Opinion
Civil Case No. 07-00002.
January 14, 2009
ORDER RE: DEFENDANTS' MOTIONS TO DISMISS
This matter came on for hearing on September 18, 2008, on Defendants' "Motion to Dismiss For Lack of Subject Matter Jurisdiction and For Failure to State a Claim Under Federal Rule of Civil Procedure 12(b)(6)." See Docket No. 52. Having heard oral argument on the matter, and having reviewed the parties' submissions and the relevant authorities, the court hereby DENIES Defendants' motions, and enters the following decision and order.
I. FACTUAL BACKGROUND
Plaintiff MARIANAS HOSPITALITY CORPORATION, doing business as the HYATT REGENCY GUAM HOTEL, is a corporation organized and existing under Guam law, with its principal place of business being Tumon, Guam. See Docket No. 51 ¶ 5. Plaintiff is properly licensed to transact business in the territory of Guam, and, at all times relevant to this case, was in the business of managing the Hyatt Regency Hotel in Tumon. See id. Defendants JESSE C. TOVES and ANNA MARIE TOVES (collectively referred to as "Individual Defendants") are the owners-operators of Defendants PACIFIC BUSINESS SOLUTIONS, INC. and PREMIER BUSINESS SOLUTIONS, INC. (collectively "Corporate Defendants") See id. ¶¶ 6-9.
In April of 2002, Defendant Pacific Business Solutions proposed to Plaintiff that it provide payroll services for the Hyatt Regency Guam. See id. ¶ 13. Accepting this proposal, Plaintiff and Defendant Pacific Business Solutions entered into an agreement whereby Pacific Business Solutions took on payroll processing services for the Hyatt Regency Guam in the third quarter of 2002. See id. ¶ 14. Under this agreement, Plaintiff remitted funds to Defendant Pacific Business Solutions, and later to Defendant Premier Business Solutions; Defendant was to hold these funds in trust for the payment of Plaintiff's payroll taxes, including federal withholding, FICA and Medicare taxes, and employee contributions. See id. ¶¶ 15, 21-22, 25.
From July of 2002 through February of 2007, Defendants handled the payroll processing of wages and taxes that Plaintiff was liable to pay, on behalf of its employees, to the Government of Guam and to the Internal Revenue Service ("IRS"). Plaintiff alleges that, at some time during this interval, Individual Defendants formed and carried out a scheme whereby they would use Corporate Defendants to defraud Plaintiff — as well as other parties not joined to this action — by converting the would-be payroll taxes to Defendants' own use, instead of processing them as appropriate under the contract. See id. ¶¶ 23-25, 28-29. Plaintiff alleges that Defendants carried out this scheme by committing many acts of wire and mail fraud. See id. ¶¶ 26-27, 30-32, 42-65. As a result of this scheme, Plaintiff was required to pay to the IRS back taxes in the amount of $340,173.21, as well as penalties and interest in the amount of $402,891.58. See id. ¶¶ 37, 107.
II. PROCEDURAL BACKGROUND
On March 16, 2007, Plaintiff filed a First Amended Complaint ("FAC") in this case, bringing claims for violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and, under Guam law, for fraud, conversion, breach of contract, and restitution and accounting. See Docket No. 10. On April 16, 2007, Defendants moved to dismiss the FAC for lack of subject matter jurisdiction and failure to state a claim. See Docket Nos. 12-13. On September 18, 2007, the court granted Defendants' motion to dismiss, while giving Plaintiff leave to amend. See Docket No. 49.
On September 21, 2007, Plaintiff filed its Second Amended Complaint ("SAC"), bringing the following claims: (1) conduct and participation in a RICO enterprise through a pattern of racketeering activity; (2) conspiracy to engage in a RICO enterprise through a pattern of racketeering activity; (3) breach of contract; (4) conversion; (5) fraud; and (6) accounting and restitution. See Docket No. 51. Finally, on October 11, 2007, Defendants moved to dismiss the SAC for lack of subject matter jurisdiction and failure to state a claim, which Plaintiff opposed on January 11, 2008. See Docket Nos. 53, 57. These are the motions presently before the court.
