Bartlett v. Bartlett et al
Filing
66
MEMORANDUM AND ORDER, The Court GRANTS in part and DENIES in part the defendants' motion to dismiss. (Doc. 61 .) The Court DISMISSES without prejudice the counts against Denise Bartlett (II) and Evan Bartlett (III) for failure to state a claim. The Clerk of Court is DIRECTED to terminate Denise and Evan Bartlett as defendants in this matter. Signed by Judge J. Phil Gilbert on 11/15/2017. (jdh)
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
MARK BARTLETT,
Plaintiff,
v.
Case No. 3:17-cv-00037-JPG-SCW
JAMES BARTLETT, DENISE BARTLETT,
EVAN BARTLETT, ANOOSH MOTAMEDI,
and MARK KEENAN,
Defendants.
MEMORANDUM & ORDER
J. PHIL GILBERT, DISTRICT JUDGE
This matter comes before the Court on the defendants’ motion to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6). (Doc. 61.) The plaintiff has filed a timely response to
the motion. (Doc. 65.) For the foregoing reasons, the Court GRANTS in part and DENIES in
part the motion to dismiss.
I.
BACKGROUND
i.
The Scheme
The factual and procedural saga of this case is dense and, at times, caustic. Mark and
James (“Jim”) Bartlett are brothers. They jointly own nine cash-lending stores via four business
entities. These businesses are spread throughout New Mexico, Florida, Illinois, and Wisconsin.
Mark manages five of these stores while Jim operates four. The brothers own via two entities the
four stores that Jim operates: American Cash Loans, LLC (“American”) and B&B investment
Group, Inc. (“B&B”). B&B does business as Cash Loans Now (“Cash Loans”). Mark claims that
the two had an agreement to split profits from all nine stores 50/50, with Mark receiving an extra
bonus each year for managing one more store than Jim. (Compl. ¶¶ 17–34.)
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According to the complaint, this arrangement continued until 2014—when Jim allegedly
devised a complex scheme to cut Mark out of all of the profits from American and Cash Loans.
Mark claims that in August 2014, Jim directed his wife, Denise, and his “second-in-command”,
Anoosh Motamedi, to resurrect from its tomb Dellano, LLC—a dissolved business corporation—
with the “illicit purpose of defrauding Mark”. (Compl. ¶¶ 37–42.) This fraud supposedly
occurred through a hide-the-shell game that diverted resources from American and Cash Loans
into a new set of cash-lending stores called “Quick Cash”. (Compl. ¶ 46.)
The alleged organizational scheme in the complaint is complex. Dellano, LLC is the
lynchpin: it does business as Quick Cash. The two registered owners of Dellano are The Pathway
Group, Inc. (with a 75% ownership share) and Blue Financial, Inc. (with a 25% ownership
share): two organizations that the defendants minted in September 2014, shortly after they
reanimated Dellano. The shareholders, officers, and directors of Pathway are Evan Bartlett—
Jim’s son—and Denise. Evan allegedly remits a substantial amount of the profits he receives
from the organization back to his parents. The shareholders, officers, and directors of Blue
Financial are Denise and Motamedi. The top level of the scheme is Renwel Financial, Inc., of
which Denise is the shareholder, officer and director. Mark alleges that Jim and Denise directly
invested $155,000 in Renwel, which Renwel then loaned to Pathway and Blue Financial.
Pathway and Blue Financial then invested that money in Dellano, which Dellano used to fund the
Quick Cash stores. (Compl. ¶¶ 38–67.)
Mark alleges that Jim is the “king pin” of this scheme to defraud. (Compl. ¶ 152.)
Specifically, Mark claims that Jim set up this scheme to cloak his involvement in Quick Cash,
which is critical to the theory of Mark’s case: Mark alleges that Jim has illegally funneled
customer lists and information, financial data, borrowing and lending protocols, form loan
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applications, TILA disclosure forms, and ACH authorization forms from American and Cash
Loans into the new Quick Cash stores. (Compl. ¶¶ 86–97.)
