Richardson et al v Cella et al.
ORDER & REASONS that Defendant George A. Cella, III's 8 Motion to Dismiss for Failure to State a Claim is GRANTED IN PART AND DENIED IN PART as follows: Plaintiffs' claims pursuant to subsections 1962(a) and 1962(b) of RICO and Plaintiffs' Louisiana fraud claim are hereby DISMISSED with prejudice; Plaintiffs' remaining claims survive. Signed by Judge Eldon E. Fallon on 8/23/13. (dno, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
RACHELE CELLA RICHARDSON, ET AL.
GEORGE A. CELLA, III, ET AL.
SECTION “L” (3)
ORDER AND REASONS
Before the Court is Defendant George A. Cella, III’s Motion to Dismiss for Failure
to State a Claim. (R. Doc. 8). The Court, after hearing oral arguments by counsel and after
reviewing the submitted memoranda and applicable law, now issues this Order and Reasons.
This case alleges civil violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. §§ 1961-68, arising out of several loans issued by
Defendant New York Life Insurance Company (“New York Life”) to Defendant George A.
Cella, III under New York Life Policy # 45907359 (the “Policy”). According to their Complaint,
Plaintiffs Rachele Cella Richardson and Brandy Cella, George Cella’s adult daughters, own the
Policy, which insures George’s life.1 Rachele is the sole beneficiary.
In their Complaint, Plaintiffs allege that George Cella sought and obtained loans
under the Policy beginning in 2006. Plaintiffs allege that George Cella, on several occasions,
filled out a New York Life policy loan request form, supplying Rachele’s tax identification
number and signing Rachele’s and Brandy’s names without their knowledge or authorization.
The Defendant notes that George’s ex-wife, Joy, is also a listed owner of the Policy.
Plaintiffs further allege that George submitted the forms via facsimile or other wire transmission.
Plaintiffs allege that George acted as an officer of two entities, Horizon Security
Vault Complex, Inc. (“Horizon”) and A. Levet Properties Partnership (“ALPP”). ALPP owns
and leases retail space located at 4545 and 4531 Veterans Memorial Boulevard in Metairie,
Louisiana, and paid premiums under the Policy. Horizon operates a business at 4545 Veterans
Memorial Boulevard. Plaintiffs allege that George used Horizon’s “resources, employees,
facilities . . . equipment [and] letterhead” in completing the loan request forms.
According to the Complaint, George received checks payable to Rachele and Brandy
at Horizon’s place of business, again signed Rachele’s and Brandy’s names without their
knowledge or authorization when endorsing the checks, and deposited the checks in his personal
checking account. Plaintiffs allege that these loans have devalued the Policy and thereby caused
them damages. Plaintiffs assert causes of action under RICO, specifically 18 U.S.C. § 1962(a),
(b), and (c). Plaintiffs seek treble damages pursuant to RICO Section 1964(c), in addition to
Plaintiffs further allege that George’s actions violated Louisiana law. Plaintiffs
allege that George is liable for fraud, unjust enrichment, intentional infliction of emotional
distress, negligent infliction of emotional distress, and conversion. Finally, Plaintiffs allege that
New York life is liable for negligence and for breach of contract as a result of its disbursement of
the loan funds.
II. PENDING MOTION
Defendant George A. Cella, III filed the instant Motion to Dismiss Pursuant to
Federal Rules of Civil Procedure 12(b)(6) and 12(b)(7). (R. Doc. 8). George asserts that
Plaintiffs were aware of and participated in all activities relating to the Policy.
George argues first that Plaintiffs lack standing under Title 18, United States Code
Section 1962(a), because they have not alleged an injury resulting from the investment of
racketeering income that is separate from the injury caused by the predicate acts themselves, as
the case law requires. Similarly, George argues that Plaintiffs lack standing under Section
1962(b) because they have not alleged a separate injury caused by George’s acquisition or
control of an interest in a RICO enterprise.
George argues that the Plaintiffs’ Section 1962(c) claims fail for several reasons.
First, George argues that the Plaintiffs have not adequately pled the “enterprise” element of a
Section 1962(c) claim for three reasons: first, George cannot be both the defendant “person” and
the “enterprise”; second, the relationship between George, ALPP, Horizon, and New York Life
cannot constitute an “association in fact” enterprise because Plaintiffs do not allege that these
entities share an overarching structure or function as a unit; and third, the Plaintiffs allege only
the incidental use of resources to commit predicate acts--more specifically, the sending and
receiving of faxes and mail correspondence and the endorsing of checks using Horizon’s pens,
mailbox, and fax machine. George also argues that Plaintiffs have not adequately pled the
“pattern of racketeering” element of Section 1962(c) because they do not allege a risk of
expanded future criminal activity and additional victims.
