Opinion
602408/06.
Decided on September 15, 2009.
Edward Braverman, Esq. of Braverman Associates, P.C., For Plaintiffs.
For Defendants Mojo-Stumer Associates Architects, P.C. and Mark Stumer: Chris Fladgate, Esq. of Zetlin De Chiara LLP.
In motion sequence 009, the plaintiffs Avivith Oppenheim and William Oppenheim (the "Oppenheims") move pursuant to CPLR 3025(b) to amend their second amended complaint to: (1) add a RICO cause of action based on alleged mail and wire fraud under 18 USC 1346, (2) include Mark Stumer in the fifth cause of action for negligence and malpractice, (3) increase the ad damnum amount from $501,000 to $2,500,000, and (4) substitute "MSA" as the defined term for Mojo-Stumer Associates, P.C. in the pleadings.
The defendants Mojo-Stumer Associates Architects, P.C. d/b/a Mojo-Stumer Associates, P.C. ("MSA"), Stumer (collectively the "Mojo Defendants") cross-move for sanctions pursuant 22 NYCRR 130-1.1(a).
Background
This action arises out of a failed renovation of a cooperative apartment (the "Co-op") located at 860 Fifth Avenue, New York, New York. Avivith Oppenheim, the tenant-shareholder, commenced this action seeking damages stemming from the renovation. For a full recitation of the facts, see this Court's decision filed April 23, 3009.
Discussion
Generally, leave to amend a pleading shall be freely granted absent prejudice or surprise resulting from the delay ( Ancrum v St. Barnabas Hosp., 301 AD2d 474, 475 [1st Dept 2003]).
Amending the Ad Damnum
Although the Oppenheims have increased the ad damnum clause in the proposed third amended verified complaint (the "Complaint") without first requesting permission from the Court, the court will consider the proposed change as a motion to amend the ad damnum clause. In the absence of prejudice, a motion to amend the ad damnum clause, especially when made before trial, should generally be granted ( Loomis v Civetta Corinno Construction Corp., 54 NY2d 18). The Mojo Defendants have not asserted that prejudice would result from an increase to the ad damnum clause. Therefore, this Court will permit the amendment.
Substituting "MSA" As a Defined Term
Similarly, the Mojo Defendants have not alleged any prejudice that would warrant the denial of the amendment of replacing "Mojo-Stumer" with "MSA" as the designated defined term for Mojo-Stumer Associates, P.C. in the pleadings. Therefore, leave to amend the defined term is granted.
Addition of Mark Stumer
The Mojo Defendants oppose the interposing of the fifth cause of action against Stumer, arguing that the statute of limitations for a professional malpractice cause of action has passed. Furthermore, Stumer, would be prejudiced by having to defend against the cause of action in the late stage of this litigation.
The Oppenheims counter that the relation back doctrine permits them to relate back to the original complaint for statute of limitation purposes. Additionally, Stumer has been a party to this action since its commencement and therefore, would suffer no prejudice if the fifth cause of action was interposed against him.
The relation back doctrine allows a cause of action asserted against a defendant in an amended filing to relate back to causes of action previously asserted against a co-defendant for statute of limitations purposes, if the two defendants are "united in interest" (CPLR 203[b], Buran v Coupal, 87 NY2d 173, 177).
Under this standard, there are three conditions that must be satisfied in order for a cause of action against one defendant to relate back to a cause of action asserted against another. First, both causes of action must arise out of the same conduct, transaction or occurrence. Second, the new party must be united in interest with the original defendant. Third, the new party must have known or should have known that, but for a mistake by the plaintiff as to the identity of the proper parties, the action would have been brought against him as well ( Id.).
Interposing the fifth cause of action against Stumer satisfies each of these requirements. The Oppenheims' causes of action against Stumer and MSA arise out of the renovation of the Co-op. Clearly, Stumer, as the sole principal of MSA, is united in interest with MSA with respect to the alleged wrong. Finally, because Stumer has been a party to the action since the outset of litigation, and thus, has had sufficient notice and knowledge of the institution of this action and the alleged wrongdoing to permit the interposition of the fifth cause of action against Stumer ( Yaniv v Taub, 256 AD2d 273, 275 [1st Dept 1998] [finding notice to the defendant within the statute of limitations sufficient]).
