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In re Le-Nature's

May 6, 2010

IN RE: LE-NATURE'S, INC., COMMERCIAL LITIGATION
MB FINANCIAL BANK, N.A., PLAINTIFFS,
v.
MARSHALL INVESTMENTS CORP., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Donetta W. Ambrose Judge, United States District Court

OPINION AND ORDER

SYNOPSIS

This action is part of a consolidated multi-district proceeding with which the parties are quite familiar, and thus the facts need not be recounted at length. Here, MB Financial Bank ("MB") alleges that the Krones Defendants (collectively, "Krones") violated RICO, by participating in a fraudulent scheme involving the financing of equipment for LeNatures, Inc. Krones has moved to dismiss Plaintiff's Third Amended Complaint, on grounds that the pleading fails to fulfill RICO's proximate cause requirement.

For the following reason, the Motion will be denied.*fn1

OPINION

I. Applicable Standards

In deciding a motion to dismiss, all factual allegations, and all reasonable inferences therefrom, must be accepted as true and viewed in a light most favorable to the plaintiff. Colburn v. Upper Darby Twp., 838 F.2d 663, 666 (3d Cir. 1988). In ruling on a motion to dismiss for failure to state a claim, I must look to "whether sufficient facts are pleaded to determine that the complaint is not frivolous, and to provide the defendants with adequate notice to frame an answer." Id. at 666. Complaints "need not plead law or match facts to every element of a legal theory." Weston v. Pennsylvania, 251 F. 3d 420, 429 (3d Cir. 2001). A plaintiff, however, must "nudge [her] claims across the line from conceivable to plausible" in order to survive a motion to dismiss. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1974, 167 L.Ed. 2d 929 (2007). A complaint must contain "enough factual matter (taken as true) to suggest" the elements of the claims asserted. Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). Under Fed. R. Civ. P. 12(c), addressing lack of standing, the same standards apply.*fn2 Onconome, Inc. v. Univ. of Pittsburgh, No. 09cv1195, 2010 U.S. Dist. LEXIS 27304, at *3 (W.D. Pa. Mar. 23, 2010).

Also relevant here, Fed. R. Civ. P. 8 '"requires only a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to 'give the defendant fair notice of what the... claim is and the grounds upon which it rests.'" Twombly, 550 U.S. at 555. "[A] plaintiffs obligation to provide the 'grounds' of his 'entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. Heightened pleading standards do not apply to a civil RICO claim. South Broward Hosp. Dist. v. MedQuist, Inc., 516 F. Supp. 2d 370, 393 (D.N.J. 2007).

II. RICO

In order to state a violation, a RICO plaintiff is required to make a showing "that the plaintiff 's injury was proximately caused by the defendant's violation of 18 U.S.C. § 1962." Maio v. Aetna, 221 F.3d 472, 483 (3d Cir. Pa. 2000). "When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff's injuries." Longmont United Hosp. v. St. Barnabas Corp., 305 Fed. Appx. 892 (3d Cir. N.J. 2009). The pertinent inquiry requires careful consideration of the "relation between the injury asserted and the injurious conduct alleged." Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed. 2d 532 (1992). "A proximate cause is not, however, the same thing as a sole cause. Instead, a factor is a proximate cause if it is a 'substantial factor in the sequence of responsible causation.'" Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23-24 (2d Cir. 1990); see also Williams v. Mohawk Indus., 465 F.3d 1277, 1288 (11th Cir. 2006); Miller v. Asensio & Co., 364 F.3d 223, 232 n.6 (4th Cir. 2004).

To determine whether a plaintiff has adequately pled proximate cause in a civil RICO action, our Court of Appeals has assessed three factors: the directness of the injury; the difficulty in apportioning damages; and whether a plaintiff's claim is more appropriately brought by a different party. Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912, 933 (3d Cir. 1999). Moreover, courts consider factors such as whether the plaintiff was the intended target of the RICO offense; whether injury to the plaintiff was a reasonably foreseeable consequence of the offense; the existence of independent intervening causes; and the risk of multiple recoveries. Anderson v. Ayling, 297 F. Supp. 2d 805, 810 (E.D. Pa. 2003). In this context, proximate cause "is a flexible concept that does not lend itself to 'a black letter rule that will dictate the result in every case.'" Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 128 S.Ct. 2131, 2142, 170 L.Ed. 2d 1012 (2008). Caselaw suggests that an intervening act might break the chain if it is foreseeable. See In re: Actiq Sales & Marketing Prac. Litig., No. 7-4492, 2009 U.S. Dist. LEXIS 43710, at **9-10 (E.D. Pa. May 22, 2009). In the RICO context, "a fraudulent misrepresentation can proximately cause actionable injury even to those who do not rely on the misrepresentation." Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 128 S.Ct. 2131, 2144, 170 L.Ed. 2d 1012 (2008).

Here, Krones argues that the alleged acts of CIT and Marshall broke the causal link between the Krones' alleged actions and the claimed injury. Defendants rely, in large part, on Longmont United Hosp. v. St. Barnabas Corp., No. 6-2802, 2007 U.S. Dist. LEXIS 48187 (D.N.J. June 26, 2008), aff'd, 305 Fed. Appx. 892 (3d Cir. 2009). In that case, a defendant hospital allegedly defrauded the government in violation of RICO, by submitting inflated medicare charges. The plaintiff, another hospital, alleged that the fraud set off a chain of events that resulted in other hospitals, including itself, receiving reduced medicare payments -- because the government made higher payments to defendant, it allegedly distributed fewer or less in payments to other hospitals than it would have absent defendant's inflated charges. Id. at **4-6. The court found that the alleged injury was not direct, but was instead derivative of the injuries sustained by the government.*fn3 Id. at **14-15. The court also found that assessing damages, under the circumstances, would be arduous, complex, and speculative. Id. at **20-21. Finally, it found that the government was the directly injured victim, and was "especially ready and able to vindicate" the claims. Id. at *22. For these reasons, proximate cause was lacking. Id.

The facts alleged by the present Plaintiff, however, paint a very different picture than that in Longmont. There is no suggestion that in Longmont, the defendant's goal was to reduce payments to other hospitals such as the plaintiff. In contrast, in this case, the relationship between the alleged fraud and injury is not so attenuated. Plaintiff avers that Krones made misrepresentations with the goal of luring investors such as Plaintiff, "substantially assisted" by CIT and Marshall. Moreover, the injury alleged here was not derivative of or indirect "fallout" from an injury sustained by CIT or Marshall, in the same manner as the Longmont plaintiff's injury. Instead, Plaintiff avers that it was injured as the result of Krones' participation in a scheme "to obtain significant overpayments from...lenders, such as MB." In other words, Plaintiff's allegations do not depict it as a tertiary victim of a fraud aimed at another.

Similarly, Plaintiff's alleged injuries did not merely "flow through" Marshall and CIT as intermediaries, or hinge entirely on their conduct as independent actors, according to the Third Amended Complaint. For example, Plaintiff alleges that it was victimized by Defendants' concerted action: its injuries were caused by "misrepresentations and omissions of [CIT and Marshall], as well as the fraudulent scheme perpetrated by [Krones]...(with assistance from CIT and Marshall)"; that CIT and Marshall were "part of a conspiracy designed to aid the larger fraudulent scheme being ...


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