Opinion
IP 00-329-C T/G.
February 1, 2001.
ENTRY ON PLAINTIFF'S MOTION TO AMEND THE COMPLAINT, DEFENDANT'S MOTION TO DISMISS THE AMENDED COMPLAINT AND PLAINTIFF'S MOTION TO STRIKE
Though this entry is a matter of public record and is being made available to the public on the court's web site, it is not intended for commercial publication either electronically or in paper form. The reason for this caveat is to avoid adding to the research burden faced by litigants and courts. Under the law of the case doctrine, the ruling or rulings in this entry will govern the case presently before this court. See, e.g., Tr. of Pension, Welfare, Vacation Fringe Benefit Funds of IBEW Local 701 v. Pyramid Elec., 223 F.3d 459, 468 n. 4 (7th Cir. 2000); Avitia v. Metro. Club of Chicago, Inc., 49 F.3d 1219, 1227 (7th Cir. 1995). However, a district judge's decision has no precedential authority and, therefore, is not binding on other courts, on other judges in this district, or even on other cases before the same judge. See, e.g., Howard v. Wal-Mart Stores, Inc., 160 F.3d 358, 359 (7th Cir. 1998) ("a district court's decision does not have precedential authority"); Malabarba v. Chicago Tribune Co., 149 F.3d 690, 697 (7th Cir. 1998) ("district court opinions are of little or no authoritative value"); United States v. Articles of Drug Consisting of 203 Paper Bags, 818 F.2d 569, 571 (7th Cir. 1987) ("A single district court decision . . . has little precedential effect. It is not binding on the circuit, or even on other district judges in the same district."). Consequently, though this entry correctly disposes of the legal issues addressed, this court does not consider the discussion to be sufficiently novel or instructive to justify commercial publication of the entry or the subsequent citation of it in other proceedings.
Plaintiff, William Arnold, sued Defendant, Liquid Transport, Inc. ("Liquid Transport"), in the district court for the Southern District of Ohio. On February 17, 2000, this case was transferred to this court. Thereafter, Mr. Arnold moved to amend the Complaint. In the Amended Complaint, Mr. Arnold alleges, in Counts I through III, that Liquid Transport violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (a), (c) and (d). In Counts IV through VI of the Amended Complaint, Mr. Arnold alleges state law causes of action on breach of contract, slander, and actual and constructive fraud theories. Liquid Transport moved to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted, FED. R. CIV. P. 12(b)(6), failure to allege fraud with particularity, FED. R. CIV. P. 9(b), and lack of federal jurisdiction, 28 U.S.C. § 1331, 1332, 1367. Mr. Arnold subsequently moved to strike a portion of Liquid Transport's Reply Brief to its motion to dismiss. Those three motions are presently before the court.
Although Liquid Transport does not expressly refer to Rule 12(b)(6), it is evident that its motion to dismiss is brought under that rule and will be treated accordingly.
I. Background
For the purpose of this motion to dismiss, all facts alleged in the Amended Complaint are accepted as true and all reasonable inferences from those facts will be drawn in favor of Mr. Arnold. See, e.g., Richmond v. Nationwide Cassell L.P., 52 F.3d 640, 644 (7th Cir. 1995) (citing H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249 (1989)). The court notes that the facts set forth in this section of the Entry are sketchy at best. However, what is reflected here is the totality of the facts set forth by Mr. Arnold in his Amended Complaint. Mr. Arnold's Response Brief to Liquid Transport's motion to dismiss does not provide further detail.
Mr. Arnold was an independent contractor hired by Liquid Transport from July 1, 1996, through March, 16, 1998, to transport commercial goods interstate.
The [contract] that Arnold signed governs the amount and manner by which Liquid Transport was to compensate Arnold. The compensation structure was based, in part, on the types of trips that Arnold made, and the types of loads that he carried. Compensation varied, for example, depending on whether Arnold's trips were characterized as 'continuous load trips' or 'non-revenue dispatch trips,' and also depending on the value of the load that Arnold transported.
(Def.'s Br. in Supp. at 2.)
Mr. Arnold maintains that every three months between February 1995 and March 17, 1998, including April 14, 1998, Liquid Transport collected moneys from him claiming that such funds were owed for fuel, road taxes and highway use tax debts when in fact the funds collected were not owed for these purposes. Mr. Arnold further maintains that from July 10, 1996, to February 26, 1998, Liquid Transport failed to pay him money earned for non-revenue dispatched miles and fraudulently withheld money owed to him for detention time.
Mr. Arnold's Amended Complaint is factually inconsistent in at least one regard. In paragraph 16 of the Amended Complaint, Mr. Arnold alleges that money was collected between July 1998 and March 17, 1998, for the purpose of paying for fuel, road taxes and highway use tax debts. However, in paragraph 17 of the Amended Complaint, Mr. Arnold alleges that "these debts" were collected every three months from February 1995 until March 16, 1998.
At a date not known to this court, Liquid Transport entered into a contract with Albright Wilson, Inc. ("Albright Wilson"), which established rates at which trucking loads would be paid to Liquid Transport. Liquid Transport's contract with Mr. Arnold referenced the rates stated in Liquid Transport's contract with Albright Wilson. Mr. Arnold's contract entitled him to a percentage of the funds collected by Liquid Transport pursuant to its contract with Albright Wilson. Mr. Arnold contends that Liquid Transport and Albright Wilson conspired to pay Mr. Arnold less than what was owed (1) under his contract for non-continuous dispatched deliveries from July 1, 1996, through March 17, 1998, and (2) under his contract for co-product deliveries, and conspired to designate non-continuous loads as continuous.
