Kaplan et al v. Evans et al

Filing 53

MEMORANDUM OPINION ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT: IT IS HEREBY ORDERED that Defendants' Motion to Dismiss the Amended Complaint is GRANTED IN PART. [Doc. 24 ]. IT IS FURTHER ORDERED that Count I of the Amended Complaint is dismissed with prejudice. IT IS FURTHER ORDERED that the Court will not exercise supplemental jurisdiction over Count II of the Amended Complaint. Terminate Case. Signed by Magistrate Judge Nannette A Baker on 12/22/11. (TRC)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

LAWRENCE P. KAPLAN, et al,
Plaintiffs,
vs.
BRETT EVANS, et al,
Defendants.

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Case No. 4:11-CV-00153-NAB

MEMORANDUM OPINION
ON DEFENDANT’S MOTION TO DISMISS
AMENDED COMPLAINT
Presently before the Court is Defendants’ Motion to Dismiss Plaintiffs’ Amended
Complaint.1 [Doc. 24]. Defendants filed a memorandum in support of the motion. [Doc. 25].
Plaintiffs filed a memorandum in opposition to the motion. [Doc. 26]. Defendants filed a reply.
[Doc. 27]. Having fully considered the arguments set forth by the parties, the Court grants
Defendants’ motion to dismiss.2
Factual Background
On April 15, 2011, Plaintiffs filed a First Amended Complaint (“Amended Complaint”),
asserting two claims against Defendants. Plaintiffs allege one count under the federal
Racketeering Influenced Corrupt Organization Act (“RICO”), and state a law count of fraud.
Plaintiffs allege that Defendants owned and operated NCS of Oklahoma, LLC ( “NCS”), and that
through NCS, Defendants attempted to and did obtain money from Plaintiffs for an outstanding
debt that Plaintiffs allegedly owed Hollywood Video, a bankrupt entity. Plaintiffs allege that the

1

There are two Defendants in this action, Brett Evans and Jamie Watson; the Motion to Dismiss was filed on
behalf of both Defendants.
2

Pursuant to 28 U.S.C. § 636(c)(1), the parties have consented to the jurisdiction of the undersigned United
States Magistrate. [Doc. 23].

debt was false and that they were denied a home loan because Defendants reported the false debt
to various credit reporting services. Defendants seeks to dismiss both counts of the complaint.
Standard of Review
A complaint must contain “a short and plain statement of the claim showing that the
pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), in order to “give the defendant fair notice of
what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 555 (alteration in original) (citation omitted). “To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550
U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 570). Facial plausibility
requires “more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 129 S. Ct.
at 1949. “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s
liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.’ ’
” Id. (quoting Twombly, 550 U.S. at 557). “Determining whether a claim is plausible is a
‘context-specific task that requires the reviewing court to draw on its judicial experience and
common sense.’ ” Hamilton v. Palm, 621 F.3d 816, 817-18 (8th Cir. 2010) (citing Iqbal, 129 S.
Ct. at 1950).
Although a court must accept as true all factual allegations in the complaint, the court is
not bound to accept as true legal conclusions, even when couched as factual allegations. Iqbal,
129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 555). Therefore, “[a] pleading that merely
pleads ‘labels and conclusions,’ or a ‘formulaic recitation’ of the elements of a cause of action,
or ‘naked assertions’ devoid of factual enhancement will not suffice.” Hamilton, 621 F.3d at
2

817-18 (citing Iqbal, 129 S. Ct. at 1949). It is under this general framework that the Court
considers whether the instant complaint survives Defendants’ motion to dismiss.
Discussion
Count I: RICO Claim
In Count I of the Amended Complaint, Plaintiffs seek damages under the civil provisions
of RICO. 18 U.S.C. § 1964. “RICO provides a private right of action for any person injured in
his business or property by reason of a violation of its substantive prohibitions.” Dahlgren v.
First Nat’l Bank of Holdrege, 533 F.3d 681, 689 (8th Cir. 2008) (citation omitted) (internal
quotation marks omitted); see also 18 U.S.C. § 1964(c). Section 1962, a substantive provision of
the RICO Act, makes it “unlawful for any person employed by or associated with any enterprise
engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of
racketeering activity or collection of unlawful debt.” 18 U.S.C. § 1962(c); see also Crest Const.
II, Inc. v. Doe, 660 F.3d 346, 358 (8th Cir. 2011) (quoting Nistro Distrib., Inc. v. Alticor, Inc.,
565 F.3d 417, 428 (8th Cir. 2009). “A violation of § 1962(c) requires appellants to show (1)
conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Nitro Distrib., 565
F.3d at 428 (quoting Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)).3
“‘Racketeering activity’ is defined in RICO to mean ‘any act or threat involving’
specified state-law crimes, any ‘act’ indictable under various specified federal statutes, and
certain federal ‘offenses[.]’” H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 232 (1989)
(quoting 18 U.S.C. § 1961(1)). These acts are referred to as the predicate acts which form the
foundation of a RICO claim. Challenger Powerboats, Inc. v. Evans, No. 4:07CV85 TIA, 2007

