OPINION
I. INTRODUCTION
In this аction, Plaintiffs — four operators of Hollywood Tans franchises located in three states — allege that Defendants induced them into entering into unconscionable franchise agreements, defrauded them by sending them deceptive and inflated invoices, and violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Plaintiffs have sued the entity with which they entered into their franchise agreements, Hollywood Tanning Systems, Inc. (“HTS”); two of its officers, Ralph Venuto, Sr., and Ralph Venuto, Jr. (the “Venutos”); the company to which HTS assigned its interest in the franchise contracts, HT Franchising, LLC (“HT Franchising”); and Highline Capital Corporation (“Highline”), which provided three of the Plaintiffs with equipment leasing and financing services in connection with the operation of their Hollywood Tans franchises.
Presently before the Court are three motions: (1) a motion to dismiss and compel arbitration filed by HTS and the Venu-tos (the “HTS Defendants”) [Docket Item 26]; and Highline’s motions (2) to dismiss and fоr a more definite statement [Docket Item 27] and (3) for sanctions pursuant to Rule 11, Fed. R. Civ. P [Docket Item 49]. For the reasons explained below, the Court will deny the HTS Defendants’ motion to dismiss, grant in part and deny in part Highline’s motion to dismiss, and deny Highline’s motion for a more definite statement and for sanctions.
II. BACKGROUND
A. Facts
The facts of this dispute, taken from the Amended Complaint, Plaintiffs’ RICO Case Statement,
see, e.g., Bath Unlimited,
All disputes, controversies or claims arising out of or relating to this Agreement shall be submitted for arbitration to a New Jersey office of the American Arbitration Association on demand of either party. Such arbitration proceeding shall be conducted in New Jersey, and shall be heard by one arbitrator in accordance with the then[-]current Commercial Arbitration Rules of the American Arbitration Association. All matters within the scope of the Federal Arbitration Act (9 U.S.C. Sec. 1 et seq.) shall be governed by it.
(HTS Defs.’ Br. Exs. A-D, section 17.L.) According to the Amended Complaint, pri- or to the commencement of this action, Defendant HTS assigned its rights and obligations under the franchising agreements to Defendant HT Franchising. (Am. Compl. ¶ 18.)
Plaintiffs’ Amended Complaint and RICO Case Statement allege that the Defendants participated in two racketeering enterprises that defrauded Plaintiffs: (1) “[t]he Hollywood Tans Enterprise[,] ... composed of HTS, its agents, officers, and emрloyees;” and (2) “[t]he Highline Leasing Enterprise[,] ... an association-in-fact composed of Highline, its agents, officers, and employees, and HTS, its agents, officers, and employees.” (RICO Case Statement at 4.) With regard to the HTS enterprise, the details of which are not essential to the resolution of the motions presently under consideration, Plaintiffs allege that in their dealings with representatives from Highlands Ranch, RMB, Grandsole, and Markwood, the HTS Defendants knowingly made false and misleading statements about the profitability of Hollywood Tans franchises, the quality of Hollywood Tans equipment, and the franchisees’ startup costs in order to induce Plaintiffs into entering into business relationships with HTS. (RICO Case Statement at 6, 8, 12, 13.)
The alleged activities of the second of these enterprises — the so-called Highline Leasing Enterprise — are of greater relevance to the motions presently under consideration. Three of the Plaintiffs— Highlands Ranch, RMB, and Mаrk-wood — entered into written agreements with Defendant Highline after purchasing their Hollywood Tans franchises, under which Highline agreed to lease tanning salon equipment to each Plaintiff.
2
(Am.
Defendants submitted or caused to be submitted to Plaintiffs, via facsimile over interstate telephone wires and by first-class U.S. mail, agreements and invoices. The invoices were faxed and/or mailed to Plaintiffs routinely and systematically. Said Defendants knowingly and intentionally mailed, faxed, or caused to be mailed or faxed these fraudulent invoices, with the intent to induce Plaintiffs to make inflated payments to High-line Capital and Defendants. Plaintiffs reasonably relied on the fraudulent invoices and submitted documents to their detriment and paid or were defrauded by the artificially inflated invoices sent to them.
