CSX Transportation, Inc. v. Gilkison et al
Filing
1050
MEMORANDUM OPINION AND ORDER Denying Lawyer Defendants' 887 889 891 Motions to Dismiss. Signed by Senior Judge Frederick P. Stamp, Jr on 5/3/12. (mji)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
CSX TRANSPORTATION, INC.,
Plaintiff,
v.
Civil Action No. 5:05CV202
(STAMP)
ROBERT V. GILKISON,
PEIRCE, RAIMOND & COULTER, P.C.,
a Pennsylvania professional corporation
a/k/a ROBERT PEIRCE & ASSOCIATES, P.C.,
a Pennsylvania professional corporation,
ROBERT PEIRCE, JR., LOUIS A. RAIMOND,
MARK T. COULTER and RAY HARRON, M.D.,
Defendants.
MEMORANDUM OPINION AND ORDER
DENYING LAWYER DEFENDANTS’ MOTIONS TO DISMISS
I.
Background1
The plaintiff, CSX Transportation, Inc. (“CSXT”) commenced the
above-styled civil action by filing a complaint in this Court on
December 22, 2005.
on July 5, 2007.
The plaintiff later filed an amended complaint
(ECF No. 208.)
On May 2, 2008, after this Court
granted the defendants’ motion to dismiss various portions of the
amended complaint, the plaintiff sought leave to file a second
amended
complaint.
(ECF
No.
278.)
This
Court
denied
the
plaintiff’s motion for leave to file a second amended complaint on
the grounds that such amendment would be futile and would unduly
prejudice the defendants by extending discovery when it is not
1
For the purpose of resolving the pending motion, this Court
believes that the following abbreviated summary of this case is
sufficient.
necessary.
(ECF No. 284.)
to
and
trial
judgment
Thereafter, the case continued forward
on
the
plaintiff’s
May/Jayne
fraud
allegations and to summary judgment for the defendants on the
plaintiff’s remaining claims.
Following the entry of this Court’s judgment in favor of the
defendants regarding the May/Jayne fraud, the plaintiff appealed to
the United States Court of Appeals for the Fourth Circuit.
In its
judgment of December 30, 2010, the Fourth Circuit upheld the jury’s
verdict as to the May/Jayne allegations but vacated the dismissal
of Counts 1 through 4 of the amended complaint, reversed the
summary judgment as to the Baylor claims, and held that the
plaintiff should have been permitted to file the second amended
complaint. (ECF No. 817.) On February 2, 2011, the Fourth Circuit
issued a mandate compelling further proceedings consistent with its
opinion.
(ECF No. 821.)
Pursuant to this mandate, this Court held a status and
scheduling conference on March 7, 2011.
At that conference, the
parties discussed the plaintiff’s proposal to file a third amended
complaint that would reflect the changes in the case and offer a
concise summary of the remaining claims.
On July 14, 2011, the
plaintiff
file
filed
a
motion
for
leave
to
a
third
amended
complaint (ECF No. 841), which this Court granted on October 18,
2011 (ECF No. 850).
The third amended complaint, filed on October
19, 2011 (ECF No. 853) names Robert N. Peirce, Jr., Louis A.
2
Raimond, Mark T. Coulter (“lawyer defendants”) and Ray Harron, M.D.
as defendants.
In short, the third amended complaint alleges that
the defendants have orchestrated a scheme to inundate CSXT with
thousands of asbestos cases without regard to their merit.
Am. Compl. ¶ 1.)
(Third
CSXT alleges that the defendants’ conduct
violated the federal Racketeer Influenced and Corrupt Organizations
Act (“RICO”), 18 U.S.C. § 1961, et seq., and supports claims for
common law fraud and conspiracy.
(Third Am. Compl. ¶ 3.)
On July 28, 2011, the lawyer defendants filed a motion for
permission to file counterclaims and have the counterclaims deemed
filed nunc pro tunc as of that date.
(ECF No. 842.)
On October
19, 2011, this Court issued a memorandum opinion and order granting
the lawyer defendants’ motion for permission to file counterclaims
and have the counterclaims deemed filed nunc pro tunc as of July
28, 2011.
(ECF No. 851.)
On November 23, 2011, CSXT filed a
motion to dismiss the lawyer defendants’ counterclaims (ECF No.
885), which this Court denied on April 25, 2012 (ECF No. 1039).
On November 25, 2011, the lawyer defendants filed three
separate motions to dismiss: (1) Robert N. Peirce’s motion to
dismiss the third amended complaint (ECF No. 887); (2) Louis A.
Raimond’s motion to dismiss the third amended complaint (ECF No.
889); and (3) Mark T. Coulter’s motion to dismiss the third amended
complaint (ECF No. 891).
CSXT filed a combined opposition to the
lawyer defendants’ motions to dismiss the third amended complaint
3
on December 16, 2011.
(ECF No. 906.)
to its combined opposition.
CSXT then filed a supplement
(ECF No. 908.)
On December 23, 2011,
the lawyer defendants filed a reply in support of their motions to
dismiss the third amended complaint.
(ECF No. 911.)
The lawyer
defendants’ motions to dismiss the third amended complaint are
currently pending before this Court.
For the reasons set forth
below, this Court finds that the motions to dismiss must be denied.
II.
Applicable Law
In assessing a motion to dismiss for failure to state a claim
under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a
court must accept all well-pled facts contained in the complaint as
true.
Nemet Chevrolet, Ltd v. Consumeraffairs.com, Inc, 591 F.3d
250, 255 (4th Cir. 2009). However, “legal conclusions, elements of
a cause of action, and bare assertions devoid of further factual
enhancement fail to constitute well-pled facts for Rule 12(b)(6)
purposes.”
(2009)).
Id. (citing Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949
This
Court
also
declines
to
consider
“unwarranted
inferences, unreasonable conclusions, or arguments.”
Wahi v.
Charleston Area Med. Ctr., Inc., 562 F.3d 599, 615 n.26 (4th Cir.
2009).
It has often been said that the purpose of a motion under Rule
12(b)(6) is to test the formal sufficiency of the statement of the
claim for relief; it is not a procedure for resolving a contest
about the facts or the merits of the case.
4
5B Charles Alan Wright
& Arthur R. Miller, Federal Practice and Procedure § 1356 (3d ed.
1998).
The Rule 12(b)(6) motion also must be distinguished from a
motion for summary judgment under Federal Rule of Civil Procedure
56, which goes to the merits of the claim and is designed to test
whether there is a genuine issue of material fact.
Id.
For
purposes of the motion to dismiss, the complaint is construed in
the
light
essentially
most
the
favorable
court’s
to
the
inquiry
party
is
making
directed
the
to
claim
and
whether
the
allegations constitute a statement of a claim under Federal Rule of
Civil Procedure 8(a).
Id. § 1357.
