The opinion of the court was delivered by: THOMAS C. PLATT
Defendants move to dismiss plaintiff's Amended Complaint in its entirety under Federal Rules of Civil Procedure, Rule 12(b)(6) for failure to state a claim upon which relief can be granted and for failure to plead fraud with the particularity required by the Federal Rules of Civil Procedure, Rule 9(b). For the reasons stated herein, defendants' motion is denied.
The facts as alleged in plaintiff's Amended Complaint indicate that plaintiff, a New Jersey corporation with lawful authority through the Interstate Commerce Commission (hereinafter the "ICC") to provide transportation brokerage services, arranged for the transportation of goods through interstate commerce, making it a "transportation broker." Pursuant to customary industry practice, as a broker, plaintiff would pay the carrier fees to transport the goods in question, and the shipper would pay the broker who arranged the transportation. Compl. PP 1, 16-18.
In or about 1986, plaintiff entered in a business relationship with Ship-Rite Transporters, Inc., whose sole shareholder was defendant Alan Gould. Plaintiff believed that Ship-Rite had lawful "freight forwarder" authority from the ICC, which made it like a "shipper" of goods entitled to broker with a business such as plaintiff to arrange for the transportation of the goods. Compl. PP 19-20.
For three years, until on or about May 9, 1989, plaintiff and Ship-Rite maintained a relationship wherein plaintiff brokered transportation services for Ship-Rite. On or about that date, plaintiff's President Joseph Padula was informed by defendant Sally Adamo, the traffic manager of Ship-Rite, that Ship-Rite had changed its name to Auto Transport America, Inc. (hereinafter "ATA"). In the course of this conversation, Ms. Adamo also informed plaintiff's President that ATA had been granted a substantial contract with the United States Government to transport the goods and personalty of U.S. servicemen returning home from overseas, and that ATA would like to use plaintiff's transportation brokerage services to arrange for such. Plaintiff was informed that Relocate America (hereinafter "Relocate") would be the division of ATA that would handle this contract, and plaintiff, believing that this organization was merely a name change from Ship-Rite with whom it had been dealing for three years, agreed to act as transportation broker for ATA/Relocate. Compl. P 21, 23-26.
Starting soon thereafter, plaintiff did provide these services. Yet sometime in mid-1989, plaintiff began to experience payment problems with ATA. In repeated telephone conversations from June, 1989 through October, 1990, defendants Adamo and Betty Hockenjos, Controller of Ship-Rite and ATA, continually promised that ATA would make full payments to plaintiff. Compl. PP 27-29. As alleged, on the basis of such representations, plaintiff continued to provide services to ATA/Relocate. Compl. P 33.
In July, 1990, plaintiff's President Mr. Padula contacted defendant Alan Gould regarding the monies due, having been advised and believing Gould to be the President and owner of ATA. Padula was informed that Ship-Rite had lost one of its contracts with the United States and money from ATA was needed to restore Ship-Rite to that contract. Gould also requested Padula that plaintiff continue to provide services to ATA and that the account would be paid in full by October, 1990. Plaintiff acquiesced. In October, 1990, Gould promised that the account would be paid in full by March, 1991. Sometime between October, 1990 and March, 1991, ATA ceased doing business without notice to plaintiff. Compl. PP 31-36.
As it turned out, sometime in 1988, unbeknownst to plaintiff, the U.S. started to investigate Ship-Rite for overcharging. Compl. P 41. In June, 1989, the U.S. Government suspended Ship-Rite from doing any further business with the U.S. (Compl. P 55), and a qui tam action was filed against Ship-Rite and Alan Gould in August, 1990. Compl. P 47, Exhibit "B." Subsequently, on September 21, 1990, Alan Gould was indicted on 33 counts of false claims. Compl. P 97, Exh. "H." Thereafter, on October 5, 1990, the U.S. suspended Alan and Lola Gould and refused to do business with ATA, having discovered that Alan Gould operated the business. Compl. P 98, Exh. "I." Plaintiff was never paid the $ 104,836.91 owed for services provided and brought an action resulting in a default judgment against ATA in the amount of $ 108,152.91. Compl. PP 37, 100-101.
Plaintiff's Amended Complaint alleges that the defendants perpetrated an elaborate web of six separate schemes to defraud both the United States and the plaintiff. It enumerates four claims against them relating to the schemes. The first scheme involves Ship-Rite's attempt to defraud the United States and alleges that in 1988, the U.S. entered into a contract with Ship-Rite to transport goods under a set rate, or "tender." According to plaintiff, defendants deleted a reference on the bills of lading to the tender for that particular contract and replaced it with another Ship-Rite tender, which was three times more expensive, thus resulting in a charge to the Government which was three times higher than the initial contract price. According to plaintiff, defendant Gould knew this to be illegal and could potentially prohibit him from partaking in any future contracts with the Government, so he became an informant. Upon further investigation, on August 23, 1990, a civil qui tam action
was filed against him and Ship-Rite before Judge Mishler and soon thereafter, Gould became the subject of an Indictment for fraudulent billing on September 21, 1990. Compl. PP 41-47, 97; Exh. "B."
