Heslep et al v. Americans For African Adoptions, Inc. et al
Filing
79
MEMORANDUM OPINION AND ORDER: It is ORDERED that Defendants' 42 First Motion to Dismiss is granted in part and denied in part (grants the motion to dismiss the Board and dismisses the Board with prejudice; denies without prejudice the motion t o dismiss the individual directors; denies the motion to dismiss counts 1, 2, 3, 4 and 6; grants the motion to dismiss counts 5, 7, and 8 and dismisses counts 5, 7, and 8 without prejudice); Defendants' 57 Second Motion to Dismiss is denied; Scheduling Conference set for 9/17/2012 01:00 PM in Clarksburg District Judge Courtroom, 2nd Floor before District Judge Irene M. Keeley. Signed by District Judge Irene M. Keeley on 8/27/12. (cnd)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
JAMES WILLIAM HESLEP, and
CAREY WATERS HESLEP,
Plaintiffs,
v.
//
CIVIL ACTION NO. 1:11CV56
(Judge Keeley)
AMERICANS FOR AFRICAN
ADOPTION, INC.; CHERYL
CARTER-SHOTTS; and
BOARD OF DIRECTORS, AMERICANS
FOR AFRICAN ADOPTION, INC.,
Defendants.
MEMORANDUM OPINION AND ORDER
GRANTING IN PART AND DENYING IN PART DEFENDANTS’ FIRST MOTION
TO DISMISS [DKT. NO. 42], DENYING DEFENDANTS’ SECOND MOTION TO
DISMISS [DKT. NO. 56], AND SCHEDULING A SCHEDULING CONFERENCE
On January 30, 2012, the defendants, Cheryl Carter-Shotts
(“Carter-Shotts”), Americans for African Adoption, Inc. (“AFAA,
Inc.”), and its Board of Directors (“the Board”) (collectively,
“AFAA”), filed a Motion to Dismiss pursuant to Fed. R. Civ. P.
12(b)(2),(4),(5), and (6) and 4(m). On May 8, 2012, AFAA filed a
second Motion to Dismiss pursuant to Rule 12(b)(7). For the reasons
that follow, the Court GRANTS IN PART and DENIES IN PART AFAA’s
first Motion to Dismiss (dkt. no. 42), and DENIES its second Motion
to Dismiss (dkt. no. 56).
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
I.
A.
In the summer of 2007, the plaintiffs, James and Carey Heslep
(“the Hesleps”), decided to adopt a child from the Republic of
Uganda (“Uganda”). According to the Hesleps, after considering
several agencies and speaking with AFAA Inc.’s President and
Managing Director, Carter-Shotts, they entered into an “illusory
contract” with AFAA on August 6, 2007 under which AFAA would
provide adoption services to the Hesleps in both the United States
and Uganda. (Dkt. No. 3 at ¶ 19). To facilitate the international
adoption process, AFAA identified Joseph Kagimu (“Kagimu”), a
Ugandan citizen, as an AFAA employee who would coordinate the
adoption in Uganda.
Following
several
months
of
preparation
by
the
Hesleps,
including undergoing an adoptive home study and petitioning for
advanced processing (“the petition”) through the United States
Citizenship
and
Immigration
Services
(“USCIS”),
Carter-Shotts
informed them on May 10, 2008 that AFAA had identified an orphaned
boy named “Sam” who met the approval criteria in their home study
and was living in a Ugandan orphanage operated by AFAA. CarterShotts
sent
them
information
that
indicated
Sam’s
paternal
grandmother had brought him to the AFAA orphanage after his father
2
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
had died while serving in the military, and his mother had died in
an accident.
The Hesleps agreed to proceed with the adoption and, on May
10, 2008, began supporting Sam through AFAA foster care, paying
$200
per
month
to
cover
his
housing,
food,
healthcare,
and
schooling. They also began to develop a personal relationship with
Sam; over the next fifteen months, the Hesleps communicated with
him through video and letters. Then, on September 4, 2009, CarterShotts informed the Hesleps that they needed to appear before the
High Court of Uganda to be named Sam’s legal guardians. Per CarterShotts’s instructions, the Hesleps traveled to Uganda where Kagimu
gave them physical custody of Sam on September 12, 2009. On
September 17th, the High Court of Uganda named them Sam’s legal
guardians.
On September 29, 2009, when the Hesleps applied for an IR-4
visa for Sam from the United States Embassy in Uganda (“the
Embassy”),
the
Embassy
informed
them
that
it
was
opening
an
investigation into irregularities in Sam’s documents, specifically
his parents’ death certificates. While the investigation proceeded,
James Heslep returned to the United States, and Carey Heslep
remained in Uganda to care for Sam. Two weeks later, on October 15,
2009, the
Embassy
reported
that
3
Kagimu
had forged
the
death
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
certificates of Sam’s parents. The Hesleps later learned that Sam’s
parents are actually alive and that Kagimu is now imprisoned in
Uganda on charges of fraud, forgery and embezzlement.
Carey Heslep returned to the United States on October 20th,
leaving Sam in Uganda. On February 9, 2010, USCIS notified the
Hesleps that AFAA held no legal authority in Uganda to assist in
the adoption; that AFAA had failed to obtain appropriate legal
custody of Sam under Ugandan law; and that “AFAA, knowingly and
admittedly, provided false death certificates for the birth parents
of [Sam].” (Dkt. No. 45-2 at 2-3). On February 24, 2010, the
Hesleps withdrew their USCIS petition and, on April 1, 2010,
returned Sam to the care of his biological grandmother in Uganda.
B.
On April 25, 2011, the Hesleps filed this suit pursuant to 28
U.S.C. §§ 1331 and 1332 against the defendants, AFAA, Inc., CarterShotts, and AFAA’s Board of Directors, which includes Carter-Shotts
and individual members named Anne Duffus (“Duffus”), Anne Marie
Merril (“Merril”), Temple Moorehead (“Moorehead”), and Suzanne
Terrant (“Terrant”). In their complaint, the Hesleps allege that
the defendants’ fraudulent actions and misrepresentations caused
them to suffer emotional distress and financial losses, including
more than $10,000 they paid to AFAA directly, and several thousand
4
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
dollars more in foster care expenses, adoption fees, and travel
costs. They further claim that AFAA has defrauded at least five
other couples in a similar manner and is part of an illicit
enterprise that targets prospective adoptive parents. The Hesleps
also allege that, to perpetrate its scheme, AFAA violated federal
mail and wire fraud statutes, including 18 U.S.C. §§ 1341 and 1343.
Their complaint asserts nine causes of action: (1) violations
of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act,
18 U.S.C. §§ 1961 and 1962, (2) fraudulent misrepresentation and
inducement,
(3)
(“IIED”), (4)
intentional
infliction
of
emotional
distress
negligent hiring, (5) negligent supervision, (6)
negligent retention, (7) negligent administration of a program, (8)
negligent
infliction
of
emotional
distress
(“NIED”),
and
(9)
punitive damages.
On January 30, 2012,1 the defendants filed a motion to dismiss
the Hesleps’ claims, arguing that (1) the Board should be dismissed
because it lacks capacity to be sued, (2) the individual directors
should be dismissed for lack of personal jurisdiction, immunity
1
On July 22, 2011, Carter-Shotts filed a pro se Motion to Dismiss
on behalf of herself and the other defendants. (Dkt. No. 13). Because
Carter-Shotts is not an attorney, the Court advised her that she could
not represent her co-defendants and granted the defendants leave to
retain counsel. (Dkt. No. 38). Counsel for the defendants filed notices
of appearance on January 30, 2012, along with their first Motion to
Dismiss.
5
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
from negligence liability under W. Va. Code § 55-7C-3 and Indiana
Code § 23-17-13-1,2 and improper service; (3) the fraud claim
should be dismissed for failure to satisfy the heightened pleading
standard of Fed. R. Civ. P. 9(b); and (4) the remaining claims
should be dismissed for failure to state a cause of action. (Dkt.
No. 42). The parties later agreed to attempt to resolve their
dispute through mediation on April 23, 2012, but were unsuccessful.
Then, on May 8, 2012, the defendants filed a second motion to
dismiss, arguing that the plaintiffs had failed to join AFAAUganda, which they contend is a separate and distinct entity from
AFAA and, thus, a necessary and indispensable party to this case.
(Dkt. No. 56).
II.
The Court considers first whether the Board of Directors has
the capacity to be sued. AFAA argues that the Board must be
dismissed because it is not a distinct legal entity subject to
2
Although neither party has argued that Indiana law, or the laws
of any state other than West Virginia, should apply in this case, the
defendants contest the plaintiffs’ negligence claims under both West
Virginia and Indiana law, presumably because AFAA, Inc. is headquartered
in Indiana. With respect to the other state law causes of action, e.g.
fraud and intentional infliction of emotional distress, the defendants
only advance arguments under West Virginia law.
Because there appears to be no dispute that the plaintiffs’ claims
arise in the Hesleps’ home state of West Virginia and because the parties
have not argued otherwise, the Court considers the sufficiency of the
plaintiffs’ state law claims under West Virginia law.
6
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
suit; the plaintiffs, however, maintain that the Board is a proper
party to this case.
It is important to note that the plaintiffs have sued only the
Board,
and
not
its
members
in
their
individual
capacities.3
Although their complaint, under the heading “Parties,” identifies
Duffus, Merrill, Moorehead, and Terrant as individual directors
(dkt. Do. 3 at ¶¶ 8, 9, 10, 11), the style of the case names only
Carter-Shotts,
AFAA,
Inc.,
and
its
“Board
of
Directors”
as
defendants (id. at 1). Additionally, the plaintiffs concede that
they served the “Board of Directors” at AFAA’s headquarters in
Indianapolis, but have made no attempt to serve the individual
directors due to difficulties in ascertaining their identities.
(Dkt. No. 45 at 18). Moreover, the complaint asserts no factual
allegations against the individual directors and mentions them only
twice: First, in Count One, as individuals comprising the alleged
RICO enterprise (id. at ¶ 77); and second, in Count Seven, as
members
of
the
Board,
which
allegedly
breached
its
duty
to
administer an international adoption program (id. at ¶ 129).
3
On August 24, 2012, the plaintiffs filed a Motion for Leave to
File an Amended Complaint (dkt. no. 77) seeking to join the individual
directors as defendants. This matter is not fully briefed and will be
addressed during the Scheduling Conference on September 17, 2012.
7
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
Pursuant to Fed. R. Civ. P. 17(b), a non-corporate entity’s
capacity to sue and be sued is governed “by the law of the state
where the court is located.” In West Virginia, a corporate “board
of directors is not a legal entity separate and apart” from the
corporation itself and, thus, should not be named as a separate
party. Mainella v. Bd. of Trs., 27 S.E.2d 486, 488 (W. Va. 1943).
This rule reflects the well-settled principle that “[t]he corporate
entity does not exist separate from its board of directors.” Jule,
Inc. v. Boggs, 270 S.E.2d 679, 683 (W. Va. 1980). “[D]ue to the
nature of the body that is a board of directors, any action of the
board of directors is an action of the corporation.” Flarey v.
Youngstown Osteopathic Hosp., 783 N.E.2d 582, 585 (Ohio 2002);
see also Willmschen v. Trinity Lakes Improvement Ass’n, 840 N.E.2d
1275, 1280-81
(Ill.
directors]
a
is
2005)
separate
(“[The]
entity
belief
capable
that
of
[a]
being
board
sued
[of
is
a
misconception of what a board of directors is and how it functions
within the corporate structure.”).
Here, although AFAA, Inc. is a legal person incorporated under
Indiana law, AFAA’s Board of Directors is not a legal entity
separate and apart from the corporation it directs. See Mainella,
27 S.E.2d at 488. As alleged in the complaint, AFAA, Inc. holds
itself out as being controlled by the Board, so that its actions
8
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
and those of the Board are one in the same. See Flarey, 783 N.E.2d
at 585. As such, the Board does not exist separate from AFAA, Inc.,
see Boggs, 270 S.E.2d at 683, and, thus, lacks capacity to be sued
under Fed. R. Civ. P. 17(b) and is dismissed.4
With respect to the defendants’ motions to dismiss AFAA’s
individual directors for lack of personal jurisdiction and improper
service of process, the Court has found that the plaintiffs have
not sued these persons. Therefore, the defendants’ motions to
dismiss the individual directors are not ripe for review.
III.
The Court turns next to the defendants’ argument that it
should dismiss the case pursuant to Fed. R. Civ. P. 12(b)(7)
because the plaintiffs’ failed to join a necessary party. AFAA
argues that Kagimu was an employee of AFAA-Uganda, an entity
distinct from AFAA-United States, and this case should not proceed
in the absence of AFAA-Uganda.
4
While the Court agrees with the plaintiffs that, under W. Va. Code
55-7C-3, a qualified director of a nonprofit organization may be exposed
to liability “when he or she is found to be grossly negligent,” the
statute permits liability for individual directors, not the board as a
separate entity. W. Va. Code. 55-7C-2 (defining “qualified director” as
“an individual who serves without compensation for personal services as
an officer, member or director of a board, commission, committee, agency
or other nonprofit organization which is a volunteer organization or
entity”).
9
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
A.
Fed. R. Civ. P. 19 establishes a two-step inquiry to determine
whether an action may continue without the joinder of additional
parties. Nat’l Union Fire Ins. Co. v. Rite Aid of South Carolina,
Inc., 210 F.3d 246, 249 (4th Cir. 2000). The Court first must
determine whether the absent party is “necessary” to the action
such that,
in
the
party’s absence,
“the
court
cannot afford
complete relief.” Fed. R. Civ. P. 19(a). The Court must then
determine whether “in equity and good conscience, the action should
proceed among the existing parties or should be dismissed.” Fed. R.
Civ. P. 19(b). Rule 19 outlines several factors for the Court to
consider
in
determining
whether
a
necessary
party’s
absence
warrants dismissal, including “the extent to which a judgment
rendered in the person’s absence might prejudice that person or the
existing
parties,”
the
available
options
for
mitigating
any
prejudice, the adequacy of a judgment in the necessary party’s
absence, and “whether the plaintiff would have an adequate remedy
if the action were dismissed for non-joinder.” Id.
“Dismissal of a case is a drastic remedy, however, which
should be employed only sparingly.” Nat’l Union Fire Ins., 210 F.3d
at 250 (quoting Teamsters Local Union No. 171 v. Keal Driveway Co.,
173 F.3d 915, 918 (4th Cir. 1999). “In determining whether to
10
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
dismiss
a
complaint,
a
court
must
proceed
pragmatically,
‘examin[ing] the facts of the particular controversy to determine
the potential for prejudice to all parties, including those not
before it.’” Id. The party moving for dismissal under Rule 12(b)(7)
bears the burden of showing an absent party is necessary and
indispensable. Branch Banking & Trust Co. v. First Am. Title Ins.
Co., No. 5:11CV473, 2012 WL 529926, at *6 (S.D.W. Va. Feb. 17,
2012).
B.
The
defendants
argue
that
the
Hesleps
wrongfully
have
conflated two separate and distinct business entities: AFAA-United
States and AFAA-Uganda. They contend that, in 2007, Kagimu, who was
at that time an administrator of the AFAA-supported orphanage in
Uganda,
unilaterally
established
a
separate
organization
appropriating the AFAA name. In the defendants’ view, Kagimu’s
company, which they call AFAA-Uganda, is responsible for any
wrongdoing alleged in the complaint because, if Kagimu did forge
death certificates for Sam’s parents, he did so in his capacity as
an employee of AFAA-Uganda, not AFAA-United States. Therefore, the
defendants
contend
that
AFAA-Uganda
is
both
a
necessary
and
indispensable party to this case because the Court cannot afford
11
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
complete relief among the existing defendants, who, in their view,
are not liable for Kagimu’s actions.
