Summary
addressing counterclaim under Rule 12(b)
Summary of this case from United of Omaha Life Ins. Co. v. Womack-RodriguezOpinion
Civil Action No. 5:19-cv-01054-OLG
2020-04-06
SOLUTIONS SHARED SERVICES, Plaintiff, v. Michael JIMENEZ, and Glasheen, Valles, & Inderman, LLP, Defendants.
Catherine Dowie, Ryan L. Woody, Matthiesen, Wickert & Lehrer, S.C., Hartford, WI, James T. Busenlener, Matthiesen Wickert & Lehrer S.C., New Orleans, LA, for Plaintiff. Jonathon Clark, Glasheen, Valles & Inderman, LLP, Austin, TX, for Defendants.
Catherine Dowie, Ryan L. Woody, Matthiesen, Wickert & Lehrer, S.C., Hartford, WI, James T. Busenlener, Matthiesen Wickert & Lehrer S.C., New Orleans, LA, for Plaintiff.
Jonathon Clark, Glasheen, Valles & Inderman, LLP, Austin, TX, for Defendants.
ORDER
ORLANDO L. GARCIA, CHIEF UNITED STATES DISTRICT JUDGE
On this day, the Court considered Plaintiff's Motion to Dismiss Amended RICO Counterclaim (docket no. 19) (the "Motion"). Having considered the Motion and the record, the Court finds that the Motion should be GRANTED.
BACKGROUND
Defendant Michael Jimenez ("Jimenez") sustained serious head injuries as a result of a May 12, 2017 motor vehicle accident. Docket no. 1 at ¶ 2. Jimenez was a covered participant in the Solutions Shared Services Health and Welfare Benefit Plan ("the Plan"), which Plaintiff Solution Shared Services ("Plaintiff") administers. Id. at ¶¶ 6 & 9. Following the accident, Jimenez filed claims for medical expenses with the Plan, which the Plan promptly paid in the amount of $245,979.69. Id. at ¶ 14. Additionally, Jimenez retained Defendant Glasheen, Valles, & Inderman, LLP, ("GVI") to represent him in claims against the parties responsible for the motor vehicle accident and his resulting injuries. Id. at ¶ 16. On June 12, 2017, Plaintiff retained The Phia Group, LLC to notify GVI of Plaintiff's subrogation interest and right to 100% reimbursement under the Plan. Id. at ¶ 17. Glasheen, an attorney at GVI, responded to The Phia Group acknowledging that they were "claiming a subrogation interest." Id. at ¶ 18. Defendants settled their claims with the responsible parties "for at least $3,895,000.83." Id. at ¶ 19. However, Defendants have yet to reimburse Plaintiff despite its alleged "first priority reimbursement claim" under the Plan and informed Plaintiff that it would not be receiving 100% reimbursement. Id. at ¶¶ 19-24.
Accordingly, Plaintiff filed this lawsuit against Defendants seeking to enforce the Plan's subrogation interest. Id. Plaintiff asserts four claims for relief. First, pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), Plaintiff seeks a constructive trust and equitable lien upon the funds in order to enforce the terms of the Plan. Id. at ¶¶ 25-34. Second, Plaintiff seeks a declaratory judgment pursuant to 28 U.S.C. § 2201 that the Plan is entitled to first priority reimbursement of the benefits paid to Jimenez, and that Texas state law, particularly the "make-whole" and "common fund" doctrines, are preempted by ERISA and thus inapplicable. Id. at ¶¶ 35-45. Third, Plaintiff seeks a declaratory judgment pursuant to 29 U.S.C. § 1132(a)(3)(B)(ii) permitting the Plan to "reverse all charges paid by the Plan with the Defendant Michael Jimenez's medical providers and further to offset any and all benefits paid on his behalf." Id. at ¶¶ 46-47. Finally, Plaintiff seeks attorney's fees and costs pursuant to both 29 U.S.C. § 1132(g) and the terms of the Plan. Id. at ¶¶ 48-50.
