Opinion
Civil Action No. 3:01CV-664-H.
August 1, 2002
MEMORANDUM OPINION
Defendant Donald G. Ford has moved the Court to dismiss Plaintiff's complaint. Plaintiff seeks damages for breach of contract and injury to business or property under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), as well as punitive damages. Plaintiff further seeks the imposition of a constructive trust over Defendant's assets.
"A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984) (citation omitted). Here, no material facts are disputed. After thoroughly reviewing the record, the Court concludes that it can resolve this case solely on statute of limitations grounds.
I.
In the early 1990s, Defendant owned a facility called the "Arcade Bingo Plaza" and rented it to certain organizations for charitable gaming. Between December 1991 and February 1992, Defendant incorporated six local chapters of the Regular Veterans Association ("RVA"), a nationwide charitable organization. The RVA appointed Defendant the National Area Commander for the Louisville area, and he became a director and treasurer of the Louisville-area chapters. Purportedly on behalf of these chapters, Defendant conducted charitable gaming in the Arcade Bingo Plaza.
In 1993, the United States Attorney for the Western District of Kentucky indicted Defendant on federal charges of illegal gambling, money laundering, and filing a false tax return. The United States alleged that Defendant had conducted gaming not in compliance with state law, had diverted the proceeds to his personal bank accounts and safe deposit boxes, and had failed to report the income. No later than this date, Plaintiff was on notice of facts which support its current claims. In 1996, a jury convicted Defendant on these charges, and the Court sentenced him to 97 months in a federal penitentiary.
The Sixth Circuit Court of Appeals reversed the tax conviction, but affirmed the gambling and laundering convictions. See United States v. Ford, 184 F.3d 566 (6th Cir. 1999).
In January 1998, John C. Adams, then the court-appointed receiver for the RVA, sought recovery of Defendant's assets, which were the subject of a pending criminal forfeiture. Judge Charles R. Simpson III dismissed that claim, finding that the RVA could not document its entitlement to those funds. On November 14, 2001, the RVA, through its current receiver, Walter V. Williams, brought this action, asserting state law claims under the Court's diversity jurisdiction.
II.
Plaintiff alleges that Defendant's misappropriation of local RVA funds constitutes a breach of written contract between Defendant and the RVA. However, neither Defendant nor the RVA executed a written document labeled "contract," or anything close to it. Indeed, neither party signed any document making promises to the other. The theory of Plaintiff's claim is that Defendant, as a member, director, incorporator, and area commander of the local RVA posts, was bound by the national RVA constitution, which requires that funds raised by charitable gaming be turned over to the RVA. Plaintiff offers extrinsic evidence — such as correspondence between Defendant and John Engberg, then-adjutant general of the RVA — to demonstrate that Defendant understood his duty to remit those funds, and points to certain provisions of the organization's constitution.
Article II of the RVA constitution contains a "Manual of Procedure." Section 201 thereunder states that the "instituting officer" of a local chapter "shall be responsible for the proper institution of the Post and . . . comply with all requirements prescribed by the By-Laws," but contains no other duty for any local officer or director. Section 211 provides for the suspension or revocation of the charter of a local chapter which violates the national constitution or bylaws, but proposes no other remedies. Article V, Section 511 provides:
It appears that these "By-Laws" are the bylaws of the national RVA, because the constitution later refers to "Post By-Laws." Plaintiff has not attached the national bylaws, and thus the Court cannot consider whether Defendant breached any contract which relies on them.
A later provision, Section 321, which states the powers of Regional officers, provides that in case of a Post charter's surrender or forfeiture the officers may "collect all monies, records and property in accordance with National By-Laws and deliver said property to the National Department."
Posts [and] Regions may establish foundations . . . for the purpose of funding the National Department through thrift stores, fund raising programs and to serve as a unit/body to coordinate and serve as a central office for Posts to sponsor bingo sessions to the general public in accordance with state laws. Funds shall be distributed to the National Department, support programs of the community and community based organizations and to aid and assist the general welfare of our Regulars, the community, Veterans community, and the area wherein the Post and Foundations are located.
Thus, Section 511 states certain obligations for local posts, but none for individuals operating those posts.
The character of the parties' agreement — assuming, for the moment, that one exists — is crucial to Plaintiff's ability to state a claim. Under Kentucky law, "[a]n action upon a recognizance, bond or written contract" must be commenced within fifteen years. K.R.S. § 413.090(2). However, the limitations period is five years for "[a]n action upon a contract not in writing, express or implied." K.R.S. § 413.120(1). Whether the RVA constitution is a written contract within the meaning of § 413.090(2) depends on the degree to which the writings state the complete agreement.
To be a written contract, the document must contain all the essential elements of the contract. See Gray v. Intl Ass'n of Heat Frost Insulators and Asbestos Workers, Local No. 51, 447 F.2d 1118, 1120-21 (6th Cir. 1971) ("Contracts that are partly oral and partly in writing, or a written contract so indefinite as to require parole [sic] evidence of its terms are generally not `contracts in writing' within the meaning of the statute.") (applying K.R.S. § 413.090(2)); Mills v. McGaffee, 254 S.W.2d 716, 717 (Ky. 1953) ("[I]f the contract be partly oral and partly in writing or if a written agreement is so indefinite as to necessitate a resort to parol testimony to make it complete, the 5-year statute of limitations concerning `contracts not in writing' would be applicable. . . . A written contract is one which is all in writing, so that all its terms and provisions can be ascertained from the instrument itself.") Further, a party's obligations under such a contract must "grow not remotely or ultimately, but immediately" out of the written instrument. 54 C.J.S. Limitations of Actions § 60 (1987).
Because Plaintiff has submitted only excerpts of the RVA constitution, several of which lack a citation, it is difficult to construe that document as a whole. In any event, the Court concludes that the RVA constitution is not a written contract within the meaning of § 413.090(2). The document contains no clearly stated duties of Defendant, nor any acknowledgment by Defendant of any such duties. At most, the RVA constitution states duties for its local chapters, but none for local officers or directors. Thus, any duty of Defendant to the RVA grew remotely, not immediately, out of the RVA constitution. Moreover, Defendant's signature on the local post charters is irrelevant because those charters do not explicitly require assent to the national RVA constitution, nor set forth any specific duties for their directors, other than to "manage and conduct" the local post's affairs. Finally, Plaintiff's reliance on extrinsic evidence only reinforces how incomplete is the "written contract" itself.
No one doubts that the RVA authorized Defendant to act as its National Area Commander and that each anticipated a mutually beneficial relationship. However, such understandings, without a lot more, do not amount to a written contractual relationship. Plaintiff implicitly concedes as much in his response to Defendant's motion to dismiss. To be sure, Defendant has certain legal obligations to the RVA. However, those duties are not based on a written contract. Plaintiff's claim is really more akin to one for breach of fiduciary duty. Kentucky courts have applied § 413.120(1), the five-year limitations statute, to claims for breach of fiduciary duty. See First Kentucky Trust Co. v. Christian, 849 S.W.2d 534, 537-38 (Ky. 1993); Ingram v. Cates, 74 S.W.3d 783, 786-87 (Ky.Ct.App. 2002). It has been at least eight years since such a claim accrued. Thus, even if asserted, such a claim would be barred.
III.
Plaintiff also states a claim of unjust enrichment and requests that the Court establish a constructive trust over Defendant's assets. A court may establish a constructive trust where "the legal title to property is obtained through fraud, misrepresentation, concealment, undue influence, or taking advantage of one's weakness or necessities, or through similar means or circumstances rendering it unconscionable for the holder of the legal title to retain the property." Fresh v. Dunakin, 206 S.W.2d 203, 205 (Ky. 1947). However, Defendant has forfeited his assets to the United States. Judge Simpson has already dismissed RVA's claim to those funds. Moreover, under Kentucky law the limitations period for requesting establishment of a constructive trust is five years. See Johnson v. Chavies Coal Co., 299 S.W.2d 629, 632-33 (Ky. 1957). The Court must dismiss this claim as well.
Citing Dunakin, Plaintiff contends that because a constructive trust is an equitable remedy, the governing limitation period should be the same as that of the underlying substantive right. Even if this were true, an underlying claim for breach of fiduciary duty would itself be untimely, and consequently, so would this claim.
IV.
Plaintiff next alleges civil liability under RICO. That law provides a federal cause of action for "[a]ny person injured in his business or property" by an underlying RICO violation. 18 U.S.C. § 1964(c).
The limitations period on civil RICO claims is four years, and begins to accrue when the claimant discovers, or should have discovered, the alleged pattern of racketeering. See Rotella v. Wood, 528 U.S. 549, 553-54 (2000). Clearly, Plaintiff was on constructive notice, and almost certainly actual notice, of Defendant's misdeeds more than four years before Plaintiff filed this claim. The Court must dismiss this claim as untimely.
V.
Finally, the Court considers Plaintiff's prayer for punitive damages. The dismissal of Plaintiff's underlying claims must result in the dismissal of the punitive damages claim. See, e. g., Davis v. Wendy's Int'l, Inc., 187 F.3d 635 (table), 1999 U.S. App. LEXIS 17972, at *14 n. 2 (6th Cir. July 23, 1999) ("Because we affirm the dismissal of all claims, we need not determine whether the district court erred by dismissing [the] claim for punitive damages for Wendy's alleged breach [of contract].")
The Court will enter an Order consistent with this Memorandum Opinion.
ORDER
Defendant has moved the Court to dismiss Plaintiffs' claims for breach of contract, unjust enrichment, civil liability under the Racketeer Influenced and Corrupt Organizations Act, and punitive damages. The Court being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendant's motion is SUSTAINED, and Plaintiff's claims are DISMISSED WITH PREJUDICE.
This is a final and appealable order.