John R Behrmann et al v. Michael Goldstein et al

MOTION to Dismiss for Failure to State a Claim

E.D. Va.October 31, 2016

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Alexandria Division JOHN R. BEHRMANN, et al., : : Plaintiffs, : : Case No.: 1:16-cv-01228-CMH-TCB v. : : JOHN T. HOUK, II, et al., : : Defendants. : MOTION TO DISMISS PURSUANT TO RULE 12(b)(6) BY DEFENDANT ROBERT BEN-KORI & ASSOCIATES Defendant Robert Ben-Kori & Associates (“RBKA”), by counsel and pursuant to Fed. R. Civ. P. 12(b)(6), LCvR 7, and this Court’s October 24, 2016 Order, moves the Court for an Order dismissing all claims against RBKA in the Second Amended Complaint, with prejudice, because:  The Second Amended Complaint fails to allege “facts” with sufficient particularity to state any claim against RBKA;  The RICO claims, Count I-IV, fail to allege the common element of racketeering activity by RBKA;  Count I fails to allege RBKA used income to acquire an interest in an enterprise engaged in interstate commerce;  Count II fails to allege RBKA acquired an interest or control over an enterprise;  Count III fails to allege RBKA conducted or participated in the affairs of an enterprise;  Count IV fails because the underlying RICO claims fail; and because the SAC fails to allege an agreement to commit RICO predicate acts with particularity; Case 1:16-cv-01228-CMH-TCB Document 331 Filed 10/31/16 Page 1 of 3 PageID# 10296 2  Count VII fails to allege the elements of a civil conspiracy to commit fraud by RBKA with the required particularity;  Count VIII fails because negligent misrepresentation is not a recognized cause of action under Virginia law; and  Count XI fails because the Second Amended Complaint fails to trace any funds from the Plaintiffs into the possession of RBKA, an essential element of a constructive trust claim. In support of its Motion to Dismiss, RBKA refers the Court to the accompanying Memorandum of Points and Authorities. For the reasons stated in this Motion and the Memorandum, RBKA respectfully requests that the Court dismiss all claims against it, with prejudice. Respectfully Submitted, ROBERT BEN KORI & ASSOCIATES By counsel CARR MALONEY P.C. By: /s/ J. Peter Glaws, IV J. Peter Glaws, IV, VSB #83185 Kevin M. Murphy, Pro Hac Vice 2020 K. Street, NW, Suite 450 Washington, D.C. 20006 (202) 310-5500 (Telephone) (202) 310-5555 (Facsimile) jpg@carrmaloney.com kmm@carrmaloney.com Case 1:16-cv-01228-CMH-TCB Document 331 Filed 10/31/16 Page 2 of 3 PageID# 10297 3 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a copy of this Motion to Dismiss was electronically filed this 31st day of October, 2016 and served electronically upon all parties of record via the Courts electronic filing system. /s/ J. Peter Glaws, IV J. Peter Glaws, IV Case 1:16-cv-01228-CMH-TCB Document 331 Filed 10/31/16 Page 3 of 3 PageID# 10298 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Alexandria Division JOHN R. BEHRMANN, et al., : : Plaintiffs, : : Case No.: 1:16-cv-01228-CMH-TCB v. : : JOHN T. HOUK, II, et al., : : Defendants. : MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ROBERT BEN-KORI & ASSOCIATES’ MOTION TO DISMISS PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6) CARR MALONEY P.C. J. Peter Glaws, IV, VSB #83185 Kevin M. Murphy, pro hac vice Carr Maloney P.C. 2020 K Street, NW, Suite 850 Washington, D.C. 20006 (202) 310-5500 (Telephone) (202) 310-5555 (Facsimile) jpg@carrmaloney.com kmm@carrmaloney.com Counsel for Defendant Robert Ben-Kori & Associates October 31, 2016 Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 1 of 17 PageID# 10299 ii TABLE OF CONTENTS Table of Authorities. ...................................................................................................................... iv Joinder in Motions to Dismiss of Co-Defendants ............................................................................1 Preliminary Statement ......................................................................................................................1 Statement of Facts Relevant to Robert Ben-Kori & Associates ......................................................2 Argument ........................................................................................................................................3 I. TO SURVIVE A MOTION TO DISMISS, THE SAC MUST PLEAD “FACTS,” NOT LEGAL CONCLUSIONS, AND MUST PLEAD FRAUD CLAIMS WITH PARTICULARITY ..............................................................................................................3 II. THE RICO CLAIMS AGAINST RBKA, COUNTS I-IV, MUST BE DISMISSED FOR FAILURE TO ALLEGE THE COMMON ELEMENT OF RACKETEERING ACTIVITY BY RBKA .......................................................................................................4 III. THE RICO CLAIMS AGAINST RBKA, COUNTS I-IV, MUST ALSO BE DISMISSED FOR FAILURE TO ALLEGE THE SPECIFIC CONDUCT PROHIBITED BY 18 U.S.C. 1962(a), (b), (c), AND (d) ....................................................5 a. Count I, for violation of Section 1962(a), must be dismissed because it fails to allege RBKA used income to acquire an interest in an enterprise engaged in interstate or foreign commerce ......................................................................................5 b. Count II, for violation of Section 1962(b), must be dismissed because the SAC fails to allege RBKA acquired an interest or control over an enterprise ..............6 c. Count III, for violation of Section 1962(c), must be dismissed because the SAC fails to allege RBKA conducted or participated in the affairs of an enterprise ....7 d. Count IV, alleging a conspiracy to violate RICO pursuant to Section 1962(d), must be dismissed because the allegations against RBKA under subsections (a), (b), and (c) fail; and because the SAC fails to allege an agreement to commit the predicate acts with specificity as required by Rule 9(b) ..........................................8 IV. COUNT VII, A CLAIM FOR CIVIL CONSPIRACY TO COMMIT FRAUD, MUST BE DISMISSED BECAUSE THE SAC FAILS TO ALLEGE THE ELEMENTS AGAINST RBKA WITH PARTICULARITY ..............................................9 Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 2 of 17 PageID# 10300 iii V. COUNT VIII, A CLAIM FOR NEGLIGENT MISREPRESENTATION, MUST BE DISMISSED BECAUSE IT IS NOT A RECOGNIZED CAUSE OF ACTION IN VIRGINIA ..............................................................................................10 VI. COUNT XI, A CLAIM FOR THE IMPOSITION OF A CONSTRUCTIVE TRUST, MUST BE DISMISSED BECAUSE THE SAC DOES NOT ALLEGE THAT RBKA IS IN POSSESSION OF FUNDS BELONGING TO THE PLAINTIFFS .......................10 Conclusion ................................................................................................................................11 Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 3 of 17 PageID# 10301 iv TABLE OF AUTHORITIES Cases Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) ................................................................................................................. 3 Baker v. Elam, 833 F. Supp. 2d 576 (E.D.Va. 2012) ......................................................................................... 10 Bay Tobacco, LLC v. Bell Quality Tobacco Prods., LLC, 261 F. Supp. 2d 483 (E.D.Va. 2003) ........................................................................................... 9 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ................................................................................................................ 3, 9 Bentley v. Legent Corp., 849 F. Supp. 429 (E.D.Va.1994) ............................................................................................... 10 Crest Const. II, Inc. v. Doe, 660 F.3d 346 (8th Cir. 2011) ................................................................................................... 4, 6 Danielsen v. Burnside-Ott Training Ctr., Inc., 941 F.2d 1220 (D.C.Cir.1991) .................................................................................................... 6 Field v. GMAC LLC, 660 F. Supp. 2d 679 (E.D.Va 2008) ................................................................................ 4, 5, 6, 8 Firestone v. Wiley, 485 F. Supp. 2d 694 (E.D. Va. 2007) .......................................................................................... 9 Haigh v. Matsushita Elec. Corp., 676 F. Supp. 1332 (E.D.Va.1987) ............................................................................................. 10 Hecht v. Commerce Clearing House, Inc., 897 F.2d 21 (2d Cir. 1990) .......................................................................................................... 8 In re XE Servs. Alien Tort Litig., 665 F. Supp. 2d 569 (E.D. Va. 2009) ...................................................................................... 6, 7 Ins. Brokerage Antitrust Litig., 618 F.3d 300 (3d Cir. 2010) ........................................................................................................ 