Kaplan v. Reed, CIV.A. 97-S-857.

• Citation: 28 F.Supp.2d 1191
• Decision Date: 21 October 1998
• Docket Number: No. CIV.A. 97-S-857.,CIV.A. 97-S-857.
• Parties: Peter KAPLAN and Helen Kaplan, Plaintiffs, v. William S. REED, Cynthia L. Reed, James Reed, Philip Hopkins, Timothy S. Howell, and Teresa F. Koehn a/k/a Teresa Roberts, Defendants.
• Court: U.S. District Court — District of Colorado

28 F.Supp.2d 1191

Peter KAPLAN and Helen Kaplan, Plaintiffs, v. William S. REED, Cynthia L. Reed, James Reed, Philip Hopkins, Timothy S. Howell, and Teresa F. Koehn a/k/a Teresa Roberts, Defendants.

No. CIV.A. 97-S-857.

United States District Court, D. Colorado.

October 21, 1998.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

ORDER

SPARR, District Judge.

This case is before the Court on the Recommendation of United States Magistrate Judge Patricia A. Coan, dated July 23, 1998. The Recommendation was also served by mail on July 23, 1998. Plaintiffs filed specific written objections to the Recommendation on August 3, 1998, as prescribed by 28 U.S.C. § 636(b)(1). Defendants James Reed and Cynthia L. Reed filed a joint response to Plaintiffs' Objection on August 17, 1998. The Court must make a de novo determination of those portions of the proposed findings or recommendations to which objection is made. 28 U.S.C. § 636(b)(1).

Plaintiffs' Second Amended Complaint was filed April 3, 1998. It contains claims pursuant to the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq., as well as common law claims for fraudulent conveyance and civil conspiracy. The Recommendation deals with James Reed's Motion to Dismiss Second Amended Complaint, filed April 13, 1998, Cynthia Reed's Motion to Dismiss Second Amended Complaint, filed April 15, 1998, and Teresa Robert's Motion to Dismiss Second Amended Complaint, filed May 26, 1998.

The Recommendation advises that the motions to dismiss the RICO claims for improper venue be denied. No objection was filed to that recommendation. It is further recommended that the motions to dismiss which argue failure to state a claim be granted. In particular, it is recommended that Cynthia Reed's motion to dismiss be granted on the first claim for relief because Plaintiffs have failed to allege the commission of two predicate acts as required by 18 U.S.C. § 1962(c). It is also recommended that all three motions to dismiss be granted on the second claim because Plaintiffs have failed to state a RICO conspiracy claim. The reasoning for this is that they have failed to failed to plead the necessary underlying substantive RICO violation required for such a conspiracy claim. The Recommendation also suggests that the Court decline to exercise supplemental jurisdiction over Plaintiffs' three state law claims.

As a preliminary matter, the Court notes that Plaintiffs' Objection contains some discussion of evidence gained through discovery which they attempted to rely on at a hearing on the motions to dismiss held before the Magistrate Judge. Plaintiffs state that they were allowed to argue some of those facts as to Defendant Teresa Roberts at the hearing but were not allowed to cite any facts gained from discovery as to Defendants James Reed or Cynthia Reed. At the time of the hearing, the only motions to dismiss pending had been filed by James Reed and Cynthia Reed.

In fact, the written order dated April 6, 1998 which detailed the rulings made at the April 3rd hearing, states that Plaintiff's motion to supplement their responses to James Reed's and Cynthia Reed's motions to dismiss, which was the written request to include the materials gained during discovery, was denied. Since at that point only the two motions were pending, it seems unlikely that any permission would have been granted to use evidence gained during discovery as to Teresa Roberts, who was not yet a party.

It was not until later that month, after the Bankruptcy Court gave permission for Teresa Roberts to be added as a party in this case, that Roberts filed a motion to dismiss. While that motion was not pending during the hearing, it is pending now. Whether or not Plaintiffs were allowed to use the evidence gained during discovery at the hearing on the motions to dismiss, the Court finds consideration of such evidence inappropriate. Evidence gained during discovery cannot be considered when examining the sufficiency of Plaintiff's Second Amended Complaint. A motion to dismiss for failure to state a claim upon which relief may be granted shall be decided on the sufficiency of the four corners of the complaint alone. Fed.R.Civ.P. 12(b).

