Dale v. Frankel, CIV. A. 3:00CV359KLN.

• Decision Date: 22 January 2001
• Docket Number: No. CIV. A. 3:00CV359KLN.,CIV. A. 3:00CV359KLN.
• Citation: 131 F.Supp.2d 852
• Parties: George DALE, Commissioner of Insurance for the State of Mississippi, in His Official Capacity as Receiver of Franklin Protective Life Insurance Company, Family Guaranty Life Insurance Company, and First National Life Insurance Company of America, Anne B. Pope, Commissioner of Commerce and Insurance for the State of Tennessee, in Her Official Capacity as Receiver of Franklin American Life Insurance Company, Keith Wenzel, Director of the Department of Insurance for the State of Missouri, in His Official Capacity as Receiver of International Financial Services Life Insurance Company, Carroll Fisher, Insurance Commissioner for the State of Oklahoma, in His Official Capacity as Receiver of Farmers and Ranchers Life Insurance Company, Mike Pickens, Insurance Commissioner for the State of Arkansas, in His Official Capacity as Receiver of Old Southwest Life Insurance Company Plaintiffs v. Martin FRANKEL, et al Defendants
• Court: U.S. District Court — Southern District of Mississippi

Page 852

131 F.Supp.2d 852

George DALE, Commissioner of Insurance for the State of Mississippi, in His Official Capacity as Receiver of Franklin Protective Life Insurance Company, Family Guaranty Life Insurance Company, and First National Life Insurance Company of America Anne B. Pope, Commissioner of Commerce and Insurance for the State of Tennessee, in Her Official Capacity as Receiver of Franklin American Life Insurance Company Keith Wenzel, Director of the Department of Insurance for the State of Missouri, in His Official Capacity as Receiver of International Financial Services Life Insurance Company Carroll Fisher, Insurance Commissioner for the State of Oklahoma, in His Official Capacity as Receiver of Farmers and Ranchers Life Insurance Company Mike Pickens, Insurance Commissioner for the State of Arkansas, in His Official Capacity as Receiver of Old Southwest Life Insurance Company Plaintiffs v. Martin FRANKEL, et al Defendants

No. CIV. A. 3:00CV359KLN.

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

January 22, 2001.

COPYRIGHT MATERIAL OMITTED

Charles Greg Copeland, Robert C. Richardson, Ridgeland, MS, C. Philip Curley, Alan F. Curley, Cynthia H. Hyndman, Chicago, IL, N. Victoria Holladay, Memphis, TN, William W. Gibson, Nashville, TN, for Plaintiffs.

Thomas E. Royals, Jackson, MS, Jonathan L. Rosner, New York, NY, Gary Atnip, Brentwood, TN, for Defendants.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

This cause is before the court on the motion of defendant Phillip Miller to dismiss pursuant to Rule 12(b)(2), (3) and (6) of the Federal Rules of Civil Procedure. By his motion, Miller seeks dismissal of the RICO claims in the complaint on substantive grounds, and has further moved to dismiss the complaint against him based on an alleged lack of personal jurisdiction and improper venue. Plaintiffs have responded in opposition to the motion and the court, having considered the memoranda of authorities submitted by the parties on each of the grounds for dismissal urged by Miller, concludes that his motion is without merit and should be denied.

Facts:

As characterized by plaintiffs, this case arises out of a scheme masterminded by Martin Frankel to "loot" more than $200 million from seven insurance companies. The plaintiffs are the Commissioners and Directors of the Departments of Insurance for the states of Mississippi, Tennessee, Missouri, Oklahoma and Arkansas, in their official capacities as the liquidators/receivers/rehabilitators of the seven insurance companies and the defendants are Martin Frankel, David Rosse, Karen Timmins, Phillip Miller, John Hackney, Gary Atnip and eighteen corporations, foundations or trusts alleged to have been involved in the scheme.

According to plaintiffs, Frankel's scheme to defraud the insurance companies began in 1991, lasted nearly ten years, involved the participation of dozens of co-conspirators and ultimately resulted in the insolvency of the insurance companies. The scheme, detailed in the complaint and plaintiffs' RICO statement, and as summarized in plaintiffs' memorandum of authorities, generally worked as follows. Frankel obtained control of the insurance companies and once in control, placed his co-defendants Hackney and Atnip in positions of authority as CEO and CFO, respectively. Those defendants then stole the insurance companies' money through a series of financial transactions. To commit their fraud without detection, Frankel created sham companies, used alias identities and had numerous mailing addresses for phony companies and identities. These defendants transferred the money from the insurance companies to banks or brokerage houses in the United States and from there, transferred the money to foreign banks, usually in Switzerland. They then transferred the money back to the United States where it was converted to untraceable cash for their own use and to fund their fraudulent scheme.

