surfaced at trial which would have supported them.
Relying on the decision in Petro-Tech, supra, the defendants argue that their RICO claim is adequately pleaded in part because it alleges the existence of multiple victims. In reality, the transaction which the defendants complain of has at most one victim -- the defendants. The possibility that other individuals may have been indirectly injured as a result of plaintiffs' alleged criminal activity -- such as the Ramsay Group's alleged injury as a result of corporate mismanagement -- is too tenuous to be of any consequence. In any case, there are certainly fewer victims than the twenty-two alleged in Barticheck and the twenty in Petro-Tech.
While the plaintiff in Town of Kearny alleged only two victims (excluding the possibility that all of the citizens in the town were victims), there were two separate transactions involved. A pattern is more likely to arise, if there are few victims, when there are several transactions. Moreover, to the extent that there is more than one victim in this case, the predicate acts and purposes associated with these victims are not sufficiently similar to create a pattern. In either case, the defendants have failed to allege a pattern of racketeering activity.
In effect, defendants have alleged that the trustees have carried on normal corporate operations, but in describing these operations they have inserted "fraudulently" before each verb. Not only do defendants fail to allege a "pattern of racketeering activity", but they also fail to allege fraud with the level of particularity required by Fed. R. Civ. P. 9(b). Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984), cert. denied, 469 U.S. 1211, 105 S. Ct. 1179, 84 L. Ed. 2d 327 (1985); Bull v. American Bank and Trust Co., 641 F. Supp. 62 (E.D. Pa. 1986).
More specifically, defendants' conspiracy claim under § 1962(d) must be dismissed because they have failed to "assert that each defendant so charged has 'by his words or actions . . . objectively manifested an agreement to participate, directly or indirectly, in the affairs of an enterprise through the commission of two or more predicate crimes."' Eaby v. Richmond 561 F. Supp. 131, 137 (E.D. Pa. 1983) (quoting United States v. Boffa, 688 F.2d 919, 937 (3d Cir. 1982), cert. denied, 460 U.S. 1022, 75 L. Ed. 2d 494, 103 S. Ct. 1272 (1983)) (emphasis omitted). Furthermore, a civil RICO conspiracy must be pleaded "'with enough specificity to inform multiple defendants of the facts forming the basis of the conspiracy charge. Such allegations must delineate among the defendants as to their participation or responsibilities in making the statements which are the subject of the suit. Conspiracies described in sweeping or general terms cannot serve as the basis for a cause of action and may be dismissed.'" Id. at 137 (quoting Van Schaick v. Church of Scientology, Inc., 535 F. Supp. 1125, 1141 (D. Mass. 1982)). Defendants have not pleaded their conspiracy claim with the requisite specificity and it must be dismissed.
Finally, this case is in a different posture than cases in which all claims are dismissed at the Rule 12 stage. This court has had the benefit of a three week trial during which there was a complete factual development of all of the issues in the case. After unravelling this set of facts, it is eminently clear that there is little or no evidence of intent with respect to the allegedly fraudulent acts of the trustees. Carpenter v. United States, 484 U.S. 19, 56 U.S.L.W. 4007, 4010, 108 S. Ct. 316, 98 L. Ed. 2d 275 (1987) (mail fraud requires specific intent to defraud); United States v. Pearlstein, 576 F.2d 531, 537 (3d Cir. 1978) (same). In addition, it was in the defendants' interest to produce all available evidence of the plaintiffs' bad intent in their attempt to show that the plaintiffs' appraisal was tainted. In light of the fact that fraud must be proved by clear and convincing evidence, Moffatt Enters., Inc. v. Borden Inc., 807 F.2d 1169, 1174-75 (3d Cir. 1986), it is beyond peradventure that defendants would fail to sustain their burden in establishing the predicate fraudulent acts.
VII. Dismissal of All Remaining Claims
It was also proper to dismiss defendants' counterclaims based upon fraud. After a lengthy trial in which evidence was admitted pertaining to any attempts the plaintiffs may have made improperly to influence the Marshall & Stevens appraisal, it is clear that the evidence adduced was insufficient to establish the existence of fraud.
