Summary
refusing to consider an argument raised for the first time in reply
Summary of this case from Hill v. Opus Corp.Opinion
Case No. CV 03-2873 MMM (VBKx).
September 27, 2004
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S RICO CLAIMS
This action concerns plaintiff Sofia Stewart's claim that defendants willfully infringed her copyrighted literary works. Stewart alleges, inter alia, that defendants have willfully infringed two copyrighted works, both titled "The Third Eye," "and used [them] as their own property in the making of the motion pictures The Matrix I, II, and III, and The Terminator I, II, and III." Defendants have moved to dismiss seven causes of action that allege violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq.
First Amended Complaint, ¶ 44.
I. FACTUAL BACKGROUND
Plaintiff Sophia Stewart is a screenwriter, composer and editor who works under the pseudonym, Zenia Kavala. On or about May 1, 1981, Stewart created a six-page screen treatment titled "The Third Eye," which was a "scientific account of futuristic life." On or about November 1, 1983, she created a 45-page manuscript titled "The Third Eye." Stewart registered a copyright in the six-page treatment on February 2, 1983. She registered a copyright in the 45-page manuscript on February 6, 1984.Stewart alleges that, in May 1981, she delivered the six-page treatment to Susan Merzback, Vice-President of Creative Affairs for Twentieth Century Fox Film Corporation. In November 1983, she allegedly mailed a copy of the manuscript to the office of Twentieth Century's David Madden. For the next year and a half, Stewart and her agent, Ester Duffie, purportedly communicated with employees of Twentieth Century, and made several attempts to submit the manuscript for the studio's consideration. Stewart asserts that Twentieth Century advised her by mail that it could not accept the manuscript unless it was submitted by an agent registered with the Writer's Guild of America.
Id., ¶ 18.
Id., ¶ 20.
Id., ¶¶ 20-22.
In the summer of 1986, Stewart sent her six-page treatment and 45-page manuscript to Andy and Larry Wachowski in response to an advertisement in a national magazine seeking science fiction works. The Wachowskis did not respond to Stewart's submission, and did not return the copyrighted works.
Id., ¶¶ 23-24.
Id., ¶ 25.
Stewart alleges that, in March and April 1999, she discovered that the Wachowskis had produced a comic book series and a film titled "The Matrix." She concluded that the comic book series and "The Matrix," which had been produced and distributed by Warner Brothers, infringed her copyright in both the treatment and the manuscript. As a result, she communicated with Warner Brothers, asserting that it had infringed her copyrighted works, and demanding that it cease its infringing activities. Stewart continued to correspond with Warner Brothers about her claim through February 2001.
Id., ¶¶ 25, 26.
Id., ¶ 38.
Id., ¶ 26.
Id., ¶¶ 28, 39-42.
Id., ¶¶ 40-42, 47.
Stewart also alleges that the films "Terminator I," "Terminator II," and "Terminator III," infringe her copyrighted works. She contends that James Cameron, Gale Ann Hurd, Joel Silver and one of the Wachowskis misappropriated or acquired her works and used them to create "Terminator II." She further contends that Warner Brothers and Sony Pictures Entertainment Corporation funded the production and/or distribution of "Terminator III."
Id., ¶¶ 44, 54.
Stewart alleges that Hemdale Film Corporation (a purported RICO enterprise) is a corporation that was used by Cameron and Hurd "to effect transfers of monies and/or properties received from the commercial exploitation of intellectual property rights." ( Id., ¶ 52.) Hemdale filed a bankruptcy petition in 1992, which Stewart alleges was "motivated in bad faith for purposes of discharing any and/or all claims of creditors." ( Id., ¶ 53.)
Id., ¶ 54.
Id., ¶ 56.
On June 10, 1999, Stewart filed a written complaint with the Federal Bureau of Investigation, charging that the Wachowskis, Twentieth Century, Silver, Warner Brothers, Cameron and Hurd had infringed her copyrights. On June 28, 1999, Stewart notified the Wachowskis of her copyright infringement claim and threatened legal action.
Id., ¶ 43.
Id., ¶ 36.
On April 24, 2003, Stewart, filed a pro se complaint for damages. The action was assigned to Judge Terry Hatter, who, on April 28, 2003, directed Stewart to file a RICO case statement within thirty days. Stewart did not comply with this order. Following Judge Hatter's self-recusal, the case was assigned to this court for handling on June 22, 2004. On July 14, 2004, Stewart filed a substitution of attorneys, a first amended complaint, and a 294-page RICO case statement.
Complaint for Damages and Equitable Relief at 1.
April 28, 2003 Order.
II. DISCUSSION
A. Applicable Legal Standards
1. Legal Standard Governing Motions To Dismiss Under Rule 12(b)(6)
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. Rule 12(b)(6) must be read in conjunction with Rule 8(a) which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." 5A Charles A. Wright Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE, § 1356 (1990).
A court may not dismiss a complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Johnson v. Knowles, 113 F.3d 1114, 1117 (9th Cir. 1997); Moore v. City of Costa Mesa, 886 F.2d 260, 262 (9th Cir. 1989) (quoting Conley), cert. denied, 496 U.S. 906 (1990). See Haddock v. Board of Dental Examiners, 777 F.2d 462, 464 (9th Cir. 1985) (complaint should not be dismissed if it states a claim under-any legal theory, even if the plaintiff erroneously relies on a different legal theory). In other words, a Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988).
In deciding a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the court's review is limited to the contents of the complaint. Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996); Allarcom Pay Television, Ltd. v. General Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). The court must accept all factual allegations pleaded in the complaint as true, and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir. 1995), citing Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987); NL Indus. Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). It need not, however, accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981), cert. denied, 454 U.S. 1031 (1981).
2. Substantive Elements Of A RICO Claim
As relevant here, to state a RICO claim, plaintiff must allege that defendants (a) received income derived from a pattern of racketeering activity, and used the income to acquire or invest in an enterprise in interstate commerce; (b) acquired or maintained an interest in, or control of, an enterprise engaged in interstate commerce through a pattern of racketeering activity; (c) caused an enterprise engaged in interstate commerce, while employed by the enterprise, to conduct or participate in a pattern of racketeering activity; or (d) conspired to engage in any of these activities. 18 U.S.C. § 1962; see also United States v. Turkette, 452 U.S. 576, 582 (1981) ("[i]n order to [prevail] under RICO, [a party] must prove both the existence of an `enterprise' and the connected `pattern of racketeering activity.' The enterprise is an entity. . . . The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute"); Forsyth v. Humana, Inc., 114 F.3d 1467, 1481 (9th Cir. 1997) (plaintiff must allege "(1) the conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity").
Racketeering activity is any act indictable under the various provisions of 18 U.S.C. § 1961. Id. . A `pattern' requires the commission of at least two acts of `racketeering activity within a ten-year period. 18 U.S.C. § 1961(5). An "enterprise" includes "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4).
Plaintiff must plead that defendants' violation was both the "but for" and proximate cause of a concrete financial injury. Resolution Trust Co. v. Keating, 186 F.3d 1110, 1117 (9th Cir. 1999); Forsyth, supra, 114 F.3d at 1481 (citing Imagineering, Inc. v. Kiewit Pacific Co., 976 F.2d 1303, 1311 (9th Cir. 1992), cert. denied, 507 U.S. 1004 (1993)).
B. Criminal Copyright Infringement As A "Predicate Act" Under RICO
Defendants contend that a copyright infringement claim cannot constitute a "predicate act" under the RICO statute as a matter of law. In support of this contention, defendants cite Smith v. Jackson, 84 F.3d 1213 (9th Cir. 1996), in which the Ninth Circuit affirmed the dismissal of RICO claims in a copyright infringement case, because "copyright infringement is not a predicate act under RICO." Id. at 1217. Approximately one month after the Ninth Circuit decided Smith, however, Congress passed the Anticounterfeiting Consumer Protection Act of 1996, Pub.L. No. 104-153, § 3, 110 Stat. 1386 ("Anticounterfeiting Act"). This statute added criminal copyright infringement ( 18 U.S.C. § 2319) to the list of RICO predicate acts found in 18 U.S.C. § 1961(1)(B). Snowden v. Lexmark Intern., Inc., 237 F.3d 620, 623 (6th Cir. 2001), cert. denied, 533 U.S. 903 (2001); 18 U.S.C. § 1961(1)(B); see also Perfect 10, Inc. v. Cybernet Ventures, Inc., 167 F.Supp.2d 1114, 1126 (C.D. Cal. 2001) (denying a motion to dismiss a civil RICO complaint that alleged copyright infringement as a predicate offense). Defendants contend that the Anticounterfeiting Act merely added "criminal counterfeiting as a predicate offense under RICO," and assert that "this case has nothing whatsoever to do with copyright counterfeiting." It is clear, however, that the act did add criminal copyright infringement ( 18 U.S.C.A. § 2319), together with four other offenses, to the list of RICO predicate acts. Accordingly, Smith's holding that copyright infringement cannot serve as a RICO predicate act is no longer good law.
Defendants' Memorandum Of Points And Authorities In Support Of Motion To Dismiss RICO Claims For Failure To State A Claim Under Fed.R.Civ.P. 12(b)(6) ("Defs.' Mem.") at 1.
Together with 17 U.S.C. § 506(a), 18 U.S.C. § 2319 makes it a criminal offense to "infringe a copyright willfully . . . for purposes of commercial advantage or private financial gain.
Defendants' Reply Brief In Support Of Motion To Dismiss RICO Claims For Failure To State A Claim Under Fed.R.Civ.P. 12(b)(6) ("Defs.' Reply") at 3.
See Pub.L. 104-153, sec. 3, July 2, 1996, 110 Stat. 1386 ("Section 1961(1)(B) of title 18, United States Code, is amended by inserting . . . section 2319 (relating to criminal infringement of a copyright); Snowden, supra, 237 F.3d at 623-24 (addressing whether the addition of criminal copyright infringement as a predicate act under RICO should have retroactive effect).
Allegedly infringing activity in which defendants engaged prior to July 2, 1996, however, cannot serve as a predicate act unless it continued after July 2, 1996. See Snowden, supra, 237 F.3d at 624. The complaint contains no allegations regarding the dates on which defendants' alleged infringement occurred. Accordingly, the court cannot determine on the present record whether any or all of the allegedly infringing activity ceased prior to July 2, 1996.
