Phillips Soil Products, Inc. v. Heintz et al
Filing
21
Opinion and Order. The Court GRANTS Defendants' Rule 12 Motions (# 15 ) against Plaintiff's RICO claim, DISMISSES Plaintiff's RICO claim, and GRANTS Plaintiff leave to file no later June 1, 2018, an amended complaint as to Plaintiff 039;s RICO claim solely to cure the deficiencies as set out in this Opinion and Order. Defendants' response to any amended complaint is due no later than June 15, 2018. The Court declines to address those parts of Defendants Motions against the state-law claims at this stage without prejudice to Defendants' right to renew such challenges after a basis for supplemental jurisdiction over suchclaims has been confirmed. IT IS SO ORDERED. Signed on 5/11/18 by Judge Anna J. Brown. (jy)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PHILLIPS SOIL PRODUCTS, INC.,
an Oregon corporation,
3:18-cv-00263-BR
Plaintiff,
OPINION AND ORDER
v.
LESLIE DUTY HEINTZ; JUSTIN
TYME HEINTZ; and TIER 1
EXCAVATING, LLC, an Oregon
Limited Liability Company,
Defendants.
WILLIAM A. KINSEL
Kinsel Law Offices, PLLC
2401 Fourth Ave., Suite 850
Seattle, WA, 98121
(206) 706-8148
Attorney for Plaintiff
PHILIP J. NELSON
KEITH A. PITT
Slinde Nelson
111 S.W. Fifth Ave., Suite 1940
Portland, OR 97204
(503) 417-777
Attorneys for Defendants
BROWN, Senior Judge.
This matter comes before the Court on the Rule 12 Motions
(#15) Against Plaintiff’s Complaint filed by Defendants Leslie
1 - OPINION AND ORDER
Duty Heintz, Justin Tyme Heintz, and Tier 1 Excavating, LLC.
For the reasons that follow, the Court GRANTS Defendants’
Rule 12 Motions (#15) against Plaintiff’s RICO claim, DISMISSES
Plaintiff’s RICO claim, and GRANTS Plaintiff leave to file no
later June 1, 2018, an amended complaint as to Plaintiff’s RICO
claim solely to cure the deficiencies as set out in this Opinion
and Order.
Defendants' response to the amended complaint is due
no later than June 15, 2018.
The Court declines to address those
parts of Defendants' Motions against the state-law claims at this
stage without prejudice to Defendants' right to renew such
challenges.
BACKGROUND
The following pertinent facts are taken from Plaintiff’s
Complaint:
Plaintiff Phillips Soil Products, Inc., is an Oregon
corporation that sells soil products throughout the western
United States.
Leslie Heintz was employed by Plaintiff from
September 24, 2012, through February 29, 2016, in Plaintiff’s
accounting department and was responsible for tracking accounts
receivable, cash receivables, and accounts payable; balancing
Plaintiff’s bank accounts; and making daily bank deposits.
Leslie Heintz is married to Justin Heintz.
Justin Heintz is
a principal of Tier 1 together with his father, Jeffrey Heintz.
Tier 1 is an excavating company with its principal place of
2 - OPINION AND ORDER
business in Oregon.
Leslie Heintz also provided part-time
administrative, billing, and bookkeeping services to Tier 1
during the time she was employed by Plaintiff.
Leslie and Justin
Heintz “reside on real property owned by” Jeffrey Heintz and pay
rent to Jeffrey Heintz.
Plaintiff alleges during the time it employed Leslie Heintz
she manipulated her timekeeping records to reflect overtime hours
not actually worked; charged Plaintiff for vacation and sickleave hours not earned; and paid herself for vacation, sick
leave, and hourly compensation not earned.
Plaintiff also
alleges Leslie Heintz misused a company credit card, misused
company property including a cell phone and computer, performed
work for Tier 1 during “company time,” and maintained records for
Tier 1 on her work computer.
Plaintiff alleges Leslie Heintz
took unauthorized “draws” by issuing checks to herself without
permission.
Plaintiff also alleges Leslie Heintz took cash
receipts obtained by Plaintiff from its customers, purchased
money orders with the receipts from Western Union, and sent the
money orders by United Parcel Service to a personal bank account
in another state held jointly with her husband.
Plaintiff
alleges these stolen funds were used to pay Leslie and Justin
Heintz’s personal expenses, including payment of rent to Jeffrey
Heintz.
Plaintiff also alleges the funds were used to pay
expenses for Tier 1 and to fund its business activities.
In
addition, Plaintiff alleges Leslie Heintz engaged in a
“widespread and complicated pattern of repeated re-allocations of
3 - OPINION AND ORDER
the general ledger account to which expenses and income were
allocated” for the purpose of concealing her thefts and “to
affirmatively misrepresent” Plaintiff’s financial condition.
On February 29, 2016, Plaintiff terminated Leslie Heintz's
employment.
On February 9, 2018, Plaintiff filed a Complaint in this
Court against Defendants alleging a federal claim for violation
of the Racketeer Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1962(a)-(d), and state-law claims of civil
conspiracy, fraud, conversion, breach of fiduciary duty, and for
an accounting.
STANDARDS
To survive a motion to dismiss a complaint must contain
sufficient factual matter, accepted as true, to “state a claim
for relief that is plausible on its face.”
Twombly, 550 U.S. 544, 545 (2007).
Bell Atlantic v.
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.
Id. at 556.
“The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.”
Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)(quoting Twombly, 550 U.S. at 546).
When a
complaint is based on facts that are “merely consistent with” a
4 - OPINION AND ORDER
defendant's liability, it “stops short of the line between
possibility and plausibility of entitlement to relief.”
556 U.S. at 678 (citing Twombly, 550 U.S. at 557).
Iqbal,
See also Bell
Atlantic, 550 U.S. at 555-56. The court must accept as true the
allegations in the complaint and construe them in favor of the
plaintiff.
Din v. Kerry, 718 F.3d 856, 859 (9th Cir. 2013).
The pleading standard under Federal Rule of Civil Procedure
8 “does not require ‘detailed factual allegations,’ but it
demands more than an unadorned, the-defendant-unlawfully-harmedme accusation.”
U.S. at 555).
Iqbal, 556 U.S. at 678 (quoting Twombly, 550
See also Federal Rule of Civil Procedure 8(a)(2).
“A pleading that offers ‘labels and conclusions’ or ‘a formulaic
recitation of the elements of a cause of action will not do.’”
Id. (citing Twombly, 550 U.S. at 555).
A complaint also does not
suffice if it tenders “naked assertion[s]” devoid of “further
factual enhancement.”
Id. at 557.
“In ruling on a 12(b)(6) motion, a court may generally
consider only allegations contained in the pleadings, exhibits
attached to the complaint, and matters properly subject to
judicial notice."
Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th
Cir. 2007)(citing Jacobson v. Schwarzenegger, 357 F. Supp. 2d
1198, 1204 (C.D. Cal. 2004)).
A court, however, "may consider a
writing referenced in a complaint but not explicitly incorporated
therein if the complaint relies on the document and its
5 - OPINION AND ORDER
authenticity is unquestioned."
Id. (quoting Parrino v. FHP,
Inc., 146 F.3d 699,706 (9th Cir. 1998), superseded by statute on
other grounds as stated in Abrego v. Dow Chem. Co., 443 F.3d 676
(9th Cir. 2006)).
DISCUSSION
I.
Federal RICO Claim
Defendants contend Plaintiff fails to state a plausible
federal claim under RICO.
A.
Standards
18 U.S.C. § 1962 provides:
(a) It shall be unlawful for any person who has
received any income derived, directly or
indirectly, from a pattern of racketeering
activity or through collection of an unlawful debt
in which such person has participated as a
principal . . . to use or invest, directly or
indirectly, any part of such income, or the
proceeds of such income, in acquisition of any
interest in, or the establishment or operation of,
any enterprise which is engaged in, or the
activities of which affect, interstate or foreign
commerce.
(b) It shall be unlawful for any person through a
pattern of racketeering activity or through
collection of an unlawful debt to acquire or
maintain, directly or indirectly, any interest in
or control of any enterprise which is engaged in,
or the activities of which affect, interstate or
foreign commerce.
©) It shall be 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,
6 - OPINION AND ORDER
directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of
racketeering activity or collection of unlawful
debt.
(d) It shall be unlawful for any person to
conspire to violate any of the provisions of
subsection (a), (b), or ©) of this section.
The four subsections of 18 U.S.C. § 1962 proscribe
certain conduct with respect to racketeering activity.
A plaintiff must plead four elements to state a RICO
violation:
(1) the conduct (2) of an enterprise (3) through a
pattern (4) of racketeering activity.
18 U.S.C. § 1962©).
See
also Eclectic Prop. East, LLC v. Marcus & Millichap Co., 751 F.3d
990, 997 (9th Cir. 2014)(quoting Sedima S.P.R.L. v. Imrex Corp.,
473 U.S. 479, 496-97 (1985)).
“Enterprise” includes “any
individual, partnership, corporation, association, or other
legal entity, and any union or group of individuals associated
in fact although not a legal entity.”
18 U.S.C. § 1961(4).
“Racketeering activity” is defined in 18 U.S.C. § 1961(1)(B) as
including any act “indictable” under certain enumerated federal
criminal statutes.
“Pattern of racketeering activity” requires
“at least two acts of racketeering activity.”
18 U.S.C.
§ 1961(5).
B.
Analysis
Defendants contend Plaintiff fails to state a plausible
claim under any of the RICO provisions.
1.
Section 1962(a)
7 - OPINION AND ORDER
Section 1962(a) makes it “unlawful for any person
who has received any income derived . . . from a pattern of
racketeering activity . . . to use or invest . . . any part of
such income, or the proceeds of such income, in acquisition of
any interest in, or the establishment or operation of” an
enterprise.
To state a claim under § 1962(a) a plaintiff must
allege facts that establish the following:
(1) a person received
income derived directly or indirectly from a pattern of
racketeering activity or unlawful debt; (2) that person used or
invested, directly or indirectly, any part or proceeds of
such income in the acquisition of any interest in or the
establishment or operation of any enterprise; and (3) the
enterprise engaged in or its activities affect interstate or
foreign commerce.
See Anza v. Ideal Steel Supply Corp., 547 U.S.
451, 455 (2006).
A plaintiff who seeks civil damages for a
violation of § 1962(a) must allege facts “tending to show that he
or she was injured by the use or investment of racketeering
income” and “that the investment of the racketeering income was
the proximate cause” of the plaintiff’s injury.
Sybersound
Records, Inc. v. UAV Corp., 517 F.3d 1137, 1149 (9th Cir. 2008.)
“Reinvestment of proceeds from alleged racketeering activity back
into the enterprise to continue its racketeering activity is
insufficient.”
Id.
Defendants contend Plaintiff has not alleged any
8 - OPINION AND ORDER
plausible injury or damages pursuant to § 1962(c) arising from
the investment or racketeering income that was the proximate
cause of Plaintiff’s injury and beyond any alleged injury
purportedly flowing from the underlying predicate acts
themselves.
In addition to damages directly resulting from
the predicate acts, Plaintiff contends it sustained injury
proximately caused by Defendants’ “misappropriation of Leslie
Heintz’s labor and of [Plaintiff’s] other corporate resources
for the establishment and ongoing operation of Tier 1,” and
these damages were proximately caused by Leslie Heintz’s
misappropriation of funds and resulted in injury to Plaintiff
sufficient to satisfy the requirements of § 1962(a).
Defendant cites to Sybersound to support their
position that Plaintiff has not stated a plausible RICO claim.
In Sybersound the plaintiff, a karaoke record producer, brought
RICO and copyright-infringement claims against its competitors.
