Friendly Hotel Boutique Corporation v. ME&A Capital LLC et al
Filing
54
ORDER granting 12 Motion to Dismiss. Partial Judgment shall be entered accordingly. Signed by Judge Jay A Garcia-Gregory on 9/14/2012. (RJC)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
FRIENDLY HOTEL BOUTIQUE
CORPORATION,
Plaintiff
CIVIL NO.
11-1709 (JAG)
v.
ME&A CAPITAL, LLC, et al.,
Defendants.
OPINION & ORDER
Garcia-Gregory, D.J.
Pending before the Court is Equity Mortgage Corporation’s
(“Co-Defendant”)
motion
to
dismiss
Friendly
Hotel
Boutique
Corporation’s (“Plaintiff”) complaint pursuant to FED. R. CIV. P.
12(b)(6).
(See
Docket
No.
12).
After
reviewing
Plaintiff’s
opposition to Defendant’s motion and for the reasons outlined
below, the motion to dismiss is hereby GRANTED.
BACKGROUND
Plaintiff filed a complaint on July 21, 2011 alleging that
Deon Walker and the following companies and corporations ME&A
Capital, LLC, Dellovo Capital Corporation, International Lending
Group, LLC and Equity Mortgage Corporation, (“Defendants”) were
participants of a conspiracy and fraud scheme in violation of 18
CIVIL NO. 11-1709 (JAG)
2
U.S.C. §§ 1961-1968, also known as the Racketeering Influenced
and Corrupt Organization (“RICO”) Act. (See Docket No. 1).
In summary, the complaint alleges that Defendants conspired
in order to defraud Plaintiff in the financing of Plaintiff’s
hotel
project.
Plaintiffs
allege
that
the
fraud
resulted
in
damages, loss of profits and loss of the appreciation in value
of the business and the equity in the real estate comprised by
the hotel project. Id.
After various motions filed by both parties and various
court orders, one of the Defendants, Equity Mortgage Corporation
(“Equity”) filed a motion to dismiss pursuant to FED. R. CIV. P.
12(b)(6). (See Docket No. 12). Equity attached to said motion an
unsworn declaration issued by its President as support for its
statements,
stating
that
Equity
never
did
business
with
the
other Defendants. Plaintiff timely filed its opposition. (See
Docket No. 17).
The complaint asserts that “[o]n March 25, 2010, Equity
Mortgage
Hotel,
issued
stating
$6,965,880
a
that
would
Preliminary
the
be
Commitment
financing
obtained
for
Letter
through
Friendly
project,
totaling
defendant
the
to
Dellovo
Corporation or its corporate investors.” (See Docket No. 1, ¶
18). This referral is the only direct link that the complaint
establishes
between
Equity
(“Dellovo”).
Plaintiff
also
and
Dellovo
alleges
that
Capital
Equity
Corporation
made
certain
CIVIL NO. 11-1709 (JAG)
3
false representations to them regarding the other Defendants. In
any
event,
the
issue
at
hand
is
whether
a
plausible
RICO
violation may be inferred from Equity’s actions.
Standard of Review under Rule 12(b)(6)
Under Rule 12(b)(6), a defendant may move to dismiss an
action for failure to state a claim upon which relief can be
granted.
plead
To overcome a Rule 12(b)(6) motion, the complaint must
sufficient
facts
“to
plausible on its face.”
state
a
claim
to
relief
that
is
See Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662
(2009).
In Ocasio-Hernández v. Fortuño Burset, 640 F.3d 1 (1st Cir.
2011), the First Circuit distilled from Twombly and Iqbal a twopronged test designed to measure the sufficiency of a complaint.
First,
the
reviewing
court
must
identify
and
disregard
“statements in the complaint that merely offer legal conclusions
couched as fact, or threadbare recitals of the elements of a
cause of action.”
punctuation
Ocasio-Hernández, 640 F.3d at 12 (internal
omitted).
In
this
analysis,
the
remaining
non-
conclusory factual allegations must be taken as true, even if
they are “seemingly incredible,” or that “actual proof of those
facts is improbable.”
Id.
Finally, the court assesses whether
CIVIL NO. 11-1709 (JAG)
4
the facts taken as a whole “state a plausible, not merely a
conceivable, case for relief.”
In
conducting
this
Id.
test,
a
court
must
not
attempt
to
forecast the likelihood of success even if recovery is remote
and unlikely.
Ocasio-Hernández, 640 F.3d at 12.
Thus, “[t]he
relevant inquiry focuses on the reasonableness of the inference
of liability that the plaintiff is asking the Court to draw from
the facts alleged in the complaint.”
Id. at 13.
DISCUSSION
In its motion to dismiss, Equity argues that it was not
part of the enterprise that perpetrated the alleged fraud on
Plaintiff. Because the Court finds this argument compelling, it
declines to address the rest of Defendant’s motion. We start
with the basics.
In order to state a RICO violation, the plaintiff must
allege (1) that defendants are a “person”, within the scope of
the
statute,
racketeering
(2)
that
activity”
they
or
have
the
utilized
proceeds
a
“pattern
thereof,
(3)
of
to
infiltrate an interstate “enterprise” (4) by (a) investing the
income derived from the pattern of racketeering activity in the
enterprise,
enterprise
(b)
acquiring
through
the
or
maintaining
pattern
of
an
interest
racketeering
in
the
activity,
(c)
conducting the affairs of the enterprise through the pattern of
CIVIL NO. 11-1709 (JAG)
5
racketeering activity, or (d) conspiring to commit any of the
above acts. See 18 U.S.C. § 1962.
A
RICO
plaintiff
enterprise.
This
must
“includes
allege
any
the
existence
individual,
of
an
partnership,
corporation, association, or other legal entity, and any union
or group of individuals associated in fact although not a legal
entity.”
