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denying request to amend complaint after the Court already provided an opportunity to amend the same issue
Summary of this case from Total Safety U.S., Inc. v. RowlandOpinion
Civil Action No: 04-2108 Section: "R" (3).
October 29, 2004
ORDER AND REASONS
Before the Court is defendants' motion to dismiss plaintiffs' RICO claims for lack of standing and for failure to state a claim under Federal Rule of Civil Procedure 12(b) (6). Defendants also move to dismiss plaintiffs' state law claims for failure to state a claim. For the following reasons, the Court GRANTS defendants' motion.
I. BACKGROUND AND PROCEDURAL HISTORY
Harrah's Casino in New Orleans is a gaming establishment authorized by Louisiana law and operated by defendants in their various corporate capacities. One of the games patrons at the casino can choose to play is poker. Harrah's provides the dealers and the tables, among other services. As compensation, Harrah's takes a ten percent commission from the players' wagers, which is known as "the rake." Harrah's also takes one dollar per hand from every pot over twenty dollars at each table of five or more players for the "bad beat jackpot." Money for the "bad beat jackpot" is collected until the jackpot is won by a player with a defined combination of cards, one that would usually win a poker hand but that is nevertheless beaten by a player with an even stronger, and more uncommon, card combination. The casino pays half the proceeds of the "bad beat jackpot" to the person who was beaten, twenty-five percent to the person who beat him or her, and divides twenty-five percent among the remaining players at the table.
Plaintiffs Donald Fuller and Louis Vale, IV, play poker at Harrah's. On July 29, 2003, Fuller won the "bad beat jackpot" during a hand of poker at Harrah's. He was therefore entitled to half the money in the "bad beat jackpot" at the time he won. Harrah's paid Fuller $13,123.90. Fuller alleges that the amount in the jackpot "most certainly should have been in excess of $250,000.00" and that it was less than that because Harrah's skimmed money from the pot for its own purposes. Fuller alleges that the jackpot was reposted at $20,000.00 even before he was paid. Harrah's refused to provide an accounting or explain the method of accounting for the jackpot. Thus, Fuller believes that, as a winner of the bad beat jackpot, he is entitled to more money.
In March of 2003, Louis Vale won the "bad beat jackpot" during a hand of poker at Harrah's. Vale, like Fuller, alleges that Harrah's paid him less than half the amount he was entitled to receive as the winner of the jackpot. Vale does not allege any details about the amount he won or the amount he should have received. Plaintiffs allege that Harrah's has similarly underpaid all other jackpot winners since Harrah's began to award poker jackpots.
On July 28, 2004, plaintiffs filed a complaint in this Court against Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., Harrah's New Orleans Management Company, Inc., and Jazz Casino Company, L.L.C., all doing business as Harrah's New Orleans Casino. Plaintiffs allege that defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964(c), by using the jackpot funds for their own purposes, rather than awarding the entire amount of the jackpots to the players who won them. As predicate acts for the RICO violation, plaintiffs allege that defendants violated state laws prohibiting skimming of gaming proceeds, cheating in connection with gaming operations, theft, and running an illegal lottery. Plaintiffs also allege violations of Louisiana's unfair trade practices law. Because the complaint alleged RICO violations, the Court ordered the plaintiffs to file a RICO case statement. On August 19, 2004, plaintiffs complied by filing an amended and restated complaint, which asserted the same violations with more information organized in accordance with the Court's order.
Defendants now move to dismiss plaintiffs' RICO claims for lack of standing and for failure to state a claim upon which relief can be granted under Rule 12(b) (6). Defendants also move to dismiss plaintiffs' state law claims for failure to state a claim.
II. LEGAL STANDARD
In a motion to dismiss for failure to state a claim under Rule 12(b) (6), the Court must accept all well-pleaded facts as true and view the facts in the light most favorable to the plaintiff. See Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996); American Waste Pollution Control Co. v. Browning-Ferris, Inc., 949 F.2d 1384, 1386 (5th Cir. 1991). The Court must resolve doubts as to the sufficiency of the claim in plaintiff's favor. Vulcan Materials Company v. City of Tehuacana, 238 F.3d 382, 387 (5th Cir. 2001). Dismissal is warranted if it appears certain that the plaintiff cannot prove any set of facts in support of his claim that would entitle him to relief. Id.; Piotrowski v. City of Houston, 51 F.3d 512, 514 (5th Cir. 1995) (quoting Leffall v. Dallas Indep. Sch. Dist., 28 F.3d 521, 524 (5th Cir. 1994)).