Defendants note that the government has never sought an indictment against any of them based on Stewart's allegations, and contend that "a private cause of action is not available for criminal copyright infringement." This argument overlooks the well-settled fact that a defendant need not be convicted, or even criminally charged, with the predicate acts to incur civil RICO liability. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 488 (1985) ("The language of RICO gives no obvious indication that a civil action can proceed only after a criminal conviction. The word `conviction' does not appear in any relevant portion of the statute. . . . To the contrary, the predicate acts involve conduct that is `chargeable' or `indictable,' and `offense[s]' that are `punishable,' under various criminal statutes. . . . As defined in the statute, racketeering activity consists not of acts for which the defendant has been convicted, but of acts for which he could be"). Defendants' argument that criminal copyright infringement cannot form the basis for an action under RICO fails, therefore, and their motion to dismiss on this basis must be denied.
Id. (citing Donald Frederick Evans Associates, Inc. v. Continental Homes, Inc., 785 F.3d 897, 912-13 (11th Cir. 1986); Ashton-Tat Corp. v. Ross, 728 F.Supp. 597, 602 (N.D. Cal. 1989)).
The complaint does not expressly allege "willful" copyright infringement, as required by 17 U.S.C. § 506(a), and the court assumes, without deciding, that certain of plaintiff's allegations, if proved, would be sufficient to support a willful infringement finding. See First Amended Complaint, ¶ 35 (alleging that defendants "fraudulent acquired, feloniously absorbed, commercially misappropriated, and/or tortiously and/or criminally obtained [plaintiff's works], by and through false pretenses, . . . for the purpose of `passing off' plaintiff[']s intellectual property as their own creative intellectual property"); see also ¶¶ 44, 58, 76.
C. Sufficiency Of The Predicate Acts Allegations
1. Applicable Pleading Standard
The complaint alleges, as predicate acts, the violation of numerous criminal statutes, including those that prohibit money laundering ( 18 U.S.C. § 1956), mail fraud ( 18 U.S.C. § 1341), and wire fraud ( 18 U.S.C. § 1343). Stewart does not directly allege criminal copyright infringement as a predicate act. Rather, she cites 18 U.S.C. § 2319 as the "specified unlawful activity" that generated the proceeds defendants laundered under § 1956(c)(7)(A), or used for prohibited monetary transactions under § 1957(f)(3).
Criminal copyright infringement, moreover, is cited only in Stewart's general allegations regarding the racketeering activity in which defendants allegedly engaged. (See First Amended Complaint, ¶ 59.) It is not referenced in any of her RICO claims, which cite mail fraud, wire fraud, money laundering, money transactions involving criminally derived property, and other crimes as their predicates. (See id., ¶¶ 62, 73, 82.)
Predicate acts of mail fraud and wire fraud must be pleaded with particularity under Rule 9(b) of the Federal Rules of Civil Procedure. Lancaster Community Hospital v. Antelope Valley Hospital District, 940 F.2d 397, 405 (9th Cir. 1991), cert. denied, 502 U.S. 1094 (1992); U.S. Concord, Inc. v. Harris Graphics Corp., 757 F. Supp. 1053, 1061 (N.D. Cal. 1991) ("The Ninth Circuit has held that allegations of predicate acts under RICO must comply with Rule 9(b)'s specificity requirements," citing Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1400-01 (9th Cir. 1986)).
Most courts have held that allegations of money laundering must also satisfy Rule 9(b)'s requirements, since money laundering involves an element of fraud. See, e.g., Spitzer v. Abdelhak, No. CIV. A. 98-6475, 1999 WL 1204352, *4 (E.D. Pa. Dec. 15, 1999) (applying Rule 9(b) because "the predicate acts alleged [were] mail fraud . . . [,] wire fraud . . ., money laundering . . . and interstate transportation of fraudulently obtained money. . . . All of these predicate acts contain an element of fraud"); Novomoskovsk Joint Stock Co. "Azot" v. Revson, No. 95 Civ. 5399(JSR), 1997 WL 698192, *4, n. 3 (S.D.N.Y. Nov. 7, 1997) ("To the extent that plaintiff purports to plead predicate acts of money laundering and of transactions with unlawful proceeds, . . . these allegations are patently derivative of the fraud allegations, without which there could be no allegedly unlawful proceeds to launder or to use in financial transactions. Thus, . . . fraud pleaded in accordance with the requirements of Rule 9(b) is still a prerequisite to stating a valid RICO claim in terms of these other predicates").
Finally, while the court has found no case addressing the issue, it concludes that Stewart's criminal copyright infringement allegations in this case must likewise be pleaded with particularity because they "sound in fraud." See Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103-04 (9th Cir. 2003) ("In cases where fraud is not a necessary element of a claim, a plaintiff may choose nonetheless to allege in the complaint that the defendant has engaged in fraudulent conduct. . . . In that event, the claim is said to be `grounded in fraud' or to `sound in fraud,' and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b)").
