Kostovetsky vs. Ambit Energy Holdings, LLC., et al.

Filing 65

Enter MEMORANDUM Opinion and Order Signed by the Honorable Gary Feinerman on 1/8/2016. Mailed notice (jdh)

15UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
OLEG KOSTOVETSKY, individually and on behalf of all
others similarly situated,
Plaintiffs,
vs.
AMBIT ENERGY HOLDINGS, LLC, AMBIT
MIDWEST, LLC, AMBIT TEXAS, LLC, AMBIT
NORTHEAST, LLC, AMBIT NEW YORK, LLC,
AMBIT MARKETING, LLC, AMBIT ILLINOIS, LLC,
AMBIT CALIFORNIA, LLC, AMBIT HOLDINGS, LLC,
AMBIT NEW JERSEY, LLC, AMBIT MANAGEMENT,
INC., AMBIT GROUP, L.P., AMBIT SYSTEMS, INC.,
JERE THOMPSON, JR., CHRIS CHAMBLESS, JOHN
DOES 1-100,
Defendants.

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

15 C 2553
Judge Feinerman

MEMORANDUM OPINION AND ORDER
Oleg Kostovetsky alleges in this putative class action that Jere Thompson, Jr., Chris
Chambless, Ambit Energy Holdings, LLC, several other Ambit entities, and 100 unnamed Ambit
consultants perpetrated a scheme to defraud thousands of individuals in violation of the
Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., and
state law. Doc. 1. Defendants have moved to dismiss the complaint under Federal Rule of Civil
Procedure 12(b)(6), Doc. 17, and Kostovetsky has moved to strike four items introduced by
Defendants in their reply brief, Doc. 44. Kostovetsky’s motion to strike is granted and
Defendants’ motion to dismiss is denied.
Background
On a Rule 12(b)(6) motion, the court must accept as true the complaint’s well-pleaded
factual allegations, with all reasonable inferences drawn in Kostovetsky’s favor, but not its legal

1

conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014). The
court must also consider “documents attached to the complaint, documents that are critical to the
complaint and referred to in it, and information that is subject to proper judicial notice,” along
with additional facts set forth in Kostovetsky’s brief opposing dismissal, so long as those
additional facts are “consistent with the pleadings.” Phillips v. Prudential Ins. Co. of Am., 714
F.3d 1017, 1020 (7th Cir. 2013) (internal quotation marks omitted). The facts are set forth as
favorably to Kostovetsky as those materials permit. See Meade v. Moraine Valley Cmty. Coll.,
770 F.3d 680, 682 (7th Cir. 2014).
Ambit Energy Holdings is a third-party electricity and natural gas provider operating in
deregulated energy markets across the United States. Doc. 1 at ¶ 13. Thompson is the cofounder, Chief Executive Officer, Secretary, and Treasurer, and Chambless is the co-founder and
Chief Marketing Officer, of Ambit Energy Holdings, Ambit Midwest, Ambit Northeast, Ambit
Texas, Ambit New York, and Ambit Marketing; each company has the same address in Dallas,
Texas. Id. at ¶¶ 13-18, 26-27. Ambit Marketing develops standard marketing materials for
Ambit’s energy supply service. Id. at ¶ 18. Ambit Midwest contracts with customers in the
Midwest; Thompson is its sole employee. Id. at ¶ 14. Ambit Northeast and Ambit New York
are wholly-owned subsidiaries of Ambit Holdings and Ambit Energy Holdings, respectfully. Id.
at ¶¶ 16-17. Ambit Illinois, Ambit California, Ambit New Jersey, Ambit Management, Ambit
Systems, and Ambit Group are owned and operated by Ambit Energy Holdings; each has the
same Dallas address as the other Ambit companies. Id. at ¶¶ 19-20, 22-25. John Does 1-100 are
Ambit consultants who earn free energy and other benefits by signing up new customers for
Ambit. Id. at ¶¶ 28-29. Ambit (a term that encompasses all of the Ambit entities) provides
training and marketing materials to its consultants. Id. at ¶ 30.

2

In September 2013, an Ambit consultant approached Kostovetsky about switching his
energy provider to Ambit. Id. at ¶ 12. The pitch included promises of lower energy bills and
consistent savings if Kostovetsky became an Ambit consultant. Ibid. Kostovetsky declined to
become a consultant, but was assured that he would remain eligible for reduced energy bills if he
switched to Ambit. Ibid. Kostovetsky did so, and his energy bills proceeded to double relative
to what he had paid with his previous energy supplier. Ibid.
Kostovetsky alleges that Defendants, through the use of deceptive marketing tactics,
“defraud thousands of individuals by … promis[ing]—and fail[ing]—to provide affordable
electricity and gas to [Ambit’s] customers.” Id. at ¶ 3. Defendants neglect to “inform consumers
who switch to Ambit that they will see their energy rates skyrocket” given that “Ambit’s variable
energy rates can fluctuate rapidly and have no ceiling.” Id. at ¶ 47. These facts about Ambit’s
rates are “withheld from consumers[,] who are pitched by aggressive marketing materials” that
“preach consistency and savings while failing to warn customers of the factors affecting Ambit’s
variable energy rates.” Ibid.
Ambit managed the fraudulent scheme by sending and receiving “thousands of mail and
interstate wire communications” pertaining to negotiations, payment, monthly billing, and
marketing. Id. at ¶¶ 67-68. The Better Business Bureau has addressed 465 complaints lodged
against Ambit in the last three years. Id. at ¶ 53. Complaints about Ambit posted on consumer
websites assert that the complainants were promised savings only to later find that their energy
rates increased dramatically. Id. at ¶¶ 55-56.
Kostovetsky has moved to strike four items introduced for the first time in Defendants’
reply brief: (1) screenshots from Ambit’s website (Doc. 43 at 10, 15); (2) a letter from Ambit to
Kostovetsky detailing his savings (Doc. 43-1); (3) the fact that Ambit Illinois is the entity

3

authorized to do business in Illinois and the entity from which Kostovetsky purchased energy
(Doc. 43 at 21); and (4) the Terms of Service posted on Ambit’s website (id. at 14-16). Doc. 44.
Settled law holds that new facts and arguments may not be presented for the first time in a reply
brief. See Narducci v. Moore, 572 F.3d 313, 324 (7th Cir. 2009) (“[T]he district court is entitled
to find that an argument raised for the first time in a reply brief is forfeited.”); Cromeens,
Holloman, Sibert, Inc. v. AB Volvo, 349 F.3d 376, 389 (7th Cir. 2003) (“Because Volvo raised
the applicability of the Maine statute in its reply brief, the district court was entitled to find that
Volvo waived the issue.”); Gold v. Wolpert, 876 F.2d 1327, 1331 n.6 (7th Cir. 1989) (“It is wellsettled that new arguments cannot be made for the first time in reply. This goes for new facts
too.”) (citation omitted); Smith v. Altman, 2015 WL 5675376, at *2 (N.D. Ill. Sept. 21, 2015)
(“New arguments, facts, and exhibits offered in a party’s reply do not allow the other side a fair
opportunity to respond and therefore the Court must disregard them.”). Accordingly,
Kostovetsky’s motion to strike is granted, and the court does not consider those materials in
deciding the motion to dismiss. That said, at a hearing on the present motions, Defendants
acknowledged that their arguments for dismissal do not depend on those materials.
Discussion
The complaint alleges that Defendants engaged in and conspired to engage in a pattern of
racketeering activity in association with the “Ambit Pyramid Enterprise”—consisting of
Defendants, their employees and agents, and the Ambit consultants—in violation of 18 U.S.C.
§§ 1962(c) and (d). Doc. 1 at ¶¶ 82-103. The complaint further alleges that Defendants unjustly
enriched themselves to the detriment of Kostovetsky and the putative class in violation of the
common law of several States. Id. at ¶¶ 104-06. Defendants move to dismiss both sets of
claims.

4

I.

RICO Claims
A.

Section 1962(c) Claim

Section 1962(c) prohibits any individual or entity “employed by or associated with” an
“enterprise” engaged in interstate commerce “to conduct or participate, directly or indirectly, in
the conduct of such enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C.
§ 1962(c). To state a § 1962(c) claim, a plaintiff must allege “(1) conduct (2) of an enterprise (3)
through a pattern of racketeering activity.” DeGuelle v. Camilli, 664 F.3d 192, 199 (7th Cir.
2011); see also Jennings v. Auto Meter Prods., Inc., 495 F.3d 466, 472 (7th Cir. 2007) (listing
the third element as two separate elements—“through a pattern” and “of racketeering activity”).
Rule 9(b) provides that “[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The Seventh
Circuit has “often incanted that a plaintiff ordinarily must describe the who, what, when, where,
and how of the fraud—the first paragraph of any newspaper story.” Pirelli Armstrong Tire Corp.
Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2007) (internal
quotation marks omitted). “A principal purpose of requiring that fraud be pleaded with
particularity is, by establishing this rather slight obstacle to loose charges of fraud, to protect
individuals and businesses from privileged libel (privileged because it is contained in a
pleading).” Kennedy v. Venrock Assocs., 348 F.3d 584, 594 (7th Cir. 2003). Accordingly, Rule
9(b) “requires the plaintiff to conduct a precomplaint investigation in sufficient depth to assure
that the charge of fraud is responsible and supported.” Cincinnati Life Ins. Co. v. Beyrer, 722
F.3d 939, 950 (7th Cir. 2013) (internal quotation marks omitted).
The Seventh Circuit has not expressly resolved whether Rule 9(b)’s heightened pleading
standard applies to each element of a fraud-based RICO claim or only to the fraud allegations.

5

See Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 655 (7th Cir. 2015) (holding that the
RICO claims survived dismissal “[w]hether or not detailed allegations of each element (other
than the alleged fraud) are required at the pleading stage”); Drobny v. JP Morgan Chase Bank,
NA, 929 F. Supp. 2d 839, 844-45 (N.D. Ill. 2013) (noting that the “Seventh Circuit has not
expressly resolved … whether Rule 9(b) must be satisfied with respect to every element of a
fraud-based RICO claim, or whether the less rigorous Rule 8 pleading standard applies to nonfraud elements of the claim”). As in Drobny, because the Seventh Circuit has applied the
ordinary Rule 8(a) pleading requirements to the enterprise element of a fraud-based RICO claim
in at least one case, Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 644-46 (7th Cir. 1995),
this court will apply Rule 8(a) to the non-fraud elements of Kostovetsky’s RICO claim and Rule
9(b) only to the allegations of mail and wire fraud.
According to the complaint, Defendants have taken advantage of deregulation in the
residential gas and electricity market by luring customers into switching energy suppliers based
on false promises of “low, competitive rates” and “consistent savings.” Doc. 1 at ¶ 4. The
Ambit Pyramid Enterprise expands its client base by offering free energy and other perks to
certain customers, called “consultants,” who in turn sign up new customers. Ibid. Ambit has
over 250,000 consultants and provides them with direct support, guidance, and training. Id. at
¶ 33. The consultants generate significant revenue for Ambit, and some have thousands of
customers in their “downline.” Id. at ¶ 38. When approaching potential customers, the
consultants promise that they will save money if they switch to Ambit. Id. at ¶ 47. In fact, new
customers will see their energy rates skyrocket because Ambit does not offer energy at a fixed
monthly rate. Ibid. It is not until customers receive their bills that they realize they have been
deceived. Id. at ¶¶ 8, 48. Defendants make extensive use of the mails and wires to perpetrate

6

this fraud; they distribute fraudulent marketing materials to consultants, exchange negotiation
communications with potential customers, send monthly bills that charge excessive amounts, and
receive payments for the sale of energy to customers. Id. at ¶ 68.
Defendants argue that Kostovetsky has failed to allege the “enterprise” element of his
RICO claim. Doc. 21 at 10-11. A RICO enterprise includes “any individual, partnership,
corporation, association, or other legal entity, and any union or group of individuals associated in
fact although not a legal entity.” 18 U.S.C. § 1961(4). Kostovetsky attempts to allege an
association-in-fact enterprise, identifying each defendant as a RICO “person” and defining the
“Ambit Pyramid Enterprise” as encompassing Thompson, Chambless, the Ambit entities and
their employees and agents, and the Ambit consultants. Doc. 1 at ¶ 84; Doc. 34 at 16.
“An association-in-fact does not require any structural features beyond ‘a purpose,
relationships among those associated with the enterprise, and longevity sufficient to permit these
associates to pursue the enterprise’s purposes.’” Bible, 799 F.3d at 655 (quoting Boyle v. United
States, 556 U.S. 938, 946 (2009)). “Despite the expansive nature of this definition, it is not
limitless.” United Food & Commercial Workers Unions & Employers Midwest Health Benefits
Fund v. Walgreen Co., 719 F.3d 849, 853 (7th Cir. 2013). For one, the alleged enterprise must
be distinct from the § 1962(c) “person”—that is, the defendant. See Bible, 799 F.3d at 655;
United Food & Commercial Workers, 719 F.3d at 853. In addition, “that person must have
conducted or participated in the conduct of the enterprise’s affairs, not just [its] own affairs.”
United Food & Commercial Workers, 719 F.3d at 854 (alteration in original) (internal quotation
marks omitted). The Seventh Circuit “ha[s] distinguished between two situations: a run-of-themill commercial relationship where each entity acts in its individual capacity to pursue its
individual self-interest,” which is not a RICO enterprise, “versus a truly joint enterprise where

