Opinion
No. C 05-0997 BZ.
July 6, 2005
ORDER ON DEFENDANTS' MOTION TO DISMISS "SUBCLASS ONE" CAUSES OF ACTION
Now before me is defendants' motion to dismiss plaintiffs' second claim for unfair competition under the Sherman Act, 15 U.S.C. §§ 1, 2; third claim for tortious interference with economic relations; fourth claim for negligent interference with economic relations; and fifth claim for violation of the Racketeer Influence and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.
All parties have consented to the jurisdiction of a United States Magistrate Judge for all proceedings including entry of final judgment pursuant to 28 U.S.C. § 636(c). Defendants have filed several other motions in this case, on which I have separately ruled.
Plaintiffs are eight exotic female dancers who have brought this action on behalf of themselves and other similarly situated dancers who provide, or provided, nude and semi-nude live performances at various adult nightclubs in San Francisco (the "Plaintiff Class"). Plaintiffs' second through fifth claims relate to an alleged Plaintiff Subclass One which consists of those members of the Plaintiff Class who are, or have been during the relevant period, owners of the Lusty Lady, a San Francisco nightclub that allegedly competes with defendants.
Defendants motion to dismiss plaintiffs' second claim for violations of section 1 and 2 of the Sherman Act is DENIED. Section 1 of the Sherman Act prohibits agreements that unreasonably restrain trade. See 15 U.S.C. § 1. To state a claim under section 1, a plaintiff must allege: "(1) that there was a contract, combination or conspiracy; (2) that the agreement unreasonably restrained trade under either the per se or rule of reason analysis; and (3) that the restraint affected interstate commerce." Tanaka v. University of Southern Cal., 252 F.3d 1059, 1062 (9th Cir. 2001) (citations and internal quotation marks omitted); Bhan v. NME Hospitals Inc., 929 F.2d 1404, 1410 (9th Cir. 1991).
Defendants erroneously contend that plaintiffs have failed to allege the existence of a contract, combination or conspiracy. Plaintiffs allege that defendants are through illegal means, "concertedly restricting and diminishing legitimate business trade and commerce of its competitors . . . in an attempt to unreasonably restrain trade." First Amended Compl. ("FAC") ¶ 99. The complaint also contains relatively detailed allegations concerning those facts that underlie defendants' concerted efforts to restrict competition. See e.g., FAC ¶¶ 39-50.
Defendants' contention that plaintiffs have failed to sufficiently define the relevant market also lacks merit. A plaintiff bears the initial burden of establishing that the restraint produces significant anticompetitive effects within the relevant product and geographic markets. Tanaka, 252 F.3d at 1063. "The geographic market extends to the `area of effective competition' . . . where buyers can turn for alternative sources of supply." Id. "The product market includes the pool of goods or services that enjoy reasonable interchangeability of use and cross-elasticity of demand." Id. (citations omitted).
The complaint alleges that defendants have restrained competition within "the regional San Francisco area — which is specifically defined as comprising San Francisco County, Alameda County, Marin County, Sonoma County, Contra Costa County, and San Mateo County." FAC ¶ 44, 99. It further alleges that the relevant product market is "nude and semi-nude dancing." FAC ¶ 41. While defendants may disagree with the plaintiffs' characterization of the relevant market based on the facts presented in their motion, these issues are not properly raised on a motion to dismiss.See Farr v. United States, 990 F.2d 451, 454 (9th Cir. 1993).
In their reply, defendants' raise several additional challenges to plaintiffs' Sherman Act claims, which are untimely. See Lentini v. California Center for the Arts, Escondido, 370 F.3d 837, 843 n. 6 (9th Cir. 2004) ("We decline to consider new issues raised for the first time in a reply brief."); Gold v. Wolpert, 876 F.2d 1327, 1331 n. 6 (7th Cir. 1989) ("It is well settled that new arguments cannot be made for the first time in reply."); Schwartz v. Upper Deck Co., 183 F.R.D. 672, 682 (S.D. Cal. 1999) ("It is well accepted that raising of new issues and submission of new facts in [a] reply brief is improper.") (citing Provenz v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996)). In any event, plaintiffs' have sufficiently alleged that defendants engaged in a number of anticompetitive acts, which decreased lawfully-operated clubs' ability to compete in the marketplace. See SmileCare Dental Group v. Delta Dental Plan of California, Inc., 88 F.3d 780, 783 (9th Cir. 1996); see e.g., FAC ¶¶ 88, 100-101.
