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Valley of Lakes RICO Class Action against PNCBANK, et al.
ripped edge: federal court

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



LEON R. DONGELEWICZ, et al., 	: 	3:CV-95-0457 

	Plaintiffs 		: 	JUDGE McCLURE 

vs. 				: 
					
FIRST EASTERN BANK, et al., 	: 	

	Defendants 		: 
		     M E M O R A N D U M
Stamp
		        June 19, 1996 
BACKGROUND Plaintiffs in this action are all lot owners in a 3856-acre recreational housing development called the Valley of Lakes (the development or the community) which is located in Schuykill and Luzerne Counties near Hazleton, Pennsylvania. Plaintiffs allege numerous improprieties on the part of individuals and entities associated with or having an ownership interest in Valley of Lakes. Plaintiffs allege numerous acts of fraud and deception on the part of those allegedly responsible for marketing, developing and maintaining Valley of Lakes over the years. The defendants named in this action are: 1) Frank M. Cedrone, a New Jersey resident; 2) C.B.G., Ltd., a New Jersey-based partnership (CBG); 3) Oneida Water Company (Oneida); 3) Valley Utilities Company, Inc. (Valley Utilities) 4) First Eastern Corporation (First Eastern Corp.), a Pennsylvania-based banking holding company; 5) First Eastern Bank, N.A. (First Eastern Bank); 6) MLA Management Associates, Inc. (MLA); Ralph Conte, a New Jersey resident; 8) Arlene Reiness, a New Jersey resident;
9) the Property Owners Association of the Valley of Lakes (POA), a Pennsylvania-based unincorporated association whose board members are: a) George Denke, Jr.; b) Dianne French; c) Ronald Kichline; and d) Thomas Pierson; and 10) PNC Bank Corp. , a Pennsylvania-based bank holding company (Plaintiffs' complaint, 17-28) Valley of Lakes has changed hands several times since the subdivision plan was first filed in 1971 by High Vista, Inc. (High Vista), a Pennsylvania corporation. (Plaintiffs' complaint, exhibits 1-1 to 1-4) Jack Halperin and Philip Cohen purchased High Vista in 1974 and marketed lots under the name "Valley of Lakes." (Plaintiffs' complaint, 41 and exhibit 2-1 to 2-29) A property owner's association known as the Valley of Lakes Civic Association (VOLCA) was organized in December, 1976. (Plaintiffs' complaint, 45 and exhibits 4B-1 to 4b-24.) On August 4, 1980, Halperin was indicted on federal charges of mail fraud, 18 U.S.C. 1341, and of violating the Interstate Land Sales Full Disclosure Act, (federal Land Sales Act) 15 U.S.C. 1701-1720. The charges arose out of Halperin's activities in connection with Valley of Lakes. He was charged with, inter alia, charging maintenance fees for services not rendered and with failing to follow through on representations that a lake, roads, a sewer system and other amenities would be built at Valley of Lakes. (Plaintiffs' complaint, 42, 43, 68 and exhibits 3-1 to 3-24). Following Halperin's indictment, the mortgage on the property was foreclosed. Meridian Bank (Meridian) purchased the land at a 2
Sheriff's Sale. In September, 1986, CBG, a New Jersey-based partnership, purchased land in the development. The original general partners of CBG were defendant Cedrone and a Sicilian construction company, SILEC SPA of Torino, Italy. (Plaintiffs' complaint, 46). Plaintiffs allege that although CBG subsequently held itself out as the successor to High Vista, it was not High Vista's successor, and that it was in fact only another purchaser of land in the development, no more entitled to assume a position of management or control over the subdivision than any other property owner. (Plaintiffs' complaint, 47) CBG filed a Chapter 11 petition in bankruptcy in March, 1992, but continues to maintain control over the Valley of Lakes as debtor-in-possession through its association with First Eastern and through the affiliated companies of Oneida and Valley Utilities. (Plaintiffs' complaint, 49) Plaintiffs allege a long history of mismanagement, broken promises and outright fraud on the part of those in management and ownership positions at Valley of Lakes over the years. Plaintiffs allege, inter alia, that: 1) representations that an 80-acre lake, "Lake Algonquin", and an Arnold-Palmer designed and managed golf course, and other business amenities including restaurants and shops, would be built on the premises were never fulfilled; 2) representations that road systems, and water and sewer systems would be built and adequately maintained for lot owners were never carried out; 3) defendants incurred substantial 3
