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The following is a transcription of the Plaintiffs' Brief in Support of their Motion for Reconsideration of the Court's Memorandum and Order of September 30, 1999.  The Court subsequently entered a Memorandum and Order on February 8, 2000 which denied Plaintiffs' Motion for Reconsideration (except for the scheduling of expert witness reports for the remaining defendants); but granted Plaintiffs' alternative request for permission to file an immediate appeal.

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

LEON R. DONGELEWICZ, et al.,
                                                      Plaintiffs,
                                    vs.
FIRST EASTERN BANK, et al.,
                                                  Defendants.

CASE NO. 3:CV-95-0457

(JUDGE: James F. McClure, Jr.)

Brief by Plaintiffs in Support of Their Motion for Reconsideration, Reargument, or Alternative Relief, Regarding the Order of September 30, 1999 (record document 387)

November 15, 1999

Roger S. Antao, Esquire
I.D.#
Antao & Chuang
460 Bergen Boulevard, Suite 200
Palisades Park, N.J. 07650-2345
Tel: 201-816-9498
Fax: 201-816-1688

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...iv

PROCEDURAL HISTORY ...1

FACTS ...1

  1. VOL Land Fraud and Extortion Schemes (Complaint, 50-193). ...1
  2. FEB's Scheme to Conceal Insolvency of CBG (Complaint, 194-199). ...2
  3. Scheme to Continue Racketeering Using Bankruptcy (Complaint, 200-211). ...2
  4. FEB's Scheme to Operate and Manage the Enterprise(Complaint, 212-339). ...3

STATEMENT OF QUESTIONS INVOLVED ...3

ARGUMENT ...4

I. It was a clear error of law to find that Rolo was controlling on the issue of whether FEB "conducted the affairs of an enterprise" since the Rolo panel expressly refrained from even reaching this issue. ...4

II. It was a clear error of law, to have failed to apply the Supreme Court's operation or management test, set forth in Reves , which overwhelmingly establishes that FEB "conducted the affairs of an enterprise". ...5

III. It was a clear error of law, to have granted FEB's summary judgment motion for claims based on 18 U.S.C. 1962(a), (c) and (d), since FEB is liable for RICO violations pursuant to respondeat superior . ...11

IV. It was a clear error of law, contravening Salinas , to grant summary judgment to FEB for conspiring to violate RICO, pursuant to 18 U.S.C. 1962(d), when the record supports a finding of "aiding and abetting". ...12

V. It was a clear error of law to have found that FEB did not commit predicate acts of racketeering, when the Court found "aiding and abetting" by FEB, since "aiding and abetting" of the underlying predicate acts constitutes a predicate act, in itself. ...14

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VI. The Memorandum erroneously draws a number of inferences, regarding facts in dispute in the light most favorable to the moving parties. ...15

VII. It was a mistake, and an error of law, to deny Plaintiffs' unopposed motion to supplement and amend the complaint, on the ground that "the RICO claims were barred by the statute of limitations" when this Honorable Court did not , in fact, find that the RICO claims were barred by the statute of limitations; nor could the statute of limitations apply to predicate acts which took place after the complaint was filed. ...15

VIII. It was an error to grant summary judgment for FEB on Plaintiffs' common law fraud claim based on FEB's statute of limitations defense because, inter alia : not only did numerous misrepresentations take place within the limitations period, but no one could know "the financial status of CBG" because FEB committed a massive fraud upon the bankruptcy court. ...16

IX. It was a clear error to have granted summary judgment for Ralph Conte on the RICO claims based on "the statute of limitations defense discussed with respect to First Eastern's motion for summary judgment" because said defense was not found applicable to FEB; nor did Ralph Conte move for summary judgment on said defense with respect to the RICO claims. ...18

X. It was a clear error of law, to have found that that the "associated with a RICO enterprise" element can not be established, as a matter of law, with respect to Arlene Rainess, when she was "aware of at least the general existence of the [CBG] enterprise", and the Court concluded that "the evidence may support a single instance of fraud." ...19

XI. Decertification was based on errors regarding the beginning date of the class period; and failure to apply the separate accrual rule, and consideration of the merits of unique defenses. ...21

XII. It was an error of law to have denied Plaintiffs' motion of May 27, 1998 (RD 254) as moot, and to have failed to apply this Court's Order #1 of January 7, 1999 (RD 373) regarding expert witness reports. ...24

CONCLUSION ...25

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IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

LEON R. DONGELEWICZ, et al., ) CASE NO. 3:CV-95-0457
                                      Plaintiffs, )
                                                 vs. ) (JUDGE: James F. McClure, Jr.
FIRST EASTERN BANK, et al.,     )
                                   Defendants. )

PROCEDURAL HISTORY

         This case was filed in the District of New Jersey on June 17, 1994, and was transferred on February 27, 1995 to this District. On December 29, 1995, the Court denied the motion to dismiss of defendant Property Owners Association of the Valley of Lakes ("POA"). (RD 28). On June 19, 1996, this Court entered an order which certified this case as a class action. (RD1 51). On September 23, 1997, this Court granted plaintiffs. motion for a default judgment against defendant Frank M. Cedrone. (RD 105).

         On January 7, 1999, this Court issued a scheduling order (RD 373) which inter alia granted Plaintiffs' motion (RD 289) to reschedule the deadlines for expert witness reports. On July 7, 1999, the Court entered defaults against defendants CBG, Oneida Water Co., and Valley Utilities Co., Inc. (RD 385, 386). On September 30, 1999, this Court entered a Memorandum and Order (hereinafter "Mem.") (RD 387) which disposed of approximately ten motions, including defendants' motions for summary judgment and decertification. Plaintiffs file this brief in support of their motion for reconsideration of said order pursuant to the Order of October 13, 1999 (RD 395), in strict compliance with LR 5.1, i.e., word processing proportional fonts of 14 pts., with typewriting double spacing.

FACTS

A. VOL Land Fraud and Extortion Schemes (Complaint, 50-193).

         Beginning in September, 1986, defendant CBG Ltd. ("CBG"), under the control of Cedrone, and with Ralph Conte, as N.J. broker of record, undertook a massive land fraud and extortion scheme, in the Valley of Lakes ("VOL"), as discussed infra. (Complaint, 64-135). Arlene Rainess Conte participated in one of the schemes. (Complaint, 149-167). CBG promoted its common promotional plan to current property owners. (Complaint, 95, Ex.235). Using its control of VOL, CBG engaged in extortion schemes against all purchasers, and property owners, including imposing an 8% extortion fee on construction of homes. (Complaint, 50-63, 136-193).

___________________

1 All references to "RD" refer to the record document number of the docket.

2 All references to "Ex." refer to "Exhibit".

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         First Eastern ("FEB3"), financed CBG's land fraud, primarily, through (a) construction "revolver loans" while failing to ensure that CBG was actually completing the development; and (b) under a "receivable line of credit" by which FEB made credit advances to CBG, in return for CBG collaterally assigning its purchase money mortgages to FEB. (RD 318, Ex. ST-1; RD 321, pp. 170-179). C&E Credit, FEB's agent, would then collect CBG's payments from its mortgages, deposit them in FEB's account, "First Eastern For CBG Ltd", at DIME Savings Bank of New York ("DIME"); and wire payments to FEB, as payment on the receivable line. (RD 324, Ex. C&E 2).

         FEB knowingly advanced funds to CBG for lots which were not registered with HUD. (RD 316, pp. 69-78; RD 316, Ex. JS-14). FEB also directly participated in CBG'S 8% extortion scheme by knowingly disbursing the 8% extortion fee directly to CBG on construction loans. (RD 329, Ex. 9 & Ex. 10).

B. FEB's Scheme to Conceal Insolvency of CBG (Complaint, 194-199).

         On or about November of 1990, after CBG defaulted on its receivable line, and was insolvent (RD 277, 56), FEB devised a scheme to conceal CBG's insolvency, (RD 277, 62; RD 325, Ex. C&E-32; RD 309, Ex. A; Complaint, 194-199); and directed and implemented this scheme, as detailed infra, by inter alia: fraudulently making loans to illegally funnel money to CBG; knowingly advancing funds to CBG's straw man purchasers; knowingly accepting CBG's 8% extortion fee as a source of repayment; directing Cedrone to obtain a second lender, J.L. Wolgin ("Wolgin"), in exchange for FEB secretly subordinating all of its CBG loans, in June of 1991; and knowingly fraudulently booking loans to create collateral from August 23, 1991 until November 8, 1991, and to pay CBG's operating expenses.

C. Scheme to Continue Racketeering Using Bankruptcy (Complaint, 200-211).

         Upon CBG's bankruptcy filing, FEB devised a scheme to continue to receive the proceeds from CBG's land fraud scheme by fraudulently concealing from the bankruptcy court, CBG's income stream on its purchase money mortgages. FEB knowingly kept open the bank account, "First Eastern For CBG Ltd", at DIME, after CBG's bankruptcy filing (RD 330, p. 5, no. 43); in violation of the bankruptcy's court's order of March 30, 1992 (RD 322, Ex. CS-11). FEB fraudulently misrepresented to the bankruptcy court, on or about April 30, 1992, that FEB was not receiving any payments from CBG since the bankruptcy (RD 322, CS-12; RD 330, p. 6, no. 62). On or about May

___________________

3 All references to FEB refer to (a) First Eastern Bank, N.A. prior to its merger with PNC Bank, N.A., and (b) PNC Bank, N.A. after its merger with First Eastern Bank, N.A.

