SLOMSKY, District Judge.
TABLE OF CONTENTS
I. INTRODUCTION..................................................................328
II. BACKGROUND....................................................................328
A. Causes of Action in Complaint.............................................329
B. Parties and Related Entities..............................................329
1. Plaintiffs............................................................329
2. Lakefront Development Company, LLC....................................329
3. Defendants............................................................330
a. "Owner Defendants": Harry Ferguson, William Black, William
Waldman, and Martin Woldow......................................330
b. "Carversville Defendants": "Owner Defendants" (Ferguson,
Black, Waldman, and Woldow), and Ronald Bugaj,
Christine Vehstedt, Carversville Development Company,
and Carversville Group..........................................330
c. "Accounting Defendants": WeiserMazars, LLP, Alan Cohen,
and Benjamin Fishbein...........................................330
d. Re/Max, LLC......................................................331
e. "ESSA Defendants": ESSA Bank and Trust Company, and
William Lewis...................................................331
f. "Meagher Defendants": Meagher Realty Group, LLC,
Meagher Associates, Incorporated, Tim Meagher, Heather
Meagher, Paul Meagher Sr., Paul Meagher Jr., and
Matthew Meagher.................................................331
g. "Anderson Defendants": G. Anderson Homes, Inc., Grace
Anderson, Santos Rolon, and Tammy Lee Clause....................331
h. "Weichert Defendants": Weichert Realtors/Paupack Group,
Inc., Thomas McColligan, Judith Rodonski, Deborah
Friese, and Karen Rice..........................................331
C. Statement of Facts as Alleged In Complaint................................332
1. Origins of Lakefront Development Company, LLC.........................332
2. Fraud Upon Lakefront: Corporate Waste.................................332
3. Agreement to Transfer the Re/Max Franchise............................332
4. Fraud Upon Blue Cross.................................................333
5. Fraud Upon Lakefront and The Internal Revenue Service:
Payments for Services Not Rendered, Unauthorized
Distributions, and Underreporting of Lakefront's Income
and Profits..........................................................333
6. Fraud Upon Lakefront: Scheme To Divert Lakefront's Profits............334
7. Fraud Upon Lakefront and ESSA: Loans Made For The Benefit
Of Others Paid For By Lakefront......................................334
8. Fraud Upon Lakefront: The "1740 House"................................335
9. Attempts to Conceal the Fraud Upon Lakefront..........................335
a. ESSA Defendants...................................................335 b. Attempt to Liquidate Lakefront, Allegations Regarding Schedule K-1 Tax Form............................................335 c. Extortion.........................................................337 d. Irish's Petition to Compel Inspection of Corporate Records........337 10. Fraud Upon Lakefront: Credit Card Processing Account..................338 11. Conspiracy to Disparage Irish's Name with Law Enforcement.............338 12. Conspiracy to Transfer Re/Max Franchise and Destroy Irish and MIK..................................................................339 13. Unauthorized Alteration of "Multiple Listing Service" Records.........341 14. Lawsuits Involving Plaintiffs.........................................341 15. Franchise Litigation..................................................342 16. Receivership Litigation...............................................342 III. STANDARD OF REVIEW............................................................343 IV. ANALYSIS......................................................................343 A. Elements of Plaintiffs' RICO Claims.......................................343 1. 18 U.S.C. § 1962(c)..............................................344 a. Defendant Must Be Associated With an Enterprise...................344 b. Defendant Must Conduct or Participate in the Conduct of the Enterprise's Affairs through a Pattern of Racketeering Activity.........................................................345 c. Defendant Must Knowingly Commit At Least Two Acts of Racketeering Activity............................................345 d. Two Acts of Racketeering Activity Committed By a Defendant Must Be Connected By a Common Scheme, Plan, or Motive Constituting a Pattern of Racketeering Activity............................................345 e. The Enterprise Must Be Involved In or Affect Interstate Commerce.........................................................346 2. 18 U.S.C. § 1962(a)..............................................346 3. 18 U.S.C. § 1962(b)..............................................347 4. 18 U.S.C. § 1962(d)..............................................347 B. Plaintiffs Have Not Stated a Claim under RICO for Which Relief May Be Granted...............................................................347 1. Plaintiffs Lack RICO Standing.........................................347 a. Plaintiffs' Claims Regarding Harm to Lakefront by Carversville Defendants, Accounting Defendants, and ESSA Defendants Are Derivative in Nature and Do Not Confer Standing on Plaintiffs....................................348 b. Plaintiffs Have No Standing to Recover Damages for Harm to Blue Cross, the Internal Revenue Service, or ESSA.............351 2. Plaintiffs' Claims Involving the Re/Max Franchise Are Barred By Collateral Estoppel..................................................352 3. Plaintiffs Have Not Established That Carversville Defendants or Accounting Defendants Have Committed a Predicate Act With Regard To the Schedule K-1 Forms.....................................356 4. All RICO Counts Will Be Dismissed.....................................361 C. Plaintiffs Have Not Stated a Claim under the Sherman Act for Which Relief May Be Granted....................................................362 1. Count Nineteen: Plaintiffs Lack Antitrust Standing Because They Have Not Established an Antitrust Injury.............................362 a. The Attempted Transfer and Cancelation of the Re/Max Franchise Did Not Have a "Competition-Reducing" Effect on the Marketplace...............................................363 b. Weichert Defendants and Meagher Defendants Do Not Have Market Power.....................................................364
c. Plaintiffs Have Not Established an Antitrust Injury Because They Only Allege Harm to Themselves, Not To Market Competition......................................................365 2. Count Twenty: Plaintiffs Have Not Alleged Anticompetitive Conduct..............................................................366 a. There is No Per Se Liability Because Defendants Named in Count Twenty Do Not Have Market Power............................367 b. Plaintiffs' Allegations in the Complaint Contradict Their Claims of an Illegal Boycott and Anticompetitive Conduct.........367 D. The Court Will Decline to Exercise Supplemental Jurisdiction over the Pennsylvania Common Law Claims...........................................368 V. CONCLUSION....................................................................368 Appendix I: Defendants By Group.....................................................368 Appendix II: Defendants By Count....................................................369
Plaintiff George Irish, a real estate agent in the Lake Wallenpaupack region of Northeast Pennsylvania, filed this lawsuit alleging a plethora of legal claims against thirty-two defendants, who include his former business partners, other real estate agents, attorneys, accountants, and a bank, among others. The Complaint is lengthy — ninety-six pages containing 520 paragraphs with a four-page table of contents — and describes what is alleged to be a narrative of conspiratorial and deceitful misdeeds. Irish and his co-Plaintiff, MIK, Inc., accuse the thirty-two defendants of engaging in a widespread scheme of criminal and tortious efforts to steal their assets, keep them in the dark about illicit activities, and render them unable to compete in the regional real estate market.
The claims brought by Plaintiffs fall into three categories. Nearly all Defendants are accused of committing substantive and conspiratorial criminal acts in violation of the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO"). Plaintiffs also allege certain Defendants unlawfully restrained commerce in violation of the Sherman Antitrust Act of 1890 ("Sherman Act"). Finally, Plaintiffs assert various Pennsylvania common law tort claims against certain Defendants.
These are serious allegations. Despite its length, however, the Complaint fails to adequately allege facts to support the federal RICO and antitrust claims. Consequently, all federal causes of action will be dismissed, and the Court will decline to exercise supplemental jurisdiction over the remaining state law claims.
The Complaint tests the limits of Federal Rule of Civil Procedure 8(a)(2), which requires that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief."
The Complaint alleges violations in twenty-four counts. They are as follows:
Plaintiff George Irish is a Pennsylvania real estate agent. (Doc. No. 1 at 2.) Plaintiff MIK, Inc. ("MIK") is a Pennsylvania corporation. (Id.) Irish has been a shareholder of MIK since 1998. (Id.) MIK formerly did business as Re/Max of Lake Wallenpaupack-North. (Id.) MIK owned the Re/Max Franchise from 1998 to 2005. (Id.) On February 1, 2005, MIK transferred the Re/Max franchise to a partnership operated by Defendants William Waldman and William Black. (Id. at 2-3.) Plaintiffs continued to operate as real estate agents under the Re/Max Franchise until it was terminated in November 2010. (Id. at 2.) George Irish and MIK together will be referred to in this Opinion as "Plaintiffs."
Although not a party to this action, Lakefront Development Company, LLC ("Lakefront"), plays a central role in the dispute. Lakefront is a Pennsylvania limited liability company established on October 7, 2002. (Doc. No. 1 at 10.) The company engaged in home construction. (Id. at 12.) The members of Lakefront are Plaintiff Irish and Defendants Harry Ferguson, William Black, William Waldman, and Martin Woldow.
In order to categorize the large number of defendants in this case, the Complaint organizes the defendants into groups. The thirty-two defendants and their relationship to each other are as follows
Defendants Ferguson, Black, Waldman, and Woldow ("Owner Defendants") are members of Lakefront, along with Irish. (Doc. No. 1 at 8.) The Owner Defendants are also the sole members of Defendant Carversville Development Company, LLC and Defendant Carversvilie Group, LLC. (Id.) Irish is not a member of these two companies. (Id.)
As stated above, Carversville Development Company and Carversville Group are companies owned by Owner Defendants. (Doc. No. 1 at 8.) Christine Vehstedt was an employee of Lakefront until it was placed in receivership. (Id. at 9.) Ronald Bugaj, Esquire, is a Pennsylvania attorney who has represented Lakefront, Owner Defendants, Vehstedt, and a general partnership known as "Waldman and Black" ("Waldman and Black GP").
