Armada (Singapore) PTE Limited v. Amcol International Corp. et al
Filing
49
Enter MEMORANDUM Opinion and Order Signed by the Honorable Elaine E. Bucklo on 10/25/2013. Mailed notice (jdh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ARMADA (SINGAPORE) PTE
LIMITED,
Plaintiff,
v.
AMCOL INTERNATIONAL
CORPORATION ET AL.
)
)
)
)
)
)
)
)
)
No. 13 C 3455
Defendants.
MEMORANDUM OPINION AND ORDER
Armada (Singapore) Pte. Ltd. (“Armada”), a shipping company,
has filed a nine count complaint against multiple defendants
alleging violations of the Illinois Uniform Fraudulent Transfer
Act, 740 ILCS §§ 160/1 et seq. (Counts I, II, and V); wrongful
payment of dividends and assumption of debt (Count III and IV);
and violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. §§ 1961 et seq. (Counts VIIX).
AMCOL International Corporation (“AMCOL”) and two of its
subsidiaries, American Colloid Company (“ACC”) and Volclay
International Corporation (“Volclay”)--collectively, the “AMCOL
Defendants”--have moved to dismiss Armada’s complaint on multiple
1
grounds.1
The motions are granted in part for the reasons stated
below.
I.
Accepting all well-pled allegations as true and drawing all
reasonable inferences in Armada’s favor, the following story
emerges from the complaint.
Armada and Ashapura Minechem, Ltd.
(“Ashapura), an Indian mining company, signed two shipping
contracts--known as “contracts of affreigtment”--in April 2008.
Complaint at ¶ 14.
Under these contracts, Ashapura agreed to
provide cargo loads of bauxite, which Armada would ship from
India to various foreign ports.
Ashapura provided cargo for an
early voyage, but breached the contracts by failing to pay for
this voyage or provide any further cargoes.
Id. at ¶¶ 15-16.
Armada contends that Ashapura’s breach of the contracts was
foreseeable (and possibly inevitable) as early as July 2008 when
Ashapura submitted an untimely application for a necessary
license from provincial authorities in Gujarat, India.
Ex. C.
Id. at
Ashapura formally repudiated the two contracts around
September 30, 2008.
Id. at ¶ 17.
On November 4, 2008, Armada appointed an arbitrator in
London to resolve disputes under the two shipping contracts.
1
Id.
The three AMCOL Defendants filed separate motions to dismiss,
but adopted and incorporated each other’s arguments in their
respective motions. Accordingly, I will consider each ground for
dismissal to be asserted by the AMCOL Defendants collectively.
2
at Exs. B and C.
The arbitrator warned Ashapura on September 29,
2008, that failing to raise a defense may result in a “draconian
penalty.”
Id. at Ex. B, 4.
Ashapura did not heed this warning
and defaulted in the arbitration proceedings.
The arbitrator
awarded approximately $70 million to Armada on February 16, 2010.
Id. at ¶ 20.
Two other shipping companies obtained default
arbitration awards against Ashapura for $36 and $24 million,
respectively.
Id. at Ex. G, ¶ 9.
Armada registered its arbitration award as an enforceable
judgment in this court, see Armada v. Ashapura, No. 12 C 8518
(N.D. Ill.), but has collected only a small fraction of the
amount owed.
The present lawsuit alleges that the AMCOL
Defendants engaged in an unlawful scheme to frustrate Armada’s
collection of its $70 million judgment against Ashapura.
As soon
as Ashapura’s liability under the shipping contracts was
foreseeable, Armada alleges that the AMCOL Defendants launched a
scheme to “return capital to [Ashapura’s] shareholders, many of
whom, including the AMCOL Defendants, were affiliates and
insiders of Ashapura, in order to frustrate creditors,” including
Armada.
Id. at ¶¶ 32-33.
