Southern Snow Manufacturing Co., Inc. v. SnoWizard Holdings, Inc. et al
Filing
605
ORDER & REASONS re 415 MOTION to Dismiss Alleged RICO Claims Under Rule 12(b)(6) filed by SnoWizard, Inc., Ronald R. Sciortino: for the reasons stated, IT IS HEREBY ORDERED that dfts' Motion to Dismiss Alleged RICO Claims Under Rule 12(b)(6) is GRANTED. Signed by Judge Nannette Jolivette Brown on 12/14/2012.(Reference: 11-1499)(rll, ) Modified on 12/14/2012 to edit text & doc type (rll, ).
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SOUTHERN SNOW MANUFACTURING CO., INC.
CIVIL ACTION
VERSUS
NO.
SNOWIZARD HOLDINGS, INC., et. al.
SECTION: “G” (1)
06-9170
09-3394
10-0791
11-1499
ORDER AND REASONS 1
Before the Court is SnoWizard, Inc.’s and Ronald R. Sciortino’s (collectively, the
“Defendants”) Motion to Dismiss Alleged RICO Claims Under Rule 12(b)(6) (Ref: 11-1499). 2
Therein, Defendants request that this court dismiss with prejudice Counts 1 through 24 of the
Complaint 3 and Counts 1 through 13 of the Amended Complaint, 4 in Civil Action No. 11-1499.
Defendants argue that even assuming all allegations in the plaintiffs’ Complaint and Amended
Complaint are true, they fail to assert the predicate criminal acts required to establish a cause of
action under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 5 18 U.S.C. §
1961 et seq. Having considered the motion, the response, the reply, the record, and the
applicable law, the Court will, for the following reasons, grant Defendants’ Motion to Dismiss
Alleged RICO Claims Under Rule 12(b)(6).
1
These written reasons relate to this Court’s Order issued on September 27, 2012. See Rec. Doc. 561.
2
Rec. Doc. 415.
3
Civ. Action No. 11-1499, Rec. Doc. 1.
4
Rec. Doc. 412.
5
18 U.S.C. § 1961, et seq.
1
I. Background
A. Procedural Background
Civil Action No. 06-9170 began in 2006, when Plaintiff Southern Snow Manufacturing
Co., Inc. filed a Petition 6 and a Supplementing and Amending Petition 7 in the Civil District
Court for the Parish of Jefferson, State of Louisiana, against SnoWizard Holdings, Inc.,
SnoWizard Inc., SnoWizard Extracts, Inc., and SnoWizard Supplies, Inc. (collectively,
“SnoWizard”) for violations of Louisiana state law and U.S. trademark law. On October 27,
2006, SnoWizard filed a Notice of Removal 8 in the Eastern District of Louisiana invoking this
Court’s jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338(a), which was allotted to Judge Jay
C. Zainey, Section “A.”
On May 13, 2012, Judge Zainey consolidated Civil Action No. 06-
9170 with Civil Actions Nos. 09-3394 and 10-0791. 9
On June 24, 2011, Plaintiffs Claude Black and Donna Black d/b/a Plum Street Snowballs;
Theodore Eisenmann; Raggs Supply, LP d/b/a Raggs Sno-Cone Supplies; Special T Ice Co.,
Inc.; Parasol Flavors, LLC; Simeon, Inc.; Southern Snow Mfg. Co., Inc.; and Snow Ingredients,
Inc. filed a Complaint 10 against Defendants in Civil Action No. 11-1499. Although the case was
initially allotted to Judge Martin L.C. Feldman, Section “F,” Civil Action No. 11-1499 was
subsequently transferred to Judge Zainey 11 and consolidated with the consolidated Civil Action
6
Rec. Doc. 1-1 at pp. 1-4.
7
Id. at pp. 5-11.
8
Rec. Doc. 1.
9
Rec. Doc. 122. Civil Action No. 11-0880 was also consolidated with Civil Action No. 06-9170, but, on
September 27, 2012, No. 11-0880 was removed from consolidated matter No. 06-9170. Rec. Doc. 563.
10
Civ. Action No. 11-1499, Rec. Doc. 1.
11
Civ. Action. No. 11-1499, Rec. Doc. 6.
2
No. 06-9170. 12
The Amended Complaint in 11-1499 13 (“Amended Complaint”) was
subsequently filed in this matter on August 27, 2011 by the above-named plaintiffs together with
new plaintiff Van Howenstine d/b/a Van’s Snowballs (collectively, “Plaintiffs”). Defendants
filed their Motion to Dismiss Alleged RICO Claims Under Rule 12(b)(6) (Ref:11-1499) on
August 30, 2011. 14 On October 1, 2011, Plaintiffs filed their Opposition to Defendant’s Motion
to Dismiss Under Rule 12(b)(6). 15 After receiving leave of Court, Defendants filed a reply in
support of their motion. 16 On October 7, 2011, the consolidated matter, encompassing Civil
Actions Nos. 06-9170, 09-3394, 10-0791, and 11-1499, was transferred to Section “G” of this
Court while the motion to dismiss was still pending. 17
B. Factual Background
“Snowballs” or “snoballs” are shaved ice confections flavored and colored with
“flavoring syrups” made from “flavor concentrate” mixed with simple syrup.18 In this case, all
parties are engaged in the sale, distribution, or manufacture of snowballs. SnoWizard, owned by
Defendant Ronald R. Sciortino (“Sciortino”), is a manufacturer and purveyor of snowball flavor
concentrates and ice-shaving machines that it sells at wholesale, at retail, and as private
12
Rec. Doc. 383.
13
Rec. Doc. 412.
14
Rec. Doc. 415.
15
Rec. Doc. 433.
16
Rec. Doc. 446.
17
Rec. Doc. 439.
18
Rec. Doc. 412 at p. 10.
3
labelings. 19 Plaintiff Plum Street Snoballs (“Plum Street”) is a vendor of snowballs at retail to
the general public and a former customer of SnoWizard. 20
Plaintiffs Southern Snow
Manufacturing, Co., Inc. and Snow Ingredients, Inc. (collectively, “Southern Snow”) are
commonly owned manufacturers and purveyors of ice-shaving machines and snowball flavor
concentrates. 21 Plaintiff Theodore Eisenmann is a former owner of Eisenmann Products, a
manufacturer of flavor concentrates and ice-shaving machines under the trademark FLAVOR
SNOW. Eisenmann Products’ FLAVOR SNOW business was sold in 2006 to the owner of
Southern Snow. 22 Plaintiff Parasol Flavors, LLC (“Parasol”) is a manufacturer of snowball
flavor concentrates. 23
Plaintiff Simeon, Inc. is related to Southern Snow through common
ownership, and is a company owning rights, recipes, and designs for snowball-related products.24
Plaintiff Raggs Supply, LP (“Raggs”) is a distributor of snowball flavor concentrates and iceshaving machines and non-exclusively distributed SnoWizard flavor concentrates between 1991
and 2010. 25
Raggs continues to distribute Southern Snow and Parasol products. Plaintiff
Special T Ice Co., Inc. (“Special T”) is also a distributor of snowball flavor concentrates and iceshaving machines. 26
19
Rec. Doc. 1 at p. 7.