3 Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 4 of 17 PageID# 10302 v Lightning Lube Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir. 1993) .......................................................................................................... 8 Menasco, Inc. v. Wasserman, 886 F.2d 681 (4th Cir. 1989) ....................................................................................................... 4 Old Republic Nat'l Title Ins. Co. v. Tyler (In re Dameron), 155 F.3d 718 (4th Cir.1998) ...................................................................................................... 10 Reves v. Ernst & Young, 507 U.S. 170 (1993) .................................................................................................................... 7 Robinson v. Fountainhead Title Group Corp., 252 F.R.D. 275 (D.MD 2008) ..................................................................................................... 8 William v. AES Corp., 28 F. Supp. 3d 553 (E.D. Va. 2014) ............................................................................................ 9 Statutes 18 U.S.C. 1341 ................................................................................................................................ 4 18 U.S.C. 1343 ................................................................................................................................ 4 18 U.S.C. 1962(1)(A)...................................................................................................................... 4 18 U.S.C. 1962(1)(B) ...................................................................................................................... 4 18 U.S.C. 1962 ................................................................................................................................ 4 18 U.S.C. 1962(a) ............................................................................................................... ii, 1, 5, 6 18 U.S.C. 1962(b) ............................................................................................................... ii, 1, 6, 7 18 U.S.C. 1962(c) ................................................................................................................... ii,1, 7 18 U.S.C. 1962(d) ............................................................................................................. ii, 1, 8, 10 Rules Fed. R. Civ. P. 8(a) ................................................................................................................. 4, 6, 7 Fed. R. Civ. P. 9(b) ........................................................................................................... 4, 8, 9, 10 Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 5 of 17 PageID# 10303 1 JOINDER IN MOTIONS TO DISMISS OF CO-DEFENDANTS The Second Amended Complaint brings seven causes of action against Defendant Robert Ben Kori & Associates, Counts I-IV allege violations of 18 U.S.C. 1962(a), (b), (c), and (d), Count VII for Civil Conspiracy to Commit Fraud, Count VIII for Negligent Misrepresentation and Omission, and Count XI for Imposition of Constructive Trust. For the efficiency of the parties and the Court, Robert Ben-Kori & Associates hereby joins in the pending motions to dismiss and accompanying memoranda filed pursuant to Fed. R. Civ. P. 12(b)(6), to the extent the Motions address these claims and are applicable to this Defendant, filed by (1) defendants Husch Blackwell LLP, Michael Goldstein, and Christie Kennett, on October 12, 2016 (Dkt. 281, 282), and (2) defendants John T. Houk II, Marian M. Houk, John T. Houk III, Janet H. Ridgely, Julie L. Houk, Jonathan M. Gill, Dana Fenton, Todd Thibodeaux, Julia Weltmann Healey, Charity Admin, Inc., and Congressional District Program, Inc., on October 28, 2016 (Dkt. 323, 324). PRELIMINARY STATEMENT This cases arises out of the operation of a not-for-profit organization known as the National Heritage Foundation (“NHF”). NHF was controlled and run by a group of defendants in this litigation known as the Houk Defendants. The Plaintiffs are individuals known as “Founders,” who set up 501(c)(3) charitable organizations under the umbrella of NHF. The procedural history, facts, and legal arguments are addressed at length in a number of Motions to Dismiss filed by various groups of defendants in this case, and thus, they do not need to be repeated here. That said, Defendant Robert Ben-Kori & Associates has joined in the Motions filed by the co-defendants, but presents arguments in this Motion and Memorandum that are uniquely applicable to it, and thus not adequately addressed in the other Motions. Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 6 of 17 PageID# 10304 2 Robert Ben-Kori & Associates (“RBKA”) is a small accounting firm located in Springfield, Virginia. In the early 2000s, NHF engaged RBKA to audit its yearly financial statements. At all times relevant to this case, RBKA was an independent outside auditor. In that capacity, RBKA never had any relationship or contact with the Plaintiffs. Yet, the Plaintiffs now allege, without any specificity in their pleadings, that RBKA was a willing participant in a fraudulent scheme to take money from the charitable minded Plaintiffs and up to 10,000 other Founders, not to line its own pockets, but to line the pockets of the Houk Defendants. In this regard, the Plaintiffs bring a multitude of fraud claims against RBKA, including claims supposedly arising under The Racketeer Influenced and Corrupt Organizations Act. The Second Amended Complaint, however, is devoid of any substantive allegation sufficient to state any of the claims against RBKA. Additionally, even taking the allegations as true for the purpose of this Motion to Dismiss, the allegations against RBKA lack logic. They would require RBKA to dive head-first into a fraud, without hesitation, in a manner that is inexplicably self-destructive. Such conclusory allegations are not plausible. Averments of fraud require more. For this reason, the Second Amended Complaint cannot stand, and must be dismissed, with prejudice. STATEMENT OF FACTS RELEVANT TO ROBERT BEN-KORI & ASSOCIATES According to the Second Amended Complaint, the alleged NHF fraud began in 1994 - eight years before NHF retained RBKA to audit its 2001 financial statements. (2d. Am. Compl. ¶ 88, 109.)1 The alleged fraud is outlined over nearly one thousand paragraphs and subparagraphs describing conduct of certain Defendants that the Plaintiffs allege orchestrated the fraud from 1 Referred to and cited hereafter as “SAC.” Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 7 of 17 PageID# 10305 3 NHF’s inception until it filed for Chapter 11 bankruptcy protection in 2009. (See generally SAC.) In contrast to the extensive allegations in the SAC as a whole, the factual allegations against RBKA are minimal, and describe only standard accounting work. RBKA is an accounting firm located in Springfield, Virginia. (SAC ¶ 63.) NHF, through the Houk Defendants, engaged RBKA to audit NHF’s 2001 financial statements. (SAC ¶ 109.) NHF engaged RBKA to do the same for its 2002, 2003, 2004, 2005, 2006, 2007, and 2008 financial statements. (Id.) The Plaintiffs allege that RBKA immediately agreed to assist the Houk Defendants in the NHF fraud by, at the inception of the relationship, “enter[ing] into an agreement . . . to willfully and wantonly provide false and misleading financial statements . . . .” (Id. ¶ 110.) The allegedly false information on the financial statements concerns classification of certain investments as mutual funds when those investments allegedly did not reflect “traditional mutual funds.” (Id. ¶¶ 205-06.) Upon completion of the audits, the financial statements were “separately transmitted by the Houk Defendants to the Founders.” (Id. ¶ 109; see also id. ¶ 107, 204.) ARGUMENT I. TO SURVIVE A MOTION TO DISMISS, THE SAC MUST PLEAD “FACTS,” NOT LEGAL CONCLUSIONS, AND MUST PLEAD FRAUD CLAIMS WITH PARTICULARITY. Although a complaint need not make “detailed” factual allegations, it is not sufficient to give “threadbare recitals of a cause of action’s elements, supported by mere conclusory statements.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1940 (2009) citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The importance of this basic pleading threshold is “particularly evident” in “big” cases, where the sheer “in terrorem” effect on defendants “coerc[es] settlement of even groundless claims.” In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 370 & 370 n.67 (3d Cir. 2010). Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 8 of 17 PageID# 10306 4 For RICO claims, such as those made against RBKA, this basic pleading standard is heightened where a complaint alleges mail, wire, or other fraud as the predicate act, and must be pleaded with particularity required by Fed. R. Civ. P. 9(b). Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th Cir. 1989); Field v. GMAC LLC, 660 F. Supp. 2d 679, 686 (E.D.Va 2008). To satisfy Rule 9(b), the plaintiff must “plead the who, what, when, where, and how” of the allegedly fraudulent acts of each defendant. Crest Const. II, Inc. v. Doe, 660 F.3d 346, 353 (8th Cir. 2011). II. THE RICO CLAIMS AGAINST RBKA, COUNTS I-IV, MUST BE DISMISSED FOR FAILURE TO ALLEGE THE COMMON ELEMENT OF RACKETEERING ACTIVITY BY RBKA. Counts I through IV of the SAC allege that RBKA engaged in a pattern of racketeering activity in violation of 18 U.S.C. 1962(a), (b), (c), and (d), respectively. Although each subsection of Section 1962 prohibits unique conduct, “a pattern of racketeering activity” is common to all. Id. To allege a pattern of racketeering activity, a plaintiff must plead two distinct elements with particularity required by Rule 9(b): (1) the pattern; and (2) racketeering activity. Field, 660 F. Supp. 2d at 686. If a plaintiff fails to plead the existence of racketeering activity, obviously, there can be no pattern. “Racketeering activity” is defined as any act that is indictable under various state and federal criminal statutes enumerated in 18 U.S.C. 1962(1)(A) and (B), including mail and wire fraud in violation of 18 U.S.C. 1341 and 1343. With regard to Defendant RBKA, the SAC alleges direct RICO liability based on predicate acts of mail and wire fraud. (See, e.g., SAC ¶ 204, 232, 234(rrr).) The SAC, however, is utterly devoid of any fact that pleads mail or wire fraud on the part of RBKA, much less facts pleaded with the particularity required by Rule 9(b). The conclusory references in the SAC about sending financial statements through the mail or via wire to the Houk Defendants (id. ¶ 234(rrr)), fail even the basic pleading standard of Fed. R. Civ. P. 8(a), much less the heightened requirements of Rule Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 9 of 17 PageID# 10307 5 9(b). Thus, the SAC fails to allege any “fact” indicating “racketeering activity” on the part of Defendant RBKA. And, necessarily, the SAC fails to allege any “pattern of racketeering activity” on the part of Defendant RBKA. For this reason, the SAC fails to allege two of the essential elements common to the RICO Counts I, II, III, and IV and, accordingly, must be dismissed, with prejudice. III. THE RICO CLAIMS AGAINST RBKA, COUNTS I-IV, MUST ALSO BE DISMISSED FOR FAILURE TO ALLEGE THE SPECIFIC CONDUCT PROHIBITED BY 18 U.S.C. 1962(a), (b), (c), AND (d). a. Count I, for violation of Section 1962(a), must be dismissed because it fails to allege RBKA used income to acquire an interest in an enterprise engaged in interstate or foreign commerce. The SAC, despite its incredible length, contains only a single reference to income received by RBKA in relation to the professional services it provided to NHF. That reference is in Paragraph 218, which alleges “on information and belief, Ben Kori has made a profit over [sic] $500,000.00 through the operation of this Enterprise.” This allegation against RBKA is, in essence, merely a speculative assertion that over eight years, RBKA received an average of $62,500.00 a year as compensation for its professional services to NHF. Section 1962(a) “prohibits use of income from racketeering . . . to acquire an interest in any enterprise engaged in interstate or foreign commerce.” Field, 660 F. Supp. 2d at 687. The SAC, however, fails to state any “fact” against RBKA to bring it within the scope of 1962(a) liability. In addition to the SAC’s failure to allege a pattern of racketeering activity against RBKA, as explained above, there is no allegation, or even an attempted allegation, regarding RBKA’s use of the professional fees collected from NHF. In this sense, the SAC fails to even parrot the elements of a Section 1962(a) claim against RBKA. Thus, because the SAC fails to allege any element of a Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 10 of 17 PageID# 10308 6 claim against RBKA under 18 U.S.C. 1962(a), the Court should dismiss it, with prejudice. b. Count II, for violation of Section 1962(b), must be dismissed because the SAC fails to allege RBKA acquired an interest or control over an enterprise. Count II of the SAC alleges RBKA violated Section 1962(b), “which prohibits acquiring or maintaining any interest in or control over an enterprise engaged in interstate or foreign commerce through [a pattern of] racketeering [activity] or collecting unlawful debts.” Field, 660 F. Supp. 2d at 687. To state a cause of action under 1962(b), “the RICO plaintiffs must prove (i) that [the defendant] engaged in a pattern of racketeering activity, (ii) that through this pattern, he acquired an interest in, or control of, an enterprise (iii) that engaged in activities affecting interstate or foreign commerce, and (iv) that