Holding v. Cook
| Decision Date | 09 October 2007 |
| Docket Number | No. 07-CV-1104.,07-CV-1104. |
| Parties | Carol HOLDING, Plaintiff, v. Craig COOK, et al., Defendants. |
| Court | U.S. District Court — Central District of Illinois |
Dean B. Rhoads, Edward F. Sutkowski, Robert H. Rhode, Sutkowski & Rhoads Ltd., Peoria, IL, for Plaintiff.
Albert E. Hartmann, Howard Rosenburg, DLA Piper U.S. LLP, Joseph J. Hasman, David F. Schmidt, Stuart F. Primack, Chittenden Murday & Novotny, Chicago, IL, for Defendants.
Before the Court is a Report and Recommendation filed by Magistrate Judge Byron G. Cudmore. [Doc. 19.] Judge Cudmore recommends that this Court grant a Motion to Dismiss Count V of Plaintiff's Complaint [Doc. 8] and that this Court grant in part and deny in part a second Motion to Dismiss [Doc. 12] filed by Defendant Fidelity and Guaranty Life Insurance Co. ("Fidelity"). Specifically, Judge Cudmore recommends that this Court dismiss Plaintiffs RICO claim on the grounds that Plaintiff has not alleged a pattern of racketeering activity, an essential element of a RICO claim under 18 U.S.C. § 1962(c), and that this Court allow all other claims to proceed.
At the time that the Report and Recommendation was filed, the parties were inforrned that any objection to Judge Cudmore's recommendation should be filed within ten working days after service of Judge Cudmore's report. And, they were informed that any failure to timely object would constitute a waiver of any objection on appeal. Video Views, Inc. v. Studio 21, Ltd., 797 F.2d 538, 539 (7th Cir.1986); See also Local Rule 72.2. However, neither party has objected to Judge Cudmore's recommendation, and the date for objecting to the Report and Recommendation has passed. Accordingly this Court adopts Judge Cudmore's Report and Recommendation in full.
IT IS THEREFORE ORDERED that Judge Cudmore's Report and Recommendation [Doc. 19] is ADOPTED.
IT IS FURTHER ORDER that Defendants' Motion to Dismiss Count V [Doc. 8] is GRANTED. Plaintiff's RICO claim is DISMISSED. And, Defendant Fidelity's Motion to Dismiss [Doc. 12] is GRANTED IN PART and DENIED IN PART. It is granted to the extent that it seeks to dismiss Plaintiff's RICO claim. Defendant Fidelity's Motion to Dismiss is otherwise DENIED.
This matter is referred to the Magistrate Judge for further pre-trial proceedings.
This case is before the Court for a Report and Recommendation on Defendants' partial motions to dismiss Plaintiffs Complaint (die 8, 12), both brought under Fed. R.Civ.P. 12(b)(6). For the reasons below, the Court recommends that Plaintiff's RICO claim be dismissed but not Plaintiffs federal securities claim.
To state a claim under federal notice pleading standards, all the Complaint must do is set forth a "short and plain statement of the claim showing that the pleader is entitled to relief...." Fed.R.Civ.P. 8(a)(2). Factual allegations in the complaint as accepted as true and need only give "`fair notice of what the ... claim is and the grounds upon which it rests.'" EEOC v. Concentra Health Serv., Inc., 496 F.3d 773, 776 (7th Cir.2007), quoting Bell Atlantic Corp. v. Twombly, ___ U.S. ___, ___, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007)(other citation omitted). However, fair notice means setting forth enough factual allegations to "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a `speculative level' ..." Id.,quoting, Bell, 127 S.Ct. at 1965, 1973 n. 14.
With regard to the RICO claim, Fed. R.Civ.P. 9(b) requires fraud to be pled "with particularity." Defendants do not argue that the RICO claim fails this standard. They instead focus on whether a "pattern of racketeering activity" is sufficiently alleged. Similarly, with regard to the federal securities claim, the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b), imposes heightened pleading requirements. However, Fidelity does not move to dismiss the securities claim on the grounds that the allegations fail to meet the PSLRA's heightened pleading standards. Accordingly, the Court does not address whether Plaintiff has met these heightened pleading requirements.
If, on a 12(b)(6) motion to dismiss, "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed.R.Civ.P. 12(b); Berthold Types Ltd. v. Adobe Sys. Inc., 242 F.3d 772, 775-76 (7th Cir.2001)(in dismissing under 12(b)(6), the district court should not have considered contract that was not attached to the complaint, even though breach of contract was alleged). However, documents submitted with a motion to dismiss "are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his [or her] claim." Wright v. Assoc. Insurance Cos., Inc., 29 F.3d 1244, 1248 (7th Cir.1994)(other citation omitted).
