Aarp v. American Family Prepaid Legal Corp., Inc., Case No. 1:07cv202.

• Citation: 604 F.Supp.2d 785
• Decision Date: 25 February 2009
• Docket Number: Case No. 1:07cv202.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: AARP, Plaintiff, v. AMERICAN FAMILY PREPAID LEGAL CORPORATION, INC., d/b/a American Family Legal Plan, Heritage Marketing and Insurance Services, Inc., Stanley Norman, Jeffrey Norman, Mike Fedynsizyn, Robert Malarchick, America's Recommended Mailers, Inc., Tina Hennessy, and Tom Hennessy, Defendants.

604 F.Supp.2d 785

AARP, Plaintiff, v. AMERICAN FAMILY PREPAID LEGAL CORPORATION, INC., d/b/a American Family Legal Plan, Heritage Marketing and Insurance Services, Inc., Stanley Norman, Jeffrey Norman, Mike Fedynsizyn, Robert Malarchick, America's Recommended Mailers, Inc., Tina Hennessy, and Tom Hennessy, Defendants.

Case No. 1:07cv202.

United States District Court, M.D. North Carolina.

February 25, 2009.

COPYRIGHT MATERIAL OMITTED

James T. Williams, Jr., Benjamin R. Norman, Brooks Pierce McLendon Humphrey & Leonard, Greensboro, NC, for Plaintiff.

James Douglas Grimes, Mel Joseph Garofalo, Hedrick Gardner Kincheloe & Garofalo, LLP, Charlotte, NC, Jonathan Arthur Berkelhammer, C. Bailey King, Jr., Richard A. Coughlin, Smith Moore, L.L.P., Greensboro, NC, for Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS D. SCHROEDER, District Judge.

This is an action by AARP against providers of certain financial services and their marketing firms and principals for allegedly engaging in a scheme to unlawfully pass off their services as AARP-endorsed. The Amended Complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act (federal "RICO"), 18 U.S.C. § 1962 (2000), and its North Carolina analog, N.C. Gen.Stat. § 75D-1-14 (2007) (state "RICO"), the Lanham Act, 15 U.S.C. §§ 1114, 1125, the North Carolina unfair and deceptive trade practice statute, N.C. Gen Stat. § 75-1.1, and North Carolina common law involving trademark infringement, unfair competition, false designation of origin, passing off and dilution. (Doc. 3.)

Before the court are motions to dismiss the federal RICO claims by all Defendants (Docs. 19, 20 & 27), and to dismiss the state RICO claims by certain Defendants (Doc. 27), for failure to state a claim, pursuant to Rule 12(b)(6), Fed.R.Civ.P. Certain Defendants have also moved to dismiss the Amended Complaint for lack of personal jurisdiction, pursuant to Rule 12(b)(2), Fed.R.Civ.P., and, in the alternative, to dismiss any claims arising out of conduct other than activity directed toward North Carolina. (Docs. 19, 20 & 27.)

For the reasons set forth below, the court grants the motions to dismiss the federal RICO claims, which will be dismissed without prejudice, and it denies the motions as to the North Carolina RICO claims. The court denies the jurisdictional motions and concludes that specific jurisdiction exists over the individual Defendants as to the remaining claims. Finally, to the extent the Amended Complaint asserts claims relating to mailings directed outside of North Carolina, those claims are dismissed.

I. BACKGROUND

The key facts are set forth below, while additional facts relevant to the various legal issues are addressed in the analysis to follow. On motion to dismiss, all facts are viewed in the light most favorable to AARP as the non-moving party. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007).

AARP is a District of Columbia corporation that describes itself as the largest membership organization in the nation and is devoted to promoting the interests of persons age 50 or older. (Doc. 3 ¶¶ 12, 13.) It claims membership of nearly half of all so-called "senior citizens" in America. (Id.) AARP allegedly owns federal trademark registrations for AARP financial services and receives substantial licensing fees for the use of its mark, which has a national reputation. (Id. ¶¶ 14-17.)

Defendants Heritage Marketing and Insurance Services, Inc. ("Heritage"), a California corporation, and American Family Prepaid Legal Corporation, Inc., d/b/a American Family Legal Plan ("American Family"), a California corporation, acting through their principals, Jeffrey and Stanley Norman,¹ both California residents, engaged in the business of offering financial services to senior citizens.² Collectively these Defendants, referred to in the Amended Complaint as the "Financial Services Defendants," marketed their services through contracts with Defendant America's Recommended Mailers, Inc. ("ARM"), a Texas corporation. (Doc. 42, Ex. A at 13-14.) ARM's principals are Tom and Tina Hennessy,³ citizens and residents of Lewisville, Texas. (Doc. 21 ¶ 2; Doc. 22 ¶ 2.) ARM and the Hennessys are referred to collectively as the "Mail House Defendants."

AARP alleges that starting in about July 2004, the Financial Services Defendants and Mail House Defendants conspired to design, create, and mail millions of "lead generation cards" (or "lead cards") bearing the "AARP" mark to senior citizens to pique interest in living trusts, annuities and other financial products and services offered by the Financial Services Defendants. (Doc. 3 ¶¶ 103, 108, 114 & 120.)