On October 24, 2019, Defendants filed their first answer, asserting a counterclaim against Plaintiff for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 - 1968. Docket no. 10 at ¶¶ 64-73. In their original answer, Defendants alleged that the Plan fraudulently claimed to be self-funded in order to skirt Texas law's limitations on subrogation and collect "un-warranted, unfair, and unjust recoveries of benefits paid." Id. at ¶ 66. As evidence of this alleged fraud, Defendants showed the Plan's 2016 and 2017 Form 5500s in which the Plan claimed to be "insured" rather than funded by the "General assets of the sponsor." Id. at ¶¶ 48-63.
Plaintiff moved to dismiss this counterclaim, in part arguing that GVI could not assert a RICO cause of action. See docket no. 13. Defendants then amended their answer, and then argued that Plaintiff's original motion should be denied as moot. See docket nos. 15 and 16. For efficiency, the Court will DENY AS MOOT Plaintiff's original motion to dismiss (docket no. 10) and will instead consider the merits of the present Motion and the amended counterclaim.
In their amended counterclaim, Defendants restate their allegations that Plaintiff is fraudulently misrepresenting the funding status of the Plan, telling Defendants that it is self-funded when the Plan marked "insured" in its 2016 and 2017 Form 5500 filings signed under penalty of perjury. Docket no. 15 at ¶¶ 48-58. Defendants allege that the misrepresentation is material, as an insured plan would be subject to the limitations of subrogation imposed by Texas Civil Practice & Remedies Code § 140.001 - 140.007. Id. at ¶ 59. In its Motion, Plaintiff makes several arguments. First, Plaintiff asserts that Jimenez has not suffered a concrete and unspeculative injury as required under RICO. See docket no. 19. As part of this argument, Plaintiff asserts that the funding status of the Plan is irrelevant, because the Texas subrogation law (Texas Civil Practice & Remedies Code § 140) is preempted by ERISA. Id. at 5-8. As a result of this preemption, the Plan's terms determine its reimbursement rights, and thus there is no difference between the reimbursement amount under the Plan's terms versus the amount owed under the preempted Texas subrogation law. See id. Alternatively, Plaintiff argues that even if the subrogation law applies, the Plan is self-funded, and any reliance on "the minutia of the Form 5500 filings" is misplaced. See id. at 8-12. Instead, Plaintiff points to the Summary Plan Description ("SPD") as governing this funding question, which states: "The Plan's benefits and administration expenses are paid directly from the general assets of the Plan Sponsor." Docket no. 1-3.
The Court may consider the SPD for the purposes of evaluating this Motion. See Perry v. Prudential Co. of Am. , 2012 WL 253403, at *3 n.11 (M.D. La. Jan. 26, 2012) (collecting cases).
Moreover, Plaintiff argues that the alleged injury is too speculative, even if the Texas subrogation law is not preempted and the Plan is in fact insured. Plaintiff asserts that Defendants' injury is merely the loss of the use of personal funds rather ran any actual, out of pocket expenditures. See docket no. 19 at 12-14. Defendants claim that the injury is the wrongful imposition of debt, citing to Chevron v. Donziger in the Second Circuit, which held that a corruptly obtained $8.646 billion-dollar international judgment constituted a RICO injury. See docket no. 15 at ¶ 75 n.3; see also Chevron Corp. v. Donziger , 833 F.3d 74, 135 (2d Cir. 2016). Plaintiff distinguishes this case on the grounds that Chevron was able to demonstrate that the defendant had already collected large portions of the judgment, and thus there was an actual quantifiable injury, unlike this case. See docket no. 19 at 14.
Additionally, Plaintiff argues that Defendants cannot prove causation as any loss of potential interest is caused by Defendants' mishandling of the disputed funds. See id. at 15-16. In particular, Plaintiff points to the Texas Code of Professional Conduct's requirement that an attorney holds disputed funds in a trust or escrow account separate from the attorney's assets, and, if possible, hold the funds in an "individual interest bearing trust account." See id. at 15; See Texas Code of Professional Conduct Rule 1.14. Accordingly, the failure to earn interest on the disputed funds was caused by Defendants rather than the Plaintiff.
Plaintiff further argues that ERISA, rather than RICO, should be the vehicle used to determine the parties' rights to the disputed funds. Plaintiff cites various Fifth Circuit precedent to stand for the principle that ERISA is designed to be the exclusive vehicle for determining claims for benefits. See docket no. 19 at 17-18. Moreover, Plaintiff argues that one cannot assert a fraud cause of action related to ERISA when a party brings a suit pursuant to ERISA to determine its rights prior to any reliance on the supposed fraud. Id. at 18. Plaintiff contends that this is the case here, as it has filed suit under ERISA to determine its rights under the Plan.
Finally, Plaintiff argues that Defendants have not adequately alleged a pattern of "racketeering activity," as required to state a RICO claim. Moreover, Plaintiff contends that Defendants have failed to plead this pattern with specificity, as required by Rule 9(b). See id. at 19.
In response, Defendants refute Plaintiff's argument that the Texas subrogation law is preempted, as the text of the statute specifically exempts self-funded ERISA plans, thereby implying that insured plans are not exempt from the statute. See docket no. 21 at 6. Moreover, the Fifth Circuit found that a similar "make-whole" doctrine in Louisiana affected risk pooling and thus was saved from ERISA preemption. Id. ; see Benefit Recovery, Inc. v. Donelon , 521 F.3d 326, 331 (5th Cir. 2008). In response to Plaintiff's alternative argument that it is self-funded, Defendants urge the Court to permit discovery before making such a finding. Docket no. 21 at ¶ 20. They point to the signed Form 5500s as sufficient evidence to survive the 12(b)(6) stage. Id.
Defendants also counter Plaintiff's argument that the injury is too speculative by citing to the Chevron case discussed above. Id. at ¶ 21. Defendants argue that the Second Circuit found a RICO injury based on attachments on property interests like the "lien" Plaintiff is placing on the disputed funds in this case. Id. at ¶¶ 21-24. Finally, Defendants request leave to amend.
Plaintiff then filed its reply, pointing out the various substantive arguments to which Defendants offered no response. Specifically, Plaintiff contends that Defendants did not identify what Plaintiff recovered as a result of its alleged RICO activity, nor did they respond to the argument that they failed to keep the money in an interest-bearing account. See docket no. 23 at 2. Defendants did not respond to Plaintiff's argument that they failed to allege a pattern of racketeering activity, or whether RICO is an inappropriate vehicle to resolve this dispute about ERISA benefits. Id. Finally, Plaintiff asserts that granting Defendants leave to amend their counterclaim would be futile. The Court turns to the merits of these arguments.
ANALYSIS
Federal Rule of Civil Procedure 8(a) requires that a claim for relief must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." For claims involving fraud, however, Rule 9(b) requires the claimant to "state with particularity the circumstances constituting fraud or mistake." RICO claims based on underlying fraud are subject to Rule 9(b)'s heightened pleading standard. See Old Time Enterprises, Inc. v. Int'l Coffee Corp. , 862 F.2d 1213, 1217 (5th Cir. 1989).
With these pleading requirements in mind, Plaintiff moves to dismiss Defendants' counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6). Rule 12(b)(6) states that a complaint may be dismissed for failing to "state a claim upon which relief can be granted." In deciding a 12(b)(6) motion, the Court must determine if the complaint alleges "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). To be plausible on its face, the claim must contain allegations for each material element "necessary to sustain recovery under some viable legal theory." Id. at 562, 127 S.Ct. 1955. The claim should be dismissed if it fails to state enough facts to allow the Court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court must assume the factual allegations, but not the legal conclusions, in the complaint are true. Id. at 680-81, 129 S.Ct. 1937. To state a civil RICO claim under 18 U.S.C. § 1962, the claimant must allege the (1) conduct or engagement in (2) "a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or control of an enterprise." See McMullan v. Cook , 109 F.3d 765, 1997 WL 114880, at *1 (5th Cir. Feb. 17, 1997) (per curiam) (quoting Delta Truck & Tractor, Inc. v. J.I. Case Co. , 855 F.2d 241, 242 (5th Cir. 1988) ); see also Price v. Pinnacle Brands, Inc. , 138 F.3d 602, 606 (5th Cir. 1998). In addition, a civil RICO plaintiff must be "injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c). In other words, standing to sue under § 1962 requires injury and causation. See Price , 138 F.3d at 606. "Injury to mere expectancy interests or to an ‘intangible property interest’ is not sufficient to confer RICO standing." Id. at 607. Indeed, the RICO claimant must show a "conclusive financial loss." Gil Ramirez Group, L.L.C. v. Houston Indep. Sch. Dist. , 786 F.3d 400, 408 (5th Cir. 2015).
