Kansas City Terminal Railway Co. v. Razorback Rail Services, Inc.
Filing
14
ORDER and OPINION denying 11 Motion to Dismiss or in the Alternative, to Abstain or Postpone. Signed on 08/30/2012 by District Judge Ortrie D. Smith. (Will-Fees, Eva)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
KANSAS CITY TERMINAL
RAILWAY COMPANY,
Plaintiff,
vs.
RAZORBACK RAIL SERVICES, INC.,
Defendant.
)
)
)
)
)
)
)
)
)
)
Case No. 12-0396-CV-W-ODS
ORDER AND OPINION DENYING DEFENDANT’S MOTION TO DISMISS,
OR IN THE ALTERNATIVE, TO ABSTAIN OR POSTPONE
Pending is Defendant’s Motion to Dismiss, or in the alternative, to abstain or
postpone the exercise of the Court’s jurisdiction. For the following reasons, the Motion
(Doc. #11) is denied.
I. BACKGROUND
The facts alleged in the Complaint construed in the light most favorable to the
Plaintiff indicate the following. This suit arises from a relationship between: Plaintiff,
Kansas City Terminal Railway Co. (“KCT”); Defendant, Razorback Rail Services, Inc.
(“Razorback”); Charles E. Mader (“Mader”); and others.
Prior to the formation of Razorback, TranSystems Corp. employed Mader as an
engineer, and in that role he performed work for KCT. At the time, Mader had a
friendship with KCT’s then-president, William Somervell (“Somervell”). While a
TranSystems employee, Mader advised John Bell, Patrick Steere, and Edward
McIntosh that KCT was not satisfied with certain vendors’ services. Mader, Bell, Steere,
and McIntosh then discussed forming a business to provide services to KCT, which led
to the formation of Razorback in November 2006. KCT alleges that Mader owned thirty
percent of the company’s stock, but did not contribute any capital in exchange for his
interest in the company.
Razorback began performing services for KCT with Somervell’s approval. In the
fall of 2007, Mader’s employment with TranSystems terminated. He became an
independent contractor for KCT and eventually a KCT employee. Mader never
disclosed to the KCT Board of Directors that he had an ownership interest in
Razorback, nor did Razorback inform KCT of this fact. In June 2009, Somervell retired
from KCT and Mader was named President of KCT and was appointed to its Board of
Directors.
From approximately September 2007 through at least 2010, KCT alleges that
Razorback, Mader, and others engaged in schemes to defraud KCT. These activities
included: (1) charging KCT for construction and renovation services performed by
Razorback and Mid-America Car, Inc. on Mader’s personal properties; (2) Razorback
financially contributing to Somervell’s civil war reenactments in an effort to influence
Somervell to assign additional KCT work to Razorback; and (3) transporting scrap
material owned by KCT to various scrap recycling companies in return for cash, which
was subsequently provided to Steere and Mader.
In January 2012, KCT internally investigated allegations that Mader was involved
in fraudulent activities. On February 1, 2012, federal and state investigators appeared
at KCT’s offices and served a search warrant upon Mader for a search of his office.
The search warrant stated that it related to violations of federal criminal statutes,
including conspiracy, mail and wire fraud, money laundering, and transportation of
stolen goods. The day after the execution of the search warrant, Mader was placed on
administrative leave, and shortly thereafter Mader’s employment was terminated and
KCT discontinued using Razorback as a vendor.
On April 4, 2012, KCT filed its Complaint alleging five causes of action: (1) a
violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) (18 U.S.C.
§ 1962(c)); (2) conversion; (3) fraud and deceit; (4) unjust enrichment; and (5) money
had and received. Razorback filed a Motion to Dismiss, or in the alternative, to abstain
or postpone the exercise of the Court’s jurisdiction. KCT filed its Response to
2
Razorback’s motions on August 6, 2012. Razorback failed to file a Reply and the
deadline for doing so has passed. The Court now considers Razorback’s motion.
II. DISCUSSION
Razorback’s Motion makes three requests: (1) to dismiss for failure to state a
claim; or in the alternative (2) to abstain pursuant to Colorado River abstention; or (3) to
postpone the proceeding until the parties have gone through mediation.
A. Motion to Dismiss
To survive a motion to dismiss, 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). The claim for relief must be “plausible on its face,” meaning it must “plead[ ]
factual content that allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Razorback alleges that KCT’s RICO count fails to state a claim.1 Specifically,
Razorback argues that for KCT to establish liability under RICO, it must prove the
existence of an enterprise that is distinct from Razorback. The Racketeer Influenced
and Corrupt Organizations Act (“RICO”) prohibits a “person” associated with an
“enterprise” from participating in the affairs of the enterprise through a pattern of
racketeering activity. 18 U.S.C. § 1962(c). This has been interpreted as requiring that
the named defendant cannot also be the entity identified as the enterprise. United
HealthCare Corp. v. American Trade Ins. Co., 88 F.3d 563, 570 (8th Cir. 1996); see
also Atlas Pile Driving Co. v. DiCon Financial Co., 886 F.2d 986, 995 (8th Cir. 1989).