The AMCOL Defendants, through the appointment of their
senior executives to Ashapura’s board of directors,2 allegedly
2
One of AMCOL’s subsidiaries, Volclay, held around twenty
percent of Ashapura’s stock during all times relevant to this
lawsuit. Complaint at ¶ 11. This stock ownership allegedly
3
conducted or participated in the following fraudulent
transactions:
1. Ashapura’s payment of a $2.75 million dividend to
shareholders in October 2008 even though Ashapura
faced significant exposure on the breached shipping
contracts;
2. Ashapura’s buy back of its own stock from an AMCOL
subsidiary for about $820,000 in December 2009,
shortly before the stock price dropped;
3. the AMCOL Defendants’ unsuccessful attempt to avoid
garnishment of excess proceeds from the December
2009 stock buy back, see Armada (Singapore) Pte.
Ltd. v. Ashapura Minechem Ltd., 837 F.Supp.2d 880
(N.D. Ill. 2011) (“maritime attachment proceeding”);
4. Ashapura’s filing of a Chapter 15 bankruptcy
petition as a means of staying creditor actions, see
11 U.S.C. § 1520(a)(1), shortly after Armada
successfully garnished excess proceeds from the
December 2009 stock buy back;
5. Ashapura’s purchase of the AMCOL Defendants’ share
in a European joint venture for $2.1 million in 2011
even though the venture recorded multi-million
dollar losses in the previous year;
6. Ashapura’s assumption of a subsidiary’s debt in 2012
and ongoing refusal to schedule its debts to Armada
for payment in an insolvency proceeding pending in
India; and
7. Ashapura’s transfer of its mining business to an
Indian joint venture with the AMCOL Defendants and
ongoing payment of “backdoor dividends” to the AMCOL
Defendants through this business.
Complaint at ¶¶ 36-58.
allowed the AMCOL Defendants to appoint their senior executives,
the John Doe Defendants, to Ashapura’s board of directors and to
exercise control over Ashapura through them. Id. at ¶ 12-13.
4
II.
As a preliminary matter, the AMCOL Defendants contend that
Armada’s present claims are barred by the doctrine of res
judicata because they were, or could have been, litigated during
the maritime attachment proceeding.
This argument fails because
the parties to the maritime attachment proceeding and this
lawsuit are not identical or in privity with one another.
The doctrine of res judicata or claim preclusion “bar[s] a
second suit in federal court when there exists: (1) an identity
of the causes of actions; (2) an identity of the parties or their
privies; and (3) a final judgment on the merits.”
Runyon, 90 F.3d 195, 197 (7th Cir. 1996).
Kratville v.
The AMCOL Defendants
concede that they were neither parties to the maritime attachment
proceeding, nor in privity with Ashapura.
The only case they
cite to support their res judicata argument, Michelson v. Schor,
No. 95 C 6573, 1997 WL 282949 (N.D. Ill. May 16, 1997), is
inapposite.
In Michelson, the plaintiffs conceded that the
parties in their first and second lawsuits were identical.
at *2.
Id.
The only dispute was whether there were identical causes
of action.
Id. at *3-4.
Nothing in Michelson supports the
conclusion that Armada is barred from litigating its present
claims because it could have raised these claims in the maritime
attachment proceeding against Ashapura.
5
III.
The AMCOL Defendants’ remaining arguments attack the legal
sufficiency of Armada’s claims under Rule 12(b)(6) of the Federal
Rules of Civil Procedure.
A pleading must contain “a short and plain statement of
[each] claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2).
This short and plain statement must
contain “enough facts to state a claim [for] relief that is
plausible on its face.”
544, 570 (2007).
Bell Atlantic Corp. v. Twombly, 550 U.S.
Claims that “sound in fraud”--i.e., claims
“premised upon a course of fraudulent conduct”--must be pled with
particularity.
Borsellino v. Goldman Sachs Group, Inc., 477 F.3d
502, 507 (7th Cir. 2007).
All of Armada’s claims are therefore
subject to Rule 9(b)’s heightened pleading requirement.
See
Goren v. New Vision Intern, Inc., 156 F.3d 721, 726 (7th Cir.
1998) (“Rule 9(b) is of course applicable to allegations of fraud
in a civil RICO complaint.”); Gen. Elec. Capital Corp. v. Lease
Resolution Corp., 128 F.3d 1074, 1078-79 (7th Cir. 1997)
(applying Rule 9(b) to claims under Illinois Uniform Fraudulent
Transfer Act).
Note, however, that “Rule 9(b) is satisfied by a
showing that further particulars of the alleged fraud could not
have been obtained without discovery.”
Emery v. Am. Gen.
Finance, Inc., 134 F.3d 1321, 1323 (7th Cir. 1996).
6
A.
The AMCOL Defendants seek dismissal of Armada’s claims on
the ground that Armada fails to differentiate among the three
AMCOL Defendants in violation of Rule 9(b)’s particularity
requirement for averments of fraud.
See DiLeo v. Ernst & Young,
901 F.2d 624, 627 (7th Cir. 1990) (holding that “particularity”
under Rule 9(b) “means the who, what, when, where, and how: the
first paragraph of any newspaper story.”).
Armada counters that AMCOL, Volclay, and ACC appointed their
senior executives, the John Doe Defendants, to Ashapura’s board
of directors and exercised control over Ashapura through them.
Id. at ¶¶ 12-13.
This allegation ties the AMCOL Defendants,
individually and collectively, to Ashapura’s alleged attempts to
hide its assets from creditors.
See Emery, 134 F.3d at 1325 (“If
the scheme is actually hatched or directed by the board of
directors or some other controlling group, whether the control is
de facto or de jure, it will come close enough to the
paradigmatic RICO case to pass muster[.]”).
Armada also alleges
that the AMCOL Defendants and Ashapura participated in two joint
ventures through which Ashapura further attempted to hide its
assets from creditors.
Id. at ¶¶ 55-58.
Armada’s complaint is a far cry from an unsupported
“contention that ‘the defendants looted the corporation’--without
any details about who did what[.]”
7
Bank of America, N.A. v.
Knight, 725 F.3d 815, 818 (7th Cir. 2013).
Aramada’s
allegations, taken together, adequately assert “who, what, when,
where, and how” the AMCOL Defendants participated in a scheme to
shield Ashapura’s assets from creditors.
DiLeo, 901 F.2d at 627.
In any event, “[r]ule 9(b) does not require plaintiffs to plead
facts to which they lack access prior to discovery,” Katz v.
Household Interns, Inc., 91 F.3d 1036, 1040 (7th Cir. 1996)..
See also Emery, 134 F.3d at 1323 (noting that Rule 9(b) should
not be construed “to create a Catch-22 situation in which a
complaint is dismissed because of the plaintiff's inability to
obtain essential information without pretrial discovery...that
she could not conduct before filing the complaint”). I conclude
that Armada’s allegations have satisfied Rule 9(b)’s
particularity requirements.
B.
Turning next to the AMCOL Defendants’ attacks on the legal
sufficiency of Armada’s state law, I conclude that Counts I-V
satisfy the federal pleading standards.
Count I alleges that the October 2008 dividend payment and
December 2009 stock buy back were fraudulent as to Armada under
Section 6(a) of the Illinois Uniform Fraudulent Transfer Act
(“IUFTA”), 740 ILCS §§ 160/6(a).
“[A] transfer is fraudulent as
to a creditor [under Section 6(a)] if: (1) the creditor's claim
arose before the transfer; (2) the debtor made the transfer
8
without receiving a reasonably equivalent value in exchange for
the transferred property; and (3) the debtor was either insolvent
at the time of the transfer or became insolvent as a result of
the transfer.”
Heartland Bank and Trust Co. v. Goers, No. 3-12-
0854, 2013 WL 5593521, at *5 (Ill. App. Ct. 2013) (citing 740
ILCS § 160/6(a)).
