Lawrence Holdings, Inc. et al v. ASA International, LTD. et al
ORDER: Defendants' Motion to Dismiss Plaintiffs' Complaint 27 is DENIED. Defendants have until and including November 13, 2014, to file their Answer to Plaintiffs' Complaint. Signed by Judge Virginia M. Hernandez Covington on 10/30/2014. (KNC)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
LAWRENCE HOLDINGS, INC., ET AL.,
Case No. 8:14-cv-1862-T-33EAJ
ASA INTERNATIONAL, LTD., ET AL.,
Defendants ASA International, LTD. (ASA), Khameleon Software,
Inc. (Khameleon), ASA Automotive Systems, LLC (ASA Auto), ASA
(Speen), Alfred C. Angelone (Angelone), Christopher Crane
(Crane), and Terrence McCarthy’s (McCarthy) Motion to Dismiss
Plaintiffs’ Complaint (Doc. # 27), filed on August 29, 2014.
Plaintiffs Lawrence Holdings, Inc., Snappy Materials, LLC
(Snappy), Tico Titanium, Inc. (Tico), Supra Alloys, Inc.
(Supra), and Alloy Metals, Inc. (Alloy)1 filed a response in
opposition to the Motion on September 29, 2014. (Doc. # 41).
Upon due consideration, the Court denies Defendants’ Motion.
For clarity, the Court will refer to all Plaintiffs
collectively as LHI.
At all relevant times, Defendants Angelone, Crane, and
McCarthy owned or controlled several interrelated entities,
including ASA, Khameleon, ASA Auto, ASA Properties, Speen and
Verticent, Inc. – a non-party to this action. (Doc. # 1 at ¶¶
23, 26, 29). “Although these entities were nominally separate
and engaged in different lines of business, they generally
worked together for the enrichment of their owners.” (Id. at
¶ 26). An example of the control exercised by Angelone,
McCarthy, and Crane included conducting monthly meetings
attended by the ASA employees who were assigned to key
interrelated entities. (Id. at ¶ 29). At the monthly meetings,
Angelone and Crane provided specific, detailed instructions
to ASA employees about how to sell ASA products, which
included Enterprise Resource Planning (ERP) software. (Id. at
Although Verticent maintained its own separate checking
account, the account was “regularly swept by ASA.” (Id. at ¶
Verticent were funded by ASA. (Id.). On information and
belief, LHI submits that ASA distributed the money that it
obtained from Verticent to Angelone, Crane, McCarthy, ASA
Properties, and Speen, as well as to fund operations at its
other operating divisions, including Khameleon and ASA Auto.
In accordance with the “enterprise” described above,
Angelone, Crane, McCarthy, and ASA published claims that
Verticent developed and could implement ERP software. (Id. at
¶ 40). In addition, claims were made that Verticent had
developed, and had available for licensing, ERP software
despite the fact that it did not. (Id.). The ASA employees
assigned to the Verticent line of business described the
strategy of selling products that they did not have as: “[w]e
sell what we don’t have to people who do not know what they
want.” (Id. at ¶ 43).
LHI specializes in “metals distribution and value-added
processing, and, through its operating subsidiaries,2 it has
warehouse locations in California, Connecticut, Michigan and
Texas.” (Id. at ¶ 45). In the summer of 2006, LHI began
researching software to integrate the databases of its four
operating subsidiaries, so that information could be viewed
and utilized on one single platform. (Id. at ¶¶ 45, 49). LHI
The operating subsidiaries include Snappy, Tico, Supra,
and Alloy. (Doc. # 1 at ¶¶ 10-13).
contacted Verticent in response to advertisements stating
that Verticent was a “leading provider of and specialist in
information technology for the metals industry.” (Id. at ¶
46). Thereafter, LHI began discussions with Al Goniwich,
Scott Cranford, Scott Galloway, and Todd Oullette – all
employees of ASA - concerning the ERP software. (Id. at ¶
According to LHI, Goniwich, Cranford, Galloway, and
capability of integrating the databases of the four operating
subsidiaries, however, unbeknownst to LHI, it did not. (Id.
at ¶ 49). Furthermore, Cranford and Oullette presented LHI
with components of a software package that they claimed met
integrated with a Verticent financial module. (Id. at ¶ 50).
However, Verticent’s actual software package did not have the
capabilities that Cranford and Oullette promised during the
In October of 2006, LHI and Verticent entered into a
software license agreement, a software maintenance agreement,
and a professional services agreement for the development of
an “Integrated Metals Enterprise Resource Planning” software
package. (Id. at ¶ 55). Despite his initial representation
amended implementation completion date for Snappy and Alloy
of March 13, 2007, May 1, 2007, for Supra, and Tico would
follow thereafter. (Id. at ¶ 59).
software customization needed to suit LHI’s unique needs.
(Id. at ¶ 60). According to LHI, Goniwich knew that further
customization would not change the fact that the ERP software
did not work. (Id.). “Still under the direction of Angelone,
Crane, and McCarthy, [Goniwich] continued to represent that
the ERP [s]oftware would work.” (Id.).
By late 2007, the ERP software still did not work. (Id.
Oullette, Cranford, and Galloway “pretended to be” surprised
despite knowing that the ERP software did not work and having
Angelone, and Crane at monthly meetings. (Id.). However, LHI
submits that these individuals advised that ASA employees
should continue to “go through the motions” of an installation
in order to keep LHI paying monthly license and other fees.
Throughout late 2007 and 2008, ASA employees continued
implementation of the ERP software. (Id. at ¶ 62). “During
this time, repeated efforts to go live with various databases
explanation that further investigation, modification and fees
would be required.” (Id.). Thereafter, from 2008 through
2010, ASA employees continued to make misrepresentations
Furthermore, the documentation provided to LHI during this
time was intentionally confusing to leave LHI without the
ability to understand that Verticent did not have ERP software
that worked and had no intention of acquiring it. (Id. at ¶¶
73-75). Nonetheless, in reliance on ASA employees’ statements
continued to make payments to Verticent. (Id. at ¶ 80).
By December of 2010, the ERP software still did not work.
