Xcentric Ventures, LLC, et al., v. Richeson

Filing 55

MOTION to Dismiss Counts/Claims : Counter Claim Against Xcentric Ventures, LLC by Xcentric Ventures LLC. (Speth, Maria)

Xcentric Ventures, LLC, et al., v. Richeson

Doc. 55

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Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 [phone]

Maria Crimi Speth (012574) JABURG & WILK, P.C. 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 [e-mail] [phone] David S. Gingras (021097) Gingras Law Office, PLLC 4072 E Mountain Vista Dr. Phoenix, AZ 85048 Tel.: [phone] [e-mail] Attorneys for Plaintiffs

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

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XCENTRIC VENTURES, LLC, an Arizona limited liability corporation, and JABURG & WILK, P.C., a professional corporation, Plaintiffs, v. SHAWN RICHESON, Defendant.

Case No.: 2:10-cv-1931-PHX-NVW MOTION TO DISMISS COUNTERCLAIM PURSUANT TO RULE 12(B)(6)

Plaintiff Xcentric Ventures, LLC hereby moves this Court for dismissal of the Counterclaim Against Xcentric Ventures, LLC on the grounds that the Counterclaim fails to state a claim upon which relief can be granted. This Motion is supported by the following Memorandum of Points and Authorities and the Court's entire file in this matter.

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Dockets.Justia.com

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Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 [phone]

MEMORANDUM OF POINTS AND AUTHORITIES

I.

INTRODUCTION Defendants' Counterclaim (Doc. #4896; "FAC") does not assert any cause of

action upon which relief may be granted. Plaintiff recognizes that under Rule 12(b)(6), all well-pleaded factual allegations are to be construed in the light most favorable to the pleader, and accepted as true. Movsesian v. Victoria Versicherung AG, 578 F.3d 1052, 1056 (9th Cir. 2009). However, courts faced with a 12(b)(6) motion "are not bound to accept as true a legal conclusion couched as a factual allegation," and as such, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). As explained herein, Defendant has not properly pled a claim because his RICO claim is so clearly lacking the mandatory elements of RICO that the claim is not remotely plausible and is therefore appropriate for dismissal under Rule 12(b)(6). A. The Elements of a RICO Claim Predicated on Wire Fraud

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The elements that a claimant must prove (and therefore plead) to recover under 18 U.S.C. § 1962(c), are: (1) conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity (known as "predicate acts"); (5) causing injury to plaintiff's "business or property" See Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir. 2005) cert. denied, 126 S. Ct. 2861 (2006); Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275 (1985). Richeson alleges that the one of the predicate acts is wire fraud. Plaintiffs must plead, with particularity, each of the following elements: Xcentric (1) participated in a scheme to defraud; and (2) used the wires to further the scheme. Ninth Circuit Model Criminal Jury Instructions, 8.103 (wire fraud); United States v. Ciccone, 219 F.3d 1078, 1083 (9th Cir. 2000). In addition, there is an element of specific intent. Id. Materiality is an essential element of the crime of wire fraud. Neder v. United States, 527 U.S. 1 (1999). 2
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Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 [phone]

Richeson has not sufficiently pled wire fraud as a predicate act because he has not pled facts that constitute a scheme to defraud, and he has not pled that he has suffered any damage or that there is causation between an alleged injury and the alleged predicate act. RICO was intended to combat organized crime, not to provide a federal cause of action and treble damages to every tort plaintiff. Oscar v. University Students Co-operative Ass'n, 965 F.2d 783, 786 (9th Cir.1992). B. The Elements of a RICO Claim Predicated on Extortion

Racketeering activity includes the predicate act of extortion under 18 U.S.C. §1951. "Extortion" is defined as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear." 18 U.S.C. §1951(b)(2). II. ARGUMENT A. The Counterclaim Fails To Allege Any Injury The Counterclaim alleges that Xcentric engages in wire fraud and extortion in that Xcentric is an alter ego of Ed Magedson and Magedson uses a website to post false or inflated consumer complaints posing as a legitimate consumer hiding among real consumers. It further alleges that Ed Magedson uses "surrogates" to enter responses to the complaints. Nowhere does Counterclaim allege that Richeson was harmed in any

