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2009 U.S. Dist. LEXIS 33143, *

GRANGE MUTUAL CASUALTY CO., et al., Plaintiffs, v. JONI L. MACK, Defendant.

Civil Action No. 6: 06-555-DCR

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OFKENTUCKY, SOUTHERN DIVISION

2009 U.S. Dist. LEXIS 33143

April 17, 2009, DecidedApril 17, 2009, Filed

PRIOR HISTORY: Grange Mut. Cas. Co. v. Mack, 2007 U.S. Dist. LEXIS 59903 (E.D.Ky., Aug. 14, 2007)

CORE TERMS: conspiracy, conspirator, post-2002, predicate act, racketeering activities,statute of limitations, accrual, co-conspirator, limitations period, discovery rule, cause ofaction, summary judgment, continuity, racketeering, fraudulent, billing, insurance law,overt act, physical therapy, citation omitted, material fact, furtherance, discovery, joined,patients, independent acts, management position, nonmoving party, wire fraud, favorable

COUNSEL: [*1] For Grange Mutual Casualty Co., Grange Indemnity Insurance Co.,Plaintiffs: Amy Denise Cubbage, Christopher S. Burnside, Robert W. Dibert, LEAD

ATTORNEYS, Frost Brown Todd LLC - Louisville, Louisville, KY.

For Trustgard Insurance Co., Plaintiff: Christopher S. Burnside, Robert W. Dibert, LEADATTORNEYS, Frost Brown Todd LLC - Louisville, Louisville, KY.

For Joni L. Mack, Defendant: Russell B. Morgan, LEAD ATTORNEY, Jonathan D.Rose, Bradley Arant Boult Cummings LLP - Nashville, Nashville, TN.

JUDGES: Danny C. Reeves, United States District Judge.

OPINION BY: Danny C. Reeves

OPINION

MEMORANDUM OPINION AND ORDER

This matter is pending for consideration of Defendant Joni Mack's ("Mack") motion todismiss or, in the alternative, motion for summary judgment. [Record No. 23] PlaintiffsGrange Mutual Casualty Company, Grange Indemnity Insurance Company, and

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Trustguard Insurance Company oppose the motion and ask that the Court allow their suitto go forward. For the reasons discussed herein, the Court will deny Mack's motion todismiss and her alternative motion for summary judgment.

I. Background

At issue is an alleged conspiracy involving expenses charged to Plaintiffs for unnecessaryor nonexistent medical supplies and procedures. [*2] Members of the conspiracy includehealth care providers, medical diagnostics centers, medical technicians, and variousaffiliated individuals who are claimed to have submitted fraudulent bills to Plaintiffinsurance companies beginning in at least 1998. Specifically, these bills were forelectrodiagnostic nerve studies ("NCV tests"), magnetic-resonance imaging tests("MRIs"), medical equipment, and physical therapy services, all of which wereimproperly rendered to patients being treated for vehicle accident-related injuries. Theconspirators allegedly "coached" referring physicians to document patients' records insuch a way as to justify NCV tests and MRIs. Thereafter, the physicians leased the NCV

and MRI testing equipment from the conspirators -- a number of whom are NCVtechnicians -- and these technicians conducted the tests. As part of this alleged scheme,the conspirators operated clinics, like the Injury & Rehab Centers of KY ("IRC"), whichcatered specifically to victims of automobile accidents. The IRC overcharged Plaintiffinsurance companies through double-billing, manipulating billing codes, providingunnecessary supplies, and billing for services provided by unlicensed, [*3] rather thanlicensed, medical practitioners. Plaintiffs paid these charges pursuant to Kentucky's "no-fault" insurance law, which requires insurance companies to pay for certain "reasonablecharges incurred" from motor vehicle accidents. [Record No. 1] However, they allegethat the tests were of no diagnostic value for the patients, and that the tests did not assistor change the physicians' medical opinion or care of the patients. In short, the physicians,together with the conspirators, formed a scheme to exploit Kentucky insurance lawsthrough fraudulent billing and medical testing practices, all for their own financial gain.

Plaintiffs earlier initiated a civil RICO cause of action against Mack's husband and othermembers of the alleged conspiracy. See Grange Mut. Cas. Co. v. Mack, No. 3: 02-110(E.D. Ky., filed Dec. 4, 2002) [hereafter, Grange I]. Here, Plaintiffs allege that Mackjoined this conspiracy in January 2003 when she became an employee and assumed amanagement position with the IRC, a named co-conspirator in Grange I. In her role as aco-conspirator, Mack allegedly instructed IRC employees to bill for specific treatmentswhether or not they had been prescribed or properly [*4] performed. It was furtheralleged that she caused computers and documents to be removed, withheld, and/ordestroyed during discovery in Grange I. As a result, Plaintiffs filed a Complaint with thisCourt on December 28, 2006, stating claims against Mack under (1) the RacketeerInfluenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. 1962(c) - (d); (2)common law fraud and conspiracy; (3) theft by deception, K.R.S. 514.040, 446.070;and (4) fraudulent insurance acts, K.R.S. 304.47-020. [Record No. 1] These claimsstem from Mack's above-described post-2002 acts, as well as from her joint and severalliability for other co-conspirators' acts.

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On December 22, 2008, Mack filed the present motion to dismiss or, in the alternative,for summary judgment. She argues that Plaintiffs' claims are barred by the four-yearstatute of limitations for RICO claims and that the acts attributed to her cannot constitutea civil RICO claim.

II. Standard of Review

This Court will grant a motion to dismiss under Rule 12(b)(6) "only if it is clear that norelief could be granted under any set of facts that could be proved consistent with theallegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 81 L. Ed. 2d59 (1984). [*5] A court must construe the complaint in a light most favorable to theplaintiff, accept all the factual allegations as true, and determine whether the plaintiffundoubtedly can prove no set of facts in support of his claims that would entitle him torelief. See Ley v. Visteon Corp., 540 F.3d 376, 380 (6th Cir. 2008); Lillard v. ShelbyCounty Bd. of Educ., 76 F.3d 716, 724 (6th Cir. 1996). "Factual allegations contained ina complaint must raise a right to relief above the speculative level." Bassett v. Nat'l Coll.

Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008) (citing Bell Atl. Corp. v. Twombly, 550U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)). In other words, the plaintiff'sarguments "require[] more than labels and conclusions, and a formulaic recitation of theelements of a cause of action will not do." Twombly, 127 S. Ct. at 1964-1965. However,heightened fact pleading of specifics is not required -- only enough facts to state a claimto relief that is plausible on its face. See Bassett, 528 F.3d at 426. The Court mayconsider the Complaint, as well as "any exhibits attached thereto, public records, [and]items appearing in the record of the case." Amini v. Oberlin Coll., 259 F.3d 493, 502 (6thCir. 2001) [*6] (citation omitted).

The standard for summary judgment differs significantly. Instead of focusing solely onthe Complaint and relevant attachments, a court must consider whether "the pleadings,depositions, answers to interrogatories, and admissions on file, together with theaffidavits, if any, show that there is no genuine issue as to any material fact and that themoving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c); CelotexCorp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Chao v.Hall Holding Co., 285 F.3d 415, 424 (6th Cir. 2002). A dispute over a material fact is not"genuine" unless a reasonable jury could return a verdict for the nonmoving party. Thatis, the determination must be "whether the evidence presents a sufficient disagreement torequire submission to a jury or whether it is so one-sided that one party must prevail as amatter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505,91 L. Ed. 2d 202 (1986); Harrison v. Ash, 539 F.3d 510, 516 (6th Cir. 2008).

The party moving for summary judgment bears the burden of showing conclusively thatno genuine issue of material fact exists. CenTra, Inc. v. Estrin, 538 F.3d 402, 412 (6thCir. 2008). Once a moving [*7] party has met its burden of production, "its opponentmust do more than simply show that there is some metaphysical doubt as to the materialfacts." Sigler v. American Honda Motor Co., 532 F.3d 469, 483 (6th Cir. 2008) (citingMatsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348,89 L. Ed. 2d 538 (1986)). The nonmoving party cannot rely upon the assertions in its

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pleadings; rather, that party must come forward with probative evidence such as swornaffidavits, to support its claims. Celotex, 477 U.S. at 324. In making this determination,the Court must review all the facts and the inferences drawn from those materials in thelight most favorable to the nonmoving party. Matsushita, 475 U.S. at 587.

III. Analysis

RICO authorizes a civil cause of action for any person injured in his business or propertyby reason of a violation of 18 U.S.C. 1962. 18 U.S.C. 1961 et seq. In turn, 1962lays out a list of prohibited "racketeering activities," which includes mail or wire fraud, aswell as conspiracy to commit those offenses. To allege a RICO violation, a plaintiff mustestablish that the defendants engaged in a "pattern of racketeering activities," defined as"at least two acts of racketeering [*8] activity, one of which occurred after the effectivedate of this chapter and the last of which occurred within 10 years . . . after thecommission of a prior act of racketeering activity." 18 U.S.C. 1961(5). The two acts ofracketeering activity Mack is alleged to have committed are mail or wire fraud and

withholding or destroying evidence, both violations of 18 U.S.C. 1341 or 1343, and 18U.S.C. 1512(b) or (c), respectively. Both are contemplated as "racketeering activity"under 18 U.S.C. 1961(1). However, Mack urges the Court to dismiss the suit againsther based on application of the four-year statute of limitations and failure of the actsalleged to constitute a valid civil RICO claim.

A. Civil RICO Statute of Limitations

Because RICO does not actually contain a statute of limitations provision, both thelimitations period and its accrual have been the subject of some debate and confusion inpast years. See PAUL BATISTA, CIVIL RICO PRACTICE MANUAL 4.13 (3d ed.2008). However, the Supreme Court has stated that civil RICO actions are subject to afour-year statute of limitations. See Agency Holding Corp. v. Malley-Duff & Associates,Inc., 483 U.S. 143, 156, 107 S. Ct. 2759, 97 L. Ed. 2d 121 (1987). In Klehr v. A.O. SmithCorp., 521 U.S. 179, 117 S. Ct. 1984, 138 L. Ed. 2d 373 (1997), [*9] and Rotella v.Wood, 528 U.S. 549, 120 S. Ct. 1075, 145 L. Ed. 2d 1047 (2000), the Supreme Courtrejected both the "last predicate act" accrual rule and the "injury and pattern discovery"accrual rule used by a number of federal appellate courts.