(Id. at ¶ 78). However, Goniwich continued “to represent that
an ever-decreasing number of action items were needed to be
completed for the ERP [s]oftware to work.” (Id.). Thereafter,
Goniwich and Oullette abruptly disappeared. (Id.). In their
place, Kent Johnson, David Morgenstern, and Omar Peraza began
to handle the LHI project. (Id.).
In May of 2011, Lawrence Buhl and others – on behalf of
continued failure of the ERP software. (Id. at ¶ 79). Johnson
and Morgenstern represented that a change in management was
made and that they would quickly and efficiently address all
outstanding items in order to deliver the ERP software as
promised. (Id.). Morgenstern admitted that Verticent had
“committed many mistakes in the past,” but he contended that
“the new management in place had ‘made great changes and
nothing had changed and no progress had been made on the
implementation of the ERP software. (Id.).
“Still having spent over $1 million on the ERP software
and in reliance on the forgoing change in management and
assurances of Morgenstern, Johnson and Peraza, LHI continued
to work with and pay Verticent.” (Id. at ¶ 80). In February
of 2012, Verticent filed for bankruptcy. (Id. at ¶ 81).
LHI initiated this action on August 1, 2014, alleging
Organizations Act (RICO), 18 U.S.C. § 1961, et seq. and
various state law claims. (See Doc. # 1). LHI alleges that
Defendants had a scheme to “milk money” from the metal
distribution industry through mail and wire fraud by selling
an integrated software program to LHI, and other companies,3
knowing it would never work and then having Verticent file
Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6) on
opposition to the Motion on September 29, 2014. (Doc. # 41).
The Court has reviewed the Motion and the response thereto
and is otherwise fully advised in the premises.
On a motion to dismiss, this Court accepts as true all
the allegations in the complaint and construes them in the
light most favorable to the plaintiff.
Jackson v. Bellsouth
Telecomms., 372 F.3d 1250, 1262 (11th Cir. 2004).
inferences from the allegations in the complaint.
v. Dep’t of Health & Human Servs., 901 F.2d 1571, 1573 (11th
Cir. 1990) (“On a motion to dismiss, the facts stated in [the]
According to the Complaint, these companies include
Paragon Steel Enterprises, LLC, Norman Industrial Materials,
Inc. d/b/a Industrial Metal Supply, Co., CRP Steel, Frictl,
Loren Industries, Amsco Steel, Peachtree Metals, Willbanks,
National Tube Supply, Middletown Tube, Monarch Steel, and
Howard Precision. (Doc. # 1 at ¶¶ 92-103).
complaint and all reasonable inferences therefrom are taken
as true.”). However, the Supreme Court explains that:
While a complaint attacked by a Rule 12(b)(6)
motion to dismiss does not need detailed factual
allegations, a plaintiff’s obligation to provide
the grounds of his entitlement to relief requires
more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action
will not do. Factual allegations must be enough to
raise a right to relief above the speculative
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)(internal
Further, courts are not “bound to accept
as true a legal conclusion couched as a factual allegation.”
Papasan v. Allain, 478 U.S. 265, 286 (1986).
Defendants’ Request That This Court Take Judicial Notice
of Material for Inclusion in Motion to Dismiss Analysis
On August 29, 2014, Defendants filed a Request for
Judicial Notice. (Doc. # 28). Defendants request that this
Bankruptcy Court, Middle District of Florida, Case No. 8:12bk-16823-CPM, (2) that LHI filed a Proof of Claim on February
13, 2013, in the United States Bankruptcy Court, Middle
District of Florida, Case No. 8:12-bk-16823-CPM, and (3) of
three written agreements identified by LHI in the Complaint.
(Id.; see Doc. # 1 at ¶ 55). Defendants attached the relevant
documents to their Request. (Doc. # 28-1).
Federal Rule of Evidence 201(b) allows a court to take
judicial notice of facts that are “(1) generally known within
the territorial jurisdiction of the trial court or (2) capable
of accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned.” Fed. R. Evid.
201(b). “The Court may take judicial notice at any point in
the proceeding, including during a motion to dismiss.” In re
ING Groep, N.V. Erisa Litig., 749 F. Supp. 2d 1338, 1344 (N.D.
Ga. 2010). “When deciding a motion to dismiss, the Court must
limit its consideration to well-pleaded factual allegations,
referenced in the complaint.” Id. (citing La Grasta v. First
Union Sec. Inc., 358 F.3d 840, 845 (11th Cir. 2004)).
“Public records are among the permissible facts that a
district court may consider.” Universal Express, Inc. v.
United States S.E.C., 177 F. App’x 52, 53 (11th Cir. 2006);
see In re Gurley, 357 B.R. 868, 878 (Bankr. M.D. Fla. 2006)(“A
court in determining a Rule 12(b)(6) motion may take judicial
notice of the public record including documents filed and the
record in other judicial proceedings, without converting the
motion to dismiss to one for summary judgment, because such
documents are capable of accurate and ready determination.”
(internal quotations omitted)).
Here, Verticent filing for bankruptcy as well as the
Proof of Claim filed by LHI are part of the public record,
documents in its analysis of the present Motion. Furthermore,
as to the three written agreements, the Court notes that LHI
references these agreements within the Complaint. (Doc. # 1
at ¶ 55). Thus, the Court finds that they are “central to or
referenced in the Complaint,” and as a result, this Court may
take judicial notice of these agreements at this time.
LHI’s response in opposition to Defendants’ Motion to
Dismiss is devoid of any argument as to why this Court should
not take judicial notice of the requested documents. (See
Defendants’ Request, specifically, the Local Rule 3.01(g)
certification section: “Pursuant to Rule 3.01(g) of the Local
Rules, [Defendants’ counsel] has conferred with counsel for
[LHI] and is authorized to represent that [LHI] oppose[s]
this Request.” (See Doc. # 28). Therefore, the Court grants
Defendants’ Request and will take judicial notice of the
referenced material for purposes of the present analysis.
In their present Motion, Defendants seek dismissal of
the Complaint for a plethora of reasons. The Court will
address each in turn.
A. Purpose of RICO
Defendants seek dismissal of LHI’s RICO claims as
submit that “[t]he purpose of RICO is to eradicate organized
crime not provide civil remedies for garden variety breach of
sophisticated businesses, like the claims brought by LHI.