3

See 18 U.S.C. § 1961 for definitions of “racketeering activity”(§1961(1)); “enterprise” (§1961(4)); and “pattern
of racketeering activity” (§1961(5)).

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WL 2885346, at *4 (E.D. Mo. Sept. 27, 2007). A pattern of racketeering activity “requires at
least two acts of racketeering activity, one of which occurred after the effective date of [the
RICO Act] and the last of which occurred within ten years (excluding any period of
imprisonment) after the commission of a prior act of racketeering activity . . .” 18 U.S.C. §
1961(5). The Supreme Court has determined that proof of a pattern of racketeering requires a
plaintiff to “show that the racketeering predicates are related, and that they amount to or pose a
threat of continued criminal activity.” Northwestern Bell, 492 U.S. at 239.
In the present case, Plaintiffs allege mail fraud, wire fraud, and bank fraud as the
predicate acts for the RICO claim. A RICO claim that alleges fraud as the predicate acts for the
claim must be pled with the particularity required by Rule 9(b) of the Federal Rules of Civil
Procedure. See Murr Plumbing, Inc. v. Scerer Bros. Fin. Srvcs. Co., 48 F.3d 1066, 1069 (8th
Cir. 1995); Nitro, 565 F.3d at 428; Crest, 660 F.3d at 353; see also Challenger Powerboats,
2007 WL 2885346, at *4.
In alleging fraud, a party must state with particularity the circumstances constituting the
fraud. Fed. R. Civ. P. 9(b). “[T]o satisfy [Rule 9(b)], the complaint must allege ‘such matters
as the time, place, and contents of false representations, as well as the identity of the person
making the misrepresentation and what was obtained or given up thereby.” Drobnak v.
Andersen Corp., 561 F.3d 778, 783 (8th Cir. 2009) (citing Schaller Tel. Co. v. Golden Sky Sys.,
Inc., 298 F.3d 736, 746 (8th Cir. 2002). “In other words, the complaint must plead the who,
what, when, where, and how of the alleged fraud.” Drobnak, 561 F.3d at 783 (citation omitted)
(internal quotations omitted); see also Crest, 660 F.3d at 353. Conclusory allegations that a
defendant’s conduct was fraudulent and deceptive are not sufficient to satisfy the rule. Drobnak,
561 F.3d at 783.

Since Plaintiffs seek to establish a pattern of racketeering activity through the predicate
acts of fraud, the Amended Complaint must plead at least two fraudulent acts with the
particularity required by Rule 9(b). See 18 U.S.C. § 1961(5) (pattern of racketeering activity
requires at least two acts of racketeering activity); See Murr Plumbing, 48 F.3d at 1069 (RICO
claim that alleges fraud as the predicate acts must be pled with the particularity required by Rule
9(b)). If the predicate acts of fraud are sufficiently pled with the required particularity, the Court
must then determine whether the predicate acts constitute a pattern of racketeering activity. 18
U.S.C. § 1962(c).
Plaintiffs’ RICO claim asserts bank fraud, mail fraud, and wire fraud as the predicate
acts.
Bank Fraud
In support of the bank fraud predicate, Plaintiffs allege the following paragraph:
14(c)). In actions involving transfer of the [Plaintiffs’] money to Defendants, under
the false claim and pretense, Defendants, through the enterprise, NCS, knowingly
committed the crime of Bank Fraud, as defined by 18 U.S.C. § 1344. . . .
Defendants argue that the predicate act of bank fraud is insufficiently pled because bank
fraud requires that a defendant deliberately make false representations to the bank. The Court
agrees. In United States v. Ponec, the Eighth Circuit held that bank fraud requires a showing that
a “defendant deliberately made false representations to the bank.” 163 F.3d 486, 489 (8th Cir.
1998). Here, Plaintiffs do not allege that Defendants deliberately made false representations to a
bank. Plaintiffs only allege that Defendants “knowingly committed the crime of Bank Fraud.”
Without more, this allegation lacks sufficient factual content that would allow the court to draw
the reasonable inference that Defendants are liable for bank fraud. Iqbal, 129 S. Ct. at 1949
(citing Twombly, 550 U.S. at 570). The claim is therefore not plausible. See Iqbal, 129 S. Ct. at
1949 (Facial plausibility requires “more than a sheer possibility that a defendant has acted
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unlawfully.”). Further, Plaintiffs’ conclusory allegation that Defendants committed bank fraud is
insufficient to satisfy Rule 9(b). See Drobnak, 561 F.3d at 783 (Conclusory allegations that a
defendant’s conduct was fraudulent and deceptive are not sufficient to satisfy Rule 9(b)).
Mail and Wire Fraud
“When pled as RICO predicate acts, mail and wire fraud require a showing of: (1) a plan
or scheme to defraud, (2) intent to defraud, (3) reasonable foreseeability that the mail or wires
will be used, and (4) actual use of the mail or wires to further the scheme.” Wisdom v. First
Midwest Bank, of Poplar Bluff, 167 F.3d 402, 406-07 (8th Cir. 1999)(citing Murr Plumbing, Inc.
v. Scherer Bros. Fin. Servs. Co., 48 F.3d 1066, 1069 (8th Cir. 1995)).
Here, Count I of the Amended Complaint alleges the following in support of mail fraud
and wire fraud:
7. Through NCS the Defendants fraudulently attempted to and did obtain money
from [Plaintiffs] through use of the interstate telephone lines and by United States
Mail.
8. Through NCS the Defendants fraudulently impaired the credit of the [Plaintiffs]
in that Defendants deliberately and falsely notified three credit reporting services
that the [Plaintiffs] owed money to Hollywood Video, a bankrupt entity.
10. Since at least 2008 through NCS the Defendants have similarly, falsely reported
money due to Hollywood Video to various credit reporting services regarding
thousands of other persons throughout the United States.
11. Defendants have falsely retained the money paid by [Plaintiffs] and other persons
similarly affected
14(a). [Since at least 2008,] through the enterprise, NCS, Defendants provided
false and misleading statements to various credit bureaus and put other documents
in furtherance of the scheme in the US Mail, and thereby committed the crime of
Mail Fraud, as defined under 18 U.S.C. § 1341.
14(b). [Since at least 2008,] Defendants, through the enterprise, NCS, in furtherance
of the scheme, provided intentionally false statements to various credit bureaus
regarding Plaintiffs and thousands of other individuals via telephone and fax, and
thereby committed the crime of Wire Fraud, as defined under 18 U.S.C. § 1343.
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Accepting Plaintiffs’ allegations as true and drawing all reasonable inferences therefrom,
Count I of the Amended Complaint sets forth what can fairly be construed as a plan or scheme.
The plan or scheme involved reporting debts, allegedly owed to Hollywood Video, to credit
reporting services in order to obtain and retain money from Plaintiffs and other persons. The
Amended Complaint also adequately pleads that there was actual use of the mail or wires to
further the scheme. Paragraphs 14(a) and 14(b) specifically plead that Defendants, in
furtherance of the scheme, put documents in the U.S. Mail and used telephone and fax lines to
provide statements to various credit bureaus regarding Plaintiffs and thousands of other
individuals.
The Amended Complaint, however, fails to plead that there was a reasonable
foreseeability that the mail or wires would be used in furtherance of the scheme. In addition,
Count I of the Amended Complaint fails to allege that Defendants acted with the intent to
defraud Plaintiffs. Intent may be pled generally. See Fed. R. Civ. P. 9(b). However, the abovequoted paragraphs fail to plead that Defendants acted with the intent to defraud. Paragraphs 7
and 8 allege that Defendants acted “fraudulently,” however, such conclusory allegations do not
set forth the requisite intent and need not be accepted as true. See Springdale Educ. Ass'n v.
Springdale School Dist., 133 F.3d 649, 651 (8th Cir. 1998); Drobnak, 561 F.3d at 783
(Conclusory allegations that a defendant’s conduct was fraudulent and deceptive are not
sufficient to satisfy Rule 9(b)). Pleading that a Defendant acted “fraudulently” no more satisfies
the required elements of fraud than does pleading that a Defendant acted “negligently” satisfy
the elements of a negligence cause of action. See Crest, 660 F.3d at 346 (noting that the use of
such phrases as ‘participation in a fraudulent scheme,’ without more, is insufficient to formulate
RICO claim).

