Becker et al v. Noe et al
Filing
44
MEMORANDUM OPINION. Signed by Judge Ellen L. Hollander on 3/27/2019. (kw2s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
v'
I
I
JOHN BECKER, et al.
Plaintiffs,
Civil Action No. ELH- I 8-0093 I
v.
PAUL HOWE NOE, II, et al.
Defendants.
MEMORANDUM OPINION
In this fraud and breach of contract case, lodged under federal and Maryland law, plaintiffs
John Becker; Joan Becker; Stanley J. Sersen; Environmental Design & Resource Center, LLC
("EDRC"); and Architectural Support Group, Inc. ("ASG") filed suit against multiple defendants.
They are Eco-Gen Energy, Inc. ("Eco-Gen") and four of its officers and/or advisors: Paul Howe
Noe, II, "aka Paul B. Delanoe, aka Paul Boaventura-Delanoe";
Boaventura-Delanoe,"
Licia B. Noe, "aka Licia
in her personal capacity and as trustee of the Bellagio Trust; Julia Otey; and
Raoul Hamilton (collectively, the "Eco-Gen Defendants").
/d. ~~ 6-10.
Plaintiffs also sued
defendants Operating Expense Consulting, LLC ("OPEX") and Ralph Warren, the managing
member of OPE X (collectively, the "OPEX defendants").
The Amended Complaint
/d. ~~ 11-12.
(ECF 35), supported by exhibits, alleges, inter alia, that
defendants engaged in a fraudulent scheme to induce plaintiffs to purchase a hybrid wind and solar
powered electricity generator, called "JouleBox," as well as stock in Eco-Gen.'
According to the
Amended Complaint, defendants marketed JouleBox as a product that "can generate more
1
Plaintiffs filed their initial Complaint on March 30, 20 18. ECF I.
electrical output than is required to power it," without using any external power source. ld. ~ 1.
However, plaintiffs maintain that the generator does not work as described. ld.
The Amended Complaint contains five claims. Count I asserts a claim of violations of the
Racketeer Influenced and Corrupt Organizations Act ("RICO"), under 18 U.S.c.
S
I962(c). ECF
35, ~~ 49-58. Count"
S
I962(d). ECF
35, ~~ 59-65.
conspiracy.
alleges conspiracy to violate RICO, based on 18 U.S.C.
In Count III, plaintiffs allege fraud. ECF 35, ~~ 66-70.
Count IV alleges civil
ECF 35, ~~ 71-74. And, Count V asserts breach of contract.
ECF 35, ~~ 76-87.
Plaintiffs seek monetary relief, including treble and punitive damages, as well as attorneys' fees
and costs. See ECF 35.
Jurisdiction is based on 28 U.S.C.
S
133 I, "because this action arises under the laws of the
United States, namely [the RICO statute,] 18 U.S.c.
(mail fraud),
S 1343 (fraud
SS
1961, etseq.," as well as 18 U.S.c.
by wire, radio, or television), and
S 2314
S 1341
(transportation of stolen goals,
securities, or moneys). ECF 35, ~ 14. In addition, plaintiffs assert jurisdiction based on diversity
of citizenship, pursuant to 28 U.S.c.
S
S
1332, as well as supplemental jurisdiction under 28 U.S.C.
1967. ECF 35, ~ 14.
aPEX is the sole defendant to have answered the suit. ECF 28. Warren has moved to
dismiss the Amended Complaint, pursuant to Fed. R. Civ. P. 12(b)(2), for lack of personal
jurisdiction
Motion").
(ECF 38), supported by a memorandum.
ECF 38-1 (collectively,
the "Warren
Plaintiffs oppose the Warren Motion (ECF 41), and submitted two exhibits. ECF 41-
1; ECF 41-2. Warren has not replied, and the time to do so has expired. See Local Rule 105.6.
The Eco-Gen Defendants also moved to the dismiss, pursuant to Fed. R. Civ. P. 12(b)(2), claiming
lack of personal jurisdiction,
and under Fed. R. Civ. P. 12(b)(6), for failure to state a claim.
ECF 40. The motion is supported by a memorandum of law. ECF 40-1 (collectively, the "Eco-
2
Gen Motion").
Plaintiffs oppose the Eco-Gen Motion (ECF 42), and defendants have replied.
ECF 43.
No hearing is necessary to resolve the motions. See Local Rule 105.6. For the reasons that
follow, I shall deny the Warren Motion (ECF 38). And, I shall grant the Eco-Gen Motion (ECF
40) in part and deny it in part.
I.
Factual Background2
John Becker and Joan Becker (the "Beckers") are husband and wife. ECF 35, ~ 2. They
are Maryland residents. ld. Sersen, a Maryland resident,3 is a member ofEDRC and a shareholder
and officer of ASG.
!d. ~ 3. EDRC, a Maryland limited liability company, filed articles of
cancellation in 2017. ld. ~4.
S 4A-908
However, pursuant to Md. Code (2014 Repl. Vol., 2018 Supp.),
of the Corporations and Associations Article ("C.A."), EDRC "continues to exist for the
purpose of pursuing its claims against Defendants."
ld. ASG, a Maryland corporation, "was
voluntarily dissolved in 2017." ld. ~ 5. Thereafter, pursuant to C.A.
S 3-410,
trustee of the assets of ASG, including ASG's claims against Defendants."
"Sersen became a
ld.
OPEX "is a limited liability company organized under South Dakota law, with its principal
office in South Dakota."
ECF 35, ~ 11. OPEX has two members: Warren and Mike Beaulieu.
ECF 29 (Local Rule 103.3 Disclosure Statement) at 1. Warren "is a South Dakota resident, the
managing member of OPEX, and a certified public accountant licensed in the State of South
As discussed, infra, given the posture of the case, I must assume the truth of the well
pleaded factual allegations.
2
3 As noted, the individual plaintiffs are Maryland "residents."
ECF 35, ~~ 2-3. And, as
discussed, infra, plaintiffs refer to the places of residency of the individual defendants. Residency
is relevant to service of process under 18 U.S.c. S I965(d), in connection with RICO. For diversity
purposes, however, it is the place of citizenship that is of relevance, rather than the place of
residence. See 28 U.S.C. S 1332(a)(I).
3
Dakota."
ECF 35, ~ 12. As the "owner" of OPEX, Warren "identifies OPEX as the U.S.
Distributor for the JouleBox and the U.S. marketing company for Eco-Gen." Id. ~ 35.
Eco-Gen "is a Nevada corporation with its principal office in California." /d. ~ 8. Hamilton
"is a California resident and an officer of Eco-Gen."
Id. ~ 9. Otey is also "a California resident
and an officer of Eco-Gen." Id. ~ 10.
Paul Howe Noe, II, also known as Paul B. Delanoe and Paul Boaventura Delanoe, is a
California resident and an officer, owner, and board member of Eco-Gen. Id. ~ 6. According to
the Amended Complaint, "Mr. Noe legally changed his surname to Boaventura-Delanoe
in 2013,
but his name at birth was Paul Howe Noe, II, and he has continued to use that name even after he
legally changed it." Id. However, Noe asserts that his name is Paul B. Delanoe, and that he was
"incorrectly sued herein as Paul Howe Noe, II." ECF 15.
Mr. Noe is married to Licia Boaventura Noe, a California resident. ECF 35, ~ 7. In 2013,
she "changed her name from Licia Boaventura Noe to Licia Boaventura-Delanoe."
Id. Ms. Noe
is a member of Eco Gen's '''board of technology advisors'" and a trustee of the Bellagio Trust,
"which owns and licenses to Eco-Gen Energy, Inc. the purported intellectual property for the
JouleBox." Id.
According to plaintiffs, "Mr. Noe changed his name to conceal" his "long history of
criminal fraud convictions and questionable financial practices." Id. ~ 24 (citing ECF 35-6, Exhibit
E; ECF 35-7, Exhibit F). Specifically, in 1989 Mr. Noe "was convicted of wire fraud by the U.S.
District Court for the Eastern District of Pennsylvania."
ECF 35, ~ 24 (citing ECF 35-7). See
United States v. Clifford D. Noe and Paul H. Noe, 11,1989 WL 5567, Crim. Nos. 87-00303-01,
87-00303-02, 1989 WL 5577 (E.D. Pa. Jan 19. 1989); United States v. Clifford D. Noe and Paul
H. Noe, II, Crim. Nos. 87-00303-01,87-00303-02,1989
4
WL 5577 (E.D. Pa. Jan. 19 1989); United
States v. Clifford D. Noe, Crim. No. 87-00303-01,1990
WL 67117, at *2 (E.D. Pa. May 16, 1990)).
Also, plaintiffs allege that "[o]n August 1,2003, the California Department ofInsurance
issued a
Cease and Desist Order against Paul Noe for engaging in the unlicensed sale of insurance products"
by "induc[ing] elderly clients to purchase living trusts." ECF 35, ~ 24 (citing ECF 35-8, Exhibit
G).
And, they claim that in 20 I0, Mr. Noe was "ordered by the California Real Estate
Commissioner to cease and desist from offering loan modification services and foreclosure rescue
services in violation of California law." ECF 35, ~ 24 (citing ECF 35-9, Exhibit H).
In addition, plaintiffs maintain that Mr. Noe continued to use the name "Paul H. Noe, 11"
to thwart mortgage foreclosure proceedings on his home. ECF 35, ~ 24 (citing Paul H. Noe, 1/ v.
Morg. £Iec. Registration Sys., Inc., et ai, Case No. 16-cv-06316 (C.D. Cal. Aug. 23, 2016». And,
in 2016, he "filed multiple petitions for bankruptcy" under the name of Paul H. Noe, II. ECF 35,
~ 24 (citing Paul H. Noe, 1/, No. 16-bk-23853 (Bankr. C.D. Cal. Oct. 20, 2016) (dismissed on
November 23,2016, for failure to file schedules); Paul H. Noe, 1/, No. 16-bk-25416 (Bankr. C.D.
Cal. Nov. 22, 2016) (dismissed on December 12,2016, for failure to file schedules».
Plaintiffs contend that beginning in 2009 and "continuing to the present day" defendants
"have constituted an associated-in-fact enterprise" (the "Enterprise") under 18 U.S.c.
S
1961(4).
ECF 35, ~ 13. According to plaintiffs, defendants "conspired to perpetrate ... a scheme to defraud
Plaintiffs through a litany of illegal acts, including mail fraud, wire fraud, interstate transportation
of fraudulently acquired money and securities, and inducement of interstate travel in furtherance
of a scheme to defraud." Id.
Plaintiffs characterize the Enterprise as "a classic Ponzi scheme." Id. ~ 20. Specifically,
it "used a two-fold strategy comprised of collecting cash deposits on contracts to sell non-existent
JouleBoxes, and selling stock in Eco-Gen to unsuspecting investors."
5
Id. The Enterprise offered
"special terms" to prospective purchasers as "'early adopters,' which would enable them to earn
commissions on later sales." ld. Further, the Enterprise "cloak[ed] their scheme with indicia of
legitimacy," by forming and registering Eco-Gen and OPEX with the Secretaries of State in
Nevada, California, and South Dakota, securing trademark registration for the name JouleBox,
filing a patent application for the hybrid electric generator, drafting and issuing a private placement
memorandum to secure investments in Eco-Gen, and establishing websites for both companies."
ld. ~ 21.
On or about March 23, 2009, Hamilton and Otey, "on behalf of the Enterprise, filed articles
of incorporation for Eco-Gen with the Nevada Secretary of State." !d. ~ 22. Every year thereafter,
"the Enterprise filed with the Nevada Secretary of State an annual list naming Mr. Hamilton and
Ms. Otey as Eco-Gen's officers and directors."
ld. (citing ECF 35-3, Exhibit B). Similarly, in
November 2012, Otey, "on behalf of the Enterprise," registered Eco-Gen "to do business in
California."
ld. ~ 23 (citing ECF 35-4, Exhibit C).
In June 2013, Eco-Gen applied for "a trademark for the term 'JouleBox,'
referring to it in
the application as a 'hybrid wind-powered and solar-powered electricity generator.'''
ECF 35,
~ 25. On or about August 1,2013, through counsel, the Enterprise "issued a Private Placement
Memorandum ('PPM') for Eco-Gen." ld. ~ 26. Per the PPM, "the Enterprise sought to finance its
activities by selling $25 million worth of stock." ld. (citing ECF 35-10, Exhibit I). The PPM
"identifies" the Noes, Hamilton, and Otey as "officers of Eco-Gen"; Mr. Noe and Ms. Noe as
members of "Eco-Gen's
Board of Technology Advisors"; and Ms. Noe as "'Trustee
[who]
oversees all [Intellectual Property] with the Bellagio Trust that owns most of the IP for the Hybrid
Solar Generator.'''
ECF 35, ~ 26 (citing ECF 35-10). Upon "information and belief," plaintiffs
6
further allege that defendants "have used the PPM to solicit investments from numerous other
victims." ECF 35, ~ 27.
Plaintiffs allege that on November 4, 2013, Mr. Noe, "acting on behalf of the Enterprise,"
prepared "'Bank Wire Instructions' ... to make wire transfers of money in interstate commerce,
to Eco-Gen's bank account at Bank of America, N.A., Van Nuys, California 91405 ... ('Account
No. 9291 ')." ld. ~ 28. Then, on March 21, 2014, Mr. Noe, "using the name Delanoe and acting
on behalf of the Enterprise, applied to the U.S. Patent and Trademark Office ('USPTO')
for a
patent for the JouleBox." ld. As the "purported inventor," he "assigned the purported intellectual
property for the JouleBox to Licia Noe, as trustee for the Bellagio Trust." Id.
According to plaintiffs, their first contact with defendants occurred "in or about the period
from December 2014 to January 2015, when John Becker had several telephone calls with Ralph
Warren .... " Id. ~ 29. During the calls, "Warren made claims about the JouleBox, and the profits
to be made investing in Eco-Gen and selling the JouleBox." Id.
In February and March of 20 15, Warren allegedly told Becker that Warren, his partner in
aPEX, Mike Beaulieu, and others had invested in Eco-Gen stock. ld. ~ 30. In addition, "Warren
described the JouleBox as a solar hybrid generator" and represented
that, because of the
generator's "unique motor and generator technology," it "could produce more power than solar
panels of the same size." ld. Also, "Warren represented to Mr. Becker that the JouleBox could
run on its own continuously and perpetually, with only brief periods of downtime for annual
maintenance."
Id.
Warren, identifying himself as a licensed certified public accountant,
"represented that solar panels were not a necessary part of a JouleBox, but including them made it
eligible for renewable solar energy tax credits."
