Prime Partners IPA of Temecula Inc et al v. Kali P Chaudhuri et al
Filing
79
ORDER that Defendants Motions #38 , #43 ) are GRANTED with respect to Plaintiffs second claim for violation of RICO, which is DISMISSED WITH PREJUDICE. The Chaudhuri Defendants Motion to Strike #40 is DENIED AS MOOT. Having dismissed Plaintiffs sole federal claim under RICO, the Court declines to exercise supplemental jurisdiction over the remaining state-law claims. This case is therefore REMANDED to the California Superior Court for the County of Riverside by Judge Otis D Wright, II. cc: order, docket, remand letter to Riverside superior Court, No. RIC 1117545. ( MD JS-6. Case Terminated ) (Attachments: #1 remand letter). (lc) Modified on 5/14/2012 (lc).
<![CDATA[
1
O
2
JS-6
3
4
5
6
7
cc: order, docket, remand letter to Riverside County
Superior Court, No. RIC 117545
8
UNITED STATES DISTRICT COURT
9
CENTRAL DISTRICT OF CALIFORNIA
10
11
12
13
14
15
16
17
18
19
20
21
22
23
PRIME PARTNERS IPA OF
TEMECULA, INC., a California
corporation, and MEADOWVIEW IPA
MEDICAL GROUP, INC., a California
corporation,
v.
Plaintiffs,
Case No. 5:11-cv-01860-ODW(FMOx)
ORDER GRANTING MOTIONS TO
DISMISS [38, 43] AND DENYING
MOTION TO STRIKE AS MOOT
[40]
KALI P. CHAUDHURI, an individual;
HEMET COMMUNITY MEDICAL
GROUP, INC., a California corporation;
KM STRATEGIC MANAGEMENT,
LLC, a California limited liability
company; MICHAEL FOUTZ, an
individual; WILLIAM E. THOMAS, an
individual; and DOES 1 through 100,
inclusive,
Defendants.
I.
INTRODUCTION
Before the Court are Defendants’ three concurrently filed motions:
24
(1) Defendants Kali P. Chaudhuri; Hemet County Medical Group, Inc. (“HCMG”);
25
and KM Strategic Management, LLC’s (“KM Management”) (collectively the
26
“Chaudhuri Defendants”) Motion to Dismiss Plaintiffs’ First Amended Complaint
27
(“FAC”) (ECF No. 38); (2) Defendants Michael Foutz and William E. Thomas’s
28
(collectively the “Foutz Defendants”) Motion to Dismiss and Special Motion to Strike
1
(ECF No. 43); and (3) the Chaudhuri Defendants’ Motion to Strike Portions of
2
Plaintiffs’ FAC (ECF No. 40). Having carefully considered the papers filed in support
3
of and in opposition to the instant Motion, the Court deems the matter appropriate for
4
decision without oral argument. See Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. For the
5
reasons discussed below, Defendants’ Motions to Dismiss are GRANTED, and the
6
Chaudhuri Defendants’ Motion to Strike is DENIED AS MOOT.
7
II.
Plaintiffs Prime Partners IPA of Temecula, Inc. and Meadowview IPA Medical
8
9
FACTUAL BACKGROUND
Group, Inc. are independent practice associations1 (“IPAs”) located in Murrieta,
10
California, and Corona, California, respectively. KM Management, which is owned
11
exclusively by Defendants Chaudhuri and Foutz, is and has been the management
12
company for Prime Partners and Meadowview for an unstated period of time. (FAC
13
¶¶ 31, 43.)
In July 2004, HCMG entered into a Group Provider Services Agreement
14
15
(“PSA”) with Prime Partners (the “2004 PSA”). (FAC ¶ 41.) The PSA required
16
HCMG to act as Prime Partners’s IPA and to pay Prime Partners 100% of all revenue
17
HCMG received from HMOs for patients associated with Prime Partners physicians.
18
(Id.) The PSA also required Prime Partners to subcontract all of its management
19
services to KM Management. (FAC ¶ 43.)
Although the 2004 PSA expired by its own terms on June 30, 2009, at the
20
21
conclusion of a five-year term, both HCMG and Prime Partners continued their
22
business relationship as it had previously existed under the 2004 PSA. (FAC ¶ 45.)
23
In early 2011, Chaudhuri and Thomas2 began to make reference to “the new ten-year
24
group provider service agreement.” (FAC ¶ 46.) Prime Partners maintained that it
25
26
27
28
Independent practice associations typically are associations of independent physicians that provide
services to managed care organizations at negotiated rates.
2
Plaintiffs’ FAC describes Foutz and Thomas as “an officer/accountant and attorney, respectively.”
(FAC ¶ 15.) It is unclear to the Court, however, whether Foutz and Thomas held these positions
with respect to HCMG or KM Management, or both.
1
2
1
never entered into a new PSA—much less one extending an additional 10 years—and
2
consequently asked to see the document. (Id.) At a meeting in March 2011, members
3
of Prime Partners were shown a new document bearing the same Group Provider
4
Services Agreement name that appeared on the 2004 PSA and an effective date of
5
December 17, 2009. (Id.) The end of the document contained three pages of executed
6
signature blocks; Prime Partners insists, however, that nobody from Prime Partners
7
ever signed the 2009 PSA. (FAC ¶ 47.) Instead, Prime Partners contends Defendants
8
forged these signatures by cutting and pasting the signatures onto the document. (See
9
id.)
10
Based on these allegations and others not relevant here, Plaintiffs allege that
11
Foutz and Thomas were actively engaged in a criminal enterprise with Chaudhuri,
12
HCMG, and KM Management to systematically defraud medical groups in Southern
13
California by creating false accounting records, forging documents, and engaging in a
14
course of conduct designed to swindle medical groups of money owed to those
15
groups. Plaintiffs specifically contend that Chaudhuri and Foutz formed KM
16
Management in early 2000 with the intent to use KM Management as an instrument
17
for defrauding health plans, physicians, and patients. (FAC ¶ 11.) As relevant to the
18
Court’s analysis below, Plaintiffs allege that Defendants executed their fraud on Prime
19
Partners and Meadowview through two criminal schemes.
