ABDULLAH EX REL. ABDULLAH v. TRAVELERS PROPERTY

No. 3:99CV00155(WWE)

83 F. Supp.2d 289 (1999) | Cited 0 times | D. Connecticut | November 5, 1999

RULING ON DEFENDANTS' MOTIONS TO DISMISS

Plaintiffs, Reham Abdullah ("Abdullah") and Keith Carlo("Carlo"), bring this class action against Travelers PropertyCasualty Corporation ("TPC"), various Travelers affiliates, andan agent broker, Ringler Associates, Inc. ("Ringler") allegingviolations of RICO and various state fraud laws arising out ofthe structured settlements of two tort cases filed in New Yorkstate courts.1

Pursuant to Fed.R.Civ.Proc 12(b), each defendant moves thisCourt to dismiss plaintiffs' complaint. For the reasons set forthbelow, the motions to dismiss [Doc. ## 33 & 35] are Granted.

FACTS

Plaintiffs Reham Abdullah and Keith Carlo are both New Yorkresidents who entered into court-ordered structured settlementswith the defendant TPC after filing personal injury lawsuits inNew York state courts. The settlements provided an initial lumpsum payment followed by an annuity of predetermined dollaramounts paid to plaintiffs at specific times in the future.2According to the settlement agreements, TPC would not fund thesettlements itself. It would purchase the annuities from anaffiliate through an agent broker who charged a commission forthe transaction. The broker would then rebate to TPC up to 75% ofthe commission it received from the life insurer, an arrangementalleged to violate state insurance laws. The rebates had noeffect on the value of the annuities or the initial lump sumpayments, so that there was no impairment of the value of thebargained for settlements.

Plaintiffs allege that during settlement negotiations TPCfalsely represented the actual cost of the annuities, claimingthat the costs allegedly quoted by TPC did not account for therebates. Specifically, when TPC purchased the financialinstruments that would fund the amount specified in theagreement, TPC did not mention that it was getting a deal bypaying less than the amount originally disclosed to theplaintiffs. Plaintiffs further allege that TPC continuallymislead them by mailing canceled checks stating the cost of theannuities without regard to the rebates. Finally, plaintiffsassert that the difference between the actual cost to TPC and therepresented cost belongs to them.

DISCUSSION

A motion to dismiss under Fed. R.Civ.P. 12(b)(6) should begranted only if "it is clear that no relief could be grantedunder any set of facts that could be provedconsistent with the allegations." Hishon v. King & Spalding,467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). "Thefunction of a motion to dismiss `is merely to assess the legalfeasibility of the complaint, not to assay the weight of theevidence which might be offered in support thereof.'" RyderEnergy Distrib. Corp. v. Merrill Lynch Commodities, Inc.,748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli,616 F.2d 636, 639 (2d Cir. 1980)). In considering a motion todismiss, a court must presume all factual allegations of thecomplaint to be true and must draw any reasonable inferences infavor of the non-moving party. Cruz v. Beto, 405 U.S. 319, 322,92 S.Ct. 1079, 31 L.Ed.2d 263 (1972).

A. RACKETEERING INFLUENCE & CORRUPT ORGANIZATION ACT

Plaintiffs claim that defendants violated RICO by committingthe predicate acts of mail and wire fraud. Defendants raise twoarguments with respect to plaintiffs' RICO cause of action.Specifically, they argue that plaintiffs have not alleged: (1)all of the elements of a RICO cause of action; (2) a RICOenterprise separate and distinct from defendants. This Courtagrees with both of these arguments.

Title 18 U.S.C. § 1964 confers standing in civil RICOcases to any person injured in his business or property by reasonof a violation of sec. 1962. 18 U.S.C. § 1964. In order to sustaina claim under RICO, a civil plaintiff must show: (1) a violationof section 1962; (2) an injury to his business or property; and(3) causation of the injury by the violation. 18 U.S.C. § 1964.Hecht v. Commerce Clearing House, Inc., 897 F.2d 21 (2d Cir.1990). Moore v. Painewebber, Inc., 189 F.3d 165, 169 (2d Cir.1999) (citing United States v. Frank, 156 F.3d 332, 336 (2dCir. 1998)).

