Opinion
Civil Action No. DKC 2003-0933
April 28, 2004
MEMORANDUM OPINION
Presently pending and ready for resolution is Plaintiff's motion for default judgment. The issues have been fully briefed and no hearing is deemed necessary. Local Rule 105.6. For the reasons that follow, the motion will be granted in part.
I. Introduction
On March 11, 2004, an order of default was entered against Defendants Michael Merrigan and Merrigan Enterprises, Inc. (collectively Defendants) for failure to plead or otherwise defend this suit. Pursuant to Fed.R.Civ.Pro. 55(b)(1), Plaintiff now moves this court to enter default judgment against Defendants, who were properly served on April 16, 2003, but failed completely to respond or appear in this matter. Plaintiff seeks to recover joint and several damages in the amount of $91,250.00: that is, $25,000 plus 15% interest for violations alleged in counts I, III, IV, and V (totaling $28,750); $86,250 in treble damages pursuant to 18 U.S.C. § 1964 (c) of the Racketeer Influenced and Corrupt Organizations Act (RICO) alleged in count II; and $5,000 for attorney fees and costs.
Plaintiff's request for treble damages, although listed separately from his request for monetary damages for alleged violations of counts one, three, four and five, is not in addition to, but encompasses, his request for $25,000.
II. Analysis
Pursuant to Federal Rule of Civil Procedure 55(b)(1), a default judgment will be entered in favor of Plaintiff upon motion and submission of an affidavit of the amount due "if the defendant has been defaulted for failure to appear and is not an infant or incompetent person." Upon default, the well-pled allegations in a complaint as to liability are taken as true, although the allegations as to damages are not. See Dundee Cement Co. v. Howard Pipe Concrete Products, Inc., 722 F.2d 1319, 1323 (7th Cir. 1983). If the damages are ascertained, determined, and fixed, "or capable of ascertainment from definite figures contained in the documentary evidence or in detailed affidavits," a hearing on damages is not mandated. Id. Here, the factual allegations support Plaintiff's claim for $28,750 and he has submitted the requisite affidavit and support for his claim. The factual allegations do not, however, state a claim for treble damages as a civil remedy, pursuant to 18 U.S.C. § 1964 (c), for the alleged RICO violations by Defendants under 18 U.S.C. § 1962 (a) (c).
To state a claim under § 1962(a), Plaintiff must allege that (1) Defendant received income (2) derived from a pattern of racketeering activity (3) and used or invested that income or its proceeds (4) in the acquisition of an interest in, or the establishment or operation of any enterprise engaged in commerce. See 18 U.S.C. § 1962(a)(2000). In short, section 1962(a) prohibits a person from receiving income from a pattern of racketeering activity and then using that income in the operation of an enterprise engaged in commerce. See New Beckley Mining Corp. v. Int'l Union, UMW of Am., 18 F.3d 1161, 1165 (4th Cir. 1994).
Section 1962(a) provides, in pertinent part,:
It shall be unlawful for any person who has received any income derived, directly or indirectly, . . . from a pattern of racketeering activity . . . to use or invest, directly or indirectly, any part of such income . . . in acquisition of any interest in, or the establishment or operation of, any enterprise, which is engaged in . . . commerce.
Plaintiff's only allegation concerning the "enterprise" is that Merrigan Enterprises, Inc. was the enterprise through which Defendant operated his racketeering activity. See paper no. 1, ¶¶ 68, 69. He alleges that Defendant Merrigan Enterprise, Inc. was a "legitimate business enterprise" within the context of civil RICO claims, see id. ¶ 73, and "knowingly functioned as a criminal enterprise." See id. ¶ 78. Plaintiff does not, however, allege that Defendant used the $25,000 in the operation of an enterprise engaged in commerce. See Benard v. Hoff, 727 F. Supp. 211, 213 (D.Md. 1989) (subsection (a) applies in situations where an enterprise is an object or goal of the racketeering activity). Accordingly, Plaintiff has failed to state a claim under § 1962(a).