20
The first scheme alleges, as described above, that Defendants forged several
21
physicians’ signatures on a 10-year Group Provider Services Agreement (“2009
22
PSA”) purporting to obligate Prime Partners to HCMG’s IPA services for an
23
additional 10 years following the expiration of the previous five-year 2004 PSA.
24
(FAC ¶ 105.) When HCMG discovered that Prime Partners was seeking to
25
discontinue its business relationship with HCMG and KM Management, Defendants
26
allegedly instructed their attorneys to use the forged 2009 PSA as the basis of four
27
cease-and-desist letters sent over a six-month period to prospective IPAs with which
28
Prime Partners was negotiating. (FAC ¶ 51.) Specifically, in February 2011,
3
1
Defendants directed their attorneys to send a letter to PrimeCare, LLC instructing it to
2
cease and desist negotiations with Prime Partners based on the forged 2009 PSA.
3
(FAC ¶ 52.) Plaintiffs contend PrimeCare discontinued all negotiations with Prime
4
Partners as a result of this letter. (FAC ¶ 53.)
5
On March 6, 2011, Defendants directed an identical cease-and-desist letter be
6
sent to Epic Management, LP, another prospective IPA. (FAC ¶ 54.) On June 17,
7
2011, Defendants directed a follow-up letter to Epic insisting that Epic discontinue
8
negotiations with Prime Partners. (FAC ¶ 55.) Plaintiffs allege that Epic discontinued
9
all negations with Prime Partners as a result of the March and June 2011 letters,
10
11
forcing Prime Partners again to continue its relationship with HCMG. (FAC ¶ 56.)
Finally, on August 22, 2011, Defendants directed a fourth letter to Prospect
12
Medical Group directing Prospect to cease negotiations with Prime Partners based on
13
the forged 2009 PSA. (FAC ¶ 57.) Plaintiffs allege that while Prospect did not sever
14
its negotiations with Prime Partners as a result of this letter, Prospect nevertheless
15
imposed more onerous terms on Prime Partners as a result of the letter. (FAC ¶ 58.)
16
Plaintiffs contend that none of the four letters were sent in anticipation of
17
litigation contemplated in good faith and under serious consideration. (FAC ¶¶ 52,
18
54, 55, 57.) Rather, Plaintiffs maintain that the goal of the fraudulent letters was to
19
prevent Prime Partners from contracting with another IPA on the basis of the forged
20
2009 PSA, which purports to engage HCMG as Prime Partners’s IPA “for a period of
21
ten (10) years from December 17, 2009 (or 2008).” (FAC ¶ 108.) Plaintiffs therefore
22
surmise that “identical cease and desist letters will likely continue to be sent at the
23
instruction of Defendants . . . through the U.S. Postal Service to every IPA that Prime
24
Partners enters into negotiations with until at least 2019 (or 2018).” (Id.)
25
The second alleged criminal scheme involves 6,600 forged letters purporting to
26
be from Prime Partners and Meadowview physicians to elderly patients of the Secure
27
Horizons health plan. (FAC ¶¶ 68, 112.) Plaintiffs allege these letters “falsely
28
advised the elderly patients that unless they agreed to switch from the Secure[]
4
1
Horizons health plan to Citizen’s Choice health plan, [those patients] would lose their
2
primary care physician.” (Id.) Plaintiffs assert that the purpose of this second scheme
3
was “to secure the continued income of the elderly patients by causing them to believe
4
they would lose their doctor unless they changed their health plan to Citizen’s Choice.
5
This was not true, but by convincing these elderly patients to change to Citizen’s
6
Choice, HCMG and KM would receive revenue,” although Plaintiffs fail to expand on
7
how. (Id.) Plaintiffs claim they were injured as a result of these letters “in that they
8
have lost business associated with several elderly patients who have discontinued
9
services with Plaintiffs as a result of the letters” and “have suffered damages from lost
10
contractual relationships with physicians who were appalled by the conduct of the
11
Defendants and thereafter discontinued or terminated their relationships with
12
Plaintiffs.” (FAC ¶¶ 71, 115, 117.)
13
As a result of these and various other contentions the Court does not address
14
here, Plaintiffs filed a Complaint in California Superior Court for the County of
15
Riverside on October 31, 2011. The Complaint alleged 12 claims for: (1) fraud;
16
(2) violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
17
§§ 1961–1968 (“RICO”); (3) breach of fiduciary duty; (4) breach of contract;
18
(5) intentional interference with prospective economic advantage; (6) negligent
19
interference with prospective economic advantage; (7) accounting; (8) unfair business
20
practices; (9) conversion; (10) declaratory relief; (11) unjust enrichment; and
21
(12) money had and received. On November 22, 2011, Defendants removed the
22
action to this Court on the basis that this Court had federal question jurisdiction over
23
Plaintiff’s RICO claim. (ECF Nos. 1, 9, 22.)
24
On November 29, 2011, the Chaudhuri Defendants filed a motion to strike and
25
a motion to dismiss Plaintiffs’ fraud, RICO, and conversion claims. (ECF Nos. 12,
26
15.) In addition, on December 9, 2011, the Foutz Defendants filed a motion to
27
dismiss and special motion to strike. (ECF No. 25.) On December 20, 2011,
28
Plaintiffs filed their FAC, thereby rendering the then-pending motions moot. (ECF
5
1
No. 28.) The FAC contained the same 12 claims but added additional factual
2
allegations.
3
On January 9, 2012, Defendants filed the Motions presently pending before the
4
Court, which contain arguments essentially identical to those contained in the motions
5
filed in late November and early December 2011 with respect to Plaintiff’s original
6
Complaint. The Court turns now to Defendants’ pending Motions.
7
8
9
III.
LEGAL STANDARD
Dismissal under Rule 12(b)(6) can be based on “the lack of a cognizable legal
theory” or “the absence of sufficient facts alleged under a cognizable legal theory.”
10
Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). “To survive a
11
motion to dismiss for failure to state a claim under Rule 12(b)(6), a complaint
12
generally must satisfy only the minimal notice pleading requirements of Rule 8(a)(2).”
13
Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). Rule 8(a)(2) requires “a short and
14
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R.
15
Civ. P. 8(a)(2). For a complaint to sufficiently state a claim, its “[f]actual allegations
16
must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp.
17
v. Twombly, 550 U.S. 544, 555 (2007). While specific facts are not necessary so long
18
as the complaint gives the defendant fair notice of the claim and the grounds upon
19
which the claim rests, Erickson v. Pardus, 551 U.S. 89, 93 (2007), a complaint must
20
nevertheless “contain sufficient factual matter, accepted as true, to state a claim to
21
relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
22
(internal quotation marks omitted).
23
Iqbal’s “plausibility standard” is “not akin to a probability requirement, but it
24
asks for more than a sheer possibility that a defendant has acted unlawfully. Where a
25
complaint pleads facts that are merely consistent with a defendant’s liability, it stops
26
short of the line between possibility and plausibility of entitlement of relief.” Id.
27
(internal citation and quotation marks omitted). “A pleading that offers ‘labels and
28
conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not
6
1
do.’” Id. (citing Twombly, 550 U.S. at 555). The determination whether a complaint
2
satisfies the plausibility standard is a “context-specific task that requires the reviewing
3
court to draw on its judicial experience and common sense.” Id. at 679.
4
When considering a Rule 12(b)(6) motion, a court is generally limited to
5
considering material within the pleadings and must construe “[a]ll factual allegations
6
set forth in the complaint . . . as true and . . . in the light most favorable to [the
7
plaintiff].” Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001) (citing Epstein v.
8
Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996)). A court is not, however,
9
“required to accept as true allegations that are merely conclusory, unwarranted
10
deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors,
11
266 F.3d 979, 988 (9th Cir. 2001).
As a general rule, leave to amend a complaint that has been dismissed should be
12
13
freely granted. Fed. R. Civ. P. 15(a). However, leave to amend may be denied when
14
“the court determines that the allegation of other facts consistent with the challenged
15
pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well
16
Furniture Co., 806 F.2d 1393, 1401 (9th Cir.1986); see Lopez v. Smith, 203 F.3d
17
1122, 1127 (9th Cir. 2000).
18
IV.
DISCUSSION
Plaintiffs’ FAC contains a single federal claim under the Racketeer Influenced
19
20
and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c)–(d), and several state-
21
law claims. Defendants collectively move to dismiss all of Plaintiffs’ claims.
22
Because Plaintiffs fail to state a RICO claim, the Court declines to exercise
23
supplemental jurisdiction over Plaintiffs’ remaining state-law claims and therefore
24
does not address those claims.
25
A.
Plaintiff’s RICO Claim
26
RICO “makes it unlawful for any person employed by or associated with any
27
enterprise . . . to conduct or participate . . . in the conduct of such enterprise’s affairs
28
through the commission of two or more statutorily defined crimes—which RICO calls
7
1
a pattern of racketeering activity.” Cedric Kushner Promotions, Ltd. v. King, 553
2
U.S. 158, 160 (2001) (omissions in original); 18 U.S.C. § 1962(c). Plaintiffs bring
3
their RICO claim under § 1962(c) and (d). To state a claim under § 1962(c),3
4
Plaintiffs must allege “(1) conduct (2) of an enterprise (3) through a pattern (4) of
5
racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)
6
(footnote omitted). In addition, a plaintiff only has standing if the RICO predicate
7
offenses were both the “but for” and proximate cause of an injury to plaintiff’s
8
business or property. See § 1964(c); Sedima, 473 U.S. at 496 (“[P]laintiff only has
9
standing if . . . he has been injured in his business or property by the conduct
10
constituting the violation.”); Hemi Group, LLC v. City of N.Y., 130 S. Ct. 983, 989
11
(2010) (“[T]o state a claim under civil RICO, the plaintiff is required to show that a
12
RICO predicate offense ‘not only was a “but for” cause of his injury, but was the
13
proximate cause as well.’” (quoting Holmes v. Sec.s Investor Protector Corp., 503
14
U.S. 258, 268 (1992))).
15
Plaintiffs contend that Defendants conducted or participated in the conduct of
16
an enterprise’s affairs through a pattern of racketeering activity composed of the two
17
criminal schemes described above. (FAC ¶ 104.) The Foutz Defendants argue that
18
the Noerr-Pennington doctrine bars Plaintiffs’ RICO claim. (Foutz Mot. 24.) In
19
addition, the Chaudhuri Defendants contend that Plaintiffs’ RICO claim must be
20
dismissed because “(1) Plaintiffs do not allege a pattern of racketeering activity;
21
(2) Plaintiffs lack standing because the alleged patterns of racketeering activity did not
22
proximately cause Plaintiffs any legally cognizable harm; (3) there are no facts that
23
plausibly establish a RICO enterprise; (4) and Plaintiffs do not allege facts making it
24
plausible that Defendants (a) conducted any enterprise (b) through a pattern of
25
26
27
28
Section 1962(d) makes it “unlawful for any person to conspire to violate” § 1962(c). Because the
Court finds that Plaintiffs fail to plead a viable claim under § 1962(c), the Court does not reach
Plaintiffs’ RICO claim as it pertains to § 1962(d).
3
8
1
racketeering activity.” (Chaudhuri Mot. 2.) The Court considers each argument in
2
turn.
Noerr-Pennington Immunity
3
1.
4
The Court begins by considering the threshold issue whether Defendants are
5
immunized from RICO liability with respect to the first alleged scheme by the Noerr-
6
Pennington doctrine. “Under the Noerr-Pennington doctrine, those who petition any
7
department of the government for redress are generally immune from statutory
8
liability for their petitioning conduct.” Sosa v. DIRECTV, Inc., 437 F.3d 923, 929 (9th
9
Cir. 2003). While the Noerr-Pennington doctrine originally “arose in the antitrust
10
context and initially reflected the Supreme Court’s effort to reconcile the Sherman Act
11
with the First Amendment Petition Clause,” the Supreme Court has since applied
12
Noerr-Pennington principles outside the antitrust field based on the constitutional
13
foundation of the doctrine. Id. at 929–30; see also id. at 932–33 (applying Noerr-
14
Pennington to RICO action premised on predicate acts of mail fraud related to pre-
15
litigation demand letters and noting that a “successful RICO claim would quite plainly
16
burden [defendant’s] ability to settle legal claims short of filing a lawsuit”).