III. APPLICABLE STANDARDS
A. Lack of Subject Matter Jurisdiction
Rule 12(b)(1) of the Federal Rules of Civil Procedure is the mechanism whereby a defendant may attack a complaint by challenging the District Court's jurisdiction over the subject matter of the complaint. The procedure is always available because
[f]ederal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree. It is to be presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction.Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Additionally, "[a] motion to dismiss for lack of subject matter jurisdiction may either attack the allegations of the complaint or may be made as a `speaking motion' attacking the existence of subject matter jurisdiction in fact." Thornhill Pub. Co., Inc. v. Gen. Tel. Elec. Corp., 594 F.2d 730, 733 (9th Cir. 1979).
Here, Plaintiff's RICO claims constitute the only possible basis for the court's subject matter jurisdiction in this action. See Docket No. 53 at 4:4-6. Thus, the court's subject matter jurisdiction in this action rises and falls with Plaintiff's success in alleging facts sufficient to state a claim under RICO. B. Failure to State a Claim
Rule 12(b)(6) of the Federal Rules of Civil Procedure is the mechanism whereby a defendant may attack a complaint that fails to allege facts sufficient to state a claim upon which relief could be granted. Thus, the purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to decide its merits. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).
The 12(b)(6) standard was recently restated by the Supreme Court in the antitrust case Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007). In Bell Atlantic, the Court held that a complaint must include "enough facts to state a claim to relief that is plausible on its face." 127 S. Ct. at 1974. "[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Id. at 1969. The factual allegations must be enough to raise a right to relief "above the speculative level." Id. at 1965. All material allegations in a complaint must be taken as true and viewed in the light most favorable to the plaintiff. See Geraci v. Homestreet Bank, 347 F.3d 749, 751 (9th Cir. 2003). Dismissal is proper only where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory. See Navarro, 250 F.3d at 732., 426 (3d Cir. 1999).
IV. ANALYSIS
A. "Subject Matter Jurisdiction" Argument
Defendants first argue that the court lacks subject matter jurisdiction over the Corporate Defendants because they are not named in the RICO claims, which constitute the sole basis for federal jurisdiction in this case. See Docket No. 53 at 4.
Defendants' explanation as to why the Corporate Defendants are not named in the RICO claims does not contribute to the argument on lack of subject matter jurisdiction, and so is not considered here. See Docket No. 53 at 4:7-20 (discussing Kushner v. King, 533 U.S. 158 (2001).
This argument is specious. District courts "have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). The "same case or controversy" test is passed where the federal and state claims "`derive from a common nucleus of operative fact' and are such that a plaintiff `would ordinarily be expected to try them in one judicial proceeding.'" Trustees of the Constr'n Indus. v. Desert Valley Landscape Maintenance, 333 F.3d 923, 925 (9th Cir. 2003) (quoting Finley v. United States, 490 U.S. 545, 549 (1989)). "Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties." 28 U.S.C. § 1367(a) (emphasis added). Moreover, supplemental jurisdiction can extend to defendants against whom only state law claims are asserted. See Trustees of the Constr'n Indus, 333 F.3d at 925-26 (reversing district court's refusal to exercise supplementary jurisdiction).
Finally, once a court preliminarily determines that its assertion of supplementary jurisdiction is permissible under Section 1367(a), Section 1367(c) provides the bases upon which the court may decline to exercise that jurisdiction: (1) the claim raises novel or complex issues of state law; (2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction; (3) the district court has dismissed all other claims over which it had original jurisdiction; or (4) there are other exceptional circumstances presenting "compelling reasons" for declining jurisdiction. 28 U.S.C. § 1367(c).
In this case, all claims against all defendants are based on the same set of facts describing the handling and alleged diversion of payroll monies and the failure to make tax payments. By any standard, that is a "common nucleus of operative fact," such that a plaintiff would "ordinarily be expected to try [all related claims] in one judicial proceeding." Finley, 490 U.S. at 549. Thus, the "same case or controversy" test is passed, and exercise of supplemental jurisdiction is permissible under Section 1367(a). Also, none of the bases outlined in Section 1367(c) — the bases upon which the court may decline to exercise its supplemental jurisdiction — is present. Finally, it is immaterial that the Corporate Defendants are not named in the RICO claims, since supplemental jurisdiction can extend to defendants against whom only state law claims are asserted. Trustees of the Constr'n Indus., 333 F.3d at 923. Therefore, the court rejects the argument that it lacks subject matter jurisdiction over the Corporate Defendants here simply because they are not named in the RICO claims.
