Commercial Litigation and Arbitration

Rule 15 Permits Amendment of Complaint against Non-Moving Defendants after Rule 12 Motion — Investment Injury under § 1962(a) of RICO — Enterprise May Be Both Vehicle and Victim Enterprise

From Allen v. Devine, 2010 U.S. Dist. LEXIS 74495 (E.D.N.Y. July 24, 2010):

[Rule 15]

Pursuant to Rule 15, the right to amend the complaint once without leave from the Court does not terminate until 21 days after the filing of either (1) an answer or (2) a motion pursuant to Rule 12(b), (e), or (f). Neither of these bars the plaintiff's amendment of his complaint by right. Presently, no party in this case has yet filed an answer, and as of the filing of the amended complaint, only D&B Towers had filed a motion pursuant to Rule 12. However, none of the amendments to the complaint affect D&B Towers, and thus the previous motion to dismiss by D&B Towers does not bar the plaintiff's amendment of the complaint. See, e.g., W.B. David & Co., Inc. v. De Beers Centenary AG, No. 04-cv-5203, 2005 WL 3704690, at *2 (S.D.N.Y. Sept. 2, 2005) ("Plaintiff may, as a matter of right, amend its Complaint as to the . . . Defendants who have not yet answered."). ***

[Enterprise as Vehicle and Victim]

According to [Defendant] Devine, *** the plaintiff's allegations show that Superior did not share a "common purpose" with other members of the enterprise***. The parties agree that the plaintiff has alleged that Devine and Buzil were the sole officers of Superior during the asserted RICO time period. However, Devine contends that the plaintiff's allegations show that Superior was a mere victim of Devine and Buzil's abuses, and that, despite Devine and Buzil's alleged control over the entity, Superior never shared an intention to defraud the plaintiff.

The Court need not tarry long on this issue, as Devine's contention makes little common sense. First, it cannot be the case that, as Devine urges, a defendant could avoid RICO liability by using a corporation he controls in a racketeering scheme, as long as the defendant also victimized that corporation. ***

[T]he plaintiff alleges that Devine and Buzil controlled Superior during the relevant time period. Devine and Buzil's acts and knowledge were thus imputable to Superior at that time. Even if Devine and Buzil violated their fiduciary obligations to the company, Superior still shared in the criminal purpose of the alleged RICO enterprise as long as its executives directed it to do so. The fact that Superior was also victimized is not a bar to this finding. As the Second Circuit has repeatedly recognized, "[a RICO] enterprise itself is often a passive instrument or victim of the racketeering activity."***

[§ 1962(a) Investment Injury]

Although a few circuits have adopted a more liberal approach, the Second Circuit has consistently distinguished between injuries alleged to be caused by racketeering activity, and injuries alleged to be caused by investment of racketeering funds. See Gregory P. Joseph, Civil RICO: A Definitive Guide, § 7 (3d ed. 2010). Under the Second Circuit's rule, injuries caused by the racketeering activity itself may not form the basis for a Subsection 1962(a) claim. *** Similarly, neither can a plaintiff state a Subsection 1962(a) claim by merely alleging that the defendant invested the racketeering-derived funds back into the racketeering enterprise, thus facilitating the enterprise's continuing operation. ***

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