Hawk Mountain LLC et al v. RAM Capital Group LLC et al

Filing 457

REPORT AND RECOMMENDATIONS- DENYING #258 MOTION for Sanctions, GRANTING #63 MOTION to Dismiss, GRANTING #67 MOTION to Dismiss, GRANTING #62 MOTION to Dismiss, DENYING #305 MOTION for Leave to File Sur-Reply. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 6/20/2016. Signed by Judge Sherry R. Fallon on 6/3/2016. (lih)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
THE HAWK MOUNTAIN LLC, GIGI
JORDAN, MICHELLE E. MITCHELL,
and KIMBERLY JORDAN,

)
)
)

)
)
)
v.
)
)
)
RAYMOND A. MIRRA, JR., RAM
CAPITAL GROUP, LLC D/B/A RAM
)
)
CONSULTING GROUP, LLC, RAM
)
CAPITAL II, LLC, RAM REALTY
HOLDINGS, LLC, JOSEPH A. TROLIO, )
)
JR., JOSEPH T. MOLIERI, BRUCE
)
KOLLEDA, MARK A. KOVINSKY,
JOSEPH J. TROPIANO, JR., LLC,
)
BERNARDEIZEN,PATRICKJ. WALSH,)
DANIELLE STEWART, RENEE M.
)
SIGLOCH, FREDERICK FORTE,
)
VIRGINIA L. HALL, BARI KUO, and
)
SHELLY DEMORA,
)
Plaintiffs,

Civil Action No. 13-2083-SLR-SRF

)
)

Defendants.

REPORT AND RECOMMENDATION
I.

INTRODUCTION
Presently before the court in this action brought under the Racketeer Influenced and

Corrupt Organizations Act ("RICO") are the following motions: (1) the motion to dismiss for
, failure to state a claim upon which relief can be granted of defendant Bernard Eizen ("Eizen")
(Q.I. 62); (2) the motion to dismiss for failure to state a claim upon which relief can be granted
of defendants Shelly Demora, Frederick Forte, Virginia L. Hall, Bruce Kolleda, Mark Kovinsky,
Bari Kuo, Raymond A. Mirra, Jr., Joseph T. Molieri, RAM Capital Group LLC, RAM Capital II,
LLC, RAM Realty Holdings LLC, Renee M. Sigloch, Danielle Stewart, Joseph A. Troilo, Jr.,
and Joseph Tropiano (collectively, the "RAM Defendants") (D.I. 63); (3) the motio.n to dismiss

for failure to state a claim upon which relief can be granted of defendant Patrick Walsh
("Walsh") (together with Eizen and the RAM Defendants, "defendants") (D.I. 67); (4) the
motion for sanctions filed by the RAM Defendants (D.I. 258); and (5) plaintiffs' motion for
leave to file a sur-reply brief regarding the motion for sanctions (D.I. 305). For the following
reasons, I recommend that the court grant the motions to dismiss, deny the motion for

sanction~,

and deny the motion for leave to file a sur-reply brief.
II.

BACKGROUND 1
In 1991, plaintiff Gigi Jordan ("Jordan") founded Ambulatory Pharmaceutical Services,

Inc. ("APS"), a healthcare company specializing in providing individualized home infusion
services. (D.I. 47 at ,-r,-r 6, 40) Following the success of APS, Jordan entered into a business
relationship with Mirra2 from 1991through2008, forming a complex network of holding
companies, active businesses, and real estate holdings and trusts. (Id. at ,-r,-r 7, 40) Mirra
represented to Jordan that defendants Troilo, Molieri, Kolleda, Kovinsky, Eizen, Tropiano, and
Walsh managed, controlled, and implemented Jordan and Mirra' s respective business and
financial affairs and acted co-equally for Jordan and Mirra as fiduciaries in the execution of their
duties. (Id. at ,-r,-r 55, 292)
In 1997, Mirra, Troilo, Molieri, and Kolleda organized RAM Capital to serve as a
holding company for Jordan and Mirra's joint assets and business ventures. (Id. at ,-r 45) In 2002
and thereafter, Mirra, Troilo, Molieri, Kolleda,

Tropiano~

1

Kovinsky, and Eizen organized various

When considering a Rule 12(b)(6) motion to dismiss, the court must accept as true all factual
allegations in the complaint and view them in the light most favorable to the plaintiff. Umland v.
Planco Fin. Servs., 542 F.3d 59, 64 (3d Cir. 2008). Consequently, the following background
information is drawn from plaintiffs' second amended complaint dated July 9, 2014, and does
not constitute findings of fact. (D.I. 47)
2
Jordan and Mirra were also involved in a personal relationship beginning in 1990 or 1991.
(D.I. 47 at ,-r 39) They divorced in November 2001. (Id. at ,-r 47)
2

holding companies and trusts to allegedly obfuscate the actual ownership interests of Jordan's
business holdings. (Id) Jordan and Mirra did not immediately separate their finances after they
divorced in November 2001. (Id at if 47)
Plaintiffs Hawk Mountain LLC ("HM LLC"), Gigi Jordan ("Jordan"), Michelle E.
Mitchell ("Mitchell"), and Kimberly Jordan ("Kim Jordan") (collectively, "plaintiffs") initiated
the instant RICO action on December 23, 2013. (D.I. 1) On July 9, 2014, Plaintiffs filed their
second amended complaint, seeking to recover more than $225,000,000.00 allegedly stolen by
defendants through numerous acts of forgery and a pattern of bank, mail, and wire fraud. (D.I.
47 at if 3) Jordan was the sole manager of HM LLC, a Delaware limited liability company
organized on December 3, 2002. (Id at ifif 16-17) Mitchell, in her capacity as trustee of the
Intercession Trust, is a current beneficiary of the Hawk Mountain Trust (the "HM Trust"), which
held the membership interests in HM LLC as its sole asset. (Id at if 18) Kim Jordan is an
indirect beneficiary of the HM Trust, having assigned her interest in the HM Trust to the
Intercession Trust. (Id at if 19)
The RICO scheme alleged by plaintiffs in the present matter has four facets: (1) the
alleged conversion of Jordan's bank accounts, (2) the alleged conversion of HM LLC and HM
Trust assets, (3) the allegedly fraudulent property schemes, and (4) the allegedly fraudulent
Separation and Distribution Agreement ("SDA").

A.

Conversion and Misappropriation of Jordan's Bank Accounts
1.

Merrill Lynch Scheme

Jordan opened a Merrill Lynch account based on Mirra's recommendation in 1992. (Id
at if 60) Walsh became Jordan's broker and private banker at Merrill Lynch. (Id at if 61) In
1997, Walsh advised Jordan to open two additional Merrill Lynch accounts to participate in a

3

covered writing account program intended to eliminate losses below the principal amounts
invested. (Id at,, 63-66)
In April 2002, Mirra, Troilo, Molieri, Kolleda, Kovinsky, and Tropiano conspired with
Walsh to open a new Merrill Lynch account jointly held by Jordan and Mirra. (Id at,, 69-70)
They then deposited more than $14 million of Jordan's money into the joint account without
Jordan's knowledge or consent. (Id at,, 71-73) Four months later, in September 2002, Mirra,
Troilo, Molieri, Kolleda, Kovinsky, Tropiano, and Walsh allegedly forged Jordan's signature on
account opening documents for the joint account. (Id at, 74)
In January 2003, Mirra, Troilo, Molieri, Kolleda, Kovinsky, and Tropiano conspired with
Walsh to convert Jordan's three individual Merrill Lynch accounts into joint accounts held with
Mirra. (Id. at,, 76-82) Thereafter, Mirra, Troilo, Molieri, Kolleda, Kovinsky, Tropiano, and
Walsh opened additional Merrill Lynch accounts jointly held by Jordan and Mirra by forging
Jordan's signature on account application forms. (Id at,, 83-89) Between 2003 and 2006,
Mirra, Troilo, Molieri, Kolleda, Kovinsky, Tropiano, and Walsh forged Jordan's signature on
wire transfer authorizations purporting to authorize Merrill Lynch to transfer Jordan's money to
Mirra and various entities owned or controlled by defendants. (Id. at ,, 90-92) Between 2005
and 2008, Mirra, Troilo, Molieri, Kolleda, Kovinsky, Tropiano, and Walsh forged Jordan's
signature on loan applications and wire transfer authorizations, causing Merrill Lynch to loan
millions of additional dollars to Mirra, RAM Capital, and other entities owned and controlled by
Defendants, using Jordan's assets as collateral for the loans. (Id. at,, 93-99)

2.

Other Schemes

On August 29, 1997, Jordan sold APS to Integrated Health Services, Inc. ("IHS") in
exchange for more than $34 million in cash and stock options. (Id at , 100) Mirra subsequently
4

urged Jordan to open a Smith Barney brokerage account in March 1998 with the proceeds from
the sale. (Id at if 101) In June 1998, Mirra encouraged Jordan to execute a Smith Barney
trading agreement, which was faxed to the account broker. (Id at if 102) Mirra, Troilo, Molieri,
Kolleda, and Tropiano then coordinated the liquidation of Jordan's stock in the Smith Barney
brokerage account and fraudulently transferred the funds out of the account without Jordan's
knowledge or consent. (Id at if 103)
In 1998, Mirra conferred with Jordan regarding an "offshore asset protection" plan
involving multiple offshore trusts, LLC's, and bank accounts. (Id at ifif 104-107) Pursuant to
Mirra's proposal, both he and Jordan would transfer $7 million to a bank account in Geneva,
Switzerland (the "BJB account"). (Id at if 108) A Nevis-based LLC named West-Highland
Company LLC ("West Highland") was established, to be owned by Jordan initially, and then the
bank holding the $7 million contributions would be held in an account to be established in the
name of West Highland at BJB in Geneva. (Id at if 109) Jordan signed an agreement in
accordance with Mirra's proposal. (Id at if 110)

I~

July 1999, Mirra, Troilo, Molieri, Kolleda,

and Tropiano forged Jordan's authorization to transfer the funds in Jordan's Smith Barney
account to the BJB account, comprising the total initial funding for West Highland's BJB
account. (Id at if 113) In 2001, Mirra fraudulently induced Jordan to assign him a fifty percent
interest in West Highland by falsely representing that he had contributed half of the funds
deposited into the account. (Id at ifif 112, 115)
Mirra, Troilo, Molieri, Kolleda, and Tropiano also used forged and fraudulent documents
transmitted by mail and wire to convert Jordan's assets in various other bank and mutual fund
accounts for their own use. (Id at if 116)

5

B.

Hawk Mountain LLC & Hawk Mountain Trust Assets

In 2002, Mirra, Troilo, Kolleda, and Kovinsky conspired with Eizen, a trusts and estates
lawyer, to create a Grantor Retained Annuity Trust ("GRAT") called the Hawk Mountain Trust
("HM Trust"), with Jordan's son as the beneficiary. (Id at if 119) Eizen never met with or spoke
to Jordan. (Id) In December 2002, Mirra, Troilo, Kolleda, and Kovinsky advised Jordan to
contribute millions of dollars to HM LLC and the HM Trust, indicating that Jordan would retain
control over the funds, and Jordan agreed. (Id at irir 120-129) However, once Jordan's money
was deposited into HM LLC's Merrill Lynch account and the HM Trust, Mirra, Troilo, Molieri,
Tropiano, Kolleda, Kovinsky, and Eizen forged Jordan's signature on a series of documents to
legitimize their unauthorized actions in asserting control over the HM Trust and HM LLC. (Id
at irir 131-168)
Between 2006 and 2009, Defendants engaged in various efforts to conceal their scheme,
including asserting that RAM Capital and its affiliates had no remaining value to distribute to
Jordan, forging Jordan's signature on documents changing the registered agent for HM LLC, and
assigning ownership interests in HM LLC to third parties without Jordan's knowledge or
consent. (Id at irir 169-176) In November 2009, Mirra, Troilo, Molieri, Kolleda, Kovinsky, and
Eizen forged Jordan's signature on a document called the "Receipt, Release, Indemnification and
Merger Agreement" (the "2009 Release") in connection with the HM Trust, retroactively
releasing Troilo and Kolleda from all liability arising out of their administration of the HM Trust
as of January 1, 2009. (Id at ifif 177-181)
On February 5, 2010, Jude Mirra, Jordan's child and the beneficiary of the HM Trust,
died. (Id at if 183) Following his death, Kim Jordan became the beneficiary of the HM Trust.

