Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-02874/USCOURTS-azd-2_05-cv-02874-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1961 Racketeering (RICO) Act

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Peter Marceau; Jon Bodine; Rhonda

McKinney; Brian Pine; Kathryn Smith, 

Plaintiffs, 

vs.

International Brotherhood of Electrical

Workers (IBEW) Local 1269; Dex Media,

Inc.; Qwest Communications International,

Inc.; Karen Ortega-Matson; Philip

Wheeler, 

Defendants. 

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No. CV 05-02874-PHX-MHM

ORDER

Currently before the Court is Defendants International Brotherhood of Electrical

Workers Local 1269, Karen Ortega-Matson and Philip Wheeler's (collectively "Union

Defendants") Motion to Dismiss (Dkt.#12) and Defendants Dex Media, Inc., and Qwest

Communications International, Inc.'s (collectively "Corporate Defendants") Motion to

Dismiss (Dkt#13). After reviewing the pleadings and hearing oral argument on June 5, 2006,

the Court issues the following Order. 

I. Background

On September 19, 2005 Plaintiffs Peter Marceau, Jon Bodine, Rhonda McKinney,

Brian Pine and Kathryn Smith ("Plaintiffs") filed their Complaint against the abovementioned Defendants asserting claims arising out of the Racketeer Influenced and Corrupt

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Organizations Act ("RICO"), 18 U.S.C.A. § 1962, et seq., and claims arising out of the Labor

Management Reporting and Disclosure Act of 1959 ("LMRA"), 29 U.S.C. § 186, et seq.

(Dkt.#1). Plaintiffs and the individual Defendants Karen Ortega-Matson ("Defendant

Matson") and Philip Wheeler ("Defendant Wheeler") are alleged to be "premise sales

representatives" currently employed by Defendant Dex Media, Inc.("Defendant Dex");

previously employed by Qwest Communications International, Inc. ("Defendant Qwest"),

Defendant Dex's predecessor in interest. (Complaint ("Compl.") at ¶1). A premise sales

representative sells yellow pages directory advertising to advertisers. (Compl. ¶1). Plaintiffs

allege that Defendants DEX, and previously Qwest, and Defendant International Brotherhood

of Electrical Workers Local 1269 ("Defendant IBEW" or "Union") along with fellow premise

sales representatives, Defendants Matson and Wheeler ("Union agents") have "acted in

concert to manipulate the calculation of sales performance and commissions and the account

assignment functions so that the Union agents would receive extraordinary compensation not

justified by their sales performance." (Compl. ¶1). Because sales personnel are evaluated and

compensated based upon their "Sales Performance Evaluation" ("SPE") compared with other

sales persons, any improper advantage to one salesperson injures the others. (Compl. ¶1).

Plaintiffs allege that the motive behind paying the extraordinary compensation to the Union

agents is to exact concessions in a collective bargaining agreement from the Defendant Union

and "induce the union to perform its grievance representation in a purely perfunctory

manner." (Compl.¶2). Defendant Matson is alleged to be the Union executive board member

and Chairperson and Defendant Wheeler is alleged to be the former Union president.

(Compl.¶1). 

Plaintiffs characterize the allegations describing the unlawful conduct as "THE

SCHEME." (Compl.p.8). Plaintiffs cite multiple specific examples of acts based upon the

racketeering activities of the Defendants such as the failure to record bad debts against the

Union agents; failure to adjust the Union agents score for losses regarding existing clients;

preference afforded to the Union agents with respect to certain attractive clients; permitting

"group advertisements" to the Union agents that are otherwise banned to the other premise

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sales representatives; unfairly assigning accounts of former personnel to the Union agents;

permitting double commissions to the Union agents; unfairly recording full workflow

requirements to the Union agents which allows them to receive new clients. (Compl. ¶ 22-

23). Plaintiffs allege that the preferential treatment afforded to the Union agents

economically injures the other sales personnel, such as Plaintiffs. Further, Plaintiffs allege

that Dex forgives the debt it is owed from the Union for the salary the Union is to pay its

Union agents while conducting "union business." (Comp.¶24). In exchange for such

forgiveness, the Union does not monitor the activities of the Union agents and the Union

agents use their positions to influence management contracts with Dex and to "ensure that

the scheme... continues on an on-going basis." (Compl.¶26). Plaintiffs seek injunctive relief

as well as damages. (Compl.¶73).

II. Legal Standard

"The motion to dismiss for failure to state a claim is viewed with disfavor and is rarely

granted." Gilligan v. Jamco Development Corp., 108 F.3d 246, 249 (9th Cir. 1997).

Accordingly, the court will not dismiss a complaint unless it appears beyond a doubt that the

plaintiff can prove no set of facts to support the claim that would entitle the plaintiff to relief.

Morley v. Walker, 175 F.3d 756, 759 (9th Cir. 1999). However, "the court [is not] required

to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or

unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th

Cir.2001).

In determining whether a complaint states a claim, all allegations of material fact are

taken as true and construed in the light most favorable to the nonmoving party. Wyler

Summit Partnership v. Turner Broad. Sys. Inc., 135 F.3d 658, 661 (9th Cir. 1998). As such,

an inquiry into the adequacy of the evidence is improper when deciding whether to dismiss

for failure to state a claim. Enesco Corp. v. Price/Costco, Inc., 146 F.3d 1083, 1085 (9th Cir.

1998). 

