Opinion
Civil Action No. 99-1758 c/w 99-3018, Section "C"
May 11, 2000
ORDER AND REASONS
This matter comes before the Court on the motion to dismiss under Rule 12(b)(6) and alternatively for failure to plead with particularity as required by Rule 9(b) and for more definite statement under Rule 12(e) filed by Steven L. Contursi ("Contursi") and S.L. Contursi, Inc. Rare Coin Gallery d/b/a Laguna Beach Coin and Silver Exchange ("collectively" Contursi defendants"). Having reviewed the record, the memoranda of counsel and the law, the Court has determined that the motion should be PARTIALLY GRANTED and PARTIALLY DENIED for the following reasons.
In the lead case, Blanchard Company, Inc. ("Blanchard"), a national retailer of rare coins and precious metals, sued the Contursi defendants and others on a variety of claims arising out of conduct involving Russell Augustin ("Augustin"), one of the plaintiff's employees and its numismatist, the Contursi defendants and others. According to the complaint, Blanchard was unknowingly charged an inflated price for coins while Augustin and Contursi split the difference between the inflated price and the price Blanchard would have otherwise been charged. Augustin is not named as a defendant in the lead case.
In the consolidated case, another coin wholesaler who sold to Blanchard, Heritage Capital Corporation ("Heritage"), originally sued the Contursi defendants and Augustin in California state court. After removal, the case was transferred to this district by the California federal district court. The sufficiency of the claims set forth in this case are the subject of this motion to dismiss.
In considering a motion to dismiss RICO claims, the Court must consider the well-pleaded facts in the complaint, including the RICO case statement filed in accordance with the RICO standing order. Guidry v. Bank of LaPlace, 954 F.2d 278 (5th Cir. 1992).
Heritage originally asserted claims under all four sections of the Racketeer Influenced Corrupt Organizations Act, 18 U.S.C. § 1962 ("RICO"). The Contursi defendants attack the sufficiency of the allegations with a number of arguments in this motion. While the facts may suggest interstate fraud, they do not meet the rigorous requirements of RICO.
Heritage indicates in its opposition that the claim under Section 1962(a) is no longer being pursued.
Section 1962(b)
Section 1962(b) provides as follows:
It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
Under this section, a plaintiff must prove: (1) that an enterprise existed; (2) that the enterprise engaged in or had some effect on interstate or foreign commerce; (3) that the defendant engaged in a pattern of racketeering activity; and (4) that through the pattern of racketeering activity the defendant acquired or maintained an interest in , or controlled, the alleged enterprise.
The Contursi defendants first argue that this claim must be dismissed because Heritage does not allege how interstate or foreign commerce was affected by the activities of the alleged enterprise. The Court finds that the allegations sufficiently allege the interstate commerce requirement of Section 1962(b).
Next, the movers challenge the allegation that money was diverted into "illicit coffers." However, this argument is not connected to any element of this claim, and does not warrant further discussion.
Finally, the Contursi defendants argue that the Section 1962(b) claim should be dismissed because Heritage fails to detail how the alleged enterprise was acquired and how it is maintained by the defendants "other than stating that coins were placed in Blanchard's inventory at prices higher than Contursi's wholesale prices." The Contursi defendants argue that the allegations fail to show how the activity "amounts to maintaining and controlling an enterprise."
The Contursi defendants also challenge the Section 1962(b) claim because the enterprise is not alleged to be different from the RICO person. However, this is not a requirement for a RICO claim under this section. In re Burzynski, 989 F.2d 733 (5th Cir. 1993); Landry v. Air Line Pilots Assn., 901 F.2d 404 (5th Cir. 1990).
