MARVIN J. GARBIS, District Judge.
The Court has before it Defendants' Motion to Dismiss Second Amended Complaint [Document 21] and the materials submitted relating thereto. The Court has held a hearing and has had the benefit of the arguments of counsel.
In 2009, Plaintiff Olivia Buckner Bailey ("Plaintiff" or "Bailey") purchased a used vehicle ("the Vehicle") from Heritage Chevrolet-Buick, Inc. ("Heritage") that
Bailey asserts that Heritage and the Other Dealer Defendants have engaged in a concerted and fraudulent scheme to sell prior short-term rental vehicles to consumers without disclosing that fact. Bailey seeks to proceed on behalf of a class consisting of persons who purchased former short-term rentals from Heritage and the Other Dealer Defendants without receiving disclosure or identification of that information in violation of Maryland law.
The Second Amended Complaint ("SAC") presents claims in ten Counts:
By the instant motion:
In June, 2009, Bailey purchased the Vehicle from Heritage in a transaction in which Heritage violated Maryland law by failing to disclose properly the Vehicle's pertinent history. Bailey had no relevant contact or communication with any of the Other Dealer Defendants. The Other Dealer Defendants contend that Bailey lacks standing to sue them on any of the claims made in the SAC.
The Defendants assert that Bailey lacks standing under Article III of the Federal Constitution to pursue the claims against the Other Dealer Defendants because she had no direct commercial dealings with those defendants pertinent to this action and because there is no cognizable claim of conspiracy capable of salvaging her lack of standing.
A motion to dismiss for lack of constitutional or prudential standing is generally treated as a motion under Rule 12(b)(1) because, absent a Plaintiff with standing, a court lacks subject matter jurisdiction over a claimant's case. See McInnes v. Lord Balt. Emp. Ret. Income Account Plan, 823 F.Supp.2d 360, 362 (D.Md.2011); cf. Pitt Cnty. v. Hotels.com, L.P., 553 F.3d 308, 312 (4th Cir.2009) ("Our determination that the County has standing to bring this action countermands the district court's dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1).").
While a 12(b)(1) motion permits the district court to consider evidence outside the pleadings without converting the motion to dismiss into one for summary judgment,
Plaintiff bears the ultimate burden "clearly to allege facts demonstrating that [s]he is a proper party to invoke judicial resolution of the dispute." Warth v. Seldin, 422 U.S. 490, 518, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).
"In every federal case, the party bringing the suit must establish [Article III] standing to prosecute the action. `In essence, the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues.'" Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11, 124 S.Ct. 2301, 159 L.Ed.2d 98 (2004) (quoting Warth, 422 U.S. at 498, 95 S.Ct. 2197). To meet the standing requirement, "[a] plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984). That is, "`the party invoking federal court jurisdiction must show that (1) it has suffered an injury in fact, (2) the injury is fairly traceable to the defendants' actions, and (3) it is likely, and not merely speculative, that the injury will
With respect to injury in fact, the plaintiff must demonstrate the "invasion of a legally protected interest which is (a) concrete and particularized, and (b) `actual or imminent, not conjectural or hypothetical.'" Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (citations omitted). "[T]he injury must affect the plaintiff in a personal and individual way." Id. at 560 n. 1, 112 S.Ct. 2130. In line with this requirement, third party standing is generally forbidden because "a litigant must assert his or her own legal rights and interests, and cannot rest a claim to relief on the legal rights or interests of third parties." Powers v. Ohio, 499 U.S. 400, 410, 111 S.Ct. 1364, 113 L.Ed.2d 411 (1991). The general prohibition against third party standing is one of the prudential components of standing, which are not constitutionally required, but are "matters of judicial self-governance." See Elk Grove, 542 U.S. at 12, 124 S.Ct. 2301.
