Segal et al v. Bitar et al
Filing
103
MEMORANDUM & ORDER granting in part and denying in part 52 Motion to Dismiss; granting in part and denying in part 62 Motion to Dismiss; granting in part and denying in part 64 Motion to Dismiss for Lack of Jurisdiction; granting in part and denying in part 83 Motion to Dismiss for Lack of Jurisdiction; granting in part and denying in part 83 Motion to Dismiss. For the foregoing reasons, the motion to dismiss all claims against defendants Juanda, Lederer, Ferguson, Traniello, Lindgren, Seidel, Bloch, Matusow, Cunningham, and Ivy's motion to dismiss is GRANTED. The motion to dismiss the conversion claim against defendants Tiltware and Pocket Kings Consulting is GRANTED. The motion to dismiss the 28 U.S.C. § 1962(c) and § 1962(d) claim against all defendants is also GRANTED. All other motions to dismiss are DENIED. Leave to amend is granted with respect to those claims identified above.(Signed by Judge Leonard B. Sand on 1/30/2012) (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
STEVE SEGAL, NICK HAMMER, ROBIN
HOUGDAHL, and TODD TERRY, on
behalf of themselves and others similarly
situated,
Plaintiffs,
11 Civ. 4521 (LBS)
v.
RAYMOND BITAR; NELSON BURTNICK;
FULL TILT POKER, LTD.; TILTWARE, LLC;
VANTAGE, LTD; FILCO, LTD.; KOLYMA
CORP. A.V.V.; POCKET KINGS LTD.;
POCKET KINGS CONSULTING LTD.;
RANSTON LTD.; MAIL MEDIA LTD.;
HOWARD LEDERER; PHILLIP IVEY JR.;
CHRISTOPHER FERGUSON; JOHNSON
JUANDA; JENNIFER HARMAN-TRANIELLO;
PHILLIP GORDON; ERICK LINDGREN; ERIK
SEIDEL; ANDREW BLOCH; MIKE MATUSOW;
GUS HANSEN; ALLEN CUNNINGHAM;
PATRIK ANTONIUS, and JOHN DOES 1-100,
MEMORANDUM
& ORDER
Defendants.
SAND, J.
Defendants Johnson Juanda, Howard Lederer, Chris Ferguson, Jennifer HarmanTraniello (“Traniello”), Erick Lindgren, Erik Seidel, Andrew Bloch, Mike Matusow, Allen
Cunningham, and Phillip Ivey, Jr. (“Ivey”) (collectively, the “Individual Defendants”), and
Tiltware, LLC (“Tiltware”), Vantage, Ltd. (“Vantage”), Filco, Ltd (“Filco”), Pocket Kings Ltd.
(“Pocket Kings”), and Pocket Kings Consulting Ltd. (“Pocket Kings Consulting”) (collectively.
the “Corporate Defendants”) have moved to dismiss the claims against them brought by Steve
Segal (“Segal”), Nick Hammer, Robin Hougdahl, and Todd Terry, on behalf of themselves and a
purported nation-wide class of plaintiffs.
1
Plaintiffs accuse the Corporate Defendants, as well as other non-moving defendants, of
violating two provisions of the Racketeer Influence and Corrupt Organizations (“RICO”) Act, 18
U.S.C. §§ 1961–1968, by engaging in, and conspiring to engage in, an ongoing pattern of bank
fraud, wire fraud, and money laundering. Plaintiffs accuse all Defendants of conversion.
For the reasons provided below, the motions to dismiss are granted in part and denied in
part.
I.
Background1
This case is one of a number of civil lawsuits brought by and on behalf of online poker
players who lost access to money in player accounts they maintained on the online gambling
website, fulltiltpoker.com, on April 15, 2011. On that date—also known as “Black Friday” in
the online gambling world—the United States Attorney for the Southern District of New York
shut down the websites of the three largest online poker companies then operating in the United
States, Full Tilt Poker, Absolute Poker and PokerStars. Compl. ¶2. Arrest warrants were also
issued for the owners of, and other individuals associated with, the three companies. Id. In the
criminal indictment, the United States accused those individuals of violating, and conspiring to
violate, the Unlawful Internet Gambling Enforcement Act (“UIGEA”), 31 U.S.C. §§ 5361–5367,
which prohibits those “engaged in the business of betting or wagering” from knowingly
accepting most forms of payment “in connection with the participation of another person in
unlawful Internet gambling,” 31 U.S.C. § 5361. The indictment also accused individuals
associated with Full Tilt Poker and the other poker companies of conspiring to commit bank
fraud, wire fraud and money laundering. Superseding Indictment, United States v. Scheinberg,
10 Cr. 336 (LAK) (Apr. 14, 2011) (“Criminal Indictment”).
1
The facts provided in this section are based on the allegations in the Class Action Complaint (“Compl.”), filed by
Plaintiffs on June 30, 2011.
2
Soon after the indictment was unsealed, the Department of Justice instituted a civil suit
against individuals and entities associated with the three poker companies, seeking forfeiture of
all assets and proceeds they derived from their allegedly illegal activities. Verified Complaint,
United States v. Pokerstars, 11 Civ. 2564 (Apr. 15, 2011) (“DOJ Civil Complaint”). In
connection with the civil and criminal cases, various properties believed to have been involved
in, or to derive from, the illegal activity described in the complaints were seized. Id. ¶ 97. A
restraining order was also issued against various bank accounts believed to have been utilized by
the defendants in the civil and criminal cases. Id. Ex. C. At no point, however, were the funds in
the Full Tilt Poker player accounts seized. Id. ¶ 105. Nonetheless, since April 15, 2011, Full
Tilt customers have been unable to access their player accounts, or to withdraw the money
deposited in them. Id. ¶ 104.
