City of N.Y. v. LaserShip, Inc.

• Court: U.S. District Court — Southern District of New York
• Writing for the Court: GEORGE B. DANIELS, District Judge
• Citation: City of N.Y. v. LaserShip, Inc., 33 F.Supp.3d 303 (S.D. N.Y. 2014)
• Decision Date: 09 July 2014
• Docket Number: No. 13 Civ. 7535 GBD.,13 Civ. 7535 GBD.
• Parties: The CITY OF NEW YORK, Plaintiff, v. LASERSHIP, INC., Defendant.

33 F.Supp.3d 303

The CITY OF NEW YORK, Plaintiff

v.LASERSHIP, INC., Defendant.

No. 13 Civ. 7535 GBD.

United States District Court, S.D. New York.

Signed July 9, 2014.

Filed July 10, 2014.

Aaron Michael Bloom, Eric Proshansky, New York City Law Department, New York, NY, for Plaintiff.

Kelly Anne Librera, Winston & Strawn LLP, Seth C. Farber, Dewey & LeBoeuf, L.L.P., New York, NY, for Defendant.

MEMORANDUM DECISION AND ORDER

GEORGE B. DANIELS, District Judge:

Plaintiff, the City of New York, brings this action against Defendant LaserShip, Inc., alleging that the Defendant delivered untaxed cigarettes to New York consumers. Specifically, Plaintiff claims that by delivering untaxed cigarettes to New York consumers LaserShip violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”) (Claims III and IV), the Contraband Cigarette Trafficking Act, 18 U.S.C. § 2341 et seq. (“CCTA”) (Claims I and II), the New York Public Health Law 1399–II (“N.Y. PHL § 1399–ll ”) (Claims VII and VIII), and the Prevent All Cigarette Trafficking Act, 15 U.S.C. § 375 et seq. (“PACT Act”) (Claims V and VI). The City also seeks injunctive relief (Claim IX). Defendant moved pursuant to Fed.R.Civ.P. 12(b)(6) and 12(b)(1) to dismiss the Complaint. See ECF No. 8. Defendant's motion to dismiss is DENIED in its entirety.

Background¹

Defendant LaserShip, Inc., is a Delaware corporation that is engaged in package delivery and courier services. See Compl. ¶ 19. Between approximately 2011 and 2013, LaserShip allegedly partnered with Regional Integrated Logistics (“RIL”) as a “key link” in the illicit cigarette distribution network created by RIL to service smoke shops that were owned by the Seneca Nation of Indians (“SNI”). Id. ¶ 13. The Complaint alleges that Defendant received, via intermediate carriers, cigarettes picked-up by RIL from the SNI smoke shops. LaserShip then delivered the cigarettes to residences and businesses of consumers in the New York City metropolitan area and New Jersey. Id. at ¶¶ 13, 31.

Plaintiff alleges that LaserShip had actual knowledge that it was delivering untaxed cigarettes. The Complaint alleges that in early 2011, RIL met with two LaserShip representatives, as well as the President of GMV Express, a company in the business of setting up package delivery networks. During this meeting, LaserShip was allegedly informed that it would deliver packages containing untaxed cigarettes. Id. ¶¶ 53–57.

Under their delivery arrangement with RIL and GMV, RIL picked up the packages from the SNI smoke shops and transported them to RIL's warehouse. RIL then sorted the packages and arranged for them to be shipped to regional hubs, including LaserShip's New York warehouse. Id. at ¶ 31. LaserShip allegedly delivered these packages of untaxed cigarettes to New York consumers. The Complaint alleges that over a two year period, LaserShip delivered approximately 74,974 cartons of cigarettes to New York consumers.Id. ¶¶ 31, 60.

The Complaint alleges that LaserShip participated in the management and operation of RIL by controlling the receipt of unstamped cigarettes from RIL and its third-party common carriers and the delivery of the cigarettes to end consumers in New York City and State. Specifically, LaserShip allegedly: (a) received unstamped cigarettes from RIL (via RIL's third party common carriers) for ultimate distribution and delivery to consumers; (b) used its own methods and practices to determine how and when to transport and distribute the unstamped cigarettes; (c) routinely shared information with RIL and the SNI smoke shops from LaserShip's package tracking systems; (d) shared information with customers of the SNI smoke shops from LaserShip's package tracking systems; (e) held contraband cigarettes in LaserShip's terminal for customer pick-up; (f) provided all of the logistics and delivery support services to RIL that would be required for the successful delivery of contraband cigarettes from the Seneca reservation to consumers in the City and elsewhere; and (g) accepted the financial and other risks of transporting contraband cigarettes. Id. ¶ 77.

Legal Standard

A complaint must have “enough facts to state a claim to relief that is plausible on its face” to survive a motion to dismiss. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ). Plausibility requires “more than labels and conclusions.” Id. at 555, 127 S.Ct. 1955. Legal conclusions must be supported by well-pleaded factual allegations. See Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. “When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. At this stage, the court is to accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff, the non-movant. See Harris v. Mills, 572 F.3d 66, 71 (2d Cir.2009).

The RICO Claims

Defendant LaserShip moves to dismiss Plaintiff's RICO claims in Counts III and IV on the basis that: (1) LaserShip did not participate in the “operation or management” of any alleged enterprise; (2) LaserShip's alleged acts do not constitute a “pattern of racketeering activity;” (3) Laser Ship did not proximately cause any injury to the City; and (4) having failed to adequately allege a substantive RICO claim, Plaintiff cannot maintain a RICO conspiracy claim. See Def. Mem. at 4–10.

1. Plaintiff Adequately Alleges “Operation or Management”

To state a civil RICO claim, the City must adequately allege that LaserShip conducted or participated in the conduct of an enterprise's affairs through a pattern of racketeering activity that caused injury to the City's business or property. See 18 U.S.C. ¶¶ 1962(c) and 1964(c) ; Sedima, S.P.R.L. v. Imrex, Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). RICO makes it unlawful “for any person employed by or associated with an enterprise ... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity ....” 18 U.S.C. § 1962(c).

Under the “operation and management test” articulated by the United States Supreme Court in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), to participate in the conduct of an enterprise's affairs, “one must have some part in directing those affairs.” Id. at 179, 113 S.Ct. 1163. Reves' “operation or management test” requires neither primary responsibility for enterprise affairs, nor, as the Defendant points out, a formal position in the enterprise, only that a defendant have “some part in directing the enterprise's affairs.” 507 U.S. at 179, 113 S.Ct. 1163. In the Second Circuit, “the ‘operation or management’ test typically has proven to be a relatively low hurdle for plaintiffs to clear, especially at the pleading stage ...” First Capital Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 175–176 (2d Cir.2004). The question of operation or management “is essentially one of fact.” Id. (citing United States v. Allen, 155 F.3d 35, 42–43 (2d Cir.1998) ).

Plaintiff has sufficiently alleged that LaserShip had some part in directing the affairs of RIL. Specifically, Defendant allegedly received and delivered unstamped cigarettes on behalf of RIL, exercised discretion in using its own methods and practices to determine how and when to transport the unstamped cigarettes, provided all of the logistics and delivery support services to RIL that were required for successful delivery, and accepted the financial and other risks of transporting contraband cigarettes on behalf of RIL. See Compl. at ¶ 77. In addition, RIL had to seek authorization for customer pick-ups at LaserShip's facility. Id. at ¶ 46. Plaintiff has sufficiently alleged that LaserShip not only provided services which were essential to RIL's operation, but had some part in directing RIL's affairs and exercised discretion over the operation of the RIL enterprise.

2. Plaintiff Adequately Alleges Continuity

Defendant also argues that the alleged acts in the Complaint do not constitute “a pattern of racketeering activity” under § 1962(c). To state a claim under Section 1962(c), a plaintiff must allege a pattern of racketeering activity, which is defined as “at least two acts of racketeering activity ... within ten years ... after the commission of a prior act of racketeering activity.” Lorber v. Winston, 962 F.Supp.2d 419, 438 (E.D.N.Y.2013) (quoting 18 U.S.C. § 1961(5) ). In H.J., Inc. v. Northwestern Bell Tel. Co., the Supreme Court clarified the pattern requirement as one that requires continuity, which may be either closed- or open-ended. 492 U.S. 229, 241, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989).

Closed-ended continuity refers to “a closed period of repeated conduct,” whereas open-ended continuity refers to “past conduct that by its nature projects into the future with a threat of repetition.” Id. To allege closed-ended continuity, Plaintiff must allege “a series of related predicates extending over a substantial period of time.” Id. at 242, 109 S.Ct. 2893. To allege open-ended continuity, Plaintiff must allege “a threat of continued racketeering activity.” Id. Under either test, continuity is “centrally a temporal concept,” which “depends on the specific facts of each case.” Id.

The law is clear that “the duration of a pattern of racketeering activity is measured by the RICO predicate acts the defendants commit.” Cofacrédit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 243 (2d Cir.1999). “RICO defines ‘racketeering activity’ to include a host of criminal offenses, which are in turn defined by...