Opinion
CIVIL ACTION NO. 00-cv-1391 (JBS).
May 21, 2001
Suzanne Ilene Schiller, Esquire, Peter J. Boyer, Esquire, SPECTOR GADON ROSEN, PC, Moorestown, N.J., Counsel for the Plaintiff
David A. Picon, Esquire, PROSKAUER ROSE, LLP, Newark, N.J., and James K. Landau, Esquire, PROSKAUER ROSE, LLP, New York, NY., Counsel for Defendant Jenny Craig, Inc.
O P I N I O N
This matter comes before the Court on defendant Jenny Craig's motion to dismiss Counts I and II of plaintiff's Amended Complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6), Fed.R.Civ.P. In the Amended Complaint, plaintiff Food Sciences Corporation ("FSC") alleges that defendant Jenny Craig, Inc. ("Jenny Craig"), with whom FSC had a business relationship, violated the Racketeer Influenced Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c), by devising a scheme to deprive plaintiff of valuable business opportunities (Count I) and also violated 18 U.S.C. § 1962(d) by conspiring to violate 18 U.S.C. § 1962(c) (Count II). The Amended Complaint also asserts claims for tortious interference (Count Three), breach of contract (Count Four), and unjust enrichment (Count Five). Plaintiff seeks damages in excess of $3 million, a sum which includes treble damages and attorney's fees.
Jenny Craig moves to dismiss only the RICO counts of plaintiff's amended complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., asserting that plaintiff has not shown a racketeering enterprise distinct and separate from Jenny Craig itself, and that plaintiff has failed to allege a pattern of racketeering activity. For the reasons set forth below, the Court will grant the defendant's motion and dismiss Counts I and II of plaintiff's complaint for failure to state a claim upon which relief may be granted.
I. BACKGROUND
Plaintiff FSC is a Nevada corporation with a principal place of business in Mount Laurel, New Jersey. (Am. Compl., ¶ 1.) Plaintiff manufactures, markets and sells nutritional supplements and other products, including weight loss products, for sale to doctors, clinics, institutions and hospitals. (Am. Compl., ¶ 7.) Defendant Jenny Craig is a Delaware corporation with a principal place of business in La Jolla, California. (Am. Compl., ¶ 2.) Jenny Craig is in the business of selling weight loss products to consumers and normally purchases its products from vendors such as plaintiff. (Am. Compl., ¶ 8.)
Plaintiff alleges that in or about June 1998, defendant Jenny Craig began contract negotiations with plaintiff FSC to purchase weight loss products, which Jenny Craig intended to sell as part of its new weight loss program called "On the Go." (Am. Compl., ¶ 9.) Plaintiff placed its employee at the time Robert Katz ("Katz") in charge of managing the Jenny Craig account. (Am. Compl., ¶ 10.) In or about September or October of 1998, plaintiff alleges that Jenny Craig's Vice President, Alan Dobies ("Dobies"), initiated discussions with Katz in order to enlist Katz to assist Jenny Craig in finding new vendors, other than FSC, from whom Jenny Craig could buy weight loss products. (Am. Compl., ¶ 11.) Plaintiff alleges that Dobies's encounter with Katz caused Katz to breach his duty of loyalty to plaintiff, because it resulted in Katz acting as Jenny Craig's agent without plaintiff's knowledge. (Id. at ¶ 11, 15a.) Specifically, it is alleged that Katz, on behalf of Jenny Craig, asked plaintiff to reduce the prices of products it sold to Jenny Craig without disclosing his previous discussions with Jenny Craig. (Am. Compl., ¶ 15a.) FSC, in expectation of a continuous business relationship, supplied Jenny Craig with products at a lower cost than normal and as a result incurred increased costs and expenses. (Am. Compl., ¶¶ 24, 26.)
Further discussions between Katz and Jenny Craig officers, including the president Phillip Voluck ("Voluck") and Dobies, allegedly took place soon after, in which plaintiff claims the Jenny Craig officers asked Katz to request a share of the profits derived from all FSC sales to Jenny Craig, even though Katz had no right to share in those profits. (Am. Compl., ¶ 12.) Also, in December of 1998, plaintiff claims Jenny Craig secretly offered Katz a 5% commission on any purchases Jenny Craig made from vendors other than plaintiff. (Am. Compl., ¶¶ 13-14 and Ex. A, Letter from Jenny Craig to Katz of Dec. 28, 1998.)
This December, 1998 agreement is referred to by the parties as the "secret agreement," and will be referred to as such herein. ( See Am. Compl., ¶ 14, Ex. A.)
Katz later commenced a lawsuit against FSC to try and recover a share of the profits that Jenny Craig had asked Katz to demand from FSC. (RICO Case statement, ¶ 2e.) During the trial, plaintiff alleges that Katz, Voluck, and Dobies engaged in interstate telephone conversations to plan how to prevent their scheme to defraud FSC from coming to light. (RICO Case statement, ¶ 2i.) These conversations took place in late 1999 and early 2000. (Id.)
Plaintiff asserts that Jenny Craig, Katz, Voluck and Dobies constituted an association in fact enterprise within the meaning of the RICO statute and that the above-described activities, which spanned from June 1998 until the filing of the amended complaint on June 26, 2000, constituted a pattern of racketeering activity. (Am. Compl., ¶¶ 17 and 18.) Additionally, plaintiff alleges that Jenny Craig was separate from, but associated with, the enterprise. (Am Compl., ¶ 19.) Plaintiff's RICO Case Statement, filed on October 5, 2000, described that the enterprise communicated with Katz on matters related to the alleged secret agreement and racketeering activity at his home, while Jenny Craig communicated with Katz on other matters related to FSC at its office in New Jersey. (RICO Case Statement at 8-9, ¶ 6(a)). Plaintiff claims that this distinction demonstrates that the named "enterprise" of Jenny Craig, Katz, Voluck, and Dobies was separate and independent from both defendant Jenny Craig and the underlying "pattern of racketeering activity." (RICO Case Statement at 9, ¶ 7.)
For purposes of analyzing this motion to dismiss both the complaint and RICO statement will be considered as relevant documents. See Lorenz v. CXS . , 1 F.3d 1406, 1413 (3d Cir. 1993) (reviewing RICO case statement and amended complaints to affirm a grant of defendant's motion to dismiss); Perlberger v. Perlberger , 1998 WL 76310 at 1 (E.D.Pa. 1998) (stating that the court would treat the plaintiff's complaint and RICO statement collectively as the complaint); Brokerage Concepts, Inc. v. U.S. Healthcare Systems of Pennsylvania et al . , 1995 WL 455969 at FN1 (referring to both the complaint and RICO statement as the "complaint").
This Court has both federal question and diversity jurisdiction over plaintiff's complaint pursuant to 28 U.S.C. § 1331 and 28 U.S.C. § 1332. Count I of the plaintiff's Amended Complaint identifies defendant Jenny Craig and Katz, Voluck and Dobies as "persons" within the meaning of 18 U.S.C. § 1961(3) and 1962(c), (see Am. Compl., ¶ 16), and also identifies defendant Jenny Craig and Katz, Voluck, and Dobies as the "enterprise" within the meaning of 18 U.S.C. § 1916(4) and 1962(c). (See Am. Compl., ¶ 17). Plaintiff alleges that Jenny Craig's actions amounted to a conspiracy to defraud and deprive plaintiff of revenue and valuable business opportunities through tactics consistent with a pattern of racketeering, in violation of the RICO statute. In all, FSC claims to have incurred losses of $1,580,000.00. (RICO Case statement, ¶ 4.) Count II of the amended complaint alleges that the defendant violated 18 U.S.C. § 1962(d) conspired with Katz, Dobies and Voluck to violate 18 U.S.C. § 1962(c). On November 15, 2000, defendant Jenny Craig filed the present motion to dismiss the RICO claims (Counts I and II) of plaintiff's Amended Complaint.
There is complete diversity in this case because plaintiff is a Nevada corporation with a principal place of business in New Jersey and defendant is a Delaware Corporation with a principal place of business in California. The amount in controversy is in excess of $75,000.
II. DISCUSSION
A. Standard for 12(b)(6) Motions
A motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted does not attack the merits of the case, but merely tests the legal sufficiency of the Complaint. See Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). When considering a Rule 12(b)(6) motion, the reviewing court must accept as true all well-pleaded allegations in the Complaint and view them in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Jordan v. Fox, Rothschild, O'Brien Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994); Hakimoglu v. Trump Taj Mahal Assoc., 876 F. Supp. 625, 628-29 (D.N.J. 1994), aff'd, 70 F.3d 291 (3d Cir. 1995). In considering the motion, a district court must also accept as true any and all reasonable inferences derived from those facts. See Oshiver v. Levin, Fishbein, Sedran Berman, 38 F.3d 1380, 1384 (3d Cir. 1994); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir. 1991); Glenside West Corp. v. Exxon Co., U.S.A., 761 F. Supp. 1100, 1107 (D.N.J. 1991). A court may not dismiss the Complaint "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).
