Eclectic Props. East v. Marcus & Millichap Co.

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Civil Procedure
  • Date Filed: 05-07-2014
  • Case #: 12-16526
  • Judge(s)/Court Below: Circuit Judge Gould for the Court; Circuit Judge Wallace and Senior District Judge Huck
  • Full Text Opinion

To bring forth a RICO violation claim, a plaintiff must provide sufficient factual allegations that establish a plausible theory of specific intent to defraud, pursuant to Federal Rule of Civil Procedure 8(a) and 9(b), otherwise the claim will be dismissed under Rule 12(b)(6).

Plaintiffs brought a claim against the Paul Morabito, and Jack Waelti ("Defendants")for violating the Racketeering Influenced and Corrupt Organizations Act ("RICO") and RICO conspiracy violations through a real estate scheme. The Defendants purchased "commercial real estate properties in bulk," then "added a commercial lease for a franchise on each property." The Plaintiffs allege the properties’ market price increased because the Defendants "[paying] inflated rent payments so that the properties would appear far more valuable to third parties."After the Plaintiffs purchased the properties, the franchisees had issues paying their rent payments, and eventually each franchisee breached its lease. The district court dismissed the case for failure to state a claim, "concluding that Plaintiffs had not met their burden under Rules 8(a) and 9(b) [of the Federal Rules of Civil Procedure] to plausibly allege that Defendants specifically intended to defraud Plaintiffs." Plaintiffs appealed, and the Ninth Circuit considered whether the Plaintiffs pleaded facts sufficient to plausibly infer that Defendants specifically intended to defraud the Plaintiffs. The panel looked to the statutory elements of a RICO violation, and compared the allegations made by the Plaintiffs to determine if the factual allegations were plausible that would entitle the Plaintiffs to relief. The Plaintiffs argued the rapid increase in property price since the Defendants owned the property, the inability by the Plaintiffs to sell or lease the properties at the higher property price, and inaccurate "safe and secure" investment statements show an intent to defraud by the Defendants. The plausibility standard requires a plaintiff to provide facts that "cross the line from conceivable to plausible." The panel determined that the arguments made by the Plaintiffs to show a specific intent to defraud were inefficient factual allegations, and therefore affirmed the district court’s dismissal. AFFIRMED

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