Opinion
Civil Action No: SA-03-CA-0759-XR
December 22, 2003
ORDER
On this date, the Court considered the following: (1) certain Defendants' Motion to Dismiss for Failure to State a Claim filed pursuant to Fed. R Civ. P. 12(b)(6) (docket no. 18); (2) certain Defendants' Motion to Strike Plaintiff's Second Amended Complaint and Alternatively, Defendants' Second 12(b)(6) Motion to Dismiss for Failure to State a Claim pursuant to Fed.R.Civ.P. 12(b)(6) (docket no. 24); (3) Plaintiff's Motion for Leave to File a Third Amended Complaint (docket no. 25); (4) Defendant Affirmed's Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) (docket no. 27); (5) Defendant C2M, Inc.'s Motion to Dismiss for Failure to State a Claim (docket no. 33); and (6) Plaintiff's Motion for Leave to File a Fourth Amended Original Complaint (docket no. 37).
Facts and Procedural Background
Plaintiff Vincent T. Garza Contracting Services, Inc. ("Garza") filed this suit against Harlandale Independent School District Public Facilities Corporation and various other defendants alleging that they violated 18 U.S.C. § 1961, et. seq., the Racketeering Influenced and Corrupt Organizations Act ("RICO"). Garza alleges that Harlandale I.S.D. solicited bids for the construction of a high school. On October 16, 2001, Garza and other construction companies submitted their bids. The bids submitted by Eaton Contracting Company and EBCO General Contractors were allegedly the lowest bids, but were deemed non-responsive because those bids failed to specify the number of days necessary to complete the project. Garza alleges that after these two bids were rejected, its bid was the lowest. Notwithstanding the fact that it was the successful bidder, Garza complains that the contract was awarded to Defendant Affirmed General Contracting, L.P. ("Affirmed").
On June 29, 2002, various construction companies, including Plaintiff, submitted bids for the construction of Columbia Heights Elementary School, also located in the Harlandale I.S.D. Defendant Louis Cruz, an architect, was hired by Harlandale I.S.D. as Project Manager for this project. Garza alleges that Cruz had "influencing authority" in the selection of the construction company for this project. Garza alleges that as a result of Cruz's recommendation, Defendant C2M was selected as the construction company for this project. Garza alleges that C2M failed to comply with industry standards when it submitted its bid, and the bid should have been discarded. Garza alleges that if a proper evaluation of the bids was conducted, it would have been the lowest bidder on this project.
Plaintiff argues that based on the above, the defendants were engaged in a conspiracy to commit fraud and/or to engage in bribery with regard to fixing the contracts. Specifically, Garza alleges that Affirmed, C2M, Harlandale I.S.D. Public Facilities Corp. and Cruz conspired and colluded and that illegal kickbacks and bribes were exchanged to insure that Affirmed and C2M would receive the bids. Plaintiff alleges that as a result of Defendants' acts it has incurred $1.5 million in lost revenue damages. Plaintiff seeks lost profits, expenses, treble damages and recovery of its attorney's fees.
Pursuant to Plaintiffs request Defendant C2M, L.L.C. was dismissed on August 28, 2003.
On August 25, 2003, without leave of court, Plaintiff filed its Second Amended Original Complaint adding Cerna and Uresti as defendants. Plaintiff also named C2M, Inc. as a defendant.
On August 28, 2003, Defendant Harlandale I.S.D. Public Facilities Corp. and Defendants Pacheco, Sosa, Rodriguez, Acuna, Garcia, Farias, Montelongo, Zavala and Jordan filed their Motion to Dismiss [Plaintiff's Original Complaint] for Failure to State a Claim pursuant to Fed.R.Civ.P. 12(b)(6). These defendants argue that dismissal is proper under 12(b)(6) because: (1) Plaintiff's complaint fails to allege sufficient facts to state a judicially cognizable claim, (2) that Plaintiff's complaint fails to comply with Fed.R.Civ.P. 9, and (3) that a municipal corporation such as Harlandale I.S.D. cannot be held liable under RICO.
These defendants argue that even though Plaintiff has brought suit against Harlandale I.S.D. Public Facilities Corp., it is clear that it is really suing Harlandale I.S.D. It is not that clear to the Court. Harlandale I.S.D. has not been served in this lawsuit, nor has the Harlandale I.S.D. answered this lawsuit.
On September 12, 2003, Defendant Harlandale I.S.D. Public Facilities Corp. and Defendants Pacheco, Sosa, Rodriguez, Acuna, Garcia, Farias, Montelongo, Zavala, Jordan, Cerna and Uresti filed their Motion to Strike Plaintiff's Second Amended Complaint and Alternatively, Defendants' Second 12(b)(6) Motion to Dismiss for Failure to State a Claim pursuant to Fed.R.Civ.P. 12(b)(6). They argue that Plaintiff's Second Complaint should be stricken for failure to comply with Fed.R.Civ.P. 15. Otherwise, they raise the same arguments as their August 28 motion.
Defendants Pacheco, Sosa and Rodriguez are former trustees of Harlandale I.S.D.
