PATRICK J. SCHILTZ, District Judge.
Plaintiff Sebrite Agency, Inc. ("Sebrite") is a small insurance agency located in Minnetonka, Minnesota. Defendant Arthur Platt worked as an agent for Sebrite. Defendant Denise Wishcop is Platt's girlfriend. Platt was fired by Sebrite in 2011, after Sebrite learned that Platt had established a competing agency for the purpose of stealing Sebrite's clients. It does not appear that Platt was successful in permanently diverting any significant amount of business from Sebrite. It also appears that Sebrite will have trouble recovering damages from Platt, as he has few assets. Sebrite has nevertheless sued Platt and Wishcop.
"This Court has repeatedly criticized the filing of `kitchen-sink' or `shotgun' complaints — complaints in which a plaintiff brings every conceivable claim against every conceivable defendant." Gurman v. Metro Housing and Redevelopment Auth.,
For the reasons that follow, the Court dismisses Sebrite's two federal claims and declines to exercise supplemental jurisdiction over Sebrite's 12 state-law claims.
Defendants move to dismiss Sebrite's amended complaint under Fed. R.Civ.P. 12(b)(6).
Under Fed.R.Civ.P. 12(b)(6), a court must accept as true a complaint's factual allegations and draw all reasonable inferences in the plaintiff's favor. Aten v. Scottsdale Ins. Co., 511 F.3d 818, 820 (8th Cir.2008). Although the plaintiff's factual allegations need not be detailed, they must be sufficient to "raise a right to relief above the speculative level" and to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In assessing a claim's plausibility, the Court may disregard any allegation that is conclusory. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009) (holding that "conclusory" allegations "are not entitled to the assumption of truth").
The parties are familiar with the facts, so they will not be repeated here.
The CFAA forbids any person "knowingly and with intent to defraud" to "access[ ] a protected computer without authorization, or exceed[ ] authorized access, and by means of such conduct further[ ] the intended fraud and obtain[ ] anything of value...." 18 U.S.C. § 1030(a)(4). The CFAA is primarily a criminal statute, but it provides a civil remedy to those who are injured by a violation of the statute. See 18 U.S.C. § 1030(g).
Sebrite alleges that Platt, in furtherance of his fraudulent scheme to steal Sebrite's clients, accessed Sebrite's computers "without authorization" or "in excess of
Sebrite does not dispute, however, that, as Vice President of Insurance Sales, Platt was authorized to access all of the confidential information on Sebrite's computers. See Am. Compl. ¶ 10 ("As additional consideration for entering into the Employment Agreement, Sebrite agreed to provide and provided to Platt valuable training and access to substantial, confidential and proprietary information...."). In other words, Platt did not access computers or databases that he was forbidden to use. But Sebrite contends that, when an employer such as Sebrite gives an employee such as Platt authority to access information on the employer's computers, that authority is implicitly conditioned on the employee using the information to further the employer's business. When an employee uses an employer's computer in some other manner — in Platt's case, to steal clients — then, Sebrite argues, the employee has acted "without authorization" or "in excess of authorization" in violation of the CFAA.
As the parties recognize, the federal courts have disagreed about whether the CFAA is violated when a person who has authority to "access[ ] a protected computer" misuses the information that he or she obtains.
Under the Court's interpretation of the CFAA, Sebrite's allegation that Platt improperly used confidential information that he had authority to access fails to state a claim under 18 U.S.C. § 1030(a)(4). Count IX is therefore dismissed.
Section 1962(c) of Title 18 makes it "unlawful for any person employed by or associated with any enterprise engaged in... interstate ... commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." Despite this broad language, "RICO `does not cover all instances of wrongdoing. Rather, it is a unique cause of action that is concerned with eradicating organized, long-term, habitual criminal activity.'" Crest Const. II, Inc. v. Doe, 660 F.3d 346, 353 (8th Cir.2011) (quoting Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir.2006)). Although RICO is a criminal statute, § 1964(c) provides a civil remedy for any person "injured in his business or property by reason of a violation of" the law's substantive provisions.
