests how this transformed the non-Sichenzia Defendants into leaders, managers or directors of the enterprise of which they are not even alleged to be members

fact · cuts-against all of which are entities that were or are owned by the Sichenzias and/or Mr. Cottrell.

held The business entities named by the Plaintiffs in their § 1962(c) claim, as opposed to the individual defendants, cannot possibly “lead, run, manage or direct” the affairs of the alleged enterprise, or, for that matter, act “intentionally” at all, since corporations can act only through their individual officers, directors or agents (who are not explicitly identified).

rule Plaintiffs’ substantive claims under 18 U.S.C.1962(a) and (c) fail to state a cause of action, and have been dismissed. As a result, Plaintiffs’ claim under section 1962(d) sounding in conspiracy to violate sections 1962(a) and (c) must also be dismissed.

held Therefore, the purported Section 1962(d) claim (Claim 120) also must fail as a matter of law.

fact · cuts-against Plaintiffs admit in their Amended Complaint, as well as their Civil RICO Statement, that each and every loan was secured by a mortgage and note, most of which bind the individual Sichenzia defendants personally.

fact · cuts-against They also admit that each mortgage was insured through defendants Old Republic and/or Artesian Abstract. However, Plaintiffs have made no effort to enforce those rights prior to instituting this action.

fact · cuts-against However, nowhere do Plaintiffs allege that they made any effort whatsoever to recover their alleged losses, or even any part of such losses, by seeking to enforce any of their admitted contractual rights.

rule Because the Plaintiffs have not exhausted the bargained-for remedies, which they admit are available to them, they have not satisfied RICO’s requirement of alleging damages that are clear and definite.

held As Plaintiffs cannot allege “clear and definite” damages to their business or property, they lack standing under RICO, and their RICO causes of action must be dismissed.

fact · cuts-against Elsewhere, they make it quite clear that the injury they have allegedly suffered — the supposed non-collectability of their various mortgages and loans — resulted, not from the investment of any money in a RICO enterprise, but rather because of the various predicate acts

held they fail to state a cause of action under 18 USC § 1962(a). Thus, Plaintiffs’ RICO claims must be dismissed.

fact · supports it would appear that the only allegations against (1) the Sichenzia defendants other than Lisa and Michael Sichenzia and Cottrell, (2) Old Republic, (3) DeEsso, and (4) certain allegations against the Artesian defendants are allegations of aiding and abetting.

rule Courts in this District have long held that there is no private right of action for aiding and abetting a RICO violation.

held As this Court does not recognize a private right of action for aiding and abetting a RICO violation, Plaintiffs’ causes of action against the all defendants, insofar as they are based on either “aiding and abetting” or 18 U.S.C. § 2, must be dismissed.

rule Generally, the parol evidence rule does not act to bar extrinsic evidence related to a fraud claim rather than a breach of contract claim.

held Because plaintiffs bring RICO claims grounded in fraud — not claims for breach of contract — evidence related to their claims is plainly not barred by the parol evidence rule.

rule It appears from the definition of “pattern of racketeering activity” that any combination of two listed offenses may constitute a “pattern” for RICO purposes.

held The First Count of plaintiff’s complaint will be dismissed because it fails to allege at least two acts of racketeering activity with sufficient particularity and thus fails to allege that defendants engaged in a “pattern of racketeering activity” as required by 18 U.S.C. § 1962.

fact · cuts-against First, plaintiff merely asserts that “defendants Southmost, Tri-State, Gellman and Alfieri are enterprises” (eomplaint, First Count, ¶ 17) without clarifying whether all four defendants comprise one enterprise or whether each defendant constitutes an “enterprise.”

fact · cuts-against Aside from assertions that the four defendants conspired with each other and committed numerous fraudulent acts, plaintiff does not mention any identifiable structure which would encompass all four defendants.

fact · cuts-against In fact, defendant Alfieri is only alleged to be an officer and controlling person of defendant Southmost and is not alleged to have any connection with defendant Tri-State.

rule The Third Circuit held that the first requirement of an “ongoing organization” is a showing that a structure exists for group decision making, whether it be hierarchial or consensual.

rule If it were to be determined that an “enterprise” is sufficiently pleaded whenever a plaintiff avers that any two or more otherwise unassociated individuals agree to commit two or more acts of business fraud, this would effectively eliminate the enterprise element of RICO and drastically expand federal jurisdiction over all business torts which involve use of the mails or telephones.

held For all the above reasons, I find that the First Count of plaintiff’s complaint is deficient since it fails to allege the existence of an “ongoing organization” which is the first element of the RICO “enterprise” requirement.

fact · cuts-against Although plaintiff does allege that defendants conspired to commit mail fraud and wire fraud, plaintiff fails to allege a RICO conspiracy since it does not state that defendants made their agreement in order to further the affairs of a RICO “enterprise.”

