Citations
- 739 F. Supp. 2d 8
Full opinion text
ORDER AFFIRMING THE MAGISTRATE JUDGE’S RECOMMENDED DECISION
JOHN A. WOODCOCK, JR., Chief Judge.
In January 2004, MyFreeMedicine, a Kentucky company that sold prescription-assistance services, began using a Maine call center, AdvaneeTel Direct (AdvaneeTel) as its telemarketing services provider. At the same time, MyFreeMedicine began discussing the promotion of its product with Alpine Investors, LP (Alpine), an AdvanceTel Direct investor. In October 2004, Alpine and MyFreeMedicine entered into an agreement in which Alpine agreed to work exclusively on MyFreeMedieine’s media campaign, and MyFreeMedicine agreed to use AdvaneeTel exclusively as its call center. During MyFreeMedicine’s relationship with AdvaneeTel, customers complained about MyFreeMedicine’s product. In 2005, the Federal Trade Commission and several state Attorney General Offices launched an investigation into MyFreeMedicine and eventually sued the company for fraud. MyFreeMedicine has now initiated its own suit against Alpine and its partners, and several of the Maine call center’s managers and employers alleging a pattern of mail, wire, and financial institution fraud in violation of the Racketeer Influenced and Corrupt Organization Act (RICO). MyFreeMedicine’s Amended Complaint contains six counts: three RICO counts under 18 U.S.C. §§ 1962(c) and 1964(c), a RICO conspiracy count, a breach of contract count, and a tortious interference with prospective advantage count.
On October 1, 2009, the Defendants moved to dismiss Plaintiffs’ Amended Complaint. On March 4, 2010, the Magistrate Judge filed his Recommended Decision recommending that the Court grant each motion as to the RICO and tortious interference claims. As for the breach of contract claim, the Magistrate Judge recommended that with the exception of Defendants William M. Adams, Graham Weaver, and William T. Maguy, the motions be granted; he recommended that Mr. Adams, Mr. Weaver and Mr. Maguy’s motion on the breach of contract claim be denied. The Plaintiffs and Mr. Adams, Mr. Weaver, and Mr. Maguy objected to the Recommended Decision; the remaining Defendants responded.
After review and consideration of the Recommended Decision, together with the entire record, the Court has made a de novo determination of all matters adjudicated by the Magistrate Judge. The Court affirms the Recommended Decision. The Court agrees that the RICO and tortious interference with prospective economic advantage claims should be dismissed against all Defendants. The Court also agrees that the breach of contract claim should go forward against William M. Adams, Graham Weaver, and William T. Maguy. The Court denies William M. Adams, Graham Weaver, and William T. Maguy’s motion to dismiss Count Five.
I. STATEMENT OF FACTS
A. The Parties
1. MyFreeMedicine and Geoffrey Hasler
In 2003, Geoffrey Hasler started MyFreeMedicine. com, LLC, in Kentucky where he resides. First Am. Complaint ¶¶ 1-2, 34 (Docket # 77) (Am. Compl). MyFreeMedicine helped low-income individuals without prescription medication insurance obtain medication through Patient Assistance Programs (PAP). Id. ¶¶ 15, 33. MyFreeMedicine’s services to customers included identifying current PAP forms, assisting with the completion of the forms, and working with the customer, doctors, and pharmaceutical companies to ensure that medications available through PAP were received. Id. ¶¶ 36-48. It obtained customers through advertising, 1-800 telephone numbers, direct mail, doctor office referrals, and the Internet. Id. ¶ 34.
2. Alpine Investor
Alpine Investor, LLC (Alpine) is a limited partnership with a principal place of business in California; Alpine’s partners include Graham Weaver, William Adams, and William Maguy. Id. ¶¶ 3, 97, 110, 111, 112, 131, 144, 1293, 1294. Alpine is a private equity firm that manages three hundred million dollars and invests in dozens of companies and industries including the nutritional supplement, direct marketing, and mail industries. Id. ¶ 117. After investing in a company, Alpine introduces new business strategies to its investment companies to increase profitability. Id. ¶ 122.
In 2002, Alpine Alpine acquired an ownership interest in the Maine call center located at 121 Mill Street, Lewiston, Maine, which became known as Advance-Tel Direct, LLC. Id. ¶¶ 71, 72, 127. With MyFreeMedicine, Apiñe helped develop telephone scripts for AdvanceTel’s Maine call center and encouraged MyFreeMedicine to embark on a more expensive television advertising campaign. Id. ¶¶ 137-38. During MyFreeMedicine’s involvement with AdvanceTel, Mr. Weaver, Mr. Adams, and Mr. Maguy were also involved with AdvaneeTel’s operations. Id. ¶¶ 80, 122, 131,149,177.
3. Graham Weaver
Graham Weaver founded Alpine in 2001 and continues to be a partner at Alpine. Id. ¶¶ 110,120. He served as the manager and chairman of the call center when it was named AdvanceTel Direct. Id. ¶¶ 149, 150. He approved the contractual language of the October 2004 Media Funding Agreement. Id. ¶ 155. He supervised and controlled the media buying strategy of MyFreeMedicine after it began doing business with AdvanceTel and encouraged MyFreeMedicine to invest more money in television advertising strategies. Id. ¶¶ 151,157.
4. William (“Will”) Adams
William Adams is an Alpine partner and was a high level manager of the call center. Id. ¶¶ 111, 172. He held himself out as the CEO of the call center when it was AdvanceTel Direct and later Great Falls Marketing. Id. ¶¶ 97, 172, 175. He was responsible for negotiating the terms of the Media Funding Agreement between MyFreeMedicine and Alpine and traveled to MyFreeMedicine’s offices in Kentucky to finalize the Media Funding Agreement in October 2004. Id. ¶¶ 185, 562. Mr. Adams is alleged to have signed the contract on behalf of Alpine and his partners at Alpine including Graham Weaver and Bill Maguy. Id. ¶¶ 564,1293,1294.
5. William T. (“Billy”) Maguy
William Maguy is an Alpine partner and an advertising specialist. Id. ¶ 112, 159. Beginning in November 2004, he had primary responsibility for MyFreeMedicine’s television advertising campaign. Id. ¶ 162. As part of Alpine’s media buying strategy for MyFreeMedicine, Mr. Maguy enlisted the services of Quigley Simpson, a Los Angeles based advertising firm, and served as an intermediary among the advertising firm, MyFreeMedicine, and the call center. Id. ¶ 164. He worked closely with Mr. Hasler and Quigley Simpson to purchase television advertising for MyFreeMedicine between October 2004 and the summer of 2005. Id. ¶ 165. Through Mr. Maguy, Apiñe convinced MyFreeMedicine to spend hundreds of thousands of dollars on television advertising that Alpine arranged. Id. ¶ 168.
6. Brian G. Flaherty
Brian Flaherty was the Chief Operating Officer (COO) of AdvanceTel Direct and senior member of the call center in 2004 and 2005. Id. ¶ 225. As the COO, he was responsible for the day-to-day operations of the call center, and for securing and maintaining clients for the call center. Id. ¶¶ 256, 257. He was responsible for shipping MyFreeMedicine information to members of the public, and for mailing weekly invoices to MyFreeMedicine, processing payments from MyFreeMedicine, and overseeing the financial and accounting practices of the call center. Id. ¶ 261. He was in Kentucky in October 2004 with Mr. Adams when the Media Funding Agreement between MyFreeMedicine and AdvanceTel Direct was signed. Id. ¶ 258.