The Sixth Circuit had previously applied the "injury and pattern discovery rule" whichdictates that "a civil RICO cause of action begins to accrue as soon as the plaintiffdiscovers, or reasonably should have discovered, both the existence and source of hisinjury and that the injury is part of a pattern." Isaak v. Trumbull Sav. & Loan Co., 169F.3d 390, 399 (6th Cir. 1999) (internal citations omitted). However, in Klehr and Rotella,the Supreme Court rejected the last predicate act rule and the injury and pattern discoveryrule, leaving open the possibility of two remaining accrual rules: the "injury discovery"rule and the "injury occurrence" rule. Rotella, 528 U.S. at 554.

Under the injury discovery rule, the statute of limitations is activated "when a plaintiffknew or should have known of his injury." Id. at 553. Although the Sixth Circuit has not

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explicitly adopted a new accrual rule, it has applied the injury discovery rule in its fewpost-Rotella civil RICO cases. See Taylor Group v. ANR Storage Co., 24 F. App'x 319,325 (6th Cir. 2001) [*10] (unpublished); Sims v. Ohio Cas. Ins. Co., 151 F. App'x 433(6th Cir. 2005) (unpublished). Accordingly, the Court will apply that rule to the foregoinganalysis.

Because the Plaintiffs' Complaint details injuries identical to the injuries asserted inGrange I, Mack argues that Plaintiffs knew of their injury in the present case by at leastDecember 4, 2002 (the time of the Grange I filing). At that time, Mack held amanagement position with the IRC and was married to co-conspirator Greg Mack. Mackargues that this information should have alerted Plaintiffs that Mack -- along with otherimplicated conspirators -- had violated RICO and other state laws. As a result, Mackcontends that the present action which was filed on December 26, 2006, is outside thefour-year statute of limitations for a civil RICO claim. In support, Mack has provided anaffidavit from the payroll administrator at IRC which states that Mack held amanagement position with the IRC before and on December 4, 2002. [Record No. 23,

Attach. 2]

The Plaintiffs allege that Mack joined the conspiracy in January 2003 and since then,personally committed two acts of racketeering in furtherance of the Grange I conspiracy.The [*11] specific acts include Mack instructing IRC employees to bill Plaintiffs forphysical therapy treatments that were not actually or properly conducted, as well as Mackcausing computers to be removed from the IRC and replaced with computers that did notcontain Grange I information. [Record No. 1] Plaintiffs acknowledge that illegal actscommitted by Mack's co-conspirators occurred more than four years before their filingthe current suit; however, they argue that Mack is liable for the damages based on thecommon-law principle that co-conspirators may be held liable for acts committed prior totheir joining the conspiracy. See United States v. Gravier, 706 F.2d 174, 177 (6th Cir.1983). Plaintiffs also argue that their claim against Mack eludes the statute of limitationsbecause her post-2002 acts started the running of a new limitations period.

1. Mack's Post-2002 Acts as Independent Acts Triggering a New Statute of Limitations

The Plaintiffs allege that Mack's post-2002 acts were a new set of racketeering activitiesthat triggered the running of a new statute of limitations separate from any statute oflimitations that may have accrued as a result of Grange I. In support, they cite [*12] theSupreme Court's decision in Zenith Radio Corp. V. Hazeltine Research, Inc., 401 U.S.321, 91 S. Ct. 795, 28 L. Ed. 2d 77 (1971): "[E]ach time a plaintiff is injured by an act ofthe defendants a cause of action accrues to him to recover the damages caused by that actand that, as to those damages, the statute of limitations runs from the commission of theact." Zenith, 401 U.S. at 338. However, in Zenith itself, and later in Klehr, the SupremeCourt clarified this language by pointing out that "a separate new overt act generally doesnot permit the plaintiff to recover for the injury caused by old overt acts outside thelimitations period." Klehr, 521 U.S. at 190. In essence, Plaintiffs are asking the Court toapply the last predicate act accrual rule which starts the limitations period running anew

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each time a predicate act of racketeering is committed. The Supreme Court clearlyrejected this accrual rule in Klehr:[S]ome Circuits have adopted a 'separate accrual' rule in civil RICO cases, under whichthe commission of a separable, new predicate act within a 4-year limitations periodpermits a plaintiff to recover for the additional damages caused by that act. But, as in the

antitrust cases, the plaintiff cannot [*13] use an independent, new predicate act as abootstrap to recover for injuries caused by other earlier predicate acts that took placeoutside the limitations period.Klehr, 521 U.S. at 190.

This accrual rule was rejected in large part because it struck at the heart of one of themain objectives of civil RICO -- by discouraging plaintiffs from exercising diligence intheir private investigations. Id. at 187. "The object of civil RICO is thus not merely tocompensate victims but to turn them into prosecutors, private attorneys general, dedicatedto eliminating racketeering activity." Rotella, 528 U.S. at 557-558 (citation omitted).Civil RICO actions are intended to have a "public benefit" that should be realized through

"prompt litigation." Id. The last predicate act accrual rule lengthens the period of timethat plaintiffs have to file their causes of action, therefore allowing plaintiffs to "sit" ontheir claims for an indefinite period. To discourage such behavior and encouragediligence, the Supreme Court has strongly and repeatedly emphasized its preference for ashorter accrual period.

However, recognizing the need for a counterpoint to a perhaps inflexible strict accrualrule, the [*14] Supreme Court at every turn has affirmed the availability of equitabletolling in civil RICO cases. See Klehr, at 194-196; Rotella, 528 U.S. at 560-561. Thisdoctrine allows a plaintiff to assert a civil RICO claim where a defendant has taken stepsto conceal his existence or activities through fraud, and the plaintiff, "without any fault orwant of diligence or care on his part," is unable to discover the injury within thelimitations period. Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S. Ct. 582, 90 L. Ed.743 (1946). Plaintiffs have alleged no such equitable doctrine here. Thus, Mack's post-2002 actions can only trigger the running of a new limitations period if they led toinjuries separate from the injuries alleged in Grange I.

The claimed damages in this case total over $ 1 million. This sum is a combination ofmoney Plaintiffs paid as a result of fraudulent billing charges, as well as the cost of legalfees expended to pursue their claims in various courts. [Record No. 33, Attach. 1] Underthe treble damages provision of the RICO statute, Plaintiffs claim over $ 3 million indamages as a result of this conspiracy. See 18 U.S.C. 1964(c). The portion of thesedamages attributable to Mack's conduct, however, [*15] is unclear. The Plaintiffs weaklyassert that her post-2002 actions produced "increased litigation expenses." [Record No.33] Their attached damages worksheet details nine state court lawsuits with associatedexpenses, along with a listing of the Grange I defendants, and a notation that "DefendantJoni Mack is alleged to be jointly and severally liable . . . for all of these elements ofdamages." [Record No. 33, Attach. 1]

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Although courts do not require a civil RICO plaintiff to quantify the exact amount of herinjury in order to allege such injury, the specific argument that Plaintiffs espouse hererequires some showing that a new injury outside of the earlier injuries has been incurred.See Potomac Elec. Power v. Elec. Motor & Supply, 262 F.3d 260 (4th Cir. 2001).Plaintiffs, in fact, make almost no attempt to distinguish the injuries from Grange I from

the injuries alleged here. Therefore, this Court cannot endorse Plaintiffs' argument thatMack's post-2002 actions prompted the running of a new limitations period.

2. Mack's Post-2002 Acts as Part of a Continuing Conspiracy

The Plaintiffs seek another route around the statute of limitations by relying on the theoryof joint and several [*16] conspirator liability. Under this theory, they concede thatMack's post-2002 acts led to the injuries asserted in Grange I, but argue that they did notand could not have known at the initiation of the Grange I suit that Mack was a co-conspirator. Mack counters that she was at that time employed by one co-conspirator andmarried to another. Therefore, she claims that under the injury discovery accrual rule, the

Plaintiffs had the requisite knowledge in early 2002 to trigger the running of thelimitations period.

The Plaintiffs' argument reveals faint traces of the equitable tolling doctrine. Since theyhad no way of knowing that Mack was involved in the conspiracy, they argue that theyshould not be punished for not having asserted a cause of action against her earlier. Inother words, they knew of their injury well before they were aware of all of its sources.Although the Supreme Court and the Sixth Circuit have not explicitly formulated it assuch, the injury discovery rule requires not only that the plaintiff know of his injury, butalso that the plaintiff know the source of his injury. See Rotella, 528 U.S. at 556-557(analogizing the injury discovery rule in civil RICO cases to [*17] the discovery rule inmedical malpractice cases); Prudential Ins. Co. of Am. v. U.S. Gypsum Co., 359 F.3d226, 233 (3d Cir. 2004) ("In addition to the injury, the plaintiffs must also have known orshould have known of the source of their injury.").

Assuming, arguendo, that Plaintiffs did not know Mack was a conspirator in 2002, theCourt is forced to turn to the question of whether Plaintiffs should have known she was aconspirator. Based on the current record, it is impossible for the Court to make thatdetermination. The only evidence Mack provides in support of her position is an affidavitfrom a payroll administrator stating that Mack was an IRC employee at the time of theGrange I filing. The unadorned fact that she was employed by co-conspirator IRC doesnot necessitate the conclusion that Mack herself was a conspirator.