To plead a viable RICO claim for damages, a plaintiff must allege "`(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Wisdom v. First Midwest Bank of Poplar Bluff, 167 F.3d 402, 406 (8th Cir.1999) (quoting Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)). The elements of a RICO claim must be pleaded with respect to each individual defendant, see Craig Outdoor Adver., Inc. v. Viacom Outdoor, Inc., 528 F.3d 1001, 1027 (8th Cir.2008), and with particularity under Fed.R.Civ.P. 9(b), see Crest Const. II, 660 F.3d at 353.
Because Sebrite fails to allege that either Platt or Wishcop conducted an enterprise through a pattern of racketeering activity, the Court dismisses Count XII.
An enterprise, for purposes of RICO, "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). Sebrite alleges an association-in-fact enterprise consisting of Platt, Wishcop, and other individuals to be named later ("Platt Enterprise"). See Am. Compl. ¶ 100.
"An association-in-fact enterprise must have at least three structural features: a purpose, relationships among those associated with the enterprise, and
In Stephens, Inc. v. Geldermann, Inc., for example, the plaintiff ("Stephens") sued a commodities-futures merchant ("Geldermann") under RICO for Stephens's trading losses, alleging an association-in-fact enterprise consisting of Geldermann, several of Geldermann's employees, and one of Stephens's employees. 962 F.2d 808, 815 (8th Cir.1992). On appeal, the Eighth Circuit held that Stephens failed to allege a RICO enterprise that was distinct from the alleged pattern of racketeering activity, as the only thing linking the defendants, and defining them as a distinct group, was their alleged participation in the underlying commodities-trading fraud. Id. at 815-16. Once the predicate acts of mail and wire fraud were removed, said the Eighth Circuit, "the association-in-fact enterprise ... had no form or structure." Id. at 816.
Like the plaintiff in Stephens, Sebrite fails to allege an enterprise that is distinct from the predicate acts of mail and wire fraud. According to Sebrite, Platt fraudulently diverted business from Sebrite to North Bay Agency, Inc. ("North Bay"), a competing insurance agency that Platt helped establish in 2009 for the very purpose of stealing Sebrite's clients. See Am. Compl. ¶¶ 15, 104, 109. In furtherance of the fraud, Platt allegedly emailed Sebrite's confidential information to an email account that he and Wishcop shared. See Am. Compl. ¶¶ 107-08. Wishcop facilitated the fraudulent scheme, says Sebrite, by knowingly allowing income generated from the fraud to be deposited into her bank accounts. See Am. Compl. ¶¶ 16-18, 110-11. Her facilitation of the financial transactions, according to Sebrite, was essential to the fraud. See Am. Compl.
The Court acknowledges that Sebrite alleged that the "Platt Enterprise has a systematic linkage because there are contractual relationships, agreements, financial ties and coordination between the members of the Platt Enterprise." Am. Compl. ¶ 103. Without more specificity, though, this paragraph is merely the kind of conclusory allegation that the Eighth Circuit found to be insufficient in Crest Const. II. See 660 F.3d at 353-54 (finding the plaintiff's nonspecific allegations that the defendants "fraudulently grew a `web of interrelated' commonly-owned and managed companies that engaged in a host of `fraudulent and illegal' business practices" to be insufficient). At most, Sebrite's allegations, if true, make out a plausible claim that Platt and Wishcop conspired to defraud Sebrite. But a RICO enterprise must "consist[ ] of more than simple conspiracies to perpetrate the predicate acts of racketeering." Bledsoe, 674 F.2d at 664.
At the hearing, Sebrite suggested for the first time that, apart from the predicate acts of mail and wire fraud, Platt and Wishcop associated with North Bay and Lyle Snedeker (North Bay's founder) for the purpose of operating a legitimate insurance agency. Defendants concede that Sebrite could have identified North Bay as the RICO enterprise, and could have alleged that Platt and Wishcop conducted North Bay's business through a pattern of racketeering activity. See Defs. Reply Mem. at 20. Sebrite did not do so, however. The enterprise that Sebrite names in the amended complaint is not North Bay, but the Platt Enterprise — an association-in-fact enterprise consisting of Platt, Wishcop, and other unnamed individuals. The amended complaint also fails to allege that Platt, Wishcop, and Snedeker associated with one another to procure legitimate insurance business.
Even if the Court is incorrect, Sebrite's RICO claim fails for a separate reason: Sebrite does not allege a pattern of racketeering activity. To satisfy the pattern element, a plaintiff must allege "two or more related acts of racketeering activity that `amount to or pose a threat of continued criminal activity.'" Nitro Dist., Inc. v. Alticor, Inc., 565 F.3d 417, 428 (8th Cir.2009) (quoting Wisdom, 167 F.3d at 406).