Here, KCT does not allege that Razorback is simultaneously a RICO enterprise
1
Defendant filed a multitude of extrinsic materials including affidavits and other exhibits
in its Motion to Dismiss. The Court cannot consider these materials without converting
the 12(b)(6) Motion to Dismiss into a Rule 56 Motion for Summary Judgment. The
Court disregards the extrinsic materials in issuing its Order and Opinion.
3
and a RICO defendant. The alleged enterprise consists of Razorback, Mader, and
others. KCT has pled facts alleging that Razorback was distinct from the enterprise.
E.g., Complaint ¶¶ 15, 17-19, 24 Defendant’s Motion to Dismiss is denied.
B. Colorado River Abstention
In the alternative, Defendant moves the Court to abstain pursuant to the
Colorado River abstention doctrine contending that prior parallel proceedings exist in
state court. However, beyond invoking the doctrine’s name, Defendant provides no
further analysis. The Court’s independent review of the law reveals that abstention is
inappropriate.
“Generally, as between state and federal courts, the rule is that ‘the pendency of
an action in the state court is no bar to proceedings concerning the same matter in the
Federal court having jurisdiction.’” Colorado River Water Conservation Dist. v. United
States, 424 U.S. 800, 817 (1976) (quoting McClellan v. Carland, 217 U.S. 268, 282
(1910)). This is because of the “virtually unflagging obligation of the federal courts to
exercise the jurisdiction given them.” Id. Colorado River abstention is only appropriate
when there are: 1) parallel state and federal actions; and 2) exceptional circumstances
by applying a six-factor test. Fru-Con Const. Corp. v. Controlled Air, Inc., 574 F.3d 527,
534 (8th Cir. 2009) (citing Colorado River, 424 U.S. at 817-18).
As a threshold matter, the Court must determine whether there are pending
parallel state and federal proceedings before Colorado River is implicated. Id. at 535.
State and federal proceedings are parallel when “substantially similar parties are
litigating substantially similar issues in both state and federal court.” Id. The Eighth
Circuit requires more precision and, thus, “the pendency of a state claim based on the
same general facts or subject matter as a federal claim and involving the same parties
is not alone sufficient.” Id. (citing Federated Rural Elec. Ins. Corp. v. Ark. Elec. Coop.,
Inc., 48 F.3d 294, 297 (8th Cir. 1995)). “Rather, a substantial similarity must exist
between the state and federal proceedings, which similarity occurs when there is a
substantial likelihood that the state proceeding will fully dispose of the claims presented
4
in the federal court.” Id. (citing TruServ Corp. v. Flegles, Inc., 419 F.3d 584, 592 (7th
Cir. 2005)).
In this case, the parallel proceeding requirement has not been met. The pending
Jackson County, Missouri state-court proceeding is not a parallel proceeding because
“substantially similar parties” are not involved. KCT filed a state court petition against
Mader, two entities in which Mader had an ownership interest, and Midwest Scrap
Management, Inc, but not against Razorback. Because Razorback is not a party in the
pending state court proceeding, there are not “substantially similar parties” to both suits
and, thus, a parallel state court proceeding does not exist.
The Court need not make an “exceptional circumstances” analysis because the
necessary parallel state court proceeding prerequisite has not been met. Razorback’s
Motion to Abstain is denied.
C. Postpone Jurisdiction to Allow for Mediation
Razorback’s final request asks the Court to postpone the exercise of jurisdiction
and order the parties to exhaust their contractual obligation of mediation. Defendant
contends that mediation is a condition precedent to litigation.2
The parties’ agreement does not mandate that KCT and Razorback mediate
before KCT filed its Complaint. Rather, the agreement provides that the parties should
mediate only in one of two instances: (1) when there is a dispute between KCT and
2
The relevant language of the services agreement between KCT and Razorback states
as follows:
Disputes. Subject to each party’s right to terminate for cause . . . in the event (a)
a dispute arises between Contractor and KCT regarding the application or
interpretation of any provision of this Agreement or (b) KCT is dissatisfied with
the quality of the work performed by any of the Contractor Parties, the aggrieved
party shall promptly notify the other party to this Agreement of the dispute. If the
parties fail to resolve the dispute within a reasonable amount of time after receipt
of such notice, each party shall proceed to non-binding mediation . . . .
Def. Ex. D ¶ 8.3 (Dkt. 12-4).
5
Razorback regarding the application or interpretation of any provision of the agreement;
or (2) if KCT is dissatisfied with the quality of Razorback’s work. The dispute in this
case does not regard the interpretation or application of the Agreement, nor does it
involve the dissatisfaction with the quality of Razorback’s work. Further, the contractual
agreement is not binding on the Court and the Court is unwilling to delay this
proceeding. The Court denies Defendant’s request to postpone.
III. CONCLUSION
For the foregoing reasons, the Court denies Defendant’s Motion in its entirety.
IT IS SO ORDERED.
/s/ Ortrie D. Smith
ORTRIE D. SMITH, SENIOR JUDGE
UNITED STATES DISTRICT COURT
DATE: August 30, 2012
6
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?