The question before the court is not whether the plaintiff will ultimately prevail; rather, it is whether he can prove any set of facts in support of his claims that would entitle him to relief. See Hishon v. King Spalding, 467 U.S. 69, 73 (1984). However, while the rules do not dictate that a "claimant set forth an intricately detailed description of the asserted basis for relief, they do require that the pleadings give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Baldwin County Welcome Center v. Brown, 466 U.S. 147, 149-50 n. 3 (1984) (quoting Conley, 355 U.S. at 47).
In considering a motion to dismiss, courts ordinarily consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record. Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993), cert. denied, 510 U.S. 1178 (1194). However, a court may also consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document. In re Donald J. Trump Casino Securities Lit., 7 F.3d 357, 368 n. 9 (3d Cir. 1993),cert. denied, 510 U.S. 1178 (1994); Pension Benefit Guar. Corp., 998 F.2d at 1196.
B. RICO Claims
Counts I and II of plaintiff's Amended Complaint seek relief under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961,et seq. ("RICO"). Specifically, plaintiff alleges defendant violated 18 U.S.C. § 1962(c) ("Count I") and § 1962(d) ("Count II").
1. Count I — 18 U.S.C. § 1962(c)
Section 1962(c) provides that:
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.Id. Therefore, to state a claim under 18 U.S.C. § 1962(c), plaintiff must allege: (1) existence of an enterprise; (2) affecting interstate commerce; (3) by a person employed by or associated with the enterprise; (4) direct or indirect participation in the conduct of the affairs of the enterprise; and (5) through a pattern of racketeering activity. See Farmers Merch. Nat'l Bank v. San Clemente Fin. Group Sec., Inc., 174 F.R.D. 572 (D.N.J. 1997) (citing Rose v. Bartle, 871 F.2d 331, 358 (3d Cir. 1989)). Defendant avers that plaintiff has not sufficiently alleged (a) the existence of an enterprise separate and distinct from the defendant or (b) that defendant participated in the conduct of the enterprise through a pattern of racketeering activity.
The "employed by or associated" prong of Section 1962(c) requires that the enterprise through which racketeering activities are allegedly being committed be a distinct and separate entity from the defendant. See Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258, 268 (3d Cir. 1995) (holding that a claim against one corporation as both "person" and "enterprise" was insufficient, and instead requiring a claim against defendant "persons" acting through a distinct "enterprise"); Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1411 (3d Cir. 1991) (dismissing defendant Fidelity, which was named as both defendant and enterprise, and holding that for purposes of § 1962(c), such a dual role is impermissible); Banks v. Wolk, 918 F.2d 418, 421 (3d Cir. 1990);Dow Chemical Co. v. Exxon Corp., 30 F. Supp.2d 673, 700 (D.Del. 1998);Moore v. Reliance Standard Life Ins. Co., 1999 WL 299577, *4 (E.D.Pa. May 10, 1999) (dismissing claim against corporation enterprise acting through its employees where same corporation was only named defendant).
In Jaguar, the plaintiff named the owners, Theodore Forhecz, Sr. and Theodore Forhecz, Jr., of a car dealership, Royal Oaks Motor Car Co., as defendant persons who conducted a pattern of racketeering activity through the Royal Oaks enterprise. See 46 F.3d 258. The Forhecz defendants argued that because they wholly owned and operated Royal Oaks, plaintiffs failed to show that the enterprise was distinct from the defendants, and therefore no liability under Section 1962(c) could attach. See id. at 260. The Third Circuit disagreed and held that the Forhecz defendants were distinct from the Royal Oaks enterprise through which the pattern of racketeering activity was conducted. Id. at 268. The Court wrote:
[A] claim simply against one corporation as both "person" and "enterprise" is not sufficient. Instead, a viable § 1962(c) action requires a claim against defendant "persons" acting through a distinct "enterprise." But, alleging conduct by officers or employees who operate or manage a corporate enterprise satisfies this requirement. A corporation is an entity legally distinct from its officers or employees . . . Accordingly, Jaguar has satisfied the distinctiveness requirement of § 1962(c). Jaguar has not brought a claim against Royal Oaks, but instead seeks recovery from the defendants, as persons operating and managing the Royal Oaks enterprise through a pattern of racketeering activity . . . . [A] corporation would be liable under § 1962(c) only if it engages in racketeering activity as a "person" in another distinct "enterprise," since only "persons" are liable for violating § 1962(c) . . . .Jaguar, 46 F.3d at 268 (emphasis added).