Id. And, he claimed that "the wind turbine
component of the JouleBox made it eligible for renewable wind energy tax credits." Id. Acting
7
on Warren's advice, Mr. Becker "engaged a tax accountant recommended by Mr. Warren who
opined that the JouleBox was eligible for renewable energy tax credits." Id.
In mid March 2015, Warren arranged for Mr. Becker to travel to Van Nuys, California, "to
visit the Eco-Gen facility." Id. ~ 31. There, "Mr. Becker met with Mr. Noe and Ms. Otey, and
also met another prospective salesman and investor, Mike Burkey."
Becker observed a demonstration
of the JouleBox.
Id.
Id.
During the visit, Mr.
Specifically, "Mr. Noe started the
JouleBox, used a voltage meter to demonstrate that it was producing electricity, and connected
several appliances to it to demonstrate its ability to power them."
Id.
Notably, this particular
Joulebox "was installed indoors and did not have any solar panels." Id. However, according to
the Amended Complaint, "Mr. Noe insisted that [the JouleBox] was not connected to any source
of external power, and represented to Mr. Becker that the JouleBox could run on its own
continuously and perpetually, with only brief periods of downtime for annual maintenance."
If true, JouleBox would have been "a valuable and revolutionary product[.]"
Id.
Id. But, plaintiffs
maintain that such representations were "false." Id.
Mr. Becker's visit purportedly "lasted less than two hours, during which he was not
allowed to take photographs and was unable to see the bottom and one side of the JouleBox." Id.
At the conclusion of the visit, Otey told Mr. Becker "that she would send him documents that
would enable him to invest in Eco-Gen[.]" Id.
On or about March 30, 2015, via interstate commerce, Otey delivered to the Beckers the
Subscription Agreement and the PPM dated August 1,2013 (ECF 35-10), offering "to sell the
Beckers 25,000 shares of Eco-Gen stock for a purchase price of $25,000."
ECF 35, ~ 32 (citing
ECF 35-10). In addition, the document "included a financial pro forma which projected revenue
of $8.7 million in 2015, growing to $29 million in 2017, and profits of $3.6 million in 2015,
8
growing to $11.9 million in 2017." ECF 35, ~ 32 (citing ECF 35-11, Exhibit J). The Amended
Complaint alleges that such "claims about Eco-Gen's financial prospects were ... false." ECF 35,
~ 32.
Using "the wire transfer instructions prepared and provided by the Enterprise," the Beckers
purchased 25,000 shares of stock in Eco-Gen on March 31,2015, and "transferred $25,000 to EcoGen's Account No. 9291". Id. ~ 33. On April 9, 2015, Otey informed Mr. Becker by email, i.e.,
wire communication in interstate commerce, "that 'the stock certificate and the signed paperwork
should go out today.'" Id. ~ 34. The Enterprise delivered the certificate to the Beckers in Maryland
on or about April 16,2015, via "mail, [or] private or commercial interstate carrier .... " Id. The
certificate was "signed by Ms. Otey as Secretary and Mr. Hamilton as President of Eco-Gen." Id.
As a part of the Enterprise, "OPEX and Warren recruited other persons to serve as sales
representatives to sell the JouleBox to business and consumers." Id. ~ 35. Warren allegedly "told
Mr. Becker that OPEX was selling JouleBoxes in other states, including California, Michigan, and
Florida, among others, and also countries outside the U.S., including Saudi Arabia, the Philippines,
and others."
Id. In reliance on such representations, "John Becker agreed to serve as a sales
representative for OPEX and the JouleBox for the Washington, D.C. / Baltimore area." Id. ~ 36.
And, Becker "made Sersen aware of the Enterprise's claims about the JouleBox." Id. In addition,
"[t]he Enterprise published its false claims about the JouleBox on the Eco-Gen and OPEX
websites[.]"
Id. In April and May 2015, Sersen reviewed these websites and then spoke with
Warren. Id.
On May 30, 2015, in reliance on the Enterprise's claims about JouleBox, EDRC "entered
into a written Lease-Purchase Agreement with OPEX, to purchase a 60 kilowatt JouleBox for the
total price of$329,995.00."
Id. ~ 37; see ECF 41-1 ("Purchase Agreement").
9
Under the Purchase
Agreement, EDRC agreed to "pay a deposit of $151 ,385.00 to OPEX to be made by wire transfer
to OPEX's account at Wells Fargo Bank, N.A., San Francisco, California ... ('Account No.
5334')."
Id. ~ 37; see also ECF 41-1 at 10. The Purchase Agreement required that, within 120
days of receipt of the deposit, i. e., by September 30, 20 IS, "OPEX would deliver and place into
operation a working JouleBox at EDRC's location in Jessup, Maryland."
ECF 35, ~ 38.
The Purchase Agreement, signed by Warren for OPEX, and by Sersen for EDRC, includes
a forum selection clause. Paragraph 22 states, ECF 41-1 at 5:
This Purchase Agreement will be governed by and construed in accordance with
the laws of the State of Maryland, including the Maryland Uniform Commercial
Code and the Seller and Purchaser hereby attorn to the jurisdiction of the Courts in
the State of Maryland.
The Purchase Agreement was amended on May 30, 20 IS, and again on September 12,
20 IS. ECF 41-1 at 10-12. Each amendment states, in capital letters: "THIS AMENDMENT
SHALL BE CONSTRUED
MARYLAND."
AND GOVERNED
BY THE LAWS OF THE STATE OF
Id. Sersen and Warren, as OPEX's managing member, signed both amendments.
Id.
Pursuant to a "side agreement with EDRC," the Beckers "agreed to contribute one-third of
the deposit ($50,461)" for the purchase of the JouleBox. ECF 35, ~ 37. Mr. Becker also "agreed
to forego a commission from OPEX," so as to reduce the purchase price to $302,770.00, "and,
with ASG, pay the balance of the purchase price." Id. On June 1,2015, following "wire transfer
instructions prepared by OPEX and Warren, EDRC transferred $151,385.00 to OEPX's Account
No. 5334[.]" Id. The payment was received by mail, or interstate carrier, or wire communication
in interstate commerce. Id.
On July 28,2015, Mr. Noe, who was in California, "communicated with Sersen and Becker
in Maryland," via "video conference call," using wire, radio, or television communication
10
in
interstate commerce. Id. ~ 39. During the call, Mr. Noe "induced Sersen to travel from Maryland
to Eco-Gen's office in Van Nuys, California, where Paul Noe claimed Sersen would be able to
observe the purported JouleBox prototype and Eco-Gen's manufacturing facility."
traveled to California in August 2015.
Id.
Id.
Sersen
During his visit, Sersen was shown a purported
"prototype," but he "was told that it was not possible to visit the manufacturing facility." Id. Such
conduct, according to plaintiffs, "lull( ed]" Sersen "into believing that a working JouleBox would
be manufactured and delivered soon." Id.
As mentioned, on September 12, 20 IS, the Purchase Agreement was amended.
In particular, ASG was substituted for EDRC as the contract purchaser.
Id. ~ 40.
Id. A week later, on
September 19, 20 IS, via interstate commerce, "the Enterprise delivered to Sersen stock certificate
1231, representing 25,000 shares of stock in Eco-Gen, provided by Eco-Gen as an incentive to
ASG as an early adopter of the JouleBox." Id. ~ 41.
The Purchase Agreement required OPEX "to pay all costs and perform all design,
permitting, and construction work required to render the JouleBox operational at ASG's facility in
Jessup, Maryland."
Id. ~ 42. Plaintiffs assert that "ASG performed design and permitting work
on behalf of OPEX," valued at $6,357.50, "for which ASG was entitled to be paid" under the
Purchase Agreement.
Id. However, plaintiffs allege that the "amount remains unpaid." Id.
Warren allegedly sent Sersen an email on December 4,2015, "claiming that a test had been
run on a prototype JouleBox(.]"
Id. ~ 43. Further, Warren "claim(ed] that the 'test was run for 4
or 5 days and confirm(ed] ... that the generator produced a steady 20 kW and the battery stayed
at full power throughout the test period. '" Id. (ellipsis in original). According to plaintiffs, Warren
sought "to lull Sersen into believing that Defendants could deliver a JouleBox that actually
performed as promised and persuade Sersen to not cancel the Lease-Purchase Agreement."
11
Id.
By early March 2016, "the Enterprise had missed its deadline for delivering a JouleBox by
six months, and Plaintiffs received reports that a potential financial backer of Eco-Gen had
withdrawn[.]"
[d. ~ 44. As a result, "Plaintiffs lost confidence in the Enterprise's ability to deliver
a JouleBox." [d.
Sersen sent a letter to Warren and OPEX on March 2, 2016, with copies to Eco-Gen, Mr.
Noe, Otey, and Hamilton, "demanding that OPEX refund the $151,385.00 deposit and reimburse
the $6,3577.50."
[d. ~ 45. Then, on March 4,2016, Sersen sent an email to Warren, with copies
to Mr. Noe, Otey, and Hamilton, again "demanding the immediate return of the $151,385.00
deposit and payment of $6,357.50 for services rendered by ASG." [d. According to plaintiffs,
under the terms of the Purchase Agreement, ASG "had an absolute right to an immediate refund
directly from OPEX." [d. ~ 46.
Warren responded by email on March 7, 2016, stating, id.:
I met with the management ofECO-GEN Energy, Inc. today to discuss your request
for a refund. They have agreed to handle your request and global release of all
parties including Operating Expense Consulting, LLC. Their attorneys will contact
you with the necessary paperwork and timelines.
Despite Warren's email, the deposit was not refunded. [d. ~ 48. Moreover, plaintiffs assert:
"The Enterprise has continued to engage in its fraudulent scheme to the present day." [d. ~ 47.
It appears that the parties contemplated a "Global Settlement Agreement And Mutual
Release," dated March 28, 2016. ECF 41-2. However, according to the exhibits provided to the
court, OPEX and Warren were the only defendants to sign it.
[d.
at 8.
Plaintiffs filed their initial Complaint on March 30, 2018, and they claim that soon after,
on April 3, 2018, "Defendants sent Mr. Sersen a stock purchase solicitation by email, attempting
to induce him to pay additional money" for stock in Eco-Gen.
ECF 35, ~ 47. The solicitation
included a PPM, identifying the Noes, Hamilton, and Otey "as officers of Eco-Gen"; the Noes "as
12
members ofEco-Gen's
Board of Technology Advisors"; and Ms. Noe as "'Trustee [who] oversees
all IP with the Bellagio Trust that owns most of the IP for the Hybrid Solar Generator.'"
Id. (citing
ECF 35-2, Exhibit A, at 24-25).4
Additional facts are included in the Discussion.
II.
Legal Standards
As noted, the Eco-Gen Defendants and Warren have moved to dismiss the Amended
Complaint for lack of personal jurisdiction, pursuant to Fed. R. Civ. P. 12(b)(2). ECF 38; ECF 40.
The Eco-Gen Defendants also seek dismissal of the suit for failure to state a claim, pursuant to
Fed. R. Civ. P. 12(b)(6). See ECF 40.
A.
Rule 12(b)(2)
Defendants' motions to dismiss for lack of personal jurisdiction are predicated on Fed. R.
Civ. P. 12(b)(2). "[A] Rule 12(b)(2) challenge raises an issue for the court to resolve, generally as
a preliminary matter." Grayson v. Anderson, 816 F.3d 262, 267 (4th Cir. 2016).
When a nonresident defendant challenges personal jurisdiction, "the jurisdictional question
is to be resolved by the judge, with the burden on the plaintiff ultimately to prove grounds for
jurisdiction by a preponderance of the evidence."
Carefirst 01 Md.. Inc. v. Carefirst Pregnancy
Ctrs .. Inc., 334 F.3d 390, 396 (4th Cir. 2003) (citation omitted). The burden "varies according to
the posture of a case and the evidence that has been presented to the court." Grayson, 816 F.3d at
268.
When the existence of jurisdiction "turns on disputed factual questions the court may
resolve the [jurisdictional] challenge on the basis of a separate evidentiary hearing, or may defer
4 Defendants assert that the email of April 3, 2018, was "obviously a mistake given this
lawsuit." ECF 40-1 at 7; ECF 43 at 2-3.
13
ruling pending receipt at trial of evidence relevant to the jurisdictional
question."
Combs v.
Bakker, 886 F.2d 673, 676 (4th Cir. 1989). In its discretion, a court may permit discovery as to
the jurisdictional issue. See Mylan Labs., Inc. v. Akzo, N. V, 2 F.3d 56, 64 (4th Cir. 1993). Or, the
court may rule solely on the basis of motion papers, supporting legal memoranda, affidavits, and
the allegations in the complaint.
(4th Cir. 2009).
Consulting Eng'rs Corp. v. Geometric Ltd., 561 F.3d 273, 276
In that circumstance, the "plaintiff need only make 'a prima facie showing of
personal jurisdiction to survive the jurisdictional challenge. '" Grayson, 816 F.3d at 268 (quoting
Combs, 886 F.2d at 676); see also Universal Leather, LLC v. Koso AR, S.A., 773 F.3d 553, 558,
560-61 (4th Cir. 2014). However, "'[aJ thresholdprimafacie
proper
does not finally settle the issue; plaintiff
of personal jurisdiction by a preponderance
evidentiary hearing.'''
finding that personal jurisdiction is
must eventually
prove the existence
of the evidence, either at trial or at a pretrial
New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290,
294 n.5 (4th Cir. 2005) (emphasis in original) (citation omitted); see Universal Leather, 773 F.3d
at 558; Combs, 886 F.2d at 676.
Plaintiffs have not asked for an opportunity to conduct discovery.
In any event, neither
discovery nor an evidentiary hearing is required here to resolve the motions. See generally 5B C.
WRIGHT& A. MILLER,FEDERAL
PRACTICE PROCEDURE 1351 at 274-313 (3d ed. 2004, 20 II
&
S
Supp.).
B.
Rule 12(b)(6)
A defendant may test the legal sufficiency of a complaint by way of a motion to dismiss
under Rule 12(b)(6). In re Birmingham, 846 F.3d 88, 92 (4th Cir. 2017); Goines v. Valley Onty.
Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016); McBurney v. Cuccinelli, 616 F.3d 393, 408
(4th Cir. 2010), afJ'd sub nom. McBurney v. Young, 569 U.S. 221 (2013); Edwards v. City of
14
Goldsboro, 178 F.3d 231,243 (4th Cir. 1999). A Rule 12(b)(6) motion constitutes an assertion by
a defendant that, even if the facts alleged by a plaintiff are true, the complaint fails as a matter of
law "to state a claim upon which relief can be granted."
