Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_08-cv-00081/USCOURTS-caed-1_08-cv-00081-4/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 15:1692 Fair Debt Collection Act

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

DELORES JOHNSON, CASE NO. CV F 08-0081 LJO SMS

Plaintiff, ORDER ON DEFENDANT CHASE BANK’S

MOTION TO DISMISS RICO CLAIM

vs. (Doc. 33.)

JP MORGAN CHASE BANK, et al,

Defendants.

 /

INTRODUCTION

Defendant Chase Bank USA, N.A. (“Chase Bank”) seeks to dismiss plaintiff Delores Johnson’s

(“Ms. Johnson’s”) civil Racketeer Influenced and Corrupt Organizations Act (“RICO”) claim on grounds

that Ms. Johnson’s first amended complaint (“FAC”) fails to allege necessary elements for the claim.

Ms. Johnson contends that the FAC sufficiently alleges RICO elements. This Court considered Chase

Bank’s F.R.Civ.P. 12(b)(6) motion to dismiss on the record and VACATES the May 5, 2008 hearing,

pursuant to Local Rule 78-230(h). For the reasons discussed below, this Court DISMISSES with

prejudice the RICO violation claim against Chase Bank. 

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BACKGROUND1

Debt Collection

In 2004, creditors initiated collection of Ms. Johnson’s debts. Ms. Johnson received defendant

Lake Valley Retrievals, Inc.’s (“Lake Valley Retrievals’”) August 10, 2004 letter that Lake Valley

Retrievals was an assigned a debt owed by Ms. Johnson on a former Chase Bank account which had

been purchased by defendant Lake Valley Investments. Ms. Johnson purportedly owed $2,075.76 on

the account with $139.50 in accrued interest. Ms. Johnson contacted Lake Valley Retrievals to dispute

the debt in that she never had a Chase Bank account. 

On August 27, 2004, defendant Unifund CCR Partners (“Unifund”), as an assignee of Lake

Valley Retrievals, initiated a state court debt collection action (“collection action”) against Ms. Johnson

to collect on the former Chase Bank account. Although she had no record of the Chase Bank account,

Ms. Johnson did not respond to the collection action because she surmised that Chase Bank acquired

one of her other accounts to give rise to the purported debt. Ms. Johnson attributes her wrongful belief

to the “insistent representations of Lake Valley Retrievals.” Despite her initial dispute of the claim,

Unifund continued the litigation against her and made false reports to credit reporting agencies based

on false information. On December 20, 2004, Unifund obtained judgment against Ms. Johnson based

on false affidavits. Unifund transferred its rights and interests in the collection action back to Lake

ValleyRetrievals. Lake ValleyRetrievals assigned the collection action to defendant V.I.P. Adjustment

Bureau, Inc. (“V.I.P.”), which transferred the collection action to defendant Bag Fund LLC (“Bag

Fund”). Each month, $100 of Ms. Johnson’s wages were garnished, pursuant to an earnings withholding

order in the collection action. 

Fraudulent Account Discovery

Chase Bank’s December 27, 2006 letter informed Ms. Johnson that, upon investigation, Chase

Bank had determined that its former account, for which she had been sued, was based on fraudulent

transactions and that Ms. Johnson was not responsible for the debt. According to Ms. Johnson, an

internal flaw in ChaseBank’srecord keeping system permitted a credit card account to be opened in Ms.

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This Court dismissed with leave to amend the RICO violation claim of Ms. Johnson’s original complaint 2

in the absence of sufficient allegations of the parties and their individual roles in the alleged conspiracy. This Court

explained: “Ms. Johnson must make her conspiracy allegations more specific to give Chase Bank notice of specific conduct

against which it must defend.”

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Johnson’s name without her knowledge or permission. Ms. Johnson notified Chase Bank and its

assignees that the Chase Bank debt was based on fraudulent transactions, but they refused to cease

collection efforts and continued to garnish Ms. Johnson’s wages. 

On August 9, 2007, the state court set aside the default judgment in the collection action and

allowed Ms. Johnson to respond to the complaint. The court recalled and quashed the earnings

withholding order. On August 29, 2007, Ms. Johnson answered the complaint and asserted defenses of

the “fraudulent nature of the transactions” giving rise to the Chase Bank debt.

