Opposition Brief — Sarkisian v. Travelers Indemnity Co.

IN THE

Supreme Court of the Huited States

October Term, 1986

GEORGE SARKISIAN, JOHN SARKISIAN, NORMAN PRES-

KITT, SARCO INDUSTRIES, INC., CHARLOTTE

STREET BUILDERS, INC., and SARKISIAN BROTHERS,

INC.,

Petitioners,

against

THE TRAVELERS INDEMNITY COMPANY, as Assignee of

Judgments against Midstate Constructors, Inc. to enforce

certain Judgments,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT.

Brief in Opposition to Petition for Writ of Certiorari

LESLIE F. COUCH

Counsel of Record

SHARON COUCH DEBONIS, Of Counsel

COUCH AND HOWARD, P.C.

Attorneys for Respondent

48 Howard Street

Albany, NY 12207

(518) 434-4135

i.

Question Presented.

Is a state court action which does not set forth a federal

claim, either on the face of the complaint, or by fair in-

ference from the complaint, removable to federal court

under the doctrine of artful pleading?

ii.

Parent Affiliates of the Travelers.

The Travelers Insurance Company

Keystone Massachusetts Life Insurance Company

The Travelers Life & Annuity Company

The Travelers Life Insurance Company

The Travelers Indemnity Company

The Charter Oak Fire Insurance Company

The Phoenix Insurance Company

The Travelers Indemnity Company of Rhode Island

The Travelers Indemnity Company of America

The Travelers Indemnity Company of Illinois

The Constitution State Insurance Company

Travelers Reinsurance Company of Bermuda, Limited

The Travelers Syndicate #1, Inc.

The Travelers Lloyds Insurance Company

The Travelers Illinois Syndicate, Inc.

Bankers and Shippers Insurance Company of New York

Travcon, Limited

Travelers Life Insurance Company of Canada

Travelers Indemnity Company of Canada

The Travelers Corporation of Bermuda, Limited

The Travelers Life Insurance Company International,

Ltd.

Traveiers Life Insurance Company Overseas, Limited

The Travelers Corporation of Asia, Limited

The Prospect Company

Keystone Custodian Funds, Inc.

Travelers Mortgage Securities Corporation

Travelers Mortgage Services, Inc.

Terra Nova Insurance Company

LaMetropole, S.A.

Adria-Tic International Holding, S.A.

Constitution State Management Company

Constitution Plaza Incorporated

iil.

Derby Advertising Incorporated

Massachusetts Companies, Inc.

Plaza Corporation

TIC Auto Body Company Incorporated

Travelers Asset Management International Corp.

Travelers Equities Sales Incorporated

Travelers Investment Management Company

The Travelers Marine Corporation

E. B. S., Inc.

Securities Settlement Corporation

Travelers Corporation (U.K.), Ltd.

Travelers Hill Samuel International, Limited

First Life Insurance Company, Limited

Caribbean Atlantic Life Insurance Company Trinidad

and Tobago, Ltd.

Keystone Securities Co., Inc.

Keystone Massachusetts, Inc.

Keystone Real Estate Company, Inc.

Keystone Provident Financial Services Corporation

Keystone Provident Life Insurance Company

TMC Realty Partners, Inc.

Fiduciary Investment Company, Inc.

MassCo Investment Management Corporation

Auger Insurance Agency, Inc.

Carpenter Bros. Insurance Agency, Inc.

E. Broox Randall & Sons, Inc.

Travelers General Agency of Puerto Rico, Inc.

Four S Corporation

Hilstead Insurance Agency, Inc.

Joseph A. Wynne Agency

Syd Tozier & Associates, Insurance Brokers, Inc.

Arthur B. Fowler Agency, Inc.

Exsure, Inc.

William F. Connelly, Jr., Inc.

Cornutt & McIntire Insurance, Inc.

iv.

William F. O’Connor, Inc.

Charles A. Boyer, Inc.

H.C. Copeland and Associates, Inc.

H.C. Copeland and Associates Equities, Inc.

H.C. Copeland Administrative Services, Inc.

Employee Retirement Income Systems Company, Inc.

Travelers American Real Estate Co., Ltd. .

Prospect Management Services Co.

Dugdale of Nebraska, Inc.

89th & York Ave., Corp.

Panther Valley, Inc.

Panther Valley Service, Inc.

Panther Valley Country Club, Inc.

Pequest Sewer Company

Pequest Water Company

Travelers Canada Corporation

Travelers Syndicate #1, Inc.

Connecticut Fire Insurance Company

Travelers Insurance Company of Illinois

Constitution State Service Company

Fund Administrators, Inc.

se

Vv.

Table of Contents.