III. Discussion

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The Corporate Defendants move to dismiss the claims alleged in Plaintiffs' Complaint

pursuant to Rule 12(b)(6), Fed.R.Civ.P. The Corporate Defendants contest Plaintiffs'

allegations on two relevant bases: (1) Plaintiffs' RICO claims are time barred and (2)

Plaintiffs' claims based upon § 1962 (b),(c) and (d) fail to state a claim. Additionally, the

Union Defendants move to dismiss Plaintiffs' claims on the basis that Plaintiffs' RICO and

LMRA claims fail to state a claim. The Corporate Defendants and Union Defendants adopt

each other's separate Motions to Dismiss.

A. The Corporate Defendants' Statute of Limitations Argument Regarding

Plaintiffs' RICO Claims.

The Corporate Defendants argue that the statute of limitations bars the Plaintiffs'

RICO claims in this case. The applicable statute of limitations period to assert a RICO action

is four years. See Agency Holding Corp v. Malley-Duff & Associates, Inc., 483 U.S. 143,

107 S.Ct. 2759 (1987) (holding that appropriate statute of limitations to be applied in RICO

civil enforcement action is four-year statute of limitations applicable to Clayton Act civil

enforcement actions). The Corporate Defendants rely on those portions of Plaintiffs'

Complaint stating that the actionable conduct commenced in the year 2000. For instance

Plaintiffs allege with respect to Count One, "[f]rom 2000 to the present, the union received

and receives income from a pattern of racketeering, and the union used and uses that income

in the operation of the union." (Compl. ¶30). In Count Two Plaintiffs cite 18 U.S.C. §

1962(b) and state that "[f]rom 2000 until the present, DEX (and previously Qwest) used a

pattern of racketeering to acquire and maintain an interest in control over the union."

(Compl. ¶40). In Count Three Plaintiffs cite 18 U.S.C. § 1962(c) and state "from 2000 until

present, DEX, Qwest, Ms. Ortega-Matson, and Mr. Wheeler conducted, participated in,

engaged in, conspired to engage in, or aided and abetted the conduct of the affairs of the

union through a pattern of racketeering activity..." (Compl. ¶49). Based upon these

allegations and others like them noting a date of the year 2000, the Corporate Defendants

argue that Plaintiffs' claims are barred by the applicable four-year time period to assert a

RICO claim. 

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1

The Ninth Circuit is one of several Circuits that follow the "injury discovery rule."

While the Supreme Court has limited the application of other such rules followed in other

Circuits in Klehr v. A.O. Smith Corp., 521 U.S. 179, 190, 117 S.Ct. 1984 (1997) and Rotella

v. Wood, 528 U.S. 549, 120 S.Ct. 1075 (2000), this rule is good law in the Ninth Circuit. See

Tanaka v. First Hawaiian Bank, 104 F. Supp.2d 1243, 1246 (D. Hawaii, 2000). 

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(1) "Injury Discovery Rule"

The Corporate Defendants argue that the "injury discovery rule" of the Ninth Circuit

is controlling in their favor, which provides that the RICO limitations period "begins to run

when a plaintiff knows or should know of the injury that underlies his cause of action."

Grimmett, 75 F.3d 506, 510 (9th Cir. 1996), cert dismissed, 519 U.S. 233 (1997) (citing

Pocahontas Supreme Coal Co., v. Bethlehem Steel Corp., 828 F.3d 211, 220 (4th Cir. 1987);

(citations omitted).1

 Further, "[t]he plaintiff need not discover that the injury is part of a

"pattern of racketeering" for the period to begin to run." Id. (citing McCool v. Strata Oil Co.,

972 F.2d 1452, 1465 (7th Cir. 1992). 

Thus, the "injury discovery rule" raises the issue of when the Plaintiffs discovered

their injuries arising out of the Defendants alleged unlawful conduct. The Complaint is silent

as to the date the Plaintiffs discovered or should have discovered their alleged injuries arising

from the alleged scheme between the Defendants and there has been no discovery performed

on this issue. Moreover, at oral argument Plaintiffs' counsel stated that the vast majority of

the predicate acts and all accompanying injuries alleged in the Complaint occurred within

the four-year limitations period. Thus, clearly there is a factual dispute as to the date of the

alleged injuries. This factual issue as to when the Plaintiffs discovered their injuries is a

question of fact and it would be premature for this Court to make a determination that the

Plaintiffs contemporaneously discovered their injuries when the alleged scheme commenced.

See Tanaka v. 104 F. Supp.2d at 1248 (D. Hawaii 2000) (holding that plaintiff's knowledge

of injury in RICO case is a material question of fact); (citing Tucker v. Baxter Healthcare

Corp., 158 F.3d 1046, 1050 (9th Cir. 1998) (finding in non-RICO case that where fact issue

exists as to when statute of limitations begins to run, summary judgment is improper). 

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2

See Mack v. S.Bay Beer Distribs., Inc., 798 F.2s 1279, 1282 (9th Cir. 1986) (stating

that courts can take judicial notice of records and reports of administrative body), overruled

on other grounds by Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104 (1991).

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The Corporate Defendants argue that because Plaintiffs fail to plead any specific date,

that any argument in support of tolling the applicable limitations period is waived. See

Rutledge v. Boston Woven Hose & Rubber Co, 576 F.2d 248, 249 (9th Cir. 1978) (stating that

to avoid the bar of limitation by invoking concept of fraudulent concealment, plaintiff must

allege facts showing affirmative conduct upon the part of the defendant which would lead

a reasonable person to believe that he did not have a claim for relief). However, as discussed

below, while the Corporate Defendants are correct that the failure to plead equitable tolling

waives any such defense, equitable tolling and the time Plaintiffs discovered their injuries

are separate and distinct issues. See Tanaka, 104 F. Supp.2d at 1243-48 (discussing

determination of injury discovery date and application of equitable tolling). For example,

if it were determined that Plaintiffs could not or did not discover their injuries until sometime

after the limitations period, then Plaintiffs would not need to raise an equitable tolling

argument.

(a) Application of "Injury Discovery Rule" to Plaintiffs Smith and

Marceau.

The Corporate Defendants attach to their Motion to Dismiss exhibits demonstrating

that Plaintiffs Smith and Marceau have filed charges with the National Relations Labor

Board ("NLRB") regarding matters similar to the allegations in Plaintiffs' Complaint.

(Corporate Defendants' Motion to Dismiss, Exhibit C and D).2

 It appears the Corporate

Defendants rely on these previous charges to demonstrate that both Smith and Marceau have

been aware of their injuries prior to filing the present lawsuit. First, Smith filed a charge with

the NLRB in 1992 (Corporate Defendants' Motion to Dismiss, Exhibit C) against her former

employer U.S. West Direct alleging that her termination from U.S. West Direct was the result

of the Union's efforts to advance the monetary compensation and careers of union

representatives employed in the sales position and was for self-serving reasons. However,

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3

A corollary rule to "separate accrual rule" is that damages may not be recovered for

injuries sustained as a result of acts committed outside the limitations period. Grimmett, 75

F.3d at 512. 

4

As noted above, and conceded by the Corporate Defendants' counsel at oral

argument, if it can be determined that the predicate acts and more importantly the injuries

resulting from the predicate acts occurred within the limitations period then the "separate

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the similarity between Smith's NLRB charge and the current charges, while, possessing a

general similarity in terms of the allegations, does not demonstrate that Smith was aware of

the current injuries alleged in the Complaint prior to or contemporaneously with the conduct

alleged in 2000. Rather, there are questions of fact as to when she became aware of the

injuries alleged in the Complaint. For example, the NLRB charge involves U.S. West, a

wholly distinct party who is not involved in this litigation. 

The same factual questions exist with respect to Plaintiff Marceau, who in 2003 filed

a charge with the NLRB against Dex and Qwest alleging that between 1999 and 2003 similar

preferential treatment was being afforded to union agents. However, even assuming that

Plaintiff Marceau's charges are identical to the allegations set forth in the Complaint, it still

begs the question of when he discovered his injury. For instance, if he discovered the injury

from such preferential treatment sometime after September 19, 2001 and before he filed his

NLRB charge in 2003, his actions would be timely before this Court. 

Thus, the determination of when Plaintiffs discovered or should have discovered their

injuries remains a question of fact. 

(2) "Separate Accrual Rule"

The Corporate Defendants also argue that the "separate accrual rule" does not save

Plaintiffs' RICO claims based upon continuing conduct and injuries into the limitations

period. The "separate accrual rule" provides that a new cause of action accrues for each new

and independent injury even though the RICO violation causing the injury happened more

than four year earlier.3

 Grimmett, 75 F.3d at 510, (citing Bankers Trust Co. v. Rhoades, 859

F.3d 1096, 1102 (2d Cir. 1988), cert denied, 490 U.S. 1007, 109 S.Ct. 1642 (1989)).4 The

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Ninth Circuit provides instruction in applying the "separate accrual rule" in holding that:

"two elements characterize an overt act which will restart the statute of limitations: (1) it

must be a new and independent act that is not merely a reaffirmation of a previous act; and

(2) it must inflict new and accumulating injury on the plaintiff." Grimmett, 75 F.3d at 513

(citing Pace Industries, Inc., v. Three Phoenix Co., 813 F.2d 234 (9th Cir. 1987) (emphasis

original)). 

(a) "New and Independent" Acts

Plaintiffs' Complaint relates multiple specific instances of preferential treatment

afforded to the Union agents by the Corporate Defendants as part of a scheme implemented

by the Defendants. These acts are not sorted out by date, but to the extent certain acts and

injuries occurred prior to the limitations period, the "separate accrual rule" is implicated.

Thus, the issue is whether the acts are "new and independent" or are rather based upon

"reaffirmations of previous acts." Grimmett, 75 F.3d at 513. In Grimmett, the Ninth Circuit

found that the plaintiffs failed to satisfy this test based upon the four post-limitations acts

alleged in their complaint. Specifically, the Ninth Circuit noted that the post-limitation acts

were all "part of the same corporate re-organization/bankruptcy scheme." Id. at 514. The

same is true here. Plaintiffs refer to the alleged actionable conduct by Defendants as part of

a "scheme" which continued on an "on-going basis." (Compl.¶ 26). Further, the predicate

acts that are part of this scheme appear to be interrelated to provide preferential treatment to

the Union agents and exact concessions in Union relations. While each individual act may

be somewhat different in nature, the act itself is the same in that it is part of the overall

furtherance of the purported scheme between the Defendants to obtain unjust compensation

and related benefits. As such, the Plaintiffs' allegations based upon "reaffirmations" of

previous acts in furtherance of the scheme does not support the application of the "separate

accrual rule."

(b) "New and Accumulating" Injury

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Further, even if the predicate acts above were "new and independent" the "separate

accrual rule" would still not apply because the injuries alleged by Plaintiffs resulting from

the scheme are not "new and accumulating." Rather, the injuries alleged by Plaintiffs are

merely an accumulation of the same injury. The holding in Grimmett, is instructive in

demonstrating the application of "new and accumulating" injuries of the "separate accrual

rule." Specifically, the Ninth Circuit noted that the injury must be "new and independent"

of the previous untimely injuries. Id. at 513. In Grimmett, the Ninth Circuit found that the

four post limitation acts that would potentially fall within the limitations period were not

sufficient to justify invocation of the "separate accrual rule" because the injuries claimed by

the plaintiff were identical to those alleged prior to the limitations period, which all related

to the loss of the plaintiffs interest in the business. Id. at 514. 

Here, the Plaintiffs' injuries are that they were wrongfully deprived compensation as

a result of a scheme by Defendants which grants preferential treatment to the Union agents

as well as lost concessions in labor relations due to Corporate Defendants influence over the

Union. (Compl.¶20-26). The Complaint relates that the scheme began in 2000 and

continued through the limitations period resulting in a "pattern of racketeering" and was the

Defendants' "regular way of conducting business." (Compl. ¶36). A plain reading of the

Complaint demonstrates that the alleged injuries sustained by Plaintiffs are identical

throughout the relevant period. Plaintiffs even acknowledge in their Response to the

Corporate Defendants' Motion to dismiss, that their injuries are based upon an accumulation

of loss of financial compensation. (Plaintiffs' Response, p. 8: "Plaintiffs allege new and

independent acts during the limitations period, each of which inflicted new and accumulating

injury to Plaintiffs' financial compensation."; p. 11: "[e]ach predicate act had a separable and

identifiable effect upon the accumulation of damages."). There is nothing new about

Plaintiffs' injuries over the time period specified in the Complaint. 

The Eleventh Circuit in Bivens Garden Office Bldg., Inc., v. Barnett Bank of Florida,

Inc., 906 F.2d 1546 (11th Cir. 1990), abrogated on other grounds by Rotella v. Wood, 528

U.S. 549 (2000), which also uses "new and independent" language in its "separate accrual"

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rule is also instructive. The Eleventh Circuit held that the latter two of the three total alleged

predicate acts of: (1) a wrongful takeover of a limited partnership in 1975; (2) the

mismanagement and diversion of the partnership's assets from 1975 to 1981; and (3) the sale

of the partnership's primary asset, a hotel, at below fair market value in 1981, were "new and

independent" acts because they "[were] not included among the injuries that naturally flow

from the wrongful takeover [in 1975]." Id. at 1551. Here, the injuries alleged naturally flow

from each other. They are directly related to the scheme implemented by Defendants causing

financial harm to Plaintiffs based upon the loss of commissions and concessions. Thus, each

subsequent act generates the same result, the loss of revenue to Plaintiffs based upon the

preferential treatment given to the Union representatives. 

 Lastly, the Eleventh Circuit's holding in Pilkington v. United Airlines, 112 F.3d 1532

(11th Cir. 1997) is also instructive. In Pilkington, the pilot plaintiffs brought RICO claims

against the airline and the union alleging that they were wrongfully harassed for acting as

replacement workers while on strike. The predicate acts began well before the limitations

period. However, to avoid the statute of limitations, the plaintiffs argued that each act of

harassment amounted to a new injury and therefore a new cause of action. The Eleventh

Circuit rejected this argument holding that while each new act of harassment may have

accumulated the injury, the injury was not new and independent. Id. at 1537-38. The

alleged injuries within the limitations period were not "unfamiliar, strange, or different." Id.

 Here, there is nothing "unfamiliar, strange or different" regarding the injuries to the

Plaintiffs alleged in the Complaint. Specifically, the Plaintiffs are alleged to have sustained

the continuing injury of damage to their financial status based upon the scheme of the

Defendants. 

As such, based upon the allegations set forth in Plaintiffs' Complaint, and to the extent

the "separate accrual rule" is relevant, it is not applicable to Plaintiffs' RICO claims. While

it is premature to determine when the Plaintiffs discovered their injuries, it is clear that if the

discovery of their injuries resulting from certain predicate acts occurred prior to September

19, 2001, the subsequent acts are not saved by the "separate accrual rule."

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(3) Application of Equitable Tolling

Lastly, as mentioned above, the doctrine of equitable tolling is not applicable. This

doctrine, also known as fraudulent concealment, applies where a plaintiff shows that he or

she neither knew nor, in the exercise of due diligence could reasonable have known of the

offense. Klehr v. A.O. Smith Corp., 521 U.S. 179, 195, 117 S.Ct. 1984 (1997). However,

Plaintiffs make no reference of the application of such tolling in their Complaint nor in their

papers. In such circumstances, the Court finds that Plaintiff waives any such tolling

argument. Grimmett, 75 F.3d at 514 (holding that where plaintiff never pled concealed facts

in favor of tolling in complaint, plaintiff waived tolling defense). 

B. Corporate Defendants' Alternative Basis for Dismissal of Plaintiffs’ RICO

Claims Pursuant to 18 U.S.C. § 1962(b),(c) and (d)

The Corporate Defendants also requests dismissal of the RICO claims asserted by

Plaintiffs on alternative grounds. Specifically, the Corporate Defendants argue that Plaintiffs

fail to allege a claim pursuant to 18 U.S.C. § 1962(b),(c) and (d). 

(1) Section 1962(b) Analysis

18 U.S.C. § 1962(b) provides in pertinent part:

It shall be unlawful for any person through a pattern of racketeering activity

or through collection of an unlawful debt to acquire or maintain, directly or

indirectly, any interest in or control of any enterprise which is engaged in, or

the activities of which affect, interstate or foreign commerce.

(a) "Interest in or Control of"

The Corporate Defendants first basis for dismissal of this claim is that Plaintiffs’

Complaint does not allege that the Corporate Defendants had an "interest in or control" of

the enterprise, the Union. However, a review of the Complaint sets forth multiple instances

demonstrating the alleged control implemented over the Union. For instance, the Plaintiffs

allege that the Corporate Defendants provided preferential treatment to the Union agents so

as "to have an interest in or control over the union's collective bargaining and grievanceprocessing decisions." (Compl.¶42, 43). Plaintiffs also allege that the Corporate Defendants

provided preferential treatment to the Union agents to influence "their implied power to

create or eliminate labor strife." (Compl.¶26). Lastly, Plaintiffs allege that the Corporate

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Defendants forgave the Union debt that was owed to them based upon the payments made

by Dex to Defendant Ortega-Matson for time spent conducting Union business. (Compl.¶24).

