Source: http://ma.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20170721_0000847.DMA.htm/qx
Timestamp: 2017-08-18 08:53:53
Document Index: 679293607

Matched Legal Cases: ['§ 1962', '§ 6', '§ 4', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1961', '§ 1961', '§ 1962', '§ 1962', '§ 1962']

REPORT AND RECOMMENDATION ON DEFENDANTS' MOTIONS TO DISMISS THE SECOND AMENDED COMPLAINT
The plaintiffs, Metropolitan Property and Casualty Insurance Company (“Metropolitan”) and The Commerce Insurance Company (“Commerce”) (collectively, “Plaintiffs” or “Carriers”), have brought this action against two chiropractic entities, their present and former principals, certain of their employees and various related entities and individuals, claiming that the defendants engaged in a fraudulent scheme to obtain insurance benefits from the Carriers by billing for chiropractic treatment that was “unreasonable and unnecessary, that [was] wrongfully and grossly exaggerated, not rendered in some cases, rendered by unlicensed personnel, rendered to non-injured body areas, as well as for magnified and fabricated symptoms and injuries, ” and by “filing, pursuing and prosecuting insurance claims based on such treatment and bills.” By their Second Amended Complaint, the Plaintiffs have asserted claims for violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c)-(d) (Counts I-IV), common law fraud/deceit (Count V), true conspiracy (Count VI), civil conspiracy (Count VII), breach of contract pursuant to Mass. Gen. Laws ch. 90 (Count VIII), intentional interference with contractual relations (Count IX), intentional interference with advantageous business relationships (Count X), and unfair and deceptive trade practices pursuant to Mass. Gen. Laws ch. 93A (“Chapter 93A”) (Count XI). In addition, the Plaintiffs have asserted claims for injunctive and equitable relief under Chapter 93A (Counts XII-XIII).
Metropolitan originally filed this action against a subset of the defendants in July 2015. Those defendants subsequently filed motions to dismiss the original complaint. However, before the court had an opportunity to rule on the pending motions, Metropolitan notified the court that it intended to amend the complaint in order to add new parties, claims and allegations, including but not limited to, the addition of Commerce as a plaintiff in the litigation. Accordingly, the District Judge to whom this case is assigned denied the motions to dismiss without prejudice, directed Metropolitan to file any motion for leave to amend its complaint by February 29, 2016, and gave the defendants an opportunity to oppose the proposed amended complaint on the merits. On June 15, 2016, following the completion of that process, the District Judge issued an Order on Pending Motions (“Order”) in which he denied the motion for leave to file an Amended Complaint without prejudice. As the District Judge ruled after denying Metropolitan's motion:
The Plaintiffs may file a revised Amended Complaint within 21 days of this order. The Court limits briefing on any motions related to the revised Amended Complaint, including with respect to the Metropolitan's motion to amend and motions to dismiss, to the following three issues: (1) whether the Plaintiffs adequately plead misrepresentation and fraud; (2) whether the allegations support an association-in-fact enterprise; and (3) whether the revised Amended Complaint passes muster with respect to any claims or parties not sufficiently plead in the proposed Amended Complaint, as discussed herein.
(Order (Docket No. 295) at 22). Shortly thereafter, the District Judge issued an electronic order in which he clarified his June 15, 2016 Order as follows:
Plaintiffs may file a Second Amended Complaint to cure the deficiencies in the Proposed Amended Complaint, in the existing claims as to the existing parties, identified by the Court after which defendants may file motions to dismiss challenging whether the Second Amended Complaint cures the deficiencies. The objections raised by the defendants in response to the Proposed Amended Complaint, but overruled by the Court are preserved without the necessity of renewal in response to the Second Amended Complaint. The motions, if any, will focus just on narrower set of issues.
(Docket No. 299). Metropolitan and Commerce then filed their Second Amended Complaint against 20 individual and corporate defendants.
