Opinion
19-CV-1559 (LGS) (KNF)
08-20-2021
PETER J. NYGARD, Plaintiff, v. LOUIS M. BACON, JOHN DOES 1-20 AND DOE CORPS. 1-10, Defendants.
HONORABLE LORNA G. SCHOFIELD, UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION
KEVIN NATHANIEL FOX UNITED STATES MAGISTRATE JUDGE
Plaintiff Peter J. Nygard (“Nygard “) alleges that defendant Louis M. Bacon (“Bacon”), “in concert with others, ” engaged “in a pattern of illicit and illegal conduct designed to improperly influence witnesses to make false statements, file false reports, abuse process, tortuously interfere with business relations and aid and abet the dissemination of false statements in conjunction with infringing copyrighted works and trademarks, all for the intentional purpose of damaging Plaintiff, his business and property.” The plaintiff alleges that he and the defendant
have engaged in an ongoing conflict, which initially arose out of a property owner dispute in the Bahamas but has since expanded, and has extended across multiple countries, now primarily in the United States. To complete his desired result of destroying Plaintiff, and businesses associated with Plaintiff, Defendant turned his attention to funding salacious lawsuits against Plaintiff, and businesses associated with Plaintiff, in the Bahamas, California, and New York, and influencing and providing false information to media outlets such as The New York Times and others to assist him in his quest. Defendant's orchestrated lawsuits and media attacks are often supported by fabricated and manufactured evidence, and are often made through payments, threats, coercion and intimidation. Through the use of U.S. and foreign investigators and “guards, ” Defendant has created his own fake “witness protection program” to coerce witnesses to cooperate in his scheme against Plaintiff. In addition, upon information and belief, Defendant has used a series of corporate gymnastics, including the improper use of not-for-profit entities, to funnel tens of millions of dollars to fund his illicit activities while presumably
taking improper tax deductions.... Defendant's misconduct has been successful in damaging, if not destroying, Plaintiff and businesses associated with Plaintiff. Beginning in early 2020, Defendant's improper efforts against Plaintiff have culminated in the filing of “Jane Doe” lawsuits in California and New York against Plaintiff alleging sexual misconduct, related FBI raids in California and New York, numerous associated media reports in The New York Times and other media outlets (including traditional media, social media and tabloid book), the dropping of Plaintiff's fashion brands by retailers such as Dillard's and other former business partners, the prompting of Peter Nygard's resignation from certain companies with which he was associated, the appointment of a receiver involving companies with which Peter Nygard was associated, and the institution of receivership proceedings (and subsequent U.S. Bankruptcy Court proceedings) involving certain companies. Defendant's role in these events is indisputable. The New York Times and other media outlets have reported on his role.
The plaintiff asserts the following claims: (1) violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) 18 U.S.C. § 1962(c); (2) violations of 18 U.S.C. § 1962(d); (3) tortious interference with prospective economic advantage; (4) aiding and abetting the filing of a false report; (5) filing of a false report; (6) trafficking and harboring certain aliens to further a fraudulent act; and (7) abuse of process. Before the Court is the defendant's motion to dismiss the complaint, pursuant to Fed.R.Civ.P. 12(b)(6), for failure to state a claim for relief. The plaintiff opposes the motion.
DEFENDANT'S CONTENTIONS
The defendant contends that: (a) “the complaint fails to state a RICO claim (Count I)”; (b) “the complaint does not plead a cognizable claim of RICO conspiracy (Count II)”; (c) “the complaint's other claims under criminal statutes must be dismissed (Counts IV, V and VI)”; (d) “the complaint fails to plead tortious interference with prospective economic advantage (Count III)”; and (e) “the complaint fails to plead abuse of process (Count VII).” Concerning Count I, the defendant asserts that the plaintiff “fails to allege RICO standing because he cannot articulate a cognizable RICO injury, ” since the alleged injuries fall into three categories: (i) harm to business activities of companies “associated with” him; (ii) harm to his reputation and resulting public relations expenses; and (iii) legal fees related to criminal proceedings and litigation.
The first injury category includes the allegations that a Canadian lender to unidentified businesses terminated a credit line in 2016 after reading about allegations made against the plaintiff in the “Bahamas Case.” The businesses obtained a new line of credit from another Canadian lender but lost it in late 2019. Nygard Inc. then obtained a new line of credit on January 3, 2020, but after the plaintiff was sued for sexual misconduct in 2020, “the Nygard companies' biggest client, the retailer Dillard's” and an unidentified clothing store in Nova Scotia stopped selling the plaintiff's clothing. The loss of the Dillard's relationship coupled with the sexual misconduct suit led the lenders to declare a default under the 2020 line of credit, forcing the companies into bankruptcy. The plaintiff “seeks damages for the companies' loss of their Dillard's contract and for their loss of credit and eventual bankruptcy.” According to the defendant, business injuries are foreclosed by Manson v. Stacescu, 11 F.3d 1127 (2d Cir. 1993), “forbidding a corporate owner from pursuing a RICO claim for injury to the company.” Since the plaintiff only alleged harm to the company, not personal harm, he has no standing to sue for the harm to businesses “associated with” him.
The second injury category, harm to reputation and related spending on public relations, is not viable because “RICO does not provide recovery for damages to reputation, it is not a domestic injury, it fails to allege proximate cause, and it fails to distinguish between harm suffered by Plaintiff himself and harm by non-plaintiff companies.” Moreover, the plaintiff is a Canadian resident, and his claim based on injury to reputation “happened where he resides in Canada” and is barred, as RICO does not allow recovery for foreign injuries. The plaintiff's claim for public relations expenses fails RICO's rigorous cause requirement, and the alleged injury to reputation based on false statements the defendant procured for public use in litigation and media is contingent on other events, indirect and remote. For the false statements to have affected the plaintiff's reputation, a third party would have to initiate a litigation or publish a media article, then another third party would have had to become aware of and credit the alleged unspecified false statements and, before they cost the plaintiff any money, the plaintiff would have had to spend money on public relations fees in an attempt to remedy the injury. Moreover, the putative RICO predicates of money laundering, transporting stolen goods, peonage and bribery are remote because they are not directed at the plaintiff.
The third injury category, through which the plaintiff seeks to recover legal fees related to unspecified litigations and alleged criminal proceedings, is not cognizable and is not pleaded properly. Although the plaintiff alleged that the defendant made criminal referrals to the Federal Bureau of Investigation (“FBI”) and the Department of Homeland Security (“DHS”), he does not allege that the referrals “ripened into proceedings against him or that he incurred legal fees related to those alleged investigations.” On the contrary, he alleges that the federal authorities did not find any merit to the claims. Furthermore, the plaintiff's vague, conclusory allegation that the defendant or his agent made a false statement to authorities is insufficient as he does not identify any false statements. Similarly, the plaintiff's claim for legal fees in connection with unknown civil litigation is foreclosed, and foreign litigation legal fees cannot be recovered because they are not a domestic injury. The plaintiff does not allege any false statements in connection with the lawsuit filed in California on January 24, 2020, or a putative class action lawsuit filed in this district on February 13, 2020. Since none of the alleged predicate acts targets the plaintiff directly, he failed to allege proximate cause and allegations of fraudulent litigation, without more, cannot constitute a RICO predicate act. The defendant contends that any claim that he procured a false statement in the California and New York cases is barred by Kim v. Kimm, 884 F.3d 98 (2d Cir. 2018), and the plaintiff did not allege that false statements were filed in the California or New York cases, which the courts handling those cases would address.
The defendant contends that the plaintiff fails to allege the existence of a RICO enterprise because he identifies an “association in fact” rather than a going concern as the enterprise. The plaintiff's conclusory assertions in the two paragraphs describing the purported enterprise, that a collection of individuals “banded together to obtain false and influenced statements and affidavits” and “in February 2015, [Livingston] Bullard and [John] DiPaolo referred to a ‘team, '” fail to demonstrate the requisite common purpose, relationship and longevity and violate the requirement that an enterprise is “separate and apart” from its pattern of activity by defining the enterprise by its purported effort to “obtain false and influenced statements and affidavits.” The defendant maintains that a RICO claim is not stated where, as here, the plaintiff “grouped together” the members of the enterprise “for the sole reason that they all allegedly had a hand” in the scheme. Furthermore, the plaintiff failed to allege that the enterprise members functioned as a unit; rather, he lists unconnected individuals without showing any relationship among them. The plaintiff also fails to plead a common purpose for damaging the plaintiff in his business and property because he did not suggest a plausible reason why other enterprise members would share the defendant's goal, allegedly arising out of a property dispute between the plaintiff and the defendant. On the contrary, the plaintiff alleges the opposite of a common purpose by asserting that “other participants were paid for their acts”; however, that self-interested financial motivation defeats common purpose and is fatal to the enterprise element. According to the defendant, the plaintiff's allegations respecting bad acts in a personal dispute with the defendant are insufficient to state a RICO claim, and he does not allege that the putative participants knew or were aware of one another's activities or were acting in coordination. The allegation that various putative participants were all working at the defendant's direction does not support an inference that they all agreed to join forces with each other to pursue a common goal.
