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Gristede's Foods, Inc. v. Unkechauge Nation

November 28, 2007


The opinion of the court was delivered by: Amon, District Judge


Plaintiff Gristede's Foods, Inc. ("Gristede's") has filed suit against the Unkechauge Nation, a/k/a Unkechauge Poospatuck Tribe (the "Unkechauge"), Lance A. Gumbs, and the Poospatuck Smoke Shop and Trading Post (collectively, the "Unkechauge defendants"), as well as the Shinnecock Tribe, a/k/a the Shinnecock Indian Nation (the "Shinnecock"), Harry Wallace, Randall King, James W. Eleazer, Jr., and Shinnecock, Ltd. (collectively, the "Shinnecock defendants"). Plaintiff alleges that the defendants have engaged in the unauthorized sale of untaxed cigarettes to non-tribe members through smoke shops, over the internet, and through telemarketing and print ads, and that the defendants have "created, fostered and nourished a thriving black market in illegally discounted cigarette sales." (Pl.'s Br. at 1.) The complaint alleges three federal law claims for relief and four state law claims for relief. It alleges two claims for civil violations of 18 U.S.C. §§ 1962(a), (b), (c), and (d), the Racketeering Influence and Corrupt Organizations Act ("RICO"), one against the Unkechauge defendants, and one against the Shinnecock defendants. The complaint also alleges, against all defendants, one claim of false advertising in violation of the Lanham Act, 15 U.S.C. § 1125(a); two claims for violations of New York statutes prohibiting false advertising and deceptive trade practices, New York General Business Law §§ 349 and 350; a claim for common law unfair competition; and a claim for common law unjust enrichment. The defendants have moved to dismiss all claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, defendants' motions are granted in part and denied in part.

I. Standard of Review

Under Rule 12(b)(6), a complaint may be dismissed "for failure of the pleading to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Although "a complaint attacked by a Rule12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. . . . Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965-66 (2007) (internal citations and quotations omitted). Thus, in order to survive a motion to dismiss, a complaint must contain "enough fact to raise a reasonable expectation that discovery will reveal evidence" that the alleged violation of law took place. Id. at 1965. The Second Circuit has interpreted Twombly to require "a flexible 'plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007) (emphasis in original).

When determining the sufficiency of a pleading for Rule 12(b)(6) purposes, "consideration is limited to the factual allegations in plaintiffs' [ ] complaint, which are accepted as true, to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit." Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993) (citations omitted). The Court will draw all reasonable inferences in the plaintiff's favor. Chambers v. Time Warner Inc., 282 F.3d 147, 152 (2d Cir. 2002).

II. Discussion

A. Plaintiff is Granted Leave to Amend the Complaint

The Unkechauge argue that the case against it should be dismissed because they have not been properly named by Gristede's. New York State Indian Law §§ 150-153 specifically names the Unkechauge people as the "Poospatuck (Unkechauge) Indian Nation" or the "Poospatuck Indian tribe." However, the tribe is referenced in the complaint as "the Unkechauge Nation, a/k/a Unkechauge Poospatuck Tribe." In addition, the Unkechauge defendants argue that the "Poospatuck Smoke Shop and Trading Post" "does not exist" as "no such entity is registered with the New York Department of State or filed with the Suffolk County Clerk as a DBA, partnership or sole proprietorship." (Unkechauge Def.'s Br. at 3-4, 6.) Similarly, the Shinnecock defendants allege that "Shinnecock Ltd." is a non-existent entity because it is not registered with the New York Department of State. (Shinnecock Def.'s Br. at 20-21.)

According to Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend the complaint "shall be freely given when justice so requires." Fed. R. Civ. P. 15(a). Furthermore, an amended pleading that "changes the party or the naming of the party" against whom a claim is asserted will "relate back" to the date of the original pleading when the claim asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth in the original complaint, and the party received notice of the action within the period provided by Rule 4(m) for service of the summons. Fed Rule Civ. P. 15(c)(3). The Court grants the Gristede's leave to amend the complaint to properly name the Unkechauge defendants, as there is no dispute that the proper defendants received actual notice of this action prior to the expiration of the initial 120-day period for service under Rule 4(m).

In addition, the Court finds that registration with the New York Department of State is not dispositive of whether "Poospatuck Smoke Shop and Trading Post" and "Shinnecock Ltd." are suable entities. The Court declines to dismiss plaintiff's claims against these defendants on this ground.

B. RICO Claims

The RICO statute makes it unlawful for any person to: (a) use or invest income from a pattern of racketeering activity to acquire an interest in, establish, or operate an enterprise; (b) acquire or maintain an interest in an enterprise through a pattern of racketeering activity; (c) conduct or participate in the affairs of an enterprise through a pattern of racketeering activity; or (d) conspire to do any of the above. 18 U.S.C. §§ 1962(a)-(d). Section 1964(c) creates a private civil cause of action for "[a]ny person injured in his business or property by reason of a violation of section 1962." Id. § 1964(c).

In order to demonstrate standing under the RICO statute, a plaintiff must plead and ultimately prove "(1) a violation of the RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the injury was caused by the violation of Section 1962." De Falco v. Bernas, 244 F.3d 286, 305 (2d Cir. 2001) (quoting Pinnacle Consultants, Ltd. v. Leucadia Nat'l Corp., 101 F.3d 900, 904 (2d Cir. 1996)); accord Lerner v. Fleet Bank, N.A., 318 F.3d 113, 120 (2d Cir. 2003). Because a civil RICO plaintiff must plead that his injuries were caused "by reason of" the defendant's RICO violation, 18 U.S.C. § 1964(c), a civil RICO plaintiff "only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." Ouaknine v. MacFarlane, 897 F.2d 75, 83 (2d Cir.1990) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)) (emphasis omitted). Furthermore, there must be a "direct relation between the injury asserted and the injurious conduct alleged." Anza v. Ideal Steel Supply Corp., ___ U.S. ___, 126 S.Ct. 1991, 1996 (2006) ("Anza") (citing Holmes v. Sec. Investor Protection Corp., 503 U.S. 258, 268 (1992)).

1. Plaintiff's RICO Section 1962(c) Claim

RICO Section 1962(c) prohibits conducting or participating in the affairs of an enterprise through a pattern of racketeering activity. 18 U.S.C. § 1962(c). As discussed above, a plaintiff must allege that the conduct constituting a RICO violation caused injury to the plaintiff's business or property. The compensable injury flowing from a violation of section 1962(c) "necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the violation is the commission of those acts in connection with the conduct of an enterprise." Sedima, 473 U.S. at 497; see also Ouaknine, 897 F.2d at 83. A plaintiff, therefore, must plausibly allege that the predicate acts themselves are the proximate cause of its injury. See Anza, 126 S.Ct. at 1996-97. Analysis of causation under Section 1962(c) is controlled by the Supreme Court's decision in Anza v. Ideal Steel Supply Corp. 126 U.S. 1991 (2006), which found that the connection between defendant's alleged tax fraud and competitor's lost sales was too attenuated to allow a competitor to maintain civil suit for section 1962(c) violations, as the claim failed to meet Section 1964(c)'s requirement for a "direct causal connection" between the alleged injury and the defendant's conduct.*fn1 See also Globe Wholesale Tobacco Distrib. v. Worldwide Wholesale, No. 06 Civ. 2865, 2007 WL 2826630, at *4 (S.D.N.Y. September 29, 2007) ("The Section 1962(c) causation analysis is controlled by Anza.").

In the instant case, plaintiff asserts that defendants sell tax-free cigarettes through a pattern racketeering activity that involves predicate acts of mail fraud in violation of 18 U.S.C. § 1341, wire fraud in violation of 18 U.S.C. § 1343, as well as violations of 18 U.S.C. § 2342 (the Contraband Cigarette Trafficking Act), and 18 U.S.C. § 2320 ("Trafficking in Counterfeit goods or services"). Plaintiff claims that it has been harmed because its stores "sell cigarettes at prices that include all applicable State and local excise taxes," while defendants' illegal sales of untaxed cigarettes "have given [them] an unfair competitive advantage over the Plaintiff which must sell cigarettes at substantially higher prices." (Compl. ¶¶ 5, 35.) Thus, plaintiff asserts that it has "lost in excess of $20 million in cigarette sales." (Id. ¶ 35.)

The connection between plaintiff's injury and the defendants' alleged RICO violations is too "attenuated" to sustain a civil RICO claim. In this case, the RICO violation alleged by the plaintiff is that defendants sell tax-free, and therefore discounted, cigarettes through a pattern racketeering. The direct victim of the defendants' conduct is the State of New York, who is allegedly losing tax revenue on illegally untaxed cigarettes, or perhaps the purchasers of those cigarettes, who erroneously believe that they need not pay taxes on the cigarettes. The plaintiff in this case, as in Anza, is not a direct victim of this conduct. See Anza, 126 S.Ct. at 1997("It was the State being defrauded and the State that lost tax revenue as a result.") Although the plaintiff in this case asserts that it has suffered its own harms by the defendants' alleged failure to charge customers applicable taxes, "[t]he cause of [the plaintiff's] asserted harms . . . is a set of actions (offering lower prices) entirely distinct from the alleged RICO violation (defrauding the State)." Id; see also Globe Wholesale Tobacco Distrib., 2007 WL 2826630, at *4 (dismissing plaintiff's 1962(c) claim because "[p]laintiff's alleged harm was caused by a set of actions (offering lower prices) distinct from the alleged RICO violation (transporting counterfeit tax stamps and distributing contraband cigarettes)").

As the Supreme Court has explained, "[t]his conclusion is confirmed by considering the directness requirement's underlying premises." Anza, 126 S.Ct. at 1997. One of the reasons informing the proximate cause requirement is that difficulties may arise when courts attempt to ascertain the damages caused by some remote action. Holmes, 503 U.S. at 269 ("[T]he less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent factors.") Here, as in Anza, the injury plaintiff alleges is its own loss of sales resulting from defendants' decreased prices. However, ascertaining how much of the plaintiff's lost profits are attributable to the defendants' alleged RICO activities would be a highly complex matter. As the Court in Anza noted, "businesses lose and gain customers for many reasons, and it would require a complex assessment to establish what portion of [the plaintiff's] lost sales were the product of [the defendant's] decreased prices." 126 S.Ct at 1997.

The Court finds unpersuasive plaintiff's argument that it has suffered a more direct injury than the plaintiff in Anza. Indeed, the correlation between defendants' lower prices and plaintiff's lost profits would likely have been easier to ascertain in Anza than in the instant case. In Anza, the plaintiff and defendant were one another's "principal competitor." Id. at 1994. By contrast, the plaintiff and defendants in this case are not direct competitors; the defendants do not operate grocery stores in the New York City metropolitan area. In addition, to the degree that plaintiff and defendant are competitors, the plaintiff is one of many proprietors affected by the defendants' alleged actions. See Globe Wholesale Tobacco Distrib., 2007 WL 2826630, at *5 (rejecting plaintiff's attempt to distinguish Anza and noting that the harm suffered by plaintiff was remote, in part because "plaintiff is one of many competitors harmed by defendants' lower prices").

Plaintiff also claims that, because of the defendants' actions, many more cigarettes are sold in New York than would be otherwise. In particular, plaintiff claims that defendants sell to underage purchasers and make cigarettes "more affordable and therefore more available, thereby promoting increased smoking." (Pl.'s Br. at 36-37 (citing Compl. at ΒΆΒΆ 31, 33).) Thus, another complicating factor would be ascertaining to what extent defendants ...

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