The matter is presently before the court on the defendants' motions to dismiss the Second Amended Complaint (Docket Nos. 331, 334, 336, 337, 339 and 342), which have been filed by the following six categories of defendants: (1) the “Chiropractor Defendants” consisting of Richard McGovern, D.C., Marsella Imonti, D.C., Tara O'Desky, D.C., Allison Robin, D.C. and Charles Ronchetti, D.C.; (2) the “Paralegal Defendants” consisting of Brandy Soto and Heger Asenjo; (3) the “Chiropractic Assistants” consisting of William Hernandez, Maximo Soto, Arismeny Ramos, Tanisha Ramos, April Stewart and Karla Mendoza; (4) the “Moving Defendants” consisting of Logan Chiropractic, Inc. (“Logan”), Savin Hill Family Chiropractic, Inc. (“Savin Hill”), Kenneth Ramos, Tony Ramos and Metro Coach, Inc. (“Metro Coach”); (5) Jeffrey S. Glassman, Esq.; and (6) Attorney Glassman's law firm, the Law Offices of Jeffrey S. Glassman (“GLO”). Although the motions have been filed separately, the defendants have raised overlapping and substantially similar arguments in favor of dismissal.[1] Thus, the defendants contend that the Plaintiffs have failed to cure the specific deficiencies identified by the District Judge in his June 15, 2016 Order, and that dismissal is also warranted because the Plaintiffs' allegations are insufficient to satisfy the heightened standard for pleading fraud required by Fed.R.Civ.P. 9(b), or to state a plausible claim for relief pursuant to Fed.R.Civ.P. 12(b)(6). For all the reasons detailed herein, this court recommends to the District Judge to whom this case is assigned that the defendants' motions to dismiss the Second Amended Complaint be ALLOWED IN PART and DENIED IN PART. Specifically, this court recommends that the RICO claims asserted in Counts I and III, the claims for breach of contract asserted in Count VIII and the claims for intentional interference with contractual relations asserted in Count IX all be dismissed. However, this court recommends that the defendants' motions otherwise be denied.
When ruling on a motion to dismiss, the court must accept as true all well-pleaded facts, and give the plaintiffs the benefit of all reasonable inferences. See Cooperman v. Individual, Inc., 171 F.3d 43, 46 (1st Cir. 1999). However, due to the voluminous nature of the Second Amended Complaint, which consists of 166 pages of allegations and nearly 250 pages of exhibits, it is not feasible to provide a detailed description of the Plaintiffs' allegations in this case. Accordingly, this court will provide a general overview of the defendants' alleged scheme, including background information necessary to put the alleged scheme, and the defendants' alleged roles therein, in context. Additional factual details relevant to the parties' arguments will be provided in connection with this court's analysis of the defendants' specific challenges to the Plaintiffs' claims.[2]
The Plaintiffs' Obligations Under Massachusetts Law
The Plaintiffs, Metropolitan and Commerce, are insurance companies which underwrite motor vehicle insurance in Massachusetts. (Compl. ¶ 126). Massachusetts law requires that motor vehicle insurers, including the Plaintiffs, provide personal injury protection (“PIP”) benefits in every policy they issue. (Id. ¶ 127). See also Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 225-26, 950 N.E.2d 853, 857 (2011) (describing PIP benefits as part of the Massachusetts standard automobile insurance policy, and “the ‘central feature' of the Massachusetts ‘no-fault' automobile insurance system” (citation omitted)). The Plaintiffs claim that the constraints imposed upon them under the applicable statutory laws rendered them vulnerable to insurance fraud, and enabled the defendants to obtain millions of dollars in improper and unlawful insurance benefits payments. (See Compl. ¶¶ 7, 129-43, 417-28, 436-47).
Under Massachusetts law, “PIP benefits are payable for medical expenses, lost wages, and replacement services and may be claimed by, among others, any person who is injured while occupying an insured vehicle.” Golchin, 460 Mass. at 226, 950 N.E.2d at 857-58. The insurer is required to pay such benefits “upon receipt of reasonable proof of the fact and amount of expenses and loss incurred” by the claimant, and may be subject to liability if PIP benefits that are due and payable remain unpaid for 30 days, or if it is shown that the insurer knowingly or willfully failed to carry out the prompt, fair and equitable settlement of a claim for which liability is reasonably clear. (Compl. ¶¶ 129-30, 140). Chiropractic treatment, including any bills associated with such treatment, is presumed to be necessary and reasonable when sworn to by the licensed chiropractor who provided the claimant's treatment. (Id. ¶ 133).