(Id) Jordan is currently serving- an eighteen-year sentence following her conviction for
6

manslaughter. James C. McKinley, Jr., Gigi Jordan Receives 18-Year Sentence for Killing Her
Son, N.Y. Times, May 28, 2015.
In April 2010, Eizen, in his capacity as counsel for Troilo and Kolleda, contacted
Jordan's counsel, Mark Petersen ("Petersen"), indicating that the assets in the HM Trust should
be distributed to Kim Jordan as the beneficiary. (Id at if 184) Jordan, as manager of the HM
LLC, instructed Walsh to move the HM LLC assets into an escrow account at Merrill Lynch in
the name of the HM LLC. (Id) Eizen subsequently demanded that the funds from the HM LLC
be restored to the HM Trust. (Id at ifif 187-189) On May 17, 2010, Eizen sent a letter proposing
a "Receipt, Release, Indemnification, Waiver of Accounting and Trust Termination Agreement"
(the "2010 Proposed Release"), seeking a waiver of an accounting for the HM Trust and a
release of Troilo and Kolleda for all claims. (Id at if 190)
On May 24, 2010, Eizen indicated that the HM LLC would be terminated and all assets
of the HM LLC would be retitled in the name of the Trustees of the HM Trust, pending
resolution of the HM Trust. (Id at if 192) The Jetter included an offer that would expire on May
26, 2010, requiring Jordan to sign the same indemnification and broad release of Troilo and
Kolleda that was attached to Eizen's May 17, 2010 correspondence, and requiring Jordan to pay
the HM Trust a nearly $8 million debt she did not owe. (Id at ifif 193-196) On May 28, 2010,
Troilo, Kolleda, and Eizen filed a Certificate of Cancellation of the HM LLC with the Delaware
Secretary of State, despite the fact that only Jordan had the authority to dissolve the HM LLC.
(Id at ifif 197-198) On June 22, 2010, Troilo and Kolleda contacted Walsh to inform him that
the HM LLC had been dissolved and the HM Trust was the sole owner of the assets held by the
HM LLC. (Id at if 199) Troilo and Kolleda instructed Walsh to retitle the Merrill Lynch
accounts held by the HM LLC in the name of the Trustees. (Id) Jordan's trusts and estates
7

attorney, Carlyn S. McCaffrey, requested documents relating to Troilo and Kolleda's claims
regarding the HM Trust, and noticed that the two sets of documents contained different versions
of Jordan's signature. (Id. at ifif 201-202)
On August 10, 2011, Troilo and Kolleda filed a petition in Pennsylvania in the Delaware
County Court of Common Pleas, seeking to sell and distribute the assets of the HM Trust. (Id. at

ifif 203-210)

The petition was dismissed on jurisdictional grounds, and Troilo and Kolleda

brought a second action in the Delaware Court of Chancery seeking the same relief. (Id. at ifif
211-219) The Court of Chancery action was still pending at the time the second amended
complaint in the instant action was filed. (Id. at if 220) On July 21, 2014, the Court of Chancery
ruled orally on summary judgment, concluding that (1) Kimberly Jordan was the sole beneficiary
of the HM Trust, (2) respondents waived all claims of fraud or forgery against Troilo and
Kolleda in their official capacity as co-trustees of the HM Trust and as members of the HM LLC,
despite being given two extensions of time to raise such claims, and (3) Troilo and Kolleda were
entitled to a release and judicial discharge in their capacities as co-trustees and members of the
HM LLC. In re Hawk Mountain Trust Dated December 12, 2002, 2015 WL 5243328, at *2
(Del. Ch. Sept. 8, 2015). On September 8, 2015, the Court of Chancery granted in part Troilo
and Kolleda's motion for the final reimbursement of attorneys' fees, costs, and expenses. Id

C.

Fraudulent Property Schemes

Defendants also engaged in a scheme to divest Jordan of her equity in several real
properties. (Id. at if 225) On June 30, 1995, Jordan purchased a property located at 2932 North
Atlantic Boulevard in Fort Lauderdale, Florida, for $1.65 million. (Id. at if 226) On July 12,
1996, Mirra and Troilo forged Jordan's signature on a warranty -deed purporting to add Mirra as
I
a co-owner of the property and recorded the deed. (Id. at ifif 228-229) On April 10, 2002, Mirra,
8

Troilo, Kolleda, and Tropiano forged Jordan's signatures on mortgage loan application
documents and obtained a $375,000 mortgage on the property. (Id at ifif 231-234) On August
16, 2006, Mirra, Troilo, Kolleda, and Tropiano sold the property for $4.8 million and retained
the proceeds. (Id. at ifif 235-240)
On June 23, 2000, Mirra, Troilo, Kolleda, and Tropiano caused APS, which was jointly
owned by Jordan and Mirra, to purchase a property located at 2937 North Atlantic Boulevard,
Fort Lauderdale, Florida, for $660,000. (Id. at if 241) On December 27, 2001, Mirra, Troilo,
Kolleda, and Tropiano caused the property to be sold for $10.00 to West Highland. (Id. at if 243)
On April 12, 2004, Mirra, Troilo, Kolleda, and Tropiano sold the property for $1.00 to "Gigi
Jordan and her Husband Raymond Mirra." (Id. at if 245) Jordan was not advised of the purchase
or the sales. (Id. at ifif 242, 244, 246) On the same date, Mirra, Troilo, Kolleda, and Tropiano
forged Jordan's signature and authorized Merrill Lynch to wire $345,631.96 to a West Highland
account to pay off the mortgage on the property. (Id at ifif 247-248) On April 28, 2004, Mirra,
Troilo, Molieri, Kolleda, Kovinsky, and Tropiano forged Jordan's signature on a warranty deed
selling the property for $850,000 without Jordan's knowledge. (Id at ifif 249-251)
In 2000, Mirra, Troilo, Kolleda, Kovinsky, and Tropiano incorporated RAM Developers
to engage in real estate investments, and falsely represented to Jordan that she was a fifty percent
owner of RAM Developers. (Id at ifif 253-256) On April 4, 2001, Jordan provided $4.1 million
to RAM Developers to be used to purchase a property located at 352 West End Avenue, New
York, New York. (Id. at if 257) On April 5, 2001, Jordan permitted the property to be titled in
the name of RAM Developers, rather than in Jordan's name individually. (Id at if 260) On July
8, 2002, Mirra, Troilo, Kolleda, Kovinsky, and Tropiano sold the property for $4.35 million. (Id.
at if 261)
9

On April 5, 2002, Mirra and Jordan bought a property in Concord, Virginia for $3 .265
million. (Id at, 265) On August 27, 2002, Mirra took out a $2 million mortgage from Merrill
Lynch on the property without Jordan's knowledge. (Id at, 268) Between February 2003 and
June 2004, Mirra, Troilo, Kolleda, and Tropiano bought additional lots to add to the existing
acreage of the property without Jordan's knowledge. (Id at, 269) On June 3, 2004, Mirra and
Jordan borrowed $3 million from JPMorgan Chase for payment on the purchase of the property.

(Id at, 271) On March 31, 2005, the $3 million JPMorgan mortgage was increased by $1
million and converted to a home equity line of credit. (Id at, 272) On June 3, 2005, a loan was
obtained on the property from Merrill Lynch in the amount of $2 million. (Id at 281)
On May 31, 2002, Jordan and Mirra purchased a property in North Garden, Virginia (the
"Taylors Gap Road Property'') for $1.8 million. (Id at, 284) On December 4, 2003, Mirra,
Troilo, Kolleda, and Tropiano forged Jordan's signature on a deed conveying the property from
Jordan and Mirra to RAM Realty. (Id at, 285) RAM Realty subsequently subdivided and sold
off the Taylors Gap Road Property for $2.151 million. (Id at , 287)

D.

The Separation and Distribution Agreement

On March 12, 2008, Jordan and Mirra executed a Separation and Distribution Agreement.
("SDA"). (Id at , 291) In connection with a merger between Biomed America, Inc. ("Biomed")
and Allion Healthcare, Inc. ("Allion"), on March 4, 2008, Mirra, Troilo, Molieri, Kolleda, and
Tropiano falsely represented that Jordan's half of the Biomed stock was valued at $4.9 million,
when it was actually worth much more than that. (Id at,, 299-300) Pursuant to the terms of
the SDA, Jordan transferred her fifteen percent ownership interest in Biomed to an LLC owned
by Mirra for $4.9 million. (Id at~ 301) Through this transaction, Mirra received $78 million,
$39 million of which was rightfully Jordan's. (Id
10

at~~

302-303)

Mirra subsequently orchestrated two transactions resulting in the sale of Jordan's
ownership interests in APS and Specialty Pharmacy, Inc. to AmerisourceBergen Corporation
("ABC") in 2002 for $30 million. (Id.

at~

305) On April 29, 2002, a fraudulent Merrill Lynch

account received nearly $15 million in connection with the first transaction. (Id.

at~

308) In

December 2002, Bioservices was acquired by ABC for $159 million, yielding $75 million more
than Mirra had reported. (Id.

at~

another unknown account. (Id.

309) The actual profits of the sale were routed by Mirra to

at~

313)

On December 22, 2004, ABC sued Mirra for conversion, breach of contract, breach of
fiduciary duty, civil conspiracy, and unjust enrichment, alleging that Mirra set up a pharmacy
called Associated Prescription Services and induced the key employees of APS to move to the
new company. (Id.

at~

318) Mirra settled the litigation with ABC. (Id.

at~

319) In October

2009, Allion's shareholders sued Mirra and the board, alleging that Mirra conspired with the
board and failed to engage in an honest and fair sale process, failed to maximize shareholder
value in connection with the merger, failed to provide material information regarding the merger,
and misrepresented the sale process. (Id.

at~

320) In May 2010, the New York Supreme Court

denied the defendants' motion to dismiss, and Mirra negotiated a settlement. (Id.

at~~

321-322)

On March 4, 2008, Mirra, Troilo, Kolleda, and Tropiano falsely represented to Jordan
that she had a fifty percent interest in four companies, including VasGene, PrideCare, ARC, and
Cancer Innovations, which had no value. (Id.

at~

324) Defendants falsely represented that the

companies had no value to induce Jordan to surrender her rightful interests in the companies and
execute the SDA. (Id.

at~

329) In February 2008, Mirra, Troilo, Kolleda, and Tropiano falsely

represented that RAM Capital had no assets or value, causing Jordan to forfeit her fifty percent
interest in the company. (Id.

at~~

332-335)

11

On February 29, 2008, Mirra, Troilo, Kolleda, and Tropiano sent a purportedly complete
schedule of the private companies in which Jordan and Mirra held joint interests, but did not
disclose the assets of subsidiaries, holding companies, or companies related to RAM Capital.

(Id at ifif 336-337) The schedule also failed to disclose other companies in which Jordan and
Mirra had joint interests that were active and in good standing at the time the SDA was executed.

(Id at if 341)
The SDA also misrepresented the total value of the real estate properties jointly held by
Jordan and Mirra, claiming that the total net value of the jointly held properties was $15,710,000,
when in fact the total net value was in excess of $22 million. (Id at ifif 344-346) Mirra, Troilo,
Kolleda, and Tropiano represented that a Tahoe property bought in 1999 exclusively by Jordan
was jointly held, and they bought two properties in Santa Barbara, California titled in the name
of RAM Realty, using money stolen from Jordan and Mirra'sjoint bank account in the spring of
2004. (Id at ifif 347-348, 352) The SDA represented that Jordan was responsible for fifty
percent of the fraudulent encumbrances on the Concord, Virginia property, and underestimated
the value of the property by at least $6 million. (Id at ifif 356-357)
Moreover, the SDA contained misrepresentations and concealments regarding the
contributions to West Highland LLC and the liabilities of the Merrill Lynch accounts, indicating
that the assets were jointly held and Mirra had contributed half of the funds, and Jordan and
Mirra were jointly and severally liable for any liabilities, when in fact the contributions were
made solely by Jordan and the liabilities were incurred solely by Mirra. (Id at ifif 360-369)
Mirra succeeded in inducing Jordan to surrender fifty percent of the value of the Merrill Lynch
asset accounts by falsely assuming fifty percent of the joint liabilities, and Jordan paid Mirra
$3 .4 million as consideration for his assumption of the liabilities. (Id at if 371) Mirra, Troilo,
12

Kolleda, and Tropiano also falsely represented that all ofMirra's financial obligations to Jordan
prior to January 31, 2003 had been satisfied. (Id at ifif 375-378)
Contemporaneous with the execution of the SDA, Mirra and Jordan entered into a Mutual
General Release Document ("Release"), which purported to release defendants from liability
arising from their fraudulent conduct. (Id at ifif 380-382) According to Jordan, she reviewed the
terms and conditions of the Release in March 2008 and informed her counsel that she wanted
paragraph 3 of the Release stricken. (Id at ifif 381-383) Mirra, Troilo, Kolleda, and Tropiano
allegedly agreed to strike the language and sent signature pages to Jordan's counsel. (Id. at if
3 84) Troilo resent the signature page of the Release for execution without removing the disputed
language from the Release, and neither Jordan nor her counsel reviewed the full version of the
Release prior to its execution. (Id at ifif 385-387)

III.

LEGAL STANDARD
Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim

upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6)
motion to dismiss, the court must accept as true all factual allegations in the complaint and view
them in the light most favorable to the plaintiff. Umland v. Planco Fin. Servs., 542 F.3d 59, 64
(3d Cir. 2008).
To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint
must contain a "short and plain statement of the claim showing that the pleader is entitled to
relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the
complaint must set forth sufficient factual matter, accepted as true, to "state a claim to relief that
is plausible on its face." Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft

v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual allegations
13

allow the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged. Iqbal, 556 U.S. at 663; Twombly, 550 U.S. at 555-56.
When determining whether dismissal is appropriate, the court must take three steps. 3 See

Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010). First, the court must identify
the elements of the claim. Iqbal, 556 U.S. at 675. Second, the court must identify and reject
conclusory allegations. Id. at 678. Third, the court should assume the veracity of the wellpleaded factual allegations identified under the first prong of the analysis, and determine whether
they are sufficiently alleged to state a claim for relief. Id.; see also Malleus v. George, 641 F.3d
560, 563 (3d Cir. 2011). The third prong presents a context-specific inquiry that "draw[s] on
[the court's] experience and common sense." Id. at 663-64; see also Fowler v. UPMC

Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). As the Supreme Court instructed in Iqbal, "where
the well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to
relief."' Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

IV.

DISCUSSION
A.

Statute of Limitations

The Third Circuit has recognized that "the statute of limitations can serve as the basis for
dismissal under Fed. R. Civ. P. 12(b)(6), as long as the time alleged in the statement of a claim
shows that the cause of action has not been brought within the statute of limitations."

McPherson v. United States, 392 F. App'x 938, 943 (3d Cir. 2010) (quotation marks and
3

Although Iqbal describes the analysis as a "two-pronged approach," the Supreme Court
observed that it is often necessary to "begin by taking note of the elements a plaintiff must plead
to state a claim." 556 U.S. at 675, 679. For this reason, the Third Circuit has adopted a threepronged approach. See Santiago v. Warminster Twp., 629 F.3d 121, 130 n.7 (3d Cir. 2010);
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).
14

citations omitted). A civil action under RICO is subject to a four-year limitations period.

Prudential Ins. Co. ofAm. v. US. Gypsum Co., 359 F.3d 226, 232-33 (3d Cir. 2004). The Third
Circuit "appl[ies] an injury discovery rule whereby a RICO claim accrues when plaintiffs knew
or should have known of their injury." Cetel v. Kirwan Fin. Grp., Inc., 460 F.3d 494, 507 (3d
Cir. 2006) (internal citations and quotation marks omitted). The rule requires courts to first
perform an objective inquiry to determine whether plaintiffs were on inquiry notice and "should
have known of the basis of their claims, which depends on whether [and when] they had
sufficient information of possible wrongdoing to place them on inquiry notice or to excite storm
warnings of culpable activity." Id. (internal citations and quotation marks omitted); see also

Mathews v. Kidder, Peabody & Co., 260 F.3d 239, 252 (3d Cir. 2001). Next, the court conducts
a subjective inquiry focusing on "a plaintiffs actual awareness of suspicious circumstances or ..
. the ability of a plaintiff to understand their import." Cetel, 460 F.3d at 507.
1.

Facial time bar

The RAM Defendants allege that the second amended complaint is facially barred under
the four-year statute of limitations because the pattern of fraudulent activity began in 1997 and
resulted in damages starting in 2002, but no amount of the claimed RICO damages resulted from
acts occurring after December 23, 2009. (D.I. 64 at 9) In response, plaintiffs contend that they
did not discover their injuries until early 2010, when plaintiffs' counsel obtained copies of the
allegedly forged documents. (D.I. 73 at 7) Plaintiffs further allege that they continued to incur
RICO damages resulting from defendants' continuing acts of mail and wire fraud through 2014.

(Id. at 8)
The original complaint was filed in this action on December 23, 2013. (D.I. 1) Under
the four-year statute of limitations period, plaintiffs' claims must have accrued on December 23,
15

2009 or thereafter. See Prudential, 359 F.3d at 232-33. To determine when plaintiffs' claims
accrued, courts within the Third Circuit apply "an injury discovery rule whereby a RICO claim
accrues when plaintiffs knew or should have known of their injury." Cetel, 460 F.3d at 507
(internal citations and quotation marks omitted). The court concludes that plaintiffs should have
known of their injuries relating to representations made in the SDA as of March 2008, for the
reasons set forth in the court's inquiry notice analysis at§ IV.A.2, infra. Plaintiffs' allegations
that they did not discover their injuries until at _least early 2010 are contradicted by
representations in the second amended complaint indicating that defendants' schemes were
obvious from the face of the SDA. (D.I. 47 at ifif 9, 15, 292)
The second amended complaint contains allegations regarding purportedly fraudulent
acts committed by certain defendants 4 in 2010. However, the second amended complaint alleges
no injuries in connection with defendants' unsuccessful efforts to obtain a second fraudulent
release regarding the HM Trust, their failed attempt to compel Jordan to repay an $8 million debt
for which she was not responsible, or the filing of a fraudulent certificate of cancellation on
behalf of HM LLC. (D.I. 47 at ifif 184-202) The statute oflimitations analysis for a RICO claim
is based on the discovery of the alleged injury, and conduct resulting in no pleaded injury cannot
constitute a viable RICO claim. See Cetel, 460 F.3d at 507; Klehr v. A.O. Smith Corp., 521 U.S.
179, 190 (1997) (recognizing that the RICO statute accrues each time a plaintiff discovers, or
should have discovered, a new injury, rather than accruing upon "the commission of a separable,
new predicate act."); Tammera v. Grossman, 2010 WL 1372406, at *6 (D.N.J. Mar. 29, 2010)

4

Troilo, Kolleda, Mirra, Eizen, Walsh, and Kovinsky are the only defendants mentioned in
connection with the allegations arising in 2010. (D.I. 47 at ifif 184-224)
16

("It is injury, not racketeering activity, which triggers the accrual of the statute of limitations for
a RICO action.").
The second amended complaint also alleges that Troilo and Kolleda initiated two actions
in the Delaware Court of Common Pleas and Court of Chancery in 2011 and 2012, respectively.
(D.1. 47 at,, 203-224) According to the allegations in the second amended complaint, the
petitions contained false and fraudulent misrepresentations regarding conduct beginning in 2002
with respect to the HM Trust. (Id) The only injury alleged in connection with the
commencement of these lawsuits is the $4 million in attorneys' fees expended by plaintiffs to
defend against the actions. (D.I. 47 at,, 203-224)
The federal RICO statute creates a civil remedy, including an award of treble damages,
costs, and attorneys' fees, for "any person injured in his business or property" by reason of a
violation of one ofRICO's substantive provisions. Brown v. Access Midstream Partners, L.P., -- F. Supp. 3d ----, 2015 WL 5829755, at *7 (M.D. Pa. Sept. 30, 2015) (quoting 18 U.S.C. §
1964(c)). "While certain legal fees can be the type of concrete out-of-pocket expenses required
to demonstrate injuries under RICO, the attorney's fees injury must have been proximately
caused by the defendant's [racketeering activities]." Macauley v. Estate ofNicholas, 7 F. Supp.
3d 468, 480 (E.D. Pa. 2014) (internal citations and quotation marks omitted). A defendant's
alleged RICO violation and the plaintiffs injuries cannot be directly related if the plaintiff did
not rely to his or her detriment on the violation. Walter v. Palisades Collection, LLC, 480 F.
Supp. 2d 797, 804-06 (E.D. Pa. 2007); see also Kimmel v. Phelan Hallinan & Schmieg, PC, 847
F. Supp. 2d 753, 771 n.15 (E.D. Pa. 2012). The second amended complaint generally asserts that
Jordan relied upon Troilo and Kolleda's misrepresentations when she retained counsel to contest
the petitions. (D.1. 47 at, 204) However, the fact that Jordan contested the petitions
17

demonstrates that she did not justifiably rely on Troilo and Kolleda' s representations. See

Walter, 480 F. Supp. 2d at 806 ("Plaintiffs' course of action ... is the opposite of reliance; it's
defiance. After being (falsely) told they were liable on the debt, they hired lawyers and fought
(and won) the lawsuits."); Kimmel, 847 F. Supp. 2d at 771 (observing that, "far from relying on
the defendants' alleged misrepresentations and wrongful conduct, they instead contested these
representations in court").
Moreover, the second amended complaint's allegations pertaining to litigation in
Delaware state courts are tied to the same conduct and injuries predating the limitations period.
Specifically, the second amended complaint indicates that the petitions were based on events
surrounding the opening of the HM Trust in 2002 and the execution of the 2009 Release. (D.I.
47 at ifif 206-210; 215; 217-219) In accordance with the separate accrual rule applicable to
RICO claims, "the commission of a separable, new predicate act within a 4-year limitations
period permits a plaintiff to recover for the additional damages caused by that act." Klehr, 521
U.S. at 190. However, courts within the Third Circuit have expressly stated that "continuing
efforts to conceal the initial fraud ... [are] not separate and distinct fraudulent acts resulting in
new and independent injuries." Matthews v. Kidder, Peabody & Co., Inc., 2000 WL 33726916,
at *18 (W.D. Pa. Aug. 18, 2000). The allegations in the second amended complaint characterize
the petitions filed by Troilo and Kolleda as materially false because Troilo and Kolleda were
aware that the documents relating to the HM Trust were forged. (D.I. 47 at ifif 205-210; 215219) The forgeries that were the subject of the petitions in the Delaware state court actions 5

5

Vice Chancellor Parsons noted that it was "much more difficult ... to pin [Kimberly Jordan,
the Intercession Trust, and Michelle Mitchell] down on the contours of their allegations of fraud
and forgery against [Troilo and Kolleda] . . . . . [Kimberly Jordan, the Intercession Trust, and
Michelle Mitchell] failed to state any claim of fraud or forgery against [Troilo and Kolleda] in
18

occurred outside the limitations period, so it is recommended that plaintiffs' recovery based on
these allegations should be time barred.

The court analyzes inquiry notice using a two-step process in which the defendant first
bears the burden to show the existence of objective "storm warnings." Cetel, 460 F.3d at 507.
Storm warnings "include ... any financial, legal or other data that would alert a reasonable
person to the probability that misleading statements or significant omissions had been made."

Mathews, 260 F.3d at 252. In determining whether information constitutes a storm warning, a
plaintiff "need not be aware of the suspicious circumstances or understand their import. It is
enough that a reasonable investor of ordinary intelligence would have discovered the information
and recognized it as a storm warning. Thus, investors are presumed to have read ... information
relating to their investments." Id Next, the burden shifts to the plaintiff to show that the
plaintiff subjectively "exercised reasonable diligence but [was] unable to find and avoid the
storm." Cetel, 460 F.3d at 507.
The RAM Defendants contend that plaintiffs were on inquiry notice of their claims no .
later than March 2008, when Jordan executed the SDA listing the joint Merrill Lynch accounts
allegedly opened without Jordan's knowledge or consent, but conducted no diligence into the
origin of those accounts. (D.I. 64 at 12, 15) According to the RAM Defendants, an objectively
reasonable person in Jordan's position would have also noticed and investigated the omission of
three properties titled in Jordan's name from the SDA's Real Estate Holdings section. (Id at 14
n.12) The RAM Defendants allege that the second amended complaint does not claim that

their capacity as co-trustees by [the extended] deadline." In re Hawk Mountain Trust Dated
December 12, 2002, 2015 WL 5243328, at *2 (Del. Ch. Sept. 8, 2015).
19

Jordan failed to review the SDA, or that she was incapable of understanding its terms, and Jordan
was represented by counsel in her review and execution of the SDA. (Id at 13)
In response, plaintiffs argue that the diligence inquiry involves fitctual questions not
properly resolved on a motion to dismiss, and the statute of limitations should be tolled to allow
sufficient time to investigate and file an adequately-pleaded complaint after plaintiffs actually
learned of the existence of the Merrill Lynch accounts. (D.I. 73 at 16-17) Plaintiffs stress that
Jordan relied on defendants as her fiduciaries and entrusted the management of her financial
affairs to them, delaying her discovery of their alleged crimes. (Id at 18)
Jordan's review and execution of the SDA should have put plaintiffs on inquiry notice of
the alleged fraud in March 2008. See DeBenedictis v. Merrill Lynch & Co., 492 F.3d 209, 21819 (3d Cir. 2007) (concluding that news articles which were not company-specific, but referred
to the practice of mutual fund brokerages selling certain classes of stock at higher commissions,
were a sufficient storm warning that the representations made by Merrill in the registration
statements were not accurate); Hockenberry v. Diversified Ventures, Inc., 2005 WL 1458768, at
*2 (M.D. Pa. June 20, 2005) (holding that plaintiffs should have known of their injury "simply
b[y] looking at and signing" the HUD-1 form, which outlined the amounts to be paid, and to
whom). The SDA6 expressly lists all of Jordan and Mirra's jointly held assets, including the
joint Merrill Lynch accounts that were allegedly funded with Jordan's assets. (D.I. 47, Ex. 1 at

At the motion to dismiss stage, the court may consider the pleadings, public record, orders,
exhibits attached to the complaint, and documents incorporated into the complaint by reference.
Daoudv. City of Wilmington, 894 F. Supp. 2d 544, 550 (D. Del. 2012) (citing Tellabs, Inc. v.
Makor Issues & Rights, Ltd, 551 U.S. 308, 322 (2007); Oshiver v. Levin, Fishbein, Sedran &
Berman, 38 F.3d 1380, 1384-85 n.2 (3d Cir. 1994)). The SDA is attached to the second
amended complaint as an exhibit, and is incorporated into the second amended complaint by
reference. (D.I. 47, Ex. 1) Therefore, it is properly considered by the court at this stage of the
proceedings.
20
6

Schedule 2.1.1) The significance of the SDA cannot be discounted by plaintiffs, who admitted
that it "divided up the assets that Ms. Jordan and Ray Mirra had held jointly over the years of
their business and personal relationship." (12/11/14 Tr. at 58:18-21) The second amended
complaint states that the SDA contained "outright lies about the largest of Jordan's interests[,]
intentional omissions about small but clearly valuable companies, and extended across the entire
universe of Jordan/Mirra assets, including holdings and ownership companies, interests in trusts
and LLCs, real estate ownership, equitable holdings and liabilities." (D.I. 47 at~ 292) The
second amended complaint also confirms that Jordan was represented by separate counsel in the
negotiation and execution of the SDA. (Id

at~

294)

Notably absent from the second amended complaint is any allegation that Jordan was
prevented from accessing or reviewing the SDA or the account statements for the allegedly
fraudulent Merrill Lynch accounts. See Travis v. Vanguard Grp., Inc., 2008 WL 2073372, at *4
(E.D. Pa. May 15, 2008) (rejecting plaintiffs purported reliance on her husband's
representations, which contradicted her financial statements, as a valid reason to toll the statute
oflimitations). At oral argument, counsel argued that Jordan did not often know whether she
owned one property or another, or what her money was being used to purchase. (12111114 Tr. at
58:1-6) However, a lack of awareness of her financial affairs does not excuse Jordan's
obligation to undertake further inquiry after a review of the SDA. In view of the Third Circuit's
tenet that investors are presumed to have read materials related to their investments, it is
objectively unreasonable to presume that Jordan was not aware of these storm warnings when
she executed the SDA. See Mathews, 260 F.3d at 252. Consequently, defendants have satisfied
the objective prong of the inquiry.

21

Because the second amended complaint acknowledges the omission or improper
disclosure of various holdings in the SDA such that a reasonable investor would have been
alerted to potential wrongdoing, the burden to show subjectively reasonable diligence to discover
the injury shifts to plaintiffs. Mathews, 260 F.3d at 252 ("[I]f the defendants establish the
existence of storm warnings, the burden shifts to the plaintiffs to show that they exercised
reasonable due diligence and yet were unable to discover their injuries."). However, the second
amended complaint is devoid of facts demonstrating the exercise of reasonable diligence to
discover the fraud following the execution of the SDA in March 2008. See Norman v. Elkin,
C.A. No. 06-05-LPS, 2015 WL 4886049, at *3 (D. Del. Aug. 14, 2015) ("The Court is not
holding that a reasonable person knowing all of the foregoing would know he had a claim ...
only that such a person would know enough to put him on notice that he should undertake further
inquiry, in order to determine if a wrong had been committed against him. That is inquiry
notice."). Instead, the second amended complaint vaguely alleges that plaintiffs learned of
defendants' fraudulent activity "in 2010 and thereafter," 7 when the alleged forgeries were
uncovered, but well after the execution of the SDA. (D.I. 47

at~

9) In the absence of pleaded

allegations that plaintiffs investigated the existence and distribution of assets identified in the
SDA after reviewing and executing the agreement in March 2008, the court cannot conclude that
plaintiffs exercised reasonable diligence to discover the alleged fraud.
Plaintiffs' claim that the statute of limitations should not begin to run until plaintiffs have
had an opportunity to thoroughly investigate the storm warnings is without merit. Pursuant to
7

Courts within the Third Circuit have rejected attempts to vaguely define the limitations period
without providing a specific date in the pleadings. See Kuznyetsov v. W Penn Allegheny Health
Sys., Inc., 2010 WL 597475, at *2-4 (W.D. Pa. Feb. 16, 2010) (finding that the disputed language
"occurred on a number of occasions including in the winter of 2007-08 on three or four
occasions" does not state when plaintiffs first discovered their alleged injuries).
22

Third Circuit precedent, plaintiffs have four years from the date they objectively knew or should
have known they were injured to file their RICO claim. See Prudential Ins. Co. ofAm. v. U.S.

Gypsum Co., 359 F.3d 226, 233 (3d Cir. 2004); Forbes v. Eagleson, 228 F.3d 471, 484 (3d Cir.
2000). The alleged difficulty of discovering the fraud does not provide an exception to the rule:
[I]f plaintiffs fail to investigate, the ... statute of limitations will begin to run
from the time at which there objectively were storm warnings of the fraud.
Moreover, plaintiffs "cannot bolster their cause by arguing the difficulty of
discovering the alleged fraud ... excusing [plaintiffs'] lack of inquiry because, in
retrospect, reasonable diligence would not have uncovered their injury ... would,
in effect, discourage investigation. . . ."

Dalicandro v. Legalgard, Inc., 2004 WL 250546, at *5 (E.D. Pa. Jan. 21, 2004) (quoting
Mathews, 260 F.3d at 252 n.16).
Plaintiffs' reliance on the Third Circuit's decision in Merck for the proposition that
further investigation is required to sufficiently plead a cause of action under RICO is misplaced
because Merck addresses causes of action for securities fraud, as opposed to RICO claims. See

Jn re Merck & Co., Inc. Sec. Derivative & ERISA Litig., 543 F.3d 150 (3d Cir. 2008), aff'd,
Merck & Co. v. Reynolds, 559 U.S. 633 (2010). The Second Circuit has expressly rejected the
application of Merck in this context, and distinguished the manner in which the discovery rule is
applied to causes of action for securities fraud versus RICO claims. See Koch v. Christie's Int'!

PLC, 699 F.3d 141, 150 (2d Cir. 2012) ("In the securities fraud context, discovery of facts
constituting the violation, including scienter, is necessary for the claim to accrue because the
statute of limitations requires it . . . . But Merck's scienter discovery requirement does not apply
outside the realm of the statute that it interpreted .... [A] RICO claim accrues upon the
discovery of the injury alone."). Moreover, the Third Circuit relied on the Supreme Court's
decision in Rotella v. Wood in concluding that the general discovery accrual rule applies to a
23

RICO claim, whereby the "discovery of the injury, not discovery of the other elements of a
claim, is what starts the clock" because the RICO statute of limitations is "silent on the issue" of
accrual. Pension Trust Fund v. Mortg. Asset Securitization Transactions, Inc., 730 F.3d 263, 274
(3d Cir. 2013) (quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)). Accordingly, the four-year
statute of limitations for plaintiffs' RICO claims began to run as of the March 2008 execution of
the SDA, when the injury should have reasonably been discovered. Plaintiffs' failure to
adequately investigate the storm warnings in conjunction with the execution of the SDA
precludes a finding that the claims in the second amended complaint were timely brought.
3.

Equitable tolling doctrine

Under the equitable tolling doctrine, which applies when a defendant fraudulently
conceals a scheme to prevent the plaintiff from discovering the injury, the plaintiff bears the
burden to plead three elements in a conjunctive inquiry: "(1) that the defendant actively misled
the plaintiff; (2) which prevented the plaintiff from recognizing the validity of her claim within
the limitations period; and (3) where the plaintiffs ignorance is not attributable to her lack of
reasonable due diligence in attempting to uncover the relevant facts." Cetel, 460 F.3d at 509
(citing Mathews, 260 F.3d at 256). The equitable tolling doctrine may not be pleaded by
strategic omission, but rather "is satisfied only ifthe plaintiff shows that he neither knew nor, in

the exercise of due diligence, could reasonably have known of the offense." Klehr, 521 U.S. at
195 (internal quotation marks and citations omitted); see also Prudential Ins. Co. ofAm., 359
F.3d at 238. A plaintiffs allegations regarding the equitable tolling doctrine "must be
sufficiently specific to satisfy the requirements of Fed. R. Civ. P. 9(b)." Bethlehem Steel Corp.

v. Fischbach & Moore, Inc., 641 F. Supp. 271, 273 (E.D. Pa. 1986).

24

The RAM Defendants allege that plaintiffs' reliance on the doctrine of equitable tolling is
unavailing because the second amended complaint is silent regarding how the alleged fraud was
discovered and how plaintiffs diligently sought to reveal the alleged fraud. (D.I. 64 at 10-11)
According to the RAM Defendants, equitable tolling is inapplicable if the plaintiff is on inquiry
notice of the possible existence of the claim, and the RAM Defendants have already shown that
plaintiffs had inquiry notice in the present case. (D.I. 78 at 10) Moreover, the RAM Defendants
contend that their roles as alleged fiduciaries to plaintiffs has no bearing on the analysis under
federal common law, which requires that a defendant must actively mislead a plaintiff. (Id at
11)
In response, plaintiffs allege that the equitable tolling doctrine is not ripe for resolution
on a Rule 12(b)(6) motion to dismiss because it requires a fact-intensive inquiry. (D.I. 73 at 8-9)
With respect to the requirements set forth in Cetel, plaintiffs contend that silence or
nondisclosure is sufficient to constitute an affirmative act of concealment when the defendant
has a fiduciary relationship with the plaintiff, and plaintiffs had no notice of the possible claim
due to their reliance on defendants' affirmative acts of concealment. (Id at 9-13) Plaintiffs
contend that they exercised reasonable due diligence in view of the fact that Jordan had a
fiduciary relationship with defendants, and they reasonably discovered the fraud after obtaining
independent counsel in 2010. (Id at 14-15)
As a preliminary matter, a court may grant a Rule 12(b)(6) motion to dismiss based on a
statute of limitations defense such as equitable tolling if "the complaint facially shows
noncompliance with the limitations period and the affirmative defense clearly appears on the
face of the pleading." Oshiver, 38 F.3d at 1384 n. l. In accordance with the Third Circuit's
ruling in Oshiver, cases within the Third Circuit have granted motions to dismiss after rejecting
25

equitable tolling arguments. See Kuznyetsov, 2010 WL 597475, at *4-5 (concluding that pay
statements should have specifically put plaintiffs on notice that they were not being paid in full,
and vague references to an investigation fail to constitute reasonable diligence in pursuing the
underlying claims); Hockenberry, 2005 WL 1458768, at *2-3 (holding that plaintiffs' RICO
claims were time-barred at the motion to dismiss stage after concluding that plaintiffs were
aware, or should have been aware, of the facts supporting their claim); Dalicandro, 2004 WL
250546, at *5 ("[A]lthough these inquiries are fact intensive and hence courts are generally
reluctant to dismiss a complaint as untimely prior to discovery, such a dismissal may be
warranted where a plaintiff has pied 'facts that show that his suit is time-barred or otherwise
without merit."' (quoting Tregenza v. Great Am. Commc 'ns Co., 12 F .3d 717, 718 (7th Cir.
1993)).
The second amended complaint fails to satisfy any of the Ce tel requirements for the
doctrine of equitable tolling. It is undisputed that the second amended complaint does not allege
defendants actively misled plaintiffs in accordance with the first requirement of the Cetel
inquiry. (D.I. 64 at 10; D.I. 73 at 9-10) Contrary to plaintiffs' assertions, the federal common
law equitable tolling doctrine does not recognize an exception for a fiduciary relationship when
determining whether a defendant has actively misled a plaintiff. See White v. PNC Fin. Servs.

Grp.,- Inc., 2014 WL 4063344, at *3 (E.D. Pa. Aug. 18, 2014) (stating that active misleading
requires a showing that the defendant "engaged in affirmative acts of concealment designed to
mislead the plaintiff [] regarding facts supporting" his claim, and stressing that a "plaintiff must
show active misleading by the defendant." (quoting Forbes, 228 F.3d at 487)); Cetel, 460 F.3d at
509 (requiring a showing that "the defendant actively misled the plaintiff."); see also Calabrese

v. State Farm Mut. Auto. Ins. Co., 996 F.2d 1219 (7th Cir. 1993) (citing Hupp v. Gray, 500 F.2d
26

993, 997 (7th Cir. 1974)) (finding a conclusory assertion that a plaintiff relied on the
representations of a fiduciary is insufficient to invoke the equitable tolling doctrine). The cases
cited by plaintiffs are inapposite because they analyze the Delaware state common law equitable
tolling doctrine in the context of claims such as breach of fiduciary duty and unjust enrichment.
See In re Tyson Foods Consol. S'holder Litig., 919 A.2d 563 (Del. Ch. 2007) (state common law

equitable tolling doctrine applied to breach of fiduciary duty claim); In re Dean Witter P 'ship
Litig., 1998 WL 442456, at *6 (Del. Ch. July 17, 1998) (same); In re Fruehauf Trailer Corp.,

250 B.R. 168, 186 (D. Del. 2000) (same); Ausikaitis v. Kiani, 962 F. Supp. 2d 661, 674 (D. Del.
2013) (applying the Delaware state common law doctrine of equitable tolling to state law claims
for breach of fiduciary duty and unjust enrichment).
Plaintiffs fail to satisfy the second prong of the equitable tolling analysis because the
second amended complaint does not sufficiently explain how the fraud was discovered to allow
the court to determine whether the fraud was affirmatively concealed. The second amended
complaint describes plaintiffs' discovery of the alleged fraud in three paragraphs:
The Defendants' true intentions only became known in 2010 and thereafter, when
Plaintiffs learned of Defendants' .forgeries on multiple documents causing the
conversion of over $12,200,000.00, of those assets.

