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5 6 7 8 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 9 AT TACOMA 10 11 BAINBRIDGE TAXPAYERS UNITE, a CASE NO. 3:22-cv-05491-TL Washington non-profit corporation; LEE 12 ROSENBAUM, an individual; JANICE ORDER GRANTING IN PART AND PYKE, an individual; and MICHAEL 13 POLLOCK, an individual, DENYING IN PART MOTION TO DISMISS 14 Plaintiffs, v. 15 THE CITY OF BAINBRIDGE ISLAND, a 16 municipal corporation; KOLBY MEDINA, an individual; MORGAN SMITH, an 17 individual; and JOHN AND JANE DOES 1-100, other unknown individuals or legal 18 entities who participated in the complained of conduct, 19 Defendants. 20
22 23 This matter comes before the Court on Defendants City of Bainbridge Island, Kolby 24 Medina, and Morgan Smith’s motion to dismiss (Dkt. No. 12). Having reviewed the relevant 1 record and governing law, the Court GRANTS the motion IN PART with respect to Plaintiffs 2 Bainbridge Taxpayers Unite, Lee Rosenbaum, Janice Pyke, and Michael Pollock’s Racketeer 3 Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. (RICO) claims, GRANTS 4 leave to amend the RICO claims as specified, and DEFERS ruling on the state court claims.
5 I. BACKGROUND 6 On June 2, 2022, Plaintiffs filed this suit in Kitsap County Superior Court. Dkt. No. 1-1. 7 Plaintiffs Lee Rosenbaum and Janice Pyke are residents of the City of Bainbridge Island who 8 had hoped to sell a property they owned at Yaquina Avenue to the City. Id. ¶¶ 2, 3, 15. Plaintiff 9 Michael Pollock is a current City of Bainbridge Island City Council member who filed an 10 anonymous Complaint with the City’s Ethics Board in September 2020 (Ethics Board 11 Complaint), regarding much of the same conduct alleged in the complaint in this case. Id. ¶¶ 4, 12 34; Dkt. No. 12 at 1, 4–5. Plaintiff Bainbridge Taxpayers Unite (BTU) is a Washington nonprofit 13 corporation alleged to consist of “individuals who reside in the City of Bainbridge Island who 14 have been, and will continue to be, directly impacted by the illegal actions of the Defendants.”
15 Dkt. No. 1-1 ¶ 1. Plaintiff Pollock is a BTU member. Id. ¶ 56. 16 Plaintiffs allege that former City of Bainbridge Island City Council member Kolby 17 Medina, former City Manager Morgan Smith, and others (as part of “the Medina enterprise”) 18 engaged in misconduct that induced the City Council to purchase an exorbitantly priced property 19 owned by Harrison Medical Center (HMC) for a new police and municipal court facility. Id. ¶¶ 20 6–8, 11–12, 16, 30–33, 41–42. Plaintiffs claim that Medina and Smith materially misrepresented 21 the cost of their proposal to purchase the HMC site at 8804 Madison Avenue North on 22 Bainbridge Island (the Harrison proposal). Id. ¶¶ 12, 21–23. 23 According to the complaint, HMC’s facility was operating at an annual loss and its
24 owners “began exploring ways to dispose of the liability, through discussions with Medina” and 1 others. Id. ¶ 12. At the time the City of Bainbridge Island purchased the HMC site, Medina was 2 serving as its mayor and was on the City Council. Id. ¶ 6, 13. Smith was serving as the City 3 Manager. Id. ¶¶ 7, 16. Medina allegedly had a financial interest in HMC from working as an 4 attorney who “has performed or overseen the performance of work for HMC and its parents,
5 affiliates, agents, principals, executives and employees” and through his paid work as President 6 and CEO of the Kitsap Community Foundation, which shared leadership with HMC and received 7 substantial donations and other support from HMC leaders. Id. ¶¶ 13, 19–20. Plaintiffs contend 8 that representatives of HMC’s parent company CHI Franciscan Health approached City 9 representatives to offer to sell the failing healthcare facility for use as the new police-court 10 facility in 2017 or even earlier. Id. ¶ 14. During a 2018 city council meeting, Medina allegedly 11 pressured other City Council members to consider only the HMC site for the police-court facility 12 instead of also considering a competing site owned by Plaintiffs Rosenbaum and Pyke at 13 Yaquina Avenue. Id. ¶ 15. The complaint further asserts that Medina, Smith, and their staff 14 presented “material, false, and intentionally misleading” estimates prepared by Coates Designs, a
15 group without prior experience with municipal buildings. Id. ¶¶ 11, 16. At the meeting, Medina 16 and Smith purportedly falsely claimed that the Yaquina site could cost over twice as much as the 17 HMC site (“an estimated $34 million, excluding land costs” compared to “as little as $15.3 18 million”) and concealed Medina’s and Coates Designs’ financial interests in selecting the HMC 19 site. Id. ¶¶ 16, 18. 20 In 2019, the City Council again met to consider “the two alternatives” for the police-court 21 facility. Id. ¶ 21. Plaintiffs allege that Medina, Smith, their staff, and Coates Design all knew that 22 the appraisals showing the Yaquina Avenue site to be more costly were flawed because they 23 inflated the value of the HMC site, didn’t reflect the cost of retrofitting the HMC property as a
24 police-court facility, and minimized the much larger size of the proposed Yaquina site. Id. ¶¶ 1 22–25. On January 29, 2019, the City Council voted 4-3 in favor of the Harrison proposal, and 2 Medina did not recuse himself from the vote. Id. ¶¶ 26–27. On January 31, 2020, the City of 3 Bainbridge Island entered into a contract with CHI Franciscan to purchase the HMC site. Id. ¶ 4 29. Medina allegedly engaged in back-room negotiations in violation of Washington State Public
5 Meeting laws to negotiate the sale price of the HMC site. Id. Medina and Smith also allegedly 6 instructed independent appraisers who were evaluating the HMC site to incorrectly assume its 7 continued use as a medical facility “so the value would be artificially high, and look better in 8 comparison to [the] Yaquina [site].” Id. ¶ 30. 9 Plaintiffs contend that the City lost money by overpaying for the HMC site, incurring 10 millions of dollars in municipal bond costs to cover that purchase, and renovating the site—costs 11 totaling over $23 million. Id. ¶¶ 30, 32–33. Plaintiff Pollock filed a formal Ethics Board 12 Complaint against Medina related to the alleged undisclosed conflict of interest in the HMC site, 13 incurring $8,000 in attorney fees. Id. ¶ 34–36. Plaintiffs represent that in their response to the 14 Ethics Board Complaint “the City admitted that Medina had violated the Ethics Code, but made