The Court agrees with Plaintiff that Defendants fail to allege a sufficiently concrete injury and thus do not have standing to sue under RICO. As noted above, Defendants claim that Jimenez's injury is approximately $82,000, which is the difference between the reimbursement amount owed to Plaintiff under the Plan and the amount owed if Texas's subrogation law applies. See docket no. 15 at ¶¶ 74-75. Defendants allege that Plaintiff is fraudulently claiming that it is self-funded as opposed to insured in order to avoid the Texas law and defraud Jimenez of the $82,000. Id. However, since Defendants still possess the $82,000 in question, they must allege that the actual, concrete injury is the loss of Jimenez's "use of, including potential income earned on" the funds. Id. at ¶ 75. However, the Fifth Circuit has repeatedly stated that the requisite injury to confer civil RICO standing must be conclusive and calculable rather than speculative and intangible. Gil Ramirez Group , 786 F.3d at 408 ; see also In re Taxable Mun. Bond Sec. Litig. , 51 F.3d 518, 523 (5th Cir. 1995) ; Fisher v. Halliburton , 2009 WL 5170280, at *5 (S.D. Tex. Dec. 17, 2009) (RICO injury must be "concrete, definite, and tangible."). Defendants fail to meet the Fifth Circuit's concrete standard—"potential income" is far too speculative.
A Southern District of Texas court found that the lost opportunity to negotiate a more favorable deal was not a "calculation of present, actual damages," and thus the plaintiffs did not allege a "concrete, definite, and tangible injury under RICO." Univ. of Texas Sys. v. Alliantgroup, LP , 400 F. Supp. 3d 610, 619 (S.D. Tex. 2019). This Court finds that a lost opportunity to negotiate a better deal is equally intangible and speculative as the loss of "potential income" claimed in this case.
On the other hand, the only legal authority Defendants cite is the Second Circuit's decision in Chevron . Defendants rely on the following statement by the Second Circuit: "The imposition of a wrongful debt constitutes an injury to one's business or property." See docket no. 15 at ¶ 75 n.3 (citing Chevron , 833 F.3d at 135 ). However, a closer examination of Chevron 's drastically different facts suggests that this Court should not apply that one sentence to this case. Specifically, Chevron concerned a $500,000 bribe paid by a plaintiff's lawyer to a judge in Ecuador in exchange for a $8.646 billion judgment against Chevron. See generally, Chevron , 833 F.3d 74. Moreover, Chevron appealed that judgment, but an appellate court in Ecuador upheld the fraudulent decision, suggesting that Chevron had no other legal recourse. See generally id. As a result of this judgment, attachments were placed against Chevron's assets around the world, including but not limited to $15 to $30 million of its intellectual property rights. Id. at 135. Moreover, Chevron paid legal fees uncovering the lawyer's wrongful conduct and defending against the enforcement proceedings arising out of the illegally obtained judgment. Id. In addition, the Chevron court indicated that the lawyer already had obtained some of the benefits. See id. at 135 ("[a]ll of the property that Donziger now has" and "[t]o the extent he has been enriched by property taken from Chevron, Chevron has lost that property as a proximate consequence of those predicate acts.") (quoting Chevron Corp. v. Donziger , 974 F. Supp. 2d 362, 602 (S.D.N.Y. 2014) ).