7. Frank and James DeWolfe
Brothers Frank and James DeWolfe co-founded the Maine call center. Id. ¶¶ 192, 212. Both oversaw the call center’s daily operations. Id. ¶¶ 197, 199-201. Frank was the Manager of AdvanceTel Direct, and James served as the President and CEO of AdvanceTel Direct. Id. ¶¶ 197, 220, 221. Both are alleged to have encouraged customer service representatives to misrepresent products being sold through the call center. Id. ¶¶ 209, 225. Both sold a portion or all of their ownership interest in the call center to Alpine. Id. ¶¶ 211, 229.
8. Scott MacCheyne
Scott MacCheyne was the IT director at AdvanceTel Direct. Id. ¶ 228. He is currently the president and chief information officer of the call center in its current form, Great Falls Marketing, overseeing all the day-to-day responsibilities of the call center. Id. ¶¶ 245, 248. During MyFreeMedicine’s involvement with the call center, Mr. MacCheyne managed and controlled the call center’s electronic activities including all telephone and computer information technology and banking transactions. Id. ¶¶ 230, 237, 238. He worked with Mr. Adams and Mr. Weaver, and is alleged to have been aware of the details of schemes undertaken by the call center enterprise. Id. ¶¶ 234, 235.
9. Jeffrey Stanek
Jeffrey Stanek was the financial controller at AdvanceTel Direct, with book keeping, bill collecting and management responsibilities. Id. ¶ 250. Mr. Stanek billed MyFreeMedicine weekly for the call centers services. Id. ¶¶ 25.
B. The Call Center’s Alleged Schemes
Before MyFreeMedicine began doing business with AdvanceTel, the call center sold a variety of health care type products including Avacor, which was marketed as an all natural hair replacement, id. ¶ 329, Vinarol marketed as a natural herbal formula to increase sexual desire and enhance the sexual experience for men and women, id. ¶ 388, Thermal Carb marketed as an all-natural diet tool, dual fat burner, and carbohydrate blocker, id. ¶¶ 423-24, and Glucotrin marketed as a drug that cures, mitigates, treats or prevents diabetes. Id. ¶ 479. The Amended Complaint alleges that Avacor and Vinarol contained drugs subject to the Federal Food and Drug Administration (FDA) approval which the call center had not received, id. ¶¶ 348, 397, that Thremal Carb contained a drug that the FDA eventually banned, id. ¶¶446, 452, and that Glucotrin was not FDA approved. Id. ¶ 481. The call center is alleged to have misrepresented both the effectiveness of these products and their contents to members of the public who contacted the call center about them. Id. ¶¶ 328-485.
C. MyFreeMedicine’s Business Relationship with AdvanceTel and Alpine
In January 2004, due to the increasing volume of calls it was receiving about its services, MyFreeMedicine began to do business with the 121 Mill Street call center then known as AdvanceTel. Id. ¶ 50. On January 14, 2004, the Plaintiffs signed a Marketing Agreement with James DeWolfe acting on behalf of AdvanceTel Direct. Id. ¶ 506. MyFreeMedicine hired the call center “to provide telemarketing services.” Id. ¶ 506. The agreement between MyFreeMedicine and AdvanceTel was substantially the same boilerplate language the call center used with all new clients. Id. ¶513. AdvanceTel agreed to receive telephone calls generated by MyFreeMedicine’s advertising and to enroll qualified callers in the MyFreeMedicine program. Id. ¶ 507. AdvanceTel agreed to electronically process payments from customers and deposit the funds in MyFreeMedicine’s bank account in Kentucky, and to charge the Plaintiffs for all order fulfillment and sales reported by Advance-Tel. Id. ¶ 507.
Throughout the spring and summer of 2004, Mr. Adams and the Alpine partners made repeated overtures to Plaintiffs to persuade MyFreeMedicine to deal exclusively with AdvanceTel as its call center and fulfillment center, and to embark on an elaborate media buying campaign in which Alpine would loan MyFreeMedicine funds for television advertisements. Id. ¶ 546. Alpine proposed a partnership and offered to fund 50% of MyFreeMedicine’s media advertising. Id. ¶ 551. In August 2004, Mr. Hasler met Mr. Weaver, Mr. Adams, and Mr. Maguy in Alpine’s San Francisco office to discuss ways to enhance MyFreeMedicine’s business prospects. Id. ¶ 552. Negotiations on the marketing agreement between Alpine and the Plaintiffs continued throughout the summer and fall of 2004. Id. ¶ 557. The parties finalized the Media Funding Agreement on or about October 23, 3004. Id. ¶ 562. On or about this date, Mr. Adams and Mr. Flaherty traveled to MyFreeMedicine’s offices in Kentucky, and acting on behalf of Alpine and its individual partners, including Mr. Weaver and Mr. Maguy, Mr. Adams signed the Media Funding Agreement. Id. ¶ 562, 564. Pursuant to the terms of the Media Funding Agreement, Alpine agreed to work exclusively on MyFreeMedicine’s media campaign, and MyFreeMedicine agreed to use AdvanceTel exclusively, with AdvanceTel Direct performing all point of sales services from its Maine facility. Id. ¶¶ 546, 566, 1296-99.
As part of the new media strategy devised by Alpine through the leadership of Mr. Maguy, MyFreeMedicine began to purchase television advertising time through Quigley Simpson. Id. ¶ 570. From November 2004 through the summer of 2005, the media advertising campaign continued, and all MyFreeMedicine calls were directed to the call center in Maine. Id. ¶ 586.
D. The Misrepresentations
The Plaintiffs allege that in order to boost their sales commissions, the Defendants misrepresented their business practices to them, and misrepresented MyFreeMedicine to current and potential customers through any means necessary. Id. ¶ 584. Unbeknownst to MyFreeMedicine, customer service representatives at the call center incorrectly quoted the price of MyFreeMedicine, told callers that unlisted medications were covered by MyFreeMedicine, misrepresented that MyFreeMedicine was a government program, withdrew funds from callers’ bank accounts and charged their credit cards without authorization, misrepresented the income guidelines for enrolling in MyFreeMedicine, misrepresented the insurance guidelines for MyFreeMedicine, and misrepresented MyFreeMedicine’s refund policy. Id. ¶¶ 589, 590, 593, 594, 595, 597, 598.
During the sixteen month period from January 2004 through May 2005, the call center sold approximately 10,843 subscriptiofis of MyFreeMedicine. Id. f 1212. During this time, if MyFreeMedicine received a customer complaint attributable to the call center, someone associated with the call center would assure Plaintiffs that it had checked the recordings and verified that the sale was. conducted consistent with the sales script. Id. ¶ 1215. On several occasions, Mr. Hasler contacted Mr. Flaherty or Mr. Adams to discuss customer complaints including double billing, customer service representative misrepresentations about covered medicines, and other misrepresentations about the MyFreeMedicine product. Id. ¶¶ 1181, 1193, 1195. Mr. Hasler was led to believe that the misrepresentations concerning the MyFreeMedicine product were isolated incidents and he continued to do business with the call center enterprise, spending well over a million dollars in advertising and interest charges payable directly to Alpine through a joint bank account which Alpine alone controlled. Id. ¶¶ 1215, 1219.
