RICO Pleading — Conclusory Allegations of Scienter Insufficient to Plead Predicate Acts under Iqbal

Black Diamond Land Mgmt. LLC v. Twin Pines Coal Inc., 2017 WL 3635178 (11th Cir. Aug. 24, 2017):

Plaintiff’s Second Amended Complaint (“Complaint”) asserts that Defendants wrongly appropriated coal and timber resources from Plaintiff’s land. This appeal concerns whether the district court erred in concluding that Plaintiff’s claims do not state federal causes of action under the Lanham Act, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), or the Sherman Act. Because we agree that Plaintiff’s Complaint fails to plead any plausible federal claim for relief supported by sufficient factual allegations, we AFFIRM the district court’s dismissal of Plaintiff’s Complaint.

I. BACKGROUND

We review de novo the district court’s grant of a motion to dismiss under 12(b)(6) for failure to state a claim. Hill v. White, 321 F.3d 1334, 1335 (11th Cir. 2003). Further, we accept the allegations in the complaint as true and construe them in the light most favorable to the Plaintiff. Id. As such, the facts outlined in this section are drawn from the allegations in Plaintiff’s Second Amended Complaint.

Plaintiff—Black Diamond Management, LLC—asserts that the various Defendants—Twin Pines Coal Company, Inc., Drummond Company, Inc., Molpus Timberlands Management, LLC, SWF Birmingham, LLC, and Valley Creek Land and Timber, LLC—wrongly collected and sold coal and timber resources that belonged to Plaintiff. As to Twin Pines, Plaintiff asserts that it sent two letters to Twin Pines claiming ownership over the natural resources being collected by Twin Pines, but that Twin Pines nonetheless continued to collect and sell Plaintiff’s resources as if they were owned by Twin Pines. As to Molpus, SWF, and Valley Creek, Plaintiff simply asserts that these Defendants took and sold Plaintiff’s timber without authority to do so and that SWF and Valley Creek “knew or had reason to know that Plaintiff had ownership title to the timber that they took and sold.” For Drummond, Plaintiff asserts that Drummond sent Plaintiff two “blasting notices” concerning Drummond’s mining operations. Plaintiff met with Drummond “concerning Drummond’s interest [in] acquiring ownership of Plaintiff’s natural resources” and Plaintiff sent two follow up letters to Drummond providing a proposed contract for the purchase of Plaintiff’s natural resources, but Drummond continued to mine and sell the coal. Further, Plaintiff asserts that each Defendant “communicated with the other about their respective—and joint role—in misappropriating Plaintiff’s natural resources.” (emphasis in original).

Plaintiff also avers that U.S. Steel (not mentioned anywhere else in the Complaint) filed a lawsuit against Plaintiff in state court, which issued a final order establishing boundary lines “that play a significant role in this litigation.”1 However, Plaintiff does not describe these boundary lines (or any other geographic demarcations) nor does it identify any deed, title, lease, agreement, court order, or other instrument establishing its rights over the natural resources it purports to own. Nonetheless, Plaintiff asserts that “[i]rrespective of the title to the surface land, Plaintiff possesses the ownership rights to mineral, coal, timber, and other natural resources wrongfully taken by Defendants.”

Plaintiff brought Alabama state law claims for conversion, negligence, and civil conspiracy, as well as federal claims under the Lanham Act, RICO, and the Sherman Act. Defendants moved to dismiss Plaintiff’s Second Amended Complaint, and the district court granted Defendants’ motion. The district court reasoned that “what is really in dispute here is not whether Defendants have violated RICO, the Lanham Act, or the Sherman Act,” but instead “the crux of the dispute between these parties is a legally straight forward (though perhaps factually complex) state law question: which side has a legal claim (or the superior legal claim) to the property interests at issue here.” The district court proceeded to assess each of Plaintiff’s federal claims and concluded that Plaintiff had failed to state a plausible claim for relief under any of those federal laws. Thus, the district court dismissed Plaintiff’s federal claims and declined to exercise supplemental jurisdiction over the remaining state law claims. Plaintiff now appeals that ruling.