An illustrative lead card states as follows:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

(Doc. 3, Ex. A.) Defendant Stanley Norman takes credit for originating the idea to market financial services by referring to the AARP study. (Doc. 41, Ex. B at 10-13.) American Family sent original designs of some lead cards to ARM and the Hennessys. (Doc. 42, Ex. A at 125.) Tom Hennessy testified, however, that the text of one of the lead cards, ARM-0002 (Id., Ex. A, Ex. 2), was modified "part under their [American Family's] direction" and "part under ours." (Id., Ex. A at 132.) He characterized the design as a "collaborative effort" between ARM and American Family. (Id., Ex. A at 130.) Tina Hennessy also had some input on the card, indicating that she "may have reworded a few things on it" but cannot recall what she did. (Id., Ex. B at 73-75.) There is no affirmative testimony that the Hennessys modified any of the text referring to AARP. However, at least one other version of the lead card containing reference to the AARP study was a "stock" mailer ARM had sent out on behalf of other customers. (Id., Ex. A at 127.) Tom Hennessy testified that the "stock" lead cards predated his employment with ARM in 2000. (Id., Ex. A. at 127-128.)

The Financial Services Defendants contracted with ARM to mail the lead cards and to process responses from potential customers. (Doc. 3 ¶¶ 19-20, 40-90.) ARM mailed the lead cards to a list of people matching criteria identified by American Family, collected the responses from those who sought more information, and redirected respondents to American Family. (Id. ¶ 27.) Respondents seeking more information were contacted by sales representatives (including Defendants Fedynsizyn and Malarchick) employed by the Financial Services Defendants, and a home-visit was set up during which high-pressure sales tactics were allegedly used to "browbeat seniors into buying financial services." (Id. ¶¶ 40-90.) AARP alleges that the lead cards misled seniors into believing that the mailings and subsequent services originated from, were endorsed by, and/or were affiliated with, AARP, when in fact they were not. (Id. ¶¶ 26-30, 40-90.) As a consequence, AARP charges, many senior citizens were defrauded into purchasing services they thought income and royalties, as well as goodwill, because potential customers were lured away from actual AARP-endorsed financial services. (Id. ¶ 91.)

AARP filed its lawsuit on September 14, 2006, in Guilford County, North Carolina, Superior Court, and amended the complaint effective February 28, 2007, to add claims under the Lanham Act and federal RICO. (Doc. 1.) Defendants removed the action to this court and filed the collection of instant motions.⁴

II. RICO CLAIMS

A. Federal RICO

The Amended Complaint seeks recovery under "18 U.S.C. Section 1962" without further specification, though AARP clarified at oral argument that it is proceeding under section 1962(c).⁵ (Doc. 3 ¶¶ 93-100.) To state a claim under section 1962(c), a RICO plaintiff must prove that the defendant "conducted or participated in the conduct of the affairs of an enterprise engaged in interstate commerce through a pattern of racketeering activity." United States v. Norton, 17 Fed.Appx 98, 101 (4th Cir.2001) (citing Salinas v. United States, 522 U.S. 52, 61, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997)). Thus, section 1962(c) requires proof of (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); accord R.J. Reynolds Tobacco Co. v. S K Everhart, Inc., No. 1:00CV00260, 2003 WL 21788858, at *3-4, 2003 U.S. Dist. LEXIS 13440, at *10 (M.D.N.C. July 31, 2003). In dispute here is whether AARP has sufficiently alleged the existence of a RICO "enterprise." AARP alleges that "[t]he Mail House Defendants [ ] and the Financial Services Defendants [ ] have formed an enterprise that is engaged in a pattern of racketeering activity." (Doc. 3 ¶ 94.) AARP contends that these Defendants constitute an association-in-fact enterprise based on a pattern of conduct predicated on mail fraud and trademark counterfeiting. (Id. ¶¶ 19-33, 39-89; Doc. 31 at 4.)⁶

A motion under Rule 12(b)(6) should be granted only where, assuming the truth of all allegations in the Amended Complaint, a plaintiff fails to allege sufficient facts entitling it to relief. Fed.R.Civ.P. 12(b)(6); Twombly, 127 S.Ct. at 1965. All factual allegations must be construed in the light most favorable to the Plaintiff. Martin Marietta Corp. v. Int'l Telecomm. Satellite Org., 991 F.2d 94, 97 (4th Cir.1992). And, the complaint must have enough facts to state a claim that is above the speculative level and plausible on its face. Adcock v. Freightliner LLC, 550 F.3d 369, 374 (4th Cir.2008). The court should not dismiss a claim by insisting that a plaintiff allege specific facts "beyond those necessary to state a claim and the grounds showing entitlement to relief." Twombly, 127 S.Ct. at 1973-74.

1. RICO "person" and "enterprise" distinctness

Section 1962(c) makes it unlawful for "any person employed by or associated with any enterprise engaged in . . . interstate or foreign commerce to conduct or participate, directly or indirectly in...