advertising and promotional costs in their efforts to promote the sale of lots to other purchasers, which they then passed on to pre- existing property owners, citing as proof of the same filings with the Department of Housing and Urban Development (HUD) which state that "approximately 35%" of closing costs represented promotional costs; and 4) defendants, acting illegally and without proper authority, imposed covenants and restrictions on Valley of Lakes property owners which unduly, illegally, and unconstitutionally interfere with their right of ownership. Based on the foregoing allegations, plaintiffs assert: 1) a RICO claim under 18 U. S. C. 1962 against all defendants (Count I); 1 2) a claim under the federal Land Sales Act, 15 U.S.C. 1701, against CBG, Cedrone, First Eastern Bank, and MLA (Count II); 3) a section 1983 claim, 42 U.S.C. 1983 (Count III) against CBG, Cedrone, First Eastern Bank and MLA; 2 4) a claim under the New Jersey Real Estate Sales Full Disclosure Act, (New Jersey Land Sales Act) N.J.S.A. 45:15-16.47, against First Eastern, CBG, Cedrone and Conte (Count IV) ; and 5) supplemental state law claims of fraud and deceit asserted against First Eastern, MLA, CBG, Cedrone, Valley Utilities and Oneida under New Jersey law. (Count V). 4
This court denied a motion by defendant POA to dismiss plaintiffs' RICO and section 1983 claims (Counts I and III) on the grounds that no cause of action has been alleged against it. Presently before the court are: 1) plaintiffs' motion for class certification (record document no. 31) ; 2) a motion by defendants First Eastern Bank and First Eastern Corp. to compel the depositions of the named plaintiffs and to stay the disposition of plaintiff s motion for class certification (record document no. 37); and 3) a motion by defendant MLA to stay the disposition of plaintiff's motion for class certification (record document no. 41). For the reasons which follow, we will enter an order: 1) granting the motion for class certification; and 2) denying defendants' motions to stay disposition of the motion for class certification. DISCUSSION MOTION FOR CLASS CERTIFICATION Primary and subclasses proposed by plaintiffs The first step in ruling on certification is defining the class. Miller, An Overview of Federal Class Actions: Past, Present, and Future, 15-16 (Fed. Jud. Center 1977). Plaintiffs propose certification of a "primary class" consisting of: All persons and entities throughout the United States and its territories (other than the defendants named in the complaint) that, since September 30, 1986, have purchased or owned lots, whether improved or unimproved, in the "Valley of Lakes" subdivision located in Schuylkill and Luzerne Counties near Hazleton, Pennsylvania. and 5
who are asserting a cause of action under RICO, 18 U.S.C. 1962,against all of the defendants (Count I). Plaintiffs further propose the division of the primary class into four subclasses, consisting of: Subclass A, which would include: All persons and entities throughout the United States and its territories (other than the defendants named in the complaint) that, since September 30, 1986, have purchased unimproved lots in the "Valley of Lakes" subdivision located in Schuylkill and Luzerne Counties near Hazleton, Pennsylvania and who are asserting a cause of action under the Interstate Land Sales Full Disclosure Act, 15 U.S.C. 1701 et seg., against defendants C.B.G. Ltd., Frank Cedrone and Ralph Conte (Count II); Subclass B, which would include: All persons and entities throughout the United States and its territories (other than the defendants named in the complaint) that, since September 30, 1986, have owned lots, whether improved or unimproved, in the "Valley of Lakes" subdivision located in Schuylkill and Luzerne Counties near Hazleton, Pennsylvania and who are asserting a cause of action under 42 U.S.C. 1983 against defendants C.B.G., Frank Cedrone, Property Owners Association and MLA Management Associates (Count III); 3 Subclass C, which would include: All persons and entities throughout the United States and its territories (other than the defendants named in the complaint) that, since September 30, 1986, have purchased or owned lots, whether improved or unimproved, in the "Valley of Lakes" subdivision located in Schuylkill and Luzerne Counties near Hazleton, Pennsylvania, based on 6
a) any offer or disposition made in or from the State of New Jersey; or b) any offer directed by the developer or its agent originating from outside the State of New Jersey to the persons or entities within the State of New Jersey and who are asserting a cause of action under the New Jersey Real Estate Sales Full Disclosure Act, N.J.S.A. 45:15-16.47, against defendants C.B.G., Ltd., Frank Cedrone and\or Ralph Conte (Count IV); and Subclass D, which would include: All persons and entities throughout the United States and its territories (other than the defendants named in the complaint) that, since September 30, 1986, have purchased or owned lots, whether improved or unimproved, in the "Valley of Lakes" subdivision located in Schuylkill and Luzerne Counties near Hazleton, Pennsylvania, and who are asserting a cause of action for common law fraud and deceit under New Jersey law against defendants First Eastern Corp., First Eastern Bank, MLA Management Associates, Inc., C.B.G., Ltd., Frank Cedrone, Valley Utilities Co., Inc. and\or Oneida Water Co. Company relating to the Valley of Lakes subdivision. (Record document no. 31, pp. 1-3) Prerequisites to a class certification Under Rule 23 of the Federal Rules of Civil Procedure, obtaining class certification is a two-step process. The moving party must first persuade the court that the putative class meets the four preliminary requirements of Rule 23(a), which are: 1) the class is so numerous that joinder of all members is impracticable; 2) there are questions of law or fact common to the class; 3) the claims or defenses of the representative parties 7
