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dismissing the plaintiff's RICO claim because "the only allegations in the [second amended complaint] that come close to alleging acts of mail or wire fraud with the particularity required by Rule 9(b) fail to delineate which defendant committed, or conspired to commit, which predicate act"
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11 CV 4925 (VB)
07-30-2013
HOLLY DULSKY, PATRICIA A. GARNER and DAVID GARVEY, Individually and on Behalf of all Persons similarly situated, Plaintiffs, v. WILLIAM M. WORTHY, II; DAVID L. CLARK; LOUIS DeLUCA; GARY L. KARNS, JR.; DAVID L. NELLSON a/k/a DAVID NELSON; VIKING ADMINISTRATORS, LLC; ARNOLD KATZ a/k/a ARNIE KATZ; UNITED STATES CONTRACTORS TRUST; IRG BROKERAGE, LLC d/b/a INSURANCE RESOURCE GROUP; INTEGRATED INSURANCE MARKETING, INC.; REAL BENEFITS ASSOCIATION, LLC; MICHAEL CAMILLERI; KEVIN DUNN; HUDSON VALLEY CONSULTANTS; CEO CLUBS, INC.; and COMMERCE BENEFITS GROUP AGENCY, INC., Defendants.
MEMORANDUM DECISION :
Plaintiffs bring this putative class action alleging defendants engaged in a nationwide insurance fraud scheme, whereby defendants sold plaintiffs non-existent health insurance policies. Plaintiffs assert claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., as well as state law claims. Pending before the Court is the Motion to Dismiss the Corrected Second Amended Class Action Complaint ("SAC") filed by defendants Louis DeLuca, IRG Brokerage, LLC, and Michael Camilleri (collectively, the "Moving Defendants"). (Doc. #248).
For the following reasons, the motion is GRANTED.
The Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367.
BACKGROUND
For purposes of deciding the pending motion, the Court accepts all well-pleaded factual allegations in the SAC as true and draws all reasonable inferences in favor of plaintiffs.
For purposes of this memorandum decision, the factual background is limited to allegations relevant to plaintiffs' claims against the Moving Defendants.
I. Alleged Fraudulent Scheme
Beginning sometime prior to August 2009, Defendants Louis DeLuca and Kevin Dunn marketed and sold a limited medical insurance program, called Nova Casualty Corp. ("Nova"), to members of "CEO Clubs," an organization with which Dunn was affiliated. In or around September 2009, the company underwriting the Nova policies terminated its insurance contracts with DeLuca and Dunn because it suspected DeLuca was falsifying records. As a result, individuals who had purchased Nova policies were left without insurance coverage.
On March 8, 2013, the parties entered a stipulation dismissing all claims against Dunn. (Doc. #262).
In October 2009, defendant David Clark approached Dunn, and told Dunn that Clark and his business partner, defendant William Worthy, were in the process of purchasing certain insurance companies that had "valid Certificates of Authority" to operate in most states. Through these companies, Clark and Worthy could provide insurance to the uninsured Nova enrollees.
Clark and Worthy eventually told Dunn they had purchased a "master policy" for the Nova enrollees from Phoenix Insurance Group ("Phoenix"), a subsidiary of The Travelers. However, Clark and Worthy both knew Phoenix only sold property and casualty insurance - not health insurance.
Thereafter, Deluca and his LLC, defendant IRG, began "market[ing] nonexistent 'health insurance' to unsuspecting individuals nationwide through defendant CEO Clubs."
In November and December 2009, Clark, Worthy, Deluca, and Dunn met to discuss selling a new insurance program to younger members of CEO Clubs. This new program was also to be "insured" by Phoenix. Worthy advised the others that he would serve as "program manager," Clark would be "co-manager," and DeLuca and IRG would "perform customer service and premium billing." To this end, DeLuca and IRG entered into contracts with CEO Clubs to perform marketing, billing, and other services. Meanwhile, defendant Viking Administrators, LLC ("Viking"), an entity owned by Clark, adjudicated claims and performed customer service for the insurance program.
Thereafter, Dunn repeatedly requested from Clark and Worthy proof that the Phoenix "master policy" actually existed. Clark and Worthy assured Dunn that the policy existed and, in January 2010, provided Dunn with forged documents that ostensibly evinced the existence of the policy. In fact, no such policy existed.
Despite the fact no "master policy" existed, plaintiffs allege DeLuca and IRG - along with several other defendants - "utilized telephone lines, email, the internet and facsimile lines to recruit 'insurance customers,'" and that the "telephone represent[ations] and/or facsimiles made false claims about the existence of a Master Phoenix Insurance Group policy." DeLuca also "arranged to collect premiums for the nonexistent insurance coverage and association fees, and did so in a variety of ways including direct bank withdrawal and the cashing of checks."
