Orthoflex, Inc. v. Thermotek, Inc.

• Decision Date: 12 July 2012
• Docket Number: Civil Action No. 3:11-CV-0870-D,Civil Action No. 3:10-CV-2618-D
• Parties: ORTHOFLEX, INC. d/b/a/ INTEGRATED ORTHOPEDICS, et al., Plaintiffs/Counter-Defendants, v. THERMOTEK, INC., Defendant/Third-Party Plaintiff, v. MIKE WILFORD, Consolidated Defendant, v. WMI ENTERPRISES, LLC, et al., Third-Party Defendants.
• Court: U.S. District Court — Northern District of Texas

ORTHOFLEX, INC. d/b/a/ INTEGRATED ORTHOPEDICS, et al., Plaintiffs/Counter-Defendants,

v.THERMOTEK, INC., Defendant/Third-Party Plaintiff,

v.MIKE WILFORD, Consolidated Defendant,

v.WMI ENTERPRISES, LLC, et al., Third-Party Defendants.

Civil Action No. 3:11-CV-0870-D

Civil Action No. 3:10-CV-2618-D

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

Dated: July 12, 2012

MEMORANDUM OPINIONAND ORDER

In these consolidated cases, defendant-third-party plaintiff ThermoTek, Inc. ("ThermoTek") asserts several claims against plaintiffs, consolidated defendant, and third-party defendants, who now move under Fed. R. Civ. P. 12(b)(6) to dismiss ThermoTek's claims for fraud, civil conspiracy, tortious interference with existing contracts, and under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO"). For the reasons that follow, the court grants the motion in part and denies it in part, andgrants ThermoTek leave to replead.

I

ThermoTek, Inc. brings claims against plaintiffs-counterdefendants Orthoflex d/b/a Integrated Orthopedics ("Orthoflex"), Motion Medical Technologies, LLC ("Motion Medical"), Wabash Medical Company, LLC ("Wabash Medical"), consolidated defendant Mike Wilford ("Wilford"), and third-party defendants WMI Enterprises, LLC ("WMI"), Thermo Compression Solutions, Inc. ("TCS, Inc."), Thermo Compression Solutions, LLC ("TCS, LLC"), Tri 3 Enterprises, LLC ("Tri 3"), and Melissa Wojcik ("Wojcik") under RICO, and for breach of contract, fraud, tortious interference with existing contracts, unfair competition, and civil conspiracy. Orthoflex, Motion Medical, Wabash Medical, Wilford, Tri 3, WMI, and TCS, LLC (collectively, "defendants")¹ move under Rule 12(b)(6) to dismiss ThermoTek's RICO, fraud, tortious interference with existing contracts, and civil conspiracy claims for failure to state a claim on which relief can be granted.

ThermoTek manufactures the VascuTherm therapy system, an electronic heating, cooling, and compression system used during thermal compression, contrast therapy, and DVT prophylaxis.² ThermoTek also manufactures the only wraps it approves for use with the VascuTherm therapy system. Wilford is the President of Orthoflex, as well as themanager for at least five other medical sales companies, including Motion Medical, Wabash Medical, WMI TCS, Inc., and Tri 3 (collectively, the "Wilford entities").³ ThermoTek alleges that the Wilford entities are related through common ownership and employees.

Wilford, through the Wilford entities, entered into a distributor agreement with ThermoTek that appointed Tri 3 d/b/a Wabash Medical d/b/a Motion Medical and its affiliated entities as distributors of the VascuTherm system and the associated wraps. ThermoTek alleges that, after Wilford began serving as a ThermoTek distributor, he made numerous fraudulent warranty claims and product defect allegations,⁴ without making clear which Wilford entity he represented. According to ThermoTek, Wilford did this to obtain ThermoTek's confidential and proprietary information regarding the VascuTherm therapy system and wraps. ThermoTek asserts that Wilford, with the assistance of former ThermoTek employee Wojcik,⁵ used the fraudulently obtained information and products distributed to him under the protections of the distributor agreement to create and market therapy wraps for ThermoTek's VascuTherm therapy system,⁶ which interfered withThermoTek's contracts with its other distributors and customers.⁷ Orthoflex, Motion Medical, and Wabash Medical sued ThermoTek in federal court for breach of contract and various breach of warranty claims. ThermoTek then sued Wilford and WMI in Texas state court. After ThermoTek's suit was removed, the two cases were consolidated. ThemoTek then asserted the claims at issue in the current motion. Defendants move to dismiss portions of ThermoTek's first amended third-party complaint and second amended counterclaims ("complaint").⁸

II

In deciding this motion, the court evaluates the sufficiency of ThermoTek's complaint by "accept[ing] 'all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). To survive defendants' motion to dismiss, ThermoTek must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content 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 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant hasacted unlawfully." Id.; see also Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise the right to relief above the speculative level[.]"). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not 'shown'—'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)) (alteration omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678 (citation omitted).

III

Defendants move to dismiss ThermoTek's civil RICO claim under 18 U.S.C. § 1962(c).

A

RICO makes it unlawful "for 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." 18 U.S.C. § 1962(c). "Reduced to their simplest terms, the essential elements of a RICO claim are: (1) a person who engages in (2) a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or control of an enterprise." Larrew v. Barnes, 2002 WL 32130462, at *1 n.1 (N.D. Tex. Aug. 27, 2002) (Kaplan, J.) (citing Delta Truck & Tractor, Inc. v. J.I. Case Co., 855 F.2d 241, 242 (5th Cir. 1988)), rec. adopted, 2002 WL 32130462 (N.D. Tex. Sept. 17, 2002) (Fitzwater, J.).

"Section 1961(1)(B) defines 'racketeering activity' according to whether it constitutes 'any act which is indictable' under several specified sections of title 18 of the United States Code, [two] of which [are] mail fraud [and wire fraud.]" Trugreen Landcare, LLC v. Scott, 512 F.Supp.2d 613, 623 (N.D. Tex. 2007) (Fitzwater, J.) (citations omitted). To establish a pattern of racketeering activity, ThermoTek must allege (1) the predicate acts of racketeering activity, and (2) a pattern of such acts. See in re Burzynski, 989 F.2d 733, 742 (5th Cir. 1993) (citing H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989)). A pattern of racketeering activity includes two or more acts of racketeering activity. See 18 U.S.C. § 1961(5). Furthermore, "a 'pattern' requires both that the acts are 'related' to each other and that they have 'continuity.'" Burzynski, 989 F.2d at 742. "It is this factor of continuity plus relationship which combines to produce a pattern." H.J., Inc., 492 U.S. at 239 (emphasis in original). Predicate acts are related if they "have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Id. at 240. Continuity requires that the related acts "constitute or threaten long-term criminal activity." Burzynski, 989 F.2d at 742 (citing H.J., Inc., 492 U.S. at 239). Continuity may be proved by "a closed period of repeated conduct, or . . . past conduct that by its nature projects into the future with a threat of repetition." H.J., Inc., 492 U.S. at 241. "A closed period of conduct may be demonstrated 'by proving a series of related predicates extending over a substantial period of time,'" while "[a]n open period of conduct involves the establishment of 'a threat of continued racketeering activity.'" Word of Faith World Outreach Ctr. Church, Inc. v. Sawyer, 90 F.3d 118, 122 (5thCir. 1996) (citing H.J., Inc., 492 U.S. at 242-43).

B

Defendants contend that ThermoTek has not adequately alleged a pattern of racketeering activity.⁹ They argue that, even assuming that ThermoTek has adequately alleged the predicate acts, it has not sufficiently pleaded that there was a pattern of such acts, i.e., that the acts were related and have continuity. See Burzynski, 989 F.2d at 742. The court holds that the pleadings establish that the predicate acts were related because the allegedly fraudulent communications had the common purpose of acquiring ThermoTek's confidential and proprietary information related to the design of the VascuTherm thermal wraps.

Defendants argue that ThermoTek has not adequately pleaded continuity, because continuity requires at least a threat that the racketeering activities will continue into the future and the complaint does not adequately allege such a threat. ThermoTek responds that the fraudulent communications occurred over several years and that there is a threat that more fraudulent communications will occur because Wilford continues to use VascuTherm systems in his business and therefore will continue to request information related to the VascuTherm system and its corresponding wraps. Defendants reply that the need for future repairs is in no way connected to any alleged fraudulent activity, and more important, because the distributor agreement that is the basis for the allegedly fraudulentcommunications between the parties was terminated in July 2010, there is no likelihood that the predicate acts will be repeated.

The court concludes that the complaint does not adequately plead a pattern of racketeering activity because the pleaded predicate acts lack continuity. Continuity cannot be...