Opinion ID: 2585
Heading Depth: 2
Heading Rank: 3

Heading: District Court's Dismissals

Text: In January and February 2005, the District Court dismissed all of the City's state law claims for substantially the same reasons in each case in which the claims were alleged. See Nexicon, 383 F.Supp.2d 526 (S.D.N.Y. 2005); Smokes-Spirits, No. 04 Civ. 6616 (S.D.N.Y. Feb.8, 2005); NCCigarettes, No. 03 Civ. 7715, 2005 WL 3782442, 2005 U.S. Dist. LEXIS 2794 (S.D.N.Y. Feb. 9, 2005); EZTobacco, No. 03 Civ. 10091, 2005 WL 372044, 2005 U.S. Dist. LEXIS 2202 (S.D.N.Y. Feb. 16, 2005). [13] The District Court dismissed the common law fraud claims on the grounds that the City had not alleged that it relied on any of the allegedly fraudulent statements or omissions, and that any third-party relianceeither on the part of the consumers or the Statewas not sufficient to state a claim. See Nexicon, 383 F.Supp.2d at 565. The District Court dismissed the City's GBL § 349 claims on the ground that the failure to file Jenkins Act reports could not, as a matter of law, mislead consumers. See id. at 562-63. The District Court then found that the City had failed to allege a consumer injury or harm to the public interest even as to those defendants alleged by the City to have made material misrepresentations directed at consumers, in the form of statements that defendants' cigarettes are tax free or that defendants did not have to file Jenkins Act reports. The District Court dismissed the argument that lost tax revenues injure all citizens on the ground that such an injury was too indirect. See id. at 564. The District Court also dismissed the public nuisance claims, finding that the number of cigarette sales over the Internet was small . . . compared to brick and mortar sales and that plaintiffs had not alleged a harm that endangers[ ] the public at large. NCCigarettes, 2005 WL 3782442, at , 2005 U.S. Dist. LEXIS 2794, at -10. The District Court found that it was unclear that the number of people who purchase cigarettes over the Internet qualifies as a considerable number of people and concluded that the City's allegation that Internet sales of cigarettes were predicted to account for 5.9% of industry volume in 2005 did not comport with the required considerable number of persons. Id. at , 2005 U.S. Dist. LEXIS 2794, at  (internal quotation marks omitted). [14]
At the same time that it dismissed the state law claims in 2005, the District Court also dismissed the City's RICO claims, with leave to amend, for failure to plead distinctness in the enterprise allegations. [15] See Nexicon, 383 F.Supp.2d at 551. In March 2006, after the City amended its complaints and RICO Statements, the District Court again dismissed the complaints, this time with prejudice, for failure to state a claim. See Nexicon, No. 03 Civ. 383, 2006 WL 647716, 2006 U.S. Dist. LEXIS 10295 (S.D.N.Y. Mar. 15, 2006); Smokes-Spirits, No. 04 Civ. 6616, 2006 WL 726228, 2006 U.S. Dist. LEXIS 11954 (S.D.N.Y. Mar.21, 2006); NCCigarettes, No. 03 Civ. 7715, 2006 U.S. Dist. LEXIS 11922, (S.D.N.Y. Mar. 22, 2006); EZTobacco, No. 03 Civ. 10091, 2006 WL 722009, 2006 U.S. Dist. LEXIS 11953 (S.D.N.Y. Mar. 22,2006). [16] The District Court held that while the structure of the alleged primary enterprises was legally viable, the alleged RICO persons (employees and/or officers of the businesses) did not have individual duties to file Jenkins Act reports, and thus could not have committed the alleged predicate racketeering acts. The court explained: [T]he language of the Jenkins Act prohibits persons from transferring cigarettes for profit in interstate commerce. The statute defines person as including: corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals. 15 U.S.C. § 375(1). Employing basic statutory construction analysis, it is clear that companies are the primary entities responsible for filing Jenkins Act reports. The catch-all phrase as well as individuals suggests a separate class of people who may be liable under the Jenkins Act, but does not by any means connote officers or directors of the business entities listed before the phrase. Accordingly, as only the Defendant companies are responsible for filing the reports, and only they can be accused of fraudulently concealing such reports by not filing them, only the Defendant companies may be considered as having committed predicate acts. Thus, only they may properly be considered persons under the definition of the Jenkins Act and under RICO. Given the unique facts of the instant case, where a company is statutorily required to perform a function that it fails to do, resulting in fraud . . . the persons for purposes of RICO cannot be the officers of the companies, but must be the companies themselves. Nexicon, 2006 WL 647716, at , 2006 U.S. Dist. LEXIS 10295, at -26. Accordingly, with respect to the alleged primary enterprises, the District Court found that the City failed to state a claim. Id. at , 2006 U.S. Dist. LEXIS, at . With respect to the alternatively pled association-in-fact enterprises, the District Court explained that, under well settled law, an enterprise cannot consist solely of employees associating with their corporate employer, and that the City apparently tried to circumvent this rule by tacking on other companies with which each corporate defendant associated. The problem with this approach, the court found, was that while the City had alleged technically legitimate enterprises, (1) the City had failed to sufficiently allege that the tacked-on members of the enterprise shared a common purpose with the defendant corporations, [17] (2) the City failed to allege a nexus between the RICO predicate acts and the association-in-fact enterprises; and (3) the City failed to explain each participant's role in the alleged course of fraudulent conduct. Nexicon, 2006 WL 647716, at , 2006 U.S. Dist. LEXIS 10295, at -29. In sum, the District Court found that while the City alleged that defendants have relationships with the third-party companies, the City has not shown how the various components of the enterprise engaged in a fraudulent course of conduct together. Id. at , 2006 U.S. Dist. LEXIS, at .