The defendants, however, have offered no support for their
allegation that AFAA-Uganda exists as a distinct entity, and there
are facts in the record controverting their claim. For example, in
2008, a year after Kagimu allegedly established AFAA-Uganda, the
defendants prepared a power of attorney form for the Hesleps, in
which AFAA describes itself as a “not-for-profit, international
adoption
agency,
and
a
Uganda
registered
NGO,
based
in
Indianapolis, USA.” (Dkt. No. 45-1). The form draws no distinction
between an American and Ugandan AFAA. Instead, the company holds
out
Kagimu
and
Carter-Shotts
as
“Uganda
and
U.S.
staff
of
‘Americans For African Adoptions, Inc.’” authorized to “prepare and
sign all documents . . . [as] AFAA employees.” Id.
These facts undermine the defendants’ attempt to portray AFAAUganda as a distinct entity or subsidiary, much less one that is
necessary and indispensable to this action. Even if AFAA-Uganda
does exist, the defendants have not met their burden of showing why
“the court cannot afford complete relief” in its absence. See Fed.
R. Civ. P. 19(a). To the extent the Hesleps’ claims are based on
Kagimu’s wrongdoing, that is only one piece of a broader scheme of
12
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
fraud alleged against all the defendants in both Uganda and the
United States.
Moreover, the defendants have not established how they would
be prejudiced, if at all, by the absence of AFAA-Uganda, which,
even if it does exist, is not the object of the plaintiffs’ claims.
The defendants’ argument that they are entirely dissociated from
Kagimu is unavailing and, to the extent they are prejudiced by his
absence, such prejudice does not justify the “drastic remedy” of
dismissing the plaintiff’s case. See Nat’l Union Fire Ins., 210
F.3d at 250. Generally, courts have only found cause to dismiss a
case for failure to join a nondiverse party because the plaintiffs
have an alternative forum available in state court. See Freeman v.
Nw. Acceptance Corp., 754 F.2d 553, 560 (5th Cir. 1985). Such is
not the case here, where the plaintiffs have no alternate forum in
which to file suit. Joinder of AFAA-Uganda or Kagimu would be
infeasible in any court because Kagimu is imprisoned in Uganda.
Therefore,
because
dismissal
of
this
case
would
leave
the
plaintiffs without an adequate remedy for their claims, the Court
cannot in “equity and good conscience” dismiss their case for nonjoinder. See Fed. R. Civ. P. 19(b).
13
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
IV.
Next, the Court looks to the merits of the Hesleps’ claims and
AFAA’s motion to dismiss under Fed. R. Civ. P. 12(b)(6). The
defendants argue that none of the alleged causes of action states
a plausible claim for relief.
A.
To survive a motion to dismiss filed pursuant to Fed. R. Civ.
P.
12(b)(6),
a
complaint
must
contain
factual
allegations
sufficient to state a plausible claim for relief. Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1949 (2009); Bell Atl. Corp. v. Twombly,
550 U.S. 544, 557 (2007). In its determination, the Court must
consider all well-pled factual allegations in a complaint as true
and construe them in the light most favorable to the plaintiff.
Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250,
253 (4th Cir. 2009). The Court may also consider facts derived from
sources
beyond
the
four
corners
of
the
complaint,
including
documents attached to the complaint, documents attached to the
motion to dismiss “so long as they are integral to the complaint
and authentic,” and facts subject to judicial notice under Fed. R.
Evid. 201. Philips v. Pitt Cnty. Mem’l Hosp., 572 F.3d 176, 180
(4th Cir. 2009) (citing Blankenship v. Manchin, 471 F.3d 523, 526
14
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
n.1 (4th Cir. 2006)); see also Katyle v. Penn Nat. Gaming, Inc.,
637 F.3d 462, 466 (4th Cir. 2011).
B.
As to Count One, AFAA contends that the plaintiffs have failed
to state a cause of action under RICO, 18 U.S.C. § 1964(a) and (c).
Subsections (a) and (c) of § 1964 both provide civil remedies for
violations of 18 U.S.C. § 1962, which, in pertinent part, provides:
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, directly or
indirectly, in the conduct of such enterprise’s affairs
through a pattern of racketeering activity or collection
of unlawful debt.
Id. § 1962(c).
The defendants argue that the Hesleps’ RICO claim fails to
allege (1) the existence of an “enterprise” distinct from the
individual
defendants,
(2)
the
predicate
acts
necessary
to
constitute racketeering activity, and (3) a pattern of racketeering
activity.
1.
To sustain a cause of action under RICO, the plaintiff must
allege the existence of an “enterprise,” which consists of “any
individual, partnership, corporation, association, or other legal
entity, and any union or group of individuals associated in fact
15
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
although not a legal entity.” 18 U.S.C. § 1961(4). An enterprise
can
exist
as
either
a
legal
entity,
or
“merely
a
group
of
individuals associated in fact.” United States v. Griffith, 660
F.2d 996, 999 (4th Cir. 1981). An “associated in fact” enterprise
“requires proof of a ‘common purpose’ animating its associates, and
this may be done by an ‘on-going organization, formal or informal,’
in which they function as a ‘continuing unit.’” Id. at 1000
(quoting United States v. Turkette, 452 U.S. 576, 583 (1981)).
In this case, under RICO, the Hesleps allege an associated in
fact enterprise consisting of AFAA, Inc., Carter-Shotts, Kagimu,
and individual members of AFAA’s board of directors. The defendants
argue that the individual board members cannot be part of a
separate “enterprise” with AFAA, Inc. because the corporation
necessarily functions through its employees and agents. They argue
that all of the board members are part of one entity, AFAA, Inc.,
and thus, there is no distinct enterprise because “an individual
cannot associate or conspire with himself.” See River City Mkts,
Inc. v. Fleming Foods W., Inc., 960 F.2d 1458, 1461 (9th Cir.
