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R ST. ASSOCS. L.P.

March 23, 1987

The Dumbarton Condominium Association, Plaintiff,
v.
3120 R Street Associates Limited Partnership, Et Al., Defendants



The opinion of the court was delivered by: GASCH

 Gasch, Senior Judge

 I. INTRODUCTION

 In this action, plaintiff Condominium Association has sued 3120 R Street Associates, U. S. Enterprises, Inc. and Klaus Schuermann in their capacity as developers of property known as The Dumbarton Condominium at 3120 R Street, N.W., Washington, D.C. The counts in the complaint include a multitude of common law allegations, such as breach of warranty, negligence and breach of fiduciary duty, as well as one claim in count eight that defendants have violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. The matter at bar centers upon the viability of the RICO claim as jurisdiction in this Court rests entirely upon the RICO allegations.

 II. FACTUAL AND STATUTORY BACKGROUND

 This lawsuit arises out of a dispute between the unit owners at The Dumbarton Condominium and the Condominium's developer regarding alleged structural defects in the condominiums. *fn1" Plaintiff claims jurisdiction in this Court pursuant to the federal RICO statute with pendent jurisdiction over the state claims. Specifically, count eight of the complaint alleges that defendant Schuermann has engaged in numerous fraudulent activities in the sale of condominium units at The Dumbarton Condominium. Plaintiff asserts that the sale of these units by Schuermann was a "sale of securities." The complaint states that, with regard to these sales, Schuermann promised numerous amenities, repairs, and improvements that have never been made and that Schuermann misrepresented that certain common elements were included with the units for sale. As a result of this conduct, plaintiff claims it is entitled to receive $4 million in damages, three million of which is punitive in nature, together with costs.

 In this motion, defendants first argue that the RICO count must be dismissed because a sale of condominiums is not included in the definition of "racketeering activity" in the Act. Defendants urge that since plaintiff's claims do not fall within the reach of RICO, count eight of the complaint should be dismissed. Defendants further note that, as jurisdiction in this Court depends upon the RICO count, the other state law claims should be dismissed for lack of subject matter jurisdiction. Defendants' second major contention is that counts four, seven and eight should also be dismissed because plaintiff has failed to plead fraud with the particularity required by Federal Rule of Civil Procedure 9(b). *fn2" In sum, the principal question before the Court is whether defendants' sale of condominium units may be considered a sale of securities and thereby be included as an activity covered by the RICO provisions.

 Under RICO, "any person injured in his business or property by reason of a violation of section 1962" may sue for treble damages in district court. 18 U.S.C. § 1964(c) (1979 & 1986 Supp.). In turn, section 1962 makes it unlawful for any person to receive "any income derived, directly or indirectly, from a pattern of racketeering activity . . . ." In section 1961, Congress defined "racketeering activity" quite broadly. The term encompasses numerous generic offenses under state and federal criminal law, such as murder, gambling, bribery, mail and wire fraud. "Racketeering activity" also includes "any offense involving . . . fraud in the sale of securities . . . ." 18 U.S.C. § 1961 (1)(D) (1986 Supp.).

 The common law history behind the RICO provisions is long. The statute, broadly drafted by Congress, has been utilized by claimants in numerous and diverse factual settings. With regard to this particular RICO claim, the ensuing discussion will be limited to the threshold issue of whether the sale of condominium units falls within the definition of "racketeering activity" as a "sale of securities."

 III. DISCUSSION

 Plaintiff alleges that Schuermann's acts constitute "fraud in the sale of securities . . . punishable under any law of the United States." 18 U.S.C. § 1961 (1)(D). The securities sold by Schuermann, alleges plaintiff, were the condominium units at The Dumbarton Condominium.

 RICO itself does not define the term "securities." Plaintiff, moreover, does not point to a particular federal law under which defendants' acts would be punishable. The term "security" is defined in the Securities Act of 1934 as follows:

 
The term "security" means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit, for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a "security"; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance, which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof, the maturity of which is likewise limited.

 15 U.S.C. § 78c (a)(10) (1983) (emphasis added; this definition is largely mirrored in the Securities Act of 1933, ...


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