«MEMORANDUM OPINION AND ORDER THOMAS D. SCHROEDER, District Judge This is an action by AARP against providers of certain financial services and their ...»
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
AMERICAN FAMILY PREPAID LEGAL )
CORPORATION, INC., d/b/a AMERICAN ) FAMILY LEGAL PLAN, HERITAGE MARKETING ) Case No.: 1:07cv202 AND INSURANCE SERVICES, INC., STANLEY ) NORMAN, JEFFREY NORMAN, MIKE )
FEDYNSIZYN, ROBERT MALARCHICK, )AMERICA’S RECOMMENDED MAILERS, INC., ) TINA HENNESSY, and TOM HENNESSY, ) ) Defendants. )
MEMORANDUM OPINION AND ORDER
Certain Defendants have also moved to dismiss the Amended Complaint for lack of personal jurisdiction, pursuant to Rule 12(b)(2), Fed. R. Civ. P., and, in the alternative, to dismiss any claims arising out of conduct other than activity directed toward North Carolina. (Docs. 19, 20 & 27.) For the reasons set forth below, the court grants the motions to dismiss the federal RICO claims, which will be dismissed without prejudice, and it denies the motions as to the North Carolina RICO claims. The court denies the jurisdictional motions and concludes that specific jurisdiction exists over the individual Defendants
mailings directed outside of North Carolina, those claims are dismissed.
I. BACKGROUND The key facts are set forth below, while additional facts
analysis to follow. On motion to dismiss, all facts are viewed in the light most favorable to AARP as the non-moving party.
Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007).
“Financial Services Defendants,” marketed their services through
Stanley Norman, at all times relevant, was president of American Family and president (or chief executive officer of Heritage, he could not remember which); his son, Jeffrey Norman, was secretary and chief executive officer of American Family. (Doc. 41, Ex. B at 9, 11 & 56.) Defendants Mike Fedynsizyn and Robert Malarchick were allegedly North Carolina-based sales associates who contracted with American Family and Heritage to personally call on potential customers in North Carolina. The case against Malarchick is stayed pursuant to 11 U.S.C.
§ 362, pending the resolution of his bankruptcy proceedings.
Financial Services Defendants. (Doc. 3 103, 108, 114 & 120.)
An illustrative lead card states as follows:
Tina Hennessy founded ARM and is its sole officer, shareholder and director; her husband, Tom Hennessy, has been its general manager since 2000. (Doc. 42, Ex. A at 11-12, 16-17.)
testimony that the Hennessys modified any of the text referring to AARP. However, at least one other version of the lead card containing reference to the AARP study was a “stock” mailer ARM
Tom Hennessy testified that the “stock” lead cards predated his employment with ARM in 2000. (Id., Ex. A. at 127-128.) The Financial Services Defendants contracted with ARM to mail the lead cards and to process responses from potential
(Id. 27.) Respondents seeking more information were contacted by sales representatives (including Defendants Fedynsizyn and Malarchick) employed by the Financial Services Defendants, and a home-visit was set up during which high-pressure sales tactics were allegedly used to “browbeat seniors into buying financial services.” (Id. 40-90.) AARP alleges that the lead cards misled seniors into believing that the mailings and subsequent
“conducted or participated in the conduct of the affairs of an enterprise engaged in interstate commerce through a pattern of
See Ellenburg v. Spartan Motors Chassis, Inc., 519 F.3d 192, 198-99 (4th Cir. 2008).
At one point the Amended Complaint alleges that the Financial Services Defendants and the Mail House Defendants constitute an enterprise that has “conspired to engage” in the predicate acts.
(Doc. 3 39.) A conspiracy would be subject to a claim under 18 U.S.C. § 1962(d).
31 at 4.) 6 A motion under Rule 12(b)(6) should be granted only where, assuming the truth of all allegations in the Amended Complaint, a plaintiff fails to allege sufficient facts entitling it to
Crown Supply, Inc., 896 F.2d 833, 841 (4th Cir. 1990) (en banc) (affirming the necessity of distinction between the “person” and the “enterprise” in actions alleging a violation of § 1962(c)).
casts the same group of actors as being both “persons” and the “enterprise.” Defendants argue that by doing so AARP’s Amended Complaint lacks the requisite distinctness between the “person” undertaking the racketeering conduct and the “enterprise” with which such person is associated.
“enterprise” and a “person” cannot be one and the same because under the statute a “person” cannot be “employed” by itself.
For that reason New Beckley Mining, upon which Defendants rely,
Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir.
1994) (dismissing claim where employer and employees were both defendants and alleged enterprise); Eason v. Merrigan, No. DKC
have been sustained under section 1962(c) where there is only partial overlap between the person and the enterprise, Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989), and where the defendant may be a RICO person yet one of a number of members of the alleged enterprise, Cullen v. Margiotta, 811 F.2d 698 (2d
federal RICO claim on this basis is denied.
