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LINENS OF EUROPE, INC. v. BEST MANUFACTURING

LINENS OF EUROPE, INC., Plaintiff,
v.
BEST MANUFACTURING, INC., BEST METROPOLITAN TOWEL AND LINEN SUPPLY, INC., BEST TEXTILES LLC, B&M LINEN CORP. d/b/a MIRON & SONS LAUNDRY, CASCADE LINEN SUPPLY, CO., INC., CENTRAL LAUNDRY SERVICE CORP. d/b/a SEA CREST LINEN, INC., STANLEY OLAN, WHITE PLAINS COAT AND APRON, CO., INC. and BRUCE BOTCHMAN, Defendants.



The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

Linens of Europe, Inc. ("LOE") brought this action on December 3, 2003. The complaint alleged that defendants had monopolized the business of supplying and laundering fine linens for upscale restaurants in the Manhattan area in violation of section 2 of the Sherman Act, 15 U.S.C. § 2, and engaged in a pattern of bribery, extortion, assault, intimidation, and other harassment in an effort to exclude LOE from that market in violation of the Racketeer Influenced and Corrupt Organizations Act, Pub.L. No. 91-452, 84 Stat. 941 ("RICO"). Also on December 3, defendants White Plains Coat and Apron Co., Inc. ("White Plains") and Bruce Botchman, its principal, pled guilty to a violation of section 1 of the Sherman Act, 15 U.S.C. § 1. United States v. Botchman, No. 03 Cr. 1427 (S.D.N.Y. Dec. 3, 2004). Defendants subsequently moved to dismiss, arguing, inter alia, that section 2 of the Sherman Act does not forbid "shared monopolies."*fn1 On March 18, 2004, rather than respond to the motions to dismiss, LOE filed an amended complaint, which substituted a claim under section 1 of the Sherman Act, which prohibits combinations in restraint of trade, for the former complaint's section 2 claim, and augmented the allegations with facts admitted by Botchman and White Plains at their guilty plea allocution. LOE submits that these and other amendments to the complaint render the pending motions to dismiss moot. Defendants vigorously deny this contention and argue that the amended complaint, too, fails to state a claim under either the Sherman Act or RICO. For the reasons that follow, defendants' motions are granted in part and denied in part.

  BACKGROUND

  The facts set forth below, drawn from the amended complaint, must be taken as true for purposes of defendants' motions to dismiss for failure to state a claim.*fn2 Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995). LOE, a Texas corporation authorized to do business in New York, supplies and launders fine linens, such as tablecloths, napkins, and serviettes, for upscale restaurants. (Compl. ¶¶ 4, 27-28.) The corporate defendants, with the exception of Best Textiles LLC and Best Manufacturing, Inc., also supply or launder fine linens. (Id. ¶¶ 5-12, 14.) The individual defendants, Stanley Olan and Bruce Botchman, served, at all times relevant to this action, as the owners and presidents of, respectively, Central Laundry Service Corp. d/b/a Sea Crest Linen ("Sea Crest") and White Plains. (Id. ¶¶ 13, 15.) LOE alleges that defendants combined to constitute a racketeering enterprise to allocate customers among themselves and, by acts of violence, bribery, extortion, assault, intimidation, defamation, and extortion, to exclude non-members, including LOE, from the market in which they operate. (Id. ¶ 17.) LOE denominates defendants' enterprise the "New York Linen Cartel."*fn3 (Id.) Relying on Botchman's plea allocution, LOE alleges that defendants and others formed the New York Linen Cartel in the mid-1990s (id. ¶ 159), though the complaint alleges elsewhere that the combination in restraint of trade began in about 1999. (Id. ¶ 129.)

  According to the complaint, "[t]he relevant market affected by Defendants' illegal actions is the market for high end and up-scale restaurants and eateries in the Southern District of New York, with a significant concentration in Manhattan (the `Relevant Market')." (Id. ¶ 30.) This market exists because such restaurants use certain expensive, high-quality linens "produced by a limited number of exclusive European companies" (Id. ¶ 28), and only a few companies provide laundering services for these linens. (Id. ¶ 30.) LOE alleges that defendant members of the New York Linen Cartel subject these delicate fine linens "to the same harsh laundering methods used for the synthetic linens," causing them to deteriorate rapidly, yet because of the Cartel's control of the market, the restaurants effectively have no choice but "to either lease linens at inflated prices from the New York Linen Cartel or . . . to purchase new linens from them on a continuing basis." (Id. ¶¶ 34-35.) LOE allegedly developed a new method to launder fine linens that avoids damaging them and increases their lifespan significantly. (Id. ¶¶ 49-52.) In 1999, after successfully marketing its novel laundering method in the Houston market, LOE sought to enter the New York area market, a strategy essential to LOE's long-term national and international business prospects. (Id. ¶¶ 53-55.) Within several months, LOE secured a number of well-known Manhattan restaurants as clients. (Id. ¶¶ 56-57.) Observing LOE's attempt to penetrate the Relevant Market, the New York Linen Cartel quickly moved to either drive LOE out of business or force its sale to a member of the Cartel. (Id. ¶ 58.)

  LOE alleges that the Cartel fixes prices and allocates customers among its members. (Id. ¶ 38.) At periodic meetings, its members, including defendants, share customer information and agree on which of them will receive the exclusive right to the business of each customer. (Id. ¶ 39.) Apart from these secretive agreements, the Cartel allegedly also uses bribery, intimidation, violence, extortion, and other illegal means to exclude potential competitors, and it has secured the loyalty and aid of the Union of Needletrades, Industrial and Textile Employees ("UNITE!"), a laundry and dry-cleaning workers' union, to carry out some of these acts. (Id. ¶¶ 40-48.)*fn4

  LOE's problems with the Cartel began shortly after it entered the New York area market. LOE secured a contract to serve the "21" Club, a well-known restaurant, supplanting defendant Cascade Linen Supply Co. ("Cascade") as its launderer. (Id. ¶¶ 60-61.) At the instance of the Cartel, however, defendant Best Manufacturing, Inc., the supplier of the "21" Club's signature linens, refused to do business with LOE, advising LOE that it would only deal with Cascade. (Id. ¶¶ 61-62.) LOE was thus unable to offer services to the restaurant for eight months and lost the corresponding anticipated revenue. (Id. ¶ 63.)

  Meanwhile, also at the behest of the Cartel, defendants B&M Linen Corp. d/b/a Miron & Sons Laundry ("Miron") and Sea Crest took other actions to sabotage LOE's operations. At the time, LOE did not have its own laundering facility; it outsourced the work to local companies, including Miron, which, in turn, introduced LOE to Sea Crest. (Id. ¶¶ 64-65.) Unbeknownst to LOE at the time, the complaint alleges, Miron and Sea Crest were fixtures of the New York Linen Cartel. (Id. ¶¶ 66-67.) Miron destroyed or caused the disappearance of LOE's linens and then lied to LOE about their fate, thus interfering with LOE's inventory and causing it to lose a number of lucrative clients, which defendants subsequently secured. (Id. ¶¶ 68-75.) Sea Crest similarly undermined LOE's relationship with another prestigious restaurant by making false statements about LOE and engaging in predatory pricing. (Id ¶¶ 76.) Best Metropolitan Towel and Linen Supply, Inc., another defendant, bribed a client not to contract with LOE. (Id. ¶¶ 77.)

  Despite the Cartel's continuing interference with LOE's business, LOE persevered, built its own laundering facility, and gradually established a new client base. (Id. ¶¶ 78-93.) Because of LOE's success, and the imminent conclusion of several lucrative contracts between LOE and certain prestigious restaurants, the Cartel redoubled its efforts to put LOE out of business. The Cartel allegedly used UNITE! to disrupt LOE's client relationships in the guise of labor protests and picketing. UNITE! spread false information about and directed baseless accusations at LOE — for example, that LOE uses "sweatshop labor" — and harassed clients at restaurants serviced by LOE. (Id. ¶¶ 96-100.) LOE lost a number of customers to the Cartel as a consequence. (Id. ¶¶ 109-10.) The Cartel also coerced Frette, previously LOE's principal supplier of fine linens, not to deal further with LOE and to sell exclusively to White Plains. (Id. ¶¶ 111-12.) At the same time, an LOE officer began to receive threats of various degrees from a few persons, including defendants Olan and Botchman, telling LOE to sell its business to White Plains. (Id. ¶¶ 101-04.) Then, on April 12, 2002, a group of thugs brutally attacked this officer at the location of one of LOE's clients (Id. ¶ 105); one of them instructed him to "tell [his] boss to sell to White Plains Linen." (Id. ¶ 106.) He continued to receive similar threats after his release from the hospital. (Id. ¶ 107). Another LOE officer quit her job and left the New York area after having received email threats. (Id. ¶ 123.) Moreover, Olan and Botchman implicitly threatened LOE at several meetings, telling LOE that "to survive in New York, it needed to `cooperate' with the members of the New York Linen Cartel." (Id. ¶ 116; see also id. ¶¶ 121-22.)

  In September 2002, the New York Linen Cartel became aware of a pending federal investigation into its activities and consequently ceased to engage in overt activities against LOE. (Id. ¶ 124.) On December 3, 2003, White Plains and Botchman pled guilty to violations of section 1 of the Sherman Act. At his allocution, Botchman admitted that as president of White Plains, he held meetings with other linen suppliers and launderers, and they agreed not to compete with one another and to allocate existing customers among themselves. (Id. ¶¶ 23, 126-27.)

  DISCUSSION

  I. Standard on a Motion to Dismiss

  On a motion to dismiss pursuant to Fed.R. Civ. P. 12(b)(6), the Court must accept as true all well-pleaded factual allegations in the complaint, viewing them in the light most favorable to the plaintiff and drawing all reasonable inferences in its favor, Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996); and applying this standard, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

  II. Preliminary Objections

  Several defendants raise procedural and other objections that do not bear on the merits or sufficiency of LOE's allegations. The Court will address these objections first.

  A. Miron: Colorado River Abstention

  Miron argues that LOE's claims against it should be dismissed pursuant to the abstention doctrine applied by the Supreme Court in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). Under this doctrine, to conserve judicial resources, federal courts may abstain in "exceptional circumstances" where "resolution of existing concurrent state-court litigation could result in comprehensive disposition of litigation." Woodford v. Comty. Action Agency, 239 F.3d 517, 522 (2d Cir. 2001) (internal quotation marks omitted).

  Miron contends that LOE's claims against it simply duplicate claims in a state action that arose out of Miron's alleged destruction of LOE's linens and tortious interference with LOE's business relationship with a hotel client. Linens of Europe, Inc. v. Miron & Sons Linen Service, Inc., No. 20813-02 (N.Y. Sup. Ct., June 11, 2002) (Markus Aff., Ex. C.). LOE initially filed this action in Texas on April 19, 2001 (id., Ex. A), but the Texas state court dismissed for want of personal jurisdiction. LOE then refiled the action in New York Supreme Court, Bronx County. Miron argues that, as against it, LOE's federal action is no more than a vexatious effort to recast the state tort and contract claims as federal antitrust and RICO violations, and accordingly, that the Court should abstain from deciding issues at stake in a parallel state-court action. Unlike the other abstention doctrines, Colorado River does not rest "on considerations of state-federal comity or on avoidance of constitutional decisions." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 14-15 (1983). It applies only in a very narrow category of cases involving concurrent jurisdiction, where "considerations of `[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation,'" Colorado River, 424 U.S. at 817, clearly justify dismissal in deference to a state proceeding. Id. at 817-18; see also Moses Cone, 460 U.S. at 16 ("Only the clearest of justifications will warrant dismissal.") (quoting Colorado River, 424 U.S. at 819; emphasis in original).

  Bearing in mind the repeatedly emphasized "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them," Colorado River, 424 U.S. at 817; Village of Westfield v. Welch's, 170 F.3d 116, 120 (2d Cir. 1999), the Second Circuit has enumerated six factors to be weighed to decide whether a district court should exercise its discretion to abstain under Colorado River:
(1) the assumption of jurisdiction by either court over any res or property;
(2) the inconvenience of the federal forum;
(3) the avoidance of piecemeal litigation;
(4) the order in which jurisdiction was obtained;
(5) whether state or federal law supplies the rule of decision; and
(6) whether the state court proceeding will adequately protect the rights of the party seeking to invoke federal jurisdiction.
Id. at 121; see also Woodford, 239 F.3d at 522; Burnett v. Physician's Online, Inc., 99 F.3d 72, 76 (2d Cir. 1996).*fn5 "No one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counseling against that exercise is required." Moses Cone, 460 U.S. at 15-16. But "the balance [is] heavily weighted in favor of the exercise of jurisdiction," id. at 16, and therefore, "the facial neutrality of a factor is a basis for retaining jurisdiction, not for yielding it." Woodford, 239 F.3d at 522.