7

each individual entity acts in concert with the others to pursue a common interest,” which can be
a RICO enterprise. Bible, 799 F.3d at 655-56.
Defendants contend that the complaint identifies neither the enterprise’s purpose nor the
defendants’ respective roles therein. Doc. 21 at 10-11. They are wrong on both counts. The
complaint clearly identifies the Ambit Pyramid Enterprise’s alleged purpose—to defraud
consumers by promising them consistent savings if they switch to Ambit and then, contrary to
that promise, charging them exorbitant rates. Doc. 1 at ¶¶ 3, 5-8, 46-52, 62-69, 88-90.
Moreover, Kostovetsky describes each defendant’s role in the scheme. The regional Ambit
entities—Ambit Midwest, Ambit Texas, Ambit Northeast, Ambit Illinois, Ambit California,
Ambit New York, and Ambit New Jersey—are wholly-owned subsidiaries of the Ambit
corporate entities—Ambit Energy Holdings, Ambit Holdings, and Ambit Group. Id. at ¶¶ 13-17,
19-24; Doc. 34 at 20. Through those regional companies, the Ambit corporate entities sell and
procure energy and oversee the billing and collection of money from customers. Doc. 34 at 20.
Ambit Marketing develops deceptive marketing materials to advertise Ambit’s energy supply
service and, in conjunction with Ambit Systems, provides direct support, guidance, and training
to Ambit consultants. Ibid. The consultants serve as the enterprise’s ground troops; they sign
up new customers using the materials provided to them and receive energy benefits in return.
Doc. 1 at ¶ 4; Doc. 34 at 20. Thompson and Chambless, as co-founders and directors of many of
these Ambit entities, run the enterprise. Collectively, the companies and people involved with
them are referred to as the “Ambit family” and a “team.” Doc. 1 at ¶ 39; Doc. 34 at 20.
The interlocking nature of the Ambit entities—most are owned by Ambit Energy
Holdings, most have the same officers, and all are located at the same Dallas address—supports
the reasonable inference that they are engaged in more than a “run-of-the-mill commercial

8

relationship where each entity acts in its individual capacity to pursue its individual selfinterest,” but rather are “a truly joint enterprise where each individual entity acts in concert with
the others to pursue a common interest.” Bible, 799 F.3d at 655-56. In Bible, the Seventh
Circuit held that the plaintiff adequately pleaded an enterprise where the defendant and two other
entities were alleged to have displayed “an unusual degree of economic interdependence” and
“d[id] not operate as completely separate entities.” Id. at 656. These allegations distinguished
Bible from United Food & Commercial Workers, where the plaintiffs failed to allege “that
officials from either company involved themselves in the affairs of the other.” United Food &
Commercial Workers, 719 F.3d at 854. Here, the Ambit entities’ respective officers are not just
involved in the affairs of the other Ambit entities—they are, in many instances, the same two
people, Thompson and Chambless. And, as described above, the entities themselves are highly
intertwined. Accordingly, Kostovetsky has pleaded facts sufficient to infer the existence of a
RICO enterprise. See Bible, 799 F.3d at 657 (holding that plaintiff’s allegations were adequate
because they indicated “a common purpose, relationships among the three entities associated
with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s
purposes”); United States v. Hosseini, 679 F.3d 544, 557-58 (7th Cir. 2012) (rejecting criminal
defendants’ contention that there was insufficient evidence to establish a RICO enterprise given
the “interlocking relationship” of the defendants’ automobile dealerships and that the defendants’
conduct “was neither independent nor lacking in coordination”); Nesbitt v. Regas, 2015 WL
1331291, at *7 (N.D. Ill. Mar. 20, 2015) (concluding that the alleged enterprise “had a common
purpose of enriching defendants” and that the relationship element was satisfied, in part, because
two individual defendants “were longtime business partners and controlled multiple business
entities together”).

