Opinion
CIV. NO. 3:05CV1644 (AHN).
October 20, 2006
RULING ON PLAINTIFF'S APPLICATION FOR PREJUDGMENT REMEDY
Plaintiff, Samuel Rubin, Jr., brings this action to recover monies paid and for damages as a result of the alleged violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., along with several state law claims. [Doc. #2 at 1]. Defendants James Donoghoe and John Strong are appearing pro se.
Plaintiff alleges wrongful misrepresentation, theft, fraud, failure to disclose information, breach of fiduciary duty and wrongful conduct under applicable Louisiana law, including Article 1874 of the Louisiana Civil Code. [Compl. Doc. #2 at ¶ 26]. Plaintiff contends that defendants' conduct constitutes negligence, malpractice, gross negligence, wanton negligence, maliciousness, fault and other unlawful and wrongful conduct under applicable Louisiana law, including without limitation Article 2315 of the Louisiana Civil Code. Id. ¶ 27.
James Donoghoe received his juris doctorate from the University of Louisville, in Kentucky. He was a litigator in Kentucky for approximately ten (10) years. Donoghoe testified that he was disbarred and served prison time for check forgery. Tr. 100-06.
Plaintiff moves for a prejudgment remedy against defendants Donoghoe and Strong in a total amount of $8,815,516.86 representing principal with interest ($2,854,505.62), RICO treble damages ($8,563,516.86), and estimated attorneys' fees ($250,000) and costs ($2,000). [Doc. #19]. A hearing was held on April 25, 2006. [Doc. #43].
The Court ordered simultaneous post-hearing briefing on June 16, 2006. [Doc. #55]. Specifically, the Court requested briefing on whether there was probable cause to sustain the RICO and Louisiana state law claims. Id. Plaintiff filed his brief on September 5, 2006. [Doc. #73]. Strong filed a motion to deny prejudgment remedy on July 3, 2006. [Doc. #59]. On July 5, 2006, Donoghoe filed a response to the Court's order for post-hearing briefing by filing a Motion to Dismiss all RICO Claims and Possible Louisiana Claims [Doc. #58]. The Court construes the Motion to Dismiss as a Motion to Dismiss the PJR, as Mr. Donoghoe does not seek dismissal under Fed.R.Civ.P. 12(b) and because he only addresses the sufficiency of the evidence on the PJR.
In support of his application for entry of a PJR, plaintiff presented the Court with his original affidavit swearing to the allegations in the Complaint [Doc. #2], plaintiff's exhibits 1-15 and defendants' exhibits 501-503. Plaintiff testified along with Liz Russell of People's Bank; David Yaffe, an accountant; and the two defendants James Donoghoe and John Strong.
On June 16, 2006, the Court requested supplemental briefing [doc. #55]. Plaintiff's response was filed on September 5, 2006. [Doc. #73].
PROBABLE CAUSE STANDARD
To grant a motion for prejudgment remedy ("PJR") of attachment, the court must make a finding of "probable cause." Connecticut General Statutes § 52-278c(a)(2) requires that the application include:
An affidavit sworn to by the plaintiff or any competent affiant setting forth a statement of facts sufficient to show that there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount of the prejudgment remedy sought, taking into account any known defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff.
Connecticut General Statute § 52-278d provides that a PJR hearing is limited to a determination of "whether or not there is probable cause that a judgment in the amount of the prejudgment remedy sought, taking into account any defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff."
"Probable cause," in the context of a prejudgment remedy, has been defined by Connecticut courts as "a bona fide belief in the existence of the facts essential under the law for the action and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances, in entertaining it." Three S. Dev. Co. v. Santore, 193 Conn. 174, 175 (1984) (quotation marks and citation omitted).
In other words, in addressing PJR applications, the "trial court's function is to determine whether there is probable cause to believe that a judgment will be rendered in favor of the plaintiff in a trial on the merits." Calfee v. Usman, 224 Conn. 29, 36-37 (1992) (citation omitted). A probable cause hearing for the issuance of a prejudgment remedy "is not contemplated to be a full scale trial on the merits of the plaintiff's claim." Id. at 37. The plaintiff need only establish that "there is probable cause to sustain the validity of the claim." Id. Probable cause "is a flexible common sense standard. It does not demand that a belief be correct or more likely true than false."New England Land Co. v. DeMarkey, 213 Conn. 612, 620 (1990) (citation omitted). "[T]he Court must evaluate not only the plaintiff's claim but also any defenses raised by the defendant."Haxhi v. Moss, 25 Conn. App. 16, 20 (1991) (citation omitted).
Moreover, "damages need not be established with precision but only on the basis of evidence yielding a fair and reasonable estimate." Burkert v. Petrol Plus of Naugatuck, Inc., 5 Conn. App. 296, 301 (1985) (citation omitted).
FACTUAL ALLEGATIONS
Plaintiff alleges that, commencing June 1, 2000, and continuing through December 1, 2004, the defendants Donoghoe and Strong "embarked upon a scheme and a pattern of racketeering activity for the purpose of enriching themselves by and through the obtaining of money by a pattern of racketeering, the proceeds of which were supposed to be used to obtain a tract of land in Puerto Rico that would be used for resort development, which proceeds were invested in the Enterprise." [Doc. #2 ¶ 6]. Plaintiff alleges that "Donoghoe assured Rubin that money Rubin invested would return at least several million dollars." Id. ¶ 8. "From June 1, 2000 through December 1, 2004, Rubin periodically transferred to Donoghoe various sums of money and assets" valued at two million three hundred eight thousand seven hundred twenty-nine dollars and twenty-six cents ($2,308,729.26). Id. ¶ 9, 13; doc. #19. Rubin alleges that, "[i]n spite of all [of defendants'] promises plaintiff's funds were never invested, nor was any property ever purchased; nevertheless, plaintiff's funds were never returned to plaintiff. Nothing has ever been invested to complete the acquisition of property to complete the plan." Doc. #2 at ¶ 11.
FINDINGS
After hearing the PJR application, the Court finds the following facts.
Citation to the April 25, 2006, PJR hearing transcript, [doc. #69], will be "Tr." with the page reference.
Beginning in June 2000, plaintiff Samuel Rubin began providing money to James Donoghoe to invest in real estate deals. Money was transferred by bank check or wire transfer to Donoghoe. [Pl. Ex. 1, 5]. Rubin believed that defendant John Strong would act as the realtor in ventures and handle any sales. From June 8, 2000 through December 1, 2004, Rubin transferred $2,308,729.26 to James Donoghoe by bank check, wire transfer or goods. [Pl. Ex. 1, 5]. Defendant Donoghoe testified there was "no reason to doubt" plaintiff's exhibit 5, evidencing that $2,306,000 was forwarded to Donoghoe between June 8, 2000 and December 9, 2004. Tr. 118. Donoghoe testified that, "[w]hatever the bank received, that's basically what I received." Tr. 118. Donoghoe testified that all of the money was "spent and/or loaned some of it, but nevertheless, its all gone." Tr. 119. "No deals were made" with Rubin's money. Tr. 127.
There were three jewelry transfers to Donoghoe, on 9/1/01 valued at $76,500 [J01]; 11/1/02 valued at $23,500 [J02]; and 12/18/03 valued at $75,000 [J03]; all included in the total amount of $2,308,729.26. [Pl. Ex. 1].
Donoghoe received jewelry from Rubin on September 1, 2001, valued at 76,500; on November 1, 2002, valued at $23,500; and on December 18, 2003, valued at $75,000. Pl. Ex. 5; Tr. 116, 136. Donoghoe testified that he sold the jewelry for $35,000. Tr. 143. He said, "I asked Mr. Rubin if he wanted me to send it back to him and he said "no," so then I told him, well, I was gonna sell it, which I did." Tr. 143. Donoghoe testified that he spent the money from the sale of the jewelry. Tr. 143.
Donoghoe acknowledged that after receiving Rubin's bank checks or wire transfers, he would write checks to himself in increments of $10,000, $15,000, $20,000 . . . "the whole idea was smaller amounts of cash I would use, but not anything over $10,000." Tr. 137. "[W]hat I did was break up big blocks of money into smaller blocks, yes." Tr. 137.
It is undisputed that no investment deals or real estate purchases were completed. Tr. 119. Donoghoe testified that there are no business records, attorney's fees, deposits, travel logs, expense receipts, land surveys, appraisals or documentation of any kind to show how Rubin's money was expended in looking for investments. Tr. 119, 132, 153. Donoghoe testified that he used at least part of Rubin's money for his personal "quality of life and on [his] family." Tr. 119.
At the hearing, Donoghoe was unable to recall the last deal that he closed. Tr. 155. He testified that it was sometime around 2000, before he met Rubin, "probably" when he was working for his former clients Paul Sweetman or Mr. Gersten. Tr. 155. Donoghoe could not recall his income for the five (5) years preceding his relationship with Rubin. Tr. 157. For the tax year 2004, Donoghoe was unable to recall why he took $410,000 in business expenses. [Pl. Ex. 11, Tr. 167]. For the tax year 2003, Donoghoe was unable to recall why he took $400,000 in business expenses. [Pl. Ex. 10, Tr. 170]. For the tax year 2002, Donoghoe was unable to recall why he took $200,000 in business expenses. [Pl. Ex. 9, Tr. 170]. Donoghoe testified that he did not report any of the funds received from Rubin as income because they were loans and he did not report any expenses incurred looking for deals for Rubin on his tax returns. Tr. 158.
Donoghoe testified that he loaned defendant Strong a "fair amount" of the money that he received from Rubin. Tr. 120. He stated that Strong borrowed from him and Donoghoe did not know if Strong was aware of where the money came from. Tr. 120. Donoghoe stated that loans to Strong were close in time to receipt of funds from Rubin. Tr. 121, 140-42; Pl. Ex. 4, 5.
For example, on January 29, 2001, Rubin wire transferred $50,000 to Donoghoe. [Pl. Ex. 5 at 3]. On February 2, 2001, Donoghoe wrote two checks (numbered 671 and 672) to John Strong, each for $25,000. [Pl. Ex. 4 at 5]. Plaintiff's expert witness David Yaffe also testified that during the period of January 2001 through December 2004, the bank statements contained large round number dollar disbursements occurring within ten days of wire transfers from Rubin representing a typical pattern. Tr. 89-94. Yaffe noted that only bank records for January 2001 through December 2004, were available to him when he assembled the chart. Tr. 88. Bank statements from June 2000 through October 2000 were unavailable for review. Id. From January 2001 through December 2004, $1,585,090 was credited to Donoghoe's People's Bank accounts from Rubin and $1,367,500 was disbursed from Donoghoe's account within ten days. Every deposit was followed by a whole number disbursement within ten (10) days. [Pl. Ex. 5 at 3].
