United States District Court, D. Colorado
LIST INTERACTIVE, LTD. d/b/a Uknight Interactive, and LEONARD LABRIOLA Plaintiffs,
KNIGHTS OF COLUMBUS, and DAVID J. KAUTTER, in his official capacity as Acting Commissioner of the Internal Revenue Service, Defendants.
KNIGHTS OF COLUMBUS Counterclaim Plaintiff,
LIST INTERACTIVE, LTD. D/B/A UKNIGHT INTERACTIVE, LEONARD S. LABRIOLA, WEBSINC.COM, INC., STEPHEN MICHLIK, JONATHAN MICHLIK, and TERRY A. CLARK, Counterclaim Defendants.
BROOKE JACKSON UNITED STATES DISTRICT JUDGE
matter is before the Court on five pending motions. For the
reasons discussed in this order, the Court (1) denies
plaintiffs' motion for a temporary restraining order,
preliminary injunction, and sanctions; (2) denies the Knights
of Columbus' motion for a protective order; (3) grants
the Knights of Columbus' partial motion to dismiss; (4)
grants in part and denies in part plaintiffs' and other
counterclaim defendants' motion to dismiss the Knights of
Columbus' counterclaims; and (5) denies the Knights of
Columbus' motion to dismiss for lack of standing, or
alternatively, for partial summary judgment.
provided a detailed overview of the facts in an order dated
July 28, 2017. The facts remain the same subject to a few
developments since that order was issued. Plaintiff List
Interactive, Ltd., frequently referred to by its d/b/a
UKnight Interactive or just UKnight, is a small company that
designs web systems. Plaintiff Leonard Labriola is the
manager of UKnight. I will refer to the plaintiffs
collectively as “UKnight.” UKnight alleges that
in September 2011 defendant Knights of Columbus promised to
announce to the broader Knights of Columbus fraternity of
lodges and agents (“the Order”) an agreement
whereby UKnight would be the designated vendor for the
Order's life insurance business. The promised
announcement never occurred, and litigation followed.
core claims, as I see them, are that the Knights of Columbus
breached an oral contract when it reneged on its agreement to
make UKnight its designated vendor, and that the Knights of
Columbus stole trade secrets from UKnight before doing so.
UKnight has also asserted two other creative claims that are
the subject of one of the pending motions. For its part, the
Knights of Columbus has struck back with an assortment of
counterclaims, which this order also addresses. I will
explain each of the pending motions as I get to them.
survive a 12(b)(6) motion to dismiss, the complaint must
contain “enough facts to state a claim to relief that
is plausible on its face.” Ridge at Red Hawk,
L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.
2007) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007)). A plausible claim is a claim that
“allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While
the Court must accept the well-pled allegations of the
complaint as true and construe them in the light most
favorable to the plaintiff, Robbins v. Wilkie, 300
F.3d 1208, 1210 (10th Cir. 2002), conclusory allegations are
not entitled to be presumed true, Iqbal, 556 U.S. at
681. However, so long as the plaintiff offers sufficient
factual allegations such that the right to relief is raised
above the speculative level, he has met the threshold
pleading standard. See, e.g., Twombly, 550
U.S. at 556; Bryson v. Gonzales, 534 F.3d 1282, 1286
(10th Cir. 2008).
mentioned above, there are five pending motions. I will
address each motion in turn.
UKnight's Emergency Motion for a Temporary
Restraining Order, Preliminary Injunction, and Sanctions for
Witness Intimidation. [ECF No. 76].
UKnight filed a motion for a temporary restraining order to
enjoin the Knights of Columbus from engaging in behavior
during discovery that UKnight described as “witness
intimidation.” ECF No. 76 at 1. The Court heard
argument regarding this discovery issue on September 25,
2017, and I issued an Order that same day addressing and
effectively granting the requested injunctive relief.
See ECF No. 79. Now five months have passed and no
further discovery issues of the sort have arisen. Thus, the
Court sees no live issue remaining in this motion, and
tellingly UKnight did not argue that this motion is still
ripe at the hearing before this Court on February 6, 2018
when asked. Therefore, ECF No. 76 is DENIED.
Knights of Columbus' Motion for Protective
Order. [ECF No. 77].
motion focused immediately on the plaintiffs' September
22, 2017 email to local councils, which the Court addressed
in its order of September 25, 2017, and to that extent it is
moot. To the extent the motion seeks protection against any
discovery concerning membership information, it is DENIED for
reasons discussed infra in connection with
defendants' motion to dismiss for lack of standing, etc.
ECF No. 107.
Knights of Columbus' Partial Motion to Dismiss.
[ECF No. 100].