Because the civil RICO statute is an unusually potent weapon that entitles a prevailing plaintiff to treble damages, 18 U.S.C. § 1964(c), a RICO plaintiff must do more to defeat a motion to dismiss than simply to "assert an inequity attributable to a defendant's conduct and tack on the self-serving conclusion that the conduct amounted to racketeering." Miranda v. Ponce Fed. Bank, 948 F.2d 41, 44 (1st. Cir. 1991). At a bare minimum, a civil RICO complaint must state facts sufficient to demonstrate (1) specific instances of racketeering activity within the reach of the RICO statute; and (2) a causal nexus between that activity and the harm alleged. Id.
III. DISCUSSION
A. Standing
Defendants argue that plaintiffs have failed to allege that they suffered an injury sufficient to confer standing to sue under RICO. The standing provision of civil RICO provides that "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor . . . and shall recover threefold the damages he sustains." 18 U.S.C. § 1964(c). Not every injury to property is compensable under this section, because "RICO was intended to combat organized crime, not to provide a federal cause of action and treble damages to every tort plaintiff." Oscar v. Univ. Students Co-op. Ass'n, 965 F.2d 783, 786 (9th Cir. 1992). "Injury to mere expectancy interests or to an 'intangible property interest' is not sufficient confer RICO standing." Price v. Pinnacle Brands, Inc., 138 F.3d 602, 606 (5th Cir. 1998). Thus, an injury to property is "not actionable under RICO unless [it] result[s] in tangible financial loss to the plaintiff." Id. at 785. To sustain a RICO claim, plaintiffs must allege facts that could show that they sustained "a concrete financial loss, an actual loss of their own money, and not mere injury to a valuable intangible property interest." In re Taxable Mun. Bond Sec. Litig., 51 F.3d 518, 523 (5th Cir. 1995) (citations omitted).
Defendants rely on Price v. Pinnacle Brands, Inc. for the proposition that plaintiffs did not suffer an injury to property, because plaintiffs had only an expectation that the jackpot would be a particular size. 138 F.3d at 606. Price and a line of companion cases hold that plaintiffs who purchase packs of trading cards in hopes of winning a more valuable insert card do not have RICO standing to charge illegal gambling because plaintiffs' failure to receive an insert card is not an injury cognizable under RICO. 138 F.3d at 607; see also Chaset v. Fleer/Skybox Int'l, LP, 300 F.3d 1083, 1087 (plaintiffs lack RICO standing because plaintiffs' "disappointment upon not finding a an insert card in the package is not an injury to property").
Plaintiffs attempt to distinguish Price by arguing that, once they won the jackpots, they were entitled to receive the (unspecified) amount of money that should have been in the jackpot, and they were injured when they did not receive it. Plaintiffs can only speculate about the amount that they allege should have been in the jackpot, and it is not clear that they sustained an out of pocket, tangible financial loss as a result of defendants' alleged RICO violation. See Steele v. Hosp. Corp. of America, 36 F.3d 69, 70-71 (9th Cir. 1994) (holding that plaintiffs who did not pay allegedly excessive medical charges out of their own pockets lacked standing to bring a RICO claim); Imagineering, Inc. v. Kiewit Pacific Co., 976 F.2d 1303, 1310 (9th Cir. 1992) (dismissing RICO claims for failure to state a claim when the facts alleged did not establish "proof of concrete financial loss," let alone show that plaintiffs paid money out as a result of the alleged racketeering activity). The Court, however, finds it unnecessary to decide whether plaintiffs have alleged facts adequate to show that they have standing because plaintiffs' RICO claim must be dismissed for failure to state a claim under Rule 12(b) (6).