II. DISCUSSION

***

B. Plaintiff’s RICO Claims

Plaintiff next attempts to fit its claims into the statutory requirements of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The district court did not err in concluding that Plaintiff failed to plead a cause of action under RICO.

 

“Essential to any successful RICO claim are the basic requirements of establishing a RICO enterprise and a ‘pattern of racketeering activity.’ ” Jackson v. BellSouth Telecomms., 372 F.3d 1250, 1264 (11th Cir. 2004). To successfully allege a pattern of racketeering activity, Plaintiff must charge that: (1) the defendants committed two or more predicate acts within a ten-year time span; (2) the predicate acts were related to one another; and (3) the predicate acts demonstrated criminal conduct of a continuing nature. Id. (emphasis omitted).

Here, Plaintiff “relied on, inter alia, 18 U.S.C. § 2314 to establish two predicate act violations.”2 In pertinent part, § 2314 creates criminal penalties for any person who “transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud.” 18 U.S.C. § 2314. Plaintiff asserts that Defendants violated this provision by transporting the allegedly stolen coal and timber across state lines. However, “in order to survive a motion to dismiss, a plaintiff must allege facts sufficient to support each of the statutory elements” of this crime. Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 949 (11th Cir. 1997). One such element of a § 2314 violation is “proof of scienter,” namely, that “the defendant knew that property was converted or taken by fraud at the time of the transport.” Id. (quoting United States v. Montminy, 936 F.2d 626, 627 (1st Cir. 1991)). As the district court correctly concluded, Plaintiff failed to plead that Defendants “knew” that the natural resources were stolen when they transported the resources across state lines.

Plaintiff’s allegations in support of Defendants’ knowledge fall into two general categories. First is Plaintiff’s direct assertions that Defendants violated the statute. For example, Plaintiff asserts that “Defendants, on multiple occasions closely tied in time, knowingly transported Plaintiff’s natural resources (e.g., coal, timber, minerals) that they wrongfully took from Plaintiff to different states and countries outside of Alabama by use of truck, river transportation and railroad transportation.” However, such “formulaic recitation[s] of the elements of a cause of action” are not sufficient to state a claim for relief. Iqbal, 556 U.S. at 678.

Second, Plaintiff points to allegations that it sent letters and notices to particular Defendants indicating that Plaintiff believed Defendants were taking Plaintiff’s natural resources. Plaintiff pleads: (1) Plaintiff sent two letters of ownership to Defendant Twin Pines claiming ownership of natural resources being taken by Twin Pines; (2) Defendant Drummond sent two “Blasting Notices” to Plaintiff “concerning ‘Blasting’ with respect to Plaintiff’s natural resources;” (3) Defendant Drummond held a meeting with Plaintiff “concerning Drummond’s interest acquiring ownership of Plaintiff’s natural resources” where it “was pointed out by Drummond that mining had already taken place with respect to natural resources that Plaintiff claims ownership over;” and (4) Plaintiff sent a follow up letter to Drummond one month after the meeting and, eight months later, another letter providing a proposed contract for the purchase of Plaintiff’s natural resources.3 Taken together, these allegations show that Plaintiff believed that the natural resources were owned by Plaintiff, but they do not provide any support for the contention that Defendants believed (much less “knew”) that the resources were wrongfully taken. 

As discussed with regard to the Lanham Act claims, the Complaint is devoid of any factual allegations supporting the contention that the resources taken by the Defendants were actually owned by Plaintiff. The only support for this contention is Plaintiff’s bare assertion that it is true. But as the district court explained:

[T]here is no way Plaintiff can demonstrate knowledge, or set up a reasonable expectation that discovery will lead to that knowledge, because more than one-and-a-half years after filing this case, Plaintiff itself does not even know where its property purportedly ends and Defendants’ property rights begin. Indeed the very core of this matter is to ask a court to make that determination—not to settle a concrete contested claim, but to obtain an answer in the first instance.

