Worldcare Int'l Inc. v. Kay
| Decision Date | 27 June 2012 |
| Docket Number | No. 17452–2011.,17452–2011. |
| Citation | 36 Misc.3d 1204,2012 N.Y. Slip Op. 51186,954 N.Y.S.2d 762 |
| Parties | WORLDCARE INTERNATIONAL INC. d/b/a Medstock and Medstock, Inc, Plaintiffs, v. Scott KAY, MFS Industries Inc, 1 Stop Medical Supply, Superior Maintenance Supply LLC, Jason Brand Mariela Jimenez, Ashley Meekins, Mark Lucas, Robert Ubriaco, Avran Munoz, and Jaime Gattus, Defendants. |
| Court | New York Supreme Court |
OPINION TEXT STARTS HERE
Patrick McCormack, Esq., Campolo Middleton & McCormack, LLP, Bohemia, of Plaintiff.
Rivkin Radler LLP, Pia E. Riverso, Esq., Peter Chatzinoff, Esq., Max Gersheroff, Esq., Uniondale, of Defendants Scott Kay and MFS Industries.
Kaufman Dolowich Voluck & Gonzo LLP By Matthew Minero, Esq., Woodbury, of Defendants Superior Maintenance Supply, Jason Brand, Mariela Jimenez, Robert Ubriaco and Jamie Gattus.
Mark Lucas, Richmond Hill, pro se.
In this action, Defendants Scott Kay (“Kay”) and MFS Industries, Inc. (“MFS”) move, pursuant to CPLR § 3211(a)(7) to dismiss Counts 1–13 and 18–20 of the Complaint of Plaintiffs Worldcare International Inc d/b/a Medstock and Medstock Inc (collectively, “Medstock” or Plaintiff); and Defendants Jason Brand (“Brand”), Superior Maintenance Supply LLC (“Superior”), Mariela Jimenez (“Jimenez”) and Robert Ubraico (“Ubraico”) move to dismiss all twenty of the counts alleged against them pursuant to CPLR § 3211.1 Plaintiff Medstock opposes both motions setting forth that the heavy burden required to dismiss on the pleadings alone has not been met by any of the Defendants herein. The Complaint constitutes an 88 page document, comprised of 640 paragraphs. It alleges that all the Defendants named participated in a grand criminal enterprise in violation of the Racketeer Influenced and Corrupt Organizations Act of 1970 §§ 1961–1968 (“RICO”) for the purpose of stealing the customers and business of the Plaintiff. Sixteen common law causes of action, in contract, tort, and misappropriation of trade secrets belonging to Plaintiff are likewise alleged.
In essence, the Complaint states that the Defendants, trusted employees of Medstock and the son of the owner of Medstock's largest customer, secretly created competing businesses, stole purchase orders and payments belonging to Medstock, and committed fraud and theft, resulting in Medstock losing 60 of its valued customers including gross revenues of over $2,000,000.00 and lost profits. According to the Complaint, beginning in 2004, Defendant Kay, along with co-conspirator Brand, created Defendant Superior both to compete with Medstock and to actively divert Medstock customer orders to Superior. This allegedly expanded by the creation of another competing business, MFS, in 2007 by Kay and Brand. The Plaintiff alleges that after setting up this “enterprise”, Kay, with Medstock authority to set prices charged customers, periodically set prices artificially high so that his new companies could offer such customers lower prices and lure Medstock's business away. In addition, Plaintiff sets forth that Kay actually manipulated the Medstock website by lowering the prices displayed and then notifying Medstock's customers that his employer was charging them more than the prices quoted online. This allegedly resulted in many dissatisfied customers leaving Medstock.
In furtherance of this scheme, Plaintiff asserts that in 2010, Kay continued with the same acts, but now with the aid of additional Medstock employees whom he lured to become part of the “enterprise”. In this vein, according to Medstock, all the Defendants stole employee files to destroy evidence, diverted customer orders, wrongfully took Medstock purchase orders and filled them through the competing companies, and stole checks belonging to Medstock. Plaintiff accuses Defendant Kay of utilizing physical force to intimidate those Medstock employees who would not join them.
As a result of the above activities, Medstock states that it lost 60 of its largest customers representing over $2 million dollars in annual revenues, damaged Plaintiff's business reputation and goodwill and caused Plaintiff to incur unnecessary business expenses. Plaintiff asserts that new acts of the enterprise are still being uncovered.