On June 30, 2011, Plaintiffs filed suit on behalf of themselves and a putative class of Full
Tilt Poker account holders, seeking recovery of the approximately $150 million they claimed
was locked up in the online player accounts they no longer could access. Id. ¶ 42. In response,
many of the defendants named in their complaint moved, pursuant to Federal Rules of Civil
Procedure 12(b)(2) and 12(b)(6), to dismiss the claims against them for lack of jurisdiction and
failure to state a claim.
II.
Standard of Review
On a motion to dismiss, a court reviewing a complaint will consider all material factual
allegations as true and draw all reasonable inferences in favor of the plaintiff. Lee v. Bankers
Trust Co., 166 F.3d 540, 543 (2d Cir. 1999). “To survive dismissal, the plaintiff must provide
the grounds upon which his claim rests through ‘factual allegations sufficient to raise a right to
relief above the speculative level.’” ATSI Commc’ns Inc. v. The Shaar Fund, Ltd., 493 F.3d 87,
93 (2d Cir. 2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “Threadbare
3
recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 ( 2009). Rather, the plaintiff's complaint must
include "enough facts to state a claim to relief that is plausible on its face.” Iqbal, 129 S. Ct. at
1940 (citing Twombly, 550 U.S. at 570).
Plaintiffs also bear the burden of showing that the court has jurisdiction over the
defendants. Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566-567 (2d Cir.
1996). Prior to discovery, a plaintiff can satisfy this burden by “pleading in good faith . . .
legally sufficient allegations of jurisdiction. At that preliminary stage, the plaintiff's prima facie
showing may be established solely by allegations.” Ball v. Metallurgie Hoboken-Overpelt, S.A.,
902 F.2d 194, 197 (2d Cir. 1990). In determining whether a plaintiff has met this burden, courts
may not “draw ‘argumentative inferences’ in the plaintiff's favor.” They may, however,
“construe jurisdictional allegations liberally and take as true uncontroverted factual allegations.”
Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994) (quoting Atlantic
Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir. 1992)).
In reviewing a complaint, a court is not limited to the four corners of the complaint; a
court may also consider “documents attached to the complaint as an exhibit or incorporated in it
by reference, . . . matters of which judicial notice may be taken, or . . . documents either in
plaintiffs’ possession or of which plaintiffs had knowledge and relied on in bringing suit.” Brass
v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993).
III.
Discussion
A. Jurisdiction
Defendants argue that, because they are not New York residents and do not conduct any
business in New York, this Court lacks personal jurisdiction over them. In their complaint,
Plaintiffs identify two possible bases for this Court’s exercise of personal jurisdiction over the
4
defendants: first, 18 U.S.C. § 1965(b), which allows the nationwide service of process with
respect to actions brought under 18 U.S.C. § 1964, the federal civil RICO statute; second,
Federal Rule of Civil Procedure 4(k)(I)(A), which grants this Court jurisdiction over defendants
reached by New York's long-arm statute, N.Y. C.P.L.R. § 302(a).
1. 18 U.S.C. § 1965(b)
18 U.S.C. § 1965(b) allows for the nationwide service of process for claims brought
under the civil RICO statute, 18 U.S.C. § 1964, when “the ends of justice require that other
parties residing in any other district be brought before the court.” 18 U.S.C. § 1965(b). In order
for § 1965(b) to apply, however, the Second Circuit has found that at least one defendant must
satisfy the test for personal jurisdiction set forth in 18 U.S.C. § 1965(a).2 PT United Can Co.
Ltd. v. Crown Cork & Seal Co., Inc., 138 F.3d 65, 71 (2d Cir. 1998). Therefore, only in cases
where at least one RICO defendant “resides, is found, has an agent, or transacts his affairs” in the
district in which the court is located, 18 U.S.C. § 1965(a), can nationwide service of process be
effected with respect to the other RICO defendants—and then only if the “ends of justice”
require it.
In this case, Plaintiffs have identified no defendants who reside in the Southern District
of New York or who employed an agent in the district. Nor do they allege that any of the
defendants can be “found” in the district. Instead, they assert that the various Defendants
identified in the Complaint conducted “significant and continuous business in the State of New
York” through their operation or facilitation of the Full Tilt Poker web portal. Compl. § 15.
They make no specific allegations, however, that any of the defendants conducted “significant
and continuous business” in the Southern District specifically, via the Full Tilt Poker web portal.
2
Section 1965(a) provides: “Any civil action or proceeding under this chapter against any person may be instituted
in the district court of the United States for any district in which such person resides, is found, has an agent, or
transacts his affairs.” 18 U.S.C. § 1965(a).
5
See Burt Decl. (identifying New Yorkers who used the Full Tilt Poker web portal but providing
no indication of their district of residency or location of play). Nor have they alleged sufficient
facts to establish any of the other bases of jurisdiction under § 1965(a). For this reason, we find
that Plaintiffs have not met their burden of making out legally sufficient allegations of
jurisdiction under §1965(b).