Ms. Johnson’ RICO Claim Against Chase Bank

The FAC’s (sixth) RICO violation cause of action is the target of Chase Bank’s motion to

dismiss. The cause of action alleges that Chase Bank and the other defendants conspired “to engage 2

in unwarranted collection activities against Plaintiff, although there was no documentation that Plaintiff

owed the debt that was the subject of the collection activities.” The cause of action further alleges: “To

carry out the plan, Defendants communicated with Plaintiff both by means of the mail and in telephone

calls that she owed a debt on a CHASE credit account.” The cause of action continues that defendants,

to further the conspiracy’s end, “used the mails and telephone wires to effect this series of sales and

assignments of the purported debt among themselves to obscure that the debt was the result of fraudulent

transactions not involving Plaintiff.” More specific as to Chase Bank, the cause of action alleges that

Chase Bank “used the mails and phone line to negotiate an assignment of the account identified with

Plaintiff’s name to Roger Grifka on behalf of LAKE VALLEY INVESTMENTS and LAKE

RETRIEVALS.” The cause of action notes that defendants’ acts are prohibited under 18 U.S.C. §

1962(c) and (d).

DISCUSSION

F.R.Civ.P. 12(b)(6) Motion To Dismiss Standards

Chase Bank seeks to dismiss Ms. Johnson’s (sixth) RICO violation cause of action for failure

to allege necessary elements. A F.R.Civ.P. 12(b)(6) motion to dismiss is a challenge to the sufficiency

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of the pleadings set forth in the complaint. “When a federal courtreviewsthe sufficiency of a complaint,

before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited

one. The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to

offer evidence to support the claims.” Scheurer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683 (1974);

Gilligan v. Jamco Development Corp., 108 F.3d 246, 249 (9 Cir. 1997). A F.R.Civ.P. 12(b)(6) th

dismissal is proper where there is either a “lack of a cognizable legal theory” or “the absence of

sufficient facts alleged under a cognizable legal theory.” Balisteri v. Pacifica Police Dept., 901 F.2d

696, 699 (9 Cir. 1990); Graehling v. Village of Lombard, Ill., 58 F.3d 295, 297 (7 Cir. 1995). th th

F.R.Civ.P. 12(b)(6) dismissal is proper when “plaintiff can prove no set of facts in support of his claim

which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102 (1957).

In resolving a F.R.Civ.P. 12(b)(6) motion, the court must: (1) construe the complaint in the light

most favorable to the plaintiff; (2) accept all well-pleaded factual allegations as true; and (3) determine

whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty

Mut. Ins. Co., 80 F.3d 336, 337-338 (9th Cir. 1996). “However, conclusory allegations of law and

unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d

696, 699 (9 Cir. 1998). A court need not permit an attempt to amend a complaint if “it determines that th

the pleading could not possibly be cured by allegation of other facts.” Cook, Perkiss and Liehe, Inc. v.

N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9 Cir. 1990). “While a complaint attacked by a Rule

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12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide

the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955,

1964-65 (2007) (internal citations omitted). 

With these standards in mind, this Court turns to Chase Bank’s criticism of the FAC’s RICO

violation claims.

RICO Violations

The sixth cause of action alleges RICO violations under subsections (c) and (d) of 18 U.S.C. §

1962 (“section 1962") and which provide:

(c) It shall be unlawful for any person employed by or associated with any enterprise

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engaged in, or the activities of which affect, interstate or foreign commerce, to conduct

or participate, directly or indirectly, in the conduct of such enterprise's affairs through a

pattern of racketeering activity or collection of unlawful debt.

(d) It shall be unlawful for any person to conspire to violate any of the provisions of

subsection (a), (b), or (c) of this section.

A violation of § 1962(c) “requires (1) conduct (2) of an enterprise (3) through a pattern (4) of

racketeering activity. The plaintiff must, of course, allege each of these elements to state a claim.”

Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275 (1985).

Chase Bank faults the sixth cause of action’s failure to reference an “enterprise,” “associated-infact enterprise” or “anycontinuing structure of authority, organization, or decision-making framework.”

Chase Bank notes the allegation that defendant Jay Bernstein (“Mr. Bernstein”), a collection manager

for Lake Valley Retrievals, “guided the operation of the conspiracy” and the absence of allegations as

to his decisions and communications with Chase Bank. Chase Bank points out that the cause of action

limits Chase Bank’s activity to use of wires or mails to negotiate assignment of its account in 2004 and

telephone calls between Chase Bank and Ms. Johnson in 2006 and 2007, during one of which Chase

Bank advised Ms. Johnson that she was not liable for the debt. Chase Bank concludes that the cause

of action lacks “specification of how CHASE participated in the alleged conspiracy” given the limited

allegation that it merely sold the debt to Lake Valley Investments and the absence of allegations of a

“structure or agreement to connect Chase with a conspiracy to collect the account and dispose of the

proceeds.”

Ms. Johnson argues that the sixth cause of action satisfies the enterprise element because it

identifies Mr. Bernstein “as the person that guided the operation of the association in fact from his

numerous management positions among the corporate defendants.” Ms. Johnson argues the existence

of an “association-in-fact” of the named defendants “who together engage in the business of extending

credit and then assigning incurred debt among themselves for collection” under the cover of “legitimate

business endeavors” to attempt “to collect on fraudulent transactions from innocent customers.” Ms.

Johnson notes that she asserts a RICO conspiracy to collect a “fraudulent debt” which never existed and

that defendants “engaged in racketeering activity by the way they used and profited from this falsified

liability.” As to Chase Bank, Ms. Johnson claims it “facilitated the conspiracy when it allowed a

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fraudulent account to be handled as a typical delinquent account and sold to the other Defendants for

collection.”

18 U.S.C. § 1961(4) defines “enterprise” to include “any individual, partnership, corporation,

association, or other legal entity, and any union or group of individuals associated in fact although not

a legal entity.” “The enterprise is an entity, for present purposes a group of persons associated together

for a common purpose of engaging in a course of conduct.” United States v. Turkette, 452 U.S. 576,

583, 101 S.Ct. 2524 (1981). An enterprise “is proved by evidence of an ongoing organization, formal

or informal, and by evidence that the various associates function as a continuing unit.” Turkette, 452

U.S. at 583, 101 S.Ct. 2524. “The ‘enterprise’ is not the ‘pattern of racketeering activity’; it is an entity

separate and apart from the pattern of activity in which it engages.” Turkette, 452 U.S. at 583, 101 S.Ct.

2524. 

An “associated-in-fact enterprise under RICO does not require any particular organizational

structure, separate or otherwise.” Odom v. Microsoft Corp., 486 F.3d 541, 551 (9 Cir. 2007). An th

“associated-in-fact enterprise ‘is a group of persons associated together for a common purpose of

engaging in a course of conduct.’” Odom, 486 F.3d at 552 (quoting Turkette, 452 U.S. at 583, 101 S.Ct.

2524). “To establish the existence of such an enterprise, a plaintiff must provide both ‘evidence of an

ongoing organization, formal or informal,’ and ‘evidence that the various associates function as a

continuing unit.’” Odom, 486 F.3d at 552 (citing Turkette, 452 U.S. at 583, 101 S.Ct. 2524). Moreover,

“ it is essential to plead precisely in a RICO case the enterprise alleged and the RICO section allegedly

violated.” Reynolds v. East Dyer Development Co., 882 F.2d 1249, 1251 (7 Cir. 1989). th

The sixth cause of action fails to allege an enterprise for a section 1962(c) claim against Chase

Bank. The cause of action merely alleges a conspiracy to collect unlawfully a debt and numerous

communications among defendants and to Ms. Johnson and credit reporting agencies. Allegations as

to Chase Bank’s communications with other defendants are limited to its notification that Chase Bank

sold the account to Lake Valley Retrievals. As to Chase Bank, the sixth cause of action lacks facts to

support an enterprise which exists independently from alleged racketeering activity. Chase Bank

correctly notes that the FAC fails to “allege an organization that functions as a continuing unit and has

an existence separate and apart from the pattern of activity in which it engages.” (Underlying in

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original.) As such, Mr. Johnson’s section 1962(c) against Chase Bank fails.

Chase Bank further challenges the sufficiency of allegations of racketeering activity. 18 U.S.C.

§ 1961(5) defines “pattern of racketeering activity” to require “at least two acts of racketeering activity,

one of which occurred after the effective date of this chapter and the last of which occurred within ten

years (excluding any period of imprisonment) after the commission of a prior act of racketeering

activity.” Chase Bank argues that if its 2004 sale of its account was a racketeering activity, the FAC

alleges no other act of wire fraud or mail fraud as to Chase Bank given that the FAC alleges Chase

Bank’s further communication was limited to its December 27, 2006 letter to inform Ms. Johnson that

she was not responsible of the credit card at issue. The FAC’s failure to allege two independent acts of

racketeering defeats Ms. Johnson’s RICO claim against Chase Bank.

Moreover, since Ms. Johnson has failed to satisfy pleading requirements for a section 1962(c)

claim, she in turn fails to satisfy pleading requirements for a section 1962(d) claim. See Wagh, 363 F.3d

at 831. Ms. Johnson fails to demonstrate a further attempt at amendment is warranted given the absence

of facts for a section 1962 claim against Chase Bank.

CONCLUSION AND ORDER

For the reasons discussed above, this Court DISMISSES with prejudice the (sixth) RICO

violation cause of action against Chase Bank. 

IT IS SO ORDERED.

Dated: April 29, 2008 /s/ Lawrence J. O'Neill 

66h44d UNITED STATES DISTRICT JUDGE

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