The defendant asserts that the plaintiff is not alleged to be the proximate victim of most of his alleged predicate acts, and the alleged false statements, including his claims for peonage, forced labor, harboring aliens, unlawful employment of aliens and fraud in foreign labor contracting, do not target the plaintiff, and he cannot rely on them to support his RICO claim. The complaint does not state a predicate act of witness bribery because the plaintiff does not identify a person who is a witness or about to be called as a witness in an action or proceeding. The allegations of payment for false statements to media outlets do not constitute bribery because the statues at issue require an intent to influence some form of official proceeding. The plaintiff fails to plead non-conclusory facts that any individual would be a witness or that an agreement or understanding existed that the person's testimony would be influenced. The defendant contends that none of the allegations connects any alleged testimony to any claim of specific harm to the plaintiff's business or property. More specifically, the allegations related to Bianca McKinney are from 2010, predating RICO's four-year limitations period, and fail to allege any benefit that was offered her or that she agreed to accept to alter any testimony. Concerning allegations in connection with the testimony of Bullard and [Wisler] Davilma in a Bahamian court, the purported predicate did not produce a domestic injury. The claim that Richette Ross (“Ross”) was offered money to walk away from an affidavit in an unspecified action by the defendant is vague, does not allege that Ross changed her testimony, and does not identify a domestic proceeding or injury or state facts showing how the testimony harmed the plaintiff's business or property. The allegations against Philincia Cleare (“Cleare”), Tazhmoye Cummings (“Cummings”) and Samantha Storr (“Storr”) are vague and conclusory, fail to identify any false testimony in any action and do not alleged facts showing an offer to induce the witnesses to lie.
The defendant asserts that the complaint fails to plead witness tampering and retaliation as bodily injury, property damage or threat to it is required to be alleged and the conclusory allegations that potential witnesses were “threatened” is insufficient. Concerning domestic money laundering, the complaint fails to plead money laundering because it does not allege non-conclusory facts showing that the transferred funds are proceeds of specified unlawful activity or that the funds involved were proceeds of crime. Furthermore, the complaint does not contain allegations of specific financial transactions at issue or facts showing the required improper purpose for any transfer. With respect to international money laundering, no foreign transaction intended to promote the carrying on of specified unlawful activity is alleged.
The defendant asserts that the plaintiff fails to plead a pornography predicate act because he does not assert any claim of harm to his business or property arising from this predicate. The defendant is not accused of being in the business of distributing pornography featuring the plaintiff; rather, the materials allegedly contain stories about the plaintiff engaging in deviant sexual acts and verbal abuse of employees, which is not the “hard-core pornography” covered by the statute. According to the defendant, none of the alleged predicates sounding in fraud satisfies the standard of Fed.R.Civ.P. 9(b), and the plaintiff does not allege any scheme for obtaining property, but alleges repeatedly that the scheme was to damage the plaintiff's business and property by harming his reputation, not to obtain anything from him. The complaint also fails to state a predicate act under the Travel Act, 18 U.S.C. § 1952, because it does not plead any underlying unlawful activity which is defined to include bribery, money laundering and extortion, and the plaintiff's allegations are conclusory.
The defendant contends that no allegations of a pattern of related and continuing criminal activity exist because the alleged predicate acts are not related to each other and do not amount to or pose a threat of continuing criminal activity; they are disparate events without a common thread. The plaintiff asserts that Bullard and Davilma submitted false statements in a Bahamian litigation in which the defendant and other plaintiffs accused the plaintiff of paying local Bahamian operatives, including these two witnesses, to harm and intimidate the defendant. The two witnesses cooperated with the Bahamian plaintiffs and submitted statements detailing their involvement in the harassment campaign. The plaintiff asserts that the evidence by the two witnesses accusing him of wrongdoing is false. The plaintiff also alleges that the defendant helped to procure statements by women who asserted they were victims of sexual abuse over decades, in support of the lawsuits pending in this district and in California and he denies the allegations. The defendant maintains that the alleged false statements related to lawsuits filed five years apart are different acts related to different litigation on different subjects and allegedly involving unrelated persons. The only link among the persons involved is the plaintiff's claim that certain persons who accused him of wrongful conduct are lying, which is not sufficient to create a RICO pattern. For example, the plaintiff's allegations that the defendant made criminal referrals to the FBI and DHS are vague and, although the plaintiff claims that two women made false statements, he does not identify those statements or what is false about them, when and where they were made or how they harmed him. Similarly, the plaintiff asserts that false statements were made by some sources to The New York Times, but speech to a reporter, even false, is not a criminal act. Moreover, even if the events alleged in the complaint are related, they do not satisfy the continuity required by RICO because the plaintiff does not allege a threat of continuing criminal activity beyond the period during which the predicate acts were performed in early 2018.
The defendant argues that the plaintiff's failure to plead a substantive RICO claim is fatal to his conclusory RICO conspiracy claim. He contends that any claims under federal criminal statutes related to trafficking and harboring aliens, filing a false report and aiding and abetting the same must be dismissed because no private causes of action exist and the plaintiff does not identify analogue state criminal statutes allowing civil causes of action; thus, Counts IV, V and VI must be dismissed. Concerning tortious interference with prospective economic advantage, the plaintiff alleges that the defendant facilitated the publication of unidentified false statements on the sistahsabused.com website and in a February 2020 New York Times article, which allegedly caused Dillard's to discontinue its business with the plaintiff's company, contributing to a credit default and pushing “five companies indirectly owned by” him “into receivership.” However, the plaintiff does not allege interference with a business relationship between himself and a third party, only interference with relationships held by “businesses associated with” the plaintiff. Furthermore, no allegations exist that the defendant targeted conduct at Dillard's or any party with which the plaintiff has or seeks to have a relationship; rather, the alleged conduct was targeted at the plaintiff. Thus, any harm to the plaintiff's business relationships “was merely a nonactionable ‘incidental byproduct.'” In addition, the plaintiff fails to plead abuse of process because he does not allege the issuance of criminal process, the alleged investigations by the FBI and DHS did not result in criminal charges, the initiation of civil actions is not “capable of being abused” and no “perverted” use of any process is alleged to interfere with the plaintiff's person or property.
PLAINTIFF'S CONTENTIONS
The plaintiff contends that the defendant's motion is based on “his selective recitation” of the allegations and law at issue and disregards the applicable standard requiring that the factual allegations be viewed in the plaintiff's favor and prohibiting weighing of the allegations at this stage. The plaintiff maintains that his injuries are cognizable under RICO because damage to the plaintiff's reputation is also damage to the business brand “Nygard, ” associated with a successful fashion business empire and named after the plaintiff. Before “the impact of Bacon's actions, ” the plaintiff benefitted personally from the use of his name, image, likeness and signature, but the “destruction of the Nygard name has rendered any efforts to trade upon Nygard's name and image impossible.” The complaint alleges that “a smear campaign directed to the personal character of Peter Nygard tarnished Nygard business reputation to such a degree that it felled the Nygard business empire.” According to the plaintiff, damage to the business reputation is actionable under RICO and, “because of the equivalence of the value of the fashion brand with the reputation of the person, the damages to the fashion brand and its resultant consequences are also actionable under RICO.” The plaintiff asserts that damage to the plaintiff's business and business reputation proximately resulting from the defendant's scheme confers RICO standing. For example, the plaintiff alleges that the defendant paid and encouraged witnesses to provide false statements about him that were publicized and caused directly actual and prospective customers of the plaintiff to cease purchasing Nygard-branded fashion products, including Dillard's, a major department store, which stopped carrying Nygard-branded products. The defendant's destruction of the plaintiff's “name has rendered the plaintiff unable to trade upon his name and reputation.” The plaintiff asserts that no other intended victims of the false statements made about him exist and no other factors contributed to the customers ceasing “their business with Nygard-branded products.” The defendant's public attack on the plaintiff and Dillard's “causally related termination of business, thrust the Nygard business empire into receivership when a secured lender called its loan.” The plaintiff contends that many district and circuit courts have found “that reputational harm, particularly business reputational harm, is cognizable under RICO.” The plaintiff contends that decreased business volume, as experienced by the plaintiff and his business due to the defendant's actions, is cognizable under RICO. Additionally, the harm to the plaintiff's reputation is alleged not alone but along with allegations of financial harm, and “the line drawn from [the defendant's] actions to [the plaintiff's] injuries is straight and direct.” The defendant did not identify any independent factors which could, absent the defendant's actions, account for the plaintiff's injuries.