15 clear that it was not interested in investigating the matter or evaluating its options, including 16 contractual recission as void as a matter of law” since Medina was no longer on the Council. Id. 17 ¶ 35. Plaintiffs cite an example of a time when the City Attorney advised Medina to recuse 18 himself from voting in cases where “there’s money going from one entity to another, if you think 19 there’s the potential for the perception of a conflict” when Medina disclosed a potential conflict 20 which was less significant than the Harrison proposal conflict.1 Id. ¶ 37. 21 22
23 1 The previous conflict arose when the City Council was voting on the Kitsap Humane Society’s recommended updates to the municipal animal control code. Dkt. No. 1 ¶ 37. Kitsap Community Foundation had previously given 24 grants to the Kitsap Humane Society. Id. 1 Plaintiffs have sued Medina, Smith, and the City of Bainbridge Island2 seeking damages 2 pursuant to their civil RICO claims, a judgment declaring Defendant Medina’s actions a 3 violation of Washington’s Code of Ethics for Municipal Officers statute, a judgment declaring 4 the City’s contract with CHI void, an injunction barring the City of Bainbridge Island from
5 executing further contracts arising out of the Harrison proposal, and recovery of attorney fees 6 and costs. Id. at 15–16. 7 Defendants removed the case to this Court on July 6, 2022. Dkt. No. 1. On July 14, 2022, 8 Defendants filed the instant motion to dismiss under: (1) Rule 12(b)(6) for failure to state a claim 9 upon which relief can be granted on grounds that it “lacks a cognizable legal theory” or “fails to 10 allege sufficient facts to support a cognizable legal theory,” and (2) Rule 12(b)(1) for lack of 11 subject matter jurisdiction on standing grounds. Dkt. No. 12 at 6 (citations omitted). On 12 November 15, 2022, the Court held oral argument on the motion to dismiss. Dkt. No. 30. 13 II. LEGAL STANDARD 14 When a plaintiff “fails to state a claim upon which relief can be granted,” a defendant
15 may move for dismissal. Fed. R. Civ. P. 12(b)(6). In reviewing a 12(b)(6) motion to dismiss, the 16 Court takes all well-pleaded factual allegations as true and considers whether the complaint 17 “state[s] a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 18 (2009) (citation and quotation marks omitted); accord Bell Atlantic Corp. v. Twombly, 550 U.S. 19 544, 555–56 (2007). While “[t]hreadbare recitals of the elements of a cause of action, supported 20 by mere conclusory statements” are insufficient, a claim has “facial plausibility” when the party 21 seeking relief pleads factual content that “allows the court to draw the reasonable inference that 22 the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. 23 2 Plaintiffs have also included Doe defendants who may have “participated in” or “benefited from” the misconduct 24 they describe in the complaint. Dkt. No. 1-1 ¶ 8. 1 Civil RICO claims based on fraud are subject to a heightened pleading standard under 2 Rule 9(b), which requires “the circumstances constituting fraud . . . be stated with particularity.” 3 See Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1401 (9th Cir. 1986); 4 Fed. R. Civ. P. 9(b). The complaint must “state the time, place, and specific content of the false
5 representations as well as the identities of the parties to the misrepresentation.” Odom v. 6 Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) (citations omitted), cert. denied, 552 U.S. 7 985. This heightened pleading requirement applies to RICO claims. See Lancaster Cmty. Hosp. 8 v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir. 1991), cert. denied, 502 U.S. 1094 9 (1992). 10 A motion to dismiss can also be brought where subject matter jurisdiction is lacking. See 11 Fed. R. Civ. P. 12(b)(1). The Court must dismiss a case if it determines that it lacks subject 12 matter jurisdiction “at any time.” Fed. R. Civ. P. 12(h)(3). 13 III. DISCUSSION 14 A. The Conferral Requirement
15 Plaintiffs ask the Court to deny the motion to dismiss because Defendants failed to “make 16 a meaningful effort to confer” with them prior to filing the motion. Dkt. No. 17 at 5, n.1. 17 Plaintiffs contend that Defendants did not indicate that they would be moving to dismiss the state 18 law claims, and while Defendants asked Plaintiffs whether they needed an opportunity to amend 19 the complaint, “they did not discuss the legal arguments that they intended to make in their 20 motion.” Id. Defendants claim that they meaningfully met and conferred with Plaintiffs, speaking 21 with opposing counsel over the phone and even delaying filing of their motion to dismiss “to 22 allow full consideration of whether to amend.” Dkt. No. 20 at 3, n.3. 23 This Court’s standing order requires parties to include a certificate of conferral with any
24 motion to dismiss. Judge Tana Lin, Standing Order for All Civil Cases, Sections II(D), II(I) (last 1 updated April 26, 2022), https://wawd.uscourts.gov/judges/lin-procedures. Alongside their 2 motion to dismiss, Defendants included a certification that on July 11, 2022, their counsel 3 conferred with Plaintiffs’ counsel via telephone. Dkt. No. 12 at 24. Defense counsel avers that 4 Plaintiffs’ counsel emailed to confirm that they did not need an opportunity to amend the
5 complaint the day before Defendants filed their motion. Id. Plaintiffs do not contest this email 6 exchange, nor do they provide any specific reason why they were prejudiced or otherwise 7 surprised that Defendants moved to dismiss the state law claims as well as the RICO claims. See 8 Dkt. No. 17. The Court is satisfied that the conferral requirement was met for purposes of the 9 instant motion but encourages counsel to be more precise in communications with each other as 10 this case progresses to avoid having to raise further disagreements to the Court’s attention. 11 B. The Relevant Record
12 Defendants have appended materials to their motion that were neither filed alongside nor 13 hyperlinked in the complaint: (1) the decision on Plaintiff Pollock’s Ethics Board Complaint and 14 (2) a Washington Attorney General opinion from 1973. See Dkt. Nos. 12-1, 12-2. They also refer 15 to (and include the hyperlink for) an appraisal obtained by the owner of the HMC site. Dkt. No. 16 12 at 4. 17 Generally, a district court may only consider the pleadings when ruling on a 12(b)(6) 18 motion to dismiss; otherwise, it must convert the motion to dismiss into a motion for summary 19 judgment. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001). However, courts may properly 20 consider the following extrinsic evidence when ruling on a 12(b)(6) motion: (1) “material which 21 is properly submitted as part of the complaint;” (2) documents not physically attached to the 22 complaint on which the complaint “necessarily relies” and whose authenticity is not contested; 23 and (3) matters of public record. Id. at 688–89; see also Allen v. Wilmington Trust, N.A., 735 F.
