Opinion
Case No. 3:02-CV-0127-M
April 11, 2002
MEMORANDUM ORDER
Before the Court is the Defendant's Motion to Dismiss for failure to state a claim, filed March 8, 2002. The Court finds that Plaintiff has failed to state a claim upon which relief may be granted, but gives Plaintiff twenty days in which to amend its Complaint in an effort to state such a claim.
FACTUAL SUMMARY
Goldin, Peiser and Peiser, L.L.P. (the "Plaintiff") performed accounting work for Delta Brands, Inc. At some time before October 31, 2001, Delta became delinquent in paying its debt to Plaintiff. Plaintiff alleges that Defendants owe $47,980.00 for accounting services supplied to Delta, and, in its First Amended Petition ("Petition"), alleges a civil RICO claim, which is the subject of this motion to dismiss. Defendants contend that the amount claimed is incorrect due to improper billing, and denies the existence of some elaborate scheme to defraud Plaintiff. Plaintiff bases its RICO claim on "multiple, related acts of mail and/or wire fraud . . . and/or e-mail fraud."
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. Plaintiff originally filed this case in state court; Defendants subsequently removed.
STANDARD OF REVIEW
The purpose of a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is to test the formal sufficiency of the statement of the claim for relief, not to determine the facts or merits of the case When reviewing the sufficiency of a plaintiffs Complaint (or in this case, Petition) the issue is not whether he will ultimately prevail or is likely to prevail, but whether he is entitled to offer evidence to support the claims upon which he sues. The Court must thus presume all factual allegations in the Plaintiffs Petition to be true and resolve any ambiguities or doubts regarding the sufficiency of the claims in favor of Plaintiff. "However, `the [Petition] must contain either direct allegations on every material point necessary to sustain a recovery or contain allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial.'" Moreover, conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss."
Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 442 (5th Cir. 1982), cert. denied, 476 U.S. 1159 (1986).
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Tanglewood East Homeowners v. Charles-Thomas, Inc., 849 F.2d 1568, 1571 (1988).
Fernandez-Montez v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993).
Campbell v. City of San Antonio, 43 F.3d 973, 975 (5th Cir. 1995) (citation omitted).
Fernandez-Montez, 987 F.2d at 284.
ANALYSIS
To survive a motion to dismiss for failure to state a RICO claim, Plaintiff must have pleaded the presence of "1) a person who engages in 2) a pattern of racketeering activity, 3) connected to the acquisition, establishment, conduct, or control of an enterprise." Plaintiffs RICO allegations are limited. Plaintiff conclusorily alleges that Defendants violated the RICO Act by:
devis[ing] a scheme and creat[ing] an organization and "enterprise" to defraud [Plaintiff] through the United States Postal Service and/or private or commercial interstate carriers, and/or e-mail[ing] false information, false pretenses and/or false representation for the purposing [sic] of executing a scheme or artifice to avoid payment of debts. [Defendants] have willfully committed multiple, related acts of mail and/or wire fraud at least one of which occurred in the last ten (10) years.
The structure by with [sic] [Defendants] operated this fraudulent scheme constituted an enterprise within the terms of 18 U.S.C. § 1961 (4); the enterprise undertook both legitimate transactions and transactions which constituted a pattern of racketeering activity as defined by 18 U.S.C. § 1961 (5). Thus, the association existed for purposes other than simply to commit the predicate acts involved in this cause of action. Defendant Sam Savariego, was a person employed or associated with that enterprise that conducted or participated, directly and/or indirectly, to conduct or participate in the conduct of the enterprise's activities through a pattern of racketeering activity in violation of the [RICO.]
Pl.'s Pet. At 5.
As a matter of law, these allegations are deficient to survive Defendants' Motion to Dismiss.
A. RICO Person
A RICO person is "either one [who] poses or has posed a continuous threat of engaging in acts of racketeering . . . " The threat need not be ongoing, but must have been continuous as of some point in time. Isolated and sporadic incidents cannot support a finding that a party was a RICO person. Furthermore, this requirement might not be satisfied if all that is pleaded is that "the person has engaged in a limited number of predicate acts." In this case, Plaintiff alleges that Defendants "have willfully committed multiple, related acts of mail and/or wire fraud." In addition to being "conclusory allegations or legal conclusions" that cannot support a claim of fraud, these statements fail to adequately plead the existence of a RICO person, since Plaintiffs Petition alleges nothing that would constitute a continuous threat on the part of Defendants to bring them within the definition of RICO persons.
