Where a partner in a Richmond real estate development allegedly engaged in multiple acts of bank fraud, money laundering and fraud, individually or through his controlled entities, that plausibly establish a “pattern of racketeering activity.” As such, his motion to dismiss a claim under the Racketeer Influenced and Corrupt Organization, or RICO, was denied.
SS Richmond LLC and MK Richmond LLC bring this action against Christopher A. Harrison, The C.A. Harrison Companies LLC, CAH Model Tobacco LLC and McKenzie Blake Development Company LLC, alleging violations of the Racketeer Influenced and Corrupt Organization, or RICO; securities fraud and dissociation claims; as well as common law breach of contract, fraud and fraud by concealment claims.
Defendants bring counterclaims against plaintiffs in the same action, seeking dissociation of plaintiffs from Model Tobacco Developer LLC and Model Tobacco Development Group LLC, a request for a declaration of rights as to the validity of the amended operating agreement and a breach of contract claim. Before the court are motions to dismiss.
A violation of § 1962 “requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Defendants attack plaintiffs’ third prong. Because plaintiffs allege “more than fifty racketeering acts over a period of four and a half years,” including 33 acts of bank fraud, numerous acts of money laundering and additional acts of fraud, the court finds that plaintiffs allege a series of predicate acts by Harrison, individually or through his controlled entities, that plausibly establish a “pattern of racketeering activity.”
Federal securities fraud
Defendants’ motion to dismiss challenges plaintiffs’ securities fraud claim on three grounds: (1) the applicable statute of limitations bars the claim for relief; (2) plaintiffs insufficiently pled the existence of a false statement or omission of a material fact and scienter and (3) existing contracts between the parties supersede statements made during negotiations which give rise to the alleged fraud. The court finds none of the arguments persuasive.
Virginia securities fraud
Defendants argue that because plaintiffs’ fraud claims arise out of an alleged breach of contract, the court should dismiss the claims under Virginia law. But if a defendant breaches both a contractual duty and a legal duty separately imposed by law, “i.e., the duty not to commit fraud,” then the economic loss rule cannot shield the defendant.
Here, the amended complaint specifically pleads that defendants “never intended to” credit plaintiffs with $431,300 to offset a reduction in an unrelated debt. The amended complaint thus alleges that Harrison knew that his statements were false at the time and intentionally made them to defraud plaintiffs. As such, plaintiffs have sufficiently pled fraud independent of their breach of contract claims.
Defendants further attack plaintiffs’ fraud claim for failure to plead intent to mislead. But, as explained above, the amended complaint specifically pleads that defendants “never intended to” credit plaintiffs with $431,300 and Harrison knew that his statements were false at the time and intentionally made them to defraud plaintiffs. Defendants urging of the court to require “clear, cogent, and convincing proof” of the allegations finds no place at the Rule 12(b)(6) stage.
Defendants also challenge Count Eight, alleging fraud by concealment, arguing that plaintiffs failed to sufficiently plead defendants’ intent to conceal the purchase of the Brinser Street Property, the transaction upon which plaintiffs base the claim. At this stage, the court only tests the sufficiency of the allegations pled in the complaint. Yet, defendants urge the court to do the opposite: to weigh evidence and look outside of the four comers of the amended complaint. The court declines to do both.
Defendants also argue that plaintiffs failed to plead damages as a result of the concealment. However the amended complaint contains specific dollar amounts, dates, recipients and effects of the fraud with particularity to sufficiently plead plaintiffs’ damages to survive a motion to dismiss under Rule 12(b)(6).
Plaintiffs argue that defendants have not themselves suffered any harm as a result of the alleged breach of contract but rather the non-party entity MT Development allegedly suffered damage. The court agrees.
Defendants’ counterclaim alleges that “Model Tobacco Development Group, LLC will incur expenses in excess of $75,000.” Thus, MT Development is the proper party to bring this claim, not defendants. This does not change with the fact that defendants are members of or affiliated with MT Development.
Plaintiffs’ motion to dismiss counterclaim granted. Defendants’ motion to dismiss denied.
SS Richmond LLC v. Harrison, Case No. 3:22-cv-405, Nov. 9, 2022. EDVA at Richmond (Novak). VLW 022-3-506. 42 pp.