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way as a result of this purported activity. "It is well settled that, to maintain a civil RICO claim predicated on mail [or wire] fraud, a plaintiff must show that the defendants' alleged misconduct proximately caused the injury." Sosa v. DIRECTV, Inc., 437 F.3d 923, 941 (9th Cir. 2006) (brackets in original) (quoting Poulos v. Caesar's World, Inc., 379 F.3d 654, 664 (9th Cir. 2005)). Furthermore, as the U.S. Supreme Court has explained: [T]o state a claim under civil RICO, the plaintiff is required to show that a RICO predicate offense "not only was a `but for' cause of his injury, but was the proximate cause as well." Proximate cause for RICO purposes, we made clear, should be evaluated in light of its common-law foundations; proximate cause thus requires "some direct relation between the injury 3
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asserted and the injurious conduct alleged." A link that is "too remote," "purely contingent," or "indirec[t]" is insufficient. Hemi Group, LLC v. City of New York, N.Y., 130 S. Ct. 983, 989 (2010) (emphasis added) (quoting Holmes v. Securities Investor Protection Corporation, 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). In Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992), the Supreme Court held that a plaintiff may sue under § 1964(c) only if the alleged RICO violation was the proximate cause of the plaintiff's injury. In Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457, 126 S. Ct. 1991, 1996, 164 L. Ed. 2d 720 (2006), that theory was extended to claims, such as the one here, based on § 1962(c). As the Court in Anza explained, the types of injuries asserted by Plaintiffs constitute a serious discontinuity between the actions alleged giving rise to the RICO claim, and the actual damages being asserted. See Anza, 547 U.S. at 459, 126 S.Ct. at 1997 (explaining that because "Businesses lose and gain customers for many reasons," plaintiff's "alleged injury was not the direct result of a RICO violation"). The theory behind this requirement is simple: The requirement of a direct causal connection is especially warranted where the immediate victims of an alleged RICO violation can be expected to vindicate the laws by pursuing their own claims. See Holmes, 503 U.S. at 269-270, 112 S.Ct. 1311 ("[D]irectly injured victims can generally be counted on to vindicate the law as private attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely") Id. at 460, 126 S.Ct. at 1998. Proximate causation requires "some direct relation between the injury asserted and the injurious conduct alleged." Holmes, 503 U.S. at 268, 112 S.Ct. 1311. Under Anza, courts must scrutinize the causal link between the RICO violation and the injury, identifying with precision both the nature of the violation and the cause of the injury to the plaintiff. Anza, 126 S.Ct. at 1996-98. "Where the violation is not itself the immediate cause of the plaintiff's injury, proximate cause may be lacking." Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969, 981 (9th Cir. 2008) cert. denied, 129 S. Ct. 458, 172 L. Ed. 2d 327 (U.S. 2008). 4
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Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 [phone]