The plaintiff contends that the defendant's actions are the proximate cause of his injuries. The plaintiff suffered a domestic injury because he alleged damage to his domestic and international business reputation, including business reputation in the United States, and “damage to his tangible property within the United States”; thus, his “place of residence is not determinative.” The plaintiff asserts that, when Dillard's dropped the Nygard clothing account, as a direct result of the defendant's actions, the plaintiff was injured in the United States and, “as the U.S. is a leader in consumer fashion, Nygard's brand has forever been foreclosed from a significant market, causing enormous damage that will continue.”
According to the plaintiff, he pleaded adequately the existence of a RICO enterprise by alleging that the defendant “is the mastermind of a scheme that caused” his damages who “worked with a large network of individuals and organizations, associated in fact, to form an enterprise” and each association shares “the common purpose of destroying” the plaintiff and each does not merely pursue its own financial gain but “functions as a unit” and “has engaged in actions that persisted for at least ten years.” The defendant has worked with a large network of individuals and organizations, associated in fact, to form an enterprise. An example of a relationship alleged between the associates and the enterprise is a charity known as Sanctuary and the non-profit organizations Waterkeepers, Save The Bays and Moore Charitable Foundation, all of which the defendant “and/or his agents or co-conspirators are associated with, either as founder, primary contributor, or officer and/or director, [and] are used to inappropriately funnel and support people who make false statements against [the plaintiff], through the money-laundering payment of bribes and other support.” Another example is Fred Smith, an attorney for the defendant and various charities set up by or through the defendant, who is alleged to have arranged for or paid monies to various persons in the enterprise, through this scheme. According to the plaintiff, the complaint is replete with allegations of the primary actors functioning as one unit to destroy him, and the role of each party's operations within the enterprise is best left for discovery, rather than dismissal at the pleading stage. Without the charities and other non-profit organizations, the enterprise would have no way of laundering money and funneling it to those who made false statements about the plaintiff, and without “intermediaries such as Fred Smith, Callenders Law Firm (and agents such as Richette Ross), D&R Agency, Palladino & Sutherland, and O'Keefe Tatigan and others, the enterprise would not have found people willing to make false statements for money and would not have been able to pay these people.” The plaintiff contends that the enterprise exists separate and apart from the pattern of activity in which it engages such as, for example, the private witness protection program which “exists separate from the pattern of activity in which it engages” by providing money, lodging and shelter for illegal aliens in the United States, is supported by the defendant and “has its funding provided by the many involved charities and non-profit organizations.”
The plaintiff maintains that he alleged adequately numerous predicate acts of racketeering activity, including bribery, money laundering, fraud in foreign labor contracting, witness tampering and retaliation, transportation of obscene matters for sale or distribution, fraud, a Travel Act, peonage, forced labor, harboring aliens and unlawful employment of aliens. Concerning five of these predicate acts, the defendant makes conclusory statements that, since they do not relate to a false statement about the plaintiff, they cannot be relied upon to support the RICO claim because they fail on the element of proximate cause. However, this case is not only about the defendant's false statements about the plaintiff, but about a pattern of illicit and illegal conduct designed to influence witnesses improperly to make false statements, file false reports, abuse process, tortiously interfere with business relations and aid and abet the dissemination of false statements in conjunction with destroying property rights in copyrighted works, trademarks and rights of publicity and promotion, “all for the intended purpose of damaging” the plaintiff, his goodwill, his business and property. The plaintiff contends that all predicate acts pleaded were done to further these intended purposes and contributed to the plaintiff's damages. The defendant does not make substantive arguments about five predicate acts, namely, peonage, forced labor, harboring aliens, unlawful employment of aliens and fraud in foreign labor contracting; thus, the plaintiff pleaded these acts adequately.
Concerning bribery, the plaintiff alleges that “many players in the enterprise were offered the benefit of money and/or participation in the private witness protection program, in exchange for false testimony concerning” the plaintiff. For example, the complaint alleges that “Jestan Sands, Bianca McKinney, Livingston Bullard, Wisler Davilma, Richette Ross, Philincia Cleare, Tazhmoye Cummings, Samantha Storr, and others, [were] being paid or otherwise compensated to influence them to, among other things, fabricate evidence and participate in numerous lawsuits.” Examples of payments include those made: (i) by Fred Smith to Ross to work on a potential lawsuit against the plaintiff regarding workplace abuses and to find alleged victims to lie about sexual encounters with the plaintiff; (ii) to Jestan Sands on behalf of the defendant to carry out his scheme to destroy the plaintiff, including assisting in the extortion of the plaintiff; (iii) “to [Davilma] and [Bullard] who were coerced to provide false statements for use” in the defendant's scheme designed to destroy and damage the plaintiff; and (iv) on behalf of the defendant to Ross, Cleare and Cummings for false statements used against the plaintiff.
The plaintiff asserts that he pleaded sufficiently witness tampering and retaliation, including that the defendant threatened potential witnesses that “the enterprise would cut off sustenance, coercion of witnesses” by the defendant's investigators and reporting of Cleare to the police by witness protection guards to ensure she remained adherent to the witness protection program's goals. This conduct permeates the witness protection program and applies to the putative class action filed in federal court.
Concerning money laundering, the plaintiff pleaded adequately in numerous instances that the defendant engaged in many acts of money laundering through his charities, such as “MCF and Sanctuary, and affiliated non-profit entities, including Waterkeepers and Save The Bays, to generate funds to damage and destroy” the plaintiff, his business and property. Moreover, money laundering allegations are not subject to the requirements of Fed.R.Civ.P. 9. Similarly, international money laundering is sufficiently pleaded because the allegations concern the Bahamian entities Waterkeepers and Save The Bays and that funds funneled through them were used to pay some of the participants in the enterprise. Since many conspiracy participants reside in the United States, including members of the putative class action “and TekStratex, at least some of the international transfers of money originated in the Bahamas (or traveled from the U.S. and through the Bahamas) and were transferred to the United States.”
The plaintiff maintains that he alleged a pornography predicate act adequately and it is not necessary that the defendant distribute pornography or that material be pornographic, only that material appeals to the prurient interest of an average person. Thus, the allegations implicate obscenity and this predicate act injured the plaintiff “by setting off the putative class action lawsuit, which toppled” the plaintiff's business.
Concerning fraud, the plaintiff alleges that the defendant obtained by fraud the plaintiff's property from Stephen Feralio, and his claims sounding in fraud, including foreign labor contracting and interstate transportation of stolen goods or goods taken by fraud, are pleaded sufficiently. According to the plaintiff, he also pleaded adequately a Travel Act predicate act, including bribery, money laundering and extortion, as well as a pattern of racketeering activity based on more than two predicate acts committed within a ten-year period. For example, the money laundering effected by the defendant's “charities and non-profit organizations are part of the enterprise's scheme to funnel money to players to give false testimony about” the plaintiff, such as the Jane Does who were bribed to provide false testimony, showing that “the purpose of the money laundering is the bribery and interference with witnesses.” The plaintiff asserts that lawsuit in the Bahamas and California are not the only actions by the defendant; rather, his actions include all related predicate acts that are “part of a scheme to take down Nygard.” Moreover, “courts in this district have permitted cases directed at a single RICO victim to survive, ” and the filing of the Jane Does putative class action lawsuit against the plaintiff in this court, on February 13, 2020, shows that “the complained-of behavior is ongoing.”