Here, Armada alleges that it had multiple “claims” against
Ashapura before the October 2008 dividend payment and December
2009 stock buy back.3
Complaint at ¶ 15.
Second, the
arbitrator’s warning of a “draconian penalty” against Ashapura in
September 2009 makes it plausible that Ashapura paid more than
“reasonably equivalent value” in the December 2009 stock buy back
in an effort to shield assets from creditors.
Id. at ¶¶ 46-48.
It is also plausible that Ashapura was “insolvent” in October
2008 and December 2009 based on Armada’s allegations that (1) the
AMCOL Defendants valued their investment in Ashapura at zero for
accounting purposes as of December 31, 2008 and (2) Ashapura
commenced insolvency proceedings in India in May 2011 citing,
inter alia, unpaid debts to shipping companies (including Armada)
incurred in 2008.
Id. at ¶¶ 28, 48.
3
A debtor is presumed
The AMCOL Defendants’ suggestion that Armada did not have a
claim until arbitration proceedings commenced is unavailing. See
740 ILCS 160/2(c) (defining “claim” as “a right to payment,
whether or not the right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured”).
9
“insolvent” under the IUFTA when it stops paying debts as they
come due, 740 ILCS § 160/3(b), so Armada need not plead
particularized facts showing that Ashapura’s debts exceeded its
assets.
In sum, the allegations set forth in Count I are
sufficiently particularized to state a plausible claim of
constructive fraud under Section 6(a) of the IUFTA.
Count II also states a plausible claim that the October 2008
dividend payment and December 2009 stock buy back were fraudulent
as to Armada under the “actual fraud” provision of the IUFTA.4
Section 5(a) deems fraudulent a transfer where the debtor acted
with “actual intent to hinder, delay, or defraud any creditor.”
740 ILCS § 160/5(a)(1).
Armada has alleged several “badges of
fraud” supporting a plausible claim of actual intent to defraud.
Id. at § 160/5(b) (setting forth indicia of actual fraud).
With respect to the October 2008 dividend payment, Armada
alleges that three badges of fraud support an inference of
fraudulent intent: Ashapura made the transfer (1) to an “insider”
(2) when it was “insolvent” and (3) legal action was imminent.
See 740 ILCS §§ 160/5(b)(1), (4), (9).
These allegations are
sufficient to state a plausible claim of actual fraud.
4
Armada’s
The AMCOL Defendants attack Armada’s constructive fraud claim
in Count II on the gound that Armada has failed to plead facts
concerning Ashapura’s financial condition at the time of the
allegedly fraudulent transfers. See Dkt. No. 23 at 12-13. I
rejected this argument as to Count I and need not revisit it as
to Count II.
10
inability to plead which AMCOL entity received the dividend
payment does not render the allegation of an “insider” transfer
deficient.
See id. at § 160/2(g) (defining “insider” of a
corporate debtor to include a “director” or “person in control”
of the debtor).
Second, I have already determined that Armada’s
complaint contains particularized and plausible allegations
concerning Ashapura’s insolvency in October 2008.
It is also
plausible that Ashapura knew or should have known that Armada
would commence legal action after Ashapura repudiated two multimillion dollar shipping contracts on September 30, 2008.
Three
badges of fraud are sufficient to state a plausible claim.
With respect to the December 2009 stock buy back, Armada
alleges one additional badge of fraud: that the transfer was
“concealed and opaque” as evidenced by the AMCOL Defendants’
false characterization of the deal during the maritime attachment
proceeding.
Armada’s contention that the AMCOL Defendants sought
to conceal the true nature of the stock buy back during previous
litigation is at least plausible at this stage.
Thus, Armada’s
allegation in Count II that the December 2009 stock buy back
constituted actual fraud is supported by a total of four badges
of fraud: (1) a “concealed” transfer of assets (2) to an
“insider” (3) when the debtor is “insolvent” and (4) legal action
is pending.
