Bustos v. Invierte EN Tex.

• Docket Number: 4:22-CV-02690
• Decision Date: 09 August 2023
• Parties: CESAR BUSTOS, et al., Plaintiffs, v. INVIERTE EN TEXAS, LLC, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

1

CESAR BUSTOS, et al., Plaintiffs,
v.
INVIERTE EN TEXAS, LLC, et al., Defendants.

No. 4:22-CV-02690

United States District Court, S.D. Texas, Houston Division

August 9, 2023

MAGISTRATE JUDGE'S REPORT & RECOMMENDATION

Dena Hanovice Palermo, United States Magistrate Judge.

This is a fraud case.^[1] Plaintiffs Cesar Bustos and Advance Investment Latam, LLC's (“Advance”) (collectively “Plaintiffs”) allege that they were defrauded by Defendants Invierte en Texas, LLC (“Invierte”), Karina Hernandez, Invest and Migrate to USA, LLC (“Invest and Migrate”), Juan Carlos Martinez Cecias Rodriguez (“Mr. Martinez”), Cecilia Miranda, Rhinopro Ceramics, LLC (“RPC”), M&D Corporate Solutions, LLC (“M&D”), Comar Holdings, LLC (“Comar”), Mara 6 Holdings, LLC's (“6 Holdings”), Mara 6 Investments, LLC (“6 Investments”), Rhino Linings Corporation (“Rhino Linings”), and RhinoPro Truck Outfitters (“RPT”) (collectively, “Defendants”). ECF No. 1. Pending before the Court are

2

various motions to dismiss: Comar's motion to dismiss, ECF No. 7; Mr. Martinez's motion to dismiss, ECF No. 8; RPC's, 6 Holdings, and 6 Investments motion to dismiss, ECF No. 9; Ms. Miranda's motion to dismiss, ECF No. 17; and Rhino Linings motion to dismiss, ECF No. 19.^[2] In this action, Plaintiffs allege that Defendants' fraudulent investment scheme caused them harm.

The issue before the Court is whether Plaintiffs' complaint should be dismissed for failing to state a claim. ECF Nos. 7, 8, 9, 17, 19. In their complaint, Plaintiffs advance claims for violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., common law fraud, fraud in the inducement, violation of the Texas Deceptive Trade Practices Act (“DTPA”), fraudulent transfer, and civil conspiracy.^[3] After thoroughly considering Plaintiffs' complaint, the briefing,^[4] and the applicable law, the Court recommends that Plaintiffs' complaint be dismissed because it fails to state a claim.

I. BACKGROUND

Mr. Bustos is a resident of Mexico and Advance is a Texas limited liability company. ECF No. 1 ¶¶ 3-4. Plaintiffs claim that the Defendants marketed

3

fraudulent RhinoPro “franchise” opportunities to foreign nationals who wanted to invest in the United States, many for the purpose of obtaining visas for permanent residency and eventually towards American citizenship Id. H 20, 31. Plaintiffs further allege that this scheme was carried out over several years, using at least five interrelated companies, marketing to potential investors in Mexico, Taiwan, Vietnam and other countries, and has victimized dozens of investors. Id. ¶¶ 20-24. The scheme used the postal service, email, telephone, and wire transmissions to communicate with investors and transfer money from the investors to Defendants. Id. ¶ 21.

Mr. Martinez worked with Ms. Hernandez, nonparties Uberwurx, LLC and Mobile Coating Management (“MCM”), and others to “help investors set up bank accounts and incorporate a limited liability company with which to ‘run' and ‘operate' their RhinoPro business.” Id. ¶ 26. The scheme required investors to sign two contracts, one with Uberwurx and one with MCM. Id. ¶ 27. The contract required the payment of an amount for a license, not a franchise as initially represented, to use RhinoPro products and granted the right to use certain associated trademarks and tradenames. Id. ¶ 28. Each investor was to receive a RhinoPro Mobile van fully equipped to spray bedliners into trucks. Rhino Linings manufactured and sold the liquid liner. Id. ¶ 30.

At some point prior to March 19, 2019, Mr. Martinez, Ms. Hernandez, RPC,

4

and RPT, Uberwurx, and MCM convinced Mr. Bustos to form Advance for the purpose of investing in a RhinoPro Mobile van and certain licensing rights to use spray-on truck bed liners marketed as RhinoPro Mobile. Id. ¶ 32. Mr. Bustos was interested in the investment opportunity only, not the visa program. Id. ¶ 31. On March 19, 2019, Ms. Hernandez informed Mr. Bustos that he should sign his RhinoPro contract to take advantage of the 11% annual returns offered from the investment. Id. ¶ 34. On March 19, 2019, Bustos and Advance^[5] signed a Refund Deposit Agreement and Uberwurx License Agreement. Id. Within days, Mr. Bustos formed Advance to manage and operate the franchises. Id. ¶ 35. Mr. Martinez also convinced Mr. Bustos to sign a Management and Administrative Services Agreement. Id. On April 4, 2019, Mr. Bustos wire transferred $25,000 to Uberwurx. Id.; ECF No. 1-1 at 1. On May 7, 2019, pursuant to the agreements, Mr. Bustos wire transferred an additional $152,000. ECF No. 1 ¶ 35.^[6]

According to the complaint, Mr. Martinez did not disclose to investors that MCM and its employees would manage the RhinoPro vans and investors would not be involved. Id. ¶ 36. Under this arrangement, RhinoPro franchises were rarely, if ever, profitable as their returns were capped. Id. 34, 37. Plaintiffs have not made 11% returns on their investment. Id. ¶ 37.