Mr. Arnold's Amended Complaint states that Liquid Transport's RICO predicate acts were mail and wire fraud. Mr. Arnold contends that in furtherance of its racketeering scheme, Liquid Transport utilized the United States mail, facsimile machines and phone lines to collect these debts in that Mr. Arnold and other victims of Liquid Transport's racketeering scheme received docked paychecks, falsified trip summons and settlement statements through the United States mail. In addition, Liquid Transport used telephone and C.B. radios to transmit false and misleading information to Mr. Arnold.
II. Plaintiff's Motion To Amend The Complaint
Mr. Arnold moves to amend his Complaint to include diversity jurisdiction and to plead his RICO claims with further specificity. Liquid Transport does not oppose Mr. Arnold's motion. Therefore, Mr. Arnold's motion to amend the Complaint will be granted.
On the original Complaint, in addition to Mr. Arnold, there appeared four individually named plaintiffs. On the Amended Complaint, however, only Mr. Arnold is listed as a plaintiff. Because this court will grant Mr. Arnold's motion to amend, those four plaintiffs, Christopher Humble, Mark Humble, Gary Potter and James Southward, will be dismissed from this cause of action.
III. Defendant's Motion To Dismiss The Amended Complaint
Liquid Transport moves to dismiss all counts of the Amended Complaint. Liquid Transport maintains that Counts I through III of the Amended Complaint should be dismissed for a number of reasons, all of which need not be addressed. First, Liquid Transport maintains that Counts I through III are procedurally deficient in that the allegations pled in those counts do not satisfy the pleading requirement set forth in Federal Rule of Civil Procedure 9(b). Liquid Transport asserts that Rule 9(b) applies to this case because Mr. Arnold's RICO claims rest on predicate acts of mail and wire fraud. Although Mr. Arnold disputes the strict application of Rule 9(b) to Counts I through III, he does not dispute that the predicate acts were indeed mail and wire fraud. Liquid Transport further maintains that Mr. Arnold's RICO claims should be dismissed because (1) Mr. Arnold has failed to identify or plead a "pattern of racketeering activity" as required by both section 1962(a) and (c); (2) Liquid Transport's conduct is not a RICO predicate act and does not satisfy the RICO "pattern" requirement; (3) Mr. Arnold has failed to allege and identify a RICO "enterprise"; and (4) Mr. Arnold has failed to allege facts sufficient to demonstrate that Liquid Transport and Albright Wilson agreed to violate a substantive provision of the RICO statute as is required for a claim brought under section 1962(d). Finally, Liquid Transport maintains that Mr. Arnold's state law claims (Counts IV through VI) should be dismissed because (1) supplemental jurisdiction is not appropriate if Mr. Arnold's RICO claims are dismissed and (2) diversity jurisdiction does not exist because Mr. Arnold's claim that the amount in controversy exceeds $75,000 was not made in good faith.A. Pattern Of Racketeering Activity
Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for "failure to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990) (citation omitted). Dismissal of a complaint for failure to state a claim is proper "only if 'it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Richmond, 52 F.3d at 644 (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). As stated above, all well-pleaded facts are taken as true, all inferences are drawn in favor of the plaintiff, and all ambiguities are resolved in favor of the plaintiff. See Lachmund v. ADM Investor Servs., Inc., 191 F.3d 777, 782 (7th Cir. 1999); see also Richmond, 52 F.3d at 644.
Liquid Transport moved to dismiss Counts I through III of the Amended Complaint for failure to state a claim. Count I of the Amended Complaint alleges a violation of 18 U.S.C. § 1962(a), Count II alleges a violation of 18 U.S.C. § 1962(c), and Count III alleges a violation of 18 U.S.C. § 1962(d).
Paragraph 56 of the Amended Complaint states, "That upon information and belief, Defendant conspired with Albright Wilson, Inc. to violate 18 U.S.C. § 1962(a) and 18 U.S.C. § 1962(b) as set forth in previous paragraphs 10-55." In its Brief in Support of its motion to dismiss, Liquid Transport notes that the reference to section 1962(b) was likely a typographical error as there exists no reference to section 1962(b) in paragraphs 10 through 55. Mr. Arnold, in his Response, makes no mention of this apparent typographical error. As such, the court assumes, as did Liquid Transport, that Mr. Arnold's reference to section 1962(b) in paragraph 56 of the Amended Complaint was inadvertent and that paragraph 56 was meant to read, "That upon information and belief, Defendant conspired with Albright Wilson, Inc. to violate 18 U.S.C. § 1962(a) and 18 U.S.C. § 1962(c) as set forth in previous paragraphs 10-55." (emphasis added).
Section 1962(a) provides in relevant part:
It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. . . . .18 U.S.C. § 1962(a). "To state a claim for violation of § 1962(a), a plaintiff must plead 'the receipt of income from a pattern of racketeering activity, and the use of that income in the operation of an enterprise.'" Lachmund, 191 F.3d at 785 (quoting Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 778 (7th Cir. 1994) (internal quotations omitted)).
Section 1962(c) provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.18 U.S.C. § 1962(c). "To state a claim under § 1962(c), a RICO plaintiff must show the '(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Richmond, 52 F.3d at 644 (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985) (footnote omitted)).