Members of the public began to complain about MyFreeMedicine to federal and state officials, including the Attorney General of the United States, the Attorney General of Arkansas and Missouri, the Better Business Bureau, and the Federal Trade Commission (FTC). Id. ¶ 602. The Plaintiffs’ Amended Complaint identifies thirty-eight individuals who, between January 2004 and February 2005, called the call center in response to a MyFreeMedicine advertisement, received incorrect information about MyFreeMedicine from a call center representative, and in response to the misrepresentation, filed a complaint with or contacted the FTC, a state Attorney General’s Office, or the Better Business Bureau. Id. ¶¶ 610-1174. The Amended Complaint alleges five instances where MyFreeMedicine issued refunds to customers who complained about the misrepresentations. Id. ¶¶ 819, 898, 1172, 1194, 1998.
In the summer of 2005, the FTC and Attorney Generals of Arkansas and Missouri brought suit against MyFreeMedicine and Geoff Hasler alleging fraud. Id. ¶¶ 603, 1224, 1226, 1227. On June 6, 2006, the ABC television show Good Morning America featured a consumer segment on MyFreeMedicine and Geoff Hasler, which included a FTC recording of a telephone call to the Maine call center. Id. ¶ 1230, 1231. A call center representative answered the call on behalf of MyFreeMedicine and proceeded to misrepresent the MyFreeMedicine product. Id. ¶ 1231. As the negative publicity spread, MyFreeMedicine as a business was destroyed. Id. ¶ 1221.
E. Procedural History
On April 14, 2009, the Magistrate Judge issued his first Report and Recommended Decision on the Defendants’ Motion to Dismiss recommending that the Plaintiffs’ Complaint be dismissed in its entirety. Recommended Dec. on Mots, to Dismiss at 31 (Docket # 59) (First Rec. Dec.). On May 11, 2009, before this Court ruled on the Recommended Decision, the Plaintiffs moved to amend their complaint. Mot. to Amend Complaint (Docket # 63) (Mot. to Am. Compl.) On June 30, 2009, Plaintiffs filed their First Amended Complaint. First Am. Compl. (Docket # 77) {Am. Compl). On August 11, 2009, this Court entered an order dismissing as moot the Defendants’ Motions to Dismiss, terminating the Magistrate Judge’s First Recommended Decision, and ordering that the Amended Complaint be the operative pleading. Minute Entry (Docket # 82).
On October 1, 2009, the Defendants moved pursuant to Federal Rule of Civil Procedure 12(b)(6) and 9(b) to dismiss the Amended Complaint. Renewed Motion to Dismiss of Defs.’ Alpine Investors, LP, Scott MacCheyne, Graham Weaver, William T. Maguy, William M. Adams, and Brian G. Flaherty (Docket # 89) (Alpine’s Reneived Mot); Motion of Defs. James N. DeWolfe and Frank G. DeWolfe to Dismiss Pis.’ First Am. Compl. (Docket # 90) (DeWolfes’ Renewed Mot.); Jeffrey Stanek’s Renewed Mot. to Dismiss (Docket # 91) (Stanek’s Renewed Mot.). The Plaintiffs filed their response on October 22, 2009. Pis.’ Consolidated Opp’n to the Defs. ’ Renewed Mots. To Dismiss (Docket #92) {Pis.’ Opp’n). The Defendants replied. Reply Mem. of Defs. James N. DeWolfe and Frank G. DeWolfe in Slip-port of Mot. to Dismiss Pis.’ First Am. Compl. (Docket # 95); Def. Jeffrey Stanek’s Reply to Pis.’ Consolidated Opp’n to the Defs. ’ Renewed Mot. to Dismiss (Docket # 96); Reply to Opp’n to Renewed Mot. to Dismiss of Defs. Alpine Investors, LP, Scott MacCheyne, Gmham Weaver, William T. Maguy, William M. Adams, and Brian G. Flaherty (Docket # 97).
On March 16, 2010, after considering the First Amended Complaint and the motions and responses, the Magistrate Judge issued his Recommended Decision in which he “continued to recommend that dismissal be granted, with the exception of a portion of Count five.” Recommended Dec. of Defs.’ Mots, to Dismiss at 1 (Docket # 100) (Rec. Dec.). The Magistrate concluded that “Count Five states a claim upon which relief may be granted against Maguy and Weaver, who are alleged, along with Adams, to be partners in Alpine” and “recommended that the Alpine Defendants’ motion to dismiss (Docket No. 89) be DENIED as to Defendants William M. Adams, Graham Weaver, and William T. Maguy only and only as to Count Five.” Rec. Dec. at 28, 30 (footnote omitted). He further recommended that the remainder of the counts be dismissed such that if “the court adopts this recommended decision, remaining active will be the plaintiffs’ breach of contract claim against defendants Adams, Maguy, and Weaver.” Id. at 30.
On March 26, 2010, Mr. Adams, Mr. Maguy, and Mr. Weaver objected to the Magistrate’s Recommended Decision on Count Five, and the Plaintiffs objected to the Magistrate’s Recommended Decision as to the remaining counts. Obj. of Defs. William M. Adams, William T. Maguy and Graham Weaver to Magistrate’s Recommended Dec. (Docket # 103) (Adams, Maguy, and Weaver Obj.); Pis.’ Partial Obj. to Recommended Dec. (Docket # 104) {Pis.’ Obj.). Jeffrey Stanek, James DeWolfe, and Frank DeWolfe responded to Plaintiffs partial objection. Response of Defendants James N. DeWolfe and Frank G. DeWolfe to Pis. ’ Partial Obj. to Recommended Dec. (Docket # 105) {DeWolfe Resp.); Def Jeffrey Stanek’s Resp. to Pis.’ Partial Obj. to Magistrate’s Report and Recommended Dec. (Docket # 107) (Stanek Resp.). On April 12, 2010, the Plaintiffs replied to Mr. Adams, Mr. Maguy and Mr. Weaver’s objections. Pis.’ Reply to Objs. of Defs. Adams, Maguy and Weaver to Magistrate’s Recommended Dec. (Docket # 106) {Pis. ’ Reply). On the same day, Alpine, Mr. MacCheyne, Mr. Weaver, Mr. Maguy, Mr. Adams, and Mr. Flaherty replied to the Plaintiffs’ objections. Reply to Pis. ’ Obj. to Recommended Dec. of Defs. Alpine Investors, LP, Scott MacCheyne, Gmham Weaver, William T. Maguy, William M. Adams and Brain G. Flaherty (Docket # 108) {Alpine’s Reply).
II. DISCUSSION
A. Legal Standard
In ruling on a motion to dismiss, a court is required to “accept as true all the factual allegations in the complaint and construe all reasonable inferences in favor of the plaintiff.” Sanchez v. Pereira-Castillo, 590 F.3d 31, 41 (1st Cir.2009) (quoting Alternative Energy, Inc. v. St. Paul Fire & Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001)). To survive a motion to dismiss, a plaintiff must allege “sufficient facts to show that he has a plausible entitlement to relief.” Id. (citing Ashcroft v. Iqbal, — U.S. -, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)).