Notes from meetings attended by the trustees to the effect that it would be advantageous to secure a low appraisal were introduced at trial. Defendants rely on these notes for their fraud claim. This evidence, however, falls far short of establishing a willful intent to deceive, especially in this factual context. See Timco Eng'g, Inc. v. Rex & Co., 603 F. Supp. 925, 930 (E.D. Pa. 1985) (cause of action for fraud includes element of intent); Thomas v. Seaman, 451 Pa. 347, 350-51, 304 A.2d 134, 137 (1973) (same). There was no evidence of any unethical conduct by the employees of the firm of Marshall & Stevens. Nor was there any evidence that the plaintiffs exerted any improper influence on Marshall & Stevens to reach a particular valuation. There was some evidence that the accounting data submitted to Marshall & Stevens may not have accurately reflected the financial condition of PHA. However, the financial data which the plaintiffs caused to be submitted to their appraiser was substantiated by plaintiffs' witnesses at the trial and there was no evidence that the submission of this data was tainted by any fraudulent conduct.
Scienter is a necessary element in a cause of action alleging violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1982). See Aaron v. SEC, 446 U.S. 680, 64 L. Ed. 2d 611, 100 S. Ct. 1945 (1980); Ernst and Ernst v. Hochfelder, 425 U.S. 185, 47 L. Ed. 2d 668, 96 S. Ct. 1375 (1976). Defendants claims under § 10(b) and Rule 10b-5, therefore, also fail for lack of supportive evidence.
Defendants are precluded from bringing their claims for breach of fiduciary duties, corporate mismanagement and waste of corporate assets under ERISA. See 29 U.S.C. § 1132 (1976 & Supp. V 1981) (providing for suits by participants, beneficiaries, fiduciaries and the Secretary of Labor). These claims, therefore, are based entirely on state law, and if this court has jurisdiction over them, it is through this court's ancillary jurisdiction. The claims arise from the same nucleus of operative facts as the federal claims in this case. However, ancillary jurisdiction, like pendent jurisdiction, is a doctrine of discretion. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966); Shaffer v. Board of School Directors of the Albert Gallatin Area School Dist., 730 F.2d 910, 912 n.1 (3d Cir. 1984); Hernandez v. Whitesell, 462 F. Supp. 569, 574 (E.D. Pa. 1978).
I declined to exercise ancillary jurisdiction over defendants' claims for breach of fiduciary duty, waste and corporate mismanagement for the following reasons.
First, these claims are peculiarly state law claims and should, as a matter of comity, be remitted to the state courts. Hagans v. Lavine, 415 U.S. 528, 548, 39 L. Ed. 2d 577, 94 S. Ct. 1372 (1974). Second, the issue of whether or not the trustees should be made to respond for damages for breaches of fiduciary duties is entirely separate from the issue of the declaration of the rights of the parties under the stock purchase agreement and fairness dictates that they be treated separately. Network Project v. Corporation for Public Broadcasting, 183 U.S. App. D.C. 70, 561 F.2d 963, 970 (D.C. Cir. 1977), cert. denied, 434 U.S. 1068, 55 L. Ed. 2d 770, 98 S. Ct. 1247 (1978). Third, presentation of these separate issues to the jury would have unreasonably confused them in deciding the central issue in the case. See Cancellier v. Federated Dept. Stores, 672 F.2d 1312, 1318 (9th Cir.), cert. denied, 459 U.S. 859, 74 L. Ed. 2d 113, 103 S. Ct. 131 (1982). Finally, defendants are not prejudiced by remitting their fiduciary duty claims to the state courts in that, because of the separateness of the issues involved, the defendants will not "irretrievably" lose any rights if they cannot "assert them in an ongoing action in federal court." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 376, 57 L. Ed. 2d 274, 98 S. Ct. 2396 (1978).
With respect to the remaining claims of the trustees, after three weeks of trial it became apparent that the factual predicates of these claims were tenuous at best. The bona fides of each of the parties was fully litigated and no evidence appeared that would support plaintiffs' claims based on fraud, the securities laws, ERISA, or implied covenants of good faith and fair dealing. Moreover, it is clear that a definitive resolution of the contract claim in this case would resolve all other contentions raised by the parties.