Donoghoe testified that Rubin was his only client during this period of time and his only source of money. Tr. 121. Donoghoe estimated that Strong received anywhere from $400,000 to $700,000, but did not know the precise number without records. Tr. 121. Donoghoe provided Strong with cash, bank checks and/or money transfers. Tr. 152. Donoghoe stated "in essence, the money that I leant to [Strong] came from Mr. Rubin. . . ." Tr. 122. He also testified that he did not know what Strong did with the money that was lent to him. Tr. 129. Donoghoe stated that Strong assured him that the money would be repaid. Tr. 123.
John Strong testified that he has known James Donoghoe for over twenty (20) years. Tr. 176. Strong stated that he met Donoghoe through Paul Sweetman. Tr. 176. He claimed that Strong and Donoghoe did business deals together for Paul Sweetman, approximately five (5) to six (6) "major transactions" approximating twenty (20) million in sales." Tr. 177. Strong stated he is a real estate broker in the state of New York. Tr. 179.
Strong testified that he met Samuel Rubin through his ex-wife's family, who are residents of Monroe, Louisiana. Tr. 180. Strong was a customer of Rubin's jewelry store, R A Jewelers, located in Monroe, Louisiana. Tr. 180. Strong introduced Rubin to Donoghoe after learning from his mother-in-law that Rubin was interested in investing money, although Strong contended he was unaware of how Rubin and Donoghoe ultimately met. Tr. 183. Strong testified that he forgot that he owed Rubin money for a diamond ring and Rolex watch from R A Jewelers but stated he intended to pay for the items. Tr. 182.
When asked about James Donoghoe's check to the Lotos Club in the amount of $10,000 [Pl. Ex. 4], Strong stated that Donoghoe loaned him money from time to time and would write checks to parties, such as the Lotos Club, for money Strong owed as an accommodation of their friendship. Tr. 184. Strong stated that Donoghoe has done that for him on more than one occasion. [Tr. 184. Strong testified that he might have been aware that the money came from Rubin. Tr. 185.
Strong explained that the Lotos Club is located in New York City and has a restaurant as well as over night facilities for members. It is a "exclusive" private club with annual dues. Strong estimated that in the first twenty years he was a member, he spent approximately $80,000 a year. Tr. 186.
Strong testified that he did not know how much money Donoghoe gave him. Tr. 191 Donoghoe provided money to him with bank checks and cashier's checks and Strong did not have any records for the period of 2000 through 2005 to estimate the amount loaned, although he thought he received about $250,000 from Donoghoe during that period. Tr. 191, 193. Donoghoe never lent Strong money in the form of cash. Tr. 192. Strong testified he had "no idea" how many checks he received from Donoghoe. Tr. 193-94, 212-13. Strong stated he was not part of any deals with Rubin and Donoghoe and was unaware of their financial arrangement or the amount of money Rubin provided to Donoghoe. Tr. 187-88, 194. He recalled Donoghoe mentioning he received funds from Rubin approximately three (3) times. Tr. 196. Strong stated, "I certainly wasn't informed about money going from Mr. Rubin to James Donoghoe, otherwise I would have received much more than $250,000, wouldn't I?" Tr. 196. Strong testified that he has not spoken with Rubin in over five (5) years. Tr. 182, 190-91.
At the hearing, Strong was asked:
Q: And did you realize at the time you went to pick up the money, it was . . . the money had originated from Mr. Rubin?
A: No. There were . . . often money would originate from other people.
Q: Like who?
A: Like Paul Sweetman
Q: How much?
A: I have no idea.
Q: How did you know Sweetman was . . . Mr. Sweetman was also sending money to Mr. Donoghoe?
A: Mr. Sweetman told me.
. . .
And as I recollect, Mr. Sweetman, because he was in Connecticut, and possibly knew that his former employee was going to be meeting with me, would then, to accommodate me, so he wouldn't have to come to New York, Mr. Sweetman, he would give money to Mr. Donoghoe for me.
It wasn't huge money, as I remember, but I did receive cashier's check, perhaps from Mr. Sweetman, that Mr. Donoghoe then, you know, gave me to accommodate Mr. Sweetman to give it to me. This was the normal way that I did business with Mr. Sweetman.
Q: How much money would you say you borrowed from Mr. Sweetman?
A: I would say a couple hundred thousand perhaps.
Tr. 197-98.
David Yaffe, a certified public accountant, offered expert testimony at the hearing regarding plaintiff's damages to date (April 25, 2006). Mr. Yaffe testified that plaintiff was owed $2,306,000 in principal and $548,505.62 in interest to April 25, 2006, totaling $2,854,505.62. [Pl. Ex. 5]. Defendant Donoghoe did not contest this calculation on cross examination of Mr. Yaffe and testified he had no reason to doubt the calculation of damages by Mr. Yaffe. He testified that he spent all the money; "its all gone." Tr. 119.
Plaintiff offered exhibit 2, a letter dated September 20, 2004, from Samuel Rubin to James Donoghoe and John Strong. The letter states,
J.D., over a period of time I advanced you funds which would eventually be used for real estate investments. You and I have always considered these funds as personal loans until such time investments were made, or until the funds were returned.
