Puerto Rico Medical Emergency Group, Inc. v. Iglesia Episcopal Puertorriquena, Inc. et al
Filing
50
OPINION AND ORDER re 12 Motion to Dismiss; re 35 Supplemental Motion; and re 45 Supplemental Motion. Defendants' motions to dismiss, (Docket Nos. 12, 35, 45), are GRANTED IN PART and DENIED IN PART. Defendants' request for dismissal of PRMEG's section 1962(b) RICO claim is GRANTED and the claim is DISMISSED WITH PREJUDICE. Defendants' request for dismissal of PRMEG's 1962(c) RICO claim and Puerto Rico law claims is DENIED. The Court GRANTS plaintiff PRMEG leave to file a second amended complaint. Second amended complaint due by September 4, 2015. Motions to dismiss due by October 2, 2015. Signed by Judge Francisco A. Besosa on 08/07/2015. (brc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
PUERTO RICO MEDICAL EMERGENCY
GROUP, INC.
Plaintiff,
v.
Civil No. 14-1616 (FAB)
IGLESIA EPISCOPAL
PUERTORRIQUEÑA, INC., et al.,
Defendants.
OPINION AND ORDER1
BESOSA, District Judge.
Before the Court are defendants’ first and second supplemental
motions to dismiss the amended complaint, (Docket Nos. 35, 45),
which incorporate by reference the motion to dismiss the original
complaint, (Docket No. 12).
For the reasons explained below, the
Court GRANTS IN PART and DENIES IN PART defendants’ motions to
dismiss and GRANTS plaintiff leave to amend its complaint.
I.
A.
PROCEDURAL BACKGROUND
Pleadings and Motions
On August 11, 2014, Puerto Rico Medical Emergency Group, Inc.
(“PRMEG”)
filed
a
complaint
against
Iglesia
Episcopal
Puertorriqueña, Inc. (“IEP”), Hospital Episcopal San Lucas, Inc.
(“HESL”),
1
Servicios
Generales
Episcopales,
Inc.
(“SGE”),
and
Natalie Colvin, a second-year student at The George Washington
University Law School, assisted in the preparation of this Opinion
and Order.
Civil No. 14-1616 (FAB)
Servicios
de
“defendants”).
Salud
2
Episcopales
(Docket No. 1.)
(“SSE”),
(collectively,
The complaint alleges violations
of sections 1962(b) and 1962(c) of the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. § 1961 et seq., (“RICO”), and
raises several state law claims.
Defendants moved to dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12(b)(6)
(“Rule 12(b)(6)”) on October 10, 2014. (Docket No. 12.) Plaintiff
PRMEG opposed the motion to dismiss on November 26, 2014, (Docket
No. 17), and filed its first amended complaint on December 2, 2014,
(Docket No. 20), with leave from the Court, (Docket No. 19).
On February 13, 2015, defendant IEP filed a supplemental
motion to dismiss.
(Docket No. 35.)
On March 2, 2015, PRMEG
opposed that motion, (Docket No. 39), and tendered a second amended
complaint, (Docket No. 39-1), for which it sought leave to file,
(Docket No. 40). Defendants opposed plaintiff’s second request for
leave to
amend
and
replied
to
plaintiff’s
opposition
to
the
supplemental motion to dismiss on March 17, 2015. (Docket No. 43.)
On April 16, 2015, defendants filed a second supplemental
motion to dismiss and again opposed plaintiff’s motion for leave to
file a second amended complaint, (Docket No. 45), which plaintiff
PRMEG opposed, (Docket No. 47).
On May 12, 2015, the Court denied without prejudice PRMEG’s
motion for leave to file a second amended complaint.
No. 49.)
(Docket
The Court reasoned that the tendered factual allegations
Civil No. 14-1616 (FAB)
3
in the second amended complaint did not add any detail relating to
when and where defendants allegedly used mails and wires to commit
fraud, and thus fell outside the relaxed standard for allowing
amendments of this type.
Id. at p. 7.
The Court also found that
PRMEG made no attempt to demonstrate that good cause justified
amending its complaint more than two months after the Court-ordered
deadline.
B.
Id. at p. 8.
Scheduling Order Deadlines
On December 1, 2014, the Court issued a Scheduling Order
pursuant to
No. 18.)
