Diamond Consortium, Inc. et al v. Hammervold et al
MEMORANDUM OPINION AND ORDER re 6 AMENDED MOTION to Dismiss filed by Hammervold, PLC, Mark Hammervold. ORDERED that Defendants Mark Hammervold and Hammervold, PLC's Amended Motion to Dismiss is hereby DENIED. Signed by Judge Amos L. Mazzant, III on 6/30/2017. (Original Order docketed as #180 in Case No 4:16cv94). (kls, )
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United States District Court
EASTERN DISTRICT OF TEXAS
DIAMOND CONSORTIUM, INC., DAVID
BRIAN MANOOKIAN, CUMMINS
MANOOKIAN, PLC, THE DALLAS
MORNING NEWS, INC, BRIAN
CUMMINGS, MARK HAMMERVOLD,
Civil Action No. 4:16-CV-00094
MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendants Mark Hammervold and Hammervold, PLC’s
Amended Motion to Dismiss (Dkt. #137). Having considered the pleadings, the Court finds that
the motion should be denied.
Plaintiff Diamond Consortium, Inc. d/b/a The Diamond Doctor (“The Diamond Doctor”)
is a retailer and wholesaler of diamonds and other jewelry. Plaintiff David Blank (“Blank”) owns
The Diamond Doctor (collectively, “Plaintiffs”). Plaintiffs allege that Defendant Brian Manookian
(“Manookian”) and his law firm, Defendant Cummings Manookian, PLC (“Cummings
Manookian”) engaged in a scheme to defame and extort Plaintiffs. According to Plaintiffs,
Manookian created websites and distributed fliers falsely accusing The Diamond Doctor of having
committed “diamond fraud” and “cheating customers through the sale of over-graded diamonds.”
Plaintiffs allege that Manookian threatened Plaintiffs with several diamond over-grading lawsuits,
unless Plaintiffs retained Cummings Manookian as counsel and paid a $25,000 monthly retainer
fee for a period of 120 months, totaling three million dollars. Plaintiffs state that Manookian told
Blank that if Cummings Manookian represented The Diamond Doctor, Manookian would be
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conflicted out of continuing any negative advertising campaigns. The Diamond Doctor did not
retain Cummings Manookian. Plaintiffs allege that Manookian continued to defame Plaintiffs
utilizing websites, Facebook posts, YouTube videos, fliers, and door hangers accusing Blank and
The Diamond Doctor of being “fraudsters” and “stealing customers cash.” Plaintiffs allege that
Manookian has threatened several other jewelers with similar “smear campaigns” to extort the
jewelers into paying Cummings Manookian large retainer fees.
Plaintiffs further allege that Defendant Mark Hammervold and his law firm, Defendant
Hammervold, PLC (collectively, the “Hammervold Defendants”) “are necessary to Manookian’s
illegal acts . . . because Manookian solicits clients to sue the targeted jewelers and then refers those
cases to Hammervold and/or Hammervold, PLC to prosecute, thereby avoiding the appearance of
a conflict when Manookian subsequently enters into ‘engagement agreements’ to represent the
targeted jewelers as part of his extortion scheme.” Plaintiffs allege that Cummings Manookian,
and the Hammervold Defendants are members of an association-in-fact enterprise because they
“together function as a unit with a common purpose: extorting millions of their victims.” Plaintiffs
bring claims against the Hammervold Defendants for violations of the Racketeer Influenced
Corrupt Organizations Act, 18 U.S.C. § 1962(c) (the “RICO Act”) and for civil conspiracy.
On October 26, 2016, Plaintiffs filed a Consolidated Amended Complaint (Dkt. #131). On
November 9, 2016, the Hammervold Defendants filed the pending amended motion to dismiss
(Dkt. #137). On December 9, 2016, Plaintiffs filed a response (Dkt. #147). On December 23,
2016, the Hammervold Defendants filed a reply (Dkt. #151). On December 30, 2016, Plaintiffs
filed a sur-reply (Dkt. #153).