5

Plaintiffs assert claims for RICO against all Defendants; claims for fraud and fraudulent inducement against Mr. Martinez, Ms. Hernandez, RPC and RPT; claims for violations of the DTPA against Mr. Martinez, Ms. Hernandez, RPC and RPT; a claim for fraudulent transfer against Mr. Martinez; and civil conspiracy against Mr. Martinez, RPC, RPT, and Rhino Linings. Id. ¶¶ 39-53. Plaintiffs allege that both Mr. Martinez and Ms. Hernandez are under indictment for their actions in this scheme. Id. ¶ 1.^[7]

II. THE STANDARD FOR MOTIONS TO DISMISS.

A court may dismiss a complaint for a “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a complaint “does not need detailed factual allegations,” but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). A claim has facial plausibility “when the plaintiff pleads factual content

6

that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). The plausibility standard “is not akin to a ‘probability requirement,” though it does require more than simply a “sheer possibility” that a defendant has acted unlawfully. Id. Thus, a pleading need not contain detailed factual allegations, but must set forth more than “labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555 (citation omitted).

Ultimately, the question for the court to decide is whether the complaint states a valid claim when viewed in the light most favorable to the plaintiff. The court must accept well-pleaded facts as true, but legal conclusions are not entitled to the same assumption of truth. Iqbal, 556 U.S. at 678-79 (citation omitted). The court should not “‘strain to find inferences favorable to the plaintiffs.'” Stringer v. Town of Jonesboro, 986 F.3d 502, 512 (5th Cir. 2021) (quoting R2 Invs. LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005)). A court may consider the contents of the pleadings, including attachments thereto, as well as documents attached to the motion, if they are referenced in the plaintiff's complaint and are central to the claims. Boudreaux v. Axiall Corp., 564 F.Supp.3d 488, 498 (W.D. La. 2021). “[I]t is clearly proper in deciding a 12(b)(6) motion to take judicial notice of matters of public record.” Polnac v. City of Sulphur Springs, 555 F.Supp.3d 309, 322 (E.D. Tex. 2021) (citing Norris v. Hearst Trust, 500 F.3d 454, 461 n.9 (5th Cir. 2007)). Significantly, the

7

court should not evaluate the merits of the allegation but must satisfy itself only that the plaintiff has adequately pleaded a legally cognizable claim. Bright v. City of Killeen, Texas, 532 F.Supp.3d 389, 396 (W.D. Tex. 2021) (citing United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004)).

When alleging fraud or mistake, Federal Rule of Civil Procedure 9(b) requires that a party “state with particularity the circumstances constituting fraud or mistake.” Rule 9(b)'s particularity requirement has long played a screening function, standing as a “‘gatekeeper to discovery, a tool to weed out meritless fraud claims sooner than later.'” Ramirez v. Allstate Vehicle & Prop. Ins. Co., 490 F.Supp.3d 1092, 1116 (S.D. Tex. 2020) (quoting United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 185 (5th Cir. 2009)).

III. PLAINTIFFS FAIL TO STATE A CLAIM FOR RELIEF.

Defendants' motions to dismiss ask the Court to dismiss Plaintiffs claims for RICO, common law fraud, fraudulent inducement, violations of the DTPA, fraudulent transfer, and civil conspiracy. The Court evaluates each of Plaintiffs' claims below.

A. Plaintiffs Fail to State A RICO Claim.

Defendants argue that Plaintiffs failed to state a claim under RICO. They argue that Plaintiffs failed to plead (1) the necessary predicate acts and pattern of racketeering activity; (2) reliance in connection with Plaintiffs' mail and wire fraud

8

claims;^[8] (3) a cognizable RICO enterprise; and (4) conspiracy under § 1962(d). ECF No. 7 at 6-12. Plaintiffs respond that they have sufficiently pleaded their RICO claims to survive Defendants' motions to dismiss. ECF No. 14 at 2-11.^[9]

1. RICO prohibits a pattern of racketeering activity.

“Congress enacted RICO in order to prohibit conduct involving a pattern of racketeering activity.” See Alvarez v. Rosas, No. H-18-4646, 2020 WL 2061491, at *4 (S.D. Tex. April 29, 2020) (citing Anza v. Ideal Steel Supply Corp., 547...