(Id. at ¶ 45.) The Amended Complaint alleges that Highline perpetrаted this fraud by “manipulating] the financing arrangements and fraudulently charging] [Plaintiffs] for equipment [they] never received.” (Id. at ¶¶ 48, 153.)
Plaintiffs’ RICO Case Statement, filed after Highline filed its motion to dismiss, fleshes out these somewhat skeletal allegations. 3 According to the RICO Case Statement, through an arrangement between HTS and Highline, the three Plaintiffs who obtained financing for tanning salon equipment through Highline were provided misleading and intentionally vague leasing agreements and invoices by facsimile and United States mail, which enabled Highline (1) to lease substandard and used equipment to Plaintiffs while charging the leasees for new equipment, and (2) to bill Plaintiffs for equipment that they never ordered or received. (RICO Case Statement at 7, 10, 16.) Specifically, according to Plaintiffs’ allegations, these agreements
each contained only a Delivery and Acceptance Certificate and an Equipment Schedule. Conspicuously, on each of the three Plaintiff/Highline customers^] schedules, the actual portion devoted to the description of the given equipment in question! ] each stated only “See Exhibit A Attached hereto and made a part hereof’ but for which none of the Plaintiffs received the exhibit.
(Id. at 16.) In other words, Plaintiffs claim that Highline deliberately omitted information in the lease agreements and invoices that was necessary for the Plaintiff-leasees to ascertain the precise products for which they were being billed. (Id.)
By concealing such information, Plaintiffs allege, Highline was able to bill Plaintiffs for equipment they never received and for new equipment when they had, in fact, received used equipment.
(Id.
at 7, 10, 16.) As Plaintiffs allege, “Defendants knowingly and intentionally mailed, faxed, or caused to be mailed or faxed [ ] fraudulent invoices, with the intent to induce Plaintiffs to make inflated payments to Highline and HTS.”
(Id.
at 16.) While Plaintiffs allege that they received a very large number of such allegedly fraudulent invoices from Highline because the above-described practice was “the regular way of operating [of] the Corporate Defendants,”
(id.
at 15), they have identified multiple specific instances which they claim are reflective of Highline’s allegedly fraudulent billing practices. In particular, Plaintiff
In furtherance of this scheme to overcharge the Highline leasees, Plaintiffs allege, Highline and HTS interfered with Plaintiffs’ capacity to contact Highline directly, which reinforced Defendants’ ability to overcharge Plaintiffs by inhibiting them from accessing from Highline documentation pertaining to their financial obligations. According to Plaintiffs, the leasees were precluded from contacting Highline regarding the allegedly fraudulent invoices altogether. (RICO Case Statement at 7.) With regard to Plaintiff Highlands Ranch, for example, Plaintiffs allege that “all efforts to obtain ... documentation directly from Highline, or communicate [with Highline] in any way, were met with angry responses, including statements from HTS that it would handle the financing and that [Highlands Ranch] could not communicate with Highline ... [or] review the full loan documentation.” (Id.) According to Plaintiffs, the Defendants employed such efforts to keep High-line at a distance from Plaintiffs in order to facilitate the fraudulent billing scheme described above. (Id.)
B. Procedural History
Plaintiffs filed their Complaint [Docket Item 1] in this action on November 29, 2007, and filed an Amended Complaint [Docket Item 3] on January 29, 2008. 4 The Complaint asserts claims of fraud (Count I); “declaration — unconscionable franchise agreements” (Count II); intentional misrepresentation (Count III); negligent misrepresentation (Count IV); breach of contract (Count V); breach of covenant of good faith and fair dealing (Count VI); fraudulent concealment (Count VII); violation of the Maryland Franchise Act, Md.Code Ann. § 14-227 (Count VIII); violation of the Colorado Deceptive Trade Practices Act, C.R.S. 6-1-105 (Count IX); violation of the Ohio Business Opportunity Plans Act, Ohio R.C. § 1334 (Count X); violation of RICO, 18 U.S.C. § 1962(c) (Count XI); conspiracy to violate RICO (Count XII); and unjust enrichment (Count XIII). Shortly after Plaintiffs filed their Amended Complaint, Defendant HT Franchising filed a Counterclaim against Plaintiffs Grandsole and Markwood [Docket Item 19] and filed a motion seeking preliminary injunctive relief to enjoin Grandsole and Markwood from using the Hollywood Tans trademark, which this Court granted in an Order dated May 22, 2008 [Docket Item 67]. 5
During the pendency of the parties’ preliminary injunction motion practice, the HTS Defendants and Highline filed the motions presently under consideration, to the merits of which the Court now turns.