A complaint should be dismissed “if it does not allege ‘enough
facts to state a claim to relief that is plausible on is face.’”
Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“Facial
plausibility is established once the factual content of a complaint
‘allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.’” Nemet Chevrolet,
591 F.3d at 256 (quoting Iqbal, 129 S. Ct. at 1949).
Detailed
factual allegations are not required, but the facts alleged must be
sufficient “to raise a right to relief above the speculative
level.”
Twombly, 550 U.S. at 555.
5
III.
A.
Discussion
Motions to Dismiss
1.
Peirce’s Motion to Dismiss
The third amended complaint sues the lawyer defendants, as
well as Dr. Harron, for alleged racketeering and common law fraud
related to civil litigation in which CSXT was the defendant.
In
his motion to dismiss the third amended complaint, Peirce argues
that CSXT fails to properly plead sufficient facts supporting its
charge
that
Peirce
individually
participated
in
the
alleged
racketeering and fraud, and also fails to plead the requisite
causal nexus between the eleven allegedly fraudulent asbestos
claims filed by the Peirce Firm and CSXT’s claimed injury.2
Peirce asserts five main arguments in support of his motion to
dismiss: (1) based on the face of the third amended complaint,
there is no causal nexus between the filing of the eleven allegedly
fraudulent asbestosis claims at issue and any alleged injury to
CSXT; (2) CSXT has failed to plead any proper RICO predicate acts;
(3) CSXT has failed to plead with the specificity needed to state
RICO and fraud claims; (4) the third amended complaint fails to
make proper allegations of a pattern of racketeering activity; and
(5) civil RICO’s pattern requirement, as applied to this case and
Peirce, is unconstitutionally vague.
2
The third amended complaint describes eleven allegedly
fraudulent personal injury claims that the lawyer defendants filed
or caused to be filed. (Third Am. Compl. ¶ 147.)
6
With regard to CSXT’s common law claims (Counts III and IV),
Peirce argues that CSXT has not pled that it relied on any
allegedly false representation made by Peirce.
According to
Peirce, ten of the eleven allegedly fraudulent claims at issue were
never settled by CSXT, but were dismissed based on procedural
grounds.
Peirce contends that the remaining claim (of Morris
Collier) was settled as a cancer case.
Thus, according to Peirce,
CSXT has not properly pled that it spent money in defense of these
eleven allegedly fraudulent asbestosis claims that it would not
have otherwise spent in litigating the overarching motions against
the larger Federal Employers Liability Act (“FELA”) complaints.3
Peirce asserts that on the face of the complaint, the procedural
issues applicable to the larger FELA cases -- not any allegedly
fraudulent
representation
related
to
the
eleven
individual
claimants -- are what caused CSXT to spend legal resources.
Thus,
argues Peirce, because CSXT has failed to plead reliance, it has
not stated a claim for fraud.
Turning to the civil RICO claims (Counts I and II), Peirce
argues that the filing of pleadings and related letters cannot be
predicate acts of mail or wire fraud that support RICO claims.
Peirce contends that the purported predicate acts alleged by CSXT
3
In his motion to dismiss, Peirce states that the FELA
complaints described in the third amended complaint contained more
than 5,300 asbestos-related claims, only eleven of which CSXT
argues were fraudulent.
7
relate solely to routine litigation activity and are generally
unrelated to the eleven allegedly fraudulent asbestosis claims.
These predicate acts include the filing and service of complaints,
the filing of a petition for certiorari to the United States
Supreme
Court,
correspondence
and
--
the
all
sending
of
which,
and
receiving
according
of
to
routine
Peirce,
are
insufficient to serve as RICO predicates.
Peirce
next
argues
that
Counts
I
through
IV
should
be
dismissed because CSXT fails to plead its claims with particularity
under Rule 9(b) of the Federal Rules of Civil Procedure and thus
has failed to state a claim under Rule 12(b)(6).
CSXT has sued
Peirce individually, yet Peirce asserts that the complaint fails to
apprise him of any actions of his that are allegedly fraudulent.
Instead, he argues, CSXT uses impermissible group pleading.
attributing
fraudulent
conduct
to
the
lawyer
By
defendants
collectively, argues Peirce, CSXT’s complaint fails to plead fraud
with the requisite particularity required by Rule 9(b).
Further,
Peirce contends that as a result of its improper group pleading,
CSXT’s fails to allege a fundamental element of a RICO violation -that each named individual committed at least two predicate acts
that proximately caused an injury to the plaintiff.
Peirce claims
that CSXT identifies him as the sender of two letters, yet fails to
plead any causal connection between the letters and the alleged
8
injury that it suffered.
Peirce highlights the fact that neither
of these letters discussed any of the eleven claims at issue.
Peirce also argues that because CSXT did not spend money in
defense of the eleven allegedly fraudulent asbestosis claims that
it would not have otherwise spent, the third amended complaint must
be dismissed because CSXT’s pleading cannot establish the causal
nexus required by RICO.
Peirce notes that the Fourth Circuit’s
policy is to not permit the transformation of ordinary business
contract or fraud disputes into federal RICO claims.
Peirce
further argues that it would be legal error to allow a RICO case to
proceed where 99.8% of the activity of an alleged racketeering
enterprise as not been alleged to be fraudulent. CSXT’s complaint,
according to Peirce, only alleges that the lawyer defendants
engaged in sporadic and isolated allegedly fraudulent activity
rather than a pattern of racketeering activity by each individual
defendant.
Peirce also contends that the complaint fails to plead
the requisite continuity to establish a pattern of racketeering
because CSXT alleges only that the lawyer defendants engaged in a
single
scheme
resulting
in
the
filing
of
eleven
purportedly
baseless asbestosis claims out of over 5,300 total claims in order
to defraud a single victim, CSXT.
Lastly, Peirce asserts that the civil RICO counts of the third
amended complaint must be dismissed because they are void for
vagueness as applied to Peirce.
Specifically, Peirce asserts that
9
he did not have fair notice that by engaging in ministerial tasks
on behalf of clients he could expose himself to a civil RICO claim.
2.
Raimond’s Motion to Dismiss
Raimond’s motion to dismiss the third amended complaint is
substantially similar to Peirce’s motion to dismiss.
Therefore,
this Court’s summary of his contentions highlights only a few key
allegations.
Raimond argues that there is a total absence of
proper specific factual allegations that he, as an individual,
personally knew that any of the eleven claims were fraudulent.
Importantly, Raimond notes that he retired from the practice of law
in 2003.
Also, Raimond contends that CSXT fails to allege that he
was involved with any of the purported predicate acts of mail or
wire fraud that support CSXT’s RICO claims.
