Pfau v. Mortenson

• Decision Date: 30 April 2012
• Docket Number: No. CV–11–72–M–SEH.,CV–11–72–M–SEH.
• Citation: 858 F.Supp.2d 1150
• Parties: George and Susie PFAU, Dan Donovan, and Deborah Netter, individually and on behalf of all others similarly situated, Plaintiffs, v. Greg MORTENSON, David Oliver Relin, Central Asia Institute (CAI), a foreign corporation, Penguin Group (USA), Inc., a Delaware Corporation, and MC Consulting, Inc., a Montana Corporation, Defendants.
• Court: U.S. District Court — District of Montana

858 F.Supp.2d 1150

George and Susie PFAU, Dan Donovan, and Deborah Netter, individually and on behalf of all others similarly situated, Plaintiffs,

v.Greg MORTENSON, David Oliver Relin, Central Asia Institute (CAI), a foreign corporation, Penguin Group (USA), Inc., a Delaware Corporation, and MC Consulting, Inc., a Montana Corporation, Defendants.

No. CV–11–72–M–SEH.

United States District Court,

D. Montana,

Missoula Division.

April 30, 2012.

Alexander Blewett, III, Anders Blewett, IV, Hoyt & Blewett, Great Falls, MT, Larry D. Drury, Larry D. Drury, Ltd., Robert A. Langendorf, Robert A. Langendorf, P.C., Chicago, IL, for Plaintiffs.

John M. Kauffman, Kasting Kauffman & Mersen, Bozeman, MT, Kevin C. MacLay, Todd E. Phillips, Caplin & Drysdale, Washington, DC, Carey E. Matovich, Matovich Keller & Murphy, Billings, MT, Robert L. Eisenbach, III, Stephen C. Neal, Cooley LLP, San Francisco, CA, Frederick M. Ralph, Attorney At Law, Minneapolis, MN, Jonathan M. Herman, Dorsey & Whitney, New York, NY, Charles E. Hansberry, Elena J. Zlatnik, Garlington, Lohn & Robinson, PLLP, Missoula, MT, Sonia A. Montalbano, Elliott Ostrander & Preston, Portland, OR, for Defendants.

MEMORANDUM AND ORDER

SAM E. HADDON, District Judge.

INTRODUCTION

Plaintiffs in this case allege themselves to be consumers who purchased either Three Cups of Tea, a book coauthored by Defendants Greg Mortenson (“Mortenson”) and David Oliver Relin (“Relin”), or Stones Into Schools, a book authored by Mortenson (collectively, “the Books”). Penguin Group, Inc. (“Penguin”) published the Books. Plaintiffs claim they were harmed by Defendants when they purchased the Books under the belief they were “nonfiction,” although the books were, allegedly, filled with fabrications.

Pending before the Court are Defendants' motions to dismiss Plaintiffs' Fourth Amended Complaint ¹ for failure to state a claim upon which relief may be granted, under Federal Rules of Civil Procedure 12(b)(6).² All are opposed.

BACKGROUND³

In 1993, Mortenson visited mountains near K–2 in Pakistan. Some years later, he and Relin coauthored Three Cups of Tea as an account of Mortenson's humanitarian efforts in Pakistan. Penguin published the book in 2006. A follow-up book, Stones Into Schools, written by Mortenson, was published by Penguin in 2009. Penguin marketed both books as “nonfiction.” Central Asia Institute (“CAI”), a nonprofit Delaware corporation, headquartered in Montana, allegedly expended significant sums of money to finance the writing, publishing and sales of the Books. Plaintiffs claim that Mortenson transferred funds from the book sales to MC Consulting,Inc. (“MC”), a Montana corporation asserted to be owned and controlled by Mortenson.

Plaintiffs contend they purchased one or more of the Books for approximately $15 each. They claim that the Books should not be categorized as nonfiction, as a number of misstatements relating to their contents have surfaced, and that Mortenson, Relin, MC, CAI, and Penguin entered into a fraudulent scheme to falsely portray Mortenson as a hero in order to boost book sales.

PLEADING AND PROCEDURAL HISTORY

On May 5, 2011, a class action complaint alleging fraud, deceit, breach of contract, RICO violations, and unjust enrichment was brought against Mortenson and CAI.⁴ An amended complaint was filed six days later, which added Penguin as a Defendant and Dan Donovan as a Plaintiff. Negligent misrepresentation claims were also added. The alleged RICO violations were removed.⁵ Plaintiffs amended the complaint again on June 17, 2011, removing Jean Price as a Plaintiff, removing CAI as a Defendant, and adding Relin as a Defendant. Plaintiffs' Third Amended Complaint,⁶ filed July 27, 2011, asserted breach of contract, breach of implied contract, fraud, deceit, unjust enrichment, negligent misrepresentations by Penguin and Relin, liability by Penguin as principal, punitive damages, unjust enrichment by MC Consulting, for an accounting, for injunctive relief, and class action allegations. In early August 2011, Mortenson, MC, Penguin, and Relin filed motions to dismiss. Plaintiffs responded on August 31, 2011. On January 12, 2012, the Court allowed Plaintiffs to file the current pleading, a Fourth Amended Complaint.⁷ This pleading, inter alia, reinstated the claimed RICO violations and again named CAI as a Defendant. Motions to dismiss were renewed.