17
Ninth Circuit precedent “establishes that communications between private
18
parties are sufficiently within the protection of the Petition Clause to trigger the
19
Noerr-Pennington doctrine, so long as they are sufficiently related to petitioning
20
activity.” Id. at 935. Thus, the cease-and-desist letters Defendants sent to PrimeCare,
21
Epic, and Prospect pursuant to the first scheme generally fall within the ambit of
22
Noerr-Pennington’s immunity for petitioning conduct. However, “[p]re-suit letters
23
threatening legal action may nevertheless be restricted by law where they include
24
representations so baseless that the threatened litigation would fall into the ‘sham
25
litigation’ exception” to the Noerr-Pennington doctrine. Theme Promotions, Inc. v.
26
News Am. Marketing FSI, 546 F.3d 991, 1007 (9th Cir. 2008).
27
To establish that Defendants’ conduct was a “sham,” Prime Partners must
28
establish that (1) Defendants’ cease-and-desist letters were objectively baseless in the
9
1
sense that Defendants could not reasonably have expected success on the merits and
2
(2) Defendants’ subjective motivation was to interfere with Prime Partners’s business
3
relationships. See Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc.,
4
508 U.S. 49, 60–61 (1993). At the motion to dismiss stage, the Court need not
5
conclude whether Defendants’ letters were a sham. EcoDisc Tech. AG v. DVD
6
Format/Logo Licensing Corp., 711 F. Supp. 2d 1074, 1083 (C.D. Cal. 2010). Instead,
7
the Court “must decide only whether Plaintiff has properly pleaded that the conduct
8
was a sham, i.e., objectively unreasonable and subjectively motivated to interfere with
9
Plaintiff’s business relationships.” Id. Plaintiffs undoubtedly have done so here.
10
With respect to objective baselessness, Plaintiffs have pleaded that each of the
11
cease-and-desist letters was premised on a forgery and that none of the four letters
12
were sent in anticipation of litigation contemplated in good faith and under serious
13
consideration. (FAC ¶¶ 52, 54, 55, 57.) Taking Plaintiffs’ allegations as true, the
14
Court finds that Defendants could not reasonably have expected success on the merits
15
because the pre-litigation letters were based on a patent misrepresentation. Cf. Kottle
16
v. Nw. Kidney Ctrs., 146 F.3d 1056, 1060 (9th Cir. 1998) (“[I]n the context of a
17
judicial proceeding, if the alleged anticompetitive behavior consists of making
18
intentional misrepresentations to the court, litigation can be deemed a sham if a
19
party’s knowing fraud upon, or its intentional misrepresentations to, the court deprive
20
the litigation of its legitimacy.” (internal quotation marks omitted)).
21
As to Defendants’ intention to interfere with Prime Partners’s business
22
relationships, Plaintiffs have unambiguously pleaded that “the intent of the letters was
23
to prevent Prime Partners from entering into any agreement with a new IPA, other
24
than HCMG, thereby ensuring that [Defendants] could continue to defraud Prime
25
Partners and siphon off revenue due and owing to Prime Partners.” (FAC ¶ 51.)
26
While Plaintiffs frame Defendants’ scheme as one intended to inflict harm on Prime
27
Partners, Defendants nevertheless carried out the scheme by interfering with Prime
28
Partners’s potential business relationships. At the motion to dismiss stage, the Court
10
1
deems these allegations sufficient to satisfy the second prong of the sham litigation
2
exception and thereby preclude Noerr-Pennington immunity. Accordingly, the Court
3
proceeds to address the adequacy of Plaintiffs’ FAC with respect to the substantive
4
elements of the alleged RICO violation.
5
2.
6
As explained above, to state a claim under § 1962(c), Plaintiffs must allege that
Pattern of Racketeering Activity
7
each Defendant employed a pattern of racketeering activity to participate in the
8
operation or management of an enterprise, which proximately resulted in harm to
9
Plaintiffs. Sedima, 473 U.S. at 496; Hemi Group, 130 S. Ct. at 989.
10
The Chaudhuri Defendants argue first that Plaintiffs have failed to allege a
11
pattern of racketeering activity. A pattern of racketeering activity consists of at least
12
two predicate acts of racketeering committed within a 10-year period. 18 U.S.C.
13
§ 1961(5). Predicate acts are acts indictable under a specified list of criminal laws,
14
§ 1961(1)(B), including mail fraud under 18 U.S.C. § 1341 and wire fraud under 18
15
U.S.C. § 1343. The Supreme Court has explained that to establish the existence of a
16
“pattern,” a plaintiff must show both (1) relatedness of the predicate acts; and (2) that
17
those predicate acts “amount to or pose a threat of continued criminal activity.” H.J.
18
Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989).
19
20
a. Relatedness
Predicate acts are related if they have “the same or similar purposes, results,
21
participants, victims or methods of commission, or otherwise are interrelated by
22
distinguishing characteristics and are not isolated events.” Id. at 240 (quoting 18
23
U.S.C. § 3575(e)). Plaintiff’s FAC appears to proceed on the theory that the two
24
criminal schemes are sufficiently related for purposes of establishing a RICO pattern.
25
While Defendants’ Motions do not address relatedness and Plaintiffs consequently do
26
not defend relatedness, the Court notes sua sponte that the two schemes Plaintiffs
27
allege are not sufficiently related to constitute a single pattern.