(Doc. # 27 at 11-12). To support their contention, Defendants
rely on a 1970 United States Congressional statement of
findings and purpose for RICO, which states in relevant part:
“It is the purpose of this Act to seek the eradication of
organized crime in the United States by strengthening the
enhanced sanctions and new remedies to deal with the unlawful
activities of those engaged in organized crime.” (Id. at 12).
LHI contends, however, that Defendants ignore “wellsettled decisions of the Supreme Court and of Courts in the
Eleventh Circuit, including this Court, that have repeatedly
Congressional purpose.” (Doc. # 41 at 8); see Sedima S.P.R.L.
v. Imrex Co., Inc., 473 U.S. 479, 497 (1985)(stating that
“RICO is to be read broadly.”); King v. Gandolfo, 714 F. Supp.
1180, 1182 (M.D. Fla. 1989)(“This Court is not at liberty to
restrict legislation passed by Congress so as to do violence
to the plain language of the statute, in direct countervention
of binding United States Supreme Court authority.”); United
States v. Noriega, 746 F. Supp. 1506, 1517 (S.D. Fla. 1990)
history leaves no doubt that RICO was to be read expansively
as a means of attacking organized crime at every level and on
Receivable Co-op. Corp. v. Prime One Capital Co., 202 F. Supp.
2d 1339, 1346 (S.D. Fla. 2002)(“The United States Supreme
Court repeatedly has rejected the argument that RICO should
be narrowly construed as a per se exclusion of business
This Court disagrees with Defendants’ contention that
RICO was not intended to protect against the allegations set
forth in LHI’s Complaint. Instead, as case law indicates, the
RICO statute is to be “read broadly” to encompass “every day
fraud cases,” as those brought by LHI. See Sedima S.P.R.L.,
473 U.S. at 499 (“Instead of being used against mobsters and
organized criminals, [RICO] has become a tool for everyday
enterprises.’”). Thus, Defendants’ Motion is denied as to
B. Whether LHI’s Complaint is a “Shotgun Pleading”
According to Defendants, the Complaint constitutes a
“shotgun pleading.” (Doc. # 27 at 10). Namely, Defendants
The Complaint comprises 171 numbered paragraphs
spread over 34 pages. The reader must plow through
the first 107 paragraphs before reaching the first
of seven causes of action. These introductory 107
irrelevancies” and immaterial factual allegations.
Each succeeding cause of action then incorporates
all of the allegations of the cause of action that
preceded it. To attempt analysis of any cause of
action requires one to hunt and peck through the
107 introductory paragraphs to determine what
allegations are necessary to complete the legal
predicates of each claim. Analysis of each
succeeding cause of action only becomes more
burdensome and confusing.
(Id.)(citing Magluta v. Samples, 256 F.3d 1282 (11th Cir.
In Magluta, the Eleventh Circuit found the operative
Magluta, 256 F.3d at 1284. In finding so, the Court noted
[The complaint] is fifty-eight pages long. It names
fourteen defendants, and all defendants are charged
in each count. The complaint is replete with
allegations that “the defendants” engaged in
certain conduct, making no distinction among the
fourteen defendants charged, though geographic and
temporal realities make plain that all of the
defendants could not have participated in every act
complained of. Each count incorporates by reference
the allegations made in a section entitled “General
Factual Allegations” — which comprises 146 numbered
allegations of any count or counts that precede it.
The result is that each count is replete with
factual allegations that could not possibly be
material to that specific count, and that any
allegations that are material are buried beneath
innumerable pages of rambling irrelevancies. This
type of pleading completely disregards Rule 10(b)'s
requirement that discrete claims should be plead in
separate counts, and is the type of complaint that
we have criticized time and again.
Id. (internal citations omitted). As a result, the Eleventh
Circuit vacated the district court’s judgment dismissing the
complaint for failure to state a claim and remanded the action
plaintiff to replead his claims. Id. at 1284-85. According to
Defendants, LHI’s Complaint “duplicates all of the failings
articulated in Magluta and should either be dismissed or
ordered to be [repled] on that account.” (Doc. # 27 at 11).
LHI argues, however, that it has satisfied its pleading
burden by “balancing the need for a short, plain statement
under Rule 8 with the heightened requirement of Rule 9.” (Doc.
distinguishable from the instant action as Magluta did not
involve allegations of fraud. (Id.). As a result, Magluta did
not consider the heightened pleading requirements imposed by
Rule 9(b) or the interplay of those standards with the notice
pleading requirements of Rule 8. (Id.).
This Court agrees. In the instant action, not only is
LHI required to satisfy Rule 8, it must also satisfy the
heightened pleading requirement of Rule 9(b), which was not
required of the plaintiff in Magluta. To the extent Defendants
argue that “[a]nalysis of each succeeding cause of action
The detail contained in the “171 numbered
paragraphs spread over 34 pages,” is necessary in order for
allegations attempting to set forth Defendants’ pattern of
racketeering. Therefore, the Court finds that the Complaint
is not a “shotgun pleading.” Rather, as stated by LHI,
Defendants are “more than able to frame a responsive pleading”
to the allegations contained in the Complaint. (Doc. # 41 at
10). Accordingly, the Court denies Defendants’ Motion on this
ground and will address whether LHI satisfied Fed. R. Civ. P.
8(a) and 9(b) in further detail.
C. Failure to Satisfy Fed. R. Civ. P. 8(a)
Under Fed. R. Civ. P. 8(a), a pleading must contain “a
short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible
on its face. A claim has facial plausibility when
the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. .
citations omitted). In this action, LHI brings RICO claims
pursuant to 18 U.S.C. §§ 1962(c), 1962(d), 1964(c), and
1964(d). (See Doc. # 1).
To establish a claim for a federal civil RICO violation
under Section 1962(c), LHI must establish “(1) conduct (2) of
an enterprise (3) through a pattern (4) of racketeering
activity.” Williams v. Mohawk Indus. Inc., 465 F.3d 1277,
“business or property,” and (2) that such injury was “by
reason of” the substantive RICO violation. Id.; 18 U.S.C. §
Section 1962(d) of the RICO statutes makes it illegal
for anyone to conspire to violate one of the substantive
provisions of RICO, including § 1962(c). 18 U.S.C. § 1962(d).