Federal
Rule
June 8, 2015:
C
November 9, 2015:
C
January 8, 2016:
C
May 9, 2016:
at
Civil Procedure 16(b).
(Docket
The order set, inter alia, the following deadlines:
C
Id.
of
p.
dispositive
deadlines.
22.
The
motions
Motions to dismiss
Conclusion of discovery
Motions for summary judgment
Trial
Court
would
also
not
ordered
disrupt
that
the
discovery
filing
or
of
suspend
Id. at p. 10.
Pursuant to the Scheduling Order, the parties filed a joint
case management memorandum on February 3, 2015.
(Docket No. 34.)
In that memorandum, plaintiff PRMEG and defendants HESL, SGE, and
SSE agreed that written discovery would commence no later than
March 1, 2015.
Id. at pp. 43-44.
Civil No. 14-1616 (FAB)
II.
4
RULE 12(b)(6) STANDARD
Rule 12(b)(6) allows the Court to dismiss a complaint when the
pleading fails to state a claim upon which relief can be granted.
Fed. R. Civ. P. 12(b)(6).
In resolving a motion to dismiss, the
Court employs a two-step approach.
First, the Court “isolate[s]
and ignore[s] statements in the complaint that simply offer legal
labels and conclusions or merely rehash cause-of-action elements.”
Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st
Cir. 2012).
Second, the Court “take[s] the complaint’s well-pled
(i.e., non-conclusory, non-speculative) facts as true, drawing all
reasonable inferences in the pleader’s favor, and see[s] if they
plausibly narrate a claim for relief.”
Id.
The appropriate
inquiry “in assessing plausibility is not whether the complaint
makes any particular factual allegations but, rather, whether ‘the
complaint warrant[s] dismissal because it failed in toto to render
plaintiffs’ entitlement to relief plausible.’”
Rodriguez-Reyes v.
Molina-Rodriguez, 711 F.3d 49, 55 (1st Cir. 2013) (quoting Bell
Atl. Corp v. Twombly, 550 U.S. 544, 569 n.14 (2007)).
III.
A.
FACTUAL ALLEGATIONS IN THE AMENDED COMPLAINT
The Parties
Plaintiff PRMEG is a corporation that provides emergency room
administration
services
hospitals in Puerto Rico.
and
treatment
to
patients
(Docket No. 20 at p. 4.)
in
various
Civil No. 14-1616 (FAB)
5
All four defendants are corporations.
p. 3.)
IEP owns HESL, SGE, and SSE.
(Docket No. 20 at
Id. at p. 3.
HESL and SSE
manage several hospitals in Puerto Rico.
Id. at pp. 4-5.
bills for the services that HESL provides.
SGE
Id. at p. 25.
The four defendants have overlapping directors, and the head
of the church at IEP is the president of the boards of directors of
HESL, SGE, and SSE.
(Docket No. 20 at pp. 5, 17.)
Officers of
HESL, SGE, and SSE met with and received instructions from IEP on
a regular basis.
Id. at p. 17.
Directors of HESL, SGE, and SSE
met with IEP officers to discuss how they could divert corporate
funds
to
IEP’s
bank
accounts,
and
officers
of
IEP
and
SSE
coordinated a monthly contribution from HESL, SGE, and SSE to IEP.
Id. at pp. 17-18.
B.
The PRMEG-HESL Contract
On September 25, 2007, PRMEG entered into a contract with HESL
pursuant to which PRMEG would manage and provide medical coverage
for the HESL emergency room.
(Docket No. 20 at pp. 5-6.)
The
contract provided that HESL would pay PRMEG $155,000 per month for
the first three months and $133,000 per month thereafter.
p. 6.
Id. at
The contract also gave PRMEG the right to bill insurance
companies directly for the services PRMEG provided to patients in
the HESL emergency room, and required HESL to notify the insurance
companies with which it did business that PRMEG had retained the
right to bill.
Id. at p. 7.
PRMEG never agreed to amend the
Civil No. 14-1616 (FAB)
6
contract, nor did it authorize HESL to bill for services PRMEG
provided.
Id. at pp. 6-7.