Sybersound alleged in its RICO claim that the defendants engaged
in certain predicate acts that resulted in the defendants’ higher
profits from the sale of their records the defendants then used
to unfairly reduce prices to undercut Sybersound’s sales.
The
court concluded Sybersound’s injury stemmed from the alleged
copyright infringement that allegedly allowed the defendants to
undercut Sybersound’s prices rather than the income from the sale
of the pirated records.
517 F.3d 1137, 1149 (9th Cir. 2008).
Accordingly, the court found Sybersound failed to allege a claim
9 - OPINION AND ORDER
pursuant to § 1962(a)
Here Plaintiff alleges Leslie Heintz engaged in
acts of fraud to obtain $71,995.03 from Plaintiff; committed the
predicate acts of mail fraud, wire fraud, and money laundering;
and used the misappropriated funds to pay rent and to fund the
operation of Tier 1.
Plaintiff also alleges Leslie Heintz
performed work for Tier 1 during her regular work hours as
Plaintiff’s employee, and the cost of Leslie Heintz’s
“misappropriated labors” and unauthorized use of company
resources resulted in damages that Plaintiff estimates to be
approximately $23,258.15.
The record reflects, however, that Plaintiff’s
alleged injuries flow directly from Leslie Heintz’s fraudulent
conduct, breach of fiduciary duty, and/or conversion of
Plaintiff’s property rather than from either the predicate acts
or the use or investment of “racketeering income.”
On this record the Court concludes Plaintiff fails
to allege a plausible claim under § 1962(a).
2.
Section 1962(b)
Section 1962(b) provides it is unlawful “to
acquire or maintain . . . any interest in or control of” an
enterprise “through a pattern of racketeering activity.”
To state a claim under § 1962(b), a plaintiff must
allege (1) the defendant's activity led to its control or
acquisition over a RICO enterprise and (2) an injury to the
plaintiff resulted from the defendant's control or acquisition of
10 - OPINION AND ORDER
a RICO enterprise.
Wagh v. Metris Direct, Inc., 363 F.3d 821,
830 (9th Cir. 2003), overruled on other grounds, Odom v.
Microsoft Corp., 486 F.3d 541, 551 (9th Cir. 2007).
“To adequately allege proximate causation under
§ 1962(b), a plaintiff must allege an injury from the defendant’s
acquisition or control of an interest in a RICO enterprise
separate from an injury flowing from the racketeering activity
itself.”
MH Pillars Ltd. v. Realini, No. 15-cv-01383, 2018 WL
1184847, at *8 (N.D. Cal. 2018).
Defendants contend Plaintiff has not alleged any
injury proximately caused by Defendants’ conduct pursuant to
§ 1962(b).
Plaintiff, in turn, contends it may be considered
an enterprise for purposes of § 1962(b), and Leslie Heintz
“infiltrated” Plaintiff causing “a separate and distinct
disruption to the company itself.”
Plaintiff relies on Lightning
Lube, Inc. v. Witco Corp., a Third Circuit case, to support its
position.
In Lightning Lube the plaintiff-franchisor brought
an action against a motor-oil supplier and alleged, among other
claims, a violation of RICO.
The Third Circuit affirmed the
supplier’s motion for judgment as a matter of law and noted the
injury necessary to recover under § 1962(b) may be shown when
“the owner of an enterprise infiltrated by the defendant as a
result of racketeering activities is injured by the defendant’s
acquisition or control of his enterprise.”
11 - OPINION AND ORDER
4 F.3d 1153, 1190 (3d
Cir. 1993)(emphasis added).
Here although Leslie Heintz’s conduct may have
caused injury to Plaintiff, it has not alleged Leslie Heintz’s
actions led to the “control” or acquisition of Plaintiff by
Leslie Heintz or Defendants.
As noted, the injuries caused by
Leslie Heintz allegedly resulted from her fraudulent conduct,
breach of fiduciary duty, and/or conversion of Plaintiff’s
property rather than from her control of the company.
On this record the Court concludes Plaintiff has
not alleged any injury other than the alleged economic loss
flowing from the racketeering activity and, accordingly, fails to
state a plausible claim under § 1962(b).
3.
Section 1962(c)
Section 1962(c) provides it is “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.”
As noted, to state a claim under § 1962(c) a
plaintiff must allege (1) conduct (2) of an enterprise (3)
through a pattern (4) of racketeering activity.
Microsoft, 486 F.3d 541, 547 (9th Cir. 2007).
Odom v.
In addition, a
plaintiff must establish there is an enterprise "separate and
apart from" the pattern of racketeering.
Id. at 549-50.
An
enterprise includes any "individual, partnership, corporation,
12 - OPINION AND ORDER
association, or other legal entity, and any union or group of
individuals associated in fact although not a legal entity."
U.S.C. § 1961(4).
enterprise.
18
A conspiracy, however, is not a RICO
Rotec Indus., Inc. v. Mitsubishi Corp., 163 F. Supp.
2d 1268, 1279 (D. Or. 2001), aff'd, 348 F.3d 1116 (9th Cir.
2003).
To show the existence of an enterprise under RICO,
a plaintiff must plead the enterprise has (A) a common purpose,
(B) structure or organization, and (C) longevity necessary to
accomplish the purpose.
946 (2009).
Boyle v. United States, 556 U.S. 938,
To establish the existence of an associated-in-fact
enterprise a plaintiff must produce both "evidence of an ongoing
organization, formal or informal" and "evidence that the various
associates function as a continuing unit."
552.
Odom, 486 F.3d at
In other words, a group cannot be an enterprise unless it
exists independently from the racketeering activity in which it
engages.
The enterprise must have a structure for making
decisions and mechanisms for controlling and directing the
affairs of the group on an on-going basis rather than an ad hoc
basis.
Defendants contend Plaintiff has not alleged
sufficient facts to establish Defendants existed as an
“enterprise” that “collectively “functioned as a continuing
unit,” possessed any “structure for making decisions on an on-
13 - OPINION AND ORDER
going basis,” or existed “independently from the alleged
racketeering activity itself.”