The Plaintiffs claim that in order to comply with their obligations to process PIP claims promptly and fairly, they must rely on the representations of claimants' treatment providers. (Id. ¶ 132). This includes the providers' representations that the treatment given and the expenses incurred were reasonable, necessary and causally related to an event covered under the applicable insurance policy. (Id.). The Plaintiffs further assert that “[t]he Defendants have developed and implemented a scheme to exploit this statutory framework by utilizing the ‘necessary and reasonable treatment' presumption to wrongfully induce Metropolitan and Commerce to pay or settle false and inflated claims[.]” (Id. ¶ 142).
Overview of the Alleged Scheme to Defraud the Plaintiffs
The Plaintiffs claim that from January 2008 through the filing of the Second Amended Complaint on August 4, 2016, the defendants were carrying out a fraudulent scheme by soliciting and recruiting patients who had reportedly sustained injuries in automobile accidents and were eligible for PIP benefits under their automobile insurance policies, arranging for those patients to receive unnecessary and/or unreasonable chiropractic evaluations and treatment at Logan or Savin Hill, and seeking coverage for the costs of that treatment by submitting or facilitating the submission of bills to the Carriers. (See id. ¶¶ 1-5, 163). According to the Plaintiffs, the bills reflected chiropractic treatment that was “wrongfully and grossly exaggerated, not rendered in some cases, rendered by unlicensed personnel, rendered to non-injured body areas, as well as for magnified and fabricated symptoms and injuries.” (Id. ¶ 3). They further allege that the defendants participated knowingly and intentionally in a concerted effort to obtain improper insurance payments from the Carriers. (Id. ¶¶ 3, 5-6).
Allegedly, the coordinated actions of the defendants resulted in the submission of thousands of improper insurance claims over the course of the alleged 8 ½ year period, including claims for PIP benefits, bodily injury coverage and uninsured motorist benefits. (See id. ¶¶ 1, 9). However, the Plaintiffs claim that because the false nature of the chiropractic records were not apparent on a claim-by-claim basis, they were unable to detect the fraud or avoid paying benefits. (Id. ¶¶ 9-10). They further allege that they have incurred millions of dollars of damages as a result of the defendants' conduct. (See id. ¶¶ 418-24, 437-43). By their claims in this action, the Carriers are seeking both compensatory damages and injunctive relief against each of the defendants.
The Defendants' Alleged Roles in the Fraudulent Scheme
The Plaintiffs claim that the chiropractic bills at the heart of the alleged scheme were generated by defendants Logan and Savin Hill. (See id. ¶¶ 4, 64, 84). Both Logan and Savin Hill are Massachusetts corporations that were organized for the purpose of providing chiropractic services to individuals who allegedly suffered injuries, including injuries sustained as a result of motor vehicle accidents. (Id. ¶¶ 63, 83). Allegedly, Logan provided chiropractic services from its principal place of business in East Boston, Massachusetts, while Savin Hill provided chiropractic services from its principal place of business in Dorchester, Massachusetts. (Id. ¶¶ 66, 86).
According to the Plaintiffs, both of the chiropractic clinics were owned by defendants Kenneth Ramos (“K. Ramos”) and Brandy Soto (“B. Soto”) during the relevant time period, and William Hernandez (“Hernandez”) served as the President, Director, Treasurer and Secretary of Logan at various points during the time period from 2007 through 2009. (Id. ¶¶ 27, 67, 69-70, 88). They further claim that during the relevant time period, each of the Chiropractor Defendants and each of the Chiropractic Assistants worked as employees of both Logan and Savin Hill. (Id. ¶¶ 79, 98). Defendant Richard McGovern, D.C. (“Dr. McGovern”) allegedly served as the clinics' Chiropractor of Record, and was directly responsible for the clinics' compliance with Massachusetts regulations governing the practice of chiropractic care in the Commonwealth. (Id. ¶¶ 80, 99; see also id. ¶¶ 144-45). Defendants Tony Ramos (“T. Ramos”), Arismendy Ramos (“A. Ramos”) and Maximo Soto (“M. Soto”) allegedly served as custodians of records for the clinics, and were responsible for compiling paperwork relating to the submission of claims to insurance carriers, including to the Plaintiffs. (Id. ¶¶ 82, 101).
