IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
DRUMMOND COMPANY, INC. et al., Plaintiffs, v. TERRENCE P. COLLINGSWORTH, et al., Defendants. } } } } } } } } } } Case No.: 2:15-cv-506-RDP
MEMORANDUM OPINION AND ORDER
The court has before it Defendants Conrad & Scherer LLP’s and William R. Scherer, Jr.’s Motion to Dismiss Complaint (Doc. #14) filed on August 12, 2015 and the Motion to Dismiss Complaint by Defendants Terrence P. Collingsworth and International Rights Advocates, Inc. (Doc. #15) filed on August 12, 2015. After several extensions to allow briefing on the motions to dismiss given the precedent of the earlier filed case with similar facts (2:11cv3695-RDP-TMP), the Motions (Docs. #14, 15) have now been fully briefed and are ripe for review. (Docs. #26, 29, 30, 44). For the reasons set forth herein, the court finds that the Motions to Dismiss (Docs. #14, 15) are due to be denied in their entirety.1
I. Procedural History
On March 27, 2015, Plaintiffs Drummond Company, Inc. and Drummond Ltd. (collectively referred to herein as “Drummond” or “Plaintiffs’) filed this case in the Northern District of Alabama alleging that since at least 2008, Defendants have engaged in ongoing violations of the Racketeer
1
Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq.2
(See generally Complaint). More specifically, in their Complaint,3
Plaintiffs assert the following claims: (1) Count I: Violations of RICO, 18 U.S.C. §1962(c)
• Pattern of Racketeering Activity: Multiple Instance of Mail and Wire Fraud in Violation of 18 U.S.C. §§ 1341 and 1343
• Pattern of Racketeering Activity: Extortion in Violation of Hobbs Act, 18 U.S.C. § 1951
• Pattern of Racketeering Activity: Money Laundering in Violation of 18 U.S.C. § 1956(a)(2)(A)
• Pattern of Racketeering Activity: Obstruction of Justice in Violation of 18 U.S.C. § 1503
• Pattern of Racketeering: Witness Bribery in Violation of 18 U.S.C. § 201 • Pattern of Racketeering: Witness Tampering in Violation of 18 U.S.C. § 1512 (2) Count II: Conspiracy to Violate RICO, 18 U.S.C. § 1962(d)
(3) Count III: Willful and/or Reckless Misrepresentation in Violation of Alabama Code § 6-5-101 (1975)
(4) Count IV: Fraudulent Concealment/Suppression of Material Facts in Violation of Alabama Code § 6-5-102 (1975)
(5) Count V: Civil Conspiracy (Doc. #1).
2
Drummond alleges that this case “is about the formation of a criminal enterprise (the “Enterprise”) to engage in a massive and worldwide extortionate campaign, with litigation serving as only a piece of a much larger scheme.” (Doc. #29 at 1) (citing Doc. #1 ¶¶ 42-44). “Litigation was only one facet of a much larger campaign. The Enterprise urged both the United States and Colombian authorities to institute criminal investigations against Drummond.” (Doc. #29 at 2).
3
It bears noting that the Complaint filed by Drummond is 106 pages long, with an additional 85 pages of appendixes documenting specific events along with dates, descriptions, methods, individuals involved, and claimed violations. (See Doc. #10).
Defendants Conrad & Scherer, LLP (“C&S”), William R. Scherer, Jr. (“Scherer”), Terrence P. Collingsworth (“Collingsworth”), and International Rights Advocates, Inc. (“IRA”) have each filed motions to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b).4
Specifically, Defendants C&S and Scherer argue that:
(1) the First Amendment’s Petition Clause prohibits RICO-based collateral attacks on Defendants’ litigation conduct and (a) the alleged RICO predicate acts fail basic pleading requirements and are entirely directed at protected litigation conduct, and (b) Defendants’ litigation conduct is constitutionally and/or statutorily protected from collateral attacks based on federal statutory law, including RICO;
(2) even if its allegations of litigation misconduct are accepted as true, Drummond should not be allowed to use RICO predicate acts to collaterally attack the underlying litigation because (a) under Pendergraft, even blatant litigation misconduct cannot support the predicate acts of extortion, mail fraud, or wire fraud, (b) this court should recognize that Pendergraft’s reasoning applies equally to the additional “predicate acts” alleged here, (c) any “sham litigation” exception does not apply, (d) after
Pendergraft, district courts in the Eleventh Circuit have properly characterized claims
based on litigation misconduct as malicious prosecution, not extortion, (e) the
Pendergraft analysis survives even in states with near-absolute litigation immunity,
and (f) despite surface similarities, this case is nothing like Chevron v. Donziger; (3) the only cognizable RICO injury Drummond alleges is barred by RICO’s four year
statute of limitations, and therefore it lacks standing to sue because (a) Drummond’s “reputational” and intangible or speculative “business” injuries are insufficient to confer RICO standing, and (b) to the extent Drummond’s RICO claim rests on its “legal fees” injury, it is barred by the injury discovery rule;
(4) Drummond’s RICO conspiracy claim fails for the same reasons as its RICO claim; and
(5) Drummond’s state law claims also fail. (See generally Doc. #14).
