O'KEEFE et al v. ACE RESTAURANT SUPPLY, LLC et al

Filing 12

MEMORANDUM AND OPINION. SIGNED BY HONORABLE R. BARCLAY SURRICK ON 1/11/16. 1/12/16 ENTERED & E-MAILED. FAXED BY CHAMBERS. (fdc)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

JOSEPH A. O’KEEFE ET AL.

:
:
v.
:
:
ACE RESTAURANT SUPPLY, LLC, ET AL. :

CIVIL ACTION
NO. 11-1330

MEMORANDUM
SURRICK, J.

JANUARY

11 , 2016

Presently before the Court is Defendants’ Motion to Dismiss. (ECF No. 6.) For the
following reasons, the Motion will be denied.
I.

BACKGROUND
Plaintiff Joseph O’Keefe is the owner of Plaintiff Simmeria Café & Bistro (“Simmeria”).

Defendants Korey and Nick Blanck own Defendant Ace Restaurant Supply. Ace sells bar and
restaurant equipment in Pennsylvania as well as other states through its website.
In February 2010, O’Keefe called Korey Blanck and inquired about buying supplies for
Simmeria, his new restaurant. On February 12, 2010, Plaintiffs and Defendants executed a sales
agreement for $20,602.16.1 (Compl. ¶ 15 & Ex. A, ECF No. 1.) The agreement was faxed from
Korey Blanck to O’Keefe. Plaintiffs allege that they entered the contract based on false
representations made by Korey Blanck and Ace’s website that Defendants could provide
Plaintiffs with their equipment needs. On March 16, 2010, Plaintiffs and Defendants entered into
another sales contract for equipment worth $4,672.48. (Id. at ¶ 16 & Ex. B.) Plaintiffs paid

1

In addition to the pleadings, courts may consider exhibits attached to the complaint
when ruling on a motion to dismiss. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d
1380, 1384 n.2 (3d Cir. 1994).

Defendants $35,803.62 in advance, an amount which presumably includes additional fees not
itemized in the Complaint.
After Plaintiffs made their payment, the “true face of [Defendants’] operation began to
unravel.” (Id. at ¶ 17.) Defendants failed to deliver a grill and an oven that Plaintiffs ordered.
Plaintiffs unsuccessfully pressed Defendants with regard to the whereabouts of their purchases.
Defendants either ignored Plaintiffs’ calls or responded with dishonest excuses. For instance, in
March and April 2010, Korey Blanck repeatedly assured O’Keefe that he had ordered the oven
and that the manufacturer was at fault for the delay. O’Keefe then called the manufacturer and
was told that Defendants had never ordered the oven. (Id. at ¶ 21.) When Defendants did make
deliveries, they shipped equipment that was both broken and useless. Plaintiffs allege that
Defendants were aware that the equipment failed to meet their needs, but nonetheless proceeded
with the deliveries in an attempt to defraud them. (Id. at ¶ 22.)
On May 20, 2010, O’Keefe sent a letter demanding that Defendants either deliver all of
the missing and broken equipment or refund the money. (Id. at ¶ 23 & Ex. C.) The next day,
Korey Blanck responded with a letter in which he disputed O’Keefe’s portrayal of their business
transactions and refused to refund any money.2 (Id. at ¶ 24 & Ex. D.)
Plaintiffs claim that Defendants’ deceitful behavior was characteristic of the way they
conducted business. (Id. at ¶ 27.) Plaintiffs allege in their Complaint that Defendants regularly
made fraudulent misrepresentations regarding equipment that they never intended to deliver. In
2

A reading of the letters reveals a personal and strained relationship between Blanck and
O’Keefe. Blanck references incidents in which he consulted with O’Keefe as a lawyer on
matters unrelated to the instant litigation. Blanck notes that he was dissatisfied with the advice
he received, but unlike O’Keefe, did not pepper him with follow-up complaints and letters.
(Compl. Ex. D.)
2

