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Arun Patel, Anjana Patel, Shruti Patel, Swati Patel, and Amit Patel v. Amrish K. Mahajan

August 6, 2012

ARUN PATEL, ANJANA PATEL, SHRUTI PATEL, SWATI PATEL, AND AMIT PATEL, PLAINTIFFS,
v.
AMRISH K. MAHAJAN, ARUN VELUCHAMY, JAMES A. REGAS, ANU VELUCHAMY, AND SONIA VELUCHAMY, DEFENDANTS.



The opinion of the court was delivered by: Judge Feinerman

MEMORANDUM OPINION AND ORDER

Arun Patel, Anjana Patel, Shruti Patel, Swati Patel, and Amit Patel brought this suit against Amrish K. Mahajan, Arun Veluchamy, James A. Regas, Parameswary Pethinaidu, Pethinaidu Thathnaidu Veluchamy, Anu Veluchamy, and Sonia Veluchamy, alleging state law fraud and violations of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq. Doc. 1. Regas moved to dismiss the claims against him under Federal Rule of Civil Procedure 12(b)(6), arguing, among other things, that the complaint failed to properly plead a RICO claim. Docs. 11, 13. Rather than respond to Regas' motion, the Patels filed an amended complaint that altered the RICO claims and dropped Parameswary Pethinaidu and Pethinaidu Thathnaidu Veluchamy as defendants. Doc. 15. The remaining Veluchamy defendants (Arun, Anu, and Sonia) and Regas separately moved to dismiss the amended complaint under Rule 12(b)(6), arguing that the amended complaint, like the original complaint, failed to properly plead a RICO claim. Docs. 27, 30. The Patels again did not respond to the motions, and instead sought leave to file a second amended complaint that again refined the RICO claims. Doc. 34. The court allowed the Patels to file a second amended complaint, but made clear that this was the Patels' last try and that a third amended complaint would not be accepted. Doc. 36.

Now before the court are the Veluchamy defendants' and Regas' separate motions to dismiss the second amended complaint (Doc. 37) under Rule 12(b)(6). Docs. 38, 40. (Although Mahajan has not appeared, he will be given the benefit of the arguments set forth by his co-defendants.) The motions are granted as to the RICO claims, which are dismissed with prejudice. With no federal claim left in the case, the state law claims are dismissed without prejudice under 28 U.S.C. § 1367(c).

Background

The second amended complaint's well-pleaded factual allegations, though not its legal conclusions, are assumed true at this juncture. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012); Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 763 (7th Cir. 2010). In evaluating a motion to dismiss, the court must consider "the complaint itself, documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice." Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). The court also must consider additional facts set forth in the Patels' opposition brief or supported by attachments to the brief, so long as those facts "are consistent with the pleadings." Ibid.; see also Smith v. Knox Cnty. Jail, 666 F.3d 1037, 1039 (7th Cir. 2012) (per curiam); Flying J Inc. v. City of New Haven, 549 F.3d 538, 542 n.1 (7th Cir. 2008). The following sets forth the facts as favorably to the Patels as permitted by the second amended complaint and other materials that may be considered on a Rule 12(b)(6) motion.

Defendants at all relevant times were officers and/or shareholders of First Mutual Bancorp of Illinois, Inc. In August 2008, at the behest of the Veluchamys and the other First Mutual directors, Mahajan called Arun Patel for an appointment to discuss a possible high yield investment. Doc. 37 at ¶ 25. Mahajan called Arun again on September 10, 2008, seeking to discuss whether Arun and the other Patels would loan money to First Mutual; Mahajan said that the loan would be repaid with interest, though Mahajan knew it would not be repaid. Id. at ¶ 32. The Patels, induced in part by a $160,000 cashier's check as "advance interest," ultimately sent $2 million to First Mutual in nine installments, with the last installment occurring on September 18, 2008. Id. at ¶¶ 33, 35-43. First Mutual did not repay the loan. Id. at ¶¶ 13, 32. According to the Patels, Defendants sent some of their money to India by wire transfer and used the rest to purchase jewelry that was sent to other States and overseas. Id. at ¶¶ 46, 49-51. The Federal Deposit Insurance Corporation ("FDIC") placed First Mutual into receivership in July 2009, and the bank was involuntarily dissolved in June 2010. Doc. 45-1 at ¶¶ 56, 88; Corporation File Detail Report, Ill. Sec. of State, http://www.ilsos.gov/corporatellc (last visited Aug. 3, 2012).