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20, 1992, the President of FEB, himself, misrepresented under penalty of perjury FEB's Federal Identification Number to DIME. (RD 311, pp. 32-37, Ex. DSB-6). FEB then continued for the following fours years to have C&E Credit mail mortgage booklets fraudulently stating FEB's name as payee, and then depositing the payments in the DIME account, and wiring the funds to FEB, as payment on CBG's receivable line, with no bankruptcy court authorization. (RD 322, pp. 62-63; RD 324, pp. 135-139; RD 325 C&E-26). FEB itself hired a management company, MLA Management Associates, Inc. ("MLA"), on or about August 13, 1992, to direct CBG to cut services to VOL (RD 315, Ex. MLA-1 to MLA-8).

D. FEB's Scheme to Operate and Manage the Enterprise (Complaint, 212-339).

         While concealing the DIME cash collateral account, FEB submitted to the bankruptcy court for approval an agreement with CBG, on or about October 22, 1992, whereby CBG maintained possession of VOL, provided that CBG retain MLA, and accept FEB's directions in managing and operating VOL. (RD 315, Ex. MLA-11). With FEB's authorization MLA mass mailed the property owners wrongfully demanding payment for CBG's fees, and promising services never rendered. (RD 113, pp. 17-35; RD 315, Ex. MLA-12 to MLA-14 & Ex. MLA-20). Under FEB's direction, MLA kept the recreational facilities closed, and provided hardly any maintenance. (Id.) On December 29, 1992, FEB, Cedrone, and MLA worked out secret illegal agreement, for CBG's pre-bankruptcy debts. (RD 315, Ex. MLA-34). On January 13, 1993, FEB entered into an agreement with CBG, to cut additional services to VOL. (RD 315, Ex. MLA-35). FEB placed certain VOL's utility accounts in its name. (RD 317, Ex. KA-33 & KA-34). FEB concealed CBG's pattern of racketeering regarding straw man purchasers. (RD 317, pp. 161-167, Ex. KA-54; RD 334, pp. 30-36). After the agreement of October 22, 1992 expired, FEB kept CBG in control for the next three years (RD 317, pp. 100-101, Ex. KA-15). In October of 1996, FEB and CBG obtained bankruptcy court approval to sell CBG's assets, while concealing CBG's purchase money mortgages. (RD 323, Ex. CS-45 to CS-48). The new developer has announced that it will never complete Lake Algonquin; and numerous property owners lost their life savings, as a result of these schemes.

STATEMENT OF QUESTIONS INVOLVED

1. Whether it was a clear error of law to grant summary judgment for FEB as to 18 U.S.C. 1962(a), (c)?

Yes, because inter alia it contravened Reves v. Ernst & Young, 507 U.S. 170 (1993).

2. Whether it was a clear error of law to grant summary judgment for FEB as to 18 U.S.C. 1962(d)?

 

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Yes, because inter alia it contravened Salinas v. United States, 522 U.S. 52 (1997).

3. Whether it was a clear error of law to grant summary judgment for FEB as to the common law fraud?

Yes, because inter alia numerous misrepresentations took place within the limitations period, and no one could know the financial status of CBG because FEB committed a massive fraud upon the bankruptcy court.

4. Whether it was a clear error of law to grant summary judgment to Ralph Conte as to 18 U.S.C. 1962(c), (d), based on "the statute of limitations defense discussed with respect to First Eastern's motion for summary judgment"?

Yes, because inter alia the statute of limitations defense was not found applicable with respect to First Eastern; and, Ralph Conte himself never moved for summary judgment on said defense with respect to the RICO claims.

5. Whether it was a clear error of law to grant summary judgment to Arlene Rainess Conte as to 18 U.S.C. 1962(c), (d), on the ground that the "associated with a RICO enterprise" element can not be established, as a matter of law?

Yes, because inter alia there is no question that Arlene Rainess Conte was "aware of at least the general existence of the [CBG] enterprise" thereby meeting the Third Circuit test; and this Court held that "the evidence may support a single instance of fraud."

6. Whether it was clear error of law to decertify all claims, against all defendants?

Yes, because inter alia decertification was based on mistakes regarding the beginning date of the class period; and failing to apply the separate accrual rule.

7. Whether it a clear error of law to deny Plaintiffs' motion to supplement and amend the complaint, "as futile because the RICO claim is time-barred regardless of the amendment"?

Yes, because inter alia this Honorable Court did not, in fact, find that the RICO claims were barred by the statute of limitations; nor could the statute of limitations apply.

8. Whether it a clear error of law to deny Plaintiffs' motion of May 27, 1998 (RD 254) as moot?

Yes, because inter alia the Order #1 of June 19, 1998 never addressed Plaintiffs' unopposed request to compel MLA; and the Mem. failed to comply with this Court's Order # 1 of January 7, 1999 (RD 373), regarding expert witness reports.

ARGUMENT

I. It was a clear error of law to find that Rolo was controlling on the issue of whether FEB "conducted the affairs of an enterprise" since the Rolo panel expressly refrained from even reaching this issue.

         The Mem. found that "The problem with plaintiffs' claims against First Eastern is that the record does not support a finding that it 'conducted' the affairs of an enterprise." This conclusion was based on the erroneous assumption that Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644 (3d Cir. 1998), had held that the actions of the 'Financing Defendants,' 'Mortgagee Defendants,' and 'Lot Contract Defendants' did not constitute "conducting the

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affairs of an enterprise"; and that FEB's role was analogous to said Rolo defendants. (Mem. pp. 10-11).

         In fact, the Rolo panel expressly refrained from any ruling on what did or did not constitute "conducting the affairs of the enterprise", limiting its ruling to a holding that a claim for aiding and abetting a substantive RICO violation is no longer actionable, as follows:

          We will affirm the district court's dismissal of the plaintiffs' RICO aiding and abetting claims without reaching either of the district court's grounds for dismissing these allegations because we are convinced that a private cause of action for aiding and abetting a RICO violation cannot survive the Supreme Court's decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 128 L. Ed. 2d 119, 114 S. Ct. 1439 (1994).

Rolo, 155 F.3d at 656. (emphasis added). It was thus a clear error of law to conclude that "the Third Circuit characterized their role as, at most, aiders and abettors of the scheme rather than as participants in the scheme or members of the enterprise, or even as co-conspirators" (Mem. p. 10)--since the claims brought by the Rolo complaint, itself, against these particular defendants were expressly for "secondary" liability. See Rolo, 155 F.3d at 650 ("All of the remaining defendants are categorized as secondary defendants, who, it is alleged, aided and abetted the pattern of racketeering activity devised and controlled by the primary defendants."). Hence, Rolo holds absolutely nothing about what does, or does not, constitute "conducting the affairs of an enterprise." See id.

         Furthermore, as discussed infra, the Mem.'s finding directly contravenes the Supreme Court's holding in Reves v. Ernst & Young, 507 U.S. 170 (1993); and erroneously assumes that "conducting the affairs of an enterprise" is an element for conspiring to violate RICO, pursuant to 18 U.S.C. 1962(d), which it is not.

II. It was a clear error of law, to have failed to apply the Supreme Court's operation or management test, set forth in Reves, which overwhelmingly establishes that FEB "conducted the affairs of an enterprise".

         In Reves, the Supreme Court adopted the "operation and management test" which holds that the "conducted the affairs of an enterprise" element of 18 U.S.C. 1962(c) is satisfied by showing that a defendant undertook "some part in directing the enterprise's affairs." Reves, 507 U.S. 170, 184 (emphasis added). The Supreme Court rejected any requirement that the defendant had to play a "significant" or "substantial part". See id. at 179 n. 4. The Supreme Court stressed that "lower-rung participants" and "outsiders" may be held liable under 1962(c). See id. at 185.

         For all of the reasons identified below, there is no question that under Reves FEB conducted the affairs of the enterprise; namely, the association in fact enterprise centered on VOL (Complaint, 340), and/or the CBG

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enterprise (Complaint, 341). Except as otherwise indicated, FEB acted through predicate acts of mail and wire fraud. See, e.g., Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36, 39 (3d Cir. 1987); Feinberg v. Central Asia Capital Corp., 974 F. Supp. 822, 848 (E.D. Pa. 1997) ("[T]he use of mails need not be an essential element of the scheme.") (quoting Schmuck v. United States, 489 U.S. 705, 710-11, (1989); Philadelphia Reserve Supply Co. v. Nowalk & Assocs., Inc., 864 F. Supp. 1456, 1470 (E.D. Pa. 1994) (mail fraud principles apply to wire fraud).

