Jordan et al v. Maxfield & Oberton Holdings, LLC et al
Filing
138
ORDER denying 47 Motion to Dismiss; granting in part and denying in part 48 Motion to Dismiss; granting in part and denying in part 61 Motion to Dismiss; granting 99 Motion for Leave to File Document; denying 101 Motion to Convert Motions to Dismiss to Motions for Summary Judgment; denying 110 Motion to Sever and Stay; granting 129 Motion for Leave to File Document. Signed by District Judge Carlton W. Reeves on 9/30/2016. (AC)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
MEAGHIN JORDAN, individually;
JONATHAN JORDAN, individually;
MEAGHIN AND JONATHAN JORDAN,
on behalf of their minor son, Braylon Jordan
V.
PLAINTIFFS
CAUSE NO. 3:15-CV-220-CWR-LRA
MAXFIELD & OBERTON HOLDINGS
LLC; CRAIG ZUCKER; ASSEMBLE
LLC; GREAT AMERICAN E&S
INSURANCE COMPANY; EVANSTON
INSURANCE COMPANY, f/k/a ALTERRA
AMERICAN INSURANCE COMPANY;
INDIAN HARBOR INSURANCE
COMPANY
DEFENDANTS
ORDER
Evanston Insurance Company, Great American E&S Insurance Company, and Indian
Harbor Insurance Company have moved to dismiss the claims brought against them in this suit.
The motions were extensively briefed by both sides.1
The factual allegations and applicable standard of review have been discussed in a prior
Order and need not be repeated here. See Jordan v. Maxfield & Oberton Holdings LLC, No.
3:15-CV-220, 2016 WL 1173100, at *1-2 (S.D. Miss. Mar. 22, 2016).
I.
Evanston Insurance Company
Evanston argues that Mississippi law prohibits the Jordans from directly suing it for its
failure to provide insurance coverage to M&O.
1
The Jordans subsequently sought leave to file a supplemental response, and then asked for two of their opponents’
motions to be converted to requests for summary judgment. The movants followed up with their own motion to
sever and stay the claims brought against them. Later, Indian Harbor asked to file another brief. The Jordans were
unopposed as long as they too could submit their own supplemental memorandum. The result is a rather jumbled
record. Its relevance will be discussed below.
The motion will be denied essentially for the reasons contained in the Jordans’ response
brief: they have brought conspiracy claims against Evanston, not a direct action seeking
insurance coverage. There may be other defects with the claims against Evanston, but the
argument presented is not one of them.2
This motion is denied.
II.
Great American E&S Insurance Company
Great American contends that each of the Jordans’ causes of action brought against it – a
violation of the federal Racketeer Influenced and Corrupt Organizations Act (RICO), a violation
of Mississippi’s anti-racketeering law, and civil conspiracy under Mississippi law – fail to state a
claim. The Court will take them up in reverse order.
A.
Civil Conspiracy
Great American says the civil conspiracy claim is implausible and insufficiently specific.
The Court disagrees.
The Jordans’ complaint fairly sets forth a conspiracy between M&O and its insurers to
defeat pending and anticipated lawsuits (and ongoing regulatory actions) by dissolving M&O. It
is perfectly plausible that in an expanding conflagration such as this, an insurance company
would advise its insured to simply dissolve to avoid the costs of defending litigation and
regulatory action. The facts support motive, means, and opportunity. Great American allegedly
furthered the conspiracy by taking no coverage positions in pending litigation involving M&O.
Great American emphasizes that under Bell Atlantic v. Twombly, an antitrust case,
“parallel conduct, even conduct consciously undertaken, needs some setting suggesting the
agreement necessary to make out a § 1 [conspiracy] claim.” 550 U.S. 544, 557 (2007). In
2
Evanston’s attempt to assert new arguments for dismissal in rebuttal is unavailing. See Meaux v. Mississippi, No.
1:14-CV-323, 2015 WL 3549579, at *6 (S.D. Miss. June 8, 2015).
2
Twombly, though, the Supreme Court took pains to emphasize that a complaint containing
“further factual enhancement,” or “a more specific allegation—for example, identifying a written
agreement or even a basis for inferring a tacit agreement” between the defendants, is enough to
move the case across the line from possible to plausible. Id. (quotation marks and citations
omitted). Requiring “plausible grounds to infer an agreement does not impose a probability
requirement at the pleading stage,” the Court wrote; “it simply calls for enough fact to raise a
reasonable expectation that discovery will reveal evidence of illegal agreement.” Id. at 556; see
Meek v. Gold Coast Skydivers, Inc., No. 2:15-CV-4-DPJ-FKB, 2016 WL 81812, at *3 (S.D.
Miss. Jan. 7, 2016).
Here, the events of 2012 – the commencement of the CPSC regulatory action, the
mounting personal injury claims and lawsuits, and (most importantly) the coordinated filings in
the CPSC proceeding and the California declaratory action – are sufficient additional facts. They
provide a basis for inferring a tacit agreement between M&O and its insurers to cut and run:
wrap up the company and limit everyone’s exposure before it snowballed into several substantial
judgments. There is a reasonable expectation that discovery will reveal evidence of an illegal
agreement.
Great American also presses that the allegations of civil conspiracy are insufficiently
pled. “The common elements of a conspiracy to defraud, which a plaintiff must prove, are: (1) a
conspiracy, (2) an overt act of fraud in furtherance of the conspiracy, and (3) damages to the
plaintiff as a result of the fraud.” Taylor v. S. Farm Bureau Cas. Co., 954 So. 2d 1045, 1050
(Miss. Ct. App. 2007) (citation omitted). “Rule 9(b) imposes an additional burden on the plaintiff
to detail facts and lay out . . . the who, what, when, where, and how of a fraud.” Shandong
Yinguang Chem. Indus. Joint Stock Co. v. Potter, 607 F.3d 1029, 1034 (5th Cir. 2010) (quotation
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marks and citation omitted). As the Fifth Circuit recently held in a products liability case,
though,
Twombly and Iqbal were designed to avoid subjecting defendants to lengthy and
expensive discovery when the plaintiff is merely on a fishing expedition. They are
not a basis to shield product manufacturers from liability. Perhaps after discovery
Flagg will not prevail, but at a pre-discovery stage of this case, in an area of law
where defendants are likely to exclusively possess the information relevant to
making more detailed factual allegations, we cannot say that he is merely on a
fishing expedition.
Flagg v. Stryker Corp., 647 F. App’x 314, 318 (5th Cir. 2016) (citations omitted) (reversing
dismissal where the “complaint includes more than an unadorned, the-defendant-unlawfullyharmed-me accusation”).
In this case, any communications laying the foundation for fraudulent dissolution are
impossible to obtain without discovery. But the allegations in the Jordans’ complaint describing
the tangible result of those communications are sufficiently detailed to proceed. They have set
forth the means by which (how) Great American and the other insurance company defendants
(who) helped M&O become judgment-proof as to the Jordans’ personal injury claims while
simultaneously reducing their own financial exposure (what). Great American participated in the
conspiracy in 2012 (when) by representing in court filings (where) that M&O no longer existed3,
an allegedly false claim that ensured that injured litigants, to include the Jordans, would alone
have to bear the damage caused by M&O’s product.
“Judicial experience and common sense indicate a reasonable expectation that discovery
will reveal evidence supporting the claims against [the defendants]. If they do not, [the
defendants] may revisit the issue under Rule 56.” Meek, 2016 WL 81812, at *3. The motion to
dismiss this claim is denied.
3
Recall the Jordans’ claim that M&O remained in business after its “dissolution.” Assuming the truth of that
allegation, as the Court must at this stage, leads to an inference that Great American’s representation was false.
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B.
State Racketeering
Great American next argues that the state-law anti-racketeering claim fails because
Mississippi law did not include mail and wire fraud as predicate racketeering activities until July
1, 2014. See Miss. Code Ann. § 97-43-3.1(1)(e). The Jordans respond that the law requires only
that the racketeering activities occur after 1986, the year when Mississippi’s anti-racketeering
law went into effect. Id. § 97-43-3(d).
The Jordans’ argument is unpersuasive. Mississippi law defines “pattern of racketeering
activity” as “engaging in at least two (2) incidents of racketeering conduct.” Id. Assuming that
mail and wire fraud are now incidents of racketeering conduct – the new law lists them as
predicate acts for an “organized theft or fraud enterprise” – they were not incidents of
racketeering conduct before July 1, 2014. Id. § 97-43-3.1(1)(e).
When the alleged racketeering in this case occurred, therefore, the defendants could not
have known that mail and wire fraud would subject them to liability under this statute. The
Jordans have failed to provide any authority for applying the 2014 amendments retroactively.
This claim is dismissed.
C.
RICO
“RICO provides a private right of action for treble damages to any person injured in his
business or property by reason of the conduct of a qualifying enterprise’s affairs through a
pattern of acts indictable as mail fraud.” Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639,
647 (2008). In certain instances, attorney’s fees can qualify as injury to property. See Warnock v.
State Farm Mut. Auto. Ins. Co., No. 5:08-CV-1-DCB-JMR, 2008 WL 4594129, at *4-5 (S.D.
Miss. Oct. 14, 2008).
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The parties have dedicated substantial time and effort to briefing the RICO claim. They
have also been patient in awaiting a ruling from the Court. Unfortunately, the record is
insufficient to adjudicate the claim today.