Page

Cmantiom PROMOS eos oi isc icevsncesctescsvcsne i

Parent Affiliates of the Travelers ................ ii

Statement of the Case ....... wc cccvccccccwccccescns 1

IE iii b-6 a tn cde ed ves cies Kaen reese 4

APPENDIX:

A—Order of Judge Munson, Dated November 22,

SPP err remrrrre worry Pore re eer 7

TABLE OF AUTHORITIES.

CASES:

Federated Department Stores, Inc. v. Moitie, 452

| eer errr rrrrer Tere Te 5, 6

Moss v. Morgan Stanley, 719 F.2d 5, cert denied 465

We EE: oh bk 2k hdd kv eaenees bea innaees 2

Salveson v. Western States Bank Card Association,

pie fe >) Raper rere: rere rrr 4,5,6

Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482...... 2

Sedima, S.P.R.L. v. Imrex Company, Inc., ___

_ ee US Fre reer Terie 2

No.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1986.

GEORGE SARKISIAN, JOHN SARKISIAN, NORMAN PRES-

KITT, SARCO INDUSTRIES, INC., CHARLOTTE STREET

BUILDERS, INC., and SARKISIAN BROTHERS, INC.,

Petitioners,

against

THE TRAVELERS INDEMNITY COMPANY, as Assignee of

Judgments against Midstate Constructors, Inc. to en-

force certain Judgments,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SECOND CIR-

CUIT.

Brief in Opposition to Petition for Writ of Certiorari.

Statement of the Case.

There are several substantial inaccuracies in Petitioners’

Statement of the Case. Petitioners characterize Respond-

2

ent’s dismissed RICO action as an action by a surety com-

pany against its ‘‘bonding clients’’ for damages resulting

from ‘‘Midstate’s failure to complete projects and pay

suppliers on construction projects for which Respondent

had issued performance and payment surety bonds.’’ This

describes an action that a surety might bring against its in-

demnitors to recover for losses incurred pursuant to its

obligations under payment and performance bonds.

Respondent’s RICO action, however, sought damages

against certain corporations and some of their directors,

officers, and/or majority shareholders, for damages

resulting from the defendants, through the commission of

two or more acts constituting a pattern of racketeering ac-

tivity, directly or indirectly investing in, for maintaining

an interest in, an enterprise the activities of which affect

interstate commerce (Moss v. Morgan Stanley, 719 F.2d 5,

cert denied 465 US 1005).

As this Court has held, a RICO Complaint must allege

elements beyond those alleged in ‘‘garden variety fraud’’

(Sedima, S.P.R.L. v. Imrex Company, Inc., _._. US

__, 105 S. Ct. 3275). It must also allege elements beyond

breach of contract or an obligation to indemnity. Re-

spondent’s Complaint did so. Although Respondent’s

RICO Complaint was dismissed on the basis of Sedima,

S.P.R.L. v. Imrex Co., 741 F.2d 482, it had withstood a

previous motion to dismiss for failure to state a cause of

action. The Complaint was found to meet the require-

ments of Moss v. Morgan Stanley, supra, which go

significantly beyond the requirements of an action under

New York State’s Debtor and Creditor Law.

There are also several inaccuracies contained in the

footnotes to Petitioners’ Statement of the Case. In foot-

note 2, it is stated that Respondent’s Complaint in the

3

**consolidated cases’’ seeks ‘‘to recover for a portion of its

claim in the instant action.’’ Respondent’s Complaint in

the ‘‘consolidated cases’’ is an action on the General

Agreement of Indemnity signed by some of the Peti-

tioners, for losses which are covered by said Agreement of

Indemnity. It is a contract action. It has survived a motion

by Petitioners, made in 1983, for consolidation with the

RICO claim. Hon. Howard G. Munson, Chief Judge,

held, in denying that motion, that there was sufficient dif-

ference in the legal and factual issues between the two

cases, that they should not be consolidated for trial. Since

Petitioners are arguing that the instant action is merely a

restatement of the RICO claim, and since a United States

District Court has held that the RICO action and the

‘*consolidated cases’’ had significant differences in the

legal and factual issues, it is clearly not correct to say that

Petitioners are seeking to recover for the same claim in the

‘*consolidated cases’’ and in the instant case.

