EMMET G. SULLIVAN, District Judge.
This case arises out of a prior, long running litigation in this Court over whether Feld Entertainment Inc. ("FEI") violated the Endangered Species Act by its use of Asian elephants in FEI's Ringling Brothers and Barnum & Bailey Circus ("Circus"). That litigation (hereinafter the "ESA Action") was brought by several non-profit organizations and one individual plaintiff, Thomas Rider ("Rider"), who had worked with several of FEI's elephants in the Circus. After nine years of litigation and a six week non-jury trial, the Court concluded that Rider failed to prove that he had Article III standing. ASPCA v. Feld Entm't, Inc., 677 F.Supp.2d 55 (D.D.C.2009). The Court found that Rider was "not credible" with respect to his asserted emotional and aesthetic injuries that formed the basis for his claim to standing. Id. at 83. The Court further found that Rider was "essentially a paid plaintiff and fact witness" whose sole source of income throughout the litigation was provided by the animal advocacy organizations which had been his co-plaintiffs in the ESA Action. Id. at 67, 72.
The original complaint in the ESA Action was filed in July, 2000 on behalf of, among others, the American Society for the Prevention of Cruelty to Animals ("ASPCA"), Animal Welfare Institute ("AWI"), Fund For Animals ("FFA"), and Rider. ASPCA et al. v. Ringling Bros., et al., Case No. 00-1641. That complaint, and the others that were filed in the original case as well as its successor case, ASPCA et al. v. Feld Entertainment Inc., Case No. 03-2006, alleged that Asian elephants are an endangered species and that the circus mistreats its elephants in violation of the ESA, 16 U.S.C. § 1531, et seq. The cases were filed under the citizen-suit provision of the ESA, which permits private individuals or organizations to sue to enjoin violations of the statute.
Tom Rider was a former elephant "barn helper" and "barn man" for FEI from June 1997 until November 1999. First Amended Complaint ("FAC") ¶¶ 4, 37. He alleged that he had suffered aesthetic and emotional injury based on his exposure to mistreated elephants while working for FEI. Specifically, Rider alleged that he "has a personal and emotional attachment to these elephants," Complaint, ASPCA v. Feld Entm't, Case 03-2006, ECF No. 1 at ¶ 20, that he "stopped working in the circus community because he could no longer tolerate the way the elephants were treated by defendants," id. ¶ 21, and that he "continues to visit" the elephants he knows, even though "each time he does so, he suffers more aesthetic injury," id. ¶ 23.
This Court dismissed the original case on the ground that Rider as well as the organizational plaintiffs lacked standing to sue. ASPCA v. Ringling Bros. & Barnum & Bailey Circus, No. 00-1641, 2001 U.S. Dist. Lexis 12203 (D.D.C. June 29, 2001). In February 2003, the D.C. Circuit reversed, ruling that, assuming the truth of the allegations in the complaint, Rider had
The bulk of the Court's December 2009 decision is devoted to Rider. The Court found that Rider "failed to prove either a strong and personal attachment to the seven elephants at issue or that FEI's treatment of those elephants caused and continues to cause [him] to suffer aesthetic or emotional injury." ASPCA v. Feld Entm't, 677 F.Supp.2d at 67. The Court further found Rider was "essentially a paid plaintiff and fact witness who is not credible, and therefore affords no weight to his testimony regarding the matters discussed herein, i.e., the allegations related to his standing to sue." Id.
The Court found serious problems with the substance of Rider's allegations. It noted that Rider had never complained to management, veterinarian, or government officials about the treatment of the elephants during the two and a half years he worked at Ringling Brothers Id. at 68. The Court also found incredible Rider's claim that he left Ringling Brothers because he could not bear to witness further mistreatment of the elephants, noting that after he left FEI's employment he went to work for another circus which allegedly mistreated its elephants in the same way. Id. at 70. The Court also found that since his employment with FEI ceased, Rider continued to see the elephants who were allegedly still suffering mistreatment, thus undermining his claim that "he would like to again visit or observe" these elephants but "was refraining from doing so in order to avoid subjecting himself to further aesthetic injury." Id. at 83. At the same time, Rider made little to no effort to see the elephants who were no longer performing in the circus and therefore no longer allegedly mistreated, thus undermining his claim that he "had formed a personal attachment" to the elephants and, if "they were no longer allegedly mistreated, he would visit these animals as often as possible and would seek a position to work with them again." Id. Indeed, the Court found that when presented with videotapes of the elephants practicing for the circus, Rider could not identify the elephants to whom he was allegedly personally and emotionally attached. Id. at 84.
As to the payments themselves, the Court found that Rider had received at least $190,000 from the ESA plaintiffs since the lawsuit began. Id. at 78. The Court further found that the ESA plaintiffs had been "less than forthcoming about the extent of the payments to Mr. Rider." Id. at 82. Finally, the Court found that the primary purpose of the payments to Rider was to keep him involved in the litigation, and not, as the ESA plaintiffs asserted, to support his "media and educational outreach program about the treatment of FEI's elephants." Id. at 79. The Court found that Rider did engage in such activity, and the plaintiff organizations "willingly supported those efforts." Id. The Court concluded, however, that "while the organizational plaintiffs may see Mr. Rider's media and outreach activities as a benefit, this is not the primary purpose for
Id. at 81.
FEI's Amended Complaint here is based on the initiation and prosecution of the ESA Action. FEI alleges that through that litigation, the ESA plaintiffs and their attorneys perpetrated "multiple schemes to permanently ban Asian elephants in circuses, to defraud FEI of money and property, and/or to unjustly enrich themselves." FAC ¶ 16.
First, FEI alleges that the ESA plaintiffs and their counsel of record knew that the factual assertions underlying Rider's claims of emotional and aesthetic standing were false. Id. ¶ 51-53. FEI claims that they paid Rider for this false testimony in order to prosecute the ESA lawsuit, which amounts to bribery and illegal witness payments. Id. ¶¶ 2-3, 60-65, 78-79.
Second, FEI alleges that the payments to Rider were deliberately concealed. All of the organizational plaintiffs in the ESA Action paid Rider during the course of the litigation, beginning as early as May 2001. Id. ¶ 60. These payments were, for the most part, coordinated through counsel of record in the ESA case, Meyer, Glitzenstein & Crystal ("MGC"). Id. ¶ 61. In some cases, "the funds that MGC paid to Rider were charged back to the existing organizational plaintiffs ... on MGC's legal bills for the ESA Action." Id. ¶ 62. At other times, the organizational plaintiffs gave money to the Wildlife Advocacy Project ("WAP"), a non-profit advocacy group founded by attorneys at MGC. Id. ¶ 43. WAP, in turn, made "regular and systematic payments of ... $1000.00 every two weeks" to Rider. Id. ¶ 112. FEI alleges that defendants tried "deliberately [to] conceal," id. ¶ 62, and "cover-up the improper payment scheme," id. ¶ 104, by routing payments through MGC and/or WAP and by characterizing them as legal expenses, "grants" for "media and public education efforts" or "PR efforts." Id. ¶¶ 62, 104. FEI alleges that each payment to Rider, and each invoice from MGC to the organizational ESA plaintiffs constitutes wire fraud as well as money laundering. Id. ¶¶ 77, 80.
Third, FEI alleges that the ESA plaintiffs violated mail and wire fraud statutes when, in July 2005, they jointly hosted a fundraiser to raise money from donors to fund the ESA litigation. Id. ¶ 179. FEI alleges the invitation to the fundraiser is "false and or misleading" because, inter alia, it portrays Rider as someone genuinely injured by FEI, and it claims to raise money for a legitimate litigation rather than one characterized by fraud. Id. ¶ 180. FEI claims the mailings defrauded the non-profit organizations' donors, who gave money on the basis of false information, and defrauded FEI, because money from the fundraiser was used to pay Rider to participate in the ESA Action. Id. ¶¶ 180-82.
Fourth, FEI alleges that Rider testified falsely in proceedings other than the ESA Action. Specifically, FEI alleges that Rider gave false information about FEI and about his own attachment to the elephants he worked with on five occasions: a sworn statement to Congress in 2000, an affidavit to the U.S. Department of Agriculture also in 2000, testimony to a committee of the Connecticut legislature in 2005, testimony to a committee of the Nebraska legislature in 2006, and a statement to the Chicago City Council in 2006. Id. ¶¶ 236-243. Plaintiff alleges this false testimony to the state legislatures, procured through payments to Rider since the inception of the ESA litigation, violates the bribery laws of Connecticut, Nebraska and Illinois. Id.
FEI alleges that it suffered financially from the defendants' fraud "resulting from the substantial costs incurred by FEI to defend the ESA Action." Id. ¶ 273. FEI alleges that the ESA Action continued, after May 2001, "only due to the racketeering and tortious activity" of the ESA plaintiffs, WAP and MGC. Id.