It is based upon these allegations that Plaintiffs claim that the Corporate Defendants

possessed an "interest in or control of" the Union.

 As noted by the Ninth Circuit, there is little case law addressing the term "control."

Ikuno v. Yip, 912 F.2d 306, 310 (9th Cir. 1990). Thus, the Ninth Circuit turned to the Second

and Seventh Circuit for assistance. In Sutliff, Inc. v. Donovan Co., 727 F.2d 648, 653 (7th

Cir.1984), the court opined that control within the meaning of § 1962(b) need not be formal

control and "need not be the kind of control that is obtained, for example, by acquiring a

majority of the stock of a corporation." (citing United States v. Jacobson, 691 F.2d 110, 112

(2d Cir.1982) (per curiam)); see also Cincinatti Gas & Elec. Co. v. General Electric Co., 656

F. SUPP. 49, 85 (S.D.Ohio 1986) (party found to have control under § 1962(b) when it had

voting rights and was directly involved in management). In relying on this holding, the Ninth

Circuit found that "control under § 1962(b) is best determined by the circumstances of each

case and does not require formal control such as the holding of majority stock or actual

designation as an officer or director." Ikuno, 912 F.2d at 310. Thus, in Ikuno, the Ninth

Circuit found sufficient evidence to survive summary judgment on the issue of control based

upon evidence demonstrating that the defendant attorney was the incorporator of the entity,

negotiated a lease for it, signed its corporate reports in a space designated for officers and

directors of the corporation and held himself out as the company's attorney. Id. at 310.

The Corporate Defendants contend that even though the "interest in or control of"

standard may be based upon formal or informal control by the defendant over the enterprise,

the plaintiff is still required to demonstrate some degree of "actual command" over the

enterprise. The Corporate Defendants argue that Ikuno supports this conclusion as the

defendant attorney "acted for a ‘phantom corporation’ by incorporating it, negotiating its

leases, filing and signing its annual reports, and acting as an attorney" Id. at 308. Further,

in Sutliff the defendants "took advantage of [incapacitated] mental state of formal head of

company to require de facto command." However, these cases do not provide as strong a

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showing of "actual command" as the Corporate Defendants would like. Rather, these cases,

like the instant case, demonstrate that some degree of control by the defendant must exist

over the enterprise based upon the circumstances of each case. This degree of control is

alleged in this case.

Thus, Plaintiffs' allegations adequately allege the requisite degree of "interest in or

control of" pursuant to § 1962(b). 

(b) Distinct Injury

The Corporate Defendants further argue that Plaintiffs' claim under § 1962(b) fails

because Plaintiffs' fail to allege the existence of a distinct injury. The Corporate Defendants

rely on the Ninth Circuit's holding in Wagh v. Metris Direct, Inc., 363 F.3d 821, 830 (9th Cir.

2003), which stated that to state a RICO claim under § 1962(b), a plaintiff must allege "an

injury to plaintiff resulting from defendant's control of a RICO enterprise." (citing Sebastian

Int'l, Inc., v. Russolillo, 186 F. Supp.2d 1055, 1068 (C.D.Cal. 2000)). The Corporate

Defendants argue that dismissal of Plaintiffs' claim on this basis is appropriate for three

reasons: (1) Plaintiffs' Complaint alleges the injuries caused by the predicate act and the

injuries caused by Qwest and Dex alleged control of the Union are identical; (2) Plaintiffs'

allegations are "general, conclusory and vague;" and (3) Plaintiffs' fail to satisfy RICO's

general injury requirement. 

First, the Corporate Defendants argue that Plaintiffs' damages are not distinct because

the predicate act and resulting injury of preferential treatment are one in the same. The

Corporate Defendants cite that Plaintiffs' Complaint asserts that the predicate act allegedly

used to gain control of the Union was "preferential treatment" by Dex of the Union agents

in violation of 29 U.S.C. § 186(a) and (b) (Compl. ¶41). However, a reading of the entirety

of ¶43 relates that "Plaintiffs were and are injured by Dex's (and previously Qwest's) interest

in or control over the Union because that interest in or control leads to concessions by the

Union in collective bargaining that are unfavorable to Plaintiffs, perfunctory processing of

Plaintiffs' grievances by the Union, and a continuation of the preferential treatment given the

Union agents, which directly reduces Plaintiffs' compensation." (Id.). Thus, other than

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damages based upon preferential treatment, Plaintiffs allege damages based upon loss of

control in collective bargaining agreements, processing of grievances and a reduction of

compensation. 

Second, the Corporate Defendants' argument that the injuries other than "preferential

treatment" mentioned above, are "general, conclusory and vague" is also unavailing. In In

re Teledyne Defense Contracting Litigation, 849 F. Supp. 1369, 1373 (C.D. Cal. 1993), the

district court dismissed the plaintiff's § 1962(a) and (b) claims because plaintiffs failed to

explain how damages were caused "by reason of" either use of investment or of racketeering

income or acquisition or control of interest in the RICO enterprise. The plaintiffs' complaint

in In Re Teledyne related only that the plaintiffs sustained damages in the form of

expenditures of money as a result of the corporation's retention of defense contracts and other

fraudulent and illegal actions. Id. Thus, because there was no averment or explanation of

how to damages were cause "by reason of" the defendants' use or investment of racketeering

income or defendants' acquisition or control of an interest in the RICO enterprise, the

plaintiffs' § 1962(b) claim failed. Id. (citing Imagineering Inc., v. Keiwit Pacific Co., 976

F.3d 1303, 1311 (9th Cir. 1992)(stating that RICO claim must be "but for" as well as

"proximate cause" of injuries complained of). In other words, "to maintain a cause of action

under RICO then, the plaintiff must show not only that the defendant's violation was a "but

for" cause of his injury, but that it was the proximate cause as well. This requires that there

must be a direct relationship between the injury asserted and the injurious conduct alleged.

Imagineering, 976 F.2d at 1311. Plaintiffs' Complaint sufficiently sets forth such causation.

Specifically, as noted above, Plaintiffs allege that the Defendants have engaged in

racketeering activities and use their influence to maintain in interest in or control over the

Union in the form of preferential treatment to the Union agents, thus resulting in the

Corporate Defendants exercise of a degree of control over the Union, control over the

collective bargaining process, control over grievance procedures and continued preferential

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It is important to bear in mind that at the 12(b)(6) stage of litigation in a RICO case,

"general factual allegations of injury resulting from the defendant's conduct may suffice...

[as] general allegations embrace those specific facts that are necessary to support the claim."

National Organization for Women, Inc., v. Scheidler, 510 U.S. 249, 256, 114 S.Ct. 798

(1994) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130 (1992). 

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treatment to the Union agents which adversely bears on the Plaintiffs' compensation. These

allegation sufficiently allege a relationship between the injury and the conduct.5

 

Lastly, the Corporate Defendants note that the Ninth Circuit in Oscar v. University

Students Co-op. Ass'n, 965 F.2d 783, 785 (9th Cir. 1992) held that a showing of "injury"

requires proof of "concrete financial loss" and not mere injury to an intangible property

interest. (citing Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir. 1990). Thus, the

lesson in Berg, as noted in Oscar, is that "injuries to property are not actionable under RICO

unless they result in tangible financial loss to the plaintiff." Id. The court in Oscar affirmed

the district court's dismissal upon a 12(b)(6) motion because of the plaintiff's failure to allege

any financial loss which would be compensable under RICO. Specifically, the plaintiff did

not allege any out-of-pocket expenditures, but rather relied only on a "decrease in the value

of her property." Id. In the instant case, Plaintiffs have sufficiently alleged a "concrete

financial loss." For instance, Plaintiffs, as premise sales representatives, allege that as a

result of Defendants' racketeering activities they are adversely affected personally and

financially. Moreover, Plaintiffs allege because of the preferential treatment given to the

Union agents, that the Plaintiffs have sustained reduced compensation. (Compl.¶43). Such

allegations adequately state the existence of a "concrete financial loss." For example, in

Steele v. Hospital Corp. of America, 36 F.3d 69, 70 (9th Cir. 1994) the Ninth Circuit

explained that the plaintiffs RICO claim was subject to dismissal based upon lack of standing

due to plaintiffs' claim for damages arising out fraudulent health care billings that the

plaintiffs' insurers paid. The Ninth Circuit noted that because the plaintiff patients had paid

none of the fraudulent charges out of their own pockets, but were covered by insurance, they

suffered no financial loss. Unlike Steele, in the instant case, Plaintiffs are making a claim

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for "concrete financial loss" in the form of lost compensation to them personally due to the

alleged racketeering activities of the Defendants. 

Thus, in reviewing the allegation set forth in Plaintiffs' § 1962(b) claim, the Court

finds that Plaintiffs adequately state a claim. 

(2) Section 1962(c) Analysis 

(a) Count III

In Count III of Plaintiffs' Complaint they assert a claim based upon § 1962(c), which

prohibits a person "employed or associated with any enterprise" from using a pattern of

racketeering activity to "conduct or participate, directly or indirectly, in the conduct of such

enterprise's affairs." Specifically, the Corporate Defendants argue that Plaintiffs fail to allege

that the Corporate Defendants directed the Union's affairs as the allegations asserted are

"vague and conclusory."

As Defendants point out, in Reves v. Ernst & Young, 507 U.S. 170, 185, 113 S.Ct.

1163 (1993) the Supreme Court stated that "to conduct or participate, directly or indirectly,

in the conduct of such enterprise's affairs," one must conduct or participate in the operation

or management of the enterprise itself. In reviewing the Plaintiffs' Complaint it is apparent

to the Court that Plaintiffs have set forth sufficient allegations regarding such participation

by the Corporate Defendants in exercising some degree of control over the Union. For

instance, Plaintiffs allege that the Corporate Defendants have acquired and maintain an

interest in or control over the Union based upon consideration in the form of "preferential

treatment" to the Union agents, who in turn grant the Corporate Defendants an interest in or

control over the management of the Union, such as management of contracts and the power

to create or eliminate labor strife. (Compl. 49, 24-26). These allegations adequately inform

the Defendants of the alleged control or participation in the Union by the Corporate

Defendants.

(b) Count IV

The Corporate Defendants move to dismiss Count IV which is also based upon §

1962(c). Specifically, the Corporate Defendants argue that dismissal of Count IV is

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appropriate because of the failure to plead the existence of an "association-in-fact enterprise."