B. "Failure to State a Claim" Arguments 1. RICO claim
Defendants first argue that Plaintiff has failed to state a claim under RICO. The RICO statutes ( 18 U.S.C. §§ 1961-68) prohibit certain conduct involving a "pattern of racketeering activity." One of RICO's enforcement mechanisms is a private right of action, available to "[a]ny person injured in his business or property by reason of a violation" of the Act's substantive restrictions. Id. § 1964(c).
"The elements of a civil RICO claim are as follows: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as `predicate acts') (5) causing injury to plaintiff's `business or property.'" Living Designs, Inc. v. E.I. DuPont de Nemours Co., 431 F.3d 353, 361 (9th Cir. 2005) (citing Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996); 18 U.S.C. §§ 1964(c), 1962(c)). To prove the causation element, a plaintiff must prove both factual and proximate causation. See Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 456-57 (2006).
Defendants argue that Plaintiff has failed to state a RICO claim for two reasons: (1) it has failed to allege facts constituting a "pattern" of racketeering activity, and (2) it has failed to allege facts that would show that the alleged RICO violations proximately caused Plaintiff's injuries.
a. "Pattern" of racketeering activity
Defendants argue that Plaintiff failed to allege facts constituting a "pattern" of racketeering activity. To form a pattern, the predicate criminal acts must be "related" and "continuous." See H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989).
Although "the precise methods by which relatedness and continuity or its threat may be proved cannot be fixed in advance with such clarity that it will always be apparent whether in a particular case a `pattern of racketeering activity' exists," there is at least some guidance in the law. Id. at 243. Acts are "related" when they "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." Id. at 240 (internal quotation marks omitted). Meanwhile, "continuity" may be either "closed-ended" or "open-ended," with each variant having a definition. See Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1527 (9th Cir. 1995).
(1) "Closed-ended" continuity
A plaintiff establishes closed-ended continuity "by showing that related predicate acts occurred over a `substantial period of time.'" Allwaste, 65 F.3d at 1527 (quoting H.J. Inc., 492 U.S. at 242)). The Ninth Circuit has rejected "a hard and fast, bright line" rule for determining what counts as a "substantial period of time." See id. However, it has noted that predicate acts occurring over thirteen months would satisfy the continuity requirement. See id.; see also Metcalf v. Death Row Records, Inc., No. C-03-1250 SC, 2003 WL 22097336, at *3 (N.D. Cal. Sept. 4, 2003) (citing Allwaste and Federal Reserve Bank of San Francisco v. HK Systems, Inc., 1997 WL 765952 (N.D. Cal. Nov. 12, 1997), for the proposition that "[a] thirteen-month period presumably represents a sufficiently substantial length of time for continuity purposes.").
Here, Plaintiff has alleged approximately nineteen (19) separate predicate acts spanning thirty-one (31) months (from April of 2004 through October of 2006). See Docket No. 51 ¶¶ 42-65. Thus, Plaintiff has alleged facts sufficient to establish "closed-ended" continuity.
Since Plaintiff has alleged facts sufficient to establish "closed-ended" continuity, there is no need to analyze the arguments on "open-ended" continuity. Moreover, since Plaintiff has also alleged facts sufficient to establish that the predicate acts are all of the same nature — namely, acts of mail and wire fraud intended to make Plaintiff believe that its monies were being spent properly — it has therefore alleged facts sufficient to constitute a pattern of racketeering activity. Defendants' first challenge to the RICO claim is therefore rejected.
b. Injury caused by racketeering activity
Defendants also argue that Plaintiff has failed to allege facts that would show that the alleged RICO violations proximately caused Plaintiff's injuries. Again, in order to state a civil RICO claim, a plaintiff must have a cognizable theory of how the alleged RICO violations proximately caused its injuries. See Anza, 547 U.S. at 456-57. The court sees this issue as the central (and most difficult) one in the instant motion, and thus sets out at some length the law on proximate causation in RICO cases.