Footnotes 5 and 6 to Petitioners’ Statement of the Case

are an atteinpt by Petitioners to demonstrate that the state

court Complaint which is the subject of this petition fairly

implies the elements of a RICO cause of action. This argu-

ment must be reviewed in light of the holding of the Sec-

ond Circuit that ‘‘the elements of Travelers’ state law

claims do not include ‘a pattern of racketeering activity’ or

operation of an ‘enterprise,’ which are elements of the

RICO claim, 18 U.S.C. Section 1962’’ (page 15a of the ap-

pendix to the Petition for the Writ of Certiorari). Ap-

parently, Petitioners are asking this Court to overturn the

Second Circuit’s holding on this point. However, the ac-

curacy of this holding is not raised as one of the questions

presented by Petitioners. In fact, Petitioners’ first ques-

tion presented for review states, as a fact, that ‘‘the state

court pleading alleges all the elements of a cause of action

4

under the Racketeer Influenced and Corrupt Organiza-

tions Act.’’ In their second question presented for review,

Petitioners state that ‘‘the state court plaintiff previously

brought its claim in federal court.’’ Both of these state-

ments clearly conflict with the Second Circuit’s holding on

this point. As more fully set forth below, this point is

crucial to this Court’s determination of whether a Writ of

Certiorari should issue in this case.

Argument.

Petitioners raise three points in support of their Petition

for a Writ of Certiorari. Two of these points are pred-

icated on the assumption that Respondent’s state court

claim in this action is, in fact, a federal claim. This posi-

tion is stated as a fact in both of the questions presented,

and in both of the points in the Petition for the Writ of

Certiorari. For example, on page 10 of the Petition, it is

stated ‘‘the Second Circuit’s recitation of the background

of this action leaves no doubt that the origins and

substance of Respondent’s claims in the RICO action and

this action are identical.’’ This is directly contrary to the

Second Circuit’s statement in the same opinion that ‘‘the

elements of Travelers’ state law claims do not include ‘a

pattern of racketeering activity’ or operation of an ‘enter-

prise,’ which are elements of the RICO claim, 18 U.S.C.

Section 1962.’’ This determination by the Second Circuit

that the Respondent’s state law claim did not set forth a

federal claim, is the basis for the Second Circuit’s holding

that removal was not proper in this case. This in no way

differs from the Ninth Circuit’s holding in Salveson y.

Western States Bank Card Association, 731 F.2d 1423.

There may or may not be some differences between the

rule regarding the relationship between the master of the

complaint rule and the doctrine of artful pleading in the

eee

5

Ninth Circuit and in the Second Circuit. Petitioners main-

tain that the Second Circuit’s ‘‘virtuaily identical’’ test is

narrower than the test in Sa/veson. However, whichever

holding is applied to the procedural history of this litiga-

tion, it is clear that removal was improper.

In Salveson and in Federated Department Stores, Inc. v.

Moitie, 452 US 494, the procedural history was as follows:

A plaintiff had an antitrust claim which could be pursued

under either state law or federal law. The plaintiff elected

to sue in federal court, for a violation of federal antitrust

statutes. The plaintiff was unsuccessful. The plaintiff

subsequently brought an antitrust claim in state court.

Under the doctrine of artful pleading, it was held in both

Salveson and Federated Department Stores that, since the

plaintiff had previously elected to pursue his antitrust

claim in federal court, that claim was now a federal claim.

It was, therefore, removable, and, once removed, it was

properly dismissed on the basis of res judicata. The allega-

tions made in the state court Complaints, at least to the ex-

tent of the antitrust causes of action, were sufficient to

constitute an antitrust claim under federal law.

This is the fundamental distinction between both Sal/ve-

son and Federated Department Stores, and the instant

case. The Second Circuit, following Federated Depart-

ment Stores, analyzed the state court Complaint, and it

determined that it lacked certain elements necessary for a

federal claim. These elements are described with par-

ticularity in the Second Circuit’s opinion (page 15a of the

appendix to the Petition). This is not a situation in which

the state court claim, which is brought under the New

York State Debtor and Creditor Law, tracks the allega-

tions of a previous federal claim. Therefore, this state

court claim has not been federalized. Indeed, although the

6

Second Circuit did not have to reach this point, it is doubt-

ful that a claim setting forth allegations sufficient to sus-

tain a complaint under New York State’s Debtor and

Creditor Law would be sufficient to state a cause of action

in a federal court action. If the tests applied by the Ninth

Circuit in Sa/veson had been applied by the Second Circuit

in this case, the same result would have been reached.

The Petitioners rely on the Second Circuit’s use of the

phrase ‘‘virtually identical’’ in finding a distinction be-

tween the Ninth Circuit’s and the Second Circuit’s inter-

pretations of Federated Department Stores. Whatever sig-

nificance this phrase may turn out to have in later cases in

the Second Circuit, it is not the basis for a different result

having been-reached in the Second Circuit’ than what

would have been reached in the Ninth Circuit on this

record.

Although the separate state court claims in Sa/lveson

were also removed to federal court, they were removed on

the basis of pendent jurisdiction. Neither Sa/veson nor

Federated Department Stores provides any basis for a

claim that a state court complaint which does not state a

federai claim, but which does arise from some of the same

facts as a previously dismissed federal claim, is properly

removable to a federal court.

