Northwest Osteoscreening, Inc. et al v. Mountain View Hospital, LLC et al

Filing 39

MEMORANDUM DECISION AND ORDER granting 31 Motion to Dismiss Amended Complaint. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF IDAHO

NORTHWEST OSTEOSCREENING,
INC., an Idaho corporation, directly and
derivatively in its capacity as a member of
IDAHO HEALTH SCREENINGS AND
VACCINATIONS, LLC, an Idaho limited
liability company, PREVENTATIVE
HEALTH, LLC, an Idaho limited liability
company, and DANIELLE BENNION,
Plaintiffs,
v.
MOUNTAIN VIEW HOSPTIAL, LLC, a
Delaware limited liability company,
BENJAMIN WOOD, JAMES
ADAMSON, JOSH TOLMAN,
SIASCONSET, LLC, an Oregon limited
liability company, PREVENTATIVE
HEALTH, LLC, a Delaware limited
liability company, WELLNESS
SCREENINGS, LLC, an Idaho limited
liability company, and DOE ENTITIES I –
X,
Defendants.

MEMORANDUM DECISION AND ORDER - 1

Case No. 4:13-cv-00414-BLW
MEMORANDUM DECISION AND
ORDER

INTRODUCTION
Plaintiffs brought suit against Defendants under the federal Racketeer Influenced
and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968, and various Idaho
laws. Underlying the RICO claims are Plaintiffs’ allegations that Defendants committed
extortion and wire fraud in order to assume Plaintiffs’ interests in a preventative health
screening company, Idaho Health Screenings and Vaccinations, LLC (“IHSV”).
Defendants move to dismiss Plaintiffs RICO claims for failure to state a claim, and
to dismiss the pendant state law claims without prejudice. See 28 U.S.C. § 1367(c)(3);
Fed. R. Civ. P. 12(b)(6). Because Plaintiffs have failed to plead facts establishing an
essential element of their substantive RICO claim—a “pattern of racketeering activity”—
the Court will grant Defendants’ motion to dismiss.
BACKGROUND
Since about 2001, Plaintiff Danielle Bennion has owned and operated Plaintiff
Northwest Osteoscreenings, Inc. (“Northwest Osteo”) to offer health screening services,
such as blood pressure checks and body mass index calculations, and vaccinations to
businesses and government entities in Idaho.1 Because it was not a “credentialed
provider” within the meaning of Idaho insurance regulations and most insurance policies,
Northwest Osteo could not bill its patients’ insurance providers for the services it
performed. Instead, Northwest Osteo billed patients or their employers directly.

1

The facts are taken from plaintiffs’ first amended complaint and the documents on which
the complaint relies. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). The facts are
accepted as true for the purposes of this motion to dismiss. Id. at 1072.
MEMORANDUM DECISION AND ORDER - 2

In January 2011, Bennion joined Defendant Mountain View Hospital, LLC
(“MVH”) as its director of government affairs. In this capacity, Bennion developed a
professional relationship with Defendant James Adamson, the CEO of MVH. Around the
same time, a provision of the Affordable Care Act eliminated deductibles, co-insurance,
and co-payments from new and existing health insurance plans for many preventative
health care services. See 42 U.S.C. § 300gg-13(a).
Bennion viewed this change as a business opportunity. She approached Adamson
and proposed a collaboration between Northwest Osteo and MVH. Under her plan,
Northwest Osteo would perform on-site preventative health services, and MVH, as a
“credentialed provider,” would bill the patients’ insurance providers for the services. The
two corporations would split the insurance revenue. Adamson was intrigued by
Bennion’s proposal.
Together with Defendant Benjamin Wood, an attorney with whom Adamson had a
relationship, and Defendant Josh Tolman, MVH’s then vice president, Adamson and
Bennion moved forward with the proposal. Defendants represented to Bennion that
MVH had the staff and expertise necessary to correctly and expediently bill for health
screening services and vaccinations. However, to ensure a timely distribution of revenue,
Adamson insisted that a new corporation be formed. Adamson assured Bennion that
Wood would handle the task because he was licensed in Idaho. On March 28, 2011,
Wood formed IHSV for that purpose.

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Ownership of IHSV was split. Bennion, through Northwest Osteo, owned a fiftypercent interest in IHSV. Wood, Tolman, and—unbeknownst to Bennion—Adamson
owned the remaining fifty-percent interest through a series of corporate members, the last
of which was Defendant Siasconset. IHSV’s operating agreement named Bennion and
Wood as managers. Dkt. 16, ex. 2. For her work as manager, Bennion was to be paid
$150.00 an hour.
On May 1, 2011, IHSV and MVH entered into an exclusive contract in accordance
with Bennion’s proposal. Under the contract, IHSV would receive seventy percent of the
insurance revenue, and MVH would retain the remaining thirty percent. In the months
that followed, IHSV prospered. It grew a large client base and generated a significant
stream of revenue.
When they learned exactly how much revenue IHSV had been generating,
Adamson, Wood, and Tolman decided to oust Bennion from IHSV. On August 10, 2011,
Wood flew to Boise to meet with Bennion. Because MVH had not paid IHSV the
revenue it was owed under the contract, IHSV needed a cash infusion from its members.
Wood informed Bennion that Adamson had offered to cover Northwest Osteo’s half of
the contribution ($15,000) in exchange for an ownership interest in IHSV. Bennion
declined the offer.
The following month, Wood sent a “management agreement” to Bennion. Under
the agreement, Bennion would be removed as manager of IHSV and replaced by
personnel from a management corporation controlled by Adamson, Wood, and Tolman.

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Initially, Bennion refused to sign the agreement. Bennion’s refusal prompted from
Adamson a profanity-laced tirade, during which Adamson threatened to fire Bennion
from her position as director of government affairs for MVH, terminate the contract
between IHSV and MVH, and destroy Bennion’s professional reputation unless she
signed the management agreement. Additionally, Adamson accused Bennion of misusing
MVH funds for personal purposes, which Bennion later disproved. Feeling scared and
trapped, Bennion submitted to Adamson’s demands and resigned her position as comanager of IHSV on September 26, 2011.
Following Bennion’s resignation, Woods offered to purchase eighty-five percent
of Northwest Osteo’s ownership interest in IHSV. Bennion again refused.
Presumably because they could not buy out Bennion’s interest in IHSV,
defendants began an alternate plan of action. On November 17, 2011, Wood created a
Delaware limited liability corporation called Preventative Health, LLC2 to replace IHSV
as MVH’s partner offering health screening services and vaccinations in Idaho.
Preventative Health operated with the benefit of IHSV’s misappropriated business model,
client base, and trade secrets. Additionally, Preventative Health recruited several IHSV
employees, who were promised they would “continue working with [the] current Team . .
. in place under [IHSV].” First Am. Compl., dkt. 28, ¶ 43. In February 2012, Wood
created Wellness Screenings, LLC, whose membership is comprised of Preventative
2

Three days before Wood formed Preventative Health, LLC, in Delaware, Bennion formed
three Idaho limited liability corporations. One of these corporations is also named Preventative
Health, LLC. Unless otherwise noted, the Court uses Preventative Health to refer to the
Delaware LLC formed by Wood.
MEMORANDUM DECISION AND ORDER - 5

Health. Since that time, Wellness Screenings took over for Preventative Health as
MVH’s partner offering preventative health services in Idaho.
Furthermore, MVH withheld the insurance proceeds owed to IHSV under the May
2011 contract. Although MVH paid $84,268.00 to IHSV, Bennion estimates that MVH
is still owed hundreds of thousands of dollars for services that IHSV had performed.
IHSV is currently unable to provide a more precise figure because MVH has with not
provided IHSV with accurate billing records.
In their amended complaint, Plaintiffs allege that Defendants’ actions violated
RICO and various Idaho laws. Currently, Defendants challenge the sufficiency of
Plaintiffs’ RICO claims under Federal Rule of Civil Procedure 12(b)(6) and move to
dismiss the remaining state causes of action without prejudice.
LEGAL STANDARD
Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement
of the claim showing that the pleader is entitled to relief” in order to “give the defendant
fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964 (2007). While a complaint
attacked by a Rule 12(b)(6) motion to dismiss “does not need detailed factual
allegations,” it must set forth “more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Id. at 555. 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.” Id. at 570. A claim has facial

MEMORANDUM DECISION AND ORDER - 6

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. Id. at 556.
The plausibility standard is not akin to a “probability requirement,” but it asks for more
than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint
pleads facts that are “merely consistent with” a defendant's liability, it “stops short of the
line between possibility and plausibility of ‘entitlement to relief.’” Id. at 557.
The Supreme Court identified two “working principles” that underlie Twombly in
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, the court need not accept as true, legal
conclusions that are couched as factual allegations. Id. Rule 8 does not “unlock the
doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 67879. Second, to survive a motion to dismiss, a complaint must state a plausible claim for
relief. Id. at 679. “Determining whether a complaint states a plausible claim for relief
will . . . be a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id.
DISCUSSION
To establish civil liability under RICO, Plaintiffs must allege facts that show
Defendants violated a provision of 18 U.S.C. § 1962. 18 U.S.C. § 1964(c); Turner, M.D.,
v. Cook, 362 F.3d 1219, 1228 (9th Cir. 2004). The relevant provisions at issue here are §
1962(c), which prohibits the “(1) conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity,” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985), and
§ 1962(d), which prohibits conspiracy to violate § 1962’s substantive provisions.