this acquisition of an interest or control caused property damage to the RICO plaintiffs.” In re XE Servs. Alien Tort Litig., 665 F. Supp. 2d 569, 596 (E.D. Va. 2009) citing Danielsen v. Burnside-Ott Training Ctr., Inc., 941 F.2d 1220, 1231 (D.C.Cir.1991). The SAC, however, contains no allegation of fact against RBKA sufficient to state any element of a 1962(b) claim under the standards of Rule 8(a) or 9(b). As noted in Section II, supra, the SAC fails to allege a pattern of racketeering activity on the part of RBKA. Further, the SAC contains no allegation that RBKA obtained an interest or control of an enterprise. Nor does the SAC allege the existence of an “acquisition injury,” i.e., that the Plaintiffs’ alleged injuries are a result of RBKA’s acquisition of an interest, or control over the enterprise. This “acquisition injury” is the ultimate basis of 1962(b) liability which, if not adequately pleaded, the SAC must be dismissed. In re XE Servs. Alien Tort Litig., 665 F. Supp. 2d at 597. At most, the SAC alleges that RBKA received normal professional fees for eight years of audit work. (SAC ¶ 218.) The SAC’s conclusory allegation that RBKA “at the inception” of its relationship with NHF, immediately agreed to participate in a fraud (id. ¶ 110), does not equate Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 11 of 17 PageID# 10309 7 to interest, control, or any other element sufficient to impose Section 1962(b) liability. In re XE Servs. Alien Tort Litig., 665 F. Supp. 2d at 596-97 (citing authorities and dismissing 1962(b) claim for failure to allege all elements of the offence). Accordingly, the Court should dismiss the SAC against RBKA, with prejudice. c. Count III, for violation of Section 1962(c), must be dismissed because the SAC fails to allege RBKA conducted or participated in the affairs of an enterprise. Count III of the SAC alleges that RBKA violated Section 1962(c), which “makes it unlawful ‘for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . . .’” Reves v. Ernst & Young, 507 U.S. 170, 177 (1993) citing 18 U.S.C. 1962(c). Under 1962(c), in order to “participate, directly or indirectly, in the conduct of such enterprise's affairs,” one must have some part in directing those affairs. Id. at 179. And, although Section 1962(c) liability “is not limited to those with primary responsibility for the enterprise's affairs . . . some part in directing the enterprise's affairs is required.” Id. (emphasis in original). In this case, there is no allegation in the SAC that RBKA exercised any direction over the control of the alleged enterprise. While the SAC takes issue with the manner in which RBKA and/or the Houk Defendants classified certain entries on the financial statements (SAC ¶¶ 204-06), the SAC does not allege that RBKA acted in any manner other than NHF’s outside auditor. Since the SAC fails to allege any fact pursuant to the standards of Rule 8(a) or 9(b) to impose liability under Section 1962(c), the SAC must be dismissed, with prejudice. Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 12 of 17 PageID# 10310 8 d. Count IV, alleging a conspiracy to violate RICO pursuant to Section 1962(d), must be dismissed because the allegations against RBKA under subsections (a), (b), and (c) fail; and because the SAC fails to allege an agreement to commit the predicate acts with specificity as required by Rule 9(b). Count IV of the SAC alleges that RBKA entered into a conspiracy with the other Defendants to violate the provisions of RICO in violation of Section 1962(d). As noted throughout this Memorandum, however, each of the underlying RICO allegations fail to state a cause of action against RBKA. Under these circumstances, the conspiracy claim “also must fail if the substantive claims are themselves deficient.” Field, 660 F. Supp. 2d at 688 citing Robinson v. Fountainhead Title Group Corp., 252 F.R.D. 275, 283 (D.MD 2008); Lightning Lube Inc. v. Witco Corp., 4 F.3d 1153, 1191 (3d Cir. 1993). Further, because the core of the Plaintiffs’ civil RICO claim is an agreement to commit fraud, the SAC must allege such an agreement with specificity. Field, 660 F. Supp. 2d at 688 citing Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir. 1990). With regard to the alleged agreement between RBKA and the Houk Defendants, the SAC fails to meet this standard. According to the SAC, at the very outset of the professional relationship between NHF and RBKA, they immediately “entered into an agreement . . . to willfully and wantonly provide false and misleading financial statements . . . .” (Id. ¶ 110.) This allegation, however, is conclusory and unsupported. It lacks the specifics of who, what, where, how, and why required by Rule 9(b). Worse, the facts that the SAC does contain in regard to RBKA shows the SAC’s basic theory violates common sense-not only that the Houk Defendants and NHF approached an outside accounting firm and immediately told it about their secret fraud, but that the accounting firm immediately jumped in. And they did so without asking for anything other than normal professional fees for the services. (SAC ¶ 218.) According to the SAC, while NHF was hiding its fraud from “approximately 10,000 well-meaning individuals,” (id. ¶ 1) it engaged RBKA to audit Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 13 of 17 PageID# 10311 9 its 2001 financial statements and immediately took the accountants into their confidence, telling them about the fraud, and securing an agreement “to willfully and wantonly provide false and misleading financial statements . . . .” (Id. ¶¶ 109-10.) This theory, in short, requires conduct by RBKA that was irrational and self-destructive. It requires equally irrational conduct by the Houk Defendants because it assumes that, while carefully guarding the secrets of their fraud, they would engage an outside accounting firm and immediately disclose the fraud. The theory badly fails the test of “plausibility.” Twombly, 550 U.S. at 545-46. The SAC’s allegations against RBKA fall even further short of the requirements of Rule 9(b). Thus, Count IV, as well as the other allegations against RBKA, should be dismissed, with prejudice. IV. COUNT VII, A CLAIM FOR CIVIL CONSPIRACY TO COMMIT FRAUD, MUST BE DISMISSED BECAUSE THE SAC FAILS TO ALLEGE THE ELEMENTS AGAINST RBKA WITH PARTICULARITY. Count VII is a claim for “civil conspiracy to commit fraud” against all defendants. In Virginia, “the elements of a common law civil conspiracy are (i) an agreement between two or more persons (ii) to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means, which (iii) results in damage to plaintiff.” William v. AES Corp., 28 F. Supp. 3d 553, 574 (E.D. Va. 2014) citing Firestone v. Wiley, 485 F. Supp. 2d 694, 703 (E.D.Va. 2007). Additionally, all elements of a civil conspiracy claim, including the alleged agreement, must be pleaded with particularity required by Rule 9(b). Firestone, 485 F. Supp. 2d at 703 citing Bay Tobacco, LLC v. Bell Quality Tobacco Prods., LLC, 261 F. Supp. 2d 483, 499-500 (E.D.Va. 2003) (stating to that to survive a motion to dismiss on common law civil conspiracy, plaintiff must plead agreement in more than mere conclusory language because “a conspiracy claim asserted in mere Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 14 of 17 PageID# 10312 10 conclusory language is based on inferences that are not fairly or justly drawn from the facts alleged”). In this case, the SAC contains a single conclusory allegation that RBKA immediately agreed to participate in the NHF fraud upon its retention as outside auditor. (SAC ¶ 110.) This threadbare allegation does not meet the particularity requirements of Rule 9(b). Moreover, Count VII appears to be a duplication of the RICO Section 1962(d) conspiracy claim as it alleges a conspiracy “[i]n furtherance of the Enterprise.” (SAC ¶ 292.) As noted previously, the SAC fails to plead a 1962(d) claim against RBKA. In either case, Count VII fails to allege the elements of a civil conspiracy against RBKA under any pleading standard. Accordingly, it must be dismissed, with prejudice. V. COUNT VIII, A CLAIM FOR NEGLIGENT MISREPRESENTATION, MUST BE DISMISSED BECAUSE IT IS NOT A RECOGNIZED CAUSE OF ACTION IN VIRGINIA. Count VIII is a claim for “negligent misrepresentation and omission” asserted “against all Defendants.” (SAC ¶¶ 297-302.) The Court, however, must dismiss this claim because negligent misrepresentation is not recognized as an independent cause of action in Virginia. Baker v. Elam, 833 F. Supp. 2d 576, 581 (E.D.Va. 2012) citing Haigh v. Matsushita Elec. Corp., 676 F. Supp. 1332, 1349-50 (E.D.Va.1987); Bentley v. Legent Corp., 849 F. Supp. 429, 434 (E.D.Va.1994). Accordingly, Count VIII fails to state a claim upon which relief may be granted, and must be dismissed, with prejudice. VI. COUNT XI, A CLAIM FOR THE IMPOSITION OF A CONSTRUCTIVE TRUST, MUST BE DISMISSED BECAUSE THE SAC DOES NOT ALLEGE THAT RBKA IS IN POSSESSION OF FUNDS BELONGING TO THE PLAINTIFFS. Count XI is a claim for the imposition of a constructive trust. To make a constructive trust claim, a plaintiff must