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
September 23, 1997
BACKGROUND: Plaintiffs in this class action suit are the lot owners
in a 3856-acre recreational housing development called the Valley
of Lakes (the community or VOL) which is located in Schuylkill
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 the
community over the years.
Claims are asserted: 1) under the Racketeer Influenced
and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968,
against all defendants (Count I);1 2) under the Land Sales Act,
15 U.S.C. § 1701, against defendants C.B.G., Ltd., Frank M.
Cedrone and others (Count II); 3) under section 1983, 42 U.S.C.
§ 1983 (Count III) against C.B.G., Cedrone and others; 4) under
the New Jersey Real Estate Sales Full Disclosure Act, N.J.S.A. §
45:15-16.47, (Count IV), against defendants C.B.G., Cedrone and
others; and 5) under New Jersey state law for fraud and deceit
against defendants C.B.G., Cedrone, Valley Utilities, Co., Inc.
(Valley Utilities) and the Oneida Water Co. (Oneida), (Count V).
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. 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)
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 Sheriff's Sale.
2
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)
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 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,
3
illegally, and unconstitutionally interfere with their right of
ownership.
Defendant C.B.G., Inc. (C.B.G.), the most recent
developer of the property, is currently in Chapter 11 bankruptcy,
In re: C.B.G. Limited, Bankruptcy No. 5-92-000525, as are
defendants Valley Utilities, In re Valley Utilities Co., Chapter 11,
No. 5-92-99617 (Bankr. M.D.Pa.), and the Oneida Water Co.
(Oneida), In re The Oneida Water Co., Chapter 11, No. 5-92-00619
(Bankr. M.D. Pa.).
Plaintiffs move pursuant to Federal Rule of Civil
Procedure 55 for an order entering a default in their favor
against defendants Frank M. Cedrone, C.B.G. Ltd., Oneida Water
Co., and Valley Utilities Co., Inc. (hereafter collectively the
Cedrone defendants).2 For the reasons which follow, we will
grant the motion as to defendant Frank M. Cedrone, but deny the
motion as to the three named corporate defendants.
DISCUSSION
A default judgment pursuant to Rule 55(b) may be
obtained when a "party against whom a judgment for affirmative
relief is sought has failed to plead or otherwise defend as
provided by these rules...." Fed.R.Civ.P. 55(a). "However, the
disposition of such a motion lies within the Court's discretion,
4
and a dismissal of the case without a decision on the merits is a
'harsh remedy to be utilized only in extreme situations.'"
Fakhoury Enterprises, Inc. v. J.T. Distributors, 1995 WL 424990
at * 1 (S.D.N.Y. July 19, 1995), citing Jackson v. City of New
York, 22 F.3d 71, 75 (2d Cir. 1994) (citation omitted).
"The Third Circuit does not favor judgment by default."
Trio Dying & Finishing Company v. Mimarc Industries, 1995 WL
612914 at * 1 (E.D.Pa. Oct. 12, 1995), citing Tozer v. Charles A.
Krause Milling Co., 189 F.2d 242, 245 (3d Cir. 1951) (citations
omitted). "Judgment by default is an extreme sanction, Hoxworth
v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 919 (3d Cir.
1992), and whenever practicable, a decision on the merits should
be rendered." Id., citing Tozer, 189 F.2d at 245.
Whether entry of judgment by default is warranted is
left to the discretion of the trial court. Poulis v. State Farm
and Casualty Co., 747 F.2d 863, 868 (3d Cir.1984).
That discretion, however, is not limitless. The court
must be satisfied that the non-moving party has
received notice of the motion and that the judgment and
remedies applied for are justified by the pleadings and
other information of record.
citing D.B. v. Howard Bloom, D.D.S., Madison Dental Centre, 1995
WL 490481 *3 (D.N.J.) (citing 10 C. Wright, A. Miller & M. Kane,
Federal Practice and Procedure, §§ 2681, 2688)(2d ed. 1983).
Entry of default judgment is appropriate if the
adversarial "process has been halted because of an essentially
unresponsive party.'" Nationsbank of Florida v. Banco Exterior
5
de Espana, 867 F.Supp 167, 175 (S.D.N.Y. 1994) (quoting Meehan v.
