Gld Foremost Holdings, Llc v. Michael et al

BRIEF IN SUPPORT re MOTION to Dismiss Counts III and IV of Plaintiff's Amended Complaint

M.D. Pa.July 25, 2016

1 Kathryn L. Simpson, Esquire Sup. Ct. I.D. No. 28960 Mette, Evans & Woodside 3401 North Front Street P. O. Box 5950 Harrisburg, Pa 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax klsimpson@mette.com IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA GLD FOREMOST HOLDINGS, LLC, Plaintiff v. RALPH C. MICHAEL, DON E. MYERS, and LAURIE A. MYERS, Defendants : : : : : : : : : : : : CIVIL ACTION NO.: 1:15-CV-02234- YK JURY TRIAL DEMANDED DEFENDANTS’ BRIEF IN SUPPORT OF MOTION PURSUANT TO FED.R.CIV.P 12(b)(6) TO DISMISS COUNTS III AND IV OF PLAINTIFF’S AMENDED COMPLAINT Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 1 of 10 2 BACKGROUND Plaintiff filed its Amended Complaint on June 20, 2016. Plaintiff’s Amended Complaint contains two new counts: Count III, Violation of the Federal Racketeer Influence and Corrupt Organizations Act, 18 U.S.C. §§ 1962(c) and 1964(c) against Defendants Michael and Laurie Myers and Count IV, Violation of the Federal Racketeer Influence and Corrupt Organizations Act, 18 U.S.C. §§ 1962(d) and 1964(d) against the same Defendants. The RICO enterprise is identified as Foremost, the stock of which was sold to Plaintiff pursuant to a Stock Purchase Agreement. See Amended Complaint, ¶ ¶ 113; 26. The Stock Purchase Agreement was signed by Michael on May 29, 2015. See Amended Complaint, ¶ 26. 1 On or about June 7, 2015, Plaintiff took possession of Foremost and began operating the business. Plaintiff alleges that it was not provided with truthful information regarding Foremost from Defendants Michael and Myers. STANDARD OF REVIEW A motion to dismiss pursuant to Rule 12(b)(6) challenges the legal sufficiency of a complaint, which may be dismissed for the “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). The Court must accept 1 Plaintiff did not return an executed Stock Purchase Agreement until August 19, 2015. Plaintiff wired $1,000,000 of the $3,000,000 due to Foremost on June 30, 2015. The alleged underpayment of the consideration is the subject of the matter filed at No. 1:15-cv-02230-YK in this Court. Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 2 of 10 3 all well-pleaded facts and allegations, and must draw all reasonable inferences therefrom in favor of the plaintiff. Burtch v. Milberg Factors, Inc., 662 F.3d 212, 220 (3d Cir. 2011), cert. denied, 132 S. Ct. 1861 (2012). However, as the Supreme Court of the United States has made clear in Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 555 (2007), such “[f]actual allegations must be enough to raise a right to relief above the speculative level.” The Supreme Court later refined this approach in Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) emphasizing the requirement that a complaint must state a plausible claim for relief in order to survive a motion to dismiss. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 555). Nevertheless, “the plausibility standard is not akin to a 'probability requirement,”' but requires a plaintiff to show “more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 555). ARGUMENT I. COUNT III FAILS TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED AND IT MUST BE DISMISSED. The elements of a civil RICO claim under section 1962(c) are: (1) the conducting of (2) an enterprise (3) through a pattern, (4) of racketeering activity Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 3 of 10 4 (5) which results in injury to the plaintiffs' business or property. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985). Count III of the Amended Complaint identifies the alleged “pattern of repeated racketeering activity” or the predicate offenses to include wire fraud (violation of 18 U.S.C. § 1343) and mail fraud (violation of 18 U.S.C. § 1341). Specifically, the Amended Complaint sets forth “the following pattern of repeated racketeering activity”:  an April 24, 2015 email from Myers to Plaintiff containing draft schedules of the Stock Purchase Agreement that contained “many inaccuracies” with regard to environmental permits;  a May 14, 2015 email from Myers to Plaintiff that contained “many inaccuracies” with regard to environmental permits;  a May 14, 2015 email from Myers to Plaintiff that contained “many inaccuracies” with regard to environmental permits;  a May 27, 2015 email from Myers to Plaintiff that contained financial information that was contradicted by tax returns.  a December 3, 2014 letter from Michaels to Dan Gordon that was “inaccurate and intentionally misleading;”  the “May 28, 2015 (sic). executed Stock Purchase Agreement and all schedules related thereto” which contained “numerous inaccuracies.” See Amended Complaint, ¶117. To establish a RICO pattern, a defendant’s criminal acts must have a relationship to one another and there must be of the activities continuing into the Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 4 of 10 5 future. H.J. Inc. v. Northwestern Bell Telephone Company, 109 S.Ct. 2893, 2901 (1989) (“To establish a RICO pattern it must also be shown that the predicates themselves amount to, or that they otherwise constitute a threat of, continuing racketeering activity.”). “What a plaintiff . . . must prove is continuity of racketeering activity, or its threat, simpliciter.” Id. Continuity is a temporal concept. It refers in the RICO context to either “a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.” Id. at 2902. This may be demonstrated by demonstrating continuity over a closed period of time by proving a series of related predicates extending over a “substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement.” Id. The Third Circuit addressed the issue of continuity in Hughes v. Consol- Pennsylvania Coal Company, 945 F.2d 868 (3d Cir. 1991). In Hughes, the Court held that twelve months was not a substantial period of time: “The time period of this case belongs with those of Marshall–Silver (seven months), Banks (eight months), Kehr (eight months), and Hindes (eight months).” Id. at 611. As is obvious from the Amended Complaint, the alleged continuity in this case is over a closed period of time – from December 2014 until May 2015. The predicate acts alleged in the Amended Complaint commence with the sending of a Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 5 of 10 6 letter in December 2014. Amended Complaint, ¶117.b.