24 App’x 422, 423 (9th Cir. 2018) (describing Lee v. City of L.A. as setting forth the circumstances 1 under which a district court may take judicial notice in ruling on a motion to dismiss for failure 2 to state a claim). A court may consider unattached documents on which a complaint “necessarily 3 relies” where: (1) the complaint refers to the document; (2) the document is central to the 4 plaintiff’s claims, and (3) no party questions the authenticity of the document.” U.S. v.
5 Corinthian Colls., 655 F.3d 984, 999 (9th Cir. 2011) (citations omitted). 6 Matters of public record may be judicially noticed so long as they are not “subject to 7 reasonable dispute.” Id. (quoting Fed. R. Evid. 201(b) and Lee v. City of L.A., 250 F.3d at 689). 8 A fact is not subject to reasonable dispute if it is (1) “generally known” within the territorial 9 jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to 10 sources whose accuracy cannot reasonably be questioned. Fed. R. Evid. 201(b). 11 1. Consideration of the Ethics Board Complaint and the Ethics Board’s Decision 12 Defendants note that because the complaint in this case “references and relies upon, but 13 does not attach” an Ethics Board Complaint filed with the City of Bainbridge Island’s Ethics 14 Board and the Board’s decision, the Court can consider those documents. Dkt. No. 12 at 3. The 15 Court notes that the civil case complaint references and includes a hyperlink for the Ethics Board 16 Complaint and also references the Ethics Board’s decision without including that decision as a 17 link or attachment. See Dkt. No. 1-1 ¶¶ 34–35. Plaintiffs do not contest Defendants’ 18 representation that the Court may consider the Ethics Board’s decision and seem to encourage 19 the Court to consider the text of the Ethics Board Complaint. See Dkt. No. 17 at 10 (Plaintiffs’ 20 response brief discussing how the Court should interpret the Ethics Board Complaint, without 21 raising an issue about the Court’s consideration of the Ethics Board Complaint or related 22 decision). The Ethics Board Complaint and the Ethics Board’s decision are referred to in the 23 24 1 complaint, are central to Plaintiffs’ claims,3 and Plaintiffs have not questioned the authenticity of 2 the documents when they had an opportunity to do so. The Court thus TAKES NOTICE of the 3 Ethics Board Complaint and the Ethics Board’s decision in this decision. 4 The Ethics Board Complaint was filed by Plaintiff Pollock anonymously, which led the
5 Ethics Board to grant it less credibility. Dkt. No. 12-1 at 1, 5–7; Dkt. No. 1-1 ¶ 34. The Ethics 6 Board Complaint was lodged on September 15, 2020, (Dkt. No. 12-1 at 1) and centered on two 7 contracts the City Council awarded to groups with whom Defendant Medina had purportedly 8 held improper and undisclosed connections; one of those contracts was the contract to build the 9 police-court facility at the HMC site. Id. at 1–3. Though the Ethics Board Complaint alleged 10 multiple violations of the City of Bainbridge Island’s Code of Conduct and Ethics Program, it 11 conspicuously did not include any allegations that Defendant Medina or his family received any 12 financial benefit based on his vote on the HMC contract. Id. Defendant Medina responded that 13 “[i]n order for me to have violated the Ethics Code, I must have had an actual financial or private 14 interest in a vote that I took.” Id. at 4.
15 The Ethics Board found that the Ethics Board Complaint lacked reasonable credibility 16 and that even if true, the facts presented would not constitute an ethics violation. Id. at 5–8. 17 Specifically, the Board said it would be “irresponsible” of them to assume connections that had 18 not been demonstrated (such as assuming that Defendant Medina had received increased pay or 19 otherwise personally benefit from contributions made to the Kitsap Community Foundation). Id. 20 at 6–7. While the Board found credible that the Foundation had an anonymous donor whom 21 Defendant Medina did not disclose on his public finance disclosures, it concluded that “those 22
23 3 The Ethics Board decision undermines Plaintiffs’ allegations that Medina acted in a corrupt manner as a City official, and the incurrence of legal fees to file the Ethics Board Complaint is the proffered basis for RICO standing 24 for Plaintiff Pollock. 1 facts, even if true” did not violate the City of Bainbridge Island Code of Conduct and Ethics 2 Program. Id. at 8. The Board dismissed the Ethics Board Complaint. Id. 3 2. Consideration of the Omitted Appraisal 4 Defendants ask the Court to take judicial notice of an appraisal that valued the HMC
5 property at $9.7 million. Dkt. No. 12 at 4. The appraisal is a matter of public record that is not 6 subject to reasonable dispute; it was included on the agenda packet (available online) for the City 7 Council’s March 26, 2019, meeting. See id. Plaintiffs do not contest the Court’s judicial notice of 8 this document. See Dkt. No. 17. The Court thus TAKES NOTICE of the appraisal. 9 3. Consideration of the Attorney General Opinion
10 Defendants do not provide context for their enclosure of a 1973 opinion by the state of 11 Washington’s Attorney General. See Dkt. No. 12. The opinion provided guidance on a question 12 from the King County Prosecuting Attorney regarding whether RCW 42.23.010 et seq. prohibits 13 certain municipal contracts due to municipal leaders’ “beneficial interests” in those contracts 14 based on specific circumstances. Dkt. No. 12-2 at 1. Defendants contend that Medina’s conduct 15 “cannot violate RCW 42.23.030” because he did not have a beneficial financial interest in the 16 City’s contract with HMC. Dkt. No. 12 at 21. As explained in Part III.C.1.b.1 infra, RCW 17 42.23.030 cannot be a basis for the civil RICO claims alleged. A request for judicial notice may 18 be properly denied if an exhibit is “irrelevant or unnecessary to deciding the matters at issue.” 19 Nyelon v. Cnty. of Inyo, No. 16-712, 2016 WL 6834097, at *4 (E.D. Cal. Nov. 21, 2016) (citing, 20 inter alia, Adriana Int’l Corp. v. Thoeren, 913 F.2d 1406, 1410 n.2 (9th Cir. 1990) (declining to 21 take judicial notice of a separate action that was irrelevant to the case), cert. denied, 498 U.S. 22 1109 (1991)). Because the Court need not consider whether Medina violated RCW 42.23.030, it 23 DECLINES TO TAKE JUDICIAL NOTICE of the Attorney General’s opinion at this time.