A. Standard of Review
On a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted, the Court must “ ‘accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.”’
Phillips v. County of Allegheny,
While Rule 12(b)(6) does not permit dismissal of a well-pleaded complaint simply because “it strikes a savvy judge that actual proof of those facts is improbable,” the “[flactual allegations must be enough to raise a right to relief above the speculative level.”
Phillips,
“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the ‘grounds’ of his ‘entitle[ment] tо relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly,
“[S]tating ... a claim requires a complaint with enough factual matter (taken as true) to suggest” the required element. [Twombly,127 S.Ct. at 1965 n. 3.] This “does not impose a probability requirement at the pleading stage,” but instead “simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of’ the necessary element. Id.
Phillips,
B. HTS Defendants’ Motion to Dismiss
The HTS Defendants have moved to dismiss Plaintiffs’ claims against them and compel the Plaintiffs to arbitrate this dispute, citing the arbitration clause in the parties’ franchise agreements. According to the HTS Defendants, irrespective of the merits of Plaintiffs’ claims, the parties’ agreements contain broad and unеquivocal provisions requiring arbitration of “[a]ll disputes, controversies or claims arising out of or relating to this Agreement,” (HTS Defs.’ Br. Exs. A-D, section 17.L), which requires that the Court dismiss this action and compel Plaintiffs to arbitrate the matters raised in their Amended Complaint.
For the reasons set forth herein, the Court will deny the HTS Defendants’ motion to dismiss. As the Court of Appeals has repeatedly emphasized, “the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, provides that arbitration agreements are enforceable to the same extent as other contracts, and establishes a strong federal policy in favor of the resolution of disputes through arbitration.”
Morales v. Sun Constructors, Inc.,
In light of the fact that, prior to the commencement of this action, Defendant HTS assigned its rights and obligations under the franchising agreements to Defendant HT Franchising, (Am. Compl. ¶ 18), the Court cannot, at this stage, conclude that “a valid agreement to arbitrate [presently] exists” between HTS and Plaintiffs.
Trippe,
The extent to which HTS transferred its rights and obligations under the franchise agreements to HT Franchising is an unresolved issue in this case that precludes granting the HTS Defendants’ motion to dismiss and compel arbitration. That is, if, as Plaintiffs appear to allege in the Amended Complaint, HTS assigned the entirety of its rights under the fran
In light of Plaintiffs’ allegations that HTS assignеd all such rights to HT Franchising, which the Court must credit at this stage of the litigation,
see Phillips,
C. Highline’s Motions
In its first motion, Highline seeks to dismiss Plaintiffs’ claims for common law fraud, violations of RICO, RICO conspiracy, and unjust enrichment, and seeks a more definite statement from Plaintiffs regarding their claims for negligent misrepresentations and fraudulent concealment. Highline has also moved for sanctions pursuant to Rule 11, Fed.R.Civ.P. For the reasons that follow, the Court will grant Highline’s motion to dismiss Plaintiffs’ claim for unjust enrichment in Count XIII of the Amended Complaint, and will deny the remainder of the relief it seeks.
1. RICO Claims
In its motion to dismiss, Highline argues that Plaintiffs fail to state claims for RICO and RICO conspiracy against it, and that these claims must accordingly be dismissed. As the Court explains below, at this stage of the litigation, at which Plaintiffs’ allegations must be taken as true and at which Plaintiffs receive the benefit of all favorable inferences from the facts pled in their Amended Complaint tоgether with Plaintiffs’ RICO Case Statement, the Court finds that Plaintiffs have adequately pleaded a claim for RICO and RICO conspiracy against Highline, and will deny Highline’s motion to dismiss these claims.
Section 1962(c) of the RICO statute, under which Plaintiffs’ primary RICO claim is brought, provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.