rule The Court stated that an agreement merely to commit the predicate offenses would not be sufficient to support a RICO conspiracy.

held Therefore, the First Count of plaintiff’s complaint fails to allege that defendants violated Section 1962(d), the conspiracy subsection of RICO.

held A few loose ends: First, the § 1962(d) RICO conspiracy claim is also premised on the existence of a pattern of racketeering; therefore, we need not further address that issue or Grunfeld’s dismissal from the suit as a co-conspirator.

fact · supports The complaint broadly and nonspecifically alleges Defendants formed and operated an “association in fact” that fraudulently grew a “web of interrelated” commonly-owned and managed companies that engaged in a host of “fraudulent and illegal” business practices, including mail and wire fraud, and used this association in fact to fraudulently induce Plaintiffs to purchase third-party vehicle loan accounts from On Time Auto and to purchase — then lose — an equity interest in On Time Auto.

fact · supports The complaint further asserts that Defendants used On Time Auto as a front to maximize and divert the revenues and profits of the illegal enterprise

fact · cuts-against In their complaint, Plaintiffs merely suggest that at indefinite times, in nondescript ways, and for unidentified purposes, some, but not all Defendants provided On Time Auto with funds or services.

rule In deciding whether an alleged RICO enterprise has an ascertainable structure distinct from the pattern of racketeering activity, we must “determine if the enterprise would still exist were the predicate acts removed from the equation.”

held we note that these assertions are more of the same eonclusory allegations that altogether fail to establish how the Defendants are associated with each other or the RICO enterprise.

held The district court found Plaintiffs failed to properly plead the RICO elements of an enterprise, a pattern of racketeering activity, and at least two predicate acts committed by each defendant. We agree.

fact · supports According to the second amended complaint, Appellee Eddie Lin, Appellee Eugene Gabryeh, Appellee Marian Gabryeh and George Realty formed a RICO enterprise by associating in fact to conduct the above described fraudulent real estate transactions.

fact · supports Each Appellee allegedly was in charge of and played a vitally important role in controlling and managing a specific phase of the enterprise’s activities.

fact · cuts-against Each Appellee conducted his or her role in the alleged fraudulent real estate transactions autonomously.

fact · cuts-against The proceeds were allocated to Appellees in a manner consistent with ordinary real estate transactions.

rule We hold that a RICO enterprise must have an ascertainable structure separate and apart from the structure inherent in the conduct of the pattern of racketeering activity.

rule The structure should provide “some mechanism for controlling and directing the affairs of the group on an ongoing, rather than an ad hoe, basis.”

rule Rather, it is sufficient to show that the organization has an existence beyond that which is merely necessary to commit the predicate acts of racketeering.

held Appellants have not alleged a structure to the organization beyond that which was inherent in the alleged acts of racketeering-activity.

held This lone statement that the Gabryches directed Lin’s actions is insufficient to establish that there was an enterprise separate and apart from the predicate acts.

fact · cuts-against The second amended complaint alleged that George Realty was part of the enterprise, but did not name George Realty as a defendant and did not explain George Realty’s relationship to or participation in the alleged enterprise, except to note that Eddie Lin was the real estate agent representing George Realty.

fact · cuts-against Although George Realty had a legal existence separate from the racketeering activity, Appellants did not allege that it participated in the racketeering activity.

rule It is true that the involvement of a corporation, which has an existence separate from its participation in the racketeering activity, can satisfy the enterprise element’s requirement of a separate structure.

held Thus, the mention of George Realty in the description of the alleged enterprise fails to satisfy the separate structure requirement.

held Without a proper allegation of an enterprise, neither the § 1962(c) nor the § 1962(d) claims can survive Appellees’ motion to dismiss.

fact · supports Drozal concluded that the Co-Op had owned White Flame from the start and that the plant should be valued at $4.5 million on its books.

fact · supports Arthur Young did not tell the board of its conclusion that the Co-Op always had owned White Flame or that without that conclusion the Co-Op was insolvent.

fact · supports These included White Flame’s $4.5 million asset value among its total assets but omitted the information contained in the audit’s Note 9.

fact · cuts-against In this case, it is undisputed that Arthur Young relied upon existing Co-Op records in preparing the 1981 and 1982 audit reports.

fact · cuts-against it is clear that Arthur Young was not acting under the direction of the CoOp’s officers or board

rule In order to “participate, directly or indirectly, in the conduct of such enterprise’s affairs,” one must have some part in directing those affairs.

rule An enterprise is “operated” not just by upper management but also by lower rung participants in the enterprise who are under the direction of upper management. An enterprise also might be “operated” or “managed” by others “associated with” the enterprise who exert control over it as, for example, by bribery.

rule In sum, we hold that “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs,” § 1962(c), one must participate in the operation or management of the enterprise itself.

held We think that Arthur Young’s failure in this respect is not sufficient to give rise to liability under § 1962(c).