Young v. Schultz

Background

Jacalyn A. Young and Diane Lynn were members of The Woodlands Owners’ Association, and Schultz was also a member. Young was president of the association’s board of directors. The plaintiffs alleged that Schultz or his wife requested financial information about the association and that Schultz later demanded things of value, including Young’s resignation from the board. They alleged that Schultz threatened to publish false information about them and their church if they did not meet his demands. They also alleged that Schultz later sought a board position and sent an email saying he wanted the press and government agencies to investigate the plaintiffs’ involvement in their church.

The plaintiffs initially sued under federal criminal statutes for blackmail, threatening communications, and stalking. The court dismissed those claims and allowed amendment. The plaintiffs then filed an amended complaint alleging a civil claim under the Racketeer Influenced and Corrupt Organizations statute, commonly called RICO. The court dismissed that complaint with leave to amend. The second amended complaint again alleged a RICO violation based on two alleged extortionate acts: the April 21, 2021 letters and an October 11, 2022 email.

Judicial Notice

Schultz asked the court to take judicial notice of a California Court of Appeal opinion. He argued that the state court’s treatment of his letters as constitutionally protected activity meant the letters could not be RICO predicate acts. The court declined to consider that argument because Schultz had raised it for the first time in his reply brief. It found the state appellate decision irrelevant to the motion and denied the request for judicial notice.

RICO Statutory Standing

A civil RICO plaintiff must plausibly allege conduct involving an enterprise, a pattern of racketeering activity, and injury to the plaintiff’s business or property caused by the RICO violation. The court held that the plaintiffs did not adequately allege the required injury. It characterized most of their allegations—emotional distress, lost time, loss of well-being, and income allegedly resulting from that distress—as personal injuries or losses derived from personal injuries, which are not compensable under RICO.

The complaint also referred generally to money spent fighting Schultz in court and in the community. The court found that allegation vague and unclear about what money was spent and whether the alleged RICO acts caused those expenses. The court noted that some courts have recognized legal fees from other lawsuits as a possible RICO injury, but concluded that the plaintiffs had not adequately pleaded such an injury here.

RICO Enterprise

The plaintiffs alleged that Schultz worked with other homeowners-association members in an association-in-fact enterprise. The court found the allegations insufficient. The complaint was confusing and partly contradictory about whether anyone acted with Schultz in connection with the April 2021 events. The court also found that the allegations did not plausibly show an ongoing organization or continuing unit. The alleged activity around April 21, 2021 appeared isolated and did not plausibly connect to the alleged October 2022 act.

Racketeering Activity

The plaintiffs relied on alleged extortion under California law and the federal Hobbs Act. Both theories require obtaining, or attempting to obtain, property or something of value through wrongful force, fear, or threats. The court held that Young’s board position was not obtainable property for these purposes. Although Schultz allegedly sought Young’s resignation so that he could take a board position, Young could resign but could not transfer the position to Schultz. Because the alleged demand concerned nontransferable property, the plaintiffs did not sufficiently allege extortion as a RICO predicate act.

Because the court found that racketeering activity was not adequately pleaded, it declined to decide whether the plaintiffs had alleged a RICO pattern.

Disposition

The court GRANTED Schultz’s motion to dismiss. Because the plaintiffs had already received two opportunities to amend and the court found that further amendment would be futile, it dismissed the claims WITHOUT LEAVE TO AMEND.