The Federal Rules of Civil Procedure require that each claim in a complaint include a “short
and plain statement . . . showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Each
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claim must include enough factual allegations “to raise a right to relief above the speculative level.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
A Rule 12(b)(6) motion allows a party to move for dismissal of an action when the
complaint fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). When
considering a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded
facts in plaintiff’s complaint and view those facts in the light most favorable to the plaintiff.
Bowlby v. City of Aberdeen, 681 F.3d 215, 219 (5th Cir. 2012). The Court may consider “the
complaint, any documents attached to the complaint, and any documents attached to the motion to
dismiss that are central to the claim and referenced by the complaint.” Lone Star Fund V (U.S.),
L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). The Court must then determine
whether the complaint states a claim for relief that is plausible on its face. ‘“A claim has facial
plausibility when the plaintiff pleads factual content that allows the [C]ourt to draw the reasonable
inference that the defendant is liable for the misconduct alleged.’” Gonzalez v. Kay, 577 F.3d 600,
603 (5th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “But where the wellpleaded facts do not permit the [C]ourt to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Iqbal,
556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
In Iqbal, the Supreme Court established a two-step approach for assessing the sufficiency
of a complaint in the context of a Rule 12(b)(6) motion. First, the Court should identify and
disregard conclusory allegations, for they are “not entitled to the assumption of truth.” Iqbal, 556
U.S. at 664. Second, the Court “consider[s] the factual allegations in [the complaint] to determine
if they plausibly suggest an entitlement to relief.” Id. “This standard ‘simply calls for enough
facts to raise a reasonable expectation that discovery will reveal evidence of the necessary claims
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or elements.’” Morgan v. Hubert, 335 F. App’x 466, 470 (5th Cir. 2009) (citation omitted). This
evaluation will “be a context-specific task that requires the reviewing [C]ourt to draw on its judicial
experience and common sense.” Iqbal, 556 U.S. at 679.
Thus, “[t]o 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.”’ Id. at 678 (quoting
Twombly, 550 U.S. at 570).
RICO Act Claims
To state a claim for a RICO Act violation, Plaintiffs must allege each of the following
elements: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”
Manax v. McNamara, 842 F.2d 808, 811 (5th Cir. 1988) (citing 18 U.S.C § 1962(c)). The
Hammervold Defendants move for dismissal pursuant to Rule 12(b)(6) arguing Plaintiffs have not
pleaded sufficient facts showing the requisite predicate acts of racketeering activity and the
existence of a RICO Act enterprise. The Court finds Plaintiffs have pleaded sufficient facts to
state plausible claims of Rico Act violations.
Requisite Predicate Acts of Racketeering Activity
The Hammervold Defendants first argue that Plaintiffs have not pleaded the requisite
predicate acts of racketeering activity required for a RICO Act claim. “A pattern of racketeering
activity requires two or more predicate acts and a demonstration that the racketeering predicates
are related and amount to or pose a threat of continued criminal activity.” Brown v. Protective Life
Ins. Co., 353 F.3d 405, 407 (5th Cir. 2003). Plaintiffs allege that Manookian engaged in a pattern
of racketeering activity consisting of violations of four federal criminal statutes: 18 U.S.C.§ 1341
(mail fraud); 18 U.S.C. § 1343 (wire fraud); 18 U.S.C. § 1951 (the Hobbs Act); and 18 U.S.C §
1953 (the Travel Act). Plaintiffs have sufficiently pleaded plausible facts to state a claim of mail
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fraud, wire fraud, and violations of the Travel Act and thus have sufficiently pleaded a pattern of
Mail Fraud, Wire Fraud, and the Travel Act
“The mail fraud statute applies to anyone who knowingly causes to be delivered by mail
anything for the purpose of executing any scheme or artifice to defraud.” United States v. Whitfield,
590 F.3d 325, 355 (5th Cir.2009) (internal citations and quotation marks omitted). Similarly, wire
fraud involves the use of, or causing the use of, wire communications in furtherance of a scheme
to defraud. United States v. Stalnaker, 571 F.3d 428, 436 (5th Cir.2009). “Once membership in a
scheme to defraud is established, a knowing participant is liable for any wire communication which
subsequently takes place or which previously took place in connection with the scheme.” Id. The
Travel Act prohibits travel in interstate commerce or use of interstate facilities to promote or carry
on certain unlawful activities. 18 U.S.C. § 1952.