Section 1962(d) provides:
It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.18 U.S.C. § 1962(d). "To state a claim for conspiracy under § 1962(d), a plaintiff must allege '(1) that each defendant agreed to maintain an interest in or control of an enterprise or to participate in the affairs of an enterprise through a pattern of racketeering activity and (2) that each defendant further agreed that someone would commit at least two predicate acts to accomplish those goals.'" Lachmund, 191 F.3d at 784 (quoting Goren v. New Vison Int'l, Inc., 156 F.3d 721, 732 (7th Cir. 1998) (footnote omitted)).
Sections 1962(a), (c) and (d) are exactly the same in at least one regard — each sections requires that a pattern of racketeering exist before a violation can be found. See 28 U.S.C. § 1962(a), (b) (c) (discussed above). Thus, in order to survive Liquid Transport's 12(b)(6) motion, Mr. Arnold must plead facts from which it is possible to prove that Liquid Transport's conduct amounted to a pattern of racketeering activity. "A pattern of racketeering activity consists of at least two predicate acts of racketeering committed within a ten-year period." Viacom, 20 F.3d at 779 (citing 18 U.S.C. § 1961(5)). Thus, in order to appropriately plead a pattern of racketeering activity, Mr. Arnold must plead (1) predicates act that (2) form a pattern.
Pleading the statutory minimum of two predicate acts is necessary to establish a pattern of racketeering activity, but pleading two acts alone rarely will be sufficient to create the requisite pattern. See H.J., Inc., 492 U.S. at 237 (citation omitted); Corely v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1048 (7th Cir. 1998).
"Predicate acts are acts indictable under a specific list of criminal laws, 18 U.S.C. § 1961 (1)(B), including mail fraud under 18 U.S.C. § 1341, and wire fraud under 18 U.S.C. § 1343. " Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1019 (7th Cir. 1992). Mr. Arnold alleges predicate acts of mail and wire fraud. Because Mr. Arnold alleges predicate acts of fraud, the heightened pleading requirement of Federal Rule Of Civil Procedure 9(b) applies to his RICO claims. See Lachmund, 191 F.3d at 784. Moreover, "[t]he complaint must also allege facts from which it reasonably may be inferred that the defendants engaged in the scheme with fraudulent intent." Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994) (citation omitted).
Liquid Transport maintains that even if it did have a scheme to defraud, Mr. Arnold has failed to show that Liquid Transport's use of the mails was within the scheme. While the court does not reach this issue, although it doubts the merits of Liquid Transports argument, the court notes that Mr. Arnold has certainly alleged that the acts of wire fraud were within Liquid Transport's purported scheme to defraud and it does not appear that Liquid Transport disputes this.
Liquid Transport argues that the Amended Complaint does not allege facts from which an intent to defraud can be inferred. While the court need not specifically address this issue, the court notes that Rule 9(b) only requires that intent be "averred generally." FED. R. CIV. P. 9(b).
1. Rule 9(b)
Rule 9(b) provides:
Fraud, Mistake, Condition of the Mind. In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
FED. R. CIV. P. 9(b). "While [Rule 9(b)] does not require a plaintiff to plead facts that if true would show that the defendant's alleged misrepresentations were indeed false, it does require the plaintiff to state 'the identity of the person making the representation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.'" Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 923 (7th Cir. 1992) (quoting Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992) (citations omitted)). "In other words, the plaintiff must plead the 'who, what, when, and where' of the alleged fraud." Id. Thus, Mr. Arnold "must, within reason, describe the time, place, and content of the mail and wire communications, and [he] must identify the parties to these communications." Jepson, 34 F.3d at 1328 (citations omitted). "[L]oose references to mailings and telephone calls in furtherance of a purported scheme to defraud will not do." Id.
The Seventh Circuit, in Uni*Quality v. Infotronx, articulated the important purpose that Rule 9(b) serves:
Rule 9(b)'s particularity requirement serves an important purpose. Accusations of fraud can seriously harm a business. This is especially so in RICO cases where those accusations of fraud lead to the probably more damaging accusation that the business engaged in 'racketeering.' Rule 9(b) ensures that a plaintiff have some basis for his accusations of fraud before making those accusations and thus discourages people from including such accusations in complaints simply to gain leverage for settlement or for other ulterior purposes.974 F.2d at 924 (citation omitted). Additionally, Rule 9(b) serves the important purpose of ensuring that a defendant receives fair notice of the circumstances underlying a fraud claim brought against it. See Jepson, 34 F.3d at 1327 ("[Rule 9(b)] is said to serve three main purposes: (1) protecting a defendant's reputation from harm; (2) minimizing 'strike suits' and 'fishing expeditions'; and (3) providing notice of the claim to the adverse party."); see also Viacom, 20 F.3d at 777-78 (recognizing that the need to provide fair notice to the defendant is "perhaps the most basic consideration underlying Rule 9(b)") (quotation omitted). "For without an adequately detailed description of the predicate acts of mail and wire fraud, a complaint does not provide either the defendant or the court with sufficient information to determine whether or not a pattern of racketeering activity has been established." Jepson, 34 F.3d at 1328 (quotation omitted). These important purposes figure prominently in the determination of whether Mr. Arnold has satisfied Rule 9(b). Mr. Arnold correctly maintains that Rule 8's general pleading requirement and Rule 9(b)'s particularity requirement must be read together. See, e.g., Michaels Bldg. Co. v. Ameritrust, 848 F.2d 674, 679 (6th Cir. 1988) ("Rule 9(b)'s particularity requirement does not mute the general principles set out in Rule 8; rather, the two rules must be read in harmony.") (citation omitted); Tomera v. Galt, 511 F.2d 504, 508 (7th Cir. 1975) ("Rule 9 must be read together with rules 8(a)(2), 8(e)(1) and 8(f), Fed.R.Civ.P.") (citations omitted), overruled on other grounds, Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir. 1990); Heastie v. Cmty. Bank of Greater Peoria, 690 F. Supp. 716, 722 (N.D. Ill. 1988) (Rules 8 and 9(b) must be read together). And, thus, "the plaintiff need not plead evidentiary details." Heastie, 690 F. Supp. at 722. Importantly, however, the charge to read Rule 8 together with Rule 9(b) certainly does not mean that Rule 8 trumps the particularity requirement of Rule 9(b). The Seventh Circuit has made it very clear "that the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) apply to allegations of fraud in a civil RICO complaint." Lachmund, 191 F.3d at 782, 784 (holding that Rule 9(b)'s heightened standard applies to a plaintiff's RICO claims brought under 18 U.S.C. § 1962(a), (c) and (d)) (citations omitted); Jepson, 34 F.3d at 1327 ("Of course, Rule 9(b) applies to allegations of mail and wire fraud and by extension to RICO claims that rest on predicate acts of mail and wire fraud."). Although, as discussed in detail below, limited exceptions to this requirement do exist. See Uni*Quality, 974 F.2d at 923 (discussed below); Jepson, 34 F.3d at 1328. In determining whether Mr. Arnold's Amended Complaint sufficiently pleads the predicate acts of fraud which he alleges, this court, therefore, must apply the standard articulated in Rule 9(b).
