Jackson v. Nat'l Ass'n for the Advancement of Colored People, 12-20399

TRACIE JACKSON; LINDA DUNSON, Plaintiffs-Appellants, v. NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE,d/b/a NAACP; NAACP HOUSTON BRANCH; YOLANDA SMITH, Defendants-Appellees.

No. 12-20399

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

FILED: October 8, 2013

Appeal from the United States District Court

for the Southern District of Texas

USDC No. 4:11-CV-2474

Before STEWART, Chief Judge, and KING and PRADO, Circuit Judges.

PER CURIAM:^*

Plaintiffs-Appellants Tracie Jackson and Linda Dunson appeal from the district court's grant of Defendants-Appellees' motion to dismiss for failure to state a claim. For the following reasons, we AFFIRM in part, and we VACATE and REMAND in part.

I. FACTS AND PROCEDURAL HISTORY

A. Factual Background

Tracie Jackson and Linda Dunson (collectively "Plaintiffs"), both lawyers, were employed by the National Association for the Advancement of Colored People ("NAACP"), specifically by the NAACP Houston Branch (the "Branch") and the Branch's Executive Director, Yolanda Smith. Smith hired Dunson in January 2008 and Jackson in 2010. An Interest on Lawyer Trust Account ("IOLTA") grant funded Dunson's position, and a Basic Legal Services ("BLS") grant funded Jackson's position. The Texas Access to Justice Foundation ("TAJF") provided both grants to the Branch. Dunson's and Jackson's employment terminated on August 31, 2010 when the funding for these grants expired. Both re-applied for positions and were denied.

Prior to their termination, in June 2010, Plaintiffs and Branch employees were informed by Smith that the Branch would be unable to make payroll and that the grant monies were "pooled together" to pay for Branch expenses. Jackson e-mailed and informed the Branch President of the "pooling" of grant monies, among other complaints. Jackson then reported her concerns to the director of TAJF. When the director called Smith about these concerns, Smith stated that Ms. Jackson was a "problem employee" and was "causing morale problems among coworkers." Smith later referred to Jackson as a "disgruntled employee," which was reported in the Houston Chronicle.

Smith's actions as Executive Director have been controversial. A 2005 audit by the Texas Workforce Commission revealed improprieties regarding the expenditures of grants. A separate NAACP audit of the Branch's activities from 2003—2006 found improprieties with the Branch's accounting system, its relationship with the National Office, and its disclosure of its 501(c)(4) status. TAJF conducted its own site visit of the Branch in 2008 and discovered that financial reports were not submitted and no audit was conducted, as required,by TAJF in 2006 and 2007. TAJF continued to fund the grants even after this discovery.

In 2011, Dunson was elected to the Branch's Executive Committee and began investigating Smith. She initially found that the BLS grant had been underspent. On May 26, 2011, her investigation culminated in a confrontation with Smith when she and a number of other Executive Committee members entered Smith's office after hours. Smith allegedly left with a Branch computer, and the Executive Committee terminated Smith for the removal of its property. The NAACP later reinstated Smith and expelled Dunson, and four newly elected executive committee members, from membership for entering Smith's office.

After Smith's reinstatement, members of the Executive Committee filed an Article X petition¹ with the NAACP that has yet to be decided. TAJF suspended the final disbursements of the BLS and IOLTA grants on June 20, 2011 after finding that the Branch had not abided by the terms and provisions that governed the grant money. TAJF later denied grant requests for the 2011—12 year. The NAACP's own auditor supported TAJF's conclusions. Jackson filed a complaint with the National Labor Relations Board ("NLRB"). The NLRB ruled in July 2011 that the Branch committed an unfair labor practice by refusing to re-hire Jackson because of her complaints to the Executive Committee about the lack of funds for payroll and threats of legal action. The NLRB ordered back pay for Jackson and her reinstatement.

B. Procedural History

On July 1, 2011, Jackson sued the NAACP, the Branch, and Smith (collectively "Defendants") in federal district court. On August 29, 2011, Jackson amended her complaint adding Dunson as a plaintiff. The causes of action in the first amended complaint were (1) the Racketeer Influenced and CorruptOrganizations Act ("RICO") 18 U.S.C. § 1961 et seq., (2) breach of fiduciary duties, (3) negligent retention and hiring, (4) tortious interference with contract, and (5) defamation. On September 13, 2011, the NAACP, later joined by the Branch and Smith, filed a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss the case for failure to state a claim. Plaintiffs responded and attached numerous documents referenced in the complaint.

On September 21, 2011, Plaintiffs filed a second amended complaint, without filing a motion for leave to amend, withdrawing the claims under RICO, negligent retention and hiring, tortious interference with contract, and defamation. On October 17, 2011, Plaintiffs filed a "corrected" second amended complaint. Plaintiffs filed with this complaint an unopposed motion for leave to amend, but Plaintiffs filed it as an attachment instead of a docketed motion. Defendants opposed this motion. The "corrected" second amended complaint included the previously withdrawn RICO, defamation, and tortious interference with contract claims.

On May 18, 2012, the magistrate judge gave Plaintiffs the option to proceed on either their first amended complaint or uncorrected second amended complaint, which Defendants did not oppose. Plaintiffs elected to proceed with their first amended complaint. The magistrate judge then issued a report formally denying Plaintiffs leave to amend with the second "corrected" complaint and granting Defendants' motion to dismiss. Plaintiffs raised objections to the report to the district court. The district court adopted the report in full and dismissed Plaintiffs' claims with prejudice. Plaintiffs appeal several issues: (1) the denial of leave to amend their complaint; (2) the improper application of the Rule 12(b)(6) standard; (3) the dismissal of Jackson's RICO claim;² and, (4) thedismissal of various state law claims. We address these issues in turn, and AFFIRM the district court's dismissal in part and VACATE and REMAND in part.

II. DISCUSSION

A. Denial of Leave to Amend

We review a district court's denial of leave to amend a complaint for abuse of discretion. Ballard v. Devon Energy Prod. Co., 678 F.3d 360, 364 (5th Cir. 2012). We have recognized that "[d]enial of leave to amend may be warranted for undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies, undue prejudice to the opposing party, or futility of a proposed amendment." Id. (citations omitted).

We find no abuse of discretion here where Plaintiffs' errors and misrepresentations give rise to a number of reasons to deny leave to amend the complaint. First, Plaintiffs failed to file a motion for leave to amend with their second amended complaint. Plaintiffs then misrepresented the motion for leave to amend as unopposed for their second "corrected" complaint. Plaintiffs improperly filed the motion and labeled the new complaint "corrected" when it made substantive changes. Finally, Plaintiffs were allowed to proceed on the first amended complaint, which was not substantively different from the "corrected" complaint Plaintiffs sought leave to file.³ There was no abuse of discretