MEMORANDUM AND ORDER REGARDING DEFENDANTS’ MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO TRANSFER VENUE
I. INTRODUCTION
Plaintiff, administratrix of her deceased husband’s estate, brought suit against Defendants for, inter alia, diluting the value of the estate’s stock in Defendant Espy Corporation (“Espy”). Defendants are Mark E. Smith, a resident of Texas and President and Treasurer of Espy; Thomas W. Potthast, Jr., a resident of Florida and Vice-President of Espy; Whitney E. Harris, a resident of Texas and Secretary of Espy; and Espy, a closely held S-corporation incorporated in Texas with its principal place of business in Austin, Texas.
Plaintiff has asserted six common law claims against Defendants — unjust enrichment, breach of fiduciary duty, conversion, civil conspiracy, fraud, and theft — and two counts under the federal civil RICO statute. 18 U.S.C. §§ 1961-1965. Defendants have moved to dismiss the complaint. (Dkt. No. 8.) In the alternative, Defendants request that the case be transferred to the Western District of Texas.
Because Plaintiff successfully crosses the “plausibility” threshold with respect to her breach of fiduciary duty, unjust enrichment, and civil conspiracy claims, but fails to do so with respect to the others, the court will allow Defendants’ Motion to Dismiss in part. Given the hardship a change of venue would create for Plaintiff, the court will also deny Defendants’ Motion to Transfer Venue.
II. BACKGROUND
Plaintiff Suzanne M. Natale, widow of Richard Natale (“Richard”), was the ad-ministratrix of her deceased husband’s estate. She was also the representative for Richard’s two beneficiaries, their sons. While he was alive, Richard helped develop Espy Corporation and served as its Chief Software Engineer. He worked from his home in Massachusetts.
On July 26, 2006, Richard unexpectedly died in a car accident. At the time of his death, he owned 300 shares of common stock in Espy, or roughly 24% of all issued and outstanding shares. The remainder of the company was owned by Defendants Smith, Potthast, and Harris. Richard’s shares in Espy were the only asset in his estate.
As a result of that dilution, Defendants have allegedly misrepresented the estate’s share of ownership in yearly IRS Schedule K-l filings. (“K-ls”) After the issuance of the new stock, the 2009 K-ls incorrectly valued the estate’s ownership at 12%. The K-ls were sent to Plaintiff via U.S. mail.
Finally, Defendants have failed to pay any dividends to Plaintiff since Richard’s death. They also have failed to provide Plaintiff advance notice that no dividends would be paid. This occurred at the same time Defendants decided to reward themselves with increased salaries and bonuses.
The absence of any payments burdened Richard’s estate severely. The K-ls allocated income to its shares and thus created a substantial tax burden. In total, the estate has been responsible for over $227,000 in taxes for the years 2006, 2009, 2010, and 2011, despite the absence of any financial distribution from the corporation during this time. The K-ls for those years were also distributed via U.S. mail.
Given these events, Plaintiff has asserted two federal claims against Defendants: a violation of civil RICO, 18 U.S.C. §§ 1961-1965 (Count VII), and a claim for injunctive relief under RICO, 18 U.S.C. § 1964(a) (Count VIII). She has, as noted above, also raised six common law claims: unjust enrichment (Count I); breach of fiduciary duty (Count II); conversion (Count III); civil conspiracy (count TV); fraud (count V); and, theft (Count VI). The case falls under both federal question, 28 U.S.C. § 1381, and diversity jurisdiction, 28 U.S.C. § 1332.
III. DISCUSSION
A. Motion to Dismiss
A motion to dismiss will be denied if Plaintiffs complaint contains “sufficient factual matter” to sustain a claim for relief that is actionable as a matter of law and “plausible on its face.” Ashcroft v. Iqbal,
For claims where “fraud lies at the core of the action,” Rule 9(b) renders the pleading requirement more stringent. In these cases, the plaintiff must usually specify the “who, what, where and when of the allegedly false or fraudulent representation.” Alt. Sys. Concepts, Inc. v. Synopsys, Inc.,
The parties spend a significant amount of their effort disputing Plaintiffs federal RICO claims. Given this, the court will first address those claims, before turning to Plaintiffs common-law contentions.
Plaintiff brings one substantive count under RICO, 18 U.S.C. §§ 1961— 1965, and seeks injunctive relief under 18 U.S.C. § 1964.