Although the contract specified that absent action by HESL,
its terms would expire on September 24, 2010, HESL continued to use
PRMEG’s services pursuant to the contract until the contract was
cancelled on May 2, 2014.
C.
(Docket No. 20 at p. 5.)
Defendants’ False Representations
After the PRMEG-HESL contract was executed, defendant SSE
negotiated
and
signed
agreements
with
insurance
companies,
representing to those insurance companies that HESL and SSE were
entitled to bill for the services PRMEG provided.
at p. 8.)
(Docket No. 20
Defendants HESL and SSE then began billing the insurance
companies, through defendant SGE, for the services PRMEG provided.
Id. at pp. 8-9.
Defendants billed the insurance companies by
sending invoices through the mail or electronically on at least a
monthly basis from 2007 through 2014, and defendants received
numerous payments in return.
Id. at p. 25.
All the while,
plaintiff PRMEG was billing the insurance companies for the same
services; defendants knew that PRMEG was billing for the same
services, but continued to represent to PRMEG that there was no
issue with PRMEG’s billing.
D.
Id. at p. 20.
PRMEG Discovers the Double Billing
In late 2013, an insurance company named Medical Card System
Corp. (“MCS”) issued a claim letter to PRMEG seeking over $600,000
Civil No. 14-1616 (FAB)
7
in reimbursements for payments MCS made for services PRMEG provided
to MCS-covered patients.
(Docket No. 20 at p. 11.)
On January 14,
2014, after many requests from PRMEG, an HESL officer gave PRMEG a
list containing the statuses of HESL’s contracts with insurance
companies.
Id. p. 10.
From this list, PRMEG discovered that HESL
had contracts with insurance companies that permitted it to bill
for services PRMEG was providing.
Id.
MCS continues to claim over $600,000 from PRMEG.
No. 20 at p. 12.)
business
(Docket
Defendants’ billing scheme damaged PRMEG’s
operations,
financial
infrastructure,
and
business
reputation, and also caused millions of dollars of losses to thirdparty insurance companies.
Id. at pp. 16-17.
IV.
DISCUSSION
Defendants raise the following grounds in moving to dismiss
PRMEG’s amended complaint: (1) that PRMEG’s allegations fail to
establish the necessary elements of a section 1962(c) RICO claim;
(2) that PRMEG fails to plead the requisite injury for a section
1962(b) RICO claim; (3) that part of PRMEG’s RICO claims is timebarred;
and
(4)
that
the
Court
should
decline
to
exercise
Civil No. 14-1616 (FAB)
8
supplemental jurisdiction over PRMEG’s Puerto Rico law claims.2,3
See Docket Nos. 12, 35, 45.
The Court addresses each argument in
turn.
A.
Section 1962(c) RICO Claim
RICO
section
1962(c)
makes
it
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
activity or collection of unlawful debt.”
of
racketeering
18 U.S.C. § 1962(c).
RICO section 1964(c) permits a “person injured in his business or
property by reason of a violation of section 1962” to bring a civil
RICO suit.
18 U.S.C. § 1964(c).
Thus, to state a section 1962(c)
RICO civil claim, a plaintiff must allege:
(1) injury caused by
(2) conduct, (3) of an enterprise, (4) through a pattern, (5) of
2
Defendants also urge the Court to dismiss the complaint “for
plaintiff’s failure to comply with this Court’s RICO Case Statement
Standing Order.” (Docket No. 12 at p. 28.) The Court does not
have
a
standing
order
for
RICO
cases.
See
http://www.prd.uscourts.gov/?q=standing-orders.
The
Court
admonishes defendants to familiarize themselves with the Court’s
standing orders and rejects their groundless request.
3
Defendant IEP also argues in a perfunctory manner that PRMEG’s
claim is unripe because PRMEG “has not exhausted all administrative
remedies before filing its [c]omplaint, pursuant to 42 C.F.R. 422
and all its subparts.” (Docket No. 35 at pp. 6-7.) Because IEP
has done nothing more than “mention a possible argument in the most
skeletal way, leaving the Court to do counsel’s work, create the
ossature for the argument, and put flesh on its bones,” United
States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990), the Court
declines to entertain this argument.
Civil No. 14-1616 (FAB)
racketeering activity.