I now find myself in a hospital with an injured hip, and it would bring me "peace of mind" if you would give me a Promissory Note evidencing the loans which I have advanced. I am suggesting you prepare a Promissory Note, due six months from today's date, in the amount of $1,500,000. The Note should show an interest rate of seven (7%).
Since you loaned John Strong a portion of the funds I have loaned to you — I would like John to endorse the Promissory Note.
J.D., please sign your name below signifying your agreement to the obligation of the Promissory Note and have John Strong do [sic] likewise.
[Pl. Ex. 2]. The letter was signed by Samuel Rubin, James F. Donoghoe and John Strong. [Pl. Ex. 2]. A promissory note dated September 20, 2004, in the amount of one million five hundred thousand dollars ($1,500,000), due March 20, 2005, was provided to Samuel Rubin from James Donoghoe and John Strong "jointly and severally." [Pl. Ex. 1]. Rubin testified that Donoghoe presented the letter to him for his signature. Both Donoghoe and Rubin testified that Rubin did not prepare the letter or the promissory note. Tr. 146. Strong testified that he prepared the letter and the promissory note. Tr. 223. Strong stated that he and Donoghoe "agreed to do something to protect Samuel Rubin because we heard that he might not be long for this world." Tr. 223. Strong said that both documents were his idea and Donoghoe agreed immediately. Tr. 224. "[W]hatever money that Mr. Donoghoe loaned to me, I wanted to make sure got back to the estate of Samuel [Rubin]." Tr. 224. Donoghoe testified that he flew to plaintiff's hospital bedside in Louisiana and presented the letter to Rubin for his signature. Tr. 144-45. Donoghoe stated that the $1,500,000 was not a "magic" number; he explained to Mr. Rubin when he gave him the note that "it was just a quick calculation, and if it proved to be more, we could certainly adjust it to be more." Tr. 145, 149.
At the hearing, the Court asked Donoghoe, "[a]ny at the time that you presented Mr. Rubin with the letter to sign, acknowledging your debt to him, did it occur to you that in the absence of some acknowledgment of the debt, that the IRS would impute that . . . those payments to you as income? Donoghoe responded, "No. That never occurred to me, because it was very clear from the outset that the . . . all these monies that he advanced me to look for deals, were loans. He said it, I said it, everybody that had anything to with the deal knew that they were all loans." Tr. 154-55.
The bank records, exhibits and testimony establish that Rubin disbursed $2,306,000 to Donoghoe from June 2000 to December 2004. Pl. Ex. 5, Tr. 86. The total accumulated interest as of April 25, 2006 was $548,505.62, based on simple interest at a rate of prime plus one-half percent. Pl. Ex. 5, Tr. 86. As of April 25, 2006, the total amount of the claim is $2,854,505.62. Plaintiff's expert, David Yaffe, prepared a chart comparing the funds that were disbursed by Mr. Rubin, from the records on page one of plaintiff's exhibit 5, with the wire transfers and checks disbursed from Rubin to Donoghoe that were reflected as receipts on Donoghoe's Peoples Bank bank statements from January 2001 through 2004. Mr Yaffe also prepared a side-by-side comparison of the "round dollar amounts of funds disbursed from [Donoghoe's] account" during the ten days after receipt of monies deposited into Donoghoe's account. Tr. 89. Yaffe observed a typical pattern, that generally within ten (10) days, a "series of disbursements would often take place right after a deposit was made, and then there might be some deposits of cash coming back into the account." Tr. 91. Yaffe testified that this behavior was unusual, "in the sense that most of the time when people are writing checks, paying bills and all of that, it just ends up being an odd amount. I mean, you can certainly have round dollar amounts, but these . . . It seems like every time there is a deposit, there is unusual round dollar amounts that are written in large quantities, and then there may be a . . . some large round dollar deposits." Tr. 93-94. Yaffe testified that in his professional experience he has not seen a pattern like this in personal accounts or business accounts, "not in these types of transactions where there was large, round dollar amounts like that, and case deposits coming in, all surrounding the . . . either the wire transfer or the check that was received." Tr. 95. Finally, Yaffe testified that based on his review of the records, he was not in a position to find out who the payees of any of the funds were. Tr. 98.
January 2001 was the first records available to Yaffe to prepare this chart.
No evidence of set-offs was offered by either defendant at the hearing. Tr. 249.
Defendants deny all of the allegations in this case. Donoghoe contends that money sent to him by Rubin was a loan, a business deal between two people and there is no basis for any RICO claim or the state law allegations. Strong argues he was not involved in any financial dealings with Rubin and Donoghoe whatsoever.
DISCUSSION
1. RICO Claim
Plaintiff alleges in Count I of his complaint that the defendants "embarked upon a scheme and pattern of racketeering activity for the purpose of enriching themselves by and through the obtaining of money by a pattern of racketeering, the proceeds of which were supposed to be used to obtain a tract of land in Puerto Rico that would be used for resort development, which proceeds were invested in the Enterprise" Doc. #1 ¶ 6, in violation of RICO, 18 U.S.C. § 1961 et seq. and § 1962(c).
The Racketeer Influenced and Corrupt Organization Act, ("RICO"), 18 U.S.C. § 1961 et. seq. 18 U.S.C. § 1962(c) states,
It shall be unlawful for a person employed by or associated with an enterprise engaged in, or he 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. 18 U.S.C. § 1962(c).