Plaintiffs’ Response to Defendants’ Motion, they attach several state court complaints filed
against Defendants that allege similar conduct. (Pls.’ Resp. Exs. A-B, ECF No. 8.) We will
consider these matters of public record as part of the pleadings.3 Plaintiffs submit a complaint
filed in the Court of Common Pleas of Berks County alleging that Defendant Ace misrepresented
the character of a fryer that the plaintiff in that action bought from Ace. (Id. Ex. A.) The
plaintiff in that litigation purchased the fryer on September 16, 2009. Plaintiffs file another state
court complaint against Defendants, alleging that on June 20, 2008, the plaintiffs in that matter
entered a sales agreement with Defendants to purchase certain restaurant supplies. (Id. Ex. B at ¶
7.) The plaintiffs there alleged that Defendants breached the contract and committed fraud by
failing to deliver and install the items in the agreement.
On February 25, 2011, Plaintiffs filed a Complaint against Defendants alleging a
violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1962(c) (Count I), a RICO conspiracy claim, id. § 1962(d) (Count II), and state law claims of
fraud (Count III), unjust enrichment (Count IV), intentional misrepresentation (Count V), and
negligent misrepresentation (Count VI). Plaintiffs also seek declaratory relief (Count VII).

3

Two competing rules guide our decision to consider these documents. Courts in this
district follow the general rule that a complaint may not be amended by briefs in opposition to a
motion to dismiss. Pennsylvania ex rel. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 181 (3d Cir.
1988); Parastino v. Conestoga Tel., No. 99-679, 1999 WL 636664, at *2 (E.D. Pa. Aug. 18,
1999). On the other hand, courts may consider matters of public record in ruling on a motion to
dismiss. See Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d
Cir. 1993). Defendants argue that the factual allegations in the Complaint regarding Defendants’
other unspecified victims are too vague to support a RICO claim. Plaintiffs attempt to rebut this
argument and cure the deficiencies in their Complaint by appending state court complaints to
their Response. We will accept the attached exhibits as part of the pleadings. See Watterson v.
Page, 987 F.2d 1, 3-4 (1st Cir. 1993) (treating public documents attached to an opposition to a
motion to dismiss as part of the pleadings).
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Defendants responded with the instant Motion to Dismiss.
II.

LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) provides that a complaint may be dismissed for

“failure to state a claim upon which relief can be granted.” “To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A complaint that merely alleges entitlement to relief,
without alleging facts that show entitlement, must be dismissed. See Fowler v. UPMC
Shadyside, 578 F.3d 203, 211 (3d Cir. 2009). This “‘does not impose a probability requirement
at the pleading stage,’ but instead ‘simply calls for enough facts to raise a reasonable expectation
that discovery will reveal evidence of’ the necessary elements.” Phillips v. County of Allegheny,
515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556).
III.

DISCUSSION
Defendants seek dismissal of the Complaint on two grounds. Defendants argue that

Plaintiffs fail to plead mail and wire fraud—the predicate acts of Plaintiffs’ RICO claims—with
sufficient particularity. Defendants also contend that Plaintiffs do not allege a “pattern of
racketeering activity.” Were we to dismiss Plaintiffs’ RICO claims, we would lack jurisdiction
to entertain Plaintiffs’ state law claims.
In Count I of the Complaint, Plaintiffs allege that Defendants violated 18 U.S.C.
§ 1962(c). To plead a violation of § 1962(c), a plaintiff must allege (1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity. Kolar v. Preferred Real Estate
Invs.’s, Inc., 361 F. App’x 354, 362 (3d Cir. 2010) (citing Sedima, S.P.R.L. v. Imrex Co., 473
4