The Plaintiffs claim that the Chiropractor Defendants, including Drs. McGovern, Imonti, O'Desky, Robin and Rochetti, “knowingly and willingly participated in the administration of . . . fraudulent treatment practices to Metropolitan and Commerce claimants and/or patients” while working at Logan and Savin Hill. (Id. ¶ 333). In particular, the Plaintiffs allege that during the initial chiropractic evaluation of their patients, the Chiropractor Defendants generated false and/or exaggerated tests and findings, and intentionally neglected to “assess certain risk factors and/or patients' actual medical history and/or conditions.” (Id. ¶¶ 344-46). They also allege that the Chiropractor Defendants included fictitious, misleading and exaggerated orthopedic findings, prognoses, and diagnoses in the patients' examination reports. (Id. ¶ 348). The Plaintiffs contend that these practices were used to justify the use of a “predetermined chiropractic treatment program” that was neither medically reasonable nor necessary, and caused the patients, including the Carriers' claimants, to incur excessive medical expenses. (See id. ¶¶ 347, 349). As a result, the vast majority of patients at the clinics, including those who were insured by Metropolitan and Commerce, received a formulaic program of treatment, which consisted of identical treatment modalities and levels of care, and was designed to ensure that each patient would incur medical expenses in excess of $2, 000, the threshold necessary to recover damages for pain and suffering in tort actions arising out of the operation of a motor vehicle under Massachusetts law. (Id. ¶¶ 349, 355, 357). See also Mass. Gen. Laws ch. 231, § 6D.
Allegedly, the improper treatment practices were not limited to the activities of the Chiropractor Defendants. According to the Plaintiffs, the Chiropractic Assistants and other unlicensed employees of Logan and Savin Hill routinely administered chiropractic treatment to claimants of Metropolitan and Commerce, even though they knew that they lacked the qualifications required to provide such treatment. (Compl. ¶¶ 367, 374, 377-81). The Chiropractor Defendants would then sign the records, notes and bills relating to the allegedly unlicensed treatment in order “to provide these documents with a veil of legitimacy and conceal[ ] the fact that the person who rendered such treatment was unlicensed and/or unauthorized to do so.” (Id. ¶ 383). The Plaintiffs claim that the fraudulent paperwork was submitted to Metropolitan and Commerce in connection with claims for insurance coverage. (See id. ¶ 417).
Allegedly, the clinics billed the Carriers for the unlicensed treatment using CPT Code 97110, which requires direct one-on-one supervision by a licensed health care provider. (Id. ¶ 369). The clinics also submitted Health Insurance Claim Forms (“HICF”), which were completed by the Chiropractor Defendants, certifying that the chiropractic records and bills were “true, accurate and complete, ” that the services rendered were “medically indicated and necessary to the health of [the] patient, ” and that the treatment had been furnished by the Chiropractor Defendant or an employee under the Chiropractor Defendant's personal direction. (Id. ¶¶ 370-71, 373). The Plaintiffs allege that the clinics, with the knowledge and assistance of the Chiropractor Defendants and the Chiropractic Assistants, “fraudulently billed Metropolitan and Commerce by completing and signing HICF Forms using CPT Code 97110, for every claimant and/or patient that allegedly received therapeutic exercises rendered by . . . unlicensed medical staff and/or chiropractic assistants, ” including the Chiropractic Assistants. (Id. ¶ 372; see also id. ¶¶ 368, 378-81).