In Anza, Ideal Steel Supply complained that its primary competitor, National Steel Supply, had adopted a scheme of failing to charge New York sales tax to its cash-paying customers, while submitting fraudulent tax returns to the state tax authority in order to conceal its scheme. Id. at 453-54. Ideal argued that this alleged scheme allowed National to charge artificially lower prices and thereby undercut Ideal. Id. at 454-55. Ideal brought suit under 18 U.S.C. § 1962(c), inter alia. The District Court granted National's Rule 12(b)(6) motion, but the Second Circuit reversed. Id. at 455. Addressing Ideal's 1962(c) claim, the Second Circuit held that "where a complaint alleges a pattern of racketeering activity that was intended to and did give the defendant a competitive advantage over the plaintiff, the complaint adequately pleads proximate cause, and the plaintiff has standing to pursue a civil RICO claim." Id. (citations and quotations omitted).
The Supreme Court reversed. Id. at 462. On the proximate cause issue, the Court began by noting that
[t]he RICO violation alleged by Ideal is that the Anzas [the owner-operators of National] conducted National's affairs through a pattern of mail fraud and wire fraud. The direct victim of this conduct was the State of New York, not Ideal. It was the State that was being defrauded and the State that lost tax revenue as a result.Id. at 458. The Court then observed that "[t]he proper referent of the proximate-cause analysis is an alleged practice of conducting National's business through a pattern of defrauding the State." Id. With that "proper referenf" in mind, the Court stated that although Ideal may have "suffered its own harms when the Anzas failed to charge customers for the applicable sales tax," the actual cause of Ideal's asserted injury "is a set of actions (offering lower prices) entirely distinct from the alleged RICO violation (defrauding the State)." Id. This is too remote a connection, and so the Court found an absence of proximate causation. Id.
The Court supported its conclusion with the following considerations. First, National could have lowered its prices for any number of reasons having nothing to do with the alleged pattern of fraud, and the fact that a company commits tax fraud does not entail that it will lower its prices. Id. at 458-59. Second, Ideal's alleged lost sales could be attributable to any number of factors. It would require a "complex assessment" to calculate damages by determining what portion of Ideal's lost sales was the product of National's price cuts. Id. at 459. Third, and related to the need for a "complex assessment" of damages in this kind of case, the proximate cause requirement "is meant to prevent these types of intricate, uncertain inquiries from overrunning RICO litigation." Id. at 460. This concern "has particular resonance when applied to claims brought by economic competitors, which, if left unchecked, could blur the line between RICO and the antitrust laws." Id. (emphasis added). Fourth, "[t]he requirement of a direct causal connection is especially warranted where the immediate victims of an alleged RICO violation can be expected to vindicate the laws by pursing their own claims." Id. Summing up, the Court stated that "[w]hen a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff's injuries." Id. at 461.
In the two years since Anza came down, several courts in the Ninth Circuit have followed it in affirming or granting dismissal under Rule 12(b)(6) for failure to state a RICO claim, on the issue of proximate cause. See, e.g., Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969 (9th Cir. 2008) (no proximate cause under RICO where plaintiff county alleges it has paid increased costs in health care and criminal justice services because defendants engaged in pattern of hiring illegal immigrants); Sybersound Records, Inc. v. UAV Corporation, 517 F.3d 1137 (9th Cir. 2008) (no proximate cause under RICO where plaintiff karaoke record producer alleges its competitors enriched themselves by violating copyrights); Jungers v. Benton Rural Elec. Ass'n, 2008 WL 819029 (E.D. Wash. Mar. 25, 2008) (slip op.) (no proximate cause under RICO where plaintiff internet service providers allege that they lost market share and profits when defendant-competitors illegally obtained state subsidy); Proven Methods Seminars v. American Grants Affordable Housing Inst., 2008 WL 269080 (E.D. Cal. Jan. 29, 2008) (no proximate cause under RICO where plaintiff catalog distributor alleges that defendant-competitor unfairly gained market share by publishing a misleading advertisement); C.B. D.M. Entertainment, Inc. v. Galardi, 2007 WL 4219409 (C.D. Cal. Nov. 28, 2007) (no proximate cause under RICO where plaintiff night club manager alleges that defendant-competitor unfairly gained market share by practice of disregarding city ordinance).
However, on June 9, 2008, the Supreme Court issued Bridge v. Phoenix Bond Indemnity Co., 553 U.S. ___, 128 S. Ct. 2131 (2008), another opinion construing the RICO laws. In Bridge, both the plaintiffs and the defendant were regular participants in tax lien auctions in Cook County, Illinois, at which successful bidders could obtain highly valuable pieces of property. 128 S. Ct. at 2135-36. Plaintiffs contended that defendant had fraudulently obtained a disproportionate share of liens by violating the county's "Single, Simultaneous Bidder Rule." Id. The issue in Bridge was not proximate causation, but rather the closely related issue whether "a plaintiff asserting a RICO claim predicated on mail fraud must plead and prove that it relied on the defendant's alleged misrepresentations." Id. at 2134.
