Opinion
Civil Action No. 00-2949, Section "C" (1)
November 7, 2001
ORDER AND REASONS
Before the Court are five motions: two Motions to Dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6), one by Defendants Easy Money Holdings, Inc. ("Easy Money Holdings"), Easy Money of Virginia, Inc. ("Easy Money NA"), and David L. Greenberg, and the other by Defendants Tammi Van Gorder and Jerome Greenberg; a Motion to Dismiss, pursuant to Rule 12(b)(2), by Easy Money Holdings and David L. Greenberg; a Motion for Summary Judgment, pursuant to Rule 56, by Defendant Easy Money of Louisiana, Inc.; and Plaintiffs' Motion for Class Certification. Because the motions are interdependent, the Court will consider them together. After reviewing the record, the arguments of counsel, and the relevant law, IT IS ORDERED that Defendants' Motions are GRANTED, partially with prejudice and partially without prejudice. Because of the Court's disposition of these Motions, IT IS ORDERED that Plaintiffs' Motion for Class Certification is DENIED without prejudice.
I. Motions to Dismiss
Standard of Review
When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, a district court must accept the factual allegations of the complaint as true and resolve all ambiguities or doubts regarding the sufficiency of the claim in favor of the plaintiff. See Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993). Unless it appears "beyond a doubt that the plaintiff can prove no set of facts in support of his claim," the complaint should not be dismissed for failure to state a claim. Id. at 284-285 (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). However, conclusory allegations or legal conclusions masquerading as factual conclusions will not defeat a motion to dismiss. See Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995) (citing Fernandez-Montes, 987 F.2d at 284).
Background
The moving Defendants ("Defendants") are alleged to be affiliated with another Defendant, Easy Money of Louisiana, Inc. ("Easy Money/LA"), which is a licensed consumer finance company with locations throughout Louisiana. Easy Money/LA is engaged in the business of making short-term, so-called "pay day" loans. In their class action complaint filed on October 4, 2000, Plaintiffs allege that Defendants, along with Easy Money/LA, violated the Louisiana Small Loan Act, former La. R.S. 9:3577.1, and its successor, the Louisiana Deferred Presentment and Small Loan Act, La. RS. 9:3577.2. Plaintiffs contend that Defendants procured fees in excess of amounts permitted under these statutes. Plaintiffs also allege that Defendants used Easy Money of Louisiana to procure these fees in such a way as to violate the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962. Defendants' Motions rely on similar arguments for the purposes of the Court's disposition today, and thus we consider them together.
RICO Allegations Sections 1962(a) (b)
For the purpose of analyzing Plaintiffs' RICO claims under 18 U.S.C. § 1962 (a), (b) and (c), the Court assumes without deciding that the underlying state law claims on which these RICO claims depend suffice to survive Defendants' Motions to Dismiss and Easy Money/LA's Motion for Sununary Judgment.
The Court previously granted a Motion to Dismiss the § 1962(a) and (b) claims against Easy Money/LA on the basis that the injury or harm experienced by Plaintiffs was not claimed to have resulted from the racketeering conduct of Easy Money/LA itself, but rather flowed from the predicate acts. See Rec. Doc. 42. For the same reasons as stated in that order, and on the basis of the authority cited therein, the § 1962(a) and (b) claims are likewise dismissed as to Defendants herein. Section 1962(c) 18 U.S.C. § 1962 (c) states as follows: "It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt."
With respect to 1962(a), Plaintiffs argue in their opposition to the Motions to dismiss that Defendants received income from prior unlawful debt collection in Virginia, Kentucky, and Louisiana, and used it to expand their operations in Louisiana, which led to injury to Plaintiffs. See Rec. Doc. 83 at 7. While the Fifth Circuit has recently acknowledged that such a theory is viable, it must be clearly alleged, which it is not in this petition. See St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 443-46 (5th Cir. 2000).
Plaintiffs do not allege a pattern of racketeering activity; rather, they allege collection of unlawful debt as the basis for the § 1962 violation. See Rec. Doc. 52 ¶ 55. The "enterprise" is alleged to be Easy Money/LA. See id. at ¶ 52.
Defendants argue that Plaintiffs' claim under § 1962(c) should be dismissed because: (a) Plaintiffs have not adequately alleged any RICO predicate acts; (b) Plaintiffs have made no factual allegations that Defendants each committed RICO predicate acts; (c) the Complaint fails to plead RICO with sufficient particularity; (d) no facts are alleged establishing that Defendants conducted the affairs of the RICO enterprise (EasyMoney/LA); (e) Plaintiffs fail to allege a distinction between each of the liable persons (Defendants) and the RICO enterprise; (f) there is no pattern of racketeering activity by Defendants; and (g) there is no distinction between the pattern of racketeering activities (collection of unlawful debts) and The RICO enterprise.