The Jordans filed their second amended complaint on April 28, 2015. At that time, their
route to resuscitating M&O in Delaware state court was less than pellucid, and their alleged
damages were too close to bodily injury to state a claim under RICO. Much has changed in the
intervening 18 months. For one, there is an actual legal entity to defend the product liability half
of this lawsuit. And in the conspiracy half of this suit, the conclusion of the Delaware action has
resulted in tangible damages which RICO may permit. See id.
As the defendants have observed, though, none of those developments are in the
operative complaint. The record is a muddle of sur-rebuttals and sur-sur-rebuttals. Each motion
for leave to file adds new allegations and layers of complexity, as the Jordans attempt to
bootstrap new facts into the pleadings and the defendants make new arguments for dismissal.
The defendants argue with some force that the Jordans should not be permitted to file a
third amended complaint. It is true that there is some prejudice inherent in the cost of updating
and re-filing legal arguments. Still, there are more compelling reasons in favor of amendment.
First, the need for amendment is not the fault of any party; facts on the ground have far
eclipsed the allegations in the operative complaint. E.g., Republic Title of Texas, Inc. v. First
Republic Title, LLC, No. 3:14-CV-3848-B, 2015 WL 11120994, at *2 (N.D. Tex. Aug. 10, 2015)
(“Plaintiff seeks to amend its complaint so as to reference conduct that occurred after the filing
of its Original Complaint. Therefore, it would have been impossible for it to have raised these
allegations at the time it submitted its original pleadings.”). Nor have the Jordans repeatedly
failed to cure prior deficiencies. Although we are presently discussing the second amended
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complaint, this is the first time the complaint has been subjected to the crucible of motion
practice. Third, a case of this significance deserves a clean record for proper judicial review. A
muddled record creates its own form of prejudice to the bench and bar. See Gen. Retail Servs.,
Inc. v. Wireless Toyz Franchise, LLC, 255 F. App’x 775, 784 (5th Cir. 2007). And finally, the
Court’s review of the submitted RICO authorities suggests that now, in the wake of the Delaware
action, amendment would not be plainly futile.
“[I]t is well-established that plaintiffs who may still have a viable avenue to recover
should be granted leave to amend their complaint and make their ‘best case.’” Boutwell v. Time
Ins. Co., No. 3:11-CV-689-CWR-LRA, 2013 WL 53902, at *4 (S.D. Miss. Jan. 3, 2013) (citation
omitted); see also Morrison v. City of Baton Rouge, 761 F.2d 242, 245-46 (5th Cir. 1985)
(affirming amendment of complaint, more than three years after early dispositive motion
practice, which permitted plaintiffs to make their “best case”); Travis v. City of Grand Prairie,
Texas, --- F. App’x ---, 2016 WL 3181392, at *5 (5th Cir. June 7, 2016) (affirming denial of
leave to file fourth amended complaint where “the district court gave [plaintiff] ample prior
opportunities to plead his best case”). It is time for the Jordans to put forward their final and best
complaint.
The Jordans are therefore ordered to file a third amended complaint within 10 days. This
“short and plain statement” shall not exceed 50 pages. Fed. R. Civ. P. 8(a)(2). Motions to dismiss
the RICO claim, assuming that one remains and the defendants still think it meritless, shall be
filed 21 days after that. The remainder of the briefing shall proceed on the usual schedule set
forth in the Local Rules. No additional pages or supplemental briefs will be permitted during this
stage of litigation. Whether any discovery should proceed on the state-law conspiracy count is
reserved to the discretion of the Magistrate Judge.
7
Lastly, the parties are again encouraged to consider whether the RICO claim can be
resolved. The defendants have presented several compelling arguments for dismissal and will no
doubt present several more in their forthcoming memoranda. And, while those arguments can
likely be adjudicated before the year is out, the additional delay in this case must be weighed
against the expected benefit of the cause of action. The expected benefit may be low relative to
the size of the personal injury judgment the Jordans seek. The costs of defense may even be
eclipsing the damages the Jordans could hope to achieve with the RICO claim, if any RICOrelated attorney’s fees are limited to their success on that and only that claim.
For these reasons, the motion to dismiss is granted in part and denied in part.
III.
Indian Harbor Insurance Company
Because Indian Harbor’s motion is substantially similar to Great American’s, it will be
granted in part and denied in part for the same reasons.
IV.
Conclusion
Evanston’s motion to dismiss is denied. Great American and Indian Harbor’s motions to
dismiss are granted in part and denied in part. The motions to file supplemental briefs are
granted, the motion to convert is denied, and the motion to stay and sever is denied.
SO ORDERED, this the 30th day of September, 2016.
s/ Carlton W. Reeves
UNITED STATES DISTRICT JUDGE
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