Whether a complaint states a claim for relief is assessed by reference to the pleading
requirements of Fed. R. Civ. P. 8(a)(2). That rule provides that a complaint must contain a "short
and plain statement of the claim showing that the pleader is entitled to relief." The purpose of the
rule is to provide the defendants with "fair notice" of the claims and the "grounds" for entitlement
to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544,555-56 (2007).
To survive a motion under Rule l2(b)(6), a complaint must contain facts sufficient to "state
a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570; see Ashcroft v. Iqbal, 556
U.S. 662, 684 (2009) ("Our decision in Twombly expounded the pleading standard for 'all civil
actions' .... " (citation omitted»; see also Paradise Wire & Cable Defined Benefit Pension Fund
Plan v. Wei!, _
F.3d _,2019
WL 1105179, at *3 (4th Cir. Mar. 11, 2019); Willner v. Dimon,
849 F.3d 93,112 (4th Cir. 2017). But, a plaintiff need not include "detailed factual allegations"
in order to satisfy Rule 8(a)(2). Twombly, 550 U.S. at 555. Moreover, federal pleading rules "do
not countenance dismissal of a complaint for imperfect statement of the legal theory supporting
the claim asserted." Johnson v. City o/Shelby, Miss., 574 U.S. _'
135 S. Ct. 346, 346 (2014)
(per curiam).
Nevertheless, mere '''naked assertions' of wrongdoing" are generally insufficient to state
a claim for relief. Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (citation omitted).
The rule demands more than bald accusations or mere speculation. Twombly, 550 U.S. at 555; see
Painter's Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013). Ifa complaint provides
no more than "labels and conclusions" or "a formulaic recitation of the elements of a cause of
15
action," it is insufficient. Twombly, 550 U.S. at 555. "[A]n unadorned, the-defendant-unlawfullyharmed-me accusation" does not state a plausible claim for relief. Iqbal, 556 U.S. at 678. Rather,
to satisfy the minimal requirements of Rule 8(a)(2), the complaint must set forth "enough factual
matter (taken as true) to suggest" a cognizable cause of action, "even if ... [the] actual proof of
those facts is improbable and ...
recovery is very remote and unlikely."
Twombly, 550 U.S. at
556 (internal quotation marks omitted).
In reviewing a Rule 12(b)(6) motion, a court "must accept as true all of the factual
allegations contained in the complaint" and must "draw all reasonable inferences [from those facts]
in favor of the plaintiff." £.1. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440
(4th Cir. 2011) (citations omitted); see Reyes v. Waples Mobile Home Park Ltd. P'ship, 903 F.3d
415, 423 (2018); Semenova v. Md. Transit Admin., 845 F.3d 564, 567 (4th Cir. 2017); Houck v.
Substitute Tr. Servs., Inc., 791 F.3d 473, 484 (4th Cir. 2015); Kendall v. Balcerzak, 650 F.3d 515,
522 (4th Cir. 20 II), cert. denied, 565 U.S. 943 (2011). But, a court is not required to accept legal
conclusions drawn from the facts. See Papasan v. Allain, 478 U.S. 265,286
(1986). "A court
decides whether [the pleading] standard is met by separating the legal conclusions from the factual
allegations, assuming the truth of only the factual allegations, and then determining whether those
allegations allow the court to reasonably infer" that the plaintiff is entitled to the legal remedy
sought. A Soc'y Without a Name v. Comm 'w of Va., 655 F.3d 342, 346 (4th. Cir. 2011), cert.
denied, 566 U.S. 937 (2012).
Courts generally do not "resolve contests surrounding the facts, the merits of a claim, or
the applicability of defenses" through a Rule 12(b)(6) motion.
(quotation marks and citation omitted).
Edwards,
178 FJd
at 243
But, "in the relatively rare circumstances where facts
sufficient to rule on an affirmative defense are alleged in the complaint, the defense may be reached
16
by a motion to dismiss filed under Rule l2(b)(6)."
Goodman v. Praxair, Inc., 494 FJd 458, 464
(4th Cir. 2007) (en bane); accord Pressley v. Tupperware Long Term Disabilily Plan, 533 F.3d
334,336 (4th Cir. 2009); see also
u.s.
ex rei. Oberg v. Penn. Higher Educ. Assislance Agency,
745 F.3d 131, 148 (4th Cir. 2014). However, because Rule 12(b)(6) "is intended [only] to test the
legal adequacy of the complaint," Richmond, Fredericksburg & Polo mac R.R. Co. v. Farsi, 4 F.3d
244,250 (4th Cir. 1993), "[t]his principle only applies ... if all facts necessary to the affirmative
defense 'clearly appear[ ] on Ihe face of Ihe complainl.'''
Goodman, 494 F.3d at 464 (quoting
FarsI, 4 F.3d at 250) (emphasis added in Goodman).
"[A] court may properly take judicial notice of 'matters of public record' and other
information that, under Federal Rule of Evidence 201, constitute 'adjudicative facts.'''
Goldfarb
v. Mayor & Cily Council of Ball., 791 FJd 500, 508 (4th Cir. 2015); see also Tellabs, Inc. v. Makar
Issues & Righls, Lid., 551 U.S. 308, 322 (2007); Kalyle v. Penn Nal 'I Gaming, Inc., 637 F.3d 462,
466 (4th Cir. 2011), cerl. denied, 565 U.S. 825 (2011); Philips v. Piu Oy. Mem. Hasp., 572 F.3d
176,180
(4th Cir. 2009).
Pursuant to Fed. R. Evid. 201, a court may take judicial notice of
adjudicative facts if they are "not subject to reasonable dispute," in that they are "(I) generally
known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready
determination by resort to sources whose accuracy cannot reasonably be questioned."
And, courts
may take judicial notice of publicly available records, without converting a motion to dismiss to a
motion for summary judgment.
See, e.g., Zak v. Chelsea Therapeulics In! 't, Ltd., 780 F.3d 597,
607 (4th Cir. 20 IS) ("Courts are permitted to consider facts and documents subject to judicial
notice without converting the motion to dismiss into one for summary judgmenl.").
A court may
also take judicial notice of its own records. Anderson v. Fed. Deposit Ins. Corp., 918 F.2d 1139,
1141 n.1 (4th Cir. 1990).
17
C.
Rule 9(b)
To the extent that the Amended Complaint lodges claims of fraud, Fed. R. Civ. P. 9(b) is
pertinent. Rule 9(b) states: "In alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of
a person's mind may be alleged generally."
As a preliminary matter, claims that sound in fraud, whether rooted in common law or
arising under a statute, implicate the heightened pleading standard of Fed. R. Civ. P. 9(b). See,
e.g., E-Shops Corp. v.
u.s. BankNA.,
678 F.3d 659, 665 (8th Cir. 2012) ("Rule 9(b)'s heightened
pleading requirement also applies to statutory fraud claims."); see also Spaulding v. Wells Fargo
Bank, NA., 714 F.3d 769, 781 (4th Cir. 2013) (stating that an MCPA claim that "sounds in fraud[]
is subject to the heightened pleading standards of Federal Rule of Civil Procedure 9(b)").
Under the rule, a plaintiff alleging a claim that sounds in fraud '''must, at a minimum,
describe the time, place, and contents of the false representations, as well as the identity of the
person making the misrepresentation and what he obtained thereby.''' United States ex rei. Owens
v. First Kuwaiti Gen'l Trading & Contracting Co., 612 F.3d 724, 731 (4th Cir. 2010)(citation
omitted). In other words, '" Rule 9(b) requires plaintiffs to plead the who, what, when, where, and
how: the first paragraph of any newspaper story.'''
Crest Construction JI. Inc. v. Doe, 660 F.3d
346,353 (8th Cir. 2011) (citation omitted).
Rule 9(b) serves several salutary purposes:
First, the rule ensures that the defendant has sufficient information to formulate a
defense by putting it on notice of the conduct complained of .... Second, Rule 9(b)
exists to protect defendants from frivolous suits. A third reason for the rule is to
eliminate fraud actions in which all the facts are learned after discovery. Finally,
Rule 9(b) protects defendants from harm to their goodwill and reputation.
18
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999) (citation
omitted).
However, by its plain text, Rule 9(b) permits general averment of aspects of fraud that
relate to a defendant's state of mind. And, a "court should hesitate to dismiss a complaint under
Rule 9(b) if the court is satisfied (I) that the defendant has been made aware of the particular
circumstances
for' which she will have to prepare a defense at trial, and (2) that plaintiff has
substantial prediscovery evidence of those facts." Id. Moreover, Rule 9(b) is "less strictly applied
with respect to claims of fraud by concealment" or omission of material facts, as opposed to
affirmative misrepresentations,
place, and contents
misrepresentation.'''
because "an omission 'cannot be described in terms of the time,
of the misrepresentation
or the identity of the person making the
Shaw v. Brown & Williamson Tobacco Corp., 973 F. Supp. 539, 552 (D. Md.
1997) (quoting Flynn v. Everything Yogurt, HAR.92.3421,
1993 WL 454355, at *9 (D. Md. Sept.
14, 1993».
D.
Exhibits
In evaluating the sufficiency of a complaint in connection with a Rule 12(b)(6) motion, a
court ordinarily "may not consider any documents that are outside of the complaint, or not
expressly incorporated therein .... " Clatterbuck v. City o/Charlottesville,
708 F.3d 549, 557 (4th
Cir. 2013); see Bosiger v. Us. Airways. 510 F.3d 442, 450 (4th Cir. 2007). "Generally, when a
defendant moves to dismiss a complaint under Rule 12(b)(6), courts are limited to considering the
sufficiency of allegations set forth in the complaint and the 'documents attached or incorporated
into the complaint.'"
Zak v. Chelsea Therapeutics Int'l, Ltd., 780 F.3d 597, 606 (4th Cir. 2015)
(quoting E.l. du Pont de Nemours & Co., 637 F.3d at 448). Under limited circumstances, however,
when resolving a Rule 12(b)(6) motion, a court may consider documents beyond the complaint
19
without converting the motion to dismiss to one for summary judgment.
Gold/arb v. Mayor &
City Council o/Ballimore, 791 F.3d 500, 508 (4th Cir. 2015).
In particular, a court may consider documents that are "explicitly incorporated into the
complaint by reference and those attached to the complaint as exhibits." Goines, 822 F.3d at 166;
see also Fed. R. Civ. P. 10(c); Te/labs, Inc. v. Makar Issues & Rights, Ltd, 551 U.S. 308, 322
(2007); Paradise Wire & Cable, supra, 2019 WL 1105179, at *4. However, "before treating the
contents of an attached or incorporated document as true, the district court should consider the
nature of the document and why the plaintiff attached it." Goines, 822 F.3d at 167 (citing N. Ind.
Gun & Owdoor Shows, Inc. v. Cilyo/S.
Bend, 163 F.3d 449, 455 (7th Cir. 1998».
Of import here, "[w]hen the plaintiff attaches or incorporates a document upon which his
claim is based, or when the complaint otherwise shows that the plaintiff has adopted the contents
of the document, crediting the document over conflicting allegations in the complaint is proper."
Goines, 822 F.3d at 167. Conversely, "where the plaintiff attaches or incorporates a document for
purposes other than the truthfulness of the document, it is inappropriate to treat the contents of that
document as true." Id.
A court may also "consider a document submitted by the movant that was not attached to
or expressly incorporated in a complaint, so long as the document was integral to the complaint
and there is no dispute about the document's authenticity."
Goines, 822 F.3d at 166 (citations
omitted); see Six v. Generalions Fed Credil Union, 891 F.3d 508, 512 (4th Cir. 2018); Woods v.
City a/Greensboro,
855 F.3d 639, 642 (4th Cir. 2017), cerl. denied, _
U.S. _'
138 S. Ct. 558
(2017); Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195, 198 (4th Cir. 2014);
u.s.
ex rei.
Oberg v. Pa. Higher Educ. Assislance Agency, 745 F.3d 131, 136 (4th Cir. 2014) (citation omitted);
Kensinglon Volunleer Fire Dep'l. v. Monlgomery Cty., 684 F.3d 462, 467 (4th Cir. 2012); Am.
20
Chiropractic Ass 'n v. Trigon Healthcare, Inc., 367 FJd 212, 234 (4th Cir. 2004), cert. denied, 543
U.S. 979 (2004); Phillips v. LCI Int'! Inc., 190 F.3d 609, 618 (4th Cir. 1999). To be "integral," a
document must be one "that by its 'very existence, and not the mere information it contains, gives
rise to the legal rights asserted.''' Chesapeake Bay Found., Inc. v. Severstal Sparrows Point, LLC,
794 F. Supp. 2d 602, 611 (D. Md. 2011) (citation omitted) (emphasis in original). See also Fed.
R. Civ. P. 10(c) ("A copy ofa written instrument that is an exhibit to a pleading is a part of the
pleading for all purposes.").
Plaintiffs appended Exhibits A through J to their Amended Complaint, docketed at
ECF 35-2 through ECF 35-11. Exhibit A is an email solicitation sent to Sersen on April 3, 2018.
See ECF 35-2. The solicitation included a PPM, identifying the Noes, Hamilton, and Otey "as
officers of Eco-Gen"; the Noes "as members of Eco-Gen's Board of Technology Advisors"; and
Ms. Noe as '''Trustee [who] oversees all IP with the Bellagio Trust that owns most of the IP for
the Hybrid Solar Generator.'''
Id. at 24-25.
Exhibit B is Eco-Gen's annual registration list filed with the Nevada Secretary of State,
naming Hamilton as Eco-Gen's president and director and Otey as its secretary, treasurer, and
director.
ECF 35-3 at 2. Exhibit C is Eco-Gen's registration to conduct business in California,
filed by Otey on November 9, 2012, with the Office of the Secretary of the State of California.
See ECF 35-4 at 2-4.
Exhibit D is the Petition for Change of Name, filed by the Noes on January 4, 2013.
ECF 35-5 at 2-11.
As mentioned, Mr. Noe petitioned to change his name from Paul Howe
Boaventura-Noe to Paul Boaventura-Delanoe,
and Ms. Noe petitioned to change her name from
Licia Boaventura-Noe to Licia Boaventura-Delanoe.
21
Id. at 2.
Exhibit E is a San Francisco Weekly article titled "Veteran Con Man Back to Swindling
Elderly Veterans," authored by Matt Smith on June 29, 2011. ECF 35-6 at 2-4. In the article,
Smith describes Mr. Noe as "a convicted con man who has been investigated and sanctioned by
the California Department of Insurance and sued by the California Attorney General."
Jd. at 2.
Smith summarizes Mr. Noe's extensive criminal history, including his 1989 conviction "in
connection with an insurance scam involving his uncle Clifford." Jd.
Exhibit F includes two Westlaw printouts of opinions issued in Mr. Noe's 1989 case. ECF
35-7 at 2-3; see United States v. Clifford D. Noe and Paul H. Noe, II, 1989 WL 5567, Crim. Nos.
87-00303-0 I, 87-00303-02, 1989 WL 5577 (E.D. Pa. Jan 19. 1989); United States v. Clifford D.
Noe and Paul H. Noe, II, Crim. Nos. 87-00303-01, 87-00303-02,1989
WL 5577 (E.D. Pa. Jan. 19
1989). Exhibit F also includes a third printout of a memorandum and order issued in the case of
the codefendant, Clifford Noe. ECF 35-7 at 4-5; see United States v. Clifford D. Noe, Crim. No.
87-00303-01,1990
WL67117,at
*2 (E.D. Pa. May 16, 1990).
Exhibit G is an excerpt of the "2005 Annual Report of the Insurance Commissioner," issued
by the California Department of Insurance. ECF 35-8 at 3. The report states, in relevant part, id.
at 4: "In August 2003, the Department [of Insurance] issued a Cease and Desist order against Paul
Noe and his corporation EPI Estate Planning Incorporated."
Mr. Noe contested the order, denying
"he engaged in the unlicensed sale of insurance products."
Jd. However, an administrative law
judge "ruled that good cause existed for the issuance of the Cease and Desist order in that Paul
Noe was acting as an Insurance agent, but was not licensed to sell insurance." Jd.
Exhibit H is a 20 I0 Order to Desist and Refrain, issued by the California Real Estate
Commissioner to Mr. Noe and associates.
ECF 35-9. Mr. Noe was ordered to cease and desist
22
"from performing any acts within the State of California for which a real estate broker license is
required," such as loan modification and foreclosure rescue services. Id. at 8.
Exhibit I is Eco-Gen's PPM, issued on August 1,2013.
ECF 35-10.
And, Exhibit J
contains a chart mapping the projected revenue of Eco-Gen between 2015 and 2017. ECF 35-11.
As mentioned, supra, Exhibits I and J were delivered to the Beckers on March 30, 2015, in an
effort to solicit their investment in Eco-Gen.
Plaintiffs appended these exhibits to the suit, and clearly reply upon them to assert their
claim. Although defendants may dispute the content or relevance of the exhibits, that would be an
issue for a later time. And, as to ECF 35-7, the Court may take judicial notice of other court
opinions as relevant public records. See, e.g., Zak, 780 F.3d at 607 ("[C]ourts are permitted to
consider facts and documents subject to judicial notice without converting the motion to dismiss
into one for summary judgment.").
In addition, plaintiffs appended two exhibits to their opposition to the Warren Motion: the
"Lease-Purchase
Agreement" (ECF 41-1) and the "Global Settlement Agreement And Mutual
Release" ("Release," ECF 41-2).
As noted, supra, the Purchase Agreement contains a forum-
selection clause. ECF 41-1 at 5, 10-12. The agreement is integral to the Amended Complaint: it
serves as the basis for plaintiffs' breach of contract claim, and it is relevant to the RICO and fraud
claims. Therefore, I shall consider the Purchase Agreement.
The Release, dated March 28, 2016, is also referenced in the Amended Complaint.
Release appears to be signed by Warren, personally and on behalf of aPEX.
The
See ECF 41-2 at 8.
Plaintiffs allege that through the execution of the Release, "Warren attempted to lull Sersen into
not pursuing legal action against aPEX and Eco-Gen and the other defendants."
23
ECF 35, 'If 46.
Plaintiffs also rely on the Release for purposes of personal jurisdiction.
Ofrelevance here,
the Release contains a forum-selection clause. Paragraph 11 states, in pertinent part, id. at 4:
Governing Law and .Jurisdiction. The laws of the State of Maryland shall apply
to and control any interpretation, construction, performance or enforcement of this
Agreement.
The parties agree that the exclusive jurisdiction for any legal
proceeding arising out of or relating to this Agreement shall be in the U.S. District
Court for the District of Maryland, and all Parties hereby waive any challenge to
personal jurisdiction or venue in that court.
Based on the Release, in which aPEX consented to personal jurisdiction in this District,
plaintiffs contend that this Court also has personal jurisdiction over its member, Warren, as well
as the other defendants.
ECF 41 at 10-II. Accordingly, I may consider the Release.
III.
The RICO Statute
A.
RICO Generally
The RICO claim is at the heart of the suit. Therefore, an overview of the RICO statute is
helpful to analyze the motions.
Congress enacted RICO as Title IX of the Organized Crime Control Act of 1970, Pub. L.
No. 91-452, 84 Stat. 922 (1970). See ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 626 (4th
Cir. 1997). RICO prohibits various activities generally associated with organized crime. See 18
U.S.C.
SS
1963, 1964.
Under 18 U.S.C.
S 1962, it is unlawful,
inter alia, for any person employed by or associated
with any enterprise to conduct or participate in the "enterprise's
racketeering activity .... " 18 U.S.C.
S
affairs through a pattern of
1962(c). But, RICO is not limited to criminal cases. In
addition to criminal penalties, Congress "granted a private civil right of action to '[a jny person
injured in his business or property by reason ofa violation of the RICO provisions."
126 F.3d at 626 (citing 18 U.S.c.
S
1964(c)).
24
ESAB Grp.,
A civil RICO action '''is a unique cause of action that is concerned with eradicating
organized, longterm, habitual criminal activity.'''
Us. Airline Pilots Ass 'n v. Awappa. LLC, 615
F.3d 312, 317 (4th Cir. 2010) (citation omitted); see, e.g., Lewis v. Maryland, PWG-17-1636, 2018
WL 1425977, at *5 (D. Md. Mar. 22,2018); Bailey v. Atlantic Auto. Corp., 992 F. Supp. 2d 560,
578 (D. Md. 2014). But, the Fourth Circuit "will not lightly permit ordinary business contract or
fraud disputes to be transformed into federal RICO claims." Flip Mortg. Corp. v. McElhone, 841
F.2d 531,538 (4th Cir. 1988).
A plaintiff may establish a civil RICO claim by proof of '" I) conduct [causing injury to
business or property] 2) of an enterprise 3) through a pattern 4) of racketeering activity.'"
Morley
v. Cohen, 888 F.2d 1006, 1009 (4th Cir. 1989 (quoting Sedima, S.P.R.I. v. Imrex Co., Inc., 473
U.S. 479, 496 (1985»; see AI-Abood ex rei. AI-Abood v. EI-Shamari, 217 FJd 225, 238 (4th Cir.
2000) (citing 18 U.S.c.
SS
1962, 1964); see also Bhari Info. Tech. Sys. Private Ltd. v. Sriram, 984
F. Supp. 2d 498, 503 (D. Md. 2013); Mitchell Tracey v. First Am. Title Ins. Co., 935 F. Supp. 2d
826,842
(D. Md. 2013); Grant v. Shapiro & Burson, LLP, 871 F. Supp. 2d 462, 472 (D. Md.
2012).
A prevailing plaintiff in a civil RICO action is entitled to treble damages, costs, and
attorney's fees. Friedler v. Cole, CCB-04-1983, 2005 WL 465089, at *7 (D. Md. Feb. 28, 2005).
The Supreme Court has characterized RICO's civil penalties as "'drastic.'''
Awappa, 615 FJd at
317 (quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 233 (1989»; see 18 U.S.C.
S
1964(c».
Congress has directed that the statute "be liberally construed to effectuate its remedial
purposes." Pub. L. 91--452,
S 904(a),
84 Stat. 941, 947. But, "Congress contemplated that only a
party engaging in widespread fraud would be subject to" the "serious consequences" available
under the RICO statute, such as treble damages. Menasco, Inc., 886 F.2d at 683. And, courts have
25
recognized the "need to limit [RICO's] severe penalties to offenders engaged in ongoing criminal
activity, rather than isolated wrongdoers."
Friedler, 2005 WL 465089, at *7.
The Fourth Circuit has noted the "distinction between ordinary or garden-variety fraud
claims better prosecuted under state law and cases involving a more serious scope of activity." EIShamari, 217 F.3d at 238. It has admonished that courts must
exercise caution "to ensure that RICO's extraordinary remedy does not threaten the
ordinary run of commercial transactions; that treble damage suits are not brought
against isolated offenders for their harassment and settlement value; and that the
multiple state and federal laws bearing on transactions ... are not eclipsed or
preempted."
AlI'appa, 615 F.3d at 317 (quoting Menasco, Inc., 886 F.2d at 683) (ellipsis in AlI'appa).
In other words, RICO "is not a cause of action to be pled lightly," and '''RICO treatment
is reserved for conduct whose scope and persistence pose a special threat to social well-being.'''
Biggs v. Eaglell'ood Mortg., LLC, 582 F. Supp. 2d 707, 714 (D. Md. 2008), ajJ'd, 353 F. App'x
864 (4th Cir. 2009). It applies to "'ongoing unlawful activities whose scope and persistence pose
a special threat to social well-being.'''
Menasco, Inc., 886 F.2d at 684 (quoting Zepkin, 812 F.2d
at 155).
In order to analyze the adequacy of a RICO claim, it is important to understand RICO's
terms and concepts.
RICO defines an "enterprise" as "any individual, partnership, corporation, association, or
other legal entity, and any union or group of individuals associated in fact although not a legal
entity."
18 U.S.C.
S
1961(4).
See, e.g., Boyle v. United States, 556 U.S. 938, 944 (2009);
Kimberlin v. Nat 'I Bloggers Club, GJH-13-3059, 2015 WL 1242763, at *3 (D. Md. Mar. 17,2015).
In Mitchel! Tracey, 935 F. Supp. 2d at 842, the court explained:
An "enterprise" requires proof of three elements: (I) an ongoing organization;
(2) associates functioning as a continuing unit; and (3) the enterprise is an entity
26
"separate and apart from the pattern of activity in which it engages." Proctor v.
Metro. Money Store Corp., 645 F. Supp. 2d 464, 477-78 (D. Md. 2009). "[Aln
associated-in-fact enterprise is one type of enterprise defined in S 1961(4)." United
States v. Tillett, 763 F.2d 628, 631 n.2 (4th Cir. 1985). To satisfy S 1962(c)'s
"distinctiveness" requirement, the Plaintiffs must further allege that the RICO
"enterprise" is distinct from the defendant "person" alleged to have violated RICO.
Levine v. First Am. Title Ins. Co., 682 F. Supp. 2d 442, 457 (E.D. Pa. 2010);
Toucheque v. Price Bros. Co., 5 F. Supp. 2d 341,346-47 (D. Md. 1998).
Because '''an enterprise includes any union or group of individuals associated in fact,'''
RICO extends to "'a group of persons associated together for a common purpose of engaging in a
course of conduct.'''
583 (1981».
Boyle, 556 U.S. at 944 (quoting United States v. Turkel/e, 452 U.S. 576, 580,
Moreover, a RICO enterprise "need not have a hierarchical structure or a chain of
command; decisions may be made on an ad hoc basis and by any number of methods." Id. at 948.
However, "'[vlague
allegations of a RICO enterprise ...
structure' will not survive dismissal."
lacking any distinct existence and
Mitchell Tracy, 935 F. Supp. 2d at 843 (citation omitted;
modifications in Mitchell Tracy).
"Racketeering activity" is defined in
S
1961(1)(B) to include a laundry list of "indictable"
acts, such as mail fraud, wire fraud, financial institution fraud, among many other crimes. "To
allege a pattern of racketeering activity, a plaintiff must present facts making it plausible, rather
than possible, that: (I) at least two predicate acts occurred within ten years of each other; (2) the
predicate acts were related; and (3) the acts 'amount to or pose a threat of continued criminal
activity.'''
Swarey v. Desert Capital REIT, Inc., DKC-11-3615, 2012 WL 4208057, at *12 (D.
Md. Sept. 20, 2012) (quoting H.J Inc., 482 U.S. at 239).
Notably, "RICO is not 'aimed at the isolated offender.'''
Zepkin, 812 F.2d at 155 (quoting
Sedima, 473 U.S. at 496 n.14). Therefore, "[tlhe pattern requirement was intended to limit RICO
to those cases in which racketeering acts are committed in a manner characterizing the defendant
27
as a person who regularly commits such crimes." Lipin Enters. v. Lee, 803 F.2d 322, 324 (7th Cir.
1986).
A "pattern of racketeering activity" requires "at least two acts of racketeering activity ...
the last of which occurred within ten years ... after the commission of a prior act of racketeering
activity." 18 U.S.C.
S 1961(5).
To prove a pattern, a plaintiff is required to show that the predicate
acts "are [I] related and [2] that they amount to or pose a threat of continued criminal activity."
HJ. fnc., 492 U.S. at 239 (first emphasis in original; second emphasis added).
Acts are related if they "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." HJ. fnc., 492 U.S. at 240 (citation omitted). And, the enterprise's actions
must affect interstate commerce. Sterling v. Ourisman Chevrolet of Bowie, fnc. 943 F. Supp. 2d
577, 587-88 (D. Md. 2013).
As indicated, a pattern of racketeering activity involves continued criminal activity. HJ.
fnc., 492 U.S. at 239. The Fourth Circuit has adopted a "flexible" approach to the "continuity"
requirement.
Brandenburg v. Seidel, 859 F.2d 1179, 1185 (4th Cir. 1989), overruled on other
grounds by Quackenbush v. Allstate fns. Co., 517 U.S. 706 (1996). Courts utilize a "case-by-case
analysis, Capital Lighting and Supply, LLC v. Wirtz, JKB-17-3765, 2018 WL 3970469, at *6 (D.
Md. Aug. 20, 2018), and consider "the 'criminal
misconduct."
dimension
and degree'
of the alleged
HMK Corp. v. Walsey, 828 F.2d 1071, 1073 (4th Cir. 1987) (citation omitted); see
fnt'l Data Bank, Ltd. v. Zepkin, 812 F.2d 149, ISS (4th Cir. 1987) ("[N]o mechanical test can
determine the existence of a RICO pattern."); Brandenburg,
continuity depends on "all the facts and circumstances
attention to the context in which the predicate acts occur").
28
859 F.2d at 1185 (noting that
of the particular case-with
special
';>Continuity' is both a closed - and open-ended concept, referring either to a closed period
of repeated conduct, or to past conduct that by its nature projects into the future with a threat of
repetition."