Alan Cohen and Benjamin Fishbein are certified public accountants. (Doc. No. 1 at 4.) Benjamin Fishbein is now retired. (Id.) Both defendants formerly worked for an accounting firm known as Fishbein and Company, P.C., which is not a defendant in this case. Alan Cohen now works for the
Re/Max, LLC is a Delaware corporation. (Doc. No. 1 at 4.) The Complaint alleges Re/Max, LLC is liable under Counts Seven and Eight (RICO, 18 U.S.C. § 1962(c, d)).
ESSA Bank and Trust ("ESSA") is a Pennsylvania financial institution. (Doc. No. 1 at 4.) William Lewis is a vice-president of commercial lending at ESSA. (Id. at 5.) ESSA made three loans relevant to this lawsuit: (1) a March 16, 2005 loan in the amount of $2 million to Carversville Group (id. at 21); (2) a May 23, 2005 loan in the amount of $500,000 to Carversville Development Company (id.); and (3) an April 19, 2006 loan in the amount of $2.25 million to Carversville Group which was used to pay off the two earlier loans (id. at 22). The Complaint alleges ESSA Defendants are liable under Counts Nine, Ten, Eleven, and Twelve (RICO, 18 U.S.C. § 1962(c, d)).
Paul Meagher Sr. is the father of Tim Meagher, Paul Meagher Jr., and Matthew Meagher. (Doc. No. 1 at 9.) Heather Meagher is the spouse of Tim Meagher. (Id.) Meagher Realty Group, LLC, operates under the business name "Re/Max BEST." (Id. at 5.) Meagher Associates, Incorporated, operates under the business name "Re/Max WAYNE." (Id.) Tim Meagher is a real estate broker and owner of the Re/Max BEST and Re/Max WAYNE franchises. (Id. at 5.) The Complaint alleges Meagher Defendants are liable under Counts Thirteen and Fourteen (RICO, 18 U.S.C. § 1962(c, d)), Count Nineteen (Conspiracy to violate the Sherman Act), Count Twenty-Two (Commercial Disparagement), and Count Twenty-Three (Civil Conspiracy). Meagher Defendants, except for Paul Meagher Jr. and Matthew Meagher, are also alleged to be liable under Count Twenty (Illegal Boycott in Violation of the Sherman Act).
G. Anderson Homes, Inc., is a Pennsylvania corporation. (Doc. No. 1 at 6.) Grace Anderson is a shareholder and president of G. Anderson Homes. (Id.) Santos Rolon is a Pennsylvania real estate salesperson and the spouse of Grace Anderson.
Weichert Realtors/Paupack Group, Inc. ("Weichert") is a Pennsylvania corporation.
On October 7, 2002, Irish and Owner Defendants created Lakefront Development Company, LLC. (Doc. No. 1 at 10.) Each member of the LLC was required under Lakefront's Operating Agreement to deposit $15,000 into Lakefront's operating account. (Id.) Irish is the only member who made such a deposit. (Id. at 11.)
Owner Defendants did not disclose to Irish that they had an ownership interest in Carversville Development Company and Carversville Group. (Id.) At the time of Lakefront's creation, Carversville Development Company owned a property in Bucks County, Pennsylvania, known as the "1740 House." (Id.) From 2005 to 2009, Lakefront was one of the top-five home construction companies in the Pike/Wayne real estate market in northeastern Pennsylvania. (Id. at 12.) Plaintiffs allege that after the creation of Lakefront, Owner Defendants participated in a scheme to defraud Plaintiffs and benefit themselves and their companies, Carversville Development Company and Carversville Group. (Id.)
On or about November 1, 2002, Ferguson purchased from Lakefront real estate worth $650,000. (Id.) The purchase price was $360,000. (Id.) This transaction caused a loss of $290,000 to Lakefront. (Id.) Ferguson also purchased materials to build his personal home using the funds of Lakefront.
On February 1, 2005, Waldman and Black GP entered into what Plaintiffs characterize as an "accommodation agreement"
Sometime in or before February 2007, Lakefront began paying monthly health insurance premiums to Blue Cross of Northeastern Pennsylvania ("Blue Cross") for two individuals: Defendant Christine Vehstedt and Joyce Cooke. (Id. at 15.) Although Vehstedt was employed by Lakefront, Joyce Cooke was not. (Id.) Vehstedt, however, represented in a facsimile sent to Blue Cross that "Carversville is the holding company for Lakefront," and that Cooke "does work for both companies." (Id.) Cooke was the full-time "innkeeper" at the "1740 House," in which Lakefront had no business interest. (Id.) No entity named "Carversville" was a holding company for Lakefront. (Id. at 16.) On March 24, 2007, Vehstedt sent a "new Enrollment Application for the Blue Care Traditional Plan" to Blue Cross on behalf of Cooke. (Id.)
In January 2009, Blue Cross conducted a random audit of Lakefront. (Id.) After the audit, Blue Cross canceled the health insurance policy due to fraud, because Cooke was an ineligible person on the policy. (Id.) The Complaint alleges Owner Defendants and Vehstedt had actual knowledge of this fraud upon Blue Cross, which was achieved without notice to Irish. (Id.)
Ferguson and Black received checks from Lakefront for services they did not perform. (Id. at 17.) Ferguson, Black, and Vehstedt also received free gasoline for their personal use, which was paid for by Lakefront.
Owner Defendants and Vehstedt created and altered records in order to underreport Lakefront's income, expenses, and profits. (Id. at 19.) This underreporting resulted in inaccurate tax returns filed
Over the course of several years, Carversville Defendants engaged in a scheme to divert the assets of Lakefront and hide the diversion with the assistance of Accounting Defendants. (Id.) Under the scheme, unimproved land would be purchased by Lakefront, and a residence would be constructed on the land using Lakefront's money. (Id.) At or near the time the construction of the residence was completed, the improved land would be transferred to a person or entity controlled by one or more of the Carversville Defendants for less than the cost incurred by Lakefront and for less than the market value of the property. (Id.) The purchasing entity would then sell the property for a profit. (Id. at 20.) In effect, Lakefront incurred all the costs of acquiring and improving the land, but received little or no profits. (Id.) Carversville Defendants hid this scheme from Irish and the IRS. (Id.)
Lakefront also made payments on loans for the benefit of others, without notice to Irish. (Id.) Lakefront received one or more loans from Invest National Bank and Trust Company. (Id.) The amount owed on one such loan was $1.8 million.
Carversville Group and Carversville Development Company also entered into several loan transactions with ESSA.
On May 23, 2005, Carversville Development Company borrowed $500,000 from ESSA. (Id.) The billing address was Lakefront's Hawley, Pennsylvania office address. (Id.) On April 10, 2006, Vehstedt sent a letter on Lakefront's letterhead to ESSA and included interest checks covering interest due on these two loans. (Id. at 22.) On April 19, 2006, Carversville Group executed a promissory note and borrowed $2.25 million from ESSA. (Id.) The purpose of the loan was to pay off the $2 million and $500,000 loans from ESSA. (Id.) Payments on this loan were also made by Lakefront. (Id.)
The Complaint describes the nature of ESSA's involvement in this alleged scheme as follows:
(Id. at 24 (emphasis in original).)
Owner Defendants and Vehstedt used at least $925,000 of Lakefront's money to maintain and renovate a property known as the "1740 House." (Id. at 25.) The "1740 House" was owned by Carversville Development Company. (Id.) When the "1740 House" was sold on November 30, 2010 for $1,225 million, Carversville Development Company did not reimburse Lakefront for any funds used to maintain and renovate the property. (Id.)
On November 4, 2009, Irish contacted ESSA and inquired about loan payments to ESSA from Lakefront. (Id. at 26.) William Lewis attempted to redirect Irish to Ferguson and Waldman, and described "Carversville" and "Lakefront" as the same company. (Id.) The Complaint alleges that ESSA and Lewis had actual knowledge that the loans made to Carversville Development Company and Carversville Group were improperly paid for by Lakefront, and tried to hide the illicit activities from Irish.
On October 29, 2008, Ronald Bugaj, Esquire, sent a letter to Irish regarding the liquidation of Lakefront. (Id.) In the Complaint, Plaintiffs contend that the purpose of the liquidation was to conceal the illegal conduct of Carversville Defendants from Irish and the government. (Id.) On November 18, 2008, former counsel for Irish, John R Spall, Esquire, responded to the letter sent by Bugaj. (Id. at 27.) In the letter, Spall requested information regarding: (1) money expected to be paid to Lakefront; (2) daily business operations of Lakefront; (3) protection of Lakefront's corporate assets; and (4) protection of Lakefront's corporate books and records. (Id.)
On December 10, 2008, Spall and Bugaj held a meeting regarding the liquidation of Lakefront (the "December 10 Meeting"). (Id.) On December 11, 2008, Bugaj wrote
On December 20, 2008, Irish wrote to Vehstedt inquiring about the Schedule K-1 tax form
On February 12, 2009, Spall wrote to Bugaj regarding the representations made in the December 10 Meeting, requesting an inspection of books, records, and other documents listed in the letter. (Id.) On April 3, 2009, Spall sent another letter to Bugaj complaining about the lack of response. (Id.) On April 6, 2009, Bugaj responded to Spall, promising "a response as quickly as possible," but only if Spall provided his "authority for requesting such an inspection and a specific list of the documents as to what documents [he] would like to look at." (Id. at 29.) On April 8, 2009, Spall responded, stating that he had already met Bugaj's conditions and attaching applicable portions of Lakefront's Operating Agreement and Spall's February 12, 2009 letter. (Id.)
