Abene v. Jaybar, LLC

• Decision Date: 14 July 2011
• Docket Number: Civil Action No. 11–143.
• Citation: 802 F.Supp.2d 716
• Parties: Joe ABENE et al. v. JAYBAR, LLC et al.
• Court: U.S. District Court — Eastern District of Louisiana

802 F.Supp.2d 716

Joe ABENE et al.

v.JAYBAR, LLC et al.

Civil Action No. 11–143.

United States District Court, E.D. Louisiana.

July 14, 2011.

Hector R. Lopez, H.R. Lopez, APLC, Covington, LA, Randy P. Russell, Law Office of Randy P. Russell, LLC, Mandeville, LA, for Joe Abene et al.

Patrick Kelly Reso, Glen Ray Galbraith, Amy Lawler Gonzales, Seale & Ross, APLC, Hammond, LA, Robert Emmett Kerrigan, Jr., Philip D. Lorio, III, Deutsch, Kerrigan & Stiles, LLP, New Orleans, LA, for Jaybar, LLC et al.

ORDER & REASONS

ELDON E. FALLON, District Judge.

Before the Court is a Motion for Partial Dismissal (Rec. Doc. No. 28) filed by Defendants Jaybar, LLC, Mazama, LLC, Reggie Harper, Terry King, Pamela King, and Northshore Financial, LLC; a Motion to Strike (Rec. Doc. No. 32) filed by Intervenor–Plaintiff Martha Temples; and a Motion for Sanctions (Rec. Doc. No. 41) also filed by Intervenor–Plaintiff. The Court has reviewed the submitted memoranda and the applicable law. For the following reasons, the Motion for Partial Dismissal is GRANTED, the Motion to Strike is DENIED AS MOOT IN PART AND DENIED IN PART, and the Motion for Sanctions is DENIED.

I. BACKGROUND

This case arises out of the sale of allegedly fraudulent securities by Defendant William Chaucer. According to Plaintiffs,¹ Chaucer owned and operated six entities (hereinafter “Chaucer entities”),² which engaged in the advertising and sale of securities. Plaintiffs state that neither Chaucer nor any other representative of the Chaucer entities was registered to undertake such activities. Plaintiffs also state that when they bought the securities from the Chaucer entities, they were unaware of this fact. Through the sale of these fraudulent securities, Plaintiffs aver, Chaucer and the Chaucer entities were able to acquire a substantial amount of assets.

Plaintiffs allege that Defendant Reggie Harper organized Defendant Mazama, LLC in 2002 and Defendant Jaybar, LLC in 2006. According to Plaintiffs, both corporations were organized to help finance the Chaucer entities by purchasing securities sold by those entities. Plaintiffs state that in his capacity as president and chief executive officer of Defendant First Community Bank, Harper also helped to secure loans for Mazama and Jaybar to enable them to purchase securities from the Chaucer entities. At all relevant times, Plaintiffs indicate, Harper was a manager of the Chaucer entities and of Mazama and Jaybar.

According to Plaintiffs, in 2006 the Chaucer entities and Jaybar entered into a “loan and security” agreement pursuant to which Jaybar provided financing to the Chaucer entities. The agreement allegedly prohibited the Chaucer entities from using the capital obtained to satisfy the maturing securities and improperly gave Jaybar a security interest in the assets of the Chaucer entities. At some point, according to Plaintiffs, Jaybar acted on its security interest, seized the assets of the Chaucer entities, and transferred them to another entity that it organized, Defendant Northshore Financial, LLC. Plaintiffs claim that they have been harmed by the fraudulent scheme perpetrated by Chaucer and the Chaucer entities and that the aforementioned dealings also render the remaining Defendants liable for their damages.

Over the objection of Plaintiffs, Intervenor–Plaintiff was granted leave to intervene in this matter. In her amended intervenor complaint, Intervenor–Plaintiff has adopted, in large part, Plaintiffs' allegations. She has also added the allegation that both William Chaucer and his spouse, Cheryl Chaucer, pled guilty to criminal violations of state securities law in state court. Intervenor–Plaintiff has also named Ms. Chaucer as an additional defendant, and she has asserted several claims that Plaintiffs did not themselves state in their complaint. These additional claims include ones under the Federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., and the Louisiana Unfair Trade Practices and Consumer Protection Law (LUTPA), La.Rev.Stat. Ann. § 51:1401 et seq. Intervenor–Plaintiff has also requested that this matter be certified as a class action under Federal Rule of Civil Procedure 23. In their answer, Defendants Jaybar, Mazama, Reggie Harper, Terry King, Pamela King, and Northshore Financial have denied liability.³

