Secure Source Claims Company, LLC v. Miller

Background

Secure Source Claims Company, LLC, described as the assignee of claims belonging to 125 Broad CHP, sued Edward F. Miller and multiple other defendants. The First Amended Complaint asserted claims under the federal Racketeer Influenced and Corrupt Organizations Act, commonly called RICO, including a substantive claim under 18 U.S.C. § 1962(c) and a conspiracy claim under § 1962(d). It also asserted state-law claims for fraud, conversion, breach of fiduciary duty, diversion of trust assets, and unjust enrichment, among others.

Two groups of defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legally plausible claim. The FCG Defendants were Fine Craftsman Group, LLC, Krzysztof Pogorzelski, and Eric Scott. The Miller Defendants were Edward F. Miller, USDG, LLC, Michael Piumelli, Segovia Construction LLC, Jose Segovia, and Samantha Bustamante.

A magistrate judge recommended denying both motions in full. The FCG Defendants objected, while the Miller Defendants did not. Judge Clarke reviewed the disputed portions of the recommendation in detail and reviewed the undisputed portions for clear error.

RICO Claims

The court held that the complaint plausibly alleged an open-ended pattern of racketeering activity. Although the allegations did not establish a closed-ended pattern because the alleged predicate acts covered less than two years, the court found a plausible threat of continuing criminal activity. The court relied on allegations that the scheme continued to defraud other victims and that fraudulent invoicing might have been part of the defendants’ regular business practices.

The court also found that the complaint plausibly alleged an association-in-fact enterprise, meaning an enterprise formed by people and entities associated together rather than by a formal organization. The complaint adequately described the enterprise’s purpose, the relationships among its participants, and the participants’ roles, except for Scott.

As to Scott, the court found that the complaint relied mainly on group allegations and one conclusory statement. It did not provide enough specific facts explaining Scott’s role in the alleged enterprise or racketeering activity. The court therefore dismissed the RICO claims with respect to Scott without prejudice. The court did not dismiss the RICO claims against Fine Craftsman Group or Pogorzelski. It also declined to dismiss the RICO conspiracy claim because that claim was based on the same substantive RICO allegations that otherwise survived.

Claims-Splitting and Abstention

The FCG Defendants argued that the federal case improperly split claims from a related state-court breach-of-contract action. The court rejected that argument, explaining that the rule against claims-splitting applies to duplicative federal suits and did not apply because the related contract action was in state court.

The FCG Defendants also raised, then abandoned, an argument asking the federal court to abstain because of the state-court proceeding. Reviewing the issue for clear error, the court agreed with the magistrate judge that abstention was not warranted.

State-Law Claims

The court held that none of the state-law claims against the FCG Defendants should be dismissed as duplicative of the state-court contract claims. The federal complaint alleged a broader invoicing scheme involving parties who were not part of the contract action. The court separately concluded that the fraud, conversion, breach-of-fiduciary-duty, unjust-enrichment, and diversion-of-trust-assets theories were not merely repackaged contract claims on the allegations presented.

Disposition

The court adopted the magistrate judge’s recommendation in part and rejected it in part. The FCG Defendants’ motion to dismiss was granted in part and denied in part: the RICO claims against Scott were dismissed without prejudice, while the motion was denied in all other respects. The Miller Defendants’ motion to dismiss was denied. The court granted the plaintiff leave to file a Second Amended Complaint addressing Scott’s RICO claims by April 29, 2024.