28
11
1
According to Plaintiffs, “the purpose of the [first scheme] was to prevent Prime
2
Partners from engaging in business with an IPA other than HCMG” (FAC ¶ 106),
3
while the purpose of the second scheme was “to secure the continued income of the
4
elderly patients” (FAC ¶ 112). As a result of the first scheme, various IPAs either
5
ceased negotiations or imposed more onerous terms on Prime Partners (FAC ¶¶ 53,
6
56, 58); as a result of the second scheme, “Plaintiffs have lost the business of several
7
elderly patients and the doctors where were appalled by” Defendants’ conduct (FAC
8
¶ 115). Prime Partners and the IPAs with which Prime Partners was negotiating were
9
the victims of the first scheme, while the elderly patients were the direct victims of the
10
second scheme. While each scheme was accomplished by use of forged documents,
11
the Court’s consideration of the purposes, results, and victims of the two schemes
12
convince the Court that the schemes were isolated criminal acts insufficient to satisfy
13
the relatedness requirement. See Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364,
14
366 (9th Cir. 1992) (“An allegation of two isolated criminal acts is insufficient to
15
satisfy the relatedness requirement . . . .”). Indeed, Plaintiff’s isolated treatment of the
16
two schemes in the FAC underscores this conclusion. Accordingly, the Court must
17
proceed to address Plaintiffs’ two alleged schemes individually to determine whether
18
either individual scheme was sufficiently continuous to constitute a pattern under
19
RICO.
20
21
b. Continuity
Because “Congress was concerned in RICO with long-term criminal conduct,”
22
continuity must be established by proving either “a series of related predicates
23
extending over a substantial period of time” (closed-ended continuity) or “past
24
conduct that by its nature projects into the future with a threat of repetition” (open-
25
ended continuity). Id. at 241–42. Plaintiffs do not contend that either of the two
26
alleged criminal enterprises had closed-ended continuity, and neither did as a matter
27
of law because neither scheme, as alleged, lasted longer than six months. E.g., H.J.,
28
Inc., 492 U.S. at 242 (“A party alleging a RICO violation may demonstrate continuity
12
1
over a closed period by proving a series of related predicates extending over a
2
substantial period of time. Predicate acts extending over a few weeks or months and
3
threatening no future criminal conduct do not satisfy this requirement . . . .”);
4
Religious Tech. Ctr., 971 F.2d at 366–67 (9th Cir. 1992) (“We have found no case in
5
which a court has held the [continuity] requirement to be satisfied by a pattern of
6
activity lasting less than a year. A pattern of activity lasting only a few months does
7
not reflect the ‘long term criminal conduct’ to which RICO was intended to apply.”)4
8
That Plaintiffs allege at least 6,000 individual acts of fraudulent misrepresentation
9
making up the second criminal scheme does not alter this conclusion. E.g., Midwest
10
Grinding Co. v. Spitz, 976 F.2d 1016, 1025 (7th Cir. 1992) (“[T]he sizable number of
11
mailings does not show that defendants operated a long-term criminal operation.”).
12
The Court is therefore left to consider only whether either of Plaintiffs’ alleged
13
criminal schemes satisfies open-ended continuity.
To allege open-ended continuity, “a RICO plaintiff must charge a form of
14
15
predicate misconduct that by its nature projects into the future with a threat of
16
repetition.” Turner v. Cook, 362 F.3d 1219, 1229 (9th Cir. 2004) (internal quotation
17
marks omitted). Thus, “[a] plaintiff cannot demonstrate open-ended continuity if the
18
19
20
21
22
23
24
25
26
27
28
4
To the extent Plaintiffs’ allegation that Defendants’ “acts of mail fraud are consistent with the
criminal enterprise initiated by Chaudhuri in 1999 and conforms to the manner in which Defendants
. . . conduct their business so as to destroy medical practices and physicians for personal gain” (FAC
¶ 120) is meant to implicitly establish closed-ended continuity, it fails to do so. Because predicate
acts must occur within 10 years of each other to constitute a pattern, see 18 U.S.C. § 1961(5),
Defendants’ conduct prior to February 2001 (10 years prior to the February 2011 letter Defendants
sent to PrimeCare comprising part of Plaintiffs’ first alleged criminal scheme, which is the earliest
date Plaintiffs explicitly allege in association with either scheme) would fail RICO’s pattern
requirement when viewed in conjunction with the two criminal schemes forming the crux of
Plaintiffs’ RICO claim. Further, Plaintiffs fail to allege how any of Defendants’ actions in April
2001 (see FAC ¶¶ 22, 27 (“Within the first 18 months of Chaudhuri acquiring the clinics and
medical practice from MedPartners [in September 1999] . . . .”), 2002 (FAC ¶ 30), 2004 (FAC ¶ 35),
or early 2011 (FAC ¶ 37) constituted a predicate act enumerated in § 1961(1)(B). Finally, neither of
the criminal schemes Plaintiffs allege lasted more than a year, and even if the alleged schemes were
sufficiently related to constitute a single pattern, Plaintiffs have failed to allege when the second
scheme took place; thus, the Court has no basis for determining the length of any purported
aggregate pattern.
13
1
racketeering activity has a built-in ending point.” US Airline Pilots Ass’n v. Awappa,
2
LLC, 615 F.3d 312, 319 (4th Cir. 2010) (internal quotation marks omitted) (collecting
3
cases); see also Turner, 362 F.3d at 1230 (RICO defendants “failed to satisfy H.J.
4
Inc.’s open-ended continuity requirements since the alleged actions were finite in
5
nature in that the mailings, faxes and telephone calls would cease once [the RICO
6
defendants] collected the outstanding tort judgment against” plaintiff). This is so
7
“even if the purported scheme takes several years to unfold, involves a variety of
8
criminal acts, and targets more than one victim.” Gamboa v. Velez, 457 F.3d 703, 709
9
(7th Cir. 2006) (collecting cases).
10
Plaintiffs’ first scheme alleges that Defendants utilized “the forged 2009 PSA to
11
prevent Prime Partners from contracting with another IPA” (FAC ¶ 49) and will
12
continue to send the forged PSA “to every potential IPA that Prime Partners enters
13
into negotiations with until at least 2019 (or 2018).” (FAC ¶ 108.) These allegations
14
unambiguously identify a built-in end point to the first criminal scheme—the
15
termination of the allegedly forged 2009 PSA by its terms. This definitively defeats
16
the possibility of open-ended continuity for the first scheme, notwithstanding that
17
several years remain until the termination of the 2009 PSA. And in light of evidence
18
in the record that Prime Partners has terminated “all written and oral contracts [with]
19
HCMG . . . effective December 1, 2011,” the Court is convinced that Plaintiff could
20
not plausibly allege in good faith open-ended continuity with respect to this scheme in
21
any amended version of this claim. ECF No. 17-17, Foutz Decl. Ex. 15.