In their grounds for dismissal set forth in (a), (b), (c), (d) and (f), supra, Defendants essentially argue that Plaintiffs have failed to plead the "conduct" element with sufficient particularity. See Rec. Doc. 64 at 3-4; Rec. Doc. 72 at 3-4." [T]o satisfy the "conduct' element of § 1962(c), a plaintiff must allege that the defendant "participated in the operation or management of the enterprise itself, ' and that the defendant played "some part in directing the enterprise's affairs.'" Goren v. New Vision Int'l, Inc., 156 F.3d 721, 727 (7th Cir. 1998) (quoting Reves v. Ernst Young, 507 U.S. 170, 179, 183 (1993) (emphasis omitted)). "It is not enough, however, for a plaintiff simply to allege the above element in boilerplate fashion; instead, she must allege sufficient facts to support each element." Goren, 156 F.3d at 727.
In Goren, the plaintiff included in her complaint several factual allegations regarding the defendants' performance of certain services for the alleged enterprise, a corporation. See id. at 727-28. But the complaint did not contain any factual allegations that would lead to the conclusion that these defendants were involved in directing the affairs of the alleged enterprise, and thus the plaintiff failed to state a claim. See id. In the instant case, Plaintiffs' factual allegations fall short even of those in Goren. Plaintiffs allege collection of an unlawful debt, but unlike in that case, which linked specific defendants to specific services, here, Plaintiffs state only conclusorily the Defendants' connection to the enterprise, averring that they "developed, expanded, own, manage, control and/or derive a substantial financial benefit" from Easy Money/LA. See Rec. Doc. 52 at ¶ 6. Plaintiffs nowhere establish the particular connection of each Defendant to the enterprise, let alone suggest how such a connection would or did enable each Defendant to violate § 1962(c). Thus, Plaintiffs' § 1962(c) claim cannot survive the Defendants' motion to dismiss.
The Court notes, however, that Plaintiffs' petition has set forth in considerable detail allegations relating to the predicate acts, which they contend are the collections of unlawful debts. Plaintiffs have more than adequately alleged why and how the debts are unlawful.
As noted in contention (e), supra, Defendants also allege that Plaintiffs have not properly alleged an "enterprise" distinct from Defendants and the conduct of Defendants' own businesses. Old Time Enters., Inc. v. Int'l Coffee Corp., 862 F.2d 1213, 1217 (5th Cir. 1989) (citing Bishop v. Corbitt Marine Ways, Inc., 802 F.2d 122 (5th Cir. 1980)). Because the petition fails to set forth how in fact the various Defendants are "affiliated" with or "employed by" the alleged enterprise, Easy Money/LA, by default, it is not possible to assess whether there is a sufficient distinction between Defendants and the enterprise. As such, Defendants' objection is well taken. If the petition is amended, Plaintiffs should take heed of the requirements in this regard, particularly with respect to the corporations named as Defendants and the apparent likelihood that the alleged "enterprise" here is some form of subsidiary of those corporations. See St Paul Mercury, 224 F.3d at 445-48; Khurana v. Innovative Health Care Sys., Inc., 130 F.3d 143, 154-57 (5th Cir. 1997), rev'd on other grounds, Teel v. Khurana, 525 U.S. 979, 119 S.Ct. 442, 142 L.Ed.2d 397 (1998).
As noted in contention (g), supra, Defendants further contend that Plaintiffs allege no distinction between the alleged collection of unlawful debts and the "enterprise." Crowe v. Henry, 43 F.3d 198, 205 (5th Cir. 1995). The Court agrees. It is unclear whether Plaintiffs are alleging that Easy Money/LA's entire operation is devoted to the collection of unlawful debts. If the petition is amended, Plaintiffs should explicitly set forth the necessary distinction.
Section 1962(d) 18 U.S.C. § 1962 (d) makes it unlawful for any person "to conspire to violate" one of the substantive provisions of RICO. The Fifth Circuit requires that for a plaintiff to state a claim under § 1962(d), it "at the very least, must allege specifically such an agreement" to commit one of the predicate acts under §§ 1962(a)-(c). See Crowe, 43 F.3d at 206 (quoting Tel-Phonic Serv., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1140 (5th Cir. 1992)). In Crowe, the court affirmed a Rule 12(b)(6) dismissal of mere conclusory allegations of the agreement upon which an alleged § 1962(b) RICO conspiracy was based. See Crowe, 43 F.3d at 206. Here, likewise, Plaintiffs conclusorily allege, in their RICO Case Statement that they anticipate "discovery will reveal that all defendants conspired to violate 18 U.S.C. § 1962 (a), (b) and, for all defendants except Easy Money of Louisiana, Inc., (c) by entering into an agreement to participate in a scheme to create and operate an enterprise to engage in the aforesaid unlawful loan operations and collect unauthorized, usurious and unconscionable fees from plaintiffs and other Louisiana customers, in violation of 1962(d)." Rec. Doc. 3 at 6.
