Intergo, LLC v. Switzerland and America Trust, LLC et al

Filing 46

Memorandum Opinion and Order: Defendants' Motion to Dismiss is granted (re 41 ). Plaintiff's Motion to Amend is denied (Re: 43 ). The Complaint is dismissed without prejudice. Judge Jack Zouhary on 2/29/12. (C,D)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
Intergo, LLC,

Case No. 3:10 CV 2519
Plaintiff,

MEMORANDUM OPINION
AND ORDER

-vsJUDGE JACK ZOUHARY
Switzerland and America Trust, LLC et al.,
Defendants.

INTRODUCTION
Plaintiff Intergo, LLC (“Intergo”) filed suit against Defendants Switzerland and America Trust
(“SAT”), Melitian Enterprises, LTD (“Melitian”), and Melitian CEO Joelens Alcantara, alleging
violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961
et seq., and several state laws. Plaintiff’s claims arise out of the negotiation, execution, and alleged
non-performance of a contract between Plaintiff and Melitian (Doc. No. 1 at 2–4). Plaintiff asserts
Defendants made misrepresentations leading up to the contract about their ability to secure financing,
as well as misrepresentations after the contract was signed about the status of the financing.
Before this Court is Defendants’ Motion to Dismiss (Doc. No. 41). Specifically, Defendants
allege the RICO claims should be dismissed because Plaintiff fails to show “a pattern of racketeering
activity,” a requirement under RICO (Doc. No. 41 at 1). Because Plaintiff’s sole federal claim is
improper, Defendants argue this Court should decline supplemental jurisdiction under 28 U.S.C.
§ 1367(c) over the state-law claims (Doc. No. 41 at 11–14). Plaintiff opposed (Doc. No. 44) and filed
a Motion to Amend its Complaint (Doc. No. 43). A hearing was held on February 24, 2012. This
Opinion supplements the rulings made at that hearing.

STANDARD OF REVIEW
When deciding a motion to dismiss under Federal Civil Rule 12(b)(6), the function of the court
is to test the legal sufficiency of the complaint. In scrutinizing a complaint, the court is required to
accept the allegations stated in the complaint as true, Hishon v. King & Spalding, 467 U.S. 69, 73
(1984), while viewing the complaint in a light most favorable to the plaintiff. Scheuer v. Rhodes, 416
U.S. 232, 236 (1974); Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir. 1976). Although a complaint
need not contain “detailed factual allegations,” it does require more than “labels and conclusions” or
“a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007). Thus, a complaint survives a motion to dismiss if it “contain[s] 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). And “[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.” Hensley Mfg. v. ProPride, Inc., 579 F.3d 603, 609 (6th Cir. 2009) (quoting
Iqbal, 129 S. Ct. at 1949). This standard for Rule 12(b)(6) applies to “all civil actions.” Id. at n.4
(internal quotation omitted). RICO is the focus of the Complaint and Motion to Dismiss, and is also
the sole basis for federal court jurisdiction. This Court addresses the sufficiency of that claim.
DISCUSSION
RICO Violation
A RICO violation requires “(1) conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985). Plaintiff has
sufficiently alleged the first three prongs. Defendant SAT and Melitian are enterprises, and Plaintiff
alleges a series of e-mails and other communications received from Defendants constitute mail and