No class certification motion under Rule 23(c)(1)(A) has been filed. In the absence of such motion and in the interests of judicial economy, the Court has determined it appropriate to address and resolve the pending motions to dismiss.⁸

Hearing on the motions was held on April 18, 2012. The matter is ripe for decision.

DISCUSSION

Plaintiffs now assert what are denominated as twelve separate causes of action: RICO violations (Counts I and II), Breach of Contract (Count III), Breach of Implied Contract (Count IV), Fraud (Count V), Deceit (Count VI), Unjust Enrichment (Count VII), Penguin Liable as Principal (VIII), Punitive Damages (Count IX),⁹ Unjust Enrichment by MC (Count X), Accounting and Injunctive Relief (Count XI), and Class Action (Count XII). Defendants argue, inter alia, that Plaintiffs' claims are barred by the First Amendment, and that the Complaint fails to (1) plead fraudulent activity with particularity, (2) meet plausibility standards, (3) plead necessary elements, and (4) allege cognizable injuries.

Standard of Review

Fed.R.Civ.P. 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is entitled to relief in order to give a defendant a fair notice of what the claim is and the grounds upon which it is based.” “All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party” in assessing a motion to dismiss for failure to state a claim under Rule 12(b)(6). Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir.1996).

A two-step analytical process for determining the sufficiency of pleadings under Rule 8 was established by the United States Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In step one, the court determines which allegations are merely “labels and conclusions,” “formulaic recitations,” or “naked assertion[s].” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 555, 557, 127 S.Ct. 1955). The reviewing court need not accept the truth of such allegations. Id. Step two requires the court to determine whether the remaining allegations, which the court must accept as true, “plausibly give rise to an entitlement to relief.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. The reviewing court, in determining plausibility, is required to engage in a context-specific task drawing on the court's “judicial experience and common sense.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. Satisfaction of this pleading requirement does not oblige the pleader to show probability of entitlement to relief, just plausibility.

Rule 9(b) requires a party alleging fraud to “state with particularity the circumstances constituting fraud or mistake, [while] [m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Iqbal acknowledged that Rule 9(b) allows “a person's mind to be alleged generally,” but does “not require courts to credit a complaint's conclusory statements without reference to its factual context.” Iqbal, 556 U.S. at 686, 129 S.Ct. 1937. “Rule 9 ... excuses a party from pleading discriminatory intent under an elevated pleading standard,” but does not enable evasion of “the less rigid ... strictures of Rule 8.” Iqbal, 556 U.S. at 686–87, 129 S.Ct. 1937.

Plaintiffs' Claims

A. Counts I and II—RICO Claims

“The elements of a civil RICO claim are ...:(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as ‘predicate acts') (5) causing injury to plaintiff's ‘business or property’.” Living Designs, Inc. v. E.I. Dupont de Nemours, 431 F.3d 353, 361 (9th Cir.2005) (citing Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir.1996) (citing 18 U.S.C. § 1964(c), 1962(c))). To plead causation, Plaintiffs must allege that Defendants' violation was both the direct and the proximate cause of a concrete financial injury. See Resolution Trust Corp. v. Keating, 186 F.3d 1110, 1117 (9th Cir.1999).

All RICO claims involving fraud must be alleged with particularity under Rule 9(b), and require plaintiffs to allege “the time, place, manner of each predicate act, the nature of the scheme involved, and the role of each defendant in the scheme.” Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir.1991). Furthermore, “Rule 9(b) does not allow a complaint to merely lump multiple defendants together.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.2007). Plaintiffs are “require[d] to differentiate ... allegations when suing more than one defendant ... and [must] inform each defendant separately of the allegations surrounding [that defendant's] alleged participation in the fraud.” Swartz, 476 F.3d at 764–65 (citing Haskin v. R.J. Reynolds Tobacco Co., 995 F.Supp. 1437, 1439 (M.D.Fla.1998) (citation, quotation omitted)).

Plaintiffs' RICO claims ¹⁰ attempt to establish, in a general fashion, the time, place, manner of each predicate act, the nature of the scheme involved, and the role of each defendant in the scheme. The primary racketeering activity alleged is the Defendants' “ongoing scheme to defraud and actually defrauding purchasers of the books over at least an eight year period and continuing to this day, where they continued to misrepresent that the contents of [the Books] were true, nonfiction accounts of what really happened, when, in fact, the contents were false and the accounts did not happen.” ¹¹ Essentially, Plaintiffs contend that Defendants knew the truth, but portrayed Mortenson into a hero in...