JOHN A. WOODCOCK, JR., Chief Judge.
In January 2004, MyFreeMedicine, a Kentucky company that sold prescription-assistance services, began using a Maine call center, AdvanceTel Direct (AdvanceTel) as its telemarketing services provider. At the same time, MyFreeMedicine began discussing the promotion of its product with Alpine Investors, LP (Alpine), an AdvanceTel Direct investor. In October 2004, Alpine and MyFreeMedicine entered into an agreement in which Alpine agreed to work exclusively on MyFreeMedicine's media campaign, and MyFreeMedicine agreed to use AdvanceTel exclusively as its call center. During MyFreeMedicine's relationship with AdvanceTel, customers complained about MyFreeMedicine's product. In 2005, the Federal Trade Commission and several state Attorney General Offices launched an investigation into MyFreeMedicine and eventually sued the company for fraud. MyFreeMedicine has now initiated its own suit against Alpine and its partners, and several of the Maine call center's managers and employers
On October 1, 2009, the Defendants moved to dismiss Plaintiffs' Amended Complaint. On March 4, 2010, the Magistrate Judge filed his Recommended Decision recommending that the Court grant each motion as to the RICO and tortious interference claims. As for the breach of contract claim, the Magistrate Judge recommended that with the exception of Defendants William M. Adams, Graham Weaver, and William T. Maguy, the motions be granted; he recommended that Mr. Adams, Mr. Weaver and Mr. Maguy's motion on the breach of contract claim be denied. The Plaintiffs and Mr. Adams, Mr. Weaver, and Mr. Maguy objected to the Recommended Decision; the remaining Defendants responded.
After review and consideration of the Recommended Decision, together with the entire record, the Court has made a de novo determination of all matters adjudicated by the Magistrate Judge. The Court affirms the Recommended Decision. The Court agrees that the RICO and tortious interference with prospective economic advantage claims should be dismissed against all Defendants. The Court also agrees that the breach of contract claim should go forward against William M. Adams, Graham Weaver, and William T. Maguy. The Court denies William M. Adams, Graham Weaver, and William T. Maguy's motion to dismiss Count Five.
In 2003, Geoffrey Hasler started MyFreeMedicine.com, LLC, in Kentucky where he resides. First Am. Complaint ¶¶ 1-2, 34 (Docket # 77) (Am. Compl.). MyFreeMedicine helped low-income individuals without prescription medication insurance obtain medication through Patient Assistance Programs (PAP).
Alpine Investor, LLC (Alpine) is a limited partnership with a principal place of business in California; Alpine's partners include Graham Weaver, William Adams, and William Maguy.
Graham Weaver founded Alpine in 2001 and continues to be a partner at Alpine. Id. ¶¶ 110, 120. He served as the manager and chairman of the call center when it was named AdvanceTel Direct. Id. ¶¶ 149, 150. He approved the contractual language of the October 2004 Media Funding Agreement. Id. ¶ 155. He supervised and controlled the media buying strategy of MyFreeMedicine after it began doing business with AdvanceTel and encouraged MyFreeMedicine to invest more money in television advertising strategies. Id. ¶¶ 151, 157.
William Adams is an Alpine partner and was a high level manager of the call center. Id. ¶¶ 111, 172. He held himself out as the CEO of the call center when it was AdvanceTel Direct and later Great Falls Marketing. Id. ¶¶ 97, 172, 175. He was responsible for negotiating the terms of the Media Funding Agreement between MyFreeMedicine and Alpine and traveled to MyFreeMedicine's offices in Kentucky to finalize the Media Funding Agreement in October 2004. Id. ¶¶ 185, 562. Mr. Adams is alleged to have signed the contract on behalf of Alpine and his partners at Alpine including Graham Weaver and Bill Maguy. Id. ¶¶ 564, 1293, 1294.
William Maguy is an Alpine partner and an advertising specialist. Id. ¶ 112, 159. Beginning in November 2004, he had primary responsibility for MyFreeMedicine's television advertising campaign. Id. ¶ 162. As part of Alpine's media buying strategy for MyFreeMedicine, Mr. Maguy enlisted the services of Quigley Simpson, a Los Angeles based advertising firm, and served as an intermediary among the advertising firm, MyFreeMedicine, and the call center. Id. ¶ 164. He worked closely with Mr. Hasler and Quigley Simpson to purchase television advertising for MyFreeMedicine between October 2004 and the summer of 2005. Id. ¶ 165. Through Mr. Maguy, Alpine convinced MyFreeMedicine to spend hundreds of thousands of dollars on television advertising that Alpine arranged. Id. ¶ 168.
Brian Flaherty was the Chief Operating Officer (COO) of AdvanceTel Direct and senior member of the call center in 2004 and 2005. Id. ¶ 225. As the COO, he was responsible for the day-to-day operations of the call center, and for securing and maintaining clients for the call center. Id. ¶¶ 256, 257. He was responsible for shipping MyFreeMedicine information to members of the public, and for mailing weekly invoices to MyFreeMedicine, processing
Brothers Frank and James DeWolfe cofounded the Maine call center. Id. ¶¶ 192, 212. Both oversaw the call center's daily operations. Id. ¶¶ 197, 199-201. Frank was the Manager of AdvanceTel Direct, and James served as the President and CEO of AdvanceTel Direct. Id. ¶¶ 197, 220, 221. Both are alleged to have encouraged customer service representatives to misrepresent products being sold through the call center. Id. ¶¶ 209, 225. Both sold a portion or all of their ownership interest in the call center to Alpine. Id. ¶¶ 211, 229.
Scott MacCheyne was the IT director at AdvanceTel Direct. Id. ¶ 228. He is currently the president and chief information officer of the call center in its current form, Great Falls Marketing, overseeing all the day-to-day responsibilities of the call center. Id. ¶¶ 245, 248. During MyFreeMedicine's involvement with the call center, Mr. MacCheyne managed and controlled the call center's electronic activities including all telephone and computer information technology and banking transactions. Id. ¶¶ 230, 237, 238. He worked with Mr. Adams and Mr. Weaver, and is alleged to have been aware of the details of schemes undertaken by the call center enterprise. Id. ¶¶ 234, 235.
Jeffrey Stanek was the financial controller at AdvanceTel Direct, with book keeping, bill collecting and management responsibilities. Id. ¶ 250. Mr. Stanek billed MyFreeMedicine weekly for the call centers services. Id. ¶¶ 25.