The allegations are taken from Plaintiffs Amended Complaint (d/e 5) and set forth as true for purposes of this recommendation.
Plaintiff owned an individual retirement account ("IRA") with American Express Financial Advisors, Inc., where Defendant Cook was employed at the time. In March, 2005, Defendant Cook left the employ of American Express and became associated with Defendants ING USA Annuity & Life Insurance Company ("ING") and Fidelity & Guaranty Life Insurance Company ("Fidelity").1
Defendants offered to transfer Plaintiff's American Express retirement account into new retirement accounts established by Defendants. Defendants represented that they would effect the transfer as a tax-free IRA rollover. Plaintiff agreed and gave 'Defendants the necessary information and authorization to effect the transfer.
In April, 2005, Plaintiff gave several signed, blank personal checks to Defendants. Defendants directed American Express to redeem and distribute more than $500,000 from Plaintiffs IRA over a period of months. Six redemptions total were made, each for $100,000 or less, from April through July 2005.2 American Express sent Plaintiff the redemption checks, which Plaintiff deposited into her personal checking account at Defendants' direction. Defendants then transferred the funds from Plaintiffs checking account into the new retirement accounts, by completing the signed, blank checks Plaintiff had provided to Defendants. These transfers to the new accounts occurred five times on various dates in April, May and August, 2005. Defendants represented each transfer as a tax-free IRA rollover and Plaintiff relied on these representations.
Defendants' representations were false. The Internal Revenue Code allows only one tax-free rollover in a twelve month period. 26 U.S.C. Section 408(d)(3)(B).3 Thus, only the first transfer was tax-free. The other transfers were subject to certain taxes, which Plaintiff had to disclose and pay.
In March, 2007, Plaintiff filed suit in Woodford County Circuit Court pursuing state law claims for breach of contract, common law fraud and consumer fraud. Defendants removed the action to federal district court based on diversity jurisdiction. Plaintiff then filed an amended complaint adding two federal claims: a securities fraud claim under section 10(b) of the 1934 Securities Act (Count IV), and a RICO claim under 18 U.S.C. Section 1962(c)(Count V).
Defendants ING and Cook move to dismiss only Count V, the RICO claim. (d/e 9). Defendant Fidelity moves to dismiss both the RICO claim and Count IV, the federal securities claim. (d/e 13).
Plaintiff alleges that the IRA accounts she purchased from Defendants were "securities" within the meaning of § 3(10) of the Securities and Exchange Act of 1934 ("1934 Securities Act"), 15 U.S.C. Section 78c(10). ). She alleges that Defendants' fraudulent assurances about the tax-free status of the transfers violated Section 10(b) and Rule 10b-5 of the 1934 Securities Act. 15 U.S.C. Section 78j(b); 17 C.F.R. § 240.10b-5.
Fidelity argues that the accounts Plaintiff purchased are not "securities" but rather "annuity contracts" within the meaning of Section 3(a)(8) of the 1933 Securities Act, 15 U.S.C. § 77c(a)(8), making them exempt from federal securities laws. To support that conclusion, Fidelity asserts that the accounts meet the safe harbor provisions of Rule 151, 17 C.F.R. § 230.151, which defines a certain subset of annuities as exempt under § 3(8)(a).
In support of its arguments, Fidelity attaches the written documents that purportedly govern Plaintiffs purchases4 Fidelity asserts the documents can be considered because they are referred to in the Complaint and are central Plaintiffs claim. (d/e 13 p. 3). Plaintiff objects to consideration of the documents as matters outside the pleadings and asks that, if they are considered by the court, that the motion be treated as one for summary judgment, with "an opportunity to conduct discovery and present all material ... pertinent." (d/e 14, p. 4).
The Court agrees with Plaintiff that the contracts are matters outside the pleadings and therefore are not properly considered on a motion to dismiss unless the motion is treated as a motion for summary judgment. Fed.R.Civ.P. 12(b) and (c). Plaintiff does not reference the contracts in her Complaint nor do they appear central to Plaintiffs securities fraud claim from the four corners of the Complaint. The contracts are undoubtedly central to the merit of Plaintiffs claim, but that does not make their consideration proper in deciding a Rule 12(b)(6) motion to dismiss. Berthold, 242 F.3d at 775-76; cf. Wright, 29 F.3d at 1248 ()...
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