2. Federal Rule of Civil Procedure 4(k)(I)(A)
As an alternative basis of jurisdiction, Plaintiffs invoke Federal Rule of Civil Procedure
4(k)(I)(A), which grants federal courts jurisdiction over any defendant “who is subject to the
jurisdiction of a court of general jurisdiction in the state where the district court is located,” and
N.Y. C.P.L.R. §302(a) (New York’s “long arm statute”). N.Y. C.P.L.R. § 302(a) provides in
relevant part that New York courts of general jurisdiction shall have personal jurisdiction over
any defendant who
1. transacts any business within the state or contracts anywhere to supply goods or
services to the state…[or]
3. commits a tortious act without the state causing injury to person or property
within the state [and] …
ii. expects or should reasonably expect the act to have consequences in the
state and derives substantial revenue from interstate or international
commerce.
NY CLS CPLR § 302(a). Plaintiffs claim that both § 302(a)(1) and § 302(a)(3)(ii) vest this
Court with jurisdiction over the Corporate and Individual Defendants.
a.
Jurisdiction under § 302(a)(1)
“To determine the existence of jurisdiction under section 302(a)(1), a court must decide
(1) whether the defendant ‘transacts any business’ in New York and, if so, (2) whether this cause
of action ‘aris[es] from’ such a business transaction.” Best Van Lines, Inc. v. Walker, 490 F.3d
239, 246-251 (2d Cir. 2007). A defendant “transacts … business” in New York, with respect to
§302(a)(1), when it “purposefully avails itself of the privilege of conducting activities within the
6
forum State, thus invoking the benefits and protections of its laws.” McKee Elec. Co. v.
Rauland-Borg Corp., 229 N.E.2d 604, 607 (N.Y. 1967) (quoting Hanson v. Denckla, 357 U.S.
235, 253 (1958)). A cause of action “arise[s] from such a business transaction” when there is
“an articulable nexus, or a substantial relationship, between the claim asserted and the actions
that occurred in New York.” Henderson v. INS, 157 F.3d 106, 123 (2d Cir. 1998) (internal
quotation marks omitted).
Plaintiffs claim that the Corporate Defendants transacted business in New York by
operating or facilitating the operation of the Full Tilt website, fulltiltpoker.com, which New York
residents used to gamble online. They claim that the Individual Defendants transacted business
in New York when they played against New York consumers in online poker games on the Full
Tilt website and thereby induced them to use the website.
i. The Corporate Defendants
With respect to the Corporate Defendants, we agree that by operating or facilitating the
operation of the Full Tilt poker website, they transacted business in New York under the
“purposeful availment” test. Corporations purposefully avail themselves of the privilege of
conducting business in a state when they operate a website that “projects itself” into New York
by dynamically interacting with New York users. Lenahan Law Offices, LLC v. Hibbs, No. 04CV-6376, 2004 U.S. Dist. LEXIS 30528, at *12-20 (W.D.N.Y. Dec. 22, 2004). One of the ways
in which a corporate website can project itself into New York is by allowing in-state residents to
purchase the company’s goods and services online. Chloe v. Queen Bee of Beverly Hills, LLC,
616 F.3d 158, 170-171 (2d Cir. 2010) (finding defendant corporation which maintained a “highly
interactive website offering… bags for sale to New York consumers” transacted business in New
York); Citigroup Inc. v. City Holding Co., 97 F. Supp. 2d 549, 565-566 (S.D.N.Y. 2000) (finding
defendant mortgage origination company that maintained two web sites which allowed New
7
York consumers to apply for loans online and conduct internet chats with company
representatives transacted business in New York); Student Advantage, Inc. v. International
Student Exch. Cards, Inc., No. 00 Civ. 1971, 2000 U.S. Dist. LEXIS 13138, at *12-13 (S.D.N.Y.
Sept. 12, 2000) (corporation transacted business in New York when its website “allegedly
induced New York merchants to contract with [it]”).
In this case, the Full Tilt website not only allowed New York residents to purchase the
company’s services while in the state; it also allowed them to consume those services while
sitting in their New York residences. The website therefore satisfies the “transacts any business”
prong of the §302(a)(1) jurisdictional test, with respect to those corporations that maintained it.
See Citigroup Inc., 97 F. Supp. at 565 (noting that jurisdiction attaches to corporations that
“maintain… an interactive web site”); Student Advantage, No. 00 Civ. 1971, at 10 (same).3
This group includes Pocket Kings, the corporate entity responsible for the daily operation of the
Full Tilt website, Compl. ¶ 30, and Vantage and Filco, both of which helped maintain the
website by registering new player accounts, managing the deposit of money into, and the
withdrawal of money from, player accounts, and allowing customers to take part in specific
games and transactions while on the Full Tilt website. Id. ¶¶ 27, 28.
The website also satisfies the “transacts any business” prong of the jurisdictional test with
respect to Tiltware and Pocket Kings Consulting, the remaining two Corporate Defendants.
Neither of these corporations appear to have directly maintained the website.4 Nonetheless, they
provided valuable services to it that, were they not around, the website maintainers would have
3
Although courts have not explained what it means to “maintain” a website, we adopt the ordinary language
meaning of the term, which is—as provided by the Merriam-Webster Online Dictionary—“to keep in an existing
state (as of repair, efficiency, or validity) : preserve from failure or decline.” http://www.merriamwebster.com/dictionary/maintain. Hence, we find that all those defendants who worked to “keep [the website] in an
existing state… of repair [and] efficiency” transacted business in New York.