Bugaj rejected Spall's requests on the basis that Irish had not resigned from Lakefront, and stated that if Irish wanted records, he should contact Mr. Fishbein.
On April 16, 2009, Spall faxed a letter to Bugaj stating that Irish had not agreed to resign from Lakefront because he had received a prior correspondence stating that Ferguson intended to resign. (Id. at 30.) On April 17, 2009, Joseph Rydzewski
On June 23, 2009, Bugaj and Waldman visited Spall and Rydzewski's offices and presented a "Stipulation and Settlement Agreement." (Id.) Although no civil action had been filed at the time, the Stipulation and Settlement Agreement included a caption listing Lakefront as the plaintiff and Irish as the defendant. (Id. at 31.) The Stipulation and Settlement Agreement asserted that Re/Max had received complaints of unethical behavior about Irish's business operations under the Re/Max franchise. (Id.) The Complaint alleges that Re/Max did not receive any such complaints, and that "[a]ny false complaints received by Re/max [sic] were created and passed on to ReMax by the Carversville Defendants using the mails and interstate wires." (Id.) On June 26, 2009, Rydzewski wrote to Bugaj, advising him that Irish considered the Stipulation and Settlement Agreement to be an extortion attempt. (Id. at 32.)
On July 1, 2009, Rydzewski requested access to Lakefront's books and records. (Id. at 33.) On July 7, 2009, Rydzewski wrote a letter notifying Bugaj "of the need for a full accounting[] and of the doubtful legality of the alleged loss of $370,217.60 on the 2007 K-1." (Id.) On August 12, 2009, Irish filed a "Petition to Compel Inspection of Corporate Records and/or Documents" in the Court of Common Pleas of Pike County, No. 1667-Civil-2009 ("the Records Action").
On October 21, 2009, Irish and Lakefront entered into a stipulation. (Id.) Under the terms of the stipulation, Lakefront was obligated to produce its files and records on October 26, 2009. (Id.) In return, a hearing and depositions of Vehstedt and Waldman were postponed. (Id. at 35.) The Complaint alleges the purpose of the stipulation was for Carversville Defendants to "extend the time period during which the Carversville Defendants' conduct, as described in [the] Complaint, would be kept from Irish and government agencies, including the Internal Revenue Service." (Id.) The Complaint also alleges that Carversville Defendants "had no intention of complying with the Stipulation in the Records Action." (Id.)
Carversville Defendants did not turn over any records until October 30, 2009. (Id.) The records turned over were not the records Irish sought, and were instead "specifically selected by the Carversville Defendants." (Id.) The Complaint alleges that Carversville Defendants breached the Stipulation "to extend the period during
On November 1, 2009, Joseph Yanushefsky, a forensic accountant, reviewed the records produced by Lakefront on October 30, 2009. (Id. at 36.) On November 2, 2009, he prepared a report regarding the records produced and not produced by Lakefront.
On or about March 1, 2009, Ferguson and Waldman opened a credit card processing account in the name of Lakefront and Waldman at Honesdale National Bank, with a credit line of $15,000. (Id. at 37.) Ferguson used the credit card processing account for his own personal benefit. (Id.) Carversville Defendants did not disclose this account to Irish. (Id.)
On June 4, 2009, "Waldman and Black took the affirmative step of contacting Re/ Max to drop the bomb of `fraud,' [committed by Irish and MIK], but declining to provide further clarification, supposedly at the instruction of the District Attorney of Pike County, when in fact the District Attorney made no such instruction."
The meeting with the Pennsylvania State Police took place at the Blooming Grove State Police Barracks with State Trooper Sandra Van Luvender. (Id.) Present at the meeting was McColligan, Kayla Scott (Tim Meagher's secretary), Dave Matthews (a real estate agent associated with Re/Max Wayne), and Ferguson. (Id.) With the exception of Ferguson, all others attending the meeting were competitors of Irish. (Id.) On the same date, Tim Meagher met with Ferguson. (Id. at 41.)
As previously noted, on February 1, 2005, the Re/Max Franchise operated by MIK was transferred to Waldman and Black GP. (Id. at 37.) After the transfer to Waldman and Black GP, the Re/Max Franchise had a five-year term due to expire on January 31, 2010. (Id.) Plaintiffs continued to operate under the Re/Max Franchise now owned by Waldman and Black GP as employees or independent contractors. (Id. at 38.) Waldman and Black GP made material misrepresentations in the documents submitted to Re/ Max in 2005.
In 2009, Waldman and Black stated an intention to renew the Re/Max franchise, in accordance with the requirements of the franchise agreement. (Id.) At that time, Plaintiffs were operating the Re/Max Franchise within Re/Max's required standards and had real estate sales exceeding $60 million per year. (Id.) Irish was also being honored by Re/Max for his achievements. (Id. at 40.)
Meanwhile, Waldman and Black began negotiating with Re/Max to have the Re/ Max Franchise transferred to Meagher Defendants for less than its market value, and for Meagher Defendants to rent space from Lakefront for less than its fair rental value. (Id. at 42-43.) This office space is directly next door to the Irish Office Building, where Defendant Irish had his office. (Id.) The object of this plan "was to create a buyer/transferee of the ReMax Franchise, or a sham buyer/transferee, who would cause the most harm to Irish and MIK and cause the most benefit to the Carversville Defendants." (Id. at 43.)
Around September 2009, "certain Meagher Defendants" began to negotiate directly with Re/Max to acquire the Re/ Max Franchise. (Id.) At this time, Plaintiffs controlled 17% of the relevant real estate sales market. (Id.) On October 9, 2009, Ferguson and Waldman met with the Meagher Defendants.
On January 13, 2010, Waldman and Black GP informed Re/Max they intended to renew the franchise for five years. (Id. at 46.) On January 25, 2010, Re/Max notified Waldman and Black GP that it would grant a six-month extension of the franchise. (Id.) The purpose of this six-month extension was a "potential transfer" of the Re/Max Franchise to Meagher Defendants, which the Complaint alleges was "to further the conspiracy against Irish and MIK." (Id. at 46-47.) The Complaint also alleges that "[n]o party to the extension intended the extension to benefit Irish or MIK in any way."
In May through July 2010, a series of conference calls were held regarding the Re/Max Franchise. (Id.) On July 21, 2010, Waldman, Black, Tim Meagher, and Paul M. Meagher Jr. falsely represented to Re/ Max that the District Attorney of Pike County was pursuing charges against Irish. (Id. at 48.) Re/Max did not attempt to determine the status of the purported investigation by the District Attorney until July 2010. (Id.)
On July 26, 2010, Bugaj requested an additional six-month extension of the franchise. (Id. at 49.) Re/Max denied this request (Id.) On July 27, 2010, Harry Ferguson spoke to a representative of Re/ Max, and Re/Max granted a one-month extension of the franchise "to make the franchise marketable."
On August 23, 2010, a Re/Max representative contacted Irish by telephone, and he learned for the first time that the Re/Max Franchise would terminate on August 31, 2010. (Id.) Later that day, Tim Meagher spoke with a Re/Max representative, and later wrote a letter stating that he was "VERY interested in purchasing a franchise and operating one in the Hawley-Lake
Irish is a member of the Pike-Wayne Association of Realtors (the "Association"). (Id. at 52.) The Association maintains a "multiple listing service" ("MLS"). (Id.) Irish subscribed to this service. (Id.) The MLS is accessible by consumers and real estate professionals, and lists properties for sale by a real estate broker. (Id.) Other realtors who subscribed to the MLS were Defendants Weichert, McColligan, Rodonski, Friese, Rice, Paul Meagher Sr., Tim Meagher, Heather Meagher, and Santos Rolon. (Id.) A broker's profile on the MLS is password-protected. (Id.)
Until August 4, 2010, Irish's listings on the MLS would direct a viewer to a website maintained by Irish and MIK: www.LakeRealtor.com. (Id. at 53.) On or about August 4, 2010, the website listed on the MLS was changed from www.LakeRealtor.com to www.poconolakehome.com, which is a website maintained by Elaine Strong, a real estate agent in Scranton, Pennsylvania.
At the time of this unauthorized access, Defendant McColligan was a member of the Association's board, and both McColligan and Tim Meagher were members of the sub-committee charged with overseeing the MLS. (Id.) The Complaint alleges that "one or more of the Weichert Defendants or one or more of the Anderson Defendants participated in or benefitted from the unauthorized change in the primary web address or the unauthorized access described above." (Id.) McColligan is named as one of the "Weichert Defendants," but Tim Meagher is not named as one of the "Anderson Defendants."
Beginning on September 25, 2010, a series of lawsuits were filed in state court against Plaintiffs.
On August 25, 2010, less than 48 hours after the telephone call from Re/Max notifying Plaintiffs that the Re/Max franchise would terminate at the end of the month, Irish, MIK, Inc. and the remaining shareholders
During the Franchise Litigation, at the deposition of Waldman, he was handed a note by Black that read "Save Tim," referring to Tim Meagher. (Id.) The Complaint alleges that Ferguson, Tim Meagher, Waldman, and Black made various misrepresentations during their depositions. (Id. at 61-62.)
