United States District Court, Northern District of California
September 4, 2003
AMANDA METCALF, PLAINTIFF,
DEATH ROW RECORDS, INC., THE ROW RECORDS, MARION "SUGE" KNIGHT, REGGIE WRIGHT, DEFENDANTS.
The opinion of the court was delivered by: Samuel Conti, Senior District Judge
In accordance with this Court's Order Re: Defendants' Motion to Dismiss, it is hereby ORDERED, ADJUDGED, and DECREED that:
Judgment shall be entered in favor of DEFENDANTS and against PLAINTIFF.
IT IS SO ORDERED. Page 2
ORDER RE: DEFENDANTS' MOTION TO DISMISS
In this case involving alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), Defendants Death Row Records, Inc. ("Death Row"), The Row Records, Marion "Suge" Knight, and Reggie Wright move to dismiss all Plaintiff's claims pursuant to Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted, respectively. For the reasons set forth below, Defendants' motion to dismiss is granted.
I. FACTUAL HISTORY
Plaintiff Amanda Metcalf ("Metcalf") alleges that Defendants Page 2 defrauded her out of her interest in a contingency fee arrangement for providing legal representation to a third-party, Dick Griffey. Plaintiff seeks $1.5 million in compensatory relief, treble damages as authorized under 18 U.S.C. § 1964(c), and punitive damages. Metcalf and Griffey entered into a representation agreement (the "Agreement") on or about December 20, 1996. The Agreement involved Metcalf's representation of Griffey in a suit that Griffey filed against Defendants. In that suit, the Los Angeles County Superior Court entered judgment for Griffey in the amount of $4 million in February 1998. Metcalf contends that as a result of a conspiracy between Defendants and Griffey, she has not received payment to which she is entitled from the Agreement. On March 25, 2002, Plaintiff instituted a state court action for, inter alia, fraud, conversion, and breach of contract in the Los Angeles County Superior Court against Defendants as well as Griffey and other related parties. On March 24, 2003, Plaintiff initiated two separate actions before this Court — the present case and a related case, Case No. C-03-1251 (the "related case"). The two cases involve different defendants despite alleging identical claims and indistinguishable factual circumstances.*fn1 In both cases, Plaintiff asserts that Defendants conspired with Griffey to deprive her of the contingency fee that she earned for representing Griffey. Plaintiff brings causes of action for RICO violations, 18 U.S.C. § 1962(c) and 1962(d), alleging inter Page 3 alia bribery (18 U.S.C. § 201), mail fraud (18 U.S.C. § 1341) and extortion (18 U.S.C. § 1951) as the requisite predicate acts.
II. LEGAL STANDARD
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. Dismissal of an action for failure to state a claim is appropriate only when it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 (9th Cir. 1991)(quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In considering a motion to dismiss, this Court must assume all factual allegations to be true and construe them in the light most favorable to the nonmoving party. North Star Intern, v. Arizona Corp. Comm'n, 720 F.2d 578, 590 (9th Cir. 1993). Nevertheless, Plaintiff's complaint must be based on more than "[c]onclusory allegations of law and unwarranted inferences" to defeat a 12(b)(6) motion. Parino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1999)(quoting In re VeriFone Sec. Litig., 11 F.3d 865, 868 (9th Cir. 1993)).
Plaintiff asserts a civil RICO claim under 18 U.S.C. § 1964(c), alleging violations of 18 U.S.C. § 1962(c) and § 1962(d), which respectively prohibit engaging in racketeering activity and conspiracy. A violation of § 1962(c) requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Ove v. Gwinn, 264 F.3d 817, 825 (9th Cir. 2001). A minimum of two predicate acts within ten years of each other constitute a pattern of racketeering activity. 18 U.S.C. § 1961(5). Furthermore, a Page 4 pattern of racketeering necessarily involves the threat of continuing activity related to the predicate acts. Howard v. America Online, Inc., 208 F.3d 741, 746 (9th Cir. 2000). Conspiracy under § 1962(d) requires either the existence of an agreement which by itself constitutes a substantive RICO violation or the defendants having commit or agreed to commit a violation of two predicate offenses. Id. at 751. To prevail on a civil RICO claim, Plaintiff must establish tangible financial injury and demonstrate that Defendants' prohibited conduct directly and proximately caused such injury. Ove, 264 F.3d at 825. Plaintiff's potential recovery under § 1964(c) is limited to those injuries flowing from the predicate acts. Resolution Trust Corp. v. Keating, 186 F.3d 1110, 1117 (9th Cir. 1999).