9
Giuliano v. Fulton, 399 F.3d 381, 386 (1st
Cir. 2005).
1.
Injury
In its supplemental motion to dismiss, defendant IEP
argues that PRMEG’s RICO claims are premature and unripe because
PRMEG does not allege that it had to pay back the $600,000 that MCS
seeks to recoup.
(Docket No. 35 at p. 4.)
Regardless of whether
the MCS claim is a present harm, the amended complaint alleges that
defendants’ fraudulent scheme caused other injuries to PRMEG,
including economic damages to its business operations, financial
infrastructure, and business reputation. (Docket No. 20 at pp. 1617.)
These alleged injuries are sufficient to make PRMEG’s suit
ripe for adjudication.
2.
Conduct
RICO section 1962(c)’s “conduct” element requires that a
defendant “conduct or participate, directly or indirectly, in the
conduct” of the enterprise.
States Supreme
Court
18 U.S.C. § 1962(c).
interprets
this
element
to
The United
mean
that a
defendant must “participate[] in the operation or management of the
enterprise.”
Reves v. Ernst & Young, 507 U.S. 170, 183 (1993).
Here,
PRMEG
brings
RICO
claims
against
only
IEP,
contending that IEP controlled the enterprise composed of HESL,
SGE, and SSE.
(Docket No. 20 at pp. 3, 26.)
Defendants argue that
PRMEG fails to allege that IEP participated in the operation or
Civil No. 14-1616 (FAB)
10
management of the enterprise.
(Docket No. 12 at pp. 9-10.)
A
cursory read of the amended complaint, however, reveals otherwise.
PRMEG alleges (1) that officers of HESL, SGE, and SSE “met with and
received instructions from [IEP] on a regular basis,” (2) that
directors of HESL, SGE, and SSE met with IEP officers “to discuss
how they could channel or divert corporate funds to [IEP’s] bank
accounts,” (3) that officers from IEP and SSE coordinated a monthly
contribution from HESL, SGE, and SSE to IEP, and (4) that the head
of IEP’s church serves as the president of the boards of directors
of HESL, SGE, and SSE.
(Docket No. 20 at pp. 5, 17-18.)
These
facts, accepted as true, demonstrate that IEP participated in the
operation
of
HESL,
SGE,
and
SSE
-
the
alleged
enterprise.
Defendants’ argument to the contrary is unavailing.
3.
Enterprise
A
section
1962(c)
properly alleged “enterprise.”
RICO
civil
claim
must
include
a
RICO defines “enterprise” as “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).
The United
States Supreme Court interprets an “associated in fact enterprise”
as one that has “at least three structural features:
a purpose,
relationships among those associated with the enterprise, and
longevity sufficient to permit these associates to pursue the
Civil No. 14-1616 (FAB)
enterprise’s purpose.”
11
Boyle v. United States, 556 U.S. 938, 946
(2009).
Defendants argue that the purported enterprise consisting
of HESL, SGE, and SSE lacks the three structural features set forth
in Boyle.
(Docket No. 12 at pp. 11-14.)
The Court disagrees.
First, the Court reasonably infers from the factual allegations in
the amended complaint that HESL, SGE, and SSE had a common purpose
of defrauding insurance companies by causing them to pay double for
services that PRMEG provided and was contractually authorized to
bill.
See Docket No. 20 at pp. 16-21.
Second, the allegations
show that HESL, SGE, and SSE were closely related in several ways:
they had overlapping directors; their officers met to discuss how
to divert funds to IEP; and HESL and SSE jointly managed HESL’s
emergency room while SGE billed for services provided there.
id. at pp. 4-5, 17, 20.
See
Third, these relationships had longevity:
HESL, SGE, and SSE billed insurance companies and concealed their
scheme for seven years, from 2007 through 2014.
See id. at p. 25.
PRMEG thus sufficiently alleges an “enterprise.”
4.
Pattern
To establish a “pattern,” RICO requires a plaintiff to
show that at least two acts of racketeering occurred within ten
years of each other.
18 U.S.C. § 1961(5).
The United States
Supreme Court adds to the “pattern” element a requirement “that the
racketeering predicates are related, and that they amount to or
Civil No. 14-1616 (FAB)
12
pose a threat of continued criminal activity.”