H.J. Inc., 492 U.S. at 241.
The Fourth Circuit explained in Mensaco, Inc. v.
Wasserman, 886 F.2d 681, 683-84 (4th Cir. 1989):
Continuity ... refers to a closed period of repeated conduct, or to past conduct that
by its nature projects into the future with a threat of repetition. To satisfy the
continuity element, a plaintiff must show that the predicates themselves amount to,
or . . . otherwise constitute a threat of, continuing racketeering activity.
Significantly, (p]redicate acts extending over a few weeks or months and
threatening no future criminal conduct do not satisfy this requirement: Congress
was concerned in RICO with long-term criminal conduct. Thus, predicate acts must
be part of a prolonged criminal endeavor.
(Internal quotation marks, citations, and parentheticals
omitted; alteration and emphasis In
original).
As to continuity, "(fjacts relevant to this inquiry include the number and variety of
predicate acts and the length of time over which they were committed, the number of putative
victims, the presence of separate schemes, and the potential for multiple distinct injuries."
Brandenburg, 859 F.2d at 1185.
Where a fraud claim is asserted as the predicate act for a civil RICO violation, Rule 9(b)'s
particularity requirement applies. See, e.g., Lewis, 2018 WL 1425977, at *5 (applying heightened
pleading standard to claims under RICO); Healy v. BWW Law Grp., LLC, PWG-15-3688, 2017
WL 281997, at *6 (D. Md. Jan. 23, 2017) (same); Kimberlin v. Hunton & Williams LLP, GJH-15723,2016 WL 1270982, at *7 (D. Md. Mr. 29, 2016) (applying Fed. R. Civ. P. 9(b) to RICO claim
based on mail or wire fraud), aird, 671 F. App'x 127 (4th Cir. 2016); Bailey, 992 F. Supp. 2d at
584 ("A plaintiff must plead circumstances of the fraudulent acts that form the alleged pattern of
racketeering activity with sufficient specificity pursuant to Fed. R. Civ. P. 9(b).") (citations and
quotation marks omitted); Sriram, 984 F. Supp. 2d at 505.
29
B.
Personal.Jurisdietion
Under RICO
Warren and the Eco-Gen Defendants have moved to dismiss the Amended Complaint for
lack of personal jurisdiction, pursuant to Fed. R. Civ. P. 12(b)(2). See ECF 38; ECF 40.
The Eco-Gen Defendants acknowledge that "RICO provides for personal jurisdiction over
all non-resident defendant-members of a racketeering enterprise as long as the court may exercise
personal jurisdiction over one of the defendant-members."
SS
I 965(b), (d)).
ECF 40-1 at I I (citing 18 U.S.c.
But, they argue, inter alia, that RICO does not provide a basis for personal
jurisdiction here, because the "RICO claims are not colorable," a suit here would offend Due
Process, and there is no other basis for personal jurisdiction.
Id.5
Although the parties first address their challenge to the viability of the RICO and State law
claims (see, e.g., ECF 38-1; ECF 40-1 at 4; ECF 42 at 15), the Court must first determine whether
it has personal jurisdiction over defendants. See Sucampo Pharms., Inc. v. As/elias Phanna, Inc.,
471 F.3d 544, 548 (4th Cir. 2006) ("[TJhe dismissal of a case on an issue relating to the dispute,
such as failure to state a claim, is improper without resolving threshold issues of jurisdiction,
including personal jurisdiction.") (citing Ruhrgas AG v. Mara/han Oil, 526 U.S. 574, 584 (1999)
("Personal jurisdiction ...
is an essential element of the jurisdiction of a district court, without
which the court is powerless to proceed to an adjudication." (internal quotation marks omitted)).
Plaintiffs advance several grounds to support their claim that this Court has personal
jurisdiction.
First, they argue that, under Fed. R. Civ. P. 4(k)(l )(C), the Court may exercise
personal jurisdiction over defendants because it is "authorized" by the RICO statute. ECF 42 at
Warren does not expressly challenge personal jurisdiction under the RICO statute. See
ECF 38-1. Instead, he relies on Md. Code, S 6-103 of the Courts and Judicial Proceedings Article.
ECF 38-1 at 1,2. He also cites 18 V.S.c. S I965(d), id. at 2, but alters its meaning by failing to
quote the provision in full.
5
30
21. Second, they assert personal jurisdiction as to all defendants based on aPEX's
consent to
personal jurisdiction in Maryland, as set forth in the Purchase Agreement and in the Release. Id.
at 23. Third, plaintiffs maintain that defendants are subject to specific long-arm jurisdiction under
Maryland law, consistent with due process. Id. at 27. Fourth, plaintiffs assert personal jurisdiction
based on the conspiracy theory. Id. at 30. Defendants counter that none of the above grounds
gives rise to personal jurisdiction.
ECF 43 at 4.
Rule 4(k)(l )(C) of the Federal Rules of Civil Procedure provides that service ofa summons
"establishes
personal jurisdiction"
over a defendant "when authorized by a federal statute."
Plaintiffs maintain that personal jurisdiction here is authorized by the RICO statute. In particular,
18 U.S.C.
S
1965(d) provides: "All other process in any action or proceeding under this chapter
may be served on any person in any judicial district in which such person resides, is found, has an
agent, or transacts his affairs.,,6
The Fourth Circuit "has construed Section 1965(d) as 'authoriz[ing] nationwide service of
process and, thus, the exercise of personal jurisdiction in any district court,''' subject to due process
considerations under the Fifth Amendment. Swarey, 2012 WL 4208057, at *7 (quoting D 'Addario
v. Geller, 264 F. Supp. 2d 367, 386 (E.D. Va. 2003». In ESAB Group, 126 F.3d at 626, the Fourth
Circuit said: "[W]here, as here, Congress has authorized nationwide service of process ... so long
as the assertion of jurisdiction over the defendant is compatible with due process [under the Fifth
Amendment,] the service of process is sufficient to establish the jurisdiction of the federal court
6 The Docket reflects that the Eco-Gen Defendants were personally served with process in
California. See 18 U.S.c. S 1965(d); see also ECF 4 (Eco-Gen served in California on April 9,
2018); ECF 5 (Otey served in California on April 10, 2018); ECF 6 (Mr. Noe served in California
on April 11,2018); ECF 7 (Hamilton served in California on April 13,2018; ECF 8 (Ms. Noe
served in California on April 13, 2018). And, Warren was served with process in South Dakota.
ECF 10. On plaintiffs' motion, the Court entered an Order on May 2, 2018, allowing alternative
service of process on Warren and aPEX, by first class mail and certified mail. See ECF 10.
31
over the person of the defendant." (internal quotation marks omitted).
Accordingly, "service of
process on a RICO defendant in ajudicial district where that defendant resides establishes personal
jurisdiction, provided that the assertion of jurisdiction comports with due process." Swarey, 2012
WL 4208057, at *6.
A defendant may challenge a plaintiffs
reliance on the nationwide service of process
provision in a RICO case by demonstrating that the RICO claim is not colorable, because it is
"'wholly immaterial or insubstantial.'"
Noble Sec., Inc. v. MIZ Eng 'g, Ltd., 611 F. Supp. 2d 513,
549 (E.D. Va. 2009) (quoting ESAB Grp., 126 F.3d at 629). Alternatively, a defendant may "defeat
personal jurisdiction ...
by showing that due process [under the Fifth Amendment] would be
violated .... " Swarey, 2012 WL 4208057, at *7. The Eco-Gen Defendants lodge jurisdictional
challenges on both fronts.
A RICO claim is not colorable ifit is "implausible, insubstantial, or frivolous." D 'Addario,
264 F. Supp. 2d at 388. However, "a claim can be colorable while still failing to satisfy the
pleading requirements of[Rule
12(b)(6) ofJ the Federal Rules of Civil Procedure." Swarey,2012
WL 4208057, at *8.
The Due Process Clause of the Fifth Amendment protects the "liberty interests" of the
defendants "against unfair burden and inconvenience."
ESAB Grp., 126 F.3d at 626. Thus, "To
make out a Fifth Amendment challenge to personal jurisdiction," a defendant must show that the
"'assertion of personal jurisdiction ... would result in such extreme inconvenience or unfairness
as would outweigh the congressionally articulated policy evidenced by a nationwide service of
process provision.'''
Trs. of the Plumbers and Pipejitters Nat 'I Pension Fund v. Plumbing Servs.,
Inc., 791 F.3d 436, 444 (4th Cir. 2015) (quoting Denny's, Inc. v. Cake, 364 F.3d 521, 524 n.2 (4th
Cir. 2004) (some internal quotation marks omitted); see ESAB Grp., 126 F.3d at 627.
32
As to due process, the Eco-Gen Defendants argue that they are "California residents" who
"do not do business in Maryland or have contacts in Maryland."
ECF 40-1 at 12. Further, they
contend that "[mJost if not all of the evidence and witnesses in this case will be located in
California" and that they "will incur significant expenses to travel to Maryland to litigate this case,
which comprises threadbare RICO claims."
Defendants seem to conf1ate due process under the Fifth Amendment with the "minimum
contacts" analysis that applies when assessing personal jurisdiction under the Due Process Clause
of the Fourteenth Amendment. See In! 'I Shoe Co. v. Washington, 326 U.S. 310,316 (1945). "That
standard, however, is not relevant when the basis for jurisdiction is found in a federal statute
containing a nationwide service of process provision."
Trs. of the Plumbers and Pipefillers Nat 'I
Pension Fund, 791 FJd at 443 (analyzing personal jurisdiction under the Employee Retirement
Income Security Act, 29 U.S.c. ~ 100 I et seq.)
As noted, to establish a Fifth Amendment due process violation, a defendant must show that
personal jurisdiction
would result "'in such extreme inconvenience
outweigh the congressionally
provision.'''
omitted).
or unfairness as would
articulated policy evidenced by a nationwide service of process
Trs. of the Plumbers and Pipefillers Nat 'I Pension Fund, 791 F.3d at 444 (citations
In ESAB Group, 126 FJd at 627, a civil RICO case, the Fourth Circuit said: "'[IJt is
only in highly unusual cases that inconvenience will rise to a level of constitutional concern.'''
(quoting Rep. of Panama v. BCCI Holdings (Luxembourg) S.A., 119 FJd 935, 947 (11th Cir.
1997».
Although defendants "will certainly experience some inconvenience" if required to litigate
this case in Maryland, they have failed to demonstrate that a Maryland forum "would be so
extremely inconvenient or so unfair as to outweigh the Congressional policy of permitting the
33
exercise of personal jurisdiction pursuant to RICO's nationwide service of process provisions."
Sadighi, 36 F. Supp. 2d at 274; see SlVarey, 2012 WL 4208057, at *8; D 'Addario, 264 F. Supp. 2d
at 387 ("The burden is on the defendant to demonstrate that the assertion of jurisdiction in this
forum will make litigation so gravely difficult and inconvenient that he unfairly is at a severe
disadvantage in comparison to his opponent.") (internal quotation marks omitted).
As indicated, the Eco-Gen Defendants also contend that plaintiffs have not asserted a
"colorable" RICO claim.
Therefore, they argue that plaintiffs may not rely on
establish in personam jurisdiction.
S
1965(d) to
See ECF 43 at 5. Defendants fail to carry the "high burden"
of demonstrating that plaintiffs' RICO claim is not colorable. D 'Addario, 264 F. Supp. 2d at 388.
In determining whether a claim is "colorable," courts consider whether the plaintiff has
made a "threshold showing" of the elements of a RICO claim: "'(I) conduct (2) of an enterprise
(3) through a pattern (4) of racketeering activity,' as well as (5) injury in the plaintiff's business
or property (6) by reason of the RICO violation."
SlVarey, 2012 WL 4208057, at *8 (quoting
D 'Addario, 265 F. Supp. 2d at 288)).
The test for colorability is not governed by the standards of Rule 12(b)(6). As noted, for
purposes of determining personal jurisdiction under RICO, "a claim can be colorable while still
failing to satisfy the pleading requirements of the Federal Rules of Civil Procedure." SlVarey,2012
WL 4208057, at *8; see also Noble Sec .. Inc., 611 F. Supp. 2d at 550 (distinguishing between the
"colorable federal claim standard" that applies to the personal jurisdiction analysis under Rule
12(b)(2) and the "federal claim upon which relief can be granted" standard that applies to a Rule
12(b)(6) motion to dismiss); D 'Addario, 264 F. Supp. 2d at 389 n.26 (explaining that although a
RICO claim was colorable for purposes of personal jurisdiction, the operative pleading likely
required an amendment to include "greater specificity" in order to survive a dispositive motion).
34
Here, the Amended Complaint, twenty-nine pages In length, contains allegations that
defendants participated in an Enterprise that "perpetrated, and continuer s] to perpetrate, a scheme"
to defraud plaintiffs "through a litany of illegal acts, including mail fraud, wire fraud, interstate
transportation of fraudulently acquired money and securities, and inducement of interstate travel,"
with respect to the invention of an allegedly bogus generator. ECF 35, ~'II13, 52. Plaintiffs assert
that this pattern of conduct began in December 2014, when the Enterprise first contacted plaintiffs,
and continued through April 2018, after the initial filing of this suit. Id. '11'1129, 55. Further,
47,
plaintiffs allege that the injuries caused by the defendants' "RICO violations include but are not
limited to the $151,385.00 purchase deposit paid by ASG, the $6,357.50 value of services that
ASG rendered to aPEX for which ASG has not been paid, the $25,000 that the Beckers paid for
25,000 shares of Eco-Gen stock, travel expenses and disruption of Plaintiffs' business, including
substantial loss and diversion of time of key personnel." Id. 'll56.
In my view, the RICO claims are colorable. Plaintiffs' RICO claims "cannot be said to be
'wholly insubstantial and immateriaL'"
D 'Addario, 264 F. Supp. 2d at 389 (quoting ESAB, 126
'FJd at 629»; see also Swarey, 2012 WL 4208057, at *8. Nor is there merit to defendants' Due
Process challenge under the Fifth Amendment.
Accordingly, plaintiffs have established personal
jurisdiction as to the RICO claim.
C.
Failure to State a RICO Claim (Counts I and II)
In Count I, plaintiffs allege that defendants violated the federal RICO statute, 18 U.S.c.
~ I962(c). ECF 35, '11'1149-58. n Count II, plaintiffs assert that defendants conspired to violate 18
I
U.S.c. ~ I 962(c), in violation of 18 U.S.c. ~ 1962(d). ECF 35, '11'1159-65. Eco-Gen Defendants
The
have moved to dismiss the RICO claims under Rule 12(b)(6), asserting that plaintiffs have not
alleged facts sufficient to support their RICO claims. ECF 40-1 at 4.