Defendants contend that this Court should abstain from hearing the present case on account of the pending state court action. In the related case, this Court already determined that abstention is inappropriate under the Colorado River doctrine. See Colorado River Conservation Dist. v. United States, 424 U.S. 800 (1976). Therefore, for the reasons set forth in the June 13th, 2003 Order in Case No. C-03-1251, this Court properly exercises jurisdiction over the present matter.
B. Predicate Acts
Defendants contend that Plaintiff's complaint is fatally insufficient because it fails to specify any criminal activity Page 5 that allegedly occurred. Although baseless allegations and speculative inferences are insufficient to withstand a 12(b)(6) motion, Plaintiff's complaint is sufficiently specific. Plaintiff explicitly avers acts of mail fraud, bribery, extortion, and financial fraud that violate both federal and state penal statutes. See Pl. Compl. at ¶ 39. Dismissal is appropriate "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). In the context of RICO, Plaintiff's general factual allegations of injury resulting from Defendants' conduct suffice to withstand dismissal, as this Court presumes that such general allegations "embrace those specific facts that are necessary to support the claim." NOW v. Scheidler, 510 U.S. 249, 256 (1994). Construing the complaint in a light favorable to Plaintiff, it is readily apparent that Plaintiff adequately pled sufficient predicate acts committed by Defendants to constitute a pattern of racketeering activity that directly and proximately caused a concrete financial loss. Furthermore, the purported factual circumstances suggest the threat of continuing activity.
Defendants argue that Plaintiff fails to allege predicate acts that led to Defendants' acquisition or control over the putative criminal enterprise. Although accurate, Defendants' observation of the absence of such an allegation is wholly irrelevant. Acquisition at control over the criminal enterprise is a required element for an infraction of § 1962(b) but not Page 6 subsections (c) or (d), the two provisions that Plaintiff accuses Defendants of violating. Additionally, Defendants maintain that Plaintiff has not pled facts that sufficiently support a violatior of § 1962(a). Because, however, Plaintiff's claim is based upon violations of § 1962(c) and (d), Defendants' argument is again misguided.
C. Pattern of Criminal Activity
RICO violations under § 1962(c) require a "pattern of racketeering activity." 28 U.S.C. § 1962 (c). To constitute a "pattern" under § 1962, Defendants' conduct must be both related and continuous. H.J. Inc. v. Northwester Bell Telephone Co., 492 U.S. 229, 239 (1989). "Continuity is a 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.
1. Closed-Ended Continuity
Closed-ended continuity refers to where a defendant's predicate acts occurred over a substantial period of time. Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1527 (9th Cir. 1995). The Ninth Circuit has rejected a bright-line rule regarding the minimum period over which the predicate acts must occur to constitute closed-ended continuity. See id. at 1528. Flexibility rather than rigidity should govern determinations of "pattern," and thus factual inquiries are necessary. See id. A thirteen-month period presumably represents a sufficiently substantial length of time for continuity purposes while closed-ended Page 7 continuity likely does not exist where the predicate acts occurred over only a few weeks or months. See Federal Reserve Bank of San Francisco v. HK Systems, Inc., 1997 WL 765952 (N.D.Cal. 1997); see also H.J. Inc., 492 U.S. at 241-42; Allwaste, Inc., 65 F.3d at 1528.
In the present case, Plaintiff alleges that the predicate acts that Defendants committed in furtherance of their criminal scheme to defraud began in or about January 2000 and continued through February 2000. See Pl. Compl. at ¶¶ 29-31. Because Defendants' conduct occurred over a span of one or two months, Plaintiff cannot establish closed-ended continuity.
2. Open-Ended Continuity
In contrast to closed-ended continuity, open-ended continuity refers to the threat that a defendant will continue to engage in criminal activity in the future. H.J. Inc., 492 U.S. at 242. A plaintiff establishes open-ended continuity by demonstrating that the defendant's predicate acts either "include a specific threat of repetition extending indefinitely into the future" or constitute the enterprise's "regular way of doing business." Id. Predicate acts that were neither isolated nor sporadic pose a threat of continuing activity. See Sun Savings & Loan Assoc. v. Dierdorff, 825 F.2d 187, 194 (9th Cir. 1987).
