Cargo On Demand, Inc. v. Polar Air Cargo Worldwide, Inc.

Background

Cargo On Demand, Inc. (COD) arranges air transportation for customers’ goods. COD and Polar Air Cargo Worldwide, Inc. (Polar) entered into an agreement in 2014 under which COD paid for blocks of cargo space on specified routes. They renewed that agreement annually through 2021.

COD alleged that Polar executives required it to pay nearly four million dollars in additional “consulting fees” to Polar executives and third-party consulting companies. COD alleged that these payments were illicit and harmed its business. COD also alleged that, after Polar’s chief operating officer directed it to stop making the payments, Polar reduced COD’s cargo space, imposed additional payment requirements, took some of COD’s customers, and ended the parties’ relationship.

COD asserted a substantive claim under Section 1962(c) of the Racketeer Influenced and Corrupt Organizations Act (RICO), a RICO conspiracy claim under Section 1962(d), and six New York-law claims: fraud, aiding and abetting fraud, common-law conspiracy, unfair trade practices, breach of contract, and interference with prospective contractual relations. Polar moved to dismiss the entire complaint under Federal Rules of Civil Procedure 9(b) and 12(b).

RICO Claims

The court dismissed COD’s substantive RICO claim for failure to state a claim. First, the court held that COD had not adequately alleged a legally distinct RICO “enterprise.” COD alleged that Polar acted with its own executives and with consulting companies controlled by Polar’s management. But, as pleaded, the consulting companies appeared to be instrumentalities or agents used by Polar rather than independent entities conducting a separate enterprise.

Second, the court held that COD had not plausibly alleged a pattern of racketeering activity. Tax fraud was not itself one of the offenses listed as a RICO predicate act. COD also did not adequately allege the facts needed to show money laundering underlying its claimed Travel Act violations, including facts showing Polar’s knowledge and the particular interstate travel or use of interstate facilities involved.

The court further held that COD did not plead wire fraud with the particularity required by Rule 9(b). Although COD alleged that Polar management required freight forwarders to make payments disguised as consulting fees, it did not identify with enough detail how the alleged scheme began or operated, who made the relevant statements, when they were made, or how COD was misled. The court noted that an email cited by COD showed instructions to make payments but did not show that COD misunderstood the payments’ nature. The court therefore concluded that COD had not adequately pleaded any qualifying predicate acts or a RICO pattern. It did not reach Polar’s separate argument about continuity.

The court also dismissed COD’s RICO conspiracy claim. Because COD had not stated a substantive RICO claim, the conspiracy claim failed as well. Independently, COD did not adequately allege that Polar agreed to participate in a RICO enterprise. The court rejected COD’s reliance on Polar’s later acknowledgment, through counsel, that its executives had engaged in an illicit payment scheme, reasoning that this did not show Polar’s contemporaneous knowledge of or agreement with the scheme.

New York Claims and Disposition

After dismissing the federal claims, the court declined to exercise supplemental jurisdiction—the court’s authority to hear related state-law claims—over COD’s New York claims. The court dismissed those claims as well, citing the early stage of the case and the usual practice of declining to retain state claims after the federal claims have been dismissed.

Judge Jesse M. Furman granted Polar’s motion to dismiss. The complaint was dismissed with leave for COD to amend, and the court gave COD one final opportunity to file an amended complaint within thirty days of the order. The opinion states that the court was skeptical that COD could cure the defects, but it nevertheless granted the amendment opportunity.