U.S. 479, 496 (1985)). A pattern of racketeering activity requires at least two predicate acts of
racketeering that “are related and that amount to or pose a threat of continued criminal activity.”
Bonavitacola Elec. Contractor, Inc. v. Boro Developers, Inc., 87 F. App’x 227, 231 (3d Cir.
2003) (quoting H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989)). Predicate acts
of racketeering include federal mail fraud, 18 U.S.C. § 1341, and federal wire fraud, id. § 1343.
Lum v. Bank of Am., 361 F.3d 217, 223 (3d Cir. 2004) (citing 18 U.S.C. § 1961(1)).
Where a plaintiff asserts a RICO violation that stems from the predicate acts of mail and
wire fraud, the plaintiff must plead fraud with particularity pursuant to Rule 9(b). Banks v. Wolk,
918 F.2d 418, 422 n.1 (3d Cir. 1990); Devon IT, Inc. v. IBM Corp., No. 10-2899, 2011 WL
1331888, at *8 (E.D. Pa. Mar. 31, 2011); Walther v. Patel, No. 10-706, 2011 WL 382752, at *3
(E.D. Pa. Feb. 4, 2011). Plaintiffs may satisfy this burden by pleading the “date, place or time of
the fraud, or through alternative means of injecting precision and some measure of substantiation
into their allegations of fraud.” Lum, 361 F.3d at 224 (internal quotation marks and citations
omitted).
A.

Predicate Acts

Plaintiffs allege that Defendants committed mail and wire fraud as the predicate acts of
their RICO violation. (Compl. ¶¶ 49-50). To plead mail or wire fraud, a plaintiff must show (1)
a scheme to defraud, (2) use of the mail or interstate wires to further that scheme, and (3)
fraudulent intent. Bonavitacola, 87 F. App’x at 231. The communication made through the
mails and wires does not have to be a necessary element of the fraudulent scheme, but it must at
least be “incident to an essential part of the scheme.” Tabas v. Tabas, 47 F.3d 1280, 1294 n.18
(3d Cir. 1995) (citations omitted). The scheme must involve a “fraudulent misrepresentation or
5

omission reasonably calculated to deceive persons of ordinary prudence and comprehension.”
Walther, 2011 WL 382752, at *6 (quoting Lum, 361 F.3d at 223 (citations omitted)).
Plaintiffs’ allegations regarding the predicate RICO violations are sufficient to withstand
this Motion. Accepting Plaintiffs’ averments as true, Plaintiffs allege that Defendants used the
mails and interstate wires to perpetrate the fraudulent transaction. They identify the dates that the
sales agreements were faxed and consummated, as well as the dates of mailings between
O’Keefe and Korey Blanck. Defendants’ use of the wires and mails was therefore a necessary
element of the overall scheme. Plaintiffs also state with particularity the date, identity of the
speaker, and the content of misrepresentations made by Blanck. In March and April 2010, during
numerous telephone conversations, Blanck assured O’Keefe that he had ordered Plaintiffs’ oven
for delivery and that the manufacturer was responsible for the delay. O’Keefe contacted the
manufacturer to confirm or dispel the veracity of this representation and was informed that
Defendants had never ordered the oven. This allegation suggests that Defendants made
representations knowing of their falsity and intending to deceive Plaintiffs. These averments also
support Plaintiffs’ contention that Defendants entered the sales agreement knowing that they
could not, or would not, deliver on the promised services.
Courts consistently reject contract and tort claims brought under the guise of RICO. See,
e.g., Kolar, 361 F. App’x at 363 (“These allegations set forth disputes sounding in contract.
Kolar cannot successfully transmute them into RICO claims by simply appending the terms
‘false’ and ‘fraudulent.’” (citation omitted)); Walther, 2011 WL 382752, at *6 (“[T]hat complaint
sounds in negligence or breach of contract, and Walther cannot convert it to fraud by labeling the
statement a ‘misrepresentation.’” (citation omitted)). However, “RICO is to be read broadly,”
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Sedima, 473 U.S. at 497, and notwithstanding Defendants’ argument to the contrary, RICO “may
be applicable to many ‘garden-variety’ fraud cases,” Tabas, 47 F.3d at 1296. Plaintiffs here do
not merely refashion a contract dispute. Instead, they allege misrepresentations made by Korey
Blanck that evince a scheme to defraud.
B.

