United States District Court, N.D. New York
KENDALL R. STANLEY, SR., Plaintiff,
OPTUMINSIGHT, INC., OPTUM, AXOLOTL CORP., UNITEDHEALTH GROUP INCORPORATED, and UNITED HEALTHCARE SERVICES INC., Defendants.
DECISION and ORDER
THOMAS J. McAVOY, Senior District Judge.
Plaintiff commenced this action asserting claims for breach of contract (First Cause of Action); breach of implied contract and unjust enrichment (Second Cause of Action); fraud and conspiracy to defraud (Third Cause of Action); violations of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1962 ("RICO") (Fourth Cause of Action); and "punitive damages" (Fifth Cause of Action). Defendants move pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the Fourth and Fifth Causes of Action. Motion, dkt. # 3. Plaintiff responds by filing a cross-motion for leave to file an Amended Complaint which adds additional allegations relevant to the Fourth Cause of Action, and which moves the demand for punitive damages to the "WHEREFORE" clause. See Cross-Motion, dkt. # 9. Defendants have filed opposition to the cross-motion and a reply in support of their original motion, arguing that the RICO claim alleged in the proposed Amended Complaint is still legally deficient. See Reply, dkt. # 13. Plaintiff has filed a sur-reply, arguing that the RICO claim, as pleaded in the proposed Amended Complaint, is legally sufficient. See Sur-Reply, dkt. 14.
II. STANDARD OF REVIEW
"Where a plaintiff seeks to amend his complaint while a motion to dismiss is pending, a court has a variety of ways in which it may deal with the pending motion to dismiss, from denying the motion as moot to considering the merits of the motion in light of the amended complaint.'" Hamzik v. Office for People with Developmental Disabilities, 859 F.Supp.2d 265, 276 n. 9 (N.D.N.Y. 2012)( quoting Roller Bearing Co. of Am., Inc. v. Am. Software, Inc., 570 F.Supp.2d 376, 384 (D. Conn. 2008)). Inasmuch as both parties have addressed arguments to the allegations in the proposed Amended Complaint, the Court will consider Plaintiff's motion to amend as a concession that the Fourth and Fifth Causes of Action in the Complaint are subject to dismissal, and will address the sufficiency of the Fourth Cause of Action asserted in the proposed Amended Complaint.
On a motion to dismiss, the Court must accept "all factual allegations in the complaint as true, and draw all reasonable inferences in the plaintiff's favor." Holmes v. Grubman, 568 F.3d 329, 335 (2d Cir. 2009) (internal quotation marks omitted). This tenet does not apply to legal conclusions. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
As a general rule, courts are mindful of the pleading requirements of a RICO claim because of the serious nature of the allegations.
Although civil RICO actions generally need not do more than meet the routine pleading requirements outlined above, courts are particularly mindful of these standards in the context of a civil RICO claim, the assertion of which often has "an almost inevitable stigmatizing effect on those named as defendants." Because of this likely powerful effect on potentially innocent defendants who face the threat of treble damages, and the concomitant potential for abuse of RICO's potent provisions, the court is aware of a particular imperative in cases such as the one at bar, "to flush out frivolous [civil] RICO allegations at an early stage in the litigation."
Curtis & Assocs., P.C. v. The Law Offices of David Bushman, Esq., et al., 758 F.Supp.2d 153, 166-67 (E.D.N.Y. 2010)(citations omitted) ( quoting World Wrestling Entm't, Inc. v. Jakks Pac., Inc., 530 F.Supp.2d 486, 495-96 (S.D.N.Y. 2007)); see also Brookdale Univ. Hospital v. Health Ins. Plan of Greater N.Y., 2009 U.S. Dist. LEXIS 28880, at *9-10 (E.D.N.Y. Mar. 31, 2009) ("Courts have repeatedly cautioned that [c]ivil RICO is an unusually potent weapon - the litigation equivalent of a thermonuclear device.' Accordingly, Civil RICO should not be used to transform a garden variety fraud or breach of contract case... into a vehicle for treble damages.'") ( quoting Katzman v. Victoria's Secret Catalogue, 167 F.R.D. 649, 655 (S.D.N.Y. 2000); Evercrete Corp., v. H-Cap, Ltd., 429 F.Supp.2d 612, 622 (S.D.N.Y. 2006)).