These constitutional and prudential standing requirements and the principles applicable thereto are pertinent in the context of a putative class action. As the United States Supreme Court has noted:
Lewis v. Casey, 518 U.S. 343, 357, 116 S.Ct. 2174, 135 L.Ed.2d 606 (1996) (alteration in original) (quoting Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 40 n. 20, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976)). The United States Court of Appeals for the Fourth Circuit has echoed this outlook, stating that in the class action context, it "is essential that named class representatives demonstrate standing through a `requisite case or controversy between themselves personally and'" each defendant. Cent. Wesleyan Coll. v. W.R. Grace & Co., 6 F.3d 177, 188 (4th Cir.1993) (quoting Blum v. Yaretsky, 457 U.S. 991, 1001 n. 13, 102 S.Ct. 2777, 73 L.Ed.2d 534 (1982)); see also Lieberson v. Johnson & Johnson Consumer Co., Inc., 865 F.Supp.2d 529, 537 (D.N.J.2011) (holding that the plaintiff lacked standing to pursue putative class action claims of consumer fraud against a baby bath product manufacturer as to any products the named plaintiff did not allege she used or purchased).
When a named plaintiff in a putative class action seeks to pursue claims against defendants with whom the named plaintiff did not have direct dealings, significant questions arise as to whether the plaintiff can establish an injury in fact with respect to those defendants. In such a situation, a plaintiff may be able to satisfy the injury aspect of standing through sufficient allegations of conspiracy. For instance, the Fourth Circuit has recognized that "allegations of conspiracy among parties with whom a plaintiff did not directly deal may confer standing upon the plaintiff to sue the non[-]dealing parties." Cent. Wesleyan Coll., 6 F.3d at 188 (citing Brown v. Cameron-Brown Co., 652 F.2d 375, 378 (4th Cir.1981)). However, a plaintiff's reliance on allegations of conspiracy "`may make it substantially more difficult'" to satisfy the "case or controversy" requirement
Bailey contends that the Other Dealer Defendants are liable as co-conspirators with Heritage and Atlantic because the relevant actions of Heritage were in furtherance of a conspiracy to sell former short-term rental vehicles to consumers without disclosing the vehicles' history.
A civil conspiracy is "`a combination of two or more persons by and agreement or understanding to accomplish an unlawful act or to use unlawful means to accomplish an act not in itself illegal, with the further requirement that the act or the means employed must result in damages to the plaintiff.'" Hoffman v. Stamper, 385 Md. 1, 24, 867 A.2d 276, 290 (2005) (citation omitted); see also Beck v. Prupis, 529 U.S. 494, 500-04, 120 S.Ct. 1608, 146 L.Ed.2d 561 (2000) (discussing a civil cause of action for conspiracy in the context of a RICO claim).
The SAC includes allegations that present a plausible claim that Heritage, the Other Dealer Defendants, and Atlantic acted in concert pursuant to an agreement to accomplish an unlawful purpose of selling prior rental cars without disclosing that information to customers, one of whom was Bailey, who sustained damage as a result.
Accordingly, Bailey would have a valid claim against the Other Dealer Defendants if it were not for the fact that Heritage and each of the Other Dealer Defendants was a 100%-owned subsidiary of Atlantic. This fact, however, renders pertinent the intracorporate conspiracy doctrine recognized by the Supreme Court in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), and its progeny. This doctrine will, absent a pertinent exception, require dismissal of Bailey's conspiracy claims against the Other Dealer Defendants. Cf. AGV Sports Grp., Inc. v. Protus IP Solutions, Inc., No. RDB 08-3388, 2009 WL 1921152, at *4-5 (D.Md. July 1, 2009) (concluding that the plaintiff failed to make a prima facie showing of personal jurisdiction based on a conspiracy theory on the grounds that the defendants were legally incapable of conspiring with each other under the intracorporate conspiracy doctrine).
In Copperweld Corp. v. Independence Tube Corp., the Supreme Court affirmed the validity of the intracorporate conspiracy doctrine
The Fourth Circuit has recognized "one narrow exception to the intracorporate immunity doctrine — the independent personal stake exception." Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 224 (4th Cir.2004). In an antitrust case in which a corporate defendant was alleged to have conspired with the president of the company, the Fourth Circuit acknowledged that while generally "a corporation cannot be guilty of conspiring with its officers or agents, ... an exception may be justified when the officer has an independent personal stake in achieving the corporation's illegal objective." Greenville Publ'g Co. v. Daily Reflector, Inc., 496 F.2d 391, 399 (4th Cir.1974). Stated differently, the exception is applied "only where a co-conspirator possesses a personal stake independent of his relationship to the corporation." ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 179 (4th Cir.2002) (citing Oksanen v. Page Mem'l Hosp., 945 F.2d 696, 705 (4th Cir.1991)). The independent personal stake exception is rooted in the notion "that there can be no unity of purpose between a corporation and its agents if the agents have a personal stake independent of the interests of the corporation." Baylor v. Comprehensive Pain Mgmt. Ctrs., Inc., No. 7:09cv00472, 2011 WL 1327396, at *13 (W.D.Va. Apr. 6, 2011); see also ShoreGood Water Co., Inc. v. U.S. Bottling Co., No. RDB 08-2470, 2009 WL 2461689, at *7 (D.Md. Aug. 10, 2009) ("In order for this exception to apply, there must be a showing that the interests of the company and the conspirators are clearly distinct.").