(D.I. 47

at~

9)

In this way, Plaintiffs did not discover and could not reasonably have discovered
either the existence of the Enterprise, their array of frauds or the damages and
injuries attributable to this pattern of unlawful activities until 2010 or thereafter.
(Id

at~

15)

[T]he following purported joint liabilities were based upon fraudulent and forged
documents that were not discovered until 2010 and thereafter ...

27

(Id at il 366) Each of these paragraphs provides no details regarding the identity of the specific
individual(s) who made the discovery, the circumstances of the discovery, or the specific date on
which the discovery occurred. See In re Magnesium Oxide Antitrust Litig., 2011 WL 5008090,
at *25 (D.N.J. Oct. 20, 2011) 8 (rejecting allegations of secrecy preventing discovery of the
conspiracy where plaintiffs failed to plead when and how they ultimately discovered the alleged
conspiracy).
Plaintiffs cite case law9 suggesting that there is no requirement to plead the specific date,
place, and time of the alleged fraud if an alternative means of"injecting precision and some
measure of substantiation into their allegations of fraud" exists. See Albright v. Viacom, 2009
WL 222784, at * 1-2 (W.D. Pa. Jan. 29, 2009); Barrett v. Viacom, 2009 WL 185979 (W.D. Pa.
Jan. 23, 2009). In these age discrimination cases, the defendant failed to provide demographic
data to people involved in a reduction of force, and failed to inform the employees that such
information was available to the employees. Id The cases are distinguishable from the facts
before this court because the second amended complaint alleges that the SDA was replete with
· evidence of defendants' fraud, and plaintiffs have had access to the SDA since at least March
2008. (D.I. 47 at il 291) ("The SDA reveals both the roadmap for the purpose and modus
operandi employed by the Defendants in the conversion of Plaintiffs' assets by the
Defendants.").
8

In re Magnesium Oxide Antitrust Litigation involved a fraudulent concealment claim, as
opposed to an equitable tolling defense. 2011 WL 5008090. Although the two doctrines are
distinct, see Kuznyetsov, 2010 WL 597475, at *4, the required elements are nearly identical, as a
claim for fraudulent concealment requires a showing of "(1) an affirmative act of concealment;
(2) which misleads or relaxes the plaintiffs inquiry, who (3) exercised due diligence in
investigating his cause of action," In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F .2d
1144, 1178-79 (3d Cir. 1993) (citation omitted).
9
Plaintiffs mischaracterize these unpublished decisions from the Western District of
Pennsylvania as "well-established Third Circuit precedent." (D.I. 73 at 11)
28

Regarding the third element of the Ce tel test, the court previously concluded that
plaintiffs were on inquiry notice of a possible claim, but failed to investigate it. See § IV .A.2,
supra. "[A] finding that plaintiffs did not exercise reasonable diligence for the determination of

when the claim accrues will also likely foreclose the possibility of equitable tolling." Cetel, 460
F.3d at 509 (citing Mathews, 260 F.3d at 157 (applying same rationale in the context of a
fraudu1ent concealment defense)). Consequently, plaintiffs have failed to meet-their burden to
show that the statute of limitations was tolled. The record establishes that plaintiffs filed the
complaint more than four years after being on inquiry notice of actionable RICO claims, and the
doctrine of equitable tolling does not apply for the foregoing reasons. Therefore, I recommend
that the court grant defendants' motions to dismiss. 10

B.

Sufficiency of the RICO Claim

Having determined that the pending action was not filed within the applicable statute of
limitations, the court next conducts an alternative evaluation regarding the sufficiency of
plaintiffs' claims pursuant to Rule 12(b)(6). I recommend that the court alternatively grant the
pending motions to dismiss for failure to state a claim upon which relief can be granted under
Ru1e 12(b)(6).
1.

Elements of a RICO claim

To adequately plead a civil RICO cause of action pursuant to 18 U.S.C. § 1962(c), a
plaintiff must establish "(l) the existence of a RICO enterprise; (2) the existence of a pattern of
racketeering activity; (3) a nexus between the defendant, the pattern of racketeering activity or
the RICO enterprise; and (4) resulting injury to plaintiff, in his business or property." Murphy v.
10

Defendants Eizen and Walsh incorporated by reference the statute of limitations arguments
presented by the RAM Defendants in support of their Rule 12(b)(6) motions. (D.I. 65 at 1; D.I.
68 at 7-9)
29

Bancroft Constr. Co., C.A. No. 02-453-SLR, 2002 WL 31641641, at *3 (D. Del. Nov. 15, 2002)
(citing Klapper v. Commonwealth Realty Trust, 657 F. Supp. 948, 953 (D. Del. 1987)).

a.

"Enterprise"

Under the RICO statute, an "enterprise" is defined as "any individual, partnership,
corporation, association, or other legal entity, and any union or group of individuals associated in
fact although not a legal entity." 18 U.S.C. § 1961(4). An association-in-fact enterprise is "a
continuing unit that functions with a common purpose." Va/com, Inc. v. Vellardita, 2014 WL
1628431, at *5 (D.N.J. Apr. 23, 2014) (quoting Boyle v. United States, 556 U.S. 938, 948
(2009)). This type of enterprise "requires three things: structure, continuity, and distinctness."
Id. Although the three requirements are not necessary at the pleading stage, a plaintiff must

plausibly plead the existence of an enterprise structure to survive a motion to dismiss. Id.
(internal citations and quotation marks omitted). The Supreme Court has stated that the
definition of a RICO enterprise set forth in 18 U.S.C. § 1961(4) "has a wide reach, and the very
concept of an association in fact is expansive." Boyle, 556 U.S. at 944 (internal citations
omitted).
By way of their motion, the RAM Defendants challenge the sufficiency of the structure
and distinctness requirements of an association-in-fact. (D.I. 64 at 23-24) Turning first to the
sufficiency of the allegations pertaining to the Enterprise's structure in the second amended
complaint, the court notes that an enterprise must have three structural features: (1) a common
purpose, (2) relationships among those associated with the enterprise, and (3) sufficient longevity
to pursue the enterprise's common purpose. Boyle v. United States, 556 U.S. 938, 946 (2009).
The RAM Defendants do not challenge the existence of relationships among those associated

30

with the Enterprise, but instead challenge a lack of specificity regarding the timing of the
Enterprise's formation and the decision-making hierarchy of the Enterprise.
Plaintiffs have

suf~ciently

pleaded the required structm:al elements of an association-in-

fact enterprise. The second amended complaint alleges that the Enterprise was formed in 1997
and continued through the date of the filing of the second amended complaint for a period of
more than fifteen years. (D.I. 47 at ifif 1, 397) The duration of the Enterprise, as pleaded in the
second amended complaint, satisfies the longevity requirement at this stage of the proceedings.
Plaintiffs also sufficiently pleaded the hierarchical decision-making structure in the
second amended complaint, identifying Mirra as the primary decision-maker, followed by Troilo,
Molieri, Kolleda, Eizen, Kovinsky, and Tropiano, followed by other Enterprise members. (Id at

ifif 4-5, 20-36, 393)

The Third Circuit has stated that, "[a]fter Boyle, an association-in-fact

enterprise need have no formal hierarchy or means for decision-making, and no purpose or
economic significance beyond or independent of the group's pattern of racketeering activity." In

re Ins. Brokerage, 618 F.3d 300, 368 (3d Cir. 2010) (quoting United States v. Hutchinson, 573
F.3d 1011, 1021) (10th Cir. 2009) (internal quotation marks omitted)). The Third Circuit has
made clear that, "[t]o the extent our cases have interpolated additional requirements into the
statute, they are abrogated by Boyle." Id Plaintiffs' second amended complaint therefore
sufficiently alleges an association-in-fact enterprise with respect to structural requirements.
Next, the RAM Defendants contend that the second amended complaint fails to
distinguish between the pattern of racketeering activity and the purpose of the Enterprise's
existence. (D.I. 64 at 24-25) Specifically, the RAM Defendants point to paragraph 398 of the
second amended complaint, which states that "[t]he Enterprise's business is racketeering activity,
inasmuch as the enterprise [sic] exists for the purpose of stealing Plaintiffs' assets through
31

predicate acts of mail fraud, wire fraud, and financial institution fraud." (D.I. 47 at if 398)
However, the second amended complaint also alleges that "[t]he Enterprise is distinct from and
has an existence beyond the pattern of racketeering that is described herein." (Id. at if 395) The
Supreme Court has held that "proof of a pattern of racketeering activity may be sufficient in a
particular case to permit a jury to infer the existence of an association-in-fact enterprise,"
observing that "evidence used to prove the pattern of racketeering activity and the evidence
establishing an enterprise 'may in particular cases coalesce.'" Boyle, 556 U.S. at 94 7, 951
(quoting Turkette, 452 U.S. at 583). In view of the foregoing, the court concludes that the
second amended complaint sufficiently pleads the existence of the Enterprise.

b.

Pattern of predicate acts

"A pattern of racketeering activity requires at least two predicate acts of racketeering."
Lum v. Bank ofAm., 361 F.3d 217, 223 (3d Cir. 2004), abrogated in part on other grounds by
Bell At!. Corp. v. Twombly, 550 U.S. 544, 557 (2007); 18 U.S.C. § 1961(1), (5). The RAM

Defendants challenge the sufficiency of the predicate acts identified in the second amended
complaint and assert that plaintiffs failed to plead a pattern of racketeering activity based on
those predicate acts.
(i)

Use of interstate wires

In support of their motion to dismiss, the RAM Defendants contend that the predicate
acts in the second amended complaint lack adequate factual support because they do not allege
the use of interstate wires as required under the RICO statute. (D.I. 64 at 16) In response,
plaintiffs cite paragraph 3 97 of the second amended complaint, which alleges "repeated
violations of the federal wire fraud statute, 18 U.S.C. § 1343, by causing the interstate wires to
be used hundreds of times on a continuous basis for over 15 years to execute their fraudulent
32

scheme." (D.I. 47 at if 397) Plaintiffs do not identify any other specific mention of interstate
wire transfers contained in the second amended complaint.
The Third Circuit's requirement that RICO complaints based on allegations of wire fraud
must allege interstate use of the wire for each and every predicate act is not met in the second
amended complaint. The wire fraud statute criminalizes schemes to defraud transmitted by wire
"in interstate or foreign commerce." 18 U.S.C. § 1343. The Third Circuit has held that, in light
of the foregoing, a RICO_complaint based on allegations of wire fraud "must allege interstate use
of the wire for each predicate act." Stanley v. Int'! Bhd. ofElec. Workers, AFL-CIO CLC, 207 F.
App'x 185, 189 (3d Cir. 2006) (emphasis in original) (citing Smith v. Ayers, 845 F.2d 1360, 1366
(5th Cir. 1988)).
Section 1962(c) provides that it is "unlawful for any person employed by or associated
with any enterprise ... to conduct or participate, directly or indirectly, in the conduct of such
enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." 18
U.S.C. § 1962(c). Racketeering activity includes mail or wire fraud pursuant to 18 U.S.C. §
1961(1), and pleading a "pattern" of racketeering activity requires at least two such acts, 18
U.S.C. § 1961(5). Federal Rule of Civil Procedure 9(b) requires that fraud, including.mail and
wire fraud, be pleaded with specificity. Grant v. Turner, 505 F. App'x 107, 111 (3d Cir. 2012);

Lum, 361 F.3d at 223. Accordingly, plaintiffs must plead the circumstances of the alleged fraud
with sufficient detail to place the defendants on notice of the precise misconduct. Id.
Paragraph 397 of the second amended complaint generally refers to "repeated violations
of the federal wire fraud statute, 18 U.S.C. § 1343, by causing interstate wires to be used
hundreds of times on a continuous basis for over 15 years to execute their fraudulent scheme,"
but this one reference to interstate wire transfers is insufficient to meet the Rule 9(b) standard
33

pursuant to the Third Circuit's decision in Stanley. 207 F. App'x at 189. The allegations more
specifically identifying fraudulent wire transfers do not allege interstate use of the wires. (D .I.
47 at ,-r,-r 91, 98, 163) The Third Circuit has cautioned against "a strange state of affairs in which
a complaint could withstand a motion to dismiss simply through a plaintiff's formulaic recitation
of the statutory RICO elements." In re Schering-Plough Corp. lntron/Temodar Consumer Class

Action, 2009 WL 2043604, at *11 (D.N.J. July 10, 2009). Inserting the word "interstate" into
one paragraph of a complaint alleging a multitude of separate fraudulent transfers is insufficient
to meet the requisite legal standard, particularly where, as here, the second amended complaint
does not identify any of the states involved in any of the transfers.