Mark has now brought a Racketeer Influenced and Corrupt Organizations Act (RICO)
action against Jim, Denise, Evan, Motamedi, and a fifth defendant—Mark Keenan—who
allegedly works as an employee for American, Cash Loans, and Quick Cash. Mark claims that
the predicate acts giving rise to a valid RICO claim are (1) the previously mentioned theft of
trade secrets in violation of 18 U.S.C. § 1832, and (2) mail and wire fraud in violation of 18
U.S.C. §§ 1341 & 1343. Mark believes the wire fraud occurred when (1) the defendants used
interstate wires to incorporate Blue Financial, Pathway, and Renwel, and (2) when Jim and
Denise wired the $155,000 loan through Renwel to Blue Financial and Pathway. It is not clear
from the complaint when any alleged mail fraud occurred.
ii.
Procedural History
A similar story has been told in court before. In 2015, Mark filed suit against James in
Florida state court alleging breach of contract and breach of fiduciary duty arising from the same
set of facts as this case. The Florida court stayed the proceedings, however, when it discovered
that the two brothers had filed parallel claims against each other in New Mexico state court. In
the New Mexico litigation, Mark had asserted a state law civil RICO counterclaim against James
in addition to claims of breach of contract, breach of fiduciary duty, interference with contract,
and interference with prospective contracts. Mark voluntarily dismissed the RICO claim,
however, several days after he filed this federal RICO action in the United States District Court
for the Northern District of Illinois.
The Northern District of Illinois transferred the case to this Court pursuant to 28 U.S.C. §
1406. (Docs. 30, 31.) Following the transfer, the New Mexico state court held a trial and
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dismissed all of Mark’s claims with prejudice. Although this case may be a candidate for res
judicata in the future, that analysis is not ripe until the judgment on the pleadings stage. Carr v.
Tillery, 591 F.3d 909, 913 (7th Cir. 2010) (stating that res judicata is an affirmative defense and
therefore not appropriate until the judgment on the pleadings stage under Federal Rule of Civil
Procedure 12(c)). At this early juncture, the defendants have instead moved to dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.
II.
LEGAL STANDARDS
A.
Federal Rule of Civil Procedure 12(b)(6)
When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts as true all
allegations in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)). To avoid dismissal under Rule 12(b)(6) for failure to state
a claim, a complaint must contain a “short and plain statement of the claim showing that the
pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). This requirement is satisfied if the
complaint: (1) describes the claim in sufficient detail to give the defendant fair notice of what the
claim is and the grounds upon which it rests and (2) plausibly suggests that the plaintiff has a
right to relief above a speculative level. Bell Atl., 550 U.S. at 555; see Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009); EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007). “A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
678 (citing Bell Atl., 550 U.S. at 556). “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.” Iqbal, 556 U.S. at 679.
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B.
The Racketeer Influenced and Corrupt Organizations Act
The Racketeer Influenced and Corrupt Organizations Act allows for a civil cause of
action by “[a]ny person injured in his business or property by reason of a violation of section
1962 of this chapter . . .” 18 U.S.C. § 1964(c). Under section 1962, it is unlawful to participate in
the “conduct of [an] enterprise’s affairs through a pattern of racketeering activity or collection of
unlawful debt” 18 U.S.C. § 1962(c). A violation requires proof of four elements: “(1) conduct (2)
of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co.,
473 U.S. 479, 496 (1985). The conspiracy provision—subsection (d)—further requires “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. Balmoral Racing Club, Inc., 831 F.3d 815, 823 (7th Cir. 2016)
(internal citation omitted). In order to state a valid RICO claim, a plaintiff must plead that he
suffered “an injury to [his] business or property [that] result[ed] from the underlying acts of
racketeering.” Empress Casino Joliet Corp. v. Johnston, 763 F.3d 723, 728–29 (7th Cir. 2014)
(citing Haroco, Inc. v. Amer. Nat'l B & T Co. of Chi., 747 F.2d 384, 398 (7th Cir. 1984)).
i.
Pattern of Racketeering Activity
The first two elements of a RICO violation—“conduct” and “enterprise”—are generally
simple to allege. Elements three and four, however—“through a pattern” “of racketeering
activity”—is where the statute transforms into a complex Medusa-like creature with multiple
moving parts. First, a plaintiff must show a set of predicate acts: the “racketeering activities”.
The statute gives a laundry list of crimes and acts that qualify as racketeering activities, including
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theft of trade secrets and wire fraud. 18 U.S.C. § 1961(1). A plaintiff must show at least two of
these activities occurred in order to state a valid RICO claim. 18 U.S.C. § 1961(5).