Fed. R. Civ. P. 15(a)(2) provides "[t]he court should freely" grant leave to amend "when justice so requires." In addressing a motion to amend, the Court considers such factors as undue delay, bad faith, dilatory motive, undue prejudice, and futility of the amendment. Foman v. Davis, 371 U.S. 178, 182 (1962). In determining whether proposed claims are futile, the Court is required to adopt the same analysis as that applied on a motion to dismiss pursuant to Rule 12(b)(6). Aetna Cas. and Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 604 (2d Cir. 2005).
a. Allegations in the proposed Amended Complaint
The following factual allegations are taken from the proposed Amended Complaint. Plaintiff became an employee of Axolotl Corp. on July 23, 2007. He and Axolotl Corp. agreed to a compensation package whereby Plaintiff would receive a base salary plus commissions on sales. Subsequently, Axolotl Corp. was acquired by, and became a subsidiary of, Optumlnsight, Inc., Optum, UnitedHealth Group Incorporated and/or United Healthcare Services Inc. Plaintiff's compensation package remained the same with his new employer, OptumInsight, Inc., Optum, UnitedHealth Group Incorporated and/or United Healthcare Services Inc.
After the transition, Defendants began withholding duly earned commissions. Defendants made assurances and promises to Plaintiff that these withheld commissions would be paid. In this regard, representations were made to Plaintiff by several of Defendants' employees, including Jan Grimm, Robert Adams, Matt Olsen, Lucille Meredith, Benjamin Goodman, Paul Yechout, Samantha Hanson, William Lynch and Robin Mercer, that back commissions would be paid. Such representations were made during telephone conversations that were conducted on April 20, 2012, as part of a "sales retention meeting" in which all of the above referenced individuals participated; as well as on other occasions in other phone conversations held between Plaintiff and one or more of these individuals. In addition to the referenced phone conversations, Plaintiff participated in a WebEx presentation during the April 20th, 2012 "sales retention meeting" phone call, in which Defendants presented Plaintiff, and other co-employee sales people, with a Power Point Presentation in which representations were made that Plaintiff was owed additional commissions.
On July 19, 2012, Plaintiff received email communication from Defendants indicating that they would make good the payment of back commissions, along with follow-up emails on this subject sent on July 20, 2012, August 9, 2012, August 17, 2012, and August 20, 2012. Participants in this email exchange included Plaintiff; Paul Yechout, an employee or representative of United Health Group; Benjamin Goodman, an employee of Optum and/or Optumlnsight; Matthew Olsen, an employee and comptroller of Axolotl; Samantha Hanson, a Human Resource representative and employee of Optum and/or OptumInsight; Lucille Meredith, an employee of United Health Group; William Lynch, VP of Health Information Exchange Sales, and an employee of OptumInsight; and Robert Adams, VP of Health Information Sales and an employee of Optum. Additional representations and promises regarding the payment of back commissions were made by Defendants via email communication dated April 23, 2012.
Plaintiff contends that these promises and assurances induced him to continue his employment with Defendants. Other co-employee/salespeople working for Defendants were believed to be experiencing similar problems with getting their duly earned commissions paid, and it is believed that similar representations were made to these other co-employee/salespeople.
After a protracted period of making these assurances and promises, Defendants refused to pay the back commissions as promised, and offered an in-house arbitration system to Plaintiff and his co-workers to resolve their claims. Plaintiff contends that the co-workers who elected to proceed with this in-house arbitration procedure were awarded only a fraction of the back commissions that they were owed.
On September 10, 2012, Plaintiff resigned from his employment. He made demand to his employer for payment of overdue and outstanding compensation in the form of unpaid commissions in the amount of $569, 000, but Defendants have failed and refused to make these commission payments.
In the Fourth Cause of Action alleging RICO violations, Plaintiff asserts that "Defendants entered into an agreement and did conspire amongst themselves and others to commit mail and wire fraud to deprive the Plaintiff, and other similarly situated employees, of their lawfully earned commissions, and knew that these acts were part of a pattern of racketeering activity." Proposed Am. Compl. ¶ 49. The conduct complained of includes Defendants' failure to pay Plaintiff and similarly situated employees their lawfully earned commissions; providing ongoing promises and/or assurances to Plaintiff and similarly situated employees of their intent to pay earned commissions when in fact Defendants had no intention of doing so; making false and misleading statements and promises to Plaintiff and similarly ...