Snow, 652 F.2d 274, 277 (2d Cir. 1981).
The requirements of Rule 55 having been met, entry of
default judgment would appear to be clearly warranted on the face
of the record. Despite the passage of more than two years since
proper service of the summons and complaint on them, the Cedrone
defendants have not filed an answer or otherwise responded to the
complaint or undertaken any effort to defend this action.
The certificate of service attached to plaintiffs'
motion for default states that a copy of the motion was served on
Frank M. Cedrone at 128 Monmouth Green, Marlton, New Jersey
08053. None of the Cedrone defendants has responded to the
motion for default.
Motion for default against Frank Cedrone
We address separately the motion for default against
Cedrone and the motions for default against the corporate
defendants because their circumstances differ. As we noted
above, all three corporate defendants are currently in Chapter 11
bankruptcy. On the other hand, nothing brought to the court's
attention suggests that Cedrone has sought the protection of the
bankruptcy code. The complicating factors which arise in
connection with the pending bankruptcies therefore do not affect
disposition of plaintiff's motion for default against Cedrone.
The motion for default against Cedrone is unopposed.
Plaintiffs' averments in the motion plainly support entry of
default, and no reason has been presented to the court why a
6
default should not be entered against Cedrone. We will,
therefore, grant the motion for entry of default against Frank M.
Cedrone pursuant to Fed. R. Civ. P. 55(a).
Motion for default against C.B.G.
Ltd., Oneida and Valley Utilities
Defendants, First Eastern Bank, N.A. and First Eastern
Corporation (hereafter collectively First Eastern), filed a
response to plaintiffs' motion for default to remind the court
that C.B.G., Oneida and Valley Utilities are currently in Chapter
11 bankruptcy proceedings, such that an entry of default or any
action taken against them to recover monies on a claim would,
presumably, be a violation of the automatic stay imposed under
bankruptcy law. 11 U.S.C. § 362(a)(1).3
Plaintiffs argue in response that the automatic stay
does not apply, since all claims on which they seek default
against C.B.G., Oneida and Valley Utilities arose after
bankruptcy proceedings were initiated.
7
It is true, under Third Circuit precedent, that post-
petition claims are not barred by the automatic stay. That was
the Third Circuit's holding in the Matter of M. Frenville Co.,
Inc., 744 F.2d 332, 338 (3d Cir. 1984), cert. denied, 469 U.S.
1160 (1985), based on the fact that claims4 which arise post-
petition are not discharged in bankruptcy, so there is no logical
reason to subject them to the automatic stay.
Although bankruptcy law controls whether claims qualify
to be asserted in the bankruptcy proceedings,5 in determining
whether the claims are pre-petition or post-petition for purposes
of deciding whether the automatic stay applies, the state or
federal law under which the claims arise governs. In the Matter
of Penn Central Transportation Company, 71 F.3d 1113 (3d Cir.
8
1995) and Schweitzer v. Consolidated Rail Corp., 758 F.2d 936,
941 (3d Cir.), cert. denied, 474 U.S. 864 (1985).
Here, claims are asserted against defendant C.B.G.
under RICO, the federal Land Sales Act, Section 1983 and under
New Jersey state law. We look, therefore, to those laws to
determine when plaintiffs' various causes of action accrued. If
the cause of action accrued on or before the filing of
the bankruptcy petition, the claims are pre-petition and are
therefore, governed by the automatic stay. If not, the claims
are post-petition, and the automatic stay does not apply.
C.B.G., Oneida and Valley Utilities all filed petitions
for protection under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Middle District of
Pennsylvania in March, 1992. (C.B.G. - No. 5-92-525, Oneida -
No. 5-92-619 and Valley Utilities - No. 5-92-617.)
Claims asserted under RICO
Plaintiffs rely on the Third Circuit's decision in
Keystone Ins. Co. v. Houghton, 863 F.2d 1125 (3d Cir. 1988) as
authority for their position that the RICO claim arose post-
petition, since the date of the last predicate act is
controlling.