         First, FEB undertook "some part in directing the enterprise's affairs" by knowingly devising and directing the entire scheme to conceal the insolvency of CBG (see Complaint, 194-199). See, e.g., Brown v. LaSalle Northwest Nat. l Bank, 820 F. Supp. 1078, 1082 (N.D. Ill. 1993) (Reves test satisfied because bank "itself devised and implemented the scheme alleged in the amended complaint."). FEB directed Cedrone, on or about June 28, 1991, to obtain a $2,000,000 loan for CBG from a second lender, Wolgin (aka PA Bancshares), based on FEB's secret subordination of all of its loans. (RD 328, Ex. 4-21 to 4-30). As Cedrone stated:

b. After telling us that they [FEB] wanted us to use moneys that would normally be paid to them in monthly interest payments to help cover our overhead costs while seeking refinancing, they were made aware of a pending Federal Audit of their bank and they came running to us for assistance.

c. Knowing that we had interested lenders earlier, before the crash, they asked us to recontact them, offering to subordinate their first position to a $2.0 Million loan, giving the appearance of not increasing their lien to a single borrower. They would be paid approximately $1.0 Million in interest to bring us current before the audit and they would have the appearance of a fully performing loan on their books. We would have something less than $1.0 Million to pay loan closing costs, cover operating costs for a short time and pay required loan commitment fees.

          (RD 309, Ex. A, pp. 5-6) (emphasis added). See Reves, 507 U.S. 170, 184; Resolution Trust Corp. v. Stone, 998 F.2d 1534, 1542 (10th Cir. 1993) (Reves satisfied where inter alia defendant participated in scheme to keep enterprise "afloat" in order to receive "nearly $ 1 million in payments on a loan" from enterprise); Clark v. Milam, 847 F. Supp. 409, 415-17 (S.D.W. Va. 1994) (Reves satisfied where "defendants knowingly concealed the activity of other defendants who exercised day-to-day control over the enterprise".).

         Moreover, each of the actions that FEB undertook, as part of its scheme to conceal CBG's insolvency is sufficient to satisfy Reves, including inter alia: directing Cedrone to use FEB's "moneys" earned as interest at DIME, on or about May 25, 1991 (RD 316, pp. 130-134; RD 322, Ex. CS-10; RD 329, Ex. 13-1); directing Valley Utilities, on or about October 31, 1990, to fraudulently undertake a loan for $600,000, "solely for the purpose of funding CBG

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and all advances of funds went to CBG" (RD 318, Ex. ST-36; RD 323, Ex. CS-43); releasing "its lien of mortgage on certain lots so that those lots could be used by CBG to pay creditors for work or services performed" beginning in November of 1990, (RD 330, p. 4, nos. 30 & 32); knowingly paying advances to CBG on its receivable line of credit, for straw man purchases of lots (RD 316, pp. 83-85; RD 318, Ex. ST-32 & ST-51; RD 322, pp. 115-117; RD 328, Ex. 1-4 to 1-104); knowingly accepting payments from CBG's notes, which had been fraudulently induced by illegal "Letter's of Assurance" and investment contracts, after on or about February 28, 1991 (RD 328, Ex. 3-1 to 3-4); using the matured, defaulted, $3000,000 revolver loan to CBG (of June 1990) as a fraudulent cover to make outright payments to CBG, in order to keep the enterprise "afloat", beginning on or about March 6, 1991 (RD 318, Ex. ST-15 to ST-26, ST-47 & ST-48; RD 329, Ex. 25.). See, e.g., United States v. Parise, 159 F.3d 790 (3d Cir. 1998) (Reves satisfied where outsider played an "essential role in implementing the scheme"); Davis v. Mutual Life Ins. Co. of New York, 6 F.3d 367, 380 (6th Cir. 1993), cert. denied, 510 U.S. 1193 (1994); Resolution Trust Corp. v. Stone, 998 F.2d 1534, 1542 (10th Cir. 1993) (Reves satisfied, inter alia, based on defendants "fraudulent misrepresentations in order to keep PAC [RICO enterprise] afloat."); Clark v. Milam, 847 F. Supp. 409, 415-17 (S.D.W. Va. 1994) ( Reves satisfied where "defendants knowingly concealed the activity of other defendants who exercised day-to-day control over the enterprise").

         Second, FEB participated in predicate acts of extortion when it knowingly extended to CBG, a loan for $550,000, on or about December 31, 1990, which expressly accepted CBG's 8% extortion fee, as repayment for the loan. (RD 328, Ex 7; RD 329, Ex 8). See id.; see, e.g., United States v. Brooklier, 685 F.2d 1208, 1216 (9th Cir. 1982), (conspiring to extort is proper predicate act, in itself), cert. denied, 459 U.S. 1206 (1983).

         Third, FEB directed the enterprise by hiring and directing C&E Collection Services, itself, to fraudulently demand payment in the name of "First Eastern Bank" directly from VOL lot owners, beginning on or about August 6, 1991. (RD 314, pp. 11-33 & 61-85, Ex. C&E 50; RD 324, p. 83; RD 325, Ex. C&E 29-1 to C&E 30-70). See, e.g., United States v. Oreto, 37 F.3d 739, 743, 53 (1st Cir. 1994), cert. denied, 513 U.S. 1177 (1995) (Reves satisfied where outsiders directly pressured borrowers "to ensure payment of the loans" of the RICO enterprise); VNA Plus, Inc. v. Apria Healthcare Group, Inc., 29 F. Supp. 2d 1253, 1259 (D. Kan. 1998) (Reves satisfied based on "direct control over the billing services and practices of the enterprise."). Since this collection was inherently wrongful, it also constituted extortion. See, e.g., United States v. Agnes, 753 F.2d 293, 299 (3d Cir. 1985);

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Viacom Int'l, Inc. v. Icahn, 747 F. Supp. 205, 211 (S.D.N.Y. 1990), aff'd on other grounds, 946 F.2d 998 (2d Cir. 1991).

         Fourth, FEB directed the enterprise by knowingly approving fifteen payments to the CBG enterprise on the receivable line, from August 23, 1991 until November 8, 1991, totaling $468,324, for the express purposes of fraudulently "creating collateral on the receivable line" and funding the CBG's other operating expenses. (RD 316, pp. 111-112, Ex. JS-23 to JS-26; RD 321, pp. 94-95, pp. 111-121, Ex. ELM-18, p. 2; RD 320, Ex. GS-40, GS-41, GS-43; RD 329, Ex. 15; RD 330, p. 5, no. 47; RD 332, Ex. TZ-2 to TZ-6, TZ-8 to TZ-12, TZ-14 to TZ-19; RD 333, Ex. TX-20 to TZ-25). See, e.g., City of Phila. v. Public Employees Benefit Serv. Corp., 842 F. Supp. 827, 835 (E.D. Pa. 1994). Moreover, by fraudulently creating collateral on the receivable line, FEB undertook predicate acts of bank fraud in violation of 18 U.S.C. 1344, as evidenced by the testimony and letter of November 16, 1993, from Ernest L. Moore, Vice President, CoreStates Hamilton Bank. (RD 321, pp. 146-172, Ex. ELM-27). See, e.g., United States v. Schwartz, 899 F.2d 243 (3d Cir.), cert. denied, 498 U.S. 901 (1990); United States v. Goldblatt, 813 F.2d 619 (3d Cir. 1987).

         Fifth, FEB directed the enterprise by controlling the CBG's enterprise's mortgage financing business, pursuant to a "Reporting Agreement". (RD 324, pp. 17-68, Ex. C&E-2). See, e.g., Majchrowski v. Norwest Mort., 6 F. Supp. 2d 946 (N.D. Ill. 1998) (control over other company's "mortgage servicing business and financing" line of business satisfied Reves); Miller v. Chevy Chase Bank, 1998 U.S. Dist. LEXIS 3651 (N.D. Ill. Mar. 24, 1998) (bank's use of delegated mortgage service powers satisfies Reves); Poindexter v. National Mortgage Co., 1995 U.S. Dist. LEXIS 5396 (N.D. Ill. 1995) (Reves tests satisfied where defendant managed enterprise's "collection and distribution of mortgage payments.").

         Sixth, FEB directed the enterprise by fraudulently misrepresenting to the bankruptcy court, on or about April 30, 1992, that FEB had not received any payments from CBG since CBG's bankruptcy filing (RD 322, Ex. CS-12), when in truth and fact, it had received more than two hundred thousand dollars in payment, as of that date (RD 311, Ex. DSB-7 [pp. Dime149 to Dime150]; RD 330, p. 7, no. 62). See, e.g., Nebraska Sec. Bank v. Dain Bosworth, Inc., 838 F. Supp. 1362 (D. Neb. 1993) (Reves test met where defendant fiscal agent allegedly "used the bankruptcy laws to shield itself from liability by participating in the bankruptcies of" RICO enterprise). Moreover, FEB also participated in this respect through predicate acts of bankruptcy fraud, within the meaning of 18 U.S.C.

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1961(1)(D). See, e.g., 18 U.S.C. 152; United States v. Schireson, 116 F.2d 881 (3d Cir. 1940); United States v. Knoll, 16 F.3d 1313 (2d Cir.), cert. denied, 513 U.S. 1015 (1994). Furthermore, since FEB fraudulently concealed the true ownership of CBG's funds, which were the product of fraud, FEB committed money laundering, in violation of 18 U.S.C. 1956. See, e.g., United States v. Levine, 970 F.2d 681 (10th Cir.), (violating 18 U.S.C. 152 is sufficient illegal activity for purposes of 18 U.S.C. 1956) cert. denied, 506 U.S. 901 (1992) .