Bell Tel. Co., 492 U.S. 229, 239 (1989).
“continuity plus relationship” standard.
H.J. Inc. v. Nw.
This is known as the
Efron v. Embassy Suites
(P.R.), Inc., 223 F.3d 12, 15 (1st Cir. 2000).
A plaintiff can
satisfy the continuity requirement in one of two ways:
continuity or closed continuity.
Closed
continuity
H.J., 492 U.S. at 241.
involves
“a
series
of
predicates extending over a substantial period of time.”
242.
open
related
Id. at
If a plaintiff alleges only a few predicate acts, or acts
that span only a few weeks or months, then closed continuity is not
established.
Home Orthopedics Corp. v. Rodriguez, 781 F.3d 521,
529 (1st Cir. 2015).
But if “the temporal duration of the alleged
activity and the alleged number of predicate acts are so extensive
that common sense compels a conclusion of continuity, closed-ended
continuity should be found.”
Id. (quoting Giuliano v. Fulton, 399
F.3d 381, 387 (1st Cir. 2005)). For example, in Fleet Credit Corp.
v. Sion, 893 F.2d 441, 446-47 (1st Cir. 1990), ninety-five alleged
racketeering
acts
over
a
four
and
one-half year
sufficient, without more, to find closed continuity.
period
were
In “middle
ground” cases, however, “where the duration and extensiveness of
the alleged conduct does not easily resolve the issue,” courts must
examine “other indicia of continuity.”
Giuliano, 399 F.3d at 387.
When a case falls into this middle ground, the First Circuit Court
of Appeals has “consistently declined to find continuity where the
Civil No. 14-1616 (FAB)
13
RICO claim concerns a single, narrow scheme targeting few victims.”
Home Orthopedics, 781 F.3d at 530 (quoting Giuliano, 399 F.3d
at 390).
Here, defendants argue that PRMEG’s allegations fail to
establish closed continuity because the alleged scheme was a single
financial endeavor with a single victim.
4.)
The
Court
disagrees.
PRMEG
(Docket No. 45 at pp. 1-
maintains
that
defendants
committed mail or wire fraud each time they mailed or wired an
invoice to an insurance company to charge for services that PRMEG
was providing and for which defendants were not entitled to bill.
See Docket No. 20 at p. 25.
PRMEG alleges that defendants sent
these invoices at least once a month for seven years.
Id.
That
totals at least eighty-four invoices (if just one invoice was sent
to one insurance company per month), and thus at least eighty-four
predicate acts over a seven-year period. This is comparable to the
ninety-five acts over a four and one-half year period that were
sufficiently “extensive” to establish closed continuity in Fleet
Credit.
See 893 F.2d at 446-47.
Thus, the Court finds that this
is a case where “the temporal duration of the alleged activity and
the alleged number of predicate acts are so extensive that common
sense compels a conclusion of continuity.”
781
F.3d
521
at
529
(quoting
Giuliano,
See Home Orthopedics,
399
F.3d
at
387).
Accordingly, there is closed continuity, and this is not a “middle
ground” case in which the Court must examine “other indicia of
Civil No. 14-1616 (FAB)
continuity.”
14
See Giuliano, 399 F.3d at 387.
Defendants’ argument
is therefore unpersuasive.
5.
Racketeering Activity – Heightened Pleading for Fraud
RICO
provides
that
“racketeering
activity”
violations of the federal mail and wire fraud statutes.
includes
18 U.S.C.
§ 1961(1)(B); see 18 U.S.C. §§ 1341, 1343.
RICO claims that plead
predicate
must
acts
of
mail
and
wire
fraud
comply
with
the
heightened pleading standard set forth in Federal Rule of Civil
Procedure 9(b) (“Rule 9(b)”). Feinstein v. Resolution Trust Corp.,
942 F.2d 34, 42 (1st Cir. 1991).
Rule 9(b) requires that, “[i]n
alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake.”
Fed. R. Civ. P.
9(b).
requirement,
To
satisfy
Rule
9(b)’s
particularity
a
plaintiff must “go beyond a showing of fraud and state the time,
place and content of the alleged mail and wire communications
perpetrating
that
fraud.”