Like Peirce, Raimond
also argues that the complaint fails to apprise him of what he
individually
did
that
is
allegedly
fraudulent,
including
allegedly fraudulent representations that he made.
any
According to
Raimond, the complaint asserts only four specific allegations
concerning him, and not one of these allegations refers to the
eleven claimants at issue. With regard to the RICO claims, Raimond
contends that the complaint does not identify him as the author or
sender
of
any
mailings
that
underlie
CSXT’s
purported
RICO
predicate acts, nor does it attribute any of the alleged predicate
acts to him individually.
Accordingly, Raimond concludes that the
third amended complaint must be dismissed.
10
3.
Coulter’s Motion to Dismiss
Like Peirce and Raimond, Coulter also asserts the same five
main arguments in support of his motion to dismiss the third
amended complaint.
Coulter’s motion notes that he left the Peirce
Firm in May 2005, and he argues that CSXT fails to allege that he
individually participated in the alleged racketeering and fraud.
According to Coulter, CSXT merely alleges that he filed four of the
FELA
complaints
litigation
--
activities
activity.
Coulter
that
relate
avers
that
solely
only
to
one
routine
of
these
complaints relates to one of the clients on whose behalf an
allegedly fraudulent asbestosis claim was filed.
asserts
that
the
complaint
contains
only
Coulter further
five
allegations
concerning him, and they relate only to his having filed FELA
complaints.
None of these references, argues Coulter, constitute
properly pled predicate acts of mail or wire fraud.
Thus, Coulter
contends that the third amended complaint must be dismissed.
B.
CSXT’s Combined Response
In its combined response to the lawyer defendants’ motions to
dismiss,
CSXT
first
argues
that
the
majority
of
the
lawyer
defendants’ arguments are barred by the Fourth Circuit’s mandate.
Citing the mandate rule, CSXT contends that with the exception of
their argument concerning the RICO pattern requirement, the lawyer
defendants did not previously raise in this Court or on appeal any
of the arguments or legal theories set forth in their currently
11
pending motions to dismiss.
As a result, CSXT states that those
arguments and legal theories are barred.
According to CSXT, any
contention that Count III and Count IV of the third amended
complaint fail to state a claim for which relief has been granted
was impliedly rejected by the Fourth Circuit’s reversal of summary
judgment on CSXT’s Baylor claims, which are premised on the causes
of action set forth in Count III and Count IV.
any
and
all
of
the
arguments
currently
CSXT asserts that
made
by
the
lawyer
defendants could have been, but were not, raised in their motion to
dismiss the amended complaint, in their opposition to CSXT’s
proposed second amended complaint, in their motion for summary
judgment on the Baylor-related claims, or on appeal.
CSXT
next
addresses
the
lawyer
concluding that they are without merit.
the
third
purposes
amended
of
the
complaint
common
law
defendants’
First, CSXT argues that
sufficiently
counts.
arguments,
pleads
CSXT
reliance
explains
that
for
the
allegations set forth in the third amended complaint establish that
it was damaged because it relied upon the lawyer defendants’ false
representations in that CSXT treated the fraudulently filed claims
like any other and expended resources to process, defend, and/or
settle them.
The lawyer defendants may dispute the scope of
damages, but CSXT contends that this argument fails because it does
not go to the legal sufficiency of CSXT’s claims.
12
Quoting United States v. Murr, 681 F.2d 246 (4th Cir. 1982),
CSXT next argues that the filing of pleadings and related letters
can be predicate acts of mail and wire fraud, whether or not the
pleadings and correspondence themselves were false or fraudulent.
Further, CSXT asserts that each of the predicate acts identified in
the third amended complaint was, at a minimum, incident to an
essential part of the lawyer defendants’ scheme. Also, CSXT states
that the allegations contained in the third amended complaint are
sufficient to support the inference that each of the lawyer
defendants knew the mails were necessarily going to be used in
furtherance of their fraudulent scheme.
Next, CSXT argues that the third amended complaint satisfies
Rule 9(b).
In countering the lawyer defendants’ argument that
“group pleading” is improper, CSXT argues that at this advanced
stage of the litigation, the lawyer defendants cannot now complain
about the use of the phrase “lawyer defendants” -- a phrase which
was
used
in
both
the
amended
complaint
and
second
amended
complaint.
CSXT also points out that the lawyer defendants have
themselves
used
the
phrase
“Peirce
Firm
Defendants.”
The
allegations in the third amended complaint, argues CSXT, are
sufficient to permit the lawyer defendants -- individually and
collectively -- to mount a defense.
Moreover, the third amended
complaint clearly sets forth the time, place, and content of each
13
false representation, as well as the identity of the person making
the representation.
CSXT then avers that the third amended complaint properly
alleges that CSXT was injured in its business or property by reason
of the lawyer defendants’ RICO violations.
To CSXT, the fact that
ten of the eleven claims were dismissed on procedural grounds is
irrelevant because CSXT’s claimed injury is not limited to the
filing
of
the
defendants.
motions
selectively
referenced
by
the
lawyer
Rather, it includes any and all money and resources
that CSXT was forced to spend in connection with processing,
defending and/or settling the fraudulently filed claims.
CSX also counters that the third amended complaint adequately
pleads
that
racketeering.
the
lawyer
defendants
engaged
in
a
pattern
of
CSXT’s key assertion is that the fraudulent scheme
and associated predicate acts of mail and wire fraud alleged in the
third amended complaint encompass more than just the filing of the
eleven allegedly fraudulent claims.
The third amended complaint
describes a “concerted campaign” by the lawyer defendants to
overwhelm CSXT with thousands of asbestos-related occupational
illness claims in courts across West Virginia, which included all
of the steps they took before and after filing to generate medical
evidence in support of the fraudulent claims.
According to CSXT,
the pattern of racketeering activity is proven by allegations that
the mass suits themselves were predicate acts specifically designed
14
and intended to advance and conceal the allegedly fraudulent
claims.
Further, the third amended complaint alleges that these
predicate acts were related -- over a six-year period, the lawyer
defendants filed or caused to be filed five separate lawsuits in
the same jurisdiction containing fraudulent claims against CSXT.
According to CSXT, the filing of five separate lawsuits containing
eleven fraudulent claims and the commission of approximately a
dozen other acts of mail and wire fraud in furtherance of those
claims is far from isolated or sporadic activity.
asserts
that
the
facts
pled
in
the
third
Also, CSXT
amended
complaint
demonstrate that the lawyer defendants’ scheme was likely to
continue and that the filing of fraudulent lawsuits had become a
part of the Peirce Firm’s regular business practice.
Thus, CSXT
argues that the third amended complaint sets out a pattern of
racketeering activity that includes acts that are both related and
continuous.
is
not
Finally, CSXT argues that RICO’s pattern requirement
unconstitutionally
vague
as
applied
to
the
lawyer
defendants.
C.
Lawyer Defendants’ Reply
In reply, the lawyer defendants first argue that the mandate
rule does not bar their motion to dismiss because the third amended
complaint changes the scope, time period, and factual basis for the
allegations, asserting allegations beyond those considered by the
Fourth Circuit.
