Opinion
Case No. 5:03-CV-58
October 20, 2003
OPINION
Background
Plaintiff, DIRECTV, Inc. ("DIRECTV"), filed a complaint against several defendants alleging that they violated federal and state law by purchasing, using, and/or reselling Pirate Access Devices, or "smartcards", designed to intercept and decrypt DIRECTV's encrypted satellite television transmissions. In response to DIRECTV's complaint, Defendant Curtis Fields ("Fields") filed a counter-complaint against DIRECTV and a third party complaint against Hughes Electronics ("Hughes"), Yarmuth Wilsdon Calfo PLLC ("Yarmuth"), and End User Recovery Project, LLC ("EURP"), alleging the following claims: (1) extortion in violation of 18 U.S.C. § 876 (Count 1); (2) conspiracy to extort in violation of 18 U.S.C. § 876 (Count 2); (3) violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 to 1968 (Count 3); (4) violation of the Michigan Consumer Protection Act ("MCPA"), M.C.L. §§ 445.901 to .922. (Count 4); and (5) fraud and misrepresentation (Count 5).
On July 11, 2003, DIRECTV, Hughes, Yarmuth, and EURP (collectively referred to as DIRECTV) filed a motion to dismiss the counter-complaint and third party complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). Subsequently, Fields filed an amended counter-complaint and third party complaint deleting his extortion claims set forth in Counts 1 and 2 of the original counter-complaint and third party complaint. In response, DIRECTV filed a motion to dismiss the amended counter-complaint and third party complaint, which is now before the Court.
The claims set forth in the amended counter-complaint and third party complaint are based upon DIRECTV's pre-suit activities. Essentially, Fields alleges that DIRECTV has engaged in a plan to defraud and/or extort personal property and money from individuals possessing smartcards through a mass mailing scheme accusing recipients of violating federal and state law. According to the counter-complaint and third party complaint, Hughes is DIRECTV's parent corporation, Yarmuth is a law firm located in Washington that sent out letters on behalf of DIRECTV, EURP is a corporation located in Washington, and all of these entities participated with DIRECTV in carrying out the alleged plan or scheme.
Fields alleges that he received a letter dated November 5, 2002, from Yarmuth accusing him of being in possession of an illegal signal theft device and claiming that his possession and use of the device was illegal. Fields also alleges that Yarmuth demanded that Fields surrender the device, agree in writing that he would not purchase or use any illegal device to view DIRECTV's programming, and pay a monetary sum. Fields claims that in a telephone conversation, a Yarmuth employee demanded that Fields pay $3,500 to settle the matter. Fields alleges that he received a letter dated February 12, 2003, from EURP advising Fields that suit would be filed based upon his failure to accept DIRECTV's settlement demands.
Motion Standard
An action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists.
Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions of legal conclusions. Allard v. Weitzman (In re DeLorean Motor Co.). 991 F.2d 1236, 1240 (6th Cir. 1993) (citing Schied v. Fanny Farmer Candy Shops. Inc., 859 F.2d 434, 436 (6th Cir. 1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2 A James W. Moore, Moore's Federal Practice. ¶ 12.34[1][b] (3d ed. 1997). The Court need not, however, accept unwarranted factual inferences. Morgan v. Church's Fried Chicken. 829 F.2d 10, 12 (6th Cir. 1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding. 467 U.S. 69, 73, 104 S.Ct. 2229, 2232 (1984) (citing Conlev v. Gibson. 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02 (1957)).
In responding to the instant motion, Fields relies upon several exhibits, including a deposition transcript and various documents. Although the Court has the discretion to consider matters outside the pleadings and treat the motion as a motion for summary judgment under Rule 56, see Fed.R.Civ.P. 12(b), the Court declines to consider Fields' exhibits and will decide the motion solely by reference to the pleadings.