With respect to his RICO conspiracy claim, the plaintiff contends that it is pleaded sufficiently because his RICO claim is alleged adequately, and the defendant's argument that the RICO conspiracy claim is comprised of “conclusory allegations” is “itself conclusory” and insufficient to support dismissal. The plaintiff maintains that “a plain reading of Count II . . . shows that the pleading is sufficient, ” as his conspiracy allegations are detailed and include the persons with whom the defendant agreed to obtain by unlawful means false and influenced statements and affidavits to be used against him “to injure him in his business and property.” According to the plaintiff, his tortious interference claim is also pleaded adequately, and the defendant's reliance on a selective reading of the complaint ignores the allegations of interference that include both the plaintiff personally and “businesses associated with” the plaintiff, and that “harm to businesses that share Nygard's name caused Nygard personal harm, given his likeness and image were associated with these businesses and are the basis for the consideration he was provided while those businesses thrived.” The plaintiff also alleges sufficiently “economic damage through disparaging content about him and harm to his reputation and good will, ” which “can serve as the basis for a tortious interference claim.” The plain reading of the complaint shows that the harm to the plaintiff was not an “incidental byproduct”; rather, the plaintiff alleges repeatedly conduct “directed to third parties to interfere with” the plaintiff's business relationships and does not allege that the false statements or disparaging content was provided to the plaintiff. For example, the complaint alleges that falsified accusations against the plaintiff included encouraging actual or prospective consumers not to purchase the plaintiff's fashion products or fashion products of the businesses associated with the plaintiff.
The plaintiff contends that filing a false report, aiding and abetting the filing of a false report and trafficking and harboring aliens to further a fraudulent act are asserted as common law causes of action, although they may also violate statutes, and they are pleaded sufficiently with detailed allegations, contrary to the defendant's conclusory argument to the contrary. With respect to abuse of process, the plaintiff contends that it is not asserted based on the filing of criminal charges against him or “the mere initiation of the civil lawsuits against him”; rather, it is asserted based on “the improper use of process after it is issued” to interfere with his person and property and his damages “go far beyond those that arise from litigation.” In addition, the plaintiff's damages allegations are set forth with sufficient particularity showing a causal relatedness to the alleged tortious acts.
DEFENDANT'S REPLY
The defendant contends that the plaintiff failed to address his argument that the complaint fails to plead RICO standing and he cannot sue for injury to his “associated” business entities. That these entities went bankrupt, suffered “decreased business volume, ” lost clients and have registered trademarks diminished in value is legally irrelevant, and legal fees are not a cognizable RICO injury nor does the plaintiff specify the fees at issue or trace them to any act by the defendant. Moreover, using RICO to sue over prior litigation activity in this circuit is prohibited. The injury to the plaintiff's professional reputation is not compensable under RICO and the only case the plaintiff cites merely assumed that reputational harm was cognizable as it dismissed the RICO claims on other grounds. The defendant contends that out-of-circuit outlier cases contemplating cognizable business or professional reputational injury to an individual have not been widely followed and contradict numerous decisions of other courts in the last two decades. The complaint fails to state a cognizable RICO injury because plaintiff asserts reputational injury concerning his personal reputation, “arising from public knowledge of his penchant for ‘deviant sexual acts, '” and not an injury from the plaintiff “being known as an incompetent business person.” The defendant contends that the plaintiff felt the effects of any reputational injury in Canada, where he resides, making the injury not domestic. The assertion that the business entities associated with the plaintiff are “foreclosed” from the U.S. market is irrelevant, and the plaintiff concedes that alleged injuries to the business entities are not a cognizable injury to him personally. With respect to causation, the plaintiff “barely musters an argument concerning RICO's rigorous proximate cause requirement, ” and he ignores that “the decision of Dillard's and others to halt business with the business entities ‘interrupt[s] the causal chain to [the defendant's] conduct'” and that many of the alleged predicate acts were “impermissibly indirect” because they were directed at others, not the plaintiff.
The defendant contends that the plaintiff “confirms three fatal failures of the complaint” concerning a RICO enterprise: (1) “its broad-brush insistence that the enterprise members had a ‘shared purpose' to destroy” the plaintiff and his business finds no support in the complaint and no allegations exist that Davilma, Bullard, Litira Fox, Ross, James Lawson, DiPaolo and Stephen Davis wanted to “bring down” the plaintiff the same way the media “took down Harvey Weinstein”; rather, the complaint alleges that each person sought financial gain; (2) the complaint alleges that “the putative enterprise members were divided into separate ‘subgroups' that ‘each agreed with [Defendant] to engage in individual schemes, ” which is not a single “enterprise”; and (3) the complaint fails to allege that the enterprise exists “separate from” the alleged racketeering acts. The plaintiff asserts in his opposition to the motion that “the alleged ‘private witness protection program' exists separate from the alleged predicate because it ‘provides money and lodging, and, in some cases, shelter for illegal aliens, '” but that is the alleged racketeering activity and the complaint alleges that persons were provided money, lodging and shelter “in exchange for providing false statements about” the plaintiff. The plaintiff's failure to allege proximate causation is also fatal to each predicate as he “makes only the vaguest claim that the putative predicates were the ‘proximate cause of Nygard's injuries, '” but fails to allege such a factual link. For example, no proximate causation is alleged “between some putative money laundering predicate on the one hand, and the Dillard's chain dropping Nygard brand (or any other claimed harm), ” and the plaintiff fails to identify in his opposition to the motion facts to link each predicate to the harm of which he complains. The plaintiff also fails to address seven of the many alleged predicates: commercial bribery, “coercion/extortion” predicates and peonage, forced labor, harboring aliens, unlawful employment of aliens and fraud in foreign labor contracting. More specifically, the complaint does not allege an incident of bribery and the chart in the plaintiff's opposition to the motion “stitches together allegations from different incidents to meet the various elements of bribery: It identifies the Jane Doe's class action in this District as the relevant federal proceedings, ” but “the two people identified as having ‘accepted money' are not alleged to be witnesses in that case.” Concerning Jestan Sands, Bianca McKinney, Bullard, Davilma, Ross, Cleare, Cummings and Storr, the plaintiff failed to respond to the deficiencies identified in the defendant's brief or to explain how the cited incidents, such as a “potential lawsuit” on which Ross worked allegedly or the “false statements” submitted in a long-ago Bahamian litigation proximately caused the harm in 2020 of which the plaintiff complains.
As it concerns witness tampering, it requires “physical force or the threat of force against a witness to a federal proceeding; and retaliation, actual or threatened harm to person or property, ” none of which was identified by the plaintiff. That two purported witnesses had their “money” “cut off” is not sufficient because financial loss does not constitute damage to tangible property. The plaintiff concedes that the only relevant federal proceeding is the recent class action in this district, “and the detail-free allegation” that a “co-conspirator's friend” arranged “for an arrest” of an unspecified “witness” is not tied to that proceeding or any harm to the plaintiff. The allegation that Bullard “put his hand” on another Bahamian witness's neck “to get her to disavow her affidavit in an unspecified case in 2016 is likewise unrelated to the sole federal proceeding filed in 2020.” The defendant asserts that, as it relates to domestic money laundering, the plaintiff failed to point to the required “distinct” criminal conduct that produced the purportedly laundered funds and, as it relates to international money laundering, the plaintiff's “sole theory is that there is a SUA under § 1956(c)(7)(B)(iv) by means of UNCATOC, ” but he failed to defend this theory in his opposition to the motion, where he asserts a new theory that Bahamian entities sent money to “some” of the U.S. “players” to engage in unspecified acts, which cannot amend the complaint. The complaint's RICO injury paragraph does not allege a connection to pornography and the plaintiff's bald assertion that it does is false. According to the defendant, stories about the plaintiff's “deviant sexual acts” are not pornography. Similarly, the plaintiff failed to address the defendant's argument that the various fraud predicates, for mail, wire and foreign labor fraud and transporting goods taken by fraud, all require particularized pleading, and his contention that Fed.R.Civ.P. 9(b) merely demands “notice” is wrong. The plaintiff's suggestion that the fraud's objective was some miscellaneous property is contradicted by the allegation that the defendant's object was to harm the plaintiff's reputation. The identified property is at best “only an incidental byproduct of the scheme.” Since the plaintiff failed to plead bribery, money laundering and extortion, his claim under the Travel Act must fail.
The defendant contends that the plaintiff takes no issue with the defendant's argument that the only timely concrete acts alleged by the plaintiff were five years apart, concern different subjects and fail RICO's relatedness requirement. Although the plaintiff contends vaguely that money laundering and bribery are related because certain entities allegedly laundered money and, separately, that Jane Does were bribed to provide false testimony, he does not draw the link between these predicate acts because none exists. The plaintiff does not allege that any Jane Doe was paid using laundered funds, and he does not even try to identify a pattern among the other putative predicates. His general contention that the predicates form a pattern because they were “part of a scheme to take down Nygard” is insufficient to state a claim in this circuit. The defendant asserts that the plaintiff's concession that “[t]here are no other intended victims” of the alleged scheme forecloses a finding of closed-ended continuity. The plaintiff asserts that an open-ended continuity is shown by the recent filing of the Jane Does' action against him in this district; however, filing a lawsuit is not a predicate act and the date of the most recent putative predicate act is early 2018, which the plaintiff does not dispute is not recent.