Here, Sebrite fails to allege either open-ended or closed-ended continuity. To begin with, there are no facts in the amended complaint that permit a plausible inference that defendants' predicate acts of mail and wire fraud "involve a distinct threat of long-term racketeering activity," as would be necessary to establish open-ended continuity. Craig Outdoor Adver., 528 F.3d at 1028. To the contrary, Sebrite's memorandum strongly implies that all criminal activities ceased following Sebrite's discovery of the fraudulent scheme and termination of Platt's employment. See Sebrite Mem. at 1. Platt and Wishcop are now employed by legitimate insurance agencies, see Am. Compl. ¶¶ 25-26, and Sebrite does not allege that either of them are presently engaging in any unlawful activities. In fact, the only paragraph in the amended complaint that even remotely hints at any continuing criminal conduct is Sebrite's allegation that, "[o]n November 18, 2011, Platt continued Defendants [sic] attempt to recruit others to join the scheme to defraud or obtain money from Plaintiff." Am. Compl. ¶ 112. This paragraph does not, however, allege a predicate act of racketeering activity (e.g., mail or wire fraud) with particularity, as required by Rule 9(b).
Sebrite also fails to allege closed-ended continuity. According to Sebrite, on March 23, 2011 and May 11, 2011, Platt mailed "cancellation request[s]" to two of Sebrite's clients in furtherance of his fraudulent scheme. Am. Compl. ¶¶ 114-15. But two predicate acts of mail fraud in less than two months do not represent the type of "long-term criminal conduct" with which Congress was concerned when it enacted RICO. H.J. Inc., 492 U.S. at 242, 109 S.Ct. 2893 ("Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy [the closed-ended continuity] requirement...."); Primary Care Investors, Seven, Inc. v. PHP Healthcare Corp., 986 F.2d 1208, 1215-16 (8th Cir.1993) (holding that an 11-month period was insubstantial and legally insufficient to establish closed-ended continuity).
Sebrite points to its allegations that Platt diverted business from Sebrite from December 2009 through April 2011. See Am. Compl. ¶¶ 88-91. These allegations, if true, may give rise to state-law claims for breach of contract or breach of fiduciary duty. But they are not, in and of
Sebrite also points to paragraph 108 of its amended complaint, which alleges that Platt used Sebrite's computer to send confidential information to himself and Wishcop in furtherance of his fraudulent scheme. See Am. Compl. ¶ 108. Even if this paragraph can be construed as attempting to allege the predicate act of wire fraud, it fails to allege the fraud with the particularity required by Rule 9(b). See Crest Const. II, 660 F.3d at 353 ("Rule 9(b) requires plaintiffs to plead the who, what, when, where, and how...."). Conspicuously absent is any indication of when Platt's alleged wire fraud occurred. Without this information, the amended complaint does not allege that the predicate acts of wire fraud extended over a substantial period of time, as is necessary to establish closed-ended continuity.
In short, Sebrite does not allege that defendants' predicate acts of mail and wire fraud "amount to or pose a threat of continued criminal activity." Nitro Dist., Inc. v. Alticor, Inc., 565 F.3d at 428 (internal quotations omitted). Sebrite's RICO claim is therefore dismissed.
A federal court may decline to exercise supplemental jurisdiction over state-law claims if it has "dismissed all claims over which it has original jurisdiction." 28 U.S.C. § 1367(c)(3). Because this Court has original jurisdiction over only two of Sebrite's claims — and because those claims have been dismissed — the Court finds that Sebrite's remaining state-law claims should be decided by a state court. See Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n. 7, 108 S.Ct. 614, 98 L.Ed.2d 720 (1988) ("[I]n the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrine — judicial economy, convenience, fairness, and comity — will point toward declining to exercise jurisdiction over the remaining state-law claims."); see also Barstad v. Murray Cnty., 420 F.3d 880, 888 (8th Cir.2005). The Court therefore declines to exercise supplemental jurisdiction over Sebrite's state-law claims and dismisses those claims without prejudice.
Based on the foregoing, and on all of the files, records, and proceedings herein, IT IS HEREBY ORDERED THAT:
