Hatfield v. Ornelas

1

JASON M. HATFIELD, P.A. PLAINTIFF v. CESAR ORNELAS; STEVEN KHERKHER; MICHAEL McCOY; NOE JESUS MANCIA POLANCO; NUNEZ & ASSOCIATES; KHERKHER GARCIA, LLP; TONY PIRANI; PIRANI LAW, PA; JESUS GARCIA; KEVIN HAYNES DEFENDANTS

No. 5:22-cv-05110

United States District Court, W.D. Arkansas, Fayetteville Division

December 22, 2023

OPINION AND ORDER

P.K HOLMES, III U.S. DISTRICT JUDGE

Before the Court are the Motion to Dismiss brought by Defendants Michael McCoy, Nunez & Associates, and Cesar Ornelas (collectively, “Nunez Defendants”) (Doc. 156) the adoption of that motion by Jesus Garcia, Kevin Haynes Steven Kherkher, and Kherkher Garcia, LLP (“Kherkher Defendants”) (Doc. 161), and the separate Motion for Judgment on the Pleadings brought by the Kherkher Defendants (Doc. 189). The Court has also considered Defendants' memorandum briefs in support of these motions (Docs. 157, 190), Plaintiff Jason M. Hatfield, P.A.'s responses to Defendants' motions (Docs. 172, 192), and Defendants' replies to those responses (Docs. 177, 197). For the reasons stated below, Defendants' motions are GRANTED IN PART AND DENIED IN PART.

For the sake of efficiency, the Court assumes the reader's familiarity with the allegations in Hatfield's Third^[1] Amended Complaint. The Court takes these allegations as true for purposes of ruling on these motions. Schriener v. Quicken Loans, Inc., 774 F.3d 442, 444 (8th Cir. 2014).

I. RICO Standing - Recinos Estate

Defendants challenge Hatfield's standing to bring a claim under the Racketeer Influenced and Corrupt Organization (“RICO”) Act, 18 U.S.C. § 1962. To demonstrate standing under RICO, a plaintiff must have been “injured in [its] business or property” by a violation of that statute. Bridge v. Phoenix Indem. Co., 553 U.S. 639, 647 (2008). The law requires “some direct relation between the injury asserted and the injurious conduct alleged.” Anza v. Ideal Steel Corp., 547 U.S. 451, 457 (2006) (quoting Holmes v. Sec. Inv. Protection Corp., 503 U.S. 258, 268 (1992)). The questions of interest, injury, and causation often overlap in the context of this inquiry, and the interplay of cases touching on these concepts (most notably Bridge, supra, and Regions, infra) has caused confusion for both the parties and the Court. For the purposes of clarity, the Court feels it prudent to address these elements of standing individually here.

a. Nature of Affected Interest

Defendants characterize Hatfield's injury as a “mere injury to a valuable intangible property interest” or a “[m]ere expectancy interest” insufficient to support RICO standing. (Doc. 157, p. 5). The Court disagrees.

RICO permits civil suits by individuals “injured in [their] business or property” by violations of that statute. Bridge, 553 U.S. at 647 (2008). However, it does not permit recovery based on “mere injury to a valuable intangible property interest” or “mere expectancy interests.” Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721, 728 (8th Cir. 2004). The question here is whether Hatfield's alleged injury is to his “business or property” and, if so, whether the interest is merely to a valuable intangible property interest or expectancy interest.

Initially, it is helpful to pin down exactly what Hatfield is claiming here. In the Court's view, Hatfield has stated two theories of RICO injury with regard to the Recinos estate:

interference with its November 30 contract (hereinafter “Hatfield Contract”) and interference with the resulting lien of attorney. The Court will address these in turn.

1. Interference with November 30 Contract

Logic would dictate that interference with a contract for professional services constitutes an injury to business; precedent tends to agree. The Ninth Circuit, for example, has held that intentional interference with a contract and interference with prospective business relations created RICO liability. Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005) (en banc). The Ninth Circuit reasoned that because intentional interference with a contract was a tort in California, “California law protects the legal entitlement to . . . contractual relations.” Id. Accordingly, the plaintiff had a legally cognizable interest in his contractual relationships which created a “specific business [] interest” under RICO. Id. A Ninth Circuit panel later summarized the Diaz holding as follows: “an injury is compensable under RICO if the injury constitutes ‘harm to a specific business or property interest' and if the alleged business or property interest is cognizable under state law.” Newcal Indus., Inc. v. Ikon Office Sol's, 513 F.3d 1038, 1055 (9th Cir. 2008) (quoting Diaz).