Respectfully submitted,

LESLIE F. COUCH, Counsel of Record

SHARON COUCH DEBONIS, of Counsel

COUCH AND HOWARD, P.C.

Attorneys for Respondents

48 Howard Street

Albany, NY 12207

(518) 434-4135

é

|

¢

neat ate,

7

Appendix A—Order of Judge Munson, Dated November

22, 1983.

UNITED STATES DISTRICT COURT,

NORTHERN DISTRICT OF NEW YORK.

cl

THE TRAVELERS INDEMNITY COMPANY,

Plaintiff,

v.

GEORGE K. SARKISIAN, JOHN SARKISIAN, NORMAN

PRESKITT, IVY MECHANICAL & ELECTRICAL AS-

SOCIATES, INC., SARKISIAN BROTHERS, INC., SARCO

INDUSTRIES, INC., SARBRO EQUIPMENT CORP., and

JOHN DOE and RICHARD ROE, said names being fic-

titious but meant to designate the officers, empioyees

and/or agents of the aforesaid defendants, presently un-

known to the plaintiffs, who participated in the acts set

forth herein,

Defendants.

83-CV-1034

Appearances:

Couch & Howard, P.C., Attorneys for Plaintiff, 75

State Street, Albany, NY 12207. Of Counsel: Leslie F.

Couch, Esq.

8

Ball & McDonough, P.C., Attorneys for Defendants,

8th Floor, Centre Plaza, Corner Henry & Chenango

Streets, Binghamton, NY 13902. Of Counsel: Kevin F.

McDonough, Esq.

HOWARD G. MUNSON, C.J.:

ORDER

The Travelers Indemnity Company filed the instant law-

suit against various defendants charging them with viola-

tions of the federal racketeering laws, 18 U.S.C. § 1961 ef

seq. Presently before the court is defendants’ motion to

dismiss the complaint pursuant to Rule 12(b)(6) and 9(b)

of the Federal Rules of Civil Procedure. Alternatively,

defendants seek an order pursuant to Rules 9(b) and 12(e)

of the Federal Rules of Civil Procedure compelling the

plaintiff to file a more definite statement and to plead

fraud with particularity. Additionally, defendants seek an

order pursuant to Rule 12(f) of the Federal Rules of Civil

Procedure striking portions of the plaintiff’s complaint

alleged to be redundant, immaterial, impertinent and

scandalous. Finaily, defendants seek consolidation or

joinder of the present action with two actions previously

consolidated by this court. For the reasons that follow the

court denies all the motions.

To state a claim for damages under RICO a plaintiff has

two threshhold pleading burdens. First, he must allege

that the defendant violated a substantive criminal provi-

sion of the RICO statute. See 18 U.S.C. § 1962 (1976).

Second, he must allege the existence of seven constituent

RICO elements: (1) that the defendant (2) through the

commission of two or more acts (3) constituting a pattern

of (4) racketeering activity (5) directly or indirectly invests

in, Or maintains an interest in (6) an enterprise (7) the ac-

9

tivities of which affect interstate commerce. See Moss v.

Stanley, No. 83-7120, slip op. (2d Cir. Sept. 9, 1983).

Despite the fact that RICO was enacted in a multifaceted

campaign against the pervasive presence of organized

crime in America, the Second Circuit flatly held in Moss

that the statute does not premise a RICO violation on

proof or allegations of any connection with organized

crime. Jd.

A cursory reading of plaintiff’s complaint reveals that

the constituent elements of a RICO claim have been prop-

erly pleaded. Accordingly, defendants’ motion pursuant

to Rule 12(b)(6) is denied. Additionally, the court finds

that plaintiff has set forth his various causes of action, in-

cluding fraud, with sufficient detail to allow the defend-

ants to form a responsive pleading. Accordingly, defend-

ants’ motions pursuant to Rules 9(b) and 12(e) are hereby

denied.

With respect to defendants’ assertion that certain por-

tions of plaintiff’s complaint should be stricken because

they include redundant, immaterial, impertinent and scan-

dalous material, the court finds that this information is

relevant to plaintiff’s pleading burden of establishing an

‘enterprise’? and ‘‘pattern of racketeering’’ activity.

Moreover, although some of this material is undoubtedly

redundant, the court finds that its inclusion in the com-

plaint will not result in any prejudice to the defendants.

Accordingly, defendants’ motion pursuant to Rule 12(f) is

hereby denied.

Finally, to the extent that the instant action involves fac-

tual and legal issues which are considerably more complex

than those presented in the action previously consolidated

uy this court, and because the parties are not identical in

10

both actions, defendants’ motion for consolidation or

joinder is hereby denied.

It is so Ordered.

Dated: November 22, 1983

Syracuse, New York

HOWARD G. MUNSON

Chief U.S. District Judge