Flores v. Osaka Health Spa, Inc.

Citations: 474 F. Supp. 2d 523; 2007 WL 530123Docket: 05 CIV. 0962(VM)

Court: District Court, S.D. New York; February 17, 2007; Federal District Court

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In the case 474 F.Supp.2d 523 (2007), Floren Basco Flores (plaintiff) filed a motion to dismiss a counterclaim made by defendant Nam-Hi Lee in the context of a Fair Labor Standards Act (FLSA) and New York labor law violation lawsuit. Lee, who represented herself, claimed fraud and a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). The Court, presided over by District Judge Marrero, considered a Report and Recommendation from Magistrate Judge Kevin N. Fox, which recommended granting Flores' motion to dismiss Lee's counterclaim due to Lee's failure to plead fraud with particularity and lack of standing for the RICO claim.

Lee did not object to the Report, which led the Court to adopt it in full. The Court found that the factual and legal bases for the Report's recommendations were not clearly erroneous after reviewing the full record. Consequently, the Court ordered the dismissal of Lee's counterclaim against Flores. The background established that Flores, employed as a masseuse by the defendants from May to November 2004, alleged she worked excessive hours without appropriate compensation.

Flores claims that the defendants unlawfully confiscated all gratuities she earned from customers, regardless of whether they were paid directly or indirectly. She initiated legal action to recover unpaid wages and misappropriated gratuities. Flores alleges that Lee is liable for damages as she had operational control over Osaka Health Spa Center, Inc., the entity that employed Flores. In her response, Lee denied most allegations but acknowledged that Flores was a former employee and that she has familial ties to other defendants.

Lee counterclaimed, accusing Flores of engaging in fraudulent activities, conspiring to violate the RICO statute, and committing substantive RICO violations. Lee's allegations include a conspiracy between Flores and her attorney to inflict financial harm on the defendants through deceptive claims. Lee claims that starting in November 2004, they participated in a pattern of racketeering, which involved soliciting employees and demanding settlement negotiations.

Flores argues that Lee's counterclaim lacks sufficient particularity in pleading fraud as required for a civil RICO claim and fails to establish essential elements of fraud, such as detrimental reliance on false statements or damages resulting from the alleged actions.

The legal standard for dismissing a claim under Fed. R.Civ. P. 12(b)(6) requires that the plaintiff's allegations be accepted as true and interpreted favorably. The court can consider documents attached to the complaint and must apply less stringent standards for pro se litigants, interpreting their pleadings liberally to identify potential claims. Additionally, Fed. R.Civ. P. 9(b) mandates that fraud claims be stated with particularity, although intent and knowledge may be alleged more generally.

To meet the heightened pleading standard for fraud under the Second Circuit, a complaint must (1) specify the fraudulent statements, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements are fraudulent. The pleading party must also demonstrate a strong inference of fraudulent intent either by showing the defendant's motive and opportunity to commit fraud or by providing strong circumstantial evidence of conscious misbehavior or recklessness. In Lee's case, while she identified Flores as the speaker of alleged fraudulent calls and noted a settlement letter from Flores' attorney, she did not specify the fraudulent statements, detail where and when they were made, or explain their fraudulent nature. Additionally, Lee's claims regarding Flores' pretrial discovery demands lacked sufficient factual assertions to establish fraud. Consequently, Lee has not adequately pleaded fraud as required by Fed. R.Civ.P. 9(b).

Regarding standing to assert a RICO claim, a plaintiff must demonstrate (1) the defendant's violation of 18 U.S.C. 1962, (2) an injury to the plaintiff's business or property, and (3) that the injury was caused by the defendant's violation. A plaintiff shows standing by establishing that the RICO violation was both the legal and proximate cause of the injury. Proximate causation requires that the injury be directly caused by racketeering activity and that it was foreseeable. Lee's counterclaim alleges a conspiracy to engage in racketeering activity, including extortion under the Hobbs Act, which prohibits obstructing commerce through robbery or extortion. Extortion involves obtaining property from another through wrongful use of force or fear. A private individual can commit extortion under the Hobbs Act by using or threatening force to obtain property.

The Hobbs Act extortion provision necessitates both deprivation and acquisition of property to establish extortion. A plaintiff must show that the alleged extortionist sought or received something of value that could be exercised, transferred, or sold. Violations of the Hobbs Act qualify as predicate acts for civil RICO claims. Lee claims that the plaintiff engaged in extortion through phone calls to employees and a settlement solicitation letter, asserting these acts support her RICO claim. However, Lee failed to demonstrate any injury to her business or property linked to the alleged RICO violation. Additionally, she did not assert ownership or control over any business or property rights that could have been impacted by the alleged actions, which is necessary to establish standing for her RICO claim. Consequently, the court concludes that Lee's lack of specific allegations regarding property rights, injury, and causal connection to a RICO violation undermines her standing. The recommendation is to grant the plaintiff's motion to dismiss Lee's counterclaim. The document also details the process for filing objections to this recommendation, stipulating a ten-day window for submission and the consequences of failing to do so.