They sought it with thimbles, they sought it with care;
They pursued it with forks and hope;
They threatened its life with a railway-share;
They charmed it with smiles and soap
Even with the pleadings reported in The Barriester’s Dream – Plaintiffs’ Oppose Scruggs’ Motion to Dismiss, Scruggs refused the role of Snark in this latest filing in Young v Scruggs, Defendants’ Rebuttal Brief in Support of their Motion to Dismiss:
Plaintiffs’ RICO claims do not fail because of a technical misstep; they fail because the series of events alleged in the Complaint and the RICO Statement do not rise to the level of a RICO violation which entitles Plaintiffs to that statute’s special remedies.
The brief states, There is no magic language Plaintiffs can add to their pleadings to create a RICO cause of action. Believe me, there is also no magic language to make a discussion of law related to serving Richard Scruggs with process interesting reading. The rest, however, is interesting reading and an apt reminder that RICO is not something you just toss out to get your case in federal court.
Defendants Scruggs et al make three clear arguments for dismissing Plaintiffs’ RICO claims:
- Plaintiffs have not pled “pattern of racketeering activity”.
First, Plaintiffs have not pled that the predicate acts occurred over a “substantial period of time”. Second, Plaintiffs have not pled that the predicate acts related to more than a single, otherwise lawful transaction.
In their Response, Plaintiffs try to skirt this fatal defect by arguing that Langston’s 2008 criminal confession establishes a “pattern of racketeering activity” extending from 2006 until his confession. However, Plaintiffs have not pled that Langston’s 2008 confession constituted a RICO predicate act. Furthermore, even Plaintiffs made such an allegation, Langston’s 2008 confession to earlier predicate acts fails to establish an independent predicate act. See 18 U.S.C. § 1961 (listing criminal acts constituting “racketeering activity”).
Plaintiffs also contend that their pleadings meet the continuity requirement due to a separate criminal matter involving Richard Scruggs. Opp. Brf., at 7-8. However, Plaintiffs have not pled that any acts (other than the withholding of discrete amounts during two quarterly payments) are part of the alleged pattern of racketeering activity. Second, Plaintiffs have no standing to rely upon a separate transaction to establish RICO continuity in this matter because they do not claim any involvement with or interest in the other transaction, which involved an attorney fee dispute over Hurricane Katrina litigation. Compl., at 7-8. Finally, Plaintiffs do not suggest that the “RICO enterprise” alleged to exist in this matter had any involvement in the other transaction.
- Plaintiffs have not alleged RICO “enterprise”.
Plaintiffs’ arguments regarding the so-called “Scruggs Enterprise” conflate the allegation of a simple conspiracy and the allegation of a RICO enterprise. A conspiracy exists when two or more people conspire to commit an offense and one or more of those people takes an overt act toward the commission of that offense. See 18 U.S.C. § 371. A RICO enterprise, on the other hand, must exist for purposes other than to commit the conduct in which it is alleged to have engaged, and the relationships between the members of the enterprise must extend beyond commission of predicate acts and receipt of benefits. See U.S. v. Turkette, 452 U.S. 576, 583 (1981); In re McCann, 268 Fed. Appx. 359, 366 (5th Cir. 2008); Atkinson v. Anadarko Bank and Trust Co., 808 F.2d 438, 441 (5th Cir. 1987); and Montesano v. Seafirst Commercial Corp., 818 F.2d 423, 427 (5th Cir.1987). Plaintiffs allege that the Scruggs Enterprise existed to achieve a favorable result in a single lawsuit.
Plaintiffs do not argue that the Scruggs Enterprise existed for any other purpose than to engage in a conspiracy to commit bribery (an offense, which, notably, Plaintiffs do not claim constituted a predicate act for which they are entitled to recover). Rather, they allege that the Scruggs Enterprise was actually a conspiracy to commit bribery.
- Plaintiffs lack standing to bring their RICO claim.
To state a claim for recovery under RICO, the Fifth Circuit requires plaintiffs to allege that predicate acts both factually and legally caused them to suffer damages. Ocean Energy II, Inc. v. Alexander & Alexander, Inc., 868 F.2d 740, 744 (5th Cir. 1989). As Defendants previously noted, Plaintiffs have not alleged injury as a result of the operative predicate acts identified in the pleadings (wire fraud and mail fraud). Defs. Brf., at 12. In response, Plaintiffs suggest with no further explanation that this argument “appears to be based upon the ‘direct’ injury analysis that has been soundly rejected by the Fifth Circuit.” Opp. Brf., at 11-12. This is incorrect; Plaintiffs have failed to allege any injury, direct or indirect, as a result of a RICO predicate act.
