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Anderson v. Thompson

March 25, 2008

JIM ANDERSON, JAMES GALLACIO, STEVEN KANAN, VERA F. BAKER TRUST, WESTBAY MANAGEMENT CO. AND WAYNE ANDERSON, ON BEHALF OF THEMSELVES AND ALL OTHER STOCKHOLDERS OF WILON RESOURCES, INC., PLAINTIFFS,
v.
HARRY F. THOMPSON, AMY PYE, ERIC J. THOMPSON, WILON RESOURCES, INC., A TENNESSEE CORPORATION, AND JOHN DOES 1-5, DEFENDANTS.



The opinion of the court was delivered by: Judge Curtis L. Collier

MEMORANDUM

On June 26, 2007, Defendant Wilon Resources, Inc. ("Wilon")*fn1 moved this Court to dismiss Counts One, Three, and Five of the complaint of Plaintiffs Jim Anderson et al. ("Plaintiffs") for failure to state a claim upon which relief could be granted, pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 12(b)(6) (Court File No. 27). Wilon filed a memorandum in support of its motion (Court File No. 28); Plaintiffs filed a response, to which Wilon replied (Court File Nos. 35, 38); and, Wilon filed a supplemental motion to dismiss after Plaintiffs amended their complaint (Court File No. 68). For the following reasons, the Court will GRANT in part Defendant Wilon's motion to dismiss, dismissing Count 1 (Plaintiffs' RICO claims) and Count 3 (Plaintiffs' common law fraud claims) against Wilon (Court File No. 27). The Court will DENY in part Defendant Wilon's motion to dismiss as it pertains to Count 5 (Plaintiffs' abuse of control claim). The Court therefore will DISMISS Counts 1 and 3 of Plaintiffs' complaint as they relate to Defendant Wilon

I. FACTS

Plaintiffs are stockholders of Defendant Wilon Resources, Inc. (Court File No. 66, pp. 2-3). The additional defendants, Harry F. Thompson, Amy Pye, and Eric J. Thompson ("defendant directors") are directors of Wilon (id., p. 4). Plaintiffs allege the defendant directors issued themselves five million shares of Wilon common stock on December 26, 2006. (id.). Plaintiffs further allege Wilon acquired 89 natural gas wells (and were involved in drilling programs that should have produced more) over a four-year period, but the defendant directors only represented Wilon owned 65 wells, without explanation as to the discrepancy (id., pp. 5-7).

Because the defendant directors share a family relationship and are involved in the alleged offenses, Plaintiffs did not make a formal written demand on Wilon to prosecute the defendant directors, as is normally required pursuant to Tenn. Code Ann. § 48-17-401(b) (2007) (Court File No. 66, p. 8).

On or about March 13, 2007, Plaintiff Wayne Anderson, on behalf of Around the Clock Partners, LP, offered to purchase all common stock of Wilon (Court File No. 66, pp. 8-10). Defendants have failed to consider the offer, or provide the documentation requested to fully develop a possibility of a sale (id.).

Plaintiffs also allege Defendants have issued fraudulent press releases and have made numerous false statements to the shareholders (id., pp. 11-15).

II. STANDARD OF REVIEW

In reviewing a Fed. R. Civ. P. 12(b)(6) motion to dismiss, the Court construes the complaint in the light most favorable to the plaintiff, Bloch v. Ribar, 156 F.3d 673, 677 (6th Cir. 1998), accepts the complaint's factual allegations as true, Broyde v. Gotham Tower, Inc., 13 F.3d 994, 996 (6th Cir. 1994), and determines whether the plaintiff has pleaded "enough facts to state a claim to relief that is plausible on its face," Bell Atl. Corp. v. Twombly, __ U.S. __, 127 S.Ct. 1955, 1974 (May 21, 2007) (rejecting traditional Fed. R. Civ. P. 12(b)(6) standard set forth in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). The Court may not grant a 12(b)(6) motion based upon its disbelief of a complaint's factual allegations, Miller v. Currie, 50 F.3d 373, 377 (6th Cir. 1995), nor should the Court weigh the evidence or evaluate the credibility of witnesses, id. (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). The question is not whether the plaintiff will ultimately prevail but whether "the claimant is entitled to offer evidence to support the claims." Kroll v. United States, 58 F.3d 1087 (6th Cir. 1995); Ecclesiastical Order of the Ism. of Am., Inc. v. Internal Revenue Serv., 725 F.2d 398, 403 (6th Cir. 1984). At the same time, bare assertions of legal conclusions are insufficient, and the complaint "must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988).