“A plaintiff can establish a RICO conspiracy claim in one of
two ways: (1) by showing that the defendant agreed to the
overall objective of the conspiracy; or (2) by showing that
the defendant agreed to commit two predicate acts.” Republic
of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935,
950 (11th Cir. 1997). A plaintiff need not offer direct
evidence of a RICO agreement; the existence of conspiracy
“may be inferred from the conduct of the participants.” Id.
Defendants contend that LHI has failed to state a claim
upon which relief can be granted as the Complaint: (1) fails
to plead a pattern of racketeering, (2) fails to plead an
proximate cause. (See Doc. # 27). The Court will address each
contention in turn.
1. Pattern of Racketeering
constitute a “pattern of racketeering.” (Id. at 19). “A
‘pattern of racketeering activity,’ for purposes of the RICO
Act, ‘requires at least two acts of racketeering activity.’”
18 U.S.C. § 1961(5); Cox v. Adm'r United States Steel &
Carnegie, 17 F.3d 1386, 1397 (11th Cir. 1994), modified on
other grounds by 30 F.3d 1347 (11th Cir. 1994). A Racketeering
activity, in turn, is defined as a violation of any of a
number of statutes listed in Section 1961(1). 18 U.S.C. §
1961(1). These include the federal statutes prohibiting mail
and wire fraud. Id. “An act of racketeering is commonly
referred to as a ‘predicate act.’” Mohawk Indus., Inc., 465
F.3d at 1283.
“The term pattern itself requires the showing of a
continuing activity.” H.J., Inc. v. NW Bell Tel. Co., 492
omitted). With respect to the relationship element, “the
results, participants, victims, or methods of commission, or
otherwise be interrelated by distinguishing characteristics
and . . . not be isolated events.” United States v. Lynch,
287 F. App’x 66, 68 (11th Cir. 2008)(internal quotations
omitted). In regard to the continuity element, “[a] party
alleging a RICO violation may demonstrate continuity over a
closed period by providing a series of predicates extending
over a substantial period of time.” H.J., 492 U.S. at 24142. “The threat of continuity may be established by showing
that the predicate acts or offenses are part of an ongoing
entity’s regular way of doing business.” Id. at 242.
According to Defendants, LHI failed to adequately allege
a pattern of racketeering and instead has only alleged a
single scheme (i.e., “to sell a piece of software that
allegedly does not work and then to file bankruptcy”). (Doc.
# 27 at 20). In addition, Defendants argue that the allegation
of a single scheme entails only a single discrete injury –
payment for ERP software that did not work – which was
suffered by a small number of victims. (Id.). This combination
of factors, makes it “virtually impossible for [LHI] to state
a RICO claim.” (Id.)(citing Sil-Flo, Inc. v. SFHC, Inc., 917
predicate acts failed to show a pattern where the acts
“constituted a single scheme to accomplish ‘one discrete
goal,’ directed at one individual with no potential to extend
to other persons or entities.”)).
However, LHI argues that the Complaint demonstrates that
“an elaborate fraud took place over the last six years and
multiple episodes.” (Doc. # 41 at 15; Doc. # 1 at ¶¶ 45-103).
Specifically, ASA’s employees sold LHI ERP software that the
Defendants knew did not work. (Doc. # 41 at 15). Then,
implementing ERP software, even though they knew they could
never be successful.” (Id. at 15-16). When LHI complained,
Defendants “doubled down by persuading LHI to pay more money,
and allow more time, to fix the problems.” (Id. at 16).
According to LHI, these repeated actions were also directed
pattern of past conduct that posed a threat of continuation
into the future. (Id.); see Jones v. Childers, 18 F.3d 899,
912-13 (11th Cir. 1994)(finding that plaintiffs established
practices where defendants defrauded five similar victims
over five year period).
Upon review of the Complaint, the Court finds that this
suggested by Defendants. Instead, taking the allegations as
true, Defendants implemented a plan, spanning six years, to
allegedly defraud LHI and several other companies. In doing
software knowing that it did not work and continuing to
persuade the buyer that more time, and payment, was necessary.
At this stage of the proceeding, this Court finds that such
activity satisfies the relationship and continuity elements
Therefore, for purposes of the present analysis only, the
Court finds that LHI has adequately demonstrated a pattern of
2. Association-in-Fact Enterprise
In Counts One and Two of the Complaint, LHI pleads an
“association-in-fact enterprise.” (See Doc. # 1). Pursuant to
18 U.S.C. § 1961(4), an enterprise for purposes of a RICO
claim may include “any individual, partnership, corporation,
association, or other legal entity, and any union or group of
individuals associated in fact although not a legal entity.”
However, “merely alleging that the ‘Defendants conspired with
enterprise.” Palm Beach Cnty. Envtl. Coalition v. Fla., 651
F. Supp. 2d 1328, 1349 (S.D. Fla. 2009). Instead, “the
existence of an enterprise is proved by evidence of an ongoing
organization, formal or informal, and by evidence that the
various associates function as a continuing unit.” Mohawk
Indus., Inc., 465 F.3d at 1284. “[T]he definitive factor in
existence of an association of individual entities, however
loose or informal, that furnishes a vehicle for the commission
of two or more predicate crimes.” Id. In the Eleventh Circuit,
the “person” and the “enterprise” cannot be the same. United
States v. Goldin Indus., Inc., 219 F.3d 1271, 1276 (11th Cir.
As stated in United States v. Turkette, an associationin-fact enterprise is “a group of persons associated together
for a common purpose of engaging in a course of conduct.” 452
U.S. 576, 583 (1981).
Such a group need not have a hierarchical structure
or a “chain of command”; decisions may be made on
an ad hoc basis and by any number of methods — by
majority vote, consensus, a show of strength, etc.