On November 1, 2010, the court held a trial on the equity complaint. (Id. at 63.) The trial court ruled against Irish and MIK. (Id.) Following the decision of the trial court, Irish and MIK were no longer permitted to do business under the name Re/Max. (Id.)
On September 24, 2010, Irish commenced an equity action in the Court of Common Pleas of Pike County, No.2099-Civil-2010 (the "Receivership Litigation"). (Id.) The pleadings filed by Irish sought: (1) the dissolution of Lakefront; (2) the appointment of a receiver; and (3) injunctive relief. (Id. at 64.) During the Receivership Litigation, Ferguson, Waldman, and Black admitted transferring $925,000 to Carversville Development Company to renovate the 1740 House. (Id.) The court appointed John J. Martin as receiver. (Id.) After being appointed receiver, Martin failed to secure Lakefront's books and records, and failed to prevent Bugaj "from assisting those who hand plundered [Lakefront], including Ferguson, Black, and Waldman." (Id.)
After being appointed receiver, Martin commenced an action against Ferguson, Waldman, Black, Woldow, Carversville Development Company, and Carversville Group in the Court of Common Pleas of Bucks County. (Id.) This action sought to recoup funds diverted to the 1740 House.
The motion to dismiss standard under Federal Rule of Civil Procedure 12(b)(6) is set forth in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). After Iqbal it is clear that "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice" to defeat a Rule 12(b)(6) motion to dismiss. Id. at 663, 129 S.Ct. 1937; see Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Applying the principles of Iqbal and Twombly, the Third Circuit in Santiago v. Warminster Township, 629 F.3d 121 (3d Cir.2010), set forth a three-part analysis that a district court in this Circuit must conduct in evaluating whether allegations in a complaint survive a 12(b)(6) motion to dismiss:
Id. at 130 (quoting Iqbal, 556 U.S. at 675, 679, 129 S.Ct. 1937). "This means that our inquiry is normally broken into three parts: (1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged." Malleus v. George, 641 F.3d 560, 563 (3d Cir.2011).
A complaint must do more than allege a plaintiff's entitlement to relief, it must "show" such an entitlement with its facts. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir.2009) (citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir.2008)). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not `shown' — `that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. The "plausibility" determination is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.
Moreover, Federal Rule of Civil Procedure 9(b) provides: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Rule 9(b) requires a plaintiff to plead: (1) a specific false representation of material fact; (2) knowledge by the person who made it of its falsity; (3) ignorance of its falsity by the person to whom it was made; (4) the intention that it should be acted upon; and (5) that the plaintiff acted upon it to his [or her] damage. In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 270 (3d Cir.2006) (quoting Shapiro v. UJB Fin. Corp., 964 F.2d 272, 284 (3d Cir. 1992)).
The congressional purpose in enacting RICO is "the elimination of the infiltration of organized crime and racketeering into
Four prohibited activities are codified in RICO at 18 U.S.C. § 1962(a-d), each of which provides a separate cause of action in this civil lawsuit. Subsections (a) and (b) address the infiltration of legitimate organizations by "outsiders," which cover illegal activities such as money laundering and acquiring an interest in a legitimate organization with racketeering proceeds. Subsection (c) is restricted to persons "employed by or associated with" an enterprise that is engaged in racketeering activity. Reves v. Ernst & Young, 507 U.S. 170, 185, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). Subsection (d) addresses a conspiracy to violate subsection (a), (b), or (c).
In the Complaint, Irish alleges that specified defendants have violated all four RICO provisions, while other defendants have violated § 1962(c, d) only. A summary of the elements of these causes of action follows.
18 U.S.C. § 1962(c) provides:
"To plead a RICO claim under § 1962(c), `the plaintiff must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 362 (3d Cir.2010) (quoting Lum v. Bank of Am., 361 F.3d 217, 223 (3d Cir.2004)).
In order to establish a violation of § 1962(c), a plaintiff must allege the existence of an enterprise. An "`enterprise' includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). "[A]n association-in-fact enterprise must have at least three structural features: [1] a purpose, [2] relationships among those associated with the enterprise, and [3] longevity sufficient to permit these associates to pursue the enterprise's purpose." Boyle v. United States, 556 U.S. 938, 946, 129 S.Ct. 2237, 173 L.Ed.2d 1265 (2009). "[A]n association-in-fact enterprise is `a group of persons associated together for a common purpose of engaging in a course of conduct.'" Id. (quoting United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981)).
Merely being part of an enterprise is not enough to establish a RICO violation. A plaintiff must also allege the presence of the additional elements noted above.
A plaintiff must also establish that a defendant participated in conducting the enterprise's affairs. The U.S. Supreme Court has said "[a]s a verb, `conduct' means to lead, run, manage, or direct." Reves, 507 U.S. at 177, 113 S.Ct. 1163 (citing Webster's Third New International Dictionary 474 (1976)). Regarding the definition of "participate," the Court has held:
Id. at 179, 113 S.Ct. 1163 (footnote omitted). "[O]ne is not liable under [§ 1962(c)] unless one has participated in the operation or management of the enterprise itself." Id. at 183, 113 S.Ct. 1163. Section 1962(c) "cannot be interpreted to reach complete `outsiders' because liability depends on showing that the defendants conducted or participated in the conduct of the `enterprise's affairs,' not just their own affairs." Id. at 185, 113 S.Ct. 1163 (emphasis in original).
A plaintiff must establish that a defendant committed at least two acts of racketeering activity. "Racketeering activity" is defined at 18 U.S.C. § 1961(1). The defined racketeering acts are also referred to as "predicate acts." Mail fraud, wire fraud, and bank fraud are included as predicate acts under § 1961(1).
The Third Circuit has held:
In re Ins. Brokerage Antitrust Litig., 618 F.3d at 371 (citing Univ. of Md. at Bait. v. Peat, Marwick, Main & Co., 996 F.2d 1534, 1539 (3d Cir.1993); Banks v. Wolk,
To establish a pattern of racketeering activity, a plaintiff must demonstrate more than a series of separate, isolated, or disconnected acts. A "`pattern of racketeering activity' requires at least two acts of racketeering activity ... the last of which occurred within ten years ... after the commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5). "[T]he existence of an enterprise is an element distinct from the pattern of racketeering activity and `proof of one does not necessarily establish the other.'" Boyle, 556 U.S. at 947, 129 S.Ct. 2237 (quoting Turkette, 452 U.S. at 583, 101 S.Ct. 2524). "It is the `person' charged with the racketeering offense — not the entire enterprise — who must engage in the `pattern of racketeering activity.'" United States v. Bergrin, 650 F.3d 257, 267 (3d Cir.2011) (citing H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 244, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989)).
The final element under § 1962(c) is that the enterprise must be involved in or affect interstate commerce. "[O]nly the criminal enterprise must affect interstate commerce — not the conduct of each individual defendant." Rose v. Bartie, 871 F.2d 331, 357 n. 38 (3d Cir.1989) (quoting United States v. Robinson, 763 F.2d 778, 781 n. 4 (6th Cir.1985)). "[T]he predicate acts supporting a RICO violation may provide the nexus with interstate commerce." Id. (quoting R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350, 1353 (5th Cir.1985)). "The nexus with interstate commerce required by RICO is `minimal.'" Id. (quoting R.A.G.S. Couture, Inc., 774 F.2d at 1353).
18 U.S.C. § 1962(a) provides:
In order to establish a violation of § 1962(a), a plaintiff must allege: "(1) that the defendant has received money from a pattern of racketeering activity; (2) invested that money in an enterprise; and (3) that the enterprise affected interstate commerce." Id. (citing Shearin v. E.F. Hutton Grp., Inc., 885 F.2d 1162, 1165 (3d Cir.1989)).
Section 1962(a) is one of the two RICO substantive offenses that targets the actions of "outsiders" corrupting otherwise legitimate organizations.
Id. (quoting Brittingham v. Mobil Corp., 943 F.2d 297, 303 (3d Cir.1991)) (internal citations omitted) (emphasis added).
18 U.S.C. § 1962(b) provides:
In order to recover under § 1962(b), "a plaintiff must show injury from the defendant's acquisition or control of an interest in a RICO enterprise, in addition to injury from the predicate acts." Lightning Lube, Inc., 4 F.3d at 1190. "Such an injury may be shown, for example, where the owner of an enterprise infiltrated by the defendant as a result of racketeering activity is injured by the defendant's acquisition or control of his enterprise." Casper v. Paine Webber Grp., Inc., 787 F.Supp. 1480, 1494 (D.N.J.1992). A plaintiff must also establish a nexus between ownership interest in the enterprise and the alleged racketeering activities. Lightning Lube, Inc., 4 F.3d at 1190. A defendant with a legitimate interest in an enterprise unrelated to racketeering acts has not violated § 1962(b). Id.
18 U.S.C. § 1962(d) provides: "It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." In order to demonstrate a RICO conspiracy under § 1962(d), a plaintiff must demonstrate two essential elements: "(1) knowledge of the corrupt enterprise's activities and (2) agreement to facilitate those activities." Knit With v. Knitting Fever. Inc., No. 08-4221, 2011 WL 891871, at *4 (E.D.Pa. Mar. 10, 2011) (citing Salinas v. United States, 522 U.S. 52, 66, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997)). "Underlying a § 1962(d) claim is the requirement that plaintiff must show that defendants agreed to the commission of a `pattern of racketeering.'" Breslin v. Brainard, No. 01-7269, 2003 WL 22351297, at *13 (E.D.Pa. Oct. 14, 2003) (citing Banks v. Wolk, 918 F.2d 418, 421 (3d Cir.1990)).