24 1 C. RICO Claims
2 The only federal law claims presented in the complaint are a civil RICO claim under 18 3 U.S.C. § 1962(c) and a RICO conspiracy claim under 18 U.S.C. § 1962(d). See Dkt. No. 1-1 at 4 20–24. 5 1. RICO Claim Under 18 U.S.C. § 1962(c) 6 To establish a civil RICO violation, a plaintiff must show “(1) conduct (2) of an 7 enterprise (3) through a pattern (4) of racketeering activity (known as ‘predicate acts’) 8 (5) causing injury to plaintiff’s business or property.” United Brotherhood of Carpenters & 9 Joiners of Am. v. Bldg. & Constr. Trades Dep’t, AFL-CIO, 770 F.3d 834, 837 (9th Cir. 2014) 10 (quoting Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir. 11 2005), cert. denied, 547 U.S. 1192 (2006)). Defendants seek dismissal of Plaintiffs’ RICO claims 12 on multiple grounds: (1) lack of standing, (2) failure to allege appropriate predicate acts, 13 (3) failure to allege a pattern of racketeering activity, and (4) failure to allege interstate activity. 14 Dkt. No. 12 at 7.
15 a. Standing 16 “To have standing under § 1964(c), a civil RICO plaintiff must show: (1) that his alleged 17 harm qualifies as injury to his business or property; and (2) that his harm was ‘by reason of’ the 18 RICO violation, which requires the plaintiff to establish proximate causation.” Canyon Cnty. v. 19 Syngenta Seeds, Inc., 519 F.3d 969, 972 (9th Cir. 2008) (citing Holmes v. Sec. Inv. Prot. Corp., 20 503 U.S. 258, 268 (1992) and Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)), cert. 21 denied, 555 U.S. 970. Under RICO, a plaintiff “only has standing if, and can only recover to the 22 extent that, he has been injured in his business or property by the conduct constituting the 23 violation.” Sedima, 473 U.S. at 496.
24 1 Plaintiffs claim to have suffered three cognizable injuries: (1) Plaintiffs Rosenbaum and 2 Pyke lost the opportunity to sell their property at Yaquina Avenue to the City Council for 3 $1,200,000; (2) Plaintiff Bainbridge Taxpayers Unite, “as a group of taxpayers,” are indirect 4 victims of the alleged racketeering activity;4 and (3) Plaintiff Pollock accrued approximately
5 $8,000 in attorney fees to file the Ethics Board Complaint. Dkt. No. 17 at 5–11. 6 (1) Lost Opportunity to Sell 7 Plaintiffs claim “the process was rigged in favor of HMC” and “the City Council never 8 properly considered purchasing from Rosenbaum and Pyke.” Id. at 5. They contend that the City 9 Council was choosing between the HMC property and the Yaquina property, such that “if not for 10 Defendants’ actions,” the City would have purchased the Yaquina property and Plaintiffs 11 Rosenbaum and Pyke “would have received the proceeds of the sale.” Id. at 8. 12 “Without a harm to a specific business or property interest—a categorical inquiry 13 typically determined by reference to state law—there is no injury to business or property within 14 the meaning of RICO.” Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005), cert. denied sub nom.