Miller, the movant, is related to David Rosse, who was Frankel's chief of security, and was introduced to Frankel by Rosse. On March 24, 2000, Miller pled guilty to conspiracy to structure transactions to avoid currency reporting requirements,¹ and in so pleading, acknowledged, inter alia, that Frankel had approached him in mid-1998 and asked him to receive wire transfers into his business bank account which Miller would convert to cash for Frankel; that Miller agreed, and over a period of about nine months, received weekly wire transfers of money in increments of $10,000 from Frankel's bank accounts in Switzerland to Miller's bank account in the United States, and ultimately received approximately $330,000 in wire transfers during this period of time; that Miller and Frankel chose the amount of $10,000 for the transfers and for withdrawals of just under that amount to avoid currency reporting requirements; that upon receipt of each transfer, Miller withdrew $9,200 to $9,500 in cash which he then gave to an employee Frankel sent to retrieve it; and that Miller retained a portion of the money as his fee.²

The Substantive RICO Count:

The substantive RICO count of the complaint, appearing as the first claim, alleges a violation of 18 U.S.C. § 1962(c), which prohibits "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." To establish a violation of § 1962(c) the plaintiffs must prove (1) the existence of an enterprise that affects interstate or foreign commerce, (2) that the defendant was "employed by" or "associated with" the enterprise, (3) that the defendant participated in the conduct of the enterprise's affairs, and (4) that the participation was through "a pattern of racketeering activity." United States v. Posada-Rois, 158 F.3d 832, 855 (5th Cir.1998); United States v. Erwin, 793 F.2d 656, 670 (5th Cir.1986). As indicated supra, Miller has identified a number of bases upon which he contends this count fails to charge an actionable § 1962(c) claim against him. Specifically, he argues that the claims are "facially fatally flawed" in that (1) they do not plead fraud as to Miller with particularity; (2) they fail to allege Miller was "associated with" the enterprise; (3) they fail to allege Miller "conducted or participated in the conduct" of the enterprise; and (4) the facts alleged do not support a finding that Miller's alleged conduct was "in furtherance" of the alleged scheme to defraud.

Miller's Association With a RICO Enterprise:

Among other grounds, Miller argues that the complaint fails to allege that he was "associated with" an alleged RICO enterprise. "For the purposes of RICO, the threshold showing of `association' is not difficult to establish; it is satisfied by proof that the defendant was `aware of at least the general existence of the enterprise named....'" United States v. Parise, 159 F.3d 790, 796 (3d Cir.1998) (quoting United States v. Eufrasio, 935 F.2d 553, 557 n. 29 (3d Cir.1991)). A defendant need only "know of the general nature of the enterprise and know that the enterprise extends beyond his individual role." Id. He need not have specific knowledge of every member and component of the enterprise. United States v. Tocco, 200 F.3d 401, 425 (6th Cir.2000). Among the several enterprises alleged in the complaint in this case is an association-in-fact enterprise comprised of numerous individuals and entities, including Miller. The complaint clearly alleges that Miller was aware of and associated with this association-in-fact enterprise through his relationships with Rosse and Frankel, and that he agreed to participate in money laundering/structuring transactions to assist in what he knew was a scheme to enrich Frankel and others. The allegations of his willing participation in the money laundering process over an extended period of time (as evidenced by the transcript of his guilty plea), and of Miller's longstanding relationship with Rosse and Frankel (as also evidenced by the transcript of his guilty plea), are plainly sufficient from which to infer his knowledge of and participation in the alleged scheme to defraud and thus to support a finding of his association with the alleged association-in-fact enterprise.³

Miller's Participation in the Affairs of the Enterprise:

Miller maintains that the complaint fails to sufficiently charge that he participated in the conduct of the affairs of the enterprise in accordance with the standards set by the Supreme Court in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), and that for that reason, the RICO claim must be dismissed. In Reves, the Court held that "to conduct or participate directly or indirectly in the conduct of such enterprises' affairs" "one must participate in the operation or management of the enterprise itself," Id. at 185, 113 S.Ct. at 1173, and must "have some part in directing those affairs," id. at 179, 113 S.Ct. at 1170. In so holding, however, the Court noted that liability under § 1962(c) is not limited to upper management, and that the operation or management requirement will be satisfied "by lower rung participants in the enterprise who are under the direction of upper management." Id. at 184, 113 S.Ct. at 1173 ("An enterprise is `operated' not just by upper management but also by lower rung participants in the enterprise who are under the direction of upper management."). The Court declined, though, to "decide how far § 1962(c) extends down the ladder of operation." Id. at 184 n. 9, 113 S.Ct. at 1173 n. 9.

Citing Reves, Miller submits that because the complaint makes no allegation that he "directed" any part of the affairs of the alleged enterprise, then it does not sufficiently charge his participation in the conduct of the enterprise. But in the...