Under common law notions of conspiracy, "knowledge and intent to join the conspiracy"are still required to confer co-conspirator liability on a defendant. United States v. Driver,535 F.3d 424, 429 (6th Cir. 2008). Proof of knowledge can be satisfied by a showing that"the defendant knew the essential object of the conspiracy." United States v. Morrison,220 F. App'x 389, 393 (6th Cir. 2007) [*18] (unpublished). Although these rules areculled from criminal conspiracy cases that have no connection with civil RICO, they stillapply. The Supreme Court has stated that "conspiracy" as employed and described in the

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RICO statute should be applied in its "conventional sense" with its accompanying "well-established principles"; "[w]hen Congress uses well-settled terminology of criminal law,its words are presumed to have their ordinary meaning and definition." Salinas v. UnitedStates, 522 U.S. 52, 63-65, 118 S. Ct. 469, 139 L. Ed. 2d 352 (1997).

Mack has presented no evidence showing that she actually joined or had an idea of theobject of the conspiracy at the time of the Grange I filing. Simply serving as an employeewithin one of the conspirator organizations cannot serve the basis for conspirator liability.Although Mack may be in the delicate position of arguing for a statute of limitationsdefense while asserting her innocence of the underlying substantive claim, without more,the Court is unable to find that Plaintiffs did or should have known of her involvement inthe conspiracy before January 2003. At this pre-discovery stage in the proceedings,finding for Mack on this issue would require extensive speculation [*19] based on factsthat are not before the Court.

B. Civil RICO Claim Requirements

Mack attacks the validity of the Plaintiffs' substantive civil RICO claim based on twoarguments: (1) the post-2002 acts do not constitute a "pattern of racketeering activity";and (2) the post-2002 acts did not cause the Plaintiffs any injury.

1. Civil RICO's Pattern Requirement

Like its statute of limitations, civil RICO's pattern requirement has spawned someconfusion throughout the years. Am. Eagle Credit Corp. v. Gaskins, 920 F.2d 352, 352(6th Cir. 1990). The statute itself requires that a plaintiff allege that the defendants actedthrough a "pattern of racketeering activity," but courts have been hard-pressed to fleshout the text's actual meaning. 18 U.S.C. 1962. The Supreme Court has stated that thetouchstone the pattern requirement is known as the "continuity plus relationship" test.H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 109 S. Ct. 2893, 106 L. Ed. 2d 195(1989). The continuity plus relationship test dictates that the alleged predicate acts mustbe continuous for a sufficiently long period of time and the acts must be related. SeeBATISTA, supra, at 4.03[B]. Regarding continuity -- the first prong -- the Supreme[*20] Court references either "a closed period of repeated conduct, or [] past conduct thatby its nature projects in to the future with a threat of repetition." H.J. Inc., 492 U.S. at241-242; see also Michalak v. Edwards, 124 F.3d 198 (6th Cir. 1997) (unpublished).

Mack argues that the two predicate acts she is alleged to have committed were neither apart of a closed period of repeated conduct nor a set of actions projecting the threat ofrepetition in the future. However, the Plaintiffs allege that the Grange I conspiratorscommitted numerous acts of mail and wire fraud over a period of at least six year and thatMack's post-2002 acts were a continuation of that same conspiracy. The issue is whetherMack's acts can be tacked on to the acts of the alleged co-conspirators or whether theyshould be viewed in isolation. Based on the Court's finding that Mack has not presentedevidence showing that Plaintiffs knew of her involvement in the conspiracy before

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January 2003, the Court will assume that Mack joined an already-existing conspiracywithin the applicable statute of limitations.

The two acts attributed to Mack are destroying evidence and directing employees tocommit fraud. Viewed together [*21] with the earlier-alleged conspiratorial acts, her acts

satisfy the continuity plus relationship test. In Midwest Grinding Co., Inc. v. Spitz, 976F.2d 1016 (6th Cir. 1992), the Sixth Circuit found that a "one-shot scheme that lasted, atmost nine months," did not meet the continuity requirement. Midwest Grinding, 976 F.2dat 1024. Here, however, the Plaintiffs allege that the overall scheme began at least in1999 and lasted through Mack's post-2002 acts. It was a complex operation spanningnumerous individuals and organizations, with the sole alleged purpose of defraudingPlaintiffs by exploiting the Kentucky no-fault insurance laws. In H.J. Inc., the SupremeCourt recognized that "the threat of continuity may be established by showing that thepredicate acts or offenses are part of an ongoing entity's regular way of doing business."H.J. Inc., 492 U.S. at 242; see also Brown v. Cassens Transport. Co., 546 F.3d 347, 354-355 (6th Cir. 2008) (finding the continuity plus relationship test satisfied by defendants'

scheme to deprive workers of worker's compensation through fraud on the part ofdoctors, employer, and claims adjuster). Mack's claimed predicate act of submittingfraudulent [*22] bills was one part of the complex scheme that the Grange I conspiratorsare alleged to have carried out as a daily course of their business. In fact, Plaintiffs allegethat some of the organizations that comprise the conspiracy were established solely tocarry out the alleged illegal activities. Submitting fraudulent physical therapy bills isclearly a part of and related to that earlier activity.

Next, Mack's alleged effort to destroy evidence in Grange I can also be viewed as a partof the overall scheme to defraud the Plaintiffs. The act is clearly related to the conspiracy.Moreover, it qualifies as an act of racketeering within the meaning of 18 U.S.C. 1961(1). See also United States v. Corrado, 304 F.3d 593, 608 (6th Cir. 2002) (discussingdestruction of evidence as a predicate act in the criminal RICO context). However, theSixth Circuit's decision in Midwest Grinding does suggest that predicate acts related toconcealment of evidence are not acts in furtherance of the civil RICO conspiracy. Inmaking this suggestion, the Sixth Circuit pointed out that such acts do nothing to extendthe duration of the underlying . . . scheme. A conspiracy ends when the design to commitsubstantive [*23] misconduct ends; it does not continue beyond that point merelybecause the conspirators take steps to bury their traces, in order to avoid detection andpunishment after the central criminal purpose has been accomplished. Midwest Grinding,976 F.2d at 1024.

Although it is unclear whether the acts of concealment in Midwest Grinding were alsoacts of racketeering as defined by the RICO statute, the same rationale may be appliedhere. Removing computers containing data requested during discovery in Grange I doesnot necessarily threaten ongoing future harm. In fact, it is arguable whether the act can beconsidered part of the conspirators' overall scheme to defraud Plaintiffs through theKentucky insurance laws. However, even if destruction of evidence is not considered anact in furtherance of the pattern of racketeering activity, Mack's argument still fails. Onlyone overt act in furtherance of the conspiracy is required to place co-conspirator liability

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on a defendant. 18 U.S.C. 1962(d); Beck v. Prupis, 529 U.S. 494, 506-507, 120 S. Ct.1608, 146 L. Ed. 2d 561 (2000) (stating that a plaintiff could sue a civil RICO conspiratorwho committed at least one overt act of racketeering); Grange Mut. Cas. Co. v. Mack,290 F. App'x 832, 835-836 (6th Cir. 2008) [*24] (unpublished). Because Mack alsoallegedly committed one other overt racketeering act, she may still be held liable as a

conspirator. Moreover, her acts cannot be viewed as isolated and independent acts, but aspart of a larger conspiracy. Viewed as a whole, the conspiracy satisfies civil RICO'spattern requirement.

2. Civil RICO's Injury Requirement

Finally, Mack argues that Plaintiffs have not satisfied the elements of a civil RICO claimbecause they have not suffered injury by reason of Mack's post-2002 acts. Specifically,since the Plaintiffs stopped paying any bills sent to them by the IRC after filing suit inGrange I, Mack contends that they cannot show any injury as a result of Mack's post-2002 physical therapy billings. To show "injury by reason of a RICO violation," the

plaintiff must allege "some direct relation between the injury asserted and the injuriousconduct alleged." Brown, 546 F.3d at 357 (internal citations omitted). Plaintiffs need notprove reliance in order to satisfy the causation requirement. See Bridge v. Phoenix Bond& Indem. Co., 128 S. Ct. 2131, 170 L. Ed. 2d 1012 (2008).

It is unclear whether Plaintiffs have shown any damage as a result of her post-2002 acts,on their own. [*25] However, as with the earlier analysis, the Court must view her actsas part of the overall Grange I conspiracy -- not as isolated and independent acts. As aresult, Plaintiffs have sufficiently alleged injury as a result of the overall conspiracy. TheSixth Circuit does not require that each alleged predicate act directly harm a plaintiff inorder for the acts to constitute a civil RICO cause of action. Brown, 546 F.3d at 353(citing Vild v. Visconsi, 956 F.2d 560, 567 (6th Cir. 1992)). This caselaw is supported bya reading of the statutory language.

Section 1964(c) creates a private right of action for "any person injured in his business orproperty by reason of a violation of section 1962." 18 U.S.C. 1964(c). In turn, 1962makes it unlawful to operate or participate in an enterprise through a "pattern ofracketeering activity." 18 U.S.C. 1962. Reading these two sections together, a plaintiff'scause of action comes to life when a pattern, rather than a single act of racketeeringactivity, causes injury to his business or property. Requiring a plaintiff to show injury asa result of each predicate act alleged to be part of the pattern of racketeering activitywould be a very [*26] restrictive reading of the civil RICO statute. "RICO is to be readbroadly. This is the lesson not only of Congress' self-consciously expansive language andoverall approach, but also of its express admonition that RICO is to be liberally construedto effectuate its remedial purposes." Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479,497-498, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985). Thus, even though Mack's post-2002acts may not have resulted in a separate, identifiable set of injuries, her acts are claimedto be part of a conspiracy that has injured the Plaintiffs in their business. The Plaintiffs'Complaint sufficiently alleges a cause of action under the civil provisions of the RICOstatute.

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IV. Conclusion

Viewing the filed Complaint in the light most favorable to the Plaintiffs, Mack's motionto dismiss fails. In addition, the factual record is not developed to the extent necessary to

support Mack's motion for summary judgment. Accordingly, it is hereby

ORDERED that Defendant Joni Mack's motion to dismiss or, in the alternative, hermotion for summary judgment [Record No. 23] is DENIED.

This 17th day of April, 2009.

Signed By:

Danny C. Reeves

United States District Judge

2008 U.S. Dist. LEXIS 114461, *

PEARL LANIER BRYAN, Plaintiff, v. RONALD F. LILLY, et al., Defendants.

