Opinion
CIVIL ACTION 00-3036, SECTION "T"(1)
August 13, 2001
Before the Court is a Motion to Dismiss Pursuant to Rule 12(b)(6), For More Definite Statement Pursuant to Rule 12(e), or alternatively, To Abstain or Stay Proceedings filed on behalf of the defendants, Record Keepers, L.L.C., International Financial Systems, Inc., Life Insurance Brokerage Resources Associates, L.L.C., W. Clayton Sims, Pamela Himber Rogers, and Chris Vacari (herein after collectively "defendants"). The parties waived oral argument and as such the motion was taken under submission for consideration on January 17, 2001. The Court, having reviewed the arguments of counsel, the Court record, the law and applicable jurisprudence, is fully advised in the premises and ready to rule.
ORDER AND REASONS
I. BACKGROUND:
The plaintiffs have filed this suit as a proposed class action alleging that the defendants violated 18 U.S.C. § 1341 by using the mail to conduct and promote a pyramid promotional scheme, including soliciting and receiving contributions of money to the pyramid promotional scheme and violated 18 U.S.C. § 1961(a) by establishing and participating in the pyramid promotional scheme through use of the mail. The plaintiffs are alleged victims of the pyramid promotional scheme who were induced to participate with the assurances that the scheme was not illegal, but instead a "private gifting concept", the rewards of which are excluded from gross income for federal tax purposes and that it was "a private sharing group . . . offered only through an exclusive invitation." Each participant paid $2,200.00 with $200.00 mailed to Record Keepers as an administrative fee and $2,000.00 to be mailed to other participants in the scheme. Plaintiffs contend that their damages arose when the Attorney General for the State of Louisiana enjoined the scheme in a proceeding filed in the 22nd Judicial District Court for the Parish of St. Tammany, Louisiana.
II. ARGUMENTS OF THE RESPECTIVE PARTIES:
A. Arguments of the Defendants in Support of the Motion to Dismiss:
Defendants contend that plaintiffs are merely disgruntled, voluntary participants of the "gifting program" whose hopes of returns on their investment were thwarted by the Louisiana Attorney General obtaining a temporary restraining order enjoining the operation of the program. Plaintiffs' claims are not actionable under 18 U.S.C. § 1962(a). While the requisite RICO "buzz words" have been alleged, the facts are insufficient to place plaintiffs' claims within the ambit of 18 U.S.C. § 1962(a) which requires a showing that plaintiffs were injured as a result of the investment of racketeering proceeds in an enterprise. Additionally, plaintiffs have failed to distinguish among the defendants in making their claims. As such, defendants contend that the complaint should be dismissed with prejudice pursuant to Rule 12(b)(6). At a minimum, however, defendants argue that plaintiffs' claims are so vague and ambiguous that defendants cannot frame responsive pleadings. As such, the complaint should be stricken pursuant to Rule 12(e) and plaintiffs should be required to amend their complaint substantially.
In the alternative, defendants submit that the matter should be stayed pending the conclusion of the first-filed, related state court proceeding brought on behalf of persons such as plaintiffs. The Attorney General has obtained a temporary restraining order and is seeking a permanent injunction to prohibit the operation of an alleged pyramid scheme and restitution for the plaintiffs and others allegedly injured. Because any ruling made by this Court regarding the legality or illegality of defendants' conduct and any award of damages may duplicate or be inconsistent with the relief sought by the Attorney General, this Court should exercise its discretion and either dismiss or stay proceedings until the conclusion of the Attorney General's suit.
B. Arguments of defendant, Chris Vacari, in Support of the Motion to Dismiss:
Chris Vacari adopts all arguments asserted on behalf of all defendants and submits these additional arguments. First, Vacari, contends that the complaint lacks any substantive allegation as to him personally. The only activity he is alleged to have engaged in is that he induced two people, not parties to the lawsuit, to participate in the pyramid scheme with the assurance that the scheme was not illegal. Accordingly, plaintiffs lack standing to prosecute the claims of the alleged wrongdoing perpetrated against these unnamed individuals who are not parties to this suit. Second, Vacari argues that plaintiffs have no remedy at law under their allegations. Under Louisiana law, an obligation which has as its object an illicit or immoral purposes is absolutely null and its performance is unenforceable. Clearly, plaintiffs should have known that this pyramid scheme was otherwise illegal and could not be enforced against anyone. Furthermore, Vacari as the alleged agent for a disclosed principal cannot be individually civilly liable to plaintiffs with whom he allegedly dealt pursuant to Civil Code article 3016. Finally, plaintiff has no right of action or standing to enforce R.S. 51:361-3. Therefore, Vacari should be dismissed with prejudice.