Plaintiffs argue in their response to Defendants' Motions to Dismiss, "Because conspiracies are by their nature surreptitious undertakings, the courts do not expect detailed factual allegations, especially at the early pleading stage." Rec. Doc. 83 at 16 (citing Brever v. Rockwell Int'l Corp., 40 F.3d 1119, 1128 (10th Cir. 1994)). If anything, however, Brever's facts strengthen the proposition for which Crowe stands and counsel dismissal of Plaintiffs' claim. In Brever, one of the plaintiffs alleged a conspiracy to deter her from testifying before a grand jury and to retaliate against her for so testifying. See id. at 1124. In her complaint, she supported these allegations by alleging particular actions on particular days from which a conspiracy could be inferred. See id. at 1128. The court did note that the plaintiffs complaint was "inartfully drawn" and failed to allege some specific details but forgave these inadequacies due to the secretive nature of conspiracies. Id. In the instant case, by contrast, the Plaintiffs' allegations are more than incomplete — there simply are no details from which to infer an alleged agreement.
In the words of Judge Posner, "We don't want to create a Catch-22 situation in which a complaint is dismissed because of the plaintiffs inability to obtain essential information without pretrial discovery . . . that she could not conduct before filing the complaint." Emery v. Am. Gen. Fin., Inc., 134 F.3d 1321, 1323 (7th Cir. 1998) (dismissing RICO claim). The Emery court, however, went on to emphasize that pleading requirements are "relaxed upon a showing of such inability." Id. Plaintiffs here have made no such showing. Thus, their § 1962(d) claim is dismissed without prejudice.
Because federal subject matter jurisdiction is premised on the RICO allegations, the validity of those allegations must be determined prior to the Court addressing the state law claims. Because those allegations are inadequate, jurisdiction does not exist. Thus, it would be inappropriate to decide whether the state law claims are properly pled. See 28 U.S.C. § 1367 (c)(3).
Because the Court grants Defendants' 12(b)(6) Motions, it is not necessary to address the 12(b)(2) Motion of Easy Money Holdings and David L. Greenberg. As such, it is granted without prejudice. If the petition is amended, however, Plaintiffs should supplement the facts alleged, if necessary, in order to establish personal jurisdiction over Easy Money Holdings and David Greenberg.
II. Easy Money/LA's Motion for Summary Judgment
The Motion for Summary Judgment follows a denial of Easy Money/LA's Motion to Dismiss Plaintiffs RICO claims under §§ 1962(c) and (d) and under state law.
Plaintiffs assert in their Opposition to the summary judgment motion that it presently has no RICO claims against Easy Money/LA. As such, the Court grants Easy Money/LA's motion with respect to §§ 1962(c) and (d) without prejudice.
As all of Plaintiffs RICO claims against Easy Money/LA have been dismissed, the Court lacks jurisdiction to address their state law claims against this Defendant. See § 1367(c)(3). Accordingly, the state law claims are dismissed without prejudice.
III. Plaintiffs' Motion for Class Certification
Because of the Court's disposition of the substantive claims, it lacks jurisdiction to address Plaintiffs' Motion for Class Certification. See 28 U.S.C. § 1367 (c)(3). Accordingly, it is denied without prejudice.
IV. Conclusion
Therefore, IT IS ORDERED that Defendants' Motions to Dismiss under Rule 12(b)(6) are GRANTED WITH PREJUDICE with regard to Plaintiffs' RICO claims under Sections 1962(a) and (b) and WITHOUT PREJUDICE with regard to Plaintiffs' claims under Sections 1962(c) and (d). In addition, Defendants Easy Money Holdings' and David L. Greenberg's Motion to Dismiss under Rule 12(b)(2) is GRANTED WITHOUT PREJUDICE. Defendant Easy Money/LA's Motion for Summary Judgment under Rule 56 is GRANTED WITHOUT PREJUDICE. Finally, Plaintiffs' Motion for Class Certification is DENIED WITHOUT PREJUDICE. These orders are deferred to allow Plaintiffs ten days from the date of this order to file an amended complaint addressing the deficiencies cited herein.