RICO Cause of Action
The Mojo Defendants argue that the Oppenheims' motion to amend the Complaint to include a mail and wire fraud based RICO cause of action should be denied. They assert that the Complaint fails to allege a pattern of racketeering activity because it does not meet the requisite specificity for a cause of action based on fraud, nor does it allege reliance, or the requisite continuity.
Specificity
Although leave to amend "shall be freely given" (CPLR 3025(b)), in all averments of fraud or mistake, the circumstances constituting fraud or mistake must be stated with particularity (CPLR 3016). When allegedly fraudulent communications by mail or wire are charged as predicate RICO acts, the fraud allegations are sufficiently particularized if the complaint specifies:
"(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) the same, (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud'" ( Conan Properties, Inc v Mattel, Inc., 619 FSupp 1167, 1172 [SDNY 1985]).
The Oppenheims have pled with sufficient specificity with respect to the Project. First, they allege precisely the statements or omissions that were made. The Oppenheims allege that Stumer made oral representations to them that he would oversee the Project and that he failed to disclose that he was receiving "kickbacks" from the general contractor, VISTA of New York (VISTA) if it was chosen as the contractor. According to the Oppenheims, these "kickbacks" were financed by MSA and VISTA through the practice of improperly and fraudulently inflating the price of contracts, subcontracts and change orders, and then by improperly certifying that payment was due for more construction work than was actually performed (Complaint ¶ 157).
The second requirement for specificity is that the complaint identifies the declarant of the statement, and the time and place of each statement or omission. The Oppenheims have specifically alleged that on December 18, 2003, January 9, 2004, and February 11, 2004, Stumer sent bid letters and cost summaries to VISTA (Complaint, Schedule A), and that "in face to face meetings in late January or early February 2004, Stumer emphatically urged the Oppenheims to select VISTA as their contractor even though it was not the lowest bidder" (Complaint ¶ 237). Similarly, they have specified the dates they received each of the allegedly inflated applications for payment (Complaint ¶¶ 28, 41, 60, 65, 75, 112, 244).
The third requirement for specificity is that the complaint states the content of the statements and the manner in which they were misleading. The Oppenheims allege that they reasonably relied on Stumer's recommendation to award the renovation project to VISTA and were severely damaged by their relationship with VISTA (Proposed Amended Complaint ¶ 240). They also allege that Stumer misled them by encouraging them to accept and pay the applications for payment submitted by Joseph Viscuso, the president of VISTA.
The final requirement for specificity is that the complaint states what the defendants obtained as a result of the fraud. The Oppenheims allege that they were deprived of competitive pricing on the Project, overcharged for the work actually performed by MSA and VISTA, and were forced to absorb the cost of VISTA's delays and substandard workmanship (Complaint ¶¶ 158, 274). They also allege that VISTA was overpaid on each application for payment because of Stumer's and Viscuso's misrepresentations about the percentage of the Project that was completed and the cost to complete the remainder of the Project (Complaint ¶ 245).
To establish a pattern of racketeering activity, the Oppenheims have included the other alleged victims of the Mojo Defendants' fraud revealed in discovery, in their pleadings (Notice of Motion, Exhibit 6, 60:3-61:7). However, with respect to the other alleged victims of the fraud, the Oppenheims have failed to plead with sufficient particularity. Schedule A of the Complaint is a list of the communications that took place between Stumer, Viscuso and the other alleged victims. It is clear from the list what representations were made, when they were made, and who made them. However, allegations of how those communications were misleading to the other alleged victims are not present. Glaringly absent are any affidavits from the other alleged victims.
While the Oppenheims have sufficiently pled the elements of fraud as it relates to the Project, they fail to do the same with respect to the other alleged victims. Therefore, only the Project may be considered when determining the continuity of the alleged pattern of racketeering. The other projects are excluded because the Oppenheims have failed to allege the respective fraudulent acts with the requisite specificity.
Continuity
In order to sufficiently allege a pattern of racketeering activity, a plaintiff must demonstrate that the racketeering acts "amounted to, or threatened the likelihood of, continued criminal activity" ( H.J., Inc v Northwestern Bell Telephone Co, 492 US 229, 237). This continuity can be either closed or open-ended ( Id.).