740 ILCS §§ 160/5(b)(1), (3), (4), (9).
11
In sum, Armada has stated particularized and plausible
claims of actual and constructive fraud in Counts I and II of its
complaint.
Count V also survives because it seeks injunctive
relief based on the allegatinos in Counts I and II.
The AMCOL Defendants attack Count III, a common law claim
for payment of a wrongful dividend, on two grounds that I have
already rejected (i.e., Armada’s alleged failure to plead
sufficient facts relating to Ashapura’s insolvency and the
precise role of each AMCOL entity in approving the October 2008
dividend payment). Their arguments require no further discussion.
As for Count IV, the AMCOL Defendants argue that “wrongful
assumption of debt” is not a cognizable claim.
In response,
Armada cites the fiduciary duty that a corporation’s officers and
directors owe to creditors.
See Central States, Southeast and
Southwest Areas Pension Fund v. LaCasse, 254 F.Supp.2d 1069, 1072
(N.D. Ill. 2003) (denying motion to dismiss common law claim
brought under “trust fund” theory, pursuant to which corporate
assets are held in trust for creditors).
Armada’s failure to
articulate the breach of fiduciary duty theory in Count IV is not
fatal at the pleading stage.
See O’Grady v. Village of
Libertyville, 304 F.3d 719, 723 (7th Cir. 2002) (“A plaintiff is
not required to set forth a legal theory to match the facts, so
long as some legal theory can be sustained on the facts pleaded
in the complaint.”).
The important point is that Ashapura’s
12
assumption of a subsidiary’s debt may have impaired its ability
to satisfy Armada and other creditors during the Indian
insolvency proceeding.
Thus, Count IV states a plausible claim
that assumption of this debt was wrongful as to Armada and other
creditors under a breach of fiduciary duty theory.
B.
The AMCOL Defendants seek dismissal of Armada’s RICO claims,
Counts VI through IX, on three grounds: Armada’s purported
failure to plead (1) a plausible mail or wire fraud scheme; (2) a
pattern of racketeering activity; or (3) a casual link between
each RICO violation and Armada’s inability to collect on its $70
million judgment against Ashapura.
1.
The statutory provision at issue in Count VI, 18 U.S.C. §
1962(c), prohibits “(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).
The predicate acts of
“racketeering activity” alleged in Armada’s complaint are mail
and wire fraud.
See 18 U.S.C. § 1961(1).
“The requisite
elements of these offenses...are three: (1) a scheme to defraud;
(2) an intent to defraud; and (3) use of the mails or wires in
furtherance of the scheme.”
U.S. v. Leahy, 464 F.3d 773, 786
(7th Cir. 2006).
13
The AMCOL Defendants argue that the scheme alleged in
Armada’s complaint is facially implausible because it assumes
that Ashapura started to shield its asests from creditors
preemptively in 2008, well before Armada secured a $70 million
arbitration award in February 2010.
complaint is unpersuasive.
This attack on Armada’s
According to well-pled and
particularlized allegations in Armada’s complaint, the AMCOL
Defendants (1) knew as early as July 2008 that Ashapura faced
significant exposure on two shipping contracts with Armada; (2)
conducted or participated in a scheme to shield Ashapura’s assets
from creditors starting with the October 2008 dividend payment
and continuing through the present; and (3) used the mail and
wire transmissions to further this scheme.
The plausibility of
this scheme does not turn on whether the AMCOL Defendants knew
precisely when Armada would commence arbitration proceedings or
secure a judgment; the alleged scheme plausibly started when
Ashapura’s exposure on the shipping contracts was foreseeable.
The AMCOL Defendants attack Armada’s specific allegations of
mail and wire fraud on two grounds: (1) litigation activities,
including arguments that a court ultimately rejects, never
constitute mail or wire fraud (2) Armada’s other allegations of
mail and wire transmissions are not plead with sufficient
particularity.
Neither argument has merit.