1992).
This Court addressed a similar argument in Cooke & Moses, LLC
v. QSS-Engineered Systems Group, LLC, No. 1:06CV147, 2007 WL
2463288, at *6 (N.D.W. Va. Aug. 28, 2007), where it distinguished
16
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
the “intracorporate conspiracy doctrine” advanced by the defendants
from a situation in which “an employee [] conducts the affairs of
a corporation through illegal acts.” Id. (citing Cedric Kushner
Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001)). In that
instance, participants in a corporate enterprise may still qualify
as distinct persons under RICO if they “conduct the corporation’s
affairs in a RICO-forbidden way.” Cedric, 533 U.S at 163.
Here, the Hesleps have alleged facts sufficient to support a
claim that “the individual defendants, in conjunction with the
corporate defendants, are separate and apart from the illegitimate
enterprise
through
which
they
allegedly
sought
to
unlawfully
defraud the plaintiffs.” Id. at *7. They claim that Carter-Shotts
and other employees used AFAA, Inc. to defraud prospective parents
seeking to adopt children from Uganda. Moreover, they allege that
Carter-Shotts co-mingled her personal funds with AFAA accounts,
bolstering their claim that both the corporation and Carter-Shotts
individually participated in the fraudulent scheme. Whether the
individual employees acted within the scope of their employment and
on behalf of the corporation is of no import because, taking the
facts alleged as true and in the light most favorable to the
plaintiffs, their employment promoted the “common purpose” of an
illegitimate end. See Griffith, 660 F.2d at 999. Accordingly, the
17
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
Hesleps have sufficiently plead the existence of an enterprise as
required by 18 U.S.C. § 1961(4).
2.
The plaintiffs must also allege specific “predicate acts” of
racketeering activity to sustain a RICO claim. Here, the Hesleps
allege that the defendants engaged in at least fifteen instances of
mail fraud and wire fraud between July, 2007 and September, 2009.
(Dkt. No. 3 at ¶¶ 18, 30). Violations of 18 U.S.C. §§ 1341 (mail
fraud) and 1343 (wire fraud) constitute “acts of racketeering
activity” under 18 U.S.C. § 1961(1)(B), but AFAA contends the
plaintiffs
have
failed
to
plead
each
act
with
the requisite
specificity.
To prove a violation of the mail or wire fraud statutes, the
evidence must establish a scheme to defraud, the intent to defraud,
and the use of the mails or wire. Tri-County Elec. Co., Inc. v.
Dean, No. 92-85-E, 1994 WL 653489, at *4 (N.D.W. Va. Sept. 23,
1994) (citing United States v. Garner, 809 F.2d 1291, 1299 (7th
Cir. 1989)). Where a plaintiff alleges fraud, pursuant to Fed. R.
Civ. P. 9(b) “[m]alice, intent, knowledge, and other conditions of
mind of a person may be averred generally,” but “the circumstances
constituting fraud or mistake shall be stated with particularity.”
Fed. R. Civ. P. 9(b).
18
HESLEP v. AFAA
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MEMORANDUM OPINION AND ORDER
The
Fourth
Circuit
has
stated
that
“the
‘circumstances’
required to be pled with particularity under Rule 9(b) are ‘the
time, place, and contents of the false representations, as well as
the identity of the person making the misrepresentation and what he
obtained thereby.’” Harrison v. Westinghouse Savannah River Co.,
176 F.3d 776, 784 (4th Cir. 1999) (citing 5 Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure: Civil § 1297, at
590 (2d ed. 1990)). Where RICO claims are based on allegations of
mail or wire fraud, “the plaintiff ‘must have justifiably relied to
his detriment on the defendant's material misrepresentation.’” GE
Inv. Private Placement Partners II v. Parker, 247 F.3d 543, 548
(4th Cir. 2001) (quoting Chisolm v. TranSouth Fin. Corp., 95 F.3d
331, 337 (4th Cir. 1996)). The heightened pleading requirements for
fraud claims prompt a careful inquiry into the plaintiffs’ mail and
wire fraud allegations in Count One.
The Hesleps claim the defendants used emails, facsimiles,
letters, and telecommunications to materially misrepresent (1)
AFAA’s legal authority to assist in adoptions in Uganda, (2) the
success rate of AFAA adoptions, (3) Sam’s status as an orphan, and
(4) the authenticity of documents related to Sam’s biological
parents.
Moreover,
they
claim
the
defendants
acted
with
the
specific intent of obtaining the plaintiffs’ money or property.
19
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
The complaint alleges several facts in support of these
claims, including: (1) the Hesleps’ agreement to enter a contract
with
AFAA,
Inc.
on
August
6,
2007
based
on
Carter-Shotts’s
“representations and assurances” that AFAA was “an established nonprofit agency with a record of successful international adoption
work” (dkt. no. 3 at ¶¶ 18, 19); (2) Carter-Shotts’s telephone call
on May 10, 2008 representing that AFAA could offer Sam for adoption
(id. at ¶ 25); (3) written information sent by Carter-Shotts
shortly after May 10, 2008, detailing the death of Sam’s parents
(id. at ¶ 27); (4) AFAA’s solicitation of fifteen $200 monthly
payments to cover Sam’s foster care beginning on May 10, 2008 (id.
at ¶¶ 28, 29); (5) Carter-Shotts’s communication to the Hesleps on
September 4, 2009 that they needed to travel to Uganda to be named
Sam’s legal guardians (id. at ¶ 30); (6) and “numerous occasions”
in which Carter-Shotts “assured the Hesleps that Joseph Kagimu was
a trusted employee of AFAA and that his actions were consistent
with instructions given to him by AFAA” (id. at ¶ 40).