In reaching its holding that a plaintiff need not plead and prove direct reliance on the defendant's alleged misrepresentations, the Court rejected an overly formalistic approach to proximate cause analysis in RICO cases. The Court emphasized that proximate cause "is a flexible concept that does not lend itself to `a black-letter rule that will dictate the result in every case.'" Id. at 2141 (quoting Associated Gen'l Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519 (1983)). Rather, proximate cause is a term used "to label generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts, with a particular emphasis on the demand for some direct relation between the injury asserted and the injurious conduct alleged." Id. (citations and quotations omitted). The Court found that "[i]t was a foreseeable and natural consequence of petitioners' scheme to obtain more liens for themselves that other bidders would obtain fewer liens." Id. at 2144. The Court also noted that, "unlike in Holmes and Anza, there are no independent factors that account for respondents' injury, there is no risk of duplicative recoveries by plaintiffs removed at different levels of injury from the violation, and no more immediate victim is better situated to sue." Id. Finally, the Court rejected the petitioners' argument that a first-party reliance requirement was necessary "to prevent garden-variety disputes between local competitors (such as this case) from being converted into federal racketeering actions," noting that it had "repeatedly refused to adopt narrowing constructions of RICO in order to make it conform to a preconceived notion of what Congress intended to proscribe." Id. ( citing Nat'l Organiz'n for Women v. Scheidler, 510 U.S. 249, 252 (1994); H.J. Inc., 492 U.S. at 244; Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 481 (1985)).
In the motions now before the court, Defendants rely heavily on Anza to argue that Plaintiff has failed to allege facts that would show that the alleged RICO violations proximately caused Plaintiff's injuries. See Docket No. 53 at 6:23-10:3. In particular, Defendants argue that none of the predicate acts — namely, mailing the falsified forms to the IRS, and then concealing the fraud in emails to Plaintiff — resulted in any direct damage to Plaintiff. With respect to mailing the falsified forms to the IRS, Defendants argue that if any entity sustained damage by these acts of racketeering, it was the IRS, and, like the state tax authority in Anza, the IRS is perfectly capable of seeking redress on its own behalf. Id. at 8:13-9:12. Next, with respect to the fraud-concealing emails sent to Plaintiff, Defendants argue that those acts of racketeering did not injure Plaintiffs either, because those emails did not advance the conversion of Plaintiff's funds; rather, they only concealed the already-complete conversion of Plaintiff's funds, and so cannot have caused any new injury. Id. at 9:13-10:3.
Although the state of the law shows that it is obviously a close question, the court rejects Defendants' arguments, holding Plaintiff has succeeded in alleging facts that would show that the alleged RICO violations proximately caused Plaintiff's injuries. It is true that there is a superficial similarity between this case and Anza, in that both cases involve a fraud practiced, in some manner, upon a tax-collecting authority capable of vindicating its own rights. Similarly, it is true that the cases from within the Ninth Circuit generally read Anza to support dismissal on the issue of proximate cause when there is any question on the point. However, this particular case differs in significant ways from Anza and its Ninth Circuit progeny.
In Anza, the fraud was practiced by the defendant upon the tax-collecting authority, and there was no indication in the record that the authority had done anything to vindicate its rights and obtain redress for the injuries caused by the RICO-violating behavior. In this case, though, Defendant caused Plaintiff to defraud the IRS, and "[i]t was a foreseeable and natural consequence of [Defendants'] scheme" that the IRS would then collect back taxes from and levy penalties on Plaintiff. Bridge, 128 S. Ct. at 2144.