Cordero-Hernandez
v.
Hernandez-Ballesteros, 449 F.3d 240, 244 (1st Cir. 2006) (quoting
N. Bridge Assocs., Inc. v. Boldt, 274 F.3d 38, 43 (1st Cir. 2001)).
Defendants
argue
that
PRMEG’s
mail
and
wire
fraud
allegations fail to meet Rule 9(b)’s heightened pleading standard,
and thus, that PRMEG has not sufficiently alleged a predicate act
of racketeering activity. (Docket No. 12 at pp. 7-8; Docket No. 35
at pp. 2-3.)
The allegation of fraud stated with the most
particularity in PRMEG’s amended complaint is the following:
Civil No. 14-1616 (FAB)
15
To be able to consummate this scheme to defraud, to bill
services not actually provided by [HESL], but by PRMEG,
from 2007 and through [sic] 2014 the RICO enterprise used
the mail and wires to electronically invoice the
insurance companies, on at least a monthly basis, for
monies to which the enterprise was not entitled because
they belonged to PRMEG and in exchange received numerous
payments either through wire or through the use of the
United States Mail.
(Docket
No.
20
at
p.
25.)
This
allegation
falls
satisfying Rule 9(b)’s particularity requirement.
short
of
It generally
alleges that communications were made “on at least a monthly basis”
for seven years, but offers no specific dates.
It does not
identify specific persons who sent the invoices, and it does not
name the insurance companies that were billed. It does not include
the places from which or to where the invoices were sent.
Other allegations in PRMEG’s amended complaint are even
more deficient.
For example, PRMEG regurgitates the following
paragraph twelve times in its amended complaint, supplying twelve
dates and twelve names of insurance companies:
By information and/or belief on or around [DATE] the RICO
enterprise fraudulently conveyed to the insurance company
[NAME], through the use of the mails and wires, that
[HESL] was legally able to provide a per diem and/or all
inclusive arrangement to the insurance company as it had
done before, but failed to inform in bad faith and with
gross disregard to the truth that it had retained PRMEG
to manage its emergency room and El Tuque emergency room
allowing PRMEG to directly bill for the professional
component of its services.
(Docket No. 20 at pp. 21-25.)
This allegation is not pled with
sufficient particularity. First, allegations based on “information
and belief” do not satisfy the particularity requirement “unless
Civil No. 14-1616 (FAB)
16
the complaint sets forth the facts on which the belief is founded,”
Becher, 829 F.2d 288, and PRMEG has not provided any fact that
supports its belief, particularly concerning the dates alleged,
which appear to be plucked out of the air.
Second, the general
word “conveyed” and the conclusory allegation that “mails and
wires” were used do not indicate the nature of the fraudulent
communication - was it a phone conversation?
letter?
E-mail?
Mailed
Third, the allegation that “the RICO enterprise” did the
“conveying” does not reveal which specific defendant or person was
the responsible party.
And fourth, there is no mention of where
the fraudulent conveyance was made.
To be sure, because PRMEG alleges an expansive scheme
spanning
several
years
and
including
hundreds
of
misrepresentations, Rule 9(b) does not require it to plead every
individual misrepresentation with specific detail.
must
plead
the
time,
place,
and
content
of
Still, PRMEG
the
fraudulent
communications with some particularity. See Cordero-Hernandez, 449
F.3d at 244.
Setting forth the date, sender, recipient insurance
company, and mode of delivery for a representative sample of the
invoices, for example, would suffice.
St.
Luke’s
Hosp.,
Inc.,
441
F.3d
See U.S. ex rel. Joshi v.
552,
557
(8th
Cir.
2006)
(requiring plaintiff to provide “some representative examples of
[defendants’] alleged fraudulent conduct, specifying the time,
place, and content of their acts and the identity of the actors”).
Civil No. 14-1616 (FAB)
17
PRMEG tacitly conceded its shortcoming when it explained
on March 2, 2015, in response to defendant IEP’s supplemental
motion to dismiss, that it was “not able to plead more specifically
at this stage . . . without having yet conducted any discovery [as
to]
the
‘time,
communications.”
place
and
content’
of
the
fraudulent
(Docket No. 39 at p. 6.)