9

Defendants next argue that the complaint’s allegations of “racketeering activity” fail to
satisfy Rule 9(b). Doc. 21 at 13-14. To plead this element, a complaint must allege the
commission of at least two predicate acts of racketeering over a ten-year period. See DeGuelle,
664 F.3d at 199 (citing 18 U.S.C. § 1961(5)). Mail and wire fraud are predicate acts under
RICO. See 18 U.S.C. § 1961(1)(B). Rule 9(b) requires a plaintiff to “describe the two predicate
acts of fraud with some specificity and state the time, place, and content of the alleged false
representations, the method by which the misrepresentations were communicated, and the
identities of the parties to those misrepresentations.” Bible, 799 F.3d at 658; see also Windy City
Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 668 (7th Cir.
2008) (“The circumstances of fraud or mistake include the identity of the person who made the
misrepresentation, the time, place and content of the misrepresentation, and the method by which
the misrepresentation was communicated to the plaintiff.”) (internal quotation marks omitted);
Slaney v. The Int’l Amateur Athletic Fed’n, 244 F.3d 580, 599 (7th Cir. 2001) (“[B]ecause a
RICO plaintiff must allege two predicate acts of fraud, she must satisfy the requirements of Rule
9(b) twice.”).
The complaint alleges that in September 2013, an Ambit consultant approached
Kostovetsky personally and assured him he would be eligible for reduced rates if he switched to
Ambit, that Kostovetsky did switch, and that his energy bills then doubled. Doc. 1 at ¶ 12. The
complaint further alleges that during the course of the parties’ relationship, Ambit sent
Kostovetsky via the mails and wires monthly bills that told him what he owed and that charged
him an excessive sum for energy. Id. at ¶ 68; Doc. 34 at 24. The identities of the parties (Ambit
and Kostovetsky), the time and place of the communications (once a month starting from
September 2013, presumably at Kostovetsky’s home in Skokie, Illinois), and the content of the

10

communications are all adequately pleaded under Rule 9(b), as is the nature of the
misrepresentation. See Bible, 799 F.3d at 658-59 (holding that two communications omitting or
concealing material information were “sufficient to constitute mail or wire fraud” for purposes of
establishing that the defendant had engaged in racketeering activity). Even though the Ambit
bills themselves are not deceptive on their face, each bill qualifies as a predicate act because they
were sent in furtherance of the allegedly deceptive overall scheme. See United States v. Powell,
576 F.3d 482, 493 (7th Cir. 2009) (“The mailing or use of the wires need not itself contain false
or fraudulent material; a routine or innocent mailing or use of the wire can supply this element of
the offense, as long as the use of the mail or wire is part of the execution of the scheme.”)
(internal quotation marks omitted); Ruderman v. Freed, 2015 WL 5307583, at *3 (N.D. Ill. Sept.
10, 2015) (holding that the plaintiff stated a mail fraud claim with the requisite specificity
“[r]egardless of whether either letter contained misrepresentations,” so long as they “were sent in
furtherance of the alleged scheme”).
It is true that the complaint does not identify what particular Ambit entity sent the bills to
Kostovetsky, but that does not matter under the circumstances of this case. See Aliano v.
WhistlePig, LLC, 2015 WL 2399354, at *6 (N.D. Ill. May 18, 2015) (“Under these
circumstances, where the misrepresentations were made on Defendants’ own website and
product, it is not necessary for Plaintiffs to identify a specific person who allegedly made the
statements.”). As the Seventh Circuit has cautioned, “courts and litigants often erroneously take
an overly rigid view of the formulation” that a complaint must specify the “who” of the fraud,
forgetting that “the requisite information—what gets included in that first paragraph—may vary
on the facts of a given case.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust, 631 F.3d
at 442. Whoever established the Ambit businesses, probably Thompson and Chambless, created