Generally, of course, allegations of copyright infringement are governed by Rule 8(a) rather than Rule 9(b). See Mid America Title Co. v. Kirk, 991 F.2d 417, 421 (7th Cir. 1993) ("We cannot accept the argument that plaintiffs in cases such as this [copyright infringement action] must be held to a particularity requirement akin to Federal Rule of Civil Procedure 9(b)"). Copyright infringement must be willful, however, before it can serve as a RICO predicate act. Willful copyright infringement requires proof that defendant acted with knowledge that its conduct infringed. Danjaq v. Sony Corp., 263 F.3d 942, 957 (9th Cir. 2001) ("the term `willful' refers to conduct that occurs `with knowledge that the defendant's conduct constitutes copyright infringement'"). Some courts have held, as a consequence, that willful infringement will support the imposition of a constructive trust as a remedy. See, e.g., Robert Stigwood Group Ltd. v. O'Reilly, 530 F.2d 1096, 1100-01 n. 9 (2d Cir.), cert. denied, 429 U.S. 848 (1976) (recognizing that the imposition of a constructive trust on defendant's profits might be an available remedy for willful copyright infringement). A constructive trust is a traditional remedy reserved for defendants who engage in fraudulent conduct. See George Basch Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532, 1537-38 (2d Cir. 1992) (holding that plaintiff was not entitled to recover defendants' profits in a trade dress infringement case absent a finding of willful deceptiveness on defendants' part, and stating that "the doctrine of constructive trust has traditionally been invoked to defeat those gains accrued by wrongdoers as a result of fraud"). It is thus arguable that willful infringement is a species of fraud that should be subject to Rule 9(b). But see Ferguson Beauregard/Logic Controls, Division of Dover Resources, Inc. v. Mega Systems, that its conduct infringed. See Danjaq v. Sony Corp., 263 F.3d LLC, 350 F.3d 1327, 1343 (Fed. Cir. 2003) ("Willfulness does not equate to fraud, and thus, the pleading requirement for willful infringement does not rise to the stringent standard required by Rule 9(b)"). The court need not decide this issue, however, as Stewart's copyright infringement allegations "sound in fraud" (see, e.g., First Amended Complaint, ¶¶ 34, 35, 44, 54 (alleging that defendants "feloniously acquired [plaintiff's copyrighted works] . . . by and through false pretenses")), and are subject to Rule 9(b) as a result.
2. Sufficiency Of The Pleading
Rule 9(b) requires that plaintiff allege the time, place, and manner of each act of fraud, the nature of the fraudulent scheme, and the role of each defendant in the scheme. Lancaster Community Hospital, supra, 940 F.2d at 405 (RICO plaintiff must allege the time, place and manner of the each act of fraud, and the role of each defendant in the fraud); Rothman v. Vedder Park Management, 912 F.2d 315, 317 (9th Cir. 1990) (holding that factual allegations showing a scheme to defraud are "essential elements of mail fraud" and that their absence from the complaint necessitated its dismissal); see also Advocacy Organization for Patients and Providers v. Auto Club Ins. Ass'n., 176 F.3d 315, 322 (6th Cir. 1999) (holding that a RICO plaintiff must allege, "at a minimum, the time, place and content of the alleged misrepresentations on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud"); see generally Gotham Print, Inc. v. American Speedy Printing Centers, Inc., 863 F. Supp. 447, 457 (E.D. Mich. 1994) ("Courts have been particularly sensitive to Fed.R.Civ.Pro. 9(b)'s pleading requirements in RICO cases in which the `predicate acts' are mail fraud and wire fraud, and have further required specific allegations as to which defendant caused what to be mailed (or made which telephone calls), and when and how each mailing (or telephone call) furthered the fraudulent scheme").
Stewart alleges that "[t]hrough the use of the federal mails and federal interstate wires defendants have fraudulently and wrongfully gained access to, acquired, feloniously absorbed and misappropriated, and/or tortiously and/or criminally obtained, by and through false pretenses, plaintiff's property, i.e. her protected literary work." More specifically, Stewart asserts that representatives of Twentieth Century communicated with her and her agent by telephone and mail to request that Stewart submit her literary work to the studio and to advise that it could not accept her manuscript unless it was submitted by an agent registered with the Writer's Guild of America. Stewart contends that the Wachowskis placed an advertisement in a national magazine seeking science fiction works, and that she responded to that advertisement by sending her six-page treatment and 45-page manuscript through federal interstate mail. Additionally, she alleges that she had a series of communications with representatives of Warner Brothers, which began when she "submitted written notification [to Warner Brothers] to immediately cease and desist from further infringing activities and a demand for compensation." Many of Stewart's communications with Warner Brothers allegedly involved use of the mails and telephone, as Stewart submitted materials to substantiate and resolve her claim.
First Amended Complaint, ¶ 44.
Id., ¶¶ 18-22.
Id., ¶ 23.
Id., ¶ 24.
Id. at 28.
Id. at 28, 29, 39-42.
The complaint contains no allegations regarding the nature of defendants' purported scheme to defraud, the identity of the members of the scheme, the manner in which defendants' communications were fraudulent, or the manner in which they furthered the fraudulent scheme. See Browning Ave. Realty Corp. v. Rosenshein, 774 F. Supp. 129, 143 (S.D.N.Y. 1991) (". . . there are absolutely no allegations in the Second Amended Complaint that there were false statements in any of Wilner's reports or elements to set forth a claim of fraud"). Nor does it specify the role each defendant played in the alleged scheme to defraud.