18 U.S.C. § 1962(c). “In order to plead a violation of RICO, plaintiffs must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”
Lum v. Bank of America,
As this Court recently recognized,
When pleading a claim of fraud, a plaintiff must plead “the circumstances constituting fraud or mistake ... with particularity.” Fed.R.Civ.P. 9(b). A plaintiff is not required to “plead the ‘date, place or time’ of the fraud, so long as plaintiff uses an alternative means of injecting precision and some measure of substantiation into their allegations.” Rolo v. City Inv. Co. Liquidating Trust, 155 F.3d 644 , 658 (3d Cir.1998) (quoting Seville Indus. Machinery v. Southmost Machinery,742 F.2d 786 , 791 (3d Cir.1984)). To meet this standard, the subject and nature of each misrepresentation must be adequately pled. See Seville Indus. Machinery,742 F.2d at 791 . A court must apply the heightened pleading standards of Rule 9(b) in accordance with the rule’s underlying purpose — namely (a) to put the defendant on notice of the precise misconduct surrounding the allegation of fraud asserted against it and (b) to guard against “spurious charges of immoral or fraudulent behavior.” See id. at 791; see also Lum,361 F.3d at 224 ; New Jersey Sports Prod., Inc. v. Don King Prod., Inc.,1997 U.S. Dist. LEXIS 23209 at *42 (D.N.J. Oct. 28, 1997) (holding that “[t]he central inquiry ... is whether the complaint is sufficiently precise to place the defendant on notice ... ”) (emphasis added).... [Moreover,] courts in this District have held that “when the transactions are numerous and take place over an extended period of time, less specificity in pleading fraud is required .... ” Kronfeld v. First Jersey Nat’l Bank,638 F.Supp. 1454 , 1465 (D.N.J.1986).
South Broward Hosp. Dist. v. MedQuist Inc.,
a. Pattern of Racketeering Activity
With these considerations in mind, the Court finds that Plaintiffs have adequately pleaded a RICO claim against Defendant Highline under section 1962(c). Highline’s arguments focus most strenuously upon the requirement that a RICO plaintiff allege with particularity facts sufficient to show a pattern of racketeering activity. According to Highline, Plaintiffs’ allegations relating to Highline’s allegedly fraudulent conduct amount to little more than conclusory or boilerplate statements that do not satisfy Rule 9(b)’s heightened pleading standard. Moreover, Highline argues, even if Plaintiffs’ pleadings were not deficient for lack of specificity, the allegations fail to state a RICO claim as a matter of law because they fail to suggest that “the racketeering predicates ... amount to or pose a threat of continued criminal activity.”
H.J. Inc. v. Northwestern Bell Telephone Co.,
The Court is not persuaded by either of these arguments.
9
First, the Court finds that Plaintiffs’ allegations of predicate acts of racketeering activity are sufficient to put Highline “on notice of the precise misconduct surrounding the allegation of fraud asserted against it and [ ] to guard against spurious charges of immoral or fraudulent behavior.”
MedQuist,
Nor is Highline’s argument that Plaintiffs have failed to plead facts suggestive of a “pattern of racketeering activity” convincing. § 1962(c). As the parties recognize, in order to establish the requisite pattern of racketеering activity, a plaintiff must allege that predicate racketeering acts are related, and that they “amount to or pose a threat of continued criminal activity.”
H.J.,
As to the “continuity” requirement of a RICO claim, the Supreme Court has recognized that continuity “is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.”
H.J.,
The Court finds that Plaintiffs’ pleadings survive Highline’s motion to dismiss under either a closed- or open-ended continuity analysis.
See Tabas,
The Court likewise finds that Plaintiffs have, at the motion to dismiss stage, satisfied the requirements for pleading open-ended continuity. As the Court of Appeals explained in Tabas:
Under H.J. Inc., if a RICO action is brought before a plaintiff can establish long-term criminal conduct, the “continuity” prong may still be met if a plaintiff can prove a threat of continued racketeering activity. Whether the predicate acts constitute a threat of continued racketeering activity depends on the specific facts of each case, but H.J. Inc. suggests that open-ended continuity may be satisfied where it is shown that the predicates are a regular way of conducting defendant’s ongoing legitimate business or of conducting or participating in an ongoing and legitimate RICO enterprise.
Tabas,
b. RICO Enterprise
The Court likewise finds that Plaintiffs’ pleadings allege the existence of a RICO enterprise. “A proper § 1962(c) claim must allege ‘the existence of two distinct
In United States v. Turkette,452 U.S. 576 , 583,101 S.Ct. 2524 ,69 L.Ed.2d 246 (1981), the Supreme Court stated that an enterprise “is an entity separate and apart from the pattern of activity in which it engages,” and that it is “proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” In United States v. Riccobene,709 F.2d 214 , 222 (3d Cir.[1983]), cert. denied,464 U.S. 849 ,104 S.Ct. 157 ,78 L.Ed.2d 145 (1983), “we construed Turkette to require proof of each of the three sub-elements referred to by the Court in this passage”: (1) proof of an ongoing organization, (2) proof that the associates function as a continuing unit, and (3) proof that the enterprise is an “entity separate and apart from the pattern of activity in which it engages.” United States v. Pelullo,964 F.2d 193 , 211 (3d Cir.1992) (citing Riccobene,709 F.2d at 221-24 ).
United States v. Console,
“At the motion to dismiss stage, [however,] it is enough that a plaintiff state what entities it believes constitute an enterprise — a plaintiff does not have to allege the
[Turkette]
elements to prove that an enterprise actually exits.”
Darrick Enterprises v. Mitsubishi Motors Corp.,
No. 05-4359,
Plaintiffs have satisfied their burden as to the enterprise element of their RICO claim. Plaintiffs have alleged facts sufficient at this stage to suggest that the associates of the Highline-HTS enterprise — “an association-in-fact composed of Highline, its agents, officers, and employees, and HTS, its agents, officers, and employees,” (RICO Case Statement at 4) — functioned as a unit in furtherance of the alleged scheme to deceive and overcharge Hollywood Tans franchisees. Plaintiffs’ pleadings are sufficiently specific as to the distinct role that each of the corporate associates played in the alleged enterprise, with HTS allegedly requiring new franchisees to use Highline’s leasing and financing services, Highline utilizing deceptive and inaccurate leasing agreements and invoices to overcharge franchisees, and both entities collaborating to keep franchisees at a distance from High-line so as to prevent them from acquiring complete information about the nature of
Because Plaintiffs have adequately stated a RICO claim under section 1962(c) against Highline, the Court will deny Highline’s motion to dismiss Plaintiffs’ principal RICO claim.
c. RICO Conspiracy
The Court will likewise deny Highline’s motion to dismiss Plaintiffs’ claim for conspiracy to violate RICO under section 1962(d). As the Court of Appeals has explained, a RICO plaintiff who is able to sustain his burden of pleading a violation under section 1962(c) faces a less onerous burden in pleading a related section 1962(d) violation:
In order to state a claim under RICO subsection [1692](d), a plaintiff must allege (1) agreement to commit the predicate acts of fraud, and (2) knowledge thаt those acts were part of a pattern of racketeering activity conducted in such a way as to violate section 1962(a), (b), or (c). Allegations of conspiracy are not measured under the Fed.R.Civ.P. 9(b) standard, which requires greater particularity of allegation of fraud, but are measured under the more liberal Fed. R.Civ.P. 8(a) pleading standard. A conspiracy claim must also contain supportive factual allegations. The allegations must be sufficient to describe the general composition of the conspiracy, some or all of its broad objectives, and the defendant’s general role in that conspiracy.
Rose v. Battle,
Plaintiffs’ allegations suffice to state a section 1962(d) claim. Plaintiffs allege that Highline agreed with the HTS Defendants to send fraudulent invoices to the three leasee-Plaintiffs, (RICO Case Statement at 24), and have pleaded “the requisite mens reа comprising knowing furtherance of the enterprises’ affairs,”
Rose,
2. Common Law Fraud Claims
Highline has likewise moved to dismiss Plaintiffs’ claims for common law fraud. Highline advances two arguments in support of its motion to dismiss Plaintiffs’ common law fraud claims, neither of which is persuasive. First, Highlinе argues that Plaintiffs have failed to plead their claims of common law fraud with particularity in accordance with Rule 9(b), Fed.R.Civ.P. For the reasons set forth, supra, in discussing the sufficiency of Plaintiffs’ allegations of Highline’s predicate acts under RICO section 1962(c), the Court finds that Plaintiffs have inserted sufficient particularity into their pleadings of fraud to survive Highline’s motion to dismiss. 13
Highline’s second argument is equally unavailing. According to Highline, Plaintiffs’ common law fraud claims are barred by the economic loss doctrine, which, stated generally, “prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract.”
Duquesne Light Co. v. Westinghouse Elec. Corp.,
The problem with this argument is that, under Colorado and Maryland law,
14
“the econоmic loss rule applies only to tort claims based on negligence, and only to some negligence claims,” not to intentional torts like the fraud claims asserted in Count I.
United Intern. Holdings, Inc. v. Wharf (Holdings) Ltd.,
Because Plaintiffs can maintain their common law fraud claims against Highline notwithstanding the economic loss doctrine, Highline’s motion to dismiss Count I of this Amended Complaint will be denied.
The Court will grant Highline’s motion to dismiss Count XIII of the Amended Complaint, in which Plaintiffs assert claims for unjust enrichment against Highline. As Highline argues, it is well-settled under Colorado and Maryland law
15
that “a party cannot recover for unjust enrichment by asserting a quasi-contract when an express contract covers the same subject matter because the express contract precludes any implied-in-law contract.”
Bedard v. Martin,
The Court will accordingly grant High-line’s motion to dismiss Count XIII of the Amended Complaint.
4. Motion for More Definite Statement
Highline has moved, pursuant to Rule 12(e), Fed.R.Civ.P., for a more definite statement of Plaintiffs’ claims in Counts IV (negligent misrepresentations and omissions) and VII (fraudulent concealment— estoppel) of the Amended Complaint, arguing that Plaintiffs’ allegations relating to these claims are “so vague or ambiguous that [Highline] cannot reasonably prepare a response.” Fed.R.Civ.P. 12(e). As this Court has explained:
Courts in this District have held, by in large, that “[m]otions for a more definite statement are disfavored, and are generally limited to remedying unintelligible, rather than insufficiently detailed, pleadings.” Briley v. City of Trenton,164 F.R.D. 26 , 30 (D.N.J.1995). Rather than vagueness of certain pleadings, “[t]he basis for granting [a Rule 12(e) ] motion is unintelligibility” and [ ] the complaint will be deemed sufficient for purposes of Rule 12(e) so long аs a defendant “is able to respond, even if only with a ‘simple denial, in good faith and without prejudice’ .... ” Wood & Locker, Inc. v. Doran & Mssocs.,708 F.Supp. 684 , 691 (W.D.Pa.1989) (citation omitted); K-Tronik N.A., Inc. v. Vossloh-Schwabe Matsushita, No. 06-0729 [2006 WL 1281291 , *4-5],2006 U.S. Dist. LEXIS 28265 , *12-13 (D.N.J. May 8, 2006).
Myers v. MedQuist, Inc.,
No. 05-4608,
While the Court agrees with Highline that the alleged misrepresentations, omissions, and concealment underlying Plaintiffs’ claims in Counts IV and VII are not easily discerned from the Amended Complaint, the allegations contained in Plaintiffs’ RICO Case Statement, which is “equivalent to a supplemental pleading,” L. Civ. R. App. O, “serve[s] to clarify those claims,”
Darrick,
These allegations, particularly as they are supplemented by Plaintiffs’ RICO Case Statement, are not so vague that Highline cannot, in good faith and without prejudice, frame a responsive pleading. As such, its motion for a more definite statement will be denied.
5. Motion for Rule 11 Sanctions
Having determined that Plaintiffs’ RICO and common law fraud claims survive Highline’s motion to dismiss under Rule 9(b)’s heightened pleading standard, the Court need not dwell long on Highline’s motion for sanctions against Plaintiffs under Rule 11, Fed.R.Civ.P. Rule 11 “imposes on counsel a duty to look before leaping and may be seen as a litigation version of the familiar railroad crossing admonition to ‘stop, look, and listen.’ ”
Lieb v. Topstone Indus.,
In support of its motion for Rule 11 sanctions, Highline reiterates arguments that the Court rejected,
supra,
in finding that Plaintiffs had adequately pleaded RICO claims under sections 1962(c) and (d). Highline argues that Plaintiffs have failed to plead the predicate acts of fraud with specificity, that Plaintiffs have failed to satisfy section 1962(c)’s continuity criterion, that Plaintiffs have not рleaded facts suggestive of a section 1962(d) conspiracy, and that these purported shortcomings demonstrate that Plaintiffs’ attorneys did not have a reasonable basis for asserting these claims. Regardless of whether the allegations in the Amended Complaint alone would have been sufficient to state claims against Highline under sections 1962(c) and (d), the Court has found,
supra,
that Plaintiffs’ RICO claims, as the allegations in support thereof are supplemented by the RICO Case Statement, are at this stage of the litigation “warranted by existing law.”
16
Fed.R.Civ.P. 11(b)(2).
IV. CONCLUSION
For the reasons explained above, the Court will deny the HTS Defendants’ motion to dismiss, and grant Highline’s motion to dismiss the claim asserted in Count XIII of the Amended Complaint against it but deny the remainder of the relief it seeks. The accompanying Order will be entered.
ORDER
This matter having come before the Court upon the HTS Defendants’ motion to dismiss [Docket Item 26] and Highline’s motion to dismiss and for a more definite statement [Docket Item 27] and for sanctions against Plaintiffs pursuant to Rule 11, Fed. R. Civ. P. [Docket Item 49]; the Court having considered the parties’ submissions in support thereof and in opposition thereto; for the reasons explained in the Opinion of today’s date; and for good cause shown;
IT IS this 1st day of December, 2008 hereby
ORDERED that the HTS Defendants’ motion to dismiss shall be, and hereby is, DENIED; and it is further
ORDERED that Defendant Highline’s motion to dismiss and for a more definite statement shall be, and hereby is, GRANTED IN PART AND DENIED IN PART as follows:
1. Highline’s motion to dismiss the claims asserted in Count XIII of the Amended Complaint is granted; and
2. The remainder of the relief sought in Highline’s motion is denied; and it is further
ORDERED that Highline’s motion for sanctions pursuant to Rule 11, Fed. R. Civ. P., shall be, and hereby is, DENIED.
Notes
. Highlands Ranch is a Colorado corporation founded by James Hay. (Am. Compl. ¶ 14.) RMB is a Maryland corporation founded by Rosemary Blaylock. (Id. at ¶ 16.) Grandsole is an Ohio corporation founded by Bethany Bruner. (Id. at ¶ 13.) Markwood is a Maryland corporation founded by Mark Woоd. (Id. at ¶ 15.)
. Specifically, Markwood entered into a lease agreement with Highline on May 9, 2005. (Highline Br. Ex. 4.) Highlands Ranch entered into a lease agreement with Highline on October 28, 2005. (Highline Br. Ex. 9.) RMB entered into a lease agreement with Highline on April 20, 2006. (Highline Br. Ex. 13.)
. The RICO Case Statement was filed pursuant to Magistrate Judge Donio’s April 21, 2008 Rico Case Order [Docket Item 31]. Under Appendix O to the Local Civil Rules, magistrate judges are authorized to enter RICO case orders, under which parties asserting civil RICO claims are required to submit a “supplemental pleading which shall include the facts the plaintiff is relying upon to initiate [a] RICO complaint ...” L. Civ. R. App. O.
. Approximately ten percent of the Amended Complaint is devoted to a lengthy narrative introduction which portrays this dispute as a "modern-day medieval tragedy,” (Am. Compl. at 2), in which the Defendants are depicted as a “lord and his nobles,” (id. at 4), and the Plaintiffs are portrayed as exploited "serfs.” (Id. at 5.) Needless to say, in the context of Rule 9(b), Fed.R.Civ.P., under which allegations of fraud must be pleaded with particu-larily, such rhetorical flourishes are unhelpful to Plaintiffs’ cause.
. In its motion for preliminary injunctive relief, Defendant HT Franchising also sought an order compelling Grandsole and Markwood to comply with a non-compete clause contained in their franchise agreements. HT Franchising subsequently withdrew this aspect of its motion without prejudice to renewal [Docket Item 92].
