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Franks v. Food Ingredients International

July 30, 2010

WILLIAM FRANKS AND ALL THE WHEY, INC. PLAINTIFFS,
v.
FOOD INGREDIENTS INTERNATIONAL, INC., ET AL. DEFENDANTS.



The opinion of the court was delivered by: Jones, II, J.

MEMORANDUM

This matter arises out of Plaintiff William Franks' ("Franks") business dealings with his co-Plaintiff, All the Whey, Inc. ("ATW") and Defendants Edward Tulskie ("Tulskie"), Ciaran Quigley ("Quigley"), and Food Ingredients International, Inc. ("FII") (collectively, "Defendants"), which resulted in Defendants Tulskie and Quigley's alleged mail and/or wire fraud in a scheme to extract money from Franks using FII. Plaintiffs bring a federal claim for violation of the civil Racketeering Influenced Corrupt Organization Act ("RICO"), as well as state law claims for breach of stock purchase agreement, breach of contract involving lines of credit agreement, and fraud. Having carefully considered counsel's arguments, the Court will grant Defendants Tulskie and FII's pending Motion to Dismiss for the reasons set forth below.

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs filed their original Complaint on August 10, 2009 (Dkt. No. 2), alleging that Tulskie and Quigley, who claimed to be part owners of both ATW and FII along with Franks, convinced Franks to lend funds to ATW, which Tulskie and Quigley then used improperly "for business and non-business use associated with Food Ingredients and for their own personal use." Compl. ¶¶ 9-11. Specifically, Plaintiffs alleged that Defendants "acted in concert forming an enterprise" and "interacted with each other via cell phone, e-mail correspondence and other use of the mails and telephone system" to commit "mail and/or wire fraud in connection with their endeavor to secure investments, loans and other financial resources from Franks and affected interstate commerce in doing so." Compl. ¶ 38. Plaintiffs brought a federal claim for mail and/or wire fraud in violation of the civil Racketeering Influenced Corrupt Organization Act ("RICO"), 18 U.S.C. § 1961 et seq. (Count One, against all Defendants), as well as state law claims for breach of stock purchase agreement (Count Two, against all Defendants), breach of contract involving a line of credit agreement (Count Three, against Tulskie and Quigley), breach of contract involving a revolving line of credit agreement (Count Four, against all Defendants), and fraud (Count Five, against all Defendants).*fn1

After having been granted an extension of time in which to respond to Plaintiffs' Complaint (Dkt. No. 6), Tulskie filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) on December 23, 2009, arguing that Plaintiffs had failed to adequately plead an enterprise, requisite predicate acts, or pattern of racketeering activity under RICO, or to adequately plead their fraud claim (Dkt. No. 10 ("Tulskie 1st Motion to Dismiss")). FII filed its own Motion to Dismiss on December 29, 2009, joining in Tulskie's arguments and adding that Plaintiff failed to adequately plead FII as a RICO person in Count One, that FII is not a party to the stock purchase agreement at issue in Count Two, and that Plaintiff failed to allege FII's liability for any breach of the revolving line of credit agreement at issue in Count Three (Dkt. No. 14 ("FII 1st Motion to Dismiss")).*fn2

In response, on January 12, 2010, Plaintiffs filed their Amended Complaint (Dkt. No. 17), bringing the same claims against the same parties as set forth above, with the exception that Plaintiff filed its RICO claim for mail and/or wire fraud (Count One) against Tulskie and Quigley only, not FII. See Am. Compl. ¶¶ 42-49. In their Amended Complaint, Plaintiffs allege that "Defendants Tulskie and Quigley participated in and conducted the affairs of Food Ingredients, the enterprise, in order to extract money from Franks via their fraudulent activities." Am. Compl. ¶ 43.

Tulskie and FII then filed a joint Motion to Dismiss Plaintiffs' Amended Complaint on January 22, 2010 (Dkt. No. 18 ("Second Motion to Dismiss" or "Defs. Mem.")), essentially pressing the same arguments as in their previous individual Motions to Dismiss: (1) Plaintiffs fail to adequately plead an association-in-fact enterprise, the requisite predicate acts or a pattern of racketeering activity under RICO; and (2) Plaintiffs fail to adequately plead their fraud claim. Plaintiffs responded on February 8, 2010 (Dkt. No. 20 ("Pl. Opp.")), arguing the sufficiency of their Complaint but also requesting leave to amend if the Court determines that the Amended Complaint falls short of the appropriate pleading standard.*fn3 Tulskie and FII sought and received permission to file a reply brief in support of their Second Motion to Dismiss, which was docketed on February 16, 2010 (Dkt. No. 23 ("Defs. Reply")).*fn4 Plaintiffs sought and received permission to file a sur-reply brief in opposition, which was docketed on March 1, 2010 (Dkt. No. 26 ("Pls. Reply")).

II. LEGAL STANDARD

In deciding a motion to dismiss pursuant to Rule 12(b)(6), courts must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (internal quotation and citation omitted). After the Supreme Court's decision in Bell Atl. Corp. v. Twombly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, - U.S. -, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. 544, 555 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556). This standard, which applies to all civil cases, "asks for more than a sheer possibility that a defendant has acted unlawfully." Id. See also Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211 (3d Cir. 2009) ("All civil complaints must contain more than an unadorned, the-defendant-unlawfully-harmed-me accusation.") (internal quotation omitted).

III. DISCUSSION

A. Sufficiency of Plaintiffs' RICO Claim

In order to state a valid civil RICO violation, a complaint must allege that a "person" acquires or maintains an interest in or control of an "enterprise" through a "pattern of racketeering activity" which result in injury to the plaintiff's business or property. Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 788 (3d Cir. 1984) (citing 18 U.S.C. § 1962(b)). Tulskie and FII argue that Plaintiffs fail to adequately plead a RICO enterprise, the requisite predicate acts, or a pattern of racketeering activity, and thus their RICO allegations are not entitled to the assumption of truth at this stage of the proceedings. See Defs. Mem. at 13 (citing Iqbal, 129 S.Ct. at 1950). While the Court finds that Plaintiffs have satisfied the pleading requirements with regard to a RICO "enterprise," they have failed to do so in connection with the requisite "predicate acts" or "pattern of racketeering activity" underlying their RICO claim.

1. Existence of RICO Enterprise

To meet the RICO pleading requirements, a plaintiff must identify a culpable party that is distinct from the alleged RICO "enterprise." See Seville, 742 F.2d at 789. A "person" is defined by the statute to include "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1961(3). The term "enterprise" includes "any individual, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C.§ 1961(4). A defendant corporation identified as a "person" cannot also be the "enterprise." Stewart v. Assocs. Consumer Discount Co., 1 F. Supp. 2d 469, 474 (E.D. Pa. 1998) (citing Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258, 268 (3d Cir. 1995) (a ...


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