Accepting Plaintiffs’ allegations as true, the alleged bribery acts in this case were taken in furtherance of Defendants’ interest in the Wilson litigation. Though Plaintiffs take offense at the suggestion, Plaintiffs and Defendants plainly had a parallel interest in the outcome of the Wilson litigation – protecting their tobacco attorney fees. To be clear, Defendants have never suggested that Plaintiffs had knowledge of any criminal misconduct in the Wilson matter. However, Plaintiffs have alleged, on the one hand, that Defendants benefitted as a result of the outcome of the alleged bribery because they “received a favorable result” in the Wilson litigation, and, on the other hand, that they have been damaged as a result of the same conduct. Leaving aside for the moment the fact that Plaintiffs have not even claimed that the alleged bribery conduct constituted a RICO predicate act, these inconsistent positions demonstrate Plaintiffs’ lack of injury and standing.
The lead to this post stole the thunder from the defendant’s third major point; i.e.; this Court should deny Plaintiffs’ request to amend their Complaint. However, Sop’s comment on the last Young v Scruggs post works for me:
As I’ve been associated professionally with a criminal RICO prosecution and related civil RICO civil suits. I’ll add these are not easy cases to make and from what I’ve seen I’m not convinced the plaintiffs have made their case for RICO either.
The Scruggs’ defendants also ask the Court to decline jurisdiction over Plaintiffs’ state law claims and counter the plaintiffs request:
Plaintiffs conclude their plea for the Court to retain supplemental jurisdiction with an argument that “judicial economy and comity weigh in favor of this Court retaining jurisdiction over the state law claims.” They cite no cases or facts to support the contention. In fact, no loss of judicial economy occurs if the court determines now that the federal claims lack merit, as the litigation is in its infancy. Further, if principles of comity have meaning, then the State law claims should be considered by the courts established for that purpose. Plaintiffs fail on every front to express arguments to avoid the Fifth Circuit’s general rule that a district court should decline to address State law claims once the court dismisses the federal claims supporting its jurisdiction. See, e.g., Butler, 2007 WL 3237927, * 5.
By far more interesting is the discussion on the fifth and final point – statute of limitations bars Plaintiffs’ Luckey judgment claims:
The situation in this case is similar to that of a commercial loan transaction where a borrower later complains about the terms of the loan. Mississippi courts routinely look to the information available to the plaintiff to determine when the claim ripened and the statute commenced running. For example, in CitiFinancial Mortgage Co. v. Washington, 967 So.2d 16 (Miss. 2007), the plaintiffs signed a loan agreement providing for monthly payments for the next 15 years with a balloon payment at the end and later complained about the terms of their loan. The Mississippi Supreme Court determined that the statute of limitations commenced on the date the plaintiffs knew the terms of their loan (which was the date they signed the loan papers and not a few years later when they learned that better loan terms existed), despite the fact that the plaintiffs’ obligation to make monthly payments continued for 15 years. When determining the commencement of a statute of limitations under Mississippi law, courts consistently analyze the information available to the plaintiff about the defendant’s actions and not the period of time over which the plaintiff feels the ill effects of the defendant’s actions. See, e.g., Oaks v. Sellers, 953 So.2d 1077, 1080-83 (Miss. 2007) (statute commenced when insured had notice that carrier had denied coverage and not when court later imputed liability to insured); Andrus v. Ellis, 887 So.2d 175, 179-80 (Miss. 2004) (statute commenced when plaintiffs had notice of loan terms, including credit insurance premium payments); Frye v. American General Finance, Inc., 307 F.Supp.2d 836, 841-42 (S.D. Miss. 2004) (same).
Defendants did not engage in repeated tortious conduct against Plaintiffs. Instead, Defendants advised Plaintiffs of the manner in which Defendants interpreted their written agreement, the impact this interpretation would have on Plaintiffs as a result of the Luckey judgment and of the subsequent loan obtained to satisfy that judgment, and the precise amount that SMBD would withhold from Plaintiffs’ quarterly payments for 20 quarters. Defendants even told Plaintiffs that litigation was necessary to resolve any disagreement about interpretation of the agreement. Plaintiffs had full knowledge of these facts – – which were the facts necessary to bring their claim – – no later than November 2005. Plaintiffs filed their Complaint in September 2009, more than three years later. The statute of limitations in Miss. Code § 15-1-49 bars Plaintiffs’ Luckey judgment claims.
Sop also pointed out the irony in this case – plaintiffs are represented by one of the law firms disqualified by Judge Senter from the ongoing litigation as a result of Dick Scruggs run in with Judge Lackey.
I strongly suspect Young v Scruggs is a reflection of the anger resulting from that injustice. It’s too late for the Court to make things right for the policyholders who suffered as a result; but, it’s never too late to do what’s right – and the disqualification of attorneys who had no decision-making authority in either venture group merits remedy. That grave injustice can not be dismissed – this case, however, should be.