Moreover, none of the concerns articulated by the Supreme Court in Anza are present here. First, unlike in Anza, there is evidence in this case that the tax-collecting authority has vindicated its rights: Plaintiff states that it "was required to and did in fact pay to the IRS unpaid taxes in the amount of $340,173.21," as well as "penalties and interest in the amount of $402,891.58. See Docket No. 51 ¶ 107. Thus, Defendants are clearly wrong to say that "the most direct victim here, the IRS, is fully capable of vindicating its rights in this matter," because the IRS has already vindicated whatever rights it may have had in this matter — strictly speaking, there is no longer any financial injury to the IRS, because Plaintiff has redressed it. Docket No. 53 at 9:21-22. Second, Plaintiff's asserted RICO damages cannot be attributable to multiple factors, because Defendants had sole responsibility for the conduct that brought about those damages. Therefore, there is no risk of duplicative recoveries. Third, there is no need for a "complex assessment" of damages, because Plaintiff has articulated exactly how much financial damage it suffered as a consequence of Defendant's fraudulent scheme. See Docket No. 51 ¶¶ 36-37. Finally, this is not a claim brought against an economic competitor, so the Anza Court's concerns about "blur[ring] the line between RICO and the antitrust laws" have no purchase here. Anza, 547 U.S. at 459. This point is especially important. Of Anza and its Ninth Circuit progeny, every case but one involved a claim brought against an economic competitor. And the one case that did not involve such a claim — Canyon County v. Syngenta Seeds — turned on circumstances in which damages would have been extraordinarily difficult to calculate, because the calculation would have called for a determination of what portion of a county's increased operating expenses was directly attributable to the costs imposed upon the county by the illegal immigrants that defendants were directly responsible for bringing into the area on account of their permissive hiring policies. See 519 F.3d 969.
Therefore, in view of: (1) the fact that "[i]t was a foreseeable and natural consequence of [Defendants'] scheme" that the IRS would collect back taxes from and levy penalties on Plaintiff; (2) the readiness with which this case is distinguished from Anza and all its Ninth Circuit progeny; and (3) the Bridge Court's very recent warning against an overly formalistic approach to proximate cause analysis in RICO cases, the court rejects Defendants' arguments and holds that Plaintiff has succeeded in alleging facts that would show that the alleged RICO violations proximately caused Plaintiff's injuries.
2. Conspiracy claim
Defendants next argue that Plaintiff has failed to state a claim for conspiracy to engage in a RICO enterprise through a pattern of racketeering activity in that Plaintiff has failed to allege facts to support the existence of any conspiracy between any individuals, and has failed to allege the acts they agreed upon. In making this argument, Defendants rely entirely on the special pleading requirements established by Rule 9 of the Federal Rules of Civil Procedure. See Docket No. 53 at 10:7-11:7.
"It shall be unlawful for any person to conspire to violate any of the [other RICO] provisions." 18 U.S.C. § 1962(d). "It is the mere agreement to violate RICO that [Section] 1962(d) forbids; it is not necessary to prove any substantive RICO violations ever occurred as a result of the conspiracy." Oki Semiconductor Co. v. Wells Fargo Bank, Nat. Ass'n, 298 F.3d 768, 774-75 (9th Cir. 2002) (citing Aetna Cas. Sur. Co. v. P B Autobody, 43 F.3d 1546, 1562 (1st Cir. 1994)). Moreover, "[t]he illegal agreement need not be express as long as its existence can be inferred from the words, actions, or interdependence of activities and persons involved." Id. at 775.
In this case, as discussed above, Plaintiff has alleged facts sufficient to state a claim of substantive RICO violations. Therefore, there is prima facie reason to entertain Plaintiff's contention that Defendants agreed to commit those violations, especially since it is at least possible to infer the existence of such an agreement "from the words, actions, or interdependence of activities and persons involved" in Plaintiff's allegations of substantive RICO violations. Thus, Defendants' argument on this point is rejected. The court holds that Plaintiff has successfully stated a claim for conspiracy to engage in a RICO enterprise through a pattern of racketeering activity. 3. Breach of contract claim
Defendants note Plaintiff's inconsistency as to when, exactly, the conspiracy began. See Docket No. 53 at 10:14-11:2. In response, Plaintiff first notes that each theory finds support through permissible inference from the facts alleged. See Docket No. 57 at 16:6-19. Plaintiff next argues that it "is not required to alleged [sic] the exact date, time or place that the conspiracy agreement was struck," because "`[t]his is the type of information which may, or may not, be obtained during discovery.'" Id. at 16:21-22; 26-27 (quoting Pennsylvania Assigned Risk Plan v. Pflaumer, Civ. A. No. 93-4575, 1994 WL 24691, at *3 (E.D. Pa. Jan. 26, 1994)).