Discussion
I. RICO Claim
In order to maintain a claim under RICO, a plaintiff must show that: (1) the defendants committed two or more predicate offenses, i.e., a pattern of racketeering; (2) a RICO enterprise existed; (3) a nexus exists between the pattern of racketeering activity and the enterprise; and (4) injury to the plaintiffs business or property by reason of the first three factors. VanDenBroeck v. CommonPoint Mortgage Co., 210 F.3d 696, 699 (6th Cir. 2000); Frank v. D'Ambrosi. 4 F.3d 1378, 1385 (6th Cir. 1993) (per curiam). Predicate offenses are limited to the acts described in 18 U.S.C. § 1961(1).
Fields' RICO claim fails because it does not allege two or more predicate offenses. The predicate acts alleged in the amended counter-complaint and third party complaint include: (1) contracting with third parties to send demand letters; (2) sending demand letters to individuals in the State of Michigan demanding money; (3) collecting money and obtaining releases from residents of the State of Michigan in reference to the settlement described in the demand letters; (4) sending letters through a law firm to individuals in the State of Michigan demanding money; (5) and collecting money and obtaining releases through a law firm from individuals in the State of Michigan. None of these alleged acts are predicate offenses described in 18 U.S.C. § 1961(1).
Fields also supports his RICO claim with allegations of extortion. As noted above, Fields asserted claims for extortion and conspiracy to commit extortion in violation of 18 U.S.C. § 876 in his original counter-complaint and third party complaint, but has since dismissed those claims. A violation of that statute cannot support a RICO claim because 18 U.S.C. § 876 is not listed as a predicate offense in 18 U.S.C. § 1961(1). Moreover, "a threat of litigation if a party fails to fulfil even a fraudulent obligation does not constitute extortion, and is insufficient to support a RICO claim as a matter of law."DIRECTV. Inc. v. Karpinsky. 269 F. Supp.2d 918, 929-30 (E.D. Mich. 2003) (citing Vemco v. Camardella. 23 F.3d 129, 124 (6th Cir. 1994) ("A threat of litigation if a party fails to fulfill even a fraudulent contract . . . does not constitute extortion.")),vacated in part. 274 F. Supp.2d 918 (July 31, 2003); see also Various Markets. Inc. v. Chase Manhattan Bank. N. A., 908 F. Supp. 459, 468 (E.D. Mich. 1995) (holding that a party asserting its legal rights cannot be liable for extortion).
Finally, Fields' RICO claim fails because Fields does not allege injury to his business or property by reason of a RICO violation. 18 U.S.C. § 1964(c); Beck v. Prupis. 529 U.S. 494, 504, 120 S.Ct. 1608, 1615 (2000). Fields alleges that DIRECTV's alleged scheme or plan was to obtain money or property from individuals such as Fields through the settlement scam. However, Fields does not allege that he paid anything or gave anything to DIRECTV. Thus, Fields cannot claim injury by reason of the alleged criminal acts.
II. MCPA Claim
Fields alleges that DIRECTV violated the MCPA by attempting to collect an unlawful debt and attempting to force a contract upon Fields based upon allegations, without factual support, that Fields viewed DIRECTV's television programming without authorization. The MCPA prohibits certain "[u]nfair, unconscionable, or deceptive methods, acts, or practices in the conduct of trade or commerce." M.C.L. 445.903(1). The MCPA defines "trade or commerce" as "the conduct of a business providing goods, property, or service primarily for personal, family, or household purposes and includes the advertising, solicitation, offering for sale or rent, sale, lease, or distribution of a service or property . . . or any other article, or a business opportunity." M.C.L. 445.902(d).
In DIRECTV, Inc. v. Karpinsky. supra, the court dismissed the defendant/counter-plaintiffs MCPA claim, which was similar to Fields' MCPA claim in this case, because DIRECTV and the defendant/counter-plaintiff did not engage in "trade or commerce" as defined under the MCPA. Karpinsky. 269 F. Supp.2d at 928. The court found that the MCPA was inapplicable because the defendant/counter-plaintiff was not a subscriber of DIRECTV's services. Rather, the court observed, the defendant/counter-plaintiff "was accused by DirecTV of stealing satellite services." Id.
