Source: http://pa.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20161229_0003680.EPA.htm/qx
Timestamp: 2017-08-18 21:51:09
Document Index: 590169986

Matched Legal Cases: ['§ 1961', '§ 1962', '§ 1962', '§ 1962', 'art, 1997', '§ 1962', '§ 1962', '§ 1962', '§ 904']

Plaintiffs, six limited partnerships and two individuals involved in those partnerships, have sued a bank and two of its employees alleging violations of the Racketeer Influence and Corrupt Organizations Act (“RICO”), 18 U.S.C §§ 1961, et seq. in connection with a series of substantial commercial loans and subsequent transactions. Plaintiffs assert that these Defendants used falsified collateral documentation and the money available under the lines of credit extended to the partnerships as a single “piggy bank.” According to Plaintiffs, Defendants undertook this activity to create the appearance that the various loans extended to Plaintiffs were performing in order to protect the bank's assets, mislead regulators about the health of the bank's loan portfolio and fund other separate investment endeavors.
In addition to three RICO claims, Plaintiffs also assert state law claims for fraud, conversion and civil conspiracy. Before me is Defendants' motion to dismiss, which, for the reasons that follow, I will grant in part and deny in part.
I.FACTS ALLEGED IN THE COMPLAINT
The following facts are taken from the Complaint and viewed in the light most favorable to Plaintiffs:
In 2003, non-party Bruce Earle and Plaintiff George Spaeder entered into an “oral partnership agreement” for the purpose of buying, selling and developing various real estate projects. To carry out this business agreement, Earle and Spaeder formed multiple limited partnerships (“the Partnerships”) in order to purchase a single commercial property. Six of these Partnerships are Plaintiffs in the instant case: Devon Drive Lionville, L.P. (“Lionville”), North Charlotte Road Pottstown, L.P. (“Pottstown”), Main Street Peckville, L.P. (“Peckville”), Rhoads Avenue Newtown Square, L.P. (“Rhoads”), VG West Chester Pike, L.P. (“West Chester”), and 1301 Phoenix, L.P. (“Phoenix”). (Compl. ¶¶ 3-8, 18-19.) Spaeder and another individual, John M. Shea, are also named as plaintiffs.
Spaeder was principally in charge of managing the day-to-day business of Lionville, Pottstown and Peckville and served as the Manager of the general partner entities for each. Earle's involvement with Lionville, Pottstown and Peckville was as an independent contractor acting through his wholly-owned company, Rosedon Holding Company L.P. (“Rosedon”). Rosedon “took custody” of the books and was responsible for monitoring the finances of Lionville, Pottstown and Peckville. (Compl. ¶ 20.)
Lionville, Pottstown, and Peckville each obtained financing through Parke Bank in order to purchase and develop the commercial properties held by each Partnership.[1] Defendant Vito S. Pantilione, an officer and director of Parke Bank, facilitated these loan transactions. (Compl. ¶¶ 21-23.)
In December of 2007, Lionville borrowed $3, 098, 000 from Parke Bank. In March of 2008, Pottstown borrowed $8, 000, 000 from Parke Bank. In May of 2008, Peckville borrowed $5, 200, 000 from Parke Bank. In connection with each of these transactions, Parke Bank was provided with copies of the relevant partnership agreements as well as the operating agreement of each partnership's general partner entity. (Compl. ¶¶ 26-28.)
In the summer of 2008, Earle approached Pantilione about obtaining a line of credit from Parke Bank in order to finance other real estate ventures. Pantilione identified a property located in Margate, New Jersey (“Margate Property”) owned by Earle and his wife as a source of security to back the line of credit. Pantilione explained to Earle that Earle could not personally guarantee the line of credit because of Federal Deposit Insurance Corporation (“FDIC”) lending limit regulations.[2] Pantilione suggested that Earle approach Plaintiff John M. Shea about guaranteeing the line of credit, explaining, although Shea would personally guaranty repayment of the line of credit, Parke Bank would view the Margate Property as the “real” security. (Compl. ¶¶ 29-33.)
Parke Bank, at Pantilione's direction, hired a long-time friend of Pantilione's to appraise the Margate Property. Although historically valued at $5 million, Pantilione's contact valued the Margate Property at $12 million. (Compl. ¶ 31.)