With respect to other causes of action, the plaintiff failed to offer a meaningful defense. The plaintiff asserts expressly claims under 18 U.S.C. § 287, “NY Penal Law § 240.50” and 8 U.S.C. § 1324, none of which creates a private right of action. The plaintiff's only response is to assert falsely that these counts do not assert “statutory causes of action, ” but common law claims, which is an attempt to rewrite the complaint, despite the fact that no such common law claims exist. The plaintiff's opposing brief confirms that the complaint rests impermissibly on alleged harm to his companies' business relationships, not his own, in connection with the tortious interference count, and the plaintiff acknowledged that Dillard's was “Nygard Group's ... largest customer, ” not the plaintiff's customer. Moreover, the plaintiff does not address the fact that tortious interference requires conduct aimed at the counterparty and the complaint does not allege that the defendant directed conduct at Dillard's. Conclusory allegations that the defendant encouraged actual or prospective customers not to buy the plaintiff's fashion products are insufficient and, even if true, not tortious. The plaintiff conceded in his opposition brief that the criminal investigation of him and the initiation of various civil lawsuits against him do not constitute abuse of process, and an injury to reputation is not sufficient to support an abuse of process claim.
LEGAL STANDARD
A party may assert, by motion, the defense of “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6).
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007)).
“Conclusory allegations that the defendant violated the standards of law do not satisfy the need for plausible factual allegations.” Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 191 (2d Cir. 2010) (citing Twombly, 550 U.S. at 555, 127 S.Ct. at 1965). On a motion pursuant to Rule 12(b)(6), all facts alleged in the complaint are assumed to be true and all reasonable inferences are drawn in the plaintiff's favor. See Interpharm, Inc. v. Wells Fargo Bank, Nat'l Ass'n, 655 F.3d 136, 141 (2d Cir. 2011).
APPLICATION OF LEGAL STANDARD
RICO Violations under 18 U.S.C.A. § 1962(c) (Count I)
“It shall be 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.A. § 1962(c).
To establish a RICO claim, a plaintiff must show: “(1) a violation of the RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the injury was caused by the violation of Section 1962.” . . . To establish a violation of 18 U.S.C. § 1962(c) then, a plaintiff must show “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” . . . The terms “enterprise, ” “racketeering activity, ” and “pattern of racketeering activity” are defined in 18 U.S.C. § 1961. A RICO enterprise “includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). “Racketeering activity” is broadly defined to encompass a variety of state and federal offenses including, inter alia, murder, kidnapping, gambling, arson, robbery, bribery and extortion. See 18 U.S.C. § 1961(1). A “‘pattern of racketeering activity' requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years ... after the commission of a prior act of racketeering activity.” 18 U.S.C. § 1961(5). Although at least two predicate acts must be present to constitute a pattern, two acts alone will not always suffice to form a pattern. In short, to establish a violation of 18 U.S.C. § 1962(c), a plaintiff must establish that a defendant, through the commission of two or more acts constituting a pattern of racketeering activity, directly or indirectly participated in an enterprise, the activities of which affected interstate or foreign commerce.DeFalco v. Bernas, 244 F.3d 286, 305-06 (2d Cir. 2001) (citations omitted).
“[I]n order to prove such a ‘pattern,' a civil RICO plaintiff also ‘must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity,' H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (emphasis in original).'” Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 487 (2d Cir. 2014).
RICO targets conduct that “amount[s] to or pose[s] a threat of continued criminal activity.” Such continuity can be closed-ended or open-ended. Criminal activity that occurred over a long period of time in the past has closed-ended continuity, regardless of whether it may extend into the future. As such, closed-ended continuity is “primarily a temporal concept, ” and it requires that the predicate crimes extend “over a substantial period of time.” Predicate acts separated by only a few months will not do; this Circuit generally requires that the crimes extend over at least two years. On the other hand, criminal activity “that by its nature projects into the future with a threat of repetition” possesses open-ended continuity, and that can be established in several ways. Some crimes may by their very nature include a future threat, such as in a protection racket. When the business of an enterprise is primarily unlawful, the continuity of the enterprise itself projects criminal activity into the future. And similarly, criminal activity is continuous when “the predicate acts were the regular way of operating that business, ” even if the business itself is primarily lawful. ... Because RICO does not apply to “isolated or sporadic criminal acts, ” it has a relatedness requirement in addition to the continuity requirement. Predicate crimes must be related both to each other (termed “horizontal relatedness”) and to the enterprise as a whole (“vertical relatedness”). Vertical relatedness, which entails the simpler analysis, requires only: that the defendant was enabled to commit the offense solely because of his position in the enterprise or his involvement in or control over the enterprise's affairs, or because the offense related to the activities of the enterprise.... The Supreme Court has explained that predicate acts are horizontally 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.Reich v. Lopez, 858 F.3d 55, 60-61(2d Cir. 2017) (citations omitted).
To sue under RICO, a plaintiff must also establish that the underlying § 1962 RICO violation was “the proximate cause of his injury.” UFCW Local 1776 v. Eli Lilly &Co., 620 F.3d 121, 132 (2d Cir. 2010). This means that there must be some “direct relation between the injury asserted and the injurious conduct alleged.” Holmes v.Sec. Inv'r Prot. Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992).Empire Merchants, LLC v. Reliable Churchill LLLP, 902 F.3d 132, 140 (2d Cir. 2017).
The Supreme Court has interpreted [the § 1964(c)] language as limiting standing to plaintiffs whose injuries were caused proximately by the RICO predicate acts. Holmes v. Securities Investor Protection Corp., 503 U.S. 258, __, 112 S.Ct. 1311, 1318, 117 L.Ed.2d 532 (1992). A central element of proximate cause is a showing of some “direct relation between the injury asserted and the injurious conduct alleged”. Id. . . . A shareholder generally does not have standing to bring an individual action under RICO to redress injuries to the corporation in which he owns stock. . . . Since the shareholder's injury, like that of the creditor, generally is
derivative of the injury to the corporation, the shareholder's injury is not related directly to the defendant's injurious conduct.Manson, 11 F.3d at 1130-31 (citations omitted).
Standing to Assert Injuries Based on Reputational Harm
The plaintiff asserts injuries to unidentified businesses “associated with” him, namely, that a Canadian lender to those businesses terminated a credit line and, after the plaintiff was sued for sexual misconduct, the biggest client of the companies associated with the plaintiff, Dillard's, as well as a retailer in Nova Scotia, stopped selling Nygard clothing. In response to the defendant's argument that the plaintiff has no standing to assert injuries to unidentified businesses associated with him, the plaintiff asserts that damage to his personal reputation is also damage to the business brand “Nygard, ” conferring RICO standing “because of the equivalence of the value of the fashion brand with the reputation of the person.” The plaintiff relies on “Dandong Old North-East Agric. & Animal Husbandry Co. v. Gary Ming Hu, 2017 U.S. Dist. LEXIS 122471, *26 n.6 (S.D.N.Y. Aug. 3, 2017)” in support of his argument.
(a) Dandong Old N.-E. Agric. & Animal Husbandry Co. v. Hu
In Dandong Old N.-E. Agric. & Animal Husbandry Co., 2017 WL 3328239, at *2 (“Dandong”), the plaintiff, one of the largest purchasers of soybeans produced in the United States, alleged
that there are common practices in the soybean industry to which buyers and sellers adhere when negotiating contracts. (Am. Compl. ¶ 25). Because soybean prices frequently fluctuate, buyers settle on a list of alternative prices per soybean bushel either with brokers, or with sellers who contract on behalf of the soybean suppliers. (Id. at ¶ 35). These alternative prices anticipate changes in soybean prices during the purchase and shipment periods. (Id. at ¶ 27). The buyer then selects a final purchase price by the “pricing cutoff date, ” which typically occurs before the soybeans arrive by vessel at the buyer's port. (Id. at ¶ 29). Finally, buyer and broker open an irrevocable letter of credit, which is provided before the soybeans are shipped. (Id. at ¶ 32). According to Plaintiff, the letter of credit favors the seller because it represents a value that covers “price fluctuations while the shipment is in transit.” (Id.). A buyer defaults on the contract by failing to provide a letter of credit, but once the letter is provided, it “nearly always result[s] in a credit owed to the buyer at the close of the transaction.” (Id.).