Rule 8 provides, in relevant part:
(a) Claims for Relief. A pleading which sets forth a claim for relief, whether an original claim, counterclaim, cross-claim, or third-party claim, shall contain . . .
(2) a short and plain statement of the claim showing that the pleader is entitled to relief. . . .
* * *
(e) Pleading to be Concise and Direct; Consistency.
(1) Each averment of a pleading shall be simple, concise, and direct. No technical forms of pleading or motions are required.
(f) Construction of Pleadings. All pleadings shall be so construed as to do substantial justice.
FED. R. CIV. P. 8.
Although, reading Rule 8 together with Rule 9(b), this court notes that Mr. Arnold need not plead evidence to satisfy Rule 9(b)'s particularity requirement.
Mr. Arnold maintains that the Amended Complaint satisfies the requirement of Rule 9(b) as the particularity requirement of that rule should be relaxed here. Mr. Arnold maintains that the requirement of Rule 9(b) is relaxed (1) when a plaintiff alleges a fraud against a third party and (2) when factual details are within the exclusive control of the defendant. Mr. Arnold cites a number of cases in support of these arguments. Mr. Arnold first argues that Rule 9(b)'s specificity requirement should be relaxed because he is alleging fraud against a third party. While "[i]t is true that where a plaintiff is alleging fraud against a third party, less detail may be required under Rule 9(b) because the plaintiff may not have access to all the facts necessary to detail the claim[,]" Mr. Arnold's argument misses the mark. Uni*Quality, 974 F.2d at 923 (holding that the allegations in the plaintiff's complaint failed to meet Rule 9(b)'s particularity requirement). Mr. Arnold alleges that Liquid Transport committed mail and wire fraud when communicating with him. Mr. Arnold does not allege that Albright Wilson ever communicated with him, let alone committed fraud in such communications, nor does Mr. Arnold allege that Albright Wilson committed mail or wire fraud with respect to its communications with Liquid Transport. There is no reason that Mr. Arnold should not have all the facts necessary to detail the claims. Thus, the underlying reasons for relaxing 9(b)'s requirement when fraud is alleged against a third party are not applicable here. Therefore, Rule 9(b)'s requirement will not be relaxed on this ground.
Mr. Arnold also argues that Rule 9(b)'s particularity requirement should be relaxed when factual details necessary to satisfy Rule 9(b) are within the defendant's control. Indeed, the Seventh Circuit, in Jepson, opined, "Specificity requirements may be relaxed, of course, when the details are within the defendant's exclusive control." 34 F.3d at 1328 (holding that plaintiffs' RICO claims were defective because the amended complaint did not adequately detail the predicate acts of mail and wire fraud) (citation omitted). In Jepson, however, the court noted that the plaintiffs became aware of the defendants' conduct not from the defendants', but from the plaintiffs', customers. That being so, that court held, "The plaintiffs cannot therefore complain of an inability to ascertain the details of these communications; even if they learned of the contacts through other sources, they have as much access as the defendants to the customers who can flesh out the circumstances of the mailings and wire communications involved." Id. Such is the situation here. Mr. Arnold has direct, first-hand knowledge of the details of the fraudulent conduct that was aimed at him. Moreover, with respect to the other individuals that Mr. Arnold claims were defrauded by Liquid Transport, Mr. Arnold has as much access, if not more access, than Liquid Transport to the information that those individuals possess.
Therefore, Mr. Arnold's argument that Rule 9(b)'s particularity requirement should be relaxed because the necessary details to satisfy the rule are wholly within Liquid Transport's control is entirely unpersuasive.
Because the exceptions to Rule 9(b)'s particularity requirement do not apply in this case, Counts I through III of Mr. Arnold's Amended Complaint must satisfy the heightened pleading requirement of Rule 9(b). As discussed above, in a RICO case based on mail or wire fraud, "the plaintiff must, within reason, describe the time, place, and content of the mail and wire communications, and it must identify the parties to those communications." Id. (citations omitted).