22
Plaintiffs’ second scheme alleges that Defendants’ mailing of 6,000 forged
23
letters to elderly Secure Horizons health plan participants on an unstated date over an
24
undisclosed period of time creates a threat of future criminal conduct because
25
Defendants “are in possession of blank sheet of paper that have been executed by
26
physicians,” which Defendants “are capable of manipulating . . . at any time to
27
achieve their own financial desires.” (FAC ¶ 118.) This factually unsupported
28
recitation of RICO’s continuity requirement fails to establish a plausible theory of
14
1
continuity. See Iqbal, 556 U.S. at 678; see also Jackson v. BellSouth Telecomm., 372
2
F.2d 1250, 1268–69 (“[P]laintiffs’ bald suggestion that the defendants might have
3
continued their fraud in the future had they not been uncovered . . . is not sufficient to
4
allege open-ended continuity.”). Plaintiff’s allegations of continuity with respect to
5
the second scheme are also contrary to the facts alleged to support the second scheme,
6
which suggest a single—if widespread—act of fraudulent misrepresentation isolated
7
to a unique set of non-recurring facts and a discrete purpose. The Court therefore
8
finds that the second criminal scheme similarly fails to establish open-ended
9
continuity.
10
Because Plaintiffs have failed to plead with sufficient factual specificity that the
11
two alleged criminal schemes were related or that either scheme individually
12
amounted to or posed a threat of continued criminal activity, Plaintiffs have failed to
13
allege a RICO pattern. Accordingly, Plaintiffs have failed to allege a facially
14
plausible RICO claim. The Court proceeds, however, to consider the extent to which
15
Plaintiff’s RICO claim suffers from additional, and possibly irreparable, pleading
16
deficiencies.
17
3.
18
The Chaudhuri Defendants contend next that Plaintiffs have failed to establish
Proximate Causation
19
that Defendants’ allegedly fraudulent acts proximately caused Plaintiffs’ injuries.
20
“Proximate cause for RICO purposes . . . requires some direct relation between the
21
injury asserted and the injurious conduct alleged. A link that is ‘too remote,’ ‘purely
22
contingent,’ or ‘indirec[t]’ is insufficient.” Hemi Group, 130 S. Ct. at 989 (alteration
23
in original) (internal quotation marks omitted).
24
The Supreme Court in Holmes v. Securities Investor Protection Corp.
25
articulated three motivating principles for RICO’s stringent proximate causation
26
requirement: “First, the less direct an injury is, the more difficult it becomes to
27
ascertain the amount of a plaintiff’s damages attributable to the violation, as distinct
28
from other, independent, factors.” 503 U.S. 258, 269 (1992). Second, undesirably
15
1
complex rules may be necessary to apportion damages associated with remote
2
injuries. Id. Third, “the need to grapple with these problems is simply unjustified by
3
the general interest in deterring injurious conduct, since directly injured victims can
4
generally be counted on to vindicate the law as private attorneys general, without any
5
of the problems attendant upon suits by plaintiffs injured more remotely.” Id. at 269–
6
70.
7
With respect to the first scheme, Plaintiffs aver that Defendants’ letters to
8
PrimeCare and Epic insisting they cease negotiations with Prime Partners on the basis
9
of the allegedly forged 2009 PSA caused these entities to “discontinue all negotiations
10
with Prime Partners,” thereby forcing Prime Partners “to continue its relationship with
11
HCMG.” (FAC ¶¶ 53, 56.) In addition, Prime Partners alleges that an identical letter
12
to Prospect caused Prospect to impose “more onerous terms on Prime Care.” (FAC ¶
13
58.) These allegations suffer several shortcomings that preclude a plausible showing
14
of proximate causation. For example, Prime Partners does not plead that any contracts
15
with PrimeCare, Epic, or Prospect were imminent, or even reasonably certain to be
16
entered. Nor does Prime Partners allege any facts plausibly identifying Defendants’
17
communications as the direct cause of the failed or frustrated negotiations. These
18
facts are necessary to vindicate the first concern articulated in Holmes, to wit, the
19
difficulty in ascertaining “the amount of a plaintiff’s damages attributable to the
20
violation, as distinct from other, independent, factors.” Holmes, 503 U.S. at 269.
21
Without these additional facts, Plaintiff has done little more than pay lip service to
22
RICO’s proximate cause element.
23
Regarding Defendants’ second scheme, Plaintiffs maintain that they “have
24
suffered damages in that they have lost the business associated with several elderly
25
patients who have discontinued services with Plaintiffs as a result of the letters” that
26
“falsely advised the elderly patients that unless they agreed to switch from Secure[]
27
Horizons’ health plan to Citizen’s Choice health plan, they would lose their primary
28
care physician.” (FAC ¶¶ 68, 71.) These allegations are confusing at best. First,
16
1
Plaintiffs do not provide any detail regarding the Secure Horizons and Citizen’s
2
Choice health plans. Based on Plaintiffs’ statement that the representations in the
3
letters were “not true, but by convincing these elderly patients to change to Citizen’s
4
Choice, HCMG and KM would receive revenue,” the Court can only surmise that
5
Secure Horizons was a health plan associated with Prime Partners or Meadowview, or
6
both, and that Secured Citizen’s Choice was associated with Defendants.
7
Second, Plaintiffs’ allegations are similarly unclear regarding the types of
8
services these elderly patients discontinued, and thus what type of business Plaintiffs
9
contend they lost in conjunction with these patients. This confusion is compounded
10
by Plaintiffs’ allegation that the 2004 PSA “required HCMG to act as the ‘IPA’ for
11
Prime Partners and to pay Prime Partners 100% of all revenue received by HCMG
12
from its contracted health maintenance organizations (‘HMOs’) for patients assigned
13
to, or enrolled with, Prime Partners physicians.” (FAC ¶ 41.) It would seem from this
14
allegation that HCMG would be required to pay at least Prime Partners any revenue it
15
gained as a result of the patients’ switch to Citizen’s Choice, thereby canceling out
16
any damage. In short, absent additional critical facts, Plaintiffs’ allegations of loss
17
proximately caused by Defendants’ second scheme are virtually unintelligible.