Defendants Collingsworth and IRA join in the arguments advanced by C&S and Scherer and make the following additional arguments:
4
Defendant Ivan Alfredo Otero Mendoza filed a Motion to Dismiss Complaint (Doc. #46) on December 30, 2015. That Motion to Dismiss (Doc. #46) has recently become ripe for review before this court but will be considered separately. (See Doc. #47).
(1) Drummond’s RICO claim is due to be dismissed for failure to plead its fraud based on predicate acts with the specificity required by Federal Rule of Civil Procedure 9(b);
(2) Drummond has engaged in impermissible “shotgun” pleading throughout its complaint; and
(3) Drummond’s common law claims are due to be dismissed. (See generally Doc. #15).
II. Standard of Review
The question presented is whether, under Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the standard announced by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), Plaintiffs have sufficiently plead factual allegations to survive the pending Motions to Dismiss. (Docs. #14, 15). A court may dismiss a complaint under Rule 12(b)(6) if a plaintiff fails to provide “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombley, 127 S.Ct. 1955, 1974 (2007). That is, if a plaintiff “ha[s] not nudged [his] claims across
the line from conceivable to plausible, [his] complaint must be dismissed.” Id.
In deciding a Rule 12(b)(6) motion, the court must “accept all well-pleaded factual allegations in the complaint as true and construe the facts in a light most favorable to the non-moving party.” Dacosta v. Nwachukwa, 304 F.3d 1045, 1047 (11th Cir. 2002) (citing GJR Invs., Inc. v.
County of Escambia, Fla., 132 F.3d 1359, 1367 (11th Cir. 1998)). “[U]nsupported conclusions of
law or of mixed fact and law have long been recognized not to prevent a Rule 12(b)(6) dismissal.”
Dalrymple v. Reno, 334 F.3d 991, 996 (11th Cir. 2003) (citing Marsh v. Butler County, 268 F.3d
1014, 1036 n.16 (11th Cir. 2001) (en banc)). Further, “[a] complaint may not be dismissed because the plaintiff’s claims do not support the legal theory he relies upon since the court must determine if the allegations provide for relief on any possible theory.” Brooks v. Blue Cross & Blue Shield of
Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997) (emphasis in original). Nevertheless, conclusory
allegations, unwarranted deductions of facts, or legal conclusions masquerading as facts will not prevent dismissal. Oxford Asset Mgmt., Ltd. v. Jaharis, 297 F.3d 1182, 1188 (11th Cir. 2002); see
Kane Enters. v. MacGregor (USA) Inc., 322 F.3d 371, 374 (5th Cir. 2003) (“[A] plaintiff must plead
specific facts, not mere conclusional allegations, to avoid dismissal for failure to state a claim. We will thus not accept as true conclusory allegations or unwarranted deductions of fact.”) (internal citations omitted); Kirwin v. Price Commc’ns. Corp., 274 F. Supp. 2d 1242, 1248 (M.D. Ala. 2003) (“[A]lthough the complaint must be read liberally in favor of the plaintiff, the court may not make liberal inferences beyond what has actually been alleged.”), aff’d in part, 391 F.3d 1323 (11th Cir. 2004).
III. Analysis
After careful review, the court concludes that Defendants’ motion to dismiss each of Plaintiffs’ claims is due to be denied for the following reasons.
A. The RICO claims (Counts I and II)
RICO “imposes criminal and civil liability upon persons who engage in certain ‘prohibited activities,’ each of which is defined to include, as a necessary element, proof of a ‘pattern of racketeering activity.’” H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 229 (1989). The Eleventh Circuit sets out the elements of a cognizable RICO claim in Williams v. Mohawk Indus.,
Inc., 465 F.3d 1277 (11th Cir. 2006):
Pursuant to 18 U.S.C. § 1962(c), it is illegal “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...” 18 U.S.C. § 1962(c). Thus, in order to establish a
federal civil RICO violation under § 1962(c), the plaintiffs “must satisfy four elements of proof: ‘(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.’ “ Jones v. Childers, 18 F.3d 899, 910 (11th Cir. 1994) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)). These requirements apply whether the RICO claim is civil or criminal in nature.
In civil cases, however, RICO plaintiffs must also satisfy the requirements of 18 U.S. C . § 1964(c). Section 1964(c) states that “[a]ny person injured in his business or property by reason of” RICO’s substantive provisions has the right to “recover threefold the damages he sustains...” 18 U.S.C. § 1964(c). Thus, under § 1964(c), civil RICO claimants, such as the plaintiffs here, must show (1) the requisite injury to “business or property,” and (2) that such injury was “by reason of” the substantive RICO violation.
Id. at 1282-1283.
1. Predicate Acts of Bribery, Obstruction of Justice, Witness Tampering and Money Laundering as “Prohibited Activities”
Here, Plaintiffs’ RICO action is based on the prohibited acts of bribery, obstruction of justice, witness tampering, and money laundering. To state such a RICO claim, the allegations of the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “Determining whether a complaint states a plausible claim for relief [is] ... a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679 (citation omitted). “[F]acial plausibility” exists “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “Factual allegations must be enough to
raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.
Defendants argue that the present action is premised on predicate acts that constitute “pure litigation” conduct and, therefore, cannot support a claim for extortion. (Doc. #14 at 5-7, 16). Citing
the Noerr-Pennington doctrine5
and United States v. Pendergraft, 297 F.3d 1198, 1208 (11th Cir. 2002), Defendants also contend that Drummond’s claims necessarily fail because the assertions of the Complaint necessarily burden Defendants’ petitioning activities and, further, a malicious prosecution allegation cannot serve as a RICO predicate act. (Doc. #14 at 15-24). The court disagrees.
While it is true that the threat to file a lawsuit is not necessarily “wrongful” within the meaning of the Hobbs Act, Pendergraft, 297 F.3d at 1205, it is readily apparent here that Drummond has not merely alleged conduct based on the filing of the Balcero case. In addition, Plaintiffs have asserted the existence of predicate acts involving the media, foreign governments, and Drummond’s customers. Those predicate acts involve factual allegations of bribery, obstruction of justice, wire and mail fraud, money laundering, witness tampering, and suborning perjury. And the allegations go well beyond pure litigation conduct as defined by Noerr-Pennington. See Allied Tube & Conduit
Corp. v. Indian Head, Inc., 486 U.S. 492, 504 (1988) (“[O]ne could imagine situations where the
most effective means of influencing government officials is bribery, and we have never suggested that that kind of attempt to influence the government is merits protection.”); St. Joseph’s Hosp., Inc.
v. Hosp. Corp. of Am., 795 F.2d 948, 955 (11th Cir. 1986) (finding that misrepresentations to a
governmental body “acting judicially” do not enjoy Noerr-Pennington immunity); James D. Hurwitz, Abuse of Governmental Processes, the First Amendment, and Boundaries of Noerr, 74 Geo. L.J. 65, 66 (1985) (Noerr-Pennington inapplicable “where the offending party has engaged in some
5
The Noerr-Pennington doctrine immunizes individuals’ petitioning activities from federal statutory liability.
See McGuire Oil Co. v. Mapco, Inc., 958 F.2d 1552, 1558-59 (11th Cir. 1992). The doctrine stands for “a generic rule
of statutory construction, applicable to any statutory interpretation that could implicate the rights protected by the Petition Clause.” Sosa v. DIRECTV, Inc., 437 F.3d 923, 930-31 (9th Cir. 2006). Federal statutes are to be construed “so as to avoid burdening conduct that implicates the protections afforded by the Petition Clause unless the statute clearly provides otherwise.” Id. at 931.
egregious, corrupting activity – such as bribery or intentional misrepresentation – or has initiated the governmental process to harass its victims rather than to achieve the redress or resolution that the invoked process legitimately could offer.”). In particular, Drummond has alleged the following: C&S, Scherer, Collingsworth, and IRA all knew about and participated in the Defendants’ scheme of payments to the witnesses that accused Drummond of conspiring with terrorist organizations (Doc. #1, ¶¶ 77, 89, 116, 123, 127); each witness’s testimony changed to implicate Drummond after receiving payments (Doc. #1, ¶¶ 66-127); and each Defendant knowingly made false representations to numerous courts regarding those payments, and willfully submitted (and suborned) perjured testimony. (Doc. #1, ¶¶ 103-04, 133-140, 146-152). The intent of parties cannot be determined at the motion to dismiss stage and at this point Plaintiffs’ allegations must be taken as true; therefore, the Motions to Dismiss (Docs. #14, 15) are due to be denied because that the
Noerr-Pennington doctrine and the Pendergraft decisions do not apply to the Complaint as drafted.6
2. Predicate Acts of Mail Fraud and Wire Fraud as “Prohibited Activities”
To state a claim for a RICO action based on the prohibited activities of mail and wire fraud, the allegations of the complaint must meet the basic Twombly/Iqbal standard and the more stringent requirements of Federal Rule of Civil Procedure 9(b). In general, Rule 9(b) requires a plaintiff to allege: (1) the precise statements, documents, or misrepresentations made; (2) the time, place, and
6
These predicate acts also survive the motions to dismiss on the basis of the sham litigation doctrine. Contrary to Defendants’ suggestions otherwise, the underlying cases are not alleged to be shams simply because they were ultimately unsuccessful. Quite obviously, not every unsuccessful case constitutes a sham. Rather, here Plaintiffs contend the cases filed were shams because (allegedly) they were predicated on intentional misrepresentations to the court which deprived the court of the legitimacy of litigation. See Sosa, 437 F.3d at 938. The Balcero case is alleged to have been based on testimony that was bought. (Doc. #1, ¶¶ 2, 51-60, 66-132). Defendants are alleged to have hidden the fact that witnesses were paid for testimony. (Doc. #1, ¶¶ 133-40, 146-52). The Motions to Dismiss (Docs. #14, 15) are due to be denied for the separate and additional reason that Baloco, Balcero, and Melo all constitute sham litigation within the meaning of the Noerr-Pennington doctrine.
person responsible for the statement; (3) the content and manner in which these statements misled the plaintiffs; and (4) what the defendants gained by the alleged fraud. Brooks v. Blue Cross & Blue
Shield of Fla., Inc., 116 F.3d 1364, 1380-81 (11th Cir. 1997) (applying the requirements to a RICO
fraud complaint). Mail fraud, in turn, occurs whenever a person, “having devised or intending to devise a scheme or artifice to defraud,” uses the mail “for the purpose of executing such scheme or artifice or attempting to do so.” Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 647 (2008) (citing 18 U.S.C. § 1341). The gravamen of these offenses is the scheme to defraud, and any wire or “mailing that is incident to an essential part of the [wire or ] scheme satisfies the mailing element, even if the [wire or] mailing itself contains no false information.” Id. (quoting Schmuck v. United
States, 489 U.S. 705, 712 (1989)).
For each mail and wire fraud activity alleged in the Complaint, Defendants argue that Drummond has failed to allege “the content and manner in which these statements misled the Plaintiff and what the Defendants gained from the alleged fraud,” and “facts with respect to each Defendant’s participation in the fraud.” (Doc. #14 at 9) (citing Ambrosia Coal & Constr. Co. v.
Pages Morales, 482 F.3d 1309 (11th Cir. 2007) and Am. Dental Ass’n. v. Cigna Corp., 605 F.3d
1283 (2010)). Although the court fully considers each of these grounds for dismissal below, it bears noting that Defendants’ arguments for dismissal are flawed from their outset. The process for satisfying Rule 9(b) is not rigid. “Where the alleged fraudulent scheme involved numerous transactions that occurred over a long period of time, courts have found it impractical to require the plaintiff to plead the specifics with respect to each and every instance of fraudulent conduct.”