Following Pantilione's assurance that Parke Bank viewed the Margate Property to be the actual security for the line of credit, Shea agreed to personally guaranty the $5 million line of credit extended to Earle. At settlement, Parke Bank represented that $2.35 million would be used to improve the collateralization of the Lionville, Pottstown and Peckville loans. Despite this representation, Parke Bank never transferred any of those funds. (Compl. ¶¶ 32-33.)
In 2011, Earle and Spaeder's relationship deteriorated and many of their business ventures began to collapse. Parke Bank's loans to Peckville and Pottstown went into default. (Compl. ¶ 34.)
In 2012 Parke Bank confessed judgment against Pottstown in excess of $9.7 million dollars and against Peckville in excess of $5.6 million. Rosedon and Earle also defaulted on loans made by Parke Bank, which were pursued by Parke Bank through confessed judgments as well. (Compl. ¶ 36.)
As detailed more fully below, the Complaint alleges that Parke Bank, Pantilione, Defendant Ralph Gallo, the Senior Vice President and “Chief Workout Officer” at Parke Bank and Earle, engaged in a series of “varied, but equally unlawful actions taken in furtherance of the individual and/or collective interests of Parke Bank, Pantilione, Gallo and Earle.” (Compl. ¶¶ 14, 39.) Plaintiffs refer to the association between the Defendants and Earle as the “BPGE enterprise.” (Id.)[3]
According to Plaintiffs, the BPGE enterprise engaged in this conduct in order to create the appearance of performing loans, to protect Parke Bank's financial health, evade scrutiny by regulators, increase the amount of funds that could be categorized as ‘income' rather than a return of principle and fund additional investment ventures. Plaintiffs posit that the BPGE enterprise's wrongdoing was motivated in part by the fact that Parke Bank came under “increasing pressure to trim back problem loans, ultimately culminating with its entry into a Consent Order with the FDIC in April 2012.” (Compl. ¶¶ 40, 50, 51.)
The Complaint summarizes Defendants' “engagement in a wide variety of RICO predicate acts involving mail, wire, and bank fraud, by and through:”
(a) Unauthorized transfers of funds between Parke Bank accounts for the Partnerships;
(b) Unauthorized transfers of funds from Parke Bank accounts for the Partnerships to other bank accounts outside of Parke Bank;
(c) Misdirecting construction draws and payments;
(d) Unauthorized transfer of line of credit funds;
(e) Unilaterally amending the repayment terms of loans;
(f) Instituting unfounded and fraudulent “late charges;” and
(g) Inducing, and later taking legal action on, security instruments obtained under false presences [sic] from at least one of the Partnerships.
(Compl. ¶ 2.) The specific allegations supporting these supposed predicate acts are as follows:
- Parke Bank, Pantilione, Gallo and Earle treated Lionville, Pottstown and Peckville as a collective source of funds despite the fact that they were separate entities with discrete assets and ownership structures. The partnership and operating agreements governing Lionville, Peckville, and Pottstown vested exclusive management control over all decisions in Spaeder. The agreements expressly prohibited Earle from any right to manage, control, act for or obligate Lionville, Peckville and Pottstown. (Compl. ¶¶ 52-54.) However, without consent from the relevant Partnerships, Parke Bank unilaterally made multiple transfers of funds from the Lionville, Peckville and Pottstown accounts to other Parke Bank accounts as well as outside bank accounts held by Rosedon. Between 2008 and 2013, Parke Bank made approximately fifteen unauthorized transfers from Lionville's account totaling approximately $1.6 million, at least eight unauthorized transfers from Pottstown's account totaling approximately $1.2 million and an unspecified number of unauthorized transfers from Peckville's accounts in excess of $1.3 million dollars. (Compl. ¶¶ 62-63, 74-75, 92-93.)
- Contrary to the terms of a construction loan agreement with Pottstown and without Pottstown's authorization, Parke Bank released funds earmarked for construction draws to Rosedon. Earle then directed a portion of the misdirected funds to the pertinent construction company as payment and kept the rest for himself. Parke Bank also misdirected approximately $3.8 million of Pottstown's $4.1 million in construction draw funds to Rosedon and/or Earle. (Compl. ¶¶ 73, 76-79.)
