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Custom Hair Designs by Sandy, LLC v. Central Payment Co., LLC

United States District Court, D. Nebraska

July 25, 2019

CUSTOM HAIR DESIGNS BY SANDY, LLC, on behalf of themselves and all others similarly situated; and SKIP'S PRECISION WELDING, LLC, on behalf of themselves and all others similarly situated; Plaintiffs,


          Joseph F. Bataillon Senior United States District Judge

         This matter is before the Court on defendant Central Payment Co., LLC's (hereinafter CPAY) motion to dismiss Counts II and III, Filing No. 54, of plaintiffs' first amended complaint, Filing No. 46; defendant CPAY's motion to strike improper evidence submitted in opposition to the motion to dismiss, Filing No. 71; and the plaintiff's objection, Filing No.77, to the magistrate's order, Filing No. 76. Plaintiffs amended complaint alleges breach of contract; violation of the Racketeer Influenced and Corrupt Organizations Act, (hereinafter RICCO) 18 U.S.C. §§ 1962(a), (c) & (d)); and fraudulent overbilling and concealment.


         Plaintiffs contend they are merchants that processed credit and debit transactions through CPAY. CPAY processes over 65, 000 businesses and over $10 billion in credit sales annually. Plaintiffs contracted with CPAY from November 2015 through February 2017 for payment processing services. Plaintiffs allege that CPAY charged fees for its payment processing services that do not coincide with the terms of plaintiffs' merchant agreements and Terms and Conditions. Plaintiffs plead this case as a putative nationwide class action and argue that CPAY is a multi-year, interstate, multi-million-dollar scheme to defraud unsophisticated merchants.[1] Defendants argue that this is a simple breach of contract case.


         1. Motion to Dismiss under Fed.R.Civ.P. 12(b)(6)

         Under the Federal Rules, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 n.3. (2007); Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009). “Specific facts are not necessary; the statement need only ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Twombly, 550 U.S. at 555). In order to survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the plaintiff's obligation to provide the grounds for his entitlement to relief necessitates that the complaint contain “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

         In deciding a motion to dismiss under Rule 12(b)(6), a court must accept the allegations contained in the complaint as true and draw reasonable inferences in favor of the nonmoving party. Cole v. Homier Dist. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010). Determining whether a complaint states a plausible claim for relief is “a context-specific task” that requires the court “to draw on its judicial experience and common sense.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

         Courts follow a “two-pronged approach” to evaluate Rule 12(b)(6) challenges. Iqbal, 556 U.S. at 679. First, a court divides the allegations between factual and legal allegations; factual allegations should be accepted as true, but legal allegations should be disregarded. Id. Second, the factual allegations must be parsed for facial plausibility. Id.“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.” Id. at 677. The Court should not “incorporate some general and formal level of evidentiary proof into the ‘plausibility' requirement of Iqbal and Twombly.” Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir. 2012). The question at this preliminary stage is not whether a plaintiff might be able to prove its claim, but whether it has “adequately asserted facts (as contrasted with naked legal conclusions) to support” those claims. Id. The court must find “enough factual matter (taken as true) to suggest” that “discovery will reveal evidence” of the elements of the claim. Twombly, 550 U.S. at 558, 556. When the allegations in a complaint, however true, could not raise a claim of entitlement to relief, the complaint should be dismissed for failure to set a claim under Fed.R.Civ.P. 12(b)(6). Twombly, 550 U.S. at 558; Iqbal, 556 U.S. at 679. Dismissal under Rule 12(b)(6) is appropriate only if it is clear that no relief can be granted under any set of facts that could be proven consistent with the allegations. O'Neal v. State Farm Fire & Cas. Co., 630 F.3d 1075, 1077 (8th Cir. 2011).

         2. RICO and Fed.R.Civ.P. 9(b)

         In addition, RICO and fraud claims must be pled with particularity pursuant to Rule 9(b). See Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 353 (8th Cir. 2011) (citing Nitro Distrib., Inc. v. Alticor, Inc., 565 F.3d 417, 428 (8th Cir. 2009)); Allison v. Sec. Benefit Life Ins. Co., 980 F.2d 1213, 1216 (8th Cir. 1992) (explaining Rule 9(b) applies to the “critical elements of fraud”). Under this heightened pleading standard, the “circumstances” of the fraud that must be pled with particularity include “such matters as the time, place and contents of false representations, as well as the identity of the person making the misrepresentations and what was obtained or given up thereby.” H & Q Props., Inc. v. Doll, 793 F.3d 853, 856 (8th Cir. 2015) (quoting Murr Plumbing, Inc. v. Scherer Bros. Fin. Servs. Co., 48 F.3d 1066, 1069 (8th Cir. 1995)). In other words, Rule 9(b) requires plaintiffs to plead “the who, what, when, where, and how” of the fraud. Crest Constr. II, Inc., 660 F.3d at 353 (quoting Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir. 2011)).