Plaintiff, however, contends Defendants
participated in a pattern of racketeering activity that was aimed
at controlling and using Plaintiff (“the victim enterprise”) for
their benefit, and Defendants’ actions were the proximate cause
of harm to Plaintiff.
Here Plaintiff alleges Leslie Heintz stole money
that she then used to purchase money orders, and she mailed those
money orders to a personal bank account that was located in
another state and that she jointly owned with her husband.
Plaintiff alleges the funds were used by Leslie and Justin Heintz
to pay for personal expenses as well as business expenses of
Tier 1.
Plaintiff also
alleges Justin Heintz was a “member” of
Tier 1.
Plaintiff, however, does not allege facts that show
Defendants functioned as a unit or had a structure for making
decisions.
For example, the allegation that Leslie and Justin
Heintz talked about the need for more money for a vacation or
expenses does not show a continuing unit or structure for making
decisions and does not constitute an enterprise "separate and
apart from" the pattern of racketeering.
On this record the Court concludes Plaintiff has
not alleged the existence of an “enterprise” that engaged in a
pattern of racketeering activity separate and apart from the
racketeering activity, and, accordingly, Plaintiff fails to state
a plausible claim under § 1962©).
14 - OPINION AND ORDER
4.
Section 1962(d)
Section 1962(d) provides it is unlawful “to
conspire to violate any of the provisions of subsection (a), (b),
or ©).”
To establish a conspiracy under § 1962(d)
Plaintiff must allege either an agreement by Defendants that is a
substantive violation of RICO or that the defendants agreed to
commit or to participate in two predicate offenses that are
violations of RICO.
18 U.S.C. § 1962(d).
A conspiracy claim
cannot survive if the substantive claim does not state an action
on which relief could be granted.
Howard v. Am. Online, Inc.,
208 F.3d 741, 751 (9th Cir. 2000).
Here the Court has concluded Plaintiff failed to
allege substantive claims pursuant to § 1962(a), (b), or ©)
because Plaintiff has not alleged facts that establish Defendants
either expressly or impliedly agreed to engage in conduct that
violated RICO.
Accordingly, the Court concludes Plaintiff fails
to state a conspiracy claim under § 1962(d).
In summary, on this record the Court concludes Plaintiff has
failed to allege facts sufficient to support any plausible RICO
claim, and, accordingly, the Court DISMISSES Plaintiff’s RICO
claim.
II.
Leave to Amend
In its Response Plaintiff requested the Court to allow
Plaintiff to file an amended complaint if the Court dismissed
Plaintiff's federal RICO claim.
15 - OPINION AND ORDER
Federal Rule of Civil Procedure 15(a) provides a party may
amend a pleading after a responsive pleading has been filed only
by leave of court unless the opposing party consents to the
amendment.
Rule 15(a), however, also provides leave to amend
"shall be freely given when justice so requires."
to be applied with "extreme liberality."
This policy is
Moss v. United States
Secret Svc., 572 F.3d 962, 972 (9th Cir. 2009).
The Ninth
Circuit has held “‘[l]eave to amend should be granted unless the
pleading could not possibly be cured by the allegation of other
facts.’”
Johnson v. Lucent Tech., Inc., 653 F.3d 1000, 1011 (9th
Cir. 2011)(quoting McQuillion v. Schwarzenegger, 369 F.3d 1091,
1099 (9th Cir. 2004)).
When a “viable case may be pled, [the
court] should freely grant leave to amend.”
Cafasso v. Gen.
Dynamics C4 Sys., 637 F.3d 1047, 1058 (9th Cir. 2011).
Fed. R. Civ. P. 15(a).
See also
The Ninth Circuit has also made clear,
however, that it is within the Court’s “‘discretion to deny leave
to amend when amendment would be futile’” (Godwin v.
Christianson, 594 F. App’x 427, 428 (9th Cir. 2015)(quoting
Chappel v. Lab. Corp. of Am., 232 F.3d 719, 725 (9th Cir.
2000))); when amendment would cause undue prejudice or undue
delay; or when the amendment is requested in bad faith by the
movant (Cafasso, 637 F.3d at 1058 (citing Ascon Props., Inc. v.
Mobil Oil Co., 866 F.2d 183, 186 (9th Cir. 1989)).
Accordingly, in the exercise of its discretion, the Court
16 - OPINION AND ORDER
concludes Plaintiff should be allowed to file an amended
complaint to allege, if possible, facts sufficient to state a
plausible RICO claim.
The Court DIRECTS Plaintiff to file such
Amended Complaint no later than June 1, 2018.
III. State-Law Claims
Defendants also contend the Court should dismiss Plaintiff’s
state-law claims on the ground that they fail to state a claim.
In addition, Defendants contend in the event the Court dismisses
Plaintiff’s federal claim, the Court should decline to exercise
supplemental jurisdiction over Plaintiff’s state-law claims.
Inasmuch as the Court is dismissing Plaintiff’s federal
claim with leave to replead, the Court need not address
Defendants’ challenges to Plaintiff’s state-law claims until such
time as the Court determines the federal claim will proceed and
provide a basis for supplemental jurisdiction over the state-law
claims.
Thus, the Court declines to address Defendants’ Motions
against the state-law claims at this stage without prejudice to
Defendants’ right to renew such challenges in the future.
CONCLUSION
For these reasons the Court GRANTS Defendants’ Rule 12
Motions (#15) against Plaintiff’s RICO claim, DISMISSES
Plaintiff’s RICO claim, and GRANTS Plaintiff leave to file no
later June 1, 2018, an amended complaint as to Plaintiff’s RICO
17 - OPINION AND ORDER
claim solely to cure the deficiencies as set out in this Opinion
and Order.
Defendants’ response to any amended complaint is due
no later than June 15, 2018.
