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METZ v. UNITED COUNTIES BANCORP
August 24, 1999
METZ, ET AL., PLAINTIFFS,
UNITED COUNTIES BANCORP, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Walls, District Judge.
This matter is before the Court on the motion of the defendants
to dismiss Counts III through XII of the amended complaint. The
motion is granted in part and denied in part. Defendants and
plaintiffs have filed cross motions for summary judgment on Count
I of the amended complaint. The Court grants the defendants'
cross motion and denies that of the plaintiffs.
The eighty plaintiffs are all former employees of the now
defunct defendant United Counties Bankcorporation ("United
Counties"). Some were also shareholders. Through the process of
two corporate mergers in quick succession, plaintiffs eventually
came under the employ of defendant CoreStates Financial
Corporation ("CoreStates"). Shortly after the second merger,
plaintiffs' employment was terminated by CoreStates.
In essence, plaintiffs complain that during the pendency of the
mergers, defendants made myriad false or misleading statements
about the employee and severance benefits to which United
Counties employees would be entitled post merger. Plaintiffs
claim that they were induced by these statements to support the
proposed mergers and to remain in the employ of the pre-merger
entities. Their complaint charges that the defendants made these
misstatements knowingly and willfully or in reckless disregard of
their falsity, and plaintiffs assert that they relied on the
statements to their detriment.
The relevant factual history is:
On May 24, 1995, United Counties and defendant Meridian Bancorp
Inc. ("Meridian") announced that the two banks would merge
through an exchange of stock, with Meridian surviving. The press
release stated that the resultant bank would be headquartered at
the Cranford, New Jersey headquarters of United Counties. The
plaintiffs claim that they were told that individuals employed at
that location would be secure in their jobs. Under the terms of
the merger agreement, United Counties employees who became
Meridian employees and were involuntarily terminated within one
year of the merger would receive a severance benefit of one week
of their pre-termination salary times the number of full years of
service with United Counties.*fn1 The merger was approved by a
vote by the United Counties shareholders on February 7, 1996. On
February 23, 1996, United Counties became a division of Meridian
and ceased to exist as a separate entity.
On October 10, 1995, during the pendency of the United
Counties-Meridian merger, Meridian and CoreStates also agreed to
merge through an exchange of stock. CoreStates was to survive
that merger. During that month, CoreStates published and
disseminated its "Partnership Guarantee Contract" ("Partnership
Guarantee"), which, according to the plaintiffs, guaranteed to
all employees, including
plaintiffs, significant severance benefits in the event of their
involuntarily termination as a result of the CoreStates-Meridian
merger. These benefits were more generous than those guaranteed
under the United Counties-Meridian merger agreement. Plaintiffs
assert that this document was published to employees to obtain
their support for the merger and to entice them to remain in the
employ of the defendants. Notwithstanding that they were not at
the time employed by either Meridian or CoreStates, plaintiffs
claim that they relied on these representations to their
Plaintiffs came to know about and rely upon the Partnership
Guarantee through CoreStates' publication of three or four other
documents. Plaintiffs declare that both the proxy
statement/prospectus filed with federal and state regulatory
authorities and furnished to CoreStates and Meridian shareholders
in January 1996 and the CoreStates-Meridian Merger Agreement
stated that all Meridian employees would be entitled to salary,
bonus and benefits packages on substantially the same terms and
conditions as those offered to CoreStates employees under the
Partnership Guarantee. The severance policy set forth in the
Partnership Guarantee was circulated to all employees of
CoreStates and Meridian in an October 20, 1995 newsletter. After
CoreStates formally adopted the severance policy in the
Partnership Guarantee as part of its severance plan, it published
a "Summary Plan Description" detailing the terms of the
Partnership Guarantee. The complaint alleges that "[d]efendants
represented orally, and through various publications, that
plaintiffs were entitled to severance benefits according to a
formula described in the Partnership Guarantee Contract." Compl.
at ¶ 67. The Meridian-CoreStates merger was effected on April 16,
1996, and plaintiffs became employees of CoreStates.
Around May 1996, plaintiffs received a "Q & A" fax sheet from
CoreStates together with notices that their employment was to be
terminated. Through the fax sheet, they learned that CoreStates
did not intend to provide them with the severance benefits
detailed in the Partnership Guarantee. Plaintiffs claim that this
denial of benefits is violative of the Employee Retirement Income
Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"),
federal and state securities laws, and federal and state
Racketeer Influenced and Corrupt Organizations Act ("RICO")
statutes. Plaintiffs also assert that CoreStates denial
constitutes breach of contract, fraudulent misrepresentation, and
intentional infliction of emotional distress. Defendants have
moved to dismiss Counts III through XII of the amended complaint.