Whether the allegations set forth in Mr. Arnold's Amended Complaint satisfy the particularity requirement of Rule 9(b) is a close question. It is enough to say that it is dubious whether this Amended Complaint satisfies the heightened pleading requirement of Rule 9(b). But, the subsequent discussion of the Amended Complaint's "pattern" and "enterprise" deficiencies eliminates the need for the court to make this close call.
2. Pattern
Although the court suspects that Mr. Arnold has failed to plead the fraud he alleges with the required particularity, the court will discuss the pattern requirement because there is no doubt that Mr. Arnold failed to allege a pattern as that term has been defined. "A pattern is something that evinces a continuous and related course of conduct; a complaint asserting a pattern of racketeering activity must allege facts from which such a continuous and related course of conduct — one indicating the threat of continuing criminal activity — reasonably may be inferred." Jennings v. Emry, 910 F.2d 1434, 1439 (7th Cir. 1990) (citation omitted); see also Midwest Grinding, 976 F.2d at 1022 ("[A] civil RICO plaintiff may no longer get by merely alleging two predicate acts, but must also satisfy the so-called 'continuity plus relationship' test: the predicate acts must be related to one another (the relationship prong) and pose a threat of continued criminal activity (the continuity prong).") (citing H.J., Inc., 492 U.S. at 239; Sedima, 473 U.S. at 496 n. 14).
This court begins its analysis of the "continuity plus relationship test" by first analyzing the continuity prong. "[C]ontinuity "is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.'" Viacom, 20 F.3d at 779 (quoting H.J., Inc., 492 U.S. at 241). A RICO plaintiff can prevail under either a closed-ended or an opened-ended conspiracy theory. See Midwest Grinding, 976 F.2d at 1023. Mr. Arnold claims that he has established both closed-ended and open-ended continuity. Liquid Transport argues that Mr. Arnold has failed to plead either.
"As its label suggests, a 'close-ended' period of racketeering activity involves a course of criminal conduct which has come to a close." Id. at 1022. In order to properly allege a pattern over a closed period, a RICO plaintiff must allege "'a series of related predicates extending over a substantial period of time.'" Viacom, 20 F.3d at 779 (quoting H.J., Inc., 492 U.S. at 242). The Seventh Circuit, in Morgan v. Bank of Waukegan, set forth a number factors to be considered in this continuity analysis. These factors include: "the number and variety of predicate acts and the length of time over which they were committed, the number of victims, the presence of separate schemes and the occurrence of distinct injuries." 804 F.2d 970, 975 (7th Cir. 1986). The court continued, "The doctrinal requirement of a pattern of racketeering activity is a standard, not a rule, and as such its determination depends on the facts and circumstances of the particular case, with no one factor being necessarily determinative." Id. at 976. Although this factor analysis is to be conducted on a case-by-case basis, the Seventh Circuit clearly disfavors finding closed-ended continuity where the period of time in which the predicate acts were committed was less than one year in duration or where a single scheme, regardless of its duration, has relied on multiple instances of mail and wire fraud. See Viacom, 20 F.3d at 781; Midwest Grinding, 976 F.2d at 1024. With these principles in mind, the court reviews Mr. Arnold's Amended Complaint in relation to the five factor analysis "with an eye toward achieving a natural and commonsense result, recognizing that Congress was concerned in RICO with long-term criminal conduct." Viacom, 20 F.3d at 780 (quotations omitted).
The Seventh Circuit "has placed great importance on the length of time the alleged predicate acts have spanned." Viacom, 20 F.3d at 780. Although, the Seventh Circuit has not held that predicate acts spanning less than a particular period of time, such as one year, "do not as a matter of law constitute a 'substantial period of time[.]'" Id. Here, it is very difficult to discern what Mr. Arnold contends is the duration of Liquid Transport's predicate acts. In his Response Brief, he maintains that "Defendant's actions were conducted over a substantial period of time, at least two years." (Pl.'s Br. in Resp. at 14) (emphasis in original). Paragraph 16 of the Amended Complaint states that between July 1996 and March 17, 1998, Liquid Transport illegally collected funds from Mr. Arnold claiming such funds were owed for taxes due. (See Am. Compl. ¶ 16.) However, in the very next paragraph, Mr. Arnold alleges, "[T]hese debts were collected every three months from Plaintiff and other independent owner-operators from at least February 1995 until March 16, 1998." (Am. Compl. ¶ 17.) This court is left pondering the same question that Liquid Transport is surely asking itself: which is it? For purposes of this 12(b)(6) motion, the court gives the benefit of the doubt to Mr. Arnold and assumes that the Amended Complaint alleges Liquid Transport's conduct lasted for some thirty-eight months. Mr. Arnold has not cited a single case that supports his assertion that this period of time is long enough to satisfy the duration requirement. Even it were long enough, which the court will assume it is, the thirty-eight month duration is not long enough to tip the scale in favor of finding continuity when the other factors are considered, as the other factors all counsel against finding a pattern of racketeering activity.
Mr. Arnold has conceded that the collection of these debts did not amount to the "collection of an unlawful debt" as that phrase has been defined. (See Pl.'s Br. in Resp. at 1, 13.) But, Mr. Arnold does maintain that the collection of these debts constituted a RICO scheme in that Liquid Transport forwarded fraudulent documents in furtherance of its scheme through the United States mail. (See id.; see also Am. Compl. ¶ 22.)
This is an example of the lack of detail in Mr. Arnold's fraud theories as plead in his Amended Complaint.