The Court declines to address those
parts of Defendants’ Motions against the state-law claims at this
stage without prejudice to Defendants’ right to renew such
challenges after a basis for supplemental jurisdiction over such
claims has been confirmed.
IT IS SO ORDERED.
DATED this 11th day of May, 2018.
/s/ Anna J. Brown
ANNA J. BROWN
United States Senior District Judge
18 - OPINION AND ORDER
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PHILLIPS SOIL PRODUCTS, INC.,
an Oregon corporation,
3:18-cv-00263-BR
Plaintiff,
OPINION AND ORDER
v.
LESLIE DUTY HEINTZ; JUSTIN
TYME HEINTZ; and TIER 1
EXCAVATING, LLC, an Oregon
Limited Liability Company,
Defendants.
WILLIAM A. KINSEL
Kinsel Law Offices, PLLC
2401 Fourth Ave., Suite 850
Seattle, WA, 98121
(206) 706-8148
Attorney for Plaintiff
PHILIP J. NELSON
KEITH A. PITT
Slinde Nelson
111 S.W. Fifth Ave., Suite 1940
Portland, OR 97204
(503) 417-777
Attorneys for Defendants
BROWN, Senior Judge.
This matter comes before the Court on the Rule 12 Motions
(#15) Against Plaintiff’s Complaint filed by Defendants Leslie
1 - OPINION AND ORDER
Duty Heintz, Justin Tyme Heintz, and Tier 1 Excavating, LLC.
For the reasons that follow, the Court GRANTS Defendants’
Rule 12 Motions (#15) against Plaintiff’s RICO claim, DISMISSES
Plaintiff’s RICO claim, and GRANTS Plaintiff leave to file no
later June 1, 2018, an amended complaint as to Plaintiff’s RICO
claim solely to cure the deficiencies as set out in this Opinion
and Order.
Defendants' response to the amended complaint is due
no later than June 15, 2018.
The Court declines to address those
parts of Defendants' Motions against the state-law claims at this
stage without prejudice to Defendants' right to renew such
challenges.
BACKGROUND
The following pertinent facts are taken from Plaintiff’s
Complaint:
Plaintiff Phillips Soil Products, Inc., is an Oregon
corporation that sells soil products throughout the western
United States.
Leslie Heintz was employed by Plaintiff from
September 24, 2012, through February 29, 2016, in Plaintiff’s
accounting department and was responsible for tracking accounts
receivable, cash receivables, and accounts payable; balancing
Plaintiff’s bank accounts; and making daily bank deposits.
Leslie Heintz is married to Justin Heintz.
Justin Heintz is
a principal of Tier 1 together with his father, Jeffrey Heintz.
Tier 1 is an excavating company with its principal place of
2 - OPINION AND ORDER
business in Oregon.
Leslie Heintz also provided part-time
administrative, billing, and bookkeeping services to Tier 1
during the time she was employed by Plaintiff.
Leslie and Justin
Heintz “reside on real property owned by” Jeffrey Heintz and pay
rent to Jeffrey Heintz.
Plaintiff alleges during the time it employed Leslie Heintz
she manipulated her timekeeping records to reflect overtime hours
not actually worked; charged Plaintiff for vacation and sickleave hours not earned; and paid herself for vacation, sick
leave, and hourly compensation not earned.
Plaintiff also
alleges Leslie Heintz misused a company credit card, misused
company property including a cell phone and computer, performed
work for Tier 1 during “company time,” and maintained records for
Tier 1 on her work computer.
Plaintiff alleges Leslie Heintz
took unauthorized “draws” by issuing checks to herself without
permission.
Plaintiff also alleges Leslie Heintz took cash
receipts obtained by Plaintiff from its customers, purchased
money orders with the receipts from Western Union, and sent the
money orders by United Parcel Service to a personal bank account
in another state held jointly with her husband.
Plaintiff
alleges these stolen funds were used to pay Leslie and Justin
Heintz’s personal expenses, including payment of rent to Jeffrey
Heintz.
Plaintiff also alleges the funds were used to pay
expenses for Tier 1 and to fund its business activities.
In
addition, Plaintiff alleges Leslie Heintz engaged in a
“widespread and complicated pattern of repeated re-allocations of
3 - OPINION AND ORDER
the general ledger account to which expenses and income were
allocated” for the purpose of concealing her thefts and “to
affirmatively misrepresent” Plaintiff’s financial condition.
On February 29, 2016, Plaintiff terminated Leslie Heintz's
employment.
On February 9, 2018, Plaintiff filed a Complaint in this
Court against Defendants alleging a federal claim for violation
of the Racketeer Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1962(a)-(d), and state-law claims of civil
conspiracy, fraud, conversion, breach of fiduciary duty, and for
an accounting.
STANDARDS
To survive a motion to dismiss a complaint must contain
sufficient factual matter, accepted as true, to “state a claim
for relief that is plausible on its face.”
Twombly, 550 U.S. 544, 545 (2007).
Bell Atlantic v.
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.
Id. at 556.
“The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.”
Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)(quoting Twombly, 550 U.S. at 546).
When a
complaint is based on facts that are “merely consistent with” a
4 - OPINION AND ORDER
defendant's liability, it “stops short of the line between
possibility and plausibility of entitlement to relief.”
556 U.S. at 678 (citing Twombly, 550 U.S. at 557).
Iqbal,
See also Bell
Atlantic, 550 U.S. at 555-56. The court must accept as true the
allegations in the complaint and construe them in favor of the
plaintiff.
Din v. Kerry, 718 F.3d 856, 859 (9th Cir. 2013).
The pleading standard under Federal Rule of Civil Procedure
8 “does not require ‘detailed factual allegations,’ but it
demands more than an unadorned, the-defendant-unlawfully-harmedme accusation.”
U.S. at 555).
Iqbal, 556 U.S. at 678 (quoting Twombly, 550
See also Federal Rule of Civil Procedure 8(a)(2).