FEI initially sought to bring its claims underlying this lawsuit as permissive counterclaims in the ESA Action. See ESA Action, Case No. 03-2006, Docket No. 121. The Court denied the motion in August 2007, finding, inter alia, that the claims were made with a dilatory motive-namely, to indefinitely delay and dramatically change the nature of the ESA Action. See ASPCA v. Feld, 244 F.R.D. 49, 51 (D.D.C. 2007) ("[T]he only claim in this case is whether or not defendant's treatment of its elephants constitutes a taking within the meaning of Section 9 of the ESA. Any limited information about payments to or the behavior of Tom Rider that defendant is entitled to in order to challenge [the] credibility of one plaintiff in this case is far
FEI filed this action (hereinafter the "RICO Action") four days after the Court's ruling. See RICO Action, Doc. No. 1, Aug. 28, 2007. The original complaint named ASPCA, FFA, AWI, WAP, and Rider, and alleged violations under RICO and the Virginia Conspiracy Act. The defendants in the RICO Action immediately moved to stay the proceedings pending a final judgment in the ESA Action, and the Court granted the motion. Specifically, the Court found that pursuit of the RICO Action while the ESA Action was pending would delay resolution of the ESA Action, thereby prejudicing the ESA plaintiffs, and would not serve judicial economy and efficiency. Feld Entm't, Inc. v. ASPCA, 523 F.Supp.2d 1 (D.D.C.2007). On December 30, 2009, the Court issued its opinion and judgment in the ESA Action.
A motion to dismiss under Rule 12(b)(6) "tests the legal sufficiency of a complaint." Browning v. Clinton, 292 F.3d 235, 242 (D.C.Cir.2002). A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation marks and citations omitted). "`[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint[,]'" Atherton v. D.C. Office of the Mayor, 567 F.3d 672, 681 (D.C.Cir. 2009) (quoting Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007)), and grant the plaintiff "the benefit of all inferences that can be derived from the facts alleged." Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994). A court need not, however, "accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint. Nor must the court accept legal conclusions cast in the form of factual allegations." Id. In addition, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss." Id. at 1950.
Defendants raise two arguments that the case must be dismissed before reaching the RICO allegations: compulsory counterclaim and Noerr-Pennington immunity. The Court finds that the counterclaim defense must be rejected, and further concludes that although Noerr-Pennington narrows FEI's claims slightly, it does not dispose of most of the case.
The defendants argue that FEI's RICO claims must be dismissed pursuant to Rule 13(a) of the Federal Rules of Civil Procedure because they should have been raised as compulsory counterclaims in the ESA Action. Federal Rule of Civil Procedure 13(a)(1) provides:
The parties agree that the RICO action does not require adding another party over whom the Court cannot acquire jurisdiction. FEI maintains, however, that the other requirements for a compulsory counterclaim are not met: the RICO action does not arise out of the same subject matter as the claims in the ESA Action, and FEI did not know enough to trigger the filing of a compulsory counterclaim when it answered the Complaints in the ESA Action. The Court concludes that the ESA claims and the RICO claims do not arise out of the same transaction or occurrence, and for that reason finds FEI's RICO claims were not compulsory counterclaims in the ESA Action. Accordingly, the Court need not determine whether FEI knew enough to file its RICO claims when it filed its Answers in the ESA Action.
The Supreme Court has stated that "`[t]ransaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship." Moore v. N.Y. Cotton Exch., 270 U.S. 593, 610, 46 S.Ct. 367, 70 L.Ed. 750 (1926). "This inquiry is flexible and attempts to analyze whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit." Computer Assocs. Int'l v. Altai Inc., 893 F.2d 26, 29 (2d Cir.1990) (internal citations omitted). Courts routinely examine four factors to determine whether a counterclaim is compulsory:
6 C. Wright & A. Miller, Federal Practice and Procedure § 1410 (3d ed.2011) (collecting cases). Applying these factors to FEI's RICO claims, the Court finds that they were not compulsory counterclaims.
The Court begins with the first and third factors. The issues of fact and law raised in the ESA claim, and the evidence required to sustain it, concerned whether FEI's treatment of elephants constituted a taking under the Endangered Species Act.
Turning to the fourth factor, the Court does not find there is a "logical relationship" between the ESA claim and RICO claim of the type contemplated by Rule 13(a). "The general purpose of ... Rule 13(a) is to have all related actions heard at one time." Chelsea House N. Apts. v. Blonder, 223 F.R.D. 388, 391 (D.Md.2004) (quoting Painter v. Harvey, 863 F.2d 329, 334 (4th Cir.1988)). In this instance, the Court already determined that it would have served neither efficiency nor convenience to adjudicate the ESA and RICO claims in one action. See generally ASPCA v. Ringling Bros., 244 F.R.D. 49. Moreover, as already explained, the claim and would — be counterclaim do not share substantially the same issues of fact, law, and evidence. The Court therefore concludes that the claims in this case should not be dismissed because FEI failed to plead them as compulsory counterclaims in the ESA Action.
The Noerr-Pennington
In this case, defendants have been involved in both legislative/executive advocacy as well as litigation. The parties spend significant time in their briefs arguing whether the alleged legislative and executive advocacy is immunized pursuant to Noerr-Pennington. However, as explained below, the Court finds that FEI does not have standing to assert claims based on the legislative and executive advocacy; accordingly, the Court need not determine whether such conduct is protected under Noerr-Pennington. See infra Section III.C.5.
Turning to the ESA lawsuit, FEI argues that Noerr-Pennington does not apply to bribery or to deliberate misrepresentations to the Court. Opp'n at 57. The Court agrees. As set forth above, Noerr-Pennington does not apply, first and foremost, to bribes, "in any context." Whelan, 48 F.3d at 1255 (citations omitted). Moreover, "[misrepresentations, condoned in the political arena, are not immunized when used in the adjudicatory process." Cal. Motor, 404 U.S. at 513, 92 S.Ct. 609. As discussed throughout, the FAC is premised on allegations of bribery and deliberate misrepresentations by defendants throughout the ESA Action. Accordingly, defendants are not entitled to Noerr-Pennington immunity at the motion to dismiss stage as to their litigation efforts.
However, the FAC alleges defendants engaged in other activities to garner publicity and urge legislative action, which involved neither bribery to petition a legislature nor bribery or deliberately false statements in adjudicative proceedings. Specifically, it is alleged that Rider and others made false or misleading statements, and in some cases were compensated to do so, when they participated in press conferences, made other statements to news outlets, and posted letters on organizational websites. See, e.g., FAC ¶¶ 159, 161, 245, 252, 269-71. These statements were not made during any governmental proceeding. Rather, the statements
FEI alleges violations under RICO sections 1962(c) and (d). "A violation of § 1962(c) ... consists of four elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering." Western Assocs. Ltd. P'ship v. Market Square Assocs., 235 F.3d 629, 633 (D.C.Cir.2001) (citations omitted). Section 1962(d) provides in part: "It shall be unlawful for any person to conspire to violate any of the provisions of Subsection [](c) of this section." 18 U.S.C. § 1962(d). The defendants argue that the RICO claims are barred by the statute of limitations, that FEI has failed to allege adequately the existence of a pattern, an enterprise, that defendants conducted the enterprise, the existence of predicate acts, and that FEI has standing. In addition to the arguments made by all defendants, three defendants: HSUS, Jonathan Lovvorn and Kimberly Ockene have filed supplemental motions to dismiss. The Court will first address defendants' global arguments, then will address arguments advanced with respect to individual defendants.
Statute of limitations is an affirmative defense which need not be asserted in a pre-answer motion. Fed. R.Civ.P. 8(c)(1). "A defendant may raise the affirmative defense of statute of limitations via a Rule 12(b)(6) motion when the facts that give rise to the defense are clear from the face of the complaint." DePippo v. Chertoff, 453 F.Supp.2d 30, 33 (D.D.C. 2006) (citing Smith-Haynie v. Dist. of Columbia, 155 F.3d 575, 578 (D.C.Cir.1998)). "Because statute of limitations issues often depend on contested questions of fact, however, the court should hesitate to dismiss a complaint on statute of limitations grounds based solely on the face of the complaint." Id. (citing Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C.Cir.1996)). Accordingly, "a court should grant a pre-discovery motion to dismiss on limitations grounds `only if the complaint on its face is conclusively time-barred,' and the parties do not dispute when the limitations period began." Turner v. Afro-American Newspaper Co., 572 F.Supp.2d 71, 72 (D.D.C. 2008) (quoting DePippo, 453 F.Supp.2d at 33). Upon careful consideration, the Court finds that the defendants have not met their heavy burden here.
Civil RICO actions face a four year statute of limitations, which begins to run from the date of discovery of the injury. Under the discovery rule, "a cause of action accrues when the plaintiff has knowledge of (or by the exercise of reasonable diligence should have knowledge of) (1) the existence of the injury, (2) its cause in fact, and (3) some evidence of wrongdoing." Chalabi v. Hashemite Kingdom of Jordan, 503 F.Supp.2d 267, 274 (D.D.C. 2007) (citations omitted)(internal quotation marks omitted), aff'd, 543 F.3d 725 (D.C.Cir.2008).