Although Stewart alleges that she had mail and telephone communications with Warner Brothers, for example, she has not alleged that these communications furthered any fraudulent scheme. The complaint is devoid of allegations, moreover, concerning the participation of defendants Cameron, Hurd and Silver in mail or wire communications, and alleges no specific acts by Silver of any kind. Stewart's allegations regarding wire and mail communications with Twentieth Century do not detail any manner in which the studio's statements were fraudulent. The complaint does not allege that Twentieth Century ever used Stewart's works, or engaged in any act that could constitute copyright infringement. Similarly, it contains no allegations that Twentieth Century engaged in fraud, money laundering, or prohibited monetary transactions. There is, in fact, no allegation that Twentieth Century participated in any way in producing or distributing the films at issue, or that it profited from the allegedly infringing use of plaintiff's works. All of these omissions render the pleading deficient.
Equally problematic are Stewart's allegations regarding intent to deceive. The Ninth Circuit has held that the "requirement of specific intent under the mail fraud statute is satisfied by `the existence of a scheme which was "reasonably calculated to deceive persons of ordinary prudence and comprehension" and this intention is shown by examining the scheme itself.'" Sun Savings and Loan Assoc. v. Dierdorff, 825 F.2d 187, 195-96 (9th Cir. 1987); see also Portionpac Chemical Corp. v. Sanitech Systems Inc., 210 F. Supp. 2d 1302, 1307 (M.D. Fla. 2002) ("Although proof of mail or wire fraud requires a showing that the defendant had the knowing intent to defraud, a RICO plaintiff does not need direct proof of scienter. However, a RICO plaintiff's allegations of scienter cannot be merely conclusory and unsupported by any factual allegations" (citations omitted)).
As noted, Stewart has not specifically alleged the scheme to defraud in which defendants engaged nor has she identified the members of the purported scheme. Her allegations regarding defendants' intent, moreover, are contradictory. In certain paragraphs, Stewart alleges that defendants "fraudulent acquired, feloniously absorbed, commercially misappropriated, and/or tortiously and/or criminally obtained [plaintiff's works], by and through false pretenses, . . . for the purpose of `passing off' plaintiff[']s intellectual property as their own creative intellectual property." At other places, however, she asserts that defendants "kn[ew] and/or ha[d] reason to know, and/or in the exercise of reasonable diligence, should have known of" her copyrights, her delivery of the treatment and manuscript to them, and the infringing nature of their films. This type of negligence pleading is inconsistent with a specific intent to defraud, and renders plaintiff's pleading deficient under Rule 9(b). Browning Ave. Realty Corp. v. Rosenshein, 774 F. Supp. 129, 143 (S.D.N.Y. 1991) (". . . allegations that Wilner `knew or should have known' and `could not have been unaware' are insufficient to show Wilner's specific intent to defraud plaintiffs").
First Amended Complaint, ¶ 35; see also ¶¶ 44, 58, 76.
See id., ¶ 38; see also id., ¶ 45 (defendants "knew, and had reason to know" of plaintiff's copyrights, and gained access to her works "in a knowing, reckless manner . . . for purposes of engaging in . . . conduct constituting federal criminal and civil copyright infringement"); id., ¶ 54 (defendants "knew and/or had reason to know that ["Terminator II"] was substantially similar to plaintiff's works)).
Given these multiple deficiencies, plaintiff's RICO claims must be dismissed for failure to plead the predicate acts with the requisite particularity.
Defendants' argument that plaintiff has failed to allege facts that show she has standing to bring RICO claims is essentially duplicative of their arguments regarding the adequacy of plaintiff's pleading of predicate acts. (See Defs.' Mem at 9; Defs.' Reply at 6.) As a consequence, the court does not address this issue separately.
D. Sufficiency Of The "Enterprise" Allegations
Defendants next assert that Stewart has failed to allege an "enterprise" adequately for RICO purposes. The complaint alleges the existence of five RICO enterprises: (1) defendants Andy and Larry Wachowski, d.b.a. A L Eons Production, (2) defendant Twentieth Century Fox Film Corp., (3) defendant Warner Brothers Entertainment, Inc., (4) Hemdale Film Corp., and (5) defendants James Cameron and Gale Ann Hurd.
Hemdale Film Corporation is not a defendant. The complaint alleges, inter alia, that Hemdale was one of four companies that produced "The Terminator," that "defendants employed Hemdale . . . to effect transfers of monies and/or properties received from the commercial exploitation of intellectual property rights described [in the complaint]," and that Helmdale filed a bankruptcy petition in 1992. (First Amended Complaint, ¶¶ 49, 52, 53.)
Id., ¶ 58 (A-E).
1. Section 1962(c) Claims
Defendants contend that Stewart's "enterprise" allegations are defective because the "enterprise" must be distinct from the defendant being sued. The Ninth Circuit has consistently held that, for RICO claims brought under § 1962(c), the "person" and "enterprise" must be distinct. See Sever v. Alaska Pulp Corp, 978 F.2d 1529, 1534 (9th Cir. 1992) ("a corporate defendant cannot be both the RICO person and the RICO enterprise under section 1962(c)"); Schreiber Dist. Co. v. Serve-Well Furniture, 806 F.2d 1393, 1397 (9th Cir. 1988) (emphasizing that under § 1962(c), the defendant and the enterprise must be separate); Rae v. Union Bank, 725 F.2d 478, 481 (9th Cir. 1984) (stating, in a case brought under § 1962(c), that "[i]f Union Bank is the enterprise, it cannot also be the RICO defendant").
Defs.' Mem. at 7.