The lawyer defendants also reiterate that the
15
third amended complaint fails to allege reliance and damages based
on reliance as required for fraud and fails to allege the proximate
causation required by RICO.
The lawyer defendants then contend
that CSXT improperly conflates the requisites for establishing
criminal mail fraud with the requisites for establishing a civil
RICO claim.
Finally, the lawyer defendants repeat their argument
that the improper group pleading requires dismissal, and that CSXT
has failed to plead the requisite pattern of racketeering activity.
D.
Mandate Rule
The mandate rule promotes judicial economy and finality by
providing “‘that when a court decides upon a rule of law, that
decision should continue to govern the same issues in subsequent
stages in the same case.’” United States v. Aramony, 166 F.3d 655,
661 (4th Cir. 1999) (quoting Christianson v. Colt Indus. Operating
Corp., 486 U.S. 800, 815-16 (1988)).
The mandate rule “forecloses
relitigation of issues expressly or impliedly decided by the
appellate court.”
1993).
United States v. Bell, 5 F.3d 64, 66 (4th Cir.
In sum,
once the decision of an appellate court establishes the
law of the case, it must be followed in all subsequent
proceedings in the same case in the trial court . . .
unless: (1) a subsequent trial produces substantially
different evidence, (2) controlling authority has since
made a contrary decision of law applicable to the issue,
or (3) the prior decision was clearly erroneous and would
work manifest injustice.
United States v. Lentz, 524 F.3d 501, 528 (4th Cir. 2008) (internal
quotations omitted).
“Although the doctrine applies both to
16
questions actually decided as well as to those decided by necessary
implication, it does not reach questions which might have been
decided but were not.”
Sejman v. Warner-Lambert Co., Inc., 845
F.2d 66, 69 (4th Cir. 1988).
This Court finds that the mandate rule is not applicable in
this case.
The operative complaint in this matter is the third
amended complaint, filed on October 19, 2011.
The Fourth Circuit
issued its opinion on December 30, 2010, nearly ten months before
the third amended complaint was filed.
Before the filing of the
third amended complaint, the only complaint which had been filed by
CSXT and subjected to motions under Rule 12 was the amended
complaint.4 There are numerous and substantial differences between
the amended complaint and the third amended complaint.
For
example, the third amended complaint sets forth eleven allegedly
fraudulent claims (Third Am. Compl. ¶ 147), whereas only nine were
listed in the amended complaint (Am. Compl. ¶ 71). The nine claims
described in the amended complaint included six that had settled,
but of the eleven claims in the third amended complaint, only one
was settled.
Also, the claims in the amended complaint stemmed
from FELA actions filed as far back as 2000, whereas the claims in
the third amended complaint concern FELA actions that date back
only to 2003 and involve allegations related to litigating FELA
4
CSXT filed a motion for leave to file a second amended
complaint (ECF No. 278), but that motion was denied by this Court
(ECF No. 284).
17
complaints that occurred as recently as 2009 -- after Raimond and
Coulter had left the Peirce Firm. Further, the claims of Peterson,
Wiley, and Baylor were active at the time of the amended complaint
but, as pled in the third amended complaint, were subsequently
dismissed pursuant to motions filed by CSXT.
The facts and
timeliness in the third amended complaint, when compared to the
amended complaint, give rise to the arguments raised in the lawyer
defendants’ motions to dismiss. Because the motions to dismiss are
premised on CSXT’s new allegations in the third amended complaint,
these are arguments that were not available in responding to the
amended complaint and they were not decided by the Fourth Circuit.
Additionally, this Court finds that the Fourth Circuit’s
opinion in this case does not preclude the arguments made in the
motions to dismiss, as its holdings were narrower than the issues
now presented.
The Fourth Circuit held: (1) the district court
erred in granting the Rule 12(b)(6) motion because the face of the
complaint did not allege facts sufficiently clear to conclude that
the statute of limitations on the RICO claims had run; (2) because
the face of the complaint does not allege sufficient facts to
conclusively determine when CSXT knew or should have known of the
existence of the common law fraud, the district court erred by
granting the defendants’ Rule 12(b)(6) motion to dismiss Counts III
and IV of the complaint; (3) the district court’s finding of
futility regarding the motion to amend the complaint to add
18
additional claims was erroneous and thereby an abuse of discretion;
(4)
the
district
court’s
award
of
summary
judgment
to
the
defendants in the Baylor case must be reversed because a reasonable
jury could find CSXT relied to its detriment on the defendants’
alleged fraud as the basis of the Baylor claim; and (5) the
district court did not err in excluding evidence that the Peirce
Firm had continued to represent May after the incident in various
personal injury matters against third parties other than CSXT. CSX
Transp., Inc. v. Gilkison, 406 F. App’x 723 (4th Cir. 2010).
Significantly, the Fourth Circuit did not rule on or discuss
the
issues
raised
in
the
current
motions
to
dismiss:
RICO
causation, lack of a causal nexus or reliance for fraud claims due
to a lack of damages flowing from any claimed reliance, pleading
failures under Rule 9, failure to plead the commission of two
predicate acts by each defendant, RICO’s pattern requirement,5 or
the constitutionality of civil RICO as applied.
Accordingly, the
mandate rule does not preclude the arguments made in the pending
motions to dismiss.
5
With regard to RICO’s pattern requirement, the Fourth
Circuit’s opinion briefly mentions the fact that “even if a claim
or claims are found to be time-barred, that fact alone does not
make the claim ineligible as a predicate act to establish a RICO
pattern.” Gilkison, 406 F. App’x at 730 n.3.
19
E.
Common Law Fraud and Civil Conspiracy (Counts III and IV)
1.
Reliance
Under West Virginia law, the essential elements of fraud are
as follows:
(1) that the act claimed to be fraudulent was the act of
the defendant or induced by him; (2) that it was material
and false; that plaintiff relied upon it and was
justified under the circumstances in relying upon it; and
(3) that he was damaged because he relied upon it.
Poling v. Pre-Paid Legal Servs., Inc., 575 S.E.2d 199, 202 (W. Va.
2002) (quoting Horton v. Tyree, 139 S.E. 737, 738 (W. Va. 1927)).
Rule 9(b) of the Federal Rules of Civil Procedure 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).
Contrary
to
the
lawyer
defendants’
assertion, this Court finds that CSXT has properly alleged reliance
on an alleged fraudulent representation and damages caused by that
reliance.
Specifically, CSXT avers:
Pursuant to the West Virginia Rules of Civil Procedure,
Professional Conduct and other applicable law, by filing
and prosecuting [the claims described in Paragraph 147],
the lawyer Defendants represented to CSXT that there
existed a colorable and good faith basis for the claims,
when in fact they knew or recklessly disregarded that
there existed no such basis and that their clients did
not suffer from asbestosis.
