Summary
holding that attorneys fees and costs "are not the proprietary type of injury to which RICO is addressed"
Summary of this case from Walter v. Palisades Collection, LLCOpinion
Civil Action No. 99-2549-CM
April 10, 2001
MEMORANDUM AND ORDER
This suit arises out of the alleged competitive activities engaged in by plaintiff following his severance of employment with defendant Engineering Laminates (EL). Following the initiation of prior litigation, wherein EL sued plaintiff for engaging in competitive activities and plaintiff countersued under abuse of process, breach of contract, and fraud theories, the parties entered into an agreement. Pursuant to that agreement, plaintiff agreed to dismiss his countersuit in exchange for EL's agreement to pay plaintiff $35,000 in annual installments, to be paid on December 1 of the upcoming years, with final payment due December 1, 1998. Defendants began making payments pursuant to the schedule, but failed to make the December 1, 1997 payment and indicated to plaintiff it did not intend to make any remaining payments. Plaintiff has filed the pending lawsuit seeking restitution. Specifically, plaintiff seeks recovery alleging state law breach of contract, fraud, and unjust enrichment actions, and alleging violations of the federal Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO), 18 U.S.C. § 1961-68.
Pending before the court is defendants Elkin McCallum, Joan Fabrics Corporation, Joan Automotive Industries, Inc., and Joan Laminates, Inc.'s motion for judgment on the pleadings and dismissal for lack of subject matter jurisdiction (Doc. 74). Defendants Keith Illig and Engineered Laminates have joined in this motion (Doc. 81). Defendants seek judgment on the pleadings regarding plaintiff's fraud, punitive damage, unjust enrichment, and RICO claims. In addition, where the court grants defendants' motion for judgment on the pleadings, defendants contend the court has been deprived of subject matter jurisdiction over the case, as the remaining state law causes of action is insufficient to support this court's subject matter jurisdiction. For the reasons set forth below, defendants' motion is granted in part.
Defendants Illig and EL state to the court that defendants Excel Laminates, Inc. and KHI, Inc. filed bankruptcy on or about January 24, 2001. The joining defendants also note that defendant Stephenson has not been served in this action.
I. Motion for Judgment on the Pleadings
A motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) is governed by the same standards as a Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. See Mock v. T.G. Y. Stores Co. , 971 F.2d 522, 528 (10th Cir. 1992). The court will dismiss a cause of action for failure to state a claim only when it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him or her to relief, see Conley v. Gibson , 355 U.S. 41, 45-46 (1957); Maher v. Durango Metals, Inc. , 144 F.3d 1302, 1304 (10th Cir. 1998), or when an issue of law is dispositive. See Neitzke v. Williams , 490 U.S. 319, 326 (1989). The court accepts as true all well-pleaded factual allegations in the complaint, as distinguished from conclusory allegations, see Maher , 144 F.3d at 1304, and all reasonable inferences from those facts are viewed in favor of the plaintiff. See Witt v. Roadway Express , 136 F.3d 1424, 1428 (10th Cir. 1998). The issue in resolving a motion such as this is not whether the plaintiff will ultimately prevail, but whether he or she is entitled to offer evidence to support the claims. See Scheuer v. Rhodes , 416 U.S. 232, 236 (1974) (overruled on other grounds).
• Defendants' Motion for Judgment on the Pleadings
• RICO Claim
Plaintiff alleged that defendants "conducted or participated in conducting the affairs of an enterprise" and "committed or conspired to commit a criminal offense . . . in the conduct of the affairs of said enterprise." (Pl.'s complaint at ¶¶ 37a, 37b). Specifically, plaintiff alleged the following predicate acts were committed in the conduct of the general affairs of the enterprise:
1) Mail fraud, 18 U.S.C. § 1341 and wire fraud, 18 U.S.C. § 1343 when submitting settlement offers;
• Conspiracy to commit mail and wire fraud when submitting settlement offers;
• Witness tampering, 18 U.S.C. § 1512;
• Wire fraud, 18 U.S.C. § 1343 intended to prevent suit by plaintiff; and
• Interference with commerce or extortion, 18 U.S.C. § 1951, 1961(1)(A).