The plaintiff asserted further that
between April 2009 and December 2010, Hu [Executive Director and General Manager of the plaintiff] “manipulate[d] contracts and pricing” to overcharge Plaintiff. (Am. Compl. ¶ 43). In particular, Hu entered into twenty-three contracts on Plaintif's behalf where the price of soybeans was significantly inflated. (Id. at ¶¶ 41, 42). By inflating the contract prices, Hu forced Plaintiff to pay more “than it actually should have based on current commodity prices.” (Id. at ¶ 43). In theory, these overpayments would have entitled Plaintiff to refunds “for the difference between the [letter of credit] and the final price.” (Id.). But Hu concealed the refunds by sending Plaintiff documents that reflected “incorrect-and higher- prices” above the soybeans' market value. (Id. at ¶ 57). The scheme resulted in losses to Plaintiff exceeding $10.877 million. (Id. at ¶ 44).Id.
Concerning damages from the alleged fraud, the plaintiff asserted
that in the niche soybean market, the viability of a soybean buyer's business depends on its reputation as an honest negotiator. (Am. Compl. ¶ 24). And because the soybean industry has limited sources of supply, a buyer with poor credibility will lose substantial business by being unable to contract with sellers at a competitive price. (Id.). After Hu's resignation, Plaintiff undertook investigations that revealed just how extensively Hu's schemes had damaged the company. (Am. Compl. ¶¶ 97, 110). These damages are outlined in the Amended Complaint. First, Plaintiff sustained monetary losses on each of the twenty-three contracts that Hu allegedly overpriced. (Id. at ¶ 120). These losses comprised the price difference between the amount that Plaintiff paid and the actual market value of the soybeans, extra customs fees, and increased costs associated with insurance and letters of credit. (Id.). Additionally, Hu's actions damaged Plaintiff's business reputation. (Am. Compl. ¶ 113). Several news sources in the United States published articles about Hu's fraudulent scheme and subsequent conviction. (Id. at ¶ 118). These articles, in turn, prompted suppliers to cut ties with Plaintiff. (Id. at ¶ 114). One sales representative specifically advised Plaintiff of its belief that Plaintiff “did not honor contracts and had [business] trouble” because of its association with Hu. (Id.). Indeed, Plaintiff lost its main soybean supplier in the United States as a result of its damaged reputation. (Id. at ¶ 111). Ultimately, Plaintiff was forced to slow its business operations at its factory in China. (Am. Compl. ¶ 122). As a consequence of losing its main supplier, Plaintiff reduced the rate at which it processed soybeans and terminated approximately ninety employees. (Id.). This
reduction in business operations then caused Plaintiff to lose much of its market share of the soybean oil and meal it manufactured. (Id. at ¶ 123).Id. at *3 (emphases added).
The defendants in Dandong argued that: (i) “even if Plaintiff suffered from losing its soybean supplier in the United States, it felt the effects of that loss only in China, its country of incorporation and principal place of business”; and (ii) “damage to Plaintiff's reputation is considered a ‘personal injury and ... not an injury to business or property within the meaning of 18 U.S.C. § 1964(c).' ([Def. Br.] at 7 (quoting Hamm v. Rhone-Poulenc Rorer Pharms., Inc., 187 F.3d 941, 954 (8th Cir. 1999))).” Id. at *10 (emphasis added). The Dandong court appended a footnote to the end of this sentence stating:
An open issue in this case concerns whether reputational harm is a cognizable injury under RICO. Defendants offer various cases for the proposition that it is not. (See Def. Br. 7-8 (citing, inter alia, Hamm v. Rhone-Poulenc Rorer Pharms., Inc., 187 F.3d 941, 954 (8th Cir. 1999) (“Damage to reputation is generally considered personal injury and thus is not an injury to business or property [] within the meaning of 18 U.S.C. § 1964(c).” (internal quotation marks and citation omitted))); Kerik v. Tacopina, 64 F.Supp.3d 542, 561 (S.D.N.Y. 2014) (finding that reputational harm cannot solely support a RICO cause of action when the facts alleged made it difficult to discern whether the plaintiffs reputation was directly harmed as a result of any alleged RICO scheme rather than “other factors”)). But no case law specifically matches the facts alleged in the Amended Complaint, where Plaintiffs explicitly tie the reputational harm to Defendants' conduct. Compare Am. Compl. ¶ 114 (“For example, a representative of [P]laintiff was told by a supplier of soybeans that [P]laintiff did not honor contracts and had trouble because of Gary Hu, thus injuring [P]laintiffs reputation in the United States.”), with Kimm v. Chang Hoon Lee & Champ, Inc., 196 Fed.Appx. 14, 16 (2d Cir. 2006) (summary order) (“As written, the generalized reputational harms alleged, including the risk of future lost business commissions, are too speculative to constitute an injury to business or property.”). While the issue is far from clear, for the purposes of this Opinion, the Court assumes that reputational harm, at least in the highly particularized form alleged by Plaintiff, is cognizable under RICO.Id. at *10 n.6.
The plaintiff in Dandong argued
that its reputational injury among United States suppliers is recoverable under RICO because “it result[ed] in ‘concrete economic, contractual or business losses.'” (Pl. Opp. 14 (quoting Cement-Lock v. Gas Tech Inst., No. 05 C 0018, 2017 WL 4246888, at *26 (N.D. Ill. Nov. 29, 2007)) (internal citation omitted)). In the early stages of the scheme, Defendants' price manipulation caused Plaintiff specific monetary losses in the form of overpayment on each soybean contract and increased costs associated with letters of credit, interest, and insurance. (Id.). At the conclusion of the scheme, the damage to Plaintiff's reputation caused by the fraud led to “Dandong's processing plant closing for a month and operating at a substantially reduced capacity.” (Id.).Id. at 13 (emphases added).
The Dandong court found that, “[r]egardless of where the conspirators' conduct took place, Plaintiff's injury was felt in China, the only place its business had ever been located. In short, the Amended Complaint fails to plead domestic injury, and thus fails to state a claim under 18 U.S.C. § 1962(c).” Id. at 14.
Dandong does not support the plaintiff's assertion that damage to the plaintiff's personal reputation is also damage to the business brand “Nygard, ” conferring RICO standing “because of the equivalence of the value of the fashion brand with the reputation of the person” because Dandong involves a corporate plaintiff, not an individual, and does not involve allegations related to personal reputation. On the contrary, only damage to business reputation is asserted in Dandong by the corporate plaintiff. The Dandong court neither analyzed nor made conclusions with respect to the issue of whether damage to the corporate plaintiff's business reputation is cognizable under RICO; rather, acknowledging it is an open issue and noting several cases on which the defendants relied for their argument that it is not cognizable, the Dandong court assumed, without deciding, “for the purposes of this Opinion, . . . that reputational harm, at least in the highly particularized form alleged by Plaintiff, is cognizable under RICO.” Id. at *10 n.6. The Dandong court, in a footnote, noted the cases cited by the defendants for the proposition that business reputational harm is not cognizable under RICO, including a summary order from this circuit, “Kimm v. Chang Hoon Lee & Champ, Inc., 196 Fed.Appx. 14, 16 (2d Cir. 2006) (summary order) (‘As written, the generalized reputational harms alleged, including the risk of future lost business commissions, are too speculative to constitute an injury to business or property.'), ” which the court contrasted to a “highly particularized form” of business reputational harm alleged by the corporate plaintiff. Dandong, 2017 WL 3328239, at *10 n.6. Moreover, unlike in Dandong, the plaintiff in this case does not allege a “highly particularized form” of harm to his own business; rather, he alleges injuries to unidentified businesses “associated with” him and makes a generalized, conclusory assertion that “a smear campaign directed to the personal character of Peter Nygard tarnished Nygard's business reputation to such a degree that it felled the Nygard business empire.” The Court finds that the plaintiff's reliance on Dandong is misplaced and Dandong does not support the plaintiff's argument concerning standing to assert a RICO violation.