  Applying these factors to Miron's circumstances makes abundantly clear that abstention under Colorado River would be inappropriate, if not an abuse of discretion. See Welch's, 170 F.3d at 120 (emphasizing that because abstention represents a narrowly circumscribed exception to "a court's normal duty to adjudicate a controversy properly before it, . . . discretion must be exercised within the narrow and specific limits prescribed by the particular abstention doctrine involved," and "there is little or no discretion to abstain in a case which does not meet traditional abstention requirements") (internal quotation marks omitted). First, as Miron concedes, this case implicates no res or property. While Miron argues that absence of a res makes this factor inapplicable (Miron Br. 17), the Second Circuit has said to the contrary that "the facial neutrality of a factor is a basis for retaining jurisdiction, not for yielding it." Woodford, 239 F.3d at 522; see also Welch's, 170 F.3d at 122 (observing that "the absence of a res points toward exercise of federal jurisdiction") (internal quotation marks and alterations omitted); De Cisneros v. Younger, 871 F.2d 305, 307 (2d Cir. 1989).

  Second, as Miron also concedes, the federal forum does not inconvenience it in any way. (Miron Br. 17.) Indeed, Miron is located in the Southern District of New York. (Compl. ¶ 10.) This factor, too, therefore weighs against surrendering jurisdiction. Woodford, 239 F.3d at 522-23; Welch's, 170 F.3d at 122 ("[W]here the federal court is `just as convenient' as the state court, that factor favors retention of the case in federal court.").

  Third, any concern about the prospect of piecemeal litigation weighs in favor of retaining jurisdiction. LOE's state action involves claims against a single defendant for breach of contract, negligence, conversion, and tortious interference with contract; its federal action mainly involves claims against multiple defendants for antitrust and RICO violations, as well as pendent state-law claims. "Such differences in parties and issues are strong factors against invoking exceptional circumstances as the basis for dismissal." Alliance of Am. Insurers v. Cuomo, 854 F.2d 591, 603 (2d Cir. 1988). Moreover, due "regard to conservation of judicial resources and comprehensive disposition of [this] litigation," Colorado River, 424 U.S. at 817, favors the consolidation of the actions before this Court, where all claims, state and federal, may be resolved, not the converse. "Indeed, abstention is clearly improper when," as here, "a federal suit alleges claims within the exclusive jurisdiction of the federal courts." Andrea Theatres, Inc. v. Theatre Confections, Inc., 787 F.2d 59, 62 (2d Cir. 1986); see Johnson v. Nyack Hosp., 964 F.2d 116, 122 (2d Cir. 1992) (Sherman Act claims within the exclusive jurisdiction of the federal courts). Finally, were Miron to accept LOE's offer to stay the state action (P. Ltr. dated Mar. 19, 2004),*fn6 it could render moot any concern with duplicative litigation. See Woodford, 239 F.3d at 524. Miron refuses to do so "because it believes the only cognizable claims are those that have already been articulated in" state court. (Miron Br. 14). Needless to say, Miron's belief is irrelevant, and if Miron must now "defend on two litigation fronts" (id. 11, citing Arkwright-Boston Mfrs. Mut. Ins. Co. v. City of New York, 762 F.2d 205, 211 (2d Cir. 1985)), that plight is entirely of its own making.

  The fourth factor, "the order in which the actions were filed, and whether proceedings have advanced more in one forum than in the other," Woodford, 239 F.3d at 522 (internal citations omitted), may weigh in favor of abstention, but at best only slightly. While LOE filed the state suit first, (1) neither party represents that the state action is anywhere close to a potential resolution, and (2) even if it were, its resolution would not materially advance the disposition of LOE's federal claims.

  Fifth, while LOE alleges pendent state-law claims, its federal claims predominate; indeed, as noted, Sherman Act claims lie within the exclusive jurisdiction of the federal courts. Johnson, 964 F.2d at 122. In Woodford, the Second Circuit emphasized:
Even where there are some state-law issues, "the presence of federal law issues must always be a major consideration against surrender.". . . . And "[i]f there is any substantial doubt" as to whether "complete and prompt" protection of the federal right is available in the sate proceeding, dismissal "would be a serious abuse of discretion."
239 F.3d at 523, quoting Moses Cone, 460 U.S. at 26, 28 (brackets in original). To relegate LOE to state court to adjudicate its federal claims against Miron would be impossible, for the Sherman Act claims cannot be brought there,*fn7 as well as inefficient, for LOE would then be required to bring ...

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