20
Id.
21
Id. at p. 8.
22
Id. at p. 8.
23
Id.
24
Id.
25
Id.
26
Id.
4
In this litigation the parties bitterly dispute the scope and existence of patents on the iceshaving machine and its parts. According to Plaintiffs, SnoWizard filed a patent application for
the entirety of the ice-shaving machine in 1942, which was denied; however, the words “patent
pending” were displayed on the door of the machines from 1942 to 1984, at which time the
molding on the door was altered to read “patented,” and SnoWizard’s promotional literature also
claimed the machine was patented. 27 In 2009, SnoWizard stopped molding the word “patented”
into the door of the machine and started placing stickers to that effect on the machine. 28 On
April 7, 1987, Plaintiffs allege that Sciortino obtained a U.S. patent on the “stabilization means”
of the ice-shaving machine, but he subsequently abandoned that patent in 1995 due to nonpayment of the maintenance fee. 29 Despite the alleged abandonment of the patent, on April 12,
2001, Sciortino posted on the internet that “[t]here are differences between the two machines in
quality since Southern Snow did not have the patent to manufacture the SnoWizard machine
exactly.” 30
In 2002, SnoWizard began using a new ratchet-style linkage in its ice-shaving machines.
According to Plaintiffs, this ratchet linkage was designed and manufactured in cooperation with
Precision Metalsmiths, Inc. and without the execution of a confidentiality agreement. 31 In 2004,
Sciortino applied for a patent on the ratchet linkage, allegedly listing only himself as the inventor
and failing to disclose the parts’ public use and sale for more than one year before the application
27
Id. at p. 18.
28
Id. at p. 19.
29
Id. at pp. 18-19.
30
Id. at p. 19.
31
Id. at p. 20.
5
was filed. 32 Patents on the ratchet linkage and a new leg design were granted in 2007, and after a
period of abandonment for failure to pay the issue fee, were revived in 2009 based on Sciortino’s
statement that abandonment was unintentional. 33 Based on the patents SnoWizard claimed on its
ice-shaving machines, Plaintiffs allegedly stopped purchasing, distributing, selling, and using
ice-shaving machines that were not of the SnoWizard brand. 34
The parties are also in disagreement over a number of claimed state and federal
trademarks and trademark registrations. In late 2007 and early 2008, Plaintiff Parasol made
preparations to change the name of its sugar-free simple syrup mix to “SNOW SWEET,”
formerly “Simply Sweet.” SnoWizard allegedly contacted the owners of the mark “SIMPLY
SWEET,” causing them to send a cease and desist letter to Parasol, making it more urgent for
Parasol to re-label its product “SNOW SWEET.” Parasol registered “SNOW SWEET” in March
2008, but, in July 2008, SnoWizard registered the mark “SNOSWEET” with the United States
Patent and Trademark Office (“USPTO”) and the Louisiana Secretary of State.
Although
Parasol was using its mark “SNOW SWEET” in commerce prior to SnoWizard’s application for
registration of the “SNOSWEET” mark, SnoWizard sent a cease and desist letter to Parasol.
Starting in 1981, Southern Snow began manufacturing flavor concentrates and iceshaving machines in Gretna and Belle Chasse, Louisiana. 35 Also in the early 1980s, SnoWizard
sold flavor concentrates manufactured by the Charles Dennery Company. 36 But, in the mid2000s, SnoWizard began asserting various state and federal trademark and patent rights,
32
Id. at p. 23.
33
Id. at pp. 24-25.
34
Id. at pp. 26-27.
35
Id.
36
Id. at p. 15.
6
including registering 22 trademarks between 2003 and 2008. SnoWizard then sent cease and
desist letters to manufacturers and distributors on the basis of its registered trademarks. 37
The snowball flavor and name “ORCHID CREAM VANILLA” was allegedly developed
by the first owner of Plum Street, and it became a signature flavor of Plum Street, leading it to be
a separately listed asset in the sale of Plum Street to Donna and Claude Black in 1979. 38
According to Plaintiffs, SnoWizard copied the flavor without authorization, used the flavor with
no claim of exclusivity for approximately five years, and then applied for and received federal
trademark registration in May 2004. SnoWizard then sent cease and desist letters to Southern
Snow and Simeon, Inc. asserting the federal trademark registration. The registration was later
cancelled in December 2009 by the Trademark Trial and Appeal Board (“TTAB”) of the
USPTO. 39
Plaintiffs claim that the snowball flavor “SILVER FOX” was a signature flavor and
trademark of Eisenmann Products, which was acquired by Simeon, Inc. and related entities in
2006, when the “FLAVOR SNOW” brand was purchased. 40 Although the owners of “FLAVOR
SNOW” and Southern Snow claimed a trademark in “SILVER FOX” by affixing a “TM” to the
term in promotional materials, SnoWizard began using the “SILVER FOX” trademark in
commerce without authorization, claiming it as a “SnoWizard Original.” 41
Although SnoWizard was allegedly aware of the sale of various snowball flavors and use
of the term “SNOBALL” by Plaintiffs and other vendors prior to its application, SnoWizard
37
Id. at pp. 33-35.
38
Id. at p. 27.
39
Id. at p. 30.
40
Id. at p. 38.
41
Id.
7
applied for federal registration of the marks “SNOBALL,” “WHITE CHOCOLATE & CHIPS,”
“GEORGIA PEACH,” “BUTTERED POPCORN,” “MUDSLIDE,” and “PRALINE.” These
applications were rejected by the USPTO because the marks were merely descriptive or generic.
Plaintiff Simeon, Inc. purchased the Louisiana state Trade Mark Registration (hereinafter, “state
registration”) of “SNOBALL,” which Plaintiffs claim Defendants are now infringing. 42
Likewise, SnoWizard, allegedly with knowledge of prior use by competitors, applied for and
obtained a state registration of “HURRICANE,” “KING CAKE,” “WHITE CHOCOLATE &
CHIPS,” “CAJUN RED HOT,” “GEORGIA PEACH,” “BUTTERED POPCORN,” “CAKE
BATTER,” DILL PICKLE,” “MUDSLIDE,” and “MOUNTAIN MAPLE.” SnoWizard also
obtained federal trademark registrations of some of these marks, including “HURRICANE,”
“KING CAKE,” “MOUNTAIN MAPLE,” and “CAJUN RED HOT.”
SnoWizard claims common law trademark protection on “BUTTERCREAM” and
“CHAI LATTEA,” although others allegedly used those flavors before Snowizard.