Plaintiff bases his civil RICO claim on these acts. Plaintiff alleged that these unlawful acts were "part of a series of related acts extending over a substantial period of time." (Id. at ¶ 39). Section 1962(c) of RICO makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt."18 U.S.C. § 1962(c).
To establish a civil RICO claim under
18 U.S.C. § 1962(c), plaintiff must show that the defendants "(1) participated in the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Resolution Trust Corp. v. Stone , 998 F.2d 1534, 1541 (10th Cir. 1993) (citing Phelps v. Wichita Eagle-Beacon , 886 F.2d 1262, 1273 (10th Cir. 1989)).
Defendants seek judgment on the pleadings regarding plaintiff's RICO claims. Defendants assert plaintiff lacks standing under 18 U.S.C. § 1964(c), arguing: (1) plaintiff fails to satisfy the particularity requirement of Fed.R.Civ.P. 9(b); (2) plaintiff's pleadings reveal he did not suffer an "injury in his business or property;" (3) plaintiff fails the "by reason of" proximate cause requirement; and (4) none of the facts complained of by plaintiff constitute a violation of § 1962. The court reviews defendants' arguments as necessary.
• Standing
RICO confers standing on "[a]ny person injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964 (c). Therefore, to have standing, a plaintiff must show: (1) a violation of section 1962; (2) injury to business or property; and (3) causation of the injury by the violation. See O'Malley v. O'Neill, 887 F.2d 1557, 1561 (11th Cir. 1989).
• By reason of proximate cause requirement
For plaintiff to have standing to bring a RICO claim, he must have "been injured by the conduct constituting the violation." Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). "[T]he compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern. . . ." Id. at 497. "[P]roximate cause is shown if the predicate acts are a substantial factor in causing the injury and if the injury is reasonably foreseeable consequence of the acts." Masters v. Daniel Int'l Corp., No. 87-1290-C, 1991 WL 107410, *4 (D.Kan. 1991) (citing Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23-24 (2d Cir. 1990)).
Defendants argue that any injury to plaintiff was caused by the alleged breach of contract, rather than any of the RICO predicate acts as set forth above. Specifically, defendants argue the alleged mail fraud, wire fraud, witness tampering, and interference with commerce or extortion did not injure plaintiff. Instead, defendants argue it was not until defendants allegedly breached the agreement at issue that plaintiff suffered injury.
Plaintiff's alleged injuries arising from the RICO claim are the costs associated with prolonged litigation, the costs associated with prevention from filing suit immediately, and actual damages in the amount of $50,000. Therefore, in order to establish standing, plaintiff must show defendants' alleged predicate acts of mail fraud, wire fraud, conspiracy to commit mail and wire fraud, witness tampering, and interference with commerce or extortion directly caused him to suffer these alleged injuries.
In his complaint, plaintiff alleges defendants engaged in mail and wire fraud by making false representations at the time the parties entered into the settlement agreement with plaintiff. Specifically, plaintiff alleges defendants entered into a conspiracy wherein they agreed to induce plaintiff to enter a settlement agreement with compliance payments to be made over four years. However, plaintiff asserts defendants knew at the time they entered into the agreement that defendant EL would be closing its business and not be able to fulfill the debt to plaintiff. Plaintiff also alleges EL tampered with a company witness by intimidating him into testifying falsely in the prior litigation. Specifically, plaintiff asserts the company witness testified falsely that all employees had signed agreements regarding trade information. Plaintiff alleges defendant EL engaged in wire fraud on December 11, 1997 when defendant Illig represented to plaintiff that EL no longer existed, when in fact EL had a cash value of approximately $70,000. Finally, plaintiff alleges defendant Illig threatened plaintiff with litigation if he chose to exercise his right to compete against EL rather than agree to the contract terms. Plaintiff alleges these actions directly caused his injuries.
The court finds plaintiff has not established the necessary causal nexus. Plaintiff does not demonstrate that he was injured by the alleged predicate acts. Instead, he alleges his injuries arose as a result of the defendants' alleged refusal to comply with the agreement at issue and defendants' actions surrounding this refusal. In essence, plaintiff alleges that his injuries arose from defendants' alleged breach of contract and its actions leading up to such breach. Without the intervening act of the alleged breach, the predicate acts alleged would not have caused any injury to plaintiff. The court concludes the predicate acts are too attenuated from the injuries alleged to find proximate cause here. Therefore, as revealed in the pleadings, the proximate cause for plaintiff's injuries was defendants' decision not to comply with the agreement, not the predicate acts alleged. See O'Malley v. O'Neil, 887 F.2d 1557, 1561-62 (11th Cir. 1989) (concluding employees not injured "by reason of" predicate acts of mail fraud lacked standing to assert RICO claims).