However, Keystone was expressly overruled by the United
States Supreme Court earlier this year. In Klehr v. A.0. Smith
Corporation, 117 S.Ct. 1984 (1997), after noting a conflict among
the circuits on the question of when a civil cause of action
accrues under RICO, 18 U.S.C. § 1964, the Court singled out the
9
Third Circuit's accrual rule, as stated in Keystone, for
disapproval. The Court stated:
We shall first discuss the Third Circuit's accrual rule--the "last predicate act" rule....Like the Eighth Circuit, the Third Circuit believes that the limitations period starts to run when a plaintiff knew or should have known that the RICO claim (including a "pattern of racketeering activity") existed, but the Third Circuit has added an important exception, which it states as follows:"[If], as a part of the same pattern of racketeering activity, there is further injury to the plaintiff or further predicate acts occur,...the accrual period shall run from the time when the plaintiff knew or should have known of the last injury or the last predicate act which is part of the same pattern of racketeering activity. The last predicate act need not have resulted in injury to the plaintiff but must be part of the same pattern." Keystone Ins. Co. v. Houghton, 863 F.2d 1125, 1130 (C.A.3 1988).
. . . .
We conclude that the Third Circuit's rule is not a proper interpretation of the law. We have two basic reasons. First, as several other Circuits have pointed out, the last predicate act rule creates a limitations period that is longer than Congress could have contemplated. Because a series of predicate acts (including acts occurring at up to 10-year intervals) can continue indefinitely, such an interpretation, in principle, lengthens the limitations period dramatically. It thereby conflicts with a basic objective--repose--that underlies limitations periods. See Wilson v. Garcia, 471 U.S. 261, 271...(1985)...Indeed, the rule would permit plaintiffs who know of the defendant's pattern of activity simply to wait, "sleeping on their rights," ibid., as the pattern continues and treble damages accumulate, perhaps bringing suit only long after the "memories of witnesses have faded or evidence is lost." ...[Citation omitted.] We cannot find in civil RICO a compensatory objective that would warrant so significant an extension of the limitations period, and civil RICO's further purpose--encouraging potential private plaintiffs diligently to investigate...suggests the contrary.
10
We recognize that RICO's criminal statute of limitations runs from the last, i.e., the most recent, predicate act. But there are significant differences between civil and criminal RICO actions, and this Court has held that criminal RICO does not provide an apt analogy....Second, the Third Circuit rule is inconsistent with the ordinary Clayton Act rule, applicable in private antitrust treble damage actions, under which "a cause of action accrues and the statute begins to run when a defendant commits an act that injures a plaintiff's business." Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338...(1971). We do not say that a pure injury accrual rule always applies without modification in the civil RICO setting in the same way that it applies in traditional antitrust cases. For example, civil RICO requires not just a single act, but rather a "pattern" of acts. Furthermore, there is some debate as to whether the running of the limitations period depends on the plaintiff's awareness of certain elements of the cause of action. As we said earlier, however, for purposes of evaluating the Third Circuit's rule we can assume knowledgeable parties. Hence the special problems associated with a discovery rule...are not at issue.
Id., at 1988-89.
...[T]hose courts that do not require "reasonable diligence" have said that the "fraudulent concealment" doctrine seeks to punish defendants for affirmative, discrete acts of concealment; the behavior of plaintiffs is consequently irrelevant....Whether or not that is so in the legal contexts at issue in those cases (which were not antitrust cases), it is not so in respect either to antitrust or to civil RICO. Rather, in both of those latter contexts private civil actions seek not only to compensate victims but also to encourage those victims themselves diligently to investigate and thereby to uncover unlawful activity....That being so, we cannot say that the "fraudulent concealment" is concerned only with the behavior of defendants. For that reason, and in light of the consensus of authority, we conclude that "fraudulent concealment" in the context of civil RICO embodies a "due diligence" requirement.
Id. at 1993 (Emphasis supplied.)