Furthermore, the lawyer
Defendants specifically intended CSXT to rely on their
representations to settle the claims.
. . .
[A]lthough CSXT disputed the subject claims, it
reasonably
relied
on
the
lawyer
Defendants’
representations that the claims had some good faith basis
20
in fact and were brought in accordance with the West
Virginia Rules of Civil Procedure, Professional Conduct
and other applicable law.
. . .
[T]he lawyer Defendants’ violations of § 1962(c) caused
CSXT to expend substantial money and resources to
process, defend and/or settle the deliberately fabricated
claims outlined in Paragraph 147 that should never have
been filed in the first place.
(Third Am. Compl. ¶¶ 157, 164-65, 173, 177.) As the Fourth Circuit
held
when
it
reinstated
CSXT’s
Baylor-related
fraud
claim:
“Obviously, CSX would have ‘relied’ on the representation [of
occupational exposure by Baylor] by filing the Baylor [asbestos]
claim that all elements of the case of action were met as CSX would
have had no reason to know of the alleged act of fraud.”
406 F. App’x at 734.
Gilkison,
“Consequently, a reasonable jury could find
CSX relied to its detriment on the defendants’ alleged fraud as the
basis of the Baylor claim.”
Id.
Thus, any challenge to the legal
sufficiency of CSXT’s alleged reliance on the false representations
made by or caused to be made by the lawyer defendants is without
merit.
2.
Damages Due to Reliance
To the extent the lawyer defendants argue that CSXT failed to
plead that it was damaged due to its reliance upon the lawyer
defendants’ false representations, this argument is also without
merit.
The allegations set forth in the third amended complaint
establish that CSXT was damaged because it relied upon the lawyer
21
defendants’
false
representations
in
that
CSXT
treated
the
fraudulently filed claims like any other and expended resources to
process,
defend
and/or
settle
them.
See
Tribune
Co.
v.
Purcigliotti, 869 F. Supp. 1076, 1100 (S.D. N.Y. 1994) (“Plaintiffs
contend that as a result of defendants’ alleged fraud, they have
incurred the significant medical and legal costs required to defend
the claims in front of the Board.
Without attempting to rule on
the scope of plaintiffs’ damages at this stage, expenses of this
nature, which foreseeably and directly result from defendants’
alleged violative conduct, constitute injury by reason of a RICO
violation.”).
The
lawyer
defendants
assert
that
any
legal
resources expended by CSXT were spent as a result of the larger
FELA complaints, and that these costs cannot be directly attributed
to the eleven allegedly fraudulent claims.
However, this Court
finds this argument to be unavailing at this stage, as CSXT has
specifically alleged that damages resulted from its reliance on the
lawyer
defendants’
false
representations
allegedly fraudulently filed claims.
amended
complaint
litigation
costs,
alleges
and
that
internal
CSXT
with
regard
to
the
For example, the third
paid
processing
attorney’s
costs
upon
fees,
being
subjected to extensive motions practice in the fraudulently filed
claims.6
It is the fact of injury, not the amount of damages that
6
CSXT also counts the $25,000.00 it paid to settle the claim
of Morris Collier as damages suffered.
The lawyer defendants
dispute this claim, arguing that Mr. Collier’s case was a cancer
22
is relevant. See Persinger v. Peabody Coal Co., 976 F. Supp. 1038,
1040 (S.D. W. Va. 1997) (“Once the elements of fraud have been
established, a plaintiff’s measure of damages would be any injury
incurred as a result of the defendant’s fraudulent conduct.”)
(internal quotations omitted).
For these reasons, the lawyer
defendants’ arguments concerning reliance and damages fail.
CSXT also argues that at an absolute minimum, it experienced
annoyance and inconvenience as a result of the lawyer defendants’
fraudulent filing and prosecution of the claims at issue.
The
lawyer defendants argue that non-economic internal resource costs
are not a basis for avoiding dismissal because those alleged
damages are not recoverable by a corporate entity. But see MalleyDuff & Associates, Inc. v. Crown Life Ins. Co., 792 F.2d 341, 35455 (3d Cir. 1986) (holding that Malley-Duff’s allegations of great
expenses, delays, and inconvenience in its prosecution of the
lawsuit were a sufficient pleading of injury to business or
property to give Malley-Duff RICO standing).
Because this Court
finds that the third amended complaint has properly alleged that
CSXT incurred damages as a result of the fraudulently filed claims,
it sees no need to address, at this time, the question of whether
CSXT can recover annoyance and inconvenience damages.
case, unrelated to asbestos.
23
F.
RICO Claims
1.
Predicate Acts
“To state a civil RICO claim, a plaintiff must allege that the
defendants engaged in, or conspired to engage in, a ‘pattern of
racketeering activity.’”
US Airline Pilots Ass’n v. Awappa, LLC,
615 F.3d 312, 317 (4th Cir. 2010) (quoting 18 U.S.C. § 1962).
A
“pattern of racketeering activity” requires at least two predicate
acts of racketeering activity.
18 U.S.C. § 1961(5); see Am.
Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 233
(4th Cir. 2004).
In this case, the predicate acts alleged are
instances of mail and wire fraud, which include the filing and
service of mass lawsuits, as well as all of the actions taken by
the lawyer defendants to generate medical evidence in support of
the fraudulent claims. (Third Am. Compl. ¶¶ 90, 94, 105, 112, 119,
125, 128-29, 134, 139, 159.)
While the lawyer defendants argue
that the predicate acts alleged in the third amended complaint are
limited to court filings and related letters, CSXT maintains that
the predicate acts encompass much more than the filing of the
eleven allegedly fraudulent claims.
Some courts have held that the filing of a fraudulent lawsuit
See St. Paul
can be a predicate act of mail and wire fraud.
Mercury Ins. Co. v. Williamson, 224 F.3d 425, 443 (5th Cir. 2000)
(“Among
the
predicate
acts
alleged
to
form
a
pattern
of
racketeering activity were instances of conduct directly connected
24
to the filing of the state tort suit, including the filing of that
suit.”); Warnock v. State Farm Mut. Auto. Ins. Co., No. 5:08cv01,
2008 WL 4594129, at *7 (S.D. Miss. Oct. 14, 2008) (finding that
because the plaintiff alleged more than the mere filing of false
litigation documents, the plaintiff adequately pled a pattern of
racketeering activity); State Farm Mut. Auto. Ins. Co. v. Makris,
No. 01-5351, 2003 WL 924615, at *10 (E.D. Pa. Mar. 4, 2003)
(holding that the filing of fraudulent lawsuits against State
Farm’s insureds to recover monetary damages from State Farm was an
essential element of the scheme to defraud State Farm); but see
Daddona v. Gaudio, 156 F. Supp. 2d 153, 163 (D. Conn. 2000)
(rejecting the plaintiff’s claims for mail and wire RICO fraud
because plaintiff failed to claim that the underlying litigation
was part of a larger scheme to deprive the plaintiff of his
property).