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wire fraud. Plaintiff also alleged Defendants engaged in a coordinated scheme to defraud it out of
$280,000.
The remaining question is whether these allegations, if proven, are sufficient to establish “a
pattern of racketeering activity.” 18 U.S.C. § 1962(c). The statute requires a minimum of two acts
of racketeering within ten years of each other. 18 U.S.C. § 1961(5). Moreover, the “pattern” of
activity must be “related” and “pose a threat of continued criminal activity.” H.J. Inc. v. Nw. Bell Tel.
Co., 492 U.S. 229, 237–39 (1989). The Sixth Circuit has adopted this standard from the Supreme
Court in what has come to be known as the “relationship plus continuity standard.” Brown v. Cassens
Transp. Co., 546 F.3d 347, 355 (6th Cir. 2008).
No Pattern of Racketeering
The relationship prong of this standard is satisfied if the predicate acts have “similar purposes,
results, participants, victims, or methods of commission, or otherwise are interrelated by
distinguishing characteristics and are not isolated events.” H.J. Inc., 492 U.S. at 240. Predicate acts
may be offenses indictable under federal mail and wire fraud statutes. Moon v. Harrison Piping
Supply, 465 F.3d 719, 724 (6th Cir. 2006) (citing 18 U.S.C. § 1961(1)). The relationship prong has
been satisfied. The predicate acts -- i.e. various e-mails, letters, and representations made to Plaintiff
-- were made by Defendants, allegedly to defraud Plaintiff out of $280,000.
The continuity prong of the standard can be satisfied by showing either a “close-ended”
pattern (a series of related predicate acts extending over a substantial period of time) or an “openended” pattern (a set of predicate acts that poses a threat of continuing criminal conduct extending
beyond the period in which the predicate acts were performed). H.J. Inc., 492 U.S. at 240–41. Here
is where the Complaint falls short.

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“A party alleging a RICO violation may demonstrate continuity over a closed period by
proving a series of related predicates extending over a substantial period of time. Predicate acts
extending over a few weeks or months . . . do not satisfy this [close-ended continuity] requirement
. . . .” Id. at 242. For instance, the Sixth Circuit has held racketeering activity spanning 17 months
was insufficient to meet the continuity requirement. See Vemco, Inc. v. Camardella, 23 F.3d 129,
134 (6th Cir. 1994). In this case, the pattern of activity lasted, at most, five months, when the
communications from Defendants ceased. This is not enough time to fall under the RICO statute.
Moreover, all the predicate acts -- e-mails, letters, and other communications -- are keyed to
the single objective of depriving Plaintiff of its money. Plaintiff has not pled any other schemes,
purposes, or injuries, and there are no facts alleged that the scheme would continue beyond
Defendants’ goal of stealing Plaintiff’s money. “In circumstances such as these, the purported
racketeering activity does not bear the markings of the ‘long-term criminal conduct’ about which
‘Congress was concerned’ when it enacted RICO.” See Moon, 465 F.3d at 725–26 (quoting H.J. Inc.,
492 U.S. at 242).
Neither can Plaintiff establish the threat of continued activity necessary for an open-ended
pattern. Defendants’ conduct, fraudulent or not, was short-term. See Thompson v. Paasche, 950 F.2d
306, 311 (6th Cir. 1991). Defendants received $280,000 from Plaintiff in January 2010 and have
made no other attempts to get more money from Plaintiff. Nor does Plaintiff name any other victims
of this alleged racketeering operation. There is simply no threat of future racketeering activity.
Plaintiff argued at the hearing that the filing of its Complaint in November 2010 cut-off
Defendants’ racketeering activity. “[T]he threat of continuity must be viewed at the time the
racketeering activity occurred,” the lack of which “cannot be asserted merely by showing a fortuitous