One of the prerequisites to filing a RICO claim under 18 U.S.C. § 1962(a-d) is that the plaintiff have standing to bring such a claim in the first place. Section 1964(c) provides: "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit...." The U.S. Supreme Court has interpreted this provision and held that "the plaintiff only has standing [to bring a claim under RICO] if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); see Haroco, Inc. v. Am. Nat. Bank & Trust Co. of Chicago, 747 F.2d 384, 398 (7th Cir.1984) aff'd, 473, U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985) ("The criminal conduct in violation of section 1962 must, directly or indirectly, have injured the plaintiff's business or property. A defendant who violates section 1962 is not liable for treble damages to everyone
The Complaint's sixty-nine pages of factual allegations allege harm to Lakefront and other entities, such as Blue Cross, ESSA, and the IRS. Plaintiffs do not have standing to raise any of these claims because the injuries were to Lakefront and the other entities. Any alleged violation of § 1962 did not directly harm Plaintiffs,
"To have standing under civil RICO, a plaintiff must allege that it suffered an injury to its business or property interest `by reason of a violation of section 1962 ....'" Penn Mont Sec. v. Frucher, 502 F.Supp.2d 443, 466 (E.D.Pa.2007) (quoting 18 U.S.C. § 1964(c)). "The `by reason of provision means the complaint must allege that defendants' RICO violation proximately caused injury to the plaintiff's business or property." Id. (citing Holmes v. Sees. Investor Prot. Corp., 503 U.S. 258, 274, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992); Anderson v. Ayling, 396 F.3d 265, 267 (3d Cir.2005)).
Although Irish is a member of the Lakefront limited liability company, Lakefront is not a plaintiff in this action. The Complaint, however, alleges harm to Lakefront. Irish cannot recover for those alleged harms because the harm to Irish, if any, is indirect because he is only a member of the LLC. A plaintiff must suffer a direct injury in order to have RICO standing. "Indirect or derivative harms to a shareholder plaintiff do not confer RICO standing." Id. at 466-67 (quoting Steamfitters Local Union No., 420 Welfare Fund v. Philip Morris. Inc., 171 F.3d 912, 933-34 (3d Cir.1999)).
Lakefront is a limited liability company ("LLC"), not a corporation. In At the Airport v. ISATA, LLC, 438 F.Supp.2d 55, 62-64 (E.D.N.Y.2006), the court held that a member of an LLC cannot pursue a RICO claim on its own behalf when the LLC is the directly injured party. The court refused to deviate from the established rule that the RICO statute requires a "direct injury," and that the member of an LLC filing a RICO claim on its own behalf only has derivative standing.
Despite what appears to be a clear legal precept, the question still remains whether the nature of the claims alleged are direct — that is, injuring Irish directly — or derivative — that is, injuring the company and harming Irish indirectly only due to his status as a member of the LLC.
McCoy-McMahon v. Godlove, No. 08-5989, 2011 WL 4820185, at *14 (E.D.Pa. Sept. 30, 2011) (quoting Penn Mont Sees, v. Frucher, 502 F.Supp.2d 443, 458 (E.D.Pa.2007)) (internal citations omitted). Applying these precepts to the facts here, it is clear that Lakefront suffered the harm and should receive the benefit of the recovery.
First, the Complaint targets the harm done to Lakefront. It contains allegations that Defendants engaged in acts of mail and wire fraud that harmed Lakefront under the doctrine of corporate waste. For instance, it alleges:
"Corporate waste is a `classic' derivative harm because `it diminishes the value of the corporation as a whole and entitles the corporation to recover damages.'" McCoy-McMahon, 2011 WL 4820185, at *14 (quoting Penn Mont Sees., 502 F.Supp.2d at 465) (quotation marks omitted). Allegations of corporate waste do not confer standing on a member of a limited liability company.
Second, the RICO Case Statement (Doc. No. 58) describes the objective of the alleged RICO enterprise as follows
This type of injury, the looting of a company, also does not confer individual standing on Plaintiffs. In Manson v. Stacescu, 11 F.3d 1127 (2d Cir.1993), a similar case to this one, the appellants alleged that the appellees engaged in acts that were "part of a scheme through which appellees looted the Company to the point of bankruptcy in order to enrich themselves." Id. at 1129. The appellants argued that because one of the appellants was a fifty percent shareholder in the company,
In John L. Motley Associates, Inc. v. Rumbaugh, 104 B.R. 683 (E.D.Pa.1989), another similar case, Rumbaugh alleged that an oral contract between two other parties created a conspiracy to waste the assets of a corporation in which Rumbaugh was a forty-nine percent shareholder. The court held:
Id. at 687.
Manson and Motley Associates illustrate Plaintiff's lack of standing for any acts alleged to have harmed Lakefront, including the allegations noted above. As in Manson and Motley Associates. Plaintiffs allege here that Carversville Defendants, Accounting Defendants, and ESSA Defendants "plundered," or looted the corporate assets of Lakefront. For instance, Plaintiffs allege: (1) Ferguson purchased real estate from Lakefront at a price far below its market value; (2) Carversville Defendants borrowed money for their own benefit and repaid the loans with Lakefront's funds; (3) Lakefront paid for the Blue Cross benefits of an employee who was not an employee of Lakefront; and (4) Carversville Defendants used Lakefront's assets to maintain and renovate the "1740 House," then sold the 1740 House at a large profit, without reimbursing Lakefront. Similar to Manson and Motley Associates, these alleged harms are to Lakefront, not Plaintiffs. Therefore, the harms are derivative and do not confer RICO standing. Moreover, the allegations in the Complaint of "corporate waste" are also derivative.
Third, on September 24, 2010, Irish filed the equity action known as the Receivership Litigation. (Doc. No. 1 at 63-64.) In the complaint filed in that action, Irish requested, among other things, that a receiver be appointed to oversee the dissolution of Lakefront. (Id. at 64.) On January 21, 2011, John R. Martin was appointed receiver. (Id.) The order of the Court of Common Pleas of Pike County appointing the receiver states
Plaintiffs were dissatisfied that the receiver did not bring the instant RICO claims against Defendants. (See Doc. No. 1 at 65.) The failure of the receiver to file such a suit did not give Plaintiffs the right to do so on their own. The Receivership Litigation did not confer standing on Plaintiffs to pursue all actions the receiver did not file. Moreover, RICO standing was not conferred on Plaintiffs through their filing a complaint seeking the appointment of the receiver.
In sum, for the above reasons, Plaintiffs have not stated a claim upon which relief may be granted to them for any alleged harm to Lakefront.
Allegations in the Complaint also assert harm to Blue Cross, the IRS, and ESSA. For instance, Plaintiffs allege that Owner Defendants and Vehstedt participated in a scheme in which Vehstedt represented to Blue Cross that Joyce Cooke, the "innkeeper" of the 1740 House, was an employee of Lakefront, although she was not an employee. (Doc. No. 1 at 15.) This is a fraud upon Blue Cross, which is not a plaintiff in this action.
The Complaint also alleges that Owner Defendants and Vehstedt "created and/or altered records which underreported [Lakefront's] income and profits.... The underreporting of income and profit has resulted in inaccurate tax returns." (Id. at 19.) Intentionally filing an inaccurate tax return is a fraud upon the Internal Revenue Service, or in effect, the United States Government, which is also not a plaintiff in this action.
Finally, in a puzzling circle of logic, the Complaint alleges that Carversville Defendants "duped" ESSA and William Lewis into making loans to Carversville Defendants that were repaid by Lakefront. Curiously, ESSA and William Lewis are also named as Defendants in this action for their role in making the very same loans. The Complaint states: "The methods by which the Carversville Defendants could and would dupe ESSA and Lewis, or pretend to dupe them, and by which ESSA and Lewis could pretend to be duped, were as follows ...." (Id. at 24.) The Complaint then lists six paragraphs describing how Carversville Defendants purportedly misled ESSA and Lewis about Lakefront's role in repaying the loans to ESSA. Reading these allegations in the light most favorable to Plaintiffs, they establish at most that Carversville Defendants manipulated ESSA and Lewis.
In short, Plaintiffs have no RICO standing to bring an action on behalf of Blue Cross, the IRS, ESSA, and Lewis, because they were not directly injured by reason of any conduct of these Defendants. The injuries, if any, were to Blue Cross, the IRS, and ESSA. In these situations,
To the extent Plaintiffs seek to recover damages under RICO for the termination of the Re/Max Franchise, those claims are barred by collateral estoppel. "The Full Faith and Credit Act, 28 U.S.C. § 1738 ... requires [a] federal court to `give the same preclusive effect to a statecourt judgment as another court of that State would give.'" Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 293, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005) (quoting Parsons Steel, Inc. v. First Ala. Bank, 474 U.S. 518, 523, 106 S.Ct. 768, 88 L.Ed.2d 877 (1986)).
On August 25, 2010, MIK initiated the Franchise Litigation by filing a complaint in the Court of Common Pleas of Pike County against Waldman and Black GP and Re/Max, seeking an injunction to stop the Re/Max Franchise from being terminated. (Doc. No. 1 at 60-63; see supra Section (II)(C)(15).) The Franchise Litigation complaint alleged, in relevant part, the following:
(Doc. No. 151-1 at 4-6.)
