United States District Court, N.D. Illinois, Eastern Division
September 8, 2005.
AHMAD MOUGRABI and RAJI MUGRABI, Plaintiffs,
COVENANT AIR & WATER, LLC and GARY WARREN MOORE, Defendants.
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs, Ahmad Mougrabi and Raji Mugrabi, filed suit against
Defendants, Covenant Air and Water, LLC and Gary Warren Moore.
Plaintiffs allege that Defendants violated the Racketeering,
Influence, and Corrupt Organizations ("RICO") statute,
18 U.S.C. § 1964, by inducing Plaintiffs to participate in a fraudulent
scheme through the mail, wire, and interstate means. Presently
before the Court is Defendants' Motion to Dismiss Plaintiffs'
In reviewing a motion to dismiss, the court reviews all facts
alleged in the complaint and any reasonable inferences drawn
therefrom in the light most favorable to the plaintiff. See
Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326
(7th Cir. 2000). A plaintiff is not required to plead the facts
or elements of a claim, with the exceptions found in Federal Rule
of Civil Procedure 9. See Swierkiewicz v. Sorema, 534 U.S. 506,
511 (2002); Walker v. Thompson, 288 F.3d 1005, 1007 (7th Cir.
2002). Dismissal is warranted only if "it appears beyond a doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief." Conley
v. Gibson, 355 U.S. 41, 45-46 (1957). The "suit should not be
dismissed if it is possible to hypothesize facts, consistent with
the complaint, that would make out a claim." Graehling v.
Village of Lombard, Ill., 58 F.3d 295, 297 (7th Cir. 1995).
The facts, for the purposes of this motion, are taken as true
from Plaintiffs' Complaint. Plaintiffs are Louisiana residents,
and Defendants are Illinois residents. Moore is the president and
managing partner of Covenant Air and Water. In a proceeding
brought by the Federal Trade Commission ("FTC"), Moore was barred
from making certain false or misleading statements about the
business ventures. Specifically, the FTC order*fn1 provided
IT IS FURTHER ORDERED that in connection with the
offer or sale of any franchise or business venture,
in or affecting commerce, the defendants are hereby
permanently enjoined from making any false or
misleading statement or representation of material
fact about any franchise, business venture, product,
or service, whether directly or by implication,
orally or in writing, including but not limited to
statements or representations regarding:
A. The income, profit, or sales volume that purchaser
or investor may or is likely to achieve;
B. The income, profit, or sales volume achieved by
prior purchasers or investors; and
C. The length of time that it may or will take to
recoup the purchase price or investment.
Thereafter, Plaintiffs were defrauded by certain oral and
written misrepresentations made by Moore regarding: (1) the
income, profit, and sales volume that Plaintiffs could expect to achieve from the sales of home water purification systems offered
by Covenant Air and Water; (2) the income, profit, and sales
volume achieved by prior direct vendors of home water
purification systems offered by Covenant Air and Water; and (3)
the length of time that it would take Plaintiffs to recoup their
investment by selling water purification systems offered by
Covenant Air and Water. Moore also failed to disclose that he had
been permanently enjoined from making the statements barred by
the FTC. Plaintiffs relied on these representations, and both
Plaintiffs and the corporation they own suffered financial
To obtain Plaintiffs' participation in the fraudulent scheme,
Defendants used the mail, wire communications, and caused
Plaintiffs to travel to Illinois. In August, October, November,
and December of 2001, and on numerous other occasions, Moore used
the mail to send papers and checks to and from Covenant Air and
Water's offices in connection with Defendants' scheme to defraud
Plaintiffs. In October 2001 and June 2002, Moore caused
Plaintiffs to travel to Illinois in execution of his scheme to
defraud Plaintiffs of funds exceeding $5,000.00. On January 31,
2002, and on numerous other occasions, Moore communicated
misrepresentations to Plaintiffs by means of interstate wire
communications. In November 2002, January 2003, February 2003,
and on numerous other occasions, Moore caused the transfer of
funds in furtherance of his fraud scheme by using interstate wire
As a result, in December 2001, August 2002, September 2002,
October 2002, November 2002, December 2002, January 2003,
February 2003, and March 2003, and on numerous other occasions,
Moore caused the interstate transportation of funds exceeding
$5,000.00 in furtherance of his fraud scheme. Moore conspired with Covenant
Air and Water's employee to execute the fraud scheme. Plaintiffs,
though, did not discover the extent of the fraud until December
Defendants argue that Plaintiffs' RICO Complaint should be
dismissed because: (1) Plaintiffs, as individuals, do not have
standing to bring RICO claims on behalf of a corporation; (2)
Plaintiffs' fraud allegations are not pled with the particularity
required by Federal Rule of Civil Procedure 9(b); (3) Plaintiffs'
Complaint fails to allege a pattern of racketeering, as required
under 18 U.S.C. § 1962(c); (4) the Complaint cannot state a cause
of action for Moore's alleged violation of the FTC Order; and (5)
any claim that Plaintiffs have against Defendants is covered by a
Defendants first argue that Plaintiffs do not have standing to
bring RICO claims on behalf of a corporation. "Where the
shareholder's injury resulted directly from an injury to the
corporation, but only indirectly from the harm the wrongdoer
wreaked upon the corporation, the RICO claims belong to the
corporation and not the shareholder." Gagan v. Am. Cablevision,
Inc., 77 F.3d 951, 959 (7th Cir. 1996). Defendants contend that
the unnamed corporation owned by Plaintiffs suffered the real
injury, not Plaintiffs. However, Plaintiffs have alleged that
they suffered damages from Defendants' actions, and it can be
inferred at this stage that those damages are independent of any
damages suffered by the corporation. As such, Plaintiffs have
sufficiently alleged standing for purposes of defeating a motion
Defendants next argue that Plaintiffs have failed to allege
fraud with the particularity required by Rule 9(b), as the rule
applies to RICO claims that are predicated on fraud. Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1327 (7th Cir. 1994). "In
all averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity."