George argues further that Plaintiffs’ RICO claims are based on predicate allegations
of mail and wire fraud, and that therefore their Complaint is subject to the heightened pleading
requirements of Federal Rule of Civil Procedure 9(b), namely that “the circumstances
constituting fraud . . . shall be stated with particularity.” George also argues that Plaintiffs have
failed to allege a sufficient effect on interstate commerce, and that the RICO claims are timebarred. Finally, George argues that the RICO claims should be dismissed for failure to join
With regard to the state-law claims, George argues that this Court should decline to
exercise its supplemental jurisdiction. George further argues that various aspects of these claims
are time-barred, inadequately pled, or without basis in Louisiana law.
Plaintiffs’ oppose George’s Motion. (R. Doc. 16). Plaintiffs argue that George stole
the Plaintiffs’ identities, and that he is therefore responsible under Sections 1962(a) and 1962(b).
As to Section 1962(c), Plaintiffs argue that George is the defendant “person” whereas the
“enterprise” consists of the relationship between George, ALPP, Horizon, and New York Life,
which constitutes an “association in fact” enterprise based on their Complaint. Plaintiffs further
argue that their Complaint sufficiently alleges the use of “resources” as predicate acts. Finally,
Plaintiffs argue that they have adequately alleged the “pattern of racketeering” element of
Section 1962(c) because the alleged scheme involved several independent fraudulent acts
occurring over a period of time. As to the time-bar, Plaintiffs argue that they discovered the
scheme in March of 2012, and that each injury in a pattern has a separate accrual date. As to the
failure to join Priscilla Cella, Plaintiffs argue that she is not an indispensable party because no
evidence suggests that George ever used Priscilla’s name to obtain loans against the policy, and
because only Rachele and Brandy are the current owners of the policy. The Plaintiffs further
argue that their state-law claims are sufficiently pled and not time-barred.
III. LAW AND ANALYSIS
A. Standard of review
The Federal Rules of Civil Procedure permit a defendant to seek dismissal of a
complaint based on the “failure to state a claim upon which relief can be granted.” Fed. R. Civ.
P. 12(b)(6). A district court must construe facts in the light most favorable to the nonmoving
party, as a motion to dismiss under 12(b)(6) “is viewed with disfavor and is rarely granted.”
Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011), as revised (Dec. 16, 2011) (quotation
marks and citation omitted). Dismissal is appropriate only if the complaint fails to plead
“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). To satisfy this standard, the complaint must provide more than
conclusions, but it “need not contain detailed factual allegations.” Colony Ins. Co. v. Peachtree
Constr., Ltd., 647 F.3d 248, 252 (5th Cir. 2011). Yet, it must allege enough facts to move the
claim “across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. Determining
whether the plausibility standard has been met is “a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Ashcroft v. Iqbal, 556
U.S. 662, 664 (2009).
B. Applicable law and analysis
RICO provides that:
(a) It shall be unlawful for any person who has received any income
derived, directly or indirectly, from a pattern of racketeering activity or through
collection of an unlawful debt in which such person has participated as a
principal within the meaning of section 2, title 18, United States Code, to use or
invest, directly or indirectly, any part of such income, or the proceeds of such
income, in acquisition of any interest in, or the establishment or operation of, any
enterprise which is engaged in, or the activities of which affect, interstate or
foreign commerce. . . .
(b) It shall be unlawful for any person through a pattern of racketeering
activity or through collection of an unlawful debt to acquire or maintain, directly
or indirectly, any interest in or control of any enterprise which is engaged in, or
the activities of which affect, interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated with
any enterprise engaged in, or the activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of racketeering activity or collection of
(d) It shall be unlawful for any person to conspire to violate any of the
provisions of subsection (a), (b), or (c) of this section.
18 U.S.C. § 1962.
“Reduced to their simplest terms, these subsections state that:
(a) a person who has received income from a pattern of racketeering
activity cannot invest that income in an enterprise;
(b) a person cannot acquire or maintain an interest in an enterprise
through a pattern of racketeering activity;
(c) a person who is employed by or associated with an enterprise
cannot conduct the affairs of the enterprise through a pattern of racketeering
(d) a person cannot conspire to violate subsections (a), (b), or (c).”
Crowe v. Henry, 43 F.3d 198, 203 (5th Cir.1995). “To state a RICO claim under § 1962, there
must be: (1) a person who engages in (2) a pattern of racketeering activity (3) connected to the
acquisition, establishment, conduct, or control of an enterprise.” St. Paul Mercury Ins. Co. v.
Williamson, 224 F.3d 425, 439 (5th Cir. 2000). Assuming these three elements are met, the
court may then continue to the substantive requirements of each subsection of § 1962. Id.