Rubin alleges three manifestations of this fraudulent scheme: (1) the defendants obtained money and property by means of false and fraudulent pretenses, representations, and promises through the mail; (2) the defendants obtained money through interstate wires in furtherance of defendants' scheme to defraud plaintiff; and (3) defendants caused monies to be sent from Bank One in Louisiana to People's Bank in Connecticut, "constituting a course of conduct designed to deceive a federally chartered or insured financial institution into releasing property, namely cash." Doc. #73 at 14-15.
A violation of § 1962(c), the section on which Rubin relies, requires the (1) conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity, Azrielli v. Cohen Law Offices, 21 F.3d 512, 520 (2d Cir. 1994) (citations omitted); and (5) a resulting injury to its business or property. Sedima, S.P.R.L. v, Imrex Co. Inc., 473 U.S. 479, 496-98 (1985). Under RICO's definitional section, a pattern of racketeering activity requires at least two predicate acts of racketeering. 18 U.S.C. § 1961. Mail fraud in violation of 18 U.S.C. § 1341, wire fraud in violation of 18 U.S.C. § 1343, and bank fraud in violation of 18 U.S.C. § 1344 are predicate acts under § 1961. 18 U.S.C. § 1961(1)(B).
Where the plaintiff alleges each element of the violation, the compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the violation is the commission of those acts in connection with the conduct of an enterprise. Those acts are, when committed in the circumstances delineated in § 1962(c), "an activity which RICO was designed to deter." Any recoverable damages occurring by reason of a violation of § 1962(c) will flow from the commission of the predicate acts.Sedima, 473 U.S. at 497.
Accordingly, this Court examines the record for probable cause to believe that a judgment will be rendered in favor of the plaintiff in a trial on the merits of plaintiff's RICO claim.
a. Enterprise
The conduct prohibited by section 1962 is unlawful only if it occurs in connection with investment in, acquisition of, or operation of an "enterprise" in interstate commerce. 18 U.S.C. § 1962. The statute defines an "enterprise" as "any individual, partnership, corporation, association or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4); United States v. Turkette, 452 U.S. 576, 580 (1981) (quoting 18 U.S.C. § 1961(4)). The Supreme Court has explained that a RICO enterprise is "a group of persons associated together for a common purpose of engaging in a course of conduct," Id. at 583, the existence of which is proven "by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as an ongoing unit." Id. at 583.
"There is no restriction upon the associations embraced by the definition: an enterprise includes any union or group of individuals associated in fact. On its face, the definition appears to include both legitimate and illegitimate enterprises within its scope; it no more excludes criminal enterprises than it does legitimate ones." Id. at 581-82. "Second Circuit has construed `enterprise' liberally, noting that RICO's language and the history suggest that Congress sought to define the term as broadly as possible." AIU Ins. Co. v. Olmecs Medical Supply, Inc., No. CV-04-2934 (ERK), 2005 WL 3710370, at *6 (E.D.N.Y. Feb. 22, 2005) (quotation marks and citation omitted).
Further, while the same evidence may be used to demonstrate both elements, see United States v. Mazzei, 700 F.2d 85, 88 (2d Cir. 1983), "the enterprise must be separate from the pattern of racketeering activity and distinct from the person conducting the affairs of the enterprise." First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 173 (2d Cir. 2004). The enterprise "is an entity separate and apart from the pattern of activity in which it engages . . . [t]he existence of [which] . . . at all times remains a separate element which must be proved . . ." Turkette, 452 U.S. at 583.
Rubin alleges that "James Donoghoe, John Strong, Paul Sweetman, and potentially other unknown persons," doc. #73 at 7, are the "enterprise" and the "defendants in association and union committed the multiple wire fraud and mail fraud predicate acts . . . which had a nexus and were all related and continuing." Compl. ¶ 19-23. The Supreme Court in Reves, interpreting § 1962(c), held "`conduct' to require some degree of direction and the word `participate' to require some part in that direction." Reves v. Ernst Young, 507 U.S. 170, 179 (1993).
The defendants constitute, or at all times pertinent hereto, constituted an "enterprise" within the meaning of 18 U.S.C. § 1961, "and their activities affect or affected interstate commerce. . . ." Compl. ¶¶ 21.
Of course, the word "participate" makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase "directly or indirectly" makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise's affairs is required.Id. (emphasis in original).
The facts alleged and established at the probable cause hearing are as follows. First, plaintiff introduced fifteen exhibits including proof of debt, correspondence, bank records, spreadsheets, deeds and tax returns. The evidence clearly establishes the interrelationship between defendants Strong and Donaghoe. For example,
Plaintiff's Exhibit 2: The September 20, 2004, letter appearing to be from Rubin to defendants and signed by both Donoghoe and Strong evidencing their agreement to execute a promissory note "evidencing the loans advance" in the amount of $1,500,000. At the hearing John Strong testified that he drafted the letter. The letter states in part, "[s]ince you loaned John Strong a portion of the funds I have loaned to you — I would like John to endorse the Promissory Note."
Plaintiff's Exhibit 1: The Promissory Note dated September 20, 2004, for $1,500,000 signed by James Donoghoe and John Strong "jointly and severally."