When a suit involves fraud or fraud-based claims, a plaintiff must plead his case with sufficient particularity as to the factual circumstances underlying the fraud. Fed. R. Civ. P. 9(b); see Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir. 1984) (A plaintiff must provide the time, place, and contents of any misrepresentations.)

III. ANALYSIS

A. Count 1: RICO Claims, 18 U.S.C. §§ 1962 (a) - (d)

Plaintiffs allege violations of each of the four subsections of the Racketeering Influenced and Corrupt Organizations Act ("RICO"). See 18 U.S.C. §§ 1962 (a) - (d). Each of these subsections require "a pattern of racketeering."*fn2 See id. To establish a "pattern of racketeering activity," Plaintiffs must sufficiently allege (1) at least two predicate acts of racketeering activity within a ten-year period constituting a pattern of (2) related and (3) continuous racketeering behavior. Moon v. Harrison Piping Supply, 465 F.3d 719, 723-24 (6th Cir. 2006). Defendants argue the seven acts alleged by Plaintiffs to support their RICO claims (Court File No. 17, pp. 4-9) do not constitute predicate acts (Court File No. 28, pp. 2-17). Because this Court reviews Plaintiffs' complaint under a Fed. R. Civ. P. 12(b)(6) standard, the Court accepts Plaintiffs' factual allegations as true and considers whether Plaintiffs have pleaded enough facts to state a claim to relief that is plausible. See Twombly, 127 S.Ct. at 1974; Broyde, 13 F.3d at 996. Because Plaintiffs have not sufficiently pleaded any predicate offenses, the Court will GRANT Defendant Wilon's motion to dismiss Count 1 with respect to Wilon (Court File No. 27).

1. Mail Fraud, 18 U.S.C. § 1341

Plaintiffs allege three instances to support a mail fraud offense in violation of 18 U.S.C. § 1341 (Court File Nos. 17, pp. 4-7; 66, p. 12). None of these instances constitute mail fraud. Mail fraud under § 1341, in pertinent part, requires someone (1) having devised a scheme to defraud or obtain property by means of false or fraudulent pretenses (2) to use the mail (3) for the purposes of executing that scheme or attempting to do so. In the case of a civil RICO claim, there must be a scheme, targeted at the plaintiff, to defraud or obtain property, which involves fraudulent misrepresentations made to the plaintiff. See Cent. Distribs. of Beer, Inc. v. Conn, 5 F.3d 181, 184 (6th Cir. 1994), cert. denied,512 U.S. 1207 (For a claim of mail fraud to constitute a predicate offense for a RICO claim, "the defendant must [have made] a false statement or omission of fact to the plaintiff.") The plaintiff must have also detrimentally relied upon those fraudulent representations made to him or her. Brown v. Cassens Trans. Co., 492 F.3d 640, 643 (6th Cir. 2007) ("the well-established precedent of this circuit requires that a civil RICO plaintiff alleging mail or wire fraud plead reliance, that is, that a defendant made fraudulent representations to the plaintiff on which the plaintiff relied."). If a scheme to defraud is established, the defendant must have used the United States mail system to facilitate or perpetuate the fraudulent scheme in some way to constitute mail fraud.

In the first alleged instance of mail fraud, Plaintiffs assert Wilon issued five million shares on December 26, 2006 without authorization of or notice to the shareholders (Court File Nos. 17, p. 4; 66, p. 12). Plaintiffs further assert: "[s]ince the request [to issue the shares] by defendant Harry F. Thompson represented instructions contained in a letter mailed by the United States Postal ...


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