35
As indicated, in order to state a civil RICO claim under 9 1962(c), a plaintiff must allege
"(I) conduct [causing injury to business or property l; (2) of an enterprise; (3) through a pattern;
(4) of racketeering activity." Sedima, S.P.R.I., supra, 473 U.S. at 496 (footnote omitted); see AIAbood ex. Rei. AI-Abood, 217 FJd at 238; Morley, 888 F.2d at 1009. The Eco-Gen Defendants
do not challenge the sufficiency of plaintiffs' allegations as to the first two elements of a RICO
claim, i. e., the "conduct of an enterprise."
Rather, they maintain that plaintiffs fail to plead facts
sufticient to establish the last two elements, i.e., a "pattern of racketeering activity." See ECF 40I at 4; ECF 43 at 1.
In support of their RICO claims, plaintiffs rely on the following predicate crimes, listed in
18 U.S.c. 9 1961(1): mail fraud (18 U.S.c. 9 1341); wire fraud (18 U.S.C. 9 1343); receipt of
interstate transfers of money taken by fraud (I 8 U.S.c. 9 2314); and inducement of interstate travel
by a victim of fraud (18 U.S.c. 92314).
ECF 35, ~ 52. However, the Fourth Circuit is "cautious
about basing a RICO claim on predicate acts of mail and wire fraud because' lilt will be the unusual
fraud that does not enlist the mails and wires in its service .... '" AI-Abood, 217 FJd at 238
(quoting Anderson v. Found. for Advancement, Educ. and Employment of Am. Indians, ISS F.3d
500, 506 (4th Cir. 1998» (internal quotation marks omitted) (alteration in Anderson).
"This
caution is designed to preserve a distinction between ordinary or garden-variety fraud claims better
prosecuted under state law and cases involving a more serious scope of activity." AI-Abood,217
F.3d at 238.
Plaintiffs focus on a series of acts undertaken by the Enterprise, allegedly directed towards
the fraudulent goals of inducing plaintiffs to purchase the JouleBox as well as Eco-Gen stock.
ECF 35, ~ I. Beginning in 2009, the Enterprise filed articles of incorporation for Eco-Gen in
Nevada, and in 2012 the company registered to do business in California.
36
Id. ~ 55(a)-(b).
However, plaintiffs' first contact with defendants did not occur until December 2014, when "John
Becker had several telephone calls with Ralph Warren," in which Warren allegedly made several
misleading claims about the JouleBox. /d. ~ 29. On March 30, 2015, the Enterprise delivered a
PPM to the Beckers, dated August 1,2013, offering to sell 25,000 shares of Eco-Gen stock for a
purchase price of$25,000.
/d. ~ 55(g). A day later, the Beckers purchased the stock, transferring
$25,000 to Eco-Gen's Account No. 9291. /d. ~ 55(h). EDRC entered into the Purchase Agreement
on May 30, 2015, for the purchase of a JouleBox for $329,995.00, initially paying a deposit of
$151,385.00 to aPEX by wire transfer to aPEX's bank account. /d. ~ 55(1).
As a part of the defendants' scheme to defraud plaintiffs, defendants also induced John
Becker and Sersen, at different times, to travel from Maryland to Eco-Gen' s office in California.
/d. ~ 55(0)-(p).
Following Sersen's visit, the Enterprise delivered a stock certificate to Sersen,
representing 25,000 shares of stock in Eco-Gen. /d. ~ 55(q). According to plaintiffs, the Enterprise
emailed Sersen on March 7,2016, "attempting to lull Sersen into not pursuing legal action against"
defendants. /d. ~ 55(s). And, as recently as April 3, 2018, soon after suit was filed, the Enterprise
"sent Mr. Sersen a stock purchase solicitation by email." /d. ~ 47.
Further, plaintiffs allege monetary loss. This includes their deposit for the purchase of a
JouleBox ($151,385); the cost of the purchase of shares of stock in Eco-Gen ($25,000); the "value
of services that ASG rendered to aPEX for which ASG has not been paid" ($6,357); as well as
"travel expenses" and "disruption of Plaintiffs' business." /d. ~ 56.
To support their contention that they have adequately stated RICO claims, plaintiffs rely,
inter alia, on Morley v. Cohen, supra, 888 F.2d 1006. There, the plaintiffs were investors in the
defendants' coal mining operations. /d. at 1008. As a result of the defendants' misrepresentations,
the plaintiffs were induced to make repeated investments in the mining operations and were lulled
37
into leaving their investments in the defendants' control for five years. Id. The Fourth Circuit
concluded that the five-year duration of the defendants'
fraudulent conduct established the
requisite continuity under RICO. Id. at 1010; see also GE Inv. Private Partners II v. Parker, 247
FJd 543, 550 (summarizing Morley).
Comparing the facts in Morley to those in the instant case, plaintiffs contend, ECF 42 at
15-16:
In both cases, there were a small number of plaintiff investors, whom the
Enterprise fraudulently induced to invest in a bogus energy business .... In both
cases, the Enterprise imitated a legitimate investment opportunity by providing the
plaintiffs with a misleading memorandum to induce their investment. In both cases,
the defendants induced the plaintiffs to make an additional investment after their
initial investment, although in this case the Enterprise went further and tried for a
third investment. Finally, in both cases, although the period of time from the
defendants' initial contact with the plaintiffs to the plaintiffs' initial investment was
comparatively short, the duration of the pattern of racketeering activity was
extended by the Enterprise's acts that preceded the plaintiffs' investments, and by
the Enterprise's subsequent acts intended to lull the plaintiffs into not taking action
to withdraw their investments.
The Eco-Gen Defendants argue that plaintiffs' allegations are not analogous to those in
Morley. The alleged predicate acts in Morley "included 'numerous' letters regarding the plaintiffs
investments sent continuously over five (5) years from 1976 to 1981."
ECF 43 at 3 (quoting
Morley, 888 F.2 at 1010). In contrast, the conduct in this case-excluding
the email of March 30,
20 18-spanned
a period of less than 2 years. ECF 43 at 3 (citing GE Investment, 247 F.3d at 550
(granting motion to dismiss and distinguishing Morley, as the alleged duration was at most two
years, which was not "the type of persistent, long-term fraudulent conduct" necessary to avoid
dismissal on Rule 12(b)(6))).
Further, the Eco-Gen Defendants assert that many of plaintiffs'
factual allegations do not constitute predicate acts under RICO, do not satisfy the continuity
requirement for racketeering activity, and the alleged scheme only "targeted one small set of
38
victims, who allege a single discrete injury (monetary loss)" over a relatively brief period of 15
months. Id. at 3. ECF 43 at I.
In particular, defendants note that the incorporation and registration of Eco-Gen and the
filing ofa trademark application and a patent application with USPTO are not indictable acts under
18 U.S.c. ~ 1961(a). ECF 43 at 1-2. Moreover, such conduct was not directed at plaintiffs, and
so these acts do not qualify as predicate acts. See Central Distrib. of Beer, Inc. v. Conn, 5 F.3d
181,184 (6th Cir. 1993); Lewis v. Microsoft Corp., 410 F. Supp. 2d 432, 439 (E.D.N.C. 2006),
ajJ'd, 222 F. App'x 290 (4th Cir. 2007) (per curiam); Semiconducter Energy Lab. Co. v. Samsung
£lec. Co., 4 F. Supp. 2d 473, 476 (E.D. Va. 1998), ajJ'd, 204 F.3d 1368 (Fed. Cir. 2000).
Plaintiffs' first contact with defendants occurred in December 2014, when Warren spoke
with Mr. Becker about "the profits to be made investing in Eco-Gen and selling the JouleBox."
ECF 35, ~ 29. Subsequent predicate acts include several email exchanges; delivery of the PPM to
the Beckers on March 30, 2015; John Becker's trip to California in March 2015; the wire transfer
of money from the Beckers on March 31, 2015; delivery of the Eco-Gen stock certificate to the
Beckers on April 16,2015; the Purchase Agreement of May 30, 2015; a video conference call
between Paul Noe and Sersen on July 28, 2015; Sersen's trip to California in August 2015; and
delivery of the Eco-Gen stock certificate to Sersen on September 19, 2015. These acts spanned a
period of approximately 15 months, from December 2014 to March 7, 2016. See id.
'1 55(g)-(s).
Thereafter, defendants did not contact plaintiffs for more than two years, until April 3, 2018, when
defendants sent a stock solicitation to Sersen via email.ld.
had filed this suit.
47. By that point, however, plaintiffs
The Eco-Gen Defendants maintain that the email of April 3, 2018, "was
obviously an error as this lawsuit had been filed" on March 30, 2018. ECF 43 at 3. They add:
39
"Plaintiffs are trying to tack on every non-predicate act Defendant did to stretch the time period
for their RICO claim." Id.
In my view, the length of the scheme does not satisfy the continuity requirement. See, e.g.,
GE Investment, 247 F.3d at 549 (finding that plaintiffs failed to satisfy continuity requirement
where the purported conducted lasted only two years and "was designed for the single goal of
allowing [the defendants) to profit from their interests [in the company)"); Menasco, 886 F.2d at
684 (continuity requirement not satisfied where alleged activities took place over a period of one
year).
Further, the predicate acts also targeted a narrow set of victims: the Beckers, Sersen,
EDRC, and ASG. Based on "information and belief," plaintiffs claim that defendants have "used
the PPM to solicit investments from numerous other victims." ECF 35. However, such speculative
allegations do not supply any details as to the identity or activity of the other purported victims.
See Menasco, 886F.2d at 684 (concluding that the allegations lacked the specificity needed to show
a distinct threat of continuing racketeering activity because the complaint did not provide the
identity or activity of additional victims); Swarey, 2012 WL 4208057, at *13 (same).
To be sure, "[t)here is no per se rule against a RICO claim involving" a small set of victims.
A/-Abood, 217 F.3d at 238. But, as the Fourth Circuit has noted, "RICO treatment is reserved for
conduct 'whose scope and persistence pose a special threat to social well-being.'"
GE Investment,
247 F.3d 543, 551 (quoting Menasco, 886 F.2d at 684)). As I see it, this case "is not sufficiently
outside the heartland of fraud cases to warrant RICO treatment."
A/-Abood, 217 F.3d at 238
(finding that predicate acts of mail and wire fraud involving one victim did not transform "ordinary
fraud" into a RICO violation, although the acts were "related" and "involved three discrete
schemes spanning several years"); Menasco, 886, F.2d at 684-85 (holding that scheme to defraud
40
only two victims did not constitute a RICO violation but suggesting that a claim alleging 27 victims
of same scheme would suffice).
Accordingly, plaintiffs' RICO claims (Counts I and II) against the Eco-Gen Defendants are
subject to dismissal.
See Swarey, 2012 WL 4208057, at *]3 (finding RICO claim colorable for
personal jurisdiction purposes but dismissing it for failure to state a claim).
Warren and aPEX did not move to dismiss under Rule 12(b)(6).
Nevertheless, I may
dismiss the RICO claims against them, sua sponte, for failure to state a claim. See Eriline Co. S.A.
v. Johnson. 440 FJd 648, 655 n. 10 (4th Cir. 2006) ("[A] district court may sua sponte dismiss a
complaint for failure to state a claim. . ..
Where the face of a complaint plainly fails to state a
claim for relief, a district court has 'no discretion' but to dismiss it.") (citing 5A WRIGHT&
MILLER, FEDERALPRACTICE& PROCEDURE 1357 (2d ed. 1990)); see also Taylor v. Acxiom
~
Corp., 612 FJd 325, 340 (5th Cir. 2010) ("While the district court did dismiss sua sponte some
defendants who did not join the motion to dismiss, there is no prejudice to the plaintiffs in affirming
the judgment
in its entirety because the plaintiffs make the same allegations
against all
defendants."); Clinton Onty. Hasp. Corp. v. S. Md. Med. Ctr., 374 F. Supp. 450, 453-54 (D. Md.
1974) (dismissing claim as to all defendants where arguments made by one defendant for dismissal
"apply equally to the [other] defendants ...
[and] have been exhaustively discussed by the
plaintiff').
IV.
Personal Jurisdiction
as to the State Law Claims (Counts III, IV, V)
Relying on diversity jurisdiction, plaintiffs assert State law claims offraud (Count III), civil
conspiracy (Count IV), and breach of contract (Count V). ECF 35, ~~ 66-87. To pursue these
remaining claims, plaintiffs must establish a basis for the exercise of personal jurisdiction over
41
defendants, unrelated to RICO. The defendants maintain that this Court lacks personal jurisdiction
over the defendants as to the State claims.
A.
OPEX's Consent to Jurisdiction
Plaintiffs assert that this Court has personal jurisdiction over all defendants for all claims,
based on OPEX's consent to personal jurisdiction in this District. According to plaintiffs, Warren
and the Eco-Gen Defendants "are equally bound" by OPEX's consent, based on "their close
relationship" to OPEX. ECF 42 at 2 I.
In his Motion, Warren acknowledges that "OPEX has contractually agreed to personal
jurisdiction in Maryland."
ECF 38-1 at I. But, he disputes that he is bound by OPEX's consent.
He maintains that "[hJe has not agreed to personal jurisdiction and is a legal person separate and
apart from OPEX."
Id. The Eco-Gen Defendants argue that the forum selection clause in the
Purchase Agreement is merely permissive and, in any event, they are not bound by it. See Olawole
v. Actionet, Inc., PX-16-3506, 2017 WL 1230821, at *2 (D. Md. Apr. 4, 2017) (quoting 1. v.
Genuine Title, LLC, RDB-14-0081, 2015 WL 8315704, at * 13 (D. Md. Dec. 9, 2015), certified
question answered sub nom. Fangman v. Genuine Title, LLC, 447 Md. 691 (2016)).
OPEX and EDRC were parties to the Purchase Agreement (ECF 41-1). Warren signed the
Purchase Agreement on behalf of OPEX. ECF 41-1 at 6. It contains a choice of law and forum
selection provision, as follows, id. at 5:
22. This Purchase Agreement will be governed by and construed in accordance with
the laws of the State of Maryland, including the Maryland Uniform Commercial
Code and the Seller and Purchaser herby attorn to the jurisdiction of the Courts in
the State of Maryland.