“A pleading that offers ‘labels and conclusions’ or ‘a formulaic
recitation of the elements of a cause of action will not do.’”
Id. (citing Twombly, 550 U.S. at 555).
A complaint also does not
suffice if it tenders “naked assertion[s]” devoid of “further
factual enhancement.”
Id. at 557.
“In ruling on a 12(b)(6) motion, a court may generally
consider only allegations contained in the pleadings, exhibits
attached to the complaint, and matters properly subject to
judicial notice."
Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th
Cir. 2007)(citing Jacobson v. Schwarzenegger, 357 F. Supp. 2d
1198, 1204 (C.D. Cal. 2004)).
A court, however, "may consider a
writing referenced in a complaint but not explicitly incorporated
therein if the complaint relies on the document and its
5 - OPINION AND ORDER
authenticity is unquestioned."
Id. (quoting Parrino v. FHP,
Inc., 146 F.3d 699,706 (9th Cir. 1998), superseded by statute on
other grounds as stated in Abrego v. Dow Chem. Co., 443 F.3d 676
(9th Cir. 2006)).
DISCUSSION
I.
Federal RICO Claim
Defendants contend Plaintiff fails to state a plausible
federal claim under RICO.
A.
Standards
18 U.S.C. § 1962 provides:
(a) It shall be unlawful for any person who has
received any income derived, directly or
indirectly, from a pattern of racketeering
activity or through collection of an unlawful debt
in which such person has participated as a
principal . . . to use or invest, directly or
indirectly, any part of such income, or the
proceeds of such income, in acquisition of any
interest in, or the establishment or operation of,
any enterprise which is engaged in, or the
activities of which affect, interstate or foreign
commerce.
(b) It shall be unlawful for any person through a
pattern of racketeering activity or through
collection of an unlawful debt to acquire or
maintain, directly or indirectly, any interest in
or control of any enterprise which is engaged in,
or the activities of which affect, interstate or
foreign commerce.
©) It shall be 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,
6 - OPINION AND ORDER
directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of
racketeering activity or collection of unlawful
debt.
(d) It shall be unlawful for any person to
conspire to violate any of the provisions of
subsection (a), (b), or ©) of this section.
The four subsections of 18 U.S.C. § 1962 proscribe
certain conduct with respect to racketeering activity.
A plaintiff must plead four elements to state a RICO
violation:
(1) the conduct (2) of an enterprise (3) through a
pattern (4) of racketeering activity.
18 U.S.C. § 1962©).
See
also Eclectic Prop. East, LLC v. Marcus & Millichap Co., 751 F.3d
990, 997 (9th Cir. 2014)(quoting Sedima S.P.R.L. v. Imrex Corp.,
473 U.S. 479, 496-97 (1985)).
“Enterprise” includes “any
individual, partnership, corporation, association, or other
legal entity, and any union or group of individuals associated
in fact although not a legal entity.”
18 U.S.C. § 1961(4).
“Racketeering activity” is defined in 18 U.S.C. § 1961(1)(B) as
including any act “indictable” under certain enumerated federal
criminal statutes.
“Pattern of racketeering activity” requires
“at least two acts of racketeering activity.”
18 U.S.C.
§ 1961(5).
B.
Analysis
Defendants contend Plaintiff fails to state a plausible
claim under any of the RICO provisions.
1.
Section 1962(a)
7 - OPINION AND ORDER
Section 1962(a) makes it “unlawful for any person
who has received any income derived . . . from a pattern of
racketeering activity . . . to use or invest . . . any part of
such income, or the proceeds of such income, in acquisition of
any interest in, or the establishment or operation of” an
enterprise.
To state a claim under § 1962(a) a plaintiff must
allege facts that establish the following:
(1) a person received
income derived directly or indirectly from a pattern of
racketeering activity or unlawful debt; (2) that person used or
invested, directly or indirectly, any part or proceeds of
such income in the acquisition of any interest in or the
establishment or operation of any enterprise; and (3) the
enterprise engaged in or its activities affect interstate or
foreign commerce.
See Anza v. Ideal Steel Supply Corp., 547 U.S.
451, 455 (2006).
A plaintiff who seeks civil damages for a
violation of § 1962(a) must allege facts “tending to show that he
or she was injured by the use or investment of racketeering
income” and “that the investment of the racketeering income was
the proximate cause” of the plaintiff’s injury.
Sybersound
Records, Inc. v. UAV Corp., 517 F.3d 1137, 1149 (9th Cir. 2008.)
“Reinvestment of proceeds from alleged racketeering activity back
into the enterprise to continue its racketeering activity is
insufficient.”
Id.
Defendants contend Plaintiff has not alleged any
8 - OPINION AND ORDER
plausible injury or damages pursuant to § 1962(c) arising from
the investment or racketeering income that was the proximate
cause of Plaintiff’s injury and beyond any alleged injury
purportedly flowing from the underlying predicate acts
themselves.
In addition to damages directly resulting from
the predicate acts, Plaintiff contends it sustained injury
proximately caused by Defendants’ “misappropriation of Leslie
Heintz’s labor and of [Plaintiff’s] other corporate resources
for the establishment and ongoing operation of Tier 1,” and
these damages were proximately caused by Leslie Heintz’s
misappropriation of funds and resulted in injury to Plaintiff
sufficient to satisfy the requirements of § 1962(a).
Defendant cites to Sybersound to support their
position that Plaintiff has not stated a plausible RICO claim.
In Sybersound the plaintiff, a karaoke record producer, brought
RICO and copyright-infringement claims against its competitors.
Sybersound alleged in its RICO claim that the defendants engaged
in certain predicate acts that resulted in the defendants’ higher
profits from the sale of their records the defendants then used
to unfairly reduce prices to undercut Sybersound’s sales.
The
court concluded Sybersound’s injury stemmed from the alleged
copyright infringement that allegedly allowed the defendants to
undercut Sybersound’s prices rather than the income from the sale
of the pirated records.