Chevron Corp. v. Donziger, 974 F. Supp.2d 362, 633 (S.D. N.Y. 2014) (Kaplan, J.); see also Hill
2003) (finding that in cases alleging prolonged, multi-faceted schemes of fraud, “the plaintiff is not required to provide a detailed explanation of all facts supporting each and every instance of submission of a false claim ... but the complaint must set forth a representative sample detailing the defendants’ allegedly fraudulent acts, when they occurred, and who engaged in them.”) (internal citations omitted).
Drummond has filed a complaint alleging a scheme of extortion as follows:
Defendants paid imprisoned Colombian paramilitaries and murderers to lie and say Drummond collaborated with the AUC to murder innocent civilians. (Doc. #1, ¶¶ 66-127). Defendants used that testimony to manufacture fraudulent lawsuits and create a worldwide campaign accusing Drummond of some of the most heinous crimes imaginable, with the express purpose of ‘closing down Drummond.” (Doc. #1, ¶¶ 63-65, 153-54, 157-70). In order for their scheme to work and to instill fear of massive economic losses in Drummond, the allegations had to appear credible, at least to the courts, criminal authorities, Drummond’s customers, and the general public. Accordingly, Defendants misrepresented the fact that they had actually purchased that testimony through bribes, repeatedly lying to both Drummond and the court about doing so. (Doc. #1, Appx. D). This crippled Drummond’s ability to defend itself in this court as well as the court of public opinion (in which its customers reside). At the same time Defendants were utilizing testimony secured by bribery to prosecute fraudulent lawsuits against Drummond, the Defendants engaged in a much larger, global media and public relations campaign, broadcasting the false allegations of these paid-for witnesses all over the world in an effort to harm Drummond’s business interests and exert additional pressure on Drummond to succumb to Defendants’ extortionate scheme. (Doc. #1, Appx. E).
(Doc. #29 at 11). The Complaint lays out in detail the purpose and effect of the payments as to each witness, the genesis of those payments, who was responsible for facilitating and/or aware of the payments, and the specific circumstances of how each payment was made (including date of transfer, payor, payee, and means of sending the transfer). (Doc. #1, ¶¶ 5, 66-127). As such, contrary to
Defendants’ contention, Plaintiffs have plead their claims with Rule 9(b) particularity and have not filed a “quintessential shotgun pleading.” (Doc. #15 at 8-10).
a. The Content and Manner in which the Statements Misled Plaintiffs
In Bridge, the Supreme Court considered whether first-party reliance was required where the mail is used to execute or attempt to execute a scheme to defraud.7
553 U.S. at 648. The Supreme Court held that “[u]sing the mail to execute or attempt to execute a scheme to defraud is indictable as mail fraud, and hence a predicate act under RICO, even if no one relied on any misrepresentation.”
Id. “It thus seems plain ... that no showing of reliance is required to establish that a person has
violated § 1962(c) by conducting the affairs of an enterprise through a pattern of racketeering activity consisting of acts of mail fraud.” Id. at 649. Defendants engage in some mental gymnastics in their reading of this passage in Bridge. They argue that without an allegation of a plaintiff’s reliance, fraud has not been plead with particularity in accordance with Federal Rule of Civil Procedure 9(b). They contend this is so because “Bridge did not address the pleading requirements under Rule 9(b). Instead, it only considered whether a RICO claimant is required to plead first-party reliance as a substantive element of mail and wire fraud in order to state a valid RICO claim.” (Doc. # at 15).
7
In Bridge, a county had set rules on who could bid on tax liens that were being auctioned by the county. The defendants submitted affidavits to the county falsely attesting to their compliance with the bidding rules, and that allowed them to acquire more liens than they were entitled to under the rules. The plaintiffs, who were other interested bidders, alleged they were injured by this fraudulent scheme because they were deprived of the ability to acquire their fair share of the tax liens. The district court dismissed the claims of mail fraud on the ground that plaintiffs were no more than indirect victims of the alleged fraud. Id. at 645. The Seventh Circuit reversed. The Supreme Court affirmed the Seventh Circuit. In doing so, the Court held that “[n]othing on the face of the relevant statutory provisions imposes” a requirement that the victim rely on the misrepresentations at issue. Id. at 648.