This Court finds that the alleged mail and wire fraud
violations in this case amount to more than mere claims for abuse
of process or malicious prosecution.
The third amended complaint
describes a more complex scheme by the lawyer defendants -- one
that allegedly involved more than the filing and service of eleven
fraudulent
complaints.
Even
in
light
the
Fourth
Circuit’s
expressed policy of construing civil RICO narrowly, this Court
finds that CSXT’s has alleged predicate acts that survive the
motions to dismiss.
See Flip Mortg. Corp. v. McElhone, 841 F.2d
531, 538 (4th Cir. 1988) (stating that the heightened penalties of
25
RICO are reserved for schemes whose scope and persistence set them
above the routine).
The Fourth Circuit has held that the fraudulent filing of §
1983 lawsuits is an indictable offense under the federal mail fraud
statute.
Murr, 681 F.2d at 249. It follows that such conduct
constitutes “racketeering activity” for purposes of 18 U.S.C. §
1962. See 18 U.S.C. § 1961(1)(B) (defining “racketeering activity”
as
“any
act
which
is
indictable
under
any
of
the
following
provisions of title 18, United States Code,” including “section
1341 (relating to mail fraud)”).
This is true whether or not the
pleadings and correspondence themselves were false or fraudulent.
Murr, 681 F.2d at 248-49 (“The use of the mails need not in and of
itself be fraudulent to constitute an offense under the statute .
. . .
[T]he mailed material may be totally innocent, and yet it
still may be found that a scheme to defraud exists.”).
Murr is not
a RICO case, but it suggests that the filing of a fraudulent
lawsuit can constitute racketeering activity.
However, the RICO
analysis does not end here.
Each of the predicate acts identified in the third amended
complaint is alleged to have been “incident to an essential part of
the [lawyer defendants’] scheme, or a step in [their] plot.”
United States v. Pierce, 409 F.3d 228, 232 (4th Cir. 2005) (quoting
Schmuck v. United States, 489 U.S. 705, 711 (1989)).
CSX asserts:
[T]he lawyer Defendants gained access to potential
clients through unlawful means, retained clients and
26
procured medical diagnoses for them through intentionally
unreliable mass screenings, prosecuted clients’ claims
using dishonest, fraudulent, and deceptive tactics and,
ultimately, fabricated and prosecuted asbestos claims
with no basis in fact. Moreover, the lawyer Defendants
deliberately filed the claims they manufactured in mass
lawsuits in overburdened courts to deprive CSXT of access
to meaningful discovery, which in turn concealed
fraudulent claims and leveraged higher settlements based
on the threat of mass trials.
(Third Am. Compl. ¶ 19.) According to the third amended complaint,
the filing of fraudulent lawsuits, as well as the filing of motions
and letters related to these lawsuits, was an integral part of the
lawyer defendants’ scheme to defraud CSX. (Third Am. Compl. ¶¶ 90,
94, 105, 112, 119, 125, 128-29, 134, 139, 159.)
The lawyer
defendants’ characterization of these filings and mailings as
“routine litigation activity” is contrary to CSXT’s allegations,
which this Court must accept “as true and construe[] . . . in the
light most favorable to the plaintiff in weighing the legal
sufficiency of the complaint.”
Nemet Chevrolet, 591 F.3d at 255.
Although the lawyer defendants contend that CSXT has failed to
properly state claims against the individual defendants because it
has not shown that each named individual committed at least two
predicate acts that proximately caused injury to the plaintiff,
this Court disagrees.
The third amended complaint alleges that
“[t]he lawyer Defendants, who were at all relevant times employed
by or associated with the Peirce firm, directly conducted and
participated in the business and affairs of the Peirce firm through
a pattern of racketeering in violation of 18 U.S.C. § 1962(c).”
27
(Third Am. Compl. ¶ 155.)
“In furtherance of [their] scheme, the
lawyer Defendants repeatedly used or caused their agents to use the
mails and wires.”
(Third Am. Compl. ¶ 158.)
Further, the third
amended complaint alleges:
[T]he lawyer Defendants agreed that one or all of them
. . . would cause personal injury claims to be filed
based on Harron’s fraudulent diagnoses. Additionally,
they each agreed to assist in the prosecution of these
claims
through
the
transmission
of
misleading
communications to clients, participation in settlement
negotiations with CSXT, communications with the courts
and other fraudulent means.
(Third Am. Compl. ¶ 170.)
This Court finds that the allegations
contained in the third amended complaint are sufficient to support
the inference that each of the lawyer defendants knew the mails
were being used in furtherance of their fraudulent scheme.
2.
Rule 9(b)
As stated above, Rule 9(b) provides 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).
Circuit
provision
has
interpreted
this
as
The Fourth
requiring
that
a
complaint identify 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).
The primary purpose of Rule 9(b) is to ensure “that the defendant
has sufficient information to formulate a defense by putting it on
notice of the conduct complained of.”
28
Id.
In some instances,
courts have found that the use of group pleading (the lumping of
defendants together) fails to meet the heightened standards set
forth under Rule 9(b).
This Court finds that the third amended complaint meets the
particularity requirements of Rule 9(b) and adequately sets forth
the time, place, and content of each false representation, as well
as the identity of the person making the representation, as
required by Fourth Circuit precedent.
Specifically, the third
amended complaint identifies the date when each fraudulent claim
was filed and the court in which it was filed (Third Am. Compl.
¶¶ 105, 112, 125, 129, 134); identifies the person who signed the
complaint and caused the complaint to be filed (Third Am. Compl.
¶¶
105,
112,
125,
129,
134);
identifies
the
circumstances,
including the date, of the service of each complaint on CSXT
(Third Am. Compl. ¶¶ 105, 112, 125, 129, 134); and attaches the
relevant portions of each allegedly fraudulently filed complaint
and the notices of service as exhibits (Third Am. Compl. Exs. MM,
NN, OO, PP, TT, UU, VV, WW, YY, ZZ).
The third amended complaint
provides similar detail for each additional predicate act of mail
or wire fraud alleged.
(Third Am. Compl. ¶¶ 90, 94, 119, 133, 139,
159 and Exs. GG, HH, II, JJ, RR, XX, FFF, GGG, OOO-TTT.)
Because the theory of the case is that “the lawyer Defendants,
collectively
and
in
concert,
embarked
upon
a
calculated
and
deliberate strategy to participate in and conduct the affairs of
29
the Peirce firm through a pattern and practice of unlawful conduct”
(Third
Am.
Compl.
¶
18),
it
follows
that
the
third
amended
complaint alleges that many of the actions were collectively taken
or collectively caused to be taken by the lawyer defendants.