The Fourth Circuit has considered there to be a personal stake of a corporate agent adequate to overcome the intracorporate conspiracy doctrine in only limited circumstances. For instance, the Fourth Circuit views the exception as covering situations in which the corporate agent personally stands to benefit financially from the conspiracy
Bailey contends that she has alleged sufficiently the exception to the intracorporate conspiracy doctrine because the named corporate Defendants had an independent "personal financial stake in the above-referenced conspiracy and [associated] to illegally increase the individual profits and personal gain of each Dealer Defendant [and Heritage] and its employees." SAC ¶ 56. According to Bailey:
Id. ¶ 165. Thus, Plaintiff takes the position that because each Defendant corporation stood to profit individually from the scheme — as separate entities — each Defendant had a personal stake in the conspiracy wholly independent from its relationship with Atlantic. The Defendants assert that the exception is inapplicable and/or is contrary to Bailey's claim that Heritage and the Other Dealer Defendants acted at the direction of Atlantic.
The independent personal stake exception is invoked and evaluated predominately in the context of an alleged conspiracy between a corporation and its officers, directors, and/or employees or among agents of the same principal corporation. Cf. Gwinn, 2008 WL 867927, at *25. In the typical situation, a court can logically compare the individual conspirators' interests in the conspiracy with those of the principal corporation to determine whether the individual conspirators have personal economic interests in achieving the object of the conspiracy outside of, or contrary to, their roles as agents of the corporation.
However, when the conspirators are a parent and its wholly owned subsidiaries, questions arise as to the applicability of the independent personal stake exception. For example, it is not clear whether wholly owned subsidiaries are legally capable of having economic interests or a stake in the conspiracy independent of and/or separate from the interest of their parent.
Additionally, the Eleventh Circuit in St. Joseph's Hospital, Inc. v. Hospital Corp. of Am., 795 F.2d 948 (11th Cir.1986), assessed an antitrust conspiracy claim among an independent hospital ("the independent hospital"), a hospital corporation ("the corporation"),
However, an all-entity conspiracy made-up of a parent corporation and its wholly owned subsidiaries is a horse of a different color due to the innate economic unity of such entities. As the Supreme Court explained in Copperweld, a parent corporation and its wholly owned subsidiary necessarily have aligned economic interests because the parent is the sole shareholder of the subsidiary. See Copperweld, 467 U.S. at 771-72, 104 S.Ct. 2731. As a result, on the entity level, the economic prosperity of the subsidiary inures to the benefit of the parent as the sole owner.
Here, Plaintiff alleges that the Other Dealer Defendants and Heritage have an independent personal stake, outside their relationship with Atlantic, in achieving the illegal objective of the non-disclosure conspiracy because each stood to profit individually from the scheme. As wholly owned subsidiaries of Atlantic, the fact that Heritage and the Other Dealer Defendants stood to profit from the scheme by selling a higher volume of former short-term rentals for above-market value is not
In sum, the SAC does not present a plausible claim that Heritage, the Other Dealer Defendants, and Atlantic were legally capable of conspiring with each other. Consequently, there is no viable conspiracy claim against the Other Dealer Defendants.
Plaintiff has not alleged a viable conspiracy claim against the Other Dealer Defendants. Without a cognizable conspiracy claim, Plaintiff provides no basis upon which she could have standing to sue the Other Dealer Defendants with whom she had no direct commercial dealings.
Accordingly, all claims against the Other Dealer Defendants in the Second Amended Complaint shall be dismissed.
