American BioCare Inc. v. Howard & Howard Attorneys PLLC
702 F. App'x 416
| 6th Cir. | 2017Background
- ABI (a holding company) and three subsidiaries acquired home-healthcare companies (HHCs) in 2011, financing the deal with a $3.9 million loan from FirstMerit; ABI pledged ownership interests in the subsidiaries/Entities as collateral.
- The sellers (the “Ruark Individuals”) agreed to a non‑compete and were subject to a status‑quo order from an Oakland County court; ABI later alleged the Ruark Individuals violated that order.
- In October 2013 the ABI subsidiaries defaulted on the FirstMerit loan; FirstMerit foreclosed and sold the collateral at a private sale to entities tied to the Ruark Individuals, which later transferred the assets to Redemption Health Care, LLC.
- ABI alleged two predicate frauds to support RICO claims: (1) misrepresentations to FirstMerit during the foreclosure sale (leading to loss of ABI’s interests), and (2) a separate fraud against Contemporary Health Care Fund I, L.P. (CHC) that did not directly injure ABI.
- The district court dismissed ABI’s subsidiary‑plaintiffs for lack of Article III standing (12(b)(1)) and dismissed the entire RICO complaint on pleading grounds (failure to plead fraud with particularity under Rule 9(b) and further deficiencies as to proximate causation). ABI appealed; the Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Article III standing for the ABI Entities should be decided under Rule 12(b)(6) instead of 12(b)(1) | Block controls; the ownership/possession question is merits‑based and thus deserves 12(b)(6) review | Subject‑matter jurisdiction (Article III standing) is a 12(b)(1) question and defendants challenge jurisdictional facts | Court: Article III standing is a 12(b)(1) issue; district court properly addressed it under 12(b)(1) |
| Whether ABI retained a possessory interest in the Entities after foreclosure (bad‑faith purchase exception) | ABI: the purchasers (Ruark/JIRA defendants) acted in bad faith (lied about the court order), so ABI retained rights and can sue on Entities’ behalf | JIRA defendants: foreclosure transferred ownership; purchasers acted in good faith and do not authorize suit by ABI | Court: even assuming ABI retained property rights, a parent/owner cannot assert claims belonging to separate corporate Entities; ABI lacks standing to sue on Entities’ behalf; dismissal affirmed |
| Whether ABI pleaded predicate frauds with the particularity required by Fed. R. Civ. P. 9(b) (FirstMerit foreclosure‑sale fraud) | ABI: complaint alleges misrepresentations by Ruark/H&H to FirstMerit inducing the sale; emails and sale agreement documented misrepresentations | Defs: complaint fails to identify dates, specific statements, speakers, or precisely how ABI relied; inadequate under Rule 9(b) | Court: Complaint lacks time, place, content, and actor specificity for the foreclosure fraud; Rule 9(b) dismissal affirmed |
| Whether ABI stated a RICO claim (two predicate acts; proximate cause; conspiracy) | ABI: alleged two predicate frauds (FirstMerit and CHC) and injury from loss of Entities | Defs: even if CHC fraud pled, FirstMerit fraud not pled with required particularity; proximate cause and pattern also inadequately alleged | Court: Because ABI fails to plead the FirstMerit fraud with particularity, it lacks the required second predicate act; RICO and RICO‑conspiracy claims fail and are dismissed |
Key Cases Cited
- Dole Food Co. v. Patrickson, 538 U.S. 468 (holding that separate corporations have distinct properties and a parent generally cannot sue for subsidiary’s claims)
- Warth v. Seldin, 422 U.S. 490 (standing principle: plaintiff must assert own legal rights, not third parties’)
- Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (RICO requires a pattern of racketeering activity; at least two predicate acts)
- Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258 (proximate‑cause requirement for RICO standing to recover under §1964(c))
- In re ClassicStar Mare Lease Litig., 727 F.3d 473 (elements of civil RICO claim summarized)
- Moon v. Harrison Piping Supply, 465 F.3d 719 (pattern and elements of racketeering activity under RICO)
- Heinrich v. Waiting Angels Adoption Servs. Inc., 668 F.3d 393 (Rule 9(b) particularity requirements for fraud pleadings)
- United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634 (Rule 9(b) pleading standards and required details)
- Grubbs v. Sheakley Group, Inc., 807 F.3d 785 (RICO conspiracy requires illicit agreement plus underlying RICO elements)
- Kottmyer v. Maas, 436 F.3d 684 (standard of review for 12(b)(6) dismissal)