are typical of the claims or defenses of the class; and 4) the representative parties will fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a). The class proponent bears the burden of proving that the class should be certified by establishing each of these elements. Freedman v. Arista Records, Inc. 137 F.R.D. 225, 227 (E.D.Pa. 1991). Any doubts about certification should be resolved in favor of class treatment. Skeet v. Sears, Roebuck & Co., 137 F.R.D. 347, 350 (D.Kan. 1991). If subsequent developments warrant, the class can always be decertified at a later date. Bonilla v. Trebol Motors Corporation, 1993 WL 138297 at * 3 (D.P.R. March 30, 1993). In deciding whether to certify the class, the court need not and should not reach the merits of the case. Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974). As in ruling on a Rule 12(b) motion, the court can consider all properly pleaded substantive allegations as true. Bonilla 1993 WL 138297 at * 2. If the Rule 23(a) requirements are satisfied, the moving party must then establish that certification is appropriate under at least one subsection of Rule 23 (b). Baby Neal v. Casey, 43 F. 3d 48, 55-56 (3d Cir. 1994). Here, the plaintiffs seek certification under two subsections of Rule 23(b). Certification of subclass "B" is sought under Rule 23(b)(2). Certification of the primary class and all other proposed subclasses is sought under Rule 23(b)(3). To certify a class under Rule 23(b)(2), the court must find that "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making 8
appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole." Fed. R. Civ. P. 23(b)(2). Although a proposed class that seeks damages may be certified under Rule 23(b)(2), see, e.g., Bishop v. New York City Dep't of Housing Preservation and Development, 141 F.R.D. 229, 240 (S.D.N.Y. 1992), certification should be withheld if claims for damages predominate. Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 564 (2d Cir. 1968). To certify a class under Rule 23(b)(3), the court must determine that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." In re General Motors Corporation Pick-up Truck Fuel Tank Products Liability Litigation, 55 F. 3d 768, 796 (3d Cir. 1995) , cert. denied, 133 L.Ed.2d 45 (1995). Numerosity To warrant certification, the class must be so numerous that joinder of all class members would be impracticable. Freedman, 137 F.R.D. at 228. No specific number of class members is required. However, case law in general suggests that if the proposed class contains less than twenty five members, numerosity is lacking. If, on the other hand, the proposed class includes forty or more members, numerosity probably exists. Other factors, such as the geographic dispersion of the class also weigh in the equation. 9
Zinberg v. Washington Bancorp, Inc., 138 F.R.D. 397, 406 (D.N.J. 1991), citing 3 B.J. Moore, Moore's Federal Practice, 23.05[1] (2d Ed. 1982). The numerosity requirement is plainly satisfied here. Plaintiffs submit in support of their motion documents indicating that the primary class and the four proposed subclasses each number in the hundreds.4 Plaintiffs submit a database report compiled in 1993 5 listing the names and addresses of lot owners. The list includes over 800 names, not including spouses and co-owners who reside throughout Pennsylvania, in a number of other states, and in a few cases, in other countries. Any attempt to join successfully all of these individuals in a single action would plainly be doomed from the start as hopelessly impracticable and fraught with administrative and practical problems. The numerosity requirement plainly has been met. Commonality Certification is appropriate only if there are common questions of law and fact. Class relief "is 'peculiarly appropriate' when the 'issues involved are common to the class as a whole' and when they 'turn on questions of law applicable in the same manner to each member of the class.'" In re American Medical Systems, Inc., 75 F.3d 1069, 1080 (6th Cir. 1996), quoting Califano v. Yamasaki, 442 U.S. 682, 701 (1979). 10