Defendants, in Plaintiffs view, conspired to commit mail fraud, 18 U.S.C. §§ 1341 & 1343, and conspired to violate the state extortion law, Mass. Gen. Laws ch. 271, § 79(b). For the reasons set forth below, however, the complaint fails adequately to plead either of these criminal law violations as predicate offenses for RICO purposes. Moreover, the complaint fails to show how these violations amounted to a “pattern” of racketeering activity. As a result, the RICO claims must be dismissed.
a. Racketeering Activity
“Racketeering activity” can take many forms, including: counterfeiting, embezzlement, witness tampering, trafficking, and mail and wire fraud. 18 U.S.C. § 1961(1)(B). Certain state criminal offenses, such as “murder, kidnaping, gambling, arson, robbery, bribery, [and] extortion,” can also constitute predicate offenses. Id.
The first predicate offense Plaintiff alleges is a violation of the federal mail and wire fraud statute. To succeed on this claim, Plaintiff must demonstrate: (1) a scheme to defraud or obtain money or property by means of false or fraudulent pretenses; (2) the defendant’s knowing and willful participation in this scheme with the intent to defraud, or to obtain money or property by means of false or fraudulent pretenses; and (3) the use of the U.S. mail in furtherance of this scheme. McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc.,
Plaintiff anchors her mail fraud claim on the allegedly fraudulent K-ls. By using the U.S. mail to distribute these documents, Defendants, according to Plaintiff, committed mail fraud.
This theory is not only insufficient under the heightened Rule 9(b) pleading standard triggered in a RICO offense grounded in fraud, Feinstein v. Resolution Trust Corp.,
First, Plaintiff cannot show that any of Defendants’ “statements” were false or misleading. Plaintiff contends that her stock was diluted and that the K-ls documenting this dilution were misrepresentations. However, Plaintiff cannot have it both ways — if her stock was diluted, which the court takes as true, then the K-ls were necessarily accurate. This alone is enough to undermine Plaintiffs mail fraud claim.
Plaintiff presents an additional predicate racketeering offense: extortion under state law. The extortion law penalizes any communication that “threatens an economic injury to another, or threatens to deprive another of an economic opportunity, with intent to compel that person to do any act, involving the use or disposition of anything of value against his will.” Mass. Gen. Laws ch. 271, § 39(b).
Defendants violated this statute, according to Plaintiff, “knowing that the Estate was unable to pay federal and state taxes, interest and penalties, and deprive[d] it of benefits of its ownership in Espy.” (Compl. 14, Dkt. No. 1.) In other words, they sent the K-ls to put pressure on the estate and squeeze it out of the company. While this conduct may have been unfair, it does not constitute extortion as a matter of law.
To begin with, the K-ls cannot in themselves be construed as a threat. Plaintiff argues that the K-ls were “implicit” threats aimed at placing financial pressure on Plaintiff. As noted above, however, Espy is required to issue annual K-ls to its shareholders as a matter of federal law. 26 U.S.C. § 6037(b). Defendants cannot suffer liability for distributing a communication they were required to mail.
Moreover, even if the K-1s were false, nothing about the documents were extortionate. Plaintiff does not present facts illustrating an attempt by Defendant to gain “something of value from another with his consent induced by the wrongful use of force, or fear of threats.” Scheidler v. Nat’l Org. for Women, Inc.,
At best, Plaintiff can show that Defendants were trying to decrease her ownership interest in the company. She cannot, however, show that Defendants employed any “threats” to obtain something from her. Indeed, she fails even to allege what Defendants were purportedly attempting to gain.
In sum, Plaintiff’s failure to plead two predicate offenses is fatal to her RICO claims. Ahmed v. Rosenblatt,
b. Pattern of Activity
To differentiate single acts of wrongdoing from consistent reprehensible conduct, civil RICO includes a “pattern” requirement. Two predicate offenses are required to establish a pattern, and they must be connected to one another and “amount to or pose a threat of continued criminal activity.” N. Bridge Assoc., Inc. v. Boldt,
The First Circuit has provided helpful guidance in this area. In Efron v. Embassy Suites (Puerto Rico), Inc., a minority partner in an LLP filed a RICO suit against his four partners for intentionally
To reach that conclusion, the Efron court listed a number of factors to consider when determining whether a broad, continuous pattern of criminal activity exists. These include: (a) whether there was a single victim or multiple victims; (b) whether the defendant’s acts were limited to a single scheme or multiple schemes; (c) the duration of the scheme; and (d) whether the scheme had a singular, fixed objective and finite end point, or whether it threatened to continue indefinitely. Id. at 18. Collectively, the factors suggest that the term “pattern” represents a broad scheme, spanning a significant period of time, continuing into the future, and targeting a number of individuals. See, e.g., Sys. Mgmt., Inc. v. Loiselle,
Like the plaintiff in Efron, Plaintiff here cannot establish a “pattern” of racketeering activity. At best, Plaintiffs complaint alleges a single scheme, aimed at a single victim, with a single goal — to dilute Plaintiffs interest in the company. No facts suggest that the alleged conspiracy included any other victims, that it was a standard part of Defendants’ business, or that it would continue into the future. Absent such facts, Efron requires dismissal.