11

a dizzying array of entities, all located at the same address and engaged in the same business;
they just as easily could have been organized differently. It is understandable that Kostovetsky
does not yet know which particular entity did precisely what, and the distinctions among at least
some of the various Ambit entities may reflect more form than substance. Indeed, even
Defendants appear confused as to which entity provided energy to and billed Kostovetsky; their
initial brief says that he “switched from another energy provider to Ambit Midwest,” Doc. 21 at
2, while their reply brief suggests that he contracted with Ambit Illinois, Doc. 43 at 21. Given
this, Defendants cannot justifiably fault Kostovetsky for often referring to the Ambit entities
collectively and for not precisely alleging which entity engaged in which conduct. See
Cincinnati Life Ins., 722 F.3d at 948 (“[W]hile we require a plaintiff claiming fraud to fill in a
fairly specific picture of the allegations in her complaint, we remain sensitive to information
asymmetries that may prevent a plaintiff from offering more detail.”) (internal quotation marks
omitted). The Seventh Circuit has held that “absent a compelling reason, a plaintiff is not
normally entitled to treat multiple corporate defendants as one entity,” Jepson, Inc. v. Makita
Corp., 34 F.3d 1321, 1329 (7th Cir. 1994), but such compelling reasons are present here.
Defendants next contend that the complaint does not sufficiently plead a “pattern” of
racketeering activity. Doc. 21 at 12-13. To plead a pattern, the alleged acts must satisfy “the
‘continuity plus relationship’ test, which requires that the predicate acts be related to one another
(the relationship prong) and that they pose a threat of continued criminal activity (the continuity
prong).” Bible, 799 F.3d at 659; see also DeGuelle, 664 F.3d at 199 (“[T]o show a pattern of
racketeering activity, a plaintiff must demonstrate a relationship between the predicate acts as
well as a threat of continuing activity.”) (citing H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239
(1989)). “A relationship is established if the criminal acts have the same or similar purposes,

12

results, participants, victims, or methods of commission, or otherwise are interrelated by
distinguishing characteristics and are not isolated events.” DeGuelle, 664 F.3d at 199 (internal
quotation marks omitted). The “continuity” prong is intended “to forestall RICO’s use against
isolated or sporadic criminal activity, and to prevent RICO from becoming a surrogate for
garden-variety fraud actions properly brought under state law.” Midwest Grinding Co., Inc. v.
Spitz, 976 F.2d 1016, 1022 (7th Cir. 1992); see also H.J. Inc., 492 U.S. at 239 (“RICO’s
legislative history reveals Congress’ intent that to prove a pattern of racketeering activity a
plaintiff … must show that the racketeering predicates are related, and that they amount to or
pose a threat of continued criminal activity.”) (emphasis omitted); Jennings, 495 F.3d at 472
(“Congress passed RICO in an effort to combat organized, long-term criminal activity.”). Paying
heed to the continuity requirement ensures that RICO remains “a unique cause of action that is
concerned with eradicating organized, long-term, habitual criminal activity.” Gamboa v. Velez,
457 F.3d 703, 705 (7th Cir. 2006); see also Pizzo v. Bekin Van Lines Co., 258 F.3d 629, 633 (7th
Cir. 2001). The Seventh Circuit has noted that “no single formula is required for a RICO
pattern,” which means that the test is “necessarily less than precise,” requiring the exercise of
judgment and common sense. J.D. Marshall Int’l, Inc. v. Redstart, Inc., 935 F.2d 815, 821 (7th
Cir. 1991); see also Hartz v. Friedman, 919 F.2d 469, 472 (7th Cir. 1990) (“The pattern
requirement is difficult to define and requires courts to use common sense.”).
There are two types of continuity, open-ended and closed-ended:
Closed-ended continuity refers to criminal behavior that has ended but the
duration and repetition of the criminal activity carries with it an implicit threat
of continued criminal activity in the future. In contrast, open-ended continuity
requires a showing of past conduct that by its nature projects into the future
with a threat of repetition.
DeGuelle, 664 F.3d at 199 (citations and internal quotation marks omitted). Kostovetsky
correctly argues that the complaint pleads open-ended continuity. Doc. 34 at 29. “Open-ended
13

