Cook v. Scott Mcquate, the Ohio Co., Civil Action No. 7:15-cv-456

RACHAEL L. COOK, Plaintiff, v. SCOTT MCQUATE, THE OHIO COMPANY,and JOHN RICHARD BLAZER, Defendants.

Civil Action No. 7:15-cv-456

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION

August 18, 2016

By: Hon. Robert S. Ballou United States Magistrate Judge

REPORT AND RECOMMENDATION

Plaintiff Rachel L. Cook ("Cook"), a Virginia citizen, filed an amended complaint against Defendants John Richard Blazer ("Blazer"), Scott McQuate ("McQuate") and The Ohio Company, all Ohio citizens, asserting claims for actual fraud, conspiracy, conversion, breach of fiduciary duty and violations of the Racketeer Influenced and Corrupt Organization ("RICO") Act. Dkt. No. 16. Cook contends that the defendants participated in a scheme to defraud her of $25,000 through an investment in Heritage Acquisition Group, Inc. ("Heritage) by using The Ohio Company as the primary investment vehicle. The defendants moved to dismiss the Amended Complaint in its entirety under Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction,¹ Dkt. No. 18, and alternatively to dismiss the RICO claim (Count V) pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim.²

I conclude that Cook has set forth a prima facie case of personal jurisdiction over defendants McQuate and The Ohio Company. I further find that count five of the Amended Complaint fails to properly state a claim for relief under RICO. I RECOMMEND that the Court GRANT in part Defendants' Motion to Dismiss (Dkt. No. 18), and DISMISS Count V of the Amended Complaint without prejudice, and granting Cook leave to amend her complaint.

BACKGROUND³

Cook alleges in her complaint that defendants McQuate and Blazer defrauded her by convincing her to invest $25,000 with the Heritage. Cook first became acquainted with defendant McQuate when she purchased his books and services sold on an internet website. Am. Compl. ¶ 13. In early 2013, McQuate became aware that Cook had secured a patent of some type. McQuate then sent Cook an email congratulating her on her success obtaining the patent. Id. ¶¶ 9, 12. A month later, McQuate called Cook to discuss her interest in investment opportunities, including an investment with Heritage.⁴ Id. ¶¶ 14, 15. Thereafter, McQuate both emailed and called Cook numerous times to discuss her interest in investing with Heritage. Id. ¶¶ 15, Cook Decl., Dkt. No. 29-1 ¶ C. Through these discussions, McQuate introduced Cook to defendant Blazer, the President and CEO of The Ohio Company, an investment firm which brokers investment opportunities for businesses and individuals.⁵ Id. ¶ 16. McQuate represented to Cook that Blazer could assist with the investment in Heritage.⁶ Dkt. No. 18-1. Id.

In March 2013, McQuate and Blazer twice mailed to Cook's home in Virginia a prospectus for investing in Heritage, and included a letter on The Ohio Company letterhead.⁷ Id. ¶¶ 17, 21, 22. McQuate and Blazer also arranged a conference call with Cook on May 15, 2013, to discuss her potential investment in Heritage. Id. ¶ 25. During the call, McQuate and Blazer asked Cook to invest $25,000 with Heritage. Id. ¶ 26. Cook asked whether Heritage would accept such a small investment, and Blazer assured her that the investment would be made through The Ohio Company, which had a special relationship with Heritage. Id. ¶¶ 27, 28. Blazer and McQuate told Cook, however, that she must invest by May 16, 2013 (the next day), or the opportunity would no longer be available. Id. ¶ 30. Cook relied upon these representations and wired $25,000 from a bank in Roanoke, Virginia to a bank identified by Defendants in Ohio that same day. Id. ¶ 35. When Cook attempted to obtain information about her investment in Heritage months later, she was told that Heritage had no record of her investment. Id. ¶¶ 36; Cook Decl., Dkt. No. 29-1, ¶ J.

ANALYSIS

A. Personal Jurisdiction

Defendants assert that they lack the required minimum contacts with Virginia to be subject to suit in this district. Specifically, Defendants do not maintain offices or agents in Virginia, do not own property in Virginia, do not engage in significant or long-term business activities in Virginia, and do not advertise or direct solicitations for clients in Virginia. Dkt. No. 18, p. 22. Cook asserts, however, that Defendants intentionally reached into Virginia to perpetuate a fraud on a Virginia citizen, and that the "effects" of the fraudulent act were felt in Virginia, which is sufficient to establish personal jurisdiction in this district. See Calder v. Jones,465 U.S. 783, 790 (1984); Consulting Engineers Corp. v. Geometric Limited, 561 F.3d 273, 280 (4th Cir. 2009).

Under Rule 12, a defendant may move to dismiss a complaint for lack of personal jurisdiction. See Fed. R. Civ. P. 12(b)(2). "Where, as here, the district court addresses the question of personal jurisdiction on the basis of motion papers, supporting legal memoranda, and the allegations in the complaint," the plaintiff need only make a prima facie showing that personal jurisdiction exists over the moving defendant. Consulting Eng'rs Corp., 561 F.3d at 276. In making this determination, the "court must take all disputed facts and reasonable inferences" in the plaintiff's favor. Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs, Inc., 334 F.3d 390, 396 (4th Cir. 2003); see also Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989). I will therefore consider all relevant allegations in the Amended Complaint and the declarations submitted by Cook and Defendants in the light most favorable to Cook.

A federal court may exercise personal jurisdiction over a defendant in the manner provided by state law. See ESAB Group, Inc. v. Centricut, Inc., 126 F.3d 617, 622 (4th Cir. 1997). Cook seeks to assert personal jurisdiction over Defendants under Virginia's long-arm statute, which allows a court to assert personal jurisdiction over defendants for causes of action arising from persons (1) transacting any business in Virginia or (2) causing tortious injury by an act or omission in Virginia. Va. Code § 8.01-328.1 (1) and (2). Here, the Virginia long arm statute extends personal jurisdiction to the extent permitted by the Due Process Clause, see English & Smith v. Metzger, 901 F.2d 36, 38 (4th Cir. 1990); thus, "the statutory inquiry necessarily merges with the constitutional inquiry, and the two inquiries essentially become one." Stover v. O'Connell Assocs., Inc., 84 F.3d 132, 135-36 (4th Cir. 1996). The question, then, is whether the defendant has sufficient "minimum contacts with [the forum] such that themaintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)).

A defendant must have sufficient "minimum contacts" with the forum state or have purposefully availed themselves of the forum state. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 463 (1985). The minimum contacts test ensures that a defendant is not "haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts," id. at 475, and affords a defendant protection "from having to defend [itself] in a forum where [it] should not have anticipated being sued." Consulting Eng'rs Corp., 561 F.3d at 277 (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)). Determining the reach of judicial power over persons outside of a state's borders under the International Shoe standard is undertaken either by finding specific jurisdiction based on conduct connected to the suit or by finding general jurisdiction. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984). Specific jurisdiction focuses on the particular conduct giving rise to the suit while general jurisdiction exists where a defendant's overall contacts with the forum state are continuous and systematic. There is no basis for the court to exercise general jurisdiction over Defendants in this case;⁸ however, I find that the factual allegations set forth in the Amended Complaint support the exercise of personal jurisdiction under the specific jurisdiction test.

1. Specific Jurisdiction

A court analyzing whether a defendant is subject to specific jurisdiction must determine "(1) the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the State; (2) whether the plaintiffs' claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally reasonable." ALS Scan, Inc., 293 F.3d at 712 (quotations and citations omitted).

The first prong focuses on the minimum contacts requirement of constitutional due process that the defendant purposefully avail itself of the privilege of conducting business in the forum state. This prong is not mechanically applied. Instead, the court considers various nonexclusive factors to determine whether a defendant has purposefully availed itself to jurisdiction in the forum state.⁹ Specific jurisdiction exists where the defendant has availed itself of the privilege of conducting business in the forum. Consulting Eng'rs Corp., 561 F.3d at 278.

If the court finds that the plaintiff has satisfied this first prong of the test for specific jurisdiction it moves to the second prong - determining whether the plaintiff's claims arise out of the activities or contacts directed to the forum state. See Burger King, 471 U.S. at 472; Helicopteros Nacionales de Colombia, S.A., 466 U.S. at 414. If the plaintiff satisfies prongs one and two, prong three comes into play.

The third prong—that the exercise of personal jurisdiction be constitutionally reasonable—permits a court to consider additional factors to ensure the appropriateness of the forum once it has determined that a defendant has purposefully availed itself of the privilege ofdoing business there. Such factors include: (1) the burden on the defendant of litigating in the...