List Interactive, Ltd. v. Knights of Columbus

• Decision Date: 20 March 2018
• Docket Number: Civil Action No. 17–cv–00210–RBJ
• Citation: 303 F.Supp.3d 1065
• Parties: LIST INTERACTIVE, LTD. d/b/a UKnight Interactive, and Leonard Labriola, Plaintiffs, v. KNIGHTS OF COLUMBUS, and David J. Kautter, in his official capacity as Acting Commissioner of the Internal Revenue Service, Defendants. v. Knights of Columbus, Counterclaim Plaintiff, v. List Interactive, Ltd. d/b/a UKnight Interactive, Leonard S. Labriola, WebsInc.com, Inc., Stephen Michlik, Jonathan Michlik, and Terry A. Clark, Counterclaim Defendants.
• Court: U.S. District Court — District of Colorado

303 F.Supp.3d 1065

LIST INTERACTIVE, LTD. d/b/a UKnight Interactive, and Leonard Labriola, Plaintiffs,

v.KNIGHTS OF COLUMBUS, and David J. Kautter, in his official capacity as Acting Commissioner of the Internal Revenue Service, Defendants.

v.Knights of Columbus, Counterclaim Plaintiff,

v.List Interactive, Ltd. d/b/a UKnight Interactive, Leonard S. Labriola, WebsInc.com, Inc., Stephen Michlik, Jonathan Michlik, and Terry A. Clark, Counterclaim Defendants.

Civil Action No. 17–cv–00210–RBJ

United States District Court, D. Colorado.

Signed March 20, 2018

Stephen Clawson Robertson, Robertson & Ash, LLC, Denver, CO, Jeffrey S. Vail, The Law Office of Jeff Vail LLC, Greenwood Village, CO, for Plaintiffs/Counterclaim Defendants.

Edward Allen Gleason, Ian Seth Speir, L. Martin Nussbaum, Lewis Roca Rothgerber Christie LLP, Colorado Springs, CO, Hermine Kallman, Joy T. Allen Woller, Lewis Roca Rothgerber Christie LLP, Denver, CO, for Defendants/Counterclaim Plaintiff.

Jeremy Nolan Hendon, U.S. Department of Justice, Washington, DC, for Defendants.

ORDER

R. Brooke Jackson, United States District JudgeThis matter is before the Court on five pending motions. For the reasons discussed in this order, the Court (1) denies plaintiffs' motion for a temporary restraining order, preliminary injunction, and sanctions; (2) denies the Knights of Columbus' motion for a protective order; (3) grants the Knights of Columbus' partial motion to dismiss; (4) grants in part and denies in part plaintiffs' and other counterclaim defendants' motion to dismiss the Knights of Columbus' counterclaims; and (5) denies the Knights of Columbus' motion to dismiss for lack of standing, or alternatively, for partial summary judgment.

FACTS

I provided a detailed overview of the facts in an order dated July 28, 2017.¹ The facts remain the same subject to a few developments since that order was issued. Plaintiff List Interactive, Ltd., frequently referred to by its d/b/a UKnight Interactive or just UKnight, is a small company that designs web systems. Plaintiff Leonard Labriola is the manager of UKnight. I will refer to the plaintiffs collectively as "UKnight." UKnight alleges that in September 2011 defendant Knights of Columbus promised to announce to the broader Knights of Columbus fraternity of lodges and agents ("the Order") an agreement whereby UKnight would be the designated vendor for the Order's life insurance business. The promised announcement never occurred, and litigation followed.

UKnight's core claims, as I see them, are that the Knights of Columbus breached an oral contract when it reneged on its agreement to make UKnight its designated vendor, and that the Knights of Columbus stole trade secrets from UKnight before doing so. UKnight has also asserted two other creative claims that are the subject of one of the pending motions. For its part, the Knights of Columbus has struck back with an assortment of counterclaims, which this order also addresses. I will explain each of the pending motions as I get to them.

STANDARD OF REVIEW

To survive a 12(b)(6) motion to dismiss, the complaint must contain "enough facts to state a claim to relief that is plausible on its face." Ridge at Red Hawk, L.L.C. v. Schneider , 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A plausible claim is a claim that "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court must accept the well-pled allegations of the complaint as true and construe them in the light most favorable to the plaintiff, Robbins v. Wilkie , 300 F.3d 1208, 1210 (10th Cir. 2002), conclusory allegations are not entitled to be presumed true, Iqbal , 556 U.S. at 681, 129 S.Ct. 1937. However, so long as the plaintiff offers sufficient factual allegations such that the right to relief is raised above the speculative level, he has met the threshold pleading standard. See, e.g. , Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ; Bryson v. Gonzales , 534 F.3d 1282, 1286 (10th Cir. 2008).

ANALYSIS

As mentioned above, there are five pending motions. I will address each motion in turn.

A. UKnight's Emergency Motion for a Temporary Restraining Order, Preliminary Injunction, and Sanctions for Witness Intimidation. [ECF No. 76].

Plaintiff UKnight filed a motion for a temporary restraining order to enjoin the Knights of Columbus from engaging in behavior during discovery that UKnight described as "witness intimidation." ECF No. 76 at 1. The Court heard argument regarding this discovery issue on September 25, 2017, and I issued an Order that same day addressing and effectively granting the requested injunctive relief. See ECF No. 79. Now five months have passed and no further discovery issues of the sort have arisen. Thus, the Court sees no live issue remaining in this motion, and tellingly UKnight did not argue that this motion is still ripe at the hearing before this Court on February 6, 2018 when asked. Therefore, ECF No. 76 is DENIED.

B. Knights of Columbus' Motion for Protective Order. [ECF No. 77].

This motion focused immediately on the plaintiffs' September 22, 2017 email to local councils, which the Court addressed in its order of September 25, 2017, and to that extent it is moot. To the extent the motion seeks protection against any discovery concerning membership information, it is DENIED for reasons discussed infra in connection with defendants' motion to dismiss for lack of standing, etc. ECF No. 107.

C. Knights of Columbus' Partial Motion to Dismiss. [ECF No. 100].

The Knights of Columbus filed a motion to dismiss the First and Second Claims in UKnight's Second Amended Complaint. ECF No. 100. UKnight's First Claim alleges that the Knights of Columbus violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and that it continues to violate RICO through an alleged insurance fraud enterprise. ECF No. 98 at 28. UKnight's Second Claim seeks a court order requiring David J. Kautter, the Acting Commissioner of the Internal Revenue Service, to invalidate the Knights of Columbus' tax-exempt status due to the alleged insurance fraud activity. Id. at 46. For the following reasons, I GRANT the Knights of Columbus' motion to dismiss both claims.

1. UKnight's RICO Claim.

RICO vests a private citizen with substantive rights to avoid injuries to his business or property caused by a pattern of racketeering activity. 18 U.S.C. § 1964(c). It outlaws four types of racketeering activities which, as relevant here, include "conducting the affairs of an enterprise through a pattern of racketeering" or conspiring to do so. Id. at §§ 1962(c–d). In the Tenth Circuit, a plaintiff asserting a RICO claim must plausibly allege that "a person (1) conducted the affairs (2) of a distinct enterprise (3) through a pattern (4) of racketeering activity."

Safe Streets All. v. Hickenlooper , 859 F.3d 865, 882 (10th Cir. 2017) (internal quotation marks and citations omitted).

UKnight alleges that the Knights of Columbus, the insurance ratings agency AM Best, and a software company called IDI make up the "Insurance Fraud Enterprise."² ECF No. 98 at 29. With the Knights of Columbus at the helm, the alleged objective of this enterprise is to perpetuate the Knights of Columbus' insurance fraud scheme by allowing the Knights of Columbus to (1) inflate its reported membership numbers without detection, and (2) use these inflated membership numbers to bolster the Knights of Columbus' insurance business reputation to make more money. Id. According to UKnight, this played out in the following ways. First, the Knights of Columbus provided AM Best with false membership numbers and demographic data so that AM Best would, in turn (and unknowingly), generate fraudulent insurance ratings for the Knights of Columbus' insurance products. This bolstered the Knights of Columbus' insurance business reputation and allowed it to attract business under false pretenses, including business relationships like the one between UKnight and the Knights of Columbus. Id. at 30–31.

After this scheme was up and running, the Knights of Columbus then used its relationship with IDI, a software company, to ensure its fraudulent scheme went undetected. Id. at 31. This allegation requires some additional background. According to UKnight, from 2011 until approximately 2013 the Knights of Columbus were gung-ho about working with UKnight to develop a new web platform for the Order's insurance business. ECF No. 54 at 6. All was well until sometime in 2013, when the Knights of Columbus "realized that broad deployment of the UKnight system would necessarily reveal their fraudulent inflation of membership numbers." ECF No. 98 at 40. Wishing to have its cake (the functionality of the UKnight web platform) and eat it too (not have information regarding its fraudulent inflation of membership numbers fall into the wrong hands), the Knights of Columbus allegedly hatched a plan whereby it dispatched the software company IDI to surreptitiously acquire knowledge about UKnight's web platform so that the Knights of Columbus could replicate the UKnight system in-house. Id. Based upon these alleged events and the involvement of IDI and AM Best in them, UKnight alleges that the Knights of Columbus therefore "conduct[ed] the affairs of an enterprise through a pattern of racketeering" in violation of RICO. 18 U.S.C. § 1962(c–d). Because UKnight's failure to sufficiently plead the third and fourth elements of its RICO claim (a "pattern of racketeering activity") is dispositive, I assume without deciding that UKnight has satisfied the first two elements of the RICO cause of action.

A "pattern of racketeering activity" requires at least two predicate acts of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc. , 473 U.S. 479, 496 n.14, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)...