Next, the predicate acts must exhibit some sort of pattern: a “continuity plus
relationship”. H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989). The
relationship prong is simple: the acts must 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.” Id. at 240 (internal citation omitted). Continuity is
where things become tricky. It exists to ensure that RICO “targets long-term criminal conduct”,
considering Congress created the statute with the goal of “eradicating organized, long-term,
habitual criminal activity”—not simple business disputes. Balmoral Racing Club, Inc., 831 F.3d
at 828 (citing Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir. 2006)).
There are two types of continuity: open-ended and closed-ended. Closed-ended
continuity exists when the alleged scheme had a distinct ending point. Jennings v. Auto Meter
Prod., Inc., 495 F.3d 466, 473 (7th Cir. 2007). To determine whether a closed-ended scheme
existed, the Seventh Circuit analyzes “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.” Balmoral Racing Club, Inc., 831 F.3d at 828 (citing
Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir. 1986)). Open-ended schemes are
more abstract: a plaintiff must show past conduct that “by its nature projects into the future with
a threat of repetition”. H.J. Inc., 492 U.S. at 241. In this circuit, three circumstances qualify for
open-ended continuity: “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
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purposes.” Balmoral Racing Club, Inc., 831 F.3d at 828 (citing Vicom, Inc. v. Harbridge
Merchant Services, Inc., 20 F.3d 771, 780 (7th Cir. 1994)).
III.
ANALYSIS
Despite referring to the defendants as “co-conspirators”, the complaint alleges that each
of the five defendants violated 18 U.S.C. § 1962(c): the substantive RICO provision. The
following table lays out the posture of each defendant and the specific predicate acts that the
complaint alleges against them:
Defendant
Alleged Predicate Acts
*James “Jim” Bartlett
The alleged “the king pin”
18 U.S.C. § 1343. Wire fraud (Compl. ¶ 154)
18 U.S.C. § 1341. Mail fraud (Compl. ¶ 154)
18 U.S.C. § 1832. Theft of trade secrets (Compl. ¶ 154)
Denise Bartlett
Jim’s wife
18 U.S.C. § 1343. Wire fraud (Compl. ¶ 159)
18 U.S.C. § 1341. Mail fraud (Compl. ¶ 159)
Evan Bartlett
Jim’s son
18 U.S.C. § 1343. Wire fraud (Compl. ¶ 164)
18 U.S.C. § 1341. Mail fraud (Compl. ¶ 164)
18 U.S.C. § 1343. Wire fraud (Compl. ¶ 169)
*Anoosh Motamedi
Jim’s “second-in-command” 18 U.S.C. § 1341. Mail fraud (Compl. ¶ 169)
18 U.S.C. § 1832. Theft of trade secrets (Compl. ¶ 169)
Mark Keenan
Jim’s employee
18 U.S.C. § 1832. Theft of trade secrets (Compl. ¶ 169)
* James Bartlett and Anoosh Motamedi were the defendants in the New Mexico litigation. That court dismissed
Mark’s claims with prejudice.
The defendants have moved to dismiss the complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim. First, the defendants assert that Mark has not
properly alleged a “pattern of racketeering activity”: each defendant must have committed at
least two predicate acts and the acts must satisfy the continuity requirement. Second, they argue
that courts in the Seventh Circuit have routinely dismissed cases like this one for failure to state a
claim. Third, the defendants argue that the predicate acts were not a proximate cause of Mark’s
injury.
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A. Predicate Acts
The RICO statute states that mail fraud, wire fraud, and theft of trade secrets all qualify
as predicate offenses. 18 U.S.C. § 1961(1). In order to survive a motion to dismiss, the complaint
must state a plausible claim that the defendants engaged in these predicate acts. Bell Atl., 550
U.S. at 555. The Court will address each of these predicate acts in turn.
i.
