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DONGELEWICZ v. FIRST EASTERN BANK

September 30, 1999

LEON R. DONGELEWICZ, ET AL., PLAINTIFFS,
v.
FIRST EASTERN BANK, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Mcclure, District Judge.

  MEMORANDUM

BACKGROUND:

On June 17, 1994, plaintiffs, lot owners in a recreational housing development called the Valley of Lakes, commenced this action with the filing of a complaint pursuant to: the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961-1968 (Count I); the Interstate Lands Sales Full Disclosure Act, 15 U.S.C. § 1701 (Count II); 42 U.S.C. § 1983 (Count III); the New Jersey Real Estate Full Disclosure Act, N.J.S.A. § 45:15-16.47 (Count IV); and the common law of New Jersey for fraud and deceit (Count V). The complaint was filed in the United States District Court for the District of New Jersey and was transferred to this court by Order of Court dated March 15, 1995.

Succinctly stated, plaintiffs allege a long history of mismanagement, broken promises, and fraud on the part of persons in ownership and management positions at Valley of Lakes over the years. Plaintiffs have been certified to proceed as a class pursuant to Fed.R.Civ.P. 23. Default has been entered against defendants Frank M. Cedrone, C.B.G., Ltd., Oneida Water Co., and Valley Utilities Co., Inc. The remaining defendants are First Eastern Bank, N.A., First Eastern Corp., MLA Management Associates, Inc., Ralph Conte, and Arlene Rainess Conte.

Before the court are a number of motions by the parties. We note at the outset that, due to the number of motions and the prolixity of the arguments, every argument and issue cannot possibly be addressed without production by the court of a massive memorandum. We therefore will restrict ourselves to the primary arguments raised, summarize as much as possible, and attempt to limit ourselves to the issues the resolution of which govern disposition of the motions.

DISCUSSION:

I. PLAINTIFFS' MOTION TO SUPPLEMENT AND AMEND COMPLAINT

Plaintiffs move to amend Count I of the complaint to add a number of transactions, events, and occurrences which either took place after the filing of the original complaint, or which occurred before the filing of the original complaint but about which plaintiffs did not learn until discovery. As discussed below, the RICO claims are barred by the statute of limitations, so that amendment would be futile. The motion will be denied.

II. MOTION FOR EXTENSION OF DEADLINES

Plaintiffs move for an extension of the deadlines for discovery, dispositive motions, and expert witness reports. The motion also seeks an order compelling responses from certain defendants to discovery requests from plaintiffs. The court's computer docketing system shows the motion as still pending, despite its having been addressed in an order dated June 19, 1998 (record document no. 261), and the substance of the motion having been addressed in an order dated January 6, 1999 (record document no. 373). The motion will be denied as moot.

III. MOTIONS FOR DECERTIFICATION

Defendants move for decertification of the classes and sub-classes whose claims are asserted against the relevant moving defendant. Common to these motions is the assertion of a problem with the statute of limitations which renders the case unmanageable as a class action. We agree.

In certifying the class and various sub-classes, we relied in part on Keystone Insurance Co. v. Houghton, 863 F.2d 1125 (3d Cir. 1988), in which the Third Circuit held that a cause of action under RICO accrues for purposes of the statute of limitations when the plaintiff knew or should have known that the elements of a cause of action existed. However, if further predicate acts which are part of the pattern of racketeering activity occur, the statute began to run from the date the plaintiff knew or should have known of the last such act.

In Klehr v. A.O. Smith Corp., 521 U.S. 179, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997), the Supreme Court held that the "last predicate act" method of accrual under RICO was not a proper interpretation of the statute. The Court declined, however, to establish a particular method of accrual as being appropriate. See generally Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644, 655-656 (3d Cir. 1998).

Since Klehr and Rolo, several courts in the Third Circuit have concluded that, while the "last predicate act" rule no longer applies, it continues to be the law of this circuit that the limitations period for a RICO claim begins to run when the plaintiff was aware of the elements of the RICO claim. That is, the period begins when the plaintiff knew or should have known that the defendant engaged in a pattern of racketeering activity and that the plaintiff was injured by the pattern of racketeering activity (the "injury plus pattern" rule). See, e.g., Perlberger v. Perlberger, 1999 WL 79503, at *3 (E.D.Pa. Feb. 12, 1999) (Padova, J.); Forbes v. Eagleson, 19 F. Supp.2d 352, 357-358 (E.D.Pa. 1998) (O'Neill, J.); Gunter v. Ridgewood Energy Corp., 32 F. Supp.2d 166, 173 (D.N.J. 1998) (Walls, J.).

The named plaintiffs in this case allege predicate acts which began in the 1970's and purportedly continue today. The times at which members of the class and sub-classes bought plots in the Valley of Lakes differ widely and the purchases were made with widely varying degrees of knowledge and sophistication.

For example, Leon and Margaret Dongelowicz purchased their lot in October of 1989, while George and Sharon DePersia bought two lots in 1975 and 1976. Clearly, a different analysis would apply to a person who buys based on a promise of a lake and golf course which do not occur when there is an extra 13-14 years to realize that these amenities have not appeared. Moreover, Francis Burns is a licensed real estate salesman who actually worked for CBG and sold lots in Valley of Lakes. Again, a different analysis would apply, as such a person would be expected to recognize false statements before an unsophisticated buyer.