For the reasons set forth above, I have determined that a final order should be entered in this case disposing of all of the claims of the parties in order that the appellate process may proceed expeditiously and in order to resolve the uncertainties created by this litigation as soon as possible.
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
JOSEPH L. CASILE, II, ALAN M. FELDMAN, MIGUEL A. MORA and ROBERT S. SELTZER, Plaintiffs-Counterclaim Defendants v. ROBERT M. COHEN, HARTSELL, INC., CHEYENNE CORPORATION, ROLAND M. JERMYN, JR., Defendants-Counterclaim Plaintiffs
CIVIL ACTION NO. 87-1402
AND NOW, this 23rd day of September, 1987, after trial commencing on August 27, 1987, before the Court and a jury, and the Court having submitted special interrogatories to the jury, and the jury having unanimously found on September 18, 1987, that the fair market value as of January 31, 1985, of the 56.2% majority block of stock which is the subject of the Stock Sale Agreement of January 31, 1985, (the "Contract") between the plaintiffs Joseph L. Castle, II, Alan M. Feldman, Miguel A. Mora and Robert S. Seltzer, the Trustees of Psychiatric Hospitals of America, Inc. Employee Stock Ownership Plan and the defendants is Fifteen Million, Eight Hundred Thousand dollars ($ 15,800,000),
IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT:
1. On Counts III and VI of the complaint in this action, and the First and Third Causes of Action of the counterclaims asserted by defendants, this Court hereby declares that the fair market value as of January 31, 1985, of the 56.2% majority block of stock sold pursuant to the Contract is Fifteen Million, Eight Hundred Thousand Dollars ($ 15,800,000), which amount constitutes the "Stockholders' Value" (excluding interest) under the Contract and, in particular, Section 6 thereof.
2. Plaintiff Trustees on behalf of the beneficiaries of the Psychiatric Hospitals of America, Inc. Employee Stock Ownership Plan are entitled to exercise all their rights and options under the Contract, including, but not limited to, consummating the purchase of the 56.2% majority block of stock at Fifteen Million, Eight Hundred Thousand Dollars ($ 15,800,000) plus such interest as may be applicable, pursuant to the payment terms set forth in the Contract or as otherwise ordered by the Court.
3. All of the remaining claims of the parties are DISMISSED with prejudice.
4. This is a final order and the Clerk is directed to close the docket of the within case.
BY THE COURT:
Edward N. Cahn, J.
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA JOSEPH L. CASTLE, II, ALAN M. FELDMAN, MIGUEL A. MORA and ROBERT S. SELTZER, Plaintiffs-Counterclaim Defendants v. ROBERT M. COHEN, HARTSELL, INC., CHEYENNE CORPORATION, ROLAND M. JERMYN, JR., Defendants-Counterclaim Plaintiffs
AND NOW, this 26th day of October, 1987, upon consideration of defendants' Motion to Alter, Amend or Grant Relief from Judgment, plaintiffs' response thereto, and the argument of counsel, IT IS hereby ordered, adjudged, and decreed that this court's order of September 23, 1987 is MODIFIED as follows:
1. Plaintiffs shall have until March 31, 1988 to consummate the purchase of the 56.2% majority block of stock at Fifteen Million, Eight Hundred Thousand Dollars ($ 15,800,000) plus such interest as may be applicable, pursuant to the payment terms set forth in the Contract as modified by this order.
2. If the plaintiffs are unable to consummate the purchase of the 56.2% majority block of stock on or before March 31, 1988, the defendants may sell the 56.2% majority block to the Ramsey Group, or if the Ramsey offer has been withdrawn, to any other interested party, provided that the amount for which the stock is sold exceeds Fifteen Million, Eight Hundred Thousand Dollars ($ 15,800,000) plus applicable interest as defined in the Stock Sale Agreement to the date of purchase.
3. In the event that a sale takes place pursuant to Paragraph 2 of this order, from the proceeds thereof Fifteen Million, Eight Hundred Thousand Dollars ($ 15,800,000) plus applicable interest as defined in the Stock Sale Agreement to the date of purchase, shall be placed in an interest bearing escrow account pending the final resolution of this and all related cases.
4. This is a final order and the Clerk is directed to close the docket of the within case.
BY THE COURT:
Edward N. Cahn, J.