B. Counts I through III: The RICO Claims
1. The Amended Complaint
RICO permits “any person injured in his business or property” by a pattern of racketeering activity to sue the racketeer in federal court for treble damages. New England Data Servs., Inc. v. Becher, 829 F.2d 286, 288 (1st Cir.1987); 18 U.S.C. § 1964(c). Plaintiffs’ Amended Complaint alleges violations of all four of the activities prohibited in 18 U.S.C. § 1962: receiving income from a pattern of racketeering activity and using it in the operation of an enterprise, § 1962(a) (Count III); acquiring and maintaining control over an enterprise through a pattern of racketeering activity, § 1962(b) (Count II); conducting or participating in a pattern of racketeering activity in the conduct of an enterprise’s affairs, § 1962(c) (Count I); and, conspiring to violate these prohibitions on racketeering activity, § 1962(d) (Count IV). Am. Compl. ¶¶ 1265, 1266, 1269, 1270, 1283, 1285-1289.
More specifically, MyFreeMedieine alleges that these Defendants “belonged to an association-in-fact” which the Plaintiffs refer to as “the 121 Mill Street Enterprise.” Am. Compl. ¶ 1254. It says that this association was an “enterprise” within the meaning of the RICO Act and existed for the purpose of defrauding the Plaintiffs and the public. Id. ¶ 1254. As part of its scheme to defraud the Plaintiffs and the public, the Plaintiffs claim that the enterprise would sign up as many customers for MyFreeMedicine as possible, bill MyFreeMedicine for enrolling unqualified members of the public, and derive interest payments from a media funding agreement. Id. ¶ 1256. The Plaintiffs allege that the schemes constitute long-term racketeering activity and include: charging them for fraudulent sales calls and other fulfillment activity, continually encouraging them to invest in the media funding scheme, continually misrepresenting to them that the customer service representatives were not engaging in fraudulent sales practices, misrepresenting products and services to thousands of members of the public through telephone calls, using an elaborate television advertising strategy to increase the volume of incoming calls to the Maine call center, shipping MyFreeMedicine Registration Packets to unqualified members of the public using the U.S. mails, shipping Ava-cor to thousands of members of the public using the U.S. mail, and fraudulently misrepresenting Avacor, Vinarol, Thermal Carb, Glucotrin, and MyFreeMedicine. Am. Compl. ¶ 1265. The Plaintiffs say that these actions demonstrate a continuous pattern of mail fraud, proscribed at 18 U.S.C. § 1341, wire fraud proscribed at 18 U.S.C. § 1343, and financial institution fraud as defined at 18 U.S.C. § 1344, which constitutes racketeering activity under RICO, 18 U.S.C. § 1961(1). Id. ¶¶ 1258, 1265, 1266.
2. The Renewed Motions
The Defendants’ renewed motions to dismiss present a variety of arguments. First, all three groups of Defendants assert that the Plaintiffs cannot demonstrate a direct causal connection between any of the schemes the enterprise is alleged to have engaged in and the Plaintiffs’ injury. Because the Plaintiffs’ injuries are indirect and derivative, the Defendants say they have failed to satisfy the RICO standing requirements established by the Supreme Court and applied in the First Circuit. Stanek’s Renewed Mot. at 2-4; Alpine’s Renewed Mot. at 7-12; DeWolfes’ Renewed Mot. at 2-6. Second, all three groups of Defendants argue that the RICO claims fail because Plaintiffs have not demonstrated a “pattern of racketeering activity.” Specifically, the health care product schemes and the media funding agreement do not qualify as predicate acts because they are not related or continuous. Stanek’s Renewed Mot. at 5-6; Alpine’s Renewed Mot. at 13-26; DeWolfes’ Renewed Mot. at 6-7. Third, all three groups of Defendants contend that the underlying allegations of fraud and the alleged predicate acts have not been plead with particularity as required under Federal Rule of Civil Procedure 9(b). Stanek’s Renewed Mot. at 4-5; Alpine’s Renewed Mot. at 26-34, 36; DeWolfes’ Renewed Mot. at 8-9. Finally, the Alpine Defendants and DeWolfe brothers allege that the complaint is time barred. Alpine’s Renewed Mot. at 34; DeWolfes’ Renewed Mot. at 9.
3. Liability Under RICO
To be liable, a RICO defendant must engage in a “pattern of racketeering activity.” 18 U.S.C. § 1962(a),(b),(c), & (d). A “pattern of racketeering activity” consists of “at least two acts of racketeering activity” within a ten year period, 18 U.S.C. § 1961(5), often referred to as the “predicate acts” or “predicate crimes.” Miranda v. Ponce Federal Bank, 948 F.2d 41, 45 (1st Cir.1991). “Racketeering activity” includes any act indictable under numerous federal criminal provisions, including mail and wire fraud as those offenses are defined at 18 U.S.C. §§ 1341 and 1343. 18 U.S.C. § 1961(1)(B). To establish the requisite pattern of racketeering activity, a plaintiff “must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.” H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (emphasis in original). Finally, a RICO claimant must establish a causal relationship between the pattern of racketeering activity and his asserted injury. Sedima v. Imrex Co., 473 U.S. 479, 496-97, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); see also 18 U.S.C. § 1964(c) (stating that a plaintiff must allege that he has been “injured in his business or property by reason of’ the claimed RICO violation). In order to satisfy this requirement, a plaintiff must show “some direct relation between the injury asserted and the injurious conduct alleged.” Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). This requires a showing of proximate cause; “[o]therwise, plaintiffs may not recover in a civil RICO claim if their injuries are so far removed from the defendant’s acts that they are indirect and derivative.” George Lussier Enters, v. Subaru of New Eng., Inc., 393 F.3d 36, 51 (1st Cir.2004). The injury must be “caused by the commission of a [section 1961] predicate act,” and not just any overt act furthering the RICO conspiracy. Miranda, 948 F.2d at 48.
4. Mr. Stanek
The Magistrate began his discussion by reiterating the factual allegations bearing on the RICO claims against Mr. Stanek that were added to the Amended Complaint;
[Mr. Stanek] received income derived from the Enterprise’s pattern of racketeering, participated in racketeering activities, and exercised managerial control of others involved in a pattern of racketeering activities, Amended Complaint ¶251; he participated in and managed the call center’s fraudulent billing of MyFreeMedieine through interstate mail and wire communications on a weekly basis, id. ¶ 254; he transmitted invoices for commissions based on sales volume to the plaintiffs by mail and interstate wire communications, id. ¶ 511; he defrauded the plaintiffs when he transmitted invoices for sales commissions and order fulfillment activities using the mail, e-mail, telephone wires, and other electronic wire and mail communication devices, id. ¶ 1175; he included data manipulated by MacCheyne on invoices transmitted to the plaintiffs, id. ¶ 1178; and he spoke with Hasler by telephone on January 31, 2005, about MyFreeMedicine’s outstanding bill due to AdvanceTel Direct, id. ¶ 1205.