With regard to the
first argument, the AMCOL Defendants have failed to cite any case
14
holding that a mail or wire fraud scheme cannot encompass, as a
matter of law, alleged efforts to defraud a creditor through
unsupported positions made in prior court filings.
“[C]ourts
have [indeed] refused to allow ‘litigation activities’ such as
filing fraudulent documents or engaging in baseless litigation to
serve as predicate acts for RICO, but only in circumstances where
such acts constitute the only allegedly fraudulent conduct.”
Feld Entertainment Inc. v. Am. Soc. for the Prevention of Cruelty
to Animals, 873 F.Supp.2d 288, 318 (D.D.C. 2012) (collecting
cases).
Here, Armada’s allegation that the AMCOL Defendants
“obfuscated” the nature of the December 2009 stock buy back in
court filings made during the maritime attachment proceeding and
Chapter 15 bankruptcy case are simply two predicate acts in a
larger scheme of fraudulent conduct.
See Complaint at ¶ 84.
Armada’s complaint also includes particularized allegations
of fraudulent wire transmissions, including Ashapura’s dividend
payment in October 2009, stock buy back in December 2009,
purchase of the AMCOL Defendants’ allegedly worthless stake in a
European joint venture in 2011, assumption of a subsidiary’s debt
in 2012, and ongoing payments to the AMCOL Defendants for profits
generated from an Indian joint venture.
Armada has also cited
specific mailings allegedly sent in furtherance of the alleged
scheme, including two e-mails relating to the December 2009 stock
buy back and AMCOL’s filing with the U.S. Securities and Exchange
15
Commission in March 2010 boosting the value of its investment in
Ashapura from zero to $25 million based on a change in accounting
methods.
In short, Count VI contains sufficiently particularized
allegations of mail and wire fraud to survive a motion to
dismiss.
2.
The AMCOL Defendants next challenge whether Armada’s
complaint alleges a sufficient pattern of racketeering activity.
See 18 U.S.C. § 1961(5) (defining “pattern of racketeering
activity” as at least two predicate acts over a ten year period).
“To fulfill the pattern requirement, plaintiffs must satisfy the
so-called ‘continuity plus relationship’ test: the predicate acts
must be related to one another (the relationship prong) and pose
a threat of continued criminal activity (the continuity prong).”
Jennings v. Auto Meter Prod., Inc., 495 F.3d 466, 473 (7th Cir.
2007) (internal quotation omitted).
The AMCOL Defendants focus
their attack on the continuity prong.
Continuity under RICO can be open-ended or closed-ended.
“[A] RICO plaintiff can prevail by either (1) demonstrating a
closed-ended conspiracy that existed for such an extended period
of time that a threat of future harm is implicit, or (2) an openended conspiracy that, while short-lived, shows clear signs of
threatening to continue into the future.”
Midwest Grinding Co.,
Inc. v. Spitz, 976 F.2d 1016, 1022-23 (7th Cir. 1992)).
16
In
determining whether closed-ended continuity exists, “[r]elevant
factors include the number and variety of predicate acts and the
length of time over which they were committed, the number of
victims, the presence of separate schemes and the occurrence of
distinct injuries.”
975 (7th Cir. 1986).
determiniative.”
Morgan v. Bank of Waukegan, 804 F.2d 970,
“[N]o one factor...[is] necessarily
Id. at 976.
Applying the Morgan factors to this case, I conclude that
Armada’s complaint contains plausible allegations of closed-ended
continuity.
Armada’s has alleged a wide variety of predicate
acts within the general categories of mail and wire fraud--e.g.,
a dividend payment, stock buy back, assumption of a subsidiary’s
debt, fraudulent buy out of a joint venture partner, and ongoing
backdoor dividend payments as “profits” from another joint
venture.
These alleged predicate acts started in October 2008
and continue through the present.
Armada identifies itself as
the principal victim of this scheme, but also identifies other
creditors who suffered distinct harms.