Defendants and the plaintiffs have filed cross motions for
summary judgment on Count I of the amended complaint.
Legal Standard for a 12(b)(6) Motion to Dismiss
On a Rule 12(b)(6) motion, the court is required to accept as
true all allegations in the complaint and all reasonable
inferences that can be drawn therefrom, and to view them in the
light most favorable to the non-moving party. See Oshiver v.
Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir.
1994). The question is whether the plaintiff can prove any set of
facts consistent with her allegations that will entitle her to
relief, not whether she will ultimately prevail. See Hishon v.
King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59
While a court will accept well-pleaded allegations as true for
the purposes of the
motion, it will not accept legal or unsupported conclusions,
unwarranted inferences, or sweeping legal conclusions cast in the
form of factual allegations. See Miree v. DeKalb County, Ga.,
433 U.S. 25, 27, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977);
Washington Legal Found. v. Massachusetts Bar Found.,
993 F.2d 962, 971 (1st Cir. 1993); Violanti v. Emery Worldwide A-CF Co.,
847 F. Supp. 1251, 1255 (M.D.Pa. 1994). Moreover, the claimant
must set forth sufficient information to outline the elements of
her claims or to permit inferences to be drawn that these
elements exist. See Fed. R.Civ.P. 8(a)(2); Conley v. Gibson,
355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
Plaintiffs assert that defendants' allegedly false and
misleading statements, disseminated, as they were, through
interstate mail and by means of wire and telephone communications
constituted a pattern of racketeering activity and conspiracy to
defraud plaintiffs and the public in violation of the federal
RICO statute, 18 U.S.C. § 1962.
Section 107 of the Private Securities Litigation Reform Act of
1995, Pub.L. 104-67, 109 Stat. 737 (1995), ("PSLRA") amended
18 U.S.C. § 1964(c) so that this statute now provides: "no person
may rely upon any conduct that may have been actionable as fraud
in the purchase or sale of securities to establish a violation of
[18 U.S.C.] § 1962." This amendment was prompted by "significant
evidence of abuse in private securities lawsuits" and was
intended to "[implement] needed procedural protections to
discourage frivolous lawsuits." H.R. Conf. Rep. No. 104-369,
104th Cong., 1st Sess., at 31. The effective date of the PSLRA
was December 22, 1995. The PSLRA states that "[t]he amendments
made by this title shall not affect or apply to any private
action arising under Title I of the Securities Exchange Act of
1934 or Title I of the Securities Act of 1933, commenced before
and pending on the date of enactment of this Act." Pub.L. No.
104-67, 109 Stat. at 758 (1995).
There has been some disagreement as to whether the PSLRA only
applies prospectively to RICO based securities claims. Normally,
a newly enacted statute cannot be given retroactive effect absent
a clear expression of congressional intent. See Landgraf v. USI
Film Prods., 511 U.S. 244, 280-81, 114 S.Ct. 1483, 128 L.Ed.2d
229 (1994). Several courts, however, have held that the PSLRA
bars pre-enactment conduct unless the plaintiff's action was
pending before the PSLRA's enactment. See e.g., Fujisawa
Pharmaceutical Co., Ltd. v. Kapoor, 115 F.3d 1332, 1337 (7th
Cir. 1997); Krear v. Malek, 961 F. Supp. 1065 (E.D.Mich. 1997);
ABF Capital Management v. Askin Capital Management, L.P.,
957 F. Supp. 1308 (S.D.N.Y. 1997). Based on this Court's understanding
of the language and purposes of the PSLRA, it agrees with the
above courts and finds that the PSLRA applies to the present case
filed in November, 1996.
The plaintiffs assert that the predicate acts upon which they
rely are mail fraud and wire fraud. The defendants respond that
while mail or wire fraud could be used as predicate acts for a
RICO claim in some situations, they may not be used as such when
they "are based on conduct which would have been actionable as
securities fraud." In re Prudential Securities Incorporated
Limited Partnerships Litigation, 930 F. Supp. 68, 77 (S.D.N Y
1996) (quoting H.R. Cong. Rep. No. 369 at 47 (1995)); see also
Krear v. Malek, 961 F. Supp. 1065, 1074 (E.D.Mich. 1997) ("[i]t
is abundantly clear that Congress intended that conduct
constituting wire and mail fraud not form the basis of a
predicate act under the amendment if such conduct would also be
actionable as securities fraud"); ABF Capital Management v.