Re/Max moved to dismiss the complaint for lack of standing, and on November 2,
The state court concluded Irish and MIK did not have standing to seek a preliminary injunction because they were not parties to the Franchise Agreement, and that under the terms of the Transfer Agreement, "there are no rights reserved to any of the Plaintiffs to litigate any matters related to the franchise." (Id.) In the Complaint, Plaintiffs admit that "after an adverse ruling of the trial court, and the refusal of the Superior Court to extend a stay past November 23rd, Irish and MIK were no longer permitted to do business under the name ReMax." (Doc. No. 1 at 63.)
As a threshold matter, Plaintiffs contend the Court may not consider Defendants' collateral estoppel argument because collateral estoppel is an affirmative defense. Plaintiffs are correct that collateral estoppel is an affirmative defense, and that normally an affirmative defense is first considered during a motion for summary judgment, not a motion to dismiss. However, within the Third Circuit a court may consider an affirmative defense on a Rule 12(b)(6) motion to dismiss if the bar established by the defense is "apparent on the face of the complaint." Bethel v. Jendoco Const. Corp., 570 F.2d 1168, 1174 (3d Cir.1978).
In Brody v. Hankin, 145 Fed. Appx. 768 (3d Cir.2005), a case involving alleged amendments to a contract, the Third Circuit reversed the district court after it granted a motion to dismiss on res judicata grounds.
This case is distinguishable from Brody. Brody reiterated that an affirmative defense must appear "on the face of the complaint" in order for the defense to be considered on a 12(b)(6) motion to dismiss. In Brody, the district court erred when it relied on facts from court documents not mentioned in the plaintiffs' complaint because it "effectively converted [the defendant's] motion to dismiss into a motion for summary judgment without notifying the [plaintiffs]." Id. at 768.
The Third Circuit noted, however, that the plaintiffs' complaint did mention two other documents uncovered in arbitration: "copies of the alleged 1991 amendments to the ... agreements [at issue] (along with related management and leasing agreements, and maintenance agreements), and a statement by ... counsel, presumably contained in a letter or deposition transcript, that no letters to a limited partner referring to the 1991 amendments could be found." Id. at 772. The court held that "[t]he District Court thus properly could have considered these documents under White." Id.
Here, the two documents at issue from the Franchise Litigation are the complaint and the November 2, 2010 order. The order was attached to the Memorandum of Law in Support of the Motion to Dismiss filed by Ferguson, Waldman, Black, Waldman and Black GP, Carversville Development Company, and Carversville Group (Doc. No. 97-2), and the complaint was attached to these Defendants' Supplemental Memorandum of Law (Doc. No. 151-1). Both documents are undisputedly authentic, and both documents are mentioned in the Complaint. (See Doc. No. 1 at 60 (discussing allegations contained in the Franchise Litigation complaint), 63 (discussing the "adverse ruling" of the November 2, 2010 order).) Thus, the Court may consider these documents in weighing Defendants' affirmative defense of collateral estoppel because they are specifically referred to, and also relied on, in the Complaint filed by Plaintiffs.
In this case, the Complaint alleges:
"Congress has directed federal courts to look principally to state law in deciding what effect to give state-court judgments." Lance v. Dennis, 546 U.S. 459, 466, 126 S.Ct. 1198, 163 L.Ed.2d 1059 (2006) (emphasis in original). Under Pennsylvania Law:
First Korean Church of N.Y., Inc. v. Cheltenham Twp. Zoning Hearing Bd., No. 05-6389, 2012 WL 645986, at *9 (E.D.Pa. Feb. 29, 2012). aff'd, No. 12-1917, 2013 WL 362819 (3d Cir. Jan. 24, 2013) (quoting Office of Disciplinary Counsel v. Kiesewetter, 585 Pa. 477, 889 A.2d 47, 50-51 (2005)).
Plaintiffs maintain here that they are not collaterally estopped because the issues and parties in this case and the Franchise Litigation are not identical. They contend:
(Doc. No. 135 at 28 (emphasis in original).) Their argument is unpersuasive.
Two elements of collateral estoppel are at issue: "the issue decided in the prior case is identical to the one presented in the later action" and "the party against whom collateral estoppel is asserted was a party or in privity with a party in the prior case." First Korean Church of N.Y., 2012 WL 645986, at *9. "To defeat a finding of identity of the issues for preclusion purposes, the difference in the applicable legal standards must be `substantial.'" Raytech Corp. v. White, 54 F.3d 187, 191 (3d Cir. 1995). In the Franchise Litigation, the issue was whether Plaintiffs "can exercise rights of Black and Waldman under the Franchise Agreement which allow injunctive relief to prevent irreparable harm." (Doc. No. 97-2 at 2.) Answering this question necessitated determining whether Plaintiffs had standing to assert claims as owners of the Re/Max Franchise. In reaching the conclusion that Plaintiffs did not have standing to bring `claims as owners' of the Franchise, the state court held that under the Transfer Agreement, "there are no rights reserved to any of the Plaintiffs to litigate any matters related to the franchise." (Id. at 3.)
In this case, the issue is whether Plaintiffs may assert RICO or antitrust claims
Although the Complaint acknowledges the adverse ruling of the state court, Plaintiffs mischaracterize the impact of the ruling. The state court held that under the February 1, 2005 Transfer Agreement, Plaintiffs transferred all ownership rights under the Re/Max Franchise, including the right "to litigate any matters related to the franchise," to Waldman and Black GP. (Doc. No. 97-2 at 3.) Plaintiffs characterize the impact of the ruling, however, as simply preventing them from continuing "to do business under the name ReMax." (Doc. No. 1 at 63.) While this is literally correct, it misconstrues the full breadth of the state court ruling — that Plaintiffs agreed in the February 1, 2005 Transfer Agreement to transfer their ownership rights, including the right to litigate matters related to the Re/Max Franchise.
In addition, as noted previously, collateral estoppel requires that "the party against whom collateral estoppel is asserted was a party or in privity with a party in the prior case ...." First Korean Church of N.Y., 2012 WL 645986, at *9. The plaintiffs in the Franchise Litigation were, among others, MIK, Inc. and George Irish,
The November 2, 2010 order from the Court of Common Pleas of Pike County conclusively establishes that Plaintiffs did not own the Re/Max franchise after February 1, 2005, and were simply employees or independent contractors working for the Re/Max franchise owned by Waldman and Black GP. Moreover, after February 1, 2005, "there are no rights reserved to any of the Plaintiffs to litigate any matters related to the [Re/Max] franchise." (Doc. No. 97-2 at 3.) Because Plaintiffs are impermissibly attempting to relitigate the adverse ruling in state court related to the Re/Max franchise to which "full faith and credit" must be given, dismissal of any claims concerning the termination or ownership of the Re/Max franchise is warranted.
The crimes designated as racketeering activity, also known as "predicate acts,"
During the November 6, 2012 hearing on the Motions to Dismiss, after the Court inquired about instances of fraud that Plaintiffs claim they have standing to allege, the only activity identified with specificity by Plaintiffs' counsel was the mailing to Irish of false Schedule K-1 tax forms by Accounting Defendants. (Mot. Hr'g Tr. 155:11-21; see supra Section (II)(C)(9)(b).) The IRS describes the purpose of the Schedule K-1 form as follows:
Shareholder's Instructions for Schedule K-1 (Form 1120S) (2012), Internal Revenue Service, http://www.irs.gov/ instructions/i1120ssk/ch01.html#d0e39 (last visited Aug. 23, 2013).
"The essential elements of an offense under 18 U.S.C. § 1341 are (1) the existence of a scheme to defraud; (2) the participation by the defendant in the particular scheme charged with the specific intent to defraud; and (3) the use of the United States mails in furtherance of the fraudulent scheme." United States v. Hannigan, 27 F.3d 890, 892 (3d Cir.1994) (footnote omitted). "The wire fraud statute, 18 U.S.C. § 1343, is identical to the mail fraud statute except it speaks of communications transmitted by wire," United States v. Frey, 42 F.3d 795, 797 (3d Cir. 1994), although wire fraud does require an interstate transmission, while mail fraud does not have a similar requirement.
"[N]ot every use of the mails or wires in connection with a scheme is punishable under sections 1341 or 1343.... To support a mail fraud conviction, a mailing must further the scheme to defraud or be incident to an essential part of that scheme.'" Frey, 42 F.3d at 797-98 (quoting United States v. Ruuska, 883 F.2d 262, 264 (3d Cir.1989)). "[T]he words `to defraud' in the mail fraud statute have the `common understanding' of `wronging one in his property rights by dishonest methods or schemes,' and `usually signify the deprivation of something of value by trick, deceit, chicane or overreaching.'" Carpenter v. United States, 484 U.S. 19, 27, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987) (quoting McNally v. United States, 483 U.S. 350,
During the November 6, 2012 hearing, the Court had the following exchange with Plaintiffs' counsel:
(Mot. Hr'g Tr. 155:11-160:15.)