In sum, because Plaintiff fails to establish any RICO predicate offense and cannot show a pattern of behavior, her RICO claims cannot survive Defendants’ motion.
2. Common Law Claims: Counts I-VI
On claims arising under diversity jurisdiction, a district court will generally apply the choice-of-law provisions of the state in which the court sits. Mariasch v. Gillette Co.,
The general choice-of-law rules in Massachusetts may be supplanted, however, by the “internal affairs doctrine.” Harrison v. NetCentric Corp.,
Here, Defendant Espy is a Texas corporation. All of the claims stem from a disagreement among shareholders and thus arise from an internal dispute of the corporation. This is precisely the type of case the “internal affairs doctrine” was designed for. See, e.g., 880544. Canada, Inc. v. Aspen Tech., Inc.,
a. Count I and II: Unjust Enrichment and Breach of Fiduciary Duty
To plead a breach of fiduciary duty, Plaintiff must show: (1) a fiduciary relationship between the parties; (2) a breach of the duty; and (3) either an injury to Plaintiff or a benefit to Defendants. Jones v. Blume,
Defendants contend that Plaintiffs allegations fail to satisfy any of the elements for a claim of breach of fiduciary duty. First, Plaintiff does not assert that the company received inadequate consideration for the additional shares provided to
the Defendants. Nor does Plaintiff argue that the decision to award the new shares to the individual Defendants was somehow illegal. The issuance of shares alone, in Defendants’ view, cannot establish a breach of fiduciary duty. See, e.g., Gentile v. Rossette,
Second, Defendants argue that they had no obligation to issue dividends to Plaintiff. See Argo Data Res. Corp. v. Shagrithaya,
Finally, according to Defendants, Plaintiff has failed to show that any bonuses or salaries were improper. Specifically, Plaintiff does not allege that the officers lacked the authority to grant or receive the salary, that the money was not commensurate with their services, or that the salaries and bonuses were not competitive within the marketplace.
Defendants are correct that each accusation, on its own, would not necessarily constitute a breach of fiduciary duty with respect to their good faith obligations to the corporation itself. However, another theory, one respecting Defendants’ duty to minority shareholders, allows Plaintiff to move past the plausibility hurdle.
In Texas, a plaintiff may bring a claim for breach of fiduciary duty by way of oppressive conduct.
Oppressive conduct can manifest itself in a number of forms. It may include denying a shareholder reasonable access to information, or utilizing corporate funds to the detriment of minority shareholders. Redmon,
At this nascent motion-to-dismiss stage, Plaintiff has presented enough evidence to make it “plausible” that Defendants, who have majority control of the company, acted to freeze Plaintiff out of the corporation. Defendants awarded themselves increased shares in the company, thereby shrinking Plaintiff’s ownership interest by half. Simultaneously, Defendants paid themselves substantial salaries and bonuses, but neglected to provide any dividends, or any other benefit whatsoever, to Plaintiff. As a result, Plaintiff’s role in the corporation has diminished, while any return based on her ownership has been eliminated. Defendants have, by their unilateral action, inflated their authority in the corporation at the expense of Plaintiffs rights.
Defendants may have legitimate business reasons for their decisions. Given the scrutiny Texas courts require for these types of claims, however, Plaintiff may well prove that Defendants’ actions were unfair, unreasonable, and in violation of their duties as majority shareholders. Her claim for breach of fiduciary duty therefore survives.
Since Plaintiff must be permitted to proceed to discovery on her breach of fiduciary duty claim, her count for unjust enrichment is also entitled to move forward. To recover on a theory of unjust enrichment, Plaintiff must show that the “party sought to be charged (has) wrongfully secured a benefit or (has) passively received one which would be unconscionable for that party to retain.” RDG Ltd. P’ship & RDG Partners v. Gexa Corp., No. 14-04-00679,
In breaching their fiduciary duty, Plaintiff contends, Defendants have unjustly received an increased ownership in the corporation. See Friddle v. Fisher, 378 5.W.3d 475, 485 (Tex.App.2012) (noting that the unjust enrichment claim, among others, was anchored on a breach of fiduciary duty count). Whether Defendants breached that duty, and therefore whether it is unconscionable for Defendants to retain their increased share of ownership at Plaintiffs expense, is a question of fact not resolvable at this juncture.
b. Count III: Conversion
Plaintiff must establish four elements to succeed on a claim of conversion: (1) Plaintiff was owed or had possession of property or entitlement to possess it; (2) Defendant unlawfully, and without authorization, exercised control of that property; (3) Plaintiff demanded return of the property; and (4) Defendant refused to return the property. Tex. Integrated Conveyor Sys. Inc. v. Innovative Conveyor Concepts, Inc.,
Two problems undermine this claim. First, Plaintiff does not present facts to satisfy each element of a conversion claim. Specifically, she fails to state that she demanded return of any property, or that Defendants refused to return the property. See Fields v. Keith,
Moreover, the complaint does not address the complication that the chattel allegedly converted is money. It is well established that if a debt can be discharged by payment alone, it is not considered “property” that can form the basis of a claim for conversion. Bobby Smith Brokerage, Inc. v. Bones,
Here, all Plaintiff alleges is that Defendants “removed and otherwise converted funds.” (Compl. 9, Dkt. No. 1.) Since Plaintiff merely seeks to recover a general debt, she fails adequately to identify a specified piece of property and cannot make out this claim.
For all these reasons, Defendants’ motion to dismiss Plaintiff’s count for conversion will be allowed.
c. Count IV: Civil Conspiracy
To succeed on a claim of civil conspiracy Plaintiff must offer allegations sufficient to satisfy five elements. A plaintiff must plead: (1) that there were two or more people; (2) with an object to be accomplished; (3) a meeting of the minds; (4) an unlawful overt act; and (5) damages that resulted from the conspiracy. Tri v. J.T.T.,
Defendants’ only argument in support of dismissal of this claim is that the complaint lacks an adequate allegation of any unlawful, overt act. However, in successfully pleading a claim for breach of fiduciary duty, as discussed above, Plaintiff has met that requirement. See Lesikar v. Rappeport,
Plaintiff, at least at this stage of the case, has also satisfied the other elements of the claim. She presents facts that, viewed as a whole, illustrate a nefarious motive—Defendants intended to work together, and then did jointly engage in an effort, to freeze Plaintiff out of the company. Specifically, she alleges that there was a secret “rump” meeting of majority stockholders where relevant decisions were made, and the parties either explicitly or tacitly agreed to proceed with their scheme. See, e.g., Bourland v. State,
Whether Plaintiff can assemble a sufficient record to move her case past the summary judgment threshold is an issue for a later day. Since the facts now, taken as true, can plausibly sustain this claim, it cannot be dismissed.
d. Count V: Fraud
Plaintiff, in her opposition to the motion to dismiss, argues that Defendants are liable on a theory of constructive fraud. Texas Integ. Conveyor Sys. Inc.,
Plaintiff can adequately plead a claim for traditional fraud if she can prove four elements: (1) that Defendants made a material representation that was false; (2) Defendants knew the representation was false, or made it recklessly; (3) the statement was made with the intent to induce reliance; and (4) there was actual and justifiable reliance. Ernst & Young, LLP v. Pac. Mut. Life. Ins. Co.,
A claim of constructive fraud would likely have moved forward in tandem with the breach of fiduciary duty claim. However, Plaintiff cannot now recast her claim as a charge of traditional, explicit fraud, as the two theories of fraud are clearly independent causes of action under Texas law. Phillips v. United Heritage Corp.,
Though the court must dismiss this claim, Plaintiff can still obtain the remedy she seeks through her breach of fiduciary duty cause of action. See, e.g., Patton,
e. Count VI: Theft
Plaintiffs final common law claim is for theft. To succeed under the Texas Theft Liability Act, Tex. Civ. Prac. & Rem. § 134.001, she must show that: (1) she had a possessory right to some property; (2) Defendants unlawfully appropriated that property; and (3) Plaintiff incurred damages as a result. Wellogix, Inc. v. Accen
Plaintiff concedes that, if she can obtain relief elsewhere — which, for the reasons set forth above, she can — this claim may be dismissed without prejudice. (Pi’s Resp. at 14, Dkt. No. 16.)
Even absent this concession, the court would dismiss this claim, with prejudice, as Plaintiff has not shown a possesso-ry interest that would permit any recovery. At best, Defendants may be liable for breaching their fiduciary duty to Plaintiff by, among other things, minimizing her interest in the corporation. However, even if such allegations were true, Plaintiff still cannot show that she had a possessory right to some specified chattel that Defendants wrongfully appropriated. She vaguely alleges that Defendants have “unlawfully appropriated property” without establishing her interest in any particular item. This is insufficient to sustain a claim for theft. See, e.g., Mid-Town Surgical Ctr., LLP v. Blue Cross Blue Shield of Tex., No. H-11-2086,
B. Motion to Transfer Venue
Section 1404(a) of chapter 28 permits a district court, in its discretion, to transfer a case to another venue where a ease could have originally been filed. While a plaintiffs choice of forum is accorded significant deference, certain circumstances may call for a shift in location. Factors a court should consider include: the convenience of the parties and witnesses, the interests of justice, and the availability of documents. Cianbro Corp. v. Curran-Lavoie, Inc.,
Defendants argue that Plaintiffs choice of forum should receive minimal deference because: the matter involves a Texas Corporation; all relevant meetings occurred in Texas; the relevant documents are in Texas; and the company has had insignificant ties with Massachusetts since 2006. Given these facts, according to Defendants, Plaintiffs choice is entitled to less weight. Atari v. United Parcel Serv.,
Furthermore, Defendants say, the Western District of Texas is a more convenient forum. First, most of the individual Defendants reside in Austin, and the others regularly travel there. Second, the key evidence in the case is likely to be in Texas. Finally, the common law claims are governed by Texas law, and thus Texas has a strong interest in the matter.
Though it would be more convenient for Defendants to move the case, that incidental benefit is significantly outweighed by the inconvenience the transfer would create for Plaintiff. That fact alone strongly militates against transferring venue.
Plaintiff resides in Massachusetts, works in Massachusetts, and her children attend school in Massachusetts. She has not been to Texas since 2004, and the burden of requiring her to pursue litigation there would be considerable. Moreover, the estate is being probated in Massachusetts, underlining the Commonwealth’s interest in this litigation. Thus, Plaintiffs choice of forum will be respected, and the court will retain the matter.
IV. CONCLUSION
Although the federal RICO counts are unsupported by adequate allegations, three meritorious common law claims survive Defendants’ motion. Under Texas law, a court must carefully examine actions by majority shareholders that may encroach on the rights of a minority shareholder. Where, as here, the facts plausibly suggest
Therefore, Defendants’ Motion to Dismiss (Dkt. No. 8) is hereby ALLOWED as to Counts III, V, VI, VII and VIII, and DENIED as to Counts I, II, and IV. Defendants’ Alternative Motion to Transfer Venue is also DENIED.
The case is hereby referred to Magistrate Judge Kenneth P. Neiman for a pretrial scheduling conference pursuant to Fed.R.Civ.P. 16.
It is So Ordered.
Notes
. As with all motions to dismiss, the court accepts the well-pleaded factual allegations contained in the complaint, drawing reasonable inferences in Plaintiffs favor. Gargano v. Liberty Int'l Underwriters, Inc.,
. In order to obtain injunctive relief, a party must establish a substantive violation. § 1964(a). These two claims can therefore by analyzed in one discussion.
. Defendants also allege that Plaintiff fails the causality prong of the RICO analysis. Given the court's finding on the other, predominant RICO requirements, a discussion on that argument is unnecessary.
. Even if the "functional approach” applied, Texas law would still govern this case. The matter involves a Texas corporation, and the underlying events emanated from Texas. For purposes of the choice-of-law analysis, Texas has a stronger relationship to the underlying events than Massachusetts.
. Although Defendants are correct that a claim for "oppressive conduct” can be asserted as an independent cause of action, a breach of fiduciary duty claim "by way of oppressive conduct” is also recognized. For example, in Redmon v. Griffith,
. Defendants argue that the claim for unjust enrichment must be raised derivatively on behalf of the corporation. This argument is unpersuasive. The fiduciary duty asserted is owed to the Plaintiff, the minority shareholder. Therefore, the claim for breach of this duty, and for recovery of funds obtained through unjust enrichment, may be asserted by Plaintiff personally.