Rule 23(b)(3) , under which plaintiffs seek certification, includes a commonality requirement more stringent than its Rule 23(a) counterpart. When the two are considered together, the Rule 23(a) commonality requirement is subsumed by its Rule 23(b) counterpart. Harding v. Tambrands, Inc., 165 F.R.D. 623, 627 (1996). For that reason, we see no reason to address the Rule 23 (a) commonality issue separately, and will consider only whether the more stringent Rule 23(b)(3) commonality requirement has been satisfied for the primary class and three of the four subclasses. Rule 23(b)(2), under which plaintiffs seek certification of subclass "B," does not contain the same predominance requirement, so we consider separately the question of whether it has satisfied the Rule 23(a) commonality requirement. Proposed subclass B consists of property owners who assert a section 1983 claim against defendants C.B.G., Frank Cedrone, Property Owners Association and MLA Management Associates. Plaintiffs allege that defendants have no authority to impose land use restrictions, security measures or exercise other quasi- governmental powers over them or their use of their properties and that their imposition of such measures is a violation of plaintiffs' constitutional rights. (See: Plaintiffs' complaint, 387 and complaint exhibits 10-10 to 10-12 and 11-2) Whether section 1983 liability attaches will turn on issues of whether defendants 1) had lawful authority to impose zoning restrictions, hire a security force to patrol and control access to Valley of Lakes and carry out other governmental and quasi- 11
governmental functions; and 2) carried out such functions without lawful authority and in violation of plaintiffs' constitutional rights. See generally: Evans v. Newton, 382 U.S. 296 (1966) and Pitt v. Pine Valley Golf Club, 695 F.Supp. 778, 783 (D.N..J. 1988). These issues are common to the class as a whole and plainly justify a finding that the Rule 23(a) commonality requirement has been satisfied. Typicality and adequacy of representation The typicality requirement imposed by Rule 23(a)(3) is intertwined with the Rule 23(a)(4) requirement that the named representative adequately represent the entire class. If the class representatives' claims are not typical of the class, they cannot adequately protect the interests of the class. Harding, 165 F.R.D. at 628. "[A] plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members, and if his or her claims are based on the same legal theory." In re American Medical Systems, Inc., 75 F.3d at 1082 (quoting 1 Herbert B. Newberg & Alba Conti, Newberg on Class Actions, 3-13, at 3-76 (3d ed. 1992)). However, certification should not be denied solely on the basis of a theoretical conflict which could arise at a later stage of the case. In re Intelligent Electronics, Inc., Securities Litigation, 1996 WL 67622 at * 4 (E.D.Pa. Feb. 13, 1996.) Here, each of the named plaintiffs owns a lot or a home in Valley of Lakes. The group is a representative cross-section of owners in terms of their length of ownership and their means of 12
acquisition. Some named plaintiffs purchased their lots as early as 1976. Others purchased their properties as recently as 1991. All remain owners in the development, giving them a strong interest in pursuing the claims asserted to a successful conclusion. Further, the group of named representatives includes owners whose claims are typical of those asserted by the primary class and each of the four subclasses. The class representatives plainly share common objectives, legal and factual positions with the primary class and subclasses they seek to represent. The other component of the typicality requirement is a determination of adequacy of the counsel chosen to represent the class. In re American Medical Systems, 75 F.3d at 1083. Plaintiffs propose to retain Roger S. Antao, Esq. and Enna Chuang, Esq., named plaintiffs' current counsel, as class counsel. An affidavit filed by Antao in support of plaintiffs' motion supplies the following information: 1) Antao and Chuang are partners in the law firm of Antao & Chuang; 2) their practice focuses on litigation and international business; 3) they have served as lead counsel in other actions filed in the federal and state courts; 4) counsel are well-acquainted with the facts and the law applicable to this action, having performed all of the legal work completed up to this point, including the pre-filing investigation, drafting the complaint, opposing the motion to dismiss filed by POA, representing plaintiffs at court conferences, and in preparing the motion for class certification. Counsels' experience and qualifications and the work they have 13