1. Plaintiffs Do Not Allege a Factual Injury

Plaintiffs have not alleged a factual injury sufficient tosustain a RICO claim. They merely allege that "due to defendantsmisrepresentations to plaintiffs and other members of the Class,plaintiffs and the Class were unaware that defendants did not, infact, pay the full amount they had represented they would pay."The only economic loss that plaintiffs allege is an entitlementto the difference between the actual cost to TPC of purchasingthe annuities through the agent broker dealer and the costreflecting the rebates. Plaintiffs offer no theory of how this is"their property". 18 U.S.C. § 1964 (RICO requires an injury tothe individual's business or property). Plaintiffs do not contendthat their settlements suffered, that they were duped intoaccepting less than what they bargained for, or that the value ofthe annuity was something other than represented.

The events in this case are unambiguous. The New York courtsapproved structured settlements between defendant TPC and eachplaintiff. Each settlement was for a sum certain and consisted ofa lump sum payment and an annuity. The payment stream and thevalue of the annuity were specific in the agreement. There is nodispute that plaintiffs will receive the amount of money andpayment stream for which they bargained in the settlementagreements, or that the value of the payment stream is anythingless than bargained for. Any costs or rebates that TPC incurredin obtaining the amount of money bargained for in the settlementis immaterial as to the value of the settlement, and in no wayinjured the plaintiffs.

In United States v. Starr, 816 F.2d 94 (2d Cir. 1987), thedefendants were operators of a bulk mailing service thatconcealed higher-rate packages among the lower rate packagesthereby defrauding the United States Postal Service. Although itwas the United States Postal Service that was defrauded, theindictment charged defendants with using the mail to defraud itscustomers. The Second Circuit reversed the indictment on thegrounds that "the customers had receivedthe same service they would have received had the defendants paidthe proper postage." Id. at 98. The same result applies in thiscase. Despite any alleged misrepresentation, plaintiffs willreceive the same settlement amounts and value of the settlementsthey would have received if TPC did not accept any rebates.

Plaintiffs' Rico claim must fail because they have notdemonstrated an injury. They do not allege how the allegedrepresentations entitle them to the difference between the actualcost and the rebate cost, or how they received anything less thanwhat they were promised, or how the failure to disclose therebates or costs of the annuities in anyway affected theirsettlements.3

2. Plaintiff Has Not Alleged a RICO Enterprise

Defendants also assert that plaintiffs have not alleged a RICOenterprise distinct from defendant Travelers as required by18 U.S.C. § 1962(c). This court agrees.

Section 1962(c) prohibits any person employed by or associatedwith any enterprise to conduct such enterprise's affairs througha pattern of racketeering activity. 18 U.S.C. § 1962(c). Inorder to state a claim under RICO, plaintiff must allege a personand an enterprise that is distinct. Discon Inc. v. NYNEX Corp.,93 F.3d 1055 (2d Cir. 1996). By alleging a RICO enterprise thatconsists merely of a corporate defendant associated with its ownemployees or agents carrying on the regular affairs of thedefendant, the distinctness requirement may not be circumvented.Riverwoods Chappaqua v. Marine Midland Bank, 30 F.3d 339 (2ndCir. 1994).

Defendants in this action consist of Travelers PropertyCasualty, Travelers Group Inc., Tower Square Securities, Inc.,Salomon Smith Barney Holdings, Inc., Travelers Life & AnnuityCompany and Ringler Associates. According to the complaint, allof the defendants are either affiliated corporations or agents ofTravelers.4 Taking the pleadings as true, plaintiffs allegethat Travelers Group at all relevant times had power to and didcontrol the affairs, operations, and conduct of those defendantsand permitted and approved that conduct, and that Ringler and theother discount brokers were agents of Travelers.5 Thesecompanies cannot be all knowing agents and affiliates and stillmeet the distinctive requirement under 1962(c). For this reasonPlaintiffs RICO cause of action also fails.