continuity is present when (1) a specific threat of repetition exists, (2) the predicates are a regular
way of conducting [an] ongoing legitimate business, or (3) the predicates can be attributed to a
defendant operating as part of a long-term association that exists for criminal purposes.” Vicom,
Inc., v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 782 (7th Cir. 1994) (alteration in original)
(internal quotation marks omitted). In Bible, the plaintiff received a form default letter and a
rehabilitation agreement after defaulting on her student loans. Both the letter and the agreement
said that her “current collection cost balance” was zero, but a guaranty agency later assessed her
over $4,500 in collection costs. The plaintiff argued that the letter and the agreement deceived
her into thinking that no collection costs would be imposed if she entered into a rehabilitation
program. In finding a pattern of racketeering, the Seventh Circuit explained:
[The plaintiff] alleges that USA Funds, through its enterprise, unlawfully
imposed collection costs on thousands of borrowers in default in the same
manner it did to her. She alleges that USA Funds has sent the form document
that became the rehabilitation agreement in this case more than 100,000 times
over a period of several years. Bible also alleges that the conduct at issue is
USA Funds’ standard operating procedure and that it is continuous and
ongoing. These allegations satisfy the relationship-plus-continuity test.
Bible, 799 F.3d at 660.
Kostovetsky’s complaint is analogous to the complaint in Bible. Kostovetsky alleges that
Defendants’ misrepresentation of reduced energy costs was part of their “standard marketing
pitch,” Doc. 1 at ¶ 12; that this pitch is given to other Ambit consumers, as evidenced by the
numerous customer complaints, id. at ¶¶ 47, 55-56; and that those “fraudulent activities are part
of their ongoing business and constitute a continuing threat,” id. at ¶ 90. These allegations,
which must be assumed true on a Rule 12(b)(6) motion, allow the reasonable inference that
Defendants are engaged in a pattern of racketeering activity. See Equity Residential v. Kendall
Risk Mgmt., Inc., 2005 WL 2007240, at *5 (N.D. Ill. Aug. 11, 2005) (holding that the plaintiffs
sufficiently alleged a pattern of racketeering under the open-ended continuity theory by asserting
14

that the predicate acts “were part of a regular way of doing business” for the defendants)
(internal quotation marks omitted); Arenson v. Whitehall Convalescent & Nursing Home, Inc.,
880 F. Supp. 1202 (N.D. Ill. 1995) (holding that a “finding of open-ended continuity can be
supported” for a RICO claim where “the scheme alleged by plaintiff ostensibly could last as long
as Whitehall remains in operation”).
Finally, Defendants argue that the complaint does not adequately plead proximate cause.
Doc. 21 at 8-9; Doc. 43 at 21-22. A RICO plaintiff must allege an “injury to himself from at
least one predicate act” by showing “some direct relation between the injury asserted and the
injurious conduct alleged.” Corley v. Rosewood Care Ctr., Inc. of Peoria, 388 F.3d 990, 100405 (7th Cir. 2004) (quoting Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 269 (1992)).
Defendants submit that Kostovetsky’s monetary losses were caused by the Ambit consultant’s
oral misrepresentation—not by the Ambit entities’ mail and wire fraud—and therefore that his
injury is too attenuated from the predicate acts to establish proximate cause. Doc. 43 at 22. This
argument reflects an overly narrow view of mail and wire fraud. As noted above, a mail or wire
communication need not contain fraudulent material itself so long as the communication is sent
as part of a scheme to defraud. See Powell, 576 F.3d at 493. Here, the false statements that
Ambit consultants make to consumers are inextricably intertwined with both the fraudulent
scheme in general and the Ambit entities’ predicate acts in particular. Customers are induced to
sign up with Ambit with false promises of savings and then they suffer out-of-pocket losses
when their energy bills skyrocket; there is nothing indirect or tenuous about that causal link.
Defendants also argue that Kostovetsky cannot establish proximate cause because he did
not plead that the consultants were Ambit’s agents. Doc. 21 at 9. That argument is wrong. Even
if an agency relationship were required in this context, Kostovetsky need not plead the legal

15

conclusion that the consultants are Ambit’s agents. See Polzin v. Ericksen, 607 F. App’x 572,
574 (7th Cir. 2015) (“[F]ederal complaints need not cite law or develop legal theories.”); Reeves
ex rel. Reeves v. Jewel Food Stores, Inc., 759 F.3d 698, 701 (7th Cir. 2014) (“Plaintiffs need
only plead facts, not legal theories, in their complaints.”). All he must plead are facts that would
plausibly give rise to an agency relationship, and the complaint does precisely that. See Reginald
Martin Agency, Inc. v. Conseco Med. Ins. Co., 478 F. Supp. 2d 1076, 1088-89 (S.D. Ind. 2007)
(holding that a jury could find that a company’s sales representatives were its agents). In any
event, the consultants need not be Ambit agents for Defendants to be liable under RICO. All that
matters is that the Ambit entities, Thompson, and Chambless coordinate with the consultants as
part of an enterprise to perpetrate the scheme, which is what the complaint adequately alleges.
See Cox v. Sherman Capital LLC, 2015 WL 3513889, at *4 (S.D. Ind. June 3, 2015) (rejecting
the defendants’ argument that the complaint had to plead agency because the RICO claims were
premised not on an agency theory but on defendants’ own conduct as participants in the
enterprise’s affairs). Accordingly, Kostovetsky has adequately pleaded proximate cause.
B.

Section 1962(d) Claim

Section 1962(d) makes it “unlawful … to conspire to violate” §§ 1962(a), (b), or (c). 18
U.S.C. § 1962(d). To state a § 1962(d) claim, the plaintiff must allege “that (1) the defendant[s]
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) the defendant[s] further agreed that
someone would commit at least two predicate acts to accomplish these goals.” Empress Casino
Joliet Corp. v. Johnston, 763 F.3d 723, 734-35 (7th Cir. 2014) (alterations in original); see also
DeGuelle, 664 F.3d at 204. The Seventh Circuit has stressed “that the touchstone of liability
under § 1962(d) is an agreement to participate in an endeavor which, if completed, would

16

constitute a violation of the substantive statute.” Goren v. New Vision Int’l, Inc., 156 F.3d 721,
732 (7th Cir. 1998). Like all conspiracies, a RICO conspiracy “does not require direct evidence
of agreement; an agreement can be inferred from the circumstances.” Gagan v. Am. Cablevision,
Inc., 77 F.3d 951, 961 (7th Cir. 1996).
Defendants incorrectly contend that the complaint fails to plead any facts that could
plausibly suggest an agreement. Doc. 21 at 15. The nature of the fraudulent acts, together with
the Ambit entities’ interlocking character, common ownership, and overlapping personnel, allow
for the reasonable inference that the Defendants coordinated their conduct as the result of an
agreement. See DeGuelle, 664 F.3d at 192 (finding that “[a]lthough the complaint’s allegations
as to the existence of an agreement are sparse, at this stage in the proceedings, there are enough
allegations to infer that an agreement existed”); Nesbitt, 2015 WL 1331291, at *17 (“From the
detailed allegations of the role each defendant played in the operation of the enterprise over
course of years, it is fair to infer that each willing participant in the enterprise agreed to
participate in the scheme and that acts of wire or mail fraud would occur throughout the multiyear duration of the scheme.”).
II.

Unjust Enrichment Claim
Defendants argue that the unjust enrichment claim should be dismissed because the

complaint “fails to plead which state’s law applies to” Kostovetsky’s claim. Doc. 21 at 17. That
argument is meritless; because Kostovetsky resides in Illinois, Illinois law likely applies to his
unjust enrichment claim. Defendants also contend that the complaint’s “failure to specify which
state law applies to the proposed multi-state class … require[es] dismissal.” Ibid. That argument
is meritless as well; if class certification is granted, New Jersey law likely will apply to the unjust

17

enrichment claims of the New Jersey class members, Texas law likely will apply to the unjust
enrichment claims of the Texas class members, and so on.
It may be that the unjust enrichment laws of the various States are different enough to
preclude class certification on predominance or other grounds. See In re Bridgestone/Firestone,
Inc., Tires Prods. Liab. Litig., 288 F.3d 1012, 1018 (7th Cir. 2002) (decertifying a class in part
because the class’s claims would require adjudication under the law of so many jurisdictions that
a single nationwide class would be unmanageable). That inquiry is premature at this point and
best left to the class certification stage. See Payton v. Cnty. of Kane, 308 F.3d 673, 680 (7th Cir.
2002) (“We have begun our analysis with the question of class certification, mindful of the
Supreme Court’s directive to consider issues of class certification prior to issues of standing.”); 1
McLaughlin on Class Actions § 4:28 & n.25 (11th ed. 2014) (“[M]ost courts have rejected
standing challenges to named plaintiffs who plainly have standing as to their personal claims, but
also purport to represent a class, for example, with claims under the consumer protection laws of
states in which the named plaintiffs do not reside.”) (collecting cases).
Conclusion
For the foregoing reasons, Kostovetsky’s motion to strike is granted and Defendants’
motion to dismiss is denied. Defendants shall answer the complaint by January 29, 2016.

January 8, 2016
United States District Judge

18