Case No.: 8:08-CV-794-T-23EAJ

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA,TAMPA DIVISION

2008 U.S. Dist. LEXIS 114461

October 10, 2008, DecidedOctober 10, 2008, Filed

CORE TERMS: default, default judgment, racketeering activity, predicate acts, moneylaundering, mail fraud, racketeering, well-pleaded, mail, clerk's, per curiam, amend,unlawful activity, enumerated, defraud, notice, state law claims, final judgment,frivolous, fraud allegations, power of attorney, supplemental jurisdiction,recommendation, particularity, participated, statutorily, conceal, quiet, admit, theft

COUNSEL: [*1] Pearl Lanier Bryan, Plaintiff, Pro se, Polk City, FL.

For Ronald F. Lilly, Shirley Wine Lilly, Defendants: Tanya M. Comparetto, LEADATTORNEY, Tanya M. Comparetto, PA, Lakeland, FL.

JUDGES: ELIZABETH A JENKINS, United States Magistrate Judge.

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OPINION BY: ELIZABETH A JENKINS

OPINION

REPORT AND RECOMMENDATION

Before the court are Plaintiff's First Amended Motion for Entry of Final Judgment byDefault Against Defendants Ronald F. Lilly and Shirley Wine Lilley (Dkt. 20) andRequest for Entry of Final Judgment (Dkt. 30). These matters have been referred to theundersigned for consideration and a report and recommendation (Dkt. 33). See 28 U.S.C. 636(c); Local Rules 6.01(b) and 6.01(c), M.D. Fla. For the reasons set forth herein, theundersigned recommends that Plaintiff's motions for entry of final judgment (Dkts. 20,30) be denied.

I. Background

On April 24, 2008, Plaintiff filed a fourteen-count complaint against eleven defendantsfor damages, declaratory judgment, and injunctive relief (Dkt. 1 at 1). In Counts 1through 13 of the complaint, Plaintiff alleged that three corporate defendants had engagedin, inter alia, fraud, securities fraud, and racketeering (Id. at 7-32). In Count 14, Plaintiffalleged that from 1994 [*2] to 2008 her ex-husband, Ronald F. Lilly, had "abuse[d] [her]power of attorney as part of a continuing pattern of racketeering [and] scheme to defraud"(Id. at 3, 34). 1 Plaintiff further claimed that Shirley Wine Lilly, Ronald Lilly's new wife,and Nicholas J. Troiano ("Troiano"), Ronald Lilly's personal attorney, along with severalother individuals, had participated in the scheme (Id. at 4-5, 33-39). Plaintiff asserted thatthe court had federal question jurisdiction over the racketeering claims in Count 14pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1961-1968, and supplemental jurisdiction over alleged violations of Florida probate,property, and consumer protection laws (Id. at 6). As relief, Plaintiff asked the court toquiet title to real estate jointly owned by Plaintiff and Ronald Lilly "as part of theirmarital estate" and grant her $ 1,140,000 in civil RICO damages (Id. at 1, 41). 2

FOOTNOTES

1 Despite these allegations, Plaintiff has not revoked her power of attorney (Dkt. 1 at 33).

2 Plaintiff estimated her actual losses as $ 380,000 and requested treble damages pursuantto 18 U.S.C. 1964(c) (Dkt. 1 at 41).

On April 29, 2008, Plaintiff filed [*3] returns of service indicating that Ronald andShirley Lilly ("the Lillys") and Troiano had each been served with a summons and copyof the complaint on April 25, 2008 (Dkts. 7, 8, 9). On May 20, 2008, Plaintiff moved for

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entry of a clerk's default against each of the served individuals for failure to file ananswer (Dkt. 11). On May 22, 2008, the clerk entered the defaults pursuant to Rule 55(a),Fed. R. Civ. P. (Dkts. 12, 13, 14).

On May 23, 2008, Troiano filed a motion to dismiss in which he argued that Plaintiff had

failed to state a claim in her complaint and that the court lacked subject matterjurisdiction (Dkt. 15 at 1-2). Moreover, Troiano submitted that Plaintiff's claims had beenaddressed by a Florida state court in a dissolution of marriage case and were res judicata(Id. at 2-3). On June 10, 2008, the court vacated the clerk's entry of default as to Troiano,but denied Troiano's motion to dismiss for failure to incorporate a memorandum of lawas required by Local Rule 3.01(a), M.D. Fla. (Dkt. 17).

On July 1, 2008, Plaintiff filed a motion for entry of final default judgment against theLillys (Dkt. 20), an affidavit of damages (Dkt. 21 at 1-14), and 121 pages of exhibits[*4] detailing various financial transactions (Dkts. 21 at 15-127, 22 at 2-9). Plaintiffreasserted her demands that the court quiet title to her residence and award her $

1,140,000 in civil RICO damages (Dkt. 20 at 7-8). On August 20, Plaintiff filed a secondmotion for entry of final judgment against the Lillys, again asking the court to quiet titleto her residence and award her civil RICO damages (Dkt. 30). 3 On the same date,Plaintiff filed a notice of voluntary dismissal of all non-defaulting defendants (Dkt. 31),which the court approved on August 27, 2008 (Dkt. 32). Thus, the Lillys were the onlyremaining defendants in this case.

FOOTNOTES

3 In her second motion for final judgment, Plaintiff re-calculated her actual damages as $385,144.14 and asked for treble RICO damages of $ 1,155,432.42 (Dkt. 30 at 2).

On September 10, 2008, the court noticed a status conference for September 25, 2008 andordered the clerk to mail copies of the notice to the Lillys (Dkt. 34). On September 15,2008, Plaintiff filed a motion to strike the notice (Dkt. 37), which the court denied (Dkt.38). On September 25, 2008, Plaintiff and the Lillys appeared for the status conference, atwhich neither side was represented [*5] by counsel.

The court informed Plaintiff that in order to succeed on a default judgment in federalcourt, she would need to assert well-pleaded allegations stating a claim under federal law.Plaintiff asserted the court had jurisdiction over her case solely due to her civil RICOclaim. Plaintiff was unable to elaborate on the allegations of mail fraud and moneylaundering in her complaint when asked by the court to do so.

Offered an opportunity to respond to Plaintiff's claims, the Lillys denied Plaintiff'sallegations in the complaint and stated that Troiano had represented Ronald Lilly in thedissolution of marriage action in state court, but had advised he was unable to representthem in this matter. The court informed the Lillys that as the case now stood, a clerk's

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default had been entered due to their failure to timely respond to the complaint. It appearsthe default against the Lillys is attributable to a combination of factors: lack of counsel,medical difficulties, and lack of legal experience. However, the court advised the Lillysthat they would have to seek any appropriate relief to set aside the default.

II. Default Judgment Standard

"When a party against whom a judgment for [*6] affirmative relief is sought has failed toplead or otherwise defend the clerk must enter the party's default." Rule 55(a), Fed. R.Civ. P.; see also Varnes v. Local 91, Glass Bottle Blowers Ass'n of the U.S. and Can.,674 F.2d 1365, 1368 n.3 (11th Cir. 1982) (noting that a party failing to appear is indefault regardless of whether a court has adjudicated the default). Once in default, adefendant "admits the plaintiff's well-pleaded allegations of fact." Nishimatsu Constr. Co.v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). The defendant does not,however, admit allegations that are not well-pleaded or admit conclusions of law. Id.Rather, the defendant may "contest the sufficiency of the complaint and its allegations to

support the judgment." Id.

Thus, prior to entering a default judgment, the court "must ensure that the well-pleadedallegations in the complaint, which are taken as true due to the default, actually state asubstantive cause of action and that there is a substantive, sufficient basis in the pleadingsfor the particular relief sought." Tyco Fire & Sec., LLC v. Alcocer, 218 F. App'x 860,863 (11th Cir. 2007) (per curiam) (unpublished). Where a complaint [*7] fails to state aclaim, a default judgment on the complaint may not stand. United States v. Kahn, 164 F.App'x 855, 858 (11th Cir. 2006) (per curiam) (unpublished).

III. Pleading a Civil RICO Claim

To state a claim under the civil RICO statutes, a plaintiff must allege "(1) conduct (2) ofan enterprise (3) through a pattern (4) of racketeering activity." Langford v. Rite Aid ofAla., Inc., 231 F.3d 1308, 1311 (11th Cir. 2000). A "pattern of racketeering activity"consists of "at least two acts of racketeering activity the last of which occurred withinten years after the commission of a prior act of racketeering activity." 18 U.S.C. 1961(5) (2006). Consequently, a well-pleaded civil RICO claim "must allege factssufficient to support each of the statutory elements for at least two of the pleadedpredicate acts." Republic of Pan. v. BCCI Holdings (Lux.) S.A., 119 F.3d 935, 949 (11thCir. 1997). A predicate act could be, inter alia, "any act or threat involving murder,kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, ordealing in a controlled substance or listed chemical," or any act indictable under certainenumerated statutes. 18 U.S.C. 1961(1) (2006).

Among [*8] these enumerated statutes are 18 U.S.C. 1341 (mail fraud) and 1956(laundering of monetary instruments). Id. Where mail fraud is asserted as a predicate actfor a civil RICO claim, a plaintiff must establish not only the statutory elements of mailfraud, but also that the defendant "had a conscious, knowing intent to defraud and that areasonably prudent person would have been deceived by [the defendant's]

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misrepresentations." Green Leaf Nursery v. E.I. DuPont De Nemours and Co., 341 F.3d1292, 1306 (11th Cir. 2003) (citation and internal quotations omitted).

Moreover, a civil RICO claim predicated on fraud must be pled with the increased levelof specificity required by Rule 9(b), Fed. R. Civ. P. 4 Ambrosia Coal & Constr. Co. v.