B. PLAINTIFF'S STATE LAW CLAIMS

Plaintiffs' remaining claims against defendants are based onstate statutes and common law. Having dismissed all of thefederal claims, the Court will decline to exercise supplementaljurisdiction over the remaining state law claims pursuant to28 U.S.C. § 1367(c)(3). Plaintiffs' state law claims are herebydismissed without prejudice.

1. At this time no class has been certified.

2. The settlements to the individual plaintiffs are asfollows:

Plaintiff Reham Abdullah: $1,167.06 up front lump sum 23,833.00 Attorney fees $28,236.97 First annuity payment on 5/1/2003 $28,236.97 Second annuity payment on 5/1/2004 $28,236.97 Third annuity payment on 5/1/2005 $28,236.97 Fourth annuity payment on 5/1/2006

Plaintiff Keith Carlo: $25,000 up front lump sum $19,668.00 First annuity payment on 5/1/2005 $19,668.00 Second annuity payment on 5/1/2006 $19,668.00 Third annuity payment on 5/1/2007 $19,668.00 Fourth annuity payment on 5/1/2008

3. This Court is further persuaded by the reasoning and thefindings of a New Jersey court in a case that involves identicalfactual issues of fraud. Although the litigants differ in thiscase, not surprisingly, the attorneys do not. In Potts v.Prudential Property and Casualty Co., HUD-L-0135-99, plaintiffsalleged violations of fraud laws arising out of structuredsettlements agreements. Dismissing the case, the New Jersey courtruled as a matter of law and plain common sense, that therepresentation of the rebate was not material and that theclaimant received exactly what he bargained for.

4. The complaint provides in part:

Travelers directed the vast majority of this business on a virtually exclusive basis to a few select affiliate brokers. The designated brokers to whom these annuity orders were processed consisted solely of the small group of brokers (Tower Square Securities, Smith Barney, Ringler, and John Does 1 through 99) with which TPC enjoyed either an affiliation or a secret relationship by which such brokers in exchange for being named as agents . . . rebated a significant percentage of their commissions on the sales of annuities to Travelers PC. Travelers PC also used other agents, including Ringler, for larger and more complex structured settlements.

5. Plaintiffs' failure to plead any factual allegations as todefendant discount brokers John Doe 1 to 99 is grounds fordismissal of the complaint pursuant to both Rule 9(b) and Rule12(b)(6).

RULING ON DEFENDANTS' MOTIONS TO DISMISS

Plaintiffs, Reham Abdullah ("Abdullah") and Keith Carlo("Carlo"), bring this class action against Travelers PropertyCasualty Corporation ("TPC"), various Travelers affiliates, andan agent broker, Ringler Associates, Inc. ("Ringler") allegingviolations of RICO and various state fraud laws arising out ofthe structured settlements of two tort cases filed in New Yorkstate courts.1

Pursuant to Fed.R.Civ.Proc 12(b), each defendant moves thisCourt to dismiss plaintiffs' complaint. For the reasons set forthbelow, the motions to dismiss [Doc. ## 33 & 35] are Granted.

FACTS

Plaintiffs Reham Abdullah and Keith Carlo are both New Yorkresidents who entered into court-ordered structured settlementswith the defendant TPC after filing personal injury lawsuits inNew York state courts. The settlements provided an initial lumpsum payment followed by an annuity of predetermined dollaramounts paid to plaintiffs at specific times in the future.2According to the settlement agreements, TPC would not fund thesettlements itself. It would purchase the annuities from anaffiliate through an agent broker who charged a commission forthe transaction. The broker would then rebate to TPC up to 75% ofthe commission it received from the life insurer, an arrangementalleged to violate state insurance laws. The rebates had noeffect on the value of the annuities or the initial lump sumpayments, so that there was no impairment of the value of thebargained for settlements.

Plaintiffs allege that during settlement negotiations TPCfalsely represented the actual cost of the annuities, claimingthat the costs allegedly quoted by TPC did not account for therebates. Specifically, when TPC purchased the financialinstruments that would fund the amount specified in theagreement, TPC did not mention that it was getting a deal bypaying less than the amount originally disclosed to theplaintiffs. Plaintiffs further allege that TPC continuallymislead them by mailing canceled checks stating the cost of theannuities without regard to the rebates. Finally, plaintiffsassert that the difference between the actual cost to TPC and therepresented cost belongs to them.