performed on this case thus far persuade the court that they will ably and skillfully represent the interests of the class. The plaintiffs have established all four requirements for certification imposed by Rule 23(a). It remains for us to determine whether the Rule 23(b) requirements have likewise been satisfied. REQUIREMENTS OF RULE 23(B)(2) Plaintiffs seek certification of subclass "B" under Rule 23(b)(2) and of the primary class and all other subclasses under Rule 23(b)(3). We consider first the Rule 23(b)(2) request for certification of the subclass asserting section 1983 claims. Rule 23(b)(2) is intended for classes who seek primarily injunctive relief as redress for the defendants' conduct. If monetary claims predominate, Rule 23(b)(2) certification is not appropriate. Fed.R.Civ.P. 23, advisory committee's notes. The relief sought by subclass "B" is primarily injunctive. Plaintiffs seek an order declaring that defendants have no authority to exercise quasi-government powers over the residents, property owners, and guests of the community and directing them to cease purporting to exercise such authority by imposing zoning restrictions, building codes, and other land-use restrictions, limiting access to the community, and other activities. As we discussed above, the claims asserted under section 1983 share common issues of law and fact and are otherwise suitable for litigation as class action claims. We will, on that basis, certify subclass "B" under Rule 23(b)(2). 14
REQUIREMENTS OF RULE 23(B)(3) Two requirements must be satisfied for Rule 23(b)(3) certification. Plaintiffs must show that: 1) questions of law or fact common to the class members predominate over questions affecting individual members, and 2) the class action is superior to other available methods of adjudication. In re Northern District of California, Dalkon Shield IUD Products Liability Litigation, 693 F.2d 847, 855 (9th Cir. 1982) and Freedman v. Louisiana-Pacific Corporation, 922 F.Supp. 377, 399 (1996). Predominance The question of whether common issues predominate is committed to the trial court's discretion. Boughton v. Cotter Corp., 65 F.3d 823, 827 (loth Cir. 1995) . The predominance requirement focuses primarily on whether the claims arise out of a common nucleus of operative fact and on whether there are any material variations among the claims of the potential class members. Edgington v. R.G. Dickinson and Co., 139 F.R.D. 183, 190-91 (D.Kan. 1991). RICO claims The primary class is defined to include all property owners who assert a RICO claim against the defendants. Plaintiffs assert claims under several provisions of RICO. RICO makes it unlawful for any person to: 1) use or invest income obtained from a pattern of racketeering activity in an enterprise engaged in interstate commerce, 18 U.S.C.A. 1962(a); 2) control any enterprise engaged in interstate commerce through a pattern of racketeering, 18 15
U.S. C. A. 1962(b) ; 3) any person associated with any enterprise engaged in interstate commerce to conduct the affairs of the enterprise through a pattern of racketeering activity, 18 U.S.C.A. 1962(c); or 4) to conspire to violate sections 1962(a), (b), or (c), 18 U.S.C.A. 1962(d). Section 1962(c) provides, in relevant part: It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, 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" is defined to include any act which is indictable under any of the enumerated provisions of Title 18 of the United States Code. 18 U.S.C. 1961(l). To recover under Section 1962(c) , plaintiffs must establish: 1) the existence of an enterprise affecting interstate commerce; 2) that the defendant was employed by or associated with the enterprise; 3) that the defendant participated, either directly or indirectly, in the conduct or the affairs of the enterprise and 4) that defendant participated through a pattern of racketeering activity that must include the allegation of at least two racketeering acts. Greenberg v. Tomlin, 816 F.Supp. 1039 (E.D.Pa. 1993) citing Sedima, S.P.R.L. v. Imrex Co., 473 U. S. 479, 496 (1985). To establish their claims of a RICO conspiracy under section 1962(d), the plaintiffs must prove: 1) the period of the conspiracy; 2) the object of the conspiracy; 3) the actions of the alleged conspirators taken to achieve that purpose; and 4) that the 16
defendants agreed to commit the predicate acts and that they knew the acts were part of a pattern of racketeering activity. Greenberg, 816 F.Supp. at 1048, citing Glessner v. Kenny, 952 F.2d 702, 714 (3rd Cir. 1991) , rev'd in part on other grounds, Jaguar Cars, Inc. v. Royal Oaks Motor Car Company, Inc., 46 F.3d 258 (3d Cir. 1995). Plaintiffs' right to assert a private cause of action for alleged section 1962 violations is premised on section 1964 (c), which provides that: Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee. 18 U.S.C. 1964(c). The requirement that a plaintiff demonstrate an injury to his business or property "by reason of" the alleged RICO violation incorporates into his cause of action a proximate cause requirement. Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 117 L.Ed.2d 532, 542 (1992). Certification of similar consumer fraud claims was granted by the United States District Court for the District of Puerto Rico in Bonilla, 1993 WL 138297 at * 4. Plaintiffs alleged that they had been defrauded by Volvo Car Corporation, its subsidiaries and local Volvo dealers. Plaintiffs allege that over a ten-year period, defendants had routinely defrauded Volvo buyers by selling Volvo model 24ODL, as the more expensive Volvo model 240 GLE. Asserting claims under RICO, plaintiffs moved for class certification under Rule 23(b)(3). In granting certification, the 17