(b) Other Cases Cited by the Plaintiff
The plaintiff contends that the Dandong court “is not alone in its holding that reputational harm, particularly business reputational harm, is cognizable under RICO” and “[m]any district and circuit courts from around the country have similarly held, ” listing the following cases:
• Clark v. Stipe Law Firm, L.L.P., 320 F.Supp.2d 1207, 1213-14 (W.D. Ok. 2004) (finding RICO standing based on harm to plaintiff's professional reputation and differentiating other cases that did not find RICO standing by explaining that the other cases were not about professional reputation, or were deficient on causation, not injury);
• Sadighi v. Daghighfekr, 36 F.Supp.2d 279, 290 (D.S.C. 1999) (RICO standing found based on injury to professional reputation);
• Alexander Grant & Co v. Tiffany Indus., Inc., 770 F.2d 717, 719 (8th Cir. 1985) (same);
• Lewis v. Lhu, 696 F.Supp. 723, 727 (D.D.C. 1988) (same);
• Cement-Lockv. Gas Tech. Inst., 2005 U.S. Dist. LEXIS 22058, *43 (N.D. Ill. Sep. 30, 2005) (“Although an injury to one's personal reputation generally is not an injury to “business or property” under RICO § 1964(c), an injury to a plaintiff's business reputation, resulting in concrete economic, contractual, or business losses is compensable under RICO.”) (emphasis in original);
• Lerman v. Joyce Intern., Inc., 10 F.3d 106, 113 (3d Cir. 1993) (noting that the “court found that Lerman's scheme had imperiled LOPC's reputation and had exposed it to civil and perhaps even criminal liability”);
• Khurana v. Innovative Health Care Sys., 130 F.3d 143, 150 (5th Cir. 1997) (finding plaintiff “pleaded injury proximately resulting from the defendants' violations of § 1962(b) and § 1962(c) when he asserted the injury of business reputation harm”).
As explained above, the Dandong court did not hold, as the plaintiff asserts, “that reputational harm, particularly business reputational harm, is cognizable under RICO.” The plaintiff lists cases without any: (i) discussion of how they support the plaintiff's argument; (ii) analysis of how the application of the factual circumstances in those cases are similar to or different from the instant case; (iii) analysis of the application of the governing law to the factual circumstances in those cases; and (iv) comparison of the application of law to the circumstances in those cases to the application of law in this case. The plaintiff failed to make citation to any binding authority in support of his assertions that damage to the plaintiff's personal reputation is also damage to the business brand “Nygard, ” conferring RICO standing “because of the equivalence of the value of the fashion brand with the reputation of the person” and “reputational harm, particularly business reputational harm, is cognizable under RICO.” Notwithstanding the plaintiff's failure to discuss and analyze the listed cases, the Court will address them.
In Clark, the plaintiff alleged that his “professional reputation was foreseeably damaged as a result of defendants' predicate acts.” Clark, 320 F.Supp.2d at 1212. In determining whether the plaintiff asserted sufficiently injury to business or property under RICO, the court stated:
Plaintiff makes specific reference to harm to his professional reputation and to out-of-pocket costs, including professional fees, incurred as a result of the defendants'
alleged acts. Close parsing of the various species of damage asserted by plaintiff is not necessary at this point. It should be noted, however, that the authorities are not in unison as to whether injury or damage to reputation is to be considered a personal injury, not an injury to “business or property” conferring standing and compensable under RICO. Defendants cite Hamm v. Rhone-Poulenc Rorer Pharmaceuticals, Inc., 187 F.3d 941, 954 (8th Cir.1999) cert. denied, 528 U.S. 1117, 120 S.Ct. 937, 145 L.Ed.2d 815 (2000). Hamm arguably supports defendants, but the issue as to reputational injury in that case was more one of causation than of compensability vel non. Also supportive of defendants' position is Walker v. Gates, 2002 WL 1065618 at *7 and n. 12 (C.D.Cal.2002) (citing cases), but that case apparently did not involve a claim of damage to a professional or business reputation. On the other hand, the court in Guerrero v. Gates, 110 F.Supp.2d 1287, 1293 (C.D.Cal.2000), assessing a RICO complaint that included allegations of injury to professional reputation, declined to dismiss the complaint. See also, Sadighi v. Daghighfekr, 36 F.Supp.2d 279, 290 (D.S.C.1999) (professional reputation) and Wang Laboratories v. Burts, 612 F.Supp. 441, 444 (D.Md.1984) (business reputation). The court looks to relevant state property law principles to determine whether an interest asserted by a RICO plaintiff to have been injured is “property” for RICO purposes. Leachv. Federal Deposit Ins. Corp., 860 F.2d 1266, 1274 (5th Cir.1988), cert. denied 491 U.S. 905, 109 S.Ct. 3186, 105 L.Ed.2d 695 (1989). In Oklahoma, a person's good name and reputation may well be a species of property, at least for some purposes. Davis v. Bd. of Regents, Okla. State Univ., 25 P.3d 308, 310 (Okla.Civ.App.2001).3 Although, at least as a beginning point, the court is loath to foreclose reliance on professional reputation as a compensable species of “property” for RICO purposes, there is simply no need to reach any final conclusion on that issue at this point in the litigation. The other alleged damages are sufficient for now.Id. at 1213-14 (emphases added).
Clark involved allegations of damage to professional, not personal reputation and, contrary to the plaintiff's assertion, the Clark court did not hold “that reputational harm, particularly business reputational harm, is cognizable under RICO” because it explicitly refrained from making such a holding due to the sufficiency of “[t]he other alleged damages.” Id. at 1214. Thus, Clark does not support the plaintiff's position concerning standing to assert a RICO violation.
In Sadighi, under a subheading “Injury to Business or Property Proximately Caused by Violation, ” the court analyzed whether the plaintiffs had standing to sue under 18 U.S.C. § 1962(a) under the Fourth Circuit precedent Busby v. Crown Supply, Inc., 896 F.2d 833 (4th Cir. 1990), noting in a footnote that,
[i]n Busby, the court created a circuit split by disagreeing with all the other circuits that had addressed the issue of whether a § 1962(a) civil RICO claim should be dismissed when the plaintiff failed to allege an injury flowing from the defendant's investment or use of income. . . . Because § 1962(a) prohibits investment of the income and not the racketeering acts themselves, the Second, Third, Fifth, Sixth, Ninth, Tenth, and D.C. Circuits have all held that a plaintiff seeking civil damages for a violation of § 1962(a) must plead facts showing that the plaintiff was injured by the use or investment of racketeering income. . . . [I]n the Fourth Circuit, plaintiffs have standing to allege a § 1962(a) claim when their injuries were proximately caused by either the underlying predicate acts or the investment and use of the income derived from the predicate acts. Although no other circuit has adopted the Fourth Circuit's rule and, in fact, it has been widely and persuasively criticized by other circuit and district courts, the decision is binding on this court.Sadighi, 36 F.Supp.2d at 288 n. 9.
The Sadighi court analyzed standing under Fourth Circuit precedent, not applicable in this circuit, allowing the plaintiffs to assert standing based on the defendants' violation of § 1962(a) when their injuries were proximately caused by the underlying predicate acts, finding:
Plaintiff Charles E. Riggins has also alleged that he was injured by Defendants' violation of § 1962(a). For the same reasons that Feker's failure to pay Sadighi was not a compensable claim under this RICO subsection, Riggins' claim for an injury caused by Feker's investment of the racketeering income also fails. (RCS at 62) However, Riggins has properly alleged an injury to his professional reputation caused by Defendants' § 1962(a) violation. See Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 151 (5th Cir.1997) (finding that damage to plaintiff's professional reputation was a compensable injury to business or property).Id. at 290.
Thus, the issue in Sadighi was whether an alleged injury to professional reputation caused by the defendants' § 1962(a) violation confers standing under Fourth Circuit precedent. Unlike in Sadighi, the plaintiff in this case: (i) asserts damage to his personal, not professional reputation; (ii) alleges violation of § 1962(c), not § 1962(a); (iii) alleges injuries proximately caused by violation of § 1962(c), not § 1962(a); and (iv) must allege standing under Second Circuit precedent, not Fourth Circuit precedent. Thus, the Court is not convinced that Sadighi supports the plaintiff's position concerning standing to assert a RICO violation.
The plaintiff asserts that in Alexander Grant & Co., like in Sadiqhi, “RICO standing [was] found based on injury to professional reputation.” In Alexander Grant & Co. the court reconsidered its prior decision “in light of the recent decisions in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), and American National Bank & Trust Co. v. Haroco, Inc., 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985).” Alexander Grant & Co., 770 F.2d at 717. In its prior decision, the court held that “Grant has standing and has asserted a sufficient racketeering enterprise injury to state a claim in its action against Tiffany Industries, Inc., company president Farrell Kahn, and secretary Gail Martin under the civil damage provision of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1964(c) (1982)” and the court adopted “those portions of our earlier opinion, ” id. at 717-18, namely, its previous conclusion that Alexander Grant & Co. has standing based on its “direct injuries” consisting of “damages for the amount of its lost fees, the amount spent by reason of the SEC investigation, and the amount representing its loss of business reputation.” Alexander Grant & Co. v. Tiffany Indus., Inc., 742 F.2d 408, 411 (8th Cir. 1984), cert. granted, judgment vacated, 473 U.S. 922, 105 S.Ct. 3550(1985), and cert. granted, judgment vacated sub nom. Kahn v. Alexander Grant & Co., 473 U.S. 922, 105 S.Ct. 3551 (1985). For the same reasons discussed above for which Sadighi does not support the plaintiff's standing argument, Alexander Grant & Co. also does not support the plaintiff's standing argument, since Alexander Grant & Co. involved damages to the plaintiff's business reputation, not personal reputation as is the case here.