Rec. Dec. at 12-13. The Magistrate Judge concluded that “it is not at all clear what information false or otherwise, Stanek is alleged to have transmitted to the Plaintiffs.” Rec. Dec. at 14. Even if it were clear from these facts that Mr. Stanek personally fraudulently billed the plaintiffs, the Magistrate Judge concluded that “the plaintiffs have not alleged the necessary predicate acts by Stanek. Generalized, conclusory allegations that all of the defendants acted fraudulently or illegally are not sufficient.” Id. “There must be some indication that Stanek either engaged in the predicate acts himself or knew that someone else was going to engage in those acts on behalf of the enterprise of which he was allegedly a part. None of the Stanekspecific allegations in the amended complaint ... allege any predicate act of racketeering activity.” Id. at 14-15 (citations omitted). The Magistrate Judge thus concluded that Mr. Stanek was entitled to dismissal of all four RICO counts. Id. at 15.
The Plaintiffs object to the Magistrate Judge’s conclusion that is it unclear what Mr. Stanek transmitted. To the contrary, they say that the First Amended Complaint “identifies specific invoices [Mr. Stanek] sent, payments he demanded, and fraudulent activity that was included in the invoices he sent.” Pis.’ Obj. at 2-3. They point out that the Amended Complaint “identif[ies] six separate invoices that he transmitted. [Mr.] Stanek sent these invoices to the Plaintiffs between December 20, 2004 and January 18, 2005. They were used to charge the Plaintiffs $30,658.55. These bills charge the Plaintiffs for calls in which the 121 Mill Street Enterprise misrepresented MyFreeMedicine to callers, including Marie Best.... When [Ms. Best] called 121 Mill Street customer service representatives made unauthorized withdrawals from her checking account, mailed her a registration package, and Mr. Stanek sent the Plaintiffs a bill, even though Ms. Best never agreed to enroll in MyFreeMedicine.” Pis. ’ Obj. at 3 (internal citations omitted). These allegations, the Plaintiffs argue, clarify Mr. Stanek’s activities within the enterprise and are sufficient predicate acts of fraud to support a RICO claim. The Plaintiffs also argue that the Court should allow the conspiracy count to proceed. Id. at 3-4. “[Mr. Stanek] is alleged to have agreed to conduct and participate in a pattern of racketeering. Mr. Stanek is not required to have known the entire sweep of the Enterprise’s activity, or to have known every detail of customer service activity in order for the Plaintiff to state a claim against him under 18 U.S.C. § 1962(d).” Id. (internal citations omitted).
a. The Court’s Analysis
The Court agrees with the Magistrate Judge’s conclusion that the Amended Complaint, even with its new allegations, fails to state a claim against Mr. Stanek and that even if the Amended Complaint did allege that Mr. Stanek personally fraudulently billed the Plaintiffs, the Plaintiffs have not alleged the necessary predicate acts by Mr. Stanek. Rec. Dec. 12-14.
First, Mr. Stanek’s involvement with the call center does not rise to the level of participation as required under 18 U.S.C. § 1962(c). The phrase “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity” found in section 1962(c) has been thoroughly analyzed by the Supreme Court. In Reves v. Ernst & Young, 507 U.S. 170, 185, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), the Supreme Court held that to be liable under section 1962(c) “one must participate in the operation or management of the enterprise itself.” In Reves, the trial court ruled that
Plaintiffs have failed to show anything more than that the accountants reviewed a series of completed transactions, and certified the Co-Op’s records as fairly portraying its financial status as of a date three or four months preceding the meetings of the directors and the shareholders at which they presented their reports. We do not hesitate to declare that such activities fail to satisfy the degree of management required by [Bennett v. Berg, 710 F.2d 1361, 1365 (8th Cir.1983)].
507 U.S. at 176, 113 S.Ct. 1163. The Supreme Court evaluated the phrase “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs” from 18 U.S.C. § 1962(c) and noted that “in the context of the phrase ‘to conduct ... [an] enterprise’s affairs,’ the word [conduct] indicates some degree of direction.” Id. at 178, 113 S.Ct. 1163. As for the word “participate” the Court determined that Congress intended the word to have its common understanding “to take part in.” Id. at 179, 113 S.Ct. 1163. The Court continued
Once we understand the word ‘conduct’ to require some degree of direction and the word ‘participate’ to require some part in that direction, the meaning of § 1962(c) comes into focus. In order to ‘participate, directly or indirectly, in the conduct of such enterprise’s affairs,’ one must have some part in directing those affairs. Of course, the word ‘participate’ makes clear that RICO liability is not limited to those with primary responsibility for the enterprise’s affairs, ... but some part in directing the enterprise’s affairs is required.
Id. The legislative history of RICO confirms what the Court deduced from the language of section 1962(c) — “that one is not liable under that provision unless one has participated in the operation or management of the enterprise itself.” Id. at 183, 113 S.Ct. 1163. In this case, Congress did not intend to extend RICO liability under section 1962(c) beyond those who participate in the operation or management of an enterprise through a pattern of racketeering activity. Id. at 184, 113 S.Ct. 1163. The degree of Mr. Stanek’s involvement in the enterprise is similar to that of the defendants in Reves; Mr. Stanek is alleged to have assembled and transmitted invoices. Such participation does not have “an element of direction” of the enterprise’s affairs as required by Reves. United States v. Cianci, 378 F.3d 71, 94 (1st Cir.2004). The assembly and transmittal of invoices to MyFreeMedicine do not demonstrate that Mr. Stanek participated in the operation or management to such a degree that he should be hable under section 1962(c).
In its objection, MyFreeMedicine argues that Mr. Stanek was a “knowing participant of the Enterprise’s activity.” Pls.’ Obj. at 3. For support, MyFreeMedicine cites two paragraphs of its Amended Complaint:
253. As Financial Controller, Defendant Jeffrey Stanek assembled and transmitted through interstate mail and wire communications, weekly bills from the call center in which the Enterprise charged MyFreeMedicine, as well as other clients.
254. Defendant Jeffery Stanek participated and managed the call center’s fraudulently billing of MyFreeMedicine and other clients for service that involved misrepresenting MyFreeMedieine and other products, and in which the call center charged MyFreeMedieine for services that were not provided.
Amend. Compl. ¶¶ 253, 254. These paragraphs only demonstrate Mr. Stanek’s willingness to assemble and transmit invoices that were manipulated by someone other than himself or that contained charges incurred as a result of call center customer service representatives misrepresenting MyFreeMedieine. They do not demonstrate that Mr. Stanek knew about, participated in, or encouraged the manipulation of the invoices or that he knew about, participated in, or encouraged the misrepresentation of the MyFreeMedieine product.
The Court also agrees with the Magistrate Judge’s conclusion that “[n]one of the Stanek-specific allegations in the amended complaint ... allege any predicate act of racketeering activity.” Ree. Dee. at 15. The Plaintiffs have not alleged that Mr. Stanek was involved in any of the other health care product schemes, thus the only possible scheme to which Mr. Stanek can be connected is the scheme to defraud MyFreeMedieine. This alone is insufficient to satisfy the pattern of racketeering element. Feinstein v. Resolution Trust Corp., 942 F.2d 34, 41 (1st Cir.1991). The Court must dismiss Count I of the Amended Complaint as alleged against Mr. Stanek.