Knights of Columbus filed a motion to dismiss the First and
Second Claims in UKnight's Second Amended Complaint. ECF
No. 100. UKnight's First Claim alleges that the Knights
of Columbus violated the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) and that it continues
to violate RICO through an alleged insurance fraud
enterprise. ECF No. 98 at 28. UKnight's Second Claim
seeks a court order requiring David J. Kautter, the Acting
Commissioner of the Internal Revenue Service, to invalidate
the Knights of Columbus' tax-exempt status due to the
alleged insurance fraud activity. Id. at 46. For the
following reasons, I GRANT the Knights of Columbus'
motion to dismiss both claims.
UKnight's RICO Claim.
vests a private citizen with substantive rights to avoid
injuries to his business or property caused by a pattern of
racketeering activity. 18 U.S.C. § 1964(c). It outlaws
four types of racketeering activities which, as relevant
here, include “conducting the affairs of an enterprise
through a pattern of racketeering” or conspiring to do
so. Id. at §§ 1962(c-d). In the Tenth
Circuit, a plaintiff asserting a RICO claim must plausibly
allege that “a person (1) conducted the affairs (2) of
a distinct enterprise (3) through a pattern (4) of
racketeering activity.” Safe Streets All. v.
Hickenlooper, 859 F.3d 865, 882 (10th Cir. 2017)
(internal quotation marks and citations omitted).
alleges that the Knights of Columbus, the insurance ratings
agency AM Best, and a software company called IDI make up the
“Insurance Fraud Enterprise.” ECF No. 98 at 29.
With the Knights of Columbus at the helm, the alleged
objective of this enterprise is to perpetuate the Knights of
Columbus' insurance fraud scheme by allowing the Knights
of Columbus to (1) inflate its reported membership numbers
without detection, and (2) use these inflated membership
numbers to bolster the Knights of Columbus' insurance
business reputation to make more money. Id.
According to UKnight, this played out in the following ways.
First, the Knights of Columbus provided AM Best with false
membership numbers and demographic data so that AM Best
would, in turn (and unknowingly), generate fraudulent
insurance ratings for the Knights of Columbus' insurance
products. This bolstered the Knights of Columbus'
insurance business reputation and allowed it to attract
business under false pretenses, including business
relationships like the one between UKnight and the Knights of
Columbus. Id. at 30-31.
this scheme was up and running, the Knights of Columbus then
used its relationship with IDI, a software company, to ensure
its fraudulent scheme went undetected. Id. at 31.
This allegation requires some additional background.
According to UKnight, from 2011 until approximately 2013 the
Knights of Columbus were gung-ho about working with UKnight
to develop a new web platform for the Order's insurance
business. ECF No. 54 at 6. All was well until sometime in
2013, when the Knights of Columbus “realized that broad
deployment of the UKnight system would necessarily reveal
their fraudulent inflation of membership numbers.” ECF
No. 98 at 40. Wishing to have its cake (the functionality of
the UKnight web platform) and eat it too (not have
information regarding its fraudulent inflation of membership
numbers fall into the wrong hands), the Knights of Columbus
allegedly hatched a plan whereby it dispatched the software
company IDI to surreptitiously acquire knowledge about
UKnight's web platform so that the Knights of Columbus
could replicate the UKnight system in-house. Id.
Based upon these alleged events and the involvement of IDI
and AM Best in them, UKnight alleges that the Knights of
Columbus therefore “conduct[ed] the affairs of an
enterprise through a pattern of racketeering” in
violation of RICO. 18 U.S.C. § 1962(c-d). Because
UKnight's failure to sufficiently plead the third and
fourth elements of its RICO claim (a “pattern of
racketeering activity”) is dispositive, I assume
without deciding that UKnight has satisfied the first two
elements of the RICO cause of action.
“pattern of racketeering activity” requires at
least two predicate acts of racketeering activity.
Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479,
496 n.14 (1985). “The implication is that while two
acts are necessary, they may not be sufficient.”
Id. Thus, in order for UKnight to successfully plead
a “pattern, ” it must demonstrate not only the
existence of two or more predicate acts perpetrated by the
enterprise, but also that the alleged predicate acts are
related and pose at least a threat of continued criminal
activity. H.J. Inc. v. NW. Bell Tel. Co., 492 U.S.
229, 238-39 (1989). In the Tenth Circuit, courts interpret
this holding from H.J. to require a showing of (1)
“relationship” and (2) “continuity.”
Boone v. Carlsbad Bancorporation, Inc., 972 F.2d
1545, 1555 (10th Cir. 1992).
alleges the existence of seven predicate acts underlying this
racketeering scheme: extortion (on the part of the Knights of
Columbus), theft of trade secrets (on the part of both the
Knights of Columbus and IDI), interstate transport of stolen
goods (Knights of Columbus), wire fraud (Knights of Columbus
and AM Best), receipt of stolen funds obtained by fraud
(Knights of Columbus), financial institution fraud (Knights
of Columbus), and witness tampering (Knights of Columbus).