Defendants next argue that Plaintiff has failed to state a claim for breach of contract, because the claim "is so vague and unclear that defendants cannot determine which party or parties this cause of action is being alleged against." Docket No. 53 at 11:10-11.
This argument is frivolous. A breach of contract claim consists in allegation of the following elements: (1) the contract; (2) plaintiff's performance of the contract, or excuse for nonperformance; (3) defendants' breach; and (4) the resulting damage to plaintiff. See, e.g., Reichert v. General Ins. Co., 68 Cal. 2d 822, 830 (1968).
In this case, Plaintiff has pled that it entered into an agreement with Defendant Pacific Business Solutions (and, by apparent succession to the agreement, Premier Business Solutions), including the approximate date the agreement was proposed by Defendant Pacific Business Solutions; that the agreement bound Defendants to process Plaintiff's payroll taxes; that Defendants failed to do so; and that Plaintiff was injured as a result. See Docket No. 51 ¶¶ 14-15, 21-37, 102-109. Thus, Defendants' argument on this point is rejected. The court finds that Plaintiff has successfully stated a claim for breach of contract. 4. Conversion claim
Defendants next argue that Plaintiff has failed to state a claim for conversion, because it fails to allege facts showing that Defendants exercised dominion and control over Plaintiff's property, or converted that property to their own use. See Docket No. 53 at 12:2-15.
This argument is also frivolous. A conversion claim consists in allegation of the following elements: (1) facts showing plaintiff's ownership or right to possession of property; (2) defendant's wrongful act toward, or disposition of, the property, interfering with plaintiff's possession; and (3) damage to plaintiff. See, e.g., McKell v. Washington Mut., Inc., 142 Cal. App. 4th 1457, 1491 (2d Dist. 2006). Moreover, money can be the subject of a cause of action for conversion, where "there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment." Id. (citing Fischer v. Machado, 50 Cal. App. 4th 1069, 1072-1073 (3d Dist. 1996)). See also PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil Shapiro, LLP, 150 Cal. App. 4th 384, 396 (2d Dist. 2007) ("California cases permitting an action for conversion of money typically involve those who have misappropriated, commingled, or misapplied specific funds held for the benefit of others.").
In this case, Plaintiff has pled that it remitted to Defendants monies to be held in trust for the payment of Plaintiff's payroll taxes, and that Defendants used those monies for something other than their intended purpose. See Docket No. 51 ¶¶ 19-20, 25, 35, 77, 79. Thus, Defendants' argument on this point is rejected. The court finds that Plaintiff has successfully stated a claim for conversion.
5. Fraud claim
Finally, Defendants argue that Plaintiff has failed to state a claim for fraud, because it fails to allege that Defendant lacked an intention to fulfill its contractual obligations at the time it entered the relevant contract. See Docket No. 53 at 13:16-14:16.
The court notes that Defendants here acknowledge an operative contract between Plaintiff and Defendants, while in their opposition to the breach of contract claim they all but deny knowledge of any relevant contract. See supra III.B.3, "Breach of contract claim."
This argument too is frivolous. A fraud claim consists in allegation of the following elements: (1) a misrepresentation by the defendant; (2) knowledge of falsity (i.e., scienter) by the misrepresenting party; (3) intent to defraud by inducing reliance; (4) justifiable reliance by the plaintiff; and (5) resulting damages. See, e.g., Trans Pacific Export Co. v. Oka Towers Corp., 2000 Guam 3, ¶ 23.
In this case, Plaintiff alleges that Defendant repeatedly represented that it was paying Plaintiff's payroll taxes, in accordance with their agreement; that Defendants knew they were, in fact, not doing so; that Defendants made these misrepresentations with the intent to prevent Plaintiff from looking into whether the taxes were actually being paid; that, in reliance on these misrepresentations, Plaintiff did not make payments to the IRS; and, finally, that Plaintiff was damaged in relying on Defendants' statements in that it was obligated to pay outstanding taxes and hundreds of thousands of dollars in fines. See Docket No. 51 ¶¶ 42-94. Thus, Defendants' argument on this point is rejected. The court finds that Plaintiff has successfully stated a claim for fraud.
V. CONCLUSION
In light of the foregoing analysis, the instant motions are DENIED in their entirety.