Defendant Zavala is the current Superintendent of Harlandale I.S.D.
Defendant Jordan is a former Superintendent of Harlandale I.S.D.
Defendants Uresti, Cerna, Garcia, Acuna, Farias, and Montelongo are current trustees of Harlandale I.S.D.
On September 15, 2003, Plaintiff sought leave of Court to file a Third Amended Complaint. It seeks to add claims for quantum meruit, fraud, promissory estoppel. Further, it seeks to amend and supplement its RICO allegations.
On September 16, 2003, Defendant Affirmed filed its Motion to Dismiss [Plaintiff's Second Amended Complaint] pursuant to Fed.R.Civ.P. 12(b)(6). This defendant also argues that dismissal is proper under 12(b)(6) because Plaintiff's complaint fails to allege sufficient facts to state a judicially cognizable claim.
On September 29, 2003, Defendant C2M, Inc. filed its Motion to Dismiss [Plaintiff's Second Amended Original Complaint] for Failure to State a Claim. This defendant also argues that dismissal is proper under 12(b)(6) because: (1) Plaintiff's complaint fails to allege sufficient facts to state a judicially cognizable claim, and (2) Plaintiff's complaint fails to comply with Fed.R.Civ.P. 9.
On October 9, 2003, Plaintiff filed its Motion for Leave to File a Fourth Amended Original Complaint. In that motion, Plaintiff seeks leave to add Hans Gor and Jose L. Castillo, the sole shareholders of Affirmed and C2M, Inc. Plaintiff alleges that these two individuals utilized their closely held companies to illegally conspire and collude with the other defendants. In addition, Plaintiff amends his complaint to further expound on the alleged facts.
Analysis Plaintiff's Motion for Leave to File Fourth Amended Complaint
Pursuant to the Scheduling Order governing this case, Plaintiff's deadline to file a motion to amend pleadings and join additional parties is February 26, 2004. Accordingly, Plaintiff's motion is timely.
The Fifth Circuit has stated "leave to amend should not be given automatically. Nonetheless, the circumstances in which the rule permits denial of leave to amend are limited. The Supreme Court has held that a court may deny leave to amend where there is "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment." Ynclan v. Dept. of Air Force, 943 F.2d 1388, 1391 (5th Cir. 1991). Here, none of these grounds apply. Accordingly, leave is GRANTED the Plaintiff to file his Fourth Amended Original Complaint. The Clerk is ORDERED to file the Fourth Amended Original Complaint, which was attached to Plaintiff's Motion for Leave to File Amended Pleading (docket no. 37).
This action renders moot the following pending motions: (1) certain Defendants' Motion to Dismiss for Failure to State a Claim filed pursuant to Fed.R.Civ.P. 12(b)(6) (docket no. 18); (2) certain Defendants' Motion to Strike Plaintiff's Second Amended Complaint and Alternatively, Defendants' Second 12(b)(6) Motion to Dismiss for Failure to State a Claim pursuant to Fed.R.Civ.P. 12(b)(6) (docket no. 24); (3) Plaintiff's Motion for Leave to File a Third Amended Complaint (docket no. 25); (4) Defendant Affirmed's Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) (docket no. 27); and (5) Defendant C2M, Inc.'s Motion to Dismiss for Failure to State a Claim (docket no. 33). Accordingly, with one exception discussed below, these motions are denied as moot.
Is a governmental entity a person under RICO?
Harlandale I.S.D. Public Facilities Corporation, citing Dammon v. False , 846 F. Supp. 36 (E.D. La. 1994), argues that it cannot be held liable under RICO because a municipal entity lacks the ability to form the criminal intent necessary to commit the required predicate acts under RICO. Despite Harlandale's claim, there is no Fifth Circuit precedent on point. Nevertheless, the Louisiana district court's order is persuasive. Relying upon numerous jurisdictions outside the Fifth Circuit, the Louisiana district court found that a municipal entity, is incapable of forming the criminal intent necessary to support the alleged predicate offenses. It further found that dismissal of the RICO claims against a school board "is also justified under what the Third Circuit calls its alternative to the `incapacity to form mens rea' argument. In Genty v. Resolution Trust Corp., 937 F.2d 899 (3rd Cir. 1991) the Third Circuit reasoned that RICO's mandatory treble damages could not properly be applied against a municipal corporation because, despite the additional remedial nature of such damages, treble damages are primarily and essentially punitive in nature; and awarding punitive damages against the taxpayers of a municipal corporation whom RICO was designed to protect would be counterintuitive to the very purpose of the statute." Dammon, 846 F. Supp. at 37-38.Nevertheless, a fact question exists. Plaintiff has brought suit against the Harlandale I.S.D. Public Facilities Corporation. There is no evidence in the record before this Court that such an entity is a governmental entity. The Court's independent search of the Texas Secretary of State's records indicate that this entity is a Texas, non-profit corporation. The parties are ORDERED to provide further briefing as to what role, if any, the Harlandale I.S.D. Public Facilities Corporation had in the bidding process described above. The Court will delay any ruling on the issue of whether the Harlandale I.S.D. Public Facilities Corporation is a governmental entity, and if so, whether a RICO claim may be asserted against it.
Rico Case Statement
Plaintiff is ORDERED to file a RICO case statement not later than March 1, 2004. This statement shall include the facts made the basis of plaintiff's RICO claim after conducting a "reasonable inquiry" as required by Rule 11 of the Federal Rules of Civil Procedure. The case statement must be in a form which uses the numbers and letters as set forth below, and shall state in detail and with specificity the following information:
1. State whether the alleged unlawful conduct is in violation of 18 U.S.C. § 1962(a), (b), (c), or (d).
2. List each defendant and state the alleged misconduct and basis of liability of each defendant.
3. List other alleged wrongdoers and state the alleged misconduct of each.
4. List the alleged victims and state how each victim was allegedly injured.
5. Describe the pattern of racketeering activity alleged for each RICO claim. The description of the pattern of racketeering must include the following information:
(a) List the alleged predicate acts and the specific statutes which were allegedly violated;
(b) Provide the dates of the predicate acts, the participants in the predicate acts, and a description of the facts surrounding the predicate acts;
(c) If the RICO claim is based upon the predicate offenses of wire fraud, mail fraud, or fraud in the sale of securities, the "circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.Proc. 9(b). Identify the time, place, and contents of the alleged misrepresentations, and the identity of persons to whom and by whom the alleged misrepresentations were made;
(d) State whether there has been a criminal conviction for violation of the predicate acts;
(e) State whether civil litigation has resulted in a judgment in regard to the predicate acts;
(f) Describe how the predicate acts form a "pattern of racketeering activity"; and
(g) State whether the alleged predicate acts relate to each other as part of a common plan. If so, describe in detail.
6. Describe in detail the alleged enterprise for each RICO claim. A description of the enterprise shall include the following information:
(a) State the names of the individuals, partnerships, corporations, associations, or other legal entities, which allegedly constitute the enterprise;
(b) Describe the structure, purpose, function, and course of conduct of the enterprise;
(c) State whether any defendants are employees, officers, or directors of the alleged enterprise;
(d) State whether any defendants are associated with the alleged enterprise;
(e) State whether you are alleging that the defendants are individuals or entities separate from the alleged enterprise, or that the defendants are the enterprise itself, or members of the enterprise; and
(f) If any defendants are alleged to be the enterprise itself, or members of the enterprise, explain whether such defendants are perpetrators, passive instruments, or victims of the alleged racketeering activity.
7. State and describe in detail whether you are alleging that the pattern of racketeering activity and the enterprise are separate or have merged into one entity.
8. Describe the alleged relationship between the activities of the enterprise and the pattern of racketeering activity. Discuss how the racketeering activity differs from the usual and daily activities of the enterprise, if at all.
9. Describe what benefits, if any, the alleged enterprise receives from the alleged pattern of racketeering.
10. Describe the effect of the activities of the enterprise on interstate or foreign commerce.
11. If the complaint alleges a violation of 18 U.S.C. § 1962(a), provide the following information:
(a) State who received the income derived from the pattern of racketeering activity or through the collection of an unlawful debt; and
(b) Describe the use or investment of such income.
12. If the complaint alleges a violation of 18 U.S.C. § 1962(b), describe in detail the acquisition or maintenance of any interest in or control of the alleged enterprise.
13. If the complaint alleges a violation of 18 U.S.C. § 1962(c), provide the following information:
(a) State who is employed by or associated with the enterprise; and
(b) State whether the same entity is both the liable "person" and the "enterprise" under § 1962(c).
14. If the complaint alleges a violation of 18 U.S.C. § 1962(d), describe in detail the alleged conspiracy.
15. Describe the alleged injury to business or property.
16. Describe the direct causal relationship between the alleged injury and the violation of the RICO statute.
17. List the damages sustained by reason of the violation of § 1962, indicating the amount for which each defendant is allegedly liable.
18. List all other federal causes of action, if any, and provide the relevant statute numbers.
19. List all pendent state law claims, if any.
20. Provide any additional information that might be helpful to the Court in processing the RICO claim.
Conclusion
The Court recognizes that this Order will result in the defendants filing new Rule 12(b)(6) motions challenging the sufficiency of Plaintiff's Fourth Amended Original Complaint. In light of the public's interest in a full and fair disclosure of the facts in this case, the Court intends to review the RICO Case Statement and to allow initial discovery to proceed before ruling on any new 12(b)(6) motions that may be filed.Plaintiff's Motion for Leave to File a Fourth Amended Original Complaint (docket no. 37) is GRANTED. The Clerk is ORDERED to file the Fourth Amended Original Complaint, which was attached to Plaintiff's Motion for Leave to File Amended Pleading (docket no. 37). The Court takes under advisement Harlandale I.S.D. Public Facilities Corporation's motion to dismiss (contained in docket no. 18), arguing that it cannot be held liable under RICO because it is a municipal entity. All other motions are denied as moot (docket no. 18 (in part), and nos. 24, 25, 27 and 33). Plaintiff's RICO case statement must be filed not later than March 1, 2004.