Members of the group need not have fixed roles;
different members may perform different roles at
different times. The group need not have a name,
regular meetings, dues, established rules and
regulations, disciplinary procedures, or induction
or initiation ceremonies. While the group must
function as a continuing unit and remain in
existence long enough to pursue a course of
conduct, nothing in RICO exempts an enterprise
whose associates engage in spurts of activity
punctuated by periods of quiescence. Nor is the
statute limited to groups whose crimes are
sophisticated, diverse, complex, or unique; for
example, a group that does nothing but engage in
extortion through old-fashioned, unsophisticated,
and brutal means may fall squarely within the
Boyle v. United States, 556 U.S. 938, 948 (2009).
Defendants seek dismissal of Counts One and Two based on
their contention that “Plaintiffs are in fact alleging that
the persons liable are the same as the alleged enterprise.
That is improper.” (Doc. # 27 at 21). To that end, Defendants
explanation for the roles played by any of Defendants outside
the enterprise.” (Id.).
According to LHI, however, “Defendants misunderstand the
nature of an association-in-fact enterprise and RICO actors’
roles therein.” (Doc. # 41 at 13). LHI posits that “[t]he
very concept of an association-in-fact is expansive.” (Id. at
14)(quoting Boyle, 556 U.S. at 944). “An association-in-fact
can exist in the absence of a formally structured group.”
(Id.)(quoting United States v. Young, 906 F.2d 615, 619 (11th
Cir. 1990)). Therefore, LHI states that “[t]he need for two
distinct entities is satisfied ‘when a corporate employee
unlawfully conducts the affairs of the corporation of which
he is the sole owner – whether he conducts those affairs
authority.’” (Id.)(quoting Associated Indus. Ins. Co., v.
1237685, at *4). An association-in-fact enterprise requires
evidence that the various associates function as a continuing
unit.” (Id.)(quoting In re Managed Care Litig., 298 F. Supp.
2d 1259, 1273 (S.D. Fla. 2003)).
organization – controlled primarily by Angelone, Crane, and
McCarthy - whose participants functioned as a continuing unit
for the common purpose of allegedly defrauding LHI and other
companies. (Id.; Doc. # 1 at ¶¶ 26-36, 90-91). Specifically,
as described by LHI in its response, “[t]he enterprise is the
informal organization that consists of all of the Defendants
– the ‘whole.’ However, like any enterprise, it can act only
through its members – its parts – who are the participants in
the enterprise. Here, the enterprise acts through its members
– the Defendants.” (Doc. # 41 at 14); see Associated Indus.,
2014 WL 1237685, at *4 (finding that the individual and
separateness to satisfy RICO).
intensive inquiry.” AstroTel, Inc. v. Verizon Fla., LLC, No.
8:11-CV-2224-T-33TBM, 2012 WL 3670398, at *4 (M.D. Fla. Aug.
27, 2012); Lockheed Martin Corp. v. Boeing Co., 314 F. Supp.
2d 1198, 1212 (M.D. Fla. 2004)(“distinctness is a fact-
intensive inquiry that is not driven solely by formal legal
Thus, the Court determines that at this time it is
appropriate to deny the Motion on this ground and allow this
case to proceed to the summary judgment stage. Defendants’
fact-intensive arguments are better suited for disposition
under Fed. R. Civ. P. 56, with reference to the materials on
file obtained during discovery.
3. Proximate Cause
RICO plaintiffs must prove proximate causation in order
to recover. Anza v. Ideal Steel Supply Corp., 547 U.S. 451
(2006); Super Vision Int'l, Inc. v. Mega Int'l Commercial
Bank Co., 534 F. Supp. 2d 1326, 1339 (S.D. Fla. 2008)(finding
that the plaintiff has the burden of proving that he “relied
to his detriment on the defendant's misrepresentations made
in furtherance of that scheme.”).
“When a court evaluates a RICO claim for proximate
causation, the central question it must ask is whether the
alleged violation led directly to the plaintiff's injuries.”
Anza, 547 U.S. at 461. Although plaintiffs are not required
to show that the injurious conduct is the sole cause of the
injury asserted, there must be “some direct relation” between
the injury alleged and the injurious conduct in order to show
proximate cause. Id. at 464.
Defendants argue that LHI failed to allege sufficient
violations. (Doc. # 27 at 21). To wit:
Plaintiffs allege that Plaintiffs agreed to enter
into the Software Agreements based upon Defendants’
in person presentation. According to Plaintiffs,
the damage was done at that point because
Plaintiffs contend the Defendants knew all along
that the software did not work and would never work.
The various emails and mailed invoices months later
fail to show that Plaintiffs were harmed by the
predicate acts more than they had already been
harmed by the initial misrepresentations when they
entered into the Software Agreements.
(Id.)(internal citation omitted).
additional sums of money as a result of the fraudulent
statements Defendants made at various times between 2006 and
2012. (Doc. # 41 at 17; Doc. # 1 at ¶¶ 75, 80, 87-89, 107).
Therefore, LHI submits that “[t]he remittance of money in
reliance on fraudulent statements is sufficient at this stage
to establish proximate causation.” (Doc. # 41 at 17).
misrepresentations to LHI after LHI entered into the software
agreements. (Doc. # 1 at ¶¶ 61-80). These misrepresentations
additional cost, was required to have the ERP software meet
LHI’s needs. (Id.). Based on these allegations, taking them
as true, the Court finds that a nexus exists between LHI’s
alleged injury and Defendants’ alleged RICO violations. Thus,
at this stage of the proceedings, LHI has sufficiently alleged
proximate cause. See Mohawk Indus., Inc., 465 F.3d at 128789
proximate cause to withstand defendant’s motion to dismiss as
plaintiffs alleged a direct relation between their claimed
injury and the alleged RICO violations). Accordingly, for the
reasons set forth above, LHI has satisfied Fed. R. Civ. P.
8(a), and as a result, Defendants’ Motion is denied on this
D. Failure to Comply with Fed. R. Civ. P. 9(b)
Fraud-based claims must be pled with the heightened
level of particularity required by Fed. R. Civ. P. 9(b).
Oginsky v. Paragon Props. of Costa Rica LLC, 784 F. Supp. 2d
1353, 1362 (S.D. Fla. 2011)(“RICO predicate acts sounding in
fraud must be pled with the heightened level of specificity
required by Federal Rule of Civil Procedure 9(b) for fraud
Intercontinental v. Renta, 530 F.3d 1339, 1355 (11th Cir.
