Opinion
No. C 01-01711 TEH
February 20, 2002
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
This matter came before the Court on February 11, 2002, on Defendants' motion to dismiss Plaintiff's civil RICO (Racketeer Influenced and Corrupt Organizations Act) claims under 18 U.S.C. § 1962. Having carefully considered the parties' papers, the record herein, and oral arguments, Defendants' motion is GRANTED for the reasons set forth below.
BACKGROUND
Plaintiff Shirish Wagh alleges that in October 2000, he received a credit card bill from Citibank containing an improper charge in the amount of $119.95 for a membership in a credit protection program known as "DirectAlert." DirectAlert is a service provided by Defendants, Metris Direct, Inc. and its subsidiaries. Plaintiff paid the bill, then requested that Defendants refund the money he paid to Citibank. When Defendants refused, Plaintiff filed a purported nationwide class action in San Francisco Superior Court against Defendants, asserting claims of fraud, money had and received, and declaratory relief. Defendants demurred to the fraud claim. The state court sustained the demurrer and granted Plaintiff leave to amend. In the amended complaint, Plaintiff asserted all of the original claims, except fraud, and added several state-law claims as well as a civil RICO claim under 18 U.S.C. § 1962(c).
Defendants removed the action to this Court and subsequently filed a motion to strike portions of the amended complaint. On June 15, 2001, this Court issued an order to show cause directing Plaintiff to show why the civil RICO claim should not be dismissed for failure to state a claim. The Court also directed Plaintiff to file a RICO case statement in compliance with the Court's RICO standing order. Plaintiff filed an amended RICO case statement on July 25, 2001, claiming violations under 18 U.S.C. § 1962(a)-(d). On September 6, 2001, Defendants responded to the amended RICO case statement. Subsequently, this Court ordered that Defendants' response be construed as a Motion to Dismiss.
On November 15, 2001, the Court granted Defendants' Motion to Dismiss Wagh's RICO claims, dismissing Plaintiff's Sections 1962(a) and 1962(b) claims with prejudice, and dismissing his Sections 1962(c) and 1962(d) claims with leave to amend. Wagh filed his Second Amended Complaint on November 30, 2001, seeking declaratory and injunctive relief for violation of Sections 1962(c) and (d), and alleging various state-law claims. Defendants now move to dismiss the remainder of Wagh's RICO claims with prejudice and have the entire action dismissed for lack of subject matter jurisdiction.
LEGAL STANDARD
Dismissal under Rule 12(b)(6) is appropriate when a plaintiff's allegations fail to state a claim upon which relief can be granted. Fed R. Civ. P. 12(b)(6). For purposes of a Rule 12(b)(6) motion, the Court must accept as true all facts alleged in the complaint, construing the allegations in the light most favorable to the plaintiff. Zimmerman v. City of Oakland, 255 F.3d 734, 737 (9th Cir. 2001). In deciding whether a case should be dismissed, a court may generally only consider the complaint. Lucas v. Dep't. of Corrections, 66 F.3d 245, 248 (9th Cir. 1995). Dismissal should not be granted unless "it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295 (9th Cir. 1998). If dismissal is warranted, dismissal should be with leave to amend unless it is clear that amendment could not possibly cure the complaint's deficiencies. Id. at 1296. That is, leave to amend should be denied where the court determines that the "allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency." Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986).
DISCUSSION
Plaintiff asserts that Defendants' actions constitute the conduct of an enterprise through a pattern of racketeering activity. Defendants contend that Plaintiff has failed to assert RICO claims under Sections 1962(c) and (d).
I. Plaintiff's Section 1962(c) Claim
To state a RICO claim, a plaintiff must demonstrate (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. 18 U.S.C. § 1962 (2001); Grauberger v. St. Francis Hospital, 169 F. Supp.2d 1172, 1176 (N.D. Cal. 2001). In addition, in order to state a claim under Section 1962(c), a RICO plaintiff "must allege a defendant — the `person' or `persons' — who is distinct from the enterprise whose business the defendant is conducting." Sever v. Alaska Pulp Corp., 978 F.2d 1529, 1534 (9th Cir. 1992).
The United States Supreme Court has held that, for RICO purposes, an enterprise is an "entity . . . associated together for a common course of conduct." United States v. Turkette, 452 U.S. 576, 583 (1981). In the Ninth Circuit, "a RICO enterprise must have an ascertainable structure separate and apart from the structure inherent in the conduct of the pattern of racketeering activity." Chang v. Chen, 80 F.3d 1293, 1295 (9th Cir. 1996). That is, a RICO enterprise "at a minimum . . . must exhibit `some sort of structure . . . for the making of decisions, whether it be hierarchical or consensual.' The structure should provide `some mechanism for controlling and directing the affairs of the group on an on-going, rather than an ad hoc, basis.'" Id. at 1299 (internal citations omitted). A Court must grant a RICO defendant's motion to dismiss where the plaintiff has failed to "allege a structure to the organization beyond that which [is] inherent in the alleged acts of racketeering activity," and failed to allege that defendants "utilized a structure separate and apart from the predicate acts to distribute proceeds of the transactions." Id. at see also Simon v. Value Behavioral Health, Inc., 208 F.3d 1073 (9th Cir. 2000).
Here, Plaintiff asserts that the RICO enterprise consists of Defendants Metris Companies, Inc., Metris Direct, Inc., Metris Direct Services, DirectAlert, the President and CEO of Metris Companies, Inc., the President of Metris Direct, Inc., and non-party Citibank. Plaintiff sets forth two theories as to how the enterprise requirement has been met. As discussed below, however, neither theory satisfies the Chang test, and, therefore, the enterprise element of Plaintiff's RICO claim is not satisfied.
Plaintiff's first theory argues that a parent corporation, its individual officers, and its subsidiaries are legally distinct entities which, taken together, satisfy the enterprise requirement for a Section 1962(c) RICO claim. However, the Court previously rejected this argument as insufficient to meet the RICO enterprise requirement: "For purposes of a single action, a single corporate defendant cannot be both the RICO person and the RICO enterprise under section 1962(c)." (Order Granting Defs.' Mot. to Dismiss, Nov, 15, 2001 at 5) (citing Sever, 978 F.2d at 1533-34).
In addition, Plaintiff simply does not allege any facts under this theory that meet the Chang test. First, Plaintiff does not allege that an independent decision-making structure existed, which is what Chang requires "at a minimum" to sustain an allegation of enterprise. Chang, 80 F.3d at 1299. Plaintiff also does not allege any independent proceed-distributing structures on the part of this alleged RICO enterprise. Id. at 1300. Consequently, Plaintiff's first theory fails to satisfy the Ninth Circuit's Section 1962(c) RICO enterprise requirements.
Plaintiff's second theory — that Citibank's involvement in billing Plaintiff for charges generated by Defendants satisfies the enterprise requirement under Section 1962(c) — fares no better. The basis of Plaintiff's allegation is apparently that "a normal credit card transaction" between Defendants, Citibank, and Plaintiff is an action sufficient to satisfy the criminal enterprise requirement. (Pl's Opp'n to Mtn. to Dismiss at 9). Again, however, Plaintiff has failed to meet the enterprise requirements established by the Ninth Circuit in presenting this theory of enterprise. See id. at 1299-1300. Plaintiff has not alleged that Defendants and Citibank have established a system of making decisions in furtherance of their alleged criminal activities, independent from their respective regular business practices. See id. Nor has Plaintiff alleged that an independent system of distributing the proceeds of money obtained from persons like Wagh exists between the Defendants and Citibank. See id. Rather, Plaintiff's allegations attempt to impose RICO liability upon Citibank based upon Citibank's regular practices of receiving charges, paying charges, and billing cardholders. This theory has been specifically rejected by the Ninth Circuit, which requires allegations of a structure or system "beyond the racketeering activity itself." Simon, 208 F.3d at 1083 see also Chang, 80 F.3d at 1299. Therefore, Plaintiff's second theory also fails to satisfy the Ninth Circuit's Section 1962(c) RICO enterprise requirements.