The First and Sixth Circuits take a slightly different view, stating that “[a]lthough ‘some role does exist for state law,' the question of ‘where to set the “business or property” threshold depends on federal statutory purpose, and that purpose is likely to support a definition that is uniform throughout the country.'” Jackson v. Sedgwick Claims Mgmt. Servs., 731 F.3d 556, 565 (6th Cir. 2013) (en banc) (quoting DeMauro v. DeMauro, 115 F.3d 94, 96-97 (1st Cir. 1997)). So what was that statutory purpose? In Holmes v. Sec. Inv. Prot. Corp., the Supreme Court noted that Congress modeled the “business or property” requirement on a provision of the Clayton Act. 503 U.S. 258, 267 (1992). The Supreme Court has interpreted the Clayton Act's “business or property” provision based on the plain meaning of those terms as set forth in Webster's Third New International Dictionary, 1961 edition. See Reiter v. Sonotone Corp., 442 U.S. 330, 338 (1979). And Webster's Third New International Dictionary, 1961 edition, defines business as (among other things) “commercial or mercantile activity customarily engaged in as a means of livelihood.” Bowens v. Adidas Am., Inc., 84 F.4th 166, 173 (4th Cir. 2023) (defining “business” for RICO purposes by reference to this definition).

Turning to the present case, Arkansas recognizes a cause of action for “tortious interference [with] a contractual relationship or business expectancy.” Crockett v. C.A.G. Inv's, Inc., 361 S.W.3d 262, 267 (Ark. 2010). Under the reasoning of Diaz, Hatfield would have a cognizable business interest in the November 30 contract. Further, the making of contracts for representation by a lawyer is certainly “commercial or mercantile activity customarily engaged in as a means of livelihood.” Therefore, it falls within the definition of “business” used by the Fourth Circuit, a definition which appears to fit the bill for a uniform, legislatively intended definition of “business” as sought by the Sixth and First Circuits. Accordingly, Hatfield's interest in the November 30 contract is a cognizable business injury under any of the prevailing definitions.

Defendants claim that, regardless, Hatfield's interest is not cognizable. First, they argue that an interest in a potential future judgment is not cognizable under RICO. As a general proposition, this may well be true. See, e.g., Taylor v. Bettis, 976 F.Supp.2d 721, 737 (E.D. N.C. 2013) (“Th[e] possibility of a judgment in Plaintiffs' favor, and the possibility of a right to recover therefrom, is not a cognizable injury under RICO. It is, rather, a ‘mere expectancy.'”); Keeton v. Gynecare Worldwide, 2016 WL 2753866, at *3 (S.D. Fla. January 29, 2016) (expectation interest in proceeds of a lawsuit “mere expectancy” or “intangible property interest”). But while Hatfield's damages may have depended on a hypothetical future judgment, Hatfield's interest was in the Hatfield Contract. And a contract is a cognizable business interest, even if the resulting profit is speculative.^[2] See Herzer v. Redstone, 2018 WL 5094933, at *5 (C.D. Cal. July 10, 2018) (distinguishing a “business or contractual interest in [a revocable] Trust-whether present or future” from a bare expectancy interest in a revocable trust's funds). Indeed, the profitability of many contracts is speculative, but this does not render them unenforceable in court. Similarly, the fact that Hatfield may have ultimately made no money from the November 30 contract does not make its interest in that contract less cognizable.

Defendants also claim that, because the underlying lawsuit was for personal injury damages, Hatfield's interest in the contract cannot create standing under RICO. It bears noting that there is an active circuit split concerning whether personal injury damages can support a RICO claim. Compare Jackson, 731 F.3d at 565-66; Doe v. Roe, 958 F.2d 763, 767 (7th Cir. 1992); and Grogan v. Platt 835 F.2d 844, 845 (11th Cir. 1988); with Horn v. Med. Marijuana, Inc., 80 F.4th 130, 133 (2d Cir. 2023); Diaz, 420 F.3d at 900. The Eighth Circuit has yet to weigh in, although the Supreme Court has been asked to. See Med. Marijuana, Inc. v. Horn, Supreme Court Doc. No. 23-365. But even when courts have held that personal injury damages cannot give rise to a RICO claim, they have done so on the grounds that a personal injury is not an “injury to business or property.” Jackson, 731 F.3d at 558 (“[P]laintiffs have not pled an injury to their ‘business or property' as required under § 1964(c)[.]”); Doe, 958 F.2d at 770 (fact that plaintiff “can show a financial loss does not, by definition, establish that she has suffered a business or property injury within the meaning of § 1964(c). Most personal injuries . . . will entail some pecuniary consequences.”); Grogan, 835 F.2d at 847 (finding that Congress did not intend for definition of “business or property” to reach personal injury damages). As discussed above, Hatfield had a cognizable business interest in the Hatfield Contract. The Court will not read the law to dictate that otherwise-cognizable contractual interests are stripped of RICO's protections merely...