5. Alpine, Mr. MacCheyne, Mr. Weaver, Mr. Maguy, Mr. Adams and Mr. Flaherty
Turning to Count I as alleged against Alpine, Mr. MacCheyne, Mr. Weaver, Mr. Maguy, Mr. Adams, and Mr. Flaherty (the Alpine Defendants), the Magistrate Judge noted that the “factual allegations added by the amended complaint seek to refocus the causal nexus analysis ... from injury to the public caused by the defendants, which resulted in injury to the plaintiffs as well, to direct injury to the plaintiffs.” Id. at 18. The new allegations include
• Adams and Weaver controlled call center operations on Alpine’s behalf. First Amended Complaint ¶¶ 133-34.
• Members of Alpine control, participate in, and derive revenue from the call center’s activities. Id. ¶ 145.
• Weaver controlled the media buying strategy that was led by Maguy. Id. ¶ 151.
• Weaver reviewed and ratified correspondence between Alpine and MyFreeMedicine. Id. ¶ 153.
• Weaver controlled the contractual relationship between Alpine and MyFreeMedieine by reviewing and approving the language of the contract. Id. ¶ 155.
• Maguy was instrumental in shaping the media buying strategy to earn interest fees paid by the plaintiffs to Alpine. Id. ¶¶ 162,169.
• Maguy managed the advertising so as to maximize the volume of telephone calls. Id. ¶ 1220.
• Adams concealed misrepresentations made about MyFreeMedieine. Id. ¶ 188.
• Frank DeWolfe prepared and transmitted weekly invoices to the plaintiffs seeking payment for telephone calls in which MyFreeMedieine had been misrepresented to customers. Id. ¶ 200.
• MacCheyne executed all daily electronic bank transfers between MyFreeMedicine’s customers and its bank account, and contributed fraudulent data to all invoices sent from members of the Enterprise to the plaintiffs. Id. ¶238.
• Flaherty prepared and transmitted fraudulent weekly invoices to the plaintiffs and oversaw the financial and accounting practices of the Enterprise. Id. ¶ 261.
• Adams and MacCheyne monitored calls in and out of the call center. Id. ¶ 285.
• The Enterprise routinely misrepresented its customer transactions to the plaintiffs and billed them directly for fraudulent sales activity. Id. ¶ 486.
• AdvanceTel charged the plaintiffs for all order fulfillment and sales it reported. Id. ¶ 507.
• Flaherty transmitted invoices for commissions based on sales volume to the plaintiffs on a weekly basis. Id. ¶ 511.
• In an August 6, 2004, e-mail, Adams misrepresented Alpine’s intentions to Hasler, by failing to disclose Alpine’s role in the fraudulent promotion and sale of Avacor and the Alpine partners’ desire to use MyFreeMedicine as a vehicle for fraudulent activity. Id. ¶ 548.
• In an August 2004 meeting with Hasler, the Alpine partners concealed their role in the fraudulent promotion of Avacor and misrepresented their intent to reinvest income derived from a pattern of fraud connected to marketing Avacor and other products so that the Enterprise would profit at the expense of MyFreeMedicine. Id. ¶ 555.
• Adams was acting on behalf of Alpine and each of its partners when he signed a contract with the plaintiffs on October 23, 2004. Id. ¶¶ 563-64.
• Every time Alpine purchased a television advertisement through Quigley Simpson, the defendants obtained direct interest payments from MyFreeMedicine. Id. ¶ 573.
• Through Flaherty, the Enterprise defrauded the plaintiffs by transmitting invoices to them for sales commissions and order fulfillment activities that it claimed to have earned when in fact the customer service representatives misrepresented MyFreeMedicine’s eligibility criteria and program description to customers. Id. ¶ 1175.
• MacCheyne manipulated data regarding the number of calls received for MyFreeMedicine and the disposition of these calls and provided the data to Flaherty, who included the data on invoices sent to the plaintiffs. Id. ¶ 1178.
• On November 30, 2004, Maguy informed the plaintiffs of advertising plans that were designed to increase the volume of calls and thereby increase the interest payments that the plaintiffs owed Alpine and increase the sales commissions and order fulfillment fees for which the plaintiffs were billed on a weekly basis. Id. ¶¶ 1191-92.
• MyFreeMedicine issued refunds to two complaining customers, in December 2004 and January 2005, while also paying sales commissions and other charges to AdvanceTel Direct, leaving it with a net loss due to the Enterprise’s misrepresentation of MyFreeMedicine’s product. Id. ¶¶ 1193-94,1197-98.
• MyFreeMedicine rebated, credited, or refunded more than $500,000 to disadvantaged members of the public. Id. ¶ 1222.
• Adams expressly assumed a duty of good faith and fair dealing for himself and on behalf of Alpine, Maguy, Weaver, and Flaherty, when he promised on October 23, 2004 to conduct all of their activities relating to MyFreeMedicine with openness, full disclosure, and fairness for all parties involved. Id. ¶ 1300.
• These defendants breached their promise to work exclusively on MyFreeMedicine from October 23, 2004, through the end of 2004 by continuing to market Avacor. Id. ¶ 1303.
• These defendants promised the plaintiffs that they would make sure that the customer service representatives accurately stated the MyFreeMedicine eligibility criteria to customers, but failed to do so. Id. ¶ 1308.
• These defendants’ refusal to cooperate with the plaintiffs’ defense in the federal and state litigation filed against the plaintiffs breached their duty of good faith and fair dealing. Id. ¶ 1310.
Rec. Dec. 18-22.
The Magistrate Judge’s Recommended Decision focuses on the Plaintiffs’ failure to allege fraudulent conduct that has directly injured the Plaintiffs, and the failure to allege a pattern of racketeering. The Magistrate Judge points out that “direct harm” to the Plaintiffs from the Defendants “systematic misrepresentations” “is no more apparent from the ‘new' facts recited above than it was at the time of [his] original recommended decision.” Id. at 22. He reiterates that “the requirement of direct causation of a plaintiffs damages by the alleged racketeering, or proximate cause, still holds.” Id. at 22. As for the pattern of racketeering requirement, the Magistrate Judge concluded that the schemes involving the other health care related products were not “sufficiently ‘related’ to the alleged scheme directed against the plaintiffs by the defendants to be considered as the necessary predicate acts of racketeering under RICO.” Id. at 25. In addition, the Plaintiffs have not “describefd] how the media funding arrangement was part of any pattern of racketeering activity.” Id. at 23. Therefore, the Plaintiffs “cannot base any portion of their RICO claims on the funding of advertising.” Id. at 23.