Complaint at ¶ 33; see
also id. at Ex. G (¶ 9) (identifying two other shipping companies
who obtained arbitration awards against Ashapura).
In sum, Armada has alleged that the AMCOL Defendants
conducted or participated in a multi-year scheme to shield
Ashapura’s assets from creditors through a wide variety of
fraudulent transactions.
Whether these allegations amount to one
17
purported scheme is not dispositive.
See Morgan, 804 F.2d at
975-76 (“[T]he mere fact that the predicate acts relate to the
same overall scheme or involve the same victim does not mean that
the acts automatically fail to satisfy the pattern
requirement.”).
Although mail and wire fraud are the only
predicate acts alleged in Armada’s complaint, this is not a case
alleging mere replication of a fraudulent mailing or wire
transmission.
See Midwest Grinding, 976 F.2d at 1024 (finding no
continuity where “[t]he predicate acts consisted primarily of
hundreds of invoices sent through the mails to
former...customers”). “Perhaps the most important element of RICO
continuity is its temporal aspect.”
Roger Whitemore’s Auto.
Servs., Inc. v. Lake County, Ill., 424 F.3d 659 (7th Cir. 2005).
The scheme alleged in Armada’s complaint spans almost five years
and remains onging.
Therefore, I conclude that Armada has
alleged a plausible and particularlized “pattern of racketeering
activity” under the closed-ended continuity test.
3.
The AMCOL Defendants’ final attack is that Armada failed to
plead a causal link between the alleged RICO violations and
Armada’s inability to collect on its $70 million judgment against
Ashapura.
Armada must plead three things to establish a civil cause of
action under RICO: “(1) an injury in its business or property (2)
18
by reason of (3) the defendants' violation of section 1962.”
RWB
Servs., LLC v. Hartford Computer Grp., Inc., 539 F.3d 681, 685
(7th Cir. 2080).
The second element requires a showing that each
alleged RICO violation proximately caused the plaintiff’s injury.
See Holmes v. Securities Investor Protection Corp., 503 U.S. 258,
268 (1992).
With regard to Count VI, the AMCOL Defendants argue that the
predicate acts alleged in Armada’s complaint did not impair its
ability to collect on its $70 million judgment against Ashapura.
Armada counters that the alleged pattern of racketeering activity
was intended to reduce the assets available to Ashapura after it
breached and later repudiated two multi-million dollar shipping
contracts.
The fact that Armada did not secure arbitration
awards against Ashapura until February 2010 is not dispositive as
to causation because the triggering event for the alleged scheme
was the foreseeability of multi-million dollar exposure as early
as July 2008.
This is not a case where Armada is
indistinguishable from any other creditor who suffers harm after
defendants loot a debtor corporation’s assets.
Compare Wooten v.
Loshbough, 951 F.2d 768, 771 (7th Cir. 1991) (affirming dismissal
of RICO complaint where plaintiff “was a target of the fraud only
in the sense that any corporate creditor is likely to be hurt if
the people controlling the corporation so deplete it of assets
that it cannot pay a large debt”) with Bankers Trust Co. v.
19
Rhoades, 859 F.2d 1096 (2d Cir. 1993) (holding that creditors had
standing under RICO where defendants allegedly made fraudulent
conveyances to frustrate creditors and forced them to defend
against frivolous lawsuits).
Here, unlike in Wooten, Armada
alleges that it was the direct target of a scheme to deplete
Ashapura’s assets as soon as liability to Armada was foreseeable.
This allegation is sufficient for Count VI to survive a motion to
dismiss based on the purported absence of a causal link between
the RICO violation and Armada’s inability to collect on its $70
million judgment against Ashapura.
Count VII alleges that the AMCOL Defendants used or invested
racketeering income in violation of 18 U.S.C. § 1962(a).
In its
complaint, Armada asserts that the AMCOL Defendants used or
invested racketeering income to operate their own businesses.