. As the following discussion makes clear, the Court denies the HTS Defendants' motion on the narrow grounds that the validity of an existing arbitration agreement between HTS and Plaintiffs is a live question in this case. However, it bears noting, in the event that this matter is raised at a subsequent stage in this case, that the majority of the arguments Plaintiffs raise in opposition to the HTS Defendants’ motion are meritless and would not bar an order compelling arbitration.
First, Plaintiffs' argument that the franchise agreements are uncоnscionable adhesion contracts is without merit, since such claims, which target the contract as a whole (rather than the arbitration clause itself), are themselves arbitrable:
It is well settled that a claim or defense of fraudulent inducement, when it challenges generally the enforceability of a contract containing an arbitration clause rather than specifically the arbitration clause itself, may be subject to arbitration. See Prima Paint Corp. v. Flood & Conklin Mfg. Co.,388 U.S. 395 , 403-04,87 S.Ct. 1801 ,18 L.Ed.2d 1270 (1967)-Claims of unconscionability and adhesion contracts are similarly included within the Prima Paint rule.
JLM Industries, Inc. v. Stolt-Nielsen
SA,
. In that case, HT Franchising would, of course, retain the right to compel Plaintiffs to arbitrate their dispute with it.
. As the Court of Appeals has explained,
[t]he federal mail and wire fraud statutes prohibit the use of the mail or interstate wires for purposes of carrying out any scheme or artifice to defraud. A scheme or artifice to defraud need not be fraudulent on its face, but must involve some sort of fraudulent misrepresentation or omission reasonably calculated to deceive persons of ordinary prudence and comprehension.
Lum,
. The Court does not disagree with Highline’s observation that Plaintiffs' pleadings are replete with repetitive invocations of the elements of a RICO cause of action and boilerplate language. Nonetheless, as the Court explains, infra, the рleadings — particularly the RICO Case Statement — contain sufficient factual allegations to cross Rule 9(b)'s specificity threshold and state a claim.
. As the Court recognized,
supra,
“when the transactions are numerous and take place over an extended period of time, less specificity in pleading fraud [may be] required.”
Kronfeld,
. The Court does not agree with Highline’s argument thаt the alleged fraudulent scheme was "completed” as to each Plaintiff when it entered into the lease agreement with High-line, and that Highline’s subsequent mailing of fraudulent invoices to each Plaintiff in furtherance of the alleged overbilling scheme thus did not constitute additional predicate acts. Such an approach would permit racketeers to escape liability under RICO simply by concentrating their fraudulent conduct and targeting a single victim multiple times. As the Court of Appeals explained in
Tabas,
Highline committed a predicate act for RICO purposes "[e]ach time [it] ... made a questionable charge[ ] or, [through its allegedly fraudulent invoices,] received compensation to which [it was] not entitled ...”
Tabas,
. Moreover, as the Court of Appeals has recognized, "the proof of the enterprise may 'coalesce' with the proof of the pattern [of racketeering activity], i.e., [] the different conclusions may be inferred from proof of the same predicate acts .... [I]n the appropriate case, the enterprise can be inferred from proof of the pattern.”
United States v. Pelullo,
. As with Plaintiffs' RICO claims, Plaintiffs’ RICO Case Statement adds considerable clarity to the allegations against Highline in the Amended Complaint.
See Darrick Enterprises
v.
Mitsubishi Motors Corp.,
No. 05-4359,
. When faced with choice of law questions for tort claims (here, between the law of Colorado-based Highline and Maryland-based RMB and Markwood), this Court, following New Jersey substantive law,
see Berg Chilling Systems, Inc. v. Hull Corp.,
. See Note 14, supra.
. To the extent that Highline argues that Plaintiffs' claims are “not well-grounded in fact,” (Highline’s Reply Br. at 2), the Court notes that it is not, at the motion to dismiss stage, in a position to assess whether “the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.” Fed.R.Civ.P. 11(b)(3). Taking the facts alleged in the Amended Complaint and RICO Case Statement as true, the Court has found that Plaintiffs have stated viable claims against Highline under sections 1962(c) and (d).