15 Parks v. Diaz, 546 U.S. 1131 (2006). 16 Plaintiffs allege “depriv[ation] of the opportunity to sell the Yaquina property to the City, 17 untainted by illegal conduct.” Dkt. No. 17 at 7. Defendants note that though Washington law 18 “protects a business expectancy from tortious interference, that claim requires the existence of a 19 valid business expectancy.” Dkt. No. 12 at 10 (citing Commodore v. Univ. Mech. Contractors, 20 Inc., 120 Wash.2d 120, 137 (1992) and Life Designs Ranch, Inc. v. Sommer, 191 Wash. App. 21 320, 337 (2015)). Indeed, this district has previously found that Washington law recognizes “no 22
23 4 The complaint does not make clear whether the instant litigation was brought due to an injury to Bainbridge Taxpayers Unite or to its members. See Dkt. No. 1-1. In oral argument on the motion to dismiss, Plaintiffs’ counsel 24 clarified that the litigation was brought on behalf of the organization as an entity. 1 property right in the mere desire to obtain business, without a valid contract or concrete 2 expectation of gain.” Daley’s Dump Truck Serv., Inc. v. Kiewit Pac. Co., 759 F. Supp. 1498, 3 1503 (W.D. Wash. 1991); see also Beauregard v. Lewis Cnty., Wash., 329 F. App’x 710, 713 4 (9th Cir. 2009) (one element of a tortious interference claim under Washington law is “existence
5 of a valid contractual relationship or business expectancy”) (citing Pac. Nw. Shooting Park Ass’n 6 v. City of Sequim, 158 Wash.2d 342 (2006)). Plaintiffs do not peg their theory of harm on 7 tortious interference or on violations of any other state laws, but they do assert that Rosenbaum 8 and Pyke had an expectation that, but-for the purchase of the HMC property, the City would 9 have purchased the Yaquina property. See Dkt. No. 17 at 8. The complaint alleges that the City 10 was considering these “two alternatives” for the new facility and “[o]n January 29, 2019, a 11 special City Council meeting was held to decide between the Harrison and Yaquina proposals.” 12 Dkt. No. 1-1 ¶¶ 21, 26. In their reply, Defendants insist that because there was no competitive 13 bidding process for the proposal, the City did not simply face a binary choice between the HMC 14 and Yaquina properties. Dkt. No. 20 at 4–5. However, at this stage, the Court must accept
15 Plaintiffs’ allegation that the City would have otherwise purchased the Yaquina property as true. 16 Plaintiffs maintain that Defendants’ fraud and corruption caused a distortion of the 17 bidding process in which “the City chose the Harrison Proposal over Rosenbaum/Pyke’s without 18 proper consideration on the merits.” Dkt. No. 17 at 7 (citing Dkt. No. 1-1 ¶¶ 21–27). “Proximate 19 cause for RICO purposes requires ‘some direct relation between the injury asserted and the 20 injurious conduct alleged.’ ” In re: Volkswagen “Clean Diesel” Mktg., Sales Pracs., & Prods. 21 Liab. Litig., 842 F. App’x 112, 114 (9th Cir. 2021) (quoting Holmes, 503 U.S. at 269). Plaintiffs 22 Rosenbaum and Pyke allege that Defendants’ racketeering activities proximately caused them to 23 lose out on the opportunity to sell the Yaquina property to the City for $1,200,000. Dkt. No. 1-1
24 ¶ 26, 31, 50. Based on their representation that the City was choosing between the HMC and 1 Yaquina properties, they have sufficiently alleged that this injury was a foreseeable and direct 2 consequence of Defendants “inducing the City Council to vote to purchase the Property from 3 HMC.” See id. at ¶ 16. 4 Therefore, at this stage of the case where all well-pleaded factual allegations must be
5 accepted as true (Iqbal, 556 U.S. at 678), Plaintiffs Rosenbaum and Pyke have alleged an injury 6 sufficient to survive a motion to dismiss. 7 (2) Taxpayer Injury 8 The Ninth Circuit held that in RICO cases, the statute cannot be used “to recover for 9 derivative injuries because [a] plaintiff has no standing to assert a claim for injuries inflicted on a 10 different legal entity . . . that affect him only indirectly.” Uthe Tech. Corp. v. Aetrium, Inc., 739 11 F. App’x 903, 905 (9th Cir. 2018) (citing, inter alia, Sparling v. Hoffman Constr. Co. Inc., 864 12 F.2d 635, 640–41 (9th Cir. 1988)). In the context of RICO claims brought by shareholders, the 13 Circuit has held that injury faced by plaintiffs “due to their status as guarantors of the bonds 14 given by the corporation is also derivative of the harm to the corporation,” and thus the
15 shareholders lacked standing to sue. Sparling, 864 F.2d at 640–41. 16 The parties appear to agree that generally, taxpayers lack standing under RICO. Dkt. No. 17 12 at 11; see Dkt. No. 17 at 10. In a Seventh Circuit case, perhaps the only case on point, 18 plaintiffs paying a higher property tax rate had their RICO claims dismissed for lack of standing 19 because their injury was found to “derive[] from the County’s” injury. Carter v. Berger, 777 20 F.2d 1173, 1174 (7th Cir. 1985). Similarly, here, to the extent Plaintiff BTU has been harmed by 21 higher tax rates due to racketeering activities by Defendants, Plaintiffs have not demonstrated 22 that Defendants proximately caused injury to BTU rather than to the City of Bainbridge Island. 23 Still, the Seventh Circuit left open the possibility of recovery by taxpayers indirectly
24 injured by RICO violations, so long as they could show that “the directly injured party was under 1 the continuing control or influence of the defendant or his henchmen.” Id. at 1178. The only 2 allegation in the instant complaint supporting Defendants’ continuing control of the City of 3 Bainbridge is that the City has failed “to take steps to void the Contract, notwithstanding the 4 significant damage suffered by the City and its taxpayers.” Dkt. No. 17 at 10 (quoting Dkt. No.
5 1-1 ¶ 52). A lack of reversal of the multi-million dollar contract alone does not support a finding 6 of continuing control in this case where Defendants are no longer in the positions of power they 7 were in when the deal was made. See Dkt. No. 1-1 ¶¶ 6–7 (filing suit against “former” City 8 officials); Dkt. No. 20 at 7 (explaining that Defendants Medina and Smith are no longer City 9 officials). 10 Taking everything in the pleadings as true, incorporating the representations made at oral 11 argument, and making all reasonable inferences in favor of Plaintiffs, Plaintiffs have failed to 12 demonstrate a RICO injury to BTU. However, during oral argument, Plaintiffs represented that 13 there were more specific facts they could plead regarding the City’s refusal to investigate the 14 supposed racketeering activity. Though the Court finds it difficult to imagine how Plaintiffs
15 would be able to show that the City is under Defendants’ continuing control, it will grant 16 Plaintiffs an opportunity to amend the complaint to present more allegations to support BTU’s 17 standing. 18 (3) Attorney Fees 19 The only allegation in the complaint supporting Plaintiff Pollock’s standing is that he 20 incurred approximately $8,000 in attorney fees to file his Ethics Board Complaint against 21 Defendant Medina regarding the alleged racketeering activity. Dkt. 1-1 ¶ 34. The parties agree 22 that the cost of filing a RICO action does not satisfy the injury requirement. Dkt. No. 12 at 12; 23 Dkt. No. 17 at 10; see also Izenberg v. ETS Servs., LLC, 589 F. Supp. 2d 1193, 1204 (C.D. Cal.