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Paragraph 8 alleges that Defendants “deliberately and falsely notified three credit
reporting services that the [Plaintiffs] owed money to Hollywood Video[.]” Accepting this
paragraph as true, it only establishes that Defendants “deliberately and falsely” notified credit
reporting services of a debt that Plaintiffs allegedly owed; it does not establish that Defendants
notified the credit reporting services with the required intent to defraud Plaintiffs. Even
accepting as true that the debts were false, paragraph 8, as pled, leaves open the possibility that
Defendants did not know the debts were false or that Defendants reported the debts by mistake.
The Amended Complaint contains no allegations from which the Court can reasonably infer that
Defendants had the intent to defraud; nothing in the Amended Complaint suggests that
Defendants knew or should have known that the debts were false. See Iqbal, 129 S. Ct. at 1949
(Facial plausibility requires “more than a sheer possibility that a defendant has acted
unlawfully.”).
Paragraphs 14(a) and 14(b) conclusorily allege that Defendants committed the crimes of
mail fraud and wire fraud, respectively. However, neither paragraph specifically alleges that
Defendants intended to defraud Plaintiffs or anyone else, and although each paragraph contains
the statutory definition of its respective allegation of fraud, “a formulaic recitation of the
elements of a cause of action does not [satisfy the pleading standards].” Hamilton, 621 F.3d at
817-18 (citing Iqbal, 129 S. Ct. at 1949) (internal quotation marks omitted).
The Court therefore finds that the Amended Complaint fails to state a plausible cause of
action because it does not set forth all of the required elements of mail fraud or wire fraud. See
Wisdom, 167 F.3d at 406-07. Without the requisite elements of fraud, the complaint “stops short
of the line between possibility and plausibility of entitlement to relief.” Iqbal, 129 S. Ct. at 1949
(citation omitted) (internal quotation omitted).