In addition to billing the Carriers for excessive treatment and treatment rendered by unlicensed staff members, the clinics allegedly billed the Carriers for treatment that was never provided to patients. (Id. ¶ 401). Thus, in Exhibit B to the Second Amended Complaint, the Plaintiffs have listed various instances in which they received bills from Logan and Savin Hill, which allegedly included charges for treatment that was not rendered, as well as charges for false, exaggerated or misleading findings and reports, charges for excessive chiropractic treatment and charges for treatment rendered by unlicensed individuals. (See id. at Ex. B). Similarly, in Exhibit C to the Complaint, the Plaintiffs have described various claims for which the clinics allegedly sought coverage for treatment that was never actually rendered and was otherwise fraudulent. (See id. at Ex. C). The Plaintiffs claim that under 233 C.M.R. § 4.09, improper charges, including “charges for ‘treatments, procedures or services which were not rendered, ' constitute a form of ‘deceit' and ‘gross misconduct.'” (Id. ¶ 402).
Throughout the relevant time period defendant Tony Ramos was an office manager, billing clerk, custodian of records and a chiropractic assistant at Logan and Savin Hill. (Id. ¶ 26). According to the Plaintiffs, he personally rendered unlicensed treatment to patients at the clinics, and was responsible for compiling billing paperwork at Savin Hill for submission to insurance companies, including to the Carriers. (Id. ¶¶ 101, 374, 378). He also served as the President, Director, Treasurer, Secretary and registered agent of defendant Metro Coach, a transportation company that was used to transport patients to Logan and Savin Hill, including patients who were claimants of Metropolitan and Commerce. (Id. ¶¶ 104-06). The Plaintiffs claim that Savin Hill and Logan used Metro Coach's services in order to insure that the Carriers' claimants would attend their appointments and receive the a pre-determined course of chiropractic treatment. (Id. ¶¶ 107-08). They further claim that as a result of Tony Ramos' role in both Metro Coach and the clinics, Metro Coach knew that the clinics were involved in an unlawful scheme to obtain insurance benefits from the Plaintiffs, and that its transportation services were a necessary component of the scheme because it enabled the Chiropractor Defendants and Chiropractic Assistants to administer their fraudulent treatment practices and maintain a “continuous submission of false and fraudulent medical records, bills, and insurance claims for Metropolitan and Commerce patients and/or claimants.” (Id. ¶ 111).
The last group of defendants who allegedly participated in the fraudulent scheme includes Attorney Glassman, his law firm GLO, and the Paralegal Defendants, Brandy Soto and Heger Asenjo (“Asenjo”). GLO is a Massachusetts limited liability company, which was organized for the purpose of providing legal services. (Id. ¶ 40). Glassman is a licensed attorney and the sole owner of GLO. (Id. ¶ 42). The Plaintiffs claim that Glassman and his firm have “a longstanding illicit and illegal referral relationship with the [remaining] Defendants, ” which "was established to carry out the Defendants' fraudulent scheme to wrongfully obtain insurance benefits from [the Carriers].” (Id. ¶ 45). In particular, the Plaintiffs assert that throughout the relevant time period, Glassman and GLO employed the Paralegal Defendants, using the fictitious title of “paralegal” or “traveling paralegal, ” to disguise the fact that they were really employed as “runners” responsible for arranging illegal referrals between Glassman, GLO, Logan and Savin Hill. (Id. ¶¶ 47-48). They further assert that Glassman, GLO and the two paralegals participated in the alleged fraud by:
As indicated above, the allegedly unlawful solicitation, recruiting and referral activities were largely carried out by the Paralegal Defendants in their capacities as employees of GLO. (See id. ¶¶ 48-57). Thus, the Plaintiffs claim that B. Soto and Asenjo met with individuals who had been injured in automobile accidents, and were eligible for benefits under insurance policies with the Carriers, in order to solicit business for GLO and establish an attorney-client relationship between GLO and the patients. (Id. ¶¶ 49, 51-52, 54-55). According to the Plaintiffs, the paralegals identified those patients by obtaining police reports of automobile accidents that had occurred in the Boston area, and contacting the individuals identified in the police reports. (Id. ¶¶ 51, 198). They also received the names and contact information of motor vehicle accident victims from sources employed at Boston Medical Center, Enterprise Rent-A-Car and Eagle Hill Auto Body. (Id. ¶¶ 241-46, 253-56, 260, 267, 273, 276). The Paralegal Defendants allegedly used that information to solicit and recruit new personal injury patients not only for GLO, but also for Logan and Savin Hill. (Id. ¶¶ 244, 255, 269-70, 274). The Plaintiffs claim that solicitations by representatives or agents of any attorney are prohibited under Massachusetts statutory law, and that B. Soto's and Asenjo's conduct was therefore unlawful. (See id. ¶ 166). They also claim that Glassman and GLO were aware of the improper solicitation and recruiting activities, and condoned the unlawful conduct by compensating the Paralegal Defendants for performing those activities. (Id. ¶¶ 171, 199-200, 206-07).
The Plaintiffs claim that in addition to his work as a so-called “paralegal” for GLO, B. Soto was a manager and owner of Logan and Savin Hill, and he continued to maintain control of the clinics' business operations throughout his employment with GLO. (See id. ¶¶ 59-60, 187). They also maintain that both B. Soto and Asenjo acted as a “primary referral source” between GLO and the chiropractic entities. (Id. ¶¶ 169-70). For example, they allege that B. Soto not only “recruits and solicits claimants and/or patients that treat at his clinics to be represented by Glassman and [GLO], ” but also “recruits and solicits claimants and/or patients that are represented by Glassman and [GLO] to treat at his clinics.” (Id. ¶ 59). Furthermore, the Plaintiffs allege that the Paralegal Defendants have met with potential claimants at the clinics in order to both solicit them on behalf of GLO and “facilitate the initiation of and continued chiropractic treatments at Savin Hill and/or Logan[.]” (Id. ¶¶ 55-56).
According to the plaintiffs, B. Soto's role in the fraudulent scheme was not limited to his solicitation and referral activities. Thus, they allege that B. Soto also “participate[d] in developing and implementing the fraudulent treatment practice and protocols administered to Metropolitan and Commerce claimants and/or patients at Logan . . . and Savin Hill.” (Id. ¶ 178). They further allege that B. Soto, as an owner of the clinics, “knowingly and willfully signed, certified, and/or submitted medical records and bills for false, unwarranted, unlicensed, predetermined and/or unnecessary and unreasonable chiropractic treatment . . . in order to fraudulently obtain insurance benefits from the Plaintiffs.” (Id. ¶ 6). Therefore, the Plaintiffs allege that B. Soto was a key participant in various types of activities relating to the alleged insurance fraud.
In connection with their employment as paralegals at GLO, B. Soto and Asenjo allegedly provided patients with documents from Savin Hill and Logan before the patients had even presented at the clinics for an initial evaluation. (Id. ¶¶ 218-20). The documents included but were not limited to, Irrevocable Assignments of Benefits forms, Consent for Treatment forms, health insurance forms, patient questionnaires and medical/clinical records. (Id. ¶ 220). The Plaintiffs claim that the Paralegal Defendants completed or assisted the patients with the completion of these materials, which were subsequently used to process and prosecute fraudulent claims for insurance benefits from the Carriers. (Id. ¶¶ 221-22). They further claim that Glassman and GLO were aware of the Paralegal Defendants' possession of the forms and their use of the documents for purposes of carrying out insurance fraud. (Id. ¶¶ 219, 222-23).
Although Attorney Glassman and GLO allegedly knew that bills and chiropractic records reflecting treatment at Logan and Savin Hill were false and misleading, they continued to seek insurance coverage from the Carriers on behalf of clients who had been evaluated and treated at the clinics. (Id. ¶¶ 303-07, 310-12). Specifically, the Plaintiffs allege that Attorney Glassman and GLO submitted claims for coverage to the Carriers, issued demand letters to the Carriers pursuant to Chapter 93A, and engaged in litigation against the Carriers on behalf of those clients. (Id. ¶¶ 306, 310-12). Thus, the Plaintiffs contend that Attorney Glassman and his firm repeatedly engaged in the prosecution of claims against the Carriers even though they knew that those claims were fraudulent.
The defendants have moved to dismiss the Second Amended Complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6) and for failure to comply with the requirements for pleading fraud under Fed.R.Civ.P. 9(b). Motions to dismiss under Rule 12(b)(6) test the sufficiency of the pleadings. Thus, when confronted with such a motion, the court accepts as true all well-pleaded facts and draws all reasonable inferences in favor of the plaintiff. See Cooperman, 171 F.3d at 46. Dismissal is only appropriate if the complaint, so viewed, fails to allege “a plausible entitlement to relief.” Rodriguez-Ortiz v. Margo Caribe, Inc., 490 F.3d 92, 95 (1st Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 559, 127 S.Ct. 1955, 1967, 167 L.Ed.2d 929 (2007)).
Where, as here, “fraud lies at the core of the action[, ]” the complaint must meet the heightened pleading requirements of Fed. R. Civ. 9(b). Declude, Inc. v. Perry, 593 F.Supp.2d 290, 297 (D. Mass. 2008). “That rule mandates that in all averments of fraud or mistake, ‘a party must state with particularity the circumstances constituting fraud or mistake.'” First Choice Armor & Equip., Inc. v. Toyobo Am., Inc., 717 F.Supp.2d 156, 161 (D. Mass. 2010) (quoting Fed.R.Civ.P. 9(b)). In order to satisfy this requirement, “the complaint must, at a minimum, specify the ‘time, place, and content of the alleged false or fraudulent representations.'” Id. (quoting Arruda v. Sears, Roebuck & Co., 310 F.3d 13, 18-19 (1st Cir. 2002)). “The other elements of fraud, such as intent and knowledge, may be averred in general terms.” Rodi v. S. New England Sch. of Law, 389 F.3d 5, 15 (1st Cir. 2004). However, the complaint must “also identify[] the basis for inferring scienter.” N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009). Accordingly, in order to plead fraud under Rule 9(b), the complaint must set forth “specific facts that make it reasonable to believe that defendant knew that a statement was materially false or misleading.” Id. (quotations and citations omitted).
B. Counts I-IV: Claims for Violations of RICO and RICO Conspiracy
In Counts I through IV of their Second Amended Complaint, the Carriers have asserted claims against all of the defendants for RICO violations pursuant to 18 U.S.C. § 1962(c), and conspiracy to violate RICO pursuant to 18 U.S.C. § 1962(d). The defendants argue that the Plaintiffs have failed to plead the elements necessary to state a claim under RICO. (See Paralegal Def. Mem. (Docket No. 335) at 27-30; Moving Def. Mem. (Docket No. 338) at 10-13; GLO Mem. (Docket No. 343) at 8-19). Because this court's jurisdiction over the litigation is based on the federal RICO claims (see Compl. ¶ 38), it is appropriate to address the defendants' challenges to these claims before addressing the remaining arguments in support of their motions to dismiss.
RICO “makes it ‘unlawful for any person employed by or associated with any enterprise 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.'” United States v. Ramirez-Rivera, 800 F.3d 1, 18 (1st Cir. 2015) (quoting 18 U.S.C. § 1962(c)). In order to state a claim under Section 1962(c) of RICO, “a plaintiff must allege four elements: ‘(1) conduct; (2) of an enterprise; (3) through a pattern; (4) of racketeering activity.'” In re Pharm. Indus. Average Wholesale Price Litig., 263 F.Supp.2d 172, 181 (D. Mass. 2003) (quoting Libertad v. Welch, 53 F.3d 428, 441 (1st Cir. 1995)). To prove a RICO conspiracy claim under Section 1962(d), a plaintiff must meet “the additional required element” of proving “that the defendant knowingly joined a conspiracy to violate § 1962(c).” Ramirez-Rivera, 800 F.3d at 18 (quoting United States v. Shifman, 124 F.3d 31, 35 (1st Cir. 1997)). In this case, the defendants contend that the Carriers have failed to state a claim under either section of RICO because they have failed to allege sufficient facts to establish the existence of a RICO enterprise, the defendants' participation in the conduct of an enterprise, or the continuity necessary to establish a pattern of racketeering activity. (See GLO Mem. at 8-18; Paralegal Def. Mem. at 27-29). They further contend that the RICO claims must be dismissed because the Carriers have failed to plead the predicate acts of racketeering with particularity, as required by Rule 9(b). (See GLO Mem. at 5-8; Paralegal Def. Mem. at 29).