This argument is puzzling, at best, for a few reasons. First, as the Supreme Court expressly noted, before the Bridge decision, the Eleventh Circuit fell on the side of the circuit split which required that a plaintiff show that it relied. Bridge, 553 U.S. at 646 (citing Sikes v. Teleline, Inc., 281 F.3d 1350 (11th Cir. 2002)). But Bridge abrogated that Eleventh Circuit’s rulings on that question. Second, mail and wire fraud must be pled with particularity under Rule 9(b). But RICO violations do not require use of one of the traditional elements of fraud.8
Third, there has been no Eleventh Circuit case since Bridge which supports Defendants’ view. To the contrary, the Eleventh Circuit law that cites to Bridge recognizes that the Supreme Court abrogated Sikes. Am. Dental Ass’n, 605 F.3d at 1291-92. Since the Bridge decision, when the Eleventh Circuit has cited to Rule 9(b) and RICO fraud, no question has been raised about the reliance element of Rule 9(b). (Id.).
Of course, this is not to say that a plaintiff is not required to plead any reliance. However, the reliance may be that of a third party; it need not be alleged that the plaintiff itself relied. The
Bridge Court made this clear: “A scheme that injures D by making false statements through the mail
to E is mail fraud, and actionable by D through RICO....” Bridge, 533 U.S. at 648 (quoting and affirming the analysis of the Seventh Circuit Court of Appeals); (Doc. #29 at 6-7). Here, this is exactly what Plaintiffs have plead. (See generally Doc. #1; see also Doc. #1 at Appx. E (the target of the fraudulent communication is the Media, the United States Department of Justice, and Other Third Parties.”)). Defendants misread the Bridge opinion.
8
Defendants’ argument in this respect begs the question: Under Defendants reading of Bridge when would it ever be possible for a plaintiff to properly assert a fraudulent RICO claim?
b. The Question of What Defendants Gained from the Alleged Fraud
Nor is Drummond required to allege “what the defendants gained by the alleged fraud.” (Doc. #14 at 9). The Supreme Court has made this clear, as does the RICO statute itself. Schmuck
v. United States, 489 U.S. 705, 721 (1989) (affirming the defendant used car salesman’s conviction
on mail fraud charges even though he had no contact with, and received nothing from, ultimate car purchasers he victimized); 18 U.S.C. § 1964(c) (providing a private right of action to any “person injured in his business or property by reason of” a pattern of racketeering activity). Again, Defendants misread the applicable law of this circuit.
c. Facts with Respect to Each Defendant’s Participation in the Fraud
To be found liable under RICO, a person must “participate, directly or indirectly, in the conduct of such enterprise’s affairs.” 18 U.S.C. § 1962(c). The Supreme Court has held that “the word ‘participate’ makes clear that RICO liability is not limited to those with primary responsibility in the enterprise’s affairs, just as the phrase ‘directly or indirectly’ makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise’s affairs is required.” Reves v. Ernst & Young, 507 U.S. 170, 179 (1993).
Defendants contend that the Twombly standard is not met with respect to Scherer because his name is cited in the Appendices only one time (for signing a court filing), and Plaintiffs’ other mentions of him are conclusory and implausible. (Doc. #14 at 7-8). But this argument minimizes the allegations in the Complaint directed at Scherer. Plaintiffs’ allegations about his conduct more than meet the standard announced in Twombly/Iqbal. Scherer is alleged to have facilitated the inception of the Enterprise, to have secured funding for the Enterprise, to have made witness
payments, signed pleadings, falsely represented the existence of payments, made an extortionate overture to Drummond, and to be responsible for statements made to the court. (Doc. #1, ¶¶ 44, 61, 77, 87, 89, 116, 127, 133,137, 142-45). Taking these allegations as true, which the court must do at this stage of the litigation, Drummond has plausibly alleged Scherer’s direct (and indirect) participation in the RICO schemes.9
3. Timeliness of the RICO Claims and Standing to Sue
RICO standing is conferred on “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter.” 18 U.S.C. § 1964 (c). The Eleventh Circuit views RICO standing and proximate cause as overlapping inquiries: “[T]he ‘by reason of’ requirement contained in § 1964(c)... implicates two concepts: (1) a sufficiently direct injury so that a plaintiff has standing to sue; and (2) proximate cause ... Despite some significant overlap, we address the proximate cause and standing concepts separately.” Williams v. Mohawk Indust., Inc., 465 F.3d 1277, 1287 (11th Cir. 2006). Only a “sufficiently direct” injury confers standing to sue, id., and the Eleventh Circuit has recognized that “[t]he words ‘business or property’ are, in part, words of limitation.” Grogan v. Platt, 835 F.2d 844, 846 (11th Cir. 1988).