- Parke Bank unilaterally extended the maturity date of Peckville's loan without Peckville's consent. Additionally, Parke Bank, Pantilione and Gallo facilitated the transfer of funds to Rosedon by honoring forged or unsigned checks payable against Lionville's, Peckville's and Pottstown's accounts with Parke Bank. (Compl. ¶¶ 64, 80, 95-98.)
The Complaint explains that the foregoing transactions were intended to provide Earle with additional funds that were not directly tied to him or to Rosedon. In doing so, Defendants attempted to circumvent FDIC lending limit regulations, enable Earle/Rosedon to make payments on existing obligations to Parke Bank and create the appearance that these defaulting loans were performing. (See, e.g., Compl. ¶¶ 63, 94.)
Plaintiffs allege that, in order to conceal the foregoing conduct of the BPGE enterprise, Earle prevented Spaeder from having access to the Partnership books and encouraged Spaeder to focus on managing Lionville, Pottstown and Peckville while Earle handled the finances. Earle, with the knowledge of Pantilione and Gallo, also ensured that correspondence from Parke Bank to Lionville, Pottstown and Peckville was sent directly to Rosedon's offices. As a result, Spaeder, Lionville, Pottstown and Peckville were unaware of the transfers orchestrated by the BPGE enterprise. (Compl. ¶¶ 55-57.)
As a result of these acts, Plaintiffs assert that the BPGE enterprise's conduct caused Lionville, Pottstown and Peckville to loose rental income associated with development projects, tenants to cancel leases, and the partnerships to ultimately default on their repayment obligations to Parke Bank. (Compl. ¶¶ 65, 69-70, 81-86, 101-102.)
The other three partnerships, Rhoads, West Chester and Phoenix, were also allegedly impacted by the BPGE enterprise's conduct. As part of an investigation into Parke Bank's business practices, the FDIC scrutinized the construction loan to Pottstown. As a result of Parke Bank's assignment of the wrong appraisal to the Pottstown property and Parke Bank and Earle's “plundering” of Pottstown's liquid assets, the construction loan was under-collateralized. (Compl. ¶¶ 103-117.)
Facing increasing pressure from the FDIC, Plaintiffs claim that Pantilione advised Spaeder that Pottstown must present additional collateral or Parke Bank would declare the loan in default. Pantilione assured Spaeder that he would not record any additional collateral provided by Pottstown but that he only intended to present evidence of the additional collateral to appease the FDIC. (Compl. ¶¶ 27, 104-105.)
To comply with Pantilione's directive, Rhoads allegedly executed a leasehold mortgage and security agreement in favor of Parke Bank for each of the parcels of land it held and also executed an assignment of rents it collected from Rite-Aid, a tenant occupying one of the parcels (“Rite-Aid Documents”). Approximately nine months after their execution, Pantilione recorded the Rite-Aid Documents. Thereafter, Parke Bank attempted to secure a judgment by confession against Rhoads. As a result, Rhoads suffered “the loss of use of the undeveloped parcel, ” and other tenants demanded new, less favorable lease terms upon learning of the recorded Rite-Aid Documents. (Compl. ¶¶ 106-109.)
The Complaint further alleges that, in order to fund the defense of Pottstown and Peckville in lawsuits brought by Parke Bank, West Chester and Phoenix were “forced” to sell their respective properties at a loss. Spaeder was likewise compelled to expend significant sums of his own money to maintain the viability of the Partnerships when they became “cash-starved” as a result of the BPGE enterprise's conduct. (Compl. ¶¶ 110-115.)
Plaintiffs press the following claims: (1) conduct and participation in an enterprise through a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(c); (2) acquisition and maintenance of an interest in and control of an enterprise engaged in a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(b); (3) conspiracy to engage in a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(d); (4) fraud; (5) conversion; and (6) civil conspiracy. Defendants have moved to dismiss all six claims.
To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.'” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plausibility standard requires more than a “sheer possibility that a defendant has acted unlawfully.” Id.
To determine the sufficiency of a complaint under Twombly and Iqbal, the Court must take the following three steps: (1) the Court must “tak[e] note of the elements a plaintiff must plead to state a claim;” (2) the court should identify the allegations that, “because they are no more than conclusions, are not entitled to the assumption of truth;” and (3) “where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.” Burtch v. Milberg Factors, Inc., 662 F.3d 212, 221 (3d Cir. 2011) (citations omitted).