Because the defendants' arguments concerning particularity implicate all of the Plaintiffs' fraud claims and not merely the RICO claims, they will be addressed separately in connection with this court's analysis as to whether the Plaintiffs' allegations meet the requirements for pleading fraud under Rule 9(b). With respect to the remaining challenges to the Plaintiffs' RICO claims, this court finds that Counts I and III are foreclosed by the District Judge's prior ruling regarding the nature and scope of a permissible RICO enterprise. However, this court concludes that the claims for violations of RICO and RICO conspiracy asserted in Counts II and IV of the Second Amended Complaint should survive the motions to dismiss.
The defendants first challenge whether the plaintiffs have sufficiently alleged the existence of an enterprise. (See, e.g., GLO Mem. at 8-15; Moving Def. Mem. at 10-11). “RICO defines an enterprise 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.'” Ramirez-Rivera, 800 F.3d at 18 (quoting 18 U.S.C. § 1961(4)). Accordingly, a plaintiff may satisfy the “enterprise” element of a RICO claim “by alleging a legitimate enterprise that was victimized by a racketeering scheme.” In re Pharm. Indus. Average Wholesale Price Litig., 263 F.Supp.2d at 185. Alternatively, a plaintiff may establish the existence of an enterprise by proving “that a group of individuals were associated-in-fact.” Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1557 (1st Cir. 1994). The Carriers have alleged both types of enterprises in their Second Amended Complaint.
In Counts I and III, the Plaintiff rely on the “victim-enterprise” theory to support their claims under RICO. Thus, the Plaintiffs allege that both Metropolitan and Commerce are “enterprises” as that term is defined in 18 U.S.C. § 1961(4) in that they are legitimate enterprises that were victimized by a racketeering scheme. (Compl. ¶¶ 457-58, 512). According to the Plaintiffs, the defendants' pattern of racketeering activity “consist[ed] of repeated violations of the federal mail and wire fraud statutes[.]” (See id. ¶¶ 461-62, 514, 516). The defendants argue that this theory was rejected by the District Judge in his June 15, 2016 Order where he ruled that the absence of any involvement by persons employed by the Carriers precluded the application of the “victim-enterprise” theory. (See GLO Mem. At 8-10). This court finds that no new facts have been pleaded, and the District Judge's prior ruling governs this issue. Therefore, these claims cannot withstand the motions to dismiss.
In order to prevail on a so-called “victim-enterprise” theory, “plaintiffs must show not just the existence of a victim-enterprise, but that the defendants ‘conduct[ed] or participat[ed], directly or indirectly, in the conduct of such enterprises[‘] affairs through a pattern of racketeering activity.'” In re Pharm. Indus. Average Wholesale Price Litig., 263 F.Supp.2d at 185 (quoting 18 U.S.C. § 1962(c)) (first two alterations in original). The Supreme Court has held that “'to conduct or participate, directly or indirectly, in the conduct of [an] enterprise's affairs, ' [18 U.S.C.] § 1962(c), one must participate in the operation or management of the enterprise itself.” Reves v. Ernst & Young, 507 U.S. 170, 185, 113 S.Ct. 1163, 1173, 122 L.Ed.2d 525 (1993). While “RICO liability is not limited to those with primary responsibility for the enterprise's affairs, ” or “to those with a formal position in the enterprise, ” the defendant must have “some part in directing the enterprise's affairs[.]” Id. at 179, 113 S.Ct. at 1170 (emphasis in original). Accordingly, an enterprise may be deemed to be operated or managed by outsiders “'associated with' the enterprise who exert control over it as, for example, by bribery.” Id. at 184, 113 S.Ct. at 1173. The Supreme Court has cautioned, however, that “§ 1962(c) cannot be interpreted to reach complete ‘outsiders' because liability depends on showing that the defendants conducted or participated in the conduct of the ‘enterprise's affairs, ' not just their own affairs.” Id. at 185, 113 S.Ct. at 1173.
In this case, the District Judge rejected the Plaintiffs' prior attempt to allege RICO claims based on a victim-enterprise theory. As the ...