Crest Constr. II, Inc. v. Doe

• Decision Date: 31 October 2011
• Docket Number: No. 10–3470.,10–3470.
• Parties: CREST CONSTRUCTION II, INC.; Metro Energy, Inc., Plaintiffs–Appellants, v. John DOE; John D. Hart; Dee Hart; On Time Auto Sales and Financing, LLC, also known as On Time Auto; Hart Family Motors, Inc., also known as On Time Auto; Fidelity Three, Inc., also known as On Time Auto; AAJD Investments, LLC, also known as On Time Auto; Kearney Land Acquisitions, LLC, also known as On Time Auto; Northland Auto Brokers, LLC; Homes 4 Less, LLC; Larry K. Myers, Mr. 71 The Woodlands Gladstone, MO 64119; Connie Myers, 71 The Woodlands Gladstone, MO 64119; Northland II, Inc., also known as Northland Auto Sales & Leasing, LLC, also known as Northland Auto Sales, LLC; Northland Auto Sales & Leasing, LLC, also known as Northland II, Inc.; Northland Auto Sales, LLC, also known as Northland II, Inc.; Buddy W. Taylor; Estate of Harvey Chaddock, # 06CY–PR00418, Probate Court of Clay County; Hilda Marie Chaddock, also known as On Time Auto, doing business as Fidelity Three, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

660 F.3d 346

CREST CONSTRUCTION II, INC.; Metro Energy, Inc., Plaintiffs–Appellants,

v.John DOE; John D. Hart; Dee Hart; On Time Auto Sales and Financing, LLC, also known as On Time Auto; Hart Family Motors, Inc., also known as On Time Auto; Fidelity Three, Inc., also known as On Time Auto; AAJD Investments, LLC, also known as On Time Auto; Kearney Land Acquisitions, LLC, also known as On Time Auto; Northland Auto Brokers, LLC; Homes 4 Less, LLC; Larry K. Myers, Mr. 71 The Woodlands Gladstone, MO 64119; Connie Myers, 71 The Woodlands Gladstone, MO 64119; Northland II, Inc., also known as Northland Auto Sales & Leasing, LLC, also known as Northland Auto Sales, LLC; Northland Auto Sales & Leasing, LLC, also known as Northland II, Inc.; Northland Auto Sales, LLC, also known as Northland II, Inc.; Buddy W. Taylor; Estate of Harvey Chaddock, # 06CY–PR00418, Probate Court of Clay County; Hilda Marie Chaddock, also known as On Time Auto, doing business as Fidelity Three, Inc., Defendants–Appellees.

No. 10–3470.

United States Court of Appeals, Eighth Circuit.

Submitted: May 11, 2011.Filed: Oct. 31, 2011.

Michael A. LeVota, Lee's Summit, MO, argued, for appellants.

F. A. White, Jr., Kansas City, MO, argued, for appellees Larry K. Myers, Connie Myers, and Northland II, Inc.

Ronald E. Partee, Fox & Partee PC, Kansas City, MO, argued, for appellee Buddy W. Taylor.David H. Johnson, Kansas City, MO, for appellee Hilda Marie Chaddock.Dee Hart, Kansas City, MO, pro se.Before MELLOY and SMITH, Circuit Judges, and GRITZNER,¹ District Judge.GRITZNER, District Judge.

Crest Construction II, Inc. (Crest) and Metro Energy, Inc. (Metro) (collectively, Plaintiffs) brought this action against several defendants alleging violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 28 U.S.C. § 1961 et seq., and raising several state law causes of action. The district court ² granted the Defendants' motion to dismiss the RICO claim and declined to exercise supplemental jurisdiction over the state law claims. The district court denied Plaintiffs' subsequent motions to reconsider and to amend their complaint. This appeal followed. We affirm.

I. BACKGROUND³

In December 2003, Randall Robb (Robb), doing business as Crest, was approached by business acquaintance Larry Myers (Myers) about purchasing third-party auto sales contracts and promissory notes (Loan Accounts) from On Time Auto, Inc. (On Time Auto).⁴ Myers set up several meetings between the owners of On Time Auto, John and Dee Hart (the Harts), and Robb. In January 2004, relying on Myers' success in the auto sales industry, assurance that On Time Auto's methods of operation were customary, and confidence that Crest's investment would be safe, Crest entered into an oral agreement with On Time Auto (the Operating Agreement). Under the terms of the Operating Agreement, when On Time Auto sold a vehicle to a third-party customer, Crest would submit to On Time Auto 100% of the sale price less any down payment, and On Time Auto would assign the Loan Account to Crest.

The Operating Agreement called for On Time Auto to provide Crest with a file for each Loan Account containing copies of the executed purchase and loan agreements for each vehicle sale. On a weekly basis, On Time Auto was to provide Crest with receipt books and printouts of all third-party customer payments made on the Loan Accounts and to submit those principal and interest payments to Crest. The parties agreed that the liens on the vehicles Crest financed were to be registered in On Time Auto's name and that On Time Auto would retain control of all business documents such as titles and liens. ⁵

The Operating Agreement further provided that On Time Auto would transfer 20% of the value of each Crest-purchased Loan Account into a separate account (the Reserve Account), to be used to reimburse Crest in the event a Loan Account became delinquent and uncollectible from the third-party customer. The parties also agreed that when On Time Auto relinquished its lien on the respective vehicle, On Time Auto would pay Crest the entire balance of the Loan Account. Crest did not agree to the resale of a Loan Account to other financiers. During 2004, Crest purchased approximately 268 Loan Accounts.