This conclusion is dictated by the language of § 1962(c):
"It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect interstate commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." 18 U.S.C § 1962(c)
As the Supreme Court observed in Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001), "The statute's language, read as ordinary English, suggests that [the defendant must be distinct from the enterprise]. The Act says that it applies to `persons' who are `employed by or associated with' the `enterprise.' In ordinary English one speaks of employing, being employed by, or associating with others, not oneself." Id. at 161.
Stewart asserts that Cedric Kushner Promotions demonstrates the sufficiency of her enterprise allegations under § 1962(c). In Cedric Kushner Promotions, the Supreme Court held that an individual and his wholly owned corporation were sufficiently distinct for § 1962(c) purposes because "[t]he corporate owner/employee, a natural person, [was] distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status." Id. at 166; see also id. at 163 ("Linguistically speaking, an employee who conducts the affairs of a corporation through illegal acts comes within the terms of a statute that forbids any `person' unlawfully to conduct an `enterprise,' particularly when the statute explicitly defines `person' to include `any individual . . . capable of holding a legal or beneficial interest in property,' and defines `enterprise' to include a `corporation.' . . . And, linguistically speaking, the employee and the corporation are different `persons,' even where the employee is the corporation's sole owner. After all, incorporation's basic purpose is to create a distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs").
Certain of Stewart's enterprise allegations fail this test. Specifically, Stewart alleges that Twentieth Century and Warner Brothers — both named defendants — are RICO enterprises. She not allege that any corporate employee, owner or officer engaged in illegal activity while conducting the affairs of the corporations. Cedric Kushner Promotions is therefore inapposite.
Id., ¶¶ 58(B), 58(C).
The Court declined to address whether allegations that a corporation was the "person" and that the corporation, together with all its employees and agents, were the "enterprise" were sufficient to allege an enterprise under RICO. See Cedric Kushner Promotions, supra, 533 U.S. at 164.
The same is not true of the other enterprises Stewart alleges. Each of these involves distinct legal persons who have purportedly associated together for the purpose of running an enterprise. The first of these enterprises is "Andy Wachowski and Larry Wachowski d.b.a. A L Eons Production." The two Wachowskis are distinct persons who have allegedly associated together to operate the d.b.a., A L Eons Productions. This adequately alleges an enterprise for § 1962(c) purposes. See McCullough v. Suter, 757 F.2d 142, 144 (7th Cir. 1985) ("There would be a problem if the sole proprietorship were strictly a one-man show. If Suter had no employees or other associates and simply did business under the name of the National Investment Publishing Company, it could hardly be said that he was associating with an enterprise called the National Investment Publishing Company; you cannot associate with yourself, any more than you can conspire with yourself, just by giving yourself a nom de guerre. . . . But Suter had several people working for him; this made his company an enterprise, and not just a one-man band . . ."); Healey v. Pyle, No. 89 CIV. 6027 (JSM), 1992 WL 80775, * 4 (S.D.N.Y. Mar. 31, 1992) ("Although Pyle is the RICO person, Healey refers to `Barbara Pyle dba Carmine Properties' as the enterprise. While legally Carmine Properties may not be a new entity distinct from Barbara Pyle, such nomenclature in the pleadings demonstrate that Healey is alleging the enterprise to be Pyle's real estate venture rather than Pyle herself").
Plaintiff must also allege, however, that "the organization, formal or informal, [is] `an entity separate and apart from the pattern of [racketeering] activity in which it engages.'" Chang v. Chen, 80 F.3d 1293, 1298 (9th Cir. 1996) (citing Turkette, supra, 425 U.S. at 583); see also Turkette, supra, 425 U.S. at 583 (an associated-in-fact enterprise "is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit"). To satisfy this requirement, a RICO enterprise must "exhibit `some sort of structure . . . for the making of decisions, whether it be hierarchical or consensual.'" Chang, supra, 80 F.3d. at 1299 (citing United States v. Riccobene, 709 F.2d 214, 222 (3d Cir. 1983)). The structure must provide "`some mechanism for controlling and directing the affairs of the group on an on-going, rather than an ad hoc, basis.'" Id. "A group whose members collectively engage in an illegal act, in-and-of-itself, does not constitute an `enterprise' for the purposes of RICO." Simon v. Value Behavioral Health, Inc., 208 F.3d 1073, 1083 (9th Cir. 2000), amended on other grounds, 234 F.3d 428 (9th Cir. 2000), cert. denied, 531 U.S. 1104 (2001).
Stewart has alleged that the enterprise composed of the Wachowskis is "organized and maintained by and through a consensual hierarchy of partners, managers, directors, officer, supervisors, and/or representatives that formulate and implement policies relative to the origination, formulation, development, and/or creation of intellectual properties for purposes of commercial exploitation by and through motion picture films."
First Amended Complaint, ¶ 58(A).
While this is essentially a legal conclusion, other allegations plead that the Wachowskis solicit screen writers and authors to provide them with manuscripts, that they produce comic books, that they were the writers and directors of "The Matrix" and hired its producer, that they supervise artists who create story-boards, and that they pitch their film proposals to major studios. Coupled with the allegation that the Wachowskis operate as a d.b.a., these allegations are sufficient to plead an enterprise that has a decision-making structure and that functions as a continuing unit.
Id., ¶ 23.