(ii)

Group pleading

Next, the RAM Defendants contend that the allegations in the second amended complaint
constitute group pleading insufficient to meet the Rule 9(b) standard. (D.I. 64 at 18-20)
Plaintiffs do not contest the RAM Defendants' group pleading characterization, but instead
allege that group pleading is accepted when the defendants act to facilitate a general scheme,
especially when more detailed information is exclusively within the defendants' control. (D.I. 73
at 22-26)
The second amended complaint in the present action constitutes improper group pleading
pursuant to Rule 9(b) because it is unclear which defendants are precisely charged with the
forgeries and who transmitted the forged documents in each instance. See Grant v. Shapiro &

Burson, LLP, 871 F. Supp. 2d 462, 474-75 (D. Md. 2012) (holding that the complaint failed to
adequately allege a pattern of racketeering activity in part because it did not reveal the identity of
the party who forged the signatures). Plaintiffs' reliance on the Third Circuit's decision in Grant

v. Turner is inapposite because the Third Circuit based its decision on the fact that the defendants
34

were on notice of the precise misconduct charged against them. 505 F. App'x 107, 112 (3d Cir.
2012). In contrast, the allegations in the present case grouped together seven defendants accused
of forging and transmitting Jordan's signature, without distinguishing the separate roles of each
defendant. (D.I. 47

at~~

91, 98, 163) Although the second amended complaint identifies the

dates of the forgeries, details regarding the use of the mails and wires are lacking for the reasons
previously discussed in connection with the interstate wire transfers. Other details included in
the second amended· complaint, such as the amounts of the allegedly fraudulent transfers, the
account numbers from which the transfers were made, and the recipients of the transfers, are
insufficient to inject precision into the fraud allegations because they do not specifically identify
who committed the alleged fraud.
Unlike the circumstances in Grant v. Turner, plaintiffs do not allege that Mirra, Troilo,
Molieri, Kolleda, Kovinsky, Tropiano, and Walsh deliberately concealed their identities. Even
in light of these factual differences, the Third Circuit in Grant v. Turner stressed "the closeness
of this question." Turner, 505 F. App'x at 112. For these reasons, plaintiffs' group pleading
allegations are deficient.

(iii)

Standing to bring bank fraud claims

The RAM Defendants allege that only defrauded banks have standing to sue for bank
fraud under RICO. (D.I. 64 at 16 n.15) In response, plaintiffs indicate that the definition of
racketeering activity includes bank fraud under 18 U.S.C. § 1962, which provides a remedy for
"any person." (D.I. 73 at 28-31)
The RAM Defendants are correct that only financial institutions may claim bank fraud
under 18 U.S.C. § 1344 as a predicate act for purposes of a RICO claim. See Yesko v. Fell, 2014
WL 4406849, at *11 (D. Md. Sept. 5, 2014) (citing a series of cases from jurisdictions
35

throughout the United States supporting this proposition); see also Nelson v. Nelson, 2015 WL
4136339, at *7 (D. Minn. July 8, 2015). Plaintiffs' repeated references to the Supreme Court's
decision in Bridge v. Phoenix Bond & lndem. Co., 553 U.S. 639 (2008) are inapposite because
the Supreme Court did not address the issue of whether non-banks can assert bank fraud as a
RICO predicate. Instead, the Supreme Court confirmed that plaintiffs must plead that their
injuries were the dire.ct result of the defendant's predicate act. Bridge, 553 U.S. at 658. The
banks, as the direct victims of the alleged fraud, are in a better position to bring those claims.

(iv)

Pattern of racketeering activity

The RAM Defendants allege that the second amended complaint fails to allege any
predicate acts and, therefore, no pattern of racketeering activity can be established. (D.I. 64 at
22) Even if the court concludes that plaintiffs properly alleged two or more predicate acts with
sufficient particularity, the RAM Defendants argue that plaintiffs have failed to establish a
pattern because the predicate acts were directed to a single person, and plaintiffs do not allege a
threat of continued criminal activity. (Id) In response, plaintiffs contend that the second
amended complaint names four plaintiffs and identifies particularized injuries with respect to
each one. (D.I. 73 at 32) According to plaintiffs, the allegations in the second amended
complaint sufficiently describe closed-ended continuity consisting of a series of related predicate
acts extending over a substantial period of time. (Id)
Because the court has concluded that plaintiffs failed to sufficiently plead predicate acts,
plaintiffs cannot establish a pattern of racketeering activity consisting of at least two predicate
acts. For these reasons, I recommend that the RAM Defendants' motion to dismiss be granted
with respect to plaintiffs' RICO claim.

c.

Nexus
36

The RAM Defendants next allege that plaintiffs failed to establish the requisite nexus
between certain members of the Enterprise and the alleged pattern of racketeering activity to
state a viable RICO claim. (D.I. 64 at 25-27) Specifically, the RAM Defendants note that RAM
Capital and RAM Realty are described only as holding companies who passively received
certain wire transfers in the second amended complaint, and no distinct role was alleged for
Molieri, Kovinsky, or Tropiano in the second amended complaint. (Id.) The RAM Defendants
did not challenge the sufficiency of the nexus requirement as it pertains to Mirra, Troilo, and
Kolleda, aside from reiterating the deficiencies in the second amended complaint regarding the
requirement of establishing a pattern of racketeering activity.
In response, plaintiffs contend that the second amended complaint contains facts
demonstrating that RAM Capital and RAM Realty knowingly received plaintiffs' money
pursuant to multiple forgeries. (D.I. 73 at 44-45) Moreover, plaintiffs allege that the second
amended complaint pleads that Molieri, Kovinsky, and Tropiano controlled RAM Capital and
RAM Realty under Mirra' s direction, supervised other members of the Enterprise, and forged
Jordan's signature. (D.L 73 at 45-46)
A RICO defendant must "conduct or participate, directly or indirectly, in the conduct of
such enterprise's affairs through a pattern ofracketeering activity." 18 U.S.C. § 1962(c).
Consequently, "the nexus element requires a plaintiff to show that the defendant participated in
the conduct of the enterprise's affairs ... through - that is, by means of, by consequence of, by
reason of, by the agency of, or by the instrumentality of- a pattern of racketeering activity." In
re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 372 (3d Cir. 2010) (internal citations and
quotation marks omitted); see also Reves v. Ernst & Young, 507 U.S. 170, 179 (1993).

37

Plaintiffs' claims against RAM Capital and RAM Realty 11 fail under the nexus factor
because the Third Circuit has held that a corporate enterprise is not liable under § 1962(c) for
allegations involving a defenda,nt officer conducting a pattern of racketeering activity through the
corporate enterprise. See Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., Inc., 46 F.3d 258, 268
(3d Cir. 1995). The allegations in paragraphs 21to27 of the second amended complaint identify
that each of the individual defendants "controlled RAM Capital, RAM Realty, and other
members of the Enterprise," and do not allege that the corporate entities themselves directed the
affairs of the Enterprise. (D.I. 47 at ifif 21-27) Paragraphs 91, 98, and 163 identify RAM Capital
as the recipient of various transfers, but nothing in the second amended complaint supports
plaintiffs' contention that RAM Capital "knowingly" received millions of dollars of plaintiffs'
money as a result of the forgeries. (Id at ifif 91, 98, 163; D.I. 73 at 44) Likewise, paragraphs
285, 348, and 352 allege that RAM Realty received certain property, and certain property was
titled in the name of RAM Realty as a result of the forgeries of Mirra, Troilo, Kolleda, and
Tropiano, but these allegations fall short of demonstrating that RAM Realty "knowingly engaged
in these acts." (D.I. 47 at ifif 285, 348, 352; D.I. 73 at 45)
With respect to defendants Molieri, Kovinsky, and Tropiano, the allegations in the
second amended complaint fail to establish a nexus because their connection to the Enterprise
appears only in generic descriptions of their employment, without identifying a distinct role in
the operation or management of the Enterprise. The second amended complaint generically
states that Molieri, Kovinsky, and Tropiano "engaged in [activities] on behalf of the Enterprise,"

11

The RAM Defendants note that an entity listed in the case caption and paragraph 3 of the
second amended complaint, RAM Capital II, is not mentioned elsewhere in the complaint.
Plaintiffs do not challenge this assertion. Consequently, RAM Capital II should be dismissed
from this action pursuant to Rule 12(b)(6).
38

and were directed by Mirra. (D .I. 4 7 at if 21) Paragraph 24 identifies Molieri as an attorney who
"participated in the operation and management of the Enterprise," supervised other members of
the Enterprise, and forged Jordan's signature or caused it to be forged. (Id at if 24) Paragraphs
26 and 27 identify Kovinsky and Tropiano's roles in the Enterprise in a similarly vague and
generic manner. (Id at ifif 26-27) To the extent that Molieri, Kovinsky, and Tropiano are
mentioned in connection with a predicate act, such as the forgeries, the court previously rejected
the sufficiency of such allegations based on improper group pleading. For these reasons, the
second amended complaint fails to identify a sufficient nexus with respect to RAM Capital,
RAM Realty, Molieri, Kovinsky, and Tropiano, and I recommend that the court grant the motion
to dismiss with respect to these defendants.

3.

Conspiracy racketeering claim

As a preliminary matter, a claim for conspiracy racketeering pursuant to § 1962(d) must
fail if the substantive RICO claim is deficient. See Kolar v. Preferred Real Estate lnvs., Inc.,
361 F. App'x 354, 366 (3d Cir. 2010). Plaintiffs' conspiracy claim must fail for this reason.
However, even if plaintiffs' RICO claim were to survive, I recommend that the court grant the
motion to dismiss as it pertains to the conspiracy racketeering claim for the following reasons.
To state a claim for conspiracy racketeering, plaintiffs must allege their "( 1) agreement to
commit the predicate acts of fraud, and (2) knowledge that those acts were part of a pattern of
racketeering activity conducted in such a way as to violate § 1962(a), (b ), or (c). " Odess er v.
Continental Bank, 676 F. Supp. 1305, 1312 (E.D. Pa. 1987). A plaintiff is not required to plead
that a defendant himself agreed to commit predicate acts, but only to allege facts indicating that
he knew of, and agreed to, the general criminal objective of a scheme. Salinas v. United States,
522 U.S. 52, 63-64 (1997); see also In re Ins. Brokerage, 618 F.3d at 372-73.
39

The RAM Defendants allege that the second amended complaint's assertion that Stewart,
Sigloch, Forte, Hall, Demora, and Kuo "knowingly carried out ... acts in furtherance of the
conspiracy to aid the Enterprise" falls short of showing an agreement to commit the predicate
acts. (D.I. 64 at 28) According to the RAM Defendants, nothing in the second amended
complaint suggests that these junior administrative personnel and notaries knowingly agreed to
participate in the fraud; in fact, the second amended complaint alleges that other RAM
Defendants caused the forgeries to be falsely witnessed by their employees. (Id at 28-29)
Moreover, the second amended complaint fails to allege that Forte, Kuo, and Demora even
participated in two or more acts, as each is only alleged to have witnessed a single forgery. (Id
at 29) With respect to Sigloch, the RAM Defendants allege that although he witnessed the
execution of four HM Trust documents, the Court of Chancery ruled that those documents were
not fraudulent. (Id)
In response, plaintiffs allege that a plaintiff is not required to plead that a defendant
agreed to commit predicate acts, but only that he knew of and agreed to the general criminal
objective of a scheme. (D.I. 73 at 50) According to plaintiffs, the second amended complaint
sufficiently alleges that Stewart, Sigloch, Forte, Hall, Demora, and Kuo falsely notorized and
witnessed many of the forged documents without Jordan's presence. (Id)
I recommend that plaintiffs' conspiracy racketeering claim be dismissed in the event that
the RICO claim survives because the second amended complaint contains no allegation that
Stewart, Sigloch, Forte, Hall, Demora, and Kuo knew of and agreed to the overarching scheme to
defraud plaintiffs of over $200 million. Moreover, the second amended complaint identifies
participation of Forte, Kuo, and Demora in only one forgery, which falls short of participation in
two or more acts as required under the statute.
40

4.

Supplemental jurisdiction

The RAM Defendants further allege that plaintiffs' third state law cause of action for
non-payment of the 2005 promissory note should be dismissed in the event that the first and
second federal causes of action are dismissed. (D.I. 64 at 29) Plaintiffs respond that the court
should retain jurisdiction over the third cause of action because the first two causes of action are
not subject to dismissal. (D.I. 73 at 54-55) The "district court may decline to exercise
supplemental jurisdiction over a claim if 'the district court has dismissed all claims over which it
has original jurisdiction."' Elkadrawy v. Vanguard Grp., Inc., 584 F.3d 169, 174 (3d Cir. 2009)
(quoting 28 U.S.C. § 1367(c)(3)). "If it appears that the federal claim is subject to dismissal
under Fed. R. Civ. P. 12(b)(6) ... then the court should ordinarily refrain from exercising
jurisdiction in the absence of extraordinary circumstances." Cito v. Bridgewater Twp. Police
Dep't, 892 F.2d 23, 25-26 (3d Cir. 1989) (quoting Tully v. Mott Supermarkets, Inc., 540 F.2d
187, 196 (3d Cir. 1976)). In light of the foregoing recommendation to dismiss the first and
second causes of action, I recommend that the court decline to exercise supplemental jurisdiction
over the third cause of action. See Grubbs v. Univ. ofDel. Police Dep 't,

-~-

F. Supp. 3d ----,

C.A. No. 15-195-SLR, 2016 WL 1238923, at *11 (D. Del. Mar. 29, 2016) (declining to exercise
supplemental jurisdiction over remaining state law claims after dismissing federal claims against
defendants).