Since the statute of limitations defense asserted by defendants plainly has merit, and plainly requires consideration of widely differing factual circumstances, we conclude that decertification of the class and sub-classes is warranted.

IV. FIRST EASTERN'S MOTION FOR SUMMARY JUDGMENT

A. Standard

  Summary judgment is appropriate if the "pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to
judgment as a matter of law." Fed. R.Civ.P. 56(c) (emphasis
added).

   . . [T]he plain language of Rule 56(c) mandates
  the entry of summary judgment, after adequate time
  for discovery and upon motion, against a party who
  fails to make a showing sufficient to establish the
  existence of an element essential to that party's
  case, and on which that party will bear the burden of
  proof at trial. In such a situation, there can be `no
  genuine issue as to any material fact,' since a
  complete failure of proof concerning an essential
  element of the nonmoving party's case necessarily
  renders all other facts immaterial. The moving party
  is `entitled to judgment as a matter of law' because
  the nonmoving party has failed to make a sufficient
  showing on an essential element of her case with
  respect to which she has the burden of proof.

Celotex Corp. v. Catrett, 477 U.S. 317, 323-324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The moving party bears the initial responsibility of stating the basis for its motions and identifying those portions of the record which demonstrate the absence of a genuine issue of material fact. Celotex at 323, 106 S.Ct. 2548. He or she can discharge that burden by "showing . . . that there is an absence of evidence to support the nonmoving party's case." Celotex at 325, 106 S.Ct. 2548.

Issues of fact are genuine "only if a reasonable jury, considering the evidence presented, could find for the non-moving party." Childers v. Joseph, 842 F.2d 689, 693-694 (3d Cir. 1988) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Material facts are those which will affect the outcome of the trial under governing law. Anderson at 248, 106 S.Ct. 2505. The court may not weigh the evidence or make credibility determinations. Boyle v. County of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998). In determining whether an issue of material fact exists, the court must consider all evidence and inferences drawn therefrom in the light most favorable to the non-moving party. Boyle at 393; White v. Westinghouse Electric Co., 862 F.2d 56, 59 (3d Cir. 1988).

If the moving party satisfies its burden of establishing a prima facie case for summary judgment, the opposing party must do more than raise some metaphysical doubt as to material facts, but must show sufficient evidence to support a jury verdict in its favor. Boyle at 393 (quoting, inter alia, Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)).

B. Statement of Facts

Again due to the prolixity of the pleadings and other documents filed in this case, it is impossible to set forth a thorough recitation of the facts without defrosting a large portion of the continent. We therefore will attempt a statement which is more a summary of the facts, emphasizing those which are most pertinent to our disposition of the motion.

The Valley of Lakes real estate development began in the 1970's under the auspices of a company called High Vista, Inc. High Vista went bankrupt, and CBG*fn1 eventually assumed the role of developer. Throughout the time that Valley of Lakes has been in existence, potential purchasers of lots have been told that certain amenities would be built. These included "Lake Algonquin," an 18-hole golf course, roads, and central water and sewer systems. The amenities have not been completed, and plaintiffs claim that neither High Vista nor CBG ever planned to build them.

First Eastern was CBG's primary source of financing, eventually loaning over $20,000,000.00 for Valley of Lakes. There were two lines of credit involved. The first was a revolving development loan secured by a first mortgage on the property owned by CBG. The second was a receivable line of credit which operated with the sale of a lot by CBG and issuance of a purchase money mortgage which was collaterally assigned to First Eastern. CBG financed up to 90% of the lot price, and First Eastern advanced 90% of the financed amount to CBG and then collected on the notes through an agent.

In the early years (1987-1989) of CBG's management, Valley of Lakes did well both in the construction of amenities and in the sale of lots. With the downturn in the economy after 1990, however, lot sales declined and CBG encountered financial difficulties. CBG failed to meet its obligations to First Eastern, and attempted to refinance or sell the development. At the same time, First Eastern made cash infusions into the project and took other actions to ensure that the development did not collapse due to cash flow difficulties.

When neither a buyer nor a financier appeared, CBG filed a petition in bankruptcy under Chapter 11. See In re C.B.G. Ltd., 150 B.R. 570 (Bkrtcy.M.D.Pa. 1992).*fn2 CBG became debtor-in-possession, and in that status entered into an agreement with MLA Management Associates, Inc., to monitor CBG's actions as debtor-in-possession. During the bankruptcy, First Eastern made advances to CBG to preserve its collateral, an action for which an order of the bankruptcy court dated October 22, 1992, provided. However, First Eastern took no action which would cause it to undertake any obligation as the owner or developer of the project.

In February, 1995, CBG was removed as debtor-in-possession and a trustee was appointed. In 1996, a joint venture of Double Diamond, Inc., and the Valley of Lakes Civic Association (VOLCA), an association of lot owners, acquired CBG's ownership interest. In the meantime, First Eastern merged with PNC Bank, which released its, interests in Valley of Lakes for ...


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