DISCUSSION

A motion to dismiss under Fed. R.Civ.P. 12(b)(6) should begranted only if "it is clear that no relief could be grantedunder any set of facts that could be provedconsistent with the allegations." Hishon v. King & Spalding,467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). "Thefunction of a motion to dismiss `is merely to assess the legalfeasibility of the complaint, not to assay the weight of theevidence which might be offered in support thereof.'" RyderEnergy Distrib. Corp. v. Merrill Lynch Commodities, Inc.,748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli,616 F.2d 636, 639 (2d Cir. 1980)). In considering a motion todismiss, a court must presume all factual allegations of thecomplaint to be true and must draw any reasonable inferences infavor of the non-moving party. Cruz v. Beto, 405 U.S. 319, 322,92 S.Ct. 1079, 31 L.Ed.2d 263 (1972).

A. RACKETEERING INFLUENCE & CORRUPT ORGANIZATION ACT

Plaintiffs claim that defendants violated RICO by committingthe predicate acts of mail and wire fraud. Defendants raise twoarguments with respect to plaintiffs' RICO cause of action.Specifically, they argue that plaintiffs have not alleged: (1)all of the elements of a RICO cause of action; (2) a RICOenterprise separate and distinct from defendants. This Courtagrees with both of these arguments.

Title 18 U.S.C. § 1964 confers standing in civil RICOcases to any person injured in his business or property by reasonof a violation of sec. 1962. 18 U.S.C. § 1964. In order to sustaina claim under RICO, a civil plaintiff must show: (1) a violationof section 1962; (2) an injury to his business or property; and(3) causation of the injury by the violation. 18 U.S.C. § 1964.Hecht v. Commerce Clearing House, Inc., 897 F.2d 21 (2d Cir.1990). Moore v. Painewebber, Inc., 189 F.3d 165, 169 (2d Cir.1999) (citing United States v. Frank, 156 F.3d 332, 336 (2dCir. 1998)).

1. Plaintiffs Do Not Allege a Factual Injury

Plaintiffs have not alleged a factual injury sufficient tosustain a RICO claim. They merely allege that "due to defendantsmisrepresentations to plaintiffs and other members of the Class,plaintiffs and the Class were unaware that defendants did not, infact, pay the full amount they had represented they would pay."The only economic loss that plaintiffs allege is an entitlementto the difference between the actual cost to TPC of purchasingthe annuities through the agent broker dealer and the costreflecting the rebates. Plaintiffs offer no theory of how this is"their property". 18 U.S.C. § 1964 (RICO requires an injury tothe individual's business or property). Plaintiffs do not contendthat their settlements suffered, that they were duped intoaccepting less than what they bargained for, or that the value ofthe annuity was something other than represented.

The events in this case are unambiguous. The New York courtsapproved structured settlements between defendant TPC and eachplaintiff. Each settlement was for a sum certain and consisted ofa lump sum payment and an annuity. The payment stream and thevalue of the annuity were specific in the agreement. There is nodispute that plaintiffs will receive the amount of money andpayment stream for which they bargained in the settlementagreements, or that the value of the payment stream is anythingless than bargained for. Any costs or rebates that TPC incurredin obtaining the amount of money bargained for in the settlementis immaterial as to the value of the settlement, and in no wayinjured the plaintiffs.

In United States v. Starr, 816 F.2d 94 (2d Cir. 1987), thedefendants were operators of a bulk mailing service thatconcealed higher-rate packages among the lower rate packagesthereby defrauding the United States Postal Service. Although itwas the United States Postal Service that was defrauded, theindictment charged defendants with using the mail to defraud itscustomers. The Second Circuit reversed the indictment on thegrounds that "the customers had receivedthe same service they would have received had the defendants paidthe proper postage." Id. at 98. The same result applies in thiscase. Despite any alleged misrepresentation, plaintiffs willreceive the same settlement amounts and value of the settlementsthey would have received if TPC did not accept any rebates.