Thirdly, defendants schemed to defraud plaintiff by not revealing that as of June 21, 1989, Ship-Rite was suspended from business as a result of its shady business practices and suspended from all future business dealings with the United States. Compl. P 55.
Fourthly, ATA fraudulently obtained contracts with the Government. It duped the United States into thinking it was a company wholly separate from Ship-Rite by filing false affidavits indicating, among other assertions, that Lola Gould was the dominant player in the company. For example, plaintiff alleges that a Guaranteed Traffic Carrier Qualification Statement (hereinafter "GTCQS"), filed to obtain qualified freight motor carrier authority, contained false statements to the extent it claimed that Lola Gould had forty-one years of experience in the transportation industry when in fact she had none, and that no other entity would assist in the fulfillment of the contract. It also failed to disclose Alan Gould's involvement in the company. Compl. PP 56-60; Exh. "C."
Conversely, this fraud was thrust upon plaintiff and others in a different light when defendants asserted that the shift to ATA was merely a name change from Ship-Rite. Plaintiff alleges that all efforts were made to insure that third parties, such as plaintiff, believed that Ship-Rite and ATA/Relocate were effectively the same company so that they would continue business dealings with them, while the same defendants took great strides to convince the Government of just the opposite: that ATA and Ship-Rite were two distinct and separate companies, so that the Government would award contracts to ATA/Relocate. Compl. PP 62-66.
The fifth scheme alleges that in late-1989 and 1990, the defendants fraudulently continued its operation of ATA knowing that Ship-Rite was under imminent suspension and insolvency by reason of the on-going investigation and the qui tam action, yet used ATA as a vehicle for its fraud. Compl. PP 67-70.
The sixth and final scheme alleged by plaintiff involves ATA/Relocate's contracts with the United States. ATA did get contracts with the United States, obtained and performed through Relocate. In order to get a contract to transport goods for the United States, it is necessary for the applying entity to obtain a Standard Carrier Alpha Code (hereinafter "SCAC") which identifies a particular contract dealing. The number of SCACs a company has is relative to the types of ICC operating authorities it possesses. Relocate only had one SCAC, based on ATA's motor carrier authority, while ATA had two SCACs: one as a freight forwarder and one as a motor carrier. Plaintiff alleges that the United States and defendants entered into their contract based solely on Relocate's motor carrier authority, which the Government believed to be separate and distinct from ATA. As this contract was made with Relocate as a motor carrier, meaning it would actually transport the goods, and was not a freight forwarder, Relocate did not have the authority to broker with plaintiff or others for transportation services.
In effect, Relocate was hired by the Government to actually transport the goods themselves and therefore they could not broker this freight and hire someone else to transport it.
In fact, ATA/Relocate submitted GTCQSs to the Government stating that no other company would assist them in the transportation of the goods. Compl. PP 58, 71-81.
According to custom and law, the "delivering carrier" who presents a USGBL is entitled to full and immediate payment of all charges. Compl. P 87. Under the agreement, Relocate was hired to be the delivering carrier, but in fact, Relocate turned around and hired plaintiff to find another delivering carrier. To ensure that plaintiff's hire did not receive the full payment when it presented the USGBL with the goods, defendants had to create a scheme whereby the USGBLs would not be presented by plaintiff's common carrier.
To effect this scheme, defendants had to create commercial bills of lading to replace the USGBLs, which on their face would tip off the common carrier or plaintiff that Relocate was intended to transport the goods under the contract. To effect the "switch," the goods would be driven to a nearby warehouse, from where the common carrier would pick them up. At this point, the USGBL would be replaced with a commercial bill of lading. Then, to secure payment, defendants would mail the USGBL to the ultimate destination. Compl. PP 87-94; see Exh. "G" for a sample commercial bill of lading.
This scheme was motivated by defendants' intention to not pay plaintiff and others who brokered the transportation services. Defendants were successful in that they got paid for services others performed. The scheme was perpetuated since defendants would only pay in part and make promises of future payments, to induce the future provision of services. Compl. P 95. Thus, defendants duped the U.S. and the plaintiffs and walked away with money for work it never performed.
Plaintiff's complaint alleges four claims. The first claim alleges violations of the Racketeer Influenced and Corrupt Organizations Act, (hereinafter "RICO"), 18 U.S.C. § 1962(a), (b) & (c), based on predicate acts of mail and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343. The second claim alleges a conspiracy to violate the RICO statute, 18 U.S.C. § 1962(d). Plaintiff's third and fourth claims are for fraud and the abuse of the corporate enterprise, respectively.
Defendants move to dismiss plaintiff's complaint for failure to state a claim upon which relief can be granted and for failure to plead fraud with the required particularity.
When determining the validity of a motion to dismiss, the Court must assume all facts as alleged by plaintiff to be true, drawing all reasonable inferences in favor of plaintiff. Ferran v. Town of Nassau, 11 F.3d 21, 22 (2d Cir. 1993). On this basis, since plaintiff's complaint establishes the essential basic facts to support its claims, defendants' motion ...