MEMORANDUM DECISION AND ORDER - 7

1.

§ 1962(c)
RICO defines “racketeering activity” to mean “‘any act or threat involving’

specified state-law crimes, and any ‘act’ indictable under various specified federal
statutes, and certain federal offenses.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 232
(1989) (quoting 18 U.S.C. § 1961(1)). The specified statutes and offenses include
extortion and wire fraud. § 1961(1). Plaintiffs allege that the tactics Adamson employed
to force Bennion from her management position in IHSV constituted extortion. Plaintiffs
further allege that Defendants committed wire fraud when they made multiple fraudulent
representations to “drive out . . . Bennion as part owner of [IHSV] and seize control of
the substantial profits” IHSV was generating. Pls.’ Opp’n Memo., dkt. 20, at 2.
Specifically, Plaintiffs allege that Defendants misrepresented that:
 Adamson was not an owner of IHSV’s corporate members;
 MVH possessed the knowledge, expertise, and staff to bill preventative
healthcare screenings in accordance with the ACA;
 IHSV would be promptly compensated for its work;
 IHSV would receive monthly billing statements from MVH;
 IHSV corporate books would be kept in Boise, Idaho, and not Portland,
Oregon;
 two employees that IHSV hired at Adamson’s urging would be neutral, loyal
employees to IHSV, when they were actually loyal to Adamson;

MEMORANDUM DECISION AND ORDER - 8

 one of these employees would enter into a noncompete agreement with IHSV;
and


Bennion would be compensated for her work as manager of IHSV. See First
Am. Compl., dkt 28, ¶76.

Defendants attack Plaintiffs’ § 1962(c) claim on several grounds, arguing that the
alleged misrepresentations and extortion do not amount to crimes and, therefore, are not
racketeering activity; that the misrepresentations did not cause Plaintiffs’ injuries; and
that the predicate acts of racketeering activity do not constitute a pattern. The Court
agrees with Defendants’ final contention.
To establish a pattern of racketeering activity, RICO requires “at least two acts of
racketeering activity” occurring within ten years of each other. 18 U.S.C. § 1961(5).
However, in Sedima, the Court explained that this is a minimum requirement, and in most
cases proof of more than two acts is required. 473 U.S. at 497 n.14. A pattern emerges,
the Court went on, when there is a relationship between the predicate acts and continuity.
Id. In H.J. Inc. v. Nw. Bell Tel. Co., the Court clarified that such a relationship exists if
the predicates “have the same or similar purposes, results, participants, victims, or
methods of commission, or otherwise are interrelated by distinguishing characteristics
and are not isolated events.’” 492 U.S. at 240 (quoting 18 U.S.C. § 3575(e)).
“‘Continuity’ is both a closed- and open-ended concept.” Id. at 241. “To satisfy the
continuity requirement, Plaintiffs must prove either ‘a series of related predicates
extending over a substantial period of time, i.e., closed-ended continuity, or ‘past conduct

MEMORANDUM DECISION AND ORDER - 9

that by its nature projects into the future with a threat of repetition, i.e., open-ended
continuity,’” Howard v. Am. Online Inc., 208 F.3d 741, 750 (9th Cir. 2000) (quoting H.J.,
492 U.S. at 241, 242) (brackets & internal citations omitted). Determining whether a
series of events constitutes a RICO pattern is not a formulaic endeavor. Rather, Congress
meant for courts to take a “natural and commonsense approach.” H.J., 492 U.S. at 237.
Defendants do not challenge the relatedness of Plaintiffs’ allegations. Rather they
argue that Plaintiffs have failed to allege facts establishing the continuity prong of a
RICO pattern. As to close-ended continuity, Defendants argue that the outermost
timeframe in which acts occurred is March 2011, when Bennion first approached
Adamson, to February 2012, when Wellness Screenings became MVH’s partner in Idaho.
They further argue that a more reasonable time starting point is August 2011, because
that is when Plaintiffs allege that relationship between IHSV and Bennion, on the one
hand, and MVH and Adamson, on the other, began to deteriorate. Plaintiffs’ argument in
its entirety is that an eleven-month timeframe—March 2011 to February 2012—
establishes close-ended continuity. The Court concludes that the Defendants have the
correct argument
Close-ended continuity requires Plaintiffs to establish that Defendants conduct
persisted over a “substantial period.” Id. at 242. While conduct spanning a year is
generally sufficient, see Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1528 (9th Cir. 1995), that
is not always the case, see, e.g., Efron v. Embassy Suites (P.R.), Inc., 223 F.3d 12, 19 (1st
Cir. 2000) (concluding that 21 fraudulent mailings, sent over 21 month period, aimed at