These detailed allegations sufficiently describe the “time,
place, and contents of the false representations” to satisfy Rule
9(b) as the claims pertain to the defendants Carter-Shotts and
AFAA, Inc. See Harrison, 176 F.3d at 784. When read together, and
in para materia with the plaintiffs’ general averments of the
20
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
defendants’ malicious intent throughout the complaint, these facts
state a plausible claim that Carter-Shotts, acting on behalf of
AFAA, Inc., used the mails or wire in an intentional scheme to
defraud the Hesleps. See Dean, 1994 WL 653489, at *4.
3.
Finally, the plaintiffs must allege a “pattern of racketeering
activity” to establish their RICO claim. The Hesleps allege that,
in addition to the numerous predicate acts relating to their
interactions with AFAA, the defendants also defrauded at least five
other prospective adoptive families in a similar scheme. AFAA
contends that
the
plaintiffs
fail
to
establish
a
pattern
of
activity because the majority of their claims concern a single
incident, and their allegations that AFAA defrauded other families
lack sufficient particularity.
A “pattern of racketeering activity” requires “at least two
acts of racketeering activity” within a ten-year period. 18 U.S.C.
§ 1961(5). While a minimum of two predicate acts is required, two
acts alone do not necessarily establish a pattern. Parker, 247 F.3d
at 549 (citing Sedima v. Imrex Co., Inc., 473 U.S. 479, 496 n.14,
497 (1985)). To establish a pattern of racketeering activity, the
plaintiffs must show that the predicate acts are related and that
21
HESLEP v. AFAA
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MEMORANDUM OPINION AND ORDER
they “amount to or pose a threat of continued criminal activity.”
H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989).
Continuity refers “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 may be established by a “series of related predicates
extending
over
a
“Predicate
acts
threatening
no
substantial
extending
future
period
over
criminal
a
of
few
time.”
weeks
conduct
do
or
not
Id.
at
months
satisfy
242.
and
this
requirement.” Id. Open-ended continuity may be established where,
for example, the “related predicates themselves involve a distinct
threat of long-term racketeering activity,” or where the predicate
acts “are part of an ongoing entity’s regular way of doing business
.
.
.
or
of
conducting
or
participating
in
an
ongoing
and
legitimate RICO enterprise.” Id. at 242-43.
The Fourth Circuit is
“cautious about basing a RICO claim on
predicate acts of mail and wire fraud because it will be the
unusual fraud that does not enlist the mails and wires in its
service at least twice.” Al- Abood v. El-Shamari, 217 F.3d 225, 238
(4th Cir. 2000) (internal quotations and citations omitted). RICO
liability is reserved for “ongoing unlawful activities whose scope
22
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
and persistence pose a special threat to social well-being.”
Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th Cir. 1989).
Here, when considering the allegations in the complaint in the
light most favorable to the plaintiffs, they have established the
requisite continuity of racketeering activity. Although it is
questionable whether the instances of mail and wire fraud, as they
pertain to the Hesleps’ adoption alone, would be sufficient to
establish a pattern of conduct, the Court need not make that
determination because the plaintiffs have alleged something more they claim the defendants have defrauded at least five other
prospective adoptive families as part of the same fraudulent
scheme. If true, this would suggest a pattern of predicate acts as
“part of an ongoing entity’s regular way of doing business.” (Dkt.
No. 3 at ¶¶ 60, 64, 67, 79); see
H.J. Inc., 492 U.S. at 242-43.
Although the complaint itself is scant on details about these
other families’ interactions with AFAA, the plaintiffs have since
supplemented the record with court documents related to these cases
that
indicate
Carter-Shotts
and
AFAA,
Inc.
faced
similar
allegations of adoption fraud in South Dakota in May of 2010 (dkt.
no. 45-5), and in Michigan in June of 2010 (dkt. no. 45-3). Because
these documents are integral to the allegations in the plaintiffs’
23
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
complaint, the Court may consider them when evaluating a motion to
dismiss. See Philips, 572 F.3d at 180.
The
claims
in
the
Michigan
and
South
Dakota
cases
bear
sufficient similarity to the allegations in this case to support a
plausible claim that the defendants have engaged in a pattern of
racketeering
activity
giving
rise
to
a
RICO claim.
Like the
Hesleps, the plaintiffs in the cases in South Dakota and Michigan
allege
that
Carter-Shotts
and
AFAA,
Inc.
misrepresented
the
orphaned status of Ugandan children whose parents were actually
alive in order to misappropriate adoption fees and foster care
expenses.
(Dkt.
No.
45-5).
If
true,
such
allegations
would
establish a pattern of related predicate fraudulent acts “whose
scope and persistence pose a special threat to social well-being.”
Menasco, 886 F.2d at 681. Accordingly, the plaintiffs have alleged
a plausible RICO claim under 18 U.S.C. § 1964(a) and (c).
C.
With respect to Count Two, AFAA contends that the plaintiffs
have failed to state a plausible claim of fraud under West Virginia
law and under the heightened pleading requirements of Fed. R. Civ.
P. 9(b). To establish a claim of fraud under West Virginia law, the
plaintiffs must prove (1) the alleged fraudulent act is that of the
defendant, (2) the act was material, false, and the plaintiff
24
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
justifiably relied upon it, and (3) the plaintiff suffered injury
as a result of the act. Ashworth v. Albers Med., Inc., 410 F. Supp.