Delta Truck Tractor, Inc. v. J.L Case Co., 855 F.2d 241, 242 (5th Cir. 1988), cert. denied, 489 U.S. 1079 (1989) (emphasis added).
Crowe v. Henry, 43 F.3d 198, 204 (5th Cir. 1995).
Delta, 855 F.2d at 242.
Under Federal Rule of Civil Procedure 9(b), fraud must be pleaded with particularity. Fed.R.Civ.Pro. 9(b). This rule also applies to claims in which fraud constitutes the predicate act under RICO. Tel-Phonic Servs., Inc. v. TBS Int'l Inc., 975 F.2d 1134, 1138 (5th Cir. 1992).
Fernandez-Montez, 987 F.2d at 284.
B. Pattern of Racketeering Activity
A pattern of racketeering activity "requires at least two acts of racketeering," that relate to each other, under the "relationship" prong of RICO's pattern of racketeering activity element, and constitute or threaten long-term criminal activity, under the "continuity" prong of RICO's pattern of racketeering activity element.
Delta, 855 F.2d at 242.
A "relationship" exists if "criminal conduct forms a pattern" which "embraces criminal acts that have the same or similar purposes, results, participants, victims or methods of commission or otherwise are interrelated by distinguishing characteristics and are not isolated events."
Strain v. Kaufman County Dist. Attorney's Office, 23 F. Supp.2d 685, 695 (N.D. Tex. 1998).
"Continuity" can be either "closed-ended" or "open-ended." This refers to either "a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition."
Delta, 855 F.2d at 242.
Strain, 23 F. Supp.2d at 695.
In this case, Plaintiff alleges only that "[Defendants] have willfully committed multiple, related acts of mail and/or wire fraud at least one of which occurred in the last ten (10) years." This statement fails to adequately plead a pattern of racketeering activity. In addition to the conclusory nature of the statement, Plaintiff has failed to sufficiently allege that Defendants' acts forming the basis for Plaintiffs allegation that they entered into a scheme to avoid the payment of debts relate to each other and constituted or threatened long-term criminal activity. Plaintiff does not allege an on-going pattern; all of its allegations are in the past-tense. Further, "predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy th[e] [continuity] requirement."
H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 242 (1989).
C. RICO Enterprise
A RICO enterprise is "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." Plaintiff does not allege a joint enterprise between Defendants which is an association-in-fact within the meaning of RICO. Continuity is a necessary attribute of an association-in-fact enterprise. An association-in-fact enterprise "1) must have an existence separate and apart from the pattern of racketeering, 2) must be an ongoing organization and 3) its members must function as a continuing unit as shown by a hierarchical or consensual decision making structure." Plaintiff alleges that the "enterprise" between Defendants "undertook both legitimate transactions and transactions which constituted a pattern of racketeering." While this demonstrates that an association-in-fact may have existed at one time, Plaintiff has not alleged an ongoing organization or that the members function as a continuing unit. As stated by the Fifth Circuit, "`two individuals who join together for the commission of one discrete criminal offense have not created an association-in-fact enterprise, even if they commit two or more predicate acts during the commission of the offense, because their relationship to one another has no continuity.' The principle is deeply embedded in Fifth Circuit law." Plaintiff has not, in his Petition, pleaded with sufficient specificity that the Defendants' alleged association would project into the future a threat of repetition.
Delta, 855 F.2d at 244.
Id.
Burzynski, 989 F.2d at 743 (citation omitted).
CONCLUSION
Plaintiff shall have twenty days to amend its claim to set forth a cause of action under 18 U.S.C. § 1961, with respect to the existence of a RICO person, a pattern of racketeering activity, and a RICO enterprise. If Plaintiff has not so amended after twenty days, this claim will be dismissed.
SO ORDERED.