FEI filed its original Complaint on September 26, 2007. Defendants base their argument that the four year statute of limitations had expired before then on two facts they allege FEI knew before
Defendants argue that even if FEI's original complaint was timely, the FAC, which added new defendants MGC, Katherine Meyer, Eric Glitzenstein, Howard Crystal, HSUS, Jonathan Lovvorn, and Kimberley Ockene when it was filed in February 2010, is not timely as to the new defendants. Defendants argue that the statute of limitations for the RICO claims against these defendants began running prior to February 2006; accordingly, the new defendants must be dismissed. Defs.' Mem. at 30 n. 20.
In support of their argument, defendants rely on several pieces of information FEI knew in 2005. Specifically, defendants reference (1) a 2001 email (provided to FEI in 2004), stating that three ESA plaintiffs were contributing to Rider's living and traveling expenses; (ESA Action, Doc. No. 457, Att. 8); (2) a statement by ESA plaintiffs' counsel in open court in 2005 that plaintiff organizations provided grants to Rider to "speak out about what really happened when he worked" at the circus. (Defs.' Mem. at 9, 23-24; see also September 16, 2005 hearing transcript, ESA Action, Doc. No. 169-13 at 29-30); and (3) FEI's own statement, in the FAC, that it "did not begin to uncover the payment scheme [to Rider] until the Rule 30(b)(6) deposition of ASPCA, taken in the ESA Action on July 19, 2005." (Defs.' Mem. at 9, n. 5, citing FAC ¶ 32.)
FEI responds that again, these statements did not place it on notice that Rider was being paid to be a plaintiff and to testify falsely about his standing. It argues that the 2001 email showed no more than that "organizational plaintiffs may have shared defraying some traveling expenses for Rider in 2001." Opp'n at 37. And it points out that defendants' account of the September 16, 2005 hearing is incomplete: counsel's full statement at the hearing was that Rider is "going around the country in his own van, he gets grant money from some of the clients and some other organizations to speak out and say what really happened when he worked there." Id. at 38, citing ESA Action, Doc. No. 169-13 at 29-30. FEI argues that this statement is in fact misleading: "it says nothing about the true purpose of the payments, which was to secure Rider's participation in the ESA case ... his `own van' was actually bought by [ESA organizational plaintiffs] ... `grant money' actually meant Rider's sole livelihood ... [and] payments had come not from `some of the clients' but from all organizational plaintiffs in the ESA case." Id. (internal citations omitted).
With respect to the June 2004 interrogatory, FEI points out that in June 2004, FFA, ASPCA and AWI also responded to interrogatories and each of them failed to disclose any payment to Rider, or to WAP or MGC for remittance to Rider; moreover, in his June 2004 interrogatory Rider denied receiving any "compensation" from animal advocates. Opp'n at 37 (citing to ESA Docs. 476, 477, FAC ¶¶ 196, 223-30). With respect to its allegation that "FEI did not begin to uncover the payment scheme described herein until the Rule 30(b)(6) deposition of ASPCA, taken in the ESA Action on July 19, 2005," FAC ¶ 32, FEI argues that this is "not synonymous with knowledge of the injury, its cause, and some evidence of wrongdoing." Opp'n at 44. Rather, FEI claims, it is merely "the
The Court is troubled by the statute of limitations argument with respect to the new defendants. As an initial matter, FEI's argument is not persuasive that the statute of limitations is tolled as to new defendants when a case is stayed. See Ainbinder v. Kelleher, No. 92 Civ. 7315, 1997 WL 420279, *4, *7 n. 4, 1997 U.S. Dist. LEXIS 10832, *9, *18 n. 4 (S.D.N.Y. July 25, 1997) (Sotomayor, J.) (stay does not toll statute of limitations as to new defendant unless defendant's actions prevented plaintiff from discovering he has a cause of action), aff'd 152 F.3d 917 (2d Cir.1998). In most of the cases FEI cites, the court tolled the statute of limitations against existing defendants during the period of time where the case was stayed. Selph v. Nelson, 966 F.2d 411 (8th Cir. 1992); Bixby's Food Sys. v. McKay, No. 96 c 3915, 2001 WL 290312, 2001 U.S. Dist.
Moreover, as discussed above, defendants point to not-insignificant information at FEI's disposal before February 16, 2006 that, defendants may be able to show, may well have triggered the statute of limitations for RICO against the new defendants. However, FEI asserts it did not discover the alleged RICO violation as to the new defendants until later in 2006, or even until 2007. Opp'n at 30, 32, 33-39, see also FAC ¶¶ 81, 219. The face of the FAC does not clearly provide otherwise. Accordingly, and given the stringent standard defendants must meet to warrant dismissal on statute of limitations grounds on a 12(b)(6) motion, FEI's RICO claim will not be dismissed as time barred at this stage of the litigation.
A "pattern of racketeering activity" requires commission of at least two predicate offenses on a specified list. 18 U.S.C. § 1961(1), (5). In this case, FEI has alleged the defendants committed the predicate acts of bribery, illegal witness payments, money laundering, mail and wire fraud, and obstruction of justice. FAC at pps. 103-112. "The Supreme Court, however, has made it clear that in addition to the requisite number of predicate acts, the plaintiff must show `that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.'" Edmondson & Gallagher v. Alban Towers Tenants Ass'n, 48 F.3d 1260, 1264 (D.C.Cir.1995) (quoting H.J. Inc. v. Nw. Bell Telephone Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989)). In their motions to dismiss, defendants do not challenge the relatedness of the predicate acts; they challenge their continuity. "Continuity is both a closed and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." H.J. Inc., 492 U.S. at 241, 109 S.Ct. 2893 (internal quotation marks omitted). For the following reasons, the Court finds the FAC adequately pleads closed-ended continuity; therefore, the Court need not determine whether it also sufficiently alleges open-ended continuity.
The D.C. Circuit has identified six factors the Court should consider in deciding whether closed-ended continuity has been established. Western Assocs., 235 F.3d at 633 (citing Edmondson, 48 F.3d at 1265). Those factors are "the number of unlawful acts, the length of time over which the acts were committed, the similarity of the acts, the number of victims, the number of perpetrators, and the character of the unlawful activity." Id. (quoting Edmondson, 48 F.3d at 1265). The factors "d[o] not establish a rigid test," and should be used as a "flexible guide for analyzing RICO allegations on a case by case basis." Id. at 634. The D.C. Circuit has also found that if a plaintiff alleges only "a single scheme, a single injury and few victims it is `virtually impossible for plaintiffs to state a RICO [pattern] claim.'" Id. (quoting Edmondson, 48 F.3d at 1265).
FEI claims defendants engaged in "multiple schemes to permanently ban
The Court agrees with defendants that the ESA Action is, overwhelmingly, the basis for this lawsuit. However, at this stage of the proceedings, the Court accepts all facts alleged in the FAC as true and thus cannot ignore the other allegations in the Amended Complaint: specifically, the allegedly unlawful fundraising activity.
The remaining factors in the pattern analysis — which, notably, the defendants do not acknowledge or address — also support a finding that FEI has adequately pled closed-ended continuity. The FAC pleads over 1000 predicate acts which varied in nature: bribery, illegal gratuity, mail fraud, wire fraud, money laundering, and obstruction of justice. It alleges these acts occurred for eight years: from 2001 through the ESA trial in 2009. And it alleges the acts were committed by thirteen perpetrators. These factors further distinguish this case from Edmondson and Western Associates. See Edmondson, 48 F.3d at 1265 (fifteen predicate acts over three years, most of which were committed over a span of about six months); Western Assocs., 235 F.3d at 635-36 (although predicate acts took place over eight years, the total number of acts was in the "dozens," and the predicate acts were all of the same type-mail and wire fraud — which "can basically be characterized as beginning with fraudulent budget underestimates, with the subsequent predicate acts serving as attempts to cover up ... cost overruns.").
The defendants make two arguments related to the "enterprise" element of RICO. First, they claim FEI has failed to allege an enterprise that is separate from the person[s] who participate in it. See 18 U.S.C. § 1962(c) ("It shall be unlawful for any person employed by or associated with any enterprise ... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity."). Second, defendants claim that even if FEI has sufficiently pled the existence of a distinct enterprise, it failed to plead that each and every defendant "participate[d] ... in the conduct of such enterprise's affairs." Id. FEI responds that it has adequately pled both.
"[T]o establish liability under § 1962(c), one must allege and prove the existence of two distinct entities: (1) a `person'; and (2) an `enterprise' that is not simply the same `person' referred to by a different name." Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001). The term "enterprise" is defined in the statute to "include[] any individual, partnership, corporation, association or other legal entity, and any union or group of
Defendants allege that FEI has not shown a distinct enterprise because FEI has not alleged how the defendants conducted or participated in the enterprise's affairs as opposed to their own.
The Court agrees with FEI. The FAC adequately pleads that the individual defendants conducted the affairs of the enterprise as opposed to their own individual affairs, and distinguishes the parties and their missions and activities from their involvement in the ESA case. FEI identifies the organizational defendants as having longstanding missions dedicated to protecting a wide variety of animals, not merely elephants or circus animals, and makes clear that their identities are in no
The cases defendants rely on do not prove otherwise. In Yellow Bus, this Circuit held that a union and its business agent cannot, without more, form an enterprise — "an organization cannot join with its own members to do that which it normally does and thereby form an enterprise separate and apart from itself. Where ... the organization is named as defendant, and the organization associates with its member to form the enterprise, the requisite distinctness does not obtain ... There is no difference between the union as an entity including [the officer], and the union plus [the officer], since the whole is no different than the sum of its parts." 883 F.2d at 141. The facts here are easily distinguishable; the enterprise is the plaintiffs' side of the ESA litigation, which is not named as an individual defendant, and moreover is a separate entity than any individual defendant.
Reves and Cedric Kushner likewise do not help defendants. In Reves, the Supreme Court focused not on whether the enterprise was distinct from individual defendants, but whether those defendants participated in or conducted the affairs of the enterprise. Finally, in Cedric Kushner, the Supreme Court held that plaintiff could name an employee (Don King) as a RICO person and his employer (Don King Productions, a closely held corporation) as an enterprise, because they were two distinct entities. 533 U.S. at 163, 121 S.Ct. 2087. If Cedric Kushner helps any party here, it is FEI.
To be liable under RICO, a person must "participate, directly or indirectly, in the conduct of such enterprise's affairs." 18 U.S.C. § 1962(c). The Supreme Court has held that in order to meet this requirement, "one must participate in the operation or management of the enterprise itself." Reves, 507 U.S. at 185, 113 S.Ct. 1163. "Of course, the word `participate' makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase `directly or indirectly' makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise's affairs is required." Id. at 179, 113 S.Ct. 1163. This does not mean, however, that "participants" must serve in leadership roles. "An enterprise is `operated' not just by upper management but also by lower rung participants in the enterprise who are under the direction of upper management." Id. at 184, 113 S.Ct. 1163.
Defendants claim that FEI failed to specifically allege "how the animal protection organizations, their lawyers, or Mr. Rider participated in the operation or management" of the enterprise. Defs.' Mem. at 61. FEI responds with a three page chart detailing the specific paragraphs in the FAC which allege direct, hands-on, continuing involvement in the enterprise, namely the prosecution of the ESA case, by most of the defendants. Opp'n at 73-75.
Specifically, FEI alleges Rider (1) accepted more than $190,000 in cash, property and other benefits, FAC ¶¶ 5, 19-27, (2) provided false testimony in exchange for the money he was paid, FAC ¶¶ 84-91, (3) evaded paying federal income tax on the money, FAC ¶¶ 28-29, and (4) obstructed FEI's inquiry into the alleged bribery by submitting false affidavits, spoliating evidence
FEI alleges organizational defendants ASPCA, AWI and FFA (1) were plaintiffs in the ESA lawsuit, and agreed with each other and other defendants in this case to fund Rider's participation in the lawsuit with knowledge that he would testify falsely regarding his standing, FAC ¶¶ 50-51, 55, 98-129, 144-46, 157, (2) paid Rider for his participation in the fraudulent lawsuit, FAC ¶¶ 69, 132-33, 135-37, 147-49, 159, 161, (3) participated in the July 2005 fundraiser, FAC ¶¶ 179-83, and (4) obstructed FEI's inquiry into the alleged bribery by submitting false interrogatories, providing false deposition testimony, spoliating evidence and procuring Rider's absence from contempt hearings. FAC ¶¶ 96-222, 231-35. FEI alleges organizational defendant API became a plaintiff in the ESA Action in 2006 and participated in the alleged bribery of Rider. Id. ¶¶ 169-70, 172-73.
FEI alleges MGC, Meyer and Glitzenstein (1) were counsel of record for the ESA plaintiffs throughout the litigation, FAC ¶¶ 98-129, (2) paid Rider directly and charged amounts on legal bills back to ASPCA, AWI and FAA, FAC ¶¶ 67-68, 72-75, and (3) concealed the payments to Rider, and obstructed FEI's inquiry into the payments by participating in submission of knowingly false interrogatories and false deposition testimony, and by procuring Rider's absence from contempt hearings. FAC ¶¶ 50-56, 196-234.
FEI alleges WAP was the alter ego of MGC, was controlled by Meyer and Glitzenstein, and collected over $155,000 from ASPCA, AWI, API, and FFA/HSUS to pay to Rider for his participation in the lawsuit. FAC ¶¶ 43, 82-97, 125-26. FEI further alleges that WAP concealed the nature of the payments to Rider by issuing falsely worded correspondence and making false ledger entries. FAC ¶¶ 113-124.
Based on the foregoing, the Court is persuaded that the FAC adequately pleads participation in the enterprise as to these defendants.
Crystal argues that he committed no acts of racketeering, that even if he did commit such acts, the acts do not comprise a pattern of racketeering, and he did not participate in the operation or management of the enterprise. Defs.' Mem. at 61-62. FEI offers two arguments in response. First, it claims that as a partner or former partner in MGC, Crystal may be held jointly and severally liable for the acts of the partnership during the time he
A partnership, and its partners, may be held jointly and severally liable for wrongful acts committed by other partners acting in the ordinary course of business of the partnership. See, e.g., D.C.Code § 29-603.01(1) (each partner is an agent of other partners, whose acts in the ordinary course of business bind the others); § 29-603.05(a) (partnership liable for third-party loss due to partner's wrongful acts); § 29-603.06(a) (all partners jointly and severally liable for all partnership obligations). The Court agrees with several others that have found vicarious liability based on the racketeering acts of co-partners is appropriate in RICO claims. See, e.g., Avianca, Inc. v. Corriea, No. 89-3277, 1992 WL 93128, *13-14 (D.D.C. Apr. 13, 1992), amended on reconsideration on other grounds, 1993 WL 797453 (D.D.C. Mar.16, 1993) (Lamberth, J.) (co-partners may be held indirectly liable under RICO for acts of co-partners); Burns v. MBK Partnership, No. 03-3021, 2003 WL 23979014, *13 (D.Or. Nov. 5, 2003); Thomas v. Ross & Hardies, 9 F.Supp.2d 547, 555-59 (D.Md. 1998); 131 Main St. Assocs. v. Manko, 897 F.Supp. 1507, 1533-35 (S.D.N.Y.1995); Crowe v. Smith, 848 F.Supp. 1258, 1261-63 (W.D.La.1994).
Here, FEI alleges that MGC is a law firm organized as a general partnership, and alleges that Crystal was a partner in MGC during at least a portion of the period during which MGC, Meyer, and Glitzenstein allegedly committed hundreds of racketeering acts. FAC ¶¶ 39, 40-42, 44-46. At the motion to dismiss stage, the Court finds that plaintiff has sufficiently pled joint and several liability. BCCI Holdings (Luxembourg), S.A. v. Clifford, 964 F.Supp. 468, 485-86 (D.D.C.1997).
By contrast, plaintiff does not plead direct liability as to Crystal. The FAC alleges only one act of racketeering specifically involving Crystal: the alleged refusal of "MCG and the lawyer defendants," to accept a subpoena for Rider, and "on information and belief, one of more of [the ESA plaintiffs and/or the lawyers] procured Rider's absence from the hearing [to which the subpoena pertained] and told him not to attend." FAC ¶ 231. Even assuming that this states a predicate act of racketeering against Crystal, as opposed to group pleading, it is only a single act, which is insufficient to meet RICO's pattern element. See H.J. Inc., 492 U.S. at 237, 109 S.Ct. 2893.
A plaintiff "alleging mail and wire fraud must establish two essential elements: (1) a scheme to defraud; and (2) use of the mails or wires for the purpose of executing the scheme." Bates v. Nw. Human Servs., Inc., 466 F.Supp.2d 69, 89 (D.D.C.2006) (citations omitted). Mail and wire fraud claims are subject to Rule 9(b) heightened pleading requirements; furthermore, these claims require specific intent to defraud. Id. Defendants assert three arguments in support of their claim that FEI failed to meet the pleading requirements; none has merit.
First, defendants claim FEI did not meet the particularity requirement of Rule 9(b) because it failed to specify "what... statements were made and in which context, when they were made, who made them, and the manner in which these
Second, defendants argue that a finding of "specific intent" to defraud requires the court to determine the state of mind of the individual corporate officers or employees who made or approved the fraud. Defs.' Mem. at 64. Defendants, who cite Philip Morris for the state of mind requirement, omit the very next sentence of the Circuit's analysis: "[a] person's state of mind is rarely susceptible of proof by direct evidence, so specific intent to defraud may be, and most often is, inferred from the totality of the circumstances, including indirect and circumstantial evidence." Philip Morris, 566 F.3d at 1118. The FAC alleges the defendants knew Rider was being paid to anchor the lawsuit and to fabricate his injury, and they attempted to cover up the payments by, variously, denying the payments existed, attempting to hide the source of the money, and mischaracterizing the payments. At the pleading stage, FEI has met its burden to plead specific intent.
Finally, defendants claim the mail and wire fraud claims fail because defendants did not "obtain" for themselves the fees that FEI paid to its attorneys to defend the ESA case. This is incorrect as a matter of law. Mail fraud lies whether or not the perpetrator ends up with the victim's property or money. Schmuck v. United States, 489 U.S. 705, 707, 711, 109 S.Ct. 1443, 103 L.Ed.2d 734 (1989) (defendant used car salesman guilty of mail fraud even though he had no contact with, and received nothing from, ultimate car purchasers he victimized).
Defendants claim there are two deficiencies in how FEI has pled obstruction of justice, money laundering and bribery. First, defendants argue that plaintiff is attempting to "bootstrap" into a RICO case a series of discovery disputes or litigation activity that cannot form the basis for RICO predicate acts. Defs.' Mem. at 66; Defs.' Reply at 29-32. Defendants are correct that courts have refused to allow "litigation activities" such as filing fraudulent documents or engaging in baseless litigation to serve as predicate acts for RICO, but only in circumstances where such acts constitute "the only allegedly fraudulent conduct." Daddona v. Gaudio, 156 F.Supp.2d 153, 162 (D.Conn.2000). In such circumstances, courts have found that these allegations of litigation misconduct may be grounds for malicious prosecution or abuse of process claims, but not for a RICO case. See, e.g., Curtis & Associates, P.C. v. Law Offices of David M. Bushman, Esq., 758 F.Supp.2d 153, 171-72 (E.D.N.Y. 2010). On the other hand, where "additional allegations of extortion or some other pattern of racketeering activity" are
Second, defendants allege that plaintiff's allegations of money laundering, bribery and obstruction of justice should be dismissed because violations of these statutes depend on secrecy or concealment from public view. Defs.' Mem. at 66-68. Reprising the factual arguments asserted in support of their compulsory counterclaim and statute of limitations defenses, defendants argue that FEI knew the defendants were supporting Rider because Rider and the other defendants told FEI. Id. Therefore, according to defendants, FEI can satisfy neither the `secrecy' nor the `specific intent' elements of these predicate acts.
The Court finds FEI has adequately pled the elements of money laundering, bribery and obstruction. "The money laundering statute criminalizes behavior that masks the relationship between the individual and his illegally obtained proceeds." U.S. v. Adefehinti, 510 F.3d 319, 322 (D.C.Cir.2007); 18 U.S.C. § 1956. The FAC alleges that the defendants bribed Rider, and that the bribes were falsely characterized as grants or reimbursement of expenses for media work to disguise their origins, their true nature and purpose, and to assist Rider in evading taxes. FAC ¶¶ 24, 28-29, 72-178.
The bribery statute requires that payments be given or accepted "corruptly" to influence testimony under oath or affirmation. 18 U.S.C. § 201(b)(3), (4). FEI alleges that the defendants paid Rider approximately $200,000 in order to influence Rider to participate in the lawsuit and to fabricate his claim of standing, upon which the lawsuit was ultimately based. FEI further alleges that the defendants tried to hide the payments themselves, as well as their nature and purpose. FAC ¶¶ 20-32.
Finally, the obstruction of justice statute prohibits, in relevant part, "corruptly ... influenc[ing], obstruct[ing], or imped[ing], or endeavor[ing] to influence, obstruct, or impede, the due administration of justice." 18 U.S.C. § 1503. "There must be a nexus in time, causation or logic between the conduct and its effect on the proceeding: A defendant must know that his corrupt actions `are likely to affect the ... proceeding.'" United States v. Jahedi, 681 F.Supp.2d 430, 434 (S.D.N.Y.2009) (quoting United States v. Aguilar, 515 U.S. 593, 599, 115 S.Ct. 2357, 132 L.Ed.2d 520 (1995)). Although obstruction of justice charges are not often applied to lies or misrepresentations in the course of civil discovery, courts have permitted parties to pursue it under certain circumstances. See, e.g., In re Sealed Case, 162 F.3d 670, 674 (D.C.Cir.1998) (non-party's submission of false affidavit in a motion to quash a subpoena in civil litigation); United States v. Abbell, 271 F.3d 1286, 1300-01 (11th Cir.2001) (obtaining false affidavits and deposition testimony for use in possible extradition proceedings in Colombia); United States v. Lundwall, 1 F.Supp.2d 249 (S.D.N.Y.1998) (withholding and destroying documents in employment discrimination case). Moreover, bribery of a witness can itself constitute obstruction of justice. See, e.g., United States v. LeMoure, 474 F.3d 37, 41 (1st Cir.2007) (citations omitted). In this case, FEI has alleged that defendants provided knowingly false responses to interrogatories
Defendants argue that FEI cannot establish proximate cause between the predicate acts alleged and its alleged RICO injury. First, they claim FEI cannot show a legally sufficient connection between its injuries and the predicate acts not directly related to the ESA Action, specifically, bribery, illegal gratuity payments, obstruction of justice, money laundering, mail fraud, and wire fraud in connection with defendants' legislative and executive branch advocacy and fundraising efforts. Second, they argue that FEI cannot show that the lawsuit-related predicate acts proximately caused its injuries. The Court considers each in turn.
In order to state a claim under civil RICO, the plaintiff is required to show that a RICO predicate offense "not only was a `but for' cause of his injury, but was the proximate cause as well." Holmes v. Sec. Investor Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). "Proximate cause ... requires `some direct relation between the injury asserted and the injurious conduct alleged.' A link that is `too remote,' `purely contingent,' or `indirec[t]' is insufficient.'" Hemi Group, LLC v. City of New York, ___ U.S. ___, 130 S.Ct. 983, 989, 175 L.Ed.2d 943 (2010) (quoting Holmes, 503 U.S. at 268, 271, 274, 112 S.Ct. 1311).
Defendants note that the only injury FEI alleges is "the substantial costs incurred by FEI to defend the ESA Action." FAC ¶ 273. Accordingly, they argue that FEI cannot claim injury related to defendants' legislative and executive advocacy efforts or to their fundraising efforts because any connection between this conduct and FEI's injury is far too remote to satisfy proximate cause. Turning first to their legislative and administrative advocacy efforts to ban elephants in circuses, defendants note that FEI has alleged no injury from these actions. Defs.' Mem. at 52; see also Sedima v. Imrex, 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) ("[T]he plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation.... [A] defendant who violates section 1962 is not liable for treble damages to everyone he might have injured by other conduct, nor is the defendant liable to those who have not been injured."). Even if FEI claimed that there is somehow a connection between defendants allegedly defrauding legislative or administrative bodies and FEI losing money by defending the ESA lawsuit, defendants argue that it is far too attenuated to satisfy RICO's causation requirement. Id. at 53.
The Court agrees with defendants. Even assuming FEI was a direct target of defendants' administrative and legislative efforts, it has not alleged that it suffered any injury from these efforts. FEI makes a cursory attempt to tie the ESA litigation to defendants' legislative efforts, stating, "defendants sought discovery in the ESA case for use in the legislative
Turning to the fundraising activity, FEI alleges that, in July 2005, some of the organizational defendants violated mail and wire fraud statutes by using false and misleading statements in an invitation to a fundraiser to raise money to support the ESA litigation. FEI alleges that the false information enticed defendants' donors into giving money to support the ESA litigation. FAC ¶¶ 179-183. FEI further alleges that at least one of the defendants, API, "made two payments to WAP for Rider using proceeds from the fundraiser." Id. ¶ 180. Finally, FEI alleges that it was the direct victim of the scheme because the sole purpose of the fundraiser was to raise money for the ESA Action. Id. ¶ 183.
Defendants argue that FEI has not established direct causation between their fundraising activities and plaintiff's expenses litigating the ESA Action. Id. at 54-55. The Court does not agree. The Supreme Court has held that "[a] scheme that injures D by making false statements through the mail to E is mail fraud, and actionable by D through RICO, if the injury is not derivative of someone else's." Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 645, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008); see also Sandwich Chef v. Reliance Nat'l Indem. Ins. Co., 319 F.3d 205, 223 (5th Cir.2003) (plaintiff need not prove direct reliance on defendant's fraudulent predicate act "when the plaintiff can demonstrate injury as a direct and contemporaneous result of fraud committed against a third party"); Mid Atlantic Telecom, Inc. v. Long Distance Servs., Inc., 18 F.3d 260, 263 (4th Cir.1994) (RICO does not require that "only injuries suffered by the immediate victim of a predicate act" may satisfy proximate cause, particularly when the injuries suffered by others are not "derivative of any losses suffered by" the immediate victims). Here, FEI claims that it was directly and contemporaneously injured as a result of the alleged fraud committed against the donors: the money defendants obtained via the alleged mail fraud was directly used to pay Tom Rider for his participation in the ESA Action. Moreover, FEI's injury is not derivative of the alleged losses suffered by the donors. Instead, it claims an independent injury: lost revenue due to the necessity of defending the ESA Action.
Defendants argue that FEI cannot show that the donors "would have withheld their contributions had they received different information regarding the ESA case[.]" Defs.' Mem. at 54. The Court agrees that "it may well be that a RICO plaintiff alleging injury by reason of a pattern of mail fraud must establish at least third-party reliance in order to prove causation." Bridge, 553 U.S. at 659, 128 S.Ct. 2131. At this point, these claims are not established, but they are alleged in the complaint, see FAC ¶¶ 181-82, which is all that is required at the motion to dismiss stage. Accordingly, FEI has sufficiently alleged
Defendants also argue that "FEI cannot establish that it would not have had to expend resources defending the ESA Action but for Mr. Rider's assertion of legal standing ... [b]ecause of the independent assertion of organizational standing arguments that were vigorously advanced throughout the entire ESA litigation." Defs.' Mem. at 56. Because none of the alleged predicate acts relate to the claims of organizational standing, defendants assert FEI cannot show a direct connection between its expenses in the lawsuit and the alleged predicate acts: it might have had to defend a long and costly lawsuit anyway. Plaintiff responds that this Court found, in its 2009 Opinion deciding the ESA case, that "the lawsuit could not have been maintained without Mr. Rider's participation as a plaintiff." Opp'n at 68 (quoting ASPCA v. Feld Entm't, 677 F.Supp.2d at 89). FEI argues that "organizational standing was never the sole standing theory. Rider was in this case from the outset, and FEI spent legal fees dealing with his claims regardless of the fact that the other plaintiffs continued to assert organizational standing after the Court had rejected their arguments." Id. at 69.
This Court has already decided that Rider's standing was essential to the prosecution of the ESA lawsuit, from which FEI's injuries directly flow. In its 2009 Opinion, this Court made a factual finding that:
ASPCA v. Feld, 677 F.Supp.2d at 81. Accordingly, FEI has sufficiently alleged that the predicate acts related to the ESA Action caused its injury and thus has standing to pursue its RICO claims based on the litigation-related conduct.
Having addressed the RICO claims raised in the omnibus motion to dismiss,
In its motion to dismiss, HSUS asserts that, although it "join[ed] forces in a corporate combination" with FFA via an asset purchase agreement, the two organizations did not merge; therefore, FFA's RICO liabilities cannot be imputed to HSUS. HSUS Mot. To Dismiss ("HSUS Mem.") at 2. In support of its motion to dismiss, HSUS filed the Asset Acquisition Agreement ("Agreement") between HSUS and FFA. See HSUS Mem. Ex. A. It also filed excerpts of FFA's tax returns from 2005, 2006 and 2007, as well as several excerpts of Markarian's deposition testimony in which he asserts that HSUS never made any money available to Rider. Id., Exs. B-E. In its opposition, FEI attached additional tax returns filed by FFA. Opp'n to HSUS Mot. to Dismiss, Exs. 1-4.
As a threshold matter, the Court must determine whether it may consider the attachments to the motion to dismiss without converting it into a summary judgment motion. The Court concludes it may consider the Agreement but not the remainder of the exhibits. Where an attachment to a motion to dismiss is a document "upon which the complaint necessarily relies, and because plaintiff does not dispute its authenticity, the Court may consider [it] without converting [the] motion to dismiss into a motion for summary judgment." Navab-Safavi v. Broad. Bd. of Governors, 650 F.Supp.2d 40, 56 n. 5 (D.D.C.2009); see also Hinton v. Corrections Corp. of Am., 624 F.Supp.2d 45, 47 (2009) (considering contract attached to motion to dismiss, noting that "[b]y pleading that the defendant had the duty to provide him with eye treatment and care, the plaintiff's complaint necessarily rests on the contract, although it did not incorporate the contract."). In this case, by pleading that FFA and HSUS merged, the FAC necessarily rests on the Agreement — the contract memorializing the alleged merger — and it is integral to FEI's claims. However, the FAC does not necessarily rely on the incomplete portions of certain of FFA's tax filings, or the other documents attached to the motion to dismiss or the opposition. The Court will therefore exercise its discretion not to consider the remaining attachments, and accordingly need not convert the motion to dismiss into a motion for summary judgment. See Robinson v. Dist. of Columbia, 736 F.Supp.2d 254, 263 (D.D.C.2010).
FEI asserts two theories under which HSUS may be liable: merger and successor liability. "A corporate merger consists of a combination whereby one of the constituent corporations remains in being, absorbing in itself all the other constituent corporations, which cease to exist." See, e.g., 20 Am.Jur. Proof of Facts 2d 609; see also N.Y. Not-for-Profit Corp. Law
Under the doctrine of successor liability, a corporation acquiring assets of another corporation takes on its liabilities if, inter alia, there was a de facto merger of the companies, or if there is an expressed or implied agreement. R.C.M. Exec. Gallery Corp. v. Rols Capital Co., 901 F.Supp. 630, 635-36 (S.D.N.Y.1995). FEI claims that HSUS may be held liable under either of these theories of successor liability. Opp'n to HSUS Mot. at 4. The Court finds that the FAC, in conjunction with the Agreement, adequately alleges a de facto merger; accordingly, it need not reach the question of whether HSUS agreed to take FFA's liabilities in this lawsuit.
"A de facto merger occurs when a transaction, although not in form a merger, is in substance a consolidation or merger of seller and purchaser." Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 45 (2d Cir.2003) (citations omitted). The hallmarks of a de facto merger are "(1) continuity of ownership; (2) cessation of ordinary business and dissolution of the acquired corporation as soon as possible; (3) assumption of the purchaser of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and (4) continuity of management, personnel, physical location, assets, and general business operation." New York v. Nat'l Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir.2006) (Sotomayor, J.) (citations omitted). "[T]he de facto merger exception derives from the concept that a successor that effectively takes over a company in its entirety should carry the predecessor's liabilities in order to ensure that a source remains to pay for the victim's injuries." Nettis v. Levitt, 241 F.3d 186 (2d Cir.2001) (overruled on other grounds by Slayton v. Am. Ex., 460 F.3d 215 (2d Cir.2006)) (internal citations omitted); see also Matter of N.Y. City Asbestos Litig., 15 A.D.3d 254, 258-59, 789 N.Y.S.2d 484 (N.Y.App.Div.2005). Accordingly, a de facto merger does not necessarily require the presence of all four factors. See AT & S Transp. LLC v. Odyssey Logistics & Tech. Corp., 22 A.D.3d 750, 753, 803 N.Y.S.2d 118 (N.Y.App.Div.2005); Fitzgerald v. Fahnestock & Co., 286 A.D.2d 573, 574, 730 N.Y.S.2d 70 (N.Y.App.Div.2001); Sweatland v. Park Corp., 181 A.D.2d 243, 246, 587 N.Y.S.2d 54 (N.Y.App.Div.1992).
HSUS does not dispute, at least for the purposes of its motion to dismiss, that the transaction between it and FFA satisfies the last two elements of the de facto merger test. The first element, continuity of ownership, is not applicable to nonprofit corporations. HSUS's argument therefore hinges on the second factor: it argues that there can be no de facto merger as a matter of law because FFA has not dissolved. However, New York courts have not necessarily found this factor sufficient, without more, to overcome a finding of de facto merger. "So long as the acquired corporation is shorn of its assets and has become, in essence, a shell, legal dissolution is not necessary before a finding of a de facto merger will be made." AT & S Transp., 22 A.D.3d at 753, 803 N.Y.S.2d 118; see also Cargo Partner AG v. Albatrans, Inc., 207 F.Supp.2d 86, 98 (S.D.N.Y.2002); Fitzgerald, 286 A.D.2d at 575, 730 N.Y.S.2d 70 (collecting cases).
In this case, although the Asset Purchase Agreement provides for FFA to retain ownership of three real properties, HSUS acquired substantially everything else. Among other things, HSUS acquired the good will, trademarks, logos, donor lists, creative materials and name of FFA. Asset Purchase Agreement § 1.1. It assumed the trade payables in the ordinary course of business, as well as the liabilities and obligations under FFA's agreements, contracts, orders, leases, and other commitments. Id. § 1.1. HSUS offered employment to all of FFA's employees, id. § 1.5(b), and automatically extended membership in HSUS to anyone donating $10 or more to FFA, id. § 1.5(e). Taken together, particularly given that the other factors in the de facto merger test weigh in favor of finding a merger, these facts raise a plausible inference that the corporate combination between FFA and HSUS satisfies the requirements of a de facto merger. It may be that FEI will not be able to show that the corporate combination of HSUS and FFA amounts to a de facto merger under New York law; however, for the reasons stated above, the allegation is sufficient to survive a motion to dismiss.
Having found that FEI adequately alleges a de facto merger of HSUS and FFA, the Court concludes that FEI also alleges the merged entity conducted or participated in the affairs of the enterprise. According to the FAC, FFA/HSUS employed attorneys of record in the litigation, knowingly paid Rider, on multiple occasions, for his participation in the lawsuit, attempted to obstruct FEI's inquiry into the payments to Rider, and co-hosted the July 2005 fundraiser. FAC ¶¶ 44-45, 60-70, 156-60, 179-83, 217-22. Based on the foregoing, the Court likewise concludes that the FAC has adequately alleged the merged entity knowingly agreed to the commission of a violation of § 1962(c), and accordingly has pled the elements of a RICO conspiracy charge. See, e.g., Salinas v. United States, 522 U.S. 52, 61-66, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997). Accordingly, the Court will deny HSUS's motion to dismiss.
Jonathan Lovvorn and Kimberely Ockene, two attorneys of record in the ESA Action, move separately to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).
With respect to joint and several liability, the Court reaches the same conclusion as to Lovvorn and Ockene as it did as to Crystal (see supra section III.C.3); namely, as alleged partners in MGC, they may be held jointly and severally liable for the wrongful acts of the partnership or other partners taken in the course of ordinary partnership business during the time they were partners. Lovvorn and Ockene respond that they were "non-equity employees, not general partners," and therefore cannot be vicariously liable. Lovvorn & Ockene Reply at 4. FEI will have the burden to show that these individuals were partners to establish liability; however, at the motion to dismiss stage, the Court finds that plaintiff has sufficiently pled joint and several liability. BCCI Holdings, 964 F.Supp. at 485-86.
In addition to joint and several liability for his partners' and law firm's actions, the Court finds FEI has plead direct liability as to Lovvorn. The FAC alleges that Lovvorn had actual knowledge of the payments to Rider, that he participated in discussions with other defendants to plan and execute the payments to Rider, and he "directly participated in some or all of the payments that FFA/HSUS made to or on behalf of Rider." FAC ¶ 44, see also id. ¶ 160 (detailing payments from FFA/ HSUS to Rider); FEI Opp'n to Lovvorn & Ockene Mot. to Dismiss at 5 (citing ESA Action, DE 166 Exs. 14, 19, 22, & 24); DE 459-12 (correspondence from Lovvorn, as representative of HSUS, to Glitzenstein, enclosing payments to Rider on four separate occasions). For the reasons explained in section III.C.4.ii supra, the Court finds that FEI has sufficiently pled the elements of bribery, and, for the reasons explained in section III.C.2 supra, finds that FEI has sufficiently alleged a closed-ended pattern of racketeering activity sufficient to survive a motion to dismiss.
The FAC also adequately pleads Lovvorn "participated in the operation or management of the enterprise itself" and therefore may be liable under § 1962(c). Reves, 507 U.S. at 179, 183-84, 113 S.Ct. 1163 ("[T]he word `participate' makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs ... but some part of directing that enterprise's affairs is required."). Lovvorn echos the argument, raised in the defendants' omnibus motion to dismiss, that attorneys providing traditional legal services are not accorded `participant' status in a RICO enterprise. Lovvorn & Ockene Mot. at 5-6. "However, Reves provides no blanket immunity for professionals regardless of their involvement in a criminal enterprise ... where professionals are alleged to have exceeded the mere rendering of legitimate professional service, the `operation or management' requirement will be pleaded adequately." JSC Foreign Econ. Ass'n Technostroyexport, 2007 WL 1159637, at *8, 2007 U.S. Dist. LEXIS 28954, at *28 (collecting
Here, FEI has alleged that the enterprise was the plaintiffs' side of the ESA litigation, which was managed and controlled by the lawyers in the case. FEI has alleged that Lovvorn, among other attorneys, participated in the core activities that constituted the affairs of the enterprise, namely, litigating the ESA case and planning and executing the payments to Rider. Moreover, FEI has alleged that he did so through a pattern of illegal acts, including knowingly procuring false testimony through bribery. Even if he did so at the direction of others, Lovvorn may still be liable for participation in the conduct of an enterprise as a lower-rung participant "by knowingly implementing decisions, as well as by making them." United States v. Oreto, 37 F.3d 739, 750 (1st Cir. 1994), cert. denied, 513 U.S. 1177, 115 S.Ct. 1161, 130 L.Ed.2d 1116 (1995); see also MCM Partners v. Andrews-Bartlett & Assocs., 62 F.3d 967, 978-79 (7th Cir.1995) (collecting cases).
By contrast, the FAC does not plead direct liability under § 1962(c) as to Ockene. The FAC pleads only one alleged act of racketeering specifically involving Ockene: the alleged refusal of "MCG and the lawyer defendants," to accept a subpoena for Rider, and "on information and belief, one of more of [the ESA plaintiffs and/or the lawyers] procured Rider's absence from the hearing [to which the subpoena pertained] and told him not to attend." FAC ¶ 231. Even assuming that this states a predicate act of racketeering against Ockene, as opposed to group pleading, it is only a single act, which is insufficient to meet RICO's pattern element. See H.J. Inc., 492 U.S. at 237, 109 S.Ct. 2893. In its opposition to her motion to dismiss, FEI claims that it alleged additional acts of racketeering by Ockene: specifically that she provided misleading and/or false interrogatory answers in order to cover up the payments to Rider, and defended a deposition in which the deponent gave false testimony about the Rider payments. Opp'n to Lovvorn & Ockene Mot. To Dismiss at 4-5. This is inaccurate; the FAC contains no such allegations as to Ockene.
Here, the FAC alleges that Ockene (1) was counsel of record in the ESA Action both as an attorney at MGC and at FFA/ HSUS, FAC ¶ 45, (2) "deliberately misrepresented Rider's purported standing in pleadings and other filings before this Court and the D.C. Circuit in the ESA Action," id. ¶ 329, and, (3) "during some or all of the time period material to this lawsuit ... had actual knowledge of the payments to Rider," id. ¶ 45. Taking all of these allegations together and construing them in the light most favorable to FEI, the Court finds that plaintiff has alleged Ockene "knew about and agreed to facilitate the scheme" of her co-defendants, and therefore has alleged RICO conspiracy. Salinas, 522 U.S. at 66, 118 S.Ct. 469.
For the reasons set forth above, FEI lacks standing to bring RICO claims regarding the defendants' alleged legislative and administrative advocacy efforts, as set forth in the FAC, Factual Background, Sections VI and VII. In addition, the allegations that Rider and others made false or misleading statements, and were compensated to do so, when they participated in press conferences, made other statements to news outlets, and posted letters on organizational web-sites, are entitled to Noerr-Pennington immunity. See, e.g., FAC ¶¶ 159, 161, 245, 252, 269-71. Finally, the FAC fails to allege direct liability under section 1962(c) as to Howard Crystal or Kimberly Ockene. Accordingly, the defendants' motions to dismiss the RICO claims are
In addition to their RICO claims, FEI has alleged violations of the Virginia Conspiracy Act, and the torts of abuse of process, malicious prosecution, champerty and maintenance. Defendants have moved to dismiss all of these claims. The Court will address each in turn.
The Virginia Conspiracy Act prohibits actors from conspiring to willfully and maliciously injure another in his reputation, trade, business or profession by any means whatsoever, and, like RICO, provides treble damages for violations. Va.Code. Ann. §§ 18.2-499; 18.2-500(A) (2010). The statute of limitations under the Virginia Conspiracy Act is five years. Id. § 8.01-243(B).
Defendants argue that this claim is barred by the statute of limitations because Virginia follows the occurrence of injury rule, rather than the discovery rule, for claims under the Virginia Conspiracy Act. See id. § 8.01-230 ("[T]he prescribed limitations period shall begin to run from the date the injury is sustained ... and not when the resulting damage is discovered.") Defendants argue the sole injury claimed by FEI is the attorneys' fees it expended in defending the ESA Action, and it began paying those fees on July 11, 2000, when the ESA Case was originally filed. Defs.' Mot. To Dismiss at 81-82. FEI responds that under Virginia law, regardless of when the injury began, it may recover for the portion of injuries it sustained within the five years preceding the filing of its complaint. Opp'n at 52-53. FEI also argues that the defendants fraudulently concealed their payment scheme, thus tolling the statute of limitations "through at least July 19, 2005." Id. 50-52. For the reasons explained below, the Court agrees with FEI that under Virginia law it may recover damages for the five years preceding suit, and accordingly the Virginia Conspiracy claim is timely as to at least that portion of FEI's injury. Accordingly, the Court declines to reach the issue of fraudulent concealment at this stage of the litigation.
Under the Virginia Conspiracy Act, "every action for injury to property... shall be brought within five years after the cause of action accrues." Va.Code. Ann. § 8.01-243(B). The question before the Court is when the cause of action accrues. "If the wrongful act is of a permanent nature and one that produces all the damages that can ever result from it, [then] the entire damages must be recovered in one action and the statute of limitations begins to run from the date of the wrongful act. Conversely, when wrongful acts are not continuous but occur only at intervals, each occurrence inflicts a new injury and gives rise to a new and separate cause of action." Hampton Rds. Sanitation Dist. v. McDonnell, 234 Va. 235, 360 S.E.2d 841, 843 (1987) (citations omitted). In the latter situation, the plaintiff may recover for "the damages sustained during the five years immediately preceding the institution of the suit." Id. at 843-44 (citation omitted); see also Union Labor Life Ins. Co. v. Sheet Metal Workers Nat'l Health Plan, No. 90-2728, 1991 WL 212232, at *5, 1991 U.S. Dist. Lexis 13613, at *15 (D.D.C. Sept. 30, 1991)(Virginia statute of limitations accrued anew each time defendant was unjustly enriched by underpaying its periodic insurance: "wrongful acts or breaches of duty which occur in distinct intervals or installments, as opposed to being continuous, cause distinct and severable injuries. Consequently, each breach gives rise to new and separate causes of action and the statutes of limitations ... run separately for each.")
Abuse of process "lies where the legal system has been used to accomplish some end which is without the regular purview of the process, or which compels the party against whom it is used to do some collateral thing which he could not legally and regularly be paid to do." Bown v. Hamilton, 601 A.2d 1074, 1079 (D.C.1992) (quoting Morowitz v. Marvel, 423 A.2d 196, 198 (D.C.1980)). "There are two essential elements to an abuse of process claim: `(1) the existence of an ulterior motive; and (2) an act in the use of process other than such as would be proper in the regular prosecution of the charge.'" Houlahan v. World Wide Ass'n of Specialty Programs & Schs., 677 F.Supp.2d 195, 199 (quoting Hall v. Hollywood Credit Clothing Co., 147 A.2d 866, 868 (D.C. 1959)). "Thus, in addition to ulterior motive, one must also allege and prove that there has been a perversion of the judicial process and achievement of some end not contemplated in the regular prosecution of the charge." Hickey v. Scott, 738 F.Supp.2d 55, 71 (D.D.C.2010)(quotation omitted).
FEI alleges that the defendants had several ulterior motives in prosecuting the ESA Action, including "to raise money for their organizations ... to publicize their cause and pursue their legislative agendas ... to drain FEI's resources ... [and] to attempt to extort FEI into taking elephants out of its circus." Opp'n at 84-85. FEI also alleges a multitude of acts in the litigation process which were improper and wholly outside the "regular" prosecution of a civil action: namely, defendants filed a lawsuit based on a knowingly fraudulent claim of standing, and bribed their primary plaintiff to participate in the lawsuit and to testify falsely about his standing in order to maintain the lawsuit. Id.
To succeed on a malicious prosecution claim under District of Columbia law, a plaintiff "must plead and prove four things: (1) the underlying suit terminated in plaintiff's favor; (2) malice on the part of defendant; (3) lack of probable cause for the underlying suit; and (4) special injury occasioned by plaintiff as the result of the original action." Morowitz v. Marvel, 423 A.2d 196, 198 (D.C.1980) (citations omitted). In the District of Columbia, "a termination is favorable only where `it tends to indicate the innocence of the accused.'" Lucas v. Dist. of Columbia, 505 F.Supp.2d 122, 127 (D.D.C.2007) (citing Brown v. Carr, 503 A.2d 1241, 1245 (D.C.1986)).
Brown, 503 A.2d at 1245 n. 2 (quoting Lackner v. LaCroix, 25 Cal.3d 747, 159 Cal.Rptr. 693, 602 P.2d 393, 395 (1979), and adopting the standard under California law). Courts have consistently dismissed malicious prosecution claims when the prior suit was dismissed for lack of jurisdiction or standing, as opposed to on the merits of the plaintiff's claims. See Fish v. Watkins, 298 Fed.Appx. 594, 597 (9th Cir.2008); Hudis v. Crawford, 125 Cal.App.4th 1586, 24 Cal.Rptr.3d 50 (Cal. Dist.Ct.App.2005); Parrish v. Marquis, 172 S.W.3d 526 (Tenn.2005); Bearden v. Bellsouth Telecomm., Inc., 29 So.3d 761 (Miss.2010); see also Warth v. Seldin, 422 U.S. 490, 500, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) ("[Article III] standing in no way depends on the merits of the plaintiff's contention that particular conduct is illegal.").
By contrast, District of Columbia courts have found that abandonment of an action, or voluntary dismissal for lack of prosecution, can constitute a termination in plaintiff's favor for the purposes of malicious prosecution. Lucas, 505 F.Supp.2d at 127 (when underlying case was dismissed for lack of prosecution, it may reflect on innocence of defendant); Brown, 503 A.2d at 1245 ("dismissal for failure to prosecute has been held to be a favorable termination where the facts of the case indicate that such a disposition reflects on the innocence of the defendant in the underlying suit.") (citations omitted).
The ESA Action implicates both standing and abandonment of claims/lack of prosecution. With respect to Tom Rider
ASPCA v. Feld Entm't, 677 F.Supp.2d at 66. Because the termination of the ESA Action as to Rider and API did not reflect on the merits of the underlying litigation, it was not favorable in the legal sense required to support an allegation for malicious prosecution. Brown, 503 A.2d at 1246. Accordingly, the Court will
However, the other ESA plaintiffs, namely ASPCA, AWI and FFA, abandoned their claims for relief before the Court took the case under advisement. ASPCA v. Feld Entm't, 677 F.Supp.2d at 66, n. 10 ("While the ASPCA, AWI, and FFA apparently wish to remain named plaintiffs in the caption of this case, plaintiffs' counsel confirmed during closing arguments that those organizations are no longer advancing a standing argument or seeking relief in this case"). Accordingly, the Court treated these former plaintiffs as non-parties in its findings of fact and conclusions of law.
At this stage of the litigation, these defendants have provided no "facts of the case" arising from their decision to abandon their claims "from which the Court could find that the disposition did not reflect on the innocence" of FEI. Lucas, 505 F.Supp.2d at 127. Accordingly, the Court will
Maintenance means "the act of one improperly, and for the purpose of stirring up litigation and strife, encouraging others either to bring actions or to make defense which they have no right to make, and the term seems to be confined to the intermeddling in a suit of a stranger or of one not having any privity or concern in the subject matter, or standing in no
FEI claims that the organizational plaintiffs in the ESA Action, as well as WAP, engaged in maintenance by financing Rider's participation in the ESA Action. The FAC claims that "WAP was never a party to the ESA Action. WAP was a stranger to any dispute between Rider and FEI concerning any aesthetic injury suffered by Rider as a result of how Rider handles its Asian elephants. Although ASPCA, AWI, FFA/HSUS and API were parties to the ESA Action, they also were in fact strangers to any dispute between Rider and FEI." FAC ¶¶ 335-36. Defendants respond that maintenance is no longer a viable cause of action in the District of Columbia, and also that WAP and the animal rights organizations had a bona fide interest in the litigation because their mission is to protect animals. Defs.' Mem. 79.
It is unclear to the Court whether the District of Columbia still recognizes the tort of maintenance. Golden Commissary, 157 A.2d at 814 n. 2. However, the defendants have not shown that the cause of action has been abandoned here. Moreover, at this stage of the proceedings, the Court cannot accept defendants' representation that the organizations' sincere passion for the subject matter of a lawsuit, without more, constitutes the type of "interest" in Rider's particular claims sufficient to overcome an allegation of maintenance. Accordingly, defendants' motion to dismiss Count VI is
Champerty lies where there is "a bargain to divide the proceeds of litigation between the owner of the litigated claim and the party supporting or enforcing the litigation." Design for Bus. Interiors, Inc. v. Herson's, Inc., 659 F.Supp. 1103, 1107 (D.D.C.1986) (quoting 14 W. Jaeger, Willison on Contracts § 1711 at 857 (3d ed.1972)). "[T]here are three essential
FEI claims that the arrangement between the attorneys of record in the ESA case and Rider was champertous; the attorneys allegedly "pursued his claim in the ESA case at their own expense and at no expense to Rider. Rider has never paid any attorneys fees or costs to [the attorneys] with respect to their representation of him in the ESA Action. Upon information and belief ... Rider is not obligated to pay them back[.]" FAC ¶ 347.
The defendants raise three arguments in support of their motion to dismiss the champerty claim. First, they argue the case was brought for injunctive, not monetary, relief; therefore, there are no proceeds at stake in the litigation. Defs.' Mem. 77. Second, they argue that champerty is solely a contract claim in the District of Columbia; therefore, only parties to the contract and third party beneficiaries have standing to sue to challenge the terms of the retention agreement. Id. Finally, they argue the champerty claim is barred by the statute of limitations. Id. 78.
The Court agrees with defendants that the champerty claim must be dismissed. First, as defendants point out, this was a claim for injunctive, not monetary relief, therefore there are no "proceeds" at stake to share and champerty does not lie. FEI responds that Rider sought recovery of a statutory reward under Section 11 of the ESA, therefore, he "expected to get money out of the case." Opp'n at 86. This fact is unavailing in the context of the champerty claim; the FAC explicitly states that the parties agreed among themselves that "if the ESA Action were successful for the plaintiffs in that case, Rider would claim a statutory reward under the ESA, and the attorneys would claim [statutory] attorneys' fees under the ... ESA." FAC ¶ 348. Therefore, the FAC does not allege that the parties agreed to divide the proceeds of the claim between Rider and the attorneys. And, contrary to FEI's claim, the mere fact that the statute under which the claim was brought allows for an award of attorneys' fees to the prevailing party does not convert the claim into one for monetary relief. See Kerner v. Cult Awareness Network, 843 F.Supp. 748, 749, 751 (D.D.C.1994) (finding no champerty because the underlying action was for injunctive relief, even though it was brought under a provision of the Civil Rights Act of 1964 which allows for recovery of attorneys' fees).
Even if FEI could show that the lawyers planned to take their fees from the "proceeds" of the ESA Action, which it has not, it has not shown that it may bring a cause of action for the tort of champerty in the District of Columbia. FEI has identified no authority indicating that the District recognizes champerty as a cause of action
For the foregoing reasons, the Court finds that FEI has not met its burden to plead a plausible claim for relief in its champerty claim, and therefore will
For the foregoing reasons, defendants' motions to dismiss Counts I and II and V are