Further, even if Richeson amends his Counterclaim and alleges that he is injured, the only possible injury he could claim is reputational harm resulting from posts on the website. Not all injuries are compensable under RICO. Oscar v. University Students Cooperative Ass'n, 965 F.2d 783, 785 (9th Cir.1992) (en banc), cert. denied, 506 U.S. 1020. Case law in our circuit limits injuries compensable under RICO. See Id. A showing of "injury" requires proof of concrete financial loss. Id. (citing with approval Fleischhauer v. Feltner, 879 F.2d 1290, 1299-31 (6th Cir.1989) (plaintiffs under section 1964(c) entitled to recover only for money they paid out as a result of racketeering activity), cert. denied, 493 U.S. 1074, 110 S.Ct. 1122, 107 L.Ed.2d 1029 and 494 U.S. 1027, 110 S.Ct. 1473, 108 L.Ed.2d 611 (1990)). See also Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir.1990) (Actual injury, that is financial loss or injury, is required to recover under RICO). Courts have repeatedly held that injury to reputation is not the type of injury that is compensable under RICO. 18 U.S.C. §1964 provides that a person injured in his business or property by reason of a violation of §1962 may sue. The injury must consist of a concrete financial loss and not mere injury to valuable, but intangible, property interests. Pedrina v. Chun, 906 F.Supp. 1377 (D. Hawaii 1995), aff'd 97 F.3d 1296, cert. denied 117 S.Ct. 2441. This Circuit has held that lost business from failure to obtain bids was not a compensable injury. Imagineering, Inc. v. Kiewit Pacific Company, 976 F.2d 1303 (9th Cir. 1992). The District of Connecticut has held that economic consequences suffered by an abortion clinic as a result of protests were not the type of financial loss required by RICO. Town of West Hartford v. Operation Rescue, 792 F. Supp. 161, vacated in part 991 F.2d 1039, cert. denied 114 S.Ct. 185 (D. Conn. 1992). The District of Puerto Rico has held that damages for injured reputations were not recoverable under RICO. Padilla Rodriguez v. Llorens Quinones, 813 F. Supp. 924 (D. Puerto Rico 1993). Additionally, the Arizona state court, interpreting identical statutory language regarding RICO injuries, has held that injuries to reputation are not compensable. Franzi v. Koedyker, 157 Ariz. 401, 758 P.2d 1303 (App. 1985). 5
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Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 [phone]

B.

The Counterclaim Fails To Allege the Remaining Elements of RICO

The Counterclaim fails to allege that there is an enterprise that is conducted through a pattern of racketeering activity. Indeed, it alleges that Magedson and Xcentric are alter egos; precluding the possibility that there is an enterprise that is separate from the person committing the acts. A claimant must allege a connection between at least two separate entities - a "person" and a distinct and separate "enterprise." Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001). The Counterclaim fails to adequately allege the predicate act of wire fraud. Fraud must be plead with particularity. Richeson does nothing more than generally allege that Magedson posts false or inflated consumer complaints. The Counterclaim lacks any specifics or details. Moreover, the alleged conduct is squarely protected by the Communications Decency Act, 47 U.S.C. § 230 (the "CDA"). The CDA prohibits all civil actions that treat an interactive computer service as the "publisher or speaker" of messages transmitted over its service by third parties. This federal statute, which was passed by Congress with the intent to "promote unfettered speech," provides in relevant part: "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." 47 U.S.C. § 230(c)(1) (emphasis added). Section 230 further provides that "[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section." Green v. America Online, 318 F.3d 465, 470 (3rd Cir. 2003) (noting that the CDA, "`precludes courts from entertaining claims that would place a computer service provider in a publisher's role,' and therefore bars `lawsuits seeking to hold a service provider liable for its exercise of a publisher's traditional editorial functions - such as deciding whether to publish, withdraw, postpone, or alter content.'") Richeson's purported wire fraud claim is predicated on conduct which is protected by the CDA. Even if Magedson posts false content on the website that he operates, he 6
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Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 [phone]

would be immune unless it was alleged that he actually authored the content. There is no such allegation in the Counterclaim. The Counterclaim also fails to adequately allege the predicate act of extortion. The Counterclaim never explains who was supposedly extorted or what the extortionate acts were. III. CONCLUSION For all of the foregoing reasons, Xcentric requests that the Court dismiss the Counterclaim with prejudice for failure to state a claim under Fed.R.Civ.P.12 (b)(6). DATED this 15th day of November, 2010. JABURG & WILK, P.C.

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s/Maria Crimi Speth Maria Crimi Speth Attorneys for Plaintiff

Certificate of Service I hereby certify that on the 15th day of November, 2010, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing. I have also caused to be delivered to Defendant, who is not registered with the CM/ECF System, a copy of the attached document by First Class Mail and E-Mail: Shawn Richeson 1906 Twilight Drive Killeen, Texas 76543 [e-mail] Defendant Pro Per

s/Debra Gower