B. Failure to State a Claim
Plaintiffs allege that defendants violated two sections of the RICO statute, 18 U.S.C. §§ 1962(b) and (c). (Pl.'s Am. Compl. at § 1). The Fifth Circuit has held that, "[r]educed to their simplest terms, these subsections state that . . . (b) a person cannot acquire or maintain an interest in an enterprise through a pattern of racketeering activity; [and] (c) a person who is employed by or associated with an enterprise cannot conduct the affairs of the enterprise through a pattern of racketeering activity." Crowe v. Henry, 43 F.3d 198, 203 (5th Cir. 1995). Before considering the substantive elements of the subsections, however, plaintiffs must allege facts sufficient to demonstrate the existence of three fundamental elements common to all RICO claims. St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 439 (5th Cir. 2000). To state a claim under all section 1962 subsections, there must be: "(1) a person who engages in (2) a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct or control of an enterprise." Brown v. Protective Life Ins. Co., 353 F.3d 405, 407 (5th Cir. 2003) (citations omitted). Defendants do not dispute that plaintiffs properly named them as RICO persons. See Crowe, 43 F.3d at 204 ("The RICO person in a civil or criminal RICO action is the defendant."). Defendants argue that plaintiffs' claims should be dismissed because plaintiffs fail to allege facts that could show a pattern of racketeering activity or the existence of an enterprise.
To withstand a motion to dismiss, plaintiffs must first allege facts that show that defendants engaged in a pattern of racketeering activity. The RICO statute proscribes various categories of conduct that may constitute racketeering activity. 18 U.S.C. § 1961(1). The first category lists certain generically enumerated offenses that are "chargeable under State law and punishable by imprisonment for more than one year" and that involve "murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical." 18 U.S.C. § 1961(1) (A). To show that defendants have engaged in racketeering activity under this provision, plaintiffs must allege facts that show that defendants violated a state statute that prohibits conduct that would constitute one of the crimes listed.
Section 1961(1) lists other categories of acts that may constitute racketeering activity, but plaintiffs do not allege that defendants' actions fit any of these other categories.
Plaintiffs argue that defendants, by violating state laws that control legal gaming in Louisiana, have committed acts of illegal "gambling," a crime listed in section 1961(1) (A), and that those acts therefore constitute racketeering activity sufficient to impose liability under RICO. The state laws plaintiffs allege defendants violated prohibit skimming of gaming proceeds, cheating in connection with gaming operations, theft, and conducting an illegal lottery.
Defendants first contend that these gambling-type offenses are not included in section 1961(1) (A) because Louisiana state law classifies them as violations of legal "gaming" laws, rather than as "gambling," the word used in section 1961(1) (A). Louisiana prohibits, as illegal "gambling," "the intentional conducting, or directly assisting in the conducting, as a business, of any game, contest, lottery, or contrivance whereby a person risks the loss of anything of value in order to realize a profit." LA.REV.STAT. ANN. 14:90(A). But Louisiana permits "[t]he intentional conducting or assisting in the conducting of gaming operations at the official gaming establishment," that is, Harrah's Casino, as "gaming," exempting such activity from the illegal gambling statute. Id. The state then prohibits certain activities, such as skimming of gaming proceeds and cheating in connection with gaming operations, which are classified as "gaming offenses." Defendants argue that because plaintiffs charge them with violations that are designated as "gaming" offenses under Louisiana law, those violations are not included in section 1961(1) (A), which defines "racketeering activity" as any state law offense that involves "gambling."
The Court rejects defendants' argument. To interpret RICO provisions that refer to state law for definitions, the Court "must look not to 'the manner in which States classify their criminal prohibitions but [to] whether the . . . State . . . prohibits the . . . activity charged.'" United States v. Salinas, 564 F.2d 688, 691 (5th Cir. 1977) (quoting United States v. Nardello, 393 U.S. 286, 295 (1969)). Here, Louisiana's prohibition of skimming of gaming proceeds and cheating in connection with gaming operations encompasses a type of activity generally known as gambling, because those activities involve risking money in order to realize a profit. See Nardello, 393 U.S. at 296. The particular words Louisiana chooses to refer to the type of activity generally known as "gambling" does not control the federal anti-racketeering law. Salinas, 564 F.2d at 691; Nardello, 393 U.S. at 296. Thus, violations of gambling-type statutes, such as Louisiana's skimming and cheating statutes, may constitute predicate acts under section 1961.