Generally, failure to satisfy Rule 9(b)’s particularity
requirement may warrant dismissal.
244.
Cordero-Hernandez, 449 F.3d at
In a RICO mail and wire fraud case, however, when “details of
just when and where the mail or wires were used” are missing,
dismissal is not automatic.
Becher, 829 F.2d at 290.
Rather, the
district court should make a “determination as to whether the claim
as presented warrants the allowance of discovery,” and if so,
should “provide an opportunity to amend the defective complaint.”
Id.
Factors
to
consider
in
making
this
determination
are:
(1) whether the plaintiff sets out “a general scheme to defraud,”
(2) whether the plaintiff’s allegations “make it likely that the
defendant used interstate mail or telecommunications facilities,”
and (3) whether “the specific information as to use is likely in
the exclusive control of the defendant.”
Id. at 290-91.
Courts
must also keep in mind the balance between, on the one hand,
Rule 9(b)’s purposes of “avoiding groundless claims” and providing
adequate notice to defendants, and on the other, “the policy in
favor of allowing amendments and trying cases on their merits, and
Civil No. 14-1616 (FAB)
18
against dismissals which would deny plaintiffs their day in court.”
Id. at 292.
Here, PRMEG outlines a general scheme to defraud and
alleges facts - such as the invoicing of insurance companies - that
point to the use of mail and wires in furtherance of the scheme.
Because
defendants
sent
the
invoices
directly
to
third-party
insurance companies, PRMEG likely would not have access to the
details of where, when, and how the invoices were sent without some
discovery.
Given this, and given that policy considerations favor
trying cases on their merits, the Court finds some discovery is
warranted as to PRMEG’s section 1962(c) RICO claim and that PRMEG
should be afforded an opportunity to amend its deficient complaint.
See Becher, 829 F.2d at 290-92.
The parties agreed to commence written discovery no later
than March 1, 2015.
(Docket No. 34 at pp. 43-44.)
Thus, discovery
has been underway for more than five months and is scheduled to
conclude in just three months.
See Docket No. 18 at p. 22.
For these reasons, the Court GRANTS plaintiff PRMEG leave
to file a second amended complaint that satisfies Rule 9(b)’s
particularity requirement on or before September 4, 2015.
The
Court also extends the deadline for filing motions to dismiss to
October 2, 2015.
it.
If the parties need more time, they must request
Civil No. 14-1616 (FAB)
B.
19
Section 1962(b) RICO Claim
In addition to its section 1962(c) RICO claim, PRMEG brings a
1962(b) claim against IEP.
(Docket No. 20 at p. 26.)
RICO section
1962(b) makes it 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.”
18
U.S.C.
§ 1962(b).
Only a “person injured in his business or property by reason
of a violation of section 1962” may bring a civil RICO suit.
U.S.C. § 1964(c).
18
Accordingly, to state a section 1962(b) claim,
a plaintiff must allege that it was injured “by reason of [the
defendant’s] acquisition or maintenance of control of an enterprise
through
a
pattern
of
racketeering
activity.”
Compagnie
De
Reassurance D’Ile de France v. New England Reinsurance Corp., 57
F.3d 56, 92 (1st Cir. 1995); accord N. Cypress Med. Ctr. Operating
Co.
v.
Cigna
Healthcare,
781
F.3d
182,
202
(5th
Cir.
2015)
(explaining that, to state a section 1962(b) claim, plaintiff had
to show that its injuries “were proximately caused by a RICO person
gaining an interest in, or control of, the enterprise through a
pattern of racketeering activity” (quoting Abraham v. Singh, 480
F.3d 351, 357 (5th Cir. 2007))).
It is not enough for a plaintiff
Civil No. 14-1616 (FAB)
to
allege
an
racketeering.
injury
20
caused
by
defendants’
predicate
acts
of
See Compagnie De Reassurance, 57 F.3d at 92.
Here, defendants argue that PRMEG’s 1962(b) RICO claim should
be dismissed because PRMEG fails to allege a harm caused by IEP’s
acquisition or maintenance of control of the enterprise through a
pattern of racketeering activity.
(Docket No. 12 at pp. 21-23.)
The Court agrees with defendants’ argument, which PRMEG does not
rebut in its opposition.