         Seventh, FEB undertook "some part in directing the enterprise's affairs" by controlling the "First Eastern For CBG Ltd", DIME bank account. (RD 311, pp. 32-37, & Ex. DSB-6; RD 324, pp. 25-41). See, e.g., United States v. Bertoli, 854 F. Supp. 975, 1013 (D.N.J.) (defendant's control over nominee accounts, satisfied Reves), aff'd in part, vacated in part on other grounds, 40 F.3d 1384 (3d Cir. 1994); Frankford Trust Co. v. Advest, No. 93-329, 1997 U.S. Dist. LEXIS 3441 (E.D. Pa. January 14, 1997) ("discretionary authority" over trust fund satisfied Reves); Brooks v. Bank of Boulder, 911 F. Supp. 470 (D. Colo. 1996) ("[B]y exerting control over accounts, bank participated, at least indirectly, in fraudulent Ponzi scheme.").

         Eighth, FEB undertook "some part in directing the enterprise's affairs" by directing its agents to fraudulently conceal the CBG enterprise's proceeds, including by: directing C&E Credit, to mail hundreds of mortgage coupon booklets fraudulently demanding payment by "First Eastern Bank", when CBG was the payee (RD 324, pp. 50-52, Ex. C&E-4); directing its agents to fraudulently mail IRS 1099 forms on behalf of the CBG enterprise, fraudulently stating the payee of the mortgagee payments was "First Eastern" (RD 324, Ex. C&E-8); concealing the "First Eastern for CBG Ltd" DIME cash collateral account from the bankruptcy court, and directing its agents, to continue to deposit therein the enterprise's proceeds (RD 324, pp. 135-139; RD 325, Ex. C&E-26; RD 315, pp. 153-160, Ex. MLA-31); by the President of FEB, himself, misrepresenting under penalty of perjury FEB's identification number (RD 311, pp. 32-37, Ex. DSB-6). See, e.g., In re American Honda Motor Co., 958 F. Supp. 1045, 1056-59 (D. Md. 1997) (Reves satisfied based on defendant's concealment); FDIC v. First Interstate Bank of Denver, 937 F. Supp. 1461 (D. Colo. 1996) (Reves satisfied based on defendant's control of bank account, and concealment of transactions.); City of Phila. v. Public Employees Benefit Serv. Corp., 842 F. Supp. 827, 835 (E.D. Pa. 1994); Nebraska Sec. Bank v. Dain Bosworth, Inc., 838 F. Supp. 1362, 1367 (D. Neb. 1993) (holding Reves test met where defendant served "as 'paying agent,'"). As discussed supra, this also included predicate acts of bankruptcy fraud (18 U.S.C. 1961(1)(D)), and money laundering (18 U.S.C. 1956).

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         Ninth, FEB undertook "some part in directing the enterprise's affairs" by, on or about August 13, 1992, hiring a management company, MLA, with no bankruptcy court approval, in order to formulate a budget for VOL, a management agreement, and to operate and manage the enterprise. (RD 315, Ex. MLA 1 to MLA 9; RD 317, Ex. KA-38). FEB expressly issued a directive to CBG, on or about October 2, 1992, through MLA:

         This is to confirm our conversation at your offices on Monday afternoon, September 28th. In discussions with Charles Stambaugh, Vice-President of First Eastern Bank, as recently as today, it is absolutely essential that any and all electrical usage be reduced to the barest minimum. The bank will only fund the motel offices, security gate houses and vandal lighting. They will discontinue payment immediately if that directive is not observed. I will be on property starting at 9:00 A.M. on Monday, October 5th, at Valley of the Lakes with MLA. s Associate, Gilbert Werner- Vice-President, who will confirm, building by building, meter by meter, that this has been accomplished. I must confirm our findings with the bank by the end of the work day on Monday.

(RD 315, Ex. MLA 5) (emphasis added). See, e.g., Handeen v. Lemaire, 112 F.3d 1339, 1349-50 (8th Cir. 1997) (Reves satisfied based on the defendant's control over a bankruptcy estate, the RICO enterprise, which was "abdicated" to the defendant by a debtor in bankruptcy).

         Tenth, FEB directed the enterprise by placing the enterprise's electric utility accounts in its name in order to control the enterprise (e.g., CBG's Engineering/Administration Building, Acct. No. 221-2820-102 and CBG's Acct. No. 229-0128-002) (RD 317, Ex. KA-33 to KA-36). See Reves, 507 U.S. 170, 185.

         Eleventh, FEB undertook "some part in directing the enterprise's affairs" through the Agreement of October 22, 1992, whereby FEB obtained extensive powers to operate and manage the RICO enterprise, including: forcing CBG to retain MLA as "managing agent"; imposing a budget and "operational development plan" on CBG; having MLA file reports with FEB; and authorizing MLA to mass mail the property owners. (RD 315, Ex. MLA-10 to MLA 20). See, e.g., Handeen v. Lemaire, 112 F.3d 1339, 1349-50 (8th Cir. 1997) (Reves met based on "abdicated" power over a bankruptcy estate, enterprise.). Since FEB fraudulently concealed CBG' cash collateral from the bankruptcy court, it also committed bankruptcy fraud, as discussed supra. (RD 315, Ex. MLA-10).

         Twelfth, FEB directed the enterprise by entering into agreements, with CBG and MLA regarding operating and managing VOL, i.e., on or about December 29, 1992 (RD 315, Ex. MLA 34), and January 13, 1993 (RD 315, Ex. MLA-35). See, e.g., MCM Partners v. Andrews-Bartlett & Assocs., 62 F.3d 967, 978-79 (7th Cir. 1995).

         Thirteenth, FEB directed the enterprise by permitting CBG to remain in control of VOL, for approximately four years, after the stipulation of October 22, 1992 expired. (RD 315, Ex. MLA-10). See, e.g., Handeen, 112 F.3d at

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1349-50.

         Fourteenth, FEB communicated directly with VOL lot owners, and misrepresented FEB as the owner of the CBG purchase money mortgage notes. (RD 317, Ex. KA-43, KA-47 to KA-57, KA-59 to KA-63; RD 325, Ex. C&E 29-43). See, e.g., Thomas v. Ross & Hardies, 9 F. Supp. 2d 547, 554-55 (D. Md. 1998).

         Fifteenth, FEB participated in CBG's 8% building fee extortion scheme; and knowingly advanced funds to CBG for lots, which were not registered with HUD, as noted supra. See, e.g., United States v. Parise, 159 F.3d 790 (3d Cir. 1998) (Reves satisfied based on outsider's "essential role in implementing the scheme"). Furthermore, in this respect, FEB undertook predicate acts of extortion, and securities fraud. See SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1945); Tober v. Charnita, Inc., 58 F.R.D. 74 (M.D. Pa. 1973). See, e.g., United States v. Weisman, 624 F.2d 1118, 1124 (2d Cir.), (conspiring to commit securities fraud is a predicate act), cert. denied, 449 U.S. 871 (1980).

III. It was a clear error of law, to have granted FEB's summary judgment motion for claims based on 18 U.S.C. 1962(a), (c) and (d), since FEB is liable for RICO violations pursuant to respondeat superior.

         It was a clear error of law to have granted FEB's motion for summary judgment, when FEB's agents -- MLA, C&E Credit, and C&E Collections--clearly operated and managed the RICO enterprise, in violation of 18 U.S.C. 1962(a), (c) and (d); particularly since this Honorable Court denied MLA's motion for summary judgment on the RICO claims. (RD 315, Ex. MLA-1 to MLA-10; RD 314, Ex C&E 50; RD 324, Ex. C&E 2). It is well settled in the Third Circuit that liability attaches pursuant to 18 U.S.C. 1962(a), (c) and (d) to a principal, pursuant to respondeat superior, who participated in conducting a RICO enterprise, through an agent. See Petro-Tech, Inc. v. Western Co. of N. Am., 824 F.2d 1349, 1358 (3d Cir. 1987) ("We therefore hold that the doctrine of respondeat superior may be applied under RICO where the structure of the statute does not otherwise forbid it."); Bloch v. Prudential-Bache Sec., 707 F. Supp. 189, 193 (W.D. Pa. 1989) (denying summary judgment based on respondeat superior) (citing Petro-Tech); Frankford Trust Co. v. Advest, No. 93-329, 1997 U.S. Dist. LEXIS 3441 (E.D. Pa. January 14, 1997) ("However, our Court of Appeals has held that the doctrine of respondeat superior may be applied under section 1962(c) to the circumstances alleged here.") (citing Petro-Tech). See also Crowe v. Henry, 43 F.3d 198, 206 (5th Cir. 1995); Davis v. Mutual Life Ins. Co. of New York, 6 F.3d 367, 371-80 (6th Cir. 1993) (following "Third Circuit, which finds vicarious liability under section 1962(c) to be 'appropriate' in cases like this one, where the corporate principal is

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distinct from the RICO enterprise and 'is alleged to have attempted to benefit from its employees' racketeering activity.") (citing Petro-Tech); Quick v. Peoples Bank of Cullam County, 993 F.2d 793, 798 (11th Cir. 1993) (holding bank vicariously liable for RICO violations); Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1306 (7th Cir. 1987), cert. denied, 492 U.S. 917 (1989); Jerry Kubecka, Inc. v. Avellino, 898 F. Supp. 963, 970 (E.D.N.Y. 1995).