Id., ¶ 25.
Id., ¶ 30.
Id., ¶ 37.
Id.
Moreover, by alleging that the enterprise formulates, develops and creates intellectual properties, plaintiff has pleaded an existence beyond that necessary to commit the predicate RICO acts of infringing Stewart's copyrighted works. If the enterprise was merely a conspiracy to infringe Stewart's works, it would not be necessary for it to formulate or develop intellectual properties other than "The Third Eye." See Chang, supra, 80 F.3d at 1299 ("It also is not necessary to show that the organization has some function wholly unrelated to the racketeering activity. Rather, it is sufficient to show that the organization has an existence beyond that which is merely necessary to commit the predicate acts of racketeering. The function of overseeing and coordinating the commission of several different predicate offenses and other activities on an on-going basis is adequate to satisfy the separate existence requirement" (citations omitted)).
The final enterprise alleged is composed of Cameron and Hurd. It is settled that "a group of individuals . . . may together constitute a RICO enterprise even though they do not incorporate or otherwise form a legal entity." River City Markets, Inc. v. Fleming Foods West Inc., 960 F.2d 1458, 1461 (9th Cir. 1992); see also Turkette, supra, 533 U.S. at 580 ("`[t]here is no restriction upon the associations embraced by the definition: an enterprise includes any union or group of individuals associated in fact").
The question, therefore, is whether Stewart has adequately alleged that the Cameron/Hurd enterprise has a structure for making decisions, and a "mechanism for controlling and directing the affairs of the group on an on-going, rather than an ad hoc, basis.'" Chang, supra, 80 F.3d. at 1299. As with the Wachowskis, Stewart alleges in conclusory fashion that the Cameron/Hurd enterprise is
"organized and maintained by and through a consensual hierarchy of partners, managers, directors, officer, supervisors, and/or representatives that formulate and implement policies relative to the origination, formulation, development, and/or creation of intellectual properties for purposes of commercial exploitation by and through motion picture films."
First Amended Complaint, ¶ 58(E).
As noted earlier, this is nothing more than a legal conclusion, which the court need not credit in ruling on a motion to dismiss under Rule 12(b)(6). See Western Mining Council, supra, 643 F.2d at 624. As respects the Cameron/Hurd enterprise, moreover, no facts alleged in the complaint support it.
The only facts alleged regarding Cameron and Hurd are that Cameron sold Hurd a 50% interest in "The Terminator" in exchange for an agreement that he could direct the film, and that the two subsequently married. These allegations are simply insufficient to support Stewart's allegation that they formed an enterprise that had a "consensual hierarchy of partners, managers, directors, officer, supervisors, and/or representatives." There are, moreover, no facts alleged from which it could be inferred that Cameron and Hurd "function as a continuing unit." Turkette, supra, 425 U.S. at 583. Read liberally, the complaint at most alleges that Cameron and Hurd engaged in concerted action to infringe Stewart's copyrights by producing "The Terminator." This is not sufficient to plead an enterprise. See Simon, supra, 208 F.3d at 1083.
Id., ¶ 48.
Stewart's allegation that Hemdale Film Corporation constitutes an enterprise, by contrast, is sufficient. First, Hemdale is not named as a defendant, and is therefore distinct from the RICO persons defending the suit. Second, the fact that Hemdale is a corporation establishes that it is "an entity separate and apart from the pattern of racketeering." See Webster v. Omnitrition International, Inc., 79 F.3d 776, 786 (9th Cir. 1996) ("The participation of a corporation in a racketeering scheme is sufficient, of itself, to give the enterprise a structure separate from the racketeering activity: `corporate entities ha[ve] a legal existence separate from their participation in the racketeering, and the very existence of a corporation meets the requirement for a separate structure,'" quoting United States v. Feldman, 853 F.2d 648, 660 (9th Cir. 1988), cert. denied, 489 U.S. 1030 (1989)); United States v. Kirk, 844 F.2d 660, 664 (9th Cir.) ("[T]he existence of a corporation fulfills the requirements of an ascertainable structure apart from the predicate racketeering activity"), cert. denied, 488 U.S. 890 (1988).
Accordingly, plaintiff's first and second claims for relief, alleging § 1962(c) claims, must be dismissed as respects defendants Twentieth Century and Warner Brothers on the independent ground that plaintiff has failed adequately to allege an enterprise. The remaining defendants' motion to dismiss these claims on the basis of insufficient enterprise allegations is denied.
Stewart's second claim for relief appears to allege a § 1962(d) conspiracy to violate § 1962(c). As a consequence, plaintiff must satisfy the § 1962(c) requirements for pleading an enterprise. See Ashe v. Corley, 992 F.2d 540, 544 (5th Cir. 1993) ("It is well established that under section 1962(c) the RICO defendant must be a separate and distinct entity from the enterprise. . . . The same would be true for the plaintiffs' section 1962(d) claim since that claim would depend upon proof that Montgomery County conspired to violate section 1962(c)"); see also United Energy Owners Committee, Inc. v. United States Energy Management Systems, Inc., 837 F.2d 356, 364 (9th Cir. 1988) (pleading that the corporate defendants were the enterprises was not sufficient for a § 1962(d) claim that alleged a conspiracy to violate § 1962(c)).
