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Zibalstar L.C. v. Conte

United States District Court, D. Utah

April 3, 2018

ZIBALSTAR, L.C., a Utah Limited Liability Company, et al., Plaintiffs,
ROBERT CONTE, an individual, et al., Defendants.


          Jill N. Parrish District Judge

         Before the court are eight motions to dismiss filed by the numerous defendants in this case. Defendants Theodore “Ted” Hansen; Branden Hansen; Jeffrey Munoz; David Turner; Charles Hanna; Eric Manriquez; Robert Garcia; Lorin Quayle; Estrella Group LLC; Estrella OK LLC; Estrella P M LLC; Zurich Holdings Limited Liability Company; Trophy Properties NV LLC; Heathrow Holdings, LLC; Flintshire Holdings, LLC; Low Cost Rentals, LLC; Junction Market VII, LLC; and Blue Fun Group, LLC filed their motion on August 10, 2017 (ECF No. 95). Defendants Lester Perry and Raymond Weller filed their motion on August 11, 2017 (ECF No. 96). Defendant Paul Halliday, Jr. filed his motion on August 18, 2017 (ECF No. 101). Defendant Samuel Fairchild filed his motion on August 21, 2017 (ECF No. 103). Defendants Robert Conte; Courtside Condominiums, LC; and WCMF, Inc. filed their motion on September 5, 2017 (ECF No. 118). Defendants Bank of the West, Andrew Warwood, and Jacob Peterson filed their motion on September 18, 2017 (ECF No. 120). Defendant Mike Grande filed his motion on September 19, 2017 (ECF No. 122). And David Odenath filed his motion on October 6, 2017 (ECF No. 140).

         Each defendant argues, among other things, that the plaintiffs' RICO claims are insufficiently pled under Rule 12(b)(6). The court agrees. For the reasons below, the court grants those motions in part and dismisses the plaintiffs' RICO claims. Because those claims form the sole basis for this court's jurisdiction, and because there is no motion to amend the complaint pending, the court dismisses the remaining claims for lack of subject-matter jurisdiction.

         I. BACKGROUND[1]

         Plaintiff Gary Brinton is a Utah citizen. Directly or indirectly, he owns or manages each of the plaintiff entities in this action. On February 19, 2016, Ted Hansen spoke with Mr. Brinton about entering into a series of real property transactions involving properties owned or previously owned by a third party, Mr. Conte. The transactions offered intrinsic tax benefits: Section 1031 of the Internal Revenue Code allows property owners to defer capital gains tax using like-kind exchanges. But Mr. Hansen offered more. He described a vague “Forthcoming Real Estate Transaction, ” wherein some new group or entity would someday purchase newly-acquired, rehabilitated, and stabilized properties from Mr. Brinton's entities at double their cost.

         Mr. Brinton was persuaded, and from June 2016 to March 2017, fourteen transactions took place. In some cases, Mr. Brinton's entities entered into master leases with an option to purchase certain properties from Mr. Conte. In others, the entities purchased properties from Mr. Conte, Ted Hansen, and Ted's brother Branden. And in others still, the entities sold properties they owned to Mr. Conte with a lease-back to the plaintiff entities and an option to purchase from Mr. Conte. In the midst of these transactions, Mr. Brinton and his entities also gave Ted Hansen and the Estrella Entities access to their accounts at Bank of the West and allowed those defendants to print signed checks drawing on the plaintiffs' accounts.

         After nearly a year of transactions, the relationship suddenly soured. And on June 12, 2017, Mr. Brinton and his entities filed suit in this district. They allege state-law fraud, state-law conversion, state-law breach of fiduciary duties, state-law conspiracy, state-law negligent misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, trespass, common-law lender liability, alter ego, violations of the Utah Pattern of Unlawful Activity Act, Utah Code Ann. § 76-10-1601 et seq., and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962.

         The plaintiffs' allegations arise from five general grievances. First, they paid too much for several of the properties they purchased. Second, holdover property managers mismanaged newly-acquired properties, diverting income and assets. Third, the holdover property managers refused to leave the properties when fired. Fourth, the Forthcoming Real Estate Transaction was a scam. And fifth, several defendants used the plaintiffs' bank accounts in a check-kiting scheme.


         “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.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The burden is on the plaintiff to frame a complaint with enough factual matter (taken as true) to suggest that he or she is entitled to relief.” Robbins v. Oklahoma ex rel. Dept. of Human Servs., 519 F.3d 1242, 1247 (10th Cir. 2008) (internal quotation marks omitted). The “mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. Therefore, in evaluating a complaint on a motion to dismiss, “a court should disregard all conclusory statements of law and consider whether the remaining specific factual allegations, if assumed to be true, plausibly suggest the defendant is liable.” Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011).

         III. ANALYSIS

         In this action, federal jurisdiction rests solely on the plaintiffs' RICO claims. Title 18 U.S.C. § 1964(c) provides a private right of action for persons injured in their business or property by reason of a violation of § 1962. Section 1962 contains four subsections. A review of the complaint reveals that the plaintiffs have failed to state a claim under any of those subsections.

         A. Section 1962(a)

         Section 1962(a) makes it unlawful for any person who has received income “from a pattern of racketeering activity . . . to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.” 18 U.S.C. § 1962(a) (emphasis added). Notably, the statute does not make it unlawful to receive racketeering income. Instead, it prohibits a person receiving such income from then using or investing it in the proscribed manor. Grider v. Tex. Oil & Gas Corp., 868 F.2d 1147, 1149 (10th Cir. 1989). Consequently, to state a claim under § 1962(a), a plaintiff “must plead facts tending to show that he was injured by the use or investment of racketeering income. Injury from the racketeering acts themselves is not sufficient because section 1962(a) does not prohibit those acts.” Id.[2]

         The plaintiffs argue that their complaint alleges facts tending to show injury from use or investment of racketeering income. They point to allegations that Messrs. Ted Hansen, Branden Hansen, Conte, Hanna, Turner, Manriquez, Grande, Quayle, and Munoz (the “Property Managers”) “diverted property income and assets from properties owned or leased by Plaintiffs.” ECF No. 124 at 9 (citing ECF No. 15 at ¶¶ 84, 85, 96, 97, 127, 128, 134, 135, 143, 144, 149, 150, 158, 159, 167, 168, 176, 177, 180, 181, 222, and 232). But ¶¶ 84, 96, 127, 134, 143, 149, 158, 167, 176, and 180 allege no injury whatsoever. And none of the remaining paragraphs allege that any of the Property Managers acquired any interest in, established, or operated an enterprise engaged in, or whose activities affect, interstate or foreign commerce. Instead, they allege that the Property Managers diverted property income and assets. In one instance, the plaintiffs allege that Mr. Manriquez diverted assets to a competitor. See ECF No 15 at ¶ 97. But those assets (building materials, tools, and workers) are not “income” or the “proceeds of such income” under RICO.[3]

         Absent allegations that the plaintiffs suffered injury from use or investment of racketeering income in a proscribed manner, the plaintiffs lack standing to ...

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