The number and variety of predicate acts does not support Mr. Arnold's contention that continuity existed here. The only predicate acts alleged consist of mail and wire fraud, not "a 'variety of predicate acts' as that phrase is understood in the caselaw." Viacom, 20 F.3d at 781. Moreover, the number of these predicate acts is impossible to determine from the Amended Complaint as Mr. Arnold has failed to provide details for any particular act of mail or wire fraud and, as discussed above, this lack of detail does not appear to be attributable to a lack of access to the information. In any event, "'[t]he Seventh Circuit . . . does not look favorably on relying on many instances of mail and wire fraud to form a pattern.'" Id. (quoting Hartz v. Friedman, 919 F.2d 469, 473 (7th Cir. 1990)). Indeed,
Mr. Arnold, neither in his Response Brief nor in the Amended Complaint, alleges an approximate number of acts of mail or wire fraud in each count.
[m]ail and wire fraud are perhaps unique among the various sorts of 'racketeering activity' possible under RICO in that the existence of a multiplicity of predicate acts . . . may be no indication of the requisite continuity of the underlying fraudulent activity. Thus, a multiplicity of mailings does not necessarily translate directly into a 'pattern' of racketeering activity.
Id. (quoting Lipin Enters., Inc. v. Lee, 803 F.2d 322, 325 (7th Cir. 1986) (Cudahy, J., concurring)); see also Hartz, 919 F.2d at 473 (quoting Lipin remark); United Stated Textiles, Inc. v. Anheuser-Busch Companies, 911 F.2d 1261, 1268 (7th Cir. 1990) (same); Sutherland v. O'Malley, 882 F.2d 1196, 1205 n. 8 (7th Cir. 1989) (same). The number of victims involved is closer, but still does not support Mr. Arnold's RICO scheme theory. In his Amended Complaint, Mr. Arnold names five alleged victims, including himself, of Liquid Transport's racketeering scheme. Although his Amended Complaint states that numerous other owner operators fell victim to Liquid Transport's scheme and that the total number of victims is not limited by those specifically named therein, the fact remains that Mr. Arnold is only sure of four victims in addition to himself.
Five victims, even if a few more did exist, are not enough to lend great support to Mr. Arnold's argument that a pattern of racketeering activity did exist. The Seventh Circuit has held in a number of cases which involved many more victims than Mr. Arnold alleges were involved here that a pattern of racketeering activity did not exist. See Talbot v. Robert Matthews Distrib., Co., 961 F.2d 654, 663 (7th Cir. 1992) (finding no pattern of racketeering activity from multiple acts of mail fraud occurring over a period of years in furtherance of a single scheme to defraud over two dozen plaintiffs of their employment); Olive Can Co. v. Martin, 906 F.2d 1147, 1151 (7th Cir. 1990) (holding that despite a "number of victims" and a "large number of predicate acts" continuity did not exist due to a short time span and lack of variety in the predicate acts). Again, when considered with the rest of the Morgan factors, the number of victims does not push Mr. Arnold over the continuity hump.
Next, the court considers the number of schemes involved. Here, there was one. The single scheme alleged in the Amended Complaint was the collection of funds due and owing for work performed by owner operators including Mr. Arnold. Mr. Arnold does not argue in his Response Brief that Liquid Transport's predicate acts amounted to more than a single scheme, nor does he argue that the Amended Complaint sets forth anything more than a single scheme. Indeed, from his Response Brief the court infers that Mr. Arnold agrees with Liquid Transport's argument that the Amended Complaint sets forth only a single scheme. Mr. Arnold argues, "Plaintiff has alleged that Defendant's actions had a similar purpose, to defraud Plaintiff and other owner operators of their contractually bestowed right to collect a percentage of the money Defendant collected from its customers." (Pl.'s Br. in Resp. at 13.) Although H.J., Inc., 492 U.S. at 235, instructs that "courts can no longer conclude that the pattern requirement has not been satisfied solely on the basis that the plaintiff alleged only one scheme[,] . . . the number of schemes is still relevant as to whether continuity exists." Viacom, 20 F.3d at 782 (holding that, despite listing five schemes in the complaint, the plaintiff alleged only a single scheme because all of the listed schemes revolved around the same central allegation) (internal citation omitted).
In the second sentence of Mr. Arnold's Response Brief he writes, "Plaintiff is alleging a deliberate scheme to defraud himself and others over a period of at least two years." (Pl.'s Br. in Resp. 1 (emphasis added); see also id. at 4 ("Plaintiff's pleading specifies . . . the fraudulent scheme. . . ."; id. at 7 ("Plaintiff has clearly alleged that Defendant's scheme was to defraud the Plaintiff and other independent owner operators of funds which were due and owing for work performed under a contract. . . ."); id. at 10-12.) From this language it is also possible to infer that Mr. Arnold is alleging only a single scheme.
Finally, the court considers the last Morgan factor: "the occurrence of distinct injuries." Although Mr. Arnold would argue otherwise, his alleged injuries are not distinct. Again, Viacom is instructive as to this court's consideration of this factor. 20 F.3d at 782. In Viacom, the Seventh Circuit recognized that "from [the plaintiff's] perspective, a distinct injury was inflicted through every individual predicate act[,]" but rejected such an approach. Id. The court concluded:
While Mr. Arnold did not argue this factor in his Response Brief, it is unlikely that he meant to concede it.
[In United States Textiles, 911 F.2d at 1269] we stated that a natural and common sense approach to the pattern element of RICO would instruct that identical economic injuries suffered over the course of two years stemming from a single contract were not the type of injuries which Congress intended to compensate via the civil provisions of RICO. Such is the case with [the plaintiff's] allegations of economic injury. They stem from the same original contract and similar predicate acts. Thus, [the plaintiff's] alleged injuries . . . are not distinct.