court held that common issues predominated, rejecting defendants' concerns that individual questions of reliance would dominate the case. The district court stated: The Court is satisfied that common questions to the members of the proposed class in this case predominate over any questions affecting only individual members. The type of economic injury suffered by plaintiffs and members of the class, as well as the recoverability of those damages are questions of law and fact common to the class. Defendants' alleged fraudulent representations, schemes and actions, as well as their alleged utilization of the mail, wires and financial institutions in furtherance of those schemes, constitute an essential common factual link between all class members and the defendants for which RICO provides a remedy. Simply put, the purchase of the proposed class members of their Volvo vehicles from the defendants is the essential link between all class members and the defendants. The primary questions to be resolved in this case--whether a scheme to defraud existed and whether defendants engaged in any actions, made any representations,, or pursued a common course of material nondisclosure and omissions to bring their schemes to fruition--apply to all the proposed class members equally. Id. at 4-5 (Emphasis supplied). Plaintiffs allege that the defendants "engaged in standardized conduct toward all members of the proposed class." Such allegations strongly suggest that the required common nucleus of operative fact exists. Benion v. Bank One, Dayton, N.A., 1996 WL 242994 at * 4 (N.D.Ill. May 7, 1996), citing Villareal v. Snow, 1996 WL 28254 at * 3 (N.D.Ill. Jan. 19, 1996) and Chandler v. Southwest Jeep-Eagle, Inc., 162 F.R.D. 302, 308 (N.D.Ill. 1995). Plaintiffs allege that defendants CBG, Cedrone, First Eastern, MLA and others: through a pattern of racketeering activity acquired control of the enterprise of illegally operating and managing High Vista's subdivision ... Valley of Lakes ... in violation of 18 U.S.C. [sic] (b) , (c) and (d) . The defendants knowingly and willfully devised a scheme and artifice to defraud lot owners and prospective lot owners in the defunct subdivision through 18
numerous false and fraudulent pretenses, representations and promises ... (Plaintiffs' complaint, 50) Plaintiffs allege that Cedrone, CBG and POA wilfully devised a scheme to use "the fraudulent covenants and restrictions recorded by CBG" to continue a pattern of racketeering which included the use of mass mailings announcing the formation of a "property owners association" in which would vest authority to control the community until Cedrone was in a position to resume control. (Plaintiffs' complaint, 248-49) The mailings are, plaintiffs' assert, part of a continuing scheme on the part of defendants Cedrone, CBG and POA to exercise unauthorized control over the community and to extract money from property owners under false pretenses by, among other things, imposing dues and fees. (Plaintiffs' complaint, exhibits 211 and 212) The issues involved in establishing the alleged RICO violations are the same for each plaintiff. At issue will be, inter alia: 1) whether defendants engaged in any racketeering activity; 2) whether defendants' mass mailings violated the federal statute against mail fraud; 3) whether such mailings were used on more than one occasion to disseminate fraudulent information. Liability or non-liability under RICO plainly depends on evidence of defendants' conduct, not upon acts of the plaintiffs. Liability issues under RICO are, therefore, plainly common to all class members. The same may not be true as to questions of damages. Under RICO, a plaintiff has standing to recover monetary damages if and 19
only to the extent that he or she has been injured in his business or property by the conduct constituting the violation. Thus, if a violation of RICO is shown, each plaintiff will have to show that the violation caused injury to his or her property. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496-97 (1985). Although this may require individual proofs, that alone is not a sufficient basis for denying certification when common issues of liability predominate. If necessary, individual hearings on the issue of damages can be held if the primary class prevails on RICO liability issues. Land Sales Act and Common Law Fraud Claims Plaintiffs allege that defendants violated section 1703(a)(2) of the federal Land Sales Act. Section 1703(a)(2) makes it unlawful for: ... any developer or agent, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce, or of the mails.-- * * * (2) with respect to the sale or lease, or offer to sell or lease, any lot not exempt under section 1702(a) of this title-- (A) to employ any device, scheme, or artifice to defraud; (B) to obtain money or property by means of any untrue statement of a material fact, or any omission to state a material fact necessary in order to make the statements made (in light of - the circumstances in which they were made and within the context of the overall offer and sale or lease) not misleading, with respect to any information pertinent to the lot or subdivision; (C) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a purchaser; or (D) to represent that roads, sewers, water, gas, or 20
