Opinion
Civil Action No. 3:01-CV-2198-M.
December 27, 2001.
MEMORANDUM OPINION AND ORDER
The Court has before it Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction and for Rule 11 Sanctions, filed on November 9, 2001. Having considered the Motion, along with the Response filed thereto, the Court is of the opinion that the Motion should be DENIED, but that Plaintiffs must replead their RICO claim with specificity or risk the Court dismissing the claim, which is Plaintiffs' only viable basis for subject matter jurisdiction in this Court.
The basis for Plaintiffs' Motion is that no diversity exists between the parties. This is correct, but not for the reason asserted by Defendants. Defendants argue in their Motion that no diversity exists because the Plaintiffs are residents of Texas and all Defendants are also Texas residents. They contend that Plaintiffs' assertion that one of the Defendants, A-1 Freeman North American, Inc., is an Oklahoma resident, is false. It is irrelevant whether A-1 Freeman North American is an Oklahoma or a Texas corporation, however, because the other Defendants, like Plaintiffs, are Texas residents. Because at least one party on either side is a Texas resident, diversity is destroyed. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806) (finding that a controversy is between "citizens of different states" only if no plaintiff is a citizen of the same state as any defendant). Therefore, Plaintiffs' allegation that subject matter jurisdiction exists because of diversity of citizenship is erroneous, and is not a valid basis for the Court's assertion of jurisdiction over this case.
In Plaintiffs' Complaint, Plaintiffs admit that they are residents of Texas and that Defendants Robert Neidenfeuhr and John Weninger are also Texas residents. See Complaint at 1-2.
This does not mean the Court may dismiss the case, however. Defendants ignore the fact that Plaintiffs pleaded a second basis for subject matter jurisdiction-federal question jurisdiction-based on Plaintiffs' RICO claim. See Complaint at 2 ("This Court has jurisdiction over this proceeding pursuant to 18 U.S.C. § 1961 et seq. (1996)[,] RICO."). Defendants do not even mention this basis for jurisdiction in their Motion, much less attempt to argue that it is invalid.
18 U.S.C. § 1964(c) provides a private right of action against anyone who has violated the RICO provisions contained in 18 U.S.C. § 1962. Section 1962 states:
(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.
(b) 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.
(c) 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.
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.
Because of Plaintiffs' summarial pleading of their RICO claim, however, the Court raises sua sponte the issue of whether Plaintiffs have sufficiently pleaded their RICO claim so as to utilize the claim as their basis for federal jurisdiction. Plaintiffs assert five causes of action against Defendants: breach of a settlement agreement, interference with a contractual agreement, conversion of property, RICO, and intentional infliction of emotional distress. Plaintiffs' RICO claim reads as follows: "The separate and joint actions of the Defendants satisfies the application of RICO and bears upon their blatant disregard for the law in a conspiracy of actions to conspire and effectively swindle Plaintiffs['] property for Corporate and self gain financially." Complaint at 7.
The Fifth Circuit has explained that, "to state a RICO claim, there must be: `(1) a person who engages in (2) a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or control of an enterprise.'" St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 439 (5th Cir. 2000). Plaintiffs' pleading of their RICO claim is insufficient because Plaintiffs have not pleaded a pattern of racketeering activity connected to the acquisition, establishment, or control of an enterprise. A pattern of racketeering activity "requires [the identification of] at least two acts of racketeering activity." 18 U.S.C. § 1961(5). Section 1961(1) provides a list of acts that constitute "racketeering activity." Plaintiffs have listed no actions in their Complaint that constitute racketeering activity under this section. The wrongful acts Plaintiffs allege Defendants to have committed — breach of a settlement agreement, interference with a contract, conversion of property, and intentional infliction of emotional distress — do not constitute racketeering activity.