Id. (internal quotation omitted). Such is the case here. Mr. Arnold's alleged economic injuries "stem from the same original contract and similar predicate acts." Id. Thus, his alleged injuries — the loss of money earned and owing — are not distinct. See id.
All in all, Mr. Arnold's allegations, even if true, do not make a closed-ended pattern of racketeering activity. Mr. Arnold has failed to allege sufficiently closed-ended continuity. Thus, the court will turn to an open-ended continuity analysis.
"Continuity as an open-ended concept refers 'to past conduct that by its nature projects into the future with a threat of repetition.'" Id. (quoting H.J., Inc., 492 U.S. at 241). "Such a threat of continuity exists when the plaintiff can show (1) a 'specific threat of repetition,' (2) that the 'predicate acts or offenses are part of an ongoing entity's regular way of doing business,' or (3) that the defendant operates a 'long-term association that exists for criminal purposes.'" Midwest Grinding, 976 F.2d at 1023 (quoting H.J., Inc., 492 U.S. at 242-43) (citation omitted).
Mr. Arnold has failed to show that there exists any threat of Liquid Transport's past conduct being projected into the future. First, Mr. Arnold has alleged no facts from which it can be concluded that a specific threat of repetition exists. Mr. Arnold's Amended Complaint suggests that Mr. Arnold no longer works with Liquid Transport and has not since 1998. Nor has Mr. Arnold alleged that Liquid Transport's scheme requires him to advance any sum to Liquid Transport in the future. Next, Mr. Arnold has failed to plead any facts in support of his conclusion that Liquid Transport's fraudulent conduct "continues as part of Defendant's regular manner of conducting its ongoing legitimate business." (Am. Compl. ¶ 18; see also Am. Compl. ¶¶ 29, 50.) Indeed, Mr. Arnold has pled nothing more than this mere conclusion. That is not enough; at least some detail is required from which it is possible to infer that the criminal conduct which Mr. Arnold alleges will continue into the future. See Jennings, 910 F.2d at 1439 (holding that "a complaint asserting a pattern of racketeering activity must allege facts from which such a continuous and related course of conduct — one indicating the threat of continuous criminal activity — reasonably may be inferred"; mere conclusions will not suffice) (citations omitted); see also Viacom, 20 F.3d at 783 ("A threat of continuity cannot be found from bald assertions such as '[Defendant] continues his racketeering actvities.'"). Finally, Mr. Arnold pleads nothing which suggests that Liquid Transport "operates a long-term association that exists for criminal purposes."
At most, Mr. Arnold pleads that Liquid Transport contracted with Albright Wilson the purpose of which was "transportation of goods in interstate commerce." (Am. Compl. ¶ 37.) Moreover, there is nothing in the Amended Complaint which alleges that any such association was one of "long-term." For all of these reasons, Mr. Arnold has failed to plead open-ended continuity.
It is clear that what exists here is not a pattern of racketeering activity, but at best an ordinary fraud. Mr. Arnold, despite a charitable reading of the Amended Complaint, has failed to sufficiently allege either closed-ended or open-ended continuity, thus failing to satisfy the continuity prong of the pattern requirement. As a result, Mr. Arnold has failed to plead a pattern of racketeering activity, and Counts I through III of the Amended Complaint must be dismissed.
Because Mr. Arnold has failed to plead facts from which it is possible to prove the continuity prong of the "continuity plus relationship test," it is not necessary to examine whether Mr. Arnold has satisfied the relationship prong of that test.
B. Enterprise
Yet another reason exists for dismissing Count II of the Amended Complaint. As stated above, to state a claim under section 1962(c), a RICO plaintiff must allege the existence of an enterprise. See Richmond, 52 F.3d at 644 (quotation omitted). "An enterprise is distinct, separate, and apart from a pattern of racketeering activity: although a pattern of racketeering activity may be the means through which the enterprise interacts with society, it is not itself the enterprise, for an enterprise is defined by what it is, not what it does." Jennings, 910 F.2d at 1440 (citation omitted). The Amended Complaint alleges an association in fact enterprise composed of Liquid Transport and Albright Wilson. (See Am. Compl. ¶ 34; Pl.'s Br. in Resp. at 11.)
"RICO defines an 'association in fact' enterprise as a 'union or group of individuals associated in fact although not a legal entity.'" Stachon v. United Consumers Club, Inc., 229 F.3d 673, 675 (7th Cir. 2000) (quoting 18 U.S.C. § 1961(4)).
"An enterprise must have 'an ongoing 'structure' of persons associated through time, joined in purpose, and organized in a manner amenable to heirarchial or consensual decision making.'" Stachon v. United Consumers Club, Inc., 229 F.3d at 675 (quoting Jennings, 910 F.2d at1440) (citations omitted). A RICO enterprise "is something more than a group of people who get together and agree to commit a 'pattern of racketeering activity[.]'" Jennings, 910 F.2d at 1441 (quotation omitted). Accordingly, "there must be an organization with a structure and goals separate from the predicate acts themselves." Stachon, 229 F.3d at 675 (quotation omitted).
Mr. Arnold's Amended Complaint fails to identify a RICO enterprise. In his Amended Complaint, Mr. Arnold "provided no sign of 'structure, continuity and common course of conduct,'" which is required to withstand Liquid Transport's motion to dismiss. Id. (quoting Richmond, 52 F.3d at 645-46). Mr. Arnold merely alleges that Liquid Transport entered into a contract with Albright Wilson which affected the rates Liquid Transport paid to Mr. Arnold and other owner operators. That is not enough. As the Seventh Circuit instructed in Stachon, "In light of Richmond and Bachman [v. Bear, Stearns Co., 178 F.3d 930 (7th Cir. 1999)], we cannot accept Appellants' vague allegations of a RICO enterprise made up of a string of participants . . . lacking any distinct existence and structure." Id. at 676.