In order to recover under Section 1962(b), the plaintiff must show "that his injuries were proximately caused by a RICO person gaining an interest in, or control of, the enterprise through a pattern of racketeering activity." Crowe v. Henry, 43 F.3d 198, 205 (5th Cir. 1999); Old Time Enterprises, Inc. v. International Coffee Corp., 862 F.2d 1213, 1219 (5th Cir. 1989). This "acquisition requirement" requires that the plaintiff's alleged injury be caused by the alleged RICO defendants acquiring or maintaining an interest or control in the alleged enterprise. Crowe; Discon, Inc. v. NYNEX Corp., 93 F.3d 1055, 1063 (2d Cir. 1996), vacated on other grounds, 119 S.Ct. 493 (1998). The injury caused by the acquisition or maintenance must be distinct from the injury caused by the predicate acts under Section 1962(b). Id.; Discon, supra; Old Time Enterprises, supra. The alleged "enterprise" here is the RD program which consisted of Augustin and various Contursi-related defendants and the purpose of the enterprise was to sell coins to Blanchard that were owned by Contursi.
Heritage does not appear to discuss this argument anywhere in its opposition, and the Court finds that it has not adequately alleged how the defendants acquiring or maintaining their interest or control in the alleged enterprise caused the plaintiff's alleged injury. Instead, the Court's reading of the pleadings indicates only allegations of injury resulting from the commission of the predicate acts. The facts do not suggest a distinct injury to the plaintiff by virtue of acquiring or maintaining an enterprise. Accordingly, this claim must be dismissed.
Any Section 1962(d) claim based on the conspiracy to violate Section 1962(b) fails as a result of this dismissal.
Section 1962(c)
Section 1962(c) of RICO provides as follows:
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.
In order to prove a violation of Section 1962(c) of RICO, the plaintiff must prove: (1) that an enterprise existed; (2) that the enterprise engaged in, or had some effect upon, interstate or foreign commerce; (3) that the defendant was employed by or associated with the alleged enterprise; (4) that the defendant knowingly and willfully conducted or participated, directly or indirectly, in the conduct of the affairs of the alleged enterprise; and (5) that the defendant did so knowingly and willfully through a pattern of racketeering activity.
Heritage claims it lost profits it would have made had it sold coins to Blanchard. The Contursi defendants argue first, that Heritage has failed to allege injury to its business for purposes of Section 1962(c). However, this argument relies on evidence outside of the pleadings and is inappropriate on a motion to dismiss. The Court is unable to address the speculative nature of any claimed damage under RICO on a motion to dismiss.
Next, the movers argue that the plaintiff has failed to properly allege proximate cause under Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992). In Holmes, supra, the Securities Investors Protection Corporation ("SIPC") sued to recover funds from the defendant Holmes which the SIPC. was statutorily required to provide to customers as a result of the defendant's manipulation of certain stocks purchased by some of the customers of two brokerage firms. The SIPC claimed that the defendant's stock manipulation caused the two brokerage houses to fail and caused the SIPC to pay funds to customers of the failed brokerages who had not purchased the stock (the customers who had purchased the stock sued Holmes in their own right). The Supreme Court held that the injuries to the nonpurchasing customers were not proximately caused by the defendant and that they were too indirect to be covered by the RICO statute.
Heritage argues in response that "the scheme" was "to divert sales from Heritage" and that "Heritage was a direct target of the scheme and wasdirectly injured by the scheme." Heritage specifically argues that it was the direct and intended victim of the scheme, that it is suing on its own behalf and not by way of subrogation, and that there is no apportionment problem since it lost damages flowing directly from the scheme to divert sales from Heritage. The Court agrees.
Next, the Contursi defendants argue that Heritage fails to state a claim under Section 1962(c) because it has not sufficiently plead facts which establish the existence of an enterprise separate from the defendants and separate from the pattern of racketeering activity. Heritage responds here that it has properly alleged an "association in fact" enterprise in RD consisting of the two individual defendants, the Contursi corporate defendant and various "shills and fronts," which are sufficiently distinct from the defendants and the pattern of racketeering activity.
An "association in fact" enterprise requires an ongoing organization, formal or informal, that functions as a continuing unit over time through a hierarchical or consensual decision-making structure. Atkinson v. Anadarko Bank Trust Co., 808 F.2d 438 (5th Cir.) cert. denied, 483 U.S. 1032 (1987). The This Court construes the motion as challenging only the organizational feature of the alleged association in fact, and finds that the pleadings are sufficient in this regard for purposes of a motion to dismiss. Crowe, supra.