2d 471, 477 (S.D.W. Va. 2005) (citing Lengyel v. Lint, 280 S.E.2d
66, 67 (W. Va. 1981)). The Supreme Court of Appeals of West
Virginia has consistently held that a fraud claim “must ordinarily
be predicated on an intentional misrepresentation of a past event,”
and not on a misrepresentation as to future events or on promissory
statements. Croston v. Emax Oil Co., 464 S.E.2d 728, 732 (W. Va.
1995); see also Janssen v. Carolina Lumber Co., 73 S.E.2d 12, 17
(W. Va. 1952). If the plaintiff can show that the defendant did not
intend to fulfill a promise at the time it was made, however, “the
nonperformance of the promise may constitute fraud.” Dyke v.
Alleman, 44 S.E.2d 587, 590 (W. Va. 1947).
As noted earlier, Fed. R. Civ. P. 9(b) sets forth a heightened
pleading standard for averments of fraud. Thus, while intent may be
averred generally, circumstances, including the time, place, and
contents of the misrepresentation, as well as the identify of the
person who made it, must be pled with particularity. Harrison, 176
F.3d at 784.
Here, the defendants argue that the plaintiffs’ fraud claim
only alleges that AFAA failed to fulfill its promise to assist the
Hesleps in completing a successful adoption. In their view, any
25
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
forward-looking promissory statements made regarding Sam’s adoption
did not constitute fraud because they were not “predicated on an
intentional misrepresentation of a past event.” See Croston, 464
S.E.2d at 732. This argument understates the Hesleps’ claims,
however, which allege that the defendants Carter-Shotts and AFAA,
Inc. (1) intentionally misrepresented material facts regarding
their success with past adoptions, (2) AFAA’s ability and legal
authority to complete adoptions in Uganda, (3) Sam’s status as an
orphan,
(4)
the
authenticity
of
documents
relating
to
Sam’s
biological parents, and (5) the progress of their adoption process.
(Dkt. No. 3 at ¶ 83). The plaintiffs support these averments with
a considerable body of pre-discovery evidence, including official
documents from AFAA and USCIS, as well as emails from AFAA staff
members. (Dkt. Nos. 67-1, 67-2, and 67-3).
The plaintiffs’ claims thus allege more than a mere failure to
fulfill a future promise; they assert that the defendants knowingly
made materially false statements about past events and present
facts related to their adoption of Sam. The Hesleps allege that
they
relied
on
those
misrepresentations
and
claim
resulting
damages. (Id. at ¶¶ 87, 90). As such, they have stated a plausible
claim of fraud under West Virginia law. See Ashworth, 410 F. Supp.
2d at 477.
26
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
Furthermore, as already discussed in Section IV.B.2 of this
Memorandum Opinion, the plaintiffs have sufficiently plead the
“time, place, and contents” of the alleged misrepresentations to
satisfy the heightened pleading requirements of Rule 9(b). See
Harrison, 176 F.3d at 784. Contrary to the defendants’ assertion
that the plaintiffs fail to allege that Carter-Shotts knew certain
statements were false when she made them, the complaint contains
sufficient allegations of her malice, intent, or knowledge, which,
under Rule 9(b) “may be averred generally.” (Dkt. No. 3 at ¶ 85);
Fed. R. Civ. P. 9(b). The complaint alleges that Carter-Shotts held
herself out as President and Managing Director of AFAA and, in such
capacity, represented that she knew the extent of AFAA’s legal
authority to conduct adoptions in Uganda, as well as the nature of
her employees’ activities there. (Dkt. No. 3 at ¶¶ 5, 18, 40, 83).
Accordingly, the plaintiffs have properly stated a cause of action
for fraud under Rule 9(b).
D.
AFAA argues that Count Three should be dismissed for failure
to state claim of intentional infliction of emotional distress. To
establish a claim of outrage in West Virginia, the plaintiffs must
show (1) that the defendants’ conduct was atrocious, intolerable,
and so extreme and outrageous as to exceed the bounds of decency,
27
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
(2) that the defendants acted with the intent to inflict emotional
distress, or acted recklessly when it was certain or substantially
certain emotional distress would result from their conduct, (3)
that the actions of the defendants caused the plaintiff to suffer
emotional distress, and (4) that the emotional distress suffered by
the plaintiffs was so severe that no reasonable person could be
expected to endure it. Kowalyk v. Cnty. Comm’n of Hancock Cnty.,
No. 5:08CV181, 2011 WL 43027, at *8 (N.D.W. Va. Jan. 6, 2011)
(citing Travis v. Alcon Labs., Inc., 504 S.E.2d 419, 425 (W. Va.
1998)).
Here, the defendants argue that the complaint lacks the
requisite specificity to sustain a claim of outrage because the
plaintiffs have not established that Carter-Shotts knew her actions
would cause the Hesleps emotional distress. However, the extensive
facts alleged by the plaintiffs, including that the defendants
intentionally victimized prospective adoptive parents for pecuniary
gain, are sufficient to survive a motion to dismiss at the pleading
stage.
E.
In Counts Four, Five, Six, and Seven, the plaintiffs allege
several theories of negligence based on the defendants’ negligent
hiring, supervision, and retention of AFAA employees, as well as
28
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
their
negligent
administration
of
an
international
adoption
program. AFAA argues that each count of negligence fails because
the plaintiffs neither alleged any special relationship between
themselves and the defendants nor a physical injury that resulted
from the defendants’ actions. They also argue that Count Seven
fails because negligent administration is not a cognizable claim
under West Virginia law.