Defendants' second argument is that the conduct that plaintiffs allege does not violate any of these statutes. This contention is correct. Plaintiffs' first assertion is that defendants' alleged removal of funds from the jackpot constitutes skimming of gaming proceeds prohibited by LA.REV.STAT. ANN. § 27:262. That section states that "[s]kimming of gaming proceeds is the intentional excluding, or the taking of any action in an attempt to exclude, any thing or its value from the deposit, count, collect, or computation of gross revenues or net gaming proceeds from gaming operations authorized by this Chapter." LA.REV.STAT. ANN. § 27:262. The statute prohibits only exclusions of value from the computation of "gross revenues" or "net gaming proceeds." "Gross revenue" is defined as "the total of all value received by the casino gaming operator from gaming operations . . . less the total of all value or amounts paid out as winnings to patrons." LA.REV.STAT. ANN. § 27:205(17). "Net gaming proceeds" is defined as "gross revenue less the total amount or value paid out to winning patrons or players and uncollected checks and credit instruments." LA.REV.STAT. ANN. § 27:205(25).
Although it appears that Louisiana courts have not yet interpreted or applied the skimming statute, its plain meaning indicates that the conduct here alleged does not violate the statute because plaintiffs have not alleged that defendants intentionally excluded the jackpot funds from the computation of "gross revenues" or "net gaming proceeds." The essence of the conduct charged here is that defendants did not pay the requisite amount of poker jackpots to winners. If defendants simply paid less than they were supposed to in jackpots, they would actually have increased the gross revenues and net proceeds they received from gaming operations because they would have paid out less money as winnings to patrons. As for the money defendants allegedly skimmed, there are no allegations that defendants failed to include those funds in the "deposit, count, collect, or computation" of gross revenue or net gaming proceeds that they reported to the state. Plaintiffs allege that defendants used the money for their own purposes, but that does not violate the skimming statute so long as defendants included the funds in their computation of gross revenues. Plaintiffs have not alleged otherwise. The Court therefore finds that defendants' alleged actions in this case do not violate LA.REV.STAT. ANN. § 27:262.
Defendants' use of jackpot funds for their own purposes likely does not violate state law either, as defendants apparently have discretion to use gross revenue to pay necessary expenses. The Louisiana Gaming Control Law allows the casino to deduct from gross revenue the "necessary expenses incurred by [it] in the operation and administration of the casino gaming operations" before it transfers to the state "the amount of net revenues which [it] determines are surplus to its needs." LA.REV.STAT. ANN. § 27:270 (A) (3) (a), (b).
Plaintiffs' second assertion is that defendants' alleged removal of funds from the jackpot for their own purposes constitutes cheating in connection with gaming operations prohibited by LA.REV.STAT. ANN. § 14:67.18. That section provides:
It shall be unlawful for any person who by any trick or sleight of hand performance, or by fraud or fraudulent scheme, cards, dice, or device, for himself or another, wins or attempts to win money or property or a combination thereof, or reduces a losing wager or attempts to reduce a losing wager, increases a winning wager or attempts to increase a winning wager in connection with gaming operations.
LA.REV.STAT. ANN. § 14:67.18. The Louisiana courts have applied this statute once, upholding the conviction of a poker player for adding to his ante in violation of poker rules to increase his potential payoff. State v. Malmstrom, 692 So.2d 14, 16 (La.Ct.App. 4th Cir. 1997).
The facts plaintiffs allege do not amount to a violation of the cheating statute. Plaintiffs claim that the dealer reduces losing wagers by taking a dollar from a table's poker pot and putting it in the bad beat jackpot. This contention is factually inaccurate. The players who make losing wagers lose the same amount of money regardless of whether the casino takes money from the pot and puts in the bad beat jackpot. If the casino takes money from the pot, only the amount of money won by the player who takes the pot is affected. The losing players' wagers are not reduced to their advantage because they lose the same amount of money. As the state court clarified in Malmstrom, the statute aims at a reduction of wagers by the wagerer, who thereby attempts to lose less money while he is gambling, and not at a reduction of wagers by the casino. See id. The Court therefore finds that defendants' alleged actions in this case do not violate LA.REV.STAT. ANN. § 14:67.18.