Additionally, SnoWizard obtained state registration of “COOKIE DOUGH,” which Plaintiffs
allege was not used at all prior to submission of SnoWizard’s application, and federal and state
registration of “SNOFREE,” which Plaintiffs claim has never been used in commerce.
SnoWizard also sold the flavor TIRAMISU from 2002 to 2005 and then registered it as a
trademark in Louisiana after reintroducing it in 2008.
SnoWizard has engaged in a number of tactics to protect its intellectual property rights to
which Plaintiffs claim it is not entitled. After obtaining state and/or federal trademark protection
on the marks, SnoWizard sent cease and desist letters to Parasol and Simeon, Inc. for alleged
infringement of the marks “HURRICANE,” “KING CAKE,” “WHITE CHOCOLATE &
CHIPS,” “GEORGIA PEACH,” and “BUTTERED POPCORN.”
42
Rec. Doc. 412 at pp. 107-108.
8
Thereafter, SnoWizard
pursued lawsuits to protect its perceived intellectual property rights against Simeon, Inc.,
Parasol, and Southern Snow over various trademarks, including “HURRICANE,” “WHITE
CHOCOLATE & CHIPS,” “GEORGIA PEACH,” “BUTTERCREAM,” “BUTTERED
POPCORN,” “CAKE BATTER,” “MUDSLIDE,” “PRALINE,” and “MOUNTAIN MAPLE.”
SnoWizard also terminated a 19 year long distributorship with Plaintiff Raggs in June 2010, after
a dispute with Raggs about permissible redistribution and resale of SnoWizard’s products. 43
After terminating the distributorship, SnoWizard filed a lawsuit against Raggs for trademark
infringement in 2011. 44 Finally, Plaintiffs allege that SnoWizard sent a letter on January 1, 2002
to BellSouth Advertising and Publishing Corporation protesting Southern Snow’s Yellow-Pages
advertisement on the basis that it infringed SnoWizard’s intellectual property rights and
demanding that Southern Snow’s advertisement not be published. Plaintiffs claim that many of
the same allegations in SnoWizard’s letter to BellSouth were repeated in a posting to an internet
discussion group by Sciortino. Further, Plaintiffs note that on March 21, 2007, Sciortino asserted
in a posting to a internet discussion group he owns and controls, that “[SnoWizard] will protect
[its] legal and trademark rights if anyone infringes on them.” 45
Plaintiffs assert allegations relating to SnoWizard’s certification of its ice-shaving
machines. According to Plaintiffs, SnoWizard sought certification of its products from ETL
SEMKO, a division of Intertek Group plc. 46 Such certification by ETL is indicated by placing
an “ETL” sticker on the ice-shaving machine and related advertisements, which assures
43
Rec. Doc. 1 at pp. 33-34.
44
Id. at p. [].
45
Rec. Doc. 1 at pp. 16-17.
46
Rec. Doc. 412 at p. 109.
9
customers that the machine is well-designed and safe. 47 In 2010, SnoWizard’s ice-shaving
machine allegedly fell out of compliance with ETL and its certification lapsed. However, as of
August 5, 2011, Plaintiffs maintain that SnoWizard ice-shaving machines still displayed stickers
indicating ETL certification. 48
II. Parties’ Arguments
The parties agree that to assert a civil-RICO claim, Plaintiffs must demonstrate that
Defendants engaged in a “pattern of racketeering activity” 49 consisting of two or more predicate
acts, 50 which are defined by 18 U.S.C. § 1961 to include, inter alia, extortion, mail fraud, and
wire fraud. In the motion to dismiss, 51 Defendants argue that Plaintiffs fail to state a claim for
relief which can be granted under RICO, because the allegations in the Complaint and Amended
Complaint do not suffice to establish the requisite predicate acts. In support of Defendants’
position that Plaintiffs’ failure to allege any requisite predicate criminal acts is fatal to their
RICO claim, 52 Defendants rely on the holding of the United States Court of Appeals for the
Fifth Circuit in St. Germain v. Howard.
St. Germain clearly states that “[b]ecause Appellants
have not alleged the requisite predicate criminal acts under RICO, they have not met the
pleading standard of Rule 12(b)(6).” 53
47
Id. at pp. 109-10.
48
Id. at 110.
49
St. Germain v. Howard, 556 F.3d 261, 263 (5th Cir. 2009).
50
Abraham v. Singh, 480 F.3d 351, 355 (5th Cir. 2007).
51
Rec. Doc. 415-1.
52
Rec. Doc. 415-1 at p. 5.
53
556 F.3d at 263.
10
Defendants have identified in the Complaint and Amended Complaint five categories of
allegations made by Plaintiffs of purported predicate acts:
1)
“[f]raudulent assertion of patent rights” in the SnoWizard SnoBall Machine;
2)
“[f]raudulent assertion of trademark rights” with respect to twenty different
trademarks, at least five of which are federally registered in SnoWizard’s name,
and none of which have been conclusively declared unprotectable;
3)
infringement of five trademarks, two of which are federally registered in
SnoWizard’s name;
4)
extortion by sending a total of four trademark cease and desist letters to Southern
Snow, Parasol, and the Yellow Pages over a period of nine years, and by suing
Raggs for trademark infringement, unfair competition, trademark dilution, and
defamation; and
5)
“[f]raudulent assertion of ETL certification” of ice shaving machines certified by
Intertek Group plc. 54
However, according to Defendants, “no reasonable attorney would believe that any of these
alleged acts were capable of satisfying the predicate act requirements of RICO.” 55
Although Plaintiffs recognize in the Opposition to Defendants’ Motion to Dismiss Under
Rule 12(b)(6) that “[t]o sustain a civil-RICO claim, at least 2 predicate acts must be shown,” 56
Plaintiffs rely on Sedima, S.P.R.L. v. Imrex Co. 57 to argue that the fact “[t]hat the offending
conduct [in civil-RICO] is described by reference to criminal statutes does not mean that its
54
Rec. Doc. 415-1 (quoting Rec. Doc. 1 at ¶¶ 131- 948 and Rec. Doc. 412 at ¶¶ 150-861).
55
Id. at p. 4.
56
Rec. Doc. 433 at p. 11.
57
473 U.S. 479, 491 (1985).
11
occurrence must be established by criminal standards or that the consequences of a finding of
liability in a private civil action are identical to the consequences of a criminal conviction.”58
Thus, according to Plaintiffs, “SnoWizard’s many references to ‘criminal’ charges, and the
floodgates argument, are misplaced and unhelpful.”59
In their reply, Defendants explain that
Sedima in no way suggests that Plaintiffs do not need to establish criminal predicate acts to
sustain a civil-RICO case.