9
Defendants do not argue that the allegations against Scherer do not establish a claim for conspiracy to violate RICO under 18 U.S.C. § 1962(d). A RICO conspirator need not commit an overt act, but “must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor.” Salinas v. United States, 522 U.S. 52, 64 (1997). A conspirator may be held liable when he “knew about and agreed to facilitate the scheme” of his co-defendants. Id. at 66. Taking the allegations directed against him as true, and construing all inferences in the light most favorable to Drummond, the Complaint adequately alleges that each Defendant (and that would include Scherer) “knew about and agreed to facilitate the scheme” of his co-defendants. Doc. #1, ¶ 203. In addition, the Complaint alleges that Scherer in particular (1) was aware of the scheme and its effects in Alabama (id., ¶ 33); (2) approached the law firm of Parker Waichman, LLC (along with Collingsworth) regarding providing financing of fraudulent lawsuits (id., ¶ 61); (3) knew of and approved illicit payments to witnesses (id., ¶¶ 77, 116, 127, 132); (4) inquired through a third party about settling the litigation (without disclosing the illicit witness payments to Drummond) (id., ¶ 142); (5) was part of a scheme to defraud, extort, and “close down” Drummond (id., ¶ 174a); and (6) on multiple occasions, knowingly caused the transportation, transmission, and/or transfer of funds to and from the United States to be utilized for illicit payments to witnesses (id., ¶ 189).
Defendants argue that Drummond has filed this suit “far too late” because the first lawsuit against Drummond was filed fourteen years ago. (Doc. #14 at 31, 38-40). Because Drummond’s “alleged $10 million in legal costs”10
might meet the RICO injury standard to confer standing, Defendants contend that such injury is time-barred in accordance with the “injury discovery rule.” (Doc. #14 at 35). “If Drummond was ‘injured’ in that it was forced to pay legal costs, that injury began in or around March 2003 – approximately twelve years before it filed this RICO claim – when it paid its first bill for attorney fees to defend itself against the first suit in the Underlying Litigation (Romero).” (Doc. #14 at 35-36). This argument is clearly contrary to the facts alleged in the Complaint. Plaintiffs alleges that the Enterprise began, at the earliest, in March 2009. (Doc. #1, ¶¶ 40-46). They also claim that the Enterprise was fraudulently concealed even after repeated discovery attempts on the part of Drummond to uncover the racketeering activity. (Doc. #29 at 49-51). The Complaint clearly alleges that it was not until August 2012, after the close of discovery in the
Balcero litigation, that Defendants produced a document showing payment to a witness. (Doc. #1,
¶ 143). The Complaint further alleges that it was not until January 2013 that documents were produced showing payments to three additional witnesses. (Doc. #1, ¶ 144). And according to the Complaint, it was not until November 2014 that a third-party produced documents showing payments made to three key witnesses in the underlying actions. (Doc. #1, ¶¶ 145, 152). Plaintiffs contend that affirmative misrepresentations continued to be made by Defendants throughout the
10
Drummond alleges other concrete injuries to business or property interests. (Doc. #29 at 57-58; Doc. #1, ¶ 153-170; 197). Defendants argue that these damages are too intangible and speculative to confer RICO standing. (Doc. #14 at 32-35). At this stage of the proceedings, however, the court finds that Drummond has clearly done enough to satisfy the standards announced in Twombly/Iqbal.
course of litigation. (Doc. #1, ¶¶ 69-73, 103, 190). For this reason and because the claims in this case may be due to be equitably tolled, the court cannot say the RICO claims are time barred.
4. RICO Conspiracy Claim
Drummond’s RICO conspiracy claim is based on the same alleged predicate acts and events as its RICO claim. (Doc. #1, ¶¶ 200-05). For the same reasons the court rejected Defendants’ previous arguments in this area, it concludes that Plaintiffs’ RICO conspiracy claim is properly plead.