4
According to the allegations in the complaint, Tiltware developed the software for the website. Id. ¶ 26. Pocket
Kings Consulting meanwhile provided “technology and marketing consulting services” for Full Tilt Poker. Id. ¶ 31.
8
had to do on their own. In this capacity they functioned as “agents” of the companies that
maintained the website, to whom jurisdiction can be imputed. See Frummer v. Hilton Hotels
Int'l Inc., 281 N.Y.S.2d 41, 57 (N.Y. 1967) (courts can impute jurisdiction to foreign
corporations when corporations that transact business in New York do on their behalf “all the
business which [the foreign corporation] would do were it here by its own officials”).
We also find that the cause of action “arises from” the business transactions—namely, the
website activity—that occurred in New York. Plaintiff Steve Segal is a New York resident.
Compl. ¶ 19. He deposited funds in his player account in New York and consumed the website’s
services while in New York. Id. ¶ 16. His injuries, and those of the other New York residents
who maintained player accounts with Full Tilt appear the direct result of the commercial
activities they engaged in while in New York. See Sole Resort, S.A. de C.V. v. Allure Resorts
Mgmt., LLC., 450 F.3d 100, 104 (2d Cir. 2006) (holding that New York’s long-arm nexus
requirement is satisfied unless “the event giving rise to the plaintiff's injury had, at best, a
tangential relationship to any contacts the defendant had with New York”). Section 302(a)(1)
thus vests this Court with jurisdiction over the Corporate Defendants.
This finding of jurisdiction satisfies the requirements of the Due Process Clause. Chloe
v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 164 (2d Cir. 2010) (“If the long-arm statute
permits personal jurisdiction, the second step is to analyze whether personal jurisdiction
comports with the Due Process Clause of the United States Constitution.”). By maintaining a
website that sold services to New York consumers—or acting as the agents for those
corporations that did—Corporate Defendants purposefully directed their activities towards the
New York market and in so doing established the “minimum contacts” required by the Due
Process Clause. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-298 (1980)
(“The forum State does not exceed its powers under the Due Process Clause if it asserts personal
9
jurisdiction over a corporation that delivers its products into the stream of commerce with the
expectation that they will be purchased by consumers in the forum State.”); Queen Bee, 616 F.3d
at 171 (“[J]urisdiction is appropriate in New York [under the Due Process Clause] because
Queen Bee has developed and served a market for its products there.”). Defendants have
provided no evidence, in light of the threshold showing of minimum contacts, that render the
exercise of jurisdiction over them unreasonable. Burger King Corp. v. Rudzewicz, 471 U.S. 462,
477 (1985) (“[W]here a defendant who purposefully has directed his activities at forum residents
seeks to defeat jurisdiction, he must present a compelling case that the presence of some other
considerations would render jurisdiction unreasonable.”). Accordingly, the Corporate
Defendants’ motion to dismiss for lack of personal jurisdiction is denied.5
ii. The Individual Defendants
With respect to the Individual Defendants, the case for exercising personal jurisdiction
under § 302(a)(1) is considerably weaker. Plaintiffs make no allegations that any of the
Individual Defendants helped maintain or operate the Full Tilt Poker website. Instead, they
allege only that these individuals played poker games against New York consumers on the
5
Defendants Vantage and Filco also challenge the jurisdiction of this Court on service of process grounds. They
argue that, because Plaintiffs have not provided, as proof of service, “the server’s affidavit” required by Federal
Rule of Civil Procedure 4(l)(1), they have not effectively been served and are not therefore proper parties to the
lawsuit. Defs.’ Mem. Law. Supp. Mot. Dismiss, at 10–11 n.5. This argument is unpersuasive. Rule 4(l)(1) only
applies to service on defendants within the United States. For defendants served outside the United States, such as
Vantage and Filco, Rule 4(l)(2) instead governs. Under Rule 4(l)(2), proof of service must be demonstrated in one
of two ways. Fed. R. Civ. P. 4(l)(2). If service was made by means of the relevant treaty or convention, service
must be proved as specified in that treaty or convention. Fed. R. Civ. P. 4(l)(2)(A). However, if service was
effected by a means allowed, but not specified, by the relevant treaty or convention, all that is required as proof of
service is a “receipt signed by the addressee, or… other evidence satisfying the court that the summons and
complaint were delivered to the addressee.” Fed. R. Civ. P. 4(l)(2)(B). In this case, Filco and Vantage were served
pursuant to Article 10 of the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents,
Nov. 15, 1965, 20 U.S.T. 361. Article 10 allows, but does not specify, for service of judicial documents by “judicial
officers, officials or other competent persons of the State of origin,” when the State of destination does not object.
Id., art. 10. Rule 4(l)(2)(B) thus governs proof of service. Plaintiffs have provided, as Rule 4(l)(2)(B) requires,
signatures of receipt, signed on both defendants’ behalf. Dkt. # 26, 32. We therefore consider both defendants
properly served.
10
website, and that they helped promote the brand by playing live poker games that were broadcast
into New York. These allegations are insufficient to establish jurisdiction under § 302(a)(1).
Even assuming arguendo that playing online poker against a New York consumer, or
playing in a poker game broadcast in New York is sufficient to constitute a transaction of
business in New York, thereby satisfying the first prong of the § 302(a)(1) jurisdictional test,
plaintiffs still have not alleged sufficient facts to establish the second prong of § 302(a)(1):
namely, that the claims against the Individual Defendants “arose out of” these online games.
“For a tort claim to arise out of transaction of business in New York, the connection between the
transaction and the claim must be direct.” Mantello v. Hall, 947 F. Supp. 92, 100 (S.D.N.Y.
1996). There is, however, no direct connection between the Individual Defendants’ participation
in the online poker games and the conversion claims against them. Defendants’ acts may have
induced New York consumers to use the Full Tilt website, as Plaintiffs allege. However, the
claims alleged against the Individual Defendants do not relate to consumers’ decision to use the
website, or to establish the online player accounts that would allow them to do so. See Compl. ¶
7 (noting that “U.S. customers who played for real-money on the Full Tilt website were required
to maintain a Player Account with Full Tilt”). The claims instead relate to consumers’ inability
to access, or withdraw money from, their player accounts after the website was shut down on
April 15, 2011.
In similar cases, where the acts alleged to establish jurisdiction do not overlap in any
respect with the acts that establish the claim, courts have found the connection to be too
attenuated to support jurisdiction under §302(a)(1). See, e.g., Penachio v. Benedict, 2010 U.S.
Dist. LEXIS 119052, 12-13 (S.D.N.Y. Nov. 9, 2010) (finding that defamation action did not
arise out of defendants’ actions in New York because none of “the acts of publication, of
distribution and of circulation which underlie the alleged grievances” occurred in New York
11
(quoting American Radio Ass'n, AFL-CIO v. A.S. Abell Co., 296 N.Y.S.2d 21, 23 (N.Y. Sup. Ct.
1968)); Mantello, 947 F. Supp at 100 (finding copyright claim involving a Florida play did not
arise out of the director’s decision to hire New York actors, or his payments of money to the
New York licensing agency); Talbot v Johnson Newspaper Corp., 522 N.E.2d 1027, 1027 (N.Y.
1988) (holding that defamation claim brought by university football coach against a former
student did not “arise out of” that student’s earlier decision to pursue a college degree in New
York). We find the same to be true here.
We note that the question of whether an action arises out the transaction of business in
New York is a “fact-specific one, and when the connection between the parties' activities in New
York and the claim crosses the line from ‘substantially related’ to ‘mere coincidence’ is not
always self-evident.” Sole Resort, S.A. de C.V. v. Allure Resorts Mgmt., LLC, 450 F.3d 100, 103
(2d Cir. 2006). Nonetheless, given the particular facts of the case, we conclude that the claims
alleged against the Individual Defendants do not arise out of their participation in the online
poker games, or the other promotional activities they undertook on Full Tilt’s behalf. Section
302(a)(1) therefore does not establish the jurisdiction of this Court with respect to the Individual
Defendants.
b.
Jurisdiction under § 302(a)(3)(ii)
Nor does N.Y. C.P.L.R. § 302(a)(3)(ii) vest this Court with jurisdiction over the
Individual Defendants. To establish jurisdiction under § 302(a)(3)(ii), a plaintiff must
demonstrate that: “(1) the defendant's tortious act was committed outside New York, (2) the
cause of action arose from that act, (3) the tortious act caused an injury to a person or property in
New York, (4) the defendant expected or should reasonably have expected that his or her action
would have consequences in New York, and (5) the defendant derives substantial revenue from
interstate or international commerce.” Penguin Group (USA) Inc. v. Am. Buddha, 640 F.3d 497,
12
498-499 (2d Cir. 2011). The allegations against Individual Defendants fail the first element of
the 302(a)(3)(ii) jurisdictional test insofar as they fail to demonstrate, not only that any of the
Individual Defendants committed a tortious act outside of New York, but that the Individual
Defendants committed a tortious act of any sort at all.
Plaintiffs allege that because all of the Individual Defendants are “shareholder[s] and
[director[s] of… Full Tilt and/or one or more Full Tilt Companies,” Compl. ¶¶ 36–40, 42–45, 47,
they participated in the conversion of the player accounts that occurred on or after April 15,
2011, when customers who attempted to withdraw the money in their player accounts were
barred from doing so. Under New York law, however, individuals are not subject to jurisdiction
under § 302(a)(3)(ii) merely because they are shareholders or directors of companies that are
subject to jurisdiction under § 302(a)(3)(ii). Jurisdiction based on the tortious actions of a
corporate entity extends to its shareholders and directors only when they are shown to have
personally participated in those tortious acts. In re Terrorist Attacks on Sept. 11, 2001, 718 F.
Supp. 2d 456, 484 (S.D.N.Y. 2010) (“The culpable conduct of a corporation or other
organization cannot give rise to jurisdiction over a non-resident officer based solely on his title,
without any showing that he was personally involved as a primary actor in the conduct that is the
subject of the litigation.”); Kinetic Instruments, Inc. v. Lares, 802 F. Supp. 976, 984 (S.D.N.Y.
1992) (“Individual officers are not subject to jurisdiction in New York merely because
jurisdiction can be obtained over the corporation here… [Instead], the transaction at issue
performed by the corporation here must be with the knowledge and consent of the officer and the
officer must have exercised control over the corporation in the transaction.”). Plaintiffs provide
no allegations that any of the Individual Defendants knew about or consented to the player
accounts on or after April 15, 2011, or that they personally participated in any other way in
blocking Full Tilt customers’ access to their accounts.
13
Plaintiffs argue that jurisdiction over the Individual Defendants exists under §302(a)(3(ii)
because, even if the Individual Defendants were not personally involved in the acts of conversion
themselves, they nonetheless “contributed to” them by playing poker on the Full Tilt poker
website and thereby inducing players to open the accounts that were subsequently converted.