In other words, if Plaintiff does not even know for sure whether it actually owned the resources, then there is no way that Plaintiff can plead that Defendants knew that these resources belonged to Plaintiff (and were thus knowingly “stolen, converted or taken by fraud”). 18 U.S.C. § 2314. The dispute as to whether the natural resources actually belong to Plaintiff or Defendants might establish a state law property or conversion claim, but it cannot establish a federal RICO claim based upon predicate violations of § 2314. Therefore, the district court did not err in dismissing Plaintiff’s RICO claims.4

C. Plaintiff’s Sherman Act Claims

Finally, Plaintiff’s Second Amended Complaint asserts a violation of the Sherman Antitrust Act, 15 U.S.C. §§ 2 and 3. The district court concluded that Plaintiff failed to state a claim under either § 2 or § 3, but on appeal, Plaintiff only challenges the district court’s holding as to § 3. Plaintiff’s argument is clearly meritless because Plaintiff claims that a restraint of trade occurred in Alabama, not in a “Territory of the United States.”

 

15 U.S.C. § 3 provides:

Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is declared illegal.

15 U.S.C. § 3 (emphasis added). Plaintiff asserts that since the term “territory” is defined in Black’s Law Dictionary as “[a] geographical area included within a particular government’s jurisdiction,” see TERRITORY, Black’s Law Dictionary (10th ed. 2014), Alabama should therefore be considered a “Territory of the United States.”

 

But “Territory of the United States” is a term of art that does not include Alabama or any other state of the United States. See United States v. Maldonado-Burgos, 844 F.3d 339, 342 (1st Cir. 2016) (“The Sherman Act treats territories differently than states”); See also People of Puerto Rico v. Shell Co. (P.R.), 302 U.S. 253, 259 (1937) (holding that, prior to the adoption of the Puerto Rico Constitution, Puerto Rico was included within the term “territory” in § 3); Cordova & Simonpietri Ins. Agency Inc. v. Chase Manhattan Bank N.A., 649 F.2d 36, 37 (1st Cir. 1981) (holding that after “the change in Puerto Rico’s status from ‘territory’ to ‘Commonwealth,’ section 3 no longer applies to Puerto Rico.”). This is further evidenced by the juxtaposition of a “Territory or Territories” with a “State or States” within the statutory text. Alabama is not a “Territory of the United States” under 15 U.S.C. § 3, and thus Plaintiff cannot state a claim for relief under that section.5

 

 

D. Plaintiff’s Request for a Declaratory Judgment

The district court held that since Plaintiff failed to state a federal claim, the court had no independent jurisdiction over Plaintiff’s request for a declaratory judgment. See Stuart Weitzman, LLC v. Microcomputer Res., Inc., 542 F.3d 859, 861–62 (11th Cir. 2008). Because the district court did not err in dismissing Plaintiff’s federal claims, the district court did not err in also concluding it lacked jurisdiction over Plaintiff’s request for a declaratory judgment.

 

 

III. CONCLUSION

We AFFIRM the district court’s dismissal of Plaintiff’s Second Amended Complaint for failure to state a claim.6

 

All Citations

--- Fed.Appx. ----, 2017 WL 3635178

Footnotes

 

1

 

Though not mentioned in the Complaint, this action appears to follow from a long line of state court litigation. As the district court explained, “the property interests in dispute have intersected (or overlapped) with litigations that took place in Jefferson County Circuit Court (Bessemer Division) for approximately ten years between certain non-parties to this action.”

 

2

 

Plaintiff’s Second Amended Complaint actually cites four different predicate acts that Defendants allegedly violated, but Plaintiff’s Brief contains argument only as to § 2314. Plaintiff mentions facts relevant to the predicate acts of mail or wire fraud in footnote two of its brief, but this passing reference is not sufficient to “plainly and prominently” raise the issue on appeal. Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1330 (11th Cir. 2004) (quoting United States v. Jernigan, 341 F.3d 1273 (11th Cir. 2003)); see also Asociacion de Empleados del Area Canalera (ASEDAC) v. Panama Canal Comm’n, 453 F.3d 1309, 1316 n.7 (11th Cir. 2006) (holding that an “argument is waived because it appears only in a footnote in their initial brief and is unaccompanied by any argument”); Tallahassee Mem’l Reg’l Med. Ctr. v. Bowen, 815 F.2d 1435, 1446 n.16 (11th Cir. 1987) (stating a single footnote in the appellant’s initial brief was not sufficient to preserve the issue).