C. Arguments of the Plaintiffs in Opposition to the Motion to Dismiss:
The plaintiffs have identified participation by each defendant in violation of § 1962(a), the pattern of racketeering activity under the RICO cause of action, the predicate acts, including mail fraud, the relationship of the RICO enterprise to the racketeering activity, and the use of investment funds engendered on behalf of the enterprise for its continuing operation. The plaintiffs have set forth, with as much particularity as they know, the factual circumstances surrounding initiation and operation of the illegal pyramid promotional scheme which is the object of this complaint. Clearly, the motion to dismiss should be denied.
III. LAW AND ANALYSIS:
A. Law on Motion to Dismiss pursuant to Rule 12(b)(6):
A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("FRCP") "is viewed with disfavor and is rarely granted."Lowery v. Texas AM University System, 117 F.3d 242, 247 (5th Cir. 1997); Kaiser Aluminum Chem. Sales v. Avondale Shipyards, 677 F.2d 1045, 1050 (5th Cir. 1982). The complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the original complaint must be taken as true. Campbell v. Wells Fargo Bank, 781 F.2d 440, 442 (5th Cir. 1980). A district court may not dismiss a complaint under FRCP 12(b)(6) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Blackburn v. Marshall, 42 F.3d 925, 931 (5th Cir. 1995). The Fifth Circuit defines this strict standard as, "[t]he question therefore is whether in the light most favorable to the plaintiff and with every doubt resolved in his behalf, the complaint states any valid claim for relief." Lowrey, 117 F.3d at 247, citing 5 Charles A. Wright Arthur R. Miller, Federal Practice and Procedure, § 1357, at 601 (1969).
B. Law on Motion for More Definite Statement pursuant to Rule 12(e):
FRCP 12(e) provides that where a pleading is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, the Court may order a more definite statement. Motions for More Definite Statement are generally disfavored, discovery is the correct vehicle to obtain information necessary for trial. Erickson v. Hunter, 932 F. Supp. 1380 (M.D. Fla. 1996).
C. Law on Abstention:
A federal court may decline to exercise jurisdiction if there is a pending action in state court involving the same parties and there are exceptional circumstances involving wise judicial administration and conservation of judicial resources. Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). However, the United States Supreme Court stated that abstention is "an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it" and that federal courts have a "virtually unflagging obligation . . . to exercise the jurisdiction given to them." Colorado River, 424 U.S. at 813, 817, 96 S.Ct. at 1244, 1246; Falcon Operators v. P.M.P. Wireline Services, Inc., 1997 WL 313417 (E.D.La. 6/9/97). A party requesting a district court to abstain must demonstrate "exceptional circumstances and the clearest of justifications" to justify the surrender of a federal court's jurisdiction. Colorado River, 424 U.S. at 824, 96 S.Ct. at 1250.
The Fifth Circuit articulated the following factors a district court should consider when deciding when abstention is appropriate:
1. Whether the cause of action arises under state or federal law;
2. Whether the case requires inquiry into unsettled issues of state law or into local facts;
3. The importance of the state interest involved;
4. The state's need for a coherent policy in the area; and
5. The presence of a special state forum for judicial review.Wilson v. Valley Electric Membership Corp., 8 F.3d 311, 314 (5th Cir. 1993). A stay or dismissal may be appropriate when first-filed state court proceeding maybe dispositive of federal court claims and where judicial efficiency would not be served by maintenance of two suits.Robichaux Construction, Inc. v. Solid Waste Disposal, Inc., 707 F. Supp. 242 (E.D.La. 1989).
D. Law on RICO claims:
The RICO Act creates a civil cause of action under section 1964(c) for those injured by reason of a violation of § 1962, where: (1) a person engages in (2) a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or control of an enterprise.St. Paul Mercury Insurance Co. v. Williamson, 224 F.3d 425 (5th Cir. 2000). "Enterprise" is defined very broadly under RICO. An "enterprise" includes "any individual, partnership, corporation, association, or other legal entity, any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). This definition describes two categories of associations that come within the definition of an "enterprise." Bonton v. Archer Chrysler Plymouth, Inc., 889 F. Supp. 995 (S.D. Tex. 1995). First, organizations such as corporations, partnerships and other "legal entities" comprise an "enterprise" while the second category includes any union of individuals associated in fact although not a legal entity. Id. However, an "association in fact" enterprise must be an ongoing organization, formal or informal, and its members must function as a continuing unit shown by a hierarchical or consensual decision making structure. St. Paul, 224 F.3d at 440-1. An enterprise must be shown to have an existence "separate and apart from the pattern of activity in which it engages." Bonton, 889 F. Supp. at 1001.
RICO defines "person" broadly to include "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1961(3). The RICO person must be either one who poses or has posed a continuous threat of engaging in acts of racketeering. Delta Truck Tractor, Inc. v. J.I. Case Co., 855 F.2d 241, 242 (5th Cir. 1988).
