Perlman v. Zell

938 F. Supp. 1327

Richard M. PERLMAN and Perlman Marketplace Investors, Plaintiffs, v. Samuel ZELL, et al., Defendants.

No. 95 C 4242.

United States District Court, N.D. Illinois, Eastern Division.

July 16, 1996.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

William G. Schopf, Jr., Bradley Paul Nelson, John Alton Cashman, Schopf & Weiss, Chicago, IL, for plaintiffs.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

Plaintiffs Richard Perlman and Perlman Marketplace Investors (collectively, "Perlman") bring this action against Samuel Zell; over one hundred entities associated with Zell, including a multitude of real estate partnerships; and several individuals associated with Zell and his businesses. Perlman charges that the defendants defrauded him in a variety of ways, primarily by inducing him to invest in certain real estate ventures and then either informing him that his interests in the ventures were illusory or stripping the projects of their value by transferring income or business opportunities to other projects. Perlman alleges that this conduct violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(b)-(d). Perlman also brings several state law claims. The defendants have moved to dismiss the RICO counts (Counts I-III) on a number of grounds, each of which will be discussed below.

RELEVANT FACTS

The following facts are drawn from the allegations of the complaint, which we take as true for the purposes of a motion to dismiss, see Mosley v. Klincar, 947 F.2d 1338, 1339 (7th Cir.1991), and from the plaintiffs' RICO case statement¹ and response brief in opposition to the motion to dismiss. See Dausch v. Rykse, 52 F.3d 1425, 1428 (7th Cir.1994) (facts contained in pleadings other than the complaint "are relevant to the extent that they `could be proved consistent with the allegations.'").

For about 15 years, from 1976 to 1990, Richard Perlman provided services to Equity Financial and Management Company ("Equity"), a corporation involved in operating and maintaining Samuel Zell's real estate empire, as a senior executive. During this period Perlman invested heavily in Zell's businesses, often at the invitation or urging of Zell or his associates (the individual defendants in this case). In June, 1990, Perlman ceased providing services to Equity. Thereafter, Perlman experienced difficulty in exercising the legal rights associated with some of his investment interests in Zell's businesses, and brought suit to enforce those rights in the Circuit Court of Cook County, Illinois. After obtaining discovery in that case, Perlman filed suit in this court claiming, inter alia, RICO violations, common law fraud, breach of fiduciary duty, and breach of contract.

Perlman alleges the existence of six separate fraudulent schemes planned and carried out by the defendants. The first scheme alleges misrepresentations made to Perlman (and others) that induced him to invest in certain of the defendants' ventures. This scheme involved the issuance and sale of securities called "Participation Units" in 86 real estate ventures (referred to collectively as the "Class II partnerships"), over a period from 1983 through 1989. Perlman alleges that the defendants repeatedly misrepresented the value of, and the rights associated with, these Participation Units. As part of this scheme, specified defendants allegedly committed securities fraud and mail fraud.

Perlman portrays the remaining schemes as the manifestations of a continuing desire by the defendants to freeze Perlman out of any involvement with any Zell-related project or entity, and otherwise strip him of his interests in those projects or entities. Some of these schemes involve the general diversion of funds away from "outside" investors to the individual defendants. Most of these schemes took place after Perlman left Equity in 1990.

The second alleged scheme involves the conversion and embezzlement of $360,827 or more in distributions from the Class II partnerships, which Perlman claims should have been paid to him after he left Equity in 1990. The Participation Units allegedly gave Perlman the right to receive such distributions at specified times, including the sale or refinancing of the property for which the Units were issued. Although several sales and refinancing transactions occurred in connection with these properties, Perlman has not received the distributions. Perlman alleges that specified defendants committed mail fraud, wire fraud, and interstate transportation of converted funds in pursuit of this scheme.

The third alleged scheme, which also began after Perlman left Equity, involves the conversion and embezzlement of the distributions due from another group of real estate ventures referred to in the complaint as the "Class I partnerships." The distributions owed to Perlman from these ventures total $1,061,238. The defendants allegedly committed mail and wire fraud in pursuit of this scheme.