The court in DIRECTV. Inc. v. Milliman. No. 02-74829 (E.D. Mich. 2003), a case cited by DIRECTV, reached the same result as theKarpinsky court, but for a different reason. The court concluded that while the plaintiff stated a claim under the MCPA, the claim was barred under the Noerr-Pennington doctrine.DIRECTV. Inc. v. Milliman. No. 02-74829, slip op. at 9-10 (E.D. Mich. Aug. 26, 2003). The court rejected DIRECTV's assertion that satellite piracy was not "trade or commerce" because the counter-plaintiff alleged that DIRECTV was engaged in trade or commerce by providing satellite television programming to consumers, not that the alleged piracy constituted "trade or commerce." Id. Citing this Court's opinion in Action Auto Glass v. Auto Glass Specialists. 134 F. Supp.2d 897 (W.D. Mich. 2001), the Milliman court stated that an actual transaction of goods or services between the parties is not necessary to meet the trade or commerce requirement.Milliman. slip op. at 10. Instead, the court stated, a plaintiff need only show that the defendant is engaged in the business of providing consumer goods or services. Id. at 10. The court thus concluded that the plaintiffs allegation that DIRECTV was engaged in trade or commerce was sufficient to meet the MCPA's "trade or commerce" requirement. In addition, the court rejected DIRECTV's assertion that the MCPA did not apply to the defendant/counter-plaintiff because the defendant/counter-plaintiff was accused of signal theft and was not suing in the capacity of a consumer. Citing Action Auto Glass, the court reasoned that "many cases have extended the statute's protection to competitors" and concluded that the defendant/counter-plaintiff had standing under the MCPA because "the MCPA's `intent of protecting consumers is well served by allowing suit to be brought by non-consumers who have a significant stake in the events.'" Id. at 10-11 (quoting John Labatt Ltd, v. Molson Breweries. 853 F. Supp. 965, 970 (E.D. Mich. 1994)).
The Court concludes that the MCPA claim fails for at least two reasons. First, Fields cannot establish the "trade or commerce" requirement. While this Court agrees with the Milliman court, for the reasons stated in Action Auto, that the focus of the "trade or commerce" requirement is upon the business of the defendant, the fact that a defendant happens to sell consumer goods or services is not, by itself, sufficient to meet the "trade or commerce" requirement because the alleged violation must occur "in the conduct of trade or commerce." M.C.L. § 445.903(1). Acts constituting "trade or commerce" include "the advertising, solicitation, offering for sale or rent, sale, lease, or distribution of a service or property." M.C.L. § 445.902(d). In Action Auto, this Court concluded that the "trade or commerce" requirement was satisfied because the defendant was engaged in the sale of goods or services to consumers and the specific conduct at issue — advertising — was conduct described in the statute as constituting "trade or commerce." Action Auto. 134 F. Supp.2d at 901. As this Court concluded, the statute does not require a transaction between the parties in order to meet the "trade or commerce" requirement. Id. However, the MCPA does make clear that the defendant's acts must have occurred as part of an effort to further the sale or lease of goods or services to consumers. While DIRECTV sells goods or services to consumers, the acts by DIRECTV at issue in this case were not "trade or commerce," i.e., conduct designed to further the sale or lease of goods or services to consumers. Rather, DIRECTV was seeking to enforce its legal rights against persons who were not consumers and whom DIRECTV believed to be engaging in the illegal theft of DIRECTV's product (television signal).
Fields suggests that DIRECTV is engaged in "trade or commerce" because it has obtained subscriptions from individuals in the course of settling its signal theft claims. The Court rejects this argument, because even if individuals agreed to enter into DIRECTV subscription agreements, they did so in the context of a settlement rather than as part of a consumer transaction.
Second, Fields lacks standing to assert an MCPA claim. Fields is not a consumer because he does not claim to be a DIRECTV subscriber. In fact, Fields does not allege that he purchased or leased anything from DIRECTV. Rather, DIRECTV alleges that Fields engaged in signal theft. InAction Auto, this Court held that the plaintiff, a non-consumer, had standing to sue under the MCPA because its interest as a competitor in preventing false statements about its products or services would also serve to protect consumers:
In a case such as this, for example, where a competitor makes allegedly false statements about a competitor's product or business practices, the ultimate resulting harm is to the consumer, who may be swayed into purchasing an inferior product or paying more for the same product.Id. at 903. Fields is not a competitor of DIRECTV complaining about false and misleading statements to consumers, nor does he have, as a non-consumer, any type of an interest that would further the interest of or protect consumers. Thus, Fields does not have standing to assert an MCPA claim.