B. The State Law Claims
In addition to their RICO claims, Plaintiffs have also asserted various state law claims. The court addresses each of those in turn.
1. Count III: Willful and/or Reckless Misrepresentation in Violation of Alabama Code § 6-5-101 (1975)
The elements of a willful misrepresentation claim are: (1) a misrepresentation of a material fact, (2) made willfully to deceive, recklessly, without knowledge, or mistakenly, (3) which was justifiably relied on by the plaintiff under the circumstances, and (4) which caused damage as a proximate consequence. Foremost Ins. Co. v. Parham, 693 So.2d 409, 422 (Ala. 1997). Defendants present two main arguments in support of dismissal. First, they contend that Drummond could not have “justifiably” relied on statements it allegedly knew to be false and fraudulent. (Doc. #14 at 45). Defendants also assert that Drummond “does not and cannot plead the requisite intent to deceive, because there is no dispute that the alleged misrepresentations and concealments were made with alleged intent to deceive third parties such as this court and others, rather than Drummond itself.” (Doc. #14 at 45). Each of those arguments misses the mark.
Drummond has alleged that it relied not on the false testimony of witnesses, but rather on the belief that Defendants had not manufactured evidence by making payments to witnesses, families, and/or criminal lawyers and on the repeated representations that those payments did not occur. (Doc. #1, ¶¶ 133-40, 146-52, 208). And even if Defendants’ misrepresentations were intended to deceive parties other than Drummond, the Complaint alleges adequate facts that Drummond was injured by Defendants’ misrepresentations. See Thomas v. Halstead, 605 So. 2d 1181, 1184 (Ala. 1992) (“In Alabama, it is not always necessary to prove that a misrepresentation was made directly to the person who claims to have been injured.”). Plaintiffs have properly plead their misrepresentation claim.
2. Count IV: Fraudulent Concealment/Suppression of Material Facts in Violation of Alabama Code § 6-5-102 (1975)
The elements of a fraudulent concealment claim under Alabama Code § 6-5-102 are: (1) that the defendant had a duty to disclose material facts, (2) that the defendant concealed or failed to disclose those facts, (3) that the concealment or failure to disclose induced the plaintiff to act, and (4) that the defendant’s action resulted in harm to the plaintiff. Lawson v. Harris Culinary
Enterprises, LLC, 83 So.3d 483, 492 (Ala. 2011). Defendants dispute Drummond’s ability to
establish the third prong – the concealment or failure to disclose induced the plaintiff to act. (Doc. #14 at 45). But as already noted, what Drummond alleges is that it believed (and relied on the fact) that Defendants had not paid witnesses to testify against Drummond. By allegedly concealing that evidence, Defendants put Drummond in a position that prevented it from being able to effectively defend against the false statements. (Doc. #29 at 65). Plaintiffs have adequately plead their fraudulent concealment claim.
3. Count V: Civil Conspiracy
Defendants argue that Drummond’s state law claim for civil conspiracy should be dismissed for two reasons: (1) there is no underlying tort claim on which it can be based (Doc. #14 at 44; Doc. #15 at 15); and (2) under the “general rule” in Alabama, a civil conspiracy cannot be based on testimony offered in a judicial proceeding (Doc. #14 at 44). The first argument is off target because, for the reasons already explained, Drummond has stated valid underlying claims under RICO. The second argument for dismissal is similarly meritless because the “general rule” in Alabama is that a civil conspiracy claim is not barred when the testimony is only part of a larger, overall fraudulent scheme. See Snyder v. Faget, 326 So. 2d 113, 116-18 (Ala. 1976).
IV. Conclusion
For all of the reasons stated above, Defendants Conrad & Scherer LLP’s and William R. Scherer, Jr.’s Motion to Dismiss Complaint (Doc. #14) and the Motion to Dismiss Complaint by Defendants Terrence P. Collingsworth and International Rights Advocates, Inc. (Doc. #15) are
DENIED. The court recognizes that some issues addressed during the motion to dismiss stage might
be considered again at the summary judgment stage of proceedings.
The parties are to proceed with the prosecution of this case. The court’s Uniform Initial Order will be entered contemporaneously herewith.
DONE and ORDERED this 8th day of March, 2016.
___________________________________
R. DAVID PROCTOR