(i). That mailing is followed by the emailing of various schedules to the Stock Purchase Agreement which are alleged to contain “many inaccuracies” or financial information that varies from that on tax returns over a period of time from April 24, 2015 to May 27, 2015. Amended Complaint, ¶117a.(i)-(iv). The final predicate act is that the Stock Purchase Agreement as executed by Foremost and Defendant Michael is sent to Plaintiff via Federal Express on May 28, 2015. Amended Complaint, ¶ 117.b.(ii). There are no exhibits of these allegedly fraudulent communications attached to the Amended Complaint. The time period from December 2014 through May 2015 is not a “substantial period of time” as is required to support a RICO claim. Rather, these are acts that occurred over a few months – specifically six months – and do not satisfy the continuity requirement. H.J. Inc., supra. at 2902; Hughes, supra. at 611. Further, as the stock of Foremost was sold to Plaintiff on the effective date of the Stock Purchase Agreement (May 29, 2015 per Exhibit A to the Amended Complaint), there is no longer any threat of Michaels’ and/or Myers’ alleged criminal conduct continuing through the Foremost “enterprise” whose existence terminated upon the sale. Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 6 of 10 7 The Amended Complaint, therefore, fails to state a claim upon which relief can be granted as to a violation of 18 U.S.C. §1962(c) and it should be dismissed. II. COUNT IV FAILS TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED AND IT MUST BE DISMISSED. Count IV attempts to state a claim for a RICO conspiracy. Section 1962(d) provides: “It shall be unlawful for any person to conspire to violate any of the provision of subsection (a), (b), or (c) of this section.” 18 U.S.C. § 1962(d). If the pleadings do not state a substantive RICO claim upon which relief may be granted, the conspiracy claim will fail. Beck v. Prupis, 120 S.Ct. 1608, 1616 (2000) (in the event all substantive RICO claims in the action are dismissed, a plaintiff cannot bring a § 1962(d) claim for an injury flowing from a non-racketeering act); Lightning Lube v. Witco Corp., 4 F.3d 1153, 1193 (3d Cir. 1993) . Even if the Amended Complaint stated a substantive RICO claim, the conspiracy claim should fail. Section 1962(d) of the RICO statute creates a cause of action for conspiracy to violate sections 1962(a)-(c). To plead conspiracy in a RICO case, a complaint must set forth factual allegations that indicate 1) the period of the conspiracy, 2) its intended purpose, 3) the specific actions taken by the conspirators in furtherance of the conspiracy, 4) agreement to commit predicate acts, and 5) knowledge that the acts agreed upon formed part of a pattern of racketeering activity. Glessner v. Kenny, 952 F.2d 702, 714 (3d Cir.1991), citing Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 7 of 10 8 Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1166 (3d Cir.1989). “Only allegations of conspiracy which are particularized, such as those addressing the period of the conspiracy, the object of the conspiracy, and certain actions of the alleged conspirators taken to achieve that purpose, will be deemed sufficient.... [A]n inference of conspiracy from the Complaint is no substitute for the requirement that the circumstances of the conspiracy be pleaded with specificity.” Rose v. Bartle, 871 F.2d 331, 366 (3d Cir. 1989) (citations omitted). In addition, Plaintiffs must allege facts to show that each defendant objectively manifested an agreement to participate, directly or indirectly, in the affairs of a RICO enterprise through the commission of two or more predicate acts. Eaby v. Richmond, 561 F.Supp. 131, 137 (M.D. Pa. 1983). Bare allegations of conspiracies described in general terms may be dismissed. Id. In this case, the alleged RICO conspiracy is conclusory and virtually identical to the alleged section 1962(c) theory. There are no specific averments regarding the participation and agreement to join an alleged conspiracy as to each Defendant, nor any facts regarding an agreement to conduct a RICO enterprise through a pattern of predicate acts. For these reasons Plaintiff has failed to state a cognizable section 1962(d) claim and Count IV of the Amended Complaint should be dismissed. Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 8 of 10 9 CONCLUSION For the reasons stated above, the Amended Complaint’s Counts III and IV must be dismissed for failing to state a claim upon which relief can be granted. Respectfully submitted, METTE, EVANS & WOODSIDE s/ Kathryn L. Simpson By: KATHRYN L. SIMPSON, ESQUIRE Sup. Ct. I.D. No. 28960 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Defendants Michael, Don E. Myers and Laurie Myers Date: July 25, 2016 Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 9 of 10 10 CERTIFICATE OF SERVICE I hereby certify that I am this day serving a copy of the foregoing document upon the persons and in the manner indicated below: To the following registered as file users in the Middle District of Pennsylvania electronic case files systems (ECF): Catherine B. Heitzenrater, Esquire cheitzenrater@duanemorris.com Sean P. McConnell, Esquire spmcconnell@duanemorris.com s/ Kathryn L. Simpson By: ________________________________ KATHRYN L. SIMPSON, ESQUIRE Sup. Ct. I.D. No. 28960 klsimpson@mette.com 3401 North Front Street P. O. Box 5950 Harrisburg, PA 17110-0950 (717) 232-5000 - Phone (717) 236-1816 - Fax Attorneys for Defendants Date: July 25, 2016 972556v1 Case 1:15-cv-02234-YK Document 31 Filed 07/25/16 Page 10 of 10