11
The Court rejected as well the contention that a single,
new predicate act committed with the four-year limitations period
would render timely claims for acts committed outside the
limitations period so long as they are alleged to be part of a
continuing pattern. The Court stated:
...[S]ome Circuits have adopted a "separate accrual" rule in civil RICO cases, under which the commission of a separable, new predicate act within a 4-year limitations period permits a plaintiff to recover for the additional damages caused by that act. But, as in the antitrust cases, the plaintiff cannot use an independent, new predicate act as a bootstrap to recover for injuries caused by other earlier predicate acts that took place outside the limitations period.
Id. at 1990.
The Supreme Court also considered whether "affirmative
continuing acts of fraud", coupled with active efforts of
concealment, equitably toll the statute of limitations, regardless
of whether the plaintiffs have exercised "reasonable diligence" to
discover and pursue their RICO claims. The Court held that:
..."[R]easonable diligence" does matter, and a plaintiff who is not reasonably diligent may not assert "fraudulent concealment."
Id. at 1993. See also: In re Merrill Lynch Limited Partnerships
Litigation, 1997 WL 529010 at * 21 (S.D.N.Y. Aug. 26, 1997)
(Interpreting and applying Klehr, the district court stated:
"[P]laintiffs must demonstrate reasonable diligence even if
defendants engaged in active concealment. The Supreme Court has
clarified recently that even when a plaintiff pleads active
concealment by the defendant, the plaintiff must still demonstrate
12
that he exercised due diligence in trying to discover the fraud."
Id. at 21.
"To prove reasonable diligence sufficient to permit a
finding of fraudulent concealment, a plaintiff must do more than
merely inquire as to the status of the...[matter]...or simply rely
on reassurances by the defendant....'Neither reassurances
accompanying the relevant notice nor the continued failure to
disclose the facts allegedly misrepresented in the first place,
relieves the plaintiff of his duty to undertake reasonable inquiry
or tolls the statute of limitations. Id., quoting In re
Integrated Resources Real Estate, 850 F.Supp. 1105, 1123 (S.D.N.Y.
1993).
"Further, once a plaintiff becomes aware of direct
contradictions between the defendant's representations and other
materials available to the plaintiff, "'plaintiffs [are] thereby
left with reason to be suspicious of defendant, [and] it [is] no
longer reasonable for them to defer to [the defendant's]
representations.'" Id., quoting Addeo v. Braver, 956 F.Supp. 443,
451-52 (S.D.N.Y. 1997).
Finally, the Supreme Court noted the existence of, but
declined to resolve, a conflict among the Circuits on the
application of discovery accrual rules to civil RICO claims,
stating:
[Some] Circuits have applied "discovery" accrual rules, which extend accrual periods for plaintiffs who could not reasonably obtain certain key items of information. The use of a discovery rule may reflect the
13
fact that a high percentage of civil RICO cases, unlike typical antitrust cases, involve fraud claims.. . . .
... [T]he major difference among the Circuits--whether a discovery rule includes knowledge about a "pattern"--is clearly not at issue here.
Id. at 1991-92. See also: Aramony v. United Way of America, 969
F.Supp. 226, 230 (S.D.N.Y. July 7, 1997) ("While holding that the
Third Circuit's 'last predicate act' rule of accrual is wrong, the
Supreme Court declined to resolve the more troublesome circuit split
on whether a plaintiff's lack of knowledge of his injury can
forestall accrual of the limitations period.")
Plaintiffs' complaint is replete with references to
activities on the part of C.B.G. dating back to 1986. In their
403-paragraph complaint, plaintiffs allege, inter alia, that:6
. . . .
46. CBG purchased the land on or about September,
1986...
50. Commencing on or about September 30, 1986, and
continuing through the present, Defendant Frank
Cedrone...and other defendants, through a pattern of
racketeering activity acquired control of the enterprise
illegally operating and managing High Vista's
subdivision,, named "Valley of Lakes", which had been
14
defunct for approximately seven (7) years...The
defendants knowingly and willfully devised a scheme and
artifice to defraud lot owners and prospective lot owners
in the defunct subdivision through numerous false and
fraudulent pretenses...among others:
a. representing, in numerous mass mailings, thatCBG had bought the "Valley of Lakes"...when intruth...CBG was only a "purchaser" of land...;b. representing in numerous mass mailings, thatCBG had the right to collect the maintenance feesowed to Meridian Bank ...;
. . . .