1.
As to Counts Four and Six, West Virginia does recognize a
cause of action based upon negligent hiring and retention. See
McCormick v. W. Va. Dep’t of Pub. Safety, 503 S.E.2d 502, 506–07
(W. Va. 1998); and State ex rel. West Virginia State Police v.
Taylor, 499 S.E.2d 283, 289 n.7 (W. Va. 1997). In determining
whether a defendant has negligently hired and retained an employee,
the Court should consider the following:
When the employee was hired or retained, did the employer
conduct a reasonable investigation into the employee’s
background vis a vis the job for which the employee was
hired and the possible risk of harm or injury to
co-workers or third parties that could result from the
conduct of an unfit employee? Should the employer have
reasonably foreseen the risk caused by hiring or
retaining an unfit person?
McCormick, 503, S.E.2d at 506.
Here,
the
plaintiffs
allege
that,
as
operators
of
an
international adoption agency, the defendants breached their duties
29
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
to
investigate
the
backgrounds
of
prospective
employees,
to
supervise them to ensure compliance with United States and Ugandan
laws, and to terminate employees, such as Kagimu, who commit
dishonest and criminal acts.
Contrary
to
the
defendants’
assertion
that
a
claim
of
negligence requires proof of a physical injury, the plaintiffs must
only show “that the defendant has been guilty of some act or
omission in violation of a duty owed to the plaintiff.” Aikens v.
Debow, 541 S.E.2d 576, 580 (W. Va. 2000). Therefore, the Hesleps
have plausibly alleged that AFAA owed them a duty to investigate
and monitor the activities of employees hired to facilitate an
international adoption, and breached this duty by hiring and
retaining Kagimu. Accordingly, they have sufficiently plead Counts
Four and Six.
2.
As to Count Five, however, West Virginia does not recognize a
standalone claim for negligent training or supervision. Webb v.
Raleigh Cnty. Sheriff’s Dep’t, 761 F. Supp. 2d 378, 397 (S.D.W. Va.
2010); Taylor v. Cabell Huntington Hosp., Inc., 538 S.E.2d 719, 725
(W. Va. 2000). Instead, a claim for negligent supervision requires
a separate finding of negligence on the part of the employee being
supervised. Taylor, 538 S.E.2d at 725. Here, the Hesleps have
30
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
alleged that AFAA’s failure to supervise its employees resulted in
their commission of “criminal acts and civil torts.” (Dkt. No. 3 at
¶ 108). The only criminal acts or civil torts alleged in the
complaint are Kagimu’s acts of intentional fraud. The plaintiffs,
therefore, have not alleged negligence by Kagimu or any other AFAA
employee, as required to sustain a cause of action for negligent
supervision.
With respect to Count Seven, West Virginia does not recognize
a claim of negligent administration of a program. Moreover, to the
extent the plaintiffs intended to assert a separate cause of action
of
negligent
supervision,
this
claim
fails
for
the
reasons
discussed earlier. See Taylor, 538 S.E.2d at 725. Accordingly,
Counts Five and Seven are dismissed.
F.
Finally, AFAA argues that Count Eight fails to state a claim
of negligent infliction of emotional distress, which “generally
must
be
premised
on
conduct
that
unreasonably
endangers
the
plaintiff’s physical safety or causes the plaintiff to fear for his
or her physical safety.” Brown v. City of Fairmont, 655 S.E. 2d
563, 569 (W. Va. 2007) (quoting Lipton v. Unumprovident Corp., 10
A.D.3d 703 (N.Y. App. Div. 2004)). The Hesleps have not pleaded a
physical injury or any fear thereof, and while the Supreme Court of
31
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
Appeals of West Virginia has recognized a few narrow exceptions to
the general rule, none are applicable here. See Syl. pt. 2,
Ricottilli v. Summersville Mem’l Hosp., 425 S.E.2d 629 (W. Va.
1992) (sustaining negligent infliction of emotional distress claim
where hospital caused a decedent’s family members to believe they
had inherited a terminal disease). Accordingly, the plaintiffs have
not alleged a plausible claim for negligent infliction of emotional
distress, and Count Eight must be dismissed.
V.
For the reasons discussed, the Court:
1. GRANTS IN PART and DENIES IN PART the defendants’ first
Motion to Dismiss (dkt. no. 42) as follows:
a. GRANTS the motion to dismiss the Board for lack of
capacity to be sued and DISMISSES the Board WITH PREJUDICE;
b. DENIES WITHOUT PREJUDICE the motion to dismiss the
individual directors for lack of personal jurisdiction and
improper service of process;
c. DENIES the motion to dismiss Counts One, Two, Three,
Four, and Six;
d. GRANTS the motion to dismiss Counts Five, Seven, and
Eight, and DISMISSES Counts Five, Seven, and Eight WITHOUT
PREJUDICE;
32
HESLEP v. AFAA
1:11CV56
MEMORANDUM OPINION AND ORDER
2. DENIES the defendants’ second Motion to Dismiss (dkt. no.
57); and
3. SCHEDULES a scheduling conference on Monday, September 17,
2012 at 1:00 P.M. If the parties wish to appear by telephone, the
Court directs lead counsel for the plaintiff to coordinate the
conference call with all parties and the Court at (304)624-5850.
It is so ORDERED.
The Court directs the Clerk to transmit copies of this Order
to counsel of record.
DATED: August 27, 2012
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
33
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