Instead, Sedima addresses what standard of proof—“beyond a
reasonable doubt versus preponderance of the evidence”—that must be met in order to establish
the requisite criminal predicate acts. 60
A. Mail and Wire Fraud Based on Fraudulent Assertion of Patent and Trademark Rights
As to the first category of allegations, Defendants argue that fraudulent assertion of
patent and trademark rights cannot constitute the predicate criminal acts of mail or wire fraud,
and thus Plaintiffs cannot establish a pattern of racketeering activity under RICO based on such
alleged fraudulent assertions. Defendants note that Plaintiffs fail to allege “that defendants at
any time claimed to have any patent or trademark registrations that did not exist, or that
defendants at any time asserted trademark rights in any trademark in violation of any final and
definite court order prohibiting such conduct.” 61
58
Rec. Doc. 433 at p. 11.
59
Id. (citations omitted).
60
Rec. Doc. 446 at p. 3 (citing 473 U.S. at 491).
61
Rec. Doc. 415-1 at p. 6.
12
1. Evidence of Intent to Defraud Required for Mail and Wire Fraud
According to Defendants, “[b]oth mail fraud and wire fraud require evidence of intent to
defraud by false or fraudulent representations,” 62 and Plaintiffs cannot establish such intent by
(1) alleging that SnoWizard was not entitled to obtain the patents and trademarks; (2) alleging
fraud on the USPTO; or (3) alleging that SnoWizard is not entitled to use the patents and
trademarks.
First, Defendants contend that Plaintiffs cannot establish the element of intent to defraud
by merely alleging that SnoWizard was not entitled to patent its SnoBall Machine; federally
register its trademarks in “HURRICANE,” “MOUNTAIN MAPLE,” “ORCHID CREAM
VANILLA,” “SNOFREE,” and “SNOSWEET”; or claim federal, state, or common law
trademark rights in the marks “BUTTERCREAM,” “BUTTERED POPCORN,” “CAJUN RED
HOT,” “CAKE BATTER,” “CHAI LATTEA,” “COOKIE DOUGH,” “DILL PICKLE,”
“GEORGIA PEACH,” “HURRICANE,” “MUDSLIDE,” “ORCHID CREAM VANILLA,”
“PRALINE,” “KING CAKE,” “SNOBALL,” “SNOBALL MACHINE,” “SNOFREE,”
“SNOSWEET,” “TIRAMISU,” and “WHITE CHOCOLATE & CHIPS.” 63
Second, Defendants reason that Plaintiffs may not rely on alleged fraud on the USPTO to
demonstrate the element of intent to defraud. 64 In support of this position, Defendants cite
Semiconductor Energy Laboratory Co. v. Samsung Electric Co., which found that since a patent
application cannot properly be deemed government property, misrepresentations before the
USPTO in obtaining that patent cannot constitute mail or wire fraud for the purposes of the
62
Id.
63
Id. at pp. 6-7.
64
Id. at p. 9.
13
predicate act requirement. 65
In opposition, Plaintiffs assert that Semiconductor Energy
Laboratory Co. is “no longer pertinent law” because of the Supreme Court’s holding in Bridge v.
Phoenix Bond & Indemnity Co. 66 The Supreme Court held in Bridge that “a plaintiff asserting a
RICO claim predicated on mail fraud need not show, either as an element of its claim or as a
prerequisite to establishing proximate causation, that it relied on the defendant’s alleged
misrepresentations,” 67 which, according to Plaintiffs, obviates the need for Plaintiffs to establish
any injury to the USPTO to sustain the RICO claim. 68 Plaintiffs suggest that the pending matter,
involving injury to the Plaintiffs (not the government) caused by the patents and trademark
registrations issued to SnoWizard, is similar to Bridge, where “the fraud perpetrated on Cook
County was the proximate cause of the injury to the competing purchasers, notwithstanding the
absence of first person detrimental reliance.”69
Plaintiffs further elaborate on their argument that fraud upon the USPTO is actionable by
injured private parties by citing two Federal Circuit cases in support of their position. In
Aristocrat Technologies Australia v. International Game Technology, 70 the Federal Circuit
stressed that “where the procedural irregularity involves an affirmative misrepresentation of a
material fact, failure to disclose material information, or submission of false material
information, coupled with an intent to deceive, may rise to the level of inequitable conduct, and
65
Id. (citing 204 F.3d 1368, 1380 (Fed. Cir. 2000)); see also id.(citing University of W. Va. v. VanVoorhies,
278 F.3d 1288, 1303 (Fed. Cir. 2002) (upholding a district court’s dismissal of a plaintiff’s RICO claim where the
plaintiff asserted mail fraud based on false submissions to the PTO in connection with patent applications)).
66
07-210, slip op. at 21, 553 U.S. _ _ (6/9/2008).
67
Rec. Doc. 433 at pp. 5, 7.
68
Id. at p. 8.
69
Id. at 7.
70
08-1016 (CAFC 9/22/2008) 543 F.3d 657.
14
is redressible under that framework. 71
Likewise, in Therasense Inc. v. Becton, Dickinson &
Co., 72 the Federal Circuit found that “[w]hen the patentee ha[s] engaged in affirmative acts of
egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is
material.” 73
In reply, Defendants contend that Bridge “involved the interpretation and application of
RICO’s proximate cause standing requirement of injury ‘by reason of’ a violation of the statute,
18 U.S.C. § 1964(c); it did not involve the interpretation or application of the ‘money or
property’ element of the wire and mail fraud statutes at issue in Semiconductor Energy.” 74
Moreover, Defendants note that the Fifth Circuit, in St. Germain, acknowledges the Supreme
Court’s holding in Bridge, but then holds that “[n]otwithstanding the fact that reliance is no
longer required to be pled, Appellants have still not sufficiently pled the predicate acts of mail
and wire fraud.” 75
Third, Defendants maintain that SnoWizard’s mere use of trademarking symbols or other
assertions of trademark rights cannot evidence “‘false or fraudulent pretenses, representations, or
promises’ within the meaning of either the mail or wire fraud statutes.” 76 Defendants refer to
this Court’s finding earlier in these proceedings that the use of trademarking symbols and even
generic terms does not constitute a literally false statement under the Lanham Act and LUTPA. 77
71
Rec. Doc. 433 at p. 14 (citing 543 F.3d at 663-64 (internal quotations omitted)).
72
08-1511 (CAFC 5/25/2011).
73
Rec. Doc. 433 at p. 13 (citing 08-1511, pp. 29-30 (CAFC 5/25/2011)).
74
Rec. Doc. 446 at p. 4 (citing 18 U.S.C. §§ 1341, 1343).
75
Id. at p. 5 (citing 556 F.3d at 263).
76
Rec. Doc. 446 at p. 6 (citing 18 U.S.C. §§ 1341, 1343).
77
Rec. Doc. 332 at p. 32.