Section 1961(1) states:
(1) "racketeering activity" means (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: Section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891-894 (relating to extortionate credit transactions), section 1028 (relating to fraud and related activity in connection with identification documents), section 1029 (relating to fraud and related activity in connection with access devices), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1344 (relating to financial institution fraud), section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers), section 1427 (relating to the sale of naturalization or citizenship papers), sections 1461-1465 (relating to obscene matter), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1512 (relating to tampering with a witness, victim, or an informant), section 1513 (relating to retaliating against a witness, victim, or an informant), section 1542 (relating to false statement in application and use of passport), section 1543 (relating to forgery or false use of passport), section 1544 (relating to misuse of passport), section 1546 (relating to fraud and misuse of visas, permits, and other documents), sections 1581-1588 (relating to peonage and slavery), section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), section 1956 (relating to the laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity), section 1958 (relating to use of interstate commerce facilities in the commission of murder-for-hire), sections 2251, 225 IA, 2252, and 2260 (relating to sexual exploitation of children), sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles), sections 2314 and 2315 (relating to interstate transportation of stolen property), section 2318 (relating to trafficking in counterfeit labels for phonorecords, computer programs or computer program documentation or packaging and copies of motion pictures or other audiovisual works), section 2319 (relating to criminal infringement of a copyright), section 2319A (relating to unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances), section 2320 (relating to trafficking in goods or services bearing counterfeit marks), section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts), sections 2341-2346 (relating to trafficking in contraband cigarettes), sections 2421-24 (relating to white slave traffic), (C) any act which is indictable under title 29, United States Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501(c) (relating to embezzlement from union funds), (D) any offense involving fraud connected with a case under title 11 (except a case under section 157 of this title), fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States, (E) any act which is indictable under the Currency and Foreign Transactions Reporting Act, (F) any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens), section 277 (relating to aiding or assisting certain aliens to enter the United States), or section 278 (relating to importation of alien for immoral purpose) if the act indictable under such section of such Act was committed for the purpose of financial gain; or (G) any act that is indictable under any provision listed in section 2332b(g)(5)(B) [relating to terrorism].
Plaintiffs have also not identified any "enterprise" of which Defendants committed the acts in furtherance. With respect to this pleading requirement, the Fifth Circuit has stated,
In order to avoid dismissal . . . a plaintiff must plead specific facts, not mere conclusory allegations, which establish the existence of an enterprise. The enterprise must be "an entity separate and apart from the pattern of activity in which it engages." The defendant who commits the predicate offenses must also be distinct from the enterprise. If the defendant is a legal entity, the plaintiffs must do more than merely establish that the corporation, through its agents, committed the predicate acts in the conduct of its own business. The fact that officers or employees of a corporation, in the course of their employment, associate to commit predicate acts does not establish an association-in-fact enterprise distinct from the corporation.Elliott v. Foufas, 867 F.2d 877, 881 (5th Cir. 1989) (citations omitted). Thus, to adequately plead the existence of a RICO enterprise, a plaintiff must abide by the above parameters or risk dismissal. Since Plaintiffs in this case have not pleaded facts that give rise to the existence of an enterprise, the Complaint is insufficient in this regard as well.
Although Plaintiffs have failed, in their first attempt, to satisfy the RICO pleading requirements, the Court will not dismiss the claim at this juncture, as it is cognizant that courts should hold pro se complaints "to less stringent standards than formal pleadings drafted by lawyers," and should therefore be willing allow pro se litigants to replead their claims in cases such as the one at hand. See Haines v. Kerner, 404 U.S. 519, 520 (1972). Thus, the Court allows Plaintiffs to have until January 25, 2002 to file an Amended Complaint that adequately sets forth Plaintiffs' RICO claim. Plaintiffs may not make any other substantive changes to the Complaint other than (a) listing at least two acts of racketeering activity engaged in by Defendants and (b) identifying and describing the RICO enterprise. After Plaintiffs' filing of their Amended Complaint, Defendants may submit to the Court a second Motion to Dismiss if Defendants do not believe Plaintiffs have pleaded the RICO claim with sufficient specificity to withstand dismissal.
The Supreme Court has cautioned lower courts that they should not dismiss a pro se complaint 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.'" 404 U.S. at 520-21.
SO ORDERED.