See 18 U.S.C. § 1961(4). Furthermore, § 1962(c) makes
it unlawful “for any person employed by or associated with any
enterprise
engaged
interstate
or
directly
or
in,
foreign
or
the
commerce,
indirectly,
in
the
activities
to
of
conduct
conduct
of
which
affect,
or
participate,
such
enterprise's
affairs through a pattern of racketeering activity or collection
of unlawful debt.” See 18 U.S.C. § 1962(c) (emphasis added).
Thus,
besides
alleging
the
existence
of
the
enterprise,
the
plaintiff must also set forth the relationship each individual
defendant has with that enterprise. See University of Md. v.
Peat, Marwick, Main & Co., 996 F.2d 1534 (3rd Cir. 1993)(stating
that a “nexus must exist between the person and the conduct in
the affairs of the enterprise”).
The “Operation or Management” Test under Reves v. Ernst & Young
Though neither party cites Reves v. Ernst & Young, 507 U.S.
170
(1993),
the
Court
finds
this
case
and
its
progeny
dispositive here. In Reves, the Supreme Court was tasked with
CIVIL NO. 11-1709 (JAG)
clarifying
what
above.
at
Id.
6
Congress
177.
The
meant
Court
with
found
the
that
phrase
the
highlighted
term
“conduct”
indicates “some degree of direction.” Id. at 178. Additionally,
the Court read the word “participate” to mean “to take part in.”
Id. Read together, the Supreme Court held that the phrase in
question requires that the RICO defendant have at least “some
part in directing the enterprise’s affairs.” Id. at 179; see
also United States v. Oreto, 37 F.3d 739 (1st Cir. 1994). Thus,
to survive a motion to dismiss, a RICO plaintiff must plead
sufficient facts to allow for a plausible inference that that
the defendant somehow “le[d], [ran], manag[ed], or direct[ed]”
the enterprise’s affairs. Reves, 507 U.S. at 177. The Supreme
Court
tempered
this
requirement
by
rejecting
the
proposition
(advanced by the lower appeals court) that a plaintiff must show
that
the
defendant
had
“significant
control”
over
the
enterprise. Id. at n. 4.
We add finer grain to our analysis by observing that, under
Reves, a defendant is not liable if he or she merely aided or
abetted the enterprise’s affairs. Id. at 178. Thus, it makes no
difference
that
the
enterprise
through
defendant
his
or
her
rendered
“words,
assistance
acts,
to
the
encouragement,
support, or presence.” Id.
The Court finds the complaint fails to plead sufficient
facts
to
allow
a
plausible
inference
that
a
nexus
existed
CIVIL NO. 11-1709 (JAG)
7
between Equity’s acts and the enterprise’s affairs. To start
with, the complaint never alleges that Equity did anything more
than refer Plaintiff’s business to some financiers (here, codefendants). An enterprise under RICO, in the course of its
dealings,
may
sometimes
cross
paths
with
other
legitimate
businesses. However, this event does not automatically place the
burden of RICO liability on the shoulders of those legitimate
businesses. That is why Reves requires plaintiffs to show that
those entities somehow “le[d], [ran], manag[ed], or direct[ed]”
the enterprise. Equity’s referral of Plaintiff’s business to the
other defendants, without more, does not allow the Court to
infer
that
perpetrated
Equity
upon
somehow
directed
Plaintiff.
See
the
fraudulent
MyFreeMedicine.com,
scheme
LLC
v.
Alpine Investors, 739 F.Supp.2d 8 (D.Me. 2010) (holding that codefendant’s alleged participation in an enterprise for billing
and transmitting invoices for commissions to the plaintiff was
not sufficient to find liability under § 1962(c)).
It
is
certainly
telling
that
the
complaint
does
not
properly allege Equity participated in, benefited from, or let
alone even knew of, the alleged fraud scheme.1 The allegations
with respect to Equity are circumscribed to the referral of
business
1
Equity
made
to
the
other
defendants.
Taking
all
The complaint does proffer some unsupported allegations in this
regard. However, given their conclusory and threadbare nature,
the Court will not afford these the presumption of truth.
CIVIL NO. 11-1709 (JAG)
inferences
in
favor
8
of
Plaintiff,
Equity’s
action
-at
most-
could be characterized as “aiding or abetting” the enterprise.
As
explained
above,
however,
this
is
not
enough
to
impose
liability under RICO. Reves, 507 U.S. at 178.
In Libertad v. Welch, 854 F. Supp. 19 (D.P.R. 1993), this
court
held
defendants;
transported
along
these
according
lines.
to
demonstrators
the
to
and
That
case
involved
plaintiffs,
from
a
the
protest
four
defendants
site,
using
funds from another defendant’s school, directing the protests
and demonstrations and participating in such demonstrations. The
court
concluded
that
“[a]t
most,
the
actions
of
these
four
defendants may be characterized as "aiding and abetting", a term
which
encompasses
‘all
assistance
rendered
by
words,
acts,
encouragement support, or presence,’ but which falls short of
actionable
participation
in
the
direction
of
the
alleged
enterprise.” Libertad, 854 F. Supp. at 30 n. 11. The same is
true here.
CONCLUSION
In light of the above, it is clear that Equity’s conduct
does not fall within the sphere of liability outlined by the
“operations
or
management”
test
in
Reves.
Consequently,
Plaintiff has failed to state a RICO claim, as a matter of law,
CIVIL NO. 11-1709 (JAG)
9
against Equity. For the reasons stated above, Defendant’s motion
for dismissal is hereby GRANTED.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 14th day of September, 2012.
S/ Jay A. Garcia-Gregory
JAY A. GARCIA-GREGORY
United States District Judge
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