The fourth alleged scheme asserts the wrongful seizure and conversion of properties belonging to three partnerships in which Perlman had an interest. The properties allegedly were removed from the partnerships in 1993 and transferred to an entity controlled by Zell so that all of the proceeds of the real estate transactions involving those properties flowed to the defendants, rather than to Perlman and the other "outside" investors. This diversion of funds allegedly resulted in distributions of approximately $19 million to the defendants and large tax liabilities to Perlman and the other investors. Perlman further claims that the transactions relating to one of these partnerships were falsely "restructured" after the fact in violation of the Internal Revenue Code. Perlman alleges numerous acts of mail fraud and wire fraud in connection with this scheme.

The fifth alleged scheme involves a similar diversion of funds that took place from 1990 through 1994, in which insurance proceeds that should have been paid to various partnerships and/or properties as payment for property damage from fires, floods and other disasters were instead diverted to defendant Rocket Construction Company. The defendants allegedly engaged in several acts of mail fraud as part of this scheme.

The sixth and final alleged scheme was the unauthorized cancellation of Perlman's stock in the law firm formerly known as Rosenberg Perlman & Associates, P.C., now called Rosenberg & Liebentritt, P.C., and a defendant in this lawsuit. This scheme is alleged to have involved two acts of mail fraud.

Perlman alleges that the six schemes demonstrate a continuing pattern of racketeering activity in violation of RICO. The complaint contains three RICO counts: Count I alleges violations of § 1962(c); Count II alleges violations of § 1962(b); and Count III alleges violations of § 1962(d), the RICO conspiracy provision. The defendants have moved to dismiss all three RICO counts for failure to state a claim.

APPLICABLE STANDARDS

A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. Triad Associates, Inc. v. Chicago Housing Auth., 892 F.2d 583, 586 (7th Cir.1989), cert. denied, 498 U.S. 845, 111 S.Ct. 129, 112 L.Ed.2d 97 (1990). When considering a motion to dismiss, the court views all facts alleged in the complaint, as well as any inferences reasonably drawn therefrom, in the light most favorable to the plaintiff. Doherty v. City of Chicago, 75 F.3d 318, 322 (7th Cir.1996). A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). In short, the only question is "whether relief is possible under any set of facts that could be established consistent with the allegations." Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073, 1078 (7th Cir.1992) (citations omitted).

ANALYSIS

In their motion to dismiss, the defendants attack the complaint using several broad approaches, arguing that: (1) the claims are barred by the statute of limitations; (2) Perlman has not adequately alleged the necessary predicate acts for RICO; (3) the allegations do not show the necessary pattern of racketeering; and Perlman has failed to properly allege the existence of (4) a RICO enterprise as required for his Count I claim under 42 U.S.C. § 1962(c), or (5) a RICO conspiracy as required for his Count III § 1962(d) claim. We examine each of these areas of attack in turn.

I. Limitations Period

The defendants' first broad attack is that all of Perlman's RICO claims are time-barred. The limitations period for RICO claims is four years. Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987). As the complaint was filed on July 21, 1995, the cut-off date for timeliness purposes is July 21, 1991. Any claims that accrued before that date would be barred as untimely, unless the limitations period was tolled.

The limitations period for federal causes of action begins to run (accrues) when the plaintiff discovers, or reasonably should have discovered, that he or she has been injured. See Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450-51 (7th Cir.1990), cert. denied, 501 U.S. 1261, 111 S.Ct. 2916, 115 L.Ed.2d 1079 (1991). Even after the limitations period clock begins to run, it may be stopped under circumstances amounting to either equitable estoppel or equitable tolling. "Equitable estoppel" may exist where the defendant "takes active steps to prevent the plaintiff from suing in time," such as by promising not to raise the statute of limitations as a defense. Id. "Equitable tolling," a separate concept, may apply where the plaintiff is prevented from gaining information that would indicate that the injury was caused by...