Plaintiffs allege that Manookian engaged in “an attempt to defraud through a systematic
scheme of targeting The Diamond Doctor through a barrage of false, misleading, and harassing
publicity on the internet, social media, email, and fliers” (Dkt. #131 at ¶ 103). Plaintiffs allege
that “Manookian participated in the fraudulent scheme . . . knowingly, willfully, and with specific
intent to generate fear on the part of The Diamond Doctor such that The Diamond Doctor would
execute the [engagement agreement] and pay Manookian $3 million.” (Dkt. #131 at ¶ 105).
Plaintiffs also allege that the Hammervold Defendants knowingly accepted referrals of cases to
prosecute against The Diamond Doctor and other targeted jewelers as part of Manookian’s scheme
to extort jewelers. Plaintiffs allege the Hammervold Defendants are a necessary part of the scheme
because they allow Manookian and his firm to avoid an appearance of conflict when they enter
into engagement agreements with the targeted jewelers.
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Plaintiffs have sufficiently alleged that the Hammervold Defendants participated in a
scheme to defraud Plaintiffs of three million dollars. Defendants point to Manax v. McNamara,
660 F. Supp. 657 (1987) to argue that Plaintiffs have not pleaded sufficient facts to support a claim
for mail and wire fraud or a violation of the travel act. In Manax, a defendant lawyer similarly
initiated an investigation into plaintiff, allegedly spread defamatory information regarding
plaintiff, and referred medical malpractice claims to a co-defendant lawyer to file against plaintiff.
In that case, the court found that the alleged scheme “when reduced to its essentials, appears to be
one to damage the reputation of [plaintiff] and is in no way a ‘fraud’ on his tangible or intangible
rights.” Id. at 660. In that case, there was no allegation, as there is here, that the scheme intended
to defraud plaintiff of his property. Here, Plaintiffs have sufficiently pleaded that Manookian’s
scheme had the express purpose of coercing Plaintiffs into retaining Cummings Manookian and
paying Manookian three million dollars.
Plaintiffs have also sufficiently alleged that the
Hammervold Defendants were a necessary part of this scheme to allow Manookian and his firm to
avoid an appearance of conflict when they entered into engagement agreements.
Plaintiffs have pleaded sufficient facts to state a claim of the requisite predicate acts of
racketeering activity required for a RICO Act claim.
Although Plaintiffs have sufficiently pleaded requisite predicate acts of racketeering
activity required for a RICO Act claim, Plaintiffs have not pleaded a claim for a violation of the
Hobbs Act. “[T]he extortion provision of the Hobbs Act . . . require[s] not only the deprivation
but also the acquisition of property.” Scheidler v. Nat'l Org. for Women, Inc., 537 U.S. 393, 404
(2003) (noting that acts of interference and disruption that shut down a clinic that performed
abortions “did not constitute extortion because petitioners did not ‘obtain’ respondents’
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property . . . To conclude that such actions constituted extortion would effectively discard the
statutory requirement that property must be obtained from another, replacing it instead with the
notion that merely interfering with or depriving someone of property is sufficient to constitute
Plaintiffs’ complaint states “Manookian attempted to obtain The Diamond Doctor’s
property (i.e., $25,000 per month for 10 years or $3 million).” (emphasis added). However,
Plaintiffs do not allege that Defendants actually obtained Plaintiffs property, even if their actions
were disruptive to The Diamond Doctor’s business. Plaintiffs’ have not stated a Hobbs Act claim.