IV. It was a clear error of law, contravening Salinas, to grant summary judgment to FEB for conspiring to violate RICO, pursuant to 18 U.S.C. 1962(d), when the record supports a finding of "aiding and abetting".

         As discussed supra, the Rolo panel expressly limited its holding, and certainly held nothing about whether aiding and abetting, or facilitating, the RICO pattern of racketeering is actionable under the RICO conspiracy provision of 18 U.S.C. 1962(d), without a showing that a defendant "conducted" the affairs of the enterprise, the language stated in 18 U.S.C. 1962(c). In Salinas v. United States, 522 U.S. 52 (1997), the Supreme Court ruled that the RICO conspiracy statute, 18 U.S.C. 1962(d), is to be read broadly, according to the plain meaning of "to conspire", pursuant to the "well-established" law of conspiracy, alone, without adding any additional elements, ruling:

The relevant statutory phrase in 1962(d) is "to conspire." We presume Congress intended to use the term in its conventional sense, and certain well-established principles follow. A conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offense. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 253-254, 84 L. Ed. 1129, 60 S. Ct. 811 (1940). The partners in the criminal plan must agree to pursue the same criminal objective and may divide up the work, yet each is responsible for the acts of each other. See Pinkerton v. United States, 328 U.S. 640, 646, 90 L. Ed. 1489, 66 S. Ct. 1180 (1946) ("And so long as the partnership in crime continues, the partners act for each other in carrying it forward").

Salinas, 522 U.S. at 63-64 (emphasis added).

         In the wake of Salinas, it is well settled that the requirement that a defendant "conduct the affairs of the enterprise" has no application to 18 U.S.C. 1962(d), which is controlled solely by the "well-established principles" of conspiracy law. See, e.g., BCCI Holdings v. Khalil, 56 F. Supp. 2d 14, 60 (D.D.C. 1999) (a civil RICO case involving a scheme to conceal insolvency, in which the district court, following Salinas, held: "A person can conspire to violate 1962(c) even when that person is not in a position to operate or manage the enterprise."); Newscope Tech, Ltd. v. Ameritech Info. Indus. Servs., No. 99 C 52, 1999 U.S. Dist. LEXIS 4656, at *14-15 (N.D. Ill. April 5, 1999) ("Similarly, a defendant may be liable under 1962(d) even if he cannot be characterized as an operator or manager of a RICO enterprise under Reves v. Ernst & Young, 507 U.S. 170, 122 L. Ed. 2d 525, 113 S. Ct. 1163

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(1993)."). See also MCM Partners v. Andrews-Bartlett & Assocs., 62 F.3d 967, 979 (7th Cir. 1995) (holding RICO conspirator need not be operator or manager of enterprise); United States v. Quintanilla, 2 F.3d 1469, 1485 (7th Cir. 1993) (Reves test inapplicable to 18 U.S.C. 1962(d)) (citing United States v. Neapolitan, 791 F.2d 489 (7th Cir.), cert. denied, 479 U.S. 940 (1986)); United States v. Adams, 759 F.2d 1099, 1116 (3d Cir.), ("We now decide that to be convicted of a RICO conspiracy, a defendant must agree only to the commission of the predicate acts, and need not agree to commit personally those acts.") cert. denied, 474 U.S. 906, 971 (1985); Jones v. Meridian Towers Apartments, Inc., 816 F. Supp. 762, 773 (D.D.C. 1993) (holding under "general conspiracy law" no operation or management requirement need be shown for 1962(d) liability).

         Moreover, the Supreme Court held in Salinas that an aiding and abetting defendant, i.e., one who knowingly "facilitates" or "supports" violations of RICO is liable for violating the RICO conspiracy provision, 18 U.S.C. 1962(d); expressly holding:

If conspirators have a plan which calls for some conspirators to perpetrate the crime and others to provide support, the supporters are as guilty as the perpetrators. As Justice Holmes observed: "Plainly a person may conspire for the commission of a crime by a third person." United States v. Holte, 236 U.S. 140, 144, 59 L. Ed. 504, 35 S. Ct. 271 (1915). A person, moreover, may be liable for conspiracy even though he was incapable of committing the substantive offense. United States v. Rabinowich, 238 U.S. 78, 86, 59 L. Ed. 1211, 35 S. Ct. 682 (1915).

Salinas, 522 U.S. at 64 (emphasis added). See also Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229 (2d Cir. 1999) (citing Salinas); Newscope Tech, Ltd. v. Ameritech Info. Indus. Servs., No. 99 C 52, 1999 U.S. Dist. LEXIS 4656, at *12-13 (N.D. Ill. April 5, 1999 ) (Salinas "Court held that "[a] conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor.") (citing Salinas); First Am. Corp. v. Al-Nahyan, 17 F. Supp. 2d 10 (D.D.C. 1998) (district court permitted RICO conspiracy based on aiding and abetting allegations citing Salinas); United States v. Hickey, 16 F. Supp. 2d 223 (E.D.N.Y. 1998)("[A] conspiracy conviction may be sustained under subsection (d) if a co-conspirator committed at least two acts of racketeering and the defendant "knew about and agreed to facilitate the scheme.") (citing Salinas, 118 S. Ct. 478). (emphasis added).

         The Supreme Court expressly held, in Salinas, that all that needs to be shown to establish liability pursuant to 18 U.S.C. 1962(d) is the following:

A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal

 

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endeavor. He may do so in any number of ways short of agreeing to undertake all of the acts necessary for the crime's completion. One can be a conspirator by agreeing to facilitate only some of the acts leading to the substantive offense. It is elementary that a conspiracy may exist and be punished whether or not the substantive crime ensues, for the conspiracy is a distinct evil, dangerous to the public, and so punishable in itself. See Callanan v. United States, 364 U.S. 587, 594, 5 L. Ed. 2d 312, 81 S. Ct. 321 (1961).

Salinas, 522 U.S. at 65 (emphasis added). See also United States v. Diaz, 176 F.3d 52 (2d Cir. 1999) (citing Salinas); United States v. Blarek, No. 98-1291-2, 1998 U.S. App. LEXIS 31795, at *5-6 (2d Cir. December 23, 1998) (citing Salinas, 118 S. Ct. at 477); Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc., 7 F. Supp. 2d 277 (S.D.N.Y. 1998) ("RICO conspiracy exists if alleged conspirator knew of conspiracy's goals and agreed to facilitate them") (citing Salinas).

         Consequently, it was an error of law, directly contravening Salinas, to have imposed the additional requirement, that a showing had to be made that FEB "conducted the affairs of an enterprise", with respect to 18 U.S.C. 1962(d). Second, it was a clear error of law, to grant summary judgment to FEB for conspiring to commit RICO, pursuant to 18 U.S.C. 1962(d), while finding that FEB facilitated the conduct of CBG. (Mem. pp. 9-11).

V. It was a clear error of law to have found that FEB did not commit predicate acts of racketeering, when the Court found "aiding and abetting" by FEB, since "aiding and abetting" of the underlying predicate acts constitutes a predicate act, in itself.

         Apart from all of the evidence regarding FEB's commission of predicate acts, discussed supra, it was also a clear error of law to have found that FEB did not commit predicate acts of racketeering, itself, when the record sustains a finding of aiding and abetting of predicate acts by FEB (Mem. p. 10). Specifically, although Central Bank may negate RICO liability for aiding and abetting the RICO substantive violation, i.e., by applying the federal aiding and abetting statute, 18 U.S.C. 2, directly to 18 U.S.C. 1962(c), it does not negate aiding and abetting with respect to the underlying predicate acts. See, e.g., In re American Honda Motor Co., 958 F. Supp. 1045, 1058 (D. Md. 1997), where the district court explained this distinction:

This does not mean, however, that aiding and abetting principles do not apply in considering whether a defendant has participated in the enterprise "through a pattern of racketeering activity," i.e., whether he has committed at least two predicate acts. See Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258, 270 (3d Cir. 1995).

See also United States v. Brooklier, 685 F.2d 1208, 1216 (9th Cir. 1982), (conspiring to extort is proper predicate act, in itself), cert. denied, 459 U.S. 1206 (1983).

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VI. The Memorandum erroneously draws a number of inferences, regarding facts in dispute in the light most favorable to the moving parties.

         The Mem. erroneously drew a number of inferences in the light most favorable to FEB, including: (a) that "First Eastern facilitated the conduct of CBG's business by providing financing which it had a contractual obligation to do" when FEB had no contractual obligation as of October of 1990 when CBG defaulted on its loan altogether, and its role was not limited to financing; (b) that "In the early years (1987-1989) of CBG's management, Valley of Lakes did well both in the construction of amenities and in the sale of lots" when CBG failed to complete any significant amenities, at all; (c) that "With the downturn in the economy after 1990, however, lot sales declined and CBG encountered financial difficulties" when CBG's defaults were caused by fraud, not lack of money; (d) that FEB "took other actions to ensure that the development did not collapse due to cash flow difficulties" when the development "had collapsed", i.e., CBG declared bankruptcy, all construction stopped, and FEB ordered facilities closed; (e) that FEB " took no action which would cause it to undertake any obligation as the owner or developer of the project" which contravenes Supreme Court precedent, as discussed supra. (See Mem. pp. 7-11). See White v. Westinghouse Elec. Co., 862 F.2d 56, 59 (3d Cir. 1988) (nonmoving party is entitled to all inferences).