See Docket No. 17.
The alleged injuries
in the amended complaint all trace back to the scheme to defraud
the insurance companies, which is the predicate racketeering act in
PRMEG’s section 1962(c) RICO claim.
See Docket No. 20 at pp. 16-
17. There is no allegation that IEP acquired control or maintained
control of the enterprise through this fraudulent scheme, or that
any acquisition or maintenance of control injured PRMEG.
Thus,
PRMEG has not satisfied the “acquisition or maintenance of control
injury” requirement and therefore fails to state a section 1962(b)
RICO claim.
Accordingly, defendants’ motion to dismiss PRMEG’s
section 1962(b) RICO claim is GRANTED.
C.
Statute of Limitations
Civil RICO actions are subject to a four-year statute of
limitations.
Agency Holding Corp. v. Malley-Duff & Assocs., Inc.,
483 U.S. 143, 156 (1987).
The limitations period begins to run
when a plaintiff knew or should have known of its injury.
Grp., II v. Tobin, 221 F.3d 41, 44 (1st Cir. 2000).
Lares
Civil No. 14-1616 (FAB)
21
Here, defendants urge the Court to apply a “rule of separate
accrual” to dismiss as time-barred the part of PRMEG’s RICO claim
that “accrued between September 24, 2007 and July 31, 2010.”
(Docket No. 12 at pp. 23-26.)
Defendants do not support their
request, however, with any argument as to how PRMEG knew or should
have known of its injury in 2010 or earlier.
According to the amended complaint, PRMEG first caught wind of
defendants’ fraudulent billing scheme in late 2013 when it received
a claim letter from MCS.
(Docket No. 20 at pp. 10-11.)
On
January 14, 2014, upon receiving a contract status list from HESL,
PRMEG
discovered
that
HESL
was
collecting
money
insurance companies for services PRMEG provided.
from
other
Id. at p. 10.
Accepting these allegations as true, the Court reasonably infers
that PRMEG learned of its injuries caused by IEP’s RICO violations
sometime in late 2013. Furthermore, PRMEG alleges that even though
defendants knew that insurance companies were being double-billed,
defendants continued to represent to PRMEG that there was no issue
with PRMEG billing the insurance companies.
Id. at p. 20.
The
Court infers from this allegation that PRMEG had no information
that would have warranted an investigation into whether fraud was
taking place any time before 2013.
PRMEG’s original complaint,
filed on August 11, 2014, (Docket No. 1.), is thus well within the
four-year
limitations
argument is unavailing.
period,
and
defendants’
underdeveloped
Civil No. 14-1616 (FAB)
D.
22
Puerto Rico Law Claims
Defendants finally argue that, if PRMEG’s federal claims are
dismissed,
the
Court
should
decline
to
exercise
jurisdiction over its Puerto Rico law claims.
pp. 26-28.)
supplemental
(Docket No. 12 at
Because PRMEG’s section 1962(c) federal RICO claim
remains and grounds jurisdiction, defendants’ motion to dismiss the
Puerto Rico law claims is DENIED.
V.
For
the
reasons
CONCLUSION
discussed
above,
defendants’
motions
to
dismiss, (Docket Nos. 12, 35, 45), are GRANTED IN PART and DENIED
IN PART.
Defendants’ request for dismissal of PRMEG’s section
1962(b) RICO claim is GRANTED and the claim is DISMISSED WITH
PREJUDICE.
Defendants’ request for dismissal of PRMEG’s 1962(c)
RICO claim and Puerto Rico law claims is DENIED.
The Court GRANTS plaintiff PRMEG leave to file a second
amended complaint that satisfies Rule 9(b)’s heightened pleading
standard for allegations of fraud on or before September 4, 2015.
The Court extends the deadline for filing motions to dismiss to
October 2, 2015.
If the parties need more time, they must request
it.
The
following
deadlines
in
the
Scheduling
Order
(Docket
No. 18) remain unchanged, unless the parties need and request more
time:
November 9, 2015 (conclusion of discovery); January 8, 2016
(motions for summary judgment); and May 9, 2016 (trial).
Civil No. 14-1616 (FAB)
23
IT IS SO ORDERED.
San Juan, Puerto Rico, August 7, 2015.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE
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