Court Requires Specific Factual Averments to Meet “Regular Way of Doing Business” Open-Ended Continuity Prong

Klineburger v. Kell, 2017 WL 1550013 (E.D. Pa. May 1, 2017)

The court granted a motion to dismiss a civil RICO complaint finding that plaintiff did not adequately allege the continuity prong for a pattern of racketeering.   The issue was whether the “open-ended” continuity prong could be satisfied by showing that the defendants’ fraudulent conduct was the “regular way the defendant conducted his business.”

The court discussed that the Plaintiff, realizing his deficiencies regarding the “regular way of doing business” continuity requirement in his original Complaint, added language in his Amended Complaint that averred that the defendant Wolsky has been involved in similar transactions that resulted in him obtaining the exact dominion and control over those competing entities, with the exact same end result of the Enterprise somehow obtaining all assets and goodwill of the subject company(ies). Plaintiff also stated in his Amended Complaint that “[i]f not stopped, Defendants will continue to perpetrate their scheme and defraud Plaintiff Klineburger from his hard earned money.”

But, the court found these to be general allegations, and found that Plaintiff failed to make any factual averments that Defendants have attempted, or in the future will attempt, similar actions against other companies and/or individuals.   Thus, the assertions in Plaintiff’s Amended Complaint were considered mere conclusions of law and, although the Court accepted all of the complaints material allegations as true for purposes of deciding a Rule 12(b)(6) motion, the Court did not accept as true conclusory allegations of law.  Id., at *8, citing to Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997); Mineo v. McEachern, 2014 WL 2197032, at *2 (D.N.J. May 27, 2014) (holding that in a RICO claim, conclusory allegations are not enough to show open-ended continuity).   The court stated that other courts have rejected similar arguments by plaintiffs who have attempted to rely on conclusory allegations to adequately allege the continuity factor of a RICO claim.

Moreover,  although not citing to Tabas v. Tabas which held to the contrary, the court stated that Third Circuit has resisted efforts to generate RICO claims from “garden variety” torts.  Id., at *9, citing to Banks v. Wolks, 918 F.2d 418, 423 (3d Cir. 1990), and that seems to be precisely what Plaintiff has attempted to do here.   The Court stated that this is nothing more than a breach of contract claim that Plaintiff has unsuccessfully attempted to morph into a civil RICO claim.  If the Court were to allow these conclusory allegations to constitute a “pattern of racketeering activity,” then any plaintiff with a complaint involving two or more predicate acts could instantly create a RICO complaint that would withstand a motion to dismiss by simply claiming a threat of repetition.  Plaintiff has not pleaded sufficient factual allegations to survive Rule 12(b)(6) dismissal as he has alleged nothing more than a short-lived scheme directed to improperly withhold monies owed to him. See Kehr, 926 F.2d at 1413 (“[A]Ithough a single fraudulent scheme can give rise to RICO liability, when that scheme is short-lived and directed at a limited number of people, this court has required some further indication that the defendant’s fraudulent activities are likely to continue.”).  Therefore, Count I of Plaintiff’s Amended Complaint alleging that Defendants are liable under Section 1962(c) of the RICO statute was dismissed with prejudice.

 Conspiracy

Courts still get it wrong.

The court stated that Plaintiff’s claim for Conspiracy to Commit RICO under Section 1962(d) will also be dismissed as a matter of law since it found, for the reasons discussed above, that he failed to sufficiently plead a substantive RICO claim. See Macauley v. Estate of Nicholas, 7 F. Supp. 3d 468, 485-486 (E.D. Pa. 2014) (“[A]ny claim under section 1962(d) based on a conspiracy to violate any of the other subsections of section 1962 necessarily must fail if the substantive claims are themselves deficient.”).

However, this is contrary to Salinas and Smith v. Berg, a Third Circuit case, which explicitly held that a RICO conspiracy can be alleged and proven without showing a substantive claim provided injury can be shown.

Ed. Note:   This court takes a rather strict view of continuity, and RICO conspiracy, different than other precedent in the Third Circuit, see Tabas v. Tabas, not excluding “garden-variety” fraud, and Smith v. Berg, above.

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