Defendants' motion to dismiss plaintiffs' third cause of action for tortious interference with economic relations, or intentional interference with prospective economic advantage, is GRANTED with leave to amend. To state a claim for intentional interference prospective economic advantage, a plaintiff must allege: (1) the existence of a valid contract or some other economic relationship between the plaintiff and a third party containing a probability of future economic benefit to the plaintiff; (2) defendant's knowledge of the existence of the relationship; (3) intentional acts on the part of the defendants designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) damages to the plaintiff proximately caused by defendants' acts. Blank v. Kirwin, 39 Cal. 3d 311, 330 (1985); see also Pardi v. Kaiser Found. Hosp., 389 F.3d 840, 852 (9th Cir. 2004). Defendants contend that plaintiffs have failed to sufficiently allege the existence of a contract or some other economic relationship between plaintiff and a third party containing a probability of future economic benefit. At the hearing, plaintiffs contended that defendants allegedly interfered with plaintiffs' economic relationship with their customers. While this can be inferred from the complaint, it is not clearly alleged. In repleading their complaint, plaintiffs should clarify the economic relationship with which defendants allegedly interfered.
Defendants' motion to dismiss plaintiffs fourth claim for negligent interference with prospective economic advantage is GRANTED with leave to amend. Plaintiffs' have failed to sufficiently allege that defendants' owed them a duty of care.See J'Aire Corp. v. Gregory, 24 Cal. 3d 799, 803 (1979).
Defendants' motion to dismiss plaintiffs' fifth claim for violation of RICO, 18 U.S.C. § 1961 et seq., is GRANTED with leave to amend. Plaintiffs broadly allege on information and belief that defendants "conspired to, and engaged in, a racketeering scheme, which included numerous illegal acts including prostitution and unlawful employment agreements." FAC ¶ 111. To carry out this scheme defendants allegedly "conspired to, and did transmit wire communications in interstate commerce via telephone calls in violation of 18 U.S.C. §§ 371, 1343 and 1346." FAC ¶ 115. At the hearing, plaintiffs conceded that they had not alleged that defendants violated a particular subsection of RICO. Plaintiffs also clarified that they intended to predicate their RICO claims on violations of the Travel Act, yet this is not alleged. See 18 U.S.C. § 1952.
18 U.S.C. § 1962 lists four separate acts which form the basis for RICO liability: "(a) to invest income derived from a pattern of racketeering activity in an enterprise; (b) to acquire or maintain an interest in an enterprise through a pattern of racketeering activity; (c) to conduct the affairs of an enterprise through a pattern of racketeering activity; or (d) to conspire to commit any of the above acts." See Diaz v. Gates, 354 F.3d 1169, 1172 (9th Cir. 2004) (citing 18 U.S.C. § 1962(a)-(d)).
A RICO claim predicated on acts of fraud must be pled with particularity pursuant to Rule 9(b) of the Federal Rules of Civil Procedure. Edwards v. Marin Park, Inc., 356 F.3d 1058, 1065-66 (9th Cir. 2004); Tate v. Pacific Gas Elec. Co., 230 F. Supp. 2d 1072, 1084 (N.D. Cal. 2002). This requires the plaintiff to particularize the "time place, and manner of each act of fraud, plus the role of each defendant in the scheme." Tate, 230 F. Supp. 2d at 1084 (quoting Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir. 1991)). Plaintiffs are granted leave to amend the complaint to state with particularity those portions of their RICO claim that are predicated on acts of fraud. If plaintiffs intend to rely on other predicate acts to support their RICO claim, they should so allege in their complaint. While defendants raise a host of other issues with respect to plaintiffs' RICO allegations, I need not address each of them in light of the fact that I have granted plaintiffs leave to amend.
For the foregoing reasons, IT IS HEREBY ORDERED that defendants' motion to dismiss plaintiffs' second through fifth claims is granted in part, and denied in part. Defendants' motion is DENIED with respect to plaintiffs' second claim, and GRANTED with leave to amend with respect to plaintiffs' third through fifth claims. Plaintiffs must amend their complaint by July 25, 2005. In amending, plaintiffs should consider the concerns expressed at the hearing as to whether the proper party plaintiff is before the court.