24 2008). Plaintiffs insist that the prior Ethics Board proceeding initiated by Plaintiff Pollock 1 qualifies as a RICO injury because it was proximately caused by the wrongful conduct of a 2 RICO defendant (Medina). Dkt. No. 17 at 9. However, the authorities they cite, at most, support 3 a finding that defending against litigation spurred by a RICO defendant’s unlawful activity 4 qualifies as a RICO injury. See id.; see also Lauter v. Anoufrieva, 642 F. Supp. 2d 1060,
5 1084–85, n. 33 (C.D. Cal. 2009) (plaintiff adequately alleged that defendants’ racketeering 6 activity proximately caused incurrence of legal fees to defend himself in criminal proceedings 7 resulting from a police investigation); Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 8 1166–67 (2d Cir. 1993) (RICO injury found where defendants’ illegal actions impeded plaintiff’s 9 collection on monetary judgments already obtained), cert. denied 510 U.S. 945; Handeen v. 10 Lemaire, 112 F.3d 1339, 1354 (8th Cir. 1997) (RICO injury alleged where plaintiff incurred 11 attorney fees to file objections to defendant’s “supposedly fraudulent claims” in a bankruptcy 12 proceeding). Here, Plaintiff Pollock voluntarily initiated a proceeding before the Ethics Board, 13 which is more akin to seeking legal fees for filing the instant RICO action than it is similar to 14 defending against litigation spurred by Defendants’ unlawful activity.
15 At oral argument, Plaintiffs provided no new evidence or argument supporting Plaintiff 16 Pollock’s standing to bring RICO claims. They simply pointed to unpersuasive, out-of-circuit 17 cases already cited in their opposition to the motion to dismiss (Stochastic Decisions, Inc., 995 18 F.2d 1026, and Handeen, 112 F.3d 1339) to argue that his incurrence of legal fees to pursue the 19 Ethics Board Complaint confers standing. In Stochastic Decisions, Inc., and Handeen, the 20 relevant parties were already engaged in separate litigation, and the defendants’ racketeering 21 activity impeded the RICO plaintiffs’ ability to protect their business or property interests in 22 those separate proceedings (collection of money judgments and collection against a bankruptcy 23 petitioner, respectively). That is not the case here. Plaintiffs cannot manufacture a RICO injury
24 1 out of Plaintiff Pollock’s financial outlay; Plaintiff Pollock’s business or property interests were 2 not at stake in the Ethics Board proceeding. 3 Taking everything in the pleadings as true, incorporating the representations made at oral 4 argument, and making all reasonable inferences in favor of Plaintiffs, Plaintiffs have failed to
5 demonstrate a RICO injury to Michael Pollock. The Court is convinced Plaintiff Pollock cannot 6 demonstrate standing even if amendment were allowed. Therefore, the Court DISMISSES Plaintiff 7 Pollock WITH PREJUDICE for lack of standing. 8 b. Predicate Acts 9 The list of offenses that constitute racketeering under 18 U.S.C. § 1961(1) is exhaustive; 10 no unenumerated offense can be considered a predicate act for RICO liability. See Beck v. 11 Prupis, 529 U.S. 494, 497 n.2 (2000) (“Section 1961(1) contains an exhaustive list of acts of 12 ‘racketeering,’ commonly referred to as ‘predicate acts.’ ”). A subpart of § 1961(1) provides that 13 the following relevant offenses fall within the definition of racketeering for RICO purposes: “any 14 act or threat involving . . . bribery, extortion . . . which is chargeable under State law and
15 punishable by imprisonment for more than one year.” 18 U.S.C. § 1961(1)(A). 16 When a single action gives rise to multiple offenses enumerated under § 1961(1), it can 17 be used as a basis for only one predicate act. United States v. Walgren, 885 F.2d 1417, 1426 (9th 18 Cir. 1989). Plaintiffs allege that Defendants Medina and Smith engaged in “bribery and/or 19 extortion” through predicate acts that violate RCW 9A.68.010(1)(a), RCW 9A.68.030(1)(b), 20 RCW 9A.68.050(1)(b), RCW 42.23.030, and RCW 42.23.040, as well as 18 U.S.C. §§ 1341, 21 1343, 1346, and 1952. Dkt. No. 1-1 ¶ 45. 22 (1) State Law Offenses
23 Plaintiffs allege that Defendant Medina violated the Washington Code of Ethics for 24 Municipal Officers by voting on the HMC proposal that he was “beneficially interested in” and 1 not disclosing his conflict of interest to the City Council. Dkt. No. 1-1 ¶ 45(d) (citing RCW 2 42.23.030 and RCW 42.23.040). These codes are not criminal provisions and do not constitute 3 indictable offenses, even if relating to bribery or extortion, so they cannot be used to support a 4 predicate act. At oral argument, the parties agreed that these ethics codes cannot be used as bases
5 for predicate acts. 6 The other state law offenses Plaintiffs allege Defendants Medina or Smith engaged in do 7 constitute felonies chargeable by more than one year imprisonment. See RCW 9A.68.010(1)(a), 8 (3) (Bribery, class B felony); RCW 9A.68.030(1)(b), (2) (Receiving or granting unlawful 9 compensation, class C felony); RCW 9A.68.050(1)(b), (2) (Trading in special influence, class C 10 felony); see also RCW 9A.20.021(setting a ten-year maximum sentence for class B felonies and 11 a five-year maximum sentence for Class C felonies). But as Defendants point out, Plaintiffs have 12 not specifically alleged enough facts regarding bribery, receiving or granting unlawful 13 compensation, or trading in special influence. See Dkt. No. 1-1; Dkt. No. 12 at 14. 14 Plaintiffs claim that Defendant Medina bribed Defendant Smith. See Dkt. No. 1-1 ¶ 45(a).