Askin Capital Management, 957 F. Supp. 1308, 1319 (S.D.N.Y. 1997)
("Congress intended to capture claims of wire and mail
fraud in connection with [the purchase or sale of securities]")
The plaintiffs rely on language from Eagle Traffic Control,
Inc. v. James Julian, Inc., that "mail fraud is a predicate act
and because [plaintiff's] complaint alleges, in part, mail fraud,
we find that [plaintiff] has adequately pleaded racketeering
activity under RICO" 933 F. Supp. 1251, 1257 (E.D.Pa. 1996).
Eagle Traffic, however, involved alleged mail fraud in the
context of construction contracts. Id. at 1254-55. The Eagle
case does not support the contention that mail or wire fraud,
actionable as securities fraud, can constitute predicate acts
Because the plaintiffs' federal RICO claim arises out of an
alleged context of securities fraud, mail and wire fraud, the
Court finds that it is barred by the PSLRA and dismisses it with
2. New Jersey State RICO Claims
The New Jersey state RICO statute mirrors the prohibitions of
the federal statute:
It shall be unlawful for any person employed by or
associated with any enterprise engaged in or
activities of which affect trade or commerce to
conduct or participate, directly or indirectly, in
the conduct of the enterprise's affairs through a
pattern of racketeering activity or collection of
N.J.S.A. 2C:41-2(c). Racketeering is defined in the state statute
as any one of a number of crimes, including "fraud in the
offering, sale or purchase of securities." N.J.S.A.
2C:41-1(1)(p). A pattern of racketeering activity requires: (1)
engaging in at least two incidents of racketeering conduct . . .
within [ten] years . . . after a prior incident of racketeering
activity; and (2) a showing that the incidents of racketeering
activity embrace criminal conduct that has either the same or
similar purposes, results, participants or victims or methods of
commission or are otherwise interrelated by distinguishing
characteristics and are not isolated events. See N.J.S.A.
2C:41-1(d)(2); see also H.J., Inc. v. Northwestern Bell Tel.
Co., 492 U.S. 229, 232-33, 109 S.Ct. 2893, 2897, 106 L.Ed.2d 195
N.J.S.A. 2C:41-1 recites that "the Legislature recognized that
the existence of organized crime and organized crime type
activities presents a serious threat to the political, social,
and economic institutions of the state" and that ". . . effective
criminal and civil sanctions are needed to prevent, disrupt and
eliminate the infiltration of organized crime type activities . .
. into the legitimate trade." Like its federal counterpart, the
New Jersey State RICO statute is premised on the need to address
the influence of organized crime upon New Jersey businesses. See
In Matter of Doe, 294 N.J. Super. 108, 682 A.2d 753 (L. Div.
1996). Based on this purpose, and also on the same reasoning as
that which led the Congress to enact the PSLRA, this Court would
be inclined to bar a state RICO action based on allegations of
securities, mail or wire fraud. However, the Court is constrained
by its deference to the New Jersey state legislature, which has
yet to follow Congress and focus the statute more narrowly to its
enumerated purpose. Accordingly, the Court will address the
plaintiffs' state RICO claims on the merits.
Fraud has generally been defined as "a material representation
of a presently existing or past fact, made with knowledge of its
falsity and with the intention that the other party rely thereon,
resulting in reliance by that party to his detriment." Jewish
Center v. Whale, 86 N.J. 619, 624, 432 A.2d 521 (1981); see
also Louis Schlesinger Co. v. Wilson, 22 N.J. 576, 585-86,
127 A.2d 13 (1956). The circumstance when no affirmative
misrepresentation is made does not bar relief predicated on a
claim of fraud, because suppression of the truth when it should
be disclosed is equivalent to an expression of a falsehood. See
Baldasarre v. Butler, 254 N.J. Super. 502, 520, 604 A.2d 112
(App. Div. 1992), aff'd in part and rev'd on other
grounds, 132 N.J. 278, 625 A.2d 458 (1993).
The plaintiffs claim that the statement in the May 24, 1995
United Counties-Meridian merger announcement that the surviving
bank would be headquartered in Cranford, New Jersey was
fraudulent because the Cranford office was closed after the
Meridian-Corestates merger. They also claim that this statement
was made to cause them to believe that their jobs were secure, to
induce them to remain in the bank's employ, and to persuade them
to support the merger. The plaintiffs further argue that the
October 10, 1995 Meridian-Corestates merger agreement was
fraudulent. The merger agreement stated that the salary, wage,
hours and benefits package to which all Meridian employees would
be entitled to participate would be substantially on the same
terms and conditions as that offered to Corestates' employees.
Corestates later fired the plaintiffs, and informed them that the
bank planned to give them the United ...