VII. It was a mistake, and an error of law, to deny Plaintiffs' unopposed motion to supplement and amend the complaint, on the ground that "the RICO claims were barred by the statute of limitations" when this Honorable Court did not, in fact, find that the RICO claims were barred by the statute of limitations; nor could the statute of limitations apply to predicate acts which took place after the complaint was filed.

         Plaintiffs' motion to supplement and amend the complaint (RD 252) was unopposed by any party. See LR 7.6. The Mem. denied said motion, as follows:

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

(Mem. p. 2.)

         First, as a reading of the entire Mem., demonstrates, however, this Honorable Court did not, in fact, find that "the RICO claims are barred by the statute of limitations& ." (See Mem. pp. 5-11). In fact, the Court found that the statute of limitations defense, with respect to the RICO claims, "plainly requires consideration of widely differing factual circumstances". (Mem. p. 5). It is well settled that denial of leave to amend for inapplicable reasons is an

15


error of law. See, e.g., Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 881 (9th Cir. 1999) (reversing denial of leave to amend where reasons stated were inapplicable).

         Moreover, the statute of limitations defense, obviously, could not apply to predicate acts which "took place after the filing of the original complaint". See Fed. R. Civ. P. 15(c); Berkshire Fashions, Inc. v. M.V. Hakusan II, 954 F.2d 874 (3d Cir. 1992); Haas v. Pittsburgh Nat'l Bank, 526 F.2d 1083 (3d Cir. 1975) (holding amendment of the complaint relates back to the date of the filing of the complaint); Bryan v. Associated Container Transp., 837 F. Supp. 633, 642-43 (D.N.J. 1993). Similarly, said defense does not bar any predicate acts which plaintiffs only uncovered through discovery. See, e.g., Gunter v. Ridgewood Energy Corp., 32 F. Supp. 2d 166, 173 (D.N.J. 1998).

         Consequently, there is no question that it was a clear error of law to find that amendment would be futile. See, e.g., Hishon v. King & Spalding, 467 U.S. 69 (1984) (holding amendment would only be futile if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations" contained in the newly amended complaint.); Foman v. Davis, 371 U.S. 178 (1962); Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1391 (3d Cir. 1994).

VIII. It was an error to grant summary judgment for FEB on Plaintiffs' common law fraud claim based on FEB's statute of limitations defense because, inter alia : not only did numerous misrepresentations take place within the limitations period, but no one could know "the financial status of CBG" because FEB committed a massive fraud upon the bankruptcy court.

         First, it was a an error to conclude that Plaintiffs' common law fraud claims against FEB were only "based on the failure of First Eastern to disclose the precarious financial condition of CBG, a fact which prevented the completion of the development." (Mem. p. 11). In fact, FEB through its agents made a number of fraudulent mass mailings within the statute of limitations period. For example, on or about, November 23, 1992, MLA with FEB's approval mass mailed all VOL property owners fraudulently demanding payment for CBG. s past fees, for services not rendered. (Complaint, Ex. 150; RD 315, Ex. MLA-12 & MLA-13). Similarly, on December 1, 1992, MLA with FEB's authorization made a mass mailing fraudulently imposing penalties upon plaintiffs, and fraudulently promising "services of managing and maintaining the Valley including security, snow removal, landscape maintenance, pool, tennis, roads, sewer and water", many of which were never delivered. (RD 313, pp. 17-35; RD 315, Ex. MLA-14).

         Second, FEB took numerous fraudulent actions within the two years immediately preceding the filing of the

16


complaint, including inter alia: fraudulently obtaining bankruptcy court approval for the October 22, 1992 agreement, while fraudulently concealing the DIME cash collateral, discussed supra, thereby depriving all property owners of VOL services (RD 311, Ex. DSB-7 [pp. Dime-110 to Dime-239]; RD 315, Ex. MLA 11; RD 322, Ex. CS-12); fraudulently misrepresenting FEB as the payee on collections of C&E Collections (RD 314, pp. 61-84); entering into a secret agreement, on December 29, 1992, fraudulently concealing CBG's account receivables (RD 315, Ex. MLA 34); entering into a secret agreement, on January 13, 1993, with CBG to fraudulently cut VOL services (RD 315, Ex. MLA-35). Each of these fraudulent actions are actionable by plaintiffs. See, e.g., Learjet Corp. v. Spenlinhauer, 901 F.2d 198 (1st Cir. 1990); Peerless Mills, Inc. v. AT&T, 527 F.2d 445 (2d Cir. 1975); Nader v. Allegheny Airlines, Inc., 512 F.2d 527 (D.C. Cir. 1975), rev. d on other grounds, 426 U.S. 290 (1976).

         Third, it was a clear error of law to find that those fraud claims against FEB that were based on CBG's failure to complete the development necessarily accrued, as a matter of law, on CBG's bankruptcy filing, on March 30, 1992. (Mem. pp. 11-12). The record shows that neither a reasonable person, nor the bankruptcy court, itself, would know "the financial status of CBG and the likelihood of any substantial expenditure on infrastructure" because FEB committed a massive fraud upon the bankruptcy court, as discussed supra. Moreover, after the bankruptcy filing, CBG continued to lull all of the property owners into inaction, upon CBG's bankruptcy, by mass mailing all of the property owners with assurances that CBG's bankruptcy filing was made for the purpose of completing the VOL infrastructure (e.g., Complaint, Ex. 143 & 155). FEB itself, through MLA, assured the property owners that FEB had entered into an agreement to assist CBG (e.g., Complaint, Ex. 147, 150, 151, 173, 176). Consequently, there is a material question of fact for the jury with respect to when plaintiffs should have reasonably known that FEB had committed fraud. See, e.g., Van Buskirk v. Carey Canadian Mines, Ltd., 760 F.2d 481, 498 (3d Cir. 1985) ("Since the applicability of the statute of limitations usually involves questions of fact for the jury, defendants bear a heavy burden in seeking to establish as a matter of law that the challenged claims are barred."). See also Ayers v. Morgan, 397 Pa. 282, 154 A.2d 788 (1959).

         Finally, it was a clear error of law to have not applied the common law doctrines of fraudulent concealment, and equitable estoppel, since the explicit nature of FEB's schemes were intended to conceal the fraud. (See complaint, 194-399). See, e.g., Walters v. Ditzler, 424 Pa. 445, 449, 227 A.2d 833 (1967); Nesbitt v. Erie Coach Co., 416 Pa. 89, 96, 204 A.2d 473 (1964); Schwab v. Cornell, 306 Pa. 536, 160 A. 449 (1932).

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IX. It was a clear error to have granted summary judgment for Ralph Conte on the RICO claims based on "the statute of limitations defense discussed with respect to First Eastern's motion for summary judgment" because said defense was not found applicable to FEB; nor did Ralph Conte move for summary judgment on said defense with respect to the RICO claims.

         The Mem. of September 30, 1999, found that Ralph Conte was entitled to summary judgment on the RICO claims based on his statute of limitations defense, as a matter of law, on the following sole ground: "With respect to Count I, the statute of limitations defense discussed with respect to First Eastern's motion for summary judgment applies as well to Ralph Conte's motion." (Mem. p. 16). First, FEB was not granted summary judgment on the RICO claims based on its statute of limitations defense; indeed, the defense was not even discussed. (See Mem. pp. 9-11). Second, the Mem., itself, in discussing the statute of limitations defense with respect to certification, found that there were issues of material fact, with respect to this defense, concluding that the statute of limitations defense "plainly requires consideration of widely differing factual circumstances& ." (Mem. pp. 3-5). Consequently, it was a clear error of law and mistake to have granted Ralph Conte's motion for summary judgment, on this basis. See, e.g., Carter v. Stanton, 405 U.S. 669 (1972) (Supreme Court vacated summary judgment, where district court's order was unclear on its grounds).

         Third, defendant Ralph Conte, himself, never moved for summary judgment on the RICO claims based on the statute of limitations defense. (See RD 286; RD 297). See, Bishop v. Wood, 426 U.S. 341 (1976); Walker v. Missouri Dep. t. of Corrections, 138 F.3d 740, 742 (8th Cir. 1998) (holding district court erred in granting summary judgment on ground not raised in motion); Brooks v. Hussman Corp., 878 F.2d 115 (3d Cir. 1989).