“A RICO person is the defendant, while a RICO enterprise can be either a legal
entity or an association-in-fact.” Id. at 440 (citing Crowe v. Henry, 43 F.3d 198, 204 (5th Cir.
1995)). “If the alleged enterprise is an association-in-fact, the plaintiff must show evidence of an
ongoing organization, formal or informal, that functions as a continuing unit over time though a
hierarchical or consensual decision-making structure.” St. Paul Mercury, 224 F.3d at 440-41
(citing Elliot v. Foufas, 867 F.2d 977, 881 (5th Cir. 1989)). “A pattern of racketeering activity
requires two or more predicate acts and a demonstration that the racketeering predicates are
related and amount to or pose a threat of continued criminal activity.” St. Paul Mercury, 224
F.3d at 441 (citing Word of Faith World Outreach Ctr. Church, Inc. v. Sawyer, 90 F.3d 118, 122
(5th Cir. 1996)).
George argues that Plaintiffs have failed to allege that he “received income from a
pattern of racketeering activity” and invested that income in an “enterprise” within the meaning
of Section 1962(a) of RICO. Section 1962(a) allows a plaintiff to recover damages suffered as a
result of the use or investment of income gained through a pattern of racketeering activity, but
does not permit a plaintiff to recover damages suffered as a result of the racketeering activity
itself. As the Fifth Circuit stated in Parker & Parsley Petroleum Co. v. Dresser Industrs., 972
F.2d 580 (5th Cir.1992):
“As all but one of the circuits that have considered the issue have held, the
causal language of Section 1964(c) requires that the compensable injury stem
from the violation of the RICO section in question, so any injury under Section
1962(a) must flow from the use or investment of racketeering income.
[Plaintiff’s] injury does not stem from the investment of the income from
racketeering activity; therefore, it has pleaded no cause of action under Section
1962(a), and the district court properly dismissed the RICO claims.”
Parker & Parsley, 972 F.2d at 584. In holding that a Section 1962(a) claim is not cognizable
unless the plaintiff alleges that it suffered some injury as a result of the investment of
racketeering income rather than as a result of the racketeering activity itself, the Fifth Circuit
joined the majority of circuits that have addressed the issue. Here, Plaintiffs allege that George
violated Section 1962(a) because “some of [the] income was used in acquiring an interest in or
operating the enterprise.” However, Plaintiffs allege damage only as a result of the devaluation
of the policy. Plaintiffs have not alleged any damage stemming from the investment of the
income of racketeering activity, but only damage from the racketeering activity itself. As a
result, Plaintiffs have failed to state a claim under Section 1962(a), and the Court must dismiss
George further argues that Plaintiffs have failed adequately to allege that he acquired
or maintained an interest in an “enterprise through a pattern of racketeering activity” within the
meaning of Section 1962(b) of RICO. In order to recover under Section 1962(b), a plaintiff must
present evidence that he suffered injuries as a result of a defendant’s acquisition or maintenance
of an interest in or control of an enterprise through a pattern of racketeering activity. As in a
claim under Section 1962(a), damages suffered as a result of the pattern of racketeering activity
itself do not suffice. In paragraph 38 of their Complaint, Plaintiffs allege that George, “through
a pattern of racketeering activity, acquired or maintained an interest in, or controlled the alleged
enterprise.” This recitation of the element of a Section 1962(b) cannot satisfy the Twombly
standard in light of the fact that the Complaint does not allege any damage to Plaintiffs resulting
from George’s alleged maintenance of an interest in the enterprise that is separate from the
alleged racketeering activity itself. See Twombly, 550 U.S. at 570. Accordingly, Plaintiffs have
failed to state a claim under Section 1962(b), and the Court must dismiss this claim.
George argues that Plaintiffs have failed to allege that a RICO “person” existed that
was separate and distinct from the RICO “enterprise” for purposes of establishing a violation of
Section 1962(c) of RICO. Unlike Sections 1962(a) & 1962(b), Section 1962(c) requires a
relationship between the RICO “person” and the “enterprise.” Therefore, courts have held that
for purposes of a claim brought pursuant to Section 1962(c), the RICO “person” must be
separate and distinct from the RICO “enterprise.” For example, in Old Time Enters. v.
International Coffee Corp., 862 F.2d 1213 (5th Cir. 1989), the Fifth Circuit stated:
The violator of section 1962(c) who commits the pattern of predicate racketeering
acts must be distinct from the enterprise whose affairs are thereby conducted.
When the alleged section 1962(c) violator is a legal entity, such as a corporation,
this required separation is not established merely by showing that the corporation,
through its employees, officers, and/or directors, committed a pattern of predicate
acts in the conduct of its own business. Nor does the fact that individual officers
and employees of a corporation, in the course of their employment associate
together and commit in the conduct of the corporation's business a pattern of
predicate acts in its name and on its behalf, suffice to constitute such officers and
employees (alone or together with the corporation itself) an association in fact
enterprise distinct from the corporation.