Pursuant to 18 U.S.C. § 1961(4) an enterprise is defined as a "union or group of individuals

associated in fact although not a legal entity." Both parties cite the Ninth Circuit's discussion

of the existence of an "enterprise" in RICO actions in Chang v. Chen, 80 F.3d 1293, 1299-

1300 (9th Cir. 1996). In Chang, the Ninth Circuit held that "[a]t a minimum, to be an

enterprise, an entity must exhibit "some sort of structure ... for making of decisions, whether

it be hierarchal or consensual." (citing United States v. Riccobene, 709 F.2d 214, 223-24 (3d

Cir 1983)) cert denied, 464 U.S. 849 (1983)). Additionally, the Ninth Circuit instructed that

the "structure should provide some mechanism for controlling and directing the affairs of the

group on an on-going, rather than an ad-hoc, basis." Id. However, "[t]he structure

requirement 'does not mean that every decision must be made by the same person, or that

authority may not be delegated.'" Id. 

The Corporate Defendants contend that dismissal of this claim is proper due to the

Plaintiffs' failure to make any allegations explaining the hierarchal relationship or decisionmaking structure of the alleged association in fact. However, again, the Court finds this

argument unavailing. The Plaintiffs' Complaint provides sufficient allegations demonstrating

the existence of an "association in fact" structure. For instance, it is important to note that

the Complaint alleges the existence of involvement by the Corporate Defendants themselves,

i.e., Defendant Dex and Qwest. This involvement provides a sufficient basis for establishing

the requirement of a separate structure. In Chang, the Ninth Circuit noted that in such

instances it has found a separate structure based upon associating in fact to commit unlawful

activity. Id. at 1300 (citing United States v. Feldman, 853 F.2d 648, 660 (9th Cir. 1988)).

The detrimental aspect of the plaintiff's allegations of such a structure in Chang was that the

corporation involved was not alleged to play any role in the alleged enterprise. Id. at 1301.

Here, however, the Plaintiffs have expressly named the Corporate Defendants as defendants

in this case and have identified the alleged role they played in the alleged scheme in

providing preferential treatment to the Union agents and forgiving the Union debt. In such

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circumstances, there is sufficient basis to find the existence of an association-in-fact

enterprise.

(3) Section 1962(d) Analysis 

The Corporate Defendants contend that because Plaintiffs have failed to state a claim

under the other applicable sections of § 1962 that Plaintiffs' § 1962(d) claim must also be

dismissed. However, such argument is without merit as the Court has determined that the

other RICO claims are sufficiently alleged so to proceed forward. 

C. Summary of Corporate Defendants' Motion to Dismiss

Plaintiffs' RICO claims are not barred by the applicable statute of limitations as

contested in the Corporate Defendants' Motion to Dismiss. Rather, there are factual issues

outstanding with respect to when Plaintiffs first became aware of their injuries. If Plaintiffs

became of their injuries subsequent to September 19, 2001, Plaintiffs' claims are timely.

However, the Court finds that application of the "separate accrual rule" is not applicable as

Plaintiffs' Complaint does not relate predicate acts that are "new and independent" that

produce "new and accumulating" injuries. Additionally, Plaintiffs waive any argument that

the doctrine of equitable tolling saves their RICO claims. Lastly, the Court finds that

Plaintiffs adequately state their RICO claims under Rule 12(b)(6) analysis and the claims are

not subject to dismissal on this basis.

D. Union Defendants' Challenges to Plaintiffs' RICO and LMRA Claims. 

In addition to joining the Corporate Defendants' Motion to Dismiss, the Union

Defendants also challenge Plaintiffs' RICO claims as well as Plaintiffs' LMRA claims.

Specifically, the underlying predicate acts of the RICO claims are the violations of the

LMRA asserted by Plaintiffs. As such, the Union Defendants claim that because the LMRA

claims fail to state a claim and the RICO predicate acts are based upon Plaintiffs' LMRA

claims, both the LMRA and RICO claims must be dismissed.

(1) Applicability of 29 U.S.C. § 186(c)(1). 

Plaintiffs assert claims pursuant to the LMRA (commonly referred to as § 302);

specifically relying on § 186(a) and (b). § 186(a) provides in pertinent part:

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It shall be unlawful for an employer or association or employers or any person

who acts as a labor relations expert, adviser, or consultant to an employer or

who acts in the interest of an employer to pay, lend, or deliver, or agree to pay,

lend, or deliver, any money or thing of value - 

(1) to any representative of any of his employees who are employed

in an industry affecting commerce; or 

(2) to any labor organization, or any officer or employee thereof,

which represents, seeks to represent, or would admit to

membership, any of the employees of such employer who are

employed in an industry affective commerce; or 

(4) to any officer or employee of a labor organization engaged in an

industry affecting commerce with intent to influence him in

respect to any of his actions, decisions, or duties as a

representative of employees or as such officer or employee of

such labor organization.

Additionally, § 186(b)(1) provides in pertinent part:

It shall be unlawful for any person to request, demand, receive, or accept, or

agree to receive or accept, any payment, loan, or delivery of any money or

other thing of value by subsection (a) of this section. 

Plaintiffs allege that the Defendants violated these provisions by manipulating the SPE

score applicable to the Union agents, resulting in extraordinary income and such preferential

treatment constitutes "things of value." (Compl.¶67-73). Additionally, Plaintiffs allege that

the Defendants violated these provisions by forgiving the debt owed by the Union. (Id).

Lastly, Plaintiffs allege the Defendants violated the above provisions by accepting the debt

forgiveness. (Id). 

The Union Defendants argue; however, that these allegations do not state a claim

under the LMRA because the alleged conduct falls within an applicable exception of § 186;

specifically (c)(1). This provision relates in pertinent part:

The provisions of this section shall not be applicable (1) in respect to any

money or other thing of value payable by an employer to any of his employees

whose established duties include acting openly for such employer in matters

of labor relations or personnel administration or to any representative of his

employees, or to any officer or employee of a labor organization, who is also

an employee or former employee of such employer, as compensation for, or

by reason of, his service as an employee of such employer...

The Union Defendants rely on the language of § 186(c)(1) for the proposition that any

and all conduct is excluded as actionable where the employer provides a labor organization

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and its representatives with "things of value" for the purpose of influencing the collective

bargaining relationship. (Union Defendants Motion to Dismiss, p.7). Specifically, the Union

Defendants argue that the two categories of violations that Plaintiffs assert under the LMRA;

(1) alleged favoritism to the Union agents and (2) forgiveness of the Union's alleged

indebtedness by Dex are not actionable. 

(a) Alleged Favoritism to Union Agents Does Not Fall Within

Scope of § 186(c)(1). 

The Union Defendants contend that the preferential treatment that the Corporate

Defendants allegedly provide falls within the scope of § 186(c)(1) "by reason of their

services in selling the products of the employer" because "[b]ut for the fact that they perform

sale services for their employer... they would not receive preferential treatment of any kind."

(Union Defendants' Motion to Dismiss, p.8). Conversely, Plaintiffs argue that such

preferential from Dex to the Union agents is not exempt under § 186(c)(1) because it is

"above and beyond the treatment to which sales representatives are entitled under the labor

contract and written Company policy" and thus the preferential treatment is not

"compensation for, or by reason of, [their] service as an employee of [Dex]" but is a bribe

to influence the Union agents actions. (Plaintiffs' Response to Union's Motion to Dismiss,

p.9). 

The Ninth Circuit's decision in Machinists Lodge 964 v. BF Goodrich Aerospace, 387

F.3d 1046 (9th Cir. 2004) is instructive. In Machinists, the court was presented with the

legality of a collective bargaining agreement that called for the payment from the employer

to pay the salary and benefits of a "Chief Shop Steward" who processed grievances. Id. at

1048. The Ninth Circuit held that the collective bargaining provision which called for the

employer to pay the salary and benefits owed to the steward did not violate the LMRA, and

relied upon § 186(c)(1). The Ninth Circuit accepted the "core" of the union's argument

which was that the steward should be excepted because he served the interests of the

employer by playing an integral role in enforcing the terms of the collective bargaining

agreement and resolving disputes. Id. at 1057. In other words, the steward's compensation

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was attributable to his "service" to the employer. Id. (emphasis added). The Ninth Circuit

also made sure to note that § 302(c)(1) is not applicable to instances in which the person

simply remains on the company's payroll. Specifically, "Section 302(c)(1) legalizes

payments to current or former employees based on their 'services' as employees, not their

'status' as such." Id. Thus, the holding in Machinists makes clear that the payment to an

employee union representative from the employer is not to be made irrespective of the actual

services he or she provides the employer. Rather, such payments, that fall within the scope

of § 186(c)(1) have a direct correlation to the services rendered. See also United States v.

Phillips, 19 F.3d 1565, 1575 (11th Cir. 1994) (stating that "[w]hether as 'compensation for'

or 'by reason of' service to any employer, all payments from an employer to a union official

must relate to services actually rendered by the employee for the section 186(c)(1) exception

to apply."). 

Here, the allegations made by Plaintiffs relate to unjust payments made to the Union

agents that fall outside the scope of "services" that the Union agents perform as employees

of Dex. Rather, Plaintiffs allege that the Union agents have accepted bribes from Dex in

exchange for providing undue employer influence in labor relations. Such allegations exceed

the scope of "services" to which the Union agents are entitled from the Corporate Defendants

in the course of their employment as sales representatives and do not relate to services

actually rendered. Because these allegations are not exempted by § 186(c)(1) they

adequately state a claim in support of a LMRA violation and, in turn, a RICO predicate act.

(b) § 186(c)(1) Does Not Apply To Plaintiffs' Debt Forgiveness

Allegations

In addition, the Union Defendants argue that Plaintiffs' LMRA claims based upon the

unlawful arrangement between the Corporate Defendants and the Union regarding the

forgiveness of Union debts by Dex is excepted by § 186(c)(1). However, by its terms §

186(c)(1) exempts only money or things of value payable to employees from the employer

for established services such as labor relations. Here, Plaintiffs' allegations of debt

forgiveness to the Union fall outside the scope of § 186(c)(1) as that provision applies only

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to employees and former employees. Moreover, even if such allegations touched on §

186(c)(1), as noted above, it would not apply to the allegations at issue. Contrary to the

Union Defendants' position, Plaintiffs are not contesting standard payments to the Union

agents from the Corporate Defendants, but are contesting unjust payments based upon

preferential treatment that are not based upon the Union agents service or normal scope of

duties with the Corporate Defendants. Such allegations fall outside the scope of "no

docking" provisions, upon which the Union Defendants rely which in certain situations

authorize payments to Union agents by the employer. See Machinists, 387 F.3d at 1052-60

(finding that provision of collective bargaining agreement requiring employer to pay salary

of chief shop steward for his work as employee representative did not violate the LMRA and

fell within exception of § 186(c)(1) where his work served the company's interests). Here,

Plaintiffs are challenging an apparent scheme between the Defendants that provides for

payments to the Union agents irrespective of their service with the Corporate Defendants, as

such § 186(c)(1) is not applicable and Plaintiffs adequately state a claim and a RICO

predicate act. 

Accordingly,

IT IS HEREBY ORDERED denying the Corporate Defendants' Motion to Dismiss.

(Dkt.#12). The Court cannot determine at this time if Plaintiffs' claims are untimely as the

date Plaintiffs' discovered their injuries is a question of fact. Otherwise, Plaintiffs' RICO

claims adequately state a claim. 

IT IS FURTHER ORDERED denying the Union Defendants’ Motion to Dismiss.

(Dkt.#13). 

DATED this 7th day of July, 2006.

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