Before MyFreeMedicine began doing business with AdvanceTel, the call center sold a variety of health care type products including Avacor, which was marketed as an all natural hair replacement, id. ¶ 329, Vinarol marketed as a natural herbal formula to increase sexual desire and enhance the sexual experience for men and women, id. ¶ 388, Thermal Carb marketed as an all-natural diet tool, dual fat burner, and carbohydrate blocker, id. ¶¶ 423-24, and Glucotrin marketed as a drug that cures, mitigates, treats or prevents diabetes. Id. ¶ 479. The Amended Complaint alleges that Avacor and Vinarol contained drugs subject to the Federal Food and Drug Administration (FDA) approval which the call center had not received, id. ¶¶ 348, 397, that Thremal Carb contained a drug that the FDA eventually banned, id. ¶¶ 446, 452, and that Glucotrin was not FDA approved. Id. ¶ 481. The call center is alleged to have misrepresented both the effectiveness of these products and their contents to members of the public who contacted the call center about them. Id. ¶¶ 328-485.
In January 2004, due to the increasing volume of calls it was receiving about its services, MyFreeMedicine began to do business with the 121 Mill Street call center then known as AdvanceTel. Id. ¶ 50. On January 14, 2004, the Plaintiffs signed a Marketing Agreement with James DeWolfe acting on behalf of AdvanceTel Direct. Id. ¶ 506. MyFreeMedicine hired the call center "to provide telemarketing
Throughout the spring and summer of 2004, Mr. Adams and the Alpine partners made repeated overtures to Plaintiffs to persuade MyFreeMedicine to deal exclusively with AdvanceTel as its call center and fulfillment center, and to embark on an elaborate media buying campaign in which Alpine would loan MyFreeMedicine funds for television advertisements. Id. ¶ 546. Alpine proposed a partnership and offered to fund 50% of MyFreeMedicine's media advertising. Id. ¶ 551. In August 2004, Mr. Hasler met Mr. Weaver, Mr. Adams, and Mr. Maguy in Alpine's San Francisco office to discuss ways to enhance MyFreeMedicine's business prospects. Id. ¶ 552. Negotiations on the marketing agreement between Alpine and the Plaintiffs continued throughout the summer and fall of 2004. Id. ¶ 557. The parties finalized the Media Funding Agreement on or about October 23, 3004. Id. ¶ 562. On or about this date, Mr. Adams and Mr. Flaherty traveled to MyFreeMedicine's offices in Kentucky, and acting on behalf of Alpine and its individual partners, including Mr. Weaver and Mr. Maguy, Mr. Adams signed the Media Funding Agreement. Id. ¶ 562, 564. Pursuant to the terms of the Media Funding Agreement, Alpine agreed to work exclusively on MyFreeMedicine's media campaign, and MyFreeMedicine agreed to use AdvanceTel exclusively, with AdvanceTel Direct performing all point of sales services from its Maine facility. Id. ¶¶ 546, 566, 1296-99.
As part of the new media strategy devised by Alpine through the leadership of Mr. Maguy, MyFreeMedicine began to purchase television advertising time through Quigley Simpson. Id. ¶ 570. From November 2004 through the summer of 2005, the media advertising campaign continued, and all MyFreeMedicine calls were directed to the call center in Maine. Id. ¶ 586.
The Plaintiffs allege that in order to boost their sales commissions, the Defendants misrepresented their business practices to them, and misrepresented MyFreeMedicine to current and potential customers through any means necessary. Id. ¶ 584. Unbeknownst to MyFreeMedicine, customer service representatives at the call center incorrectly quoted the price of MyFreeMedicine, told callers that unlisted medications were covered by MyFreeMedicine, misrepresented that MyFreeMedicine was a government program, withdrew funds from callers' bank accounts and charged their credit cards without authorization, misrepresented the income guidelines for enrolling in MyFreeMedicine, misrepresented the insurance guidelines for MyFreeMedicine, and misrepresented MyFreeMedicine's refund policy. Id. ¶¶ 589, 590, 593, 594, 595, 597, 598.
During the sixteen month period from January 2004 through May 2005, the call center sold approximately 10,843 subscriptions of MyFreeMedicine. Id. ¶ 1212. During this time, if MyFreeMedicine received a customer complaint attributable to the call center, someone associated with
Members of the public began to complain about MyFreeMedicine to federal and state officials, including the Attorney General of the United States, the Attorney General of Arkansas and Missouri, the Better Business Bureau, and the Federal Trade Commission (FTC). Id. ¶ 602. The Plaintiffs' Amended Complaint identifies thirty-eight individuals who, between January 2004 and February 2005, called the call center in response to a MyFreeMedicine advertisement, received incorrect information about MyFreeMedicine from a call center representative, and in response to the misrepresentation, filed a complaint with or contacted the FTC, a state Attorney General's Office, or the Better Business Bureau. Id. ¶¶ 610-1174. The Amended Complaint alleges five instances where MyFreeMedicine issued refunds to customers who complained about the misrepresentations. Id. ¶¶ 819, 898, 1172, 1194, 1998.
In the summer of 2005, the FTC and Attorney Generals of Arkansas and Missouri brought suit against MyFreeMedicine and Geoff Hasler alleging fraud. Id. ¶¶ 603, 1224, 1226, 1227. On June 6, 2006, the ABC television show Good Morning America featured a consumer segment on MyFreeMedicine and Geoff Hasler, which included a FTC recording of a telephone call to the Maine call center. Id. ¶ 1230, 1231. A call center representative answered the call on behalf of MyFreeMedicine and proceeded to misrepresent the MyFreeMedicine product. Id. ¶ 1231. As the negative publicity spread, MyFreeMedicine as a business was destroyed. Id. ¶ 1221.
On April 14, 2009, the Magistrate Judge issued his first Report and Recommended Decision on the Defendants' Motion to Dismiss recommending that the Plaintiffs' Complaint be dismissed in its entirety. Recommended Dec. on Mots. to Dismiss at 31 (Docket # 59) (First Rec. Dec.). On May 11, 2009, before this Court ruled on the Recommended Decision, the Plaintiffs moved to amend their complaint. Mot. to Amend Complaint (Docket # 63) (Mot. to Am. Compl.) On June 30, 2009, Plaintiffs filed their First Amended Complaint. First Am. Compl. (Docket # 77) (Am. Compl.). On August 11, 2009, this Court entered an order dismissing as moot the Defendants' Motions to Dismiss, terminating the Magistrate Judge's First Recommended Decision, and ordering that the Amended Complaint be the operative pleading. Minute Entry (Docket # 82).
On October 1, 2009, the Defendants moved pursuant to Federal Rule of Civil Procedure 12(b)(6) and 9(b) to dismiss the Amended Complaint.
