Crabhouse of Douglaston Inc.  v. Newsday Inc.

• Decision Date: 13 July 2011
• Docket Number: No. 04 CV 558 (DRH)(WDW).,04 CV 558 (DRH)(WDW).
• Citation: 801 F.Supp.2d 64
• Parties: CRABHOUSE OF DOUGLASTON INC. d/b/a Douglaston Manor, et al., Plaintiffs, v. NEWSDAY INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

801 F.Supp.2d 64

CRABHOUSE OF DOUGLASTON INC. d/b/a Douglaston Manor, et al., Plaintiffs,

v.NEWSDAY INC., et al., Defendants.

No. 04 CV 558 (DRH)(WDW).

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

July 13, 2011.

Joseph O. Giaimo, Kew Gardens, NY, Harwood Feffer LLP, by: Samuel K. Rosen, Joel C. Feffer, Robert I. Harwood, New York, NY, for Plaintiffs.

Sidley Austin LLP, by: Robert W. Hirth, Daniel A. McLaughlin, New York, NY, for Defendants Newsday, Hoy, Distribution Systems of America, Harold Foley, and Thomas Langer.

DeFeis O'Connell & Rose, P.C., by: Philip C. Patterson, Gregory J. O'Connell, New York, NY, for Defendant Keith Potthoff.Clifford Chance U.S. LLP, by: David Meister, Mark A. Weissman, New York, NY, for Defendant Robert Halfmann.Dechert LLP, by: Edward A. McDonald Matthew J. Lang, New York, NY, for Defendant Robert Brennan.

MEMORANDUM & ORDER

HURLEY, District Judge:

Before the Court are five motions to dismiss plaintiffs' fourth amended complaint. ( See docket nos. 141, 143, 149, 150, 151.) The Court previously granted defendants' motions to dismiss the second amended complaint (“SAC”), ¹ dismissing all claims under the Lanham Act with prejudice, dismissing all claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., without prejudice and with leave to amend, and temporarily declining jurisdiction on plaintiffs' state law claims. Plaintiffs have since amended their complaint and defendants now move again to dismiss pursuant to Fed R. Civ. P. 12(b)(6). For the reasons that follow, defendants' motions are granted in part, and denied in part.

BACKGROUND

The allegations set forth in plaintiffs' fourth amended complaint (“FAC”) are substantially similar to the prior pleadings in this case,² the underlying facts of which have been articulated in more detail in the Court's previous Memorandum & Order. See Crab House of Douglaston, Inc. v. Newsday, Inc. (“ Crab House I ”), 418 F.Supp.2d 193 (E.D.N.Y.2006). Some familiarity with the underlying facts of this case is therefore assumed. In a nutshell, plaintiffs' claims arise from an alleged scheme by defendant news publications Newsday, Inc. (“Newsday”), Hoy, LLC (“Hoy”), and their distributors, as well as various employees to inflate the reported circulation numbers for their publications and “advertising flyers” by as much as 50 percent. (FAC ¶¶ 1–6, 25.) It is alleged that by padding these numbers, defendants fraudulently drove up the rates they could charge advertisers.

Central to the implementation of the purported scheme was the Audit Bureau of Circulation (“ABC”), an independent, non-profit entity responsible for auditing the reported circulation numbers of Newsday, Hoy, and a host of other news publications. ABC publishes biannual audited circulation reports upon which advertisers, including plaintiffs, rely in estimating both the effectiveness of their advertising in a particular publication and the market rate for placing such advertisements. The alleged fraud is said to have involved defendants submitting false circulation reports to ABC, taking various measures to create the appearance that those circulation reports were valid when later audited by ABC, and using the final audited reports published by ABC to substantiate the bogus circulation claims made to potential advertisers.

The named plaintiffs bring this action on behalf of themselves and a class consisting of other businesses that placed advertisements in the publications beginning in 1995 and continuing through the date plaintiffs filed their FAC. ( Id. ¶ 15.) They allege eight causes of action, with the first five charging substantive RICO violations under 18 U.S.C. § 1962(c) ³ [Counts I and III] and RICO conspiracy violations under 18 U.S.C. § 1962(d) ⁴ [Counts II, IV, and V], with the remaining three being causes of action under state law, to wit, unjust enrichment, fraud, and New York General Business Law § 349.