The Plaintiffs object to the Magistrate Judge’s “conclusion that they fail to explain how the Alpine Defendants’ misrepresentations harmed them.” Pis.’ Obj. at 10. The Plaintiffs reiterate that the Alpine Defendants sought the Plaintiffs’ trust and then arranged for a joint bank account and began the media funding scheme. Id. at 11. “The media funding scheme became a key component of the scheme to defraud MyFreeMedicine.... [T]he media funding scheme [was] designed to earn interest payments for Alpine, but it also channeled more telephone calls to the Enterprise, thus increasing the opportunity for customer service representatives to misrepresent MyFreeMedicine.” Id. at 11. The Plaintiffs also argue that when all reasonable inferences are drawn in their favor, “they have alleged that the money in the joint bank account was indeed lost to the Defendants.” Id. at 12. “The plaintiffs deposited over $1 million in advertising and interest charges in an Alpine controlled back account ... This money far exceeds the amount lost by individual customers.” Id. at 12 (citation omitted). Additional injury includes the hundreds of thousands of dollars in commission and fees that the Plaintiffs paid out that they would not have paid had they known that the Defendants were misrepresenting their product to the public and misrepresenting the call centers’ operations to the Plaintiffs. Id. at 13. The Plaintiffs expressed concern that there was no mention of the Good Morning America segment in the Second Recommended Decision. Id. at 14.
The Plaintiffs also take issue with the Magistrate Judge’s analysis of the predicate acts requirement of a RICO claim. Id. at 15-16. “The Second Recommendation conducts only part of the analysis required for a pattern, and fails to explain how the allegations with respect to the scheme to defraud MyFreeMedicine, including the media funding arrangement, are no longer sufficiently ‘related’ to the Avacor, Vinarol, and other schemes perpetrated by the Enterprise.” Id. at 15 (citation omitted). The Plaintiffs argue that they have met the relatedness prong of the pattern element because the fraud directed at MyFreeMedicine and the call center’s other schemes all “involved a call center located at 121 Mill Street in Auburn, Maine, the use of television advertising to direct callers to the call center, misrepresentation of products to consumers, and resulted in lawsuits being filed against clients of the Enterprise.” Id. at 15.
a. The Court’s Analysis: Standing
Section 1964(c) imposes a standing requirement under which a plaintiff seeking civil remedies for violation of § 1962(c) must establish that the defendant’s racketeering activity caused injury to the plaintiffs business or property. See 18 U.S.C. § 1964(c); Sedima, 473 U.S. at 495-97, 105 S.Ct. 3275; Camelio v. Am. Fed’n, 137 F.3d 666, 669-70 (1st Cir.1998). More particularly, a plaintiffs standing to sue depends upon a finding that at least one of the defendant’s predicate acts of racketeering was the proximate cause, as well as the but-for or factual cause, of the plaintiffs injury. See Holmes, 503 U.S. at 268, 276, 112 S.Ct. 1311; see, e.g., George Lussier Enters., 393 F.3d at 51 (“Section 1964(c) [of the RICO Act] requires that the defendant’s specified acts of racketeering were the proximate cause of the plaintiffs’ injuries.”) (citing Holmes, 503 U.S. at 268, 112 S.Ct. 1311); Camelio, 137 F.3d at 670. The Supreme Court has indicated that “some direct relationship between the injury asserted and the injurious conduct alleged” is required to show proximate causation; if the connection is too remote, the standing requirement is not satisfied. See Holmes, 503 U.S. at 268-69, 271-74, 112 S.Ct. 1311; Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 456-61, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006).
The Court agrees with the Magistrate Judge’s conclusion that despite the new section in the Amended Complaint entitled “Direct Misrepresentations and Financial Costs to the Plaintiffs”, Am. Compl. ¶¶ 1174-1243, they still have not demonstrated the proximate cause requirement of a RICO claim. To begin, the inclusion of paragraphs with the words “proximate result” is insufficient to remedy the Amended Complaint’s earlier deficiencies. See In re Am. Express Co. S’holder Litig., 39 F.3d 395, 400 n. 3 (2nd Cir.1994)(stating that “conclusory allegations of the legal status of the defendant’s acts need not be accepted as true for the purposes of ruling on a motion to dismiss”). In addition, many of the alleged damages remain speculative. For example, the Plaintiffs provide no basis for the $500,000 figure they allege to have paid out in refunds. The Plaintiffs’ pleading provides only five instances in which it issued refunds. Id. ¶¶ 819, 868, 1172, 1194, 1198. In the first two instances the refund amount was $195, in the next instance the amount was $199.95, and in last two instances no refund amount was provided. These five allegations do not even come close to the $500,000 alleged in the Amended Complaint. “If any proposition under RICO is well-established, it is that a RICO damages claim may not be based on mere speculation.” Circiello v. Alfano, 612 F.Supp.2d 111, 114 (D.Mass.2009) (citing cases). In addition, the injury to MyFreeMedicine for having to defend itself in several legal actions was caused only because the alleged scheme the call center was perpetrating on the public was exposed and thus failed. These injuries were not the “preconceived purpose” or the “specifically-intended consequence” of the Defendants’ alleged racketeering. In re Am. Express Co. S’holder Litig., 39 F.3d at 400. Therefore, any harm to MyFreeMedicine was neither the necessary result nor the foreseeable consequence of the scheme. Id.
b. The Court’s Analysis: Pattern of Racketeering Activity
In addition to failing to meet RICO’s proximate cause requirement, the Plaintiffs have failed to demonstrate “a pattern of racketeering activity.” To satisfy this element, the Plaintiff must demonstrate at least two acts of racketeering activity, 18 U.S.C. § 1961(5), and “must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.” H.J. Inc., 492 U.S. at 239, 109 S.Ct. 2893 (emphasis in original).
The Magistrate Judge concluded that “the other predicate acts alleged in the complaint and the amended complaint, involving other products such as Avacor and Vinarol, are no longer sufficiently ‘related’ to the alleged scheme directed against the plaintiffs by the defendants to be considered as the necessary predicate acts of racketeering under RICO.” Rec. Dec. at 25. “To the extent that the plaintiffs rely on the account set up to fund advertising [as a predicate act],” they do not “describe how the media funding arrangement was part of any pattern of racketeering activity.” Rec. Dec. at 23.
Plaintiffs object to the Magistrate Judge’s handling of the pattern element. Pis.’ Obj. at 15. They complain that the Magistrate Judge “failed to apply the criteria for relatedness, or to explain why it concludes that none of the various schemes share ‘distinguishing characteristics’ ” and did not address the continuity prong at all. Id. at 15.
i. Relatedness
Relatedness is readily shown where the predicate acts “have the same or similar purposes, participants, victims, or methods, or otherwise [are] interrelated by distinguishing characteristics.” H.J. Inc., 492 U.S. at 240, 109 S.Ct. 2893. The Plaintiffs attempt to relate the schemes involving Avacor, Vinarol, Thermal Carb, and Glucotrin to the scheme to defraud MyFreeMedicine. Pls.’ Obj. at 17. They argue that “the fraud directed at MyFreeMedicine is related to the Enterprise’s other schemes because they involved a call center located at 121 Mill Street in Auburn, Maine, the use of television advertising to direct callers to the call center, misrepresentation of products to consumers, and resulted in lawsuits being filed against clients of the Enterprise.” Pls.’ Obj. at 15.
With regard to the Vinarol, Thermal Carb, and Glucotrin schemes, although the Amended Complaint contains allegations that the products were misrepresented by call center customer service representatives, there is no allegation that the Defendants encouraged, approved of, or benefited from this misrepresentation. For example, several paragraphs simply allege that customer service representatives “were instructed” to misrepresent these products. Am. Compl. ¶ 433, 439, 479. The paragraphs do not state that the instructions were given by “the Defendants” collectively, much less by any one Defendant. Furthermore, apart from alleging that Alpine and Mr. Weaver, Mr. Maguy and Mr. Adams “control” Great Falls Marketing, the call centers’ current name, id. ¶462, and that the DeWolfes, Mr. Weaver, Mr. Adams, Mr. Stanek, Mr. MacCheyne knew that Vinarol contained sildenafil citrate, the Defendants’ names do not appear in the Amended Complaint’s description of the Vinarol, Thermal Carb and Glucotrin schemes. Id. ¶¶ 413-418. As it relates to the Vinarol, Thermal Carb, and Glucotrin, the Amended Complaint does not include a description of a media funding scheme similar to the one alleged to have been perpetrated on MyFreeMedicine by the Defendants, or allege that “unqualified members” of the public were enrolled and billed for these products. Vinarol, Thermal Carb, and Glucotrin are not prescription medications, and the alleged victims of the Vinarol, Thermal Carb, and Glucotrin schemes were not low-income individuals. In addition, the Amended Complaint does not include allegations that the owners of the Vinarol, Thermal Carb, and Glucotrin products were duped, like MyFreeMedicine, into engaging in a media funding campaign. The Vinarol, Thermal Carb, and Glucotrin schemes may not be used as predicate acts in this case as the Amended Complaint has not sufficiently alleged that these schemes involved the same participants, victims, or methods.
Although the Plaintiffs’ allegations regarding the Avacor scheme include slightly more details than their allegations regarding the Vinarol, Thermal Carb, and Glucotrin schemes, the Avacor scheme cannot be used as a predicate act to the MyFreeMedicine scheme. Apart from a statement that “James DeWolfe knew and told others, including the staff and employees, that Avacor had Minoxidil in it,” the description of the Avacor scheme does not include allegations that the Defendants collectively or individually encouraged call center representatives to misrepresent the product. Am. Compl. ¶ 372. The Plaintiffs attempt to describe a media funding scheme similar to the one involving MyFreeMedicine and Quigley Simpson, but they have failed to connect the dots between Global Vision Products, Avacor, and Alpine. Id. ¶¶ 376-382. The Plaintiffs have not explained the relevance of Global Vision Products.
The Plaintiffs allege that “[t]he 121 Mill Street Enterprise misrepresented to the public” that Avacor was “all natural,” “contained no chemicals,” and had “no side effects.” Id. ¶¶ 365, 366, 367. Like the RICO action, the Plaintiffs must plead predicate acts of fraud with particularity. Simply claiming that the Enterprise engaged in misrepresentations is insufficient. It is well established in the First Circuit that predicate acts of mail fraud alleged in civil RICO actions must be pleaded with particularity in accordance with the requirements of Rule 9(b) of the Federal Rules of Civil Procedure. See Ahmed v. Rosenblatt, 118 F.3d 886, 889 (1st Cir.1997) (citing Feinstein, 942 F.2d at 42; New England Data Servs., 829 F.2d at 290.) Under the First Circuit’s interpretation of Rule 9(b)’s particularity requirement, a civil RICO plaintiff alleging predicate acts of mail fraud must specify the time, place, and content of allegedly false mail communications. See Ahmed, 118 F.3d at 889; Doyle v. Hasbro, 103 F.3d 186, 194 (1st Cir.1996); New England Data Servs., 829 F.2d at 288, 290. The Plaintiffs have failed to do this.
The First Circuit has devised a special approach for civil RICO cases in which alleged predicate acts of mail and/or wire fraud fail to meet the standard required under Rule 9(b). In such cases, “a district court should make a second determination as to whether further discovery is warranted and, if so, the plaintiff should be provided with the opportunity to amend the complaint after the completion of this discovery.” Ahmed, 118 F.3d at 890 (citing New England Data Servs., 829 F.2d at 290); see also Feinstein, 942 F.2d at 43. A plaintiff is not, however, automatically entitled to such discovery and opportunity to amend. See Ahmed, 118 F.3d at 890; Feinstein, 942 F.2d at 44. For example, when a plaintiff “fail[s] to supply specific allegations which would indicate that critical information was in the sole possession of the defendants,” he or she may not be entitled to discovery or the opportunity to amend. See Ahmed, 118 F.3d at 890. Moreover, the First Circuit has stated that “in a RICO action where fraud has not been pleaded against a given respondent with the requisite specificity and Rule 9(b) has been flouted, dismissal should follow as to that respondent unless the plaintiff, at a bare minimum, suggests to the district court, in a timely manner, that a limited period of discovery will likely allow him to plug the holes in the complaint and requests leave (i) to conduct discovery for this limited purpose and (ii) thereafter to amend his complaint. It is only then that a district court must take a second look to ascertain whether a particular case is ‘appropriate’ for the special unguent of deferral.” Feinstein, 942 F.2d at 44 (internal citation omitted).
In this case, the Plaintiffs have already had an opportunity to amend their complaint. Even so, the Amended Complaint does not explain how the Defendants’ involvement in the other health care related schemes amounts to fraud. Furthermore, the Plaintiffs have not alleged that the Defendants have critical information within their possession. Consistent with Feinstein, the Plaintiffs have not convinced the Court that they should be given the opportunity to engage in limited discovery and to amend their complaint for a second time. The facts relating to the other health care product schemes, as alleged do not contain “any demonstrable imbrication” with the facts of the MyFreeMedicine scheme, and they are not sufficiently related. Feinstein, 942 F.2d 34, 45.
Having failed to demonstrate that the racketeering predicates involve acts of fraud related to the alleged MyFreeMedicine scheme, the Plaintiffs RICO claims must be dismissed for lack of a “pattern of racketeering activity.” The Plaintiffs other objections are without merit.
6. DeWolfe Brothers
Turning to the additional facts alleged against the DeWolfe Brothers, the Magistrate Judge pointed out that those against James DeWolfe include that
he controlled the customer service representatives who spoke to MyFreeMedicine customers, First Amended Complaint ¶ 212; he exercised managerial control over or participated in all aspects of the call center in its “early days,” id. ¶ 215; he implemented the technique of misrepresenting MyFreeMedicine as a government program and as part of the official training for customer service representatives, without disclosing it to the plaintiffs, id. ¶ 497; and he “orchestrated” several telephone conference calls in 2004 during which he suggested that Alpine emulate the success of Avacor with MyFreeMedicine, id. ¶ 545.
Rec. Dec. at 16-17. The additional facts alleged against Frank DeWolfe include that
he prepared and transmitted weekly invoices to the plaintiffs seeking payment for calls in which the Enterprise misrepresented MyFreeMedicine to customers, id. ¶ 200, and he made the false representation to the plaintiffs that Advance-Tel Direct was “hoping to see a steady increase in calls as our agents are feeling much better about the calls,” id. ¶¶ 205-06.
Rec. Dec. at 17. None of these additional facts changed the Magistrate Judge’s earlier analysis of the claims against the De-Wolfes. In his first Recommended Decision, the Magistrate Judge noted that “a long line of cases interprets RICO to require that the alleged fraudulent conduct be the direct cause of the plaintiffs injury