Dale v. Ala Acquisitions, Inc.

• Decision Date: 16 April 2002
• Docket Number: No. CIVA300CV359LN.,CIVA300CV359LN.
• Citation: 203 F.Supp.2d 694
• Court: U.S. District Court — Southern District of Mississippi
• Parties: George DALE, et al., v. ALA ACQUISITIONS, INC., et al.

203 F.Supp.2d 694

George DALE, et al., v. ALA ACQUISITIONS, INC., et al.

No. CIVA300CV359LN.

United States District Court, S.D. Mississippi, Jackson Division.

April 16, 2002.

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C. Philip Curley, Alan F. Curley, Cynthia H. Hyndman, Robinson, Curley & Clayton, P.C., Chicago, IL, Charles Greg Copeland, Robert C. Richardson, Copeland, Cook, Taylor & Bush, Ridgeland, MS, for plaintiffs.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, Chief Judge.

This case is before the court on the motion of defendants American Operations Corporation (AOC) and Michelle V. Field to dismiss pursuant to Rule 12(b)(2) and (6) of the Federal Rules of Civil Procedure. Plaintiffs George Dale, et al. have responded in opposition to the motion. The court, having considered the memoranda and submissions of the parties, along with other pertinent authorities, concludes that the motion should be denied.

The underlying facts of this case have been previously recounted in Dale v. Frankel, 131 F.Supp.2d 852, 854-55 (S.D.Miss.2001); however, the court repeats the essential background to provide the instant motion with context. According to plaintiffs, this case arises out of an alleged scheme masterminded by Martin Frankel to defraud seven insurance companies out of more that $200 million. This alleged scheme involved many individuals and entities, including defendants AOC and Field. Plaintiffs, five court-appointed receivers for the insurance companies allegedly injured by the scheme to defraud,¹ filed suit alleging that more than seventy defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq. (2000), along with various state laws during the course of the scheme.

Specifically, plaintiffs allege that AOC and Field violated federal wire and mail fraud statutes giving rise to the instant civil action, which was filed pursuant to the RICO civil liability section, codified in 18 U.S.C. § 1964. In plaintiffs' first amended complaint, they allege the following facts concerning AOC and Field:

85. In March 1999, Michelle Field was an employee and agent of AOC. Frankel, using the alias "David Rosse," met with Field at his home in Connecticut. At the meeting, Frankel told her that he was the owner of the Insurance Companies, which were under regulatory scrutiny in Tennessee and Mississippi. He explained that he wanted to buy hospitals in those states to create good will with the state regulators and eliminate the regulatory problems.

86. Frankel hired Field and AOC to find a hospital for sale and market St Francis [of Assisi Foundation to Serve and Help the Poor and Alleviate Suffering], as the proposed acquiring entity, to Tennessee and Mississippi state officials. Frankel appointed Field a Vice President of St. Francis, although she understood this to be "on paper only." Frankel then wired $125,000 to AOC from the Bloomfield account at Banque SCS Alliance in Switzerland.

87. Field knew that Frankel was the source of money for St. Francis and that Frankel alone controlled the activities of St. Francis. Despite this knowledge, Field and AOC created brochures and multi-media presentations containing misrepresentations about St. Francis, including that St. Francis' funds came from a Vatican foundation and other Roman Catholic entities, that Field was the properly-appointed Vice President of St. Francis, that St. Francis was controlled by a Board of Trustees, rather than by Frankel alone, and that St. Francis' investments were controlled by an "investment advisory committee," rather than by Frankel alone.

88. Field and AOC made these misrepresentations to Tennessee state officials and to the Board of Directors of East Tennessee Children's Hospital to attempt to convince the Board and the state officials to approve the proposed sale of East Tennessee Children's Hospital to St. Francis. In addition, Field and AOC knew similar misrepresentations had been and were being made to insurance regulators. Discussions concerning the proposed hospital acquisition were ongoing when Frankel fled the United States in May 1999.

Defendants AOC and Field² have responded to the suit by filing the instant motion to dismiss, arguing that plaintiffs' claims against them should be dismissed because this court lacks personal jurisdiction and plaintiffs have failed to state a claim upon which relief can be granted.³ The court will address each of defendants' arguments in turn.