The “Company defendants,” as they are referred to in the FAC, include the two publication companies Newsday and Hoy, and their distributor, Distribution Systems of America, Inc. (“DSA”).⁵ The FAC also brings claims against a number of named and unnamed individuals. The named individuals (the “Individual defendants”) ⁶ include:

1) Louis Sito (“Sito”), President and Publisher of Hoy, Executive Vice President for Circulation for Newsday, and National Director Of Hispanic Publications for The Tribune Company, the parent company for the three Company Defendants; ⁷

2) Robert Brennan (“Brennan”), Vice President of Circulation for Newsday, and “overall director” for circulation and sales of Newsday, Hoy, and DSA;

3) Robert Garcia (“Garcia”), Circulation Director for Hoy;

4) Robert Halfmann (“Halfmann”),⁸ “employee, agent, and sales representative” of the Company Defendants;

5) Fred Herb (“Herb”), also an “employee, agent, and sales representative” of the Company Defendants;

6) Keith Potthoff (“Potthoff”), an “employee and agent of Company Defendants,” as well as General Manager of DSA.

7) Harold Foley (“Foley”), a computer programmer and independent contractor to the Company Defendants;

8) Thomas Langer (“Langer”), and independent contractor and financial systems consultant to the distribution companies that preceded DSA.

According to the FAC, defendants Sito, Brennan, and Garcia were all terminated from the Tribune Company in 2004, and pled guilty in 2006 for conspiracy to commit mail fraud in connection with the scheme alleged here. (FAC ¶¶ 107, 113, 115, 119, 120, 124.) The FAC defines “one or more” of the John/Jane Doe defendants as “a high-level officer, director, employee, representative and agent of one or more of the Company Defendants,” and a “managing member of the Circulation Enterprise.” (FAC ¶ 143.)

DISCUSSION

I. Standard of Review

Rule 8(a) provides that a pleading shall contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The Supreme Court has recently clarified the pleading standard applicable in evaluating a motion to dismiss under Rule 12(b)(6). To survive a motion to dismiss [under 12(b)(6) ], a plaintiff must allege “only enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).⁹

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).Id. at 555–56, 127 S.Ct. 1955 (citations and internal quotation marks omitted).

First, in assessing a party's complaint the Court should “begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.” Ashcroft v. Iqbal, 566 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009). “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Id. Thus, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 1949 (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955).

Second, “[w]hen 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. “Determining whether a complaint states a plausible claim for relief [is] ... a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 1950. The Court defined plausibility as follows:

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. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. 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.’ ”

Id. at 1949 (quoting and citing Twombly, 550 U.S. at 556–57, 127 S.Ct. 1955).

II. RICO Generally

RICO is a broadly worded statute that “has as its purpose the elimination of the infiltration of organized crime and racketeering into legitimate organizations operating in interstate commerce.” S.Rep. No. 91–617, at 76 (1969); see Statement of Findings and Purpose, Organized Crime Control Act of 1970, Pub.L. 91–452, 84 Stat. 922, 922–23 (1970); see also Attorney Gen. of Can. v. R.J. Reynolds Tobacco Holdings, Inc., 268 F.3d 103, 107 (2d Cir.2001). “RICO provides that ‘[a]ny person injured in his business or property by reason of’ a RICO violation may bring a civil action to recover treble damages.” Canada, 268 F.3d at 107 (quoting Metromedia Co. v. Fugazy, 983 F.2d 350, 368 (2d Cir.1992) (quoting 18 U.S.C. § 1964(c))).

To plead a violation of § 1962(c), the sole substantive RICO claim alleged in the FAC, plaintiffs must allege injuries arising from “(1) the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir.2001); Cofacredit, S.A. v. Windsor Plumbing Supply Co. Inc., 187 F.3d 229, 242 (2d Cir.1999); Azrielli v. Cohen Law Offices, 21 F.3d 512, 520 (2d Cir.1994). The first two elements, as they pertain to the instant case, are examined in the section to follow; the latter two are discussed in section IV below.

III. Conduct of The RICO Enterprises

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