Closed Ended Continuity
Closed ended continuity is shown by proving "a series of related predicate acts extending over a substantial period of time" ( Cofacredit S.A. v Windsor Plumbing Supply, 187 F3d 229, 242 [2d Cir 1999]). When calculating the relevant time period, the court considers only the time during which defendants committed the predicate acts alleged ( DeFalco v Bernas, 244 F3d 286, 321 [2d Cir 2001]). Actions that do not constitute predicate acts are not considered when calculating the relevant time period ( GICC Capital Corp. v Technology Finance Group, 67 F3d 463, 468 [2d Cir 1995]). The Second Circuit "has never found a closed-ended pattern where the predicate acts spanned fewer than two years" ( First Capital Asset Management, Inc. v Satinwood, Inc., 385 F3d 159 [2d Cir 2004]).
"Although closed-ended continuity is primarily a temporal concept, other factors such as the number and variety of predicate acts, the number of both participants and victims, and the presence of separate schemes are also relevant in determining whether closed-ended continuity exists" ( DeFalco at 321).
Standing alone, the fraud Stumer and Viscuso allegedly committed during the Project was not "continuous" as that word has been interpreted within the context of the RICO statute. The Project lasted from September 2003 until February 2005 at the latest, or roughly eighteen months. However, eighteen months has never been construed as a "substantial period of time" when pleading a RICO cause of action ( Cofacredit at 242).
The other factors used to determine whether there is closed-ended continuity are: (1) the number and variety of acts, (2) the number of participants, (3) the number of victims, and (4) the presence of separate schemes.
At most, there are nine instances of mail fraud: the four bid packages that MSA sent out to the contractors, in addition to the five applications for payment the Oppenheims allege that MSA advised them to pay. The Mojo Defendants, VISTA, and Viscuso are the only four participants in the scheme.
The Oppenheims allege that MSA and VISTA defrauded eleven different couples. However, due to lack of specificity, the other alleged victims interests cannot be considered. Only the Oppenheims' interests are relevant and those interests are conjoined because they were both harmed by a single scheme ( Kadouri v Fox, 2005 WL 783255 [EDNY 2005] [finding that the interests of a married couple, who were the victims of a single scheme of racketeering were conjoined]).
Moreover, the Complaint alleges only the single, non-complex scheme in which, MSA induced homeowners to retain VISTA in order to receive kickback payments, and then failed to alert the homeowners that VISTA was overcharging them or performing substandard work. The Oppenheims have failed to make any allegations that could reasonably be interpreted as establishing a multi-faceted scheme to defraud. "Where a RICO claim is based on acts narrowly directed toward a single fraudulent end with a limited goal, the claim will usually fail" ( Skylon Corp. v Guilford Mills, Inc. 1997 WL 88894 [SDNY 1997]).
"Courts in the Second Circuit have generally held that where the conduct at issue involves a limited number of perpetrators and victims and a limited goal, the conduct is lacking in closed-ended continuity" ( FD Property Holding, Inc. v U.S. Traffic Corp., 206 FSupp2d 362 [EDNY 2002]).
Thus, the limited duration of the alleged pattern of racketeering, coupled with the Oppenheims' failure to allege the other non-temporal aspects of a RICO pattern of racketeering, demonstrates that the allegations contained in the Complaint are insufficient to establish closed-ended continuity.
Open-Ended Continuity
"To satisfy open-ended continuity, the plaintiff need not show that the predicates extended over a substantial period of time but must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed" ( First Capital at 180). Here, there can be no open-ended continuity because VISTA, one of the key players in this scheme was bankrupt before this action was commenced and it is clearly incapable of continuing the criminal activity.
Sanctions
This Court has considered the arguments pertaining to the Mojo Defendants cross-motion for sanctions and finds them meritless in the absence of alleging egregious conduct.
Accordingly, it is
ORDERED that the plaintiffs Avivith Oppenheim and William Oppenheim's motion to amend the second amended complaint is denied to the extent that it seeks to interpose a mail and wire based fraud RICO cause of action, and granted in all other respects and to this extent the third amended verified complaint in the form proposed as annexed to the moving papers shall be deemed served upon service of a copy of this order with notice of entry, and it is further
ORDERED that the defendant Mark Stumer shall answer the third amended complaint within twenty (20) days of said service, and it is further
ORDERED that the defendants Mark Stumer and Mojo-Stumer Associates Architects, P.C. d/b/a Mojo-Stumer Associates, P.C.'s cross-motion for sanctions is denied.
This constitutes the decision and order of this Court.