Complaint at ¶ 103.
What Armada fails to explain is how such use
or investment of racketeering income--as opposed to the predicate
acts of mail and wire fraud--impaired its ability to collect on a
$70 million judgment owed by Ashapura.
See Vicom, Inc. v.
Harbridge Merchant Servs. Inc., 20 F.3d 771, 778 n.6 (7th Cir.
1994) (“[T]he majority of circuits hold that the use or
investment of the racketeering income must proximately cause the
plaintiff's injury; injury caused by the predicate racketeering
acts is inadequate.”); see also Cobbs v. Sheahan, 385 F.Supp.2d
731, 736 (N.D. Ill. 2005) (collecting district court cases in the
20
Seventh Circuit applying the “investment injury rule”).
In an
effort to save Count VII, Armada argues that the AMCOL Defendants
approved Ashapura’s “transfer of business opportunities” to an
Indian joint venture and purchase of AMCOL’s stake in a “losing
European joint venture.”
Dkt. No. 39 at 33.
These allegations
are simply two predicate acts in an alleged pattern of
racketeering activity.
Armada has failed to explain how the
AMCOL Defendants’ use or investment of income derived from these
predicate acts further impaired Armada’s ability to collect on
its judgment against Ashapura.
Therefore, Count VII must be
dismissed for failing to state a plausible claim of investment
injury under RICO.
Count VIII suffers from a similar flaw.
“Like § 1962(a), a
claim relying on § 1962(b) must allege that the plaintiff's
injury resulted from the defendants' acquisition or control of
the RICO enterprise, rather than from the predicate acts.”
Carnegie v. Household Intern. Inc., 220 F.R.D. 542, 546 (N.D.
Ill. 2004).
Armada has not explained how the AMCOL Defendants’
acquisition or control of Ashapura through a pattern of
racketeering activity caused harm separate and apart from the
predicate acts of wire and mail fraud.
Therefore, Count VIII
must be dismissed.
The AMCOL Defendants seek dismissal of Count IX on the
ground that none of the “overt acts” in furtherance of the
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alleged conspiracy to violate RICO’s substantive provisions
proximately caused Armada’s inability to collect on its judgment
against Ashapura.
The “overt acts” alleged in Armada’s complaint
mirror the predicate acts of mail and wire fraud constituting a
scheme to shield Ashapura’s assets from creditors.
I have
already concluded in the context of Count VI that Armada’s
complaint contains sufficient allegations that the predicate acts
of mail and wire fraud proximately caused Armada’s inability to
collect on its $70 million judgment.
It follows that the same
predicate acts--when framed as overt acts in furtherance of a
conspiracy--constitute sufficient allegations that the alleged
conspiracy to violate RICO injured Armada.
The AMCOL Defendants also argue in a footnote that Count IX
should be dismissed because Armada fails to allege “(1) that each
defendant agreed to maintain an interest in or control of an
enterprise or to participate in the affairs of an enterprise
through a pattern of racketeering activity and (2) that each
defendant further agreed that someone would commit at least two
predicate acts to accomplish those goals.”
732.
Goren, 156 F.3d at
Armada’s complaint contains particularized allegations that
the AMCOL Defendants appointed their senior executives to
Ashapura’s board of directors and participated in a scheme to
shield assets from Armada and other shipping company creditors.
These allegations are more than sufficient to state a conspiracy
22
claim.
DeGuelle v. Camilli, 664 F.3d 192, 204 (7th Cir. 2011)
(“The defendant need not personally commit a predicate act;
rather, a plaintiff must allege that the defendant agreed that
someone would commit at least two predicate acts in furtherance
of the conspiracy.”).
IV.
The AMCOL Defendants’ motion to dismiss is granted as to
Counts VII and VIII and denied as to Counts I-VI and IX for the
reasons stated above.
ENTER ORDER:
_____________________________
Elaine E. Bucklo
United States District Judge
Dated: October 25, 2013
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