Section 1962(c) requires that the enterprise be an entity separate from the defendants. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985);Montesano v. Seafirst Commercial Corp., 818 F.2d 423 (5th Cir. 1987);Crowe, supra Here, the RICO defendants are Augustin and Contursi, S. L. Contursi, Inc., which is alleged to be Contursi's alter ego, and Rare Coin Gallery d/b/a Laguna Beach Coin and Silver Exchange. These same RICO persons are alleged to be members of the association-in-fact or the enterprise. A RICO person cannot employ or associate with itself. Consequently, the Section 1962(c) claim fails because there is not a sufficient distinction between the person and the enterprise. Crowe, 43 F.3d at 205. Louisiana state law claims
Any Section 1962(d) claim based on the conspiracy to violate Section 1962(c) fails as a result of this dismissal.
It appears that diversity jurisdiction exists in this consolidated matter, even with dismissal of the RICO claims.
The Contursi defendants' motion seeks dismissal of claims made under Louisiana law of intentional interference with contract, conspiracy to interfere with contract, Louisiana unjust enrichment, Louisiana conspiracy to defraud, and California unfair competition. Heritage argues at the outset that Louisiana law is not the basis of these claims. In its opposition, Heritage does not otherwise address the substance of the movers argument with regard to the sufficiency of any Louisiana state law claims. Therefore, the Louisiana claims are subject to dismissal.
In 9 to 5 Fashions, Inc. v. Spurney, 538 So.2d 228. 234 (La. 1989), the Louisiana Supreme Court recognized "a corporate officer's duty to refrain from intentional and unjustified interference with the contractual relation between his employer and a third person." In order to prevail on this claim against a corporate officer, the plaintiff must show: (1) the existence of a contract or legally protected interest between the plaintiff and the corporation; (2) the corporate officer's knowledge of the contract; (3) the officer's intentional inducement or causation of the corporation to breach the contract or his intentional rendition of its performance impossible or more burdensome; (4) absence of justification on the part of the officer; and (5) causation of damages to the plaintiff by breach of contract or difficulty of its performance brought about by the officer. Id. Since first recognizing this "narrowly drawn action" in 9 to 5, the Louisiana Supreme Court has continued to "indicat[e] that it would proceed with caution in expanding that cause of action." See Huffmaster v. Exxon Co., 170 F.3d 499, 504 (5th Cir. 1999);Great Southwest Fire Insurance Co. v. CNA Insurance Companies, 557 So.2d 966, 969 (La. 1990). There appears to be no basis for a claim for tortious interference with contract here. The recent focus is the existence of a fiduciary duty between the parties as a basis for such liability, which is lacking here. See Krebs v. Mull, 727 So.2d 564 (La.App. 1st Cir. 1998), writ denied, ___ So.2d ___, 1999 WL 194511.(La. 1999); Communications Information Resources, Inc. v. Expressions Acquisition Corp., 675 So.2d 1164, 1168-1169 (La.App. 5th Cir. 1996); MD Care, Inc. v. Angelo, 672 So.2d 969, 973 (La.App. 4th Cir.), writ denied, 673 So.2d 1039 (La. 1996). Again, the Court would decline to expand this limited cause of action based on the circumstances presented in this complaint.
The choice of law issue, which is inherently fact-based, is not appropriately determined on a motion to dismiss.
California Unfair Competition Law Claims
The parties agree that under the California Unfair Competition Law, Cal. Bus Prof Code § 17200, a prevailing plaintiff is entitled to injunctive relief and restitution. See Brown v. Allstate Insurance Co., 17 F. Supp. 1134 (S.D. Ca. 1998). The movers argue that Heritage's claim for restitution under this law is really a claim for damages. This argument is inappropriate on a motion to dismiss, where the allegations of the plaintiff's complaint are taken as true and those allegations indicate a claim for restitution.
Accordingly,
IT IS ORDERED that the defendants' motion to dismiss for failure to state a claim upon which relief can be granted is PARTIALLY GRANTED and PARTIALLY DENIED.
IT IS FURTHER ORDERED that the Court determines that there is no just reason for delay and directs the entry of final judgment dismissing the RICO claims made by Heritage under Fed.R.Civ.P. 54(b).