B.

Motion to Dismiss filed by Bernard Eizen
1.

Enterprise

In support of his motion to dismiss, Eizen contends that he did not conduct or participate
in the affairs of the alleged Enterprise as a leader or manager. (D.I. 65 at 2-3) Eizen alleges that
his performance of legal services for the purported Enterprise does not amount to operating or
41

managing the Enterprise. (Id. at 4-5) In response, plaintiffs contend that RICO liability extends
to any participant who is under the direction of upper management if the participant furthers the
illegal aims of the enterprise by carrying out the directives of those in control. (D .I. 73 at 46)
According to plaintiffs, the second amended complaint alleges facts indicating that Eizen and
Walsh carried out the directives of those in control and managed the day-to-day operations of the
Enterprise with actual knowledge of the underlying scheme. (Id.)
A specific type of participation, meaning "to lead, run, manage, or direct," is required to
constitute participation in a RICO enterprise. Reves v. Ernst & Young, 507 U.S. 170, 177-78
(1993). The second amended complaint does not contain allegations that Eizen directed the
Enterprise, but rather alleges that he carried out the directions of those in control. There are no
specific allegations in the second amended complaint supporting plaintiffs' claim that Eizen had
actual knowledge of the scheme or managed the day-to-day operations of the Enterprise.
Conclusory allegations that Eizen "supervised the day-to-day operations of the Enterprise,"
without additional factual support, constitute formulaic recitations of the elements that are
insufficient to meet the Twombly pleading standard. (D.I. 47

at~

393)

Providing professional services alone is not sufficient to constitute participation in the
Enterprise, even ifEizen knew of the Enterprise's illicit nature, unless Eizen is also alleged to
have directed the Enterprise. See Univ. ofMd. at Baltimore v. Peat, Marwick, Main & Co., 996
F.2d 1534, 1538-39 (3d Cir. 1993) ("Simply because one provides goods or services that
ultimately benefit the enterprise does not mean that one becomes liable under RICO as a
result."); Goren v. New Vision Int'!, Inc., 156 F.3d 721, 728 (7th Cir. 1998) ("[S]imply
performing services for an enterprise, even with knowledge of the enterprise's illicit nature, is
not enough to subject an individual to RICO liability under § 1962(c); instead, the individual
42

must have participated in the operation and management of the enterprise itself."). The case law
cited by plaintiffs in support of RICO liability for professionals confirms that such professionals
may only be liable under RICO iftheir tasks "entail the 'operation or management' of an
enterprise." Marshall v. Fenstermacher, 2007 WL 2892938, at *9 (E.D. Pa. Oct. 2, 2007). In
the absence of pleaded allegations that Eizen directed the affairs of the Enterprise, Eizen' s
provision of professional services is insufficient to establish his participation in the Enterprise for
purposes of stating a RICO claim.

2.

Pattern of racketeering activity

Next, Eizen alleges that plaintiffs have failed to plead at least two predicate acts
committed by Eizen, and the second amended complaint does not allege that the racketeering
acts are related or pose a threat of continued criminal activity. (D.I. 65 at 7) According to Eizen,
his communications with Walsh and legal counsel for Jordan do not establish a pattern of
racketeering activity because the communications were not deceptive, they do not satisfy the
"continuity" requirement, and plaintiffs did not sustain an injury as a result of reliance on the
letters. (Id at 8-12) In response, plaintiffs allege that Eizen's participation in the forgeries, and
use of the mails and wires to transmit forgeries, are temporally sufficient to allege closed-end
scrutiny during the period between 2003 and 2007. (D.I. 73 at 35) Plaintiffs contend that the
letters Eizen sent between April and October 2010 contained misrepresentations and were
intended to further Defendants' fraudulent scheme. (Id at 35-36)
For the reasons previously stated, the group pleading allegations in the second amended
complaint are insufficient to establish Eizen's involvement in two or more predicate acts. To the
extent that the second amended complaint alleges that Eizen sent a series of letters between April
and October 2010 that constitute a pattern of racketeering activity, the allegations fail to state a
43

claim because the time period is too short to establish continuity. See Hughes v. Consol-Pa.
Coal Co., 945 F.2d 594, 610-11 (3d Cir. 1991) (fraudulent conduct lasting twelve months was

insufficient to form a pattern of racketeering activity); Kehr Packages, Inc. v. Fidelcor, Inc., 926
F.2d 1406, 1418 (3d Cir. 1991) (fraudulent conduct lasting eight months was insufficient to form
a pattern of racketeering activity). Moreover, plaintiffs have failed to plead that they relied on
Eizen' s letters or suffered an injury resulting from Eizen' s letters, independent of the underlying
RICO scheme. Therefore, plaintiffs have failed to sufficiently plead a pattern of racketeering
activity against Eizen in support of their RICO claim. I recommend dismissal of the RICO claim
as it pertains to Eizen.
C.

Motion to Dismiss filed by Patrick Walsh
1.

Statute of limitations

Walsh joins in the arguments presented by the RAM Defendants in support of their
motion to dismiss regarding plaintiffs' failure to pursue their RICO claims within the four-year
statute of limitations period. (D.I. 68 at 6) In addition, Walsh alleges that the claims against him
are untimely because every allegation in the second amended complaint concerning Walsh
occurred between February 2003 and April 2007. (Id. at 7) Walsh further contends that
plaintiffs' allegations are not specific enough to meet the strict pleading requirements for tolling
the statute of limitations. (Id at.7-8)
For the reasons set forth above in connection with the RAM Defendants' motion to
dismiss based on the statute of limitations, I recommend that the court dismiss the claims alleged
against Walsh in the second amended complaint.

44

2.

Sufficiency of RICO claims

Walsh echoes the allegations set forth by the RAM Defendants regarding the deficiencies
in plaintiffs' RICO claims. (D.I. 68 at 9) In addition, Walsh indicates that the second amended
complaint fails to establish a nexus between Walsh and the alleged predicate acts because he
served as a neutral provider of brokerage services to Jordan and played no role in directing the
alleged Enterprise's affairs. (Id at 9-10) Walsh contends that second amended complaint
contains allegations illustrating that Walsh was actually at odds with the Enterprise and was
fraudulently misled by the other defendants, and there are no allegations suggesting that Walsh
benefited from the Enterprise. (Id at 11-12) In response, plaintiffs cite to portions of the second
amended complaint alleging that Walsh knowingly forged Jordan's signature and authorized the
creation of fraudulent accounts necessary to the scheme. (D.I. 73 at 47)
For the reasons previously stated, the group pleading allegations in the second amended
complaint are insufficient to establish Walsh's involvement in the RICO scheme. Moreover, the
second amended complaint contains numerous assertions that the RAM Defendants and Eizen
committed forgeries and established Merrill Lynch accounts without expressly naming Walsh,
but rather stating that Merrill Lynch relied upon the documents presented by the RAM
Defendants as genuine. (D.I. 47

at~~

134, 138, 141, 144, 147, 152-53, 184-85, 187) This

pattern refutes plaintiffs' characterization of Walsh in the briefing as a participant in the
underlying scheme, and certain allegations in the second amended complaint suggest that Walsh
was also misled by the misrepresentations. Consequently, I recommend that the court grant
Walsh's motion to dismiss the RICO claim.

45

3.

Arbitration

In the alternative, Walsh alleges that the claims against him should be arbitrated pursuant
to the terms of the Merrill Lynch Client Relationship Agreement. (D.I. 68 at 14) Walsh
contends that he has standing to enforce the agreement as an employee of Merrill Lynch, and the
scope of the agreement is broad enough to encompass this issue. (Id at 14-15) In response,
plaintiffs allege that the claims are not arbitrable because Walsh was a non-signatory to the
arbitration agreement who acted outside the scope of his employment with Merrill Lynch by
conspiring with his co-defendants to commit forgery and fraud. (D.I. 73 at 51)
Walsh's argument for enforcement of the arbitration clause is moot by virtue of the
court's previous recommendations for dismissal of the action. In the event that this Report and
Recommendation is overruled, Walsh may renew his claim for arbitration under the Merrill
Lynch Client Relationship Agreement.

C.

Motion for Sanctions
1.

Legal standard

Rule 11 of the Federal Rules of Civil Procedure provides that:
By presenting to the court a pleading, written motion, or other paper ... an
attorney ... certifies that to the best of the person's knowledge, information, and
belief, formed ·after an inquiry reasonable under the circumstances: (1) it is not
being presented for any improper purpose, such as to harass, cause unnecessary
delay, or needlessly increase the cost of litigation; (2) the claims, defenses, and
other legal contentions are warranted by existing law ... ; (3) the factual
contentions have evidentiary support or, if specifically so identified, will likely
have evidentiary support after a reasonable opportunity for further investigation or
discovery; and (4) the denials of factual contentions are warranted on the evidence
or, if specifically so identified, are reasonably based on belief or lack of
information.
Fed. R. Civ. P. 1 l(b). "Once a litigant moves based upon non-frivolous allegations for a Rule 11
sanction, the burden of proof shifts to the non-movant to show it made a reasonable pre-suit
46

inquiry into its claim." Digeo, Inc. v. Audible, Inc., 505 F.3d 1362, 1368 (Fed. Cir. 2007) (citing

View Eng'g, Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981, 986 (Fed. Cir. 2000)). A party who
fails to "make a reasonable inquiry into the factual and legal legitimacy of the pleading ... shall
- be sanctioned." Simmerman v. Corino, 27 F.3d 58, 62 (3d Cir. 1994); see also Thomas v. Shaw,
--- F. App'x ----, 2015 WL 7752836, at *4 (3d Cir. 2015) ("[T]he meaning of the Rule is plain: A
party who signs a pleading or other paper without first conducting a reasonable inquiry may be
sanctioned."). The Third Circuit has explained that the goal of Rule 11 is to "impose[] on
counsel a duty to look before leaping and may be seen as a litigation version of the familiar
railroad crossing admonition to 'stop, look, and listen.'" Mary Ann Pensiero, Inc. v. Lingle, 847
F.2d 90, 94 (3d Cir. 1988) (quoting Lieb v. Topstone Indus., Inc., 788 F.2d 151, 157 (3d Cir.
1986)). The Rule 11 inquiry is an objective test ofreasonableness to discourage pleadings
having no factual basis, even in the absence of subjective bad faith by the filer. Thomas, 2015
WL 7752836, at *4; Fellheimer, Eichen & Braverman, P.C. v. Charter Techs., Inc., 57 F.3d
1215, 1225 (3d Cir. 1995); see also Lony v. E.I du Pont de Nemours & Co., 935 F.2d 604, 616
(3d Cir. 1991). The Supreme Court has explained that, "to determine whether an attorney's
prefiling inquiry was reasonable, a court must consider all the circumstances of a case." Cooter
& Gell v. Hartmarx Corp., 496 U.S. 384, 401 (1990), superseded by statute on other grounds.

As a preliminary matter, the parties disagree as to the applicable legal standard.
Specifically, plaintiffs allege that Rule 11 sanctions may only be imposed under "exceptional
circumstances," when a "claim or motion is patently unmeritorious or frivolous." (D.I. 270 at
11) The RAM Defendants contend that Rule 11 sanctions may be imposed upon a showing of
objectively unreasonable conduct, and the cases cited by plaintiffs applying the "patently
unmeritorious or frivolous" standard predate the 1993 amendments to Rule 11. (D.I. 284 at 2)
47

The cases cited by plaintiffs applying the "patently unmeritorious or frivolous" standard
remain good law in the Third Circuit. See Ario v. Underwriting Members ofSyndicate 53 at
Lloyds for 1998 Year ofAccount, 618 F.3d 277, 297 (3d Cir. 2010) (citing Doering v. Union Cty.
Bd, 857 F.2d 191, 194 (3d Cir. 1988); Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 94 (3d
Cir. 1988)). However, the Third Circuit specifically held that the "patently unmeritorious or
frivolous" standard does not apply to sanctions predicated on the duty to make a reasonable
inquiry, thereby distinguishing its decision in Doering:
Levin and Sklar seek to avoid sanctions by citing language from our opinions in
Doering v. Union County Bd of Chosen Freeholders, 857 F.2d 191, 194 (3d Cir.
1988), and Gaiardo v. Ethyl Corp., 835 F.2d 479, 483 (3d Cir. 1987), that Rule 11
should be applied only in "exceptional circumstances" or where the document "is
patently unmeritorious or frivolous." But these cases can be of no comfort to
Levin and Sklar. As we have made clear, the sanctions in this case were not
predicated on a conclusion by the court that the Garr complaint was
unmeritorious. The Rule 11 problem is that neither Levin nor Sklar made a
reasonable inquiry as required by Rule 11 before signing the complaint.
Furthermore, the suggestion that Rule 11 should be used only in "exceptional
circumstances" was intended to explain that sanctions were not to be imposed
merely because there is a disagreement as to the correct resolution of a matter in
litigation. Gaiardo, 835 F.2d at 483.
Garr v. US. Healthcare, Inc., 22 F.3d 1274, 1281 (3d Cir. 1994). The RAM Defendants' motion
for sanctions in the present case is based upon the sufficiency of plaintiffs' pre-filing
investigation. (D.I. 284 at 2-3) Therefore, the court will apply the standard of objective
reasonableness in accordance with Garr.
The Third Circuit has set forth five factors to consider in determining the reasonableness
of counsel's pre-filing inquiry. They ~nclude: (1) the amount of time available to the signer for
conducting the factual and legal investigation; (2) the necessity for reliance on a client for the
underlying factual information; (3) the plausibility of the legal position advocated; (4) whether
the case was referred to the signer by another member of the bar; and, (5) the complexity of the
48

legal and factual issues implicated. Blancato v. St. Mary Hosp., 1993 WL 114421, at *5 (E.D.
Pa. Apr. 12, 1993) (citing Mary Ann Pensiero, Inc., 847 F.2d at 95). The parties address the first
three factors in their submissions.