ECF No. 98 at 33-44.
Boone, UKnight must first show how these predicate
acts are related. The relationship test “is not a
cumbersome one for a RICO plaintiff.” Boone,
972 F.2d at 1555 (internal citation removed). A showing that
predicate acts “‘have the same or similar
purposes, results, participants, victims, or methods of
commission, or otherwise are interrelated by distinguishing
characteristics and are not isolated events'” is
all that is needed. Id. (quoting H.J., 492
U.S. at 240). Here, UKnight has pled that the Insurance Fraud
Enterprise had a shared purpose “to artificially
inflate the membership ranks and artificially skew the
demographic structure of the Knights of Columbus risk-pool,
and to wrongfully bring under the control of Defendant the
tools developed by UKnight to prevent this system from
revealing their fraud and to enhance their ability to
effectively continue this fraud.” ECF No. 98 at 44.
UKnight further argues that the predicates have the same
participants and victims and that they all serve to
“protect the financial position of and enrich the
[Knights of Columbus].” Id. at 45.
that even in viewing the record in the light most favorable
to UKnight, the alleged relationship between the acts is
attenuated, and the predicate acts seem to be “isolated
events” rather than calculated parts of a racketeering
scheme. See Boone, 972 F.2d at 1555. The
participants, victims, and methods of commission used by IDI
to allegedly steal UKnight's trade secrets are quite
different than those allegedly used by the Knights of
Columbus to mislead AM Best. Thus, I am unconvinced that
UKnight has met its burden on the relationship prong of
establishing a “pattern.”
even if UKnight met its burden to show a relationship between
the predicate acts, it has failed to sufficiently allege
“continuity” of the alleged racketeering
activities. As the Supreme Court has explained,
Continuity is both a closed- and open-ended concept,
referring either to a closed period of repeated conduct, or
to past conduct that by its nature projects into the future
with a threat of repetition. It is, in either case, centrally
a temporal concept-and particularly so in the RICO context,
where what must be continuous, RICO's predicate acts or
offenses, and the relationship these predicates must bear one
to another, are distinct requirements.
H.J., 492 U.S. at 241-42. The Supreme Court has
determined “that when Congress said predicates must
demonstrate ‘continuity' before they may form a
RICO pattern, it expressed an intent that RICO reach
activities that amount to or threaten long-term criminal
activity.” Bixler v. Foster, 596 F.3d
751, 761 (10th Cir. 2010) (citing H.J., 492 U.S. at
243 n.4). As such, UKnight must show that the alleged
Insurance Fraud Enterprise's activities “amount to
or threaten long-term criminal activity.” Id.;
see also Gotfredson v. Larsen LP, 432 F.Supp.2d
1163, 1174-76 (D. Colo. 2006) (to satisfy the continuity
element in RICO, one must sufficiently allege “a clear
threat of future criminal conduct.”). UKnight has
failed to do so.
argues that the scheme has existed for at least five
years-since the time that UKnight's trade secrets were
allegedly stolen-and presents a “clear threat of future
criminal conduct” because the Knights of Columbus
“shows no intention of stopping this practice of
fraudulently inflating its insurable membership
numbers” and “is actively seeking a new vendor to
implement an internal system using UKnight's stolen trade
secrets.” ECF No. 98 at 45. However, UKnight's
hodgepodge framing of who and what this enterprise is
comprised of makes it exceedingly unlikely that the
enterprise poses a real threat of future harm. While there
remains the possibility that the Knights of Columbus
will continue to fudge its membership numbers, it is
implausible to assert that this enterprise poses a
threat of future criminal conduct as required under RICO. The
alleged criminal actions of this enterprise involving more
than just the Knights of Columbus are isolated-lying to a
national insurance ratings agency, stealing the trade secrets
of a web program developer-and any risk of their reoccurrence
or ability to cause future harm is purely hypothetical. Like
the schemes in Gotfredson, SIL-FLO, Inc. v.
SFHC, Inc., 917 F.2d 1507, 1516 (10th Cir. 1990), and
other cases where courts have dismissed RICO claims based on
continuity, the Insurance Fraud Enterprise's alleged
actions amount to a narrowly-focused scheme conducted in the
past with no risk of future criminal conduct. See Giese
v. Giese, No. 16-CV-01032-RBJ, 2017 WL 1407037, at *4
(D. Colo. Apr. 17, 2017). This kind of
“narrowly-focused, albeit allegedly illicit behavior is
not the kind of extensive, continuing racketeering activity
that RICO was meant to cover.” Id.
the objectives of RICO would not be served by recognizing a
RICO claim in this instance. SIL-FLO, Inc., 917 F.2d
at 1516. Accordingly, the Court finds that UKnight's
First Claim in the amended complaint is DISMISSED with
UKnight's Claim for Injunctive Relief to Remove the