Demaree v. Castro

Background

The case involved individual purchasers and Kickstarter backers who alleged that defendants offered a portable laptop-screen product called Slidenjoy, also known as Protabl. The First Amended Complaint alleged that the defendants collected money but did not deliver the product or provide refunds. The opinion described the case as involving approximately 118 individual plaintiffs, each pursuing an individual claim rather than a class action.

The complaint asserted two federal claims under the Racketeer Influenced and Corrupt Organizations Act, commonly called RICO: a substantive claim under 18 U.S.C. § 1962(c) and a conspiracy claim under § 1962(d). It also asserted state-law claims for common-law fraud, unjust enrichment, breach of contract, breach of the implied duty of good faith and fair dealing, and violation of New York General Business Law § 349.

RICO Claims

The defendants moved to dismiss under Rule 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. The court held that the complaint did not plausibly allege the required RICO enterprise.

First, the alleged enterprise principally consisted of 120 Pixels and its employees or agents. The court held that a corporation and its employees carrying out the corporation’s ordinary business are not sufficiently distinct to form the required RICO enterprise. The complaint did not allege that 120 Pixels was wholly owned by any individual, so the court found that a limited exception for a sole corporate owner did not apply.

Second, the court held that SNJ S.A. was not sufficiently distinct from 120 Pixels and the individual defendants. The complaint alleged that SNJ conducted no significant business and held assets and trademark rights connected to 120 Pixels, but it did not allege facts showing that SNJ operated independently, worked in a different line of business, participated in managing the alleged enterprise, or independently benefited from the alleged wrongdoing.

Third, the court held that the complaint did not allege facts showing that Kickstarter or OVHcloud shared the alleged fraudulent purpose or participated in operating or managing the enterprise. The court treated those entities, based on the allegations, as outside service providers that supplied platforms or services to 120 Pixels. Providing those services, or allegedly failing to act after learning of complaints, was not enough to make either entity a RICO enterprise member.

Because the complaint failed to state a substantive RICO claim, the RICO conspiracy claim also failed. The court dismissed Count 1, the substantive RICO claim, and Count 2, the RICO conspiracy claim, with prejudice and without leave to replead.

State-Law Claims and Jurisdiction

After dismissing the only federal claims, the court declined to exercise supplemental jurisdiction over the state-law claims. The court also found that diversity jurisdiction was unavailable. Each plaintiff’s alleged loss was generally between $300 and $600, far below the $75,000 amount required for diversity jurisdiction, and the plaintiffs could not aggregate their separate claims. In addition, the opinion stated that many plaintiffs were foreign nationals while the defendants were citizens of Belgium or Luxembourg, defeating complete diversity as pleaded.

The court therefore dismissed all remaining causes of action without prejudice. The opinion stated that plaintiffs were left to pursue individual remedies in their home forums, subject to defenses that could be raised, including possible limitations-period defenses.

Sanctions

The defendants sought sanctions under Rule 11 against plaintiffs’ attorney, Robert M. DeWitty, and plaintiffs Scott W. Williams III and Matthew Philip Demaree. Rule 11 requires an attorney or unrepresented party to make reasonable factual and legal inquiries before filing a pleading. The court found that the RICO claims were frivolous under the objective reasonableness standard and that the required 21-day notice period had been satisfied.

The court granted the sanctions motion in part as to attorney Robert M. DeWitty, finding that no competent attorney could reasonably have believed the RICO claims were supported by the facts and existing law. It denied the motion as to Williams and Demaree because they were entitled to rely on their attorney’s assessment. The court awarded $2,500 to defendants’ counsel as a sanction.

Final Disposition

The First and Second Causes of Action were dismissed with prejudice. All other causes of action were dismissed without prejudice. Defendants’ motion for sanctions was granted in part and denied in part. The requests for an order to show cause, limited discovery, and a conference were dismissed as moot, and the court directed the Clerk to close the case.