In February 2004, Myers invited Robb, doing business as Metro, to buy an equity ownership interest in On Time Auto for $300,000, promising Robb that his buy-in money would be used to pay off On Time Auto's business debt. Metro made one $100,000 payment to On Time Auto in March 2004, and a second $100,000 payment in June 2004. Metro discovered, however, that On Time Auto used Metro's $200,000 investment to buy out equity owner Buddy W. Taylor's equity interest in On Time Auto, instead of paying off On Time Auto's business debt. This buyout left the Harts, Myers, and Metro each with a one-third equity interest in On Time Auto. Through June 2004, On Time Auto paid Metro, as a one-third equity owner in On Time Auto, $34,821.01 in profits.

In June 2004, Myers unilaterally withdrew from the day-to-day operations of On Time Auto and used the entire amount in the Reserve Account ($40,000) for his own purposes. In June 2004, with the Reserve Account depleted and its guarantee of payment severely impacted, Crest refused to purchase Loan Accounts at 100% of the auto loan face value and began purchasing them at 65%.

On October 4, 2007, Plaintiffs filed a six-count complaint in U.S. District Court for the Western District of Missouri against several individuals and entities including John C. Hart; Dee Hart; On Time Auto Sales and Financing, LLC; Hart Family Motors, Inc.; Fidelity Three, Inc.; AAJD Investments, LLC; Kearney Land Acquisitions, LLC; Northland Auto Brokers, LLC; Homes 4 Less, LLC; Larry Myers; Connie Myers; Northland II, Inc.; Northland Auto Sales & Leasing, LLC; Northland Auto Sales, LLC; Buddy W. Taylor; the Estate of Harvey Chaddock; and Hilda Chaddock (collectively, Defendants). The complaint alleged violations of the RICO Act, and common law claims for breach of contract, fraud, conversion, and civil conspiracy.

On February 23, 2010, after Defendants had secured new counsel ⁶ as ordered by the district court, the district court amended the scheduling order and reset trial for October 4, 2010. On June 10, 2010, Defendants moved to dismiss the RICO claim, pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to adequately allege the necessary elements. Plaintiffs resisted, arguing the complaint adequately pled the necessary elements of a RICO claim.

On August 27, 2010, the district court granted Defendants' motion to dismiss the RICO claim, denied Plaintiffs' motion to amend the complaint,⁷ declined to exercise supplemental jurisdiction over the remaining state law claims, and dismissed the case in its entirety. Crest Constr. II, Inc. v. On Time Auto, No. 07–0728–CV–W–DGK, 2010 WL 3456690, at *5 (W.D.Mo. Aug. 27, 2010).⁸ Plaintiffs filed a motion to reconsider, which the district court denied on November 4, 2010. Crest Constr. II, Inc. v. On Time Auto, No. 07–0728–CV–W–DGK, 2010 WL 4630830, at *2–3 (W.D.Mo. Nov. 4, 2010). On appeal, Plaintiffs challenge all rulings.

II. DISCUSSIONA. Standard of Review

“We review de novo the district court's decision to dismiss a complaint under Federal Rules of Civil Procedure 12(b)(6) or 9(b).” Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir.2011). We will affirm the dismissal if the complaint fails to allege facts sufficient to “state a claim to relief that is plausible on its face.” Walker v. Barrett, 650 F.3d 1198, 1203 (8th Cir.2011) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “[L]egal conclusions, without any supporting factual allegations, are insufficient to survive a motion to dismiss.” Id. at 1209 (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)); see Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (“[A] plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”). “[T]he plausibility standard, which requires a federal court complaint ‘to state a claim to relief that is plausible on its face, ... asks for more than a sheer possibility that a defendant has acted unlawfully.’ ” Ritchie v. St. Louis Jewish Light, 630 F.3d 713, 717 (8th Cir.2011) (second alteration in original) (quoting Iqbal, 129 S.Ct. at 1949). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’ ” Id. (second alteration in original) (quoting Iqbal, 129 S.Ct. at 1950 (quoting Fed.R.Civ.P. 8(a)(2))).

B. RICO Claim

Section 1962 of the RICO Act makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.”Nitro Distrib., Inc. v. Alticor, Inc., 565 F.3d 417, 428 (8th Cir.2009) (quoting 18 U.S.C. § 1962(c)). “RICO provides a private right of action for any person ‘injured in his business or property by reason of a violation of’ its substantive prohibitions.” Dahlgren v. First Nat'l Bank of Holdrege, 533 F.3d 681, 689 (8th Cir.2008) (quoting 18 U.S.C. § 1964(c)). However, RICO “does not cover all instances of wrongdoing. Rather, it is a unique cause of action that is concerned with eradicating organized, long-term, habitual criminal activity.” Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir.2006). “A violation of § 1962(c) requires appellants to show ‘(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.’ ” Nitro Distrib., 565...