Pls.’ Mem. Law Opp. Defs.’ Mots. Dismiss, at 13. This argument fails. To establish
contributory, or “aiding and abetting” liability under New York law, plaintiffs must demonstrate
that “the defendant (1) knew that another's conduct constituted a breach of duty and (2) gave
substantial assistance or encouragement to the other.” Miele v. Am. Tobacco Co., 770 N.Y.S.2d
386, 392 (App. Div. 2003) (quoted in Am. Bldg. Maint. Co. v. ACME Prop. Servs., 515 F. Supp.
2d 298, 321 (N.D.N.Y 2007). Plaintiffs have alleged no facts demonstrating that the Individual
Defendants knew that the other defendants’ actions constituted a breach of duty; nor have they
alleged facts demonstrating that any of the Individual Defendants provided “substantial
assistance to encouragement” to those who actually committed the tortious acts. Plaintiffs have
therefore failed to establish jurisdiction with respect to the Individual Defendants under either §
302(a)(1) or § 302(a)(3)(ii). Accordingly, the claims against them must be dismissed.
B. Merits
Having established the existence of personal jurisdiction with respect to the Corporate
Defendants (hereinafter “Defendants”), we now consider their substantive objections to the
Plaintiffs’ allegations of conversion, racketeering and conspiracy.
1.
Conversion
To state a claim for conversion under New York law, plaintiffs must (1) “show legal
ownership of, or a superior possessory right in, the disputed property” and (2) “that the
defendant exercised an unauthorized dominion over that property to the exclusion of the
plaintiff's rights.” Middle East Banking Co. v. State Street Bank International, 821 F.2d 897, 906
14
(2d Cir. 1987) (internal quotes omitted). They must also demonstrate that the property in
question is a “specific, identifiable thing.” Cruickshank & Co. v. Sorros, 765 F.2d 20, 25 (2d
Cir. 1985). Plaintiffs allege that Defendants committed the tort of conversion when they refused
to allow Plaintiffs to withdraw the money stored in their player accounts on or after April 15,
2011. Defendants move to dismiss this claim on several grounds. They argue that the merely
temporary refusal to allow Full Tilt customers to withdraw money from their player accounts
does not constitute an act of unauthorized dominion under New York law, and therefore cannot
serve as the basis for Plaintiffs’ conversion claim. They also argue that Plaintiffs have failed to
establish that the money stored in the accounts constitutes a “specific, identifiable thing.”
Finally, they argue that Plaintiffs have failed to establish which of the various Corporate
Defendants actually had control over the player funds and are therefore liable for conversion.
Defendants’ first argument is not persuasive. The interference with another’s property
interest need not be permanent in order to serve as the basis for a conversion claim. As a court in
the Eastern District of New York noted, “[t]he essence of the tort of conversion is not the
acquisition of the property but rather the wrongful deprivation of another's property.” Rose v.
AmSouth Bank of Fla., 296 F. Supp. 2d 383, 397 (E.D.N.Y. 2003)). All that New York law
requires is that the interference be substantial. Harper & Row, Publishers v. Nation Enters.,
723 F.2d 195, 201 (2d Cir. 1983); Pearson v. Dodd, 410 F.2d 701, 707 (D.C. Cir. 1969). A
claim for conversion will not therefore lie when the interference with another’s property or
possessory interests lasts only several hours. See, e..g, Harper & Row, 723 F.2d at 201. In this
case, however, the interference with Plaintiffs’ ability to exercise control over their property has
lasted far more than several hours. It has lasted over six months, and may in fact—despite Full
Tilt Poker’s promises—end up being permanent. Given these facts, we find Plaintiffs have
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more than adequately alleged an act of “unauthorized dominion” sufficient to state a claim for
conversion.
Defendants’ second argument is similarly unpersuasive.
It is well-settled law in New
York that money that is kept in a segregated account, or turned over to another to be used for a
specific purpose, is sufficiently identifiable to serve as the basis for a conversion claim. T.D.
Bank, N.A. v. JP Morgan Chase Bank, N.A., 2010 U.S. Dist. LEXIS 109471, 32-33 (E.D.N.Y.
Oct. 14, 2010); Krys v. Sugrue (In re Refco Inc. Sec. Litig.), Nos. 07-md-1902, 08-cv-3065, 08cv-3086, 08-cv-7416, 08-cv-8267, 2010 U.S. Dist. LEXIS 33642, at *120-122 (S.D.N.Y. Mar. 1,
2010); Newbro v. Freed, 409 F. Supp. 2d 386, 394-395 (S.D.N.Y. 2006); Payne v. White, 477
N.Y.S.2d 456, 458 (N.Y. App. Div. 1984). In this case, Plaintiffs allege that they turned their
money over to Full Tilt Poker for a specific purpose: namely, so that it could be used for placing
bets on online poker games. They also allege that the money was maintained in segregated
accounts, to which players had full access prior to April 15, 2011. These allegations are
sufficient to establish the specific identifiability of the property in question.
Defendants’ third argument is more persuasive. Plaintiffs who bring conversion claims
against multiple defendants are not required to specify in their complaint “which defendant
received, has possession of the funds, or which of them has or had the power to return the
funds.” Louros v. Cyr, 175 F. Supp. 2d 497, 515 (S.D.N.Y. 2001). They are required, however,
to “indicate clearly the defendants against whom relief is sought and the basis upon which the
relief is sought against the particular defendants.” Yucyco, Ltd. v. Republic of Slovenia, 984 F.