electric service, or recreational amenities will be provided or completed by the developer without stipulating in the contract of sale or lease that such services or amenities will be provided or completed. 15 U.S.C. 1703(a)(2) . Whether common questions predominate in the fraud-based claims, i,e. the claims plaintiffs asserted under the federal and state land Sales Acts and under New Jersey common law remains for our consideration. Defendants argue that common questions do not predominate in any of the fraud-based claims, because all such claims require proof of reliance by the plaintiff and the likelihood that individuals may have relied on alleged misrepresentations to varying degrees or not at all will require individualized proof to sustain a recovery by each member of the class. Defendants' argument is not without support. See, e. g. , Freedman, 13 7 F. R. D. at 229 (refusing to certify proposed class of album purchasers who claimed they were defrauded: "What causes a person to respond positively to a performance is a complex matter ... not susceptible to a class based determination of inducement"). Although reliance can under some circumstances, be presumed, that is not universally the case. Reliance may be presumed only "where it is logical to do so." Sharp v. Coopers & Lybrand, 649 F.2d 175, 188 (3d Cir. 1981), cert. denied, 455 U.S. 938 (1982). It is equally true that reliance is an essential element of a plaintiff's claim of fraud. Reliance supplies proof of causation. Absent evidence of it, the requisite causal connection between the defendant's conduct and harm sustained by the plaintiff is lacking. 21
Fraud-based claims have been certified in other contexts not dissimilar to this action. The same issues arise in cases in which plaintiffs seek class certification to pursue claims of securities fraud or consumer fraud. In many such cases, the courts have granted certification finding that the existence of reliance issues, does not preclude a finding that common issues predominate. In securities fraud actions, the courts have held that plaintiffs relying on a fraud on the market theory to establish their case can prove the reliance element of their cause of action by proving that defendants' alleged misrepresentations affected the market price and in that way impacted class members who purchased or held the stock during the relevant period. See, e.g. In re Reqal Communications Corp. Securities Litigation, 1995 WL 550454 at *8 (E.D.Pa. 1995); Mellon Bank Shareholder Litigation, 120 F.R.D. 35 (W.D.Pa. 1988) (the fact that some plaintiffs may have relied on oral representations of brokers while others relied on the annual report and prospectus not a barrier to certification); and Weinberger v. Thorton, 114 F.R.D. 599 (S.D.Cal. 1986) (Commonality exists if the same scheme is used on a class of purchasers for an extended period of time). Although we concede that the application of a fraud on the market theory in a non-securities case may be a novel concept, we see no compelling reason why the same justifications would not apply here. Defendants' much touted and well-publicized plans to construct a man-made lake, a golf course, restaurants, shops, roads and other 22
amenities likely affected the market price of lots and houses in the community. To the extent that that is proven to be the case, plaintiffs will be able to establish on a class-wide basis, harm caused by representations established to be false or fraudulent. Even if without resort to a fraud on the market theory, there is sufficient support in the record to justify a finding that reliance may be presumed if an adequate foundation is laid at trial. Many of the representations plaintiffs assert are false were universally made. Defendants' purported plans to construct a golf course, a man-made lake and other amenities were well-publicized and comprised an integral part of their marketing campaign. Undoubtedly brochures, pamphlets and other written materials were widely disseminated to potential purchasers to persuade them to buy a home or a lot in the community. Although some owners may have purchased their lots privately and not from the marketers, that distinction is not sufficiently divisive to justify denying certification. The class-wide interests in establishing the falsity and impact on market prices have the potential to diverge substantially only when the issue of damages is reached. As we held with respect to the RICO claims asserted by the primary class, that alone is not a basis for denying certification. If necessary, individualized proofs of damages can be admitted at the conclusion of the liability phase of the trial. In re American Medical Systems, Inc., 75 F. 3d at 1084 and Sterling v. Velsicol Chem. Corp., 855 F. 2d 1188, 1196-97 (6th Cir. 1988). 23