III. Fraud and Misrepresentation Claim
In his fraud and misrepresentation claim, Fields alleges that DIRECTV intentionally made false representations of material facts regarding Fields' purchase, possession, and use of smartcards as well as false and misleading interpretations of federal statutes regarding the legality of purchasing and possessing smartcards. In order to support a fraud claim, a plaintiff must allege: (1) that the defendant made a material misrepresentation; (2) that the representation was false; (3) that the defendant knew the representation was false or made it recklessly without knowledge of its truth or falsity; (4) that the defendant made the misrepresentation with the intent that the plaintiff would act on it; (5) that the plaintiff acted in reliance on the misrepresentation; and (6) that the plaintiff suffered injury. Eerdmans v. Maki. 226 Mich. App. 360, 366, 573 N.W.2d 329, 332-33 (1997) (per curiam).
Fields' fraud and misrepresentation claim fails for several reasons. First, to the extent that Fields alleges that DIRECTV made misrepresentations of material fact regarding Fields' possession and use of a pirate access device and Fields' theft or attempted theft of DIRECTV's programming, Fields cannot show that he reasonably relied upon the alleged misrepresentations because Fields was fully aware of the true facts at all times and had the ability to assess the truth or falsity of the alleged misrepresentations. Second, Fields cannot maintain a claim for fraud based upon DIRECTV's interpretation of federal law. A claim of fraud must be predicated upon a statement of past or existing fact. Id. at 366, 537 N.W.2d at 333. The general rule is that fraud cannot be based upon a misrepresentation of law. Rosenberg v. Cyrowski. 227 Mich. 508, 513, 198 N.W. 905, 906 (1924). The courts do allow an exception to this rule where the defendant knew that the statement of the law was not true and made the statement for the purpose of deceiving the plaintiff. Rosenberg. 255 Mich. at 514, 198 N.W. at 906-07. There can be no fraud here, however, because the only possible misrepresentation by DIRECTV — that a defendant may be liable for mere possession of a pirate access device — is merely a legal interpretation subject to reasonable debate. See DIRECTV. Inc. v. Gatsiolis. No. 03 C 3534, 2003 WL 22111097, at *2 (N.D. Ill. Sept. 10, 2003) (concluding that mere possession of a pirate access device gives rise to a civil cause of action); DIRECTV. Inc. v. Childers. 274 F. Supp.2d 1287, 1289 (M.D. Ala. 2003) (concluding that mere possession of a pirate access device cannot support a civil action for damages). Thus, the demand letter setting forth DIRECTV's legal position was not fraudulent. See Paul S. Mullin Assocs. v. Bassett. 632 F. Supp. 532, 540 (D. Del. 1986) ("The Court finds absurd plaintiffs' apparent suggestion that a lawyer's act in posting a letter which states a client's legal position in a dispute can constitute mail fraud. If such were the situation, every dispute in which the parties' counsel exchanged letters could give rise to RICO litigation. Such activity simply is not fraudulent.").
Second, Fields' allegations fail to show that he reasonably relied upon the alleged misrepresentations. Fields does not allege that he surrendered any property to DIRECTV or that he paid DIRECTV any amount. In an attempt to demonstrate reliance, Fields alleges that he made a long distance telephone call to the State of Washington. Even so, Fields fails to explain how he relied on any alleged misrepresentations by making a telephone call to the State of Washington. Therefore, this claim will be dismissed.
IV. Noerr-Pennington Doctrine
DIRECTV relies on the Noerr-Pennington doctrine as an additional ground for dismissal of Fields' claims. Although the Court has concluded that there are independent bases supporting dismissal of Fields' claims, the Court will briefly address theNoerr-Pennington doctrine.