In short, even taking all of the facts alleged by Plaintiff as true, Plaintiff has failed to state a civil RICO claim under Section 1962(c). At oral argument, Plaintiff requested leave to amend the complaint. However, leave to amend would be futile because Plaintiff cannot allege any facts under either theory of enterprise which satisfyChang. At oral argument, Plaintiff's counsel stated that, if given leave to amend, he would amend the Complaint to allege that "the independent decision-making structure . . . is the officers, employees of the Defendants who determined to implement this fraudulent scheme, the officers, directors and employees who decided to bill persons to whom they had sent this solicitation, whether or not those persons chose to accept the offer," and that the "amendment would further state that not only did the Defendants falsely assert to Citibank that these persons had accepted the offer, that these persons had authorized the Defendants to bill their credit cards, but that Citibank was unaware of the falsity of these assertions, was unaware of the impropriety and falsity of these billings, and therefore, innocently sent the bills . . . to Wagh and his class members, which they should not and would not have done, had they known the falsity of the assertions by the Defendants." RT at 9-10. Plaintiff's counsel also stated that this would be the full extent of his amendment. These proposed amendments would allege essentially the same facts already alleged, and, move significantly, still allege no facts meeting the Chang test. Specifically, the proposed amendments do not describe the separate decision-making structure or independent proceed-distributing structure required by the Ninth Circuit. Chang, 80 F.3d at 1299.
Plaintiff, in fact, conceded his failure to satisfy the RICO enterprise requirement at oral argument:
The Court: . . . you haven't satisfied Chang is that where we are? And you would like to amend to satisfy Chang?
Plaintiff's counsel: Yes, your honor. (Reporter's Transcript for hearing held on February 11, 2002 at 9) [hereinafter RT].
The Court: Anything further that you would amend so as to comply with Chang —
Plaintiff's counsel: No.
The Court: — other than what you've told me?
Plaintiff's counsel: No.
The Court: Okay. (RT at 10).
Thus, even if the Court were to grant leave to amend, it is clear that Plaintiff would be unable to cure the Section 1962(c) pleading defects. Consequently, this Court DISMISSES Plaintiff's Section 1962(c) claim with prejudice.
II. Plaintiff's Section 1962(d) Claim
Under Section 1962(d), it is "unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c)" of Section 1962. Where a plaintiff has "failed to allege the requisite substantive elements of RICO, the conspiracy cause of action [section 1962(d)] cannot stand." Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364, 367 n. 8 (9th Cir. 1992). Here, Plaintiff cannot state a claim under Section 1962(c) under which relief may be granted because he cannot satisfy the enterprise requirement. As discussed above, Plaintiff could not cure the deficiencies of his Section 1962(c) claim even if given leave to amend. Therefore, since Plaintiff cannot satisfy the requirements of his Section 1962(c) claim, Plaintiff's Section 1962(d) claim must fail as well. Because Plaintiff is unable to cure the Section 1962(d) pleading defects, this Court DISMISSES Plaintiff's Section 1962(d) claim with prejudice.
This Court previously dismissed Plaintiff's claims under Sections 1962(a) and (b) with prejudice. (Order Granting Defs.' Mot, to Dismiss, Nov. 15, 2001 at 3-5). Therefore, Plaintiff cannot rely on alleged violations of Sections 1962(a) or (b) to form the basis of his Section 1962(d) claim.
III. Remaining State Law Claims
The RICO claims under Sections 1962(c) and 1962(d) are the only claims asserted by Plaintiff over which this Court has original jurisdiction. However, district courts "shall have supplemental jurisdiction over all other claims that are so related to the claims in the action within such jurisdiction that they form part of the same case or controversy." 28 U.S.C. § 1367(a). A district court may "decline to exercise supplemental jurisdiction over state-law claims once it has `dismissed all claims over which it has original jurisdiction.'" 28 U.S.C. § 1367(c)(3); Ove v. Gwinn, 264 F.3d 817, 826 (9th Cir. 2001).
Because this Court has disposed of all claims over which it had original jurisdiction, this Court declines to exercise supplemental jurisdiction over Plaintiff's state-law claims. The Court therefore REMANDS Plaintiff's remaining claims to San Francisco Superior Court.
CONCLUSION
Accordingly, and good cause appearing, IT IS HEREBY ORDERED that Defendants' motion to dismiss Plaintiff's civil RICO claims is GRANTED with prejudice for the reasons discussed above. Because no federal claims remain in this action, the case is REMANDED FORTHWITH to San Francisco Superior Court for consideration of Plaintiff's state-law claims.