18
Also with respect to the second scheme, Plaintiffs contend they “have suffered
19
damages from lost contractual relationships with physicians who were appalled by the
20
conduct of the Defendants and thereafter discontinued or terminated their
21
relationships with Plaintiffs.” (FAC ¶ 71.) This harm is too attenuated to Defendants’
22
alleged misconduct to satisfy proximate cause under RICO. “As the Court reiterated
23
in Holmes, ‘[t]he general tendency of the law, in regard to damages at least, is not to
24
go beyond the first step,’ and that ‘general tendency’ applies with full force to
25
proximate cause inquiries under RICO.” Hemi Group, 130 S. Ct. at 985 (quoting
26
Holmes, 503 U.S. at 271–72). Taking Plaintiffs’ allegations as true, the chain of
27
causation runs as follows: Defendants send forged letters to 6,000 elderly patients;
28
several unnamed physicians somehow learn of the letters, recognize Defendants’
17
1
purported fraud, and become appalled; and those physicians make the independent
2
decision to terminate their relationships with Plaintiffs. Arriving at the loss of
3
physicians from Defendants’ letters directed at elderly patients therefore requires this
4
Court to move beyond the first step in the chain of causation, which defeats proximate
5
causation under RICO.
6
In sum, Plaintiffs have failed to allege sufficient facts to plausibly establish
7
proximate causation under RICO under either criminal scheme. Plaintiffs’ RICO
8
claim is therefore independently dismissible for lack of a plausible theory of
9
proximate causation.
10
4.
11
The Chaudhuri Defendants further argue that Plaintiffs’ allegation that
RICO Enterprise
12
“Defendants Chaudhuri, Foutz, Thomas, HCMG and KM are an enterprise engaged in
13
or affecting interstate or foreign commerce” (FAC ¶ 102) fails to plead the existence
14
of an enterprise with sufficient specificity to withstand Twombly and Iqbal. The Court
15
disagrees.
16
RICO defines an “enterprise” as including “any individual, partnership,
17
corporation, association, or other legal entity, and any union or group of individuals
18
associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). “The enterprise’
19
is not the ‘pattern of racketeering activity’; it is an entity separate and apart from the
20
pattern or activity in which it engages.” United States v. Turkette, 452 U.S. 576, 583
21
(1981).
22
Plaintiffs’ FAC, while not a model of clarity, suggests that Plaintiffs intend to
23
allege an association-in-fact enterprise, which the Supreme Court has defined as a
24
“group of persons associated together for a common purpose of engaging in a course
25
of conduct.” Id. In Boyle v. United States, the Supreme Court explained that “an
26
association-in-fact enterprise must have at least three structural features: a purpose,
27
relationships among those associated with the enterprise, and longevity sufficient to
28
permit these associates to pursue the enterprise’s purpose.” 556 U.S. 938, 946 (2009).
18
1
“[I]t is clear after Twombly that a RICO claim must plead facts plausibly implying the
2
existence of an enterprise with the structural attributes identified in Boyle.” In re Ins.
3
Brokerage Antitrust Litig., 618 F.3d 300, 369–70 (3d Cir. 2010) (citing Rao v. BP
4
Prods. N. Am., Inc., 589 F.3d 389, 400 (7th Cir. 2009); Elsevier Inc. v. W.H.P.R., Inc.,
5
692 F. Supp. 2d 297, 307 (S.D.N.Y. 2010); Phillips v. County of Allegheny, 515 F.3d
6
224, 234 (3d Cir. 2008)).
7
Were Plaintiffs’ statement that “Defendants Chaudhuri, Foutz, Thomas, HCMG
8
and KM are an enterprise” the sum of Plaintiffs’ enterprise allegations, the Court
9
would agree that Plaintiffs had failed to allege the existence of an enterprise. But it
10
appears Defendants overlooked the immediately preceding paragraph in Plaintiffs’
11
FAC, which states, “Since at least 1999, Defendants . . . have been engaged in a
12
criminal enterprise within the meaning of 18 U.S.C. § 1961(f). Defendants[’] . . .
13
criminal enterprise uses a pattern of mail fraud and forgery to further the financial
14
interests of Defendants . . . at the expense of the general public and HCMG’s IPA
15
providers. Plaintiffs are informed and believe and thereon allege that Defendants
16
HCMG and KM are corporate entities which have been used by Defendants
17
Chaudhuri, Foutz and Thomas, as well as Mary Demsey and Karen Sember to carry
18
out the illegal and fraudulent activities set forth herein.” (FAC ¶ 101.) From this, the
19
Court can glean that Defendants’ purpose was to use a pattern of mail fraud and
20
forgery to further their financial interests; that Chaudhuri, Foutz, and Thomas
21
associated with two corporate entities to form a relationship to carry out its purpose;
22
and that the enterprise has been in existence since 1999 and continues today. Further,
23
Plaintiffs’ FAC contains sufficient factual matter to support these allegations. While
24
these may be the bare minimum allegations Plaintiffs could have asserted to establish
25
the existence of an association-in-fact enterprise, the Court finds that they are
26
nevertheless sufficient for purposes of Iqbal.
27
28
19
1
5.
2
“Mere association with an enterprise does not violate § 1962(c).” In re
Conduct of an Enterprise Through a Pattern of Racketeering Activity
3
Insurance Brokerage Antitrust Litig., 618 F.3d at 370. Rather, § 1962(c) makes it
4
unlawful for a person associated with a RICO enterprise “to conduct or participate,
5
directly or indirectly, in the conduct of such enterprise’s affairs.” As the Supreme
6
Court has explained, this simply means that to be liable under RICO, “one must
7
participate in the operation or management of the enterprise itself” through the alleged
8
pattern of racketeering activity. Reves v. Ernst & Young, 507 U.S. 170, 185 (1993).
9
Accordingly, “[t]he requirements of § 1962(c) must be established as to each
10
individual defendant.” Craig Outdoor Advertising, Inc. v. Viacom Outdoor, Inc., 528
11
F.3d 1001, 1027 (8th Cir. 2008) (citing Sedima, 473 U.S. at 500).