Wire & Mail Fraud
The plaintiff alleges that the defendants engaged in wire fraud when (1) Jim, Denise,
Evan, and Motamedi used interstate wires to incorporate Blue Financial, Pathway, and Renwel,
and (2) when Jim and Denise wired the $155,000 loan through Renwel to Blue Financial and
Pathway. 18 U.S.C. § 1343 makes it unlawful for a person to transmit by means of wire any
writings, signs, signals, pictures, or sounds for the purpose of executing a scheme or artifice to
defraud. An individual violates the statute if three elements are met: (1) participation in a scheme
to defraud; (2) intent to defraud; and (3) the defendant causes a wire transmission in furtherance
of the fraudulent scheme. United States v. Ratliff-White, 493 F.3d 812, 817 (7th Cir. 2007). A
defendant can “cause” a wire transmission as long as they act “with the knowledge that use of
the wires will occur in the ordinary course of business or where use of the wires can be
reasonably foreseen.” Id. (citing Am. Auto. Accessories, Inc. v. Fishman, 175 F.3d 534, 542 (7th
Cir. 1999). The elements of mail fraud directly parallel those of wire fraud, with mail fraud
requiring the use of mail rather than a wire transmission. United States v. Leahy, 464 F.3d 773,
786 (7th Cir. 2006).
Courts in this circuit have been hesitant to allow RICO claims predicated on wire and/or
mail fraud alone to proceed. See McDonald v. Schencker, 18 F.3d 491, 499 (7th Cir. 1994)
(referring to a RICO claim predicated on mail fraud as “nothing more than a garden-variety
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business dispute recast as mail fraud”); Cmty. Ins. Servs., Ltd. v. United Life Ins. Co., No. 05CV-4105-JPG, 2006 WL 2038652, at *5 (S.D. Ill. Mar. 24, 2006) (dismissing a RICO action
predicated on wire and mail fraud as a “garden-variety fraud case concerning what is best
described as a business dispute”); Faith Constr. 4, Inc. v. Girouard, No. 14 CV 2886, 2014 WL
6679118, at *3 (N.D. Ill. Nov. 21, 2014) (dismissing a RICO action that was predicated on mail
fraud because the act of mailing was too remote to be the proximate cause of a RICO injury);
Wankel v. S. Illinois Bancorp, Inc., No. 06-cv-0619-MJR, 2007 WL 2410328, at *10 (S.D. Ill.
Aug. 21, 2007) (“it seems that Plaintiffs' cause of action constitutes precisely what the Supreme
Court and Seventh Circuit courts hope to forestall: ‘RICO's use against isolated or sporadic
criminal activity [such that] RICO [becomes] a surrogate for garden-variety fraud actions
properly brought under state law’”).
The defendants have cited all of the above cases in their motion to dismiss. The plaintiff
has responded in an interesting manner: they do not dispute the cited cases, but rather claim that
“Defendants mischaracterize Mark’s RICO claim”; “Mark clearly bases his RICO claim on
Defendants’ theft of trade secrets”; and “Mark’s RICO claim is different from the cases
Defendants cite because it is based on theft of trade secrets, a serious federal offense”. (Pl.’s
Resp. to Def.’s Mot. to Dismiss 5–6.) What the plaintiff appears to have forgotten is that the
complaint alleges that two of the defendants—Denise and Evan Bartlett—only committed the
predicate acts of mail and wire fraud. As courts in this circuit have repeatedly explained, a
federal RICO claim is not the appropriate mechanism to deal with garden-variety fraud disputes.
Accordingly, the counts against Denise and Evan Bartlett must be dismissed.
ii.
Theft of Trade Secrets
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The plaintiff alleges that three of the defendants—Jim Bartlett, Anoosh Motamedi, and
Mark Keenan—engaged in illegal theft of trade secrets by funneling resources away from
American and Cash Loans and into the new Quick Cash stores. These resources included
customer lists and information, financial data, borrowing and lending protocols, form loan
applications, TILA disclosure forms, and ACH authorization forms. (Compl. ¶¶ 86–97.) A theft
of trade secrets claim pursuant to 18 U.S.C. § 1832 has six elements: (1) the information at issue
is a trade secret; (2) the defendants knowingly possessed the trade secrets; (3) the defendants
knew the trade secrets were stolen or appropriated, obtained, or converted without authorization;
(4) the defendants intended to convert the trade secrets to the economic benefit of anyone other
than its owner; (5) the defendants knew the offense would injure the owner; and (6) the trade
secrets were related to a product placed in interstate or foreign commerce. See United States v.
Hanjuan Jin, 833 F. Supp. 2d 977, 1005 (N.D. Ill. 2012) (summarizing the elements of 18 U.S.C.
§ 1832).