Bailey asserts claims against Heritage for its own actions and against its parent corporation Atlantic on a vicarious liability theory. These claims are based on:
By the instant motion, Heritage and Atlantic seek dismissal of Counts One, Two,
A motion to dismiss filed pursuant to Rule 12(b)(6) tests the legal sufficiency of a complaint. A complaint need only 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) (alteration in original) (citations omitted). When evaluating a 12(b)(6) motion to dismiss, a plaintiff's well-pleaded allegations are accepted as true and the complaint is viewed in the light most favorable to the plaintiff. However, conclusory statements or "a formulaic recitation of the elements of a cause of action will not [suffice]." Id. A complaint must allege sufficient facts "to cross `the line between possibility and plausibility of entitlement to relief.'" Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955).
Inquiry into whether a complaint states a plausible claim is "`a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'" Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955). Thus, if "the well-pleaded facts [contained within a complaint] do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not `show[n]' — `that the pleader is entitled to relief.'" Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (alteration in original)).
Plaintiff alleges that Heritage's failure to disclose the prior short-term rental status of the Vehicle to her before purchase constitutes a breach of the implied warranty of merchantability protected by Maryland law under Md.Code Ann., Com. Law § 2-314(2)(a) (Count One) and the implied warranty of merchantability protected by the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301-2312 (Count Two). Actions for breach of the implied warranty of merchantability as defined by the Magnuson-Moss Warranty Act generally are governed by the application of substantive state law. See Doll v. Ford Motor Co., 814 F.Supp.2d 526, 545 (D.Md. 2011). Here, the parties agree that the dismissal analysis of Plaintiff's state law implied warranty claim is equally applicable to the federal law claim.
Plaintiff alleges that a vehicle sold without disclosure of its prior short-term rental status is not merchantable because such a vehicle would not "[p]ass without objection in the trade under the contract description" within the meaning of § 2-314(2)(a) of the Maryland Commercial Law Article. That is, Plaintiff claims that by leaving the disclosure box for former rental status unchecked in the sales agreement, Heritage "affirmatively and falsely represented that the [V]ehicle[ ] had not been used for short-term rentals" and thus that Heritage sold her what purported to be a former consumer vehicle.
See SAC ¶¶ 3, 122-125. The Defendants contend there is no plausible claim that the Vehicle was not merchantable because Plaintiff does not assert that the Vehicle suffered from any tangible physical defect as a result of its prior rental use.
Generally speaking, the implied warranty of merchantability concerns protecting buyers' expectations as to the condition and quality of goods sold by merchants. See generally Robinson v. Am. Honda Motor Co., Inc., 551 F.3d 218, 225 (4th Cir.2009) (discussing and applying Maryland law). Under the Maryland Commercial Law Article, "a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind." Md.Code Ann., Com. Law § 2-314(1). Section 2-314(2) explains merchantability as follows:
(emphasis added).
Section 2-314 of the Maryland Commercial Law Article, which adopts Section 2-314 of the Uniform Commercial Code, does not define "merchantability," but rather lists the aforesaid six independent minimum qualifications for a good to be considered of merchantable quality. See U.C.C. § 2-314 cmt. 6. The bulk of Maryland jurisprudence addresses the merchantability qualification that the good in issue be "fit for the ordinary purposes for which such goods are used" under § 2-314(2)(c). This comes as little surprise, given that the U.C.C. comments describe fitness for an ordinary purpose as "a fundamental concept" of the implied warranty of merchantability. U.C.C. § 2-314 cmt. 8. Maryland cases addressing the merchantability qualification of fitness for an ordinary purpose generally stem from a claim that a product has some tangible or physical "defect"
While fitness for an ordinary purpose may be the most litigated of the minimum merchantability requirements set forth in § 2-314(2), there exist five other independent and distinct criteria, and the failure of a qualifying good to meet any one those five requirements will result in non-merchantability. See generally Garten, 94 Md.App. at 561-63, 618 A.2d at 240 (analyzing § 2-314(2)(c) and (a) separately and concluding that there was no evidence the car would be objectionable in the trade under the contract description as a result of a delayed shifting device on the grounds that all of the prior models had the same device and the car at issue was accepted by another dealer as a trade-in). For instance, § 2-314(2)(a), at issue in the instant case, incorporates trade quality standards and assesses whether a certain good, when compared to other goods of the same contract description, would pass without objection in the pertinent trade. See Robinson, 551 F.3d at 225 (dismissing plaintiff's claim that Michelin "run-flat" tires were not merchantable because their shorter tread life would prevent them from passing without objection in the trade on the grounds that plaintiff was comparing the Michelin tires to standard passenger tires and not to other run-flat tires).