MEMORANDUM DECISION AND ORDER - 10

squeezing the plaintiffs out of their partnership interest did not establish close-ended
continuity). The Court must look to all the relevant facts to determine if Plaintiffs allege
the long-term criminal activity that Congress intended RICO to target.
According to the complaint, Defendants “began their attempts to force Bennion
out” after they learned how much money IHSV was generating, in August 2011. Am.
Compl., dkt. 28, ¶ 31. Before that time, the complaint describes innocent events, such as
Bennion approaching Adamson with her business plan and the formation of IHSV.
While these acts set the stage for Defendants’ alleged crimes, Plaintiffs do not allege that
Defendants intended to defraud Plaintiffs between March and August 2011. To the
contrary, Plaintiffs’ arguments in opposition suggest that the relevant time frame may
have started even after August. The events that Plaintiffs argue establish Defendants
intent to deceive and causation occurred in the fall of 2011, while Defendants were
creating Preventative Health. See Pls.’ Oppo. Mem., dkt 33, at 4-5. Although Plaintiffs
are entitled to all reasonable, favorable inferences at this stage in the proceedings, the
Court is not required to accept a longer timeframe than the complaint supports. See
Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (“[T]he court [is
not] required to accept as true allegations that are merely conclusory, unwarranted
deductions of fact, or unreasonable inferences.”).
Properly read, the complaint shows that August 2011 to February 2012 is the
relevant timeframe. Approximately seven months is generally considered too short a
period to establish close-ended continuity. See H.J., 492 U.S. at 242 (“Predicate acts

MEMORANDUM DECISION AND ORDER - 11

extending over a few weeks or months and threatening no future criminal conduct do not
satisfy” close-ended continuity); Howard, 208 F.3d at 750 (same); Religious Tech. Ctr. v.
Wollersheim, 971 F.2d 364, 366-67 (9th Cir. 1992) (“We have found no case in which a
court has held the requirement to be satisfied by a pattern of activity lasting less than a
year.”).
Although continuity is “centrally a temporal concept,” H.J., 492 U.S. at 242,
duration is not the only factor that suggests Plaintiffs’ allegations fall short in this case.
In addition, Defendants’ aim was limited in scope—seizing control of IHSV’s profits.
Defendants accomplished that goal when Preventative Health, through the
misappropriated of IHSV’s trade secrets, replaced IHSV as MVH’s partner in Idaho.
“[T]he finite nature of the racketeering activities alleged here, together with their
occurrence over a relatively modest period of time, cannot . . . support a . . . finding of a
RICO pattern under the ‘closed’ continuity approach.” Efron, 223 F.3d at 19; see also id.
(concluding that 21 fraudulent mailings, sent over 21 month period, aimed at squeezing
the plaintiffs out of their partnership interest did not establish close-ended continuity);
Turner, 362 F.3d at 1229 (“[A]n alleged series of related predicates not extending over a
substantial period of time and not threatening . . . future criminal conduct fails to charge
closed-ended continuity.”) (internal quotation marks omitted); Religious Tech. Ctr., 833
F.2d at 366 (“Since the only goal of the Greene defendants was the successful
prosecution of the Wollersheim state tort suit, there was no threat of activity continuing
beyond the conclusion of that suit.”); Medallion Television Enters. v. SelecTV of Cal.,