Old Time Enters., 862 F.2d at 1217 . Here, Plaintiffs allege that George’s use of certain
employees, resources, and facilities of companies under his control enabled him to obtain the
loans. George points to several decisions in which the incidental use of fax machines,
telephones, and the like have been found insufficient. However, in the context of a Motion
seeking dismissal, the Court must accept the Plaintiffs’ allegations as pled. Should discovery
reveal that the use of these resources amounted to no more than stamps and stationery, further
Motion practice may become necessary. However, the Court finds that the Plaintiffs have stated
a claim under Section 1962(c) and will therefore deny the Defendant’s Motion on this claim.
Plaintiffs allege that George is liable for fraud under Louisiana law. The Complaint
employs language very similar to that found in Article 1953 of the Louisiana Civil Code.2
However, the Court notes that Article 1953 is found in Title IV, dealing with obligations, and in
Chapter IV, dealing with vices of consent and grounds for rescission. The Comments to the
1984 Revision include references to quasi-delictual fault which “suffices to constitute the kind of
fraud that vitiates a party’s consent.” La. Civ. Code Ann. art. 1953, Revision Comment (c). The
Complaint does not indicate what contract, if any, Plaintiffs seek to rescind on the basis of an
alleged vice of consent.
In their opposition memorandum, Plaintiffs cite Article 1953 and add a citation to
Article 1997, which describes the liability of a bad-faith obligor based on his failure to perform.
Plaintiffs also cite Priority E.M.S. v. Crescent City E.M.S., 2001-2171 (La. App. 4 Cir.
10/16/02), 829 So. 2d 1066, writ denied, 2002-3111 (La. 2/21/03), 837 So. 2d 632, for the
proposition that fraud in the performance of a contract, as opposed to fraud in the inducement,
also entitles a plaintiff to damages. In Priority E.M.S., the Court of Appeal of Louisiana for the
Fourth Circuit upheld as not clearly erroneous a trial court’s award of compensatory damages on
a claim for fraud and breach of contract. 2001-2171, p. 16-18, 829 So. 2d at 1075-77. The trial
court found that a minority shareholder became liable for compensatory damages when he and
his wife elected each other as corporate officers and issued thousands of shares of stock in order
to turn the majority shareholders’ 60% stake into a stake worth less than 1%. The Court of
The Complaint cites Article 1913 in an apparent typographical error. Paragraph 50 of
the Complaint (“Specifically, Mr. Cella engaged in misrepresentations and/or suppression of the
truth with the intent to either obtain an unjust advantage for himself and to cause a loss or
inconvenience to the Plaintiffs.”) represents a near-quotation of Article 1953: “Fraud is a
misrepresentation or a suppression of the truth made with the intention either to obtain an unjust
advantage for one party or to cause a loss or inconvenience to the other. Fraud may also result
from silence or inaction.” La. Civ. Code Ann. art. 1953.
Appeal affirmed the trial court’s conclusion that the fraud occurred in the performance of the
contract rather than as an inducement to the contract. In other words, both the trial and
reviewing courts determined that the parties entered into the contract freely and without any
intent to defraud, and that the scheme to squeeze out the majority shareholders came later. The
Court of Appeal concluded that Article 1997 applied and that the award of compensatory
damages was proper.
The Court agrees with Plaintiffs to the extent that they contend that damages are
available under Article 1997 in the event an obligor fails to perform in bad faith, whether that
failure is described as “fraud” or simply as bad-faith breach of contract. However, the Court
finds that Article 1997 cannot apply to the Plaintiffs’ allegations because there is no allegation of
any contract among the parties that the Plaintiffs could seek to rescind or, for that matter, for
breach of which they could seek damages. Plaintiffs do not seek to rescind the Policy, nor do
they allege that George Cella breached the Policy. Accordingly, Plaintiffs have failed to state a
claim for contractual fraud under Louisiana law and the Court must grant Defendant’s Motion as
to this claim.
5. Remaining claims
The Court notes that the Plaintiff’s remaining claims require the resolution of factual
issues. As a result, they are not ripe for summary dismissal.
For the foregoing reasons, IT IS ORDERED that Defendant George A. Cella, III’s
Motion to Dismiss for Failure to State a Claim (R. Doc. 8) is hereby GRANTED IN PART
AND DENIED IN PART as follows: Plaintiffs’ claims pursuant to subsections 1962(a) and
1962(b) of RICO and Plaintiffs’ Louisiana fraud claim are hereby DISMISSED with prejudice;
Plaintiffs’ remaining claims survive.
New Orleans, Louisiana, this 23rd day of August, 2013.
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?