Plaintiff's Exhibit 4: Copies of checks drawn on February 2, 2001, from Donoghoe's account at People's Bank payable to John Strong's private club The Lotos Club for $10,000, (check #673), and John Strong for $25,000 (check #672), and $25,000 (check #671). Defendants did not deny that this money and other money "loaned" to Strong from Donoghoe originated from the plaintiff.
Donoghoe's Testimony: Donoghoe testified that he "lent" somewhere between $400,000 and $700,000 to Strong. Tr. 121. "Q: And regardless of your ability to read Mr. Strong's mind, which I understand you can't do that, but the reality is at the end of the day, a large part of the money that Mr. Rubin had sent to you, ultimately ended up in Mr. Strong's hands? A: Well, the loans came to me. Then I chose to loan some of it to Mr. Strong but, in essence, the money that I leant to him came from Mr. Rubin, yes." Tr. 122.
Second, witness testimony confirmed the existence of an "enterprise" between defendants Donoghoe and Strong. Rubin testified that he became acquainted with Donoghoe through Strong. Tr. 16, 40. The evidence and credible testimony link Strong and Donoghoe to purported land deals in the Hampton and Puerto Rico for which Rubin provided funding. Evidence credited by the
There was also testimony about a third participant Paul Sweetman, who is not a party to this action.
Regarding the Hampton deal, Rubin testified,
There was a land deal in the Hampton that was owned by three people that bought it at a sheriff's sale, and John Strong knew these people, and Mr. Donoghoe had some-supposedly made some arrangements in Europe, through banking sources, to buy-to purchase this land, and that Mr. Strong would be the realtor to sell, `cut the banks would go along with it with the idea that they were gonna get their money back, the loan back, and he-Mr. Strong, according to Mr. Donoghoe, said that he would be the realtor and would be accountable to sell the land.
Q: Did the discussion about any funds that you had either previously sent to Mr. Donoghoe, or shortly thereafter, was there any discussion about funds required from you?
A: Oh, yeah, I sent him many, many checks. I don't remember exactly what time . . . it was, you know, a lot of money.
Tr, 18-19.
Rubin testified,
I do recall a letter that Mr. Donoghoe showed me, that John Strong had offered an immense amount of money for that property in the Hampton, because they were going to build — he and this builder that was going to build some condominiums or something, because it was near the water.
It was an immense amount of money, way more than — It would pay me back three-fold, if it really was as represented.
Tr. 42.
Rubin testified,
Q: At any time, were you told by Mr. Donoghoe, whether Mr. Strong was in the arrangement in any manner whatsoever, and, if so, what did you understand?
A: Well, he was going to be the realtor on these-I guess, these ventures, and would handle the selling of them.
Q: Did he mention to you whether Mr. Strong would (inaudible) the money you sent to Mr. Donoghoe?
A: Well, he said that he would give John Strong small amounts of money.
Tr. 29.
Court demonstrates an "enterprise" involving both defendants. Although Donoghoe and Strong repeatedly testified that Strong had nothing to do with any business dealings involving Rubin and Strong, the evidence and testimony establish otherwise. Indeed, Strong testified, "I know from Mr. Donoghoe, my good friend-he was on the lookout for property investments or other investments. I am a land broker and so I was on the lookout for Mr. Donoghoe for a good land investment opportunity. . . ." Tr. 212. Regarding the Puerto Rico deal, John Strong testified,
Donoghoe testified,
There was nobody else involved in the deal, except Mr. Rubin and me. The fact that other people, we mentioned a couple of them, Strong and Sweetman, and so forth, were just some of a myriad of contacts that I would ask if they knew of any deal that might be — work out." Tr. 160. "It was two people involved: Sam Rubin and J.D. Donoghoe. All the rest are ancillary players and were not involved in the deal. . . ."
Tr. 162.
It's ridiculous to claim that's there's any RICO. It was a loan, a business deal between two people, Sam Rubin and me. . . . John Strong has been a friend of mine for 20 years. We've leant each other money over many years. He had nothing to do with this deal. He was not a third party, he wasn't entitled to any percentage or part of the deal. It was all between Rubin and me, and I don't deny that. I never denied that.
Tr. 247-48.
Strong maintained that he had nothing to do with this lawsuit. Tr. 226. He testified that from 2000 through 2004 or 2005 he never had a conversation,
to my knowledge and recollection, with Sam Rubin. I never had a conversation with Mr. Donoghoe and Mr. Rubin. I was never part of any correspondence, except for this, what I'm holding, [the letter dated September 20, 2004] which is exhibit 2. No meetings with them. No conversations between the three of us. I had nothing whatsoever to do with whatever that relationship was between the two parties.
Tr. 227.
Q: Did you know anything about the Puerto Rico deal?
A: not really. Mr. Sweetman was handling that. Paul Sweetman.
Q: And what was Paul Sweetman's role in that deal?
A: Well, he had found a property that he thought would be good, but it was really tied up environmentally and — like the government wanted to buy it, or something like that. We were waiting until it was going to be made available, once the government announced that they were not going to do it, but I understand though, the past few months the government is on record that they really want and intend to acquire the property and preserve it for environmental reasons. It was a large tract of land, as I remember it.
Q: Now, you say, "We were waiting," who do you mean by "We"?