 

3

 

Indeed, Plaintiff does not point to any letter or notice sent to Defendants Molpus, SWF, or Valley Creek. As to these Defendants, Plaintiff merely asserts: “Defendants SWF and Valley Creek knew and had reason to know that Plaintiff had ownership title to the timber that they took and sold.” But like the first category of allegations mentioned above, this is merely an assertion of the elements of the cause of action, and thus does not suffice to state a claim. Therefore, even if these allegations relating to letters and notices sent by Plaintiff were sufficient to state a claim for a predicate violation of § 2314, Plaintiff’s Complaint would still not succeed in alleging RICO violations against Defendants Molpus, SWF, or Valley Creek.

 

4

 

Because we conclude that Plaintiff failed to sufficiently plead predicate violations of § 2314—which is necessary to support Plaintiff’s RICO claims—we need not reach whether Plaintiff also sufficiently plead the existence of a “RICO enterprise” or that the allegedly converted natural resources were transported across state lines. See Boyle v. United States, 556 U.S. 938, 950 (2009) (noting that RICO liability demands “the creation of an ‘enterprise’—a group with a common purpose and course of conduct—and the actual commission of a pattern of predicate offenses”); 18 U.S.C. § 2314 (criminalizing the transportation, transmission, or transfer of goods “in interstate or foreign commerce”). Though Plaintiff’s allegations as to these issues are also quite conclusory, we need not base our holding on these grounds.

 

5

 

Again, Plaintiff has not challenged on appeal the district court’s conclusion that Plaintiff failed to state a claim under 15 U.S.C. § 2. Thus, Plaintiff has waived this issue. United States v. Duboc, 694 F.3d 1223, 1226 n.1 (11th Cir. 2012). And even if we were to consider the adequacy of Plaintiff’s pleadings as they relate to § 2, Plaintiff has failed to plead a violation of the Sherman Act under § 2. A violation of § 2 requires Plaintiff to “prove (1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). “[T]o adequately plead dangerous probability of achieving monopoly power, the plaintiff must alleged that the defendant is ‘close to achieving monopoly power’ in the relevant product market.” Duty Free Americas, Inc. v. Estée Lauder Companies, Inc., 797 F.3d 1248, 1263 (11th Cir. 2015) (quoting U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 968, 995 (11th Cir.1993)). Here, Plaintiff provides no delineation of the relevant geographical or product market, and no factual allegations supporting that Defendants are “close to achieving monopoly power.” Id. There is no mention of any Defendant or combination of Defendants’ market share, nor any other factual support for the allegation that Defendants had achieved or probably would achieve market power.

 

6

 

Defendants Valley Creek, SWF and Drummond each also filed a motion for damages and costs against Plaintiff under Fed. R. App. P. 38. Rule 38 provides that “[i]f a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.” In this Circuit, “Rule 38 sanctions have been imposed against appellants who raise clearly frivolous claims in the face of established law and clear facts.” Farese v. Scherer, 342 F.3d 1223, 1232 (11th Cir. 2003) (quotations omitted). “For purposes of Rule 38, a claim is clearly frivolous if it is utterly devoid of merit.” Parker v. Am. Traffic Sols., Inc., 835 F.3d 1363, 1371 (11th Cir. 2016) (quotations omitted). While we conclude that the district court was correct to dismiss Plaintiff’s Second Amended Complaint, we do not find Plaintiff’s appeal to be “utterly devoid of merit” and therefore DENY the various Defendants’ Rule 38 motions.

 

 

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