II. PRESENT MOTIONS

Defendants Jaybar, Mazama, Reggie Harper, Terry King, Pamela King, and Northshore Financial have now filed a Motion for Partial Dismissal (Rec. Doc. No. 28). These defendants specifically seek the dismissal of the federal RICO and LUTPA claims that Intervenor–Plaintiff has asserted against them. Defendants argue that the federal RICO claims are barred because under the Private Securities Litigation Reform Act of 1995, securities fraud cannot serve as a predicate for a private cause of action under RICO. See 18 U.S.C. § 1964(c). With respect to Intervenor–Plaintiff's LUTPA claims, Defendants argue that LUTPA does not permit class actions for damages, that Intervenor–Plaintiff's LUTPA claims are perempted, and that only a direct consumer or business competitor of a defendant may assert a LUTPA claim.

Intervenor–Plaintiff opposes the Motion for Partial Dismissal. With respect to her federal RICO claims, Intervenor–Plaintiff argues that there is an exception to the bar against RICO claims premised on securities fraud and that this exception is applicable to this case. With respect to her LUTPA claims, Intervenor–Plaintiff concedes that LUTPA bars class actions for damages. But she argues that the statute has been interpreted to allow class actions for restitution. Intervenor–Plaintiff also states that she is seeking class action certification only with respect to her federal RICO claims. She contends that accordingly, neither her federal RICO claims nor her LUTPA claims should be dismissed.

Separately, Intervenor–Plaintiff has filed a Motion to Strike (Rec. Doc. No. 32). Intervenor–Plaintiff asserts that several affirmative defenses and allegations made by Defendants in their answer to her complaint are conclusory. Intervenor–Plaintiff has also filed a Motion for Sanctions (Rec. Doc. No. 41). Intervenor–Plaintiff states that there is no legal basis for Defendants' contention that she does not have a federal RICO claim against them and that sanctions should be imposed on Defendants and their counsel for making the assertion.

Defendants oppose both of Intervenor–Plaintiff's motions. Defendants argue that Intervenor–Plaintiff has not adequately justified her request for an order striking their affirmative defenses and allegations. Defendants also reject the notion that with respect to Intervenor–Plaintiff's federal RICO claims, they have made an argument that is so lacking in legal basis that it warrants the imposition of sanctions.

III. LAW AND ANALYSISA. Defendants' Motion for Partial Dismissal1. Standard of Review

When a court considers a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), “all well-pleaded facts are viewed in the light most favorable to the plaintiff, but plaintiffs must allege facts that support the elements of the cause of action in order to make out a valid claim.” City of Clinton v. Pilgrim's Pride Corp., 632 F.3d 148, 152–53 (5th Cir.2010). “To avoid dismissal, a plaintiff must plead sufficient facts to ‘state a claim to relief that is plausible on its face.’ ” Gentilello v. Rege, 627 F.3d 540, 544 (5th Cir.2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)). The court “do[es] not accept as true conclusory allegations, unwarranted factual inferences, or legal conclusions.” Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir.2005).

2. Intervenor–Plaintiff's Federal RICO Claims

In enacting the Private Securities Litigation Reform Act of 1995, Congress amended the federal RICO statute to provide that “no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of” RICO. 18 U.S.C. § 1964(c). The amendment also states that this bar “does not apply to an action against any person that is criminally convicted in connection with the fraud.” Id. In their motion to dismiss, Defendants argue that Intervenor–Plaintiff's RICO claims are barred by the amendment. Defendants assert that the claim is premised on securities fraud and that the exception to the bar does not apply because they themselves have not been convicted of any crime in connection with the fraud. In her opposition, Intervenor–Plaintiff concedes that securities fraud forms the basis of her RICO claim, but she argues that the exception to the bar operates to save her claims.⁴

Although the Fifth Circuit has acknowledged that RICO does not generally authorize a private cause of action based on securities fraud, see Affco Inv. 2001, LLC v. Proskauer Rose, LLP, 625 F.3d 185, 189 (5th Cir.2010), it has yet to elaborate on the scope of the exception to that bar. Other courts, however, have had the chance to examine this question, and they have concluded that the exception is narrow in scope. The exception, these courts have held, applies only to preserve those civil RICO claims that are specifically asserted against a defendant that has been criminally convicted in connection with the alleged securities fraud. See, e.g., Powers v. Wells Fargo Bank, N.A., 439 F.3d 1043, 1046 (9th Cir.2006); In re Enron Corp. Sec., Derivative & ERISA Litig., 284 F.Supp.2d 511, 623–24 (S.D.Tex.2003) [hereinafter Enron Corp.]; Krear v. Malek, 961 F.Supp. 1065, 1076 (E.D.Mich.1997).

The Court finds these decisions to be...