12
Defendants contend that “Plaintiffs have not alleged any facts describing how
13
each individual Defendant directed the purported enterprise—i.e. the unified whole of
14
all defendants taken together—either generally or through a pattern of racketeering
15
activity.” (Chaudhuri Mot. 18.) Defendants are correct. Plaintiffs rarely distinguish
16
in their FAC between individual defendants, opting instead to indiscriminately lump
17
all Defendants together as “Defendants Chaudhuri, Foutz, Thomas, HCMG and KM.”
18
By pleading in this fashion, Plaintiffs fail to delineate how any of these individual
19
defendants independently participated in the operation or management of the
20
enterprise, much less how they did so through the alleged pattern or patterns of
21
racketeering activity. Indeed, as discussed above, Plaintiffs have barely pleaded the
22
existence of an enterprise and have failed to plausibly allege a RICO pattern.
23
Plaintiffs argue in opposition that they “have pled not only that each defendant
24
was a member of the criminal enterprise, but also that each defendant was an active
25
participant in the criminal activity that took place.” (Opp’n 12.) This argument
26
overlooks the very essence of § 1962(c)’s “conduct or participate, directly or
27
indirectly, in the conduct of [the] enterprise’s affairs” requirement, which is that the
28
two elements Plaintiffs allege they have pleaded actually combine for a specific
20
1
purpose. What Plaintiffs’ FAC lacks is the requisite connection between Defendants’
2
association with the enterprise and Defendants’ participation in the alleged criminal
3
activity. That missing connection is how each individual Defendant exploited his or
4
its participation in the criminal activity as a means to participate in the operation or
5
management of the enterprise with which each Defendant was associated. Plaintiffs
6
make no attempt to establish this connection and thus fail to allege how any
7
Defendant participated in the operation or management of the alleged enterprise
8
through the alleged pattern of criminal activity.
9
10
6.
Conclusion
To plead a RICO claim sufficient to withstand a motion to dismiss, Plaintiffs
11
were required to allege that each Defendant employed a pattern of racketeering
12
activity to participate in the operation or management of an enterprise, which
13
proximately resulted in harm to Plaintiffs. While Plaintiffs have tenuously established
14
the existence of a RICO enterprise, Plaintiffs have failed to establish any of the
15
remaining elements sufficient to establish a facially plausible RICO claim.
16
Defendants’ Motions are therefore GRANTED with respect to Plaintiffs’ second
17
claim for violation of RICO.
18
In addition, the Court finds it significant that the Chaudhuri Defendants’ present
19
Motion to Dismiss going to the merits of Plaintiffs’ RICO claim is nearly identical to
20
the motion to dismiss these parties filed several weeks before Plaintiffs filed their
21
FAC. (See ECF Nos. 15, 16.) This reflects that at the time Plaintiffs filed their FAC,
22
Plaintiffs had been made aware of the significant pleading deficiencies addressed
23
above; nevertheless, Plaintiffs made only meager factual amendments to their RICO
24
claim that largely failed to address the more basic pleading failures. This fact,
25
combined with the very serious problems plaguing nearly every element of Plaintiffs’
26
RICO claim, convinces the Court that any attempt to amend this claim would be
27
futile. Accordingly, Plaintiffs’ second—and sole federal—claim is hereby
28
DISMISSED WITH PREJUDICE. See AE ex rel. Hernandez v. County of Tulare,
21
1
666 F.3d 631, 636 (9th Cir. 2012) (“A district court abuses its discretion by denying
2
leave to amend unless amendment would be futile . . . .”)
3
B.
Plaintiff’s Remaining State-Law Claims
In addition to their federal RICO claim, Plaintiffs have alleged various state-law
4
5
claims. Defendants removed this action to federal court on the basis that this Court
6
has federal jurisdiction over Plaintiff’s RICO claim and supplemental jurisdiction over
7
the state-law claims because the state-law claims “arise out of the same set of facts as
8
the RICO claim so as to form part of the same case or controversy.” (Dkt. No. 1, at 2
9
(citing 28 U.S.C. § 1367).) Because the Court dismisses Plaintiffs’ sole federal claim
10
under RICO, however, the Court currently lacks federal question jurisdiction. The
11
Court therefore declines to exercise supplemental jurisdiction over the remaining state
12
law-claims pursuant to 28 U.S.C. § 1367(c)(3). Ove v. Gwinn, 264 F.3d 817, 826 (9th
13
Cir. 2001) (“A court may decline to exercise supplemental jurisdiction over state-law
14
claims once it has dismissed all claims over which it has original jurisdiction.”); see
15
also San Pedro Hotel Co. v. City of L.A., 159 F.3d 470, 478 (9th Cir. 1998) (district
16
courts not required to provide explanation when declining jurisdiction under 28
17
U.S.C. § 1367(c)(3)).
18
///
19
///
20
///
21
///
22
///
23
///
24
///
25
///
26
///
27
///
28
///
22
1
///
2
///
3
V.
CONCLUSION
4
For the reasons discussed above, Defendants’ Motions (ECF Nos. 38, 435) are
5
GRANTED with respect to Plaintiffs’ second claim for violation of RICO, which is
6
DISMISSED WITH PREJUDICE. The Chaudhuri Defendants’ Motion to Strike
7
(ECF No. 40) is DENIED AS MOOT. Having dismissed Plaintiffs’ sole federal
8
claim under RICO, the Court declines to exercise supplemental jurisdiction over the
9
remaining state-law claims. This case is therefore REMANDED to the California
10
Superior Court for the County of Riverside.
11
12
IT IS SO ORDERED.
13
May 14, 2012
14
15
____________________________________
HON. OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE
16
17
18
19
20
21
22
23
24
25
26
27
28
The Foutz Motion is DENIED insofar as it argues Plaintiffs’ RICO claim is barred by the NoerrPennington doctrine but GRANTED to the extent that it joins in the arguments raised in the
Chaudhuri Motion. (Foutz Mot. 25 (joining in the Chaudhuri Defendants’ Motion).)
5
23
]]>
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?