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interruption of that activity . . . .” See United States v. Busacca, 936 F.2d 232, 238 (6th Cir. 1991)
(holding that the interruption of racketeering activity by an arrest, indictment or guilty verdict does
not defeat continuity). But that argument is unsupported by the allegations.
The fraudulent statements at issue are Defendants’ assertions that the deal was going to go
through, and if Plaintiff just waited a little longer, it would get its money. The fraud was not cut-off
when Plaintiff filed its Complaint but rather five months earlier, in June 2010, when SAT informed
Plaintiff the deal had fallen apart and with it the promised payoff. Once there is no further risk of
racketeering activity, an open-ended pattern does not exist. Moon, 465 F.3d at 727.
Accordingly, this Court dismisses Plaintiff’s RICO claims.
Supplemental Jurisdiction
This Court has dismissed all claims over which it has original jurisdiction and therefore, must
decide whether to exercise supplemental jurisdiction over Plaintiff’s remaining state law claims. 28
U.S.C. § 1367(c)(3). “In determining whether to retain jurisdiction over state-law claims, a district
court should consider and weigh several factors, including the ‘values of judicial economy,
convenience, fairness, and comity.’” Gamel v. City of Cincinnati, 626 F.3d 949, 951–52 (6th Cir.
2010) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988). “When all federal claims
are dismissed before trial, the balance of considerations usually will point to dismissing the state law
claims, or remanding them to state court if the action was removed.” Musson Theatrical, Inc. v. Fed.
Exp. Corp., 89 F.3d 1244, 1254–55 (6th Cir. 1996).
However, in some circumstances, retaining jurisdiction is appropriate. See Harper v.
AutoAlliance Intern., Inc., 392 F.3d 195 (6th Cir. 2004). In Harper, the court retained supplemental
jurisdiction because: (1) it found evidence of forum manipulation; (2) discovery had been completed;

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and (3) there were pending motions for summary judgment. Id. at 211–12. None of those factors is
present here, and this Court is otherwise unpersuaded that exercising supplemental jurisdiction over
the remaining state law claims is the appropriate course of action.
Diversity Jurisdiction
Plaintiff contends that even if the RICO claims are dismissed, and supplemental jurisdiction
is denied, this Court still has diversity jurisdiction over its state law claims under Section 1332. Not
so. “Federal courts are courts of limited jurisdiction. They possess only that power authorized by
Constitution and statute, which is not to be expanded by judicial decree. It is to be presumed that a
cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the
party asserting jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377–78
(1994). Plaintiff must provide a short and plain statement of the grounds for this Court’s jurisdiction
under Federal Civil Rule 8, which requires the amount in controversy to exceed $75,000 and complete
diversity of citizenship.
Here, the amount in controversy requirement is met. However, this Court is unable to tell
whether complete diversity of citizenship exists. Plaintiff and SAT are both limited liability
companies (“LLCs”). Plaintiff incorrectly assumes a LLC, like a corporation, is a citizen of its states
of organization and principal place of business. Rather, the rule is that all unincorporated entities,
including LLCs, have the citizenship of each partner or member. Delay v. Rosenthal Collins Group,
LLC, 585 F.3d 1003, 1005 (6th Cir. 2009). In other words, this Court “needs to know the citizenship
of each member. And because a member of a limited liability company may itself have multiple
members -- and thus may itself have multiple citizenships -- the federal court needs to know the
citizenship of each ‘sub-member’ as well.” Id. Because Plaintiff has not alleged the citizenship of

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each LLC member for Plaintiff and Defendants, the Complaint fails to adequately establish diversity
jurisdiction.
Amended Complaint
Plaintiff also moves this Court for leave to file an Amended Complaint. Trial is set to begin
in a few weeks, and the deadline for amending pleadings was May 2, 2011 (Doc. No. 19 at 2), a date
set long ago. This Court will not grant Plaintiff’s Motion to Amend because it has not made the
appropriate showing of good cause and diligence under Federal Civil Rule 16(b)(4). See Leary v.
Daeschner, 349 F.3d 888, 907 (6th Cir. 2003) (holding plaintiffs must demonstrate good cause and
diligence to amend complaint after a scheduling deadline has passed). Furthermore, even if this Court
granted Plaintiff’s request, the proposed Amended Complaint would not cure the defects in the RICO
claim or diversity jurisdiction.
CONCLUSION
As noted at the hearing, Plaintiff’s claims are breach of contract and fraud. The alleged acts
and communications are pre- and post-contract negotiations -- not a pattern of racketeering. For the
foregoing reasons, Plaintiff’s Motion to Amend is denied and Defendants’ Motion to Dismiss is
granted. The Complaint is dismissed without prejudice.
IT IS SO ORDERED.
s/ Jack Zouhary
JACK ZOUHARY
U. S. DISTRICT JUDGE
February 29, 2012

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