At this stage in the proceedings, the plaintiff has adequately pled that the defendants
engaged in theft of trade secrets. The Economic Espionage Act defines “trade secrets” as:
“[A]ll forms and types of financial, business, scientific, technical,
economic, or engineering information ... whether tangible or
intangible, and whether or how stored, compiled, or memorialized
physically, electronically, graphically, photographically, or in
writing if—(A) the owner thereof has taken reasonable measures to
keep such information secret; and (B) the information derives
independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable through
proper means by, the public[.]”
18 U.S.C. § 1839(3). While not all of the resources that the plaintiff alleges the defendants stole
may qualify as trade secrets, there are at least two that do: customer lists and financial data.
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These fall under the plain language of the statute: “all forms and types of financial [and] business
information”.
Moreover, plaintiff has alleged enough facts at this stage to satisfy the remaining
elements of the statute. The complaint states that “[a]ll reasonable and necessary steps were
taken to protect American and B&B customer lists and other trade secret information from
improper disclosure” and “the customer lists were kept on secure computer networks, shielded
from the general public, and only provided to employees on a need to know basis.” (Compl. ¶¶
93–94.) The complaint also repeatedly asserts that the defendants intended to convert the trade
secrets for their own personal gain and to the detriment of Mark. (Compl. ¶¶ 85–134.) This is
enough to satisfy the Twombly pleading standards.
B. Continuity
The plaintiff must also meet the continuity requirement in order to state a valid “pattern
of racketeering activity” under RICO. The defendants argue that this case is similar to two cases
in this circuit in which the plaintiff failed to allege the continuity requirement. First, in Star
Forge Mfg., Inc. v. F.C. Mason, Inc., 2002 WL 31248559 (N.D. Ill. Oct. 4, 2002), the court
found that the plaintiff failed to properly show closed-ended continuity as a matter of law
because there was “one and only one scheme—the diversion of customers and business . . . with
one victim . . . and one injury (the loss of business).” Second, in Midwest Grinding Co. v. Spitz,
976 F.2d 1016, 1025 (7th Cir. 1992), the Seventh Circuit held that an alleged RICO scheme
predicated on fraud was a “closed-ended scheme [that] has none of the trappings of a long-term
criminal operation that carries with it a threat to society; it is, in short, a run-of-the mill fraud
case that belongs in state court”.
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The plaintiff counters, however, by claiming that he has pled an open-ended scheme
predicated on theft of trade secrets—distinguishing his action from Star Forge and Midwest
Grinding. Specifically, plaintiff argues that the defendants plan to (1) “continue plundering the
lending stores” (Compl. ¶ 7); (2) move and consolidate the American and B&B stores into one
small location dedicated solely to collecting outstanding loans (Compl. ¶ 106); and (3) fill the
vacancies with Quick Cash stores (Compl. ¶ 109). At the motion to dismiss stage, the Court must
take these allegations as true. Bell Atl. Corp., 550 U.S. at 555. And if the allegations are true,
plaintiff has alleged past conduct that “by its nature projects into the future with a [specific]
threat of repetition” that satisfies the Twombly pleading standards. H.J. Inc., 492 U.S. at 241.
C. Proximate Cause
There is one final matter to address. The defendants’ last argument is that the case should
be dismissed because the predicate acts of wire and mail fraud did not proximately cause the
plaintiff’s injury. This argument has already been interwoven in the wire and mail fraud analysis,
but the Court wants to make clear that the proximate cause argument fails in respect to the theft
of trade secrets claims. In order for a RICO violation to proximately cause an injury, the plaintiff
must show that "the alleged violation led directly to the plaintiff's injuries.” Anza v. Ideal Steel
Supply Corp., 547 U.S. 451, 461 (2006). Here, if the theft of trade secrets allegations are true, the
diversion of financial and business data from American and B&B to Quick Cash would directly
harm Mark’s financial interests in his holdings. Accordingly, the proximate cause standard has
been met.
CONCLUSION
For the foregoing reasons, the Court GRANTS in part and DENIES in part the
defendants’ motion to dismiss. (Doc. 61.) The Court DISMISSES without prejudice the counts
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against Denise Bartlett (II) and Evan Bartlett (III) for failure to state a claim. The Clerk of Court
is DIRECTED to terminate Denise and Evan Bartlett as defendants in this matter.
IT IS SO ORDERED.
DATED: November 15, 2017
s/ J. Phil Gilbert
J. PHIL GILBERT
DISTRICT JUDGE
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