15 A Washington statute they cite provides that bribery occurs when someone, “[w]ith the intent to 16 secure a particular result in a particular matter involving the exercise of the public servant’s vote, 17 opinion, judgment, exercise of discretion, or other action in his or her official capacity, . . . 18 offers, confers, or agrees to confer any pecuniary benefit upon such public servant.” RCW 19 9A.68.010(1)(a). The other statute they cite provides that someone is guilty of receiving or 20 granting unlawful compensation if: “[h]e or she knowingly offers, pays, or agrees to pay 21 compensation to a public servant for advice or other assistance in preparing or promoting a bill, 22 contract, claim, or other transaction regarding which the public servant is likely to have an 23 official discretion to exercise.” RCW 9A.68.030(1)(b). But the complaint fails to provide factual
24 support for its allegations that “Medina offered or conferred pecuniary benefits upon Smith,” or 1 that “Medina knowingly offered, paid, or agreed to pay compensation to Smith for assistance in 2 promoting the Harrison proposal.” See Dkt. No. 1-1 ¶ 45(a)–(b). Though Plaintiffs allege 3 multiple times that the two withheld information about Medina’s financial interests from the City 4 Council, they do not allege in their recitation of facts that Medina had offered to pay or paid
5 Smith to promote the HMC proposal. The closest Plaintiffs come to making such an allegation is 6 in conclusory remarks essentially parroting the elements of the predicate act needed to support 7 their first legal claim. See Dkt. No. 1-1 ¶ 45(a)–(b). 8 Plaintiffs also point to a Washington statute regarding trading in special influence to 9 support their claim that Defendants Medina and Smith engaged in bribery or extortion; this statue 10 criminalizes a person’s acceptance of “any pecuniary benefit pursuant to an agreement or 11 understanding that he or she will offer or confer a benefit upon a public servant or procure 12 another to do so with intent thereby to secure or attempt to secure a particular result in a 13 particular manner.” RCW 9A.68.050(1)(b). Plaintiffs once again essentially parrot the statute in 14 asserting that “Medina and Smith accepted pecuniary benefits pursuant to an agreement or
15 understanding that they would help secure the Harrison proposal.” Dkt. No. 1-1 ¶ 45(c). Yet 16 again, Plaintiffs’ recital of facts does not include important elements of this claim; they do not 17 allege that Defendants Medina or Smith had an agreement or understanding that they would 18 persuade the City Council to vote for the HMC proposal in order to further their personal 19 financial interests. Plaintiffs did allege that Medina had a vague “financial relationship with and 20 interest in HMC” as an attorney who had done work for the hospital (id. ¶ 13) and that HMC 21 leadership “made substantial donations to, and were otherwise involved in,” a non-profit 22 organization for which Medina served as president and CEO. Id. ¶¶ 19–20. However, this alone 23 does not show that Medina and Smith ever agreed to induce the City Council to vote in favor of
24 1 the HMC proposal to further each of their financial interests. In particular, it is not clear why or 2 how Smith had any financial interest in the HMC proposal. 3 (2) Federal Offenses
4 Plaintiffs allege that Defendants violated 18 U.S.C. § 1346 by knowingly using or 5 causing to be used “the mails and interstate wire communications.” Dkt. No. 1-1 ¶ 45(f). 6 However, this code section is not an indictable offense, it merely defines “scheme or artifice to 7 defraud.” See 18 U.S.C. § 1346. Even if this allegation was meant to allude to an indictable 8 offense, this code section is not listed as a potential predicate offense and thus cannot be used to 9 support a RICO claim. See 18 U.S.C. § 1961(1)(B) (listing the various provisions of Title 18 that 10 can give rise to a RICO claim). At oral argument, Plaintiffs agreed that 18 U.S.C. § 1346 on its 11 own cannot be used to support a predicate act. 12 Regarding Plaintiffs’ allegations of wire and mail fraud under 18 U.S.C. §§ 1341 and 13 1343, fraud claims are subject to a heightened pleading requirement, which is far from met here. 14 An essential element of mail fraud includes “use of the mail.” See Schmuck v. United States, 489
15 U.S. 705, 721 (1989), reh’g denied, 490 U.S. 1076; accord United States v. Eglash, 813 F.3d 16 882, 885 (9th Cir. 2016). Similarly, an essential element of wire fraud is “use of wire, radio, or 17 television to further the [fraudulent] scheme.” United States v. Pelisamen, 641 F.3d 399, 409 (9th 18 Cir. 2011) (citation omitted). 19 Not only is there no description of how Defendants used U.S. mail or interstate wire 20 communications in furtherance of their schemes, the complaint fails to “state the time, place, and 21 specific content of the false representations,” as required under Ninth Circuit precedent. See 22 Odom, 486 F.3d at 553. Plaintiffs have simply failed to plead any factual allegations regarding 23 use of U.S. mail or interstate wires, let alone plausible allegations. The word “mail” and
24 variations thereof appear only three times in the complaint, none of which are in their recital of 1 facts. The only place the word “mail” even appears is in reciting the elements of mail fraud. Dkt. 2 No. 1-1 ¶ 45(e)–(g). While “the use of the mails need not be an essential element of the scheme,” 3 to prove mail fraud Plaintiffs must at least show that a mailing was an “incident to an essential 4 part of the scheme” or “a step in the plot.” Schmuck, 489 U.S. at 710–11 (explaining that the
5 federal mail fraud statute is meant to reach “those limited instances in which the use of the mails 6 is a part of the execution of the fraud”). In a similar case where mail and wire fraud were 7 conclusorily alleged, the Ninth Circuit found RICO claims based on those predicate acts 8 deficient under Rule 9(b) where the recital of facts “failed to mention any use of the mails or 9 telephones,” even though the plaintiff’s legal claims section alleged that the defendants had 10 violated 18 U.S.C. §§ 1341 and 1343 “by engaging on two or more occasions the use of the 11 United States mail and/or use of interstate telephone calls” in furtherance of a fraudulent scheme. 12 Schrieber Distrib. Co., 806 F.2d at 1401. 13 Finally, Plaintiffs claim that Medina and Smith violated the Travel Act by using “the 14 mails to distribute the proceeds of an unlawful activity–specifically, bribery in violation of
15 Washington law–and otherwise promoted, managed, established, carried on, or facilitated the 16 promotion, management, establishment, or carrying on, of that unlawful activity.” Dkt. No. 1-1 17 ¶ 45(g) (citing 18 U.S.C. § 1952). Once more, Plaintiffs have made a conclusory allegation that 18 paraphrases a statute but did not supply adequate factual content to back up the allegation. 19 Notwithstanding their failure to allege acts of bribery under Washington law, they have also 20 failed to show that Defendants Medina and Smith used U.S. mail to commit any acts of bribery. 21 Thus, Plaintiffs have failed to sufficiently allege any predicate acts giving rise to a RICO 22 claim. 23
24 1 c. Pattern of Racketeering Activity 2 A pattern of racketeering activity can be established when an individual has committed 3 two or more qualifying predicate acts within ten years, excluding any period of imprisonment. 18 4 U.S.C. § 1961(5). Here, no pattern has been established as no predicate acts have been properly
5 plead. 6 d. Interstate Activity 7 To prevail on a civil RICO claim, “plaintiffs must demonstrate that the enterprise which 8 is involved in or benefits from the racketeering activity is one engaged in, or having an effect on, 9 interstate commerce.” Musick v. Burke, 913 F.2d 1390, 1398 (9th Cir. 1990) (citations omitted). 10 Plaintiffs need not demonstrate that the predicate acts themselves had an interstate effect. Id. 11 (citation omitted). Defendants admit that the threshold for showing an interstate commerce nexus 12 for RICO claims is low. Dkt. No. 12 at 18. 13 Plaintiffs have alleged that Defendants Medina and Smith “knowingly used or caused to 14 use the mails and interstate wire communications” in furtherance of a fraudulent scheme. Dkt.