In March 2010, apparently suspicious that the insurance program being marketed to its members was not legitimate, CEO Clubs sent cease and desist letters to Worthy, Clark, DeLuca, and other defendants, demanding that defendants stop marketing their insurance program to CEO Clubs members and "cease collecting premiums for non-existent insurance." Defendants - including DeLuca - continued to market the insurance program and collect premiums from CEO Clubs members until at least June 2010.
II. Claims Against DeLuca and IRG
Each of the three named plaintiffs purchased health insurance policies from one or more of the defendants between June 2009 and May 2010.
Plaintiff Holly Dulsky allegedly bought her policy from defendant United States Contractors Trust ("USCT"), an entity owned and controlled by Clark and Worthy. Dulsky alleges she made several premium payments to "DeLuca, IRG and [defendant Integrated Insurance Marketing, Inc.], acting for USCT, for purchase of what she believed to be a valid medical insurance policy." When Dulsky subsequently submitted an insurance claim, "Worthy and Clark caused defendant Viking to manipulate the 'claims process' so as to deny her valid claims, and finally issu[ed] a worthless 'benefits' check or checks to one or more of her health care providers."
Defendant Integrated Insurance Marketing, Inc. ("IIM"), an entity allegedly owned and controlled by DeLuca, apparently has not been served in this action.
Dulsky further alleges "Worthy, acting in concert with defendants Clark, DeLuca, . . . IRG, IIM, CEO Clubs, . . . and Viking, utilized the United States Postal Service and/or an interstate telephone system to solicit the sale of phony 'insurance' policies to plaintiff, and to transmit to her false 'policy documents." Additionally, "DeLuca, IRG, IIM, Worthy, USCT, Clark, . . . and Viking used public telephone lines to drag Ms. Dulsky through a pretense of 'customer service' and 'claims adjudication' which resulted in complete non-payment of medical benefits."
Plaintiff Patricia Garner bought a policy from USCT in May 2010. Like Dulsky, Garner allegedly "paid USCT, through defendants DeLuca, IRG and IIM, its billers and collectors, for purchase of what she believed to be a valid medical insurance policy." However, defendants have failed to pay Garner's insurance claims, and, consequently, her medical bills "are now seriously in arrears."
Finally, plaintiff David Garvey purchased an insurance policy "purportedly sponsored by" CEO Clubs and "administered by Viking." Garner alleges the policy was "marketed, and billed, through CEO Clubs by defendants DeLuca, IIM and IRG." CEO Clubs and Viking subsequently failed to pay Garner's insurance claims.
III. Claims Against Defendant Camilleri
According to plaintiffs, on an unspecified date, DeLuca allegedly "diverted to his attorney, defendant Camilleri, premiums taken from the plaintiff class which were supposed to be paid to one or more limited health insurers." Plaintiffs allege the amount of money "diverted" to Camilleri exceeds $1.6 million. None of the named plaintiffs alleges he or she is individually entitled to any or all of the diverted funds.
DISCUSSION
I. Legal Standard
A. Motion to Dismiss
The function of a motion to dismiss is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Ryder Energy Distrib. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) (internal quotation marks omitted). In deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court evaluates the sufficiency of the amended complaint under the "two-pronged approach" suggested by the Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). First, plaintiff's legal conclusions and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements," are not entitled to the assumption of truth and are thus not sufficient to withstand a motion to dismiss. Id. at 678; Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). Second, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 556 U.S. at 679.
To survive a motion to dismiss, the allegations in the complaint must meet a standard of "plausibility." Ashcroft v. Iqbal, 556 U.S. at 678; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 564 (2007). A claim is facially plausible "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. at 678. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.
B. Rule 9(b)
Pursuant to Rule 9(b), when claims are based on a misrepresentation, plaintiffs must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000). Furthermore, plaintiffs' allegations must provide facts "that give rise to a strong inference of fraudulent intent." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006). "The requisite 'strong inference' of fraud may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994).
II. Analysis
A. RICO Claims
RICO provides, in relevant part: "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. § 1962(c). Thus, the statute requires "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985) (footnote omitted).
To plead a pattern of racketeering, plaintiffs must allege at least two predicate acts. See 18 U.S.C. § 1961(5). Here, plaintiffs allege DeLuca and IRG committed the predicate acts of federal mail and wire fraud. 18 U.S.C. §§ 1341, 1343. To state a claim of mail or wire fraud, plaintiffs must allege (1) the existence of a scheme to defraud, (2) to obtain money or property, and (3) the use of the mail or interstate wires in furtherance of the scheme. United States v. Autuori, 212 F.3d 105, 115 (2d Cir. 2000). A "scheme to defraud" has been described as "a plan to deprive a person 'of something of value by trick, deceit, chicane or overreaching.'" Id. "It is characterized by a departure from community standards of 'fair play and candid dealings.'" Id.
