Court Denies Defendant’s Motion to Dismiss Finding Sufficient “Distinctness” Between Defendant and Enterprise

In Re ClassicStar Mare Lease Litigation et al. v. Plummer, et al, 2019 WL 289070 (E.D. Ky., 1/18/19)

Plaintiffs aver that Defendant Parrott, among others, played a role in devising, perpetrating, carrying out, marketing and/or covering up the fraudulent Mare Lease Program scheme to individual and business investors, including Plaintiffs. Defendant GeoStar sold many more Mare Lease Programs than the thoroughbred interests owned by ClassicStar could support. Defendants, including Parrott, intentionally oversold the Mare Lease Programs knowing that ClassicStar, ClassicStar Farms, LLC or ClassicStar Farms, Inc. did not own enough thoroughbred mare interests sufficient to support the number of Mare Lease Programs sold.
The District Court concluded that Plaintiffs’ Complaint alleged an enterprise distinct from the defendants, and also properly pleaded the RICO claims. Regarding the “enterprise” issue, the court conclude that Plaintiffs have pleaded an “enterprise” distinct from the “persons” cognizable under the statute, stating that “[a]n enterprise must be merely an ongoing organization, formal or informal.” Citing cases. Even where a person owns 100% of a corporation’s shares that ownership does not change the fact that the corporation and the owner are separate legal entities.* 3, citing cases.

The Court disagreed with defendant Parrott’s assertion that there can be no RICO claim in this case because the alleged enterprise consists merely of a corporate entity (i.e., Classicstar) associated with its own employees or agents carrying on the regular affairs of the corporation. Id., at 7.

The court explained that the “enterprise” alleged is not ClassicStar, but rather the “Mare Lease Marketing Enterprise,” which was comprised of the following “persons”: David Plummer, Spencer Plummer, Tony Ferguson, John Parrot, Thom Robinson, ClassicStar, LLC, ClassicStar Farms, LLC, ClassicStar Thoroughbreds of Kentucky, ClassicStar 2004, ClassicStar 2004 Powerfoal Stable, ClassicStar 2005 PowerFoal Stables, ClassicStar 2003 Racing Partnership, GeoStar Corp., FEEP, GeoStar Equine Energy, Inc., GeoStar Financial Services, NELC, New NEL, Terry Green and Strategic Opportunity Solutions, LLC. Thus, Parrott, the other moving defendants whose requests for relief are now moot, and individuals and entities entirely unrelated to ClassicStar, such as Terry Green, are the persons forming the Mare Lease Marketing Enterprise. While, under the “distinctness” requirement, a corporation may not be liable under section 1962(c) for participating in the affairs of an enterprise that consists only of its own subdivisions, agents, or members, and cannot join with its own members to undertake “regular corporate activity” and thereby become an enterprise distinct from itself, the situation is different when (1) the enterprise consists of individuals and entities other than a corporation’s own subdivisions, agents or members and (2) undertakes activities other than “regular corporate activity.”

The distinctiveness requirement is met because the Mare Lease Marketing Enterprise consisted of several entities and individuals, including those outside the chain of corporate ownership of ClassicStar, GeoStar and other ostensibly related entity defendants. Moreover, the activities of the Mare Lease Marketing Enterprise were not the “regular corporate activities” of ClassicStar, which were purportedly breeding, raising and boarding thoroughbred horses, and the like. Thus, the Complaint adequately pleaded the element of “enterprise.” *4.

That the conspirators include related corporations, such as GeoStar and ClassicStar, and their officers, directors, managers and/or employees, such as Ferguson, Robinson and Parrott, does not, without more, mean that there is no distinction between the “persons” and the “enterprise.” For example, taking the averments of the Complaint as true, GeoStar and ClassicStar are separate and distinct legal entities, and thus separate and distinct “persons” for RICO purposes. Similarly, Ferguson, Robinson and Parrott are both corporate owners/employees and natural persons, and they are distinct from the corporation itself, a legally separate entity with different rights on the facts before this Court. RICO requires no more “separateness” than that. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001). An employee who conducts the affairs of a corporation through illegal acts comes within the terms of a statute that forbids any “person” unlawfully to conduct an “enterprise.” Id.

Ed Note: This case is a rather clear-cut example of distinctness. It is interesting because the enterprise does include an individual and entities who are also named as defendants (Parrott), thus supporting the principle that a defendant (individual) is different than an association of which he is merely a part. See Atlas Pile Driving; and entities are distinct when they conduct other than regular corporate activities.

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