On March 16, 2010, after considering the First Amended Complaint and the motions and responses, the Magistrate Judge issued his Recommended Decision in which he "continued to recommend that dismissal be granted, with the exception of a portion of Count five." Recommended Dec. of Defs.' Mots. to Dismiss at 1 (Docket # 100) (Rec. Dec.). The Magistrate concluded that "Count Five states a claim upon which relief may be granted against Maguy and Weaver, who are alleged, along with Adams, to be partners in Alpine" and "recommended that the Alpine Defendants' motion to dismiss (Docket No. 89) be DENIED as to Defendants William M. Adams, Graham Weaver, and William T. Maguy only and only as to Count Five." Rec. Dec. at 28, 30 (footnote omitted). He further recommended that the remainder of the counts be dismissed such that if "the court adopts this recommended decision, remaining active will be the plaintiffs' breach of contract claim against defendants Adams, Maguy, and Weaver." Id. at 30.
On March 26, 2010, Mr. Adams, Mr. Maguy, and Mr. Weaver objected to the Magistrate's Recommended Decision on Count Five, and the Plaintiffs objected to the Magistrate's Recommended Decision as to the remaining counts. Obj. of Defs. William M. Adams, William T. Maguy and Graham Weaver to Magistrate's Recommended Dec. (Docket # 103) (Adams, Maguy, and Weaver Obj.); Pls.' Partial Obj. to Recommended Dec. (Docket # 104) (Pls.' Obj.). Jeffrey Stanek, James DeWolfe, and Frank DeWolfe responded to Plaintiffs partial objection. Response of Defendants James N. DeWolfe and Frank G. DeWolfe to Pls.' Partial Obj. to Recommended Dec. (Docket # 105) (DeWolfe Resp.); Def Jeffrey Stanek's Resp. to Pls.' Partial Obj. to Magistrate's Report and Recommended Dec. (Docket # 107) (Stanek Resp.). On April 12, 2010, the Plaintiffs replied to Mr. Adams, Mr. Maguy and Mr. Weaver's objections. Pls.' Reply to Objs. of Defs. Adams, Maguy and Weaver to Magistrate's Recommended Dec. (Docket # 106) (Pls.' Reply). On the same day, Alpine, Mr. MacCheyne, Mr. Weaver, Mr. Maguy, Mr. Adams, and Mr. Flaherty replied to the Plaintiffs' objections. Reply to Pls.' Obj. to Recommended Dec. of Defs. Alpine Investors, LP, Scott MacCheyne, Graham Weaver, William T. Maguy, William M. Adams and Brain G. Flaherty (Docket # 108) (Alpine's Reply).
In ruling on a motion to dismiss, a court is required to "accept as true all the factual allegations in the complaint and construe all reasonable inferences in favor of the plaintiff." Sanchez v. Pereira-Castillo, 590 F.3d 31, 41 (1st Cir.2009) (quoting Alternative Energy, Inc. v. St. Paul Fire & Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001)). To survive a motion to dismiss, a plaintiff must allege "sufficient facts to show that he has a plausible entitlement to relief." Id. (citing Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)).
RICO permits "any person injured in his business or property" by a pattern of racketeering activity to sue the racketeer in federal court for treble damages. New England Data Servs., Inc. v. Becher, 829 F.2d 286, 288 (1st Cir.1987); 18 U.S.C. § 1964(c). Plaintiffs' Amended Complaint alleges violations of all four of the activities prohibited in 18 U.S.C. § 1962: receiving income from a pattern of racketeering activity and using it in the operation of an enterprise, § 1962(a) (Count III); acquiring and maintaining control over an enterprise through a pattern of racketeering activity, § 1962(b) (Count II); conducting or participating in a pattern of racketeering activity in the conduct of an enterprise's affairs, § 1962(c) (Count I); and, conspiring to violate these prohibitions on racketeering activity, § 1962(d) (Count IV).
More specifically, MyFreeMedicine alleges that these Defendants "belonged to an association-in-fact" which the Plaintiffs
The Defendants' renewed motions to dismiss present a variety of arguments. First, all three groups of Defendants assert that the Plaintiffs cannot demonstrate a direct causal connection between any of the schemes the enterprise is alleged to have engaged in and the Plaintiffs' injury. Because the Plaintiffs' injuries are indirect and derivative, the Defendants say they have failed to satisfy the RICO standing requirements established by the Supreme Court and applied in the First Circuit. Stanek's Renewed Mot. at 2-4; Alpine's Renewed Mot. at 7-12; DeWolfes' Renewed Mot. at 2-6. Second, all three groups of Defendants argue that the RICO claims fail because Plaintiffs have not demonstrated a "pattern of racketeering activity." Specifically, the health care product schemes and the media funding agreement do not qualify as predicate acts because they are not related or continuous. Stanek's Renewed Mot. at 5-6; Alpine's Renewed Mot. at 13-26; DeWolfes' Renewed Mot. at 6-7. Third, all three groups of Defendants contend that the underlying allegations of fraud and the alleged predicate acts have not been plead with particularity as required under Federal Rule of Civil Procedure 9(b). Stanek's Renewed Mot. at 4-5; Alpine's Renewed Mot. at 26-34, 36; DeWolfes' Renewed Mot. at 8-9. Finally, the Alpine Defendants and DeWolfe brothers allege that the complaint is time barred. Alpine's Renewed Mot. at 34; DeWolfes' Renewed Mot. at 9.
To be liable, a RICO defendant must engage in a "pattern of racketeering activity." 18 U.S.C. § 1962(a),(b),(c), & (d). A "pattern of racketeering activity"
The Magistrate began his discussion by reiterating the factual allegations bearing on the RICO claims against Mr. Stanek that were added to the Amended Complaint:
Rec. Dec. at 12-13. The Magistrate Judge concluded that "it is not at all clear what
The Plaintiffs object to the Magistrate Judge's conclusion that is it unclear what Mr. Stanek transmitted. To the contrary, they say that the First Amended Complaint "identifies specific invoices [Mr. Stanek] sent, payments he demanded, and fraudulent activity that was included in the invoices he sent." Pls.' Obj. at 2-3. They point out that the Amended Complaint "identif[ies] six separate invoices that he transmitted. [Mr.] Stanek sent these invoices to the Plaintiffs between December 20, 2004 and January 18, 2005. They were used to charge the Plaintiffs $30,658.55. These bills charge the Plaintiffs for calls in which the 121 Mill Street Enterprise misrepresented MyFreeMedicine to callers, including Marie Best.... When [Ms. Best] called 121 Mill Street customer service representatives made unauthorized withdrawals from her checking account, mailed her a registration package, and Mr. Stanek sent the Plaintiffs a bill, even though Ms. Best never agreed to enroll in MyFreeMedicine." Pls.' Obj. at 3 (internal citations omitted). These allegations, the Plaintiffs argue, clarify Mr. Stanek's activities within the enterprise and are sufficient predicate acts of fraud to support a RICO claim. The Plaintiffs also argue that the Court should allow the conspiracy count to proceed. Id. at 3-4. "[Mr. Stanek] is alleged to have agreed to conduct and participate in a pattern of racketeering. Mr. Stanek is not required to have known the entire sweep of the Enterprise's activity, or to have known every detail of customer service activity in order for the Plaintiff to state a claim against him under 18 U.S.C. § 1962(d)." Id. (internal citations omitted).