The Release (ECF 41-2) was executed by Warren on behalf of OPEX, and by Warren in
his personal capacity. ECF 41-2 at 8. It states, in relevant part, id. at 4:
42
11. Governing Law and Jurisdiction. The laws of the State of Maryland shall
apply to and control and interpretation, construction, perfom1ance or enforcement
of this Agreement. The Parties agree that the exclusive jurisdiction for any legal
proceeding arising out of or relating to this Agreement shall be in the U.S. District
Court for the District of Maryland, and all Parties hereby waive any challenge to
personal jurisdiction or venue in that court.
A forum selection clause can constitute "'consent to personal jurisdiction, or at least a
waiver of any objection, when invoked by the plaintiff.'''
Green v. Presidential Bank, FSB, No.
2092, Sept. Term 2016, 2018 WL 904445, at *4 (Md. Ct. Spec. App. Feb. 14,2018) (quoting
CoStar Realty Info., Inc. v. Meissner, 604 F. Supp. 2d 757, 764 (D. Md. 2009)); see also Consulting
Eng'rs, 561 F.3d at 282 n.11 ("We note in passing that a valid forum selection clause ... may act
as a waiver to objections to personal jurisdiction.").
In The Bremen v. Zapata Off-Shore Co., 407
U.S. I, 10-12 (1972), the Supreme Court determined that forum-selection clauses are "prima facie
valid"
when
made through
"arm's-length
negotiation
by experienced
and sophisticated
businessmen," and "should be enforced unless enforcement is shown by the resisting party to be
'unreasonable'
under the circumstances."
In Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985), the Court reiterated this principle.
It observed that parties to an agreement may, in essence, contract around principles of personal
jurisdiction by consenting to resolve their disputes in specified tribunals. Id. at 471 n.14; see also
Truserv Corp. v. Flegles, Inc., 419 F.3d 584, 589 (7th CiT. 2005) (upholding exercise of personal
jurisdiction over guarantor, where guaranty contained consent to jurisdiction in forum state, noting
that '''personal jurisdiction is waivable and ...
parties can, through forum selection clauses and
the like, easily contract around any rule we promulgate,'''
and that '" [0]bviously, a valid forum-
selection clause, even standing alone, can confer personal jurisdiction"')
(citations omitted).
As one of two members of OPEX, and the sole managing member, Warren is bound by
OPEX's consent to jurisdiction, contained in the Purchase Agreement.
43
See Marano Enters. of
Kan. V. Z-Teca Rests, L.P., 254 FJd 753, 758 (8th Cir. 2001). Notably, he stood to benefit directly
from the business arrangements of OPEX, including the payment of the deposit for the JouleBox.
Therefore, this Court may exercise personal jurisdiction over Warren, and his Motion (ECF 38) is
denied.
As to the Eco-Gen Defendants, I reach a different result.
In Olawole, 2017 WL 1230821, Judge Xinis used a "three-step analysis to assess the
enforceability and applicability of a forum selection clause as to the plaintiff," a non-party to the
agreement. Id. at *2. First, the court must determine whether the clause is mandatory.
'''presumptively
enforceable.'''
If so, it is
Id. (citation omitted). Second, the court must determine whether
the specific claims fall within the scope of the clause. Id. Third, the court must determine if"'the
party opposing enforcement has rebutted the presumption of enforceability by providing that
enforcement would be unreasonable.'''
Id. (citation omitted).
Judge Xinis applied federal law in the court's analysis of a forum-selection clause, as the
underlying action was based on federal question jurisdiction.
jurisdiction, relevant state law applies.
However, in the context of diversity
See Varsity Gold, Inc. v. Lunenfeld, CCB-08-550, 2008
WL 5243517, at *2 (D. Md. Dec. 12,2008).
But, Maryland has adopted the federal standard with
regard to the evaluation of forum selection clauses. See Koch v. Am. Online, Inc., 139 F. Supp. 2d
690,693 (D. Md. 2000). And, Maryland courts follow the rule of lex loci cOlllractus, applying the
substantive law of the state, where the contract was formed, unless there is a choice-of-law
provision in the contract. Am. Motorists Ins. Co. v. ARTRA G,p., Inc., 338 Md. 560, 573, 659 A.2d
1295, 130 I (1995); Griffith Energy Servs., Inc. v. Nat 'I Union Fire Ins. Co. of Pittsburgh, Po., 224
Md. App. 252, 274,120 A.3d. 808,82\
(2015);
u.s. Life Ins.
462-63,18 AJd 110, 116 (2011).
44
Co. v. Wilson, 198 Md. App. 452,
The Eco-Gen Defendants assert that the Purchase Agreement's forum-selection clause is
not mandatory. In their view, the forum selection clause of the Purchase Agreement is "vague and
fatally ambiguous."
ECF 43 at 6. In this regard, they observe that the clause "does not state that
Maryland is the exclusive jurisdiction for any disputes" and therefore it "is permissive at best."
Id.
Moreover, the Eco-Gen Defendants point to the word "attorn" in the clause, claiming that
the word supports their view that the clause is permissive, not mandatory. Id. The word "attorn"
is defined as "[tjo turn over; to transfer to another money or goods; to assign to some particular
use or service." BLACK'SLAWDICTIONARY
(6th ed. 1990).
According to defendants,
courts have interpreted "attorn" as mandatory only when
"amplified by a mandatory term such as 'irrevocably' or 'exclusively.'"
ECF 43 at 7; see Pro Step
Mktg., Inc. v, Real Estate Webmasters, Inc., 5: 16-cv-00072-RL V-DSC, 2017 WL 3595489
(W.D.N.C. Aug. 21, 2017) (interpreting "irrevocably attorn" to convey exclusive jurisdiction in
the context of the entirety of the agreement but acknowledging that several courts have found the
same term to be permissive); see also, e.g., SOllthridge Ethanol, Inc. v. South LOllisiana Ethanol
LLC, 3:06-cv-2362-G, 2007 WL 2375758, at *8 (N.D. Tex. Aug. 16,2007) (finding that the use
of "attorn" in a forum selection clause was "insufficient to clearly demonstrate the parties' intent
to make jurisdiction exclusive"); Magellan Real Estate Investment Tr. v. Losch, 109 F. Supp. 2d
1144, 1149 (D. Ariz. 2000) (finding permissive
a forum-selection
clause that contained
"irrevocably attorn").
The clause at Issue does not contain any language that modifies the word "attorn."
Moreover, the text does not mandate that Maryland is unequivocally the exclusive place for suit.
See FindWhere Holdings, Inc., v. Sys. Envtl. Optimizations, LLC, 626 F.3d 752, 754 (4th Cir. 2010)
45
(concluding that the phrase "any dispute or legal action ... shall lie exclusively in" rendered the
forum selection clause mandatory and excluded any other proper venues) (emphasis added).7
I need not resolve the issue, however. This is because, even assuming, arguendo, that the
forum selection clause is mandatory and enforceable, it does not bind the Eco-Gen Defendants.
The recent case of Peterson v. Evapco, Inc., 238 Md. App. I, 188 A.3d 210 (2018),
provides guidance. There, the Maryland Court of Special Appeals adopted the "closely related"
doctrine with respect to the exercise of personal jurisdiction over a non-resident party who did not
sign the contract in issue.
The court determined that "a non-signatory
to a contract may
nonetheless be bound by that contract's forum-selection clause" if the non-signatory is so '''closely
related to the dispute such that it becomes 'foreseeable' that it will be bound.'" Peterson, 238 Md.
App. at 33, 188 A.3d at 228 (quoting Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209 (7th Cir. 1993».
But, I cannot conclude from the allegations that the Eco-Gen Defendants are so closely-related to
OPEX as to create personal jurisdiction over them on the basis of OPEX's consent to suit.
The individual Eco-Gen Defendants are not owners ofOPEX.
Moreover, as the defendants
point out, "there are no allegations that OPEX was an employee, an officer or a shareholder of
Eco-Gen," or vice versa. ECF 43 at 8. There is no claim that OPEX designed or developed the
JouleBox; participated in Eco-Gen's
operations or contract negotiations; or that OPEX was
otherwise obligated to Eco-Gen or subject to Eco-Gen's control." Id.
As such, this Court may not assert personal jurisdiction over the Eco-Gen Defendants based
on OPEX's consent to jurisdiction.
7 In contrast to the Purchase Agreement, the forum selection clause contained in the Release
is more precise. See ECF 40-1; ECF 43. As noted, it states, in relevant part, ECF 41-2 at 4
(emphasis added): "The Parties agree that the exclusive jurisdiction for any legal proceeding
arising out of or relating to this Agreement shall be in the U.S. District Court for the District of
Maryland .... " (emphasis added).
46
B.
Plaintiffs
Maryland Long-Arm Statute
contend that the Eco-Gen Defendants
are subject to specific long-arm
jurisdiction under Maryland's long-arm statute and the Fourteenth Amendment.
ECF 42 at 25.
Defendants disagree, arguing that they "did not purposefully avail themselves of the privilege of
conducting business in Maryland." ECF 40-1 at 14.
Fed. R. Civ. P. 4(k)(I)(A) authorizes a federal district court to exercise personal
jurisdiction over a defendant in accordance with the law of the state in which the district court is
located.
Carefirst
of Mel., 334 F.3d at 396.
Therefore,
in Maryland,
"to assert personal
jurisdiction over a nonresident defendant, two conditions must be satisfied: (I) the exercise of
jurisdiction
must be authorized under the state's
long-arm statute; and (2) the exercise of
jurisdiction must comport with the due process requirements of the Fourteenth Amendment."
lei.;
accord Carbone v. Deutsche Bank Nat '/ Tr. Co., RDB-15-1963, 2016 WL 4158354, at • 5 (D. Md.
Aug. 5,2016).
Maryland's
S 6-1 03(b)
long-arm statute is codified at Md. Code (2013 Repl. Vol., 2016 Supp.),
of the Courts & Judicial Proceedings Article ("C.1 .").
It authorizes "personal
jurisdiction over a person, who directly or by an agent," iel.:
(I) Transacts any business or performs any character of work or service in the
State;
(2) Contracts to supply goods, food, services, or manufactured products in the
State;
(3) Causes tortious injury in the State by an act or omission in the State;
(4) Causes tortious injury in the State or outside of the State by an act or omission
outside the State if he regularly does or solicits business, engages in any other
persistent course of conduct in the State or derives substantial revenue from
goods, food, services, or manufactured products used or consumed in the State;
(5) Has an interest in, uses, or possesses real property in the State; or
(6) Contracts to insure or act as surety for, or on, any person, property, risk,
contract, obligation, or agreement located, executed, or to be performed within
the State at the time the contract is made, unless the parties otherwise provide
in writing.
47
When interpreting the reach of Maryland's
long-arm statute, a federal district court is
bound by the interpretations of the Maryland courts. See Carbone, 2016 WL 4158354, at *5;
Snyder v. Hampton Indus., Inc., 521 F. Supp. 130, 135-36 (D. Md. 1981), aff'd, 758 F.2d 649 (4th
Cir. 1985); see also Mylan Labs., 2 F.3d at 61. Maryland courts have "consistently held that the
reach of the long arm statute is coextensive with the limits of personal jurisdiction delineated under
the due process clause of the Federal Constitution" and that the "statutory inquiry merges with
[the] constitutional examination."
Beyond Sys., Inc. v. Realtime Gaming Holding Co., 388 Md. 1,
22,878 A.2d 567, 580 (2005) (citing Mohamedv. Michael, 279 Md. 653, 657, 370 A.2d 551, 553
(1977»; see also Stover v. O'Connell Assocs., Inc., 84 F.3d 132, 135-36 (4th Cir. 1996) (stating
that "the two inquiries essentially
become one"); accord ALS Scan, Inc. v. Digital Servo
Consultants, Inc., 293 F.3d 707, 710 (4th Cir. 2002).
To
be sure,
permits .... " Mackey
"the
V.
reach
of the
[long-arm]
statute
is as far as due
process
Compass Mktg., Inc., 391 Md. 117, 140 n.5, 892 A.2d 479, 492 n.5
(2006). However, the Maryland Court of Appeals has clarified that the statutory analysis remains
a requirement of the personal jurisdiction analysis.
In Mackey, the Maryland Court of Appeals
said, 391 Md. at 141 n.6, 892 A.2d at 493 n.6 (citations omitted):
We stated recently in Beyond V. Realtime ... that "the purview of the long arm
statute is coextensive with the limits of personal jurisdiction set by the due process
clause of the Federal Constitution." We did not, of course, mean by this that it is
now permissible to simply dispense with analysis under the long-arm statute ....
Rather, ... we interpret the long-arm statute to the limits permitted by the Due
Process Clause when we can do so consistently with the canons of statutory
construction.
Since Mackey, the Maryland Court of Appeals has repeatedly affirmed that "determining
whether a Maryland court may exercise personal jurisdiction over a foreign defendant requires
a two-step analysis."
Bond v. Messerman,391
Md. 706, 721, 895 A.2d 990, 999 (2006); see
48
also CSR, Ltd. v. Taylor,411
Md. 457, 472, 983 A.2d 492, 501 (2009) (stating
personal jurisdiction analysis "entails dual considerations").
that
First, the court considers "whether
the requirements of Maryland's long-arm statute[] are satisfied." CSR, 411 Md. at 472, 983 A.2d
at 501 (citing Bond, 391 Md. at 721, 895 A.2d at 999; Mackey, 391 Md. at 129, 892 A.2d at
486; and Beyond, 388 Md. at 14,878 A.2d at 576). Second, it considers "whether the exercise of
personal jurisdiction comports with the requirements imposed by the Due Process Clause of the
Fourteenth Amendment.IJ" CSR, 411 Md. at 473, 983 A.2d at 501 (citing Bond, 391 Md. at 721,
895 A.2d at 999; and Beyond, 388 Md. at 15, 878 A.2d at 575). Nevertheless, the Maryland Court
of Appeals has, in some situations, declined to consider the first step where the analysis of the
second step demonstrates conclusively that personal jurisdiction over the defendant would violate
due process. See, e.g., Bond, 391 Md. at 722,895 A.2d at 1000.
Due process jurisprudence
recognizes "two types of personal jurisdiction:
general and
specific." CFA Inst. v. Inst. a/Chartered Fin. Analysts a/India, 551 F.3d 285, 292 n.15 (4th Cir.
2009). The Fourth Circuit has explained:
General personal jurisdiction, on the one hand, requires "continuous and
systematic" contacts with the forum state, such that a defendant may be sued in that
state for any reason, regardless of where the relevant conduct occurred. Specific
personal jurisdiction, on the other hand, requires only that the relevant conduct have
such a connection with the forum state that it is fair for the defendant to defend
itself in that state.
Id. (citing, inter alia, Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-15,
(1984» (internal citations omitted).
