Court Denies Defendants’ Motion to Dismiss Civil RICO Claims Finding Standing, Statute of Limitations, Legal Entity Enterprise, and Predicate Acts Adequately Alleged

Uselman et al v. Pop et al., 2020 WL 6075553 (E.D. Mich., Oct. 15, 2020)

The court denied the defendants’ motion to dismiss RICO claims.   Plaintiffs were contractors who agreed to utilize its own equipment and vehicles to exclusively transport freight on behalf of the Carrier (Defendants).  The Agreement also provided that the “Carrier shall pay to Contractor a sum equal to 80 (%) percent of the gross revenues (after allowable deductions as provided herein) received by Carrier from Carrier’s customers for the transportation of any freight by Contractor.”  Once Plaintiffs transported the freight, the Defendants mailed Plaintiffs Driver/Contractor Settlement statements that purported to represent the gross revenue paid by the third-party shipper.  Plaintiffs allege that these statements were falsified because “Defendants would skim a portion” of the 80% amount and “misrepresent[ ] the gross revenues that RSP had actually received.”

Standing

Defendants argued under Rule 12(b)(1) that the held that a plaintiff lacked standing to sue in his individual capacity as his company’s creditor, sole shareholder, and chairman of the board. 

Plaintiffs’ claims in the instant case are identical to the purported injuries inflicted upon their companies, and that the named businesses were simply corporate extensions of the individual Plaintiffs that allowed them to enter into the relevant Agreements. Further, the Supreme Court has clarified that individuals may bring suit under the civil RICO statute if the predicate acts have caused injury to either their business or their property.  The court found that at this early dismissal stage, Plaintiffs have adequately demonstrated that Defendants’ alleged conduct injured the corporate entities and, by extension, the individual Plaintiffs. There is sufficient evidence to link the identities of the corporations and the individual Plaintiffs based on the supplied Agreement and the relevant case law. The Court therefore finds that Plaintiffs have met the constitutional minimum to establish standing, and the Complaint would not be dismissed for lack of subject matter jurisdiction under Rule 12(b)(1).

Statute of Limitations

Plaintiffs alleged that Defendants acted to conceal all of Plaintiffs’ claims by failing to disclose the true amounts the third-party shippers paid to the Defendants. The court stated that if true, these misrepresentations prevented Plaintiffs from knowing, or even suspecting, that they were not receiving their owed compensation under the Agreements for many years. Plaintiffs state that it was not until “April or May 2018” that they suspected any wrongdoing by Defendants and if true,  Plaintiffs claims were properly pled within the statute of limitations under both the RICO injury discovery rule and the state fraudulent concealment rule.  This Court thus found that a factual dispute exists as to the onset date of the applicable statues of limitations and whether Plaintiffs acted reasonably and diligently to investigate any suspicions of wrongdoing before 2018.*5. 

Legal Entity Enterprises

Plaintiffs argued that each of the four named Defendants are legally distinct entities, satisfying the pleading requirement at this stage.  Plaintiffs here have alleged, at the very least, that (1) RSP Express’ registration as a motor carrier and (2) NA Truck Repair’s license to work on vehicles are distinct elements that separate them from Razvan and Maria Pop.  Plaintiffs further argued that Defendants Razvan Pop and Maria Pop engaged in fraudulent behavior, while the corporate entities (RSP Express and NA Truck Repair) “performed distinct roles that helped facilitate the fraudulent scheme.”  The Court discussed that the unique registrations of the corporate entities provided the individual Defendants with a means to carry out the alleged fraud. The court compared the facts to Begala, 214 F.3d at 782 (finding that the plaintiff’s complaint did not “contain facts suggesting that the behavior of the listed entities is ‘coordinated’ in such a way that they function as a ‘continuing unit.’ ”).

Note:   The court is looking at multiple legal entities to see whether they “function as a continuing unit,” a test for association in fact enterprise.  Merely, each legal entity is itself a distinct enterprise from each individual defendant, but distinctness from each corporate defendant was also found under the association in fact argument. 

Predicate Mail Fraud Acts

Plaintiffs’ claim that Defendants mailed thousands of statements that fraudulently concealed their obligation to pay Plaintiffs a certain sum in accordance with their Agreements. This system, Plaintiffs aver, allowed Defendants to unlawfully withhold funds that were otherwise owed to the owner-operators.  The court stated that other circuits have interpreted the mail fraud statute to find that a defendant may be criminally liable for fraudulently underreporting payment obligations via mailings.  Therefore, Plaintiffs have sufficiently demonstrated that the facts contained in Count I constitute RICO predicate acts.

The court noted for Count II (RICO conspiracy) Plaintiffs are attempting to use violations of state anti-tampering laws, which are misdemeanors and do not qualify as “racketeering activity,” as the Defendants’ predicate RICO offense, and the Plaintiff were granted leave to amend on this point. Accordingly, the motion to deny was denied on this Count without prejudice.

Editor Note:   It is advisable as a matter of practice to not include legal entities as defendants when also alleging them as parts of enterprises, but it is certainly possible, as evidenced by this court’s decision. 

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