It is difficult to conclude that the court’s statement in Entre Computer Ctrs., Inc. v. FMG of Kansas City, Inc., 819 F.2d 1279 (4th
Cir. 1987), requires a different result. There the court stated:
“[A]ssuming a corporation can be part of an ‘association in fact,’ the central question is whether it can combine with other entities to form an enterprise, when it is already the ‘person’ whose behavior the Act is designed to punish. Computer Sciences answers that question in the negative.” Id. at 1287. While the facts of the case are not set out in detail in the opinion, it appears that the court’s statement was in regard to the fact that the alleged enterprise was the corporate defendant and its franchises, thus demonstrating application of the rule set out above that corporations and their closely aligned entities cannot constitute both the RICO enterprise and the person.
18 U.S.C. § 1961(4). The latter is known as an “association-infact” RICO enterprise. The Supreme Court has described it as “a group of persons associated together for a common purpose of
AARP argues that the enterprise shared a common purpose to make money by defrauding seniors into believing that certain living trusts, annuities, financial and insurance products sold
Defendants argued at the hearing on these motions, though not in their briefing, that making money alone cannot suffice as a common purpose.
An association-in-fact enterprise requires demonstration of
States v. Batts, 171 F. App’x 977, 981 (4th Cir. 2006) (finding that a common purpose of dealing cocaine existed where gang members looked out for police, protected each other, referred drug buyers to other gang members for purchases, took turns
crimes to preserve their turf); United States v. Najjar, 300 F.3d 466, 485 (4th Cir. 2002) (finding common purpose between defendant-employee and the corporation based on evidence that defendant-employee acted on behalf of and with intent to benefit the corporation). A goal of making money establishes a common purpose where the enterprise members sought to profit from the alleged illegal activity. Tillett, 763 F.2d at 630-31 (finding
smoker traffic in retailers’ stores,” sufficiently alleged an association-in-fact); see also Williams v. Mohawk Indus., Inc., 465 F.3d 1277, 1284 (11th Cir. 2006) (holding complaint alleging members of an enterprise stood to gain substantial financial benefits from the employment and harboring of illegal workers
while for obvious reasons making money is frequently the common purpose in RICO enterprises, RICO does not require that either the enterprise or the predicate acts be motivated by an economic purpose. Fiel, 35 F.3d at 1003.
AARP alleges that ARM and the Hennessys provide infringing lead cards not just to the Financial Services Defendants but to other insurance agencies and financial service companies throughout the United States. (Doc. 3 19-20.)
Services Defendants’ products to allegedly unsuspecting buyers, and there is no allegation or evidence that ARM or the Hennessys either were involved in, or benefitted from, any of those sales.
collected names of responders, and ARM’s payment is not alleged to have been contingent upon any sale by the Financial Services Defendants.
This case is very similar to In re Pharmaceutical Industry
existed, however, the court noted that “[w]hile some of these factors may support an inference that some publishers may have been aware of concerns by governmental entities about inflated AWP’s, they are insufficient to draw a reasonable inference that each of the publishers knew of the fraudulent nature of the
In Turkette, the Court stated that an enterprise is “proved by evidence of an ongoing organization, formal or informal,” while the “pattern of racketeering” is “proved by evidence of
AARP points to the statements in Turkette that an enterprise may also be proved by demonstrating it operated as a “continuing unit.” (Doc. 31 at 9.) The Fourth Circuit appears to analyze the continuity element as proof of a common purpose, United States v. Tillett, 763 F.2d 628, 631-32 (4th Cir. 1985), which the court has already addressed.
882 F.2d 1249, 1251 (7th Cir. 1989).
Whether an association-in-fact enterprise requires proof of an ascertainable structure beyond that inherent in the commission of predicate crimes is presently before the Court and awaiting decision.
Boyle v. United States, No. 07-1309, 129 S. Ct. 29 (U.S. argued Jan.
14, 2009); see Brief for the Petitioner, Boyle v. United States, 129 S. Ct. 29 (2008) (No. 07-1309).
precedent in the Fourth Circuit as to the extent to which a RICO complaint must allege the requisites of an “enterprise” as set forth in Turkette. Tillett was decided on a full record after conviction and therefore does not speak directly to the issue.
763 F.2d at 630-61. The circuits are split in their approach.
See, e.g., City of New York v. Smokes-Spirts.com, Inc., 541 F.3d 425, 451 (2d Cir. 2008) (affirming dismissal of civil RICO claim
sufficient under Turkette a complaint alleging enterprise had common purpose, ongoing organization, and continuing unit); AsaBrandt, Inc. v. ADM Investors Servs., Inc., 344 F.3d 738, 752
structure but affirming grant of summary judgment for lack of proof); Pavlov v. Bank of New York Co., 25 F. App’x 70, 71 (2d Cir. 2002) (holding complaint sufficiently alleged enterprise