Although the predicate acts may be the "but for" cause of the plaintiff's alleged injuries, such relation between the harm and the predicate act is not sufficient to confer standing. Morast v. Lance, 807 F.2d 926, 933 (11th Cir. 1987). "RICO does not provide a remedy for every injury that may be traced to a predicate act." O'Malley, 887 F.2d at 1561. Further, plaintiff has failed to come forth with any precedent establishing that, as plead, his complaint adequately alleges proximate cause. The court finds, even when accepting as true all facts alleged by plaintiff, plaintiff is unable to establish that the predicate RICO acts alleged were the proximate cause of his injuries. Accordingly, the court finds plaintiff lacks standing to pursue his RICO claims.
• No Injury to Business or Property
Even if plaintiff had been able to establish proximate cause in this case, the court would still grant defendants' motion for judgment on the pleadings for lack of standing, as plaintiff has not sufficiently shown he can establish that he suffered an injury to his business or property. In order to establish standing, plaintiff must show he has suffered an injury to his business or property. 18 U.S.C. § 1964(c). The injury must cause a proprietary type of damage to the individual's property or business. Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir. 1984). Here, plaintiff alleges RICO damages in the amount of $50,000, costs for deterrence from filing suit, and costs associated with prolonged litigation. Plaintiff has failed to establish how these alleged injuries rise to the level of proprietary damages that are injurious to his business or property.
Attorneys fees and costs are generally considered "incidental damages and do not rise to the type of proprietary damage for which RICO provides compensation." Local 355 Hotel, Motel, Restaurant Hi-Rise Employees and Bartenders Union, AFL-CIO v. Pier 66 Co., 599 F. Supp. 761, 765 (S.D.Fla. 1984). Here, plaintiff's alleged injuries regarding delayed litigation and prolonged litigation are, in essence, allegations of attorneys fees and costs. The court finds these injuries are not the proprietary type of injury to which RICO is addressed.
Further, the $50,000 damages alleged by plaintiff are not specified. Presumably this injury addresses the delay in defendants' compliance with the breach of contract claim. Plaintiff would be unable to recover such damages without an adjudication as to the breach of contract claim itself. Accordingly, the court finds plaintiff's RICO claim is not ripe for judicial resolution, and therefore, plaintiff has no standing to pursue it at this time. See Lincoln House, Inc. v. Dupre, 903 F.2d 845, 847 (1st Cir. 1990) (finding plaintiff lacked standing to pursue RICO claim where injuries alleged were contingent on resolution of pending breach of contract action).
Accordingly, the court finds plaintiff has not shown he has suffered an injury to business or property, as is necessary to establish standing to pursue his RICO claim. The court finds it unnecessary to address the remainder of defendants' arguments.
The court finds plaintiff at this time lacks standing to pursue his RICO claim. Plaintiff's RICO claim is hereby dismissed.
II. Lack of Subject Matter Jurisdiction
Presumably pursuant to Federal Rule of Civil Procedure 12(b)(1), defendants have moved the court to dismiss plaintiff's first amended complaint for lack of subject matter jurisdiction. Defendants allege that, where the court dismisses plaintiff's federal RICO claim, the complaint does not contain a basis for diversity or federal question jurisdiction, and that, therefore, this court may not exercise subject matter jurisdiction over plaintiff's claims. The court agrees.
As the court herein dismisses plaintiff's federal RICO claim, the court declines to exercise subject matter jurisdiction over the pendent state claims. See 28 U.S.C. § 1331, 1367.
III. Order
Accordingly, IT IS ORDERED that defendants' motion for judgment on the pleadings (Doc. 74) is granted in part. Plaintiff's RICO claims are dismissed for failure to state a claim. Plaintiff's remaining pendent state law claims are also dismissed for lack of subject matter jurisdiction. As no claims remain pending, plaintiff's complaint is dismissed in its entirety.
IT IS SO ORDERED.