Pages Morales, 482 F.3d 1309, 1316 (11th Cir. 2007). Thus, such a claim "must allege:(1) the precise statements, documents, or misrepresentations made; (2) the time and placeof and person responsible for the statement; (3) the content and manner in which thestatements misled the Plaintiffs; and (4) what the [d]efendants gained by the allegedfraud." Id. at 1316-17. Where multiple defendants are named, the complaint must also"plead fraud with the requisite [*9] specificity as to each of the [defendants]." Brooks v.Blue Cross and Blue Shield of Fla., Inc., 116 F.3d 1364, 1381 (11th Cir. 1997) (percuriam).

FOOTNOTES

4 Rule 9(b) requires a party alleging fraud or mistake to "state with particularity thecircumstances constituting fraud or mistake." Rule 9(b), Fed. R. Civ. P.

When a plaintiff alleges money laundering under 18 U.S.C. 1956(a)(1) as a predicateact for a civil RICO claim, the plaintiff must first set forth facts showing (1) that thedefendant(s) conducted or attempted to conduct a financial transaction; (2) that thetransaction involved the proceeds of "specified unlawful activity"; and (3) that thedefendant(s) knew the proceeds were from some form of unlawful activity. 5 18 U.S.C. 1956(a)(1) (2006); see also United States v. Majors, 196 F.3d 1206, 1212 (11th Cir.1999) (outlining elements of 18 U.S.C. 1956(a)(1)(B)(i) in a criminal case). Theallegations must then satisfy either 1956(a)(1)(A) or (a)(1)(B). Id. The former may besatisfied by showing that the defendant(s) acted "with the intent to promote the carryingon of specified unlawful activity." 18 U.S.C. 1956(a)(1)(A)(i). The latter may besatisfied by showing that the defendant(s) [*10] knew a purpose of the transaction was toconceal or disguise the nature, location, source, ownership, or control of the proceeds. 18U.S.C. 1956(a)(1)(B)(i). Unlike mail fraud allegations, money laundering allegationsunderlying a civil RICO claim need not satisfy the heightened particularity standard inRule 9(b), Fed. R. Civ. P. See Liquidation Comm'n of Banco Intercontinental, S.A. v.Renta, 530 F.3d 1339, 1355-56 (11th Cir. 2008).

FOOTNOTES

5 "Specified unlawful activity" is statutorily defined and includes acts of racketeering aswell as offenses under certain enumerated statutes. 18 U.S.C. 1956(c)(7).

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In addition to establishing the elements of the predicate acts underlying a civil RICOclaim, a plaintiff must also ensure the claim is brought within the four-year statute oflimitations period. Brooks, 116 F.3d at 1380. The limitations period begins to run "whenthe injury was or should have been discovered, regardless of whether or when the injury

is discovered to be a part of a pattern of racketeering." Maiz v. Virani, 253 F.3d 641, 676(11th Cir. 2001).

Finally, as with any claim, a civil RICO claim must have merit. Thus, where federaljurisdiction rests on a frivolous civil RICO claim, [*11] the court may dismiss thecomplaint and refuse to exercise jurisdiction over any remaining state law claims. See 28U.S.C. 1367(c)(3) (1990) ("The district courts may decline to exercise supplementaljurisdiction over [related state law claims] if the district court has dismissed all claimsover which it has original jurisdiction"); Estate of Cosio v. Alvarez, 181 F. App'x 894,896 (11th Cir. 2006) (per curiam) (unpublished) (holding a district court has the power,on its own motion, to dismiss a claim against a defendant who never moved for

dismissal); see e.g. Smart Science Labs., Inc. v. Promotional Mktg. Servs., Inc., No. 8:07-CV-1554-T-24EAJ, 2008 WL 2790219, at *12 (M.D. Fla. July 18, 2008) (cautioning thatfailure to file an amended complaint could result in court's refusal to exercisesupplemental jurisdiction over remaining state law claims); Kindred v. Murphy, No.8:07-CV-1002-T-30EAJ, 2008 U.S. Dist. LEXIS 11874, 2008 WL 476220, at *2, 4(M.D. Fla. Feb. 19, 2008) (warning that failure to timely file an amended complaint couldlead to dismissal of remaining counts where defective civil RICO claim provided the solebasis for subject-matter jurisdiction).

Moreover, sanctions may be appropriate where [*12] the court determines a civil RICOcomplaint is frivolous. See e.g. Martinez v. Martinez, 62 F. App'x 309, 311, 315 (10thCir. 2003) (unpublished) (upholding district court's decision to impose sanctions onplaintiff's counsel in a civil RICO case where counsel filed essentially the samecomplaint after the original complaint was dismissed as frivolous); Kindred, 2008 U.S.Dist. LEXIS 11874, 2008 WL 476220, at *3-4 (allowing plaintiffs to amend theircomplaint to state a valid civil RICO claim but warning that unwarranted or frivolousallegations could lead to Rule 11 sanctions).

IV. Discussion

Returning to the case at hand, it is indisputable that the Lillys failed to timely answerPlaintiff's complaint, and thus have admitted any well-pleaded allegations. It is thereforeincumbent upon the court to determine which, if any, of Plaintiff's allegations are well-pleaded before entering a default judgment in Plaintiff's favor. Plaintiff's civil RICOclaim derives from her allegation that "[t]hroughout the years 1994-2008, Ronald F. Lillyutilized his power of attorney to convert funds and otherwise defraud [Plaintiff] ofhundreds of thousands of dollars, some of which was acquired by and through fraudulentloans utilizing [*13] Plaintiff's credit, other quanta of which were acquired by directtheft" (Dkt. 1 at 34). Nevertheless, the only acts Plaintiff specifically alleges that couldpotentially support a valid civil RICO claim are mail fraud and money laundering. 6

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FOOTNOTES

6 Plaintiff suggests her civil RICO claim is supported by the Lillys' alleged violation of

other federal statutes. For instance, Plaintiff contends that Ronald F. Lilly "committedpredicate acts of racketeering by violations of 18 U.S.C. 1708 (theft of the U.S. mail bystealing taking, or by fraud or deception)" (Dkt. 1 at 3). Plaintiff further asserts that theLillys are liable under the RICO statutes for their breach of fiduciary duties in violationof 18 U.S.C. 1346 (Dkt. 1 at 3, 4). Section 1346, however, merely states that a "'schemeor artifice to defraud' includes a scheme or artifice to deprive another of the intangibleright of honest services." 18 U.S.C. 1346 (1988). Regardless, neither 1708 nor 1346is among the statutes enumerated in 18 U.S.C. 1961(1), which defines "racketeeringactivity" for purposes of a civil RICO claim. 18 U.S.C. 1961(1) (2006).

a. Allegations of Mail Fraud

Plaintiff first attempts to support her civil [*14] RICO claim with assertions that theLillys committed predicate acts of mail fraud. Plaintiff states that Ronald Lilly injured herthrough "a pattern of racketeering centering on repetitive violations of [18 U.S.C. 1341]in connection with the administration of that certain Power of Attorney granted byPlaintiff to [Ronald Lilly] during 1994" (Dkt. 1 at 3). Plaintiff also attests that the Lillysand others "engaged in a conspiracy for the common purpose of defrauding Plaintiff by aiding and abetting Ronald F. Lilly's multiple and repeated violations of 18 U.S.C. 1341 "(Dkt. 1 at 4). Plaintiff further claims that Ronald Lilly acquired or maintained aninterested in the "Ronald F. Lilly Trust" which itself allegedly engaged in activities thatviolated the mail fraud statute (Dkt. 1 at 35). Finally, Plaintiff submits that Shirley Lillyand several other individuals "conducted or participated, directly or indirectly, in theconduct of [the Ronald F. Lilly Trust's] affairs through a pattern of racketeering activityincluding but not limited to violations of 18 U.S.C. [ 1341]" (Dkt. 1 at 35-36).

Despite Plaintiff's insistence that the Lillys engaged in mail fraud, Plaintiff offers [*15]no supporting facts indicating what statements or representations were made; the timeand place of, or person responsible for, the alleged statements; or how Plaintiff wasmisled by the alleged statements. See Ambrosia, 482 F.3d at 1316. Plaintiff does not evenidentify the elements of a mail fraud claim, much less assert facts to satisfy them.Moreover, Plaintiff has "simply lumped together" the Lillys and several other individualsin her allegations of mail fraud. See Brooks, 116 F.3d at 1380-81 (citation and internalquotation marks omitted). The allegations "provide no basis in fact upon which the[court] could conclude that any specific act of any specific [defendants] is indictable formail fraud." Id. at 1381. In sum, Plaintiff's mail fraud allegations are conclusory andinsufficient to sustain her civil RICO claim. See e.g. Rogers v. Nacchio, 241 F. App'x602, 608 (11th Cir. 2007) (per curiam) (unpublished) (affirming dismissal of civil RICO

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claim predicated on fraud where plaintiff failed to allege sufficient facts); Am. UnitedLife Ins. Co. v. Martinez, 480 F.3d 1043, 1066-67 (11th Cir. 2007) (same).

b. Allegations of Money Laundering

In like fashion, Plaintiff also asserts [*16] the Lillys engaged in predicate acts of moneylaundering. Plaintiff accuses the Lillys and others of "aiding and abetting Ronald F.Lilly's multiple and repeated violations of 18 U.S.C. 1956" (Dkt. 1 at 4). Plaintifffurther claims that these individuals were involved in illegal financial transactions and"individually, jointly, and severally agreed to conceal and did in fact conceal the moneyreceived from Ronald F. Lilly in defraud of Plaintiff's business and property rights" (Dkt.1 at 5). Finally, Plaintiff submits that Shirley Lilly and several other individuals"conducted or participated, directly or indirectly, in the conduct of [the Ronald F. LillyTrust's] affairs through a pattern of racketeering activity including but not limited toviolations of 18 U.S.C. [ 1956]" (Dkt. 1 at 35-36).