"Racketeering activity" is defined in § 1961(1) which lists state and federal crimes. The individual acts of racketeering are usually described as the "predicate offenses." Bonton, 889 F. Supp. at 1001. A RICO plaintiff must also establish that there was a "pattern of racketeering activity". A pattern requires at least two acts of racketeering. 18 U.S.C. § 1961(5). Yet, two acts may not be sufficient to establish a pattern depending on the circumstances. Id. It also requires ""continuity and relationship." Continuity exists where the predicate acts constitute or threaten continued criminal activity. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement. A showing that the predicate acts 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 satisfy the relationship element. Id.
Courts have routinely required a distinction when a corporation has been alleged as both a RICO "person" and a RICO "enterprise", however a similar requirement has not been mandated when individuals have been named as RICO "persons" and as members of an association in fact enterprise. St. Paul Mercury, 224 F.3d at 447. In such a case, the individual defendant is distinct from the organizational entity. Id.
E. The Court's Analysis:
First, the Court determines that due to the pending state case, it is necessary to apply the Fifth Circuit test for abstention found in Wilson v. Valley Electric, 8 F.3d 311 (5th Cir. 1993). First, plaintiffs' cause of action arises from federal RICO law, however, it can be directly linked to the ongoing related state court proceeding which is an alleged violation of La.R.S. 51:361-3. Second, inquiry into local facts will undoubtedly be needed for a proper determination by this Court. Third, Louisiana possesses a strong state interest due to the alleged involvement of local law enforcement and the Louisiana Attorney General's pursuit of a suit in state court. Fourth, an obvious need for a coherent state policy concerning unlawful pyramid schemes without interference from this Court exists. Finally, the state court proceeding provides a state forum for judicial review of the state claims under La.R.S. 51:361-3. Although plaintiffs' RICO claims may not be brought to the state court, a stay of these proceedings until the conclusion of the state case allows for a forum for plaintiffs' RICO claims, while exercising wise judicial administration and conservation of judicial resources. Also, the conclusion of the state court proceeding will allow for the issues concerning plaintiffs' RICO claims to be materially narrowed.
Second, the Court finds dismissal unwarranted pending the outcome of the first-filed, related state court proceeding. At this time, it does not appear "beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957);Blackburn v. Marshall, 42 F.3d 925, 931 (5th Cir. 1995). Furthermore, the Court determines the need for a more definitive statement from plaintiffs to be unnecessary at this time. The completion of the state court proceeding along with discovery should provide the necessary information for defendants to frame a responsive pleading.
Finally, the Court concludes Chris Vacari's additional arguments claiming plaintiffs' complaint lacks any substantive allegation as to him personally shall be deferred pending the outcome of the state court proceeding. Issues concerning Vacari may be narrowed following the outcome of the ongoing state court proceeding allowing this Court to gather all necessary information while best serving judicial efficiency.
Accordingly,
IT IS ORDERED that the Motion To Abstain or Stay Proceedings filed on behalf of the defendants, Record Keepers, L.L.C., International Financial Systems, Inc., Life Insurance Brokerage Resources Associates, L.L.C., W. Clayton Sims, Pamela Himber Rogers, and Chris Vacari, be and the same is hereby GRANTED to the extent that the claims asserted against these defendants are STAYED until the conclusion of State of Louisiana ex rel Ieyoub v. Friends and Family Gifting Club, et al, No. 2000-13907, 22nd Judicial District Court for the Parish of St. Tammany, State of Louisiana.
IT IS FURTHER ORDERED that the Motion to Dismiss filed on behalf of the defendants, Record Keepers, L.L.C., International Financial Systems, Inc., Life Insurance Brokerage Resources Associates, L.L.C., W. Clayton Sims, Pamela Himber Rogers, and Chris Vacari, be and the same is hereby DEFERRED, until the conclusion of State of Louisiana ex rel Ievoub v. Friends and Family Gifting Club, et al, No. 2000-13907, 22nd Judicial District Court for the Parish of St. Tammany, State of Louisiana.
IT IS FURTHER ORDERED, that the Motion For More Definite Statement filed on behalf of the defendants, Record Keepers, L.L.C., International Financial Systems, Inc., Life Insurance Brokerage Resources Associates, L.L.C., W. Clayton Sims, Pamela Himber Rogers, and Chris Vacari, be and the same is hereby DEFERRED until the conclusion of State of Louisiana ex rel Levoub v. Friends and Family Gifting Club, et al, No. 2000-13907, 22nd Judicial District Court for the Parish of St. Tammany, State of Louisiana.
IT IS FURTHER ORDERED that the additional reasons set forth in the Supplemental Memorandum in Support of the Dismissal on the behalf of the defendant, Chris Vacari, be and the same is hereby DEFERRED until the conclusion of State of Louisiana ex rel Ievoub v. Friends and Family Gifing Club, et al, No. 2000-13907, 22nd Judicial District Court for the Parish of St. Tammany, State of Louisiana.