The Court agrees with the Magistrate Judge's conclusion that the Amended Complaint, even with its new allegations, fails to state a claim against Mr. Stanek and that even if the Amended Complaint did allege that Mr. Stanek personally fraudulently billed the Plaintiffs, the Plaintiffs have not alleged the necessary predicate acts by Mr. Stanek. Rec. Dec. 12-14.
First, Mr. Stanek's involvement with the call center does not rise to the level of participation as required under 18 U.S.C. § 1962(c).
507 U.S. at 176, 113 S.Ct. 1163. The Supreme Court evaluated the phrase "to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs" from 18 U.S.C. § 1962(c) and noted that "in the context of the phrase `to conduct... [an] enterprise's affairs,' the word [conduct] indicates some degree of direction." Id. at 178, 113 S.Ct. 1163. As for the word "participate" the Court determined that Congress intended the word to have its common understanding "to take part in." Id. at 179, 113 S.Ct. 1163. The Court continued
Id. The legislative history of RICO confirms what the Court deduced from the language of section 1962(c)—"that one is not liable under that provision unless one has participated in the operation or management of the enterprise itself." Id. at 183, 113 S.Ct. 1163. In this case, Congress did not intend to extend RICO liability under section 1962(c) beyond those who participate in the operation or management of an enterprise through a pattern of racketeering activity. Id. at 184, 113 S.Ct. 1163. The degree of Mr. Stanek's involvement in the enterprise is similar to that of the defendants in Reves; Mr. Stanek is alleged to have assembled and transmitted invoices. Such participation does not have "an element of direction" of the enterprise's affairs as required by Reves. United States v. Cianci, 378 F.3d 71, 94 (1st Cir.2004). The assembly and transmittal of invoices to MyFreeMedicine do not demonstrate that Mr. Stanek participated in the operation or management to such a degree that he should be liable under section 1962(c).
In its objection, MyFreeMedicine argues that Mr. Stanek was a "knowing participant of the Enterprise's activity." Pls.' Obj. at 3. For support, MyFreeMedicine cites two paragraphs of its Amended Complaint:
Amend. Compl. ¶¶ 253, 254. These paragraphs only demonstrate Mr. Stanek's willingness to assemble and transmit invoices that were manipulated by someone other than himself or that contained charges incurred as a result of call center customer service representatives misrepresenting MyFreeMedicine. They do not demonstrate that Mr. Stanek knew about, participated in, or encouraged the manipulation of the invoices or that he knew about, participated in, or encouraged the misrepresentation of the MyFreeMedicine product.
The Court also agrees with the Magistrate Judge's conclusion that "[n]one of the Stanek-specific allegations in the amended complaint ... allege any predicate act of racketeering activity." Rec. Dec. at 15. The Plaintiffs have not alleged that Mr. Stanek was involved in any of the other health care product schemes, thus the only possible scheme to which Mr. Stanek can be connected is the scheme to defraud MyFreeMedicine. This alone is insufficient to satisfy the pattern of racketeering element. Feinstein v. Resolution Trust Corp., 942 F.2d 34, 41 (1st Cir.1991). The Court must dismiss Count I of the Amended Complaint as alleged against Mr. Stanek.
Turning to Count I as alleged against Alpine, Mr. MacCheyne, Mr. Weaver, Mr. Maguy, Mr. Adams, and Mr. Flaherty (the Alpine Defendants), the Magistrate Judge noted that the "factual allegations added by the amended complaint seek to refocus the causal nexus analysis ... from injury to the public caused by the defendants, which resulted in injury to the plaintiffs as well, to direct injury to the plaintiffs." Id. at 18. The new allegations include
Rec. Dec. 18-22.
The Magistrate Judge's Recommended Decision focuses on the Plaintiffs' failure to allege fraudulent conduct that has directly injured the Plaintiffs, and the failure to allege a pattern of racketeering. The Magistrate Judge points out that "direct harm" to the Plaintiffs from the Defendants "systematic misrepresentations" "is no more apparent from the `new' facts recited above than it was at the time of [his] original recommended decision." Id. at 22. He reiterates that "the requirement of direct causation of a plaintiffs damages by the alleged racketeering, or proximate cause, still holds." Id. at 22. As for the pattern of racketeering requirement, the Magistrate Judge concluded that the schemes involving the other health care related products were not "sufficiently `related' to the alleged scheme directed against the plaintiffs by the defendants to be considered as the necessary predicate acts of racketeering under RICO." Id. at 25. In addition, the Plaintiffs have not "describe[d] how the media funding arrangement was part of any pattern of racketeering activity." Id. at 23. Therefore, the Plaintiffs "cannot base any portion of their RICO claims on the funding of advertising." Id. at 23.
The Plaintiffs object to the Magistrate Judge's "conclusion that they fail to explain how the Alpine Defendants' misrepresentations harmed them." Pls.' Obj. at 10. The Plaintiffs reiterate that the Alpine Defendants sought the Plaintiffs' trust and then arranged for a joint bank account and began the media funding scheme. Id. at 11. "The media funding scheme became a key component of the scheme to defraud MyFreeMedicine.... [T]he media funding scheme [was] designed to earn interest payments for Alpine, but it also channeled more telephone calls to the Enterprise, thus increasing the opportunity for customer service representatives to misrepresent MyFreeMedicine." Id. at 11. The Plaintiffs also argue that when all reasonable inferences are drawn in their favor, "they have alleged that the money in the joint bank account was indeed lost to the Defendants." Id. at 12. "The plaintiffs deposited over $1 million in advertising and interest charges in an Alpine controlled back account ... This money far exceeds the amount lost by individual customers." Id. at 12 (citation omitted). Additional injury includes the hundreds of thousands of dollars in commission and fees that the Plaintiffs paid out that they would not have paid had they known that the Defendants were misrepresenting their product to the public and misrepresenting the call centers' operations to the Plaintiffs. Id. at 13. The Plaintiffs expressed concern that there was no mention of the Good Morning America segment in the Second Recommended Decision. Id. at 14.