Fed.R.Civ.P. 9(b). "While this does not require a plaintiff to plead
facts that if true would show that the defendant's alleged
misrepresentations were indeed false, it does require the
plaintiff to state `the identity of the person making the
misrepresentation, the time, place and content of the
misrepresentation, and the method by which the misrepresentation
was communicated to the plaintiff.'" Uni*Quality, Inc. v.
Infotronx, Inc., 974 F.2d 918, 923 (7th Cir. 1992) (quoting
Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683
(7th Cir. 1992) (Bankers Trust)). "The allegations must be
specific enough to provide the defendants with a general outline
of how the alleged fraud scheme operated and of their purported
role in the scheme." Rohlfing v. Manor Care, Inc.,
172 F.R.D. 330, 347 (N.D. Ill. 1997) (citations omitted). To determine
whether counts are sufficiently pled, a court will bear in mind
the purposes of Rule 9(b): "(1) protecting the defendants'
reputations; (2) preventing fishing expeditions; and (3)
providing adequate notice to the defendants." Rohlfing,
172 F.R.D. at 347 (citing Vicom, Inc. v. Harbridge Merchant Servs.,
Inc., 20 F.3d 771, 777 (7th Cir. 1994)).
As described above, Plaintiffs have alleged that, starting in
August 2001, throughout 2002 and through the first half of 2003,
Moore made misrepresentations concerning the profitability of
selling home water purification systems offered by Covenant Air
and Water. Moore also failed to disclose that he had been
permanently enjoined from making certain statements barred by the
FTC. These misrepresentations were made through the mail, wire
communications, and in-person meetings held with Plaintiffs in
Illinois. Covenant Air and Water's employee conspired with Moore to execute this fraud
scheme. These allegations are specific enough to provide the
Defendants with a general outline of how the alleged fraud scheme
operated and of their purported role in the scheme.
Defendants also contend that Plaintiffs' Complaint fails to
allege a pattern of racketeering activity. To bring a claim under
the RICO statutes, a plaintiff must demonstrate "continuity plus
relationship with respect to the alleged predicate" acts.
Williams v. Aztar Indiana Gaming Corp., 351 F.3d 294, 298 (7th
Cir. 2003). Predicate acts satisfy the relationship test if they
"have the same or similar purposes, results, participants,
victims, or methods of commission, or otherwise are interrelated
by distinguishing characteristic and are not isolated events."
Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1048 (7th
Cir. 1998) (citation omitted) (Corley). Continuity can either
consist of a "closed" period of repeated conduct or "open" past
conduct which is capable of repetition. Corley,
142 F.3d at 1048. To demonstrate a closed period of conduct, a plaintiff may
present a series of related predicate acts that extend over a
substantial period of time; however, the period in question must
be longer than a few weeks or months. Corley,
142 F.3d at 1048-49. Factors relative to this determination include: (1) the
number and variety of predicate acts; (2) the length of time over
which the acts were committed; (3) the number of victims; (4) the
presence of separate schemes; and (5) the occurrence of distinct
injuries. Corley, 142 F.3d at 1049.
Plaintiffs allege that for at least eighteen months, on
numerous occasions, and in furtherance of their scheme to defraud
Plaintiffs, Defendants have committed: (1) mail fraud, in
violation of 18 U.S.C. § 1341; (2) committed wire fraud, in
violation of 18 U.S.C. § 1343; and (3) travel fraud, in violation
of 18 U.S.C. § 2314. Violations of these statutes all serve as predicate acts for a RICO violation. 18 U.S.C. § 1981(1)(B).
Taken together, these allegations demonstrate that Defendants
sought to defraud Plaintiffs through multiple, related predicate
acts which were committed over a closed-ended period of conduct.
Defendants contend that any predicate acts occurring after
October 2001 should not be considered because, after that time,
Plaintiffs signed a dealership agreement with Defendants to
market the water purification systems. According to Defendants,
once the purported fraud scheme was complete, no other predicate
acts may be considered; and Plaintiffs have thus failed to show a
fraud scheme of greater than a few months. See McDonald v.
Schenker, 18 F.3d 491, 496 (7th Cir. 1994). However, Plaintiffs
have not alleged the existence of any dealership agreement which
is central to the RICO claims; on a motion to dismiss, matters
outside the Complaint which are not central to a plaintiff's
claim cannot be considered. Accordingly, for the purposes of
surviving a motion to dismiss, Plaintiffs have adequately pled
both the relationship and the continuity prongs.
Defendants further argue that Plaintiffs' Complaint cannot
state a cause of action for Moore's alleged violation of the FTC
Order. According to Defendants, Plaintiffs have not alleged any
facts which would demonstrate that Plaintiffs' relationship with
Defendants constituted a franchise or business venture. Without
these facts, Moore could not have violated the FTC Order.
Defendants then argue that the dealership agreement between
Defendants and Plaintiffs did not constitute a franchise or
business venture, as defined in the FTC Order. However,
Plaintiffs need not plead these facts to survive a motion to
dismiss. Furthermore, as discussed above, Plaintiffs have not not
alleged the existence of any dealership agreement which is
central to the RICO claims. Finally, Defendants argue that any claim that Plaintiffs have
against Defendants is covered by a contractual release. However,
because Plaintiffs have not pled the existence of any contract,
it is not proper to consider the release in a motion to dismiss.
For the foregoing reasons, Defendants' Motion to Dismiss
Plaintiffs' RICO Complaint is denied.
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