Superiority Plaintiffs' final hurdle is the required showing under Rule 23(b)(3) that a class action is superior to other means of fairly and efficiently resolving the dispute. Matters pertinent to the latter finding include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action. Fed. R. Civ. P. 23(b)(3). These factors should be considered from the point of view (1) of the judicial system, (2) of the potential class members, (3) of the present plaintiff, (4) of the attorneys for the litigants, (5) of the public at large and (6) of the defendant. Katz v. Carte Blanche Corporation, 496 F.2d 747, 760 (3d Cir.), cert. denied, 419 U.S. 885 (1974). This action is well-suited for class adjudication. The extent of the conduct which gives rise to the claims asserted would make it extremely costly and inefficient for individual plaintiffs to litigate all of the claims asserted here. The events which give rise to the claims asserted span more than ten years and involve hundreds of separate acts, incidents, decisions, etc. This is particularly true of plaintiffs' RICO and section 1983 claims--claims which are based on a multitude of individual acts spanning nearly a decade. Leaving plaintiffs to the onerous burden of litigating such claims on an individual basis would be tantamount 24
to nullifying the claims. While nothing would prevent them from doing so, as a practical matter, few would willingly undertake the enormous task of amassing the mountain of evidence required to prove such claims. See: Scholes v. Stone, McGuire & Benjamin, 143 F.R.D. 181, 189 (N. D. Ill. 1992) . From the court's perspective, conducting individual trials on claims sharing so many central common issues would by an extremely wasteful use of the court's time and judicial resources. MOTIONS TO STAY AND COMPEL PLAINTIFFS' DEPOSITIONS Certification requirements met Consideration of the elements necessary for certification convinces this court that certification is appropriate at this stage and deferral of consideration of the motion to allow defendants to conduct discovery is not appropriate. Defendants' only substantive objection to the suitability of this action for certification is the inclusion of fraud-based claims. Defendants argue that other courts have been reluctant to certify as class actions lawsuits involving fraud-based claims arising out of oral or written representations made to individual plaintiffs. Those considerations are not dispositive, in this instance, because of the nature of the claims asserted and the events which gave rise to those claims. Discovery and scheduling issues Plaintiffs have taken the position that under the court's order of July 1, 1995, discovery is not appropriate or permissible pending disposition of the motion for class certification. That was never 25
the court's intent, and there would appear to be no language in the order from which such intent could be reasonably inferred. It was not this court's intention to stay discovery pending the grant or denial of class certification. Plaintiffs are obliged, therefore, to respond to appropriate discovery demands of the defendants. SUMMARY In summary, the motion for class certification has merit and will be granted. See Fed. R. Civ. P. 23(c)(1). Nothing would be gained by delaying disposition of the motion. /s/ James F. McClure, Jr. United States District Judge 26
Footnotes (1) Plaintiffs allege that defendants committed predicate acts of mail and wire fraud under 18 U.S.C. 1341 and 1343 and violated federal securities laws. Back(2) Although paragraph 29 of plaintiffs' complaint states that Count III is alleged only as against defendants CBG, Cedrone, First Eastern Bank and MLA, it appears that plaintiffs are pursing a section 1983 claim against defendant POA as well. See: plaintiff's brief filed in opposition to defendant's Rule 12(b) motion, record document no. 5 at pp. 25-34. Back (3) Plaintiffs seek certification of subclass "B" under Rule 23(b)(2). Certification of the primary class and all other proposed subclasses is sought under Rule 23(b)(3). Back (4) The same individuals may, of course, be and most likely are, members of more than one subclass. Back (5) Record document no. 33, exhibit "E." Back
Valley of Lakes RICO Class Action against PNCBANK, et al.

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