         A. Motion to dismiss Counts II and III, Filing No. 54

         Defendant moves to dismiss Counts II and III of plaintiffs' first amended complaint. Counts II asserts claims in violation of (RICO), 18 U.S.C. § 1962, and Claim III asserts fraudulent concealment.

         RICO was passed to provide criminal and civil protections against organized crime. H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 232-233 (1989); see18 U.S.C. § 1964(c). RICO “does not cover all instances of wrongdoing” or “ordinary commercial fraud.” See Crest Constr. II, Inc., 660 F.3d at 353 (citation omitted); Terry A. Lambert Plumbing, Inc. v. W. Sec. Bank, 934 F.2d at 981-82; see also Stonebridge Collection, Inc., 791 F.3d at 822. “Acts and omissions such as a breach of contract . . . are insufficient to establish RICO liability.” Estate of Joyce Rosamond Petersen v. Boland, No. 8:16CV183, 2016 WL 6102339, at *6 (D. Neb. Oct. 19, 2016) (citing Manion v. Freund, 967 F.2d 1183, 1186 (8th Cir. 1992); McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 791 (1st Cir. 1990); see Wheatley v. Kirkland, No. 8:16CV148, 2016 WL 3661215, at *5 (D. Neb. July 5, 2016) (citing and concluding the same). RICO prohibits activities that are connected to a criminal enterprise via interstate commerce. 18 U.S.C. § 1962. RICO prohibits receiving “any income derived . . . from a pattern of racketeering activity” or “us[ing] or invest[ing] . . . any part of such income . . . in acquisition, ” establishment, or operation of “any enterprise” engaged in interstate commerce. 18 U.S.C. § 1962(a). RICO makes it illegal for “any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . . .” 18 U.S.C. § 1962(c). In addition, a person cannot conspire to do either of these actions. 18 U.S.C. § 1962(d). Plaintiffs, argues defendant, did not allege an enterprise or the predicate acts engaged in a pattern of racketeering activity, where in plaintiffs suffered from a predicate act.

         Defendants argue that to establish an enterprise plaintiffs must plead “(1) a common purpose that animates the individuals associated with it; (2) an ongoing organization with members who function as a continuing unit; and (3) an ascertainable structure distinct from the conduct of a pattern of racketeering.” United States v. Lee, 374 F.3d 637, 647 (2004); see Asa-Brandt, Inc. v. ADM Investor Servs., Inc., 344 F.3d 738, 752 (8th Cir. 2003) (“The enterprise is not the pattern of racketeering activity”). Further, “[P]laintiffs may not plead the existence of a RICO enterprise between a corporate defendant and its agents or employees acting within the scope of their roles for the corporation because a corporation necessarily acts through its agents and employees.” Allen v. First Unum Life Insur. Co., 2019 WL 1359480 (M.D. Fla. 2019); Bachman v. Bear, Stearns & Co., Inc., 178 F.3d 930, 932 (7th Cir. 1999) (concluding a “firm and its employees, or a parent and its subsidiaries, are not an enterprise separate from the firm itself”). (“[Courts] must carefully distinguish between [a business] conducting its own affairs” and participating in a RICO enterprise. Dahlgren v. First Nat. Bank of Holdredge, 533 F.3d 681, 690 (8th Cir. 2008)).

         Defendant also contends that this is not the subject matter encompassed under RICO. See, e.g.,Stonebridge Collection, Inc. v. Carmichael, 791 F.3d 811, 822 (8th Cir. 2015); Craig Outdoor Advert. Inc. v.Viscom Outdoor, Inc., 528 F.3d 1001, 1029 (8th Cir. 2008); Terry A. Lambert Plumbing, Inc. v. W. Sec. Bank, 934 F.2d 976, 981-82 (8th Cir. 1991); McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 791 (1st Cir. 1990). The Eighth ...

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