The Maryland appellate courts have not yet addressed directly whether a vehicle can be considered non-merchantable under § 2-314(2) in the absence of a claim that the car suffers from some tangible defect (i.e., a design or manufacturing defect) or has some concrete physical problem that renders it of a lesser quality than other cars of the same contract description.
The Court doubts — in the absence of Maryland precedent supporting Bailey's position — that there would be a valid claim based upon a violation of an implied warranty of merchantability. Were Counts One and Two the only claims based upon the facts used for Bailey's merchantability contention, the Court likely would dismiss the claims therein. However, Bailey presents claims in Counts Four, Five, Six, and Seven that, in essence, rely upon the same factual allegations on which the merchantability contention is based. Therefore, the Court will not now dismiss Counts One and Two.
"[A]private party suing under the [MCPA] must establish `actual injury or loss.'" Lloyd v. Gen. Motors Corp., 397 Md. 108, 143, 916 A.2d 257, 277 (2007). "[T]o articulate a cognizable injury under the [MCPA], the injury must be objectively identifiable ... measured by the amount the consumer spent or lost as a result of his or her reliance on the seller's misrepresentation." Id. Because a person who files an MCPA complaint with the Attorney General, as opposed to filing a private suit, need not allege an actual injury occurred, "[r]equiring actual injury in private suits strikes an important balance between two competing legislative objectives: preventing unfair or deceptive practices while precluding aggressive, `self-constituted private attorneys general' from bringing suit `over relatively minor statutory violations.'" Marchese v. JPMorgan Chase Bank, N.A., 917 F.Supp.2d 452, 467-68 (D.Md.2013) (quoting Citaramanis v. Hallowell, 328 Md. 142, 152, 613 A.2d 964, 968 (1992)).
The SAC includes factual allegations that Heritage purposefully concealed the prior short-term rental status of the Vehicle purchased by Plaintiff because such a status decreases a vehicle's market value and makes the car harder to sell, as well as allegations that Plaintiff paid more for the Vehicle than it was worth. See SAC ¶¶ 54, 63, 150. The SAC does not aver explicitly that Heritage priced the Vehicle it sold to Plaintiff as a consumer vehicle rather than as a former short-term
Defendants rely on Jones v. Koons Automotive, Inc., 752 F.Supp.2d 670 (D.Md. 2010), to support their position that the Plaintiff has failed to plead actual injury or loss under the MCPA. In Jones, the court dismissed the plaintiff's MCPA claim based upon a failure to disclose the prior rental status of a used car. See id. at 683-85. The Jones court stated:
Id. at 684 (emphasis added).
In the instant case, Bailey does, as the plaintiff in Jones did not, allege that she was overcharged for the Vehicle and that the Vehicle is worth less as a result of its true status.
Accordingly, Count Three shall not be dismissed.
In assessing the plausibility of Plaintiff's RICO claims, it is important to keep in mind that RICO "`does not cover all instances of wrongdoing. Rather it is a unique cause of action that is concerned with eradicating organized, long-term, habitual criminal activity.'" US Airline Pilots Ass'n v. Awappa, LLC, 615 F.3d 312, 317 (4th Cir.2010) (quoting Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir.2006)). The Fourth Circuit has warned that courts:
Id. (alteration in original) (quoting Menasco, Inc. v. Wasserman, 886 F.2d 681, 683 (4th Cir.1989)).
In Count Ten, Plaintiff alleges that Heritage, Atlantic, and the Other Dealer Defendants conspired to engage in a pattern of racketeering activity, such as mail and wire fraud, in violation of 18 U.S.C. § 1962(d). The Copperweld intracorporate conspiracy doctrine is applicable to a § 1962(d) RICO conspiracy claim. See Sadighi v. Daghighfekr, 36 F.Supp.2d 279, 297 (D.S.C.1999). Consequently, the RICO conspiracy claim shall be dismissed for the reasons stated above regarding the Conspiracy Contention. See supra Part II.C-D.