The Plaintiffs also take issue with the Magistrate Judge's analysis of the predicate acts requirement of a RICO claim. Id. at 15-16. "The Second Recommendation conducts only part of the analysis required for a pattern, and fails to explain how the allegations with respect to the scheme to defraud MyFreeMedicine, including the media funding arrangement, are no longer sufficiently `related' to the Avacor, Vinarol, and other schemes perpetrated by the Enterprise." Id. at 15 (citation omitted). The Plaintiffs argue that they have met the relatedness prong of the pattern element because the fraud directed
Section 1964(c) imposes a standing requirement under which a plaintiff seeking civil remedies for violation of § 1962(c) must establish that the defendant's racketeering activity caused injury to the plaintiffs business or property. See 18 U.S.C. § 1964(c); Sedima, 473 U.S. at 495-97, 105 S.Ct. 3275; Camelio v. Am. Fed'n, 137 F.3d 666, 669-70 (1st Cir.1998). More particularly, a plaintiffs standing to sue depends upon a finding that at least one of the defendant's predicate acts of racketeering was the proximate cause, as well as the but-for or factual cause, of the plaintiff's injury. See Holmes, 503 U.S. at 268, 276, 112 S.Ct. 1311; see, e.g., George Lussier Enters., 393 F.3d at 51 ("Section 1964(c) [of the RICO Act] requires that the defendant's specified acts of racketeering were the proximate cause of the plaintiffs' injuries.") (citing Holmes, 503 U.S. at 268, 112 S.Ct. 1311); Camelio, 137 F.3d at 670. The Supreme Court has indicated that "some direct relationship between the injury asserted and the injurious conduct alleged" is required to show proximate causation; if the connection is too remote, the standing requirement is not satisfied. See Holmes, 503 U.S. at 268-69, 271-74, 112 S.Ct. 1311; Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 456-61, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006).
The Court agrees with the Magistrate Judge's conclusion that despite the new section in the Amended Complaint entitled "Direct Misrepresentations and Financial Costs to the Plaintiffs", Am. Compl. ¶¶ 1174-1243, they still have not demonstrated the proximate cause requirement of a RICO claim. To begin, the inclusion of paragraphs with the words "proximate result" is insufficient to remedy the Amended Complaint's earlier deficiencies. See In re Am. Express Co. S'holder Litig., 39 F.3d 395, 400 n. 3 (2nd Cir.1994)(stating that "conclusory allegations of the legal status of the defendant's acts need not be accepted as true for the purposes of ruling on a motion to dismiss"). In addition, many of the alleged damages remain speculative. For example, the Plaintiffs provide no basis for the $500,000 figure they allege to have paid out in refunds. The Plaintiffs' pleading provides only five instances in which it issued refunds. Id. ¶¶ 819, 868, 1172, 1194, 1198. In the first two instances the refund amount was $195, in the next instance the amount was $199.95, and in last two instances no refund amount was provided. These five allegations do not even come close to the $500,000 alleged in the Amended Complaint. "If any proposition under RICO is well-established, it is that a RICO damages claim may not be based on mere speculation." Circiello v. Alfano, 612 F.Supp.2d 111, 114 (D.Mass.2009) (citing cases). In addition, the injury to MyFreeMedicine for having to defend itself in several legal actions was caused only because the alleged scheme the call center was perpetrating on the public was exposed and thus failed. These injuries were not the "preconceived purpose" or the "specifically-intended consequence" of the Defendants' alleged racketeering. In re Am. Express Co. S'holder Litig., 39 F.3d at 400. Therefore, any harm to MyFreeMedicine was neither the necessary result nor the foreseeable consequence of the scheme. Id.
In addition to failing to meet RICO's proximate cause requirement, the Plaintiffs
The Magistrate Judge concluded that "the other predicate acts alleged in the complaint and the amended complaint, involving other products such as Avacor and Vinarol, are no longer sufficiently `related' to the alleged scheme directed against the plaintiffs by the defendants to be considered as the necessary predicate acts of racketeering under RICO." Rec. Dec. at 25. "To the extent that the plaintiffs rely on the account set up to fund advertising [as a predicate act]," they do not "describe how the media funding arrangement was part of any pattern of racketeering activity." Rec. Dec. at 23.
Plaintiffs object to the Magistrate Judge's handling of the pattern element. Pls.' Obj. at 15. They complain that the Magistrate Judge "failed to apply the criteria for relatedness, or to explain why it concludes that none of the various schemes share `distinguishing characteristics'" and did not address the continuity prong at all. Id. at 15.
Relatedness is readily shown where the predicate acts "have the same or similar purposes, participants, victims, or methods, or otherwise [are] interrelated by distinguishing characteristics." H.J. Inc., 492 U.S. at 240, 109 S.Ct. 2893. The Plaintiffs attempt to relate the schemes involving Avacor, Vinarol, Thermal Carb, and Glucotrin to the scheme to defraud MyFreeMedicine. Pls.' Obj. at 17. They argue that "the fraud directed at MyFreeMedicine is related to the Enterprise's other schemes because they involved a call center located at 121 Mill Street in Auburn, Maine, the use of television advertising to direct callers to the call center, misrepresentation of products to consumers, and resulted in lawsuits being filed against clients of the Enterprise." Pls.'Obj. at 15.
With regard to the Vinarol, Thermal Carb, and Glucotrin schemes, although the Amended Complaint contains allegations that the products were misrepresented by call center customer service representatives, there is no allegation that the Defendants encouraged, approved of, or benefited from this misrepresentation. For example, several paragraphs simply allege that customer service representatives "were instructed" to misrepresent these products. Am. Compl. ¶ 433, 439, 479. The paragraphs do not state that the instructions were given by "the Defendants" collectively, much less by any one Defendant. Furthermore, apart from alleging that Alpine and Mr. Weaver, Mr. Maguy and Mr. Adams "control" Great Falls Marketing, the call centers' current name, id. ¶ 462, and that the DeWolfes, Mr. Weaver, Mr. Adams, Mr. Stanek, Mr. MacCheyne knew that Vinarol contained sildenafil citrate, the Defendants' names do not appear in the Amended Complaint's
Although the Plaintiffs' allegations regarding the Avacor scheme include slightly more details than their allegations regarding the Vinarol, Thermal Carb, and Glucotrin schemes, the Avacor scheme cannot be used as a predicate act to the MyFreeMedicine scheme. Apart from a statement that "James DeWolfe knew and told others, including the staff and employees, that Avacor had Minoxidil in it," the description of the Avacor scheme does not include allegations that the Defendants collectively or individually encouraged call center representatives to misrepresent the product. Am. Compl. ¶ 372. The Plaintiffs attempt to describe a media funding scheme similar to the one involving MyFreeMedicine and Quigley Simpson, but they have failed to connect the dots between Global Vision Products, Avacor, and Alpine. Id. ¶¶ 376-382. The Plaintiffs have not explained the relevance of Global Vision Products.
The Plaintiffs allege that "[t]he 121 Mill Street Enterprise misrepresented to the public" that Avacor was "all natural," "contained no chemicals," and had "no side effects." Id. ¶¶ 365, 366, 367. Like the RICO action, the Plaintiffs must plead predicate acts of fraud with particularity. Simply claiming that the Enterprise engaged in misrepresentations is insufficient. It is well established in the First Circuit that predicate acts of mail fraud alleged in civil RICO actions must be pleaded with particularity in accordance with the requirements of Rule 9(b) of the Federal Rules of Civil Procedure. See Ahmed v. Rosenblatt, 118 F.3d 886, 889 (1st Cir. 1997) (citing Feinstein, 942 F.2d at 42; New England Data Servs., 829 F.2d at 290.) Under the First Circuit's interpretation of Rule 9(b)'s particularity requirement, a civil RICO plaintiff alleging predicate acts of mail fraud must specify the time, place, and content of allegedly false mail communications. See Ahmed, 118 F.3d at 889; Doyle v. Hasbro, 103 F.3d 186, 194 (1st Cir.1996); New England Data Servs., 829 F.2d at 288, 290. The Plaintiffs have failed to do this.
The First Circuit has devised a special approach for civil RICO cases in which alleged predicate acts of mail and/or wire fraud fail to meet the standard required under Rule 9(b). In such cases, "a district court should make a second determination as to whether further discovery is warranted and, if so, the plaintiff should be provided with the opportunity to amend the complaint after the completion of this discovery." Ahmed, 118 F.3d at 890 (citing New England Data Servs., 829 F.2d at 290); see also Feinstein, 942 F.2d at 43. A plaintiff is not, however, automatically entitled to such discovery and opportunity to amend. See Ahmed, 118 F.3d at 890;
In this case, the Plaintiffs have already had an opportunity to amend their complaint. Even so, the Amended Complaint does not explain how the Defendants' involvement in the other health care related schemes amounts to fraud. Furthermore, the Plaintiffs have not alleged that the Defendants have critical information within their possession. Consistent with Feinstein, the Plaintiffs have not convinced the Court that they should be given the opportunity to engage in limited discovery and to amend their complaint for a second time. The facts relating to the other health care product schemes, as alleged do not contain "any demonstrable imbrication" with the facts of the MyFreeMedicine scheme, and they are not sufficiently related.
Having failed to demonstrate that the racketeering predicates involve acts of fraud related to the alleged MyFreeMedicine scheme, the Plaintiffs RICO claims must be dismissed for lack of a "pattern of racketeering activity."
Turning to the additional facts alleged against the DeWolfe Brothers, the Magistrate
Rec. Dec. at 16-17. The additional facts alleged against Frank DeWolfe include that
Rec. Dec. at 17. None of these additional facts changed the Magistrate Judge's earlier analysis of the claims against the DeWolfes. In his first Recommended Decision, the Magistrate Judge noted that "a long line of cases interprets RICO to require that the alleged fraudulent conduct be the direct cause of the plaintiffs injury. None of the additional facts alleged against either James DeWolfe or Frank DeWolfe ... would support a conclusion that either defendant engaged in fraudulent conduct that directly caused the plaintiffs' injury." Id. at 17. With regard to the Rule 9(b) requirement that claims of fraud be plead with particularity, the Magistrate Judge concluded that "the additional pleading does not meet the pleading standards of Fed.R.Civ.P. 9(b)." Id. at 17. "It is not possible to tell from the amended pleadings exactly what either of these defendants did that was fraudulent or, more important, why that conduct constituted fraud." Id. at 18. The Magistrate Judge concluded that James and Frank DeWolfe are entitled to dismissal of Counts One through Four.
The Plaintiffs object to the Magistrate Judge's Recommended Decision, arguing that he overlooked the DeWolfes' "central role" in "encouraging customer service representatives to misrepresent MyFreeMedicine" Pls.' Obj. at 5. James DeWolfe executed the initial agreements for MyFreeMedicine to use the Enterprise for telemarketing services and order fulfillment activity. Id. at 7. The DeWolfes encouraged employees to deviate from the script and freelance during sales calls, such as telling callers that MyFreeMedicine was a government program, in an effort to increase the call volume, and increase profit. Id. at 6, 7. All the while the DeWolfes gave assurances to Mr. Hasler that approved sales scripts would be honored. Id. at 6.
The Plaintiffs' Amended Complaint continues, however, to fail to allege predicate acts by the DeWolfe brothers that caused MyFreeMedicine's injury, to demonstrate a pattern of racketeering activity, and to meet the specificity requirements of Rule 9(b). The Plaintiffs' other arguments are without merit.
The Plaintiffs' 18 U.S.C.1962(d) count alleging conspiracy to violate subsection (c) against all defendants fails because it does
The named Defendants in Count Five, the breach of contact claim, are Alpine Investors, William Adams, William Maguy, Graham Weaver, and Brian Flaherty. Attached to Plaintiffs Amended Complaint is a memo to Mr. Hasler from Mr. Adams and copied to Mr. Flaherty. Am. Compl., Ex. A. The email explains that "the purpose of this memo is to outline a general agreement for moving forward with the rapid ramp-up of the MyFreeMedicine campaign." Id. at 1. The memo includes five sections: general approach, media funding agreement, media purchases, ramp-up schedule, and roles and responsibilities. Id. at 1-4. The memo also contains a chart identifying different tasks and outlining the person responsible for those tasks. Id. at 4. The memo is signed by Geoff Hasler for MyFreeMedicine and William Adams for Alpine. Id. As part of the agreement Mr. Adams and "other members of the Alpine team" agreed to "dedicate [them] selves to working exclusively with [MyFreeMedicine] for the remainder of the year to develop the foundation for a long standing, high volume, and very profitable campaign." Id. at 1. In addition, "Will Adams agrees that he (or, in his absence his partners at Alpine Investors) will conduct his activities related to the MyFreeMedicine campaign with openness, full disclosure and fairness for all parties involved and that he will never act advance (sic) the interests of AdvanceTel Direct at the expense of the interest of MyFreeMedicine." Id. at 2.
The Amended Complaint alleges that Mr. Adams signed this agreement with MyFreeMedicine on behalf of Alpine and its partners Mr. Maguy, Mr. Weaver, and Mr. Flaherty. Am. Compl. ¶ 1294. Pursuant to the agreement, the Plaintiffs say Mr. Adams promised that Alpine and its partners would work exclusively with MyFreeMedicine from October 23, 2004 through the end of the year. Id. ¶ 1296. The Defendants breached "their promise to work exclusively on MyFreeMedicine for the remainder of 2004 by continuing to work in furtherance of the Avacor scheme." Id. ¶ 1309. MyFreeMedicine also alleges that the Defendants breached their express duty of good faith and fair dealing "[t]hrough their failure to stop customer service representatives from misrepresenting MyFreeMedicine eligibility criteria" and "by refusing to cooperate with Plaintiffs' defense in the federal and state litigation filed against Plaintiffs." Id. ¶¶ 1310, 1311.
In their renewed motion to dismiss, the Alpine Defendants argue that, even if true, their alleged actions would not "have deprived them of the benefits they reasonably could have expected to receive under the Media Funding Agreement, nor do they reflect a failure or refusal on the part of any of the Alpine Defendants to fulfill any of their alleged contractual responsibilities under the Media Funding Agreement." Alpine's Renewed Mot. at 38. Specifically, the Amended Complaint does not allege a claim against the individual Defendants because the language of the contract "would bind only Will Adams, unless he was `absent', which is not alleged by the Plaintiffs." Id. at 38 n. 18. They argue that the Defendants "should not be permitted to bring a breach of fiduciary duty claim in the guise of a breach of contract claim." Id. at 39.
The Magistrate Judge focused on the Defendants' assertion that the Amended Complaint does not state a claim against the individual plaintiffs because it does not allege that Adams was "absent" at any time, and stated that this "interpretation places too heavy a burden of factual detail on the plaintiffs in pleading what is a general state-law claim, not subject to the enhanced pleading standard applicable to claims of fraud such as those involved in RICO claims." Rec. Dec. at 27. Given the Court's obligation to construe all reasonable inferences in favor of the Plaintiffs, the Magistrate Judge determined that "it is reasonable to construe the allegations in Count Five to include all instances of alleged breach, if any, in which Adams was `absent.'" Id. at 27. While the question is a close one, the Magistrate Judge concluded "that Count Five states a claim upon which relief may be granted against Maguy and Weaver, who are alleged against Adams, to be partners in Alpine." Rec. Dec. at 28.
Mr. Adams, Mr. Weaver, and Mr. Maguy argue that the Court misconstrued their arguments and the Plaintiffs' allegations regarding the alleged contract. Adams, Maguy, Weaver Obj. at 3. Specifically, it is the Defendants' position that Plaintiffs "failed to allege any material failure on the part of the Defendants either to provide media funding or to perform the other tasks specified in the agreement. [] The Court did not take account of the latter half of this argument" which they claim is "fatal to the Plaintiffs' breach of contract claim." Adams, Maguy, Weaver Obj. at 5. "There are no allegations in Count Five that Messrs. Adams, Maguy or Weaver failed materially to fulfill any obligation in the Alleged Contract." Adams, Maguy, Weaver Obj. at 5. Mr. Adams, Mr. Weaver, and Mr. Maguy focus on paragraph 1303 of the First Amended Complaint:
Am. Compl. ¶ 1303. They argue that the Media Funding Agreement does not bind Alpine as an entity, and that if Alpine is not bound, "the allegations in paragraph 1303 are relevant only with regard to measuring the alleged actions of the individual defendants." Id. at 6. When evaluating the actions of the individual defendants, they say that "it is simply not plausible that Messrs. Adams, Maguy and Weaver under took in their individual capacities the wrongful activities alleged by the Plaintiffs." Id. at 6. "Responsibility for the actions alleged in paragraph 1303 lies at the entity level, if at all, not at the individual level." Id. at 7.
The Plaintiffs object to the dismissal of Alpine and Brian Flaherty under Count Five. Pls.' Obj. at 16. With regard to Alpine, the Plaintiffs argue that "[w]hen Adams signed the [media funding] contract..., the words `Alpine Investors' appear below his signature.... This appears to be the deliberate act of a partner to bind the partnership, and it is premature to dismiss
Although the Amended Complaint alleges that Mr. Flaherty was present at the signing of the Media Funding Agreement between Alpine and MyFreeMedicine, and was designated in the Media Funding Agreement as responsible for several tasks, id. ¶¶ 258, 562, throughout the Amended Complaint when MyFreeMedicine describes Alpine, the Amended Complaint mentions Mr. Adams, Mr. Weaver, and Mr. Maguy, but not Mr. Flaherty. See Am. Compl. ¶¶ 12, 14, 131, 144, 169, 176, 376, 379, 462, 539, 545, 552, 554, 564, 580, 587, 1278, 1279, 1281, 1282, 1283, 1286. For example, paragraph 12 of the Amended Complaint states "[u]pon information and belief, Defendants Weaver, Adams, and Maguy are owners, employees, members, managers, and/or partners of Defendant Alpine Investors, LP." Id. ¶ 12. With regard to the Media Funding Agreement, the Amended Complaint specifically states that "Defendant Will Adams was acting on behalf of Defendant Alpine, as well as all of the individual partners at Defendant Alpine, including Defendants Weaver and Maguy, when he signed the contract with Plaintiffs and listed `Alpine Investors' below his signature." Id. ¶ 564. For these reasons, the Court agrees with the Magistrate Judge's conclusion that Mr. Flaherty cannot be liable on the Media Funding Agreement as an Alpine partner and "Flaherty is entitled to dismissal of Count Five." Rec. Dec. at 27.
Pursuant to the Media Funding Agreement, Mr. Adams along with other members of the Alpine team agreed to "dedicate ourselves to working exclusively with [MyFreeMedicine] for the remainder of the year[,]" and Mr. Adams agreed "that he (or, in his absence his partners at Alpine Investors) will conduct his activities related to the My Free Medicine campaign with openness, full disclosure and fairness for all parties involved and that he will never act [to] advance the interests of AdvanceTel Direct at the expense of the interest of My Free Medicine." Am. Compl., Ex. A at 1, 2.
In their Amended Complaint, the Plaintiffs allege that the Alpine Defendants "breached their promise to work exclusively on MyFreeMedicine from October 23, 2004 through the end of 2004, by continuing to market Avacor through television advertising, by shipping Avacor from Lewiston and Auburn, Maine, and by running a telemarketing call center and order fulfillment center that earned millions of dollars from the sale and promotion of Avacor, during the time that they promised to only work on MyFreeMedicine." Am. Compl. ¶ 1303. In addition, the Plaintiffs allege that in failing "to stop customer service representatives from misrepresenting MyFreeMedicine eligibility criteria, the Defendants failed to conduct themselves with honesty, fair dealing, and good faith to which they were bound by the October 23, 2004 agreement." Id. ¶ 1310. The Court agrees with the Magistrate Judge's conclusion that the Plaintiffs adequately allege a breach of contract claim against Mr. Adams, Mr. Weaver and Mr. Maguy.
Count Six, the tortious interference with prospective economic advantage claim, is alleged against all Defendants. MyFreeMedicine claims that the Defendants interfered with the "prospective economic relationship [that] existed between MyFreeMedicine and its qualified customers" "by participating in, encouraging, and misrepresenting MyFreeMedicine to callers, and by misrepresenting their activities to the Plaintiffs." Am. Compl. ¶¶ 1317, 1318. "As a result of these misrepresentations, few qualified customers renewed their enrollment with MyFreeMedicine, causing further damage to Plaintiffs by depriving them of business revenue." Id. ¶ 1321.
In his Recommended Decision, the Magistrate Judge noted that the Amended Complaint made three minor changes to the tortious interference count. Rec. Dec. at 29. The Magistrate Judge stated that "[t]he additional factual allegations ... do nothing to change" his earlier conclusion "that the claim for tortious interference was too speculative to state a claim on which relief could be granted." Rec. Dec. 29, 30. He explained that he "fail[ed] to see how the defendants' alleged misrepresentation of the defendants' activities to the plaintiffs interfered with the plaintiffs' prospective customer relationships." Rec. Dec. at 30.
In his first Recommended Decision, the Magistrate Judge pointed out that the "elements of the claim of tortious interference with a prospective economic advantage under Maine law are the existence of a valid prospective economic advantage, interference with that advantage through fraud or intimidation, and damages proximately caused by the interference." First Rec. Dec. at 26 (citing Currie v. Industrial Sec., Inc., 2007 ME 12, ¶ 31, 915 A.2d 400, 408). He further noted that in a tortious interference with prospective economic advantage claim, "usually a specific current or prospective business relationship is involved," Mangan v. Rumo, 226 F.Supp.2d 250, 252-53 (D.Me.2002), and here the plaintiffs offer nothing specific. First Rec. Dec. at 26-27 (footnote omitted). According to the Recommended Decision, the Plaintiffs "offer only speculation that their business would have continued to grow had the defendant not engaged in the conduct complained of in the complaint." First Rec. Dec. at 27. As for the amendments, the Magistrate Judge "fail[ed] to see how the defendants' alleged misrepresentation of the defendants' activities to the plaintiffs interfered with the plaintiffs' prospective customer relationships in any way.... [A]dding an allegation of reliance on the alleged misrepresentations, does not address an element of the tort." Rec. Dec. at 30.
The Plaintiffs have renewed the objections in their objection to the first Recommended Decision and argue that "whether or not the Plaintiffs had a valid prospective economic advantage is at a minimum a fact question which is premature at this stage." Pls.' Obj. at 17.
The Court agrees with the Magistrate Judge's conclusion. The relationship between Plaintiffs and any "potential customers" is in this case too attenuated and
The Court ADOPTS the Magistrate Judge's Recommended Decision (Docket # 100). The Court GRANTS Jeffrey Stanek's Renewed Motion to Dismiss (Docket # 91) and James N. DeWolfe and Frank G. DeWolfe's Renewed Motion to Dismiss (Docket # 90). As for the Alpine Defendants Renewed Motion to Dismiss, the Court GRANTS the motion as it applies to Alpine Investors, LP, Scott MacCheyne, and Brain G. Flaherty and DENIES the motion as it applies to Graham Weaver, William T. Maguy, and William Adams only on Count five (Docket #89). The Remaining Counts are dismissed against Mr. Weaver, Mr. Maguy, and Mr. Adams.
SO ORDERED.
Furthermore, "`[t]o state a claim under Section 1962(b), the plaintiff must allege `an acquisition or maintenance injury' separate and apart from the injury suffered as a result of the predicate acts of racketeering'"). In re Tyco Int'l Ltd., Multidistrict Litigation (MDL 1335), 2007 U.S. Dist. LEXIS 42401, 71 (D.N.H.2007) (quoting U.S. Fire Ins. Co. v. United Limousine Serv., 303 F.Supp.2d 432, 450 (S.D.N.Y.2004)). The Plaintiffs have failed to allege a distinct injury that resulted from the Defendants' acquisition or maintenance of an interest in or control of any RICO enterprise. The mere recitation of general statutory language without the support of factual allegations, is not enough to withstand a Rule 12(b)(6) motion. Count II as alleged against all the Defendants is therefore dismissed.
Count III begins by alleging that "the Defendants received income derived from a pattern of racketeering activity, which they directly and indirectly invested in the 121 Mill Street Enterprise," but ends by stating "[w]hen Defendants Alpine, Weaver, Adams and Maguy received income from racketeering activity and invested it in the 121 Mill Street Enterprise and the scheme to defraud MyFreeMedicine, Defendants Alpine, Weaver, Adams and Maguy injured the Plaintiffs in their business and property within the meaning of 18 U.S.C. § 1964(c)." Am. Compl. ¶¶ 1273, 1283. This Count appears to have been asserted against Alpine, Mr. Weaver, Mr. Adams and Mr. Maguy only. However, even if Count III of the Amended Complaint is interpreted to include all Defendants, it is deficient for the following reasons. The First Circuit has adopted the so-called "investment use rule," under which a plaintiff seeking to recover for a violation of § 1962(a) must allege a specific injury caused by the defendant's use or investment of racketeering proceeds. See Compagnie De Reassurance D'lle de France v. New England Reinsurance Corp., 57 F.3d 56, 91 (1st Cir.1995); System Management, Inc. v. Loiselle, 91 F.Supp.2d 401, 416 (D.Mass.2000); Trustees of Boston Univ. v. ASM Communications, Inc., 33 F.Supp.2d 66, 73 n. 7 (D.Mass.1998). This rule follows from the statutory requirement that a plaintiff has standing to bring a civil RICO claim only if he or she can establish an injury to his or her "business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c). Accordingly, to recover based on a defendant's violation of § 1962(a), a plaintiff must show that his or her injury was caused by the defendant's use or investment of racketeering proceeds. See Compagnie De Reassurance, 57 F.3d at 91 (citing 18 U.S.C. §§ 1962(a), 1964(c)). Because this "use or investment injury" must be distinct from any injury caused by the predicate acts of racketeering, a plaintiff cannot comply with the "investment use rule" simply by "repeating the crux of [his or her] allegations in regard to the pattern of racketeering." Id. at 91-92 (quoting Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1188 (3d Cir.1993)) (alterations added and internal quotation marks omitted).
Here, the Amended Complaint does not allege that any funds purportedly invested by the Defendants in the call center enterprise were the proceeds of racketeering activities. Second, even assuming that the Plaintiffs could surmount this first obstacle, many courts have concluded that the mere reinvestment of racketeering proceeds in a corporate enterprise with the result that the enterprise continues to engage in the predicate acts of racketeering, is insufficient to give rise to a "use or investment injury" that is distinct from the harm caused by the predicate acts. See, e.g., Fogie v. THORN Americas, Inc., 190 F.3d 889, 896 (8th Cir.1999); Lightning Lube, 4 F.3d at 1188-89; Update Traffic Sys., Inc. v. Gould, 857 F.Supp. 274, 282-83 (E.D.N.Y. 1994); Gelb v. American Tel. & Tel. Co., 813 F.Supp. 1022, 1024-25 (S.D.N.Y.1993). The Plaintiffs have not alleged that the Defendants' use or investment of racketeering proceeds caused them a specific injury. The Court must dismiss Count III against all Defendants.