15
Defendants reason that if SnoWizard’s assertion of trademark rights did not constitute a literally
false statement, as required to assert an unfair competition claim under the Lanham Act or
LUTPA,” 78 then those same actions cannot logically constitute evidence of intent to defraud. 79
Defendants further note that patents and federal trademark registrations are presumed valid
pursuant to 35 U.S.C. § 282 and 15 U.S.C. § 1057(b). 80
2. Assertion of Patent Rights
Plaintiffs allege that Defendants are fraudulently asserting patent rights, because
“SnoWizard has been advertising that its whole machine is ‘PATENTED’ since years before
2009,” even though the “whole machine is not, and never was, patented.” 81 In support of the
motion to dismiss, Defendants contend that Plaintiffs are “unable to cite a single allegation of
fact pleaded with specificity, or a single legal authority, which would support a reasonable
inference that SnoWizard’s assertions of patent and trademark rights could conceivably
constitute the statutorily defined crimes of mail and wire fraud or any other crime.” 82 Although,
Plaintiffs recognize that “fraud must be alleged with specificity,” 83 they argue that they have
satisfied the Fifth Circuit’s “time, place, and contents of the false representations” standard and
the Federal Circuit’s “who, what, when, where, and how” standard based on “no fewer than 41
78
Id. (citing Rec. Doc. 332, Order & Reasons at p. 32).
79
Id.
80
Rec. Doc. 415-1 at p. 8; see also In re MasterCard International Inc., Internet Gambling Litigation,132
F.Supp.2d 468, 482 (E.D. La. 2001) (J. Duval) (citing Meacham v. Halley, 103 F.2d 967, 971 (5th Cir. 1939) (noting
that “fraud cannot be predicated upon misrepresentations of law”)).
81
Id. at p. 15.
82
Rec. Doc. 446 at p. 2.
83
Rec. Doc. 415-1 at p. [].
16
specific dated communications. . .including the specific means of mailing or wire
transmission.” 84
Moreover, Plaintiffs argue, in opposition to the motion, that “SnoWizard makes
something like a preemption argument when it contends that its patents have an unassailable
validity[,] [b]ut the granting of the patents does not confer any immunity for anti-competitive
misuse of the patents, or the inequitable conduct used to obtain the patents.”85 Plaintiffs go on to
explain that assertions made “in the marketplace are separately actionable as a separate
wrong.” 86 In support of their position, Plaintiffs cite Zenith Electric Corp. v. Exzec, Inc., 87
which held that liability for unfair competition based on marketplace activity in support of a
patent requires that the marketplace activity be in bad-faith. 88 Plaintiffs argue that the holding in
Zenith should be applied by analogy to Plaintiffs’ civil-RICO claims. 89
B. Mail and Wire Fraud Based on Alleged Infringement of Plaintiffs’ Trademarks
According to Defendants, Plaintiffs also may not rely on allegations of “ordinary”
trademark infringement to establish mail or wire fraud. 90
In support of their position,
Defendants cite Johnson Electric North America Inc. v. Mabuchi Motor America Corp., 91 which
84
Rec. Doc. 433 at p. 16.
85
Rec. Doc. 433 at p. 9.
86
Id. at p. 10.
87
98-1288 (CAFC 7/12/1999) 182 F.3d 1340, 1353.
88
Rec. Doc. 433 at p. 10.
89
Id.
90
Rec. Doc. 415-1 at p. 11.
91
98 F.Supp.2d 480, 491 (S.D.N.Y. 2000).
17
explains that numerous district courts have dismissed RICO claims based upon patent or
copyright infringement. 92
Defendants also point to Plaintiffs’ failure to cite any authority
supporting their contention that trademark infringement can constitute mail or wire fraud. 93
Plaintiffs assert that patent infringement is actionable under RICO since the infringement
occurred in conjunction with additional allegations of fraud on the USPTO. 94 In support of their
position, Plaintiffs explain that the “district court in Johnson Electric said [] that patent
infringement by itself is not fraudulent, in the absence of an overall fraudulent scheme involving
infringement as one of its steps.” 95 To the contrary, the court noted in Johnson Electric that
there were no “allegations that defendants somehow perpetrated a fraud on the Patent and
Trademark Office by, for example, obtaining its own patent through material false
representations or non-disclosures.” 96
Plaintiffs argue that since “[they] have made the
additional allegations which the Johnson Electric court recognized would make actionable an
overall fraudulent scheme involving infringement as one of its steps,” Defendants’ trademark
infringement constitutes a predicate criminal act.97
C. Mail and Wire Fraud Based on Fraudulent Assertion of ETL Certification
Defendants also contend that Plaintiffs’ allegations of fraudulent assertion of ETL
certifications are insufficient to demonstrate mail and wire fraud. First, Defendants note that
92
Rec. Doc. 415-1 at p. 12.
93
Id.
94
Rec. Doc. 433 at p. 12.
95
Id. (citing Johnson Electric N.A. v. Mabuchi Motor, 88-7377 (S.D.N.Y. 5/31/2000) 98 F.Supp.2d 480, 491).
96
Id. (citing Johnson, 98 F.Supp.2d at 491).
97
Id.
18
Plaintiffs fail to plead with particularity, as required by Tel-Phonic Services, Inc. v. TBS
International, Inc., 98 “that [D]efendants’ alleged representations of ETL certification by placing
stickers on machines and advertisements were false or fraudulent within the meaning of the mail
and wire fraud statutes.” 99
Plaintiffs respond, in opposition, that Defendants’ continued
fraudulent assertion of a lapsed safety certification is actionable because SnoWizard lost its ETL
certification but still affirmatively claims to be certified.
Second, Defendants assert that
“Plaintiffs do not allege [] that any ice-shaving machines advertised and sold with ETL stickers
were manufactured after SnoWizard’s ETL certification allegedly lapsed in 2010.” 100
But,
according to Plaintiffs, the date of manufacturing of the ice-shaving machines is irrelevant. 101
Moreover, Plaintiffs claim that they are not required to plead information exclusively within
Snowizard’s possession, such as the manufacturing date of SnoWizard’s machines. 102
D. Extortion Based on Cease and Desist Letters and Suit for Trademark Infringement
Defendants also contend that Plaintiffs do not adequately demonstrate the predicate act of
extortion. Defendants assert that Plaintiffs fail to allege that Defendants “ever communicated to
any person any threat to do any harm to anyone within the meaning of the Louisiana extortion
statute, La. R.S. 14:66, or ever employed any wrongful use of actual or threatened force,
violence, or fear against anyone within the meaning of the federal extortion statute, 18 U.S.C. §
98
975 F.2d 1134 (5th Cir. 1992).
99
Id. at 1138.
100
Rec. Doc. 415-1 at p. 12 (emphasis in original).
101
Rec. Doc. 433 at pp. 15, 16.
102
Id.
19
1951(b)(2).” 103 Thus, Plaintiffs’ allegations that Defendants committed extortion by sending
four trademark “cease and desist” letters over a period of nine years and by suing Raggs for
trademark infringement, unfair competition, and defamation “do not even begin to establish the
requisite predicate criminal acts under RICO.” 104
Plaintiffs assert that “SnoWizard’s extortionate statements, actions, and threatened
actions are set forth in the Complaint, plausibly, and in more detail than Rule 8 requires for these
non-fraud claims.” 105
In support of this assertion, Plaintiffs cite a number of actions, that
constitute the requisite “communications,” including: (1) throwing a Plum Street employee out
of the SnoWizard facility and refusing to sell to Plum Street in retaliation for Donna Black’s
effective witness testimony in a trademark cancellation proceeding; (2) posting on the internet
that “[SnoWizard] will protect [its] legal and trademark rights if anyone infringes them”; (3)
harassing Raggs about SnoWizard’s trademarks in 2010 and suing Raggs for trademark
infringement and dilution in 2011; (4) sending four cease and desist communications; and (4)
filing the instant lawsuit and related threatened and pending litigation. 106
III. Law and Analysis
A. Legal Standard on a Motion to Dismiss
The Federal Rules of Civil Procedure provide that an action may be dismissed “for failure
to state a claim upon which relief can be granted.” 107 “To survive a motion to dismiss, a
103
Rec. Doc. 415-1 at p. 14 (emphasis in original).
104
Id.
105
Rec. Doc. 433 at p. 14.
106
Id.
107
Fed. R. Civ. P. 12(b)(6).
20
complaint must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that
is plausible on its face.’” 108 “Factual allegations must be enough to raise a right to relief above
the speculative level,” 109 and a claim is facially plausible when the plaintiff has pled facts that
allow the court to “draw a reasonable inference that the defendant is liable for the misconduct
alleged.” 110 In considering a motion to dismiss for failure to state a claim, the court typically
must limit itself to the contents of pleadings, including any attachments. 111
On a motion to dismiss, asserted claims are liberally construed in favor of the claimant,
and all facts pleaded are taken as true. 112 However, although required to accept all “well-pleaded
facts” as true, the court is not required to accept legal conclusions as true. 113 “While legal
conclusions can provide the framework of a complaint, they must be supported by factual
allegations.” 114 Similarly, “[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements” will not suffice. 115 The complaint need not contain detailed
factual allegations, but it must offer more than mere labels, legal conclusions, or formulaic
recitations of the elements of a cause of action. 116 That is, the complaint must offer more than an
108
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2008)).
109
Twombly, 550 U.S. at 556.
110
Id. at 570.
111
See Fed R. Civ. P. 12(b); O’Quinn v. Manuel, 773 F.2d 605, 608 (5th Cir. 1985); Neville v. Am. Rep. Ins.
Co., 912 F.2d 813, 814 n. 1 (5th Cir. 1990); U.S. ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 375 (5th
Cir. 2004).
112
Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993); see
also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23 (2007).
113
Iqbal, 556 U.S. 662, 677-78.
114
Id. at 679.
115
Id. at 678.
116
Id.
21
“unadorned, the defendant-unlawfully-harmed-me accusation.” 117
From the face of the
complaint, there must be enough factual matter to raise a reasonable expectation that discovery
will reveal evidence as to each element of the asserted claims. 118 If factual allegations are
insufficient to raise a right to relief above the speculative level, or if it is apparent from the face
of the complaint that there is an “insuperable” bar to relief, the claim must be dismissed. 119
B. Allegations of Fraud
Under Federal Rule of Civil Procedure 8, a complaint generally only must set forth “a
short and plain statement of the claim showing that the pleader is entitled to relief.”120 However,
under Federal Rule of Civil Procedure 9(b), a heightened pleading requirement exists for fraud
claims, such that a party alleging fraud or mistake “must state with particularity the
circumstances constituting fraud or mistake.” 121 Only “[m]alice, intent, knowledge, and other
conditions of a person’s mind may be alleged generally.” 122 Thus, a claim of fraud cannot be
based on mere “speculation and conclusory allegations,” 123 and the Fifth Circuit strictly
interprets the requirements for pleading fraud. 124 That is, Federal Rule of Civil Procedure 9(b)
117
Id.
118
Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 257 (5th Cir. 2009).
119
Moore v. Metropolitan Human Serv. Dep’t, No. 09-6470, 2010 WL 1462224, at * 2 (E.D. La. Apr. 8, 2010)
(Vance, C.J.) (citing Jones v. Bock, 549 U.S. 199, 215 (2007); Carbe v. Lappin, 492 F.3d 325, 328 & n. 9 (5th Cir.
2007)).
120
Fed. R. Civ. P. 8(a)(2).
121
Fed. R. Civ. P. 9(b).
122
Id.
123
U.S. ex rel. Willard v. Humana Health Plan of Tex., 336 F.3d 375, 385 (5th Cir. 2003).
124
Flaherty v. Crumrine Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207 (5th Cir. 2009), cert
denied, __ U.S. __, 130 S.Ct. 199 (2009).
22
“requires ‘the who, what, when, where, and how’ to be laid out.” 125
The “circumstances
constituting fraud” must be plead with particularity under Rule 9(b), and “[t]his particularity
requirement applies to the pleading of fraud as a predicate act in a RICO claim as well.” 126 The
requirements of Rule 9(b) are “supplemental to the Supreme Court’s recent interpretation of Rule
8(a) requiring ‘enough facts [taken as true] to state a claim to relief that is plausible on its
face.’” 127 Both state and federal fraud claims are subject to this heightened pleading standard of
Rule 9(b). 128
C. Civil-RICO Violations
RICO 129 provides a private civil action to recover treble damages for injury caused by
violation of RICO’s substantive provisions. 130 In St. Germain v. Howard, 131 the Fifth Circuit
explained that claims under RICO have three common elements: “(1) a person who engages in
(2) a pattern of racketeering activity, (3) connected to the acquisition, establishment, conduct, or
control of an enterprise. A pattern of racketeering activity consists of two or more predicate
criminal acts that are (1) related and (2) amount to or pose a threat of continued criminal
125
Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 723 (5th Cir. 2003) (quoting Tel-Phonic Servs.,
Inc. v. TBS Int’l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992)).
126
Tel-Phonic Services, Inc. v. TBS Intern., Inc., 975 F.2d 1134, 1138 (5th Cir. 1992).
127
Lentz v. Trinchard, 730 F.Supp.2d 567, 579 (E.D. La. 2010) (Africk, J.) (citing U.S. ex. Rel. Grubbs v.
Kanneganti, 565 F.3d 180, 185 (5th Cir. 2009) (quoting Twombly, 550 U.S. at 570)).
128
Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir. 1997) (“We see no principled reason why the
state claims of fraud should escape the pleading requirements of the federal rules.”).
129
18 U.S.C. §§ 1961-1968.
130
Sedima, S.P.R.L. v. Imrex Co., Inc., et. al., 473 U.S. 479, 481 (1985).
131
556 F.3d 261, 263 (5th Cir. 2009).
23
activity.” 132 RICO defines “racketeering activity” in 18 U.S.C. § 1961(1) to include any act or
threat involving extortion, which is punishable for more than one year; any act indictable under
18 U.S.C. § 1341 (relating to mail fraud); any act indictable under 18 U.S.C. § 1343 (relating to
wire fraud); and any act indictable under 18 U.S.C. § 1951 (relating to extortion). 133
Notably, the predicate acts that constitute racketeering activity under RICO are in fact
criminal. Plaintiffs’ misconstrue Sedima, S.P.R.L. v. Imrex Co., Inc. 134 to allow civil-RICO
claims based on predicate acts that are not criminal in nature; when, in fact, Sedima addressed
whether a prior criminal conviction was required to establish a pattern of racketeering activity. 135
The Supreme Court has noted that “[i]n a number of settings, conduct that can be punished as
criminal only upon proof beyond a reasonable doubt will support civil sanctions under a
preponderance standard.” 136 Likewise, Plaintiffs need not establish the predicate criminal acts
beyond a reasonable doubt in the pending case, but they nonetheless must plead a set of facts
sufficient to plausibly establish the predicate criminal acts of mail or wire fraud under RICO.
1. Mail & Wire Fraud Allegations
Plaintiffs allege that Defendants committed the predicate criminal acts of mail or wire
fraud by fraudulently asserting patents and trademarks, infringing Plaintiffs’ trademarks, and
fraudulently asserting ETL certification of ice-shaving machines. The federal crimes of mail
fraud and wire fraud are defined in 18 U.S.C. §§ 1341 and 1343, respectively, and because they
132
Id. (citations omitted).
133
18 U.S.C. § 1961(1)(A), (B).
134
473 U.S. 479 (1985).
135
Id. at 491.
136
Id.
24
“share the same language in relevant part, the same analysis applies to each.” 137 Thus, to state a
claim for mail fraud, the plaintiff must demonstrate, “(1) a scheme to defraud, (2) which involves
the use of the mails, (3) for the purpose of executing the scheme.” 138 To state a claim for wire
fraud, the plaintiff must demonstrate, “(1) a scheme to defraud, (2) the use of, or causing the use
of, wire communications in furtherance of the scheme.” 139 Therefore, both RICO mail fraud and
wire fraud “require evidence of intent to defraud, i.e., evidence of a scheme to defraud by false
or fraudulent pretenses.” 140
a. Mail and Wire Fraud Based on Fraudulent Assertions of Patents and
Trademarks
Primary among Plaintiffs’ allegations are the claims that SnoWizard fraudulently asserted
patent and trademarks rights.
According to Plaintiffs, Defendants made numerous false
representations to the USPTO in order to obtain patents and trademark registrations to which
they were not entitled. These false representations allegedly included (1) statements to the
USPTO that Defendants invented parts of an ice-shaving machine and applied for the patents
within one year of the parts going on sale, (2) that Defendants created and exclusively used a
variety of flavor concentrates such that the names of these flavors became trademarks, and (3)
that Defendants created and exclusively used certain words and product names such that these
terms became trademarks. Additionally, Defendants allegedly made false representations to the
public that they owned a patent on the entire SnoWizard brand ice-shaving machine. Even if
137
138
United States v. Mills, 199 F.3d 184, 185 (5th Cir. 1999) (internal quotations omitted).
United States v. Gray, 96 F.3d 769 (5th Cir. 1996).
139
Id.
140
St. Paul Mercury Insurance Co. v. Williamson, 224 F.3d 425, 441 (5th Cir. 2000).
25
these allegations are all true, which the Court must assume when deciding a motion to dismiss,
controlling authority clearly states that “inequitable conduct before the PTO cannot qualify as an
act of mail fraud or wire fraud for purposes of the predicate act requirement,” because such
conduct did not “‘defraud’ the government of any ‘property.’” 141
Plaintiffs further argue that Defendants’ representations to the public that they had patent
and trademark rights, which Defendants allegedly knew to be premised on false statements to the
USPTO, constitute fraud within the meaning of mail and wire and fraud. The Court does not
agree with this logic. If fraud in obtaining patent and trademark rights are insufficient to
establish a RICO violation under Semiconductor Energy Laboratory Co., it would be illogical to
conclude that asserting those patents and trademarks in the marketplace would constitute a RICO
violation. Therefore, since the underlying alleged fraud on the USPTO does not constitute mail
or wire fraud, SnoWizard’s representations to customers and competitors regarding its
intellectual property rights cannot constitute RICO violations. This position is further buttressed
by the general rule that fraud cannot be predicated upon misrepresentations of law. 142
Plaintiffs are also incorrect in their assertion that they no longer must prove injury
resulting from the scheme to defraud in the wake of Bridge v. Phoenix Bond & Indemnity Co. 143
In Bridge, the Supreme Court held that the injured party need not demonstrate first-party reliance
on the fraud. 144
Here, Plaintiffs contend that injury to the government is irrelevant and
141
Semiconductor Energy Laboratory Co., Ltd. v. Samsung Electronics Co., Ltd., 204 F.3d 1368, 1380 (Fed.
Cir. 2000); see also University of W. Va. V. VanVoorhies, 278 F.3d 1288, 1303 (Fed. Cir. 2002) (affirming dismissal
of plaintiff’s RICO claim where the plaintiff asserted the predicate acts of mail and wire fraud based on plaintiff’s
false submissions to the PTO in connection with patent application).
142
Meacham v. Halley, 103 F.2d 967, 971 (5th Cir. 1939) (citing 12 R.C.L. 295; Black on Rescission, 2d Ed.,
Sec. 71).
143
553 U.S. 639
144
Id. at 660.
26
Semiconductor Energy Laboratory Co.’s holding is no longer good law. Plaintiffs need not
demonstrate that the customers and competitors injured by Defendants’ assertions of patent and
trademark rights relied on Defendants’ fraudulent statements to the USPTO, in light of the
holding in Bridge. However, Plaintiffs must still plead a scheme to defraud upon which the
predicate acts of mail or wire fraud may be based. 145 Here, Plaintiffs argue that the scheme to
defraud involved Defendants’ alleged fraudulent statements to the USPTO. But, Semiconductor
Energy Laboratory Co. precludes a finding that Defendants committed mail and wire fraud on
the basis of fraudulent statements to the USPTO.
b.