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Rule 9(b)
Even assuming, arguendo, that the Amended Complaint adequately sets forth the
elements of fraud, the complaint must still be dismissed because it does not satisfy the
particularity requirements of Rule 9(b).
As stated above, Rule 9(b) requires a plaintiff alleging fraud to plead the circumstances
constituting fraud, including “such matters as the time, place, and contents of false
representations, as well as the identity of the person making the misrepresentation and what was
obtained or given up thereby.” Drobnak, 561 F.3d at 783 (citation omitted). “In other words,
the complaint must plead the who, what, when, where, and how of the alleged fraud.” Id.
(citation omitted) (internal quotations omitted); see also Crest, 660 F.3d at 353.
Here, the Amended Complaint alleges that the false statements made to the credit
reporting services involved debts allegedly owed by Plaintiffs and “thousands of other persons”
to Hollywood Video. Although the complaint does not set forth the specific contents of the
alleged false statements, most notably the amounts of the alleged debts, the Court finds that the
Amended Complaint adequately pleads what was stated by Defendants. The Amended
Complaint also pleads that Defendants were paid money, which they retained, by Plaintiffs and
“other persons,” but it does not state how much money was paid by Plaintiffs or any other
person. However, the Amended Complaint fails to satisfy the remaining required elements of
particularity of allegations of fraud.
With regards to when Defendants committed the alleged predicate acts of fraud in Count
I, Plaintiffs allege the general time frame of “since at least 2008.” This time frame encompasses
over three years and Plaintiffs make no allegations in Count I that limits this time period. In
Count I, Plaintiffs fail to specify a single date, month, or even a single year of a particular
fraudulent act. See Roberts v. Francis, 128 F.3d 647, 651 (8th Cir. 1997) (finding “around
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September 1994” sufficient to allege time period in fraud claim); Crest Const. II, Inc. v. On Time
Auto, No. 07-0728-CV-W-DGK, 201 WL 3456690, at *5 (W.D. Mo. Aug. 27, 2010) (noting that
9(b) not satisfied where the complaint “fails to specify a single date” with respect to any
allegation of fraud in RICO claim) aff’d sub nom. Crest Const. II, Inc. v. Doe, 660 F.3d 346, 358
(8th Cir. 2011). The RICO claim provides no factual information from which the Court can
determine when Defendants allegedly reported to various credit reporting services that Plaintiffs
and “thousands of other persons” owed debts to Hollywood Video. The Court believes that the
particularity requirement of Rule 9(b) mandates more than just a general allegation that
fraudulent acts have been committed “since at least 2008.”
Also, in Count I, Plaintiffs fail to allege where any of the alleged false statements took
place or who made the allegations or who or what credit reporting service the allegations were
made to. Plaintiffs allege only that “Defendants, through NCS” committed the fraudulent acts.
See Drobnak, 561 F.3d at 783 (To satisfy Rule 9(b), the complaint must allege the identity of the
person making the misrepresentation); see also Mills v. Polar Molecular Corp., 12 F.3d 1170,
1175 (2nd Cir. 1993) (“Rule 9(b) is not satisfied where the complaint vaguely attributes the
alleged fraudulent statements to ‘defendants’”).
Although, the Court does not expect, at this early stage of litigation, for Plaintiffs to
know the details of the alleged communications between Defendants and the credit reporting
services, the Court believes that Plaintiffs, at the least, should be aware of such facts as when and
how Plaintiffs had contact with Defendants, what the content of their communication with
Defendants was, when and how they sent money to Defendants, what credit reporting services
Defendants contacted, the amount of the alleged debt, and when Defendants reported the alleged
debt to the credit reporting services or, at the least, when and how Plaintiffs became aware that
Defendants reported the alleged debt to credit reporting services. See Abels v. Farmers
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Commodities Corp., 259 F.3d 910, 921 (8th Cir. 2001) (Court cannot reasonably expect highly
specific allegations of alleged conversations between defendant and third party before at least
allowing brief discovery). Count I of the complaint contains no such information.
Furthermore, with respect to the alleged fraud concerning “other persons,” Plaintiffs
plead no facts relating to the basis of their belief that “other persons” have been affected by
Defendants alleged fraudulent actions. The Court acknowledges that when the facts constituting
fraud are peculiarly within the opposing party’s knowledge, such allegations may be pleaded on
information and belief. Drobnak, 561 at 783-84 (citations omitted). In such circumstances,
“Rule 9(b) is deemed satisfied if the allegations are accompanied by a statement of facts on
which the belief is founded.” Id. (citations omitted). However, even assuming that the
allegations concerning “other persons” are pled on information and belief, Defendants provide
no statement of facts on which their belief is based. The Court therefore finds that Plaintiffs
have failed to satisfy Rule 9(b) with respect to the allegations concerning “other persons.”
Therefore, the Court finds that Count I of the Amended Complaint fails to adequately
plead the circumstances constituting the alleged fraud. Fed. R. Civ. P. 9(b).
Pattern of Racketeering Activity
As stated above, Plaintiffs must establish a pattern of racketeering activity which requires
Plaintiffs to “show that the racketeering predicates are related, and that they amount to or pose a
threat of continued criminal activity.” Northwestern Bell, 492 U.S. at 239. However, “[w]ithout
an adequately detailed description of the predicate acts of mail and wire fraud, a complaint does
not provide either the defendant or the court with sufficient information to determine whether or
not a pattern of racketeering activity has been established.” Jepson, Inc. v. Makita Corp., 34
F.3d 1321, 1328 (7th Cir.1994). Therefore, the Court finds that the complaint has failed to

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establish a pattern of racketeering activity because it fails to adequately plead the predicate acts
of fraud.
Count II: Fraud
Count II is a state law cause of action over which this Court does not have original
jurisdiction. Having dismissed the only claim over which this Court had original jurisdiction, the
Court declines to exercise supplemental jurisdiction over the remaining state law cause of action.
See 28 U.S.C. § 1367(c)(3); Gibson v. Weber, 431 F.3d 339, 342 (8th Cir. 2005).
Conclusion
For the reasons discussed above, the Court finds that Defendants’ Motion to Dismiss the
Amended Complaint should be granted in part.
Accordingly,
IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss the Amended
Complaint is GRANTED IN PART. [Doc. 24].
IT IS FURTHER ORDERED that Count I of the Amended Complaint is dismissed with
prejudice.
IT IS FURTHER ORDERED that the Court will not exercise supplemental jurisdiction
over Count II of the Amended Complaint.

Dated this 22nd day of December, 2011

/s/ Nannette A. Baker
NANNETTE A. BAKER
UNITED STATES MAGISTRATE JUDGE

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