During this exchange, Plaintiffs' counsel was unable to articulate how Carversville Defendants' actions in withholding records from Irish constituted mail fraud or wire fraud. He then moved on to the issue of the false Schedule K-1 forms provided to Irish. The Court inquired:
(Mot. Hr'g Tr. 162:2-163:25.) Plaintiffs' counsel admitted that the false Schedule K-l forms did not involve the use of wires:
(Mot. Hr'g Tr. 166:20-167:1.) Thus, Plaintiffs' counsel conceded that no Defendant committed wire fraud as a racketeering predicate in this case.
Only a few paragraphs in the Complaint refer to the Schedule K-1 forms. They are as follows:
(Doc. No. 1 at 19, 28, 33.) None of these allegations establish that Carversville Defendants or Accounting Defendants committed predicate acts of mail fraud against Plaintiffs in regard to the Schedule K-1 forms.
First, these allegations only involve Irish, not MIK. Second, the Complaint does not describe a scheme to defraud Irish with regard to the Schedule K-1 forms. Third, the Complaint does not allege that the United States mails were used in furtherance of the fraudulent scheme. See Hannigan, 27 F.3d at 892. Fourth, the Complaint only references a single Schedule K-1 form — the 2007 form. A single predicate act is insufficient to establish RICO liability — there must be two or more predicate acts. 18 U.S.C. § 1961(5).
Plaintiffs' counsel explained at the hearing that Accounting Defendants prepared the false Schedule K-1 forms and sent them to Irish using the mail. (Mot. Hr'g Tr. 160:4-15; 161:7-9.) Counsel also stated that Irish received Schedule K-1 forms for eight tax years — 2002 to 2009. (Mot. Hr'g Tr. 165:6-12.) The Court will infer that this statement is an allegation that Defendants used the mails to send Schedule K-l forms on eight occasions. Counsel did not clarify, however, whether all eight years of Schedule K-1s were false or part of a scheme to defraud, or only the 2007 Schedule K-1. Additionally, the RICO Case Statement alleges:
(Doc. No. 58 at 6-7.)
Even if these additional allegations were added to the Complaint, it still would not establish mail fraud. Even if Accounting Defendants conspired with Carversville Defendants to falsify the 2007 Schedule K-1 and a Schedule K-1 for at least one additional tax year, Irish fails to "state with particularity the circumstances constituting fraud...." Fed.R.Civ.P. 9(b).
Irish has not described the alleged fraudulent scheme. He has not given details about how mailing the purportedly false Schedule K-1 forms induced him to take actions that injured him or whether he even lent additional monies to Lakefront apart from his original investment of
Accordingly, the conclusory allegation in the Complaint that Accounting Defendants in complicity with the Carversville Defendants mailed the false Schedule K-1 forms to Irish as part of a scheme or artifice to defraud him does not "permit the court to infer more than the mere possibility of misconduct.'" Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). This is insufficient to support a claim of a predicate act or the RICO claims set forth in the Complaint.
As discussed supra, Plaintiffs have failed to establish a substantive RICO violation under 18 U.S.C. § 1962(a-c) against any Defendant. The allegations in the first eighteen counts pertain to either: (1) frauds on Lakefront, ESSA, Blue Cross, or the IRS; (2) matters related to the termination of the Re/Max franchise; or (3) the allegedly false Schedule K-1 forms. Plaintiffs do not have standing to bring any RICO claim for alleged frauds on Lakefront, ESSA, Blue Cross, or the IRS. Moreover, Plaintiffs are collaterally estopped from litigating any matters related to the termination of the Re/Max franchise. The only activity Plaintiffs may have standing to raise is in regard to the purportedly false Schedule K-1 forms. The allegations with respect to the Schedule K-1 forms only involve the Carversville Defendants and Accounting Defendants, and do not amount to mail fraud. The absence here of a predicate act, and concomitantly the absence of a pattern of racketeering activity, undermines the sufficiency of any claim that Defendants committed RICO violations. For these reasons, all substantive RICO claims (Counts One, Two, Three, Five, Seven, Nine, Eleven, Thirteen, Fifteen, and Seventeen) will be dismissed.
"Any claim under section 1962(d) based on a conspiracy to violate [any of] the other subsections of section 1962 necessarily must fail if the substantive claims are themselves deficient." Lightning Lube, Inc., 4 F.3d at 1191 (citing Leonard v. Shearson Lehman/Am. Express, Inc.,
Because the Complaint fails to set forth a claim under 18 U.S.C. § 1962(a-c) upon which relief may be granted, Plaintiffs' RICO conspiracy claims under § 1962(d) also fail as a matter of law. Accordingly, Plaintiffs remaining RICO claims (Counts Four, Six, Eight, Ten, Twelve, Fourteen, Sixteen, and Eighteen) will also be dismissed.
In the Complaint, Plaintiffs allege certain Defendants conspired to prevent them from competing in the local real estate market, and other Defendants established an illegal boycott of Plaintiffs' real estate listings, both in violation of the Sherman Act. Under the Sherman Act, "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... is declared to be illegal." 15 U.S.C. § 1. Because Plaintiffs' antitrust claims fail to state a claim upon which relief may be granted, they will be dismissed.
In Count Nineteen, Plaintiffs allege that Carversville Defendants, Weichert Defendants, Meagher Defendants, and Anderson Defendants ("Count Nineteen Defendants") each violated Section 1 of the Sherman Act by "conspir[ing], act[ing], and enter[ing]" into an agreement to:
(Doc. No, 1 at 80-81.) To prevail on a § 1 conspiracy claim, a plaintiff must prove that: 1) there was an agreement; 2) the agreement unreasonably restrained trade; and 3) the restraint caused an antitrust injury. W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 99-101 (3d Cir.2010).
An antitrust injury is a prerequisite for antitrust standing. SigmaPharm, Inc. v. Mut. Pharm. Co., 454 Fed. Appx. 64, 68 (3d Cir.2011), cert. denied, ___ U.S. ___, 133 S.Ct. 110, 184 L.Ed.2d 24 (2012). "Mere injury resulting from conduct that violated the antitrust laws is insufficient to confer antitrust standing." Id. at 68. Instead, to successfully allege an antitrust injury, a plaintiff must demonstrate: "(1) harm of the type the antitrust laws were intended to prevent; and (2) an injury to the plaintiff which flows from that which makes defendant's acts unlawful." Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 76 (3d Cir.2010).
"[T]he class of plaintiffs capable of satisfying the antitrust-injury requirement is limited to consumers and competitors in the restrained market ... and to those whose injuries are the means by which the defendants seek to achieve their anticompetitive ends...." W. Penn Allegheny Health Sys., Inc., 627 F.3d at 102 (internal citations omitted). "The antitrust-injury requirement helps ensure `that the harm claimed by the plaintiff corresponds to the rationale for finding a violation of the antitrust laws in the first place, and it prevents losses that stem from competition from supporting suits by private plaintiffs for ... damages.'" Id. at 101 (quoting Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 342, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990)). Thus, if a business suffers losses due to competition, rather than anticompetitive acts, it has not suffered an antitrust injury. See ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 344 (3d Cir.2012), cert. denied, ___ U.S. ___, 133 S.Ct. 2025, 185 L.Ed.2d 886 (2013) (quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993) ("[t]he Sherman Act `directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself'")).
As discussed supra, the Court of Common Pleas of Pike County held that Plaintiffs were not owners of the Re/Max Franchise after February 1, 2005. Therefore, Plaintiffs were merely employees or independent contractors of the Re/Max Franchise until Re/Max canceled the franchise license on August 31, 2010. The harm Plaintiffs suffered, if any, from cancellation of the franchise, was not an antitrust injury because Plaintiffs had other options available to them to operate in the real estate marketplace.
In West Penn Allegheny Health System, the defendant chose not to refinance a loan to the plaintiff in order to harm the plaintiff's business and boost the business of the plaintiff's competitor. The loan agreement, however, permitted the plaintiff to obtain financing elsewhere and to repay the loan early without penalty. Id. In view of these provisions, the Third Circuit held that even if the defendant "acted with anticompetitive motives," the defendant's refusal to refinance the loan when other refinancing options were available "could not have been `competition-reducing aspect[s]... of the' conspiracy ... and thus did not give rise to an antitrust injury." Id. at 103 (quoting Atl. Richfield, 495 U.S. at 344, 110 S.Ct. 1884) (internal citation omitted) (emphasis and alteration in original);
Similarly here, even if Count Nineteen Defendants conspired to transfer the Re/Max Franchise to Plaintiffs' competitor with the anticompetitive motive of harming Plaintiffs' business, this agreement could not be a "competition-reducing" aspect of the conspiracy. See Atl. Richfield, 495 U.S. at 344, 110 S.Ct. 1884. Plaintiffs do not contend that the specific Re/Max Franchise in question was the only option available to them to conduct business under a franchise in the local marketplace, or that Plaintiffs had sought employment at other real estate businesses but were turned away. Thus, the acts of Count Nineteen Defendants would not prevent Plaintiffs from continuing to engage in the real estate business and continuing to compete in the marketplace.
The Complaint alleges that Weichert Defendants and Meagher Defendants had "market power" (Doc. No. 1 at 81-82), and "[t]he concerted action by the Count Nineteen Defendants was for the purpose of reducing competition within the Pike-Wayne real estate sales market" (id. at 82). These bare allegations alone, however, are insufficient to establish an antitrust injury.
Under the "rule of reason," an allegation of "market power" can establish a facially anticompetitive restraint on trade. See Gordon v. Lewistown Hosp., 423 F.3d 184, 210 (3d Cir.2005). "Market power, the ability to raise prices above those that would otherwise prevail in a competitive market, is essentially a surrogate for detrimental effects [on the marketplace]." Id.
In considering whether market power suppresses or even destroys competition, the Third Circuit in Gordon noted with approval the following language from Board of Trade of the City of Chicago v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918):
Gordon, 423 F.3d at 184 (quoting Board of Trade of the City of Chicago, 246 U.S. at 238-39, 38 S.Ct. 242). Here, it is evident that the alleged market share of Weichert Defendants and Meagher Defendants falls short of meeting the minimum requirements of "market power."
The restraint identified here by Plaintiffs is an effort by specific Defendants to put him out of business as a real estate broker in the Wayne County and Pike County, Pennsylvania real estate market. Before the alleged restraint, the
None of these Defendants had a market share sufficient to cause prices to rise or deprive Plaintiffs of the opportunity to pursue the real estate business in the marketplace identified by them. Weichert Defendants and Meagher Defendants' alleged 27.27% combined market share leaves 72.73% of the market open to other competitors. The percentage of market share of these Defendants is insufficient to prove "market power." Plaintiffs' allegation about "market power" of Defendants does not establish an antitrust injury.
Furthermore, "[t]he antitrust laws... were enacted for `the protection of competition, not competitors.'" Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962)). "[T]o establish an `antitrust injury,' a plaintiff must plead specific facts showing that `the challenged action has had an actual adverse effect on competition as a whole in the relevant market,' not just on plaintiff as a competitor." Doron Precision Sys., Inc. v. FAAC, Inc., 423 F.Supp.2d 173, 180 (S.D.N.Y.2006) (quoting Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 543 (2d Cir.1993)).
"[A]n individual plaintiff personally aggrieved by an alleged anti-competitive agreement has not suffered an antitrust injury unless the activity has a wider impact on the competitive market." Eichorn v. AT & T Corp., 248 F.3d 131, 140 (3d Cir.2001). "[S]ection one claimants must plead and prove a reduction of competition in the market in general and not mere injury to their own positions as competitors in the market." Les Shockley Racing, Inc. v. Nat'l Hot Rod Ass'n, 884 F.2d 504, 508 (9th Cir.1989).
The Complaint alleges primarily a vendetta against Plaintiffs, but not a harm to competition at large. For instance, the Complaint asserts:
In Count Nineteen, the alleged objectives of the antitrust conspiracy, as previously noted, are set forth as follows:
(Id. at 80-81.)
Here, Plaintiffs only allege harm to themselves. The essence of the allegations in the Complaint is of a vendetta against Plaintiffs. The objectives of the conspiracy are all aimed at Plaintiffs, not at influencing a change in the competitive market as a whole. They have not presented "specific facts showing that `the challenged action has had an actual adverse effect on competition as a whole in the relevant market....'" Doron Precision Sys., 423 F.Supp.2d at 180. Because the matters considered above do not show the Count Nineteen Defendants committed acts of restraint the Sherman Act was enacted to control or eliminate, Plaintiff did not suffer an antitrust injury. Consequently, Count Nineteen will be dismissed.
In Count Twenty, Plaintiffs allege that Weichert Defendants and Meagher Defendants, with the exception of Paul M. Meagher, Jr. and Matthew Meagher ("Count Twenty Defendants"), violated the Sherman Act under 15 U.S.C. § 1 by creating an illegal boycott. Plaintiffs allege that "[t]he boycotting was accomplished by a concerted and purposeful refusal to show consumers those real estate properties listed by MIK or Irish in the Pike-Wayne real estate market." (Doc. No. 1 at 84.) Plaintiffs essentially contend that Irish, as agent for sellers, would list properties for sale and that the Count Twenty Defendants, as agents for potential buyers, would refuse to show their customers properties listed by Plaintiffs. Despite this claim, Count Twenty will be dismissed because the Complaint itself alleges facts
"Judicial experience has shown that some classes of restraints have redeeming competitive benefits so rarely that their condemnation does not require application of the full-fledged rule of reason. Paradigmatic examples are `horizontal agreements among competitors to fix prices or to divide markets.'" In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 316 (3d Cir. 2010) (quoting Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007)). "Group boycotts, or concerted refusals by traders to deal with other traders," can also be a per se violation of the antitrust laws. Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 212, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959). Klor's involved a "horizontal" restraint on commerce — that is, "[r]estraint[] imposed by agreement between competitors" — rather than a "vertical" restraint, which is "imposed by agreement between firms at different levels of distribution...." Bus. Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 730, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988).
The U.S. Supreme Court has held that unless an antitrust defendant possesses market power, the conclusion of per se anticompetitive effects is not warranted. Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 296-97, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985). Application of the per se rule to a horizontal boycott "require[s] proof either of a purpose to horizontally restrict price competition, or of the defendants' shared market power or control over a key resource or facility...." William Holmes & Melissa Mangiaracina, Antitrust Law Handbook § 2:16 (2012).
The claim here is that Count Twenty Defendants boycotted listings of Plaintiffs, not that they attempted to fix prices or divide markets. Moreover, as discussed supra, Count Twenty Defendants did not have market power. Nor is there an allegation that County Twenty Defendants control "a key resource or facility." For these reasons, the alleged boycott does establish per se liability under the antitrust laws.
Plaintiffs allege Count Twenty Defendants "refus[ed] to show to consumers... real estate properties listed by MIK or Irish...." (Doc. No. 1 at 84.) The Complaint does not allege the timeframe for this alleged activity. Reading the allegations in the light most favorable to Plaintiffs, they contend that Count Twenty Defendants either instructed buyers of property not to purchase listings made by Plaintiffs, or simply did not show Plaintiffs' listings to buyers. The Complaint itself, however, contains allegations contradicting these claims. In regard to the Weichert Defendants, the Complaint alleges that they represented buyers in the purchase of properties listed by Plaintiffs.
The Complaint notes certain Defendants, including Tammy Lee Clause, Esquire, and the other Anderson Defendants, "conspired with others and sought to use the burdens of meritless litigation to harm the Plaintiffs MIK and Irish." (Id. at 55.) In one of these purportedly meritless lawsuits, real estate buyers Wieslaw and Helen Wszolkowski purchased a property listed by Plaintiffs and filed a suit against Plaintiffs and the seller of the property, (Id.) The Wszolkowskis' real estate agent
In these instances, the allegations in the Complaint undermine any claim of an illegal boycott in violation of § 1 under the Sherman Act. Accordingly, Count Twenty will be dismissed.
This Court has subject-matter jurisdiction over the state law claims alleged in the Complaint based upon the federal causes of action brought under RICO and the Sherman Act (Counts One through Twenty). Because the Court is dismissing Counts One through Twenty, only state law claims remain. 28 U.S.C. § 1367(c)(3) provides: "The district courts may decline to exercise supplemental jurisdiction over a claim ... if ... the district court has dismissed all claims over which it has original jurisdiction." A district court has broad discretion to determine whether to continue hearing state law causes of action. United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); Hotel Syracuse, Inc. v. Young, 805 F.Supp. 1073, 1086 (N.D.N.Y.1992). "If federal claims are dismissed before trial ... the state claims should be dismissed as well." Gibbs, 383 U.S. at 726, 86 S.Ct. 1130.
The Court will decline to exercise supplemental jurisdiction here. Accordingly, Counts Twenty-One through Twenty-Four will also be dismissed.
The attempt here to create a RICO case out of failed business ventures and conflicts with business partners was not the intent behind RICO. Although RICO is to be broadly construed, Congress included elements to restrict the use of RICO to situations in which persons operating in an organized structure, over a considerable period of time, are committing serious federal offenses. Business disputes that last many years do not fall within these elements. Plaintiffs in this case properly resorted to state court to seek relief for perceived business indiscretions by partners, and to date have not prevailed. They therefore filed suit in federal court. But Plaintiffs' attempt to accuse not only business partners, but other persons who had contact with their financial setbacks, of RICO and antitrust violations, must fail on this record.
All claims against all Defendants — Counts One through Twenty-Four — will be dismissed. An appropriate Order follows.
Bugaj and Fischer, P.C. is also named as a defendant in this case, but is not listed as a Carversville Defendant in the Complaint. (Id. at 3-4) Bugaj and Fischer, P.C. is a law firm that is partly owned by Defendant Ronald Bugaj. (Id.) Bugaj and Fischer, P.C. is alleged to be liable under Counts Nineteen, Twenty-Two, Twenty-Three, and Twenty-Four.
Despite these rulings, Plaintiffs continue to refer to Waldman and Black GP as a "straw party" (see Doc. No. 1 at 37, 38, 39, 40, 45, 60), and characterize the February 1, 2005 agreement not as an agreement which terminated Plaintiffs' ownership of the Franchise, but as "an accommodation to Plaintiff Irish." (Doc. No. 1 at 13; see infra Section (IV)(B)(2).)
When reviewing a motion to dismiss, a district court "can consider `a document integral to or explicitly relied upon in the complaint.'" In re Rockefeller Ctr. Props., Inc. Sec. Litig., 184 F.3d 280, 287 (3d Cir. 1999) (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir.1997)) (emphasis omitted). A district court may also review "an `undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document.'" In re Rockefeller Ctr. Props., Inc., 184 F.3d 280, 287 (quoting Pension Ben. Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)).
Here, the Court may consider this judicial order in deciding the instant Motions to Dismiss because Plaintiffs refer to, and rely on, the Receivership Litigation in the Complaint.