517 F.3d 1137, 1149 (9th Cir. 2008).
Accordingly, the court found Sybersound failed to allege a claim
9 - OPINION AND ORDER
pursuant to § 1962(a)
Here Plaintiff alleges Leslie Heintz engaged in
acts of fraud to obtain $71,995.03 from Plaintiff; committed the
predicate acts of mail fraud, wire fraud, and money laundering;
and used the misappropriated funds to pay rent and to fund the
operation of Tier 1.
Plaintiff also alleges Leslie Heintz
performed work for Tier 1 during her regular work hours as
Plaintiff’s employee, and the cost of Leslie Heintz’s
“misappropriated labors” and unauthorized use of company
resources resulted in damages that Plaintiff estimates to be
approximately $23,258.15.
The record reflects, however, that Plaintiff’s
alleged injuries flow directly from Leslie Heintz’s fraudulent
conduct, breach of fiduciary duty, and/or conversion of
Plaintiff’s property rather than from either the predicate acts
or the use or investment of “racketeering income.”
On this record the Court concludes Plaintiff fails
to allege a plausible claim under § 1962(a).
2.
Section 1962(b)
Section 1962(b) provides it is unlawful “to
acquire or maintain . . . any interest in or control of” an
enterprise “through a pattern of racketeering activity.”
To state a claim under § 1962(b), a plaintiff must
allege (1) the defendant's activity led to its control or
acquisition over a RICO enterprise and (2) an injury to the
plaintiff resulted from the defendant's control or acquisition of
10 - OPINION AND ORDER
a RICO enterprise.
Wagh v. Metris Direct, Inc., 363 F.3d 821,
830 (9th Cir. 2003), overruled on other grounds, Odom v.
Microsoft Corp., 486 F.3d 541, 551 (9th Cir. 2007).
“To adequately allege proximate causation under
§ 1962(b), a plaintiff must allege an injury from the defendant’s
acquisition or control of an interest in a RICO enterprise
separate from an injury flowing from the racketeering activity
itself.”
MH Pillars Ltd. v. Realini, No. 15-cv-01383, 2018 WL
1184847, at *8 (N.D. Cal. 2018).
Defendants contend Plaintiff has not alleged any
injury proximately caused by Defendants’ conduct pursuant to
§ 1962(b).
Plaintiff, in turn, contends it may be considered
an enterprise for purposes of § 1962(b), and Leslie Heintz
“infiltrated” Plaintiff causing “a separate and distinct
disruption to the company itself.”
Plaintiff relies on Lightning
Lube, Inc. v. Witco Corp., a Third Circuit case, to support its
position.
In Lightning Lube the plaintiff-franchisor brought
an action against a motor-oil supplier and alleged, among other
claims, a violation of RICO.
The Third Circuit affirmed the
supplier’s motion for judgment as a matter of law and noted the
injury necessary to recover under § 1962(b) may be shown when
“the owner of an enterprise infiltrated by the defendant as a
result of racketeering activities is injured by the defendant’s
acquisition or control of his enterprise.”
11 - OPINION AND ORDER
4 F.3d 1153, 1190 (3d
Cir. 1993)(emphasis added).
Here although Leslie Heintz’s conduct may have
caused injury to Plaintiff, it has not alleged Leslie Heintz’s
actions led to the “control” or acquisition of Plaintiff by
Leslie Heintz or Defendants.
As noted, the injuries caused by
Leslie Heintz allegedly resulted from her fraudulent conduct,
breach of fiduciary duty, and/or conversion of Plaintiff’s
property rather than from her control of the company.
On this record the Court concludes Plaintiff has
not alleged any injury other than the alleged economic loss
flowing from the racketeering activity and, accordingly, fails to
state a plausible claim under § 1962(b).
3.
Section 1962(c)
Section 1962(c) provides it is “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.”
As noted, to state a claim under § 1962(c) a
plaintiff must allege (1) conduct (2) of an enterprise (3)
through a pattern (4) of racketeering activity.
Microsoft, 486 F.3d 541, 547 (9th Cir. 2007).
Odom v.
In addition, a
plaintiff must establish there is an enterprise "separate and
apart from" the pattern of racketeering.
Id. at 549-50.
An
enterprise includes any "individual, partnership, corporation,
12 - OPINION AND ORDER
association, or other legal entity, and any union or group of
individuals associated in fact although not a legal entity."
U.S.C. § 1961(4).
enterprise.
18
A conspiracy, however, is not a RICO
Rotec Indus., Inc. v. Mitsubishi Corp., 163 F. Supp.
2d 1268, 1279 (D. Or. 2001), aff'd, 348 F.3d 1116 (9th Cir.
2003).
To show the existence of an enterprise under RICO,
a plaintiff must plead the enterprise has (A) a common purpose,
(B) structure or organization, and (C) longevity necessary to
accomplish the purpose.
946 (2009).
Boyle v. United States, 556 U.S. 938,
To establish the existence of an associated-in-fact
enterprise a plaintiff must produce both "evidence of an ongoing
organization, formal or informal" and "evidence that the various
associates function as a continuing unit."
552.
Odom, 486 F.3d at
In other words, a group cannot be an enterprise unless it
exists independently from the racketeering activity in which it
engages.
The enterprise must have a structure for making
decisions and mechanisms for controlling and directing the
affairs of the group on an on-going basis rather than an ad hoc
basis.
Defendants contend Plaintiff has not alleged
sufficient facts to establish Defendants existed as an
“enterprise” that “collectively “functioned as a continuing
unit,” possessed any “structure for making decisions on an on-
13 - OPINION AND ORDER
going basis,” or existed “independently from the alleged
racketeering activity itself.”
Plaintiff, however, contends Defendants
participated in a pattern of racketeering activity that was aimed
at controlling and using Plaintiff (“the victim enterprise”) for
their benefit, and Defendants’ actions were the proximate cause
of harm to Plaintiff.