The factual circumstances of this case seemingly satisfy open-ended continuity. Plaintiff describes in significant detail Death Row's and Knight's suspicious historical dealings. See Pl. Compl. at ¶¶ 10-17. Also, Defendants' past conduct suggests the Page 8 likelihood of future criminal activity in that additional predicate acts appear necessary to completely defraud Plaintiff of her fee under the Agreement. Despite these factors weighing in favor of a finding of open-ended continuity, this Court must delve deeper in its analysis of whether Defendants' behavior represents a pattern of racketeering activity.
In the Ninth Circuit, a single fraudulent scheme directed at a single victim fails to satisfy the continuity prong of RICO's pattern requirement. See Sever v. Alaska Pulp. Corp., 978 F.2d 1529, 1535 (9th Cir. 1992). Ascertaining whether this exception applies involves a two-part inquiry: was there a single scheme and was there a single victim. The first factor alone is not sufficiently dispositive. That the predicate acts relate to one overall scheme does not necessarily indicate the absence of a pattern. See Sun Savings & Loan, 825 F.2d at 193; see also Ashland Oil, Inv. v. Arnett, 875 F.2d 1271, 1279 (7th Cir. 1989) The Ninth Circuit has explicitly held that it is not necessary to show more than one fraudulent scheme or criminal episode to establish a pattern of racketeering activity. See, e.g., Allwaste, 65 F.3d at 1528; Sun Savings & Loan, 825 F.2d at 193. For example in Sun Savings & Loan, the Court held that continuity existed where the defendant committed at least two predicate acts that were not isolated, separate in time, and in furtherance of a single criminal scheme. See Sun Savings & Loan, 825 F.2d at 193. Thus the question of a single scheme must be considered in combination with the total number of victims against whom the Page 9 predicate acts were perpetrated.
The second factor — that of the number of victims — seems more determinative of pattern than the first, as the Ninth Circuit has rarely upheld a finding of continuity where only a single victim suffered as a result of a defendant's actions. See, e.g., Sever, 978 F.2d at 1535-36; Medallion Television Enterprises, Inc. v. SelecTV of Cal., Inc., 833 F.2d 1360 (9th Cir. 1987); Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393 (9th Cir. 1987). In Sever, the Court noted that defendant's conduct amounted to "a single episode having the singular purpose of impoverishing Sever, rather than a series of separate, related acts." Sever, 978 F.2d at 1535. The Ninth Circuit explicitly noted that it was influenced by the fact that there was but a single victim involved. See id. Likewise in Medallion, the defendant's various predicate acts revolved around fraudulently inducing a single victim to enter into a contract and were therefore insufficient to establish a pattern. See Medallion, 833 F.2d at 1363-64. In Schreiber, the Court focused on the fact that the defendant allegedly commit acts of mail and wire fraud in order to illegally divert a single shipment of goods. See Schreiber, 806 F.2d at 1399. In addition to the plaintiff being the single victim, the Ninth Circuit emphasized that the ultimate objective of defendant's scheme amounted to an "isolated event." Id. Similarly in Jarvis, the Ninth Circuit held that defendants' acts of mail and wire fraud in order to misappropriate federal funds amounted to an isolated scheme with no threat of future Page 10 activity and therefore did not constitute a pattern of racketeering activity. See Jarvis v. Regan, 833 F.2d 149, 153 (9th Cir. 1987).
Defendants argue that their conduct, as alleged by Plaintiff, indicates a "single narrowly focused plan to deprive [Plaintiff] of her fees for services rendered" and therefore necessitates dismissal. Def. Memo, of Points and Authorities in Support of Motion to Dismiss at p. 5. This Court agrees. Plaintiff alleges that Defendants engaged in bribery, extortion, and mail fraud in order to prevent Plaintiff from obtaining the attorney's fees to which she is legally entitled. Thus Defendants' conduct represents a single scheme with the singular purpose of defrauding a single victim. Plaintiff offers no other conceivable motive behind Defendants' behavior, and this Court is unable to discern any as well. Furthermore, Plaintiff does not indicate any other victims who have been affected by Defendants' conduct. The particular facts of this case conform with the plethora of Ninth Circuit case law holding that various acts which in total comprise a single scheme with a singular purpose perpetrated against a single victim do not constitute a pattern and consequently fail under civil RICO. Accordingly, because Defendants' conduct does not involve a pattern of racketeering activity, Plaintiff's complaint must be dismissed. Page 11
For the reasons articulated above, Defendants' Motion to Dismiss is HEREBY GRANTED.
IT IS SO ORDERED.