Plaintiffs’ Hobbs Act claim cannot serve as requisite predicate acts of racketeering activity
required for a RICO Act claim
Existence of a RICO Association-In-Fact Enterprise
The Hammervold Defendants next contest the existence of a RICO association-in-fact
enterprise. RICO defines an 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). Plaintiffs allege that Cummings Manookian and the Hammervold
Defendants are members of an association-in-fact enterprise. An association-in-fact enterprise
“(1) must have an existence separate and apart from the pattern of racketeering, (2) must be an
ongoing organization, and (3) its members must function as a continuing unit as shown by a
hierarchical or consensual decision making structure.” Allstate Ins. Co. v. Plambeck, 802 F.3d
665, 673 (5th Cir. 2015). “A pattern of racketeering activity does not, by itself, necessarily show
that an enterprise exists . . . But the evidence establishing the enterprise and the pattern of
racketeering may ‘coalesce.’” Id. (citations omitted). “An association-in-fact enterprise is simply
a continuing unit that functions with a common purpose. Such a group need not have a hierarchical
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structure or a ‘chain of command’ . . . members of the group need not have fixed roles.” Boyle v.
United States, 556 U.S. 938, 948 (2009).
The Hammervold Defendants argue that “there is no allegation that shows the existence of
an enterprise or an association-in-fact, separate and apart from the alleged pattern of racketeering
activity.” As discussed above, Plaintiffs have sufficiently pleaded that Manookian and the
Hammervold Defendants engaged in racketeering activity of mail fraud, wire fraud, and violations
of the Travel Act. Separate and apart from this activity, Plaintiffs allege the Hammervold
Defendants represent Manookian in unrelated litigations and have acted as co-counsel with
Manookian in unrelated litigations (Dkt. #131 at ¶ 18).
Further, evidence establishing the
enterprise and the pattern of racketeering may “coalesce.” Plambeck, 802 F.3d at 673. Plaintiffs
here have sufficiently alleged Manookian referred litigation to the Hammervold Defendants,
including the litigations that formed part of the alleged racketeering activity.
Plaintiffs have pleaded plausible facts of the existence of an enterprise or association-infact.
The Hammervold Defendants argue the Court should dismiss Plaintiffs’ civil conspiracy
claims because the factual basis for the claims is premised “on absolutely privileged activity.”
(Dkt. #137 at p. 19). The Hammervold Defendants state that the Texas Citizen’s Participation Act
(“TCPA”) protects individuals from retaliatory lawsuits if a defendant shows that a plaintiff’s
claim is based on, relates to, or is in response to the defendant’s exercise of the right to petition.
(Dkt. #137 at p. 20 (citing Tex. Civ. Prac. & Rem. Code § 27.005(b)). The Hammervold
Defendants argue the TCPA applies because the sole factual basis for Plaintiffs’ claims is the
allegation that Hammervold accepted client referrals from Manookian.
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Plaintiffs respond that The Hammervold Defendants’ willingness and availability to
prosecute claims against The Diamond Doctor and other jewelers is part of Manookian’s overall
scheme to extort jewelers.
Plaintiffs allege that outside of any judicial proceeding, the
Hammervold Defendants and Manookian “agreed and conspired to smear the business names and
ownership of various jewelry retailers across the country, including, without limitation, The
Diamond Doctor, and extort millions of dollars from them.” (Dkt. #131 at ¶ 116).
“Under Texas law, it is well settled that any communication, oral or written, uttered or
published in the due course of a judicial proceeding is absolutely privileged and cannot constitute
the basis of a civil action.” Beta Health All. MD PA v. Kelley Witherspoons LLP, No. CIV A 309CV-0399-BF, 2009 WL 2222630, at *2 (N.D. Tex. July 22, 2009). Here, Plaintiffs allege the
Hammervold Defendants conspired with Manookian to file suit against Plaintiffs as part of the
fraud and extortion scheme. This scheme, and not the judicial proceedings themselves, form the
basis of Plaintiffs civil action. Plaintiffs have pleaded sufficient facts to state a plausible claim of
It is therefore ORDERED that Defendants Mark Hammervold and Hammervold, PLC’s
Amended Motion to Dismiss (Dkt. #137) is hereby DENIED.
SIGNED this 26th day of April, 2017.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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