Supp. 209, 219-220 (S.D.N.Y. 1997) (quoting Mathews v. Kilroe, 170 F. Supp. 416, 417
(S.D.N.Y. 1959). In other words, they must show “that each individual defendant . . . played
some role” in the conversion. Precision Assocs. v. Panalpina World Transp., DOCKET, 2011
U.S. Dist. LEXIS 51330, at *53-54 (E.D.N.Y. Jan. 4, 2011).
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Plaintiffs have pled sufficient facts to establish a plausible inference that defendants
Pocket Kings, Vantage and Filco “played some role” in the conversion. The fact that the three
defendants worked together to maintain the Full Tilt website makes it plausible to infer that they
also worked together to block Plaintiffs’ access to the money in their accounts. This is sufficient
to state a claim of conversion against them under New York law. See In re Refco, 2010 U.S.
Dist. LEXIS 33642, at *124 (S.D.N.Y. Mar. 1, 2010) (plaintiffs need only demonstrate that
“assets were taken by [defendants] for [their] own benefit and not returned” in order to state a
claim for conversion under Rule 8(a)); Louros, 175 F. Supp. 2d at 515 (“plaintiffs adequately
plead claims of conversion” by alleging facts demonstrating that “all the named defendants
worked . . . in concert to effect the banking scheme” that deprived plaintiffs of their property).
However, Plaintiffs have not pled sufficient facts to establish a claim for conversion
against either Tiltware or Pocket Kings Consulting. As discussed above, although both Tiltware
and Pocket Kings Consulting provided valuable services to the Full Tilt Poker website, they were
not themselves responsible for its daily operation. The mere fact that Full Tilt Poker customers
maintained player accounts on the website that they subsequently could not access is therefore
insufficient to establish a conversion claim against these defendants. Nor have Plaintiffs alleged
any additional facts, demonstrating that either company exercised control over the player
accounts, or played any role in the decision to prevent Full Tilt Poker customers from
withdrawing the money in their accounts.
We therefore deny Defendants’ motion to dismiss the conversion claims against
defendants Pocket Kings, Vantage and Filco but grant it with respect to Tiltware and Pocket
Kings Consulting. However, in the interest of justice, we grant Plaintiffs leave to amend the
Complaint to better detail the role that Tiltware and Pocket Kings Consulting played in the
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alleged conversion. Fed. R. Civ. P. 15(a) (“[L]eave to amend shall be freely given when justice
so requires.”).
2.
RICO
Plaintiffs accuse Defendants of violating two provisions of the civil RICO statute: 18
U.S.C. § 1962(c), which prohibits any person from “conduct[ing] or participat[ing], directly or
indirectly, in the conduct of [an] enterprise’s affairs through a pattern of racketeering activity or
collection of unlawful debt,” and 18 U.S.C. §1962(d), which makes it “unlawful for any person
to conspire to violate” § 1962(c). They claim that Defendants violated these provisions when, in
association with other individual and corporate defendants named in the Complaint, they
committed and conspired to commit multiple acts of wire fraud, bank fraud and money
laundering, as defined in 18 U.S.C. §§1343, 1344 and 1956, respectively. They claim that
Defendants engaged in these acts in order to ensure the continuing flow of funds from domestic
players to Full Tilt Poker, despite the increasing reluctance by banks and other financial
institutions to process gambling transactions and, in 2006, the passage of the UIGEA.
Defendants move to dismiss both claims on a variety of grounds. First, they argue that
Plaintiffs fail to plead the claims with sufficient particularity to satisfy the heightened pleading
standard of Federal Rule of Civil Procedure 9(b). Second, they argue that Plaintiffs have failed
to satisfactorily allege any of the predicate acts, and therefore cannot establish that any of the
defendants engaged in a “pattern of racketeering activity,” as both § 1962(c) and § 1962(d)
require. Third, they argue that Plaintiffs have failed to adequately allege a RICO enterprise.
Fourth, they challenge the sufficiency of the § 1962(d) claim. Finally, they challenge Plaintiffs’
standing to bring either claim. We need not reach the merits of most of these arguments,
however, because we find that Plaintiffs have no standing to bring the RICO claims, and on that
ground dismiss.
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Under RICO’s civil remedy provision, 18 U.S.C. § 1964(c), a plaintiff will have standing
to sue if he was “injured in his business or property by reason of a violation of” the civil RICO
statute. 18 U.S.C. § 1964(c). To establish that the injury he sustained was caused “by reason of”
a RICO violation, a civil plaintiff must demonstrate that the RICO violation was not merely its
“but for” cause but was its proximate or legal cause as well. Holmes v. Sec. Investor Prot. Corp.,
503 U.S. 258, 268 (1992). To establish proximate cause, a RICO plaintiff must show “some
direct relation between the injury asserted and the injurious conduct alleged.” Hemi Group, LLC
v. City of New York, 130 S. Ct. 983, 989 (2010) (quoting Holmes, 503 U.S. at 268-269). “A link
that is too remote, purely contingent, or indirect is insufficient.” Hemi, 130 S. Ct. at 989
(internal punctuation removed).