2008)(finding that fraud-based predicate acts must be pled
with specificity, but non-fraud predicate acts need only meet
Rule 8 pleading standard)). Pursuant to Fed. R. Civ. P. 9(b),
“[i]n alleging fraud or mistake, a party must state with
mistake. Malice, intent, knowledge, and other conditions of
a person's mind may be alleged generally.” Fed. R. Civ. P.
To comply with Rule 9(b), RICO complaints alleging fraud
misrepresentations made, (2) the time and place of and person
responsible for the statement, (3) the content and manner in
which the statements misled the [p]laintiffs, and (4) what
the Defendants gained by the alleged fraud.” Ambrosia Coal &
Constr. Co. v. Morales, 482 F.3d 1309, 1316–17 (11th Cir.
2007). Where “the alleged fraud occurred over an extended
period of time and the acts were numerous, the specificity
requirements are applied less stringently.” MeterLogic, Inc.
v. Copier Solutions, Inc., 126 F. Supp. 2d 1346, 1360-61 (S.D.
“Additionally, plaintiff must allege facts regarding
defendants’ intent or knowledge. These allegations need only
give rise to a strong inference that the defendants possessed
the requisite fraudulent intent.” Magnifico v. Villanueva,
783 F. Supp. 2d 1217, 1228 (S.D. Fla. Apr. 27, 2011). However,
“conditions of a person’s mind, such as intent or knowledge,
may be alleged generally.” Barnett v. Blaine, No. 11-14345CIV, 2013 WL 1001963, at *2 (S.D. Fla. March 13, 2013).
establish liability under the federal wire and mail fraud
participated in a scheme to defraud plaintiffs, (2) that they
did so willingly with the intent to defraud, and (3) that the
defendants used the U.S. mails or the interstate wires for
the purpose of executing the scheme.” Langford v. Rite Aid of
Ala., Inc., 231 F.3d 1308, 1312 (11th Cir. 2000).
demonstrate the required level of factual specificity to
establish RICO liability on any Defendant.” (Doc. # 27 at 9).
Specifically, Defendants contend that LHI fails to specify
each Defendants’ role in each predicate act and how each
caused damage to each particular Plaintiff. (Id. at 16-19).
According to Defendants, in a case involving multiple
defendants, as in the instant action, the complaint must not
lump together all of the defendants, as “the complaint should
participation in the fraud.” (Id.)(citing Ambrosia, 482 F.3d
Defendant. (Id.). Particularly, Defendants aver that LHI made
“generalized conclusory allegations regarding the use of the
United States’ mail and wires in the fraudulent scheme,”
“without identifying who used the mail or wire, when the mail
or wire was used, and how the use related to the furtherance
of the fraudulent scheme, other than in the most generic
Moreover, Defendants submit that LHI has “not pled a
fraudulent scheme or artifice from which specific intent can
be inferred, nor has [LHI] specifically pled specific intent
as to each Defendant.” (Id. at 19)(citing Blu-J, Inc. v.
Kemper C.P.A. Grp., 916 F.2d 637, 643 (11th Cir. 1990)(finding
that fraudulent intent is also necessary to establish mail
and wire fraud as predicate acts of civil RICO actions)).
substantive allegations regarding the fraudulent scheme are
based “on information and belief.” (Id.). Defendants suggest
that “such pleading is insufficient to support a fraudulent
scheme,” as a plaintiff who makes allegations on information
and belief must state the factual basis for the belief.
(Id.)(citing United States ex rel. Clausen v. Lab. Corp. of
Am., Inc., 290 F.3d 1301, 1310 (11th Cir. 2002)). According
requirement is to include the allegation that LHI received
information from “ASA employees.” (Id.).
Upon review of the Complaint, the Court determines that
LHI has satisfied the heightened pleading standard of Fed. R.
individuals involved, the content and purpose of particular
fraudulent statements and, where possible, their dates, as
required by Fed. R. Civ. P. 9(b). See Walgreen Co. v. Premier
Prods. Of Am., Inc., No. 8:11-cv-812-T-33MAP, 2012 WL 527169,
sufficiently pled mail and wire fraud based on series of false
invoices over 13-month period); MeterLogic, 126 F. Supp. 2d
at 1361 (finding plaintiff “need not provide the exact time
and place of all the meetings” where it provided specific
information for some of the fraudulent statements and where
fraud occurred over extended time). The Complaint alleges
that Defendants devised a scheme to defraud LHI and other
companies by pretending to sell ERP software and then used
the installation process as a vehicle to require further
payment. (See Doc. # 1 at ¶¶ 45-103). The Complaint identifies
many of the precise misrepresentations that Defendants made,
involved, and how the statements misled LHI. (Id. at ¶¶ 6080).
Further, as provided by LHI “the Complaint identifies
many specific uses of mail and wires in communications where
Defendants maintained the charade of trying to implement a
non-existent software package.” (Doc. # 41 at 12; Doc. # 1 at
¶¶ 64, 66, 68, 72, 74, 78). For example, “the Complaint
identifies at least 11 separate invoices sent to LHI via the
benefitted from their fraud.” (Doc. # 41 at 12; Doc. # 1 at
specifically alleges that Defendants intended to defraud LHI.
(Doc. # 1 at ¶¶ 1-4, 113, 133). LHI alleges that “Angelone,
Crane, and McCarthy (a) had a philosophy of selling products
they did not have, (b) knew that the [s]oftware did not work,
(c) instructed employees to sell it anyway, and (d) instructed
employees on ways to allay customers’ concerns.” (Doc. # 41
at 13; Doc. # 1 at ¶¶ 26-36). Accordingly, these allegations
provide a sufficient basis for the Court to infer specific
intent on behalf of Defendants.
Finally, in regards to Defendants’ argument that LHI
bases many of its allegations on information and belief, the
Court notes that, in general, Rule 9(b)’s heightened pleading
standard is applied less stringently when “specific factual
defendant’s knowledge or control.” Kindred Hosp. East, LLC v.
Fox-Everett, Inc., No. 3:12-cv-307-J-37MCR, 2012 WL 5467516,
acknowledges that several allegations are based on statements
made by former ASA employees who, at various times, were
responsible for the Verticent line of business.
