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Metz v. United Counties Bancorp

August 25, 1999

METZ, ET AL.,
PLAINTIFFS,
V.
UNITED COUNTIES BANCORP, ET AL.
DEFENDANTS.



The opinion of the court was delivered by: William H. Walls, U.S.D.J.

FOR PUBLICATION

OPINION

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.

Factual Background

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 detriment. *fn2

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 and Spaulding, 467 U.S. 69, 73 (1984).

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 (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 (1957).

Analysis

1. Federal RICO Claims

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 (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 Sec. Inc. LTS Partnership Litig., 930 F. Supp. 68, 77 (S.D.N.Y.) (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, 975 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]") (citations omitted).

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 under RICO.

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 prejudice.

1. 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 unlawful debt. 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 (1989).

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 (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 (1981); see also Louis Schlesinger Co. v. Wilson, 22 N.J. 576, 585-86 (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 (App. Div. 1992), aff'd in part and rev'd on other grounds, 132 N.J. 278 (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 ...


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