"In the RICO context, Rule 9(b) calls for the complaint to 'specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiffs contend the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements.'" Moore v. PaineWebber, Inc., 189 F.3d 165, 173 (2d Cir. 1999). "[P]redicate mail or wire communications need not themselves contain fraudulent communications, but instead must be 'incident to an essential part of the scheme,' which itself has a fraudulent and deceptive purpose." USA Certified Merchants, LLC v. Koebal, 262 F. Supp. 2d 319, 332 (S.D.N.Y. 2003) (quoting Schmuck v. United States, 489 U.S. 705, 711 (1989)).
Here, plaintiffs' RICO allegations against DeLuca and IRG fail to satisfy Rule 9(b)'s heightened pleading standards. Plaintiffs have failed to plead with particularity any statements made by DeLuca or IRG to any of the named plaintiffs. Plaintiffs merely contend DeLuca and/or IRG accepted premium payments on behalf of either USTC or CEO Clubs, without indicating DeLuca or IRG ever communicated with plaintiffs by mail or wire, much less the content of any such communications or when and where they were made. See Moore v. PaineWebber, Inc., 189 F.3d at 173.
To the extent plaintiffs rely on statements allegedly made to them by multiple defendants - for example, Dulsky's claim that "DeLuca, IRG, IIM, Worthy, USCT, Clark, . . . and Viking used public telephone lines to drag Ms. Dulsky through a pretense of 'customer service' and 'claims adjudication' which resulted in complete non-payment of medical benefits" - those statements fail to meet Rule 9(b)'s heightened pleading standards because they impermissibly lump together the actions of multiple defendants. See Ellison v. Am. Image Motor Co., 36 F. Supp. 2d 628, 640 (S.D.N.Y. 1999) ("Rule 9(b) is 'not satisfied by filing a complaint in which defendants are clumped together in vague allegations,'" quoting In re Blech Sec. Litig., 928 F. Supp. 1279, 1294 (S.D.N.Y.1996)); Pallickal v. Technology Int'l, Ltd., 1996 WL 153699, at *1 (S.D.N.Y. Apr. 3, 1996) ("[w]here there are multiple defendants, a complaint must identify which defendant is responsible for which act"). Because plaintiffs fail "to separate these defendants with specific allegations of wrongdoing as to each one of them, the [SAC] does not pass muster under Rule 9(b)." Ellison v. Am. Image Motor Co., 36 F. Supp. 2d at 641.
Accordingly, plaintiffs' RICO claims against DeLuca and IRG are dismissed.
B. RICO Conspiracy Claim
Plaintiffs have also failed to allege a RICO conspiracy claim against DeLuca or IRG. Pursuant to 18 U.S.C. § 1962(d), it is "unlawful for any person to conspire to violate any of the provisions" of RICO. "The core of a RICO conspiracy is an agreement to commit predicate acts, and a RICO civil conspiracy complaint must specifically allege such an agreement." Elsevier Inc. v. W.H.P.R., Inc., 692 F. Supp. 2d 297, 313 (S.D.N.Y. 2010) (citing Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir.1990)).
Here, plaintiffs have failed sufficiently to plead that DeLuca or IRG entered into a conspiracy with the other defendants to commit predicate acts. Although plaintiffs allege DeLuca met with Worthy, Clark, and Dunn to discuss selling and administering an insurance program - and that DeLuca and IRG agreed to "perform customer service and premium billing" - plaintiffs have failed to plead with particularity what specific predicate acts DeLuca and IRG conspired to commit. As noted above, "Rule 9(b) is not satisfied by filing a complaint in which defendants are clumped together in vague allegations." Ellison v. Am. Image Motor Co., 36 F. Supp. 2d at 640 (internal quotation marks omitted). Yet, the only allegations in the SAC that come close to alleging acts of mail or wire fraud with the particularity required by Rule 9(b) fail to delineate which defendant committed, or conspired to commit, which predicate act. (See, e.g., Compl. ¶ 80 ("Worthy, acting in concert with defendants Clark, DeLuca, . . . IRG, IIM, CEO Clubs, . . . and Viking, utilized the United States Postal Service and/or an interstate telephone system to solicit the sale of phony 'insurance' policies to plaintiff, and to transmit to her false 'policy documents."). Therefore, plaintiffs have failed sufficiently to plead a RICO conspiracy claim against DeLuca or IRG.
