16-3189-cv
Rosenshein v. Meshel
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION ASUMMARY ORDER@). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 21st day of April, two thousand seventeen.
PRESENT: REENA RAGGI,
DENNY CHIN,
SUSAN L. CARNEY,
Circuit Judges.
ARNOLD ROSENSHEIN, dba PARK WEST REALTY CO.,
Plaintiff-Appellant,
v. No. 16-3189-cv
JEFFREY MESHEL, PARADIGM CREDIT CORP.,
MERCURY CREDIT CORP., PARADIGM CAPITAL
GROUP, LLC, PARADIGM CAPITAL FUNDING, LLC,
MERCURY CAPITAL CORP., PARADIGM MONROE
CENTER III, LLC, PARADIGM EXCHANGE LLC,
EXCHANGE PARTNERS GROUP LLC, PCF EXCHANGE
LLC, PARADIGM ELIZABETH LLC, PARADIGM EAST
HANOVER LLC, EAST HANOVER PARTNERS LLC,
TULIPAN INDURSKY & SONS LLC,
Defendants-Cross-Defendants-Appellees,
WAYNE STURMAN, JOHN DOES, ABC CORPS., DAVID
KUSHNER,
Defendants-Appellees,
MARC GLEITMAN,
Defendant-Cross-Claimant-Appellee.
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APPEARING FOR APPELLANT: MICHAEL C. BARROWS, The Law Offices of
Anthony A. Capetola LLC, Williston Park,
New York.
APPEARING FOR APPELLEES: MICHAEL WEXELBAUM (Larry Hutcher, on
the brief), Davidoff Hutcher & Citron LLP,
New York, New York, for Defendants-Cross-
Defendants-Appellees and Defendants-
Appellees.
DAVID EDELBERG (Alissa K. Piccione, on
the brief), Cullen and Dykman LLP,
Hackensack, New Jersey, for Defendant-Cross-
Claimant-Appellee.
Appeal from a judgment of the United States District Court for the Southern
District of New York (Denise L. Cote, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment entered on August 29, 2016, is AFFIRMED.
Plaintiff Arnold Rosenshein, a real estate investor, sued defendants under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq.,
as well as New York state law, for fraudulently inducing his investment in high risk
commercial loans by falsely representing them as low risk. Rosenshein now appeals the
dismissal of his complaint as barred by the statute of limitations.1 We review such a
dismissal de novo. See Deutsche Bank Nat’l Tr. Co. v. Quicken Loans Inc., 810 F.3d
861, 865 (2d Cir. 2015). In doing so, we assume the parties’ familiarity with the facts
1
The district court held Rosenshein’s RICO claims time-barred, whereupon it declined to
exercise supplemental jurisdiction over his state law claims. See New York Mercantile
Exch., Inc. v. IntercontinentalExchange, Inc., 497 F.3d 109, 119 (2d Cir. 2007)
(upholding district court’s declination to exercise supplemental jurisdiction when federal
claims failed).
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and procedural history of this case, which we reference only as necessary to explain our
decision to affirm for substantially the reasons stated by the district court in its August
26, 2016 decision and order. See Rosenshein v. Kushner, No. 15CV7397 DLC, 2016 WL
4508756 (S.D.N.Y. Aug. 26, 2016).
1. RICO Statute of Limitations
A four-year statute of limitations applies to civil RICO claims. See Koch v.
Christie’s Int’l PLC, 699 F.3d 141, 148 (2d Cir. 2012). The timeliness of a civil RICO
claim depends on a twin determination of (1) when the plaintiff sustained the alleged
injury for which he seeks redress, and (2) when the plaintiff discovered or should have
discovered the injury, with the latter date triggering the four-year statute of limitations.
See id. at 150–51; In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d 56, 60 (2d Cir. 1998)
(“Thus, even if [an] investor[’s] injury occurred at the time [he] invested, the limitations
period does not begin to run until [he] ha[s] actual or inquiry notice of the injury.”).
A RICO injury occurs when the “amount of damages becomes clear and definite.”
