Rosenshein v. Kushner, 1:15-cv-07397

Background

Plaintiff Arnold Rosenshein invested in eleven large real-estate loans arranged/serviced by individual defendants (Kushner, Meshel, Sturman, Gleitman) and related corporate entities (Mercury and Paradigm) between 2002–2008.
Defendants allegedly misrepresented loan collateral quality and loan-to-value metrics, induced investments as "conservative," and thereafter delayed foreclosures, collected extension/forbearance fees and late fees, and hid proceeds from investors.
Ten of the eleven loans had borrower defaults by February 2009; defendants allegedly obtained title or foreclosed on many collateral properties but failed to promptly sell and remit proceeds to investors.
Rosenshein filed suit in federal court asserting RICO claims (predicate acts: mail and wire fraud) and related state-law claims; FAC filed January 26, 2016. Defendants moved to dismiss.
The district court concluded that storm warnings from defaults and foreclosure problems put a reasonable investor on inquiry notice by the end of 2009, so Rosenshein’s RICO claims (four-year limitation) were time-barred; state claims dismissed without prejudice for the state courts.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether RICO claims are time-barred (accrual/inquiry notice)	Rosenshein argued some injuries (or new injuries) did not accrue until 2011 and thus claims are within limitations	Defendants argued storm warnings from defaults/foreclosure delays put plaintiff on inquiry notice by 2009, so claims filed in 2015–2016 are untimely	Court held RICO accrued no later than end of 2009; claims barred by 4-year statute and dismissed with prejudice
Whether separate later events create new RICO accruals	Rosenshein contended each later loss triggered a new limitations period (Bankers Trust rule)	Defendants: later events were non-independent manifestations of the original fraud, not new injuries	Court held later foreclosure/sale problems were not new independent injuries; Merrill Lynch and Bingham principles apply—no new accruals
Leave to amend RICO claims	Rosenshein sought leave to amend if RICO claims required further development	Defendants opposed, arguing futility and prejudice	Court denied leave: plaintiff gave no proposed amendments and statute-of-limitations defect could not be cured
Supplemental jurisdiction over state-law claims & motion to strike	Plaintiff wanted federal adjudication of state claims; Sturman moved to strike certain allegations as scandalous	Defendants sought dismissal of federal claims and either dismissal of state claims or striking scandalous material	Court declined supplemental jurisdiction and dismissed state-law claims without prejudice; denied motion to strike as allegations were relevant and not sufficiently scandalous

Key Cases Cited

Koch v. Christie’s Int’l PLC, 699 F.3d 141 (2d Cir.) (inquiry-notice "storm warnings" standard in investor fraud cases)
Rotella v. Wood, 528 U.S. 549 (U.S.) (RICO accrual follows injury-discovery rule, not pattern-discovery)
In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d 56 (2d Cir.) (investors sustain RICO injury at time of investment when promised security differs from received security)
Ellul v. Congregation of Christian Bros., 774 F.3d 791 (2d Cir.) (statute-of-limitations defense may be resolved on Rule 12(b) where apparent on face of complaint)
Bankers Trust Co. v. Rhoades, 859 F.2d 1096 (2d Cir.) (rule that each discovered RICO injury can begin a new limitations period; distinguishing independent vs. non-independent injuries)
Bingham v. Zolt, 66 F.3d 553 (2d Cir.) (non-independent injuries do not create new accruals)
First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir.) (district courts generally should dismiss state-law claims when all federal claims are eliminated before trial)
Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705 (2d Cir.) (factors favor declining supplemental jurisdiction where federal claims are dismissed)
LaFaro v. New York Cardiothoracic Group, PLLC, 570 F.3d 471 (2d Cir.) (standard for motion to dismiss: accept pleadings as true)
Keiler v. Harlequin Enters. Ltd., 751 F.3d 64 (2d Cir.) (plausibility standard under Rule 12(b)(6))