A: Mr. Sweetman or Mr. Donoghoe, because if — once Mr. Sweetman had it lined up where a contract could be entered into, and with the right terms, it sounded like a good opportunity. I flew down, I looked at the property. The property was beautiful, ocean front, and had great potential.
Tr. 220-21. Strong testified he threw out all his records having to do with the deal in Puerto Rico, Tr. 221-22. Donoghoe also testified he also had no records to show how he spent Rubin's money and to show what efforts he made, if any, to find Rubin real estate investments. Tr. 119, 132, 153.
When pressed at the hearing regarding his role in brokering or "attempting to facilitate," tr. 220, real estate deals with Donoghoe using Rubin's money, Strong testified, "there's a tie-in here with Mr. Donoghoe and myself, with Paul Sweetman, who was coming up with some deals for Mr. Donoghoe and myself, that undoubtedly would have been involved with Sam Rubin over the past five years, so it was Mr. Rubin and Mr. Donoghoe, and Mr. Donoghoe and Paul Sweetman, and Paul Sweetman and me. That three, not this three." Tr. 210.
Here, plaintiff has established probable cause that Donoghoe and Strong shared a common purpose to engage in a fraudulent course of conduct, namely to defraud Mr. Rubin of money in so-called real estate deals. The fact that Strong contends he never meet with or spoke with Mr. Rubin during that past five years is not determinative. Mr. Strong cannot distance himself from the letter he drafted for Rubin's signature in September 2004, and signed, with Donoghoe, acknowledging receipt of a "loan" from Rubin. Nor can Strong distance himself from the Promissory Note to Rubin that he signed "jointly and severally" with Donoghoe in the amount of $1,500,000. While the record contains three (3) checks/payments by Donoghoe to Strong in close proximity to cash transfers from Rubin in February 2001, totaling $60,000, Pl. Ex. 4, Strong was willing to sign a Promissory Note in the amount of $1,500,000 to Rubin on September 20, 2004, over three years later, to a man he testified he had no connection to and no contact with. The Court does not find either Strong or Donoghoe's testimony credible on their role or relationship with Rubin and his money.
Strong was aware of Donoghoe and Sweetman's actions and had knowledge and a role in brokering or reviewing the purported real estate deals. Plaintiff "need not prove that a conspirator-defendant agreed with every other conspirator, or knew all the other conspirators, or had full knowledge of all the details of the conspiracy. All that we require is that the defendant agree to commit the substantive racketeering offense through agreeing to participate in two predicate acts, and that he know the general nature of the conspiracy and that the conspiracy extends beyond his individual role." United States v. Rastelli, 870 F.2d 822, 828 (2d Cir. 1989) (internal quotation marks and multiple citations omitted). "[I]t is sufficient that the defendant know the general nature of the enterprise and know that the enterprise extends beyond his individual role." Id.
Further, Rubin has sufficiently proven defendants' nexus to interstate commerce. Cullen v. Margiotta, 811 F.2d 698, 713 (2d. Cir.) (citing 18 U.S.C. § 1962), cert. denied, 483 U.S. 1021 (1987). The testimony and other evidence demonstrates that Rubin sent money by wire transfer and through the United States mails from Louisiana to defendants in Connecticut. [Pl. Ex. 1, 3].
At the hearing Mr. Strong was asked, "Do you remember going to Connecticut to pick up the money from Mr. Donoghoe?" and Strong answered, "Absolutely." Tr. 197.
Based on the evidence and credible testimony, there is probable cause to believe that defendants shared the common purpose to use purported land deals to defraud plaintiff of his money and that they worked together to achieve it. The Court therefore finds plaintiff has demonstrated probable cause that an enterprise in interstate commerce existed under 18 U.S.C. § 1962.
2. Pattern of Racketeering Activity
A "pattern of racketeering activity" requires, by definition, at least two acts of racketeering activity within a ten year period. 18 U.S.C. § 1961(5). A "pattern" may be established by allegations of: (1) a threat of long-term racketeering activity; (2) continuing racketeering activity that is part of an ongoing entity's regular course of business; (3) a long-term association that exists for criminal purposes; or (4) where acts alleged are a regular way of conducting defendants' ongoing legitimate business, or conducting or participating in an ongoing legitimate RICO "enterprise." H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 242-243 (1989). Moreover, the separate acts of racketeering must also reflect "continuity" and "relationship" in order to establish "pattern." Sedima, 473 U.S. at 496 n. 14; ("it is this factor of continuity plus relationship which combines to produce a pattern.") (quoting, S.Rep. No. 91-617, p. 158 (1969)); H.J. Inc., 492 U.S. at 242. ("what must be continuous, RICO's predicate acts or offenses, and the relationship these predicates must bear one to another are distinct requirements."). For example, "[a] party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time." H.J. Inc., 492 U.S. at 242.
A review of the record establishes probable cause to believe that defendants engaged in a pattern of racketeering, that is, a systematic scheme to defraud Rubin of his money from 2000 through 2004. Rubin alleges three manifestations of this fraudulent scheme: mail fraud, wire fraud and bank fraud.
Mail and Wire Fraud
Federal law prohibits the use of the mails or wires in furtherance of "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." 18 U.S.C. §§ 1341, 1343; U.S. v. Schwartz, 924 F.2d 410, 416 (2d Cir. 1991) (analyzing mail and fraud statutes the same way due to similarity of statutory language).