Again, no supporting factual details are provided. Indeed, Plaintiff's allegationsconcerning money laundering are little more than restatements of the statutory text of 18U.S.C. 1956. Although Plaintiff's money laundering claims need not be pleaded withthe particularity required by Rule 9(b), Fed. R. Civ. P., Plaintiff's allegations arenevertheless insufficient because they fail to [*17] articulate specific facts that satisfy theessential elements of 1956. 7 Like her mail fraud allegations, Plaintiff's moneylaundering allegations do not establish the Lillys committed any acts that might support avalid civil RICO claim. See e.g. Zavala v. Wal-Mart Stores, Inc., 393 F. Supp. 2d 295,315-16 (D. N.J. 2005) (finding allegations of money laundering were too vague andinsufficient to support a RICO claim where they "largely recite[d] the elements ofdifferent money laundering provisions, but [did] not identify the relevant financialtransactions or conduct").

FOOTNOTES

7 For instance, 1956(a)(1) requires a showing that a financial transaction involved theproceeds of "specified unlawful activity." 18 U.S.C. 1956(a)(1) (2006). This phrase isstatutorily defined to include "racketeering activity" as defined in 18 U.S.C. 1961(1) orthe violation of certain enumerated statutes. 18 U.S.C. 1956(c)(7)(A) and (D). Onesuch statute is 18 U.S.C. 1708, which prohibits the theft or receipt of stolen mail.Although Plaintiff alleges that Ronald Lilly" committed predicate acts of racketeering byviolations of [ 1708]" (Dkt. 1 at 3), the allegation is conclusory and unsupported by[*18] any facts whatsoever.

c. Pattern of Racketeering Activity

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Plaintiff's complaint is also deficient because it fails to establish that the Lillys engagedin a "pattern of racketeering activity" within the statutorily prescribed time period. Thecomplaint merely states that the alleged illegal activities occurred over a period offourteen years between 1994 and 2008 (Dkt. 1 at 34). Plaintiff does not assert that twopredicate acts constituting a "pattern of racketeering activity" occurred within a ten-year

period, which is necessary to sustain her civil RICO claim. See 18 U.S.C. 1961(5).Thus, Plaintiff has failed to state a valid civil RICO claim on this basis as well.

d. Statute of Limitations

Finally, the vagueness of Plaintiff's allegations raises concerns regarding the four-yearstatute of limitations period applicable to civil RICO claims. Because Plaintiff filed hercomplaint on April 24, 2008 (Dkt. 1), the claim is time-barred if Plaintiff knew or shouldhave known of the alleged racketeering activity prior to April 24, 2004. See Maiz, 253F.3d at 676. Plaintiff's failure to provide any specifics whatsoever concerning when thealleged acts of racketeering occurred leaves the court [*19] unable to determine when

she knew or should have known of the acts. Nevertheless, if Plaintiff knew or shouldhave known of the alleged acts of racketeering before April 24, 2004, a default judgmentin Plaintiff's favor may properly be denied. See e.g. Stegeman v. Georgia, 290 Fed. Appx.320, 2008 WL 3906839, at *2 (11th Cir. 2008) (per curiam) (affirming denial of defaultjudgment, despite defendant's failure to answer, where claim was time-barred).

V. Conclusion

Because Plaintiff failed to establish the elements of the predicate acts underlying her civilRICO claim, Plaintiff's allegations that the Lillys engaged in a "pattern of racketeeringactivity" are not well-pleaded. 8 See Am. United Life, 480 F.3d at 1068 (finding a RICOclaim cannot be maintained where the underlying predicate acts lack legal validity).Moreover, Plaintiff has not alleged the Lillys committed two predicate acts within a ten-year period, as required by statute. Plaintiff has failed to provide "a substantive, sufficientbasis in the pleadings for the particular relief sought." Tyco, 218 F. App'x at 863.Accordingly, the court should not enter a default judgment in favor of Plaintiff on hercivil RICO claims. [*20] See e.g. Cosio, 181 F. App'x at 896 (affirming trial court'sdecision not to enter default judgment where complaint contained no viable federalclaim); Lusby v. Hill, No. 2:05-CV-529-FTM-29DNF, 2006 U.S. Dist. LEXIS 94652,2006 WL 3842196, at *2 (M.D. Fla. Dec. 13, 2006) (denying motion for defaultjudgment, despite entry of clerk's default, where plaintiff failed to adequately assert acivil RICO claim); accord Anderson v. Found. for Advancement, Educ. and Employmentof Am. Indians, 155 F.3d 500, 506 (4th Cir. 1998) (finding district court erred in enteringa default judgment where complaint did not state a claim for civil RICO).

FOOTNOTES

8 There is also a substantial issue regarding whether Plaintiff is litigating or has litigatedthe same or similar claims before the state court. Due to their pro se status, neither

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Plaintiff nor the Lillys were able to shed much light on this issue. If Plaintiff is seeking torelitigate a claim or an issue which was decided or could have been decided by anothercourt, her claim could be barred under principles of res judicata and collateral estoppel.Under that scenario, sanctions could be imposed for asserting such a claim in this court.

Consequently, Plaintiff's motions for final default [*21] judgment should be denied andshe should be offered an opportunity to amend her complaint to state a federal claim.

Although Plaintiff should be afforded an opportunity to amend her complaint, Plaintiff isadvised that if she chooses to continue to proceed pro se, she must comply with thiscourt's Local Rules as well as the Federal Rules of Civil Procedure. See Moon v.Newsome, 863 F.2d 835, 837 (11th Cir.), cert. denied, 493 U.S. 863, 110 S. Ct. 180, 107L. Ed. 2d 135 (1989). Further, Plaintiff is also on notice that failure to prosecute her casein compliance with court orders and procedural rules could result in dismissal of her case

and the possibility of sanctions. Finally, if Plaintiff amends her complaint to state afederal RICO claim, she must comply with the above requirements for articulating aclaim of this sort.

Plaintiff's failure to amend her complaint to state a valid claim under federal law shouldresult in her civil RICO claim being dismissed with prejudice and the court declining toexercise supplemental jurisdiction over any remaining state law claims.

Accordingly and upon consideration, it is RECOMMENDED that:

(1) Plaintiff's First Amended Motion for Entry of Final Judgment by Default AgainstDefendants [*22] Ronald F. Lilly and Shirley Wine Lilley (Dkt. 20) and Request forEntry of Final Judgment (Dkt. 30) be DENIED; and

(2) Plaintiff be afforded a final opportunity amend her complaint to state a valid claimunder federal law.

Date: October 10, 2008

/s/ Elizabeth A Jenkins

ELIZABETH A JENKINS

United States Magistrate Judge

NOTICE TO PARTIES

Failure to file written objections to the proposed findings and recommendationscontained in this report within ten (10) days from the date of this service shall bar anaggrieved party from attacking the factual findings on appeal. See 28 U.S.C. 636(b)(1).

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2010 U.S. Dist. LEXIS 16104, *

ELSEVIER INC., BLACKWELL PUBLISHING, LTD., WILEY PERIODICALS, INC.,WILEY-LISS, INC., INFORMA UK LTD., INFORMA USA, INC., and AMERICAN

CHEMICAL SOCIETY, Plaintiffs, -against- W.H.P.R., INC., RICHARD B. HAYAT,RANDI HAYAT, EDUCO PERIODICALS CO., INC., BARBARA PESSINA,RUSSELL PESSINA, PATRICIA ANSPACH, THOMAS ANSPACH, KLAVDIYA A.LOKSHIN, and JOHN DOE NOS. 1-50, Defendants.

09 Civ. 6512 (CM)

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEWYORK

2010 U.S. Dist. LEXIS 16104

February 19, 2010, DecidedFebruary 19, 2010, Filed

CASE SUMMARY:PROCEDURAL POSTURE: Plaintiffs publishers sued defendants, asubscription agent, its owner, and individuals, for civil claims under the RacketeerInfluenced and Corrupt Organizations Act (RICO), 18 U.S.C.S. 1961 et seq., andbreach of contract, fraud, conspiracy to defraud, and conversion. Defendants moved todismiss the RICO claims under Fed. R. Civ. P. 12(b)(6) and 9(b), and out-of-statedefendants moved to dismiss for lack of personal jurisdiction.

OVERVIEW: Defendants ordered subscriptions at a lower individual rate and resoldthem to institutions subject to a higher institutional rate. Fraud was alleged againstindividuals with enough particularity because they allegedly subscribed to specificjournals for specific years. The complaint was insufficient against the agent because it didnot say what the agent did to further the fraud. An 18 U.S.C.S. 1962(c) RICO claim hadto be dismissed because (1) defendants' interpersonal relationships were not pled, (2)control of an association in fact was not pled, and (3) no defendant allegedly engaged in apattern of racketeering activity, although lost profits recoverable under 18 U.S.C.S. 1964(c) were pled. An 18 U.S.C.S. 1962(d) RICO conspiracy claim had to be dismissedbecause the complaint only alleged individuals committed discrete acts of fraud. Themotion to dismiss for lack of personal jurisdiction was denied because, if a viable RICOclaim were stated, (1) 18 U.S.C.S. 1965(b) "ends of justice" jurisdiction was proper, (2)at least one defendant was subject to personal jurisdiction, and (3) no other district couldhear the RICO claims against all defendants.

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OUTCOME: The motion was granted as to substantive and conspiracy RICO claimswithout prejudice and with leave to amend. The motion to dismiss for lack of personaljurisdiction was denied.

CORE TERMS: subscription, fraudulent, personal jurisdiction, racketeering activity,

conspiracy, racketeering, mail, state law claims, pleaded, cause of action, tending, higherrates, lost profits, wire fraud, subscribed, predicate acts, breach of contract, falsepretenses, illicit, viable, leave to amend, factual allegations, fraudulently induced,particularity, participated, nationwide, publisher, reselling, purchaser, renewal

LexisNexis(R) HeadnotesCivil Procedure > Pleading & Practice > Defenses, Demurrers & Objections > Failures toState ClaimsHN1 When deciding a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a districtcourt must liberally construe all claims, accept all factual allegations in a complaint astrue, and draw all reasonable inferences in favor of the plaintiff.

Civil Procedure > Pleading & Practice > Defenses, Demurrers & Objections > Failures toState ClaimsCivil Procedure > Pleading & Practice > Pleadings > Complaints > RequirementsHN2 To survive a motion to dismiss, a complaint must contain sufficient factual matter tostate a claim to relief that is plausible on its face. A claim has facial plausibility when aplaintiff pleads factual content that allows a court to draw a reasonable inference that adefendant is liable for the misconduct alleged. While a complaint attacked by a Fed. R.Civ. P. 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff'sobligation to provide the grounds of his entitlement to relief requires more than labels andconclusions, and a formulaic recitation of the elements of a cause of action will not do.Thus, unless a plaintiff's well-pleaded allegations have nudged its claims across the linefrom conceivable to plausible, the plaintiff's complaint must be dismissed.

Civil Procedure > Pleading & Practice > Pleadings > Heightened Pleading Requirements> Fraud ClaimsHN3 Claims sounding in fraud must meet Fed. R. Civ. P. 9(b)'s heightened pleadingstandard. To comply with Rule 9(b), a complaint must: (1) specify the statements that theplaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when thestatements were made, and (4) explain why the statements were fraudulent. Rule 9(b)provides that intent, knowledge, and other conditions of a person's mind may be averredgenerally.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Claims > General OverviewHN4 Under 18 U.S.C.S. 1962(c), it is unlawful for any person employed by orassociated with any enterprise engaged in interstate or foreign commerce to conduct orparticipate, directly or indirectly, in the conduct of such enterprise's affairs through apattern of racketeering activity. To plead a civil claim under this section, a plaintiff mustallege facts showing the existence of an enterprise affecting interstate commerce, as well

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as facts tending to show that the defendants were persons employed by or associated withthe enterprise, and that they conducted such enterprise's affairs through a pattern ofracketeering activity.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & Corrupt

Organizations > Claims > General OverviewHN5 An association in fact is a group of persons associated together for a commonpurpose of engaging in a course of conduct. An association in fact enterprise, forpurposes of a claim under the Racketeer Influenced and Corrupt Organizations Act, 18U.S.C.S. 1961 et seq., must have a "structure" exhibiting three features: a purpose,relationships among the individuals associated with the enterprise, and longevitysufficient to permit the associates to pursue the purpose of the enterprise.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Claims > General OverviewHN6 The concept of association, for purposes of a claim under the Racketeer Influenced

and Corrupt Organizations Act, 18 U.S.C.S. 1961 et seq., requires both interpersonalrelationships and a common interest. An association of individuals can be an enterprise ifit is formed for the purpose of engaging in any type of illicit activity and it need not haveany existence apart from the predicate acts committed by its employees and/or associates.Such a group need not have a hierarchical structure or a chain of command. Members ofthe group need not have fixed roles; different members may perform different roles atdifferent times. The group need not have a name, regular meetings, dues, establishedrules and regulations, disciplinary procedures, or induction or initiation ceremonies.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Claims > General OverviewHN7 A plaintiff making a claim under the Racketeer Influenced and CorruptOrganizations Act, 18 U.S.C.S. 1961 et seq., must allege something more than the factthat individuals were all engaged in the same type of illicit conduct during the same timeperiod.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Claims > General OverviewHN8 Having identified an enterprise, a civil Racketeer Influenced and CorruptOrganizations (RICO), 18 U.S.C.S. 1961 et seq., plaintiff must also plead facts fromwhich it can be inferred that each of the defendants participated, directly or indirectly, inthe conduct of the enterprise's affairs. When alleging a violation of 18 U.S.C.S. 1962(c), a complaint must set out facts tending to show that each individual defendantparticipated in the operation or management of the enterprise itself. For purposes of civilRICO, it is not enough to allege that a defendant provided services that were helpful to anenterprise, without alleging facts that, if proved, would demonstrate some degree ofcontrol over the enterprise.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Coverage

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HN9 Civil Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.S. 1961 etseq., liability is limited to persons who have some part in directing an enterprise's affairs.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Remedies

HN10 See 18 U.S.C.S. 1964(c).

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Claims > General OverviewHN11 To state a civil Racketeer Influenced and Corrupt Organizations (RICO), 18U.S.C.S. 1961 et seq., claim, a plaintiff must plead an injury to his business or propertythat was proximately caused by a substantive RICO violation.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > RemediesHN12 A plaintiff can adequately plead damages under the Racketeer Influenced and

Corrupt Organizations Act, 18 U.S.C.S. 1961 et seq., by alleging lost profits where theyconstitute an injury to the plaintiff's business, were proximately caused by the allegedracketeering, and are not merely speculative.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > RemediesHN13 A civil Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.S. 1961et seq., plaintiff may recover lost profits, subject to the traditional limitations ofproximate cause and lack of speculativeness.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > RemediesHN14 Damages under the Racketeer Influenced and Corrupt Organizations Act, 18U.S.C.S. 1961 et seq., cannot place plaintiffs in a better position than they would havebeen in if racketeering had not occurred.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > RemediesHN15 A civil plaintiff under the Racketeer Influenced and Corrupt Organizations Act, 18U.S.C.S. 1961 et seq., can only recover to the extent that he has been injured in hisbusiness or property by the conduct constituting a violation.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Claims > General OverviewHN16 18 U.S.C.S. 1962(d) makes it unlawful for any person to conspire to violate 18U.S.C.S. 1962(c). The core of a conspiracy under the Racketeer Influenced and CorruptOrganizations Act (RICO), 18 U.S.C.S. 1961 et seq., is an agreement to commitpredicate acts, and a RICO civil conspiracy complaint must specifically allege such anagreement. The United States Court of Appeals for the Second Circuit has held that acomplaint alleging a violation of 18 U.S.C.S. 1962(d) must contain allegations of some

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factual basis for a finding of a conscious agreement among the defendants. Theseallegations may not be conclusory, but must set forth specific facts tending to show thateach of the defendants entered into an agreement to conduct the affairs of a particular,identified enterprise through a pattern of racketeering activity - not simply that eachdefendant committed two or more acts that would qualify as predicate acts, without

regard to whether those acts were committed in furtherance of the activity of theenterprise. Parallel conduct by different defendants affords an insufficient basis forinferring that an agreement was reached.

Civil Procedure > Jurisdiction > Personal Jurisdiction & In Rem Actions > In PersonamActions > ChallengesCivil Procedure > Pleading & Practice > Defenses, Demurrers & Objections > Motions toDismissEvidence > Procedural Considerations > Burdens of Proof > AllocationHN17 On a Fed. R. Civ. P. 12(b)(2) motion to dismiss for lack of personal jurisdiction, aplaintiff bears the burden of showing that a court has jurisdiction over a defendant.

Where the court does not conduct an evidentiary hearing on the issue of personaljurisdiction, the plaintiff need only make a prima facie showing that the court possessespersonal jurisdiction over the defendant. In deciding whether a plaintiff has met thisburden, the court must construe the pleadings and affidavits in the light most favorable tothe plaintiff, resolving all doubts in the plaintiff's favor. However, conclusory allegationsare not enough to establish personal jurisdiction.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > Claims > General OverviewCivil Procedure > Jurisdiction > Personal Jurisdiction & In Rem Actions > In PersonamActions > General OverviewCivil Procedure > Venue > General OverviewHN18 See 18 U.S.C.S. 1965(a), (b), (d).

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > CoverageCivil Procedure > Jurisdiction > Personal Jurisdiction & In Rem Actions > In PersonamActions > General OverviewHN19 The law in the United States Court of Appeals for the Second Circuit is clear thatthe Racketeer Influenced and Corrupt Organizations (RICO) statute, 18 U.S.C.S. 1961et seq., does not provide for nationwide personal jurisdiction over every defendant inevery civil RICO case, no matter where the defendant is found.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > CoverageCivil Procedure > Jurisdiction > Personal Jurisdiction & In Rem Actions > In PersonamActions > General OverviewHN20 18 U.S.C.S. 1965(a) grants personal jurisdiction over an initial defendant in acivil case under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18U.S.C.S. 1961 et seq., to a district court for the district in which that person resides, has

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an agent, or transacts his or her affairs. In other words, a civil RICO action can only bebrought in a district court where personal jurisdiction based on minimum contacts isestablished as to at least one defendant. Then, 18 U.S.C.S. 1965(b) provides fornationwide service and jurisdiction over "other parties" not residing in the district,including co-defendants. This jurisdiction is not automatic but requires a showing that the

"ends of justice" so require. 18 U.S.C.S. 1965(b). Meanwhile, 18 U.S.C.S. 1965(d)applies only to "all other process," meaning process other than a summons of a defendantor subpoena of a witness. 18 U.S.C.S. 1965(d). In sum, in the United States Court ofAppeals for the Second Circuit, a civil RICO action can only be brought in a district courtwhere personal jurisdiction based on minimum contacts is established as to at least onedefendant. Then, jurisdiction can be obtained on a showing that the "ends of justice" sorequire.

Antitrust & Trade Law > Private Actions > Racketeer Influenced & CorruptOrganizations > CoverageCivil Procedure > Jurisdiction > Personal Jurisdiction & In Rem Actions > In Personam

Actions > General OverviewHN21 The United States Court of Appeals for the Second Circuit has not offered anexplanation as to what exactly the Racketeer Influenced and Corrupt Organizations(RICO) statute, 18 U.S.C.S. 1961 et seq., means by "ends of justice," for purposes ofjurisdiction under 18 U.S.C.S. 1965(b). However, it is generally accepted that "ends ofjustice" jurisdiction is authorized where a RICO claim could not otherwise be tried in asingle action because no district court could exercise personal jurisdiction over alldefendants.

COUNSEL: [*1] For Elsevier Inc., Blackwell Publishing, Ltd., Wiley Periodicals, Inc.,Wiley-Liss, Inc., Informa UK Ltd., Informa USA, Inc., American Chemical Society,Plaintiffs: Laura Jean Scileppi, William Irvin Dunnegan, LEAD ATTORNEYS,Dunnegan LLC, New York, NY.

For W.H.P.R., Inc., Richard B. Hayat, Randi Hayat, Defendants: Michael S. Re, LEADATTORNEY, Robert Stephen Cohen, Moritt Hock Hamroff & Horowitz LLP (Nassau),Garden City, NY; Stephen Justin Ginsberg, Moritt Hock Hamroff & Horowitz LLP,Garden City, NY.