In Counts Eight and Nine, Bailey presents claims that Heritage and Atlantic are liable for violations of § 1962(a) and (c) of the RICO statute.
To plead a RICO claim under § 1962(a) and/or (c), a Plaintiff must allege adequately a pattern of racketeering activity and that she suffered injury to her property as a result of the alleged RICO violations. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) (discussing § 1962(c)); Busby v. Crown Supply, Inc., 896 F.2d 833, 836-37 (4th Cir.1990) (discussing § 1962(a)). There is an additional element of "distinctiveness" required for a claim under § 1962(c).
The Defendants seek dismissal of Bailey's § 1962(a) and § 1962(c) claims, contending that Bailey has failed to plead adequately:
For a private person to maintain a claim for a RICO violation, the claimant must establish that he or she was "injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c). That is, to have standing to bring a private RICO claim, a plaintiff plausibly must allege that she suffered injury to her property and that the injury was caused by the asserted RICO violation. See generally Walters v. McMahen, 684 F.3d 435, 444 (4th Cir.2012) ("[T]he RICO predicate acts must not only be a `but for' cause of a plaintiff's injury, but the proximate cause of that injury as well."), cert. denied, ___ U.S. ___, 133 S.Ct. 1493, 185 L.Ed.2d 548 (2013); Wang Labs., Inc. v. Burts, 612 F.Supp. 441, 444 (D.Md.1984) ("[T]his Court concludes that [Plaintiff's] allegations of injury to its business reputation and customer goodwill in addition to its loss of revenues satisfied the injury requirement of 18 U.S.C. § 1964(c)" for purposes of a Rule 129(b)(6) dismissal motion.).
The Defendants assert that Plaintiff has failed to allege she suffered a cognizable injury to her property as a result of the Defendants' alleged RICO violations because the SAC merely contains bald assertions that Plaintiff lost the opportunity to decline to purchase the Vehicle in light of the rental history and/or to insist on a price concession from Heritage. See Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721, 728-31 (8th Cir.2004) (explaining that injury to intangible property interests cannot support standing to bring RICO claims). However, as discussed supra in connection with the MCPA claim, the factual allegations in the SAC present a plausible claim that Plaintiff was overcharged for the Vehicle because the Vehicle was sold falsely as a former consumer car. See supra Part III.C.
Defendants take the position that the "overcharged injury" is still insufficient because it does not amount to a concrete financial loss to Plaintiff. While Defendants do not cite to any Fourth Circuit case law, other circuits have held that "`a showing of `injury' requires proof of concrete financial loss, and not mere `injury to a valuable intangible property interest.'" See, e.g., Steele v. Hosp. Corp. of Am., 36 F.3d 69, 70 (9th Cir.1994) ("[T]he district court held that because the patients did not show any proof of concrete financial loss, they lacked standing. The district
The case of In re Bridgestone/Firestone, Inc. Tires Products Liab. Litig., 155 F.Supp.2d 1069 (S.D.Ind.2001),
The instant case is not a products liability case. Unlike the plaintiffs in Bridgestone, Bailey does not allege that the Vehicle suffers from a defect concealed by Heritage or that the Vehicle's economic value has diminished because of the possibility that a defect will manifest at some point in the future. Further, Bailey does not base her claim on some future loss.
Plaintiff has alleged a plausible and cognizable RICO injury.
It is unlawful under 18 U.S.C. § 1962(c):
(emphasis added).
"[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). That is, there must be a "person," alleged to have violated § 1962(c) and to be liable to the claimant for damages, who is separate and distinct from the "enterprise," or tool, through which the RICO violation occurred. See Busby, 896 F.2d at 840-41. A "person" can be an individual or corporate entity. 18 U.S.C. § 1961(3). Of course, there may be multiple persons whose association with the same RICO enterprise gives rise to multiple violations of § 1962(c).
A RICO "enterprise" is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4) (emphasis added). The RICO enterprise must "exist[ ] separate and apart from the pattern of racketeering activity in which it was engaged." United States v. Tillett, 763 F.2d 628, 630-31 (4th Cir.1985). A RICO enterprise is characterized by "`continuity, unity, shared purpose and identifiable structure.'" United States v. Fiel, 35 F.3d 997, 1003 (4th Cir.1994) (citation omitted). An association-in-fact enterprise is not defined by a formal legal structure, but is instead characterized by the association of its members "for a common purpose of engaging in a course of conduct." Cf. United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981).