         Finally, it would be a clear error of law to sustain the statute of limitations defense, as a matter of law, with respect the RICO claims because the primary injuries from the RICO claims took place within the four year limitations period, even without the application of any discovery rule, as discussed infra. Despite Ralph Conte's admitted actual knowledge of CBG's insolvency CBG, as of November of 1990 (RD 353, p. 82), he continued to take numerous actions on behalf of CBG, after said date, as Plaintiffs have detailed in Plaintiffs' response to defendant Conte's amended separate statement, which is incorporated herein by reference. (RD 346, e.g., no. 3). For example, Ralph Conte admits that he accepted a payment of "$2,000 in 1991 for the use of his license to be broker of record for New Jersey." (RD 339, p. 6, 20). In part, resulting from Ralph Conte's fraudulent actions in permitting CBG to use his broker's license, CBG was able to obtain extensions from the Federal government, HUD, which granted CBG completion date's which were all within RICO's four year statute of limitations, with no discovery rule. (See RD 306,

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Ex. A). Further, CBG made numerous fraudulent sales to New Jersey residents, after November of 1990, and in 1991. (RD 375, nos. 3 & 17). By participating in the pattern of racketeering, with respect to said sales, Mr. Conte is liable to the plaintiffs. See H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1989). Consequently, there is no question that, even if Mr. Conte had moved for summary judgment, with respect to the RICO claims, based on the statute of limitations ground, he could not have met his heavy legal burden. See, e.g., Van Buskirk v. Carey Canadian Mines, Ltd., 760 F.2d 481, 498 (3d Cir. 1985); ("defendants bear a heavy burden in seeking to establish as a matter of law that the challenged claims are barred.").

X. It was a clear error of law, to have found that that the "associated with a RICO enterprise" element can not be established, as a matter of law, with respect to Arlene Rainess, when she was "aware of at least the general existence of the [CBG] enterprise", and the Court concluded that "the evidence may support a single instance of fraud."

         It was a clear error of law, contravening Supreme Court and Third Circuit precedent, to conclude, with respect to defendant Arlene Rainess' motion for summary judgment, that although "plaintiffs allegations and evidence may support a claim for a single instance of fraud", that there is no material fact, for the jury to decide, " that she was 'associated' with a RICO enterprise", with respect to the RICO claims of 18 U.S.C. 1962(c), (d). (Mem. pp. 14-16). The basis for this conclusion was: "That a party 'knows' someone who may be part of an enterprise hardly 'associates' that party with the enterprise." Id.

         The Supreme Court has expressly held, however, that in the same way that mailing a letter is not a crime, yet it is an element of mail fraud: "an enterprise includes any union or group of individuals associated in fact" irrespective of whether the association is legitimate or illegitimate. See United States v. Turkette, 452 U.S. 576, 580-81 (1981) (emphasis added). Specifically, the Supreme Court held:

The term "enterprise" is defined as including "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 1961 (4). There is no restriction upon the associations embraced by the definition: an enterprise includes any union or group of individuals associated in fact. On its face, the definition appears to include both legitimate and illegitimate enterprises within its scope; it no more excludes criminal enterprises than it does legitimate ones.

Id. (emphasis added).

         In the wake of Turkette, it is well settled that family and friends of more permanent members of enterprises may be "associated in fact" with the enterprise. See, e.g., United States v. Parise, 159 F.3d 790 (3d Cir. 1998) ("The government produced evidence that Parise Jr. was acting at the direction of his father, the union President -- clearly

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upper level management -- to carry out the illegal activities of the NMU Enterprise.") (emphasis added). In Parise, the Third Circuit held:

Parise Jr. also appears to be arguing that he could only have been found to have "associated with" the organization in which he held a formal position, but the language of the RICO statute leaves no room for this contention. The law explicitly states that a RICO defendant must be employed by or associated with an enterprise. 18 U.S.C. 1962(c). For the purposes of RICO, the threshold showing of "association" is not difficult to establish: it is satisfied by proof that the defendant was "aware of at least the general existence of the enterprise named in the indictment." United States v. Eufrasio, 935 F.2d 553, 577 n.29 (3d Cir. 1991) (quoting United States v. Castellano, 610 F. Supp. 1359, 1401-02 (S.D.N.Y. 1985)); see also Console, 13 F.3d at 653.

Id. (emphasis added). See also R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350, 1351-52 (5th Cir. 1985) ("The term . enterprise. is defined broadly to include any "group of individuals associated in fact. 18 U.S.C. 1961(4).").

         There is no question that Arlene Rainess Conte was aware of the general existence of the CBG RICO enterprise, which is a "legitimate partnership" within the meaning of 18 U.S.C. 1961(4), and that Ralph Conte, with whom she co-habitated, was employed by CBG; and that Ralph Conte was associated in fact with defendant Frank Cedrone, and CBG. (See 345; RD 346; RD 348; RD 349; RD 353; RD 354, pp. 20-66; RD 375). Mrs. Conte permitted Ralph Conte to use her house to undertake the CBG enterprise's business. (RD 353, pp. 17-18 & 27-33). In fact, Mrs. Conte knew Frank Cedrone personally, and directed him to find a house in VOL, based on his position with CBG, as she testified:

I personally took it upon myself to call Frank [Cedrone] and tell him, 'If anything opens up in the Valley in a certain price range, keep my cousin in mind.' And that's how this started.

(RD 354, pp. 29 & 45-50).

         Consequently, at minimum, there is a question of material fact for the jury as to whether defendant Arlene Rainess meets the "threshold showing of 'association' " which the Third Circuit pointed out in Parise "is not difficult to establish". See, e.g., United States v. Riccobene, 709 F.2d 214, 222 (3d Cir. 1983) (Third Circuit citing Turkette held issue of a RICO enterprise is a fact intensive question for the jury).

         Furthermore, the Mem.'s conclusion that there is "no evidence that Arlene Conte knew anything about the purchase from the Messinas by Paul Malone Associates" is directly contradicted by the record. (Mem. p. 15). In fact Mrs. Conte expressly testified that defendant Frank M. Cedrone had told her that the Messinas owned lot A-19. (RD 354, p. 118). She further testified that defendant Frank M. Cedrone later told her that Paul Malone owned the house on lot A-19. (RD 354, pp. 33 & 45-50). Moreover, the fraudulent purchase by Paul Malone was only part of

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the fraud specified. The complaint, and Plaintiff Miele's affidavit, expressly allege that it was a fraud perpetrated on Plaintiff John Miele to have Arlene Rainess' name placed on the deed, as a joint owner with right of survivorship. (Complaint, 153, 161, Ex. 87). Indeed, Mrs. Conte, herself, testified that her name was placed on the deed, solely so that she could sell the house in order to give the proceeds to the heirs of John Miele. (RD 354, pp. 35-40 & 123-124).

         In fact, the complaint and record herein establish, at minimum, a case akin to United States v. Quintanilla, 2 F.3d 1469 (7th Cir. 1993), wherein the Seventh Circuit noted that the defendant while assisting her boyfriend in submitting false proposals, did not operate or manage the enterprise in any way, yet was still liable for conspiring to violate RICO. See also Salinas v. United States, 522 U.S. 52 (1997); H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1989) (participating in one scheme is sufficient for RICO liability).

XI. Decertification was based on errors regarding the beginning date of the class period; and failure to apply the separate accrual rule, and consideration of the merits of unique defenses.

         The Mem.'s basis for decertification that "Since the statute of limitations defense asserted by defendants plainly has merit, and plainly requires consideration of widely differing factual circumstances" is based on a number of mistakes, and errors of law. First, the Mem.'s premise that "The named plaintiffs in this case allege predicate acts which begin in the 1970's and purportedly continue today" is clearly a mistake, which contradicts the Certification Order, itself, Order # 2 of June 19, 1996, and the allegations of the complaint. The class, itself, and Subclasses B, C, D and E are expressly defined as including only persons "that since September 30, 1986, have purchased or owned lots, whether improved or unimproved, in the 'Valley of Lakes' & ." See Order #2 of June 19, 1996. (RD 52) (emphasis added). Subclass A is defined as persons who "since September 30, 1986, have purchased unimproved lots& " Id. The complaint, itself, does not allege any causes of action against the previous developer, upon which CBG simply modeled its land fraud scheme, nor the current developer, that succeeded CBG. (See, e.g., Complaint, 50). Consequently, the Mem.'s conclusion that "Clearly, a different analysis would apply to a person who buys based on a promise of a lake and golf course which do not occur when there is an extra 13-14 years to realize that these amenities have not appeared" (Mem. p. 4) is based on a false premise; namely, that the complaint seeks recovery for any fraud in the sale of lots from the previous developer.

         More importantly, it was a clear error of law to have ignored RICO's "separate accrual rule" under which a new claim accrues, triggering a new four year limitations period, for each new injury caused by a RICO predicate. See

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 Klehr v. A.O. Smith Corp., 521 U.S. 179, 188-90 (1997) ("Similarly, some Circuits have adopted a 'separate accrual' rule in civil RICO cases, under which the commission of a separable, new predicate act within a-year limitations period permits a plaintiff to recover for the additional damages caused by that act.") (emphasis added); Gunter v. Ridgewood Energy Corp., 32 F. Supp. 2d 166, (D.N.J. 1998) ("It is injury, not racketeering activity, which triggers the accrual of the statute of limitations for a RICO action."). See also Bingham v. Zolt, 66 F.3d 553, 559 (2d Cir. 1995), cert. denied, 517 U.S. 1134 (1996); Bivens Gardens Office Bldg. v. Barnett Bank, 906 F.2d 1546, 1554 (11th Cir. 1990), cert. denied, 500 U.S. 910 (1991).