trace the funds into the res at issue. Old Republic Nat'l Title Ins. Co. v. Tyler Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 15 of 17 PageID# 10313 11 (In re Dameron), 155 F.3d 718, 723 (4th Cir.1998) (“Ordinarily, a party claiming entitlement to a trust must be able to trace its assets into the fund or property that is the subject of the trust.”) In this case, there is no attempt to trace funds belonging to the Plaintiffs into the possession of RBKA. The only allegation relating to money in relation to RBKA is that it received compensation for its professional services over an eight-year period. (SAC ¶ 218.) There is no allegation that this money belongs to the Plaintiffs. Accordingly, Count XI fails to state a claim against RBKA and should be dismissed, with prejudice. CONCLUSION As explained in this Memorandum, the SAC fails to meet basic pleading standards required to state any of the claims against RBKA. This is despite the fact that the Plaintiffs have had years to formulate these claims. Under the circumstances, the SAC must be dismissed, and with prejudice. Respectfully Submitted, ROBERT BEN KORI & ASSOCIATES By counsel CARR MALONEY P.C. By: /s/ J. Peter Glaws, IV J. Peter Glaws, IV, VSB #83185 Kevin M. Murphy, Pro Hac Vice 2020 K. Street, NW, Suite 450 Washington, D.C. 20006 (202) 310-5500 (Telephone) (202) 310-5555 (Facsimile) jpg@carrmaloney.com kmm@carrmaloney.com Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 16 of 17 PageID# 10314 12 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a copy of this Memorandum of Points and Authorities in Support of Defendant Robert Ben-Kori & Associates’ Motion to Dismiss was electronically filed this 31st day of October, 2016 and served electronically upon all parties of record via the Court’s electronic filing system. /s/ J. Peter Glaws, IV J. Peter Glaws, IV Case 1:16-cv-01228-CMH-TCB Document 331-1 Filed 10/31/16 Page 17 of 17 PageID# 10315 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Alexandria Division JOHN R. BEHRMANN, et al., : : Plaintiffs, : : Case No.: 1:16-cv-01228-CMH-TCB v. : : JOHN T. HOUK, II, et al., : : Defendants. : ORDER UPON CONSIDERATION of Defendant Robert Ben-Kori & Associates’ Motion to Dismiss, its supporting Memorandum of Point and Authorities, Reply Memorandum, any Oppositions thereto, and the oral arguments of Counsel, and HAVING FOUND that the Second Amended Complaint fails to state any cause of action against Defendant Robert Ben-Kori & Associates (“RBKA”); and having further FOUND that the Second Amended Complaint fails to allege “facts” with sufficient particularity to state any claim against RBKA; and having further FOUND that the RICO claims, Count I-IV, fail to allege the common element of racketeering activity by RBKA; and having further FOUND that Count I fails to allege RBKA used income to acquire an interest in an enterprise engaged in interstate commerce; and having further FOUND that Count II fails to allege RBKA acquired an interest or control over an enterprise; and having further Case 1:16-cv-01228-CMH-TCB Document 331-2 Filed 10/31/16 Page 1 of 2 PageID# 10316 FOUND that Count III fails to allege RBKA conducted or participated in the affairs of an enterprise; and having further FOUND that Count IV fails because the underlying RICO claims fail; and because the Second Amended Complaint fails to allege an agreement to commit RICO predicate acts with particularity; and having further FOUND that Count VII fails to allege the elements of a civil conspiracy to commit fraud by RBKA with the required particularity; and having further FOUND that Count VIII fails because negligent misrepresentation is not a recognized cause of action under Virginia law; and having further FOUND that Count XI fails because the Second Amended Complaint fails to trace any funds from the Plaintiffs into the possession of RBKA, an essential element of a constructive trust claim; and having further FOUND that any amendment of the claims against RBKA will be futile; and For the reasons stated in the supporting Memoranda of RBKA; it is hereby ORDERED that the Motion to Dismiss is granted; and it is further ORDERED that all claims against Defendant Robert Ben-Kori & Associates are dismissed; and it is further ORDERED that all claims against Defendant Robert Ben-Kori & Associates are dismissed with prejudice. So Ordered This ____ day of November, 2016 Judge, United States District Court for the Eastern District of Virginia Case 1:16-cv-01228-CMH-TCB Document 331-2 Filed 10/31/16 Page 2 of 2 PageID# 10317