At most, Mr. Arnold has identified a conspiracy to defraud. "RICO, however, is not a conspiracy statute. Its draconian penalties are not triggered just by [alleging] conspiracy." Fitzgerald v. Chrysler Corp., 116 F.3d 225, 228 (7th Cir. 1997) (holding that "enterprise" connotes more than "conspiracy"). "An enterprise is something more than a conspiracy[,]" Jennings, 910 F.2d at 1441 (citation omitted), and every conspiracy is not also a RICO enterprise, see Bachman, 178 F.3d at 932 (holding that a conspiracy to manipulate contractual rights was not a RICO enterprise) (citations omitted). "[W]hile the hallmark of conspiracy is agreement, the central element of an enterprise is structure." Jennings, 910 F.2d at 1441 (quotation omitted); see also United States v. Rogers, 89 F.3d 1326, 1337 (7th Cir. 1996) ("there must be some structure, to distinguish an enterprise from a mere conspiracy") (quotation omitted). While the Amended Complaint may allege agreement; "structure, however, it does not." Jennings, 910 F.2d at 1441.
C. State Law Claims
Liquid Transport moved to dismiss Mr. Arnold's state law claims on the grounds that (1) the court should decline to extend supplemental jurisdiction over the state law claims and (2) the amount in controversy requirement of diversity jurisdiction is not satisfied. Although Liquid Transport is correct in its assertion that this court should not exercise supplemental jurisdiction over the state law claims if the federal claims are dismissed, see, e.g., Wentzka v. Gellman, 991 F.2d 423, 425 (7th Cir. 1993) (holding that "where a federal claim drops out before trial, a district court should not retain the state claims absent extraordinary circumstance") (citations omitted), Liquid Transport has entirely failed in its effort to convince this court that Mr. Arnold has not sufficiently pled diversity jurisdiction.
Again, Liquid Transport has failed to inform the court of the rule upon which it bases its motion to dismiss. Because in this part of its motion Liquid Transport is asking the court to dismiss for lack of jurisdiction (see Mot. to Dismiss ¶ 4), the court assumes that the motion is made pursuant to Federal Rule of Civil Procedure 12(b)(1), which provides for dismissal in the absence of jurisdiction over the subject matter. See FED. R. CIV. P. 12(b)(1).
Liquid Transport recognizes that as a general rule the good faith sum claimed by the plaintiff in his or her complaint controls the determination of the jurisdictional amount. (See Def.'s Br. in Supp. at 26.) In doing so, Liquid Transport cites National Union Fire Insurance Co. of Pittsburgh, PA v. Wilkins-Lowe Co., 29 F.3d 337, 339 (7th Cir. 1994). (See id.) In the sentence immediately following that relied upon by Liquid Transport, the Seventh Circuit holds, "In fact, to warrant dismissal, it must appear to a legal certainty that the claim is for less than the jurisdictional amount. . . ." Nat'l Union, 29 F.3d at 339 (citing St. Paul Mercury-Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938)).
When ruling on a 12(b)(1) motion, the court may consider matters outside the pleadings pertaining to jurisdiction. See, e.g., Capitol Leasing Co. v. Fed. Deposit Ins. Corp., 999 F.2d 188, 191 (7th Cir. 1993) ("The district court may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.") (quotation in parenthetical omitted). Here, however, Liquid Transport has submitted nothing to this court which suggests that the amount which Mr. Arnold claims is in controversy was not made in good faith. It certainly does not appear to a legal certainty that Mr. Arnold's claim is worth less than $75,000. Accordingly, Liquid Transport's motion to dismiss Counts IV through VI of the Amended Complaint will be denied.
IV. Plaintiff's Motion To Strike
Mr. Arnold moved to strike the second full paragraph on page 15 of Liquid Transport's Reply Brief pursuant to Federal Rule of Civil Procedure Rule 12(f). Mr. Arnold asserts that if his motion were denied, he would be prejudiced as a result because this court would accept as true that he has in his possession extensive discovery. Liquid Transport responds that no reason exists for the court to grant this motion.
As an initial matter, the court notes that this paragraph had no bearing whatsoever on the outcome of Liquid Transport's motion to dismiss. This paragraph may have been relevant if this court grounded its decision on Rule 9(b). However, it did not. Therefore, the paragraph is irrelevant and Mr. Arnold is not prejudiced in the least by its inclusion in the brief. Accordingly, Mr. Arnold's motion to strike will be denied.
V. Conclusion
As Mr. Arnold's motion to amend the Complaint is unopposed, that motion is GRANTED, and, accordingly, Christopher Humble, Mark Humble, Gary Potter and James Southward are DISMISSED as plaintiffs in this cause of action. Counts I through III of the Amended Complaint, however, fail to state a claim upon which relief can be granted and are thereby DISMISSED. Thus, Liquid Transport's Rule 12(b)(6) motion as to Counts I through III is GRANTED. As to Counts IV through VI, Liquid Transport's motion to dismiss is DENIED as it does not appear legally certain that the claims are worth less than the jurisdictional amount. Finally, Mr. Arnold's motion to strike a portion of Liquid Transport's Reply Brief is DENIED.
ALL OF WHICH IS ORDERED this 1st day of February 2001.