C. State Law Claims against DeLuca and IRG
Plaintiffs have also failed adequately to plead state law claims against DeLuca or IRG for common law fraud, breach of fiduciary duty, negligent misrepresentation, or breach of contract.
In their papers, neither party addresses choice of law issues with respect to plaintiffs' state law claims. According to the SAC, DeLuca resides in Connecticut, IRG is a New York LLC, and plaintiffs are citizens of Pennsylvania, Maryland, or Iowa. Further, the allegations in the SAC are not sufficiently detailed to allow the Court to engage in any meaningful choice of law analysis. However, because the parties cite only New York law in their briefs, the Court will apply New York law to plaintiffs' state law claims. See Cargo Partner AG v. Albatrans Inc., 207 F. Supp. 2d 86, 93 (S.D.N.Y. 2002) aff'd, 352 F.3d 41 (2d Cir. 2003) ("where the parties have agreed to the application of the forum law, their consent concludes the choice of law inquiry"). --------
With respect to plaintiffs' fraud claim, plaintiffs have failed to plead with particularity that Deluca or IRG made any false statements to plaintiffs - as discussed above - or that plaintiffs relied on those statements to their detriment. See Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir. 2001) (citing Lama Holding Co. v. Smith Barney, Inc., 88 N.Y.2d 413, (1996)); Fed. R. Civ. P. 9(b). Accordingly, plaintiffs' fraud claims against DeLuca and IRG are dismissed.
Similarly, plaintiffs' negligent misrepresentation claim is dismissed because plaintiffs have failed to allege with particularity that DeLuca or IRG made any misrepresentations to plaintiffs. See Costigan v. CitiMortgage, Inc., 2011 WL 3370397, at *8 n.100 (S.D.N.Y. Aug. 1, 2011) ("Rule 9(b) applies to both fraud claims and negligent misrepresentation."); Burns v. Del. Charter Guar. & Trust Co., 2011 WL 2314835, at *28 (S.D.N.Y. June 8, 2011) (citing cases applying Rule 9(b) to negligent misrepresentation claims).
Plaintiffs' breach of fiduciary duty claim is also dismissed, as plaintiffs have failed to allege any facts giving rise to a plausible inference that DeLuca or IRG owed plaintiffs a fiduciary duty. See Rut v. Young Adult Inst., Inc., 74 A.D.3d 776, 777 (2d Dep't 2010).
Finally, plaintiffs' breach of contract claims against DeLuca and IRG are dismissed because plaintiffs have failed to allege the existence of any contract between plaintiffs and DeLuca and/or IRG. See Fischer & Mandell LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011) ("Under New York law, a breach of contract claim requires proof of (1) an agreement, (2) adequate performance by the plaintiff, (3) breach by the defendant, and (4) damages."). The well-pleaded allegations in the SAC allege only that DeLuca and IRG accepted payments from plaintiffs on behalf of other entities, not that DeLuca or IRG had any direct relationship - contractual or otherwise - with plaintiffs. Therefore, plaintiffs' breach of contract claim is dismissed.
D. Constructive Trust Claim Against DeLuca, IRG, and Camilleri
Plaintiffs' assert a claim against DeLuca, IRG, and Camilleri for imposition of a constructive trust over the approximately $1.6 million allegedly "diverted" from DeLuca to Camilleri.
"'[A] constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.'" Simonds v. Simonds, 45 N.Y.2d 233, 241 (1978) (quoting Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386 (1919) (Cardozo, J.)). "New York law generally requires four elements for a constructive trust: (1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer . . . made in reliance on that promise; and (4) unjust enrichment." In re First Cent. Fin. Corp., 377 F.3d 209, 212-13 (2d Cir. 2004).
Here, the Court finds plaintiff has failed to state a claim for a constructive trust against any of the Moving Defendants, because plaintiffs have not adequately alleged they had a confidential or fiduciary relationship with any of the Moving Defendants. Id. Accordingly, plaintiffs' constructive trust claim is dismissed.
CONCLUSION
Defendants' motion to dismiss is GRANTED.
The Clerk is instructed to terminate the motion. (Doc. #248).
All counsel and unrepresented parties remaining in this case are directed to appear for a status conference on September 5, 2013, at 12:00 p.m. Plaintiffs' counsel are directed to serve a copy of this Memorandum Decision on defendants Worthy, Clark, and Real Benefits Association, LLC, and to file proof of such service with the Court. Dated: July 30, 2013
White Plains, NY
SO ORDERED:
/s/_________
Vincent L. Briccetti
United States District Judge