The United States Supreme Court has long held that personal jurisdiction
over a
nonresident defendant is constitutionally permissible so long as the defendant has "minimum
contacts with [the forum state] such that the maintenance of the suit does not offend 'traditional
notions of fair play and substantial justice,'''
Int'l Shoe Co., 326 U.S. at 316 (quoting Milliken v.
49
Meyer, 311 U.S. 457, 463 (1940)). Courts have separated this test into individual "prongs," first
ascertaining whether the threshold of "minimum contacts" is met, and then considering whether
the exercise of jurisdiction on the basis of those contacts is "constitutionally reasonable."
ALS
Scan, 293 F.3d at 712; see Consulting Eng'rs, 561 F.3d at 276.
A court may exercise general jurisdiction over foreign corporations to hear "any and all
claims" against the corporations "when their affiliations with the State are so 'continuous and
systematic' as to render them essentially at home in the forum State." Goodyear Dunlop Tires
Operations, S.A. v. Brown. 564 U.S. 915, 919 (2011) (quoting Int'! Shoe, 326 U.S. at 317). In
contrast, specific jurisdiction "depends on an 'affiliatio(n] between the forum and the underlying
controversy ... .''' Id. (citation omitted) (alteration in Goodyear).
The "minimum contacts" test is met where the defendant has "purposefully
avail(ed]
himself of the privilege of conducting business under the laws of the forum state." Consulting
Eng'rs, 561 F.3d at 278. A determination that the defendant has established minimum contacts
with the forum state amounts to a conclusion that '''it is presumptively not unreasonable to require
him to submit to the burdens oflitigation in that forum as well. '" Id. (quoting Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 476 (1985)).
Generally, the court must consider the prong of constitutional reasonableness "(i]f, and
only if" the minimum contacts test is met. Consulting Eng'rs, 561 F.3d at 278. The constitutional
reasonableness inquiry permits a defendant "who purposefully has directed his activities at forum
residents" to defeat jurisdiction, if he can "present a compelling case that the presence of some
other considerations would render jurisdiction unconstitutional."
Burger King, 471 U.S. at 477.
However, in some cases, the constitutional reasonableness analysis can "serve to establish the
50
reasonableness of jurisdiction upon a lesser showing of minimum contacts than would otherwise
be required." I d
When the defendant is a nonresident corporate agent, the court must examme the
defendant's contacts with the forum state in his individual capacity. Birrane v. Master Collectors,
Inc., 738 F. Supp. 167, 169 (D. Md. 1990). The defendant's contacts as a corporate agent on
corporate business are not sufficient to establish personal jurisdiction.
Corp., 178 F. Supp. 2d 525, 532 (D. Md. 2001) (citations omitted).
Rhee Bros. v. Han Ah Reum
A judge of this court has
explained, Birrane v. Master Collectors, Inc., 738 F. Supp. 167, 169 (D. Md. 1990) (quoting
Hanson v. Denckla, 357 U.S. 235, 253 (1958»:
An individual who has chosen simply to transact business in a state through a valid
and viable corporation has not necessarily "purposefully availed" himself of "the
privilege of conducting activities within ... [that] State" in his individual capacity
... Nor can it be said that he would "reasonably anticipate being haled into court"
in the state in his individual capacity by virtue of the corporation's activities there.
As indicated, general jurisdiction allows a plaintiff to bring "any and all claims" against a
party in that jurisdiction.
Goodyear, 564 U.S. at 919. "[T]he threshold level of minimum contacts
sufficient to confer general jurisdiction is significantly higher than for specific jurisdiction."
ALS
Scan, 293 F.3d at 715 (internal quotation marks omitted); accord Saudi v. Northrop Grumman
Corp., 427 F.3d 271, 276 (4th Cir. 2005).
constructions
of general jurisdiction"
The Fourth Circuit has long held that "broad
are "generally disfavored."
Nichols v. G.D. Searle &
Co., 991 F.2d 1195, 1200 (4th Cir. 1993).
To determine whether there is specific jurisdiction over a defendant, courts consider: "(I)
the extent to which the defendant purposefully availed itself of the privilege of conducting
activities in the State; (2) whether the plaintiffs' claims arise out of those activities directed at the
State; and (3) whether
the exercise
of personal jurisdiction
51
would
be constitutionally
reasonable."
Consulting Eng'rs, 561 F.3d at 278 (citingALS
Scan, 293 FJd
at 715); accord
Unspam Techs., Inc. v. Chernuk, 716 FJd 322, 328 (4th Cir. 2013); ESAB Grp., Inc. v. Zurich Ins.
PLc, 685 F.3d 376, 392 (4th Cir. 2012); Carejirst o/Md., 334 F.3d at 397.
"The first prong articulates the minimum contacts requirement of constitutional
due
process that the defendant purposefully avail himself of the privilege of conducting business under
the laws of the forum state."
Consulting Eng'rs, 561 F.3d at 278.
In determining whether a
defendant has engaged in such purposeful availment, courts have considered various factors,
including the following, id. (internal citations omitted):
•
•
•
•
•
•
•
•
whether the defendant maintains offices or agents in the forum state;
whether the defendant owns property in the forum state;
whether the defendant reached into the forum state to solicit or initiate
business;
whether the defendant deliberately engaged in significant or long-term
business activities in the forum state;
whether the parties contractually agreed that the law of the forum state
would govern disputes;
whether the defendant made in-person contact with the resident of the forum
in the forum state regarding the business relationship;
the nature, quality and extent of the parties' communications about the
business being transacted; and
whether the performance of contractual duties was to occur within the
forum.
Plaintiffs point to several contacts between defendants and the State of Maryland, asserting
that the Eco-Gen Defendants "took affirmative steps to form a targeted and ongoing relationship
with the Plaintiffs in Maryland ....
" ECF 42 at 26. Specifically, they allege that Eco-Gen
delivered two PPMs to plaintiffs, "whom it knew to be Maryland residents."
Id. (citing ECF 35,
~~ 26, 47). Also, plaintiffs allege that "Mr. Noe induced Mr. Sersen to travel [from Maryland] to
California to view the JouleBox."
ECF 42 at 27 (citing ECF 35, ~ 39). And, "[d]efendants later
delivered a stock certificate to Mr. Sersen in Maryland as an incentive to ASG as an early adopter
of the JouleBox."
ECF 42 at 27 (citing ECF 35, ~ 41). Plaintiffs further allege: "Mr. Becker
52
agreed to serve as a sales representative for aPEX and the JouleBox (and, thereby, Eco-Gen) for
the Washington, D.C. and Baltimore areas."
ECF 42 at 27 (citing ECF 35, ~ 36). In addition,
plaintiffs maintain: "The Lease-Purchase Agreement contemplated the delivery of one of EcoGen's JouleBoxes to ASG's location in Maryland[.]"
ECF 42 at 27 (citing ECF 35, ~ 42).
Defendants never appeared in Maryland with respect to the alleged scheme. For example,
there is no claim that defendants entered Maryland to negotiate with plaintiffs or to sign a contract.
Moreover, the JouleBox was never delivered. Defendants did not establish an office in Maryland.
At most, defendants engaged in conduct involving persons located in Maryland, and they did so
largely by availing themselves of mail and electronic communications.
The Supreme Court expounded on the minimum contacts requirement in Burger King,
supra, 471 U.S. 462. There, the Court explained that minimum contacts are not '''random,'
'fortuitous,'
or 'attenuated'
contacts," but rather are contacts that involve "significant activities
within a State" or "'continuing obligations' between [the defendant] and residents of the forum."
ld. at 475-76 (citations omitted).
The benchmark is '''foreseeability
...
that the defendant's
conduct and connections with the forum state are such that he should reasonably anticipate being
hauled into court there.'" ld. at 474 (quoting World-Wide Volkswagen COIP v. Woodson, 444 U.S.
286,295 (1980)).
In the context of a contractual relationship, the Burger King Court stated unequivocally
that entering into a contract with a citizen of the forum state "alone" cannot "automatically
establish minimum contacts" over a nonresident defendant. Burger King, 471 U.S. at 478
(emphasis in original). But, the Court was equally clear that "even a single act can support
jurisdiction,"
so long as that act "creates a 'substantial connection' with the forum." ld. at 475
n.18 (citation omitted). The Court also stated: "Although territorial presence frequently will
53
enhance a potential defendant's affiliation with a State and reinforce the reasonable foreseeability
of suit there," jurisdiction cannot be "avoided merely because the defendant did not physically
enter the forum State." /d. at 476 (emphasis in original). Of import here, the Burger King Court
observed that "it is an inescapable fact of modern commercial life that a substantial amount of
business is transacted solely by mail and wire communications across state lines, thus obviating
the need for physical presence within a State in which business is conducted." /d.
Notably, the Supreme Court explained, id. at 479 (internal citations omitted):
[A] "contract" is "ordinarily but an intermediate step serving to tie up prior business
negotiations with future consequences which themselves are the real object of the
business transaction." It is these factors-prior
negotiations and contemplated
future consequences, along with the terms of the contract and the parties' actual
course of dealing-that
must be evaluated in determining whether the defendant
purposefully established minimum contacts with the forum.
In my view, the contacts attributed to the defendants are insufficient to give rise to specific
personal jurisdiction.
See J McIntyre Mach. Ltd. v. Nicastro, 564 U.S. 873, 885-86 (2011)
(Breyer, J., concurring) (finding there was no personal jurisdiction over a British company that
directed marketing and sales efforts at the United States as a whole through a distributor, but whose
only contact with the forum state was the sale of one of its machines to a resident of that state).
As indicated, the defendants had no physical presence in Maryland.
From outside of
Maryland, they allegedly induced parties in Maryland to travel to California; they mailed a stock
certificate to Maryland; they entered into agreements
with persons who were residents of
Maryland; money was transferred from Maryland; and they communicated with plaintiffs, who
wcre located in the State of Maryland. The defendants also allegedly induced plaintiffs to believe
that a product would be sent to Maryland.
If this conduct gives rise to specific personal
jurisdiction, it is difficult to conceive of any business dealings that would not justify the exercise
of personal jurisdiction.
54
The Fourth Circuit has made clear that a "prospective defendant need not initiate the
relevant 'minimum contacts' to be regarded as purposefully availing himself of the privileges of
conducting activity in the forum state." Christian Sci. Bd. of Directors v. Nolan, 259 F.3d
209, 216-17 (4th Cir. 2001) (upholding exercise of personal jurisdiction
where out-of-state
defendant was invited to do business "within the context of his friendship and ongoing
correspondence"
with forum state resident, and "deliberately
entered into a collaborative
enterprise" with resident of the forum state). See also Gen 'I Elec. Co. v. Deutz AG, 270 F.3d 144,
151 (3d Cir. 200 I) ("It is not significant that one or the other party initiated the relationship. In the
commercial milieu, the intention to establish a common venture extending over a substantial period
of time is a more important consideration.") (internal citation omitted). Several cases, including
Burger King, 471 U.S. at 480, have cited contractual requirements to send monthly payments to
the forum state among the factors favoring jurisdiction.
But, those cases have included other
factors that also supported jurisdiction.
In Diamond Healthcare of Ohio, Inc. v. Humility of Mary Health Partners, 229 FJd 448,
452 (4th Cir. 2001), the Fourth Circuit ruled that personal jurisdiction could not be exercised over
a nonresident corporation that had entered into a contract with a forum state corporation. The
contract was for the operation of a medical facility outside the forum, but called for monthly
payments to be sent to the forum state. In that context, in which several other factors weighed
against jurisdiction, the Court was of the view that the payment provisions "amounted only to
'attenuated contact' with" the forum./d. (citation omitted). See also Southfork Apartments, supra,
93 F. Supp. 2d at 628 & n.5 (rejecting personal jurisdiction despite requirement to send monthly
payments to forum state).
55
Absent here was a "regular course of sales" into Maryland from which one could reasonably
infer that there was a purposeful direction of the product into Maryland. See Hart v. Bed Bath &
Beyond. Inc., 48 F. Supp. 3d 837, 842-43 (D. Md. 2014) (finding minimum contacts where the
defendant packaged and labeled its product specifically for a "clearly defined network of
distributors" that defendant knew would sell the product in Maryland, and where a significant
volume of the product, 1,992 bottles, had been sold in Maryland).
In addition, The Consulting Engineers factors weigh in favor of defendants.
The Eco-Gen
Defendants convincingly argue, ECF 40-1 at 15 (internal citations omitted):
There is no allegation that Defendants have an office in Maryland or maintain a
registered agent in Maryland. Plaintiffs do not allege that Defendants own property
in Maryland or have employees there. The only in-person meeting between the
parties took place in California, not Maryland. The only stock at issue is Eco-Gen
stock, and Eco-Gen is a Nevada corporation with its principal place in California.
The JouleBox was manufactured in California.
As such, plaintiffs have failed to demonstrate the requisite minimum contacts in Maryland.
C.
Conspiracy
Theory
Under Maryland law, a plaintiff may assert personal jurisdiction pursuant to a conspiracy
theory, when:
"(I) two or more individuals conspire to do something
(2) that they could reasonably expect to lead to consequences
forum, if
In a particular
(3) one co-conspirator commits overt acts in furtherance of the conspiracy, and
(4) those acts are ofa type which, if committed by a non-resident, would subject the
non-resident to personal jurisdiction under the long-arm statute of the forum
state, then those over acts are attributable to the other co-conspirators, who thus
become subject to personal jurisdiction in the forum, even if they have no direct
contacts with the forum."
56
Mackey v. Compass Mktg., Inc., 391 Md. 117, 129,892 A.2d 479, 486 (2006) (citing Cmvley v.
Bloch, 544 F. Supp. 133, 135 (D. Md. 1982)).
However, the conspiracy theory of jurisdiction
requires the same sufficient minimum
contacts required by due process. Plaintiffs have failed to make such a showing. Therefore, this
basis for personal jurisdiction also fails.
V.
Conclusion
Plaintiffs have not alleged a prima facie showing of personal jurisdiction over the Eco-Gen
Defendants.
Accordingly, I shall GRANT the Eco-Gen Motion (ECF 40); all claims against the
Eco-Gen Defendants are subject to dismissal, without prejudice.
For the reasons stated above, I
shall DENY the Warren Motion (ECF 38). However, because plaintiffs fail to state RICO claims
(Counts I and 11),plaintiffs may proceed against Warren and aPEX only as to the State law claims
(Counts 111,IV, and V). The RICO claims shall be dismissed, without prejudice.
An Order follows, consistent with this Memorandum Opinion.
/s/
Ellen L. Hollander
United States District Judge
Date: March 27, 2019
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