Plaintiffs' Rico claim must fail because they have notdemonstrated an injury. They do not allege how the allegedrepresentations entitle them to the difference between the actualcost and the rebate cost, or how they received anything less thanwhat they were promised, or how the failure to disclose therebates or costs of the annuities in anyway affected theirsettlements.3

2. Plaintiff Has Not Alleged a RICO Enterprise

Defendants also assert that plaintiffs have not alleged a RICOenterprise distinct from defendant Travelers as required by18 U.S.C. § 1962(c). This court agrees.

Section 1962(c) prohibits any person employed by or associatedwith any enterprise to conduct such enterprise's affairs througha pattern of racketeering activity. 18 U.S.C. § 1962(c). Inorder to state a claim under RICO, plaintiff must allege a personand an enterprise that is distinct. Discon Inc. v. NYNEX Corp.,93 F.3d 1055 (2d Cir. 1996). By alleging a RICO enterprise thatconsists merely of a corporate defendant associated with its ownemployees or agents carrying on the regular affairs of thedefendant, the distinctness requirement may not be circumvented.Riverwoods Chappaqua v. Marine Midland Bank, 30 F.3d 339 (2ndCir. 1994).

Defendants in this action consist of Travelers PropertyCasualty, Travelers Group Inc., Tower Square Securities, Inc.,Salomon Smith Barney Holdings, Inc., Travelers Life & AnnuityCompany and Ringler Associates. According to the complaint, allof the defendants are either affiliated corporations or agents ofTravelers.4 Taking the pleadings as true, plaintiffs allegethat Travelers Group at all relevant times had power to and didcontrol the affairs, operations, and conduct of those defendantsand permitted and approved that conduct, and that Ringler and theother discount brokers were agents of Travelers.5 Thesecompanies cannot be all knowing agents and affiliates and stillmeet the distinctive requirement under 1962(c). For this reasonPlaintiffs RICO cause of action also fails.

B. PLAINTIFF'S STATE LAW CLAIMS

Plaintiffs' remaining claims against defendants are based onstate statutes and common law. Having dismissed all of thefederal claims, the Court will decline to exercise supplementaljurisdiction over the remaining state law claims pursuant to28 U.S.C. § 1367(c)(3). Plaintiffs' state law claims are herebydismissed without prejudice.

1. At this time no class has been certified.

2. The settlements to the individual plaintiffs are asfollows:

Plaintiff Reham Abdullah: $1,167.06 up front lump sum 23,833.00 Attorney fees $28,236.97 First annuity payment on 5/1/2003 $28,236.97 Second annuity payment on 5/1/2004 $28,236.97 Third annuity payment on 5/1/2005 $28,236.97 Fourth annuity payment on 5/1/2006

Plaintiff Keith Carlo: $25,000 up front lump sum $19,668.00 First annuity payment on 5/1/2005 $19,668.00 Second annuity payment on 5/1/2006 $19,668.00 Third annuity payment on 5/1/2007 $19,668.00 Fourth annuity payment on 5/1/2008

3. This Court is further persuaded by the reasoning and thefindings of a New Jersey court in a case that involves identicalfactual issues of fraud. Although the litigants differ in thiscase, not surprisingly, the attorneys do not. In Potts v.Prudential Property and Casualty Co., HUD-L-0135-99, plaintiffsalleged violations of fraud laws arising out of structuredsettlements agreements. Dismissing the case, the New Jersey courtruled as a matter of law and plain common sense, that therepresentation of the rebate was not material and that theclaimant received exactly what he bargained for.

4. The complaint provides in part:

Travelers directed the vast majority of this business on a virtually exclusive basis to a few select affiliate brokers. The designated brokers to whom these annuity orders were processed consisted solely of the small group of brokers (Tower Square Securities, Smith Barney, Ringler, and John Does 1 through 99) with which TPC enjoyed either an affiliation or a secret relationship by which such brokers in exchange for being named as agents . . . rebated a significant percentage of their commissions on the sales of annuities to Travelers PC. Travelers PC also used other agents, including Ringler, for larger and more complex structured settlements.

5. Plaintiffs' failure to plead any factual allegations as todefendant discount brokers John Doe 1 to 99 is grounds fordismissal of the complaint pursuant to both Rule 9(b) and Rule12(b)(6).

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