Here Plaintiff alleges Leslie Heintz stole money
that she then used to purchase money orders, and she mailed those
money orders to a personal bank account that was located in
another state and that she jointly owned with her husband.
Plaintiff alleges the funds were used by Leslie and Justin Heintz
to pay for personal expenses as well as business expenses of
Tier 1.
Plaintiff also
alleges Justin Heintz was a “member” of
Tier 1.
Plaintiff, however, does not allege facts that show
Defendants functioned as a unit or had a structure for making
decisions.
For example, the allegation that Leslie and Justin
Heintz talked about the need for more money for a vacation or
expenses does not show a continuing unit or structure for making
decisions and does not constitute an enterprise "separate and
apart from" the pattern of racketeering.
On this record the Court concludes Plaintiff has
not alleged the existence of an “enterprise” that engaged in a
pattern of racketeering activity separate and apart from the
racketeering activity, and, accordingly, Plaintiff fails to state
a plausible claim under § 1962©).
14 - OPINION AND ORDER
4.
Section 1962(d)
Section 1962(d) provides it is unlawful “to
conspire to violate any of the provisions of subsection (a), (b),
or ©).”
To establish a conspiracy under § 1962(d)
Plaintiff must allege either an agreement by Defendants that is a
substantive violation of RICO or that the defendants agreed to
commit or to participate in two predicate offenses that are
violations of RICO.
18 U.S.C. § 1962(d).
A conspiracy claim
cannot survive if the substantive claim does not state an action
on which relief could be granted.
Howard v. Am. Online, Inc.,
208 F.3d 741, 751 (9th Cir. 2000).
Here the Court has concluded Plaintiff failed to
allege substantive claims pursuant to § 1962(a), (b), or ©)
because Plaintiff has not alleged facts that establish Defendants
either expressly or impliedly agreed to engage in conduct that
violated RICO.
Accordingly, the Court concludes Plaintiff fails
to state a conspiracy claim under § 1962(d).
In summary, on this record the Court concludes Plaintiff has
failed to allege facts sufficient to support any plausible RICO
claim, and, accordingly, the Court DISMISSES Plaintiff’s RICO
claim.
II.
Leave to Amend
In its Response Plaintiff requested the Court to allow
Plaintiff to file an amended complaint if the Court dismissed
Plaintiff's federal RICO claim.
15 - OPINION AND ORDER
Federal Rule of Civil Procedure 15(a) provides a party may
amend a pleading after a responsive pleading has been filed only
by leave of court unless the opposing party consents to the
amendment.
Rule 15(a), however, also provides leave to amend
"shall be freely given when justice so requires."
to be applied with "extreme liberality."
This policy is
Moss v. United States
Secret Svc., 572 F.3d 962, 972 (9th Cir. 2009).
The Ninth
Circuit has held “‘[l]eave to amend should be granted unless the
pleading could not possibly be cured by the allegation of other
facts.’”
Johnson v. Lucent Tech., Inc., 653 F.3d 1000, 1011 (9th
Cir. 2011)(quoting McQuillion v. Schwarzenegger, 369 F.3d 1091,
1099 (9th Cir. 2004)).
When a “viable case may be pled, [the
court] should freely grant leave to amend.”
Cafasso v. Gen.
Dynamics C4 Sys., 637 F.3d 1047, 1058 (9th Cir. 2011).
Fed. R. Civ. P. 15(a).
See also
The Ninth Circuit has also made clear,
however, that it is within the Court’s “‘discretion to deny leave
to amend when amendment would be futile’” (Godwin v.
Christianson, 594 F. App’x 427, 428 (9th Cir. 2015)(quoting
Chappel v. Lab. Corp. of Am., 232 F.3d 719, 725 (9th Cir.
2000))); when amendment would cause undue prejudice or undue
delay; or when the amendment is requested in bad faith by the
movant (Cafasso, 637 F.3d at 1058 (citing Ascon Props., Inc. v.
Mobil Oil Co., 866 F.2d 183, 186 (9th Cir. 1989)).
Accordingly, in the exercise of its discretion, the Court
16 - OPINION AND ORDER
concludes Plaintiff should be allowed to file an amended
complaint to allege, if possible, facts sufficient to state a
plausible RICO claim.
The Court DIRECTS Plaintiff to file such
Amended Complaint no later than June 1, 2018.
III. State-Law Claims
Defendants also contend the Court should dismiss Plaintiff’s
state-law claims on the ground that they fail to state a claim.
In addition, Defendants contend in the event the Court dismisses
Plaintiff’s federal claim, the Court should decline to exercise
supplemental jurisdiction over Plaintiff’s state-law claims.
Inasmuch as the Court is dismissing Plaintiff’s federal
claim with leave to replead, the Court need not address
Defendants’ challenges to Plaintiff’s state-law claims until such
time as the Court determines the federal claim will proceed and
provide a basis for supplemental jurisdiction over the state-law
claims.
Thus, the Court declines to address Defendants’ Motions
against the state-law claims at this stage without prejudice to
Defendants’ right to renew such challenges in the future.
CONCLUSION
For these reasons the Court GRANTS Defendants’ Rule 12
Motions (#15) against Plaintiff’s RICO claim, DISMISSES
Plaintiff’s RICO claim, and GRANTS Plaintiff leave to file no
later June 1, 2018, an amended complaint as to Plaintiff’s RICO
17 - OPINION AND ORDER
claim solely to cure the deficiencies as set out in this Opinion
and Order.
Defendants’ response to any amended complaint is due
no later than June 15, 2018.
The Court declines to address those
parts of Defendants’ Motions against the state-law claims at this
stage without prejudice to Defendants’ right to renew such
challenges after a basis for supplemental jurisdiction over such
claims has been confirmed.
IT IS SO ORDERED.
DATED this 11th day of May, 2018.
/s/ Anna J. Brown
ANNA J. BROWN
United States Senior District Judge
18 - OPINION AND ORDER
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?