The Noerr-Pennington doctrine, which derives from United Mine Workers of America v. Pennington. 381 U.S. 657, 85 S.Ct. 1585 (1965), and Eastern Railroad Presidents Conference v. Noerr Motor Freight. Inc., 365 U.S. 127, 81 S.Ct. 523 (1961), protects persons from liability in their efforts to enforce their First Amendment rights to petition the government and to petition the courts for judicial relief. Opdyke Inv. Co. v. City of Detroit. 883 F.2d 1265, 1273 (6th Cir. 1989). Although the doctrine was originally grounded in anti-trust jurisprudence, the courts have extended the doctrine to other activities based upon First Amendment principles. Primetime 24 Joint Venture v. Nat'l Broad. Co., 219 F.3d 92, 99-100 (2d Cir. 2000). For example, the Sixth Circuit has held that the doctrine applies to civil rights claims under 42 U.S.C. § 1983. Eaton v. Newport Bd. of Educ., 975 F.2d 292, 298 (6th Cir. 1992) ("Under the Noerr-Pennington doctrine, liability may not be assessed under § 1983 or the antitrust laws except in very limited circumstances, for actions taken when petitioning authorities to take official action, regardless of the motives of the petitioners, even where the petitioning activity has the intent or effect of depriving another of property interests."). Courts have also extended the doctrine to state law claims.Raines v. Switch Mfg., No. C-96-2648 DLJ, 1997 WL 578547, at *6 (N.D. Cal. July 28, 1997); Pennwalt Corp. v. Zenith Labs., Inc., 472 F. Supp. 413, 423-24(E.D. Mich. 1979). In addition, the doctrine has been extended to pre-litigation activities, such as threats to sue and demand letters. Primetime 24 Joint Venture. 219 F.3d at 100 (collecting cases); In re Cardizem CD Antitrust Litig., 105 F. Supp.2d 618, 637 (E.D. Mich. 2000) ("Noerr-Pennington immunity has been extended to non-sham, pre-litigation threats of suit, demand letters, and communications about pending suits.").
The doctrine is limited by the "sham" exception, "which covers cases where the defendant intended to use the petitioning process merely to harass the plaintiff." Eaton. 975 F.2d at 298. A plaintiff seeking to establish the "sham" exception must plead and prove "that the lawsuit is objectively baseless in that no reasonable litigant could expect success on the merits and the lawsuit must conceal an attempt to interfere directly with the business relations of a competitor."Neway Anchorlok Int'l. Inc. v. Longwood Indus., Inc., 107 F. Supp.2d 810, 812 (W.D. Mich. 1999).
The acts of DIRECT V in sending out pre-suit letters and making threats of litigation, which form the basis of Fields' claims, are the type of litigation activities covered by the Noerr-Pennington doctrine. Other than alleging generally that the letters sent out by DIRECTV contained false or misleading statements, Fields has failed to adequately explain why DIRECTV's lawsuit is a "sham" or, in other words, is objectively baseless. Such allegations are insufficient to establish the "sham" exception. See Raines. 1997 WL 578547, at *6 (stating that "if a bare allegation of bad faith litigation were sufficient to defeat the Noerr-Pennington bar, every claimant would be able to avoid the intent of the Supreme Court merely by alleging bad faith on the part of the party seeking to enforce [its rights]"). Accordingly, Fields' claims fail for the additional reason that they are barred by theNoerr-Pennington doctrine.
Fields requests that the Court grant him leave to amend his counter-complaint and third party complaint to correct any defective pleadings. Based upon its review of the claims asserted, the Court concludes that any amendment would be futile because Fields' claims would still be subject to dismissal for the reasons stated in this Opinion. Furthermore, Fields has not provided the Court with a proposed amended pleading from which the Court could determine whether "justice so requires" leave to amend. Roskam Baking Co. v. Lanham Mach. Co., 288 F.3d 895, 906-07 (6th Cir. 2002). Thus, the Court will not grant leave to amend.
Conclusion
For the foregoing reasons, the Court will grant DIRECTV's motion to dismiss Fields' amended counter-complaint and third party complaint pursuant to Fed.R.Civ.P. 12(b)(6).An Order consistent with this Opinion will be entered.