Plaintiffs argue that Defendants' motions to dismiss should have been treated as motions for summary judgment. They acknowledge that Rule 12(b) provides that if matters outside the pleadings are presented and are not excluded by the court, the motion shall be treated as one under Rule 56. As noted above, Plaintiffs' discovery materials were excluded in an April 6th order of the Magistrate Judge which stated, "The remainder of Plaintiffs' motion to supplement Plaintiffs' responses to Defendants Cynthia Reed's and James Reed's Motion to Dismiss is denied, as the Court will not permit Plaintiffs to convert Defendants' motions to dismiss into Rule 56 motions by considering matters outside the pleadings." Despite Plaintiffs' argument that some of the information was not excluded by the court, the written order indicates otherwise and there is no indication, beyond Plaintiffs' statement, that such evidence was considered.

Plaintiffs had 10 days to appeal the April 3rd order and failed to do so. Fed.R.Civ.P. 72(a). The ruling on that matter also determined the issue of whether the motions would be considered under Rule 12 or Rule 56. "[A] party may not thereafter assign as error a defect in the magistrate judge's order to which objection was not timely made." Id. Consequently, Plaintiff's arguments regarding the exclusion of the matters outside the pleadings will not be considered and those matters will likewise be barred from consideration by the Court.

First Claim for Relief

Plaintiffs have two major objections to the Recommendation. The first relates to the recommendation that the first claim for relief against Cynthia Reed be dismissed because Plaintiffs have failed to plead two predicate acts as necessary under 18 U.S.C. § 1962(c). The Magistrate Judge found that only one predicate act was pled. Plaintiffs argue that they set forth two additional sets of allegations that would meet the requirement for a second predicate act.

In particular, Plaintiffs argue that the Magistrate Judge ignored evidence that would establish a second predicate act with regard to Script Review, Inc. which parallels the first predicate act found with regard to Legal Forms and Services, Inc. They state that they alleged that "Cynthia Reed had done virtually the same procedure with regard to Script Review, Inc. as she did with Legal Forms and Services, Inc." (Objections at p. 13). Consequently, they argue that if their allegations were sufficient with regard to the one company, they should also be sufficient with regard to the second company.

Plaintiffs' argument would have merit if indeed their allegations regarding the two companies were that similar. A review of the Second Amended Complaint shows that they are not. The pertinent allegations regarding Legal Forms and Services, Inc. under the first claim for relief are contained in paragraphs 93, 94, 106, 156 and 160-64. They include such allegations as that Cynthia Reed is the listed owner, sole officer and registered agent for Legal Forms and Services, Inc. and that she was involved in the placement of corporate documents in the U.S. mail which misrepresented her own and William Reed's interest in that company.

The Court attempted to locate all allegations regarding Script Review Inc. in the approximately 70 paragraphs that make up the first claim for relief. Neither Plaintiffs' objection, with one exception, nor their response to Cynthia Reed's motion cites any specific paragraphs in the Second Amended Complaint regarding the formation or ownership of Script Review Inc. Paragraph 127 states that William Reed and Cynthia Reed "participated in the incorporation, management, and operation of the affairs of Script through a pattern racketeering activity by committing numerous violations of mail fraud and wire fraud for the purpose of hindering, delaying and defrauding their creditors, including the Kaplans." That extremely conclusory allegation is of no use in determining whether Plaintiffs have sufficiently pled the required predicate acts. See, United States v. Fisher, 38 F.3d 1144, 1147 (10th Cir.1994) (conclusory allegations are insufficient to support a claim for relief.)

A further examination of the Second Amended Complaint to discover additional allegations regarding Script Review, Inc. disclosed the following assertions: Defendant Hopkins incorporated Script Review Inc. Second Amended Complaint at ¶ 47. Defendant Roberts was the registered agent for Script Review Inc. Second Amended Complaint at ¶ 48. There is also an allegation that William Reed and Cynthia Reed caused a bank account for Script Review, Inc. to be opened on which they were the signors. Second Amended Complaint at ¶ 128.

These allegations fall far short of those relating to Legal Forms and Services, Inc. There is no allegation that Cynthia Reed was the owner, sole officer or registered agent for Script Review, Inc. In fact, the cited paragraphs negate some of those possibilities as regards Script Review, Inc. There is also no allegation regarding Cynthia Reed's placement in the U.S. mail of corporate documents which misrepresented her own and William Reed's interest in that company. As previously mentioned, the conclusory allegation in ¶ 127 is insufficient in that regard. Consequently, Plaintiffs' allegations regarding Script Review, Inc. are not adequate to state a violation of the mail fraud statute and therefore do not state a second predicate act as required under § 1962(c).

Plaintiffs have also objected that they stated a second predicate act in regard to the transfer of the property at 1713 Glenview Drive. They argue that the Magistrate Judge did not refer to the facts they pled regarding the filing of the Quit Claim Deeds and the...