The parties debate whether the common entity ownership renders any claim that Heritage and Atlantic were distinct from MileOne Automotive implausible. The pertinent cases relied upon by the parties relating to common ownership between "persons" and an "enterprise" generally fall into two categories: (1) the RICO enterprise is a formal entity or (2) the RICO enterprise is an "association-in-fact" of which the alleged RICO "persons" are members.
With respect to the formal entity scenario, in Cedric Kushner Promotions, the Supreme Court addressed an alleged § 1962(c) claim in which the liable "person" was the individual sole owner/employee of a corporation and the "enterprise" was the corporation. See 533 U.S. at 160, 121 S.Ct. 2087. Where the owner, or RICO "person," allegedly was conducting the enterprise's corporate affairs in a RICO-forbidden way, the Supreme Court held that there was sufficient distinction. See id. at 163, 166, 121 S.Ct. 2087. The Supreme Court noted that in such a situation, "[t]he corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different rights and responsibilities due to
The Fourth Circuit has held that the distinctiveness necessary for a § 1962(c) claim is lacking "when a corporation and its wholly owned subsidiary are involved" because then, "a `person' is not distinct from an `enterprise.'" NCNB Nat'l Bank of N.C. v. Tiller,
With respect to the second category of an association-in-fact, in which the alleged "persons" are also members of the "enterprise," there is certainly judicial recognition that "a defendant may be both a person and a member of a collective RICO enterprise" without negating the distinctiveness requirement. See, e.g., In re Lupron Mktg. & Sales Practices Litig., 295 F.Supp.2d 148, 173 (D.Mass.2003) (citing United States v. Goldin Indus., Inc., 219 F.3d 1271 (11th Cir.2000); Cullen v. Margiotta, 811 F.2d 698 (2d Cir.1987), overruling on other grounds recognized by Cruz v. FXDirectDealer, LLC, 720 F.3d 115 (2d Cir.2013)). As analogized by the Lupron court, "[t]he basic idea is that while one basketball player does not constitute a team, an association of five players does, without each losing his identity as a distinct person." Id. However, a "singular person or entity [cannot be] both the person and the only entity comprising the [association-in-fact] enterprise." United States v. Goldin Indus., Inc., 219 F.3d 1271, 1275 (11th Cir.2000).
Thus, just as adequate distinctiveness may be missing between a parent-person and a wholly owned subsidiary-enterprise (or vice versa), it may also be lacking where the parent and its wholly owned subsidiaries are both the "alleged persons" and the sole members of the association-in-fact enterprise. Cf. In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, & Products Liab. Litig., 826 F.Supp.2d 1180, 1202 (C.D.Cal.2011) (holding that the plaintiffs failed to allege sufficiently distinctiveness between "persons" and "association-in-fact," when "four named, affiliated corporate Defendants" were alleged to be both the RICO persons and the enterprise, on the grounds that "Plaintiffs merely allege that the Defendants are associated in a manner directly related to their own primary business activities").
Bailey's claims fall into the second category of "person" and "enterprise" in the common ownership context — association in fact. Plaintiff alleges that Heritage and Atlantic are the "persons" liable for violating § 1962(c) and that the RICO "enterprise"
In the SAC, Plaintiff seeks to label MileOne Automotive as separate and distinct from the parent corporation and wholly owned subsidiaries of which it consists. However, "`[t]he presence [ ] of a few conclusory legal terms does not insulate a complaint from dismissal under Rule 12(b)(6) when the facts alleged in the complaint' cannot support the legal conclusion." Migdal v. Rowe Price-Fleming Int'l, Inc., 248 F.3d 321, 326 (4th Cir.2001) (alteration in original) (citation omitted). Labeling the corporations and MileOne Automotive as "distinct" entities is a legal conclusion that must be supported by underlying factual allegations to avoid dismissal. With respect to the facts, the SAC contains allegations that:
See SAC ¶¶ 3-17, 20-34.