The Defendants argue, in general, with regard to the RICO claims, that the Plaintiff has attempted to color what is essentially a common law commercial dispute improperly into four RICO causes of action under 18 USC § 1962(a-d). They assert, citing, Gross v. Waywell, 628 F Supp 2d 475, 482 (S.D.N.Y.2009):
“Branding defendants in civil actions with searing accusations of racketeering activities and thus prolonging ill considered litigation to promote the private interests of only one or a few victims, and in lawsuits arising from fraudulent schemes limited to localized impacts and wrongful conduct far afield from the dimensions and degree of serious criminal offenses Congress had in mind as RICO violations, is bound to endanger disfavor from courts and jurists alike”.
Specifically, Defendants assert that Plaintiff predicates its civil RICO claims on mail and wire fraud, neither of which are plead with the requisite specificity, failing in most instances to indicate the date, time, or location of the allegedly fraudulent statements, the identity of the recipients of such statements, the specific content thereof, or reliance by anyone on such statements. These Defendants point to numerous paragraphs in the complaint, all “upon information and belief”, alleging that on certain unspecified dates, the putative enterprise diverted Plaintiff's yearly sales; fraudulently told Plaintiff's customers to write checks to their companies; since 2007, used mails and wires somehow to give the impression that the corporate Defendants were engaged in lawful operations, used Plaintiff's telephones and cell phones to make misrepresentations about Medstock orders, used mail and wires to obtain monies from Medstock clients belonging to Medstock, and transported goods in interstate commerce with funds obtained from stolen purchase orders. In one instance, Plaintiff asserts that on an unspecified date, Defendant Kay instructed a particular customer to write checks to one of the Defendant corporate entities, by falsely stating that it was the same entity as Plaintiff.
Furthermore, these Defendants argue, that to the extent that Plaintiff asserts that Defendants actions constitute money laundering in violation of 18 USC §§ 1956 and 1957, allegations of garden variety theft, including theft of purchase orders do not qualify. The specific sections of the law presumably referred to according to such Defendants include “specified unlawful activities” such as narcotics distribution, murder, extortion, arson, bribery and similar offenses, none of which are alleged by Plaintiff in this case.
In addition to the failure to specify as required, racketeering activities that fall within the ambit of the subject statutes, Defendants assert that Plaintiff has failed, as required, to plead a “pattern of racketeering activity”. To establish the same, a claimant must demonstrate at least two actions of racketeering activity within 10 years and, in addition, must also allege facts tending to show that the racketeering actions amount to or pose a threat of continuing criminal activity, citing H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). This requirement, referred to in the applicable federal case law as “continuity” must be satisfied either by showing a “close-ended” pattern, constituting a series of related predicate acts extending over a substantial period of time, or by demonstrating an “open-ended” pattern of racketeering activity that poses a threat of continuing criminal conduct beyond the period during which the predicate acts were performed. Spool v. World Child Int'l Adoption Agency, 520 F.3d 178 (2d Cir.2008). In this context, the subject Defendants point to a series of federal District Court opinions in the Second Circuit which hold that where the conduct asserted involves a limited number of perpetrators and victims and a limited goal, there simply does not exist the required “closed-ended pattern”. (citing, FD Prop Holding Inc. v. U.S. Traffic Corp., 206 F Supp 2d 362 (E.D.N.Y.2002); Pier Connection, Inc. v. Lakhani, 907 F.Supp. 72 (S.D.N.Y.1995); Cont'l Realty Corp. v. JC Penny, 729 F.Supp. 1452 (S.D.N.Y.1990). Thus, Defendants assert that the lack of specified dates as well as the really limited perpetrators, all employees and one customer of Plaintiff with the limited goal of stealing their business to compete with them, simply does not qualify as a pattern of racketeering activity, utilizing the “close-ended” rubric. According to these Defendants the “open-ended” type of continuity fares no better under existing case law. In this context, they argue that existing precedent generally requires that the “open-ended” pattern of racketeering activity requires a showing that the enterprise's business is inherently unlawful. Spool, supra. If as here, the so-called RICO enterprise is engaged in a lawful business, such as the sale herein of medical, janitorial, and stationary supplies, no such unlawful business exists or is even alleged. In addition, the threat of stealing away the Plaintiffs' customers by its existing employees (the individual Defendants herein) ended when their employment with Plaintiff terminated. See, e.g. Spool at 186.
Defendants assert that the applicable federal statutes require damages that are provable before the claim in fact accrues. First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir.1994). It is the movants' position, that claims of lost profits based upon the allegedly stolen 60 customers amount to unquantifiable potential opportunity to earn profits in the future, a completely speculative assertion in a highly competitive...
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