         Based on the "separate accrual rule" each of the primary injuries and schemes, in the Primary Class, took place well within the statute of limitations period, irrespective of whether any previous claims should have been discovered. See, Klehr, 521 U.S. 179, 188-90 (1997) ("commission of a separable, new predicate act within a-year limitations period permits a plaintiff to recover for the additional damages caused by that act."). First, with respect to the land fraud scheme (Complaint, 64-193), the record shows that CBG obtained extensions from the Federal government, U.S. Department of Housing and Urban Development, which granted CBG completion date's which were all within RICO's four year statute of limitations, with no discovery rule applied: Lake Algonquin by December, 1990; the first nine holes of the golf course by September, 1990; the second nine holes of the golf course by September, 1991; the road system by December, 1991; the water system by December, 1991; and the sewer system by December, 1991. (See RD 306, Ex. A). All of the property owners had a right to rely on these dates, for any claims based on CBG's failure to complete the development, regardless of whether or not they received the particular property report because these completion dates were approved by HUD, based on CBG's misrepresentations to HUD. See, e.g., Rodriguez v. McKinney, 156 F.R.D. 112, 116 (E.D. Pa. 1994) (holding common issues predominated for class certification based on misrepresentations that "defendant represented to the government" and fact that government took actions "based on those representations" which harmed class members). See also Phoenix Home Life Mut. Ins. Co. v. Brown, 857 F. Supp. 7, 10 (W.D.N.Y. 1994); Pine Ridge Recycling, Inc. v. Butts County, 855 F. Supp. 1264 (M.D. Ga. 1994). Consequently, since any RICO claims arising from CBG's land fraud scheme all accrued within RICO's four year statute of limitations, based on the completion dates which the government granted to CBG, "the knowledge and sophistication" of each class member at the time they purchased their lot is irrelevant in the adjudication of the issue of the accrual date of the RICO statute of limitations.

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         Second, FEB's Scheme to conceal the insolvency of CBG alleged in the complaint (which began prior to the injuries resulting from the concealment of CBG. s insolvency) was expressly alleged in the complaint to have begun on or about November of 1990. (Complaint, 194).

         Third, all of the subsequent schemes alleged in the complaint, only began upon CBG's bankruptcy filing, after March 30, 1992, well within the RICO statute of limitations period: namely, "Scheme To Continue Racketeering Using Chapter 11 Bankruptcy Protection" (Complaint, 200-211); "Scheme Of First Eastern Bank To Operate And Manage The Racketeering Enterprise" (Complaint, 212-232); "Scheme Of First Eastern Bank And Defendants To Conceal Racketeering Activity Prior To Its Merger With P.N.C. Bank And To Continue Pattern Of Racketeering Indefinitely"(Complaint, 233-339).

         Similarly, with respect to all of the RICO violations committed by defendants MLA Management Co., Inc., and Property Owners Association ("POA"), there are no statute of limitations issues because both of these defendants only took actions in the Valley of Lakes beginning in 1992. (Complaint, 200-339).

         With respect to Subclass D, there is no question that all of the fraudulent actions that occurred within the immediate two years prior to the filing of the complaint have no statute of limitations issues to be addressed, whatsoever: e.g., the frauds occurring after the approval for the Agreement of October 22, 1992; and all of the mass mailings, after June 17, 1992, such as the mass mailing of December 1, 1992, as discussed supra. (RD 315, Ex. MLA-14.).

         Further, Subclass B, for civil rights violations pursuant to 42 U.S.C. 1983, was certified pursuant to Fed. R. Civ. P. 23(b)(2), which does not require that common issues predominate. See, e.g., Buycks-Roberson v. Citibank Fed. Sav. Bank, 162 F.R.D. 322 (N.D. Ill. 1995).

         Consequently, since the bulk of class members' claims are clearly within the statute of limitations period, it was a clear error of law to have found that the "statute of limitations defense asserted by defendants plainly has merit" since this constitutes an improper consideration of the unique merits of class members' claims, which is not proper under Fed. R. Civ. P. 23. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) (holding in deciding certification it is not permissible to consider the merits of claims) (quoting Miller v. Mackey International, 452 F.2d 424 (5th Cir. 1971)). See also Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 924 (3d Cir. 1992) ("'Given a sufficient nucleus or common questions, the presence of the individual issue of compliance with the statute of limitations has

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not prevented certification of class actions in securities cases.'") (quoting Cameron v. E.M. Adams & Co., 547 F.2d 473, 478 (9th Cir. 1976)); Neuberger v. Shapiro, civil action no. 97-7947, 1998 U.S. Dist. LEXIS 18807; Fed. Sec. L. Rep. (CCH) 90,339 (E.D. Pa. November 25, 1998) ("As to the existence of so-called unique defenses, these entail the merits of the case, which are not within the purview of a motion for class certification."); Gunter v. Ridgewood Energy Corp., 164 F.R.D. 391, 395-96 (D.N.J. 1996) (rejecting defendants' argument that a statute of limitations defense rendered named plaintiffs' claim atypical).

         Moreover, it was a clear error of law for the Court to have sua sponte raised the statue of limitations defense for those claims where no statute of limitations affirmative defense was ever pleaded. See, e.g., Bokunewicz v. Purolator Prods., Inc., 907 F.2d 1396, 1402 (3d Cir. 1990); see also Haskell v. Washington Township, 864 F.2d 1266, 1272 (6th Cir. 1988) (holding error to raise statute of limitations defense sua sponte); Wagner v. Fawcett Publications, 307 F.2d 409, 412 (7th Cir. 1962) (sua sponte error), cert. denied, 372 U.S. 909 (1963).

         Finally, if the Court deems that there are certain problems with the class, or subclasses, the appropriate remedy is to redefine the class or classes, e.g., by changing the beginning date of the class period so as to obviate the necessity of applying any discovery rule. See, e.g., Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.), (holding it would have been more appropriate to use "judicious severance or use of subclasses or other separate treatment of individual issues"), cert. denied, 474 U.S. 946 (1985); see also Diaz v. Romer, 961 F.2d 1508 (10th Cir. 1992) (court created subclasses); Richardson v. Byrd, 709 F.2d 1016, 1019 (5th Cir.), cert. denied, 464 U.S. 1009 (1983) ("The district judge must define, redefine, subclass, and decertify as appropriate in response to the progression of the case from assertion to facts."); Franks v. Kroger, 649 F.2d 1216 (6th Cir. 1981), (district court redefined the class), reh'g denied, 670 F.2d 71 (6th Cir. 1982).

         Redefinition of the class is particularly appropriate in this case because upon decertification, the class members will permanently lose their RICO claims based on securities fraud. See Mathews v. Kidder, 161 F.3d 156 (3d Cir. 1998), cert. denied, 143 L. Ed. 2d 546 (1999).

XII. It was an error of law to have denied Plaintiffs' motion of May 27, 1998 (RD 254) as moot, and to have failed to apply this Court's Order #1 of January 7, 1999 (RD 373) regarding expert witness reports.

         With respect to Plaintiffs' motion of May 27, 1998 (RD 254), the Mem. concluded: "Plaintiffs' motion for extension of deadlines has been addressed and is moot, and will be denied for statistical purposes." This was based

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on the premise that:

The court's computer docketing system shows the motion as still pending, despite its having been addressed in an order dated June 19, 1998 (record document no. 261), and the substance of the motion having been addressed in an order dated January 6, 1999 (record document no. 373).

(Mem. pp. 2-3.)

         Actually, the Order #1 of June 19, 1998 (RD 261) only addressed the extension of deadlines, but not Plaintiffs' unopposed request to (a) compel MLA to comply with plaintiffs' discovery requests for documents, and (b) compel MLA to respond to plaintiffs interrogatories, and (c) that plaintiffs requests for admission to MLA be deemed admitted. (See RD 254 and 261). These matters are obviously not moot since the causes of action against MLA are going to trial.

         Second, the Order of January 6, 1999 was actually record document no. 372. The Order of January 7, 1999 (RD 373) disposed of a number of moot motions from 1997 (RD 114 and RD 115), and enlargement of time, and length of briefs (RD 269, RD 270, RD 289, and 291); and followed up on the Order of January 6, 1999 (RD 372) by granting Plaintiffs' motion (RD 289) to reschedule the deadlines for expert witness reports, until after the court adjudicated the decertification and summary judgment motions, as follows:

Therefore, that aspect of plaintiffs' motion (record document no. 289) requesting an enlargement of time for plaintiffs and defendants to file their respective expert witness reports, until after the court adjudicates defendants' decertification and summary judgment motions, is granted.

         Consequently, it was an error to have failed to reschedule said expert witness deadlines.

CONCLUSION

         For all the foregoing reasons, plaintiffs respectfully request that their motion be granted.

                                                    Respectfully submitted,

Dated: November 15, 1999         /s/__________________

                                            Roger S. Antao, Esquire
                                            I.D. #
                                            Antao & Chuang
                                            460 Bergen Boulevard, Suite 200
                                            Palisades Park, N.J. 07650-2345
                                            Tel: 201-816-9498
                                            Fax: 201-816-1688

 

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