Rule 9(b) provides that: “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b).
The United States Court of Appeals for the Third Circuit has explained that Rule 9(b) “requires plaintiffs to plead with particularity the ‘circumstances' of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior.” Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984). To meet this standard, a plaintiff must plead the “date, place or time” of the alleged fraud or may “use alternative means of injecting precision and some measure of substantiation into their allegations of fraud.” Id.
a. Preclusive Effect of Prior Litigation on All Claims
Pointing to various judgments, decisions, pleadings, dockets, settlements and releases from the many other court proceedings between the numerous parties involved in this case, Defendants move to dismiss the Complaint because at least one of the Plaintiffs has litigated “nearly every one of the claims that they make in this case.” (Defs.' Mot. p. 2.) As such, Defendants argue that the doctrines of res judicata and collateral estoppel preclude Plaintiffs' claims. To this end, Defendants request that I take judicial notice of thirty-six documents from ten other court cases which Defendants urge justify dismissal of the Complaint.
Plaintiffs respond that it would be improper to consider the documents cherry-picked by Defendants without a more complete and accurate record of the prior court proceedings. Additionally, Plaintiffs urge that the documents and Defendants' reliance on these documents raise numerous factual issues which need to be resolved before it can be determined what preclusive effect, if any, the prior litigation has on this case.[4]
In relevant part, Federal Rule of Evidence 201(b)(2) provides that “[t]he court may judicially notice a fact that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” The court “must take judicial notice if a party requests it and the court is supplied with the necessary information.” Fed.R.Evid. 201(c). “While the rules allow a court to take judicial notice at any stage of the proceedings, Fed.R.Evid. 201(f)”, the Third Circuit has stated “that it should be done sparingly at the pleadings stage. Only in the clearest of cases should a district court reach outside the pleadings for facts necessary to resolve a case at that point.” Victaulic Co. v. Tieman, 499 F.3d 227, 236 (3d Cir. 2007).
When confronted with similar arguments in a RICO case, the Honorable Harvey Bartle III of this Court declined to resolve the preclusive effect of prior litigation and a “binding release” at the motion to dismiss stage. Kaiser v. Stewart, 1997 WL 476455 n.28 (E.D. Pa. Aug. 19, 1997). Judge Bartle agreed with the plaintiff “that these fact-based defenses are not proper to consider on a motion to dismiss. An affirmative defense may only be argued on a motion to dismiss if the affirmative defense clearly appears on the face of the pleading.” Id. at *21.
I agree with Judge Bartle's reasoning because it is consistent with the standards of review applicable at the motion to dismiss stage and the limitations on the Court's ability to take judicial notice. Defendants' request that I review the pleadings, dockets, orders, complaints and judgments that they have selectively culled from ten separate cases and make a determination as to the preclusive effect that the prior litigation has on a particular Plaintiffs' ability to litigate particular portions of the RICO claims they have brought in the present case. Under Rule 201(c), This argument raises additional factual issues which are not appropriately resolved at this nascent stage of the litigation.
I decline to take judicial notice of these documents because, at this stage of the case, I do not have the “necessary information” from the prior litigation.
b. Count I - Civil RICO - 18 U.S.C. § 1962(c)
In count one, all Plaintiffs bring a claim against all Defendants pursuant to 18 U.S.C. § 1962(c) which provides:
18 U.S.C. § 1962(c). A violation of this section requires “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Lum v. Bank of Am., 361 F.3d 217, 223 (3d Cir. 2004) (citing Sedima v. Imrex Co., 473 U.S. 479, 496 (1985)).[5]
In order to state a claim under this subsection, a plaintiff must plead: “(1) the existence of an enterprise engaged in or affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated, directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that the defendant participated through a pattern of racketeering activity that must include the allegation of at least two racketeering acts.” Munsif v. Cassel, 331 F.Appx. 954, 958 (3d Cir. 2009).
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In reviewing Plaintiffs&#39; Complaint, I remain mindful that the RICO statute provides that its terms are to be &ldquo;liberally construed to effectuate its remedial purposes.&rdquo; Boyle v. UnitedStates, 556 U.S. 938, 944 (2009) (citing § 904(a) of ...