As set forth in LHI’s response:
[M]any allegations relate to Defendants’ internal
meetings, where LHI was discussed, and to the
instructions that Angelone, Crane, and/or McCarthy
gave to ASA employees at or following those
meetings. Obviously, LHI was not at those meetings.
Thus, it has alleged facts based on information and
belief. LHI has knowledge about how business was
conducted at ASA generally based on discussions
with former ASA employees.
(Doc. # 41 at 13)(internal citation omitted).
The Complaint describes ASA’s general business practices
dealings with LHI. That is, from a review of the Complaint,
LHI includes a clear statement of the facts on which its
belief is founded sufficient to satisfy Fed. R. Civ. P. 9(b).
As a result, Defendants’ Motion is denied as to this ground.
The Court notes, however, that Defendants will have the
opportunity through discovery to depose the ASA employees
that provided LHI with the relied upon information.
E. Subsidiaries Fail to State a Claim
According to Defendants:
At paragraphs 9 through 13, Plaintiffs identify the
five Plaintiffs in sequential order as: LHI,
Snappy, Supra, Tico, and Alloy. LHI is the parent
company of the other Plaintiffs which are
subsidiaries of LHI. Plaintiffs state at paragraph
14: “Throughout the Complaint, LHI and its
operating subsidiaries are referred to collectively
as ‘LHI’ unless a distinction is necessary.” The
Complaint contains no designation of LHI in bold
type thereafter, particularly in the damage
paragraph 87. . . .
* * *
Paragraph 87 only specifies damages to LHI and not
the collective “LHI.”
* * *
There is no allegation in the Complaint that any of
the subsidiary Plaintiffs suffered any such losses.
Absent allegations of specific damages tied to acts
of wrongdoing, none of the subsidiary Plaintiffs
[have] stated a claim upon which relief can be
granted and the Complaint should be dismissed as to
these four Plaintiffs.
(Doc. # 27 at 12-13)(emphasis in original).
adequately stated a claim. (Doc. # 41 at 15). Namely, LHI
argues that in the Complaint it defined shorthand terms for
convenience, including the term “LHI,” which refers to all
Plaintiffs: “When [LHI] defined terms, [it] initially used
bold text to call attention to them but did not do so through
the remainder of the Complaint.” (Id.). LHI avers that “the
only reasonable inference here is that Plaintiffs intended to
assert claims on all of their behalf.” (Id.). This Court
agrees. LHI used bold text the first time it referenced LHI
to make it clear that it was a defined term, and its failure
to use bold text throughout the remainder of the Complaint
does not, on its own, illustrate that the four subsidiaries
failed to state a claim upon which relief can be granted.
Therefore, the Court declines to adopt Defendants’ position
on the matter, and as a result, Defendants’ Motion on this
ground is denied.
F. Statute of Limitations
statute of limitations. (Doc. # 27 at 13). While a statute-
of-limitations defense may be raised in a motion to dismiss
under Fed. R. Civ. P. 12(b)(6), such a motion should not be
granted unless “it appears beyond doubt that the plaintiff
can prove no set of facts in support of his claim which would
entitle him to relief.” Abdul-Alim Amin v. Universal Life
Ins. Co. of Memphis, Tenn., 706 F.2d 638, 640 (5th Cir. 1983).
“The statute of limitations for civil RICO actions is four
years” Lehman v. Lucom, 727 F.3d 1326, 1330 (11th Cir. 2013),
and it begins to run “when the injury was or should have been
discovered, regardless of whether or when the injury is
discovered to be part of a pattern of racketeering.” Maiz v.
Virani, 253 F.3d 641, 676 (11th Cir. 2001).
However, RICO actions allow for the “separate accrual
rule.” Lehman, 727 F.3d at 1330-31. “The rule provides that
independent injury, the statute of limitations clock will
start over for the damages caused by the new act.” Id. at
1331. At the same time, however, the “plaintiff cannot use an
independent, new predicate act as a bootstrap to recover for
injuries caused by other earlier predicate acts that took
place outside the limitations period.” Id. By extension, when
an injury is a “continuation of [an] initial injury,” it “is
not new and independent.” Pilkington v. United Airlines, 112
F.3d 1532, 1537–38 (11th Cir. 1997).
According to Defendants, LHI’s RICO injuries arise from
the purchase of ERP software from Verticent in October of
2006. (Doc. # 27 at 14). Specifically:
The injuries alleged are direct financial losses
from the payment of additional sums of money,
losses resulting from business interruption and
other distinct losses because the computer software
never worked. Plaintiffs identify injuries to
Plaintiffs’ business throughout 2007, 2008, 2009
and 2010 caused from a litany of delays, missed
deadlines, broken promises, increased costs, and
business interruptions costing Plaintiffs nearly $1
* * *
Plaintiffs aver they first began to suspect that
they had been victimized in November 2012 [six
years later], when Verticent, still having failed
to deliver the ERP Software as promised, abruptly
(Id.)(internal citations omitted). Defendants argue that when
the ERP software was not up and running by October of 2007,
LHI should have known they were damaged as a matter of law.
(Id. at 15). Therefore, as LHI filed the present action on
August 1, 2014, Defendants submit that LHI’s claims are barred
by RICO’s four-year statute of limitations. (Id. at 14-15).
LHI alleges, however, that it did not have actual notice
of the RICO injury alleged until, at the earliest, 2012, when
Verticent declared bankruptcy and it became clear that LHI
would never receive functional ERP software. (Doc. # 41 at
20-23; Doc. # 1 at ¶ 105). To that end, LHI submits that it
could not have discovered the alleged RICO injury because,
prior to Verticent’s bankruptcy, the only information that it
could obtain was in the form of assurances by various ASA
employees that the ERP software would work after further
customization. (Doc. # 41 at 20).