By contrast, here, Plaintiff has not received the approximately $82,000 in reimbursement funds. Nor has Plaintiff obtained a judgment for the $82,000, enforced that judgment through an attachment on the $82,000, or seized the funds pursuant to that judgment. Rather, Plaintiff merely initiated this case under § 502(a)(3) of ERISA seeking those funds. See docket no. 1. Moreover, Defendants could ultimately show that Plaintiff is not entitled to the $82,000 by successfully litigating this case, whereas Chevron was already subject to a judgment that itself was the result of RICO activity. Because of these stark differences, the Court will not rely on one sentence from Chevron to find that Defendants have suffered a RICO injury merely because the parties in this case dispute the proper reimbursement amount under the Plan.
Accordingly, the Court finds that Defendants have not suffered the requisite injury to confer standing to assert a civil RICO claim. Because Defendants lack civil RICO standing, the Court need not address the other legal issues raised in Plaintiff's Motion. Plaintiff's Motion is GRANTED, and Defendants' RICO counterclaim is DISMISSED.
LEAVE TO AMEND
In their response, Defendants request leave to amend their answer. See docket no. 21 at ¶ 28. Under Federal Rule of Civil Procedure 15(a)(2), the Court "should freely give leave" to amend "when justice so requires." This rule "evinces a bias in favor of granting leave to amend," Rosenzweig v. Azurix Corp. , 332 F.3d 854, 863 (5th Cir. 2003), and absent a significant reason, "such as undue delay, bad faith, dilatory motive, or undue prejudice to the opposing party, ‘the discretion of the district court is not broad enough to permit denial’." Martin's Herend Imports, Inc. v. Diamond & Gem Trading United States of Am. Co. , 195 F.3d 765, 770 (5th Cir. 1999) (quoting Dussouy v. Gulf Coast Inv. Corp. , 660 F.2d 594, 598 (5th Cir. 1981) ).
The Court finds that permitting Defendants leave to amend their answer to assert a RICO counterclaim would unduly prejudice Plaintiff. First, Defendants have already amended their counterclaim in response to Defendants' first Motion to Dismiss. See docket nos. 13 and 15. Defendants therefore are requesting a third bite at the RICO apple. Second, amendment would be futile considering this Order's conclusion that Defendants have not suffered an injury for the purposes of a civil RICO action. And, third, the Court is persuaded by Plaintiff's argument that ERISA, not RICO, provides the proper vehicle for determining the parties' rights to the disputed $82,000. See docket no. 19 at 16-18. As Plaintiff notes, other courts have determined disputes of a plan's funding status and its relation to the interaction of state insurance regulations with ERISA. For example, the parties in a District of South Carolina case had the same dispute as this case: the plan asserted that it was self-funded as evidenced by its SPD while the individual asserted that the plan was insured as evidenced by its Form 5500 filings. See Zell for Estate of Zell v. Neves , 423 F.Supp.3d 231, 239–42 (D.S.C. 2019). ERISA provided the legal framework for that court to determine the plan's funding status. See id. Considering that Defendants have already amended their counterclaim and still have not cited any authority supporting a RICO cause of action in these circumstances, the Court finds that amendment would be futile and unduly prejudicial to Plaintiff.
Accordingly, the Court DENIES Defendants' request for leave to amend. Defendants' RICO counterclaim is therefore DISMISSED WITH PREJUDICE. Should Defendants wish to amend their answer for any other reason, they may move for leave to amend.
CONCLUSION
IT IS THEREFORE ORDERED that Plaintiff's Motion to Dismiss Amended RICO Counterclaim (docket no. 19) is GRANTED , and Defendants' RICO Counterclaim is DISMISSED WITH PREJUDICE .
IT IS FURTHER ORDERED that Plaintiff's Motion to Dismiss RICO Counterclaim (docket no. 13) is DISMISSED AS MOOT considering Defendants' Amended Answer (docket no. 15).
It is so ORDERED .