15 No. 1-1 at ¶ 45(e)–(f). In their briefing, they characterize this as an “allegation that the 16 defendants used the U.S. mail to execute portions of the illegal scheme.” Dkt. No. 17 at 16. As 17 the Court has already noted, however, the recital of facts does not actually include allegations 18 regarding the use of U.S. mail or interstate wire communications. 19 In the briefing, Plaintiffs also insist that “two of the appraisals cited in the [c]omplaint 20 were performed by an out-of-state corporation—Colliers.” Id. at n.4 (citing Dkt. No. 1-1 at ¶¶ 23, 21 34). However, neither the complaint segments cited nor documents from a City of Bainbridge 22 Island Ethics Board meeting linked by Plaintiffs in their briefing state that any appraisers were 23 out-of-state entities. See id. The Court finds the complaint’s allegations regarding a nexus to
24 interstate commerce to be deficient. 1 Plaintiffs have failed to sufficiently allege a RICO claim under 18 U.S.C. § 1962(c), and 2 the Court DISMISSES the claim. 3 2. RICO Conspiracy Claim Under 18 U.S.C. § 1962(d) 4 Because Plaintiffs’ RICO claim under 18 U.S.C. § 1962(c) fails, their dependent RICO
5 conspiracy claim also fails. “To establish a violation of section 1962(d), a plaintiff must allege 6 either an agreement that is a substantive violation of RICO or that the defendants agreed to 7 commit, or participated in, a violation of two predicate offenses.” Howard v. Am. Online Inc., 8 208 F.3d 741, 751 (9th Cir. 2000). Plaintiffs have neither properly alleged an agreement 9 substantively violating RICO nor Defendants’ participation in two predicate offenses. Therefore, 10 the Court DISMISSES this claim. 11 D. Leave to Amend
12 Where a complaint is dismissed for failure to state a claim, “leave to amend should be 13 granted unless the court determines that the allegation of other facts consistent with the 14 challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co., 806 F.2d at 15 1401; see also Ogden v. Wells Fargo Bank, NA, 647 F. App’x 650, 651–52 (9th Cir. 2017) 16 (explaining that dismissal with prejudice was warranted where plaintiff had not “identified a 17 factual allegation that could plausibly get her RICO claims over the proximate-cause hurdle”) 18 (quoting Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011)), 19 cert. denied sub nom. Ogden v. Kwok, 138 S. Ct. 252. 20 The Court will provide Plaintiffs one opportunity to amend their complaint—including 21 only the claims asserted on behalf of Plaintiffs Rosenbaum, Pyke, and BTU, and without alleging 22 violations of RCW 42.23.030, RCW 42.23.040, or 18 U.S.C. § 1346 as bases for predicate acts. 23 The amendment may address all aspects of the federal RICO claims but should not include any
24 allegations related to Plaintiff Pollock, who has been dismissed with prejudice. Plaintiffs are 1 encouraged to specifically name as defendants any Does they have been able to identify at this 2 point in the litigation.5 Plaintiffs are further encouraged to include as attachments, rather than as 3 hyperlinks, any documents referenced in the amended complaint. 4 Plaintiffs are reminded that the revised complaint will supersede the current complaint.
5 Lacey v. Maricopa Cnty., 693 F.3d 896, 925 (9th Cir. 2012). 6 E. State Law Claims
7 The Court DEFERS ruling on the remaining claims, as they are based in state law, until 8 after it determines whether any Plaintiffs have standing and whether the federal RICO claims are 9 properly plead in the amended complaint. In the absence of subject matter jurisdiction over any 10 federal claims, a federal court cannot retain jurisdiction over any remaining state law claims. 11 Scott v. Pasadena Unified School Dist., 306 F.3d 646, 664 (9th Cir. 2002) (“we have no 12 discretion to retain supplemental jurisdiction over [the] state law claims” after dismissal of the 13 federal claim for lack of standing) (citing 28 U.S.C. § 1367(a)). 14 IV. CONCLUSION 15 For the above reasons, the Court: 16 (1) GRANTS Defendants’ motion to dismiss IN PART, with respect to the civil RICO 17 claims; 18 (2) DISMISSES Plaintiffs Rosenbaum, Pyke, and BTU’s claims WITHOUT PREJUDICE; 19 (3) DISMISSES Plaintiff Pollock’s claims WITH PREJUDICE for lack of standing; 20 (4) GRANTS Plaintiffs leave to amend only the RICO claims as specified herein in a 21 manner that is consistent with their current pleading within thirty (30) days of 22 this Order (i.e., by no later than December 23, 2022); and 23 5 During oral argument on the motion to dismiss, Plaintiffs indicated that there are several individuals that are not 24 yet named as defendants whose identities are known. 1 (5) DEFERS ruling on the state law claims. 2 Dated this 23rd day of November 2022. 3 A 4 Tana Lin United States District Judge 5
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