2.

Timeliness of the motion for sanctions

Addressing the first factor, plaintiffs allege that the RAM Defendants' motion is untimely
because they waited until fourteen months after the filing of the second amended complaint to
file the pending motion for sanctions. (D.I. 270 at 17) Moreover, plaintiffs contend that a Rule
11 motion cannot be determined before the end of the litigation. (Id. at 17-18) In response, the
RAM Defendants allege that the motion for sanctions is timely because it was filed before the
entry of a final judgment, soon after the production of the Farella Braun documents, and after the
expiration of the safe harbor period set forth in Rule 11. (D.I. 284 at 8-9)
The RAM Defendants' motion for sanctions is not untimely. Although Rule 11 motions
should be filed as soori as practicable after discovery of the violation.and must be filed before the
entry of a final judgment, Mary Ann Pensiero, Inc. v. Lingle, 84 7 F .2d 90, 100 (3d Cir. 1988),
"Rule 11 ... says nothing about how long the movant may wait to file the motion after the 21
day safe harbor has expired," Telesaurus VPC, LLC v. Power, 888 F. Supp. 2d 963, 971 (D. Ariz.
2012). In certain cases, a Rule 11 motion may be considered premature if the parties have not
engaged in meaningful discovery. Telesaurus, 888 F. Supp. 2d at 971; see also Fed. R. Civ. P.
11, Advisory Committee Notes to 1993 Amendments (noting that, in some circumstances, a Rule
11 motion "should not be served until the other party has had a reasonable opportunity for
discovery.").
In the present case, the second amended complaint was filed on July 9, 2014. (D.1. 47)
However, Farella Braun did not complete its production of documents in response to the RAM
49

Defendants' subpoena until April 22, 2015. (D.I. 285, Ex. 27) The RAM Defendants raised
plaintiffs' awareness to deficiencies in the second amended complaint on August 25, 2015,
initiating the twenty-one day safe harbor period pursuant to Rule 11 (c), and waited for the safe
harbor period to expire before filing their motion. (D.I. 260, Ex. 1) The RAM Defendants
subsequently filed their motion for sanctions on September 18, 2015. (D.I. 258) The RAM
Defendants filed their Rule 11 motion promptly after the Farella Braun documents were
produced. Because the Farella Braun documents are critical to the arguments raised in support of
the RAM Defendants' motion for sanctions, the court concludes that the RAM Defendants'
motion for sanctions was timely filed under the circumstances.

3.

Reliance on client's factual information & plausibility of legal position

Turning to the second and third factors, the court notes that "Rule 11 requires an attorney
to do more than merely rely on a client's version of the facts before certifying that a claim is
well-grounded in fact." Fleekop v. Mann Music Ctr., 1990 WL 204253, at *4 (E.D. Pa. Dec. 12,
199.0) (citing Mary Ann Pennsiero, Inc. v. Lingle, 847 F.2d 90, 94 (3d Cir. 1988)). Although an
attorney is not required to disbelieve a client, the reasonableness of an attorney's reliance on the
client's story depends on the circumstances. Ellis v. Beemiller, Inc., 287 F.R.D. 326, 330 (W.D.
Pa. 2012) (citing CTC Imports & Exports v. Nigerian Petroleum Corp., 951F.2d573, 579 (3d
Cir. 1991)). "'[R]easonable inquiry' surely requires more than a lawyer's uncritical blindness to
the incredibility of his client's statements." Turner Constr. Co. v. First lndem. ofAm. Ins. Co.,
829 F. Supp. 752, 771 (E.D. Pa. 1993). Consequently, Rule 11 imposes an affirmative duty on
counsel to conduct a reasonable investigation into the factual basis of the client's claim to ensure
that the submissions are factually well-grounded. Ellis, 287 F.R.D. at 337.

50

In the present case, the RAM Defendants allege that counsel's interviews with Jordan are
not enough to constitute a sufficient pre-filing investigation because Jordan's allegations are
facially implausible. (D.I. 259 at 9-10) According to the RAM Defendants, Jordan's contention
that Mirra would agree to remove a paragraph of the mutual Release to eliminate the mutuality of
the agreement and cause inconsistencies with other provisions of the Release warrants further
scrutiny. (Id.) Plaintiffs do not directly challenge the RAM Defendants' contentions on this
point, but instead insist that they conducted a reasonable pre-filing inquiry by reviewing the
documentary evidence and interviewing Jordan's Farella Braun attorneys in addition to relying
on Jordan's own representations. (D.I. 270 at 12-15)
Plaintiffs have shown that, in addition to interviewing Jordan, they reviewed the
documentary evidence and interviewed Jordan's Farella Braun attorneys. In this respect,
plaintiffs have conducted a proper pre-filing inquiry. The documentary evidence sufficiently
supports Jordan's allegations. Although there is no express mention of paragraph 3 in the email
exchange regarding revisions to the Release before its execution, counsel's proposed
interpretation of the email stating, "Looks like we're getting it all," could potentially support
Jordan's version of events following additional information revealed during fact discovery.
Plaintiffs' counsel's multiple pre-filing interviews with Jordan's Farella Braun attorneys further
establishes the sufficiency of their pre-filing investigation.
4.

Withholding of documents

Plaintiffs contend that the RAM Defendants cannot fault them for lack of continuing
inquiry into the basis of their claims because the RAM Defendants have withheld material
information, including email correspondence between Troilo, Mirra, and Jordan's Farella Braun
attorneys, during discovery. (D.I. 270 at 15-16; D.I. 271
51

at~

20) Plaintiffs also allege that the

RAM Defendants failed to produce a copy of the final SDA. (D.I. 270 at 15-16; D.I. 271

at~

21-

25) In response, the RAM Defendants note that any alleged deficiencies in their produ~tion are
irrelevant to the adequacy of plaintiffs' pre-filing inquiry, and the RAM Defendants produced
email correspondence between Troilo and Farella Braun by September 24, 2014. (D.I. 284 at 78) According to the RAM Defendants, production of a final version of the SDA would not
resolve the question of whether Petersen obtained Mirra's agreement to strike paragraph 3 of the
Release during an undocumented telephone conversation. (/d. at 8)
Plaintiffs' argument regarding the RAM Defendants' failure to produce documents is
irrelevant to the sufficiency of plaintiffs' pre-filing investigation. "Rule 11 creates and imposes
on a party or counsel an affirmative duty to investigate the law and facts before filing."
Telesaurus, 888 F. Supp. 2d at 972 (quoting Moser v. Bret Harte Union High Sch. Dist., 366 F.
Supp. 2d 944, 950 (E.D. Cal. 2005)). To the extent that plaintiffs allege that deficiencies in the
document production negatively impacted plaintiffs' ability to continuously assess the validity of
plaintiffs' positions, these arguments are likewise without merit. The RAM Defendants have
verified that they produced email communications between Troilo and the Farella Braun
attorneys relating to the negotiation of the SDA and Release on September 24, 2015, nearly two
weeks before plaintiffs' answering brief was filed. (D.I. 285 at if 2) The court addressed the
production of a full, final copy of the SDA during a discovery dispute hearing on October 28,
2015. Specifically, the court ruled "the RAM defendants have represented that a contiguous
document has been produced. I have to accept that representation. All I can do is leave open an
avenue of relief for the plaintiff, if that does not turn out to be the case, is to make this ruling
without prejudice .... " (10/28/15 Tr. at 22:13-18) Plaintiffs have made no subsequent
applications to the court pertaining to the "contiguous" SDA.
52

5.

Conclusion ·

In sum, plaintiffs have satisfied Rule 11 's requirement to niake a sufficient pre-filing
investigation, and I recommend that the court deny the RAM Defendants' motion for sanctions. 12
Plaintiffs took the proper steps for c.onducting a pre-filing investigation by interviewing Jordan,
reviewing the documentary evidence, and interviewing Jordan's former Farella Braun attorneys.
This court has held that sanctions should be imposed sparingly, see Crawford v. George &
Lynch, Inc., 19 F. Supp. 3d 546, 556 (D. Del. 2013), and the 1993 Advisory Committee Notes to
Rule 11 state that "[t]he court has significant discretion in determining what sanctions, if any,
should be imposed for a violation, subject to the principle that the sanctions should not be more
severe than reasonably necessary to deter repetition of the conduct." Consequently, I
recommend that the court deny the RAM Defendants' motion for sanctions.

D.

Motion for Leave to File Sur-Reply Brief .

I recommend that the court deny plaintiffs' motion for leave to file a sur-reply brief with
respect to the motion for

sanction~.

"A Court may grant leave to file a sur-reply if it responds to

new evidence, facts, or arguments." St. Clair Intellectual Prop. Consultants, Inc. v. Samsung
Elecs. Co. Ltd, 291 F.R.D. 75, 80 (D. Del. 2013) (citing Belden Techs., Inc. v. LS Corp., C.A.
No. 08-823-SLR, 2010 WL 11205228, at *1 (D. Del. July 14, 2010); Walsh v. Irvin Stern's
Costumes, 2006WL166509, at *12 (E.D. Pa. Jan. 19, 2006)). The arguments set forth in the
RAM Defendants' reply brief do not necessitate the filing of a sur-reply "because they either
expound on arguments made in [the RAM Defendants'] opening brief, or because they involve
content that is directly responsive to arguments made in [plaintiffs'] answering brief."
12

By way of their motion, the RAM Defendants request sanctions in the form of dismissal of the
action with prejudice as well as monetary sanctions including attorney's fees and costs. (D.I.
259 at 11)
53

Execware, LLC v. BJ's Wholesale Club, Inc. et al., 2015 WL 4275314, at *2 n.3 (D. Del. July
15, 2015), reversed in part on other grounds by Execware, LLC v. BJ's Wholesale Club, Inc.,
2015 WL 5734434 (D. Del. Sept. 30, 2015). Plaintiffs do not attempt to establish that the RAM
Defendants introduced new evidence or new arguments in their reply brief. In contrast,
plaintiffs' proposed sur-reply introduces new evidence in the form of Petersen's deposition
testimony. For these reasons, plaintiffs' motion for leave to file a sur-reply brief is denied.
To the extent that plaintiffs accuse the RAM Defendants of spoliation in their motion for
leave to file a sur-reply brief, the court finds that it is improper to raise an independent allegation
of spoliation in a motion for leave to file a sur-reply brief.

V.

CONCLUSION
For the reasons discussed above, I recommend that the court: (1) grant the RAM

Defendants' motion to dismiss (D.I. 63); (2) grant Eizen's motion to dismiss (D.I. 62); (3) grant
Walsh's motion to dismiss (D.I. 67); (4) deny the RAM Defendants' motion for sanctions (D.I.
258); and (5) deny plaintiffs' motion for leave to file a sur-reply brief (D.I. 305).
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(l)(B), Fed. R.
Civ. P. 72(b)(l), and D. Del. LR 72.1. The parties may serve and file specific written objections
within fourteen (14) days after being served with a copy of this Report and Recommendation.
Fed. R. Civ. P. 72(b). The failure of a party to object to legal conclusions may result in the loss
of the right to de novo review in the district court. See Henderson v. Carlson, 812 F.2d 874,
878-79 (3d Cir. 1987); Sincavage v. Barnhart, 171 F. App'x 924, 925 n.1 (3d Cir. 2006).

54

The parties are directed to the court's Standing Order In Pro Se Matters For Objections
Filed Under Fed. R. Civ. P. 72, dated November 16, 2009, a copy of which is available at
http://www.ded.uscourts.gov/court-info/local-rules-and-orders/general-orders.

Dated: June .i3__, 2016
MAGISTRATE WDGE

55