The installation of new software systems is
routinely beset by unforeseen difficulties, and
uncommon. When LHI experienced those delays, it
reasonably thought that it might have suffered
delay damages due to Verticent’s breach of a
contract. Nonetheless, LHI reasonably expected
that, in exchange for the money it had paid
Verticent, it would receive consideration in the
form of working Software. Thus, LHI at that point
had no reason to think that it had been injured in
its business or property – the only type of injury
cognizable under RICO. To the contrary, LHI did not
know, or have reason to suspect, that it was not
going to get anything of value in exchange for its
payments until Verticent declared bankruptcy, an
act that pulled back the curtain on Defendants’
(Id. at 19). Thus, according to LHI, it did not know, and had
no basis to suspect, that Defendants had deprived it of
business or property until it became apparent that Verticent
had no ability to or intention of delivering the promised ERP
software, and therefore, the statute of limitations did not
accrue until then. (Id.).
demonstrate that LHI’s RICO claims are time barred. Rather,
such a determination – whether the statute of limitations has
run on LHI’s RICO claims - is better suited for the summary
judgment stage when this Court has the benefit of discovery
and considering matters outside the four corners of the
Complaint. Therefore, the Court denies Defendants’ Motion on
this ground. To that end, the Court declines to address
whether the statute of limitations has tolled or whether the
accrual rule is applicable under the circumstances.
G. Whether Verticent is an Indispensable Party
According to Defendants, the Complaint demonstrates that
Verticent is a central player in this litigation.
(Doc. # 27
at 22-23). As a result, Defendants submit that Verticent is
a necessary and indispensable party, pursuant to Fed. R. Civ.
P. 19. (Id.)(citing In re Apple iPhone 3G Prods. Liab. Litig.,
728 F. Supp. 2d 1065, 1076 (N.D. Cal. 2010)); Fed. R. Civ. P.
19. Therefore, Defendants seek dismissal of this action for
LHI’s failure to name Verticent as a Defendant.
tortfeasors, and joint tortfeasors cannot be indispensable
parties. (Doc. # 41 at 23); Temple v. Synthes Corp., Ltd.,
498 U.S. 5, 6 (1990)(finding that “it has long been the rule
that it is not necessary for all joint tortfeasors to be named
as defendants in a single lawsuit.”); Roof & Rack Prods.,
Inc. v. GYB Investors, No. 13-80575-CV, 2014 WL 3183278, at
*6 (S.D. Fla. July 8, 2014)(finding joint tortfeasors are not
indispensable parties); United States v. Janke, No. 09-14044CIV, 2009 WL 2525073, at *2 (S.D. Fla. Aug. 17, 2009)(same).
Fed. R. Civ. P. 19(a) provides as follows:
(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to
service of process and whose joinder will not
deprive the court of subject-matter jurisdiction
must be joined as a party if:
(A) in that person's absence, the court cannot
accord complete relief among existing parties;
(B) that person claims an interest relating to
the subject of the action and is so situated
that disposing of the action in the person's
(i) as a practical matter impair or
impede the person's ability to protect
the interest; or
(ii) leave an existing party subject to
a substantial risk of incurring double,
obligations because of the interest.
Fed. R. Civ. P. 19(a)(1)(A)-(B).
“Every circuit in the country that has addressed the
issue has concluded that the nature of both the civil and
several liability because all defendants participate in the
enterprise responsible for the RICO violations.” Allstate
Ins. Co. v. Palterovich, 653 F. Supp. 2d 1306, 1334 (S.D.
Fla. 2009)(citing United States v. Philip Morris USA, 316 F.
Supp. 2d 19, 27 (D.D.C. 2004) (collecting cases)); see Oki
Semiconductor Co. v. Wells Fargo Bank, 298 F.3d 768, 775 (9th
Cir. 2002)(“[h]olding RICO conspirators jointly and severally
liable for the acts of their co-conspirators reflects the
notion that the damage wrought by the conspiracy is not to be
judged by dismembering it and viewing its separate parts, but
only by looking at it as a whole”). To that end, given the
nature of joint and several liability, “it is not necessary
for all joint tortfeasors to be named as defendants in a
single lawsuit.” Temple, 498 U.S. at 7.
The Court notes that although “courts have held that
joint tortfeasors need not all be joined in one lawsuit,” as
set forth above, precedent in the Eleventh Circuit holds that
“a joint tortfeasor will be considered a necessary party when
the absent party ‘emerges as an active participant’ in the
allegations made in the complaint that are ‘critical to the
disposition of the important issues in the litigation.’”
Barbachano v. Standard Chartered Bank Int'l (Americas) Ltd.,
No. 10-22961-CIV, 2014 WL 29595, at *4 (S.D. Fla. Jan. 3,
2014)(quoting Laker Airways, Inc. v. British Airways, PLC,
182 F.3d 843, 847-48 (11th Cir. 1999)). At this time, the
Court finds that the emergence of Verticent as an active
participant, and thus a necessary party, has not occurred.
Verticent – are joint tortfeasors. Further, while Defendants
may have a defense to the claims raised by LHI based on
actions taken by Verticent, the Complaint on its face does
not allege that Verticent was anything more than a routine
joint tortfeasors, which would not require Verticent to be
named as a party to this action.
In addition, Defendants have failed to provide binding
authority illustrating why, under the present circumstances,
Instead, Defendants make general arguments in an attempt to
Defendants request that this Court find Verticent to be an
indispensable and necessary party to this action, the Court
declines to do so at this time.
The Court notes, however, that this case is in its
infancy and discovery is ongoing. Thus, after the facts have
been developed and the legal issues have been narrowed,
Defendants may reassert their “indispensable party argument”
by way of an appropriate motion. The motion should contain
binding authority and a sufficient factual basis illustrating
why Verticent should be considered an indispensable party to
information at this time, and the face of the Complaint does
not provide that Verticent is anything other than a routine
joint tortfeasors, this Court denies Defendants’ Motion.
H. Subject Matter Jurisdiction Over State Law Claims
As Defendants’ Motion is denied, this Court continues to
have subject matter jurisdiction over this action pursuant to
28 U.S.C. § 1331. Therefore, the Court declines to dismiss
LHI’s state law claims on the basis of lack of subject matter
jurisdiction, as requested by Defendants.
Accordingly, it is hereby
ORDERED, ADJUDGED, and DECREED:
(Doc. # 27) is DENIED.
Defendants have until and including November 13, 2014,
to file their Answer to Plaintiffs’ Complaint.
DONE and ORDERED in Chambers in Tampa, Florida, this
30th day of October, 2014.
Copies: All Counsel of Record
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