See
Pludeman v. N. Leasing Sys., Inc., 890 N.E.2d 184, 188 (N.Y. 2008)
(finding that the very nature of the scheme, as alleged, gives rise
to the reasonable inference that the defendants knew of or were
involved in the fraud).
It is not necessary for each individual
defendant to have personally sent fraudulent mailings -- “it is
enough if he knows that in the execution of the scheme letters are
likely to be mailed, and if in fact they are mailed.”
United
States v. Perkal, 530 F.2d 604, 607 (4th Cir. 1976) (involving a
scheme to defraud through the submission of fraudulent personal
injury claims).
Moreover, the third amended complaint does, in
fact, identify each defendant’s participation in the alleged fraud.
“Defendants Peirce and Raimond orchestrated and implemented the
screening process . . . which they specifically intended to attract
potential clients and manufacture diagnoses of asbestos-related
diseases regardless of whether the subject individuals actually
exhibited
signs
objective,
they
of
those
diseases.
deliberately
hired
In
furtherance
technicians
and
of
this
doctors.”
(Third Am. Compl. ¶ 168.) Defendant Peirce is also alleged to have
first hired James Corbitt and his company to conduct the screenings
(Third Am. Compl. ¶ 39), and Peirce allegedly testified that he
30
selected Harron based on his willingness to read an unusually high
number of x-rays at a time (Third. Am. Compl. ¶ 58).
Coulter is
alleged to have personally filed four of the underlying mass tort
suits
in
accordance
with
the
lawyer
defendants’
collective
agreement to cause fraudulent suits to be filed. (Third Am. Compl.
¶¶ 90, 94, 105, 112.)
Each of those suits is alleged to be a
predicate act in support of the overall fraudulent scheme.
Am. Compl. ¶ 160.)
(Third
Accordingly, this Court finds that the third
amended complaint meets the particularity requirements of Rule 9(b)
because it “specifically alleges the nature of each defendant’s
participation in the allegedly fraudulent scheme.”
In re Platinum
and Palladium Commodities Litig., No. 10 Civ 3617, 2011 WL 4048780,
at *11 (S.D. N.Y. Sept. 13, 2011) (dismissing plaintiffs’ RICO
claim for failure to adequately plead predicate acts).
Unlike the
plaintiffs in In re Platinum, who relied impermissibly on group
pleading,
CSXT
identifies
the
individual
differentiates between their conduct.
defendants
and
Thus, the third amended
complaint survives the motions to dismiss.7
3.
Pattern of Racketeering Activity
As explained above, a “‘pattern of racketeering activity’
requires at least two acts of racketeering activity, one of which
7
This Court also notes that the phrase “lawyer defendants” has
been used to describe Peirce, Raimond, and Coulter throughout this
litigation, yet this is the first time that they have argued that
this phrase fails to provide them with adequate notice of their
individual roles in the fraud.
31
occurred after the effective date of [the RICO statute] and the
last of which occurred within ten years . . . after the commission
of a prior act of racketeering activity.”
18 U.S.C. § 1961(5).
To
demonstrate a pattern of such activity, the plaintiff must show
“continuity
plus
relationship,”
i.e.,
“that
the
racketeering
predicates are related, and that they amount to or pose a threat of
continued criminal activity.”
Awappa, LLC, 615 F.3d at 318
(quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989)).
The Fourth Circuit has observed that “there is no mechanical
formula
to
assess
whether
the
pattern
requirement
has
satisfied; it is a commonsensical, fact-specific inquiry.”
been
ePlus
Tech., Inc. v. Aboud, 313 F.3d 166, 181-82 (4th Cir. 2002).
In addressing the “continuity plus relationship” test, the
Supreme Court has found that for the predicate acts to be related,
they
must
have
“‘the
same
or
similar
purposes,
results,
participants, victims, or methods of commission, or otherwise [be]
interrelated
by
isolated events.”
distinguishing
characteristics
H.J. Inc., 492 U.S. at 230.
and
[not
be]
The continuity
aspect 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.
The continuity requirement
demonstrates Congress’s desire to limit RICO’s application to
“ongoing lawful activities whose scope and persistence pose a
32
special threat to social well-being.” Al-Abood ex rel. Al-Abood v.
El-Shamari, 217 F.3d 225, 238 (4th Cir. 2000).
In this case, the predicate acts pled in the third amended
complaint do have certain similarities.
The alleged participants
are the lawyer defendants and Dr. Harron.
CSXT.
CSXT
The alleged victim is
The alleged purpose of the predicate acts was to defraud
through
the
manufacturing,
fraudulent asbestos claims.
filing,
and
prosecution
of
The methods of commission were also
similar: the lawyer defendants included fraudulent claims in mass
lawsuits
filed
in
the
same
overburdened
court
system,
and
subsequently filed motions to compel mandatory mass mediation of
the claims. According to the third amended complaint, all of these
actions were intended to deprive CSXT of access to discovery in
individual cases in order to conceal the fraudulent claims and
leverage high settlements.
(Third Am. Compl. ¶¶ 17-19.)
Further,
CSXT alleges that each of the fraudulent claims was a product of
the lawyer defendants’ deliberately unreliable mass screenings and
was based, in whole or in part, on an x-ray taken by the same
radiologic technologist (Corbitt) and interpreted by the same
doctor (Harron).
With regard to relatedness, this Court’s analysis hinges upon
whether
the
predicate
acts
are
defined
as
only
the
eleven
fraudulent asbestosis claims or whether the mass suits themselves
are considered predicate acts.
As both parties acknowledge, the
33
eleven fraudulent claims represent a small percentage of the total
number of claims included within the mass lawsuits discussed in the
third amended complaint.
The lawyer defendants argue that this
isolated conduct, a mere 0.2% of the asbestosis claims filed by the
Peirce Firm against CSXT, does not create a pattern of racketeering
activity.
But this Court finds that the predicate acts alleged in
the third amended complaint arguably encompass more than just the
eleven fraudulent claims.
CSXT asserts that the lawyer defendants
“deliberately filed . . . mass lawsuits in overburdened courts to
deprive CSXT of access to meaningful discovery, which in turn
concealed fraudulent claims and leveraged higher settlements based
on the threat of mass trials.”
(Third Am. Compl. ¶¶ 19, 89.)
The
fact that not all of the asbestos lawsuits filed against CSXT were
fraudulent does not necessarily rule out the argument that the mass
lawsuits were filed as part of a grander plan to conceal the
fraudulent claims.
The
facts
demonstrate
related.
alleged
that
the
in
the
lawyer
third
amended
defendants’
complaint
predicate
acts
also
were
Over a six-year period, the lawyer defendants filed or
caused to be filed five separate lawsuits in the same jurisdiction
containing fraudulent claims against CSXT.
(Third Am. Compl.
¶¶ 105, 112, 125, 129, 134, 147, 160.) Moreover, the third amended
complaint asserts that the lawyer defendants committed numerous
other acts of mail and wire fraud over a nearly ten-year period in
34
order to advance and conceal the fraudulent claims.