Mail and Wire Fraud Based on Alleged Infringement of Plaintiffs’
Trademarks
Next, Plaintiffs contend that Defendants committed mail and wire fraud by infringing
trademarks owned by Plaintiffs. This Court has found no authority within the Fifth Circuit
holding that patent or trademark infringement can form the underlying predicate acts required for
a civil-RICO claim. Likewise, the Court notes that Plaintiffs were unable to cite any cases where
patent or trademark infringement constituted mail or wire fraud, for purposes of the predicate act
requirement. Instead, both parties discuss Johnson Electric North America Inc. v. Mabuchi
Motor America Corp., 146 wherein the Southern District of New York noted the “numerous cases
145
See St. Germain, 556 F.3d 261, 263 (5th Cir. 2009) (The Fifth Circuit clearly explained that
“[n]otwithstanding the fact that reliance is no longer required to be pled,” the plaintiff must still sufficiently plead
the predicate criminal acts of mail and wire fraud.)
146
98 F.Supp.2d 480 (S.D.N.Y. 2000).
27
in which RICO claims based upon patent or copyright infringement have been dismissed, even
where the plaintiffs attempted to plead the claims as mail or wire fraud.” 147
Johnson Electric suggests that ordinary infringement claims cannot constitute mail or
wire fraud because there is no deceptive element, which is required to establish a scheme to
defraud. 148 Here, Plaintiffs would have this Court interpret Defendants’ alleged fraud on the
USPTO as the deceptive element necessary to establish the scheme to defraud, and essentially
transform an ordinary infringement claim into a predicate criminal act. Plaintiffs rely heavily on
dicta in Naso v. Park, 149 noting that there were no “allegations that defendants somehow
perpetrated a fraud on the Patent and Trademark Office by, for example, obtaining its own patent
through material false representations or non-disclosures.” 150 Naso is not controlling in this
Court, and it is also not persuasive. Controlling authority establishes that fraud on the USPTO
does not constitute mail or wire fraud. Thus, ordinary trademark infringement in conjunction
with fraud on the USPTO cannot constitute the scheme to defraud required by the mail and wire
fraud statutes.
147
Id. at 491 (citing Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996) (affirming dismissal of RICO claims
alleging same activity alleged in copyright infringement claims); U.S. Media Corp., 94 Civ.4849, 1996 WL 520901,
at * 13 (holding that “[a] copyright violation alone does not involve either affirmative misrepresentation or any duty
to disclose. Such a violation may not be ‘bootstrapped’ into a violation of the mail or wire fraud statutes”); B.V.
Optische Industrie, 909 F.Supp. 162 (granting motion to dismiss RICO claims based upon fraudulent acts before the
United States Patent and Trademark office); Naso, 850 F.Supp. at 275 (dismissing RICO claims based upon mail
fraud involving patent infringement because patent infringement is not deceptive); Damiano, 975 F.Supp. at 632
(granting summary judgment for the defendant on RICO claims based upon allegations that defendants engaged in
mail fraud by selling recordings that stated that they were created by Bob Dylan)).
148
Id. at 491.
149
850 F.Supp. 264, 274-75 (S.D.N.Y. 1994).
150
Id.
28
c.
Mail & Wire Fraud Based on Fraudulent Assertion of ETL Certification
The Fifth Circuit requires that the allegations of fraud be plead with particularity,
including “the who, what, when, where, and how.” 151
Plaintiffs allege that Defendants
committed mail or wire fraud by fraudulently asserting ETL certification. Specifically, Plaintiffs
allege that Defendants’ ETL certification on its ice shaving machines lapsed in 2010, but iceshaving machines continued to display ETL certifications stickers in August 2011.
These
allegations are insufficient to plead the requisite “evidence of intent to defraud” with the
particularity required to state a claim for RICO mail or wire fraud. 152
2. Extortion Based on Cease and Desist Letters and Pursuit of Litigation
To state a civil-RICO claim based on the predicate act of extortion, the unlawful actions
must be chargeable under state law and punishable by more than one year of imprisonment or
indictable under 18 U.S.C. § 1951. 153 Extortion under Louisiana state law is defined as:
the communication of threats to another with the intention thereby to obtain
anything of value or any acquittance, advantage, or immunity of any description.
The following kinds of threats shall be sufficient to constitute extortion:
(1) A threat to do any unlawful injury to the person or property of the
individual threatened or of any member of his family or of any other person
held dear to him;
(2) A threat to accuse the individual threatened or any member of his family or
any other person held dear to him of any crime;
(3) A threat to expose or impute any deformity or disgrace to the individual
threatened or to any member of his family or to any other person held dear to
him;
(4) A threat to expose any secret affecting the individual threatened or any
member of his family or any other person held dear to him;
(5) A threat to do any other harm. 154
151
Tel-Phonic Servs., Inc. v. TBS Int’l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992).
152
See St. Paul Mercury Insurance Co., 224 F.3d at 441.
153
See 18 U.S.C. § 1961(1).
154
La. R.S. 14:66.
29
Under federal law, extortion is defined as “the obtaining of property from another, with his
consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color
of official right.” The Supreme Court, in Scheidler v. National Organization for Women,
Inc., 155 held that the actions taken by an antiabortion coalition to shut down health care centers
performing abortions did not constitute extortion under 18 U.S.C. § 1951, because the defendants
did not “obtain” or attempt to obtain property from the plaintiffs. 156 The Court reasoned that,
even if some of the defendants’ actions were criminal, “[t]o conclude that such actions
constituted extortion would effectively discard the statutory requirement that property must be
obtained from another, replacing it instead with the notion that merely interfering with or
depriving someone of property is sufficient to constitute extortion.” 157 The Court also held that
“[b]ecause petitioners did not obtain or attempt to obtain respondents’ property, [ ] the state
extortion claims…were fatally flawed.” 158
In the present matter, the Plaintiffs rely on the transmission of cease and desist letters, the
commencement of litigation on the basis of intellectual property rights, internet postings that
“[SnoWizard] will protect [its] legal and trademark right,” 159 and the refusal to provide services
or retail products to Plum Street employees as the basis for the predicate act of extortion.
However, none of these allegations suggest that Defendants obtained or attempted to obtain
property from the Plaintiffs. Defendants’ actions to protect its intellectual property rights,
155
537 U.S. 393 (2003).
156
Id. at 409.
157
Id. at 405.
158
Id. at 410.
159
Rec. Doc. 433 at p. 14.
30
regardless of whether Plaintiffs believe Defendants are entitled to those rights, clearly do not
constitute extortion under federal or state law based on the Supreme Court’s holding in
Scheidler.
IV. Conclusion
Even assuming all allegations in the Complaint and Amended Complaint are true, the
Plaintiffs have not established the predicate acts of mail fraud, wire fraud, or extortion.
Therefore, Plaintiffs have not demonstrated the pattern of racketeering activity required to state a
claim under RICO. Accordingly,
IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss Alleged RICO Claims
Under Rule 12(b)(6) (Ref: 11-1499) is GRANTED.
NEW ORLEANS, LOUISIANA, this 14th day of December, 2012.
___________________________________
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT JUDGE
31
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