In this case, Plaintiffs assert that they were injured in their business or property when
they lost the ability to withdraw the money in their player accounts on April 15, 2011. They
allege that this injury was proximately caused by Defendants’ violations of § 1962(c) and §
1962(d) because it was these violations that caused the U.S. Attorney’s Office to shut down the
Full Tilt Poker website and seize its assets, thereby effectively precluding Plaintiffs’ from being
able to withdraw their money from their player accounts. Compl. ¶¶ 137, 147.
This is too indirect a chain of causation to establish proximate cause. The Supreme Court
has made clear that the only “compensable injury flowing from a [RICO] violation… necessarily
is the harm caused by [the racketeering] acts.” Anza v. Ideal Steel Supply Corp., 547 U.S. 451,
457 (2006). As a result, when the direct cause of plaintiff’s injury is not the act or actions that
establishes their RICO liability, courts generally refuse to find proximate causation, or standing
under § 1964(c). Hence, in Anza, the Supreme Court held that the plaintiff steel company, Ideal
Steel Supply, had no standing to sue its competitor, National Steel Supply, for fraudulently
failing to charge or pay sales taxes in violation of 18 U.S.C. § 1962(c). Ideal argued that it was
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injured “by reason of” National Steel’s racketeering activity because the tax fraud that served as
the basis for its RICO liability allowed National Steel to undercut Ideal’s prices, thus harming its
business. The Court found this to be too indirect a chain of causation to sustain standing under §
1964(c) because the set of actions that directly caused Ideal’s harms—namely, National Steel’s
decision to sell its goods at lower prices—was entirely distinct from the set of actions—namely,
the tax fraud—that constituted the RICO violation. Anza, 547 U.S. at 458. See also Hemi
Group, LLC v. City of New York, 130 S. Ct. 983, 990 (2010) (affirming the Anza principle).
The same principle applies to this case. At this stage in the litigation it remains unclear
whether the direct cause of Plaintiffs’ injuries was the decision by the U.S. Attorney’s office to
temporarily shut down the Full Tilt Poker website and seize the company’s assets or was instead,
as Plaintiffs’ conversion allegations suggest, the subsequent decision by one or more of the
Defendants to halt player withdrawals from the Full Tilt Poker website. What is clear is that in
neither case was the direct cause of the injuries the racketeering offenses alleged in the
complaint. Plaintiffs’ allegations therefore establish too attenuated a chain of causation to
support standing under § 1964(c). Indeed, the Second Circuit has held on multiple occasions that
harms caused by the exposure of defendants’ racketeering activity, rather than by the activity
itself, do not vest private plaintiffs with standing to sue under § 1964(c). See, e.g., McBrearty v.
Vanguard Group, Inc., 353 Fed. App’x. 640, 642 (2d Cir. 2009) (denying standing to private
plaintiffs whose injuries were “not the direct result of the RICO violation—the owning and/or
financing of illegal gambling—but rather [were] the result of the subsequent ‘government
crackdown’ on the illegal gambling”); Lewis ex rel. American Express Co. v. Robinson (In re
American Express Co. Shareholder Litig.), 39 F.3d 395, 400 (2d Cir. 1994) (denying standing
because Plaintiff’s injuries were caused by the public exposure of defendants’ alleged RICO
violations, rather than the RICO violations themselves). Therefore, even assuming arguendo
20
that it was the seizure of Full Tilt Poker assets by the U.S. Attorney’s Office on April 15, 2011
that was the direct cause of Plaintiff’s injuries, this would not establish a sufficiently direct
causal link between the racketeering offenses and Plaintiffs’ injuries to support standing under
Second Circuit precedents.
Nor do normative considerations mitigate in favor of granting Plaintiffs standing.
Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (U.S. 1992) (noting that “[a]t bottom, the
notion of proximate cause reflects ‘ideas of what justice demands, or of what is administratively
possible and convenient’”) (quoting W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and
Keeton on Law of Torts § 41, p. 264 (5th ed. 1984)). As we concluded above, Plaintiffs have a
viable state common law claim for conversion against at least some of the Defendants named in
the complaint, under which they may recover for the damages they have suffered as a result of
Defendants’ wrongdoing. We see therefore no need to grant Plaintiffs the right to seek to
recover treble damages for what appears to be a simple claim of state law conversion—albeit one
predicated on a grand scale. See 18 U.S.C. § 1964(c). The fact that the government is
independently prosecuting the racketeering offenses alleged in the complaint means also that
there is no need for the private plaintiffs to stand in as “private attorneys general” in this case.
Holmes, 503 U.S. 258, 269-270 (1992).
We thus conclude that Plaintiffs do not have standing to sue under § 1964(c).
Accordingly we grant Defendants’ motion to dismiss both RICO claims.
IV.
Conclusion
For the foregoing reasons, the motion to dismiss all claims against defendants Juanda,
Lederer, Ferguson, Traniello, Lindgren, Seidel, Bloch, Matusow, Cunningham, and Ivy’s motion
to dismiss is GRANTED. The motion to dismiss the conversion claim against defendants
Tiltware and Pocket Kings Consulting is GRANTED. The motion to dismiss the 28 U.S.C. §
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1962(c) and § 1962(d) claim against all defendants is also GRl\NTED. All other motions to
dismiss are DENIED. Leave to amend is granted with respect to those claims identified above. 6
SO ORDERED.
Dated: January ~:;'2012
1\ ew Yark, NY
U.S.D.l
\.
h
TllC Court hus considcred all of the partics' other arguments and found them to be moot or without merit.
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