Pattern of Racketeering Activity

A pattern of racketeering activity requires two or more predicate acts of racketeering
within a ten-year period. 18 U.S.C. § 1961(5). A plaintiff must show that the “racketeering
predicates are related, and that they amount to or pose a threat of continued criminal activity.”
H.J. Inc., 492 U.S. at 239 (emphasis in original).
The predicate acts are related if they “have the same or similar purposes, results,
participants, victims, or methods of commission, or otherwise are interrelated by distinguishing
characteristics and are not isolated events.” Id. at 240. “‘Continuity’ is both a closed- and openended concept, referring either to a closed period of repeated conduct, or to past conduct that by
its nature projects into the future with a threat of repetition.” Id. at 241. Closed-ended continuity
refers to a “series of related predicates extending over a substantial period of time.” Id. at 242.
The Third Circuit has held that conduct lasting less than twelve months does not establish closed
continuity. Tabas, 47 F.3d at 1293 (citing cases). Where the predicate acts occur close together
in time, a plaintiff may prove open-ended continuity by showing that the commission of the acts
is the entity’s “regular way of doing business” or that the “racketeering acts themselves include a
specific threat of repetition extending indefinitely into the future.” See H.J. Inc., 492 U.S. at 242.
Defendants argue that Plaintiffs have, at most, alleged one incident of fraud concerning
the purchase of restaurant equipment in February and March 2010. Under the relatedness
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analysis, however, each use of the mails or wires constitutes a distinct violation of the mail and
wire fraud statutes, even if the violations were part of the same fraudulent scheme. Walther,
2011 WL 382752, at *8 n.102. Plaintiffs and Defendants communicated with respect to the sales
agreement by mail, telephone, and facsimile on numerous occasions. These separate violations
are sufficiently related because they had the same purpose, result, participants and victim. See
Banks, 918 F.2d at 422 (finding relatedness prong satisfied where scheme involved a single real
estate transaction); Walther, 2011 WL 382752, at *8 (finding relatedness where fraud involved a
single loan transaction).
Defendants maintain that Plaintiffs have failed to establish continuity. Defendants’
argument only addresses the allegations in the Complaint. If we confined our analysis to the
Complaint, we would agree with Defendants. Plaintiffs neither identify any victims by name nor
cite any other lawsuits lodged against Defendants. They neglect to provide factual details to
support their bald assertion that the Defendants’ predicate fraud was their regular way of doing
business, rather than an isolated occurrence. As discussed above, however, Plaintiffs attach
numerous state court complaints to their Response, which we accept as part of the pleadings.
Defendants have not filed a Reply. Defendants’ argument, therefore, does not respond to the
entirety of Plaintiffs’ allegations regarding continuity.
We are satisfied that Plaintiffs sufficiently plead continuity. Plaintiffs submit two
previous state court complaints filed against Defendants by other purchasers of Defendants’
products. (Pls.’ Resp. Exs. A-B.) These cases allege misrepresentations and fraud in connection
with the sale of Defendants’ restaurant equipment dating back to 2008. The similar conduct
alleged in all of the actions brought against Defendants are sufficient to demonstrate, for
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purposes of this Motion, that the commission of fraud was Ace’s regular way of doing business.
These facts support open-ended continuity. Cf. Walther, 2011 WL 382752, at *8 (finding no
continuity where plaintiff did not allege that defendants perpetrated the predicate acts against
anyone besides the plaintiff); Holst v. Oxman, No. 05-0220, 2006 WL 724520, at *5 (E.D. Pa.
Mar. 17, 2006) (same). Although the state court complaints do not allege mail or wire fraud,
Plaintiffs plead at least two predicate acts in the instant matter, and the facts asserted in all three
cases depict Ace as an entity that repeatedly defrauds those with whom it deals. See Tabas, 47
F.3d at 1293 (finding continuity would exist where a “legitimate” businessperson regularly
conducts his or her business through illegitimate means). Plaintiffs also adequately plead closedended continuity because the alleged fraud lasted longer than twelve months. Darocha v.
Crusader Sav. Bank, No. 94-7264, 1995 WL 118208, at *2 (E.D. Pa. Mar. 10, 1995).
Accordingly, Plaintiffs’ allegations regarding continuity and a pattern of racketeering survive
Defendants’ Motion.
IV.

CONCLUSION
For the foregoing reasons, Defendants’ Motion will be denied.
An appropriate Order follows.

BY THE COURT:

R. BARCLAY SURRICK, J.

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