Rubin has alleged, and presented credible testimony and uncontested evidence to establish, probable cause that the defendants used the U.S. mail and interstate wires, from 2000 through 2004, in furtherance of their fraudulent activities [Pl. Ex. 1, 3 Tr. 22-23], thereby committing multiple predicate RICO acts of mail fraud and wire fraud.
Since probable cause is established for the predicate acts of mail and wire fraud, the Court need not reach the question of whether Rubin has demonstrated probable cause that defendants committed bank fraud pursuant to 18 U.S.C. § 1344. However, the Court has reviewed plaintiff's case United States v. Barrett, 178 F.3d 643, 647-48 (2d Cir. 1999) and finds it distinguishable on its facts.
3. Resulting Injury
A plaintiff in a civil RICO case may only recover for injuries the plaintiff suffered "by reason of" the defendants' wrongful conduct. 18 U.S.C. § 1964(c). In this Circuit, despite the absence of a reliance requirement in a criminal mail or wire fraud prosecution, civil RICO plaintiffs must demonstrate reliance. County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1311 (2d Cir. 1990) (affirming trial court's entry of j.n.o.v. on $22 million RICO judgment because the evidence did not show that defendant's misrepresentations were relied upon by rate making authority); Metromedia Co. v. Fugazy, 983 F.2d 350, 368 (2d Cir. 1992), cert. denied, 508 U.S. 952 (1993).
As previously stated, the record establishes probable cause that Rubin relied to his detriment on defendants' fraudulent claims and that Rubin was fraudulently misled to provide money and jewelry to defendants, ostensibly to invest in real estate deals.
In Sedima, S.P.R.l. v. Imrex Co., 473 U.S. 479, 497 (1985), the Supreme Court interpreted "by reason of" to mean that "the compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern" and that "[a]ny recoverable damages occurring by reason of a violation of § 1962(c) will flow from the commission of the predicate acts." In other words, the plaintiff's injury must be both factually and proximately caused by the defendant's violation of section 1962.Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 266-74; Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23 (2d Cir. 1990) ("the injury must be caused by a pattern of racketeering activity violation section 1962 or by individual RICO predicate acts."). "By itself, factual (e.g. "cause-in-fact" or "but for" causation) is not sufficient . . . the pattern or acts must proximately cause plaintiff's injury." Hecht, 897 F.2d at 22. "[T]he RICO pattern or acts proximately cause a plaintiff's injury if they are a substantial factor in the sequence of responsible causation, and if the injury is reasonably foreseeable or anticipated as a natural consequence."Id. at 23-24 (citations omitted).
Considering the record as a whole, there is probable cause to believe that defendants' acts "are a substantial factor in the sequence of responsible causation" and "the injury is reasonably foreseeable or anticipated as a natural consequence." Hecht, 897 F.2d at 23-24. Indeed, there is probable cause to believe that the injury to Rubin was the intended consequence of defendants' actions.
Based on the testimony and other evidence presented on this application for prejudgment remedy, the Court finds probable cause to believe that Rubin has established a resulting injury caused by defendants' acts of racketeering. [Pl. Ex. 1, 4]. Amount of the Attachment
In light of the finding with respect to Rubin's RICO claim under 18 U.S.C. § 1962(c), this Court need not address the sufficiency of probable cause on Rubin's state law claims for negligence, malpractice, gross negligence, wanton negligence, maliciousness, fault and other unlawful and wrongful conduct under applicable Louisiana law, for purposes of the application for prejudgment remedy.
Rubin seeks an attachment of $8,815,516.86, for resulting injuries as follows. TOTAL $8,815,516.86
$2,306,000 in principal and $548,505.62 in interest to April 25, 2006, totaling $2,854,505.62.
"A civil claim brought under Section 1964(c) of the RICO Act carries a mandatory award of treble damages, which are predominately punitive in character." Gentry v. Resolution Trust Corp., 937 F.2d 899, 914 (3d Cir. 1991); Attorney General of Canada v. H.J. Reynolds Tobacco Holdings, Inc., 268 F.3d 103, 107 (2d Cir. 2001) RICO provides that `[a]ny person injured in his business or property by reason of' a RICO violation may bring a civil action to recover treble damages." (quoting Metromedia Co. v. Fugazy, 983 F.2d 350, 368 (2d Cir. 1992) (quoting 18 U.S.C. § 1964(c))).
Accordingly, plaintiff's application for prejudgment remedy is GRANTED in the amount of $8,815,516.86.
CONCLUSION
Based on the foregoing, plaintiff's Application for a Prejudgment Remedy [Doc. #19] is GRANTED in the amount of $8,815,516.86.
See Aetna Life Ins. Co. v. Toothsavers Dental Serv., No. 96 CV 570 (GLG), 1997 WL 102453 (D. Conn. Feb. 4, 1997) (finding referral to Magistrate Judge "for the purpose of a hearing on prejudgment remedy" was a request for a determination of the prejudgment remedy pursuant to 28 U.S.C. § 636(b)(1)(A) and was not a recommended ruling effective only upon a District Court Judge's review and adoption, pursuant to 28 U.S.C. § 636(b)(1)(B)).
Defendant Strong's Motion to Deny Plaintiff's Request for a Prejudgment Remedy [Doc. #59] is DENIED.
Defendant Donoghoe's Motion to Dismiss the Prejudgment Remedy [Doc. #58] is DENIED. See infra at 2 n. 3.