The court initially turns to defendants' argument that the court lacks personal jurisdiction over them. This court has addressed this argument three prior times as it applied to other defendants, most recently in a memorandum opinion and order entered on this date, and in each opinion, the court concluded that it has personal jurisdiction over the defendants in question. See Dale, 131 F.Supp.2d at 861; Dale v. Frankel, 131 F.Supp.2d 852 (S.D.Miss.2001); Dale v. ALA Acquisitions I, Inc., Civil Action No. 3:00CV359LN (S.D.Miss. April 16, 2002). The court based these decisions, at least in part, on RICO's nationwide service of process provision, 18 U.S.C. § 1965(b). Section 1965(b) nationwide service of process is proper when it would serve the ends of justice, and this requirement is met when defendants have minimum contacts with the United States,⁴ at least one defendant is subject to personal jurisdiction in the forum state, and no other forum exists in which to adjudicate all of the RICO claims. Id. Because plaintiffs have made a prima facie showing that defendants are residents of the United States and Frankel is subject to personal jurisdiction in Mississippi, along with the fact that defendants have not shown that there exists an alternative forum with jurisdiction to adjudicate the entire case, the ends of justice permit this court's exertion of personal jurisdiction over defendants. Id.

In the alternative, defendants posit that the court should dismiss plaintiffs' claims because they have failed to state a claim upon which relief can be granted. As the parties are well aware, a motion to dismiss for failure to state a claim is generally looked upon with disfavor and is rarely granted. Shipp v. McMahon, 234 F.3d 907, 911 (5th Cir.2000); Kaiser Aluminum & Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982). In evaluating such a motion, the court must accept all facts pled in the complaint as true and liberally construe such facts in the light most favorable to plaintiff. Shipp, 234 F.3d at 911; Kaiser, 677 F.2d at 1050. "The district court may not dismiss a complaint under Rule 12(b)(6) `unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Shipp, 234 F.3d at 911 (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)). Further, the court will not look outside of the facts contained in the pleadings to determine if the motion to dismiss is proper. Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir.1999). The standard may be summarized as follows: "whether in the light most favorable to the plaintiff and with every doubt resolved in his behalf, the complaint states any valid claim for relief." Lowrey v. Texas A. & M. Univ. Sys., 117 F.3d 242, 247 (5th Cir.1997) (citing 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure, § 1357, at 601 (1969)).

Defendants first argue that plaintiffs' claim of aiding and abetting fraud does not exist under Mississippi law and should therefore be dismissed. Plaintiffs respond, arguing that at the present time, it is not clear that Mississippi law will govern this suit. Further, plaintiffs argue that even if Mississippi law does apply, the Mississippi Supreme Court has not explicitly ruled that such a claim does not exist.

"The conflict of law rules of the state in which the district court is located are to be used in determining the applicable law." Gann v. Fruehauf Corp., 52 F.3d 1320, 1324 (5th Cir.1995). Mississippi courts have adopted the "most substantial relationship" rule in determining which state's law will apply to particular claims. Id. Applying this rule to tort actions, Mississippi courts have applied the factors contained in §§ 6 and 145 of the Restatement (Second) of Conflict of Laws. Id.

In the present case, it is unclear whether Tennessee or Mississippi law will apply to the aiding and abetting claim because defendants' alleged wrongful conduct took place in both states; however, such a determination is unnecessary because the claim is viable under the law of either state. Tennessee explicitly recognizes the tort of aiding and abetting fraud as provided for in Restatement (Second) of Torts § 876(b). See Lawyers Title Ins. Corp. v. United Am. Bank of Memphis, 21 F.Supp.2d 785, 795 (W.D.Tenn.1998) (stating that "Tennessee has adopted the Restatement of Torts § 876(b) theory of aiding and abetting, under which the plaintiff must show that `the defendant knew that his companions' conduct constituted a breach of duty, and that he gave substantial assistance or encouragement to them in their acts'") (citing Cecil v. Hardin, 575 S.W.2d 268, 272 (Tenn.1978)). Moreover, while the Mississippi Supreme Court has not expressly recognized the tort of aiding and abetting fraud, this court predicts that such a claim is viable under Mississippi law.

The Fifth Circuit has directed federal courts to consider the following factors in forecasting how a state court would rule:

(1) decisions of the Mississippi Supreme Court in analogous cases, (2) the rationales and analyses underlying Mississippi Supreme Court decisions on related issues, (3) dicta by the Mississippi Supreme Court, (4) lower state court decisions, (5) the general rule on the question, (6) the rulings of courts of other states to which Mississippi courts look when formulating substantive law and (7) other available sources, such as...