1:20-cv-01081
E.D.N.YNov 16, 2020Background
- Plaintiffs (Dr. Aharon Gutterman, Batsheva Markowitz, Northeast Anesthesia, P.C., and Aharon Gutterman MD PLLC) sued defendants Philip Herzog and Ricky Lowenthal alleging a Ponzi-style scheme orchestrated principally by non-party Leon Lowenthal and others.
- Plaintiffs say they advanced about $3.3 million (2014–2018) relying on promises of insurance-commission repayments; they received partial repayments and assert ~$1.787 million remains unpaid.
- Herzog is alleged to have provided signed (and in some instances blank) checks as collateral; plaintiffs allege checks were dishonored when deposited.
- Complaint asserted federal RICO claims (wire fraud predicates) and state-law fraud claims; case removed to federal court and defendants moved to dismiss.
- Court dismissed federal claims for lack of Article III standing and for failure to plead RICO (enterprise, predicate acts, and pattern) with the particularity required by Rule 9(b), dismissed RICO conspiracy, declined supplemental jurisdiction over state claims, and granted plaintiffs leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III standing | Plaintiffs collectively advanced loans and suffered loss of ~$1.787M | Plaintiffs fail to allege which plaintiff individually made loans or suffered injury; group pleading insufficient | Dismissed federal claims for lack of subject-matter jurisdiction (standing); leave to amend granted |
| RICO — enterprise (association-in-fact) | The "Lowenthal‑Herzog Enterprise" (Lowenthal, Herzog, corporations, Greenfield, etc.) ran the scheme | Allegations against Herzog are conclusory, isolated (checks), and largely based on "information and belief"; no independent enterprise distinct from defendants | Failed: complaint does not plead an enterprise distinct from the alleged racketeering activity or show Herzog’s participation in management |
| RICO — wire fraud predicates and Rule 9(b) | Dozens of emails, texts, and wires were used to further the scheme | Plaintiffs provide nearly no dates, content, or interstate nexus for communications; rely on group pleading and information-and-belief allegations | Failed: predicate acts not pleaded with the particularity required by Rule 9(b); single vaguely pleaded email insufficient and interstate use not alleged |
| RICO — pattern/continuity and conspiracy | Repeated fraudulent acts over 2014–2018 show a pattern and continuing threat; conspiracy follows from substantive allegations | Predicate acts are not sufficiently pleaded; single identifiable act cannot show continuity; conspiracy depends on substantive RICO | Failed: no pattern of racketeering activity alleged; RICO conspiracy dismissed as derivative |
| State-law claims & supplemental jurisdiction | Plaintiffs seek to keep state claims against Ricky Lowenthal (text messages) | Federal claims dismissed first; state claims are pendant | Court declined to exercise supplemental jurisdiction over state-law claims but allowed plaintiffs to replead and include them in any amended complaint |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing requires concrete, particularized injury)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (application of plausibility standard to pleadings)
- Nakahata v. New York–Presbyterian Healthcare Sys., Inc., 723 F.3d 192 (Rule 9(b) particularity requirements)
- Turkette, 452 U.S. 576 (enterprise must be distinct from pattern of racketeering)
- Boyle v. United States, 556 U.S. 938 (association‑in‑fact enterprise structural features)
- HJ Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (continuity requirement for a RICO pattern)
- Moss v. Morgan Stanley, 719 F.2d 5 (elements of a civil RICO claim)
- Spool v. World Child Int’l Adoption Agency, 520 F.3d 178 (continuity and substantial period of time for RICO pattern)
- United States v. Weaver, 860 F.3d 90 (elements of wire fraud)