Plaintiff's Amended Complaint names Jenny Craig as the only defendant. (See Am. Compl., ¶ 2; RICO Case Statement, ¶ 2.) Plaintiff defines the requisite "enterprise" for liability under 18 U.S.C. § 1962(d) as "the association in fact of Jenny Craig, Robert Katz, Philip Voluck and Alan Dobies." (RICO Case Statement at 8, ¶ 6(a); Am. Compl., ¶ 17.) All of the allegedly improper activity described by plaintiff, however, was taken by Jenny Craig through Katz, Voluck and Dobies, which is indistinguishable from the defined enterprise. By naming Jenny Craig as defendant instead of Katz, Voluck, and Dobies, plaintiff's situation becomes the inverse of that in theJaguar case. Plaintiff attempts to distinguish defendant Jenny Craig from the "enterprise" of Jenny Craig, Katz, Voluck, and Dobies, by claiming that the "enterprise," which centered on the December, 1998 secret agreement with Katz, operated independently of other activities of defendant Jenny Craig. (See RICO Case Statement at 8, ¶ 6(a); Pl.'s Br. at 16.) This distinction is unconvincing and the Court finds that Jenny Craig is not a proper defendant for a § 1962(c) claim and therefore plaintiff has failed to show a legally sufficient claim under 18 U.S.C. § 1962(c).
Even evaluating all facts in a light most favorable to plaintiff, the Court finds that plaintiff FSC fails to state a claim under 18 U.S.C. § 1962(c) against defendant Jenny Craig because it has not made a claim against a defendant "person" acting through a distinct "enterprise." Jenny Craig, therefore, is not a proper RICO defendant under 18 U.S.C. § 1962(c). Because no agents or employees are named as defendants in this matter, Count I of plaintiff's Amended Complaint must be dismissed.
2. Count II — 18 U.S.C. § 1962(d)
Section 1962(d) provides, "It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." In order to state a claim for a violation of 18 U.S.C. § 1962(d), a plaintiff must first make out a legally sufficient claim for the underlying violation. See Eli Lilly Co. v. Roussel Corp., 23 F. Supp.2d 460, 490 (D.N.J. 1998) (citing Jaguar, 46 F.3d at 262); Livingston v. Shore Slurry Seal, Inc., 98 F. Supp.2d 594, 600 (D.N.J. 2000). Accordingly, plaintiff's conspiracy claim under 18 U.S.C. § 1962(d) in Count II of the Amended Complaint will also be dismissed.
III. CONCLUSION
For the reasons stated herein, defendant Jenny Craig's Rule 12(b)(6), Fed.R.Civ.P. motion to dismiss Counts I and II of plaintiff's Amended Complaint for failure to state a claim upon which relief may be granted will be granted. Plaintiff's claims pursuant to 18 U.S.C. § 1962(c) (Count I) and 18 U.S.C. § 1962(d) (Count II) will be dismissed. Counts III (for tortious interference with a contractual relationship), IV (for breach of contract), and V (for unjust enrichment) will proceed to trial at this time. The accompanying Order is entered.
ORDER
This matter having come before the Court upon the motion of defendant Jenny Craig, Inc., to dismiss Counts I and II of plaintiff's Amended Complaint for failure to state a claim pursuant to Rule 12(b)(6), Fed.R.Civ.P.; and this Court having considered the submissions of the parties; and for the reasons expressed in the Opinion of today's date;
IT IS on this day of May 2001 hereby
ORDERED that defendant Jenny Craig's motion to dismiss pursuant to Rule 12(b)(6), Fed.R.Civ.P., be, and hereby is, GRANTED ;
IT IS FURTHER ORDERED that plaintiff's claims in Count I ( 18 U.S.C. § 1962(c)) and Count II ( 18 U.S.C. § 1962 (d)), be, and hereby are, DISMISSED . Counts III through V shall proceed to trial.