First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994); accord
Chevron Corp. v. Donziger, 833 F.3d 74, 140 (2d Cir. 2016). A RICO claim predicated
on an investment injury for which an investor has no contractual or legal remedies
generally accrues at the time of investment. See In re Merrill Lynch Ltd. P’ships Litig.,
154 F.3d at 59. Rosenshein, however, contends that his injuries from defendants’
misrepresentations, both at the time of investment and in follow-up communications,
arose only when property subject to the underlying mortgage loans was lost to
foreclosure. We are not persuaded. Taking the verified complaint’s allegations as true,
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see Barrows v. Burwell, 777 F.3d 106, 111 (2d Cir. 2015), the investments at issue were
unsecured, and Rosenshein lacked any right to make decisions relating to the underlying
loans or to pursue remedies for non-payment against borrowers. Indeed, Rosenshein
explicitly pleads that under the agreements between him and defendants, he was “not
permitted to participate in any of the decisions relating to the loans,” “waive[d] complete
control over the loan and the monies” he invested, and had “no recorded collateral or
security interest in any mortgage or property.” App’x 257–58.
Although a court need not accept a complaint’s allegations when they are
contradicted by exhibits attached thereto, see Tongue v. Sanofi, 816 F.3d 199, 206 n.6 (2d
Cir. 2016), that principle is unavailing here. Rosenshein maintains that the attached
participation and servicing agreement pertaining to the “24th Street” investment
demonstrates that all of his investments were secured. That is not so. First, this
document expressly controls only the “24th Street” investment and does not govern any
other investment at issue. App’x 329. Accordingly, we must take the complaint’s
allegations as true with regard to the remaining investments. Second, even if the “24th
Street” investment was secured by the underlying mortgage’s collateral, that status is not
meaningful here because the agreement expressly states that the Lead Lender—not
Rosenshein—“shall determine and control what actions shall be taken in connection with
any [] default or Event of Default.” See id. at 333. In sum, because the agreement
guarantees Rosenshein no legal or contractual remedies for his alleged injury, his RICO
claim with respect to that investment accrued at the time of investment.
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The servicing contracts submitted to the district court warrant no different
conclusion with respect to Rosenshein’s other investments, as these documents are not
inconsistent with the complaint’s allegations that Rosenshein lacked a security interest
and had no right to pursue remedies himself against the borrowers in the event of a
default. App’x 257–68. Thus, Rosenshein’s RICO claim accrued no later than 2008,
when the most recent investment was made, because his legally cognizable injuries
occurred at the time of each investment.2
We recognize that “in some instances a continuing series of fraudulent
transactions undertaken within a common scheme can produce multiple injuries which
each have separate limitations periods.” In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d
at 59. Nevertheless, such injuries have “to be new and independent to be actionable.” Id.
Rosenshein argues that because he did not learn about the loss of portions of his
investment until certain foreclosures in 2011, a new injury then accrued that started the
limitations period. Like the district court, we conclude that the separate-accrual rule is
inapplicable here because, as we just explained, Rosenshein’s injuries occurred when he
made the allegedly fraudulent investments. The multiple foreclosures that occurred
through 2011 did not constitute new and independent injuries; rather, they were merely
symptoms of Rosenshein’s pre-existing injuries and, therefore, have no bearing on the
limitations analysis or on our conclusion that Rosenshein’s RICO claims accrued no later
than 2008.
2
Because Rosenshein’s alleged RICO injuries occurred at the time of investment, rather
than upon foreclosure on underlying collateral, we need not reach his argument that
defendants failed to establish the dates of foreclosures.
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Once a RICO claim accrues, the statute of limitations begins to run when a
plaintiff has actual or inquiry notice of the claim. See Koch v. Christie’s Int’l PLC, 699
F.3d at 151. “Storm warnings” provide inquiry notice when “the circumstances would
suggest to an investor of ordinary intelligence the probability that [he or] she has been
defrauded.” Id. (internal quotation marks omitted); see also Cohen v. S.A.C. Trading
Corp., 711 F.3d 353, 361 (2d Cir. 2013) (observing that “duty to inquire is triggered by
[knowledge of] information that relates directly to the misrepresentations and omissions”
later claimed by plaintiff to constitute fraud (citation and internal quotation marks
omitted)). Storm warnings “need not detail every aspect of the alleged fraudulent
scheme,” and can trigger the statute of limitations “even where the full extent of the
RICO scheme is not discovered until a later date.” Koch v. Christie’s Int’l PLC, 699 F.3d
at 151 (internal quotation marks omitted).