The allegations in the SAC are inadequate to plead a plausible claim that MileOne Automotive is a distinct entity from Heritage, Atlantic, and the Other Dealer Defendants for purposes of Plaintiff's § 1962(c) claim. Heritage and the Other Dealer Defendants are wholly owned subsidiaries of Atlantic. Plaintiff alleges that Heritage and the Other Dealer Defendants are all used car dealerships under the operation and ownership of Atlantic and that these commonly owned entities operate jointly and associate together as MileOne Automotive to sell used vehicles legitimately, as well as fraudulently. As a result, Bailey has not presented a plausible claim that the alleged RICO persons and the alleged association-in-fact enterprise are distinct.
Accordingly, all claims in Count Nine shall be dismissed.
To plead a claim under § 1962(a), a plaintiff must allege facts presenting a plausible basis to find (1) racketeering activity and (2) a pattern of such activity.
"Racketeering activity" is defined at § 1961(1) as any one of several indictable offenses, including mail fraud and wire fraud. The Fourth Circuit has expressed concern "about basing a RICO claim on predicate acts of mail and wire fraud because it will be the unusual fraud that does not enlist the mails and wires in its service at least twice." GE Inv. Private Placement Partners II v. Parker, 247 F.3d 543, 549 (4th Cir.2001).
A "`pattern of racketeering activity' requires at least two acts of racketeering activity, one of which occurred after the effective date of [the RICO statute] and the last of which occurred within ten years ... after the commission of a prior act of racketeering activity.'" US Airline Pilots Ass'n, 615 F.3d at 318 (alteration in original) (quoting 18 U.S.C. § 1961(5)). "[W]hile two acts are necessary, they may not be sufficient." Sedima S.P.R.L., 473 U.S. at 496 n. 14, 105 S.Ct. 3275. To state a plausible claim of a pattern of racketeering activity, the plaintiff must allege facts establishing "that the racketeering predicates are related and that they amount to or pose a threat of continued criminal activity." Cf. H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (reversing a 12(b)(6) dismissal of a RICO complaint and discussing what a plaintiff in a RICO case must show to prove a pattern of racketeering activity). With respect to the requirement that the predicate acts be "related," the Fourth Circuit has explained that "[t]he relationship criterion may be satisfied by showing that the criminal acts `have the same or similar purposes, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics and are not isolated events.'" Anderson v. Found. for Advancement, Educ. & Emp't of Am. Indians, 155 F.3d 500, 505-06 (4th Cir.1998) (quoting H.J. Inc., 492 U.S. at 240, 109 S.Ct. 2893).
Here, the Defendants assert there is no viable claim of a pattern of racketeering activity because the Plaintiff has alleged only one instance of specific fraudulent conduct directed at her. [Document 21-1] at 22. Plaintiff disagrees, pointing to allegations in the SAC that Heritage and others within the MileOne Automotive association routinely engaged in the same fraudulent conduct as that directed against Plaintiff, on "hundreds if not thousands of occasions," vis-à-vis other purchasers, like the members of the putative class. SAC ¶¶ 84-106. However, the conclusory general assertion that the Defendants engaged in numerous acts of mail and/or wire fraud by concealing the former short-term rental use of vehicles from purchasers other than Bailey is insufficient. A "plaintiff must plead `circumstances of the fraudulent acts that form the alleged pattern of racketeering activity with sufficient specificity pursuant to Fed.R.Civ.P. 9(b).'" Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th Cir.1989) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986)).
In the absence of any specific allegation of fraudulent conduct beyond that directed to Plaintiff, the SAC fails to allege a plausible pattern of racketeering activity. See Grant v. Shapiro & Burson, LLP, 871 F.Supp.2d 462,
The Court will dismiss the RICO claims in the SAC due to the failure adequately to allege a pattern of racketeering activity. The Court will not, however, foreclose Plaintiff from engaging in discovery pertinent to the claims not dismissed
For the foregoing reasons:
U.S. Const. art. III, § 2, cl. 1. The Supreme Court has stated that "[b]y cases and controversies are intended the claims of litigants brought before the courts for determination by such regular proceedings as are established by law or custom for the protection or enforcement of rights, or the prevention, redress, or punishment of wrongs." Muskrat v. United States, 219 U.S. 346, 357, 31 S.Ct. 250, 55 L.Ed. 246 (1911).