51. In furtherance of their scheme ... the defendants
implemented numerous extortion schemes, commencing on or
about September 30, 1986 and continuing to the present,
which are executed by obstructing, delaying and affecting
commerce by stopping all vehicles at...entrances to the
subdivision...
. . . .
54. A copy of a letter from CBG Ltd., signed by
Frank M. Cedrone, as Managing General Partner...mailed to
all owners of property in the "Valley of Lakes"
subdivision, circa November 15, 1986 is annexed hereto
and made a part of this complaint...
. . . .
15
56. A copy of a letter on letterhead reading"Valley of Lakes and Eagle Rock Resort," which was mailedto all owners of property in the "Valley of Lakes"subdivision, circa December, 1986 is annexed hereto...57. A copy of a letter dated January 22, 1987, fromFrank M. Cedrone...on letterhead reading "Valley of Lakesa C.B.G. Limited Development," and mailed to all ownersof property in the "Valley of Lakes" subdivisionis annexed hereto...58. A copy of a letter on letterhead reading"Valley of Lakes and Eagle Rock Resort,"...mailed to allowners of property in the "Valley of Lakes" subdivision,circa January, 1987.... . . .63. A copy of CBG Ltd.Is "Rules and Regulations,"adopted circa January 1987 is annexed hereto...
(Plaintiffs' complaint, ¶¶ 46 - 63)
Plaintiffs allege that Cedrone and others 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 were,
plaintiffs' assert, part of a continuing scheme on the part of
defendants to exercise unauthorized control over the community and
16
to extract money from property owners under false pretenses by,
among other things, imposing dues and fees. (Plaintiffs' complaint,
exhibits 211 and 212)
Allegation after allegation indicates that all property
owners received mailings and notices from Cedrone and his
partnership, C.B.G. Ltd., as early as the fall of 1986, taking or
purporting to take the actions now claimed to be a violation of
federal law. Under even the most generous interpretation of the
discovery accrual rule,7 plaintiffs had information before them
which should have put them on notice that defendants were assuming
roles they had no legal right to assume. Almost six years elapsed
between the
public announcement of the September 1986 acquisition by C.B.G. and
Cedrone and their very public efforts to take control of the
subdivision and extract fees from property owners and the filing of
the petitions. Under any reasonable interpretation of the events,
as plaintiffs allege them to be, plaintiffs had actual notice of
events which should have, had they exercised the "reasonable
diligence" required of them, roused their suspicions and prompted
action.
Their RICO claims therefore arose prior to the filing of
petitions in bankruptcy, and are governed by the automatic stay.
17
Plaintiffs are entitled to proceed on such claims before this court
only if the receive relief from the automatic stay, obtainable only
from the bankruptcy court where the proceedings are pending.
We will, therefore, deny the motion for default on the
RICO claims asserted in Count I.
Claims asserted under the Land Sales Act
Count II of plaintiffs' complaint alleges that defendants
C.B.G., Ltd., Frank M. Cedrone and others violated the Interstate
Land Sales Full Disclosure Act (the Act), 15 U.S.C. §§ 1701-1720.
The Act makes it a violation of federal law for, among other things,
"any developer or agent" to use the mails or any means of interstate
commerce to defraud or mislead the purchaser. 15 U.S.C.
§ 1703(a)(2).
Established to redress violations which occur in
connection with the sale or lease of subdivision lots, the Act ties
the accrual date of a cause of action to the date of the agreement
of sale. Orsi v. Kirkwood, 999 F.2d 86, 89 (4th Cir. 1993) and
Yeomans v. Le Triomiphe Partnership, 884 F.2d 847 (5th Cir. 1989).
Causes of action, therefore, accrue on the date of the contract.
The fact that installments are due over a period of time does not
postpone the accrual date or extend the limitations period.
Thus, it is clear that any cause of action plaintiffs have
under the Act arose on the date when they signed a sale contract
with C.B.G. or Cedrone. Only those plaintiffs who executed sale
contracts after the bankruptcy filing have post-petition claims.
18
Nothing before us suggests that any of the plaintiffs did so, and
that would seem to be unlikely based on what the court has been told
of the events giving rise to this action. C.B.G. filed for
bankruptcy protection on March 30, 1992. What we have before us
suggests that the plaintiffs had by and large purchased their lots
before that time, making their claims pre-petition and therefore,
governed by the automatic stay. Because this is a class action, we
cannot say with absolute certainty that that is the case. Thus, to
the extent that any member of the class can establish that he or she
entered into a land sale contract with C.B.G. after the date of the
bankruptcy petition, we will entertain a motion for reconsideration
on this issue and will reconsider entry of default against C.B.G.
as to those plaintiffs only on Count II.
Claims asserted under 42 U.S.C. S 1983
Count III of plaintiffs' complaint asserts a section
1983, 42 U.S.C. § 1983, claim against C.B.G., Cedrone and other
defendants. Although federal courts apply the state personal
injury statute of limitations in section 1983 actions, Wilson v.
Garcia, 471 U.S. 261, 276-80 (1985), when the cause of action
accrues on a section 1983 claim is a question of federal law.
Albright v. Oliver, 127 L.Ed.2d 114, 128 n. 6 (1994) (Ginsburg,
J. concurring). In general, section 1983 claims accrue when the
facts which support the claim are, or should be, apparent to a
person with a reasonably prudent regard for his rights and when
the identity of the person or persons responsible for the alleged
violation is known or reasonably should have been known to the
19
plaintiff. McMillian v. Johnson, 1995 WL 21963 (M.D.Ala. Jan.
17, 1995), citing Mullinax v. McElhenney, 817 F.2d 711, 716 (11th
Cir. 1987).
Plaintiffs' section 1983 claim is grounded on many of
the same factual allegations as their RICO claim, that is, the
alleged exercise of unauthorized and improper control and
authority of the subdivision and its inhabitants. As we have
already stated, plaintiffs allege repeatedly that defendants not
only carried out blatantly improper actions beginning in the Fall
of 1986, but made their actions and intentions known to all
property owners by means of repeated mailings sent to all
property owners. We need not decide the exact date of accrual,
because it is clear that under any scenario, plaintiffs should or
would have known had they exercised "reasonable diligence" that
their constitutional rights were infringed or at least in
jeopardy of being infringed.
Claims asserted under the New Jersey Real Estate Sales Full Disclosure Act
Patterned in a general sense after its federal
counterpart, the New Jersey Real Estate Sales Full Disclosure
Act, N.J.S.A. § 45:15-16.47, makes it illegal to knowingly
mislead purchasers of land. The Act provides that:
a. Any person who suffers any ascertainable loss of
moneys as a result of the failure of another to comply
fully with the provisions of this act may bring an
action or assert a counterclaim in any court of
competent jurisdiction. In any action filed under this
section in which a defendant is found to have knowingly
engaged in any false, deceptive, misleading promotional
or sales methods or discriminatory advertising on the
20
basis of race, sex, creed, color, marital status,
national origin or religion, concealed or fraudulently
diverted any funds or assets so as to defeat the rights
of subdivision purchasers, made an intentional
misrepresentation or concealed a material fact in an
application for registration, or disposed of any
subdivision or subdivided lands required to be
registered under section 7 of this act which are not so
registered, the court shall, in addition to any other
appropriate legal or equitable remedy, award double the
damages suffered, and court costs expended, including
reasonable attorney's fees. In the case of an untruth,
omission, or misleading statement the developer
sustains the burden of proving that the purchaser knew
of the untruth, omission or misleading statement, or
that he did not rely on such information, or that the
developer did not know, and in the exercise of
reasonable care could not have known, of the untruth,
omission, or misleading statement.b. The court may, in addition to the remedies provided
in this act, frame any other relief that may be
appropriate under the circumstances including, in the
court's discretion, restitution of all monies paid and,
where a subdivider has failed to provide to a purchaser
a copy of the current public offering statement
approved by the commission prior to execution of the
contract or agreement, rescission of the contract. If
the purchaser fails to establish a cause of action, and
the court further determines that the action was wholly
without merit, the court may award attorney's fees to
the developer or subdivider.c. Every person who directly or indirectly controls a
subdivision or developer and violates the provisions of
subsection a. of this section, every general partner,
officer, or director of a developer, and every person
occupying a similar status or performing a similar
function, shall be jointly and severally liable with
and to the same extent as the developer. The person
otherwise liable pursuant to this subsection sustains
the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of
the existence of the facts by reason of which the
liability is alleged to exist. There is a right to
contribution among persons found liable.d. Any stipulation or provision purporting to bind any
purchaser acquiring a parcel, lot, unit, or interest in
any development subject to the provisions of this act
21
to a waiver of compliance with the provisions of this
act, shall be void.e. Any party to an action asserting a claim,
counterclaim or defense based upon any violation of
this act shall mail a copy of the initial or responsive
pleading containing the claim, counterclaim or defense
to the commission within 10 days of the filing of the
pleading with court. Upon application to the court
where the matter is pending, the commission shall be
permitted to intervene or to appear in any status
appropriate to the matter.
Although somewhat broader in scope, the New Jersey Act
focuses in part on the same conduct as its federal counterpart,
that is, by establishing a cause of action against real estate
developers who mislead or defraud purchasers. It is, therefore,
reasonable to assume that the New Jersey courts would apply the
same or similar accrual date rules. That is, that the cause of
action accrues on the date of the contract or the date when the
misrepresentation is made or, at the latest, when it should have
been discovered with the exercise of reasonable diligence.
Plaintiffs' claims asserted under the New Jersey Act
are, therefore, plainly pre-petition, and therefore governed by
the automatic stay for the reasons we have already expressed. We
add, however, that the same condition stated above applies here,
and that to the extent any plaintiff can prove he or she entered
into a sales contract after the petition date, the stay does not
apply, and we will re-entertain a petition for default as to such
claims.
22
New Jersey common law claims
Finally, we reach plaintiffs' claim against defendants
C.B.G., Valley Utilities and Oneida under New Jersey state law
for fraud and deceit. Again, applying the discovery rule for the
reasons we have already stated, it is clear that with the
exercise of reasonable diligence plaintiffs would have discovered
the alleged frauds perpetrated upon them well before the 1992
bankruptcy filing dates.
We will, therefore, deny the motion for default as to
defendants C.B.G., Oneida and Valley Utilities on Count V.
* * *
An order will be entered consistent with this
memorandum.
/s/ James F. McClure, Jr. United States District Judge
23
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 :
O R D E R (#2)
September 23, 1997
For the reasons stated in the accompanying memorandum,
IT IS ORDERED THAT:
1. Plaintiffs' motion for entry of default (record
document no. 97) is granted as to defendant Frank M. Cedrone, and
otherwise denied.
2. Default is entered in favor of plaintiffs and
against defendant Frank M. Cedrone on all claims asserted against
him.
/s/ James F. McClure, Jr. United States District Judge
Footnotes 1Plaintiffs 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
2Pending motions for reconsideration of the ruling granting class certification and raising other issues will be addressed in a separate order and memorandum. Back
3Section 362(a)(1) of the Bankruptcy Code provides:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of--(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
11 U.S.C. § 362(a)(1).
Back
4 Under the Bankruptcy Code, a "claim" is defined as"
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
11 U.S.C. § 101(4). Back
5Under Bankruptcy law, the prerequisite to asserting a claim with the Bankruptcy Court is a "right to payment." In re First Energy Leasing Corp., 38 B.R. 577, 581 (Bankr.E.D.N.Y. 1984). Although "claim" is defined by § 101(4), the Code does not define when a right to payment arises. 744 F.2d at 337. Back
6Because the allegations are that defendants participated in a civil conspiracy, the conduct of all defendants is relevant for purposes of determining the accrual date of a civil RICO cause of action, although we have focused on those allegations mentioning in particular conduct of C.B.G. Back
7We will assume, without deciding, that were the issue before it, the Third Circuit would follow the lead of other circuits and endorse application of the discovery rule in the context of RICO civil claims in the wake of the Supreme Court's reversal of Keystone in Klehr. Back
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