For Educo Periodicals Co., Inc., Barbara Pessina, Russell Pessina, Patricia Anspach,Thomas Anspach, Defendants: Terence Joseph Gallagher, LEAD ATTORNEY, JonesGarneau, L.L.P.(CT), Stamford, CT.

For Klavdiya A. Lokshina, Defendant: Michael C. Rakower, LEAD ATTORNEY, DavidEmanuel Miller, Law Office of Michael C. Rakower, New York, NY.

JUDGES: Colleen McMahon, United States District Judge.

OPINION BY: Colleen McMahon

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OPINION

MEMORANDUM DECISION AND ORDER DISMISSING THE COMPLAINTWITHOUT PREJUDICE AND WITH LEAVE TO AMEND

McMahon, J.:

INTRODUCTION

This case alleges, in substance, that Defendants conspired to defraud Plaintiffs--thepublishers of many of the world's leading scientific, technical and medical journals--byplacing [*2] orders for the purchase of thousands of these journals at a lower ordiscounted "individual" subscription rate, rather than the higher "institutional" rate, andthen reselling the journals to institutions for more than the individual rate. Plaintiffs asserta variety of state law claims-- breach of contract, fraud, even conversion--and then wrap

them in the trappings of the Racketeering and Corrupt Organizations Act, 18 U.S.C. 1961 et seq. ("RICO").

Allegations of racketeering have been described as a "thermonuclear device." Katzman v.Victoria's Secret Catalogue, 167 F.R.D. 649, 655 (S.D.N.Y. 1996) (quoting Miranda v.Ponce Fed. Bank, 948 F.2d 41, 44 (1st Cir. 1991)), aff'd 113 F.3d 1229 (2d Cir. 1997).The mere assertion of a RICO claim has an almost inevitable stigmatizing effect on thosenamed as defendants. As a result, courts are charged with flushing out frivolous RICOallegations at the earliest possible stage of litigation.

All of the remaining defendants, W.H.P.R., Inc. ("W.H.P.R."), Richard B. Hayat("Hayat"), Randi Hayat, Thomas Anspach, Patricia Anspach and Klavdiya Lokshina(collectively, "Defendants"), have moved to dismiss the RICO claims on the ground thatthey are [*3] defectively pleaded, in that they are both lacking in particulars (and thusfail Federal Rule of Civil Procedure 9(b)), and in failing to state a claim (Rule 12(b)(6)).Additionally, defendants Thomas and Patricia Anspach (the "Anspachs" or "AnspachDefendants") move to dismiss on the ground that the Court lacks personal jurisdictionover them. AU Defendants also move to dismiss the various state law claims that havebeen asserted against them, with the exception that W.H.P.R. and the Hayats do not moveto dismiss the breach of contract claims asserted against them in Counts V and VI.

Because there is at least one defect in the RICO pleading as to each defendant, themotions to dismiss the RICO claims are granted, and the complaint is dismissed, albeitwithout prejudice and with leave to replead. The other motions are denied withoutprejudice to their renewal once an amended pleading is served.

BACKGROUND

I. Allegations in the Complaint and RICO Case Statement

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The following allegations are found in Plaintiffs' complaint (the "Complaint") and/ortheir RICO Case Statement.

Plaintiffs publish journals that consist primarily of peer-reviewed articles, written by oneor more scholars, often [*4] based on original research. (Compl. P 19.) Plaintiffs invest

heavily in publishing their journals, incurring substantial costs for producing theirproducts. (Id. P 20.) Plaintiffs sell their journals almost entirely through annualsubscriptions, on a calendar year basis. They charge institutions "full" rates (or higherprices) and individuals "discounted" rates (or lower prices). They do the latter often as anaccommodation to members of scholarly societies that sponsor or own the journals. (Id. P21.)

Plaintiffs are the "sole source" of their journals, which I gather means that they controlthe distribution of these journals. (Id. P 22.) However, they do sell subscriptions throughsubscription agents, including defendant W.H.P.R. Subscription agents act asintermediaries between institutions (their customers) and journal publishers, (Id. P 24.)

When an individual orders a subscription to one of Plaintiffs' journals, the invoice andpurchase order form (the contract) contains a clause that forbids the purchaser fromreselling the journal to an institution or from using it as a library copy (i.e., accessible topersons other than the purchaser). (See id. P 23.) When a subscription agent [*5] placesan order, Plaintiffs rely on the agent to identify truthfully the type of subscription needed,based on whether the ultimate purchaser is an individual or institution. (Id. P 24.) Theterms and conditions for orders placed on behalf of "library customers" (institutionalpurchasers) require that the agent identify the end user of each journal ordered at the timethe order is placed. (Id. P25.) W.H.P.R.'s trade association strictly forbids a subscriptionagent from taking out personal subscriptions on behalf of institutions, rather thancharging the institutional rate. (Id. P 26.)

Plaintiffs allege that they take orders for subscriptions by mail, telephone, facsimile andthe internet. (Id. P 28.)

Plaintiffs allege that Defendants have engaged in fraud and conspiracy by purchasingindividual subscriptions from Plaintiffs at discounted rates and then selling them toinstitutions at "higher rates," while pocketing the difference. (Id. P 29.) The Complaintdoes not specify whether these "higher rates" were below, at or above the institutionalrate charged by Plaintiffs. W.H.P.R.'s owner, defendant Richard Hayat, is the allegedleader of the fraud. (Id. P30.)

The first claim for relief [*6] alleges that W.H.P.R. is an enterprise for purposes of theRICO statute, as is an association in fact among Hayat and the other individualdefendants, which association in fact has as its purpose the securing of journalsubscriptions at lower rates and reselling them at higher rates. (Id. P 35.) The Complaintalleges that between 2001 and 2008, Hayat and the other individual defendants engagedin acts of mail and wire fraud in furtherance of their scheme, using false names and

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addresses and obtaining subscriptions to a variety of magazines under false pretenses. (Id.PP 30, 37.)

This conclusory allegation is buttressed by a list of journals that were allegedly obtainedby each individual defendant during specified subscription years. For example, paragraph

38 of the Complaint alleges that Richard Hayat secured forty-eight separate individualsubscriptions to Plaintiffs' journals between 1998 and 2006, with the intent to resell themto institutions at higher rates. The journals and the subscription years, as well as theaffected plaintiff, are listed in the Complaint. The Complaint does not allege the exactdate (day, month and year) on which each subscription was ordered; or whether [*7] theorder was placed by use of the mails, wire, facsimile or internet; or what (if any) falsenames were used to obtain the subscriptions.

Paragraph 39 contains identical allegations against defendant Randi Hayat, who isRichard Hayat's wife; only the list of journals to which subscriptions were obtained isdifferent. Paragraph 42 contains identical allegations (with a different list of journals and

years) as against Patricia Anspach; paragraph 43 as against Thomas Anspach; andparagraph 44 as against Klavdiya Lokshina.

There is also a Schedule A to the Complaint, and paragraph 45 alleges, albeit oninformation and belief, that Hayat and/or one of the other individual defendants securedindividual subscriptions to every journal on that list, under real or fictitious names ofsome third party, intending to resell the subscriptions at a higher price. Schedule A isthirteen pages long and lists the first and last name of the purported subscriber, thejournal subscribed to, the year of the subscription and the name of the plaintiff publisher.There are forty or more listings on each page. There is no allegation that thesesubscriptions were sent to the address of any of the named defendants; [*8] there is noallegation whether the subscriptions were obtained by use of the mail, the internet, thetelephone or facsimile.

There is no allegation in the Complaint that the mail or wires were used to deliver thejournals subscribed to, although common sense dictates that this must be so. And indeed,Plaintiffs' RICO Case Statement indicates, as to the subscriptions allegedly ordered byeach defendant, that each defendant intended that Plaintiffs would deliver the journalssubscribed to via the U.S. Mail. (RICO Case Stmt., Jan. 29, 2010, at 3-9.)

These subscriptions are alleged to have been obtained with the intent to defraud theplaintiff into providing an institutional subscription at an individual rate. (Compl. P 46.)By reason of these predicate acts of mail fraud and wire fraud, Plaintiffs allegedlysuffered a loss of subscription revenue that constitutes injury to their business orproperty, all in violation of 18 U.S.C. 1962(c). (Id. 148.)

Plaintiffs identify Hayat as a recidivist, alleging that the publisher John Wiley & Sons,Inc. asserted a claim against him in 2005 for doing exactly the same thing Plaintiffsallege. The claim was allegedly settled, but the RICO Case Statement [*9] avers thatHayat is in breach of that settlement agreement. (RICO Case Stmt. at 19-20.)

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The second cause of action alleges conspiracy to violate RICO in violation of 18 U.S.C. 1962(d). The Complaint alleges that Defendants have conspired to conduct or participatein the affairs of W.H.P.R. and the association in fact (the two alleged enterprises) througha pattern of racketeering activity, which includes the acts of mail or wire fraud alleged in

the first cause of action and another act of wire fraud (by use of emails). This lastallegedly fraudulent communication was the response given to an inquiry from an agentof Plaintiffs about the source of certain journals. The inquiry was directed to RichardHayat, who identified originally named defendant Educo Periodicals Co., Inc. ("Educo")as the source of the journals. The email was sent by originally named defendant BarbaraPessina on behalf of Educo and allegedly falsely represented that the journals had beenobtained second-hand, from libraries, chemical and pharmaceutical companies,consignments, or backserv lists located online. (Compl. PP 52-54.)

The remaining causes of action are state law claims, for common law fraud andconspiracy [*10] to defraud, breach of contract and conversion. They are predicated on

the allegations that underlie the RICO counts.

II. The Motions to Dismiss

Defendants have moved to dismiss the Complaint in its entirety. Insofar as they seekdismissal of the RICO Claims (Counts I and II), Defendants argue the following:(1) The Complaint fails to plead the predicate acts of fraud with particularity incompliance with Rule 9(b).

(2) The C