Lewis is also inapposite because it involved damage to the business reputation of the plaintiff, a telecommunications consulting firm, Lewis, 696 F.Supp. at 726 (“Plaintiffs also sue for damage to reputation arising from, among other things, defendants' comments about plaintiffs published in a trade magazine.”), not damages to the plaintiff's personal reputation. The plaintiff concedes that in Cement-Lock, the court acknowledged that injury to personal reputation is not generally an injury to business or property, stating:
Although an injury to one's personal reputation generally is not an injury to “business or property” under RICO, § 1964(c), an injury to a plaintiff's business reputation, resulting in concrete economic, contractual, or business losses, is compensable under RICO. See, e.g., Lerman v. Joyce Intern., Inc., 10 F.3d 106, 113 (3d Cir.1993); City of Chicago Heights v. Lobue, 914 F.Supp. 279, 285 (N.D.Ill.1996). 'Cement-Lock, 2005 WL 2420374, at *13.
Since the plaintiff in this case asserts injury to his personal reputation, Cement-Lock does not support his argument concerning standing to assert a RICO violation. The plaintiff does not explain why or how Lerman is supportive of his argument that he has standing to assert business injuries based on reputational harm for the purpose of asserting a RICO violation under 18 U.S.C.A. § 1962(c), since standing was not at issue or discussed at all in that case.
The court in Khurana, stated that
the damage to Khurana's professional reputation was a foreseeable result of the various racketeering acts of wire and mail fraud. . . . Khurana, as the hospital's director, was essentially the figurehead of a fraud-ridden, now defunct institution. The act of fraudulently hiring him can be a proximate cause of any damage that his professional reputation has suffered. Damage to his professional reputation is easily seen as a natural outgrowth of such an employment association. As the predicate acts were pleaded as responsible for Khurana's acceptance of his employment with River Region, we find that the pleadings presented the claim of necessary proximate cause for Khurana's standing for this claim. See Cox v. Adm r U.S. Steel & Carnegie, 17 F.3d 1386, 1399 (11th Cir.1994) (finding proximate cause where defendants' conduct was substantially responsible for claimed
injuries); see also generally Prosser & Keeton on Torts § 41, p. 268 (discussing substantial responsibility and proximate cause).Khurana, 130 F.3d at 151 (emphases added).
Unlike in Khurana, where the plaintiff asserted damage to his professional reputation, the plaintiff in this action asserts damage to his personal reputation and he failed to explain how Khurana supports the plaintiff's standing to assert a RICO violation under 18 U.S.C.A. § 1962(c) in this action.
The plaintiff failed to make citation to any binding authority in support of his claim that damage to his personal reputation is also damage to the business brand “Nygard, ” conferring RICO standing “because of the equivalence of the value of the fashion brand with the reputation of the person.” The plaintiff asserts personal reputational injury arising out of public knowledge of his penchant for “deviant sexual acts, ” not an injury arising from his business reputation as an incompetent businessperson. Moreover, damages for loss of credit, loss of contract and the bankruptcy of unidentified companies associated with the plaintiff are not cognizable injuries conferring standing under RICO in this circuit because they are not injuries to the plaintiff proximately caused by the RICO predicate acts. Under the circumstances of this case, having failed to allege a cognizable injury under RICO, the Court finds that the plaintiff lacks standing to assert a RICO violation under 18 U.S.C.A. § 1962(c). Accordingly, dismissing Count I for lack of standing is warranted.
RICO Violations under 18 U.S.C.A. § 1962(d) (CountII)
“It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.” 18 U.S.C.A. § 1962(d). “To establish a violation of § 1962(d), a plaintiff must show that the defendant agreed with at least one other entity to commit a substantive RICO offense.” Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 487 (2d Cir. 2014). Specifically, a plaintiff must show that: (i) “Defendants agreed to form and associate themselves with a RICO enterprise and that they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity in connection with the enterprise”; and (ii) “if the agreed-upon predicate acts had been carried out, they would have constituted a pattern of racketeering activity.” Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 244-45 (2d Cir. 1999).
The defendant asserts that: (a) the plaintiff's “failure to plead a substantive RICO claim is fatal to his RICO conspiracy claim as well, ” relying on “Discon, Inc. v. NYNEX Corp., 93 F.3d 1055, 1064 (2d Cir. 1996), vacated on other grounds by 525 U.S. 128 (1998)”; and (b) his “conclusory allegations of conspiracy” are insufficient to state a RICO conspiracy claim. The plaintiff asserts that: (A) the defendant's “argument that the RICO conspiracy claim (Count II) is deficient because the substantive RICO claim is deficient . . . is wrong given the adequacy of Nygard's RICO claim (Count I)”; (B) “his argument that the RICO conspiracy claim is comprised of ‘conclusory allegation' . . . itself is conclusory and is therefore insufficient to support dismissal of these claims': and (C) the amended complaint includes “allegations detailing Bacon's conspiracies and an entire section of allegations starting on page 100 entitled “The More Than Ten Year Conspiracy to Damage Plaintiff Continues.” FAC ¶¶ 159, 177, 487, 538, 559, 804-815.”
After finding that the plaintiff failed to state RICO violations claims, the court in Discon, Inc. stated:
Since we have held that the prior claims do not state a cause of action for substantive violations of RICO, the present claim does not set forth a conspiracy to commit such violations. See Lightning Lube, 4 F.3d at 1191 (“Any claim under § 1962(d) based on conspiracy to violate the other subsections of section 1962 necessarily
must fail if the substantive claims are themselves deficient”); Danielsen, 941 F.2d at 1232.Discon, Inc. 93 F.3d at 1064.
Since the Court found, as discussed above, that the plaintiff failed to allege injuries that confer standing to assert a RICO violation under 18 U.S.C.A. § 1962(c), his claim under 18 U.S.C. § 1962(d) based on conspiracy to violate 18 U.S.C. § 1962(c) fails because the substantive claim is deficient. See Discon, Inc., 93 F.3d at 1064. Accordingly, dismissing Count II for failure to state a claim is warranted.
Supplemental Jurisdiction
The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if--(1) the claim raises a novel or complex issue 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 claims over which it has original jurisdiction, or (4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.28 U.S.C.A. § 1367(c).
When district courts dismiss all claims independently qualifying for the exercise of federal jurisdiction, they ordinarily dismiss as well all related state claims. See § 1367(c)(3). A district court may also dismiss the related state claims if there is a good reason to decline jurisdiction. See § 1367(c)(1), (2), and (4).Artis v. D.C., __U.S.__, 138 S.Ct. 594, 597-98 (2018).
The plaintiff asserted supplemental subject matter jurisdiction over his state-law causes of action under 28 U.S.C. § 1367, alleging that his state-law “claims are substantially related to the federal RICO claims and arise from a common nucleus of operative facts, and thus form part of the same case or controversy under Article III of the United States Constitution.” The plaintiff's Count III is a state-law cause of action for tortious interference with prospective economic advantage. The plaintiff asserts that Counts IV, V and VI “are common law causes of action.” Count VII is a state-law cause of action for abuse of process. Having determined that all claims qualifying independently for the exercise of federal jurisdiction, namely, Count I, the substantive RICO violations claim, and Count II, the RICO conspiracy claim warrant dismissal, dismissal of all remaining related state-law causes of action is also warranted, pursuant to 28 U.S.C.A. § 1367(c)(3).
RECOMMENDATION
For the foregoing reasons, I recommend that the defendant's motion to dismiss, Docket Entry No. 85, be granted.
FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court. Any requests for an extension of time for filing objections must be directed to Judge Lorna G. Schofield. Failure to file objections within fourteen (14) days will result in a waiver of objections and will preclude appellate review. See Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466 (1985); Cephas v. Nash, 328 F.3d 98, 107 (2d Cir. 2003).