Compl. ¶¶ 159-60.)
(Third Am.
While the eleven fraudulent claims may have
been a relatively small percentage of the total number of claims
included in the mass lawsuits, the third amended complaint defines
the
predicate
acts
as
the
mass
lawsuits
themselves
and
the
commission of other acts of mail and wire fraud in furtherance of
those claims. Thus, the allegations in the third amended complaint
meet
the
relatedness
requirement
of
pleading
a
pattern
of
racketeering activity.
In addition to being related, the facts in the amended
complaint
demonstrate
continuity requirement.
that
the
predicate
acts
satisfy
the
The Supreme Court has explained that
“‘[c]ontinuity’ is both a closed- and open-ended concept, referring
either to a closed period of repeated conduct, or to past conduct
that by its nature projects into the future with a threat of
repetition.”
H.J. Inc., 492 U.S. at 241.
“A party alleging a RICO
violation may demonstrate continuity over a closed period by
proving a series of related predicates extending over a substantial
period of time.”
Id. at 242.
If the RICO action is brought
“before continuity can be established in this way . . . liability
depends on whether the threat of continuity is demonstrated.”
Id.
In their motions to dismiss, the lawyer defendants assert that CSXT
can demonstrate neither open-ended nor closed-ended continuity.
CSXT counters that it has demonstrated both open-ended and closed-
35
ended continuity.
This Court finds that at this point, the
allegations of the third amended complaint are sufficient to show
either closed- or open-ended continuity.
The third amended complaint alleges that “the predicate acts
were continuous in that they occurred on a regular basis.”
Am. Compl. ¶ 162.)
(Third
CSXT also sets forth facts indicating that the
lawyer defendants continued to prosecute the fraudulent claims even
after CSXT filed its original amended complaint in this case.
(Third Am. Compl. ¶¶ 133-39.) Further, the third amended complaint
alleges that Dr. Harron has refused to answer questions regarding
his
diagnostic
practices
when
deposed
in
connection
with
an
asbestos-related case previously pending in this Court and has been
found to have engaged in ongoing fraud on the courts by the New
York State Board of Professional Medical Conduct.
Compl. ¶¶ 71-73.)
(Third Am.
The calculated and deliberate strategy of the
lawyer defendants to participate in and conduct the affairs of the
Peirce Firm through a pattern and practice of unlawful conduct
(Third
Am.
Compl.
¶
18),
as
described
in
the
third
amended
complaint, indicates that the filing of fraudulent lawsuits was a
part of the Peirce Firm’s regular business practice.
Taken
together, these facts, if proven, establish a threat of continued
racketeering conduct and therefore, open-ended continuity.
The third amended complaint also alleges that beginning in the
late 1990s, the lawyer defendants participated in a scheme to
36
defraud CSXT by fabricating and prosecuting asbestos claims in mass
lawsuits in overburdened courts.
(Third Am. Compl. ¶ 19.)
CSXT
argues that this scheme victimized the claimants and the West
Virginia courts, in addition to CSXT.
According to CSXT, these
facts support a finding of closed-ended continuity.
This Court
agrees that it is contrary to Fourth Circuit policy to permit
ordinary disputes to be transformed into RICO claims.
See Al-
Abood, 217 F.3d at 238 (“We conclude that this case is not
sufficiently outside the heartland of fraud cases to warrant RICO
treatment.”).
However, in this case, the third amended complaint
sufficiently sets out a pattern of racketeering activity that
includes acts that are both related and continuous and that exceed
the scope of unlawful activity found in customary fraud cases.
4.
Proximate Cause of Injury
To recover civil RICO damages, a plaintiff must also allege
that he was injured “by reason of” the pattern of racketeering
activity.
18 U.S.C. § 1964(c).
To meet this burden with respect
to mail and wire fraud, a plaintiff must “plausibly allege both
that [it] detrimentally relied in some way on the fraudulent
mailing . . . and that the mailing was a proximate cause of the
alleged injury to [its] business or property.”
Chisholm v.
TranSouth Fin. Corp., 95 F.3d 331, 337 (4th Cir. 1996). Here, CSXT
argues that it was injured in its “business or property by reason
of” the lawyer defendants’ RICO violations because it was forced
37
“to expend substantial money and resources to process, defend
and/or
settle
the
deliberately
fabricated
claims
outlined
in
Paragraph 147 that should never have been filed in the first
place.”
complaint
(Third Am. Compl. ¶¶ 165, 176.)
describes
a
direct
relationship
The third amended
between
the
lawyer
defendants’ filing and prosecution of fraudulent claims and CSXT’s
need to expend resources in response to those claims.
Construing
the facts in the light most favorable to CSXT, this Court concludes
that CSXT has properly alleged that it expended resources in
connection with the fraudulent claims.
Importantly, the Fourth
Circuit has held that the “best reading of § 1964(c)’s injury to
business or property requirement is that it refers to the fact of
injury and not the amount.” Potomac Elec. Power Co. v. Elec. Motor
& Supply, Inc., 262 F.3d 260, 265 (4th Cir. 2001).
Therefore, the
fact that some of the eleven allegedly fraudulent claims were
dismissed on procedural grounds as part of motions attacking the
larger FELA complaints, thus perhaps requiring the expenditure of
fewer resources, does not imply a lack of causal nexus between
CSXT’s injuries and the fraudulent asbestos claims.
5.
Vagueness Challenge
The
final
challenge
presented
in
the
lawyer
defendants’
motions to dismiss is that RICO’s pattern requirement is, as
applied to the facts of this case, unconstitutionally vague.
However, this Court disagrees.
Based upon the Fourth Circuit’s
38
rejection of similar challenges, this Court finds that RICO’s
pattern requirement is not unconstitutionally vague as applied to
the lawyer defendants. See United States v. Bennett, 984 F.2d 597,
606 (4th Cir. 1993) (rejecting a vagueness challenge to RICO’s
pattern of racketeering requirement and citing decisions of sister
circuits who have rejected vagueness challenges); see also United
States v. Gross, 199 Fed. App’x 219, 235 n.4 (4th Cir. 2006).
While it may be argued that RICO is unconstitutionally vague in
some contexts, in this case the statute provided the lawyer
defendants adequate notice that their alleged fraudulent scheme
fell within those acts contemplated by RICO and would subject them
to RICO liability.
IV.
Conclusion
For the reasons set forth above, Robert N. Peirce’s motion to
dismiss the third amended complaint (ECF No. 887) is DENIED, Louis
A. Raimond’s motion to dismiss the third amended complaint (ECF No.
889) is DENIED, and Mark T. Coulter’s motion to dismiss the third
amended complaint (ECF No. 891) is DENIED.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
39
DATED:
May 3, 2012
/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE
40
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