Although the court has found that Stewart had not adequately alleged that Cameron and Hurd constitute an enterprise for § 1962(a) purposes, Cameron, Hurd and Silver are alleged to be associated with Hemdale, which is a cognizable enterprise under § 1962(a).
2. Section 1962(a) And 1962(b) Claims
Stewart also asserts claims under 8 U.S.C. § 1962(a) and (b), as well as § 1962(d) conspiracy claims based on violation of these statutes. While § 1962(c) claims require that the defendant and the enterprise be distinct, for purposes of §§ 1962(a) and 1962(b), the defendant and the enterprise can be one and the same. Churchill Village, L.L.C. v. General Electric, 361 F.3d 566, 574 (9th Cir. 2004) (stating that the court has "not required that the RICO `person' and `enterprise' be distinct in actions under . . . subsections" (a) and (b) of § 1962); see also Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1398 (9th Cir. 1986) ("[W]here a corporation engages in racketeering activities and is the direct or indirect beneficiary of the pattern of racketeering activity, it can be both the `person' and the `enterprise' under section 1962(a)"). This rule extends to § 1962(d) conspiracy claims alleging a violation of either § 1962(a) or § 1962(b). See United Energy Owners Committee, supra, 837 F.2d at 364 ("Since section 1962(d) makes unlawful conspiracies which violate sections 1962(a), (b) or (c), Schreiber's rule [that the defendant and the enterprise may not be identical] applies to the plaintiffs' claims under section 1962(d) which allege conspiracies to violate section 1962(a), though not to those which allege a violation of section 1962(c). Therefore, under their section 1962(a) and (d) claims, plaintiffs have alleged enterprises that, even if they are the same as the persons involved as defendants, qualify as enterprises under Schreiber"). Accordingly, defendants' motion to dismiss the third through seventh claims for relief on the basis of inadequate enterprise allegations is denied.
E. Sufficiency Of Allegations Of A Pattern Of Racketeering Activities
Defendants argue, for the first time in reply, that the complaint does not properly allege a pattern of racketeering activity. Courts decline to consider arguments that are raised for the first time in reply. See, e.g., Halliburton EnergyServices, Inc. v. Weatherford International, Inc., No. Civ.A. 302CV1347-N, 2003 WL 22017187, *1, n. 1 (N.D. Tex. Aug. 26, 2003) ("Halliburton offers additional grounds for reconsideration in its reply[;] however, the grounds are not proper under Rule 59(e), . . . and the Court will not consider an argument raised for the first time in a reply brief"); Dietrich v. Trek Bicycle Corp., 297 F. Supp. 2d 1122, 1128 (W.D. Wis. 2003) ("Defendant raised this argument for the first time in its reply brief. Because this argument should have been raised earlier or not at all, I will not consider it"); Public Citizen Health Research Group v. National Institutes of Health, 209 F. Supp. 2d 37, 44 (D.D.C. 2002) ("The Court highly disfavors parties creating new arguments at the reply stage that were not fully briefed during the litigation. . . . By placing a new argument in the Reply, Plaintiff does not permit Defendant or Intervenor-Defendant to competently respond to such an argument"); Grupo Gigante S.A. de C.V. v. Dallo Co., Inc., 119 F. Supp. 2d 1083, 1103, n. 15 (C.D. Cal. 2000) ("Although the defendants raised a laches defense in their opposition to the plaintiffs' motion for summary judgment, the first time they raised a statute of limitations defense was in their reply brief. The Court need not, and does not, consider arguments raised for the first time in a reply brief"). Accordingly, the court has not analyzed whether the complaint sufficiently alleges a pattern of racketeering activity.
Defs.' Reply at 6-7.
F. Stewart's Late Filing Of A RICO Case Statement
Defendants argue finally that Stewart's RICO claims must be dismissed because she failed to comply in a timely fashion with Judge Hatter's order to file a RICO case statement. The order directed that Stewart file a detailed statement responding to twenty requests for information within thirty days of April 28, 2003. Stewart did not file a RICO case statement within this period. Rather, some fourteen months later, after the action had been transferred to this court for handling, Stewart filed a 294-page document detailing the basis for her RICO claim. Defendants contend that this filing was untimely, and that its substance demonstrates the flaws in Stewart's RICO claims.
Defs.' Mem. at 9-10.
Unlike Judge Hatter, this court does not require that RICO plaintiffs file a case statement separate from their complaint. See Wagh v. Metris Direct, Inc., 363 F.3d 821, 828 (9th Cir. 2003) ("The use of RICO Standing Orders to compel plaintiffs to produce detailed RICO Case Statements, which are then treated by the district court as part of that party's pleadings, can in certain circumstances require far more information from plaintiffs than is required under either Rule 8(a) or 9(b) of the Federal Rules"). As a consequence, while the court does not condone Stewart's failure to comply with Judge Hatter's order, it will not dismiss the case on that basis.
In fact, because it does not consider the document part of the pleadings in the case, the court orders Stewart's RICO case statement stricken. Any facts necessary to state cognizable RICO claims must be included in Stewart's amended complaint, and the court will judge the sufficiency of the claims according to the pleading standards discussed in this order.
III. CONCLUSION
For the foregoing reasons, defendants' motion to dismiss claims one through seven of the complaint is granted with leave to amend. Plaintiff may file an amended complaint that addresses the deficiencies noted herein within twenty days of the date of this order.