To state a claim under section under § 1962(c), Plaintiff must allege: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. See 18 U.S.C. § 1962 (c) (2000); see also Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985). In subsection (c), unlike section (a), the enterprise is a tool used to carry out racketeering activity. See Benard, 727 F. Supp. at 214. Moreover, under 1962(c) "the `enterprise' must be distinct from the `person' alleged to have violated that statute, and cannot be both the enterprise and a defendant." Toucheque v. Price Bros. Co., 5 F. Supp.2d 341, 346-47 (D.Md. 1998). Plaintiff's RICO claim rests entirely on the allegations that Defendant Merrigan carried out his racketeering activity through the enterprise, Defendant Merrigan Enterprises, Inc. As stated, under Fourth Circuit case law, Defendant Merrigan Enterprise, Inc. cannot be both a defendant and the RICO enterprise. See id., at 347. Therefore, the alleged violation of § 1962(c) is not a proper claim against Defendant Merrigan Enterprise, Inc.
Section 1962(c) provides, in pertinent part,:
It shall be unlawful for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. . . .
Plaintiff also fails to state a claim under 1962(c) as to Defendant Merrigan, although for different reasons. One of the key components of a RICO claim is the existence of a "pattern of racketeering activity." A "pattern" under 1962(c) is established when there exists "at least two separate predicate acts of racketeering activity which are related and either amount to or pose a threat of continued criminal activity." Toucheque, 5 F. Supp.2d at 345 (citing H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989); Palmetto State Med. Ctr. v. Operation Lifeline, 117 F.3d 142, 148 (4th Cir. 1997)). "Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement." H.J., Inc., 492 U.S. at 242.
In his complaint, Plaintiff alleges that "Defendant's pattern of racketeering involves the solicitation of the Plaintiff regarding the debt investment and the mailing to the Plaintiff a valueless stock certificate with the intent to defraud." See paper no. 1, ¶ 71. As alleged, Plaintiff's conduct does not constitute "ongoing unlawful activities whose scope and persistence pose a special threat to social well-being." Menasco, Inc. v. Wasserman, 886 F.3d 681, 684 (4th Cir. 1989) (quoting Int'l Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 155 (4th Cir. 1987)). The alleged pattern of racketeering appears to have taken place over a matter of months and Defendant's actions were narrowly directed towards a single fraudulent goal with a limited purpose: to defraud Plaintiff of $25,000. See id. Without more, Defendant's conduct is not a legal wrong "whose scope and persistence pose a special threat to social well-being." Id. Thus, Plaintiff has failed to state a claim for under § 1962(c) and is therefore not entitled to treble damages under § 1964(c).
Finally, Plaintiff seeks $5,000 for attorney fees and costs in each count of his complaint. Although attorney fees are not permitted in actions based on Section 10(b) of the Securities Exchange Act of 1934 (Count I), see Ernst Ernst v. Hochfelder, 425 U.S. 185, 211 n. 30 (1976), they are permitted under the Maryland Securities Act, § 11-703. See Gilman v. Wheat, First Securities, Inc., 896 F. Supp. 507, 510 (D.Md., 1995); see also Md. Corps. Ass'ns Code Ann. § 11-703(b)(1)(i) (1999 Repl. Vol.).
III. Conclusion
Based on the foregoing reasons, Plaintiff's motion for default judgment will be granted in part and Plaintiff will be awarded $28,250 plus $5,000 for attorney fees. A separate order will follow.
ORDER
For the reasons stated in the foregoing Memorandum Opinion, IT IS this 28th day of April, 2004, by the United States District Court for the District of Maryland, ORDERED that:1. The motion of Plaintiff Reginald Eason for default judgment (paper no. 8) BE, and the same hereby IS, GRANTED in part;
2. Judgment BE, and the same hereby IS, ENTERED in favor of Plaintiff Reginald Eason and against Michael Merrigan and Merrigan Enterprises, Inc., jointly and severally, on counts one, three, four and five in the amount of $28,250;
3. Judgment BE, and the same hereby IS, ENTERED in favor of Plaintiff Reginald Eason and against Michael Merrigan and Merrigan Enterprises, Inc., jointly and severally, on count three for attorney fees in the amount of $5,000;
4. Count two BE, and the same hereby IS, DISMISSED for failure to state a claim; and
5. The clerk is directed to transmit copies of the Memorandum Opinion and this Order to counsel for the plaintiff and CLOSE this case.