Third, plaintiffs argue that defendants' practice of collecting money for and awarding poker jackpots is an illegal lottery under LA.REV.STAT. ANN. § 14:90. As described above, that statute prohibits gambling, but it exempts from its prohibition those gaming operations conducted at an official gaming establishment as defined by state law and lottery operations authorized by state law. LA.REV.STAT. ANN. § 14:90. All activities that occur at an official gaming establishment like Harrah's are specifically exempt from the illegal gambling statute. Those activities cannot, therefore, constitute an illegal lottery under LA.REV.STAT. ANN. § 14:90.
The Court notes that plaintiffs allege that defendants violated two other state statutes, theft by misappropriation and unfair trade practices, but neither of them is a state law predicate offense under RICO. Only state statutes prohibiting crimes listed in section 1961(1) can serve as predicate offenses for a RICO charge. See Ennis v. Edwards, No. Civ.A. 02-0769, 2003 WL 1560113, at *4, n. 16 (E.D. La. Mar. 25, 2003). Thus, plaintiffs have failed to allege any violation of state law that could constitute racketeering activity under section 1961(1) and serve as a predicate offense for a RICO violation. Plaintiffs cannot proceed on a RICO claim without sufficiently alleging predicate acts forming a pattern of racketeering activity. Because this deficiency, alone, is dispositive of defendants' motion to dismiss, the Court need not address defendants other arguments. For the foregoing reasons, the Court dismisses plaintiffs' RICO claim.
The section plaintiffs rely on states that "[t]heft is the misappropriation or taking of anything of value which belongs to another, either without the consent of the other to the misappropriation or taking, or by means of fraudulent conduct, practices, or representations." LA.REV.STAT. ANN. § 14:67.
The section plaintiffs rely on states that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful." LA.REV.STAT. ANN. § 51:1405.
C. State Law Claims
Plaintiffs argue that the alleged violations of state law constitute unfair trade practices prohibited by LA.REV.STAT. ANN. § 51:1405. A federal court may decline to exercise supplemental jurisdiction where it has dismissed the claim on which its original jurisdiction was based. 28 U.S.C. § 1367(c) (3). The general rule is that district courts should decline jurisdiction over state law claims when all federal claims are dismissed, Smith v. Amedisys Inc., 298 F.3d 434, 447 (5th Cir. 2002), and the Court has wide discretion to do so. See Guzzino v. Felterman, 191 F.3d 588, 594-95 (5th Cir. 1999). Here, the Court has dismissed plaintiffs' federal RICO claim, and no independent basis for jurisdiction over plaintiffs' state law claims exists. The Court finds that the rule counseling against the exercise of supplemental jurisdiction applies in this situation. The Court therefore dismisses plaintiffs' state law claims without prejudice.
Plaintiffs apparently ground jurisdiction on federal question under 28 U.S.C. § 1331, and do not assert an independent basis for original jurisdiction over the state law claims. Moreover, plaintiffs do not allege facts that would provide an independent basis of original federal jurisdiction, such as diversity.
D. Leave to Amend
Plaintiffs request that "if any confusion remains," they be given an opportunity to amend their complaint. To decide whether to allow amendment, a district court "may consider such factors as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment." Price, 138 F.3d at 608. In this case, plaintiffs cannot show an element necessary to sustain a RICO claim as a matter of law. The Court has already provided plaintiffs one opportunity to amend their complaint, with guidance from the Court's RICO case statement order. Further opportunities to amend cannot rectify the legal flaws in plaintiffs' cause of action. See In re Mastercard Int'l Inc., Internet Gambling Litig., 132 F. Supp. 2d 468, 497 (E.D. La. 2001), affd., 313 F.3d 257. Thus, the Court dismisses plaintiffs' claims without leave to amend.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS defendants' motion to dismiss plaintiffs' RICO claim. Plaintiffs' state law claims are dismissed without prejudice.