On October 25, 2011, the FDIC, in its capacity as First Mutual's receiver, filed suit against Mahajan, the Veluchamys, Regas, and others. FDIC v. Mahajan, 11 C 7590 (N.D. Ill.). According to the FDIC's complaint, which the Patels have adopted for purposes of opposing dismissal of this case, Regas, Mahajan, Arun Veluchamy, and Anu Veluchamy "repeatedly drained the Bank's capital by using Bank funds for personal expenses," "approved substantial payments to relatives and friends for renovations to the Bank's offices," "approved $10.5 million in dividend payments to the Bank holding company, First Mutual Bancorp of Illinois, Inc., which, in turn, paid out the dividends to shareholders," and approved "$10.5 million in dividends to the Veluchamy family and Mahajan at a time when Mutual Bank was in poor financial condition and in need of conserving its capital base." Doc. 45-1 at ¶¶ 5, 8, 12, 13. The FDIC's claims, some of which have been dismissed, are set forth in detail in FDIC v. Mahajan, 2012 WL 3061852 (N.D. Ill. July 26, 2012).

Discussion

The Patels' second amended complaint purports to state four claims. Count I is a claim for racketeering activity under 18 U.S.C. § 1962(c), Doc. 37 at ¶¶ 5-68; Count II is a claim for conspiracy under § 1962(d), id. at ¶¶ 69-74; Count III is a claim for the use of funds derived from racketeering activity under § 1962(a), id. at ¶¶ 75-82; and Count IV is a state law fraud claim, id. at ¶¶ 83-91. The claims are discussed in turn.

Section 1962(c) makes it unlawful for an employee of an enterprise engaged in interstate commerce "to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). To state a § 1962(c) claim, a plaintiff must allege "(1) conduct (2) of an enterprise (3) through a pattern of racketeering activity." DeGuelle v. Camilli, 664 F.3d 192, 199 (7th Cir. 2011); see also United States v. Shamah, 624 F.3d 449, 454 (7th Cir. 2010).

To properly plead the third element, a pattern of racketeering activity, a complaint must allege the commission of at least two predicate acts of racketeering over a ten-year period. See DeGuelle, 664 F.3d at 199 (citing 18 U.S.C. § 1961(5)). "'Racketeering activity' is limited to the specific acts statutorily enumerated in 18 U.S.C. § 1961(1)." Ibid. In addition, the alleged acts of racketeering activity must satisfy the "continuity plus relationship" test, which requires "a relationship between the predicate acts as well as a threat of continuing activity." Ibid. (citing H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989)). "A relationship is established if the criminal acts have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Ibid. The Seventh Circuit has described the "continuity" component of the "continuity plus relationship" test as follows:

Continuity can be a closed- or open-ended concept. Closed-ended continuity refers to criminal behavior that has ended but the duration and repetition of the criminal activity carries with it an implicit threat of continued criminal activity in the future. In contrast, open-ended continuity requires a showing of past conduct that by its nature projects into the future with a threat of repetition.

Ibid. (citations and internal quotation marks omitted). As the Seventh Circuit has noted, "no single formula is required for a RICO pattern," which means that the test is "necessarily less than precise," requiring the court to exercise its judgment and common sense. J.D. Marshall Int'l, Inc. v. Redstart, Inc., 935 F.2d 815, 821 (7th Cir. 1991); see also Hartz v. Friedman, 919 F.2d 469, 472 (7th Cir. 1990) ("The pattern requirement is difficult to define and requires courts to use common sense.").

Regas contends, among other things, that the Patels have not adequately pleaded the continuity component of the pattern element of their § 1962(c) claim. Doc. 41 at 11-12. The Patels' five-page opposition brief obliquely references continuity, noting that the second amended complaint alleges that "[t]he racketeering conspiracy is ongoing because defendants continue to segregate and secrete the stolen funds, continue to reinvest kickbacks and bribes in the racketeering scheme, continue to facilitate the transfer of investors' money from the United States, continue to arrange the laundering of millions of dollars of assets, and other acts." Doc. 45 at 4 (quoting Doc. 37 at ¶ 13). The court (generously) will view this passage of the Patels' brief as arguing that the second amended complaint adequately pleads open-ended ...


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