“If the plaintiff makes no inquiry once the duty to inquire arises, knowledge will
be imputed as of the date the duty arose.” Cohen v. S.A.C. Trading Corp., 711 F.3d at
361–62 (citation and internal quotation marks omitted). Where “some inquiry is made,”
the court “will impute knowledge of what [a plaintiff] in the exercise of reasonable
diligence[] should have discovered concerning the fraud, and in such cases the limitations
period begins to run from the date such inquiry should have revealed the fraud.” Id. at
362 (alterations in original) (citation and internal quotation marks omitted).
Here, storm warnings provided inquiry notice more than four years before
Rosenshein filed suit on September 18, 2015. As the district court observed, the cascade
of setbacks that the investment suffered would have caused a reasonable investor to
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suspect fraud and make further inquiries into the accuracy of defendants’ representations
regarding the collateral for and the risk associated with the loans. The fact that these
events coincided with the 2008 financial crisis warrants no different conclusion. By the
end of 2009, at least ten borrowers had defaulted on the loans at issue. Further, by that
time, defendants had commenced foreclosure or other efforts to assume ownership of the
collateral for most of the properties. Yet the process dragged on, and defendants offered
assorted excuses for being unable to complete the process and sell the properties in a
timely fashion, by contrast to their initial predictions of easy sales at amounts in excess of
the loans. These circumstances constituted storm warnings that would put a reasonable
investor on inquiry notice of fraud.
Because inquiry notice was thus triggered outside the limitations period, and
because Rosenshein failed to conduct any investigation, we conclude that the September
18, 2015 filing of his claims was untimely.
2. Equitable Tolling
Rosenshein argues that issues of fact remain as to whether defendants’ fraudulent
concealment tolled the statute of limitations. To secure such equitable relief, Rosenshein
must show (1) wrongful concealment by defendants, that (2) prevented his discovery of
his fraud-based claim within the limitations period, and (3) his own due diligence in
pursuing discovery of the claim. See In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d at
60. He has not carried this burden.
As already discussed, the complaint here expressly pleads storm warnings that
would motivate “a reasonably diligent plaintiff” to investigate. It is devoid, however, of
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any allegation that Rosenshein engaged in even a basic inquiry. See Stone v. Williams,
970 F.2d 1043, 1048–49 (2d Cir. 1992) (observing that “[f]raudulent concealment does
not lessen a plaintiff’s duty of diligence; it merely measures what a reasonably diligent
plaintiff would or could have known regarding the claim”). Rosenshein’s duty to
investigate is unaltered by defendants’ alleged representations and assurances about the
investments because the information already in Rosenshein’s possession during the
relevant period—including numerous defaults, foreclosures, and delays in selling the
underlying collateral properties—clearly contradicted such statements to a degree that
made it unreasonable for Rosenshein to rely thereon. Indeed, unlike in State Farm
Mutual Automobile Insurance Co. v. CPT Medical Services, P.C., No. 04CV5045(ILG),
2008 WL 4146190, at *9 n.9 (E.D.N.Y. Sept. 5, 2008), on which Rosenshein relies, the
complaint makes plain his awareness of circumstances sufficient to impute inquiry notice
of the fraud well within the limitations period.
Accordingly, because a reasonably diligent investor would have discovered fraud-
based claims within the limitations period despite defendants’ alleged concealment,
Rosenshein is not entitled to equitable tolling.
3. Conclusion
We have considered Rosenshein’s remaining arguments and conclude that they are
without merit. Accordingly, the district court’s August 29, 2016 judgment is
AFFIRMED.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court
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