MEMORANDUM DECISION AND ORDER - 12

Inc., 833 F.2d 1360, 1363-64 (9th Cir. 1988) (threat of continuing criminal activity was
absent in a single scheme to obtain broadcast rights).
Plaintiffs dispute that Defendants predicate acts ended when Preventative Health
misappropriated IHSV’s trade secrets. Instead, they argue that Defendants subsequent
use of IHSV’s trade secrets created ongoing economic injury, thereby establishing openended continuity. In support of their argument, Plaintiffs rely on General Motors Corp.
v. Ingacio Lopex De Arriortua, 948 F. Supp. 670 (E.D. Mich. 1996). There, the District
Court for the Eastern District of Michigan held that each unlawful use of the plaintiffs’
misappropriated trade secrets constituted a new predicate act under RICO. Id. at 679.
The Eastern District reasoned that “the thief who steals a trade secret victimizes the
owner every time the trade secret is used because the owner suffers a new loss with each
use of the secret.” Id.
The Court respectfully disagrees with the approach taken by the Eastern District.
First, it runs counter to the way the vast majority of jurisdictions treat the continuous
unlawful use of a trade secret. Forty-seven states and the District of Columbia follow the
Uniform Trade Secrets Act. 3 Under that act, “a continuing misappropriation constitutes a
single claim,” Uniform Trade Secrets Act § 6 (1985), with only the “potential [for]
damages encompassed by a continuing misappropriation claim . . . expand[ing] with
each illicit use or disclosure of the trade secret,” Cadence Design Systems, Inc. v. Avant!
Corp., 57 P.3d 647, 654 (Cal. 2002); see also Monolith Portland Midwest Co. v. Kaiser
3

See Legislative Fact Sheet - Trade Secrets Act, Uniform Law Commission, available at
http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trade%20Secrets%20Act.
MEMORANDUM DECISION AND ORDER - 13

Aluminum & Chemical Corp., 407 F.2d 288, 293 (9th Cir. 1969) (“The fabric of the
relationship [protected by the tort] once rent is not torn anew with each added use or
disclosure, although the damage suffered may thereby be aggravated.”). But see
Underwater Storage, Inc. v. U.S. Rubber Co., 371 F.2d 950, 955 (D.C. Cir. 1966) (“It is
the continuing use of another's secret, wrongfully obtained, or used after knowledge that
it has been wrongfully obtained, that makes the tort a continuing one.”).
Second, the Court agrees with the District Court for the Middle District of
Pennsylvania that “using trade secrets is quite different from the initial act of

stealing them.” Binary Semantic Ltd. v. Minitab, Inc., No. 4:07-CV-1750, 2008 WL
763575, at *4 (M.D. Pa. March 20, 2008). The harm may continue, but the theft or

fraud ceases once the trade secret is obtained. RICO is concerned with the
repetition of criminal acts, not “provid[ing] a federal cause of action and treble
damages to every tort plaintiff.” Oscar v. Univ. Students Coop. Assn., 965 F.2d 783, 786
(9th Cir.1992) (en banc) abrogated on other grounds by Diaz v. Gates, 420 F.3d 897 (9th
Cir.2005) (per curiam) (en banc); see also Binary Semantic, 2008 WL 763575, at *4
(“[T]he theft of trade secrets necessarily implies that they will be used. Therefore, under
plaintiff's theory, every misappropriation of trade secrets could result in a RICO claim.
This would surely expand the scope of the statute beyond what it was intended to
reach.”). For these reasons, the Court concludes that Plaintiffs have failed to plead a
pattern of racketeering activity.
2.

§ 1962(d)

MEMORANDUM DECISION AND ORDER - 14

To state a claim for RICO conspiracy, Plaintiffs must allege facts “which, if
completed, would satisfy all of the elements of a substantive [RICO] offense.” Salinas v.
United States, 522 U.S. 52, 65 (1997). Because Plaintiffs allegations do not make out a
violation of § 1962(c), their conspiracy claim fails as well. See Howard, 208 F.3d at 751
(affirming the dismissal of the plaintiffs’ RICO conspiracy claim after they failed to
allege a pattern of RICO activity under § 1962(c)); Religious Tech. Ctr., 971 F.2d at 367
n.8 (same).
CONCLUSION
The Court concludes that the alleged fraud and extortion Defendants employed to
oust Bennion and replace IHSV do not establish a pattern of racketeering activity. As a
result, Plaintiffs RICO claims will be dismissed with prejudice. Plaintiffs do not argue
that they could amend their complaint again to plead additional predicate acts. Nor do
Plaintiffs ask the Court to retain jurisdiction over their remaining state law claims.
Therefore, the Court will dismiss those claims without prejudice.
ORDER
IT IS ORDERED THAT:
1.

Defendants Motion to Dismiss (dkt. 31) is GRANTED.

MEMORANDUM DECISION AND ORDER - 15

DATED: October 2, 2014

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

MEMORANDUM DECISION AND ORDER - 16