Court Grants Motion to Dismiss Civil RICO Claims Finding Insufficient Particularity After Rejecting “Alter-ego” Status of Defendants

Ocoro v. Montelongo et al, 2010 WL 3040582 (W.D. Tex., June 19, 2018)

The Court granted the defendants’ motion to dismiss finding that the civil RICO claim did not adequately allege the wire fraud predicates with particularity under Rule 9(b). The Plaintiffs alleged that distinguishing between Montelongo, a real estate instructor, and three of his companies controlled by him was not necessary because the companies were under control of Montelongo and thus the corporate veil of the companies could be pierced

The court rejected the Plaintiffs allegations to apply the alter ego doctrine, discussing that to pierce the corporate veil, a court considers the following factors:

the total dealings of the corporation and the individual, including the degree to which corporate formalities have been followed and corporate and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the corporation, and whether the corporation has been used for personal purposes.

The court found the First Amended Complaint failed to elaborate on any of the above listed factors to a satisfactory extent beyond the conclusory use of the term “corporate shells,” the plaintiffs may not avail themselves of the alter ego doctrine to pierce the corporate veil. Alternatively, a plaintiff may pierce the corporate veil by demonstrating that the owner of a business entity uses that entity “for the purpose of perpetrating, and did perpetrate an actual fraud … for the direct personal benefit of the” owner. The court did not accept this basis because it found the plaintiffs failed to state a RICO claim predicated on fraudulent acts. As they cannot sustain a claim involving fraud, they cannot pierce the corporate veil under a theory of fraud.

The court then stated that the plaintiffs failed to allege wire fraud (18 U.S.C. § 1343) with sufficient particularity under Rule 9(b) because the complaint failed to specifically identify which defendant made each individual fraudulent representation, and how each of those representations furthered the fraudulent scheme.

The court stated that because the Plaintiff failed in pleading a valid corporate veil-piercing theory, the plaintiffs cannot simply treat the defendants as a single entity in this way. Rule 9(b) requires the plaintiffs to say which specific defendant made which particular fraudulent statement to which particular plaintiff at what particular time. The plaintiffs’ allegations do not meet this standard as they do not distinguish exactly which plaintiffs received which communications from which defendants.

Ed Note: This appears an extreme example of a court dismissing a civil RICO claim. The logic is circular, i.e., no alter ego theory because the plaintiffs failed to plead fraudulent acts, but their acts could not have been fraudulent acts because of the very existence of the alter ego theory.


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