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Zax Environmental, Inc. v. Plant Construction Company

June 18, 2008


The opinion of the court was delivered by: Joy Flowers Conti United States District Judge



In this memorandum opinion, the court considers the motion to dismiss second amended complaint (Doc. No. 137) filed on December 17, 2007 by defendant Plant Construction Company, LLC ("defendant" or "Plant"). Plaintiff Zax Environmental, Inc. ("plaintiff" or "Zax") in its second amended complaint alleges eight Pennsylvania state tort and contract claims, and one federal claim ("Count IX" or "RICO claim") for violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.. On February 15, 2008, the court heard oral argument on the motion to dismiss the second amended complaint. After considering the submissions of the parties, the oral argument and legal authority presented, and accepting all allegations by plaintiff as true and drawing all inferences in its favor, the court will grant defendant's motion to dismiss Count IX of the second amended complaint.*fn1

Because Count IX is the only federal claim, which is the sole basis for this court's jurisdiction, and the court declines to exercise supplemental jurisdiction, plaintiff's second amended complaint will be dismissed in its entirety.*fn2

Facts Assumed to be True for the Purposes of Deciding the Motion

Plant was the general contractor for the Cork Factory Lofts and Parking Garage construction project in the Strip District of Pittsburgh, Pennsylvania. (Pl.'s Second Amended Complaint ("Compl.") ¶ ¶ 4, 8.) Plant hired Zax as a subcontractor to assist in the demolition portion of the project. (Compl. ¶ ¶ 11, 16, 17.) Zax and Plant began contractual negotiations in January 2005 and Zax was removed from the project approximately eight months later before completing its contractual obligations. (Compl. ¶ ¶ 10, 11; Pl.'s RICO Statement ("RICO Stmt.") at 26.)

Zax alleges that Plant needed to find a "sucker" to take on the demolition contract to avoid incurring losses itself and hired Zax for that purpose. (Compl. ¶ ¶ 32-34.) Zax alleges eight different Pennsylvania state law claims based on alternative theories of tort and contract. (Compl. ¶ ¶ 107-66.) Zax also alleges that Plant violated RICO by perpetuating a scheme designed to cause Zax to lose $1,000,000, while Plant profited by that same amount. (Compl. ¶ 174.) In the RICO claim, Zax alleges that Plant constituted an enterprise whose conspiratorial object was to harm financially Zax. (Compl. ¶ ¶ 177, 179.) Zax alleges that Plant pursued this objective by fraudulently inducing Zax to enter into the contract with deliberately falsified cost estimates and by withholding payments for work completed. (Compl. ¶ ¶ 138-47, 171.) Zax asserts that Plant's violations of 18 U.S.C. §1341 (mail fraud) and 18 U.S.C. §1343 (wire fraud) comprise the requisite "pattern of racketeering activity" under RICO. (Compl. ¶ 184.)

Zax makes several allegations to support its contention that defendants' activities comprise a "pattern" of racketeering activity. First, Zax alleges that the funds derived by William Kane, co-defendant and alleged partner of defendant, "allowed him to engage in other fraudulent real estate projects." (Compl. ¶ 5; RICO Stmt. at 41.) Second, Zax argues that Plant's deliberate concealment of soil contamination is the basis for a current Environmental Protection Agency ("EPA") investigation and possible future criminal charges. Zax contends that Plant's actions constitute continued fraud against the project investors, the project owners, plaintiff, and its creditors, to the extent that plaintiff and its creditors have yet to be paid for work completed. Third, Zax argues that Plant's racketeering acts would have extended over a "substantial" period of time had Zax not been wrongfully removed from the project. Fourth, Zax asserts that Plant's activities represent its "regular way of doing business."


A motion to dismiss tests the legal sufficiency of the complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). In deciding a motion to dismiss, the court is not opining on whether the plaintiff will be likely to prevail on the merits. Rather, when considering a motion to dismiss, the court accepts as true all factual allegations in the complaint and views them in a light most favorable to the plaintiff. U.S. Express Lines Ltd. V. Higgins, 281 F.3d 383, 388 (3d Cir. 2002). While a complaint does not need detailed factual allegations to survive a Rule 12(b)(6) motion to dismiss, a complaint must provide more than labels and conclusions. Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964 (2007). A "formulaic recitation of the elements of a cause of action will not do." Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). "Factual allegations must be enough to raise a right to relief above the speculative level," and sufficient to state a claim for relief that is plausible on its face. Id. (citing 5 CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1216 (3d ed. 2004)). Generally, a RICO claim is subject to the pleading standards of Federal Rules of Civil Procedure 8 which requires only a "short and plain statement of the claim showing that the pleader is entitled to relief." Warden v. McLelland, 288 F.3d 105, 114 n.6 (3d Cir. 2002) (quoting FED. R. CIV. P. 8(a)(2)).

Where acts of mail and wire fraud comprise the alleged predicate acts, however, those acts are subject to the heightened pleading standards of Rule 9 which requires that "the circumstances constituting fraud or mistake shall be stated with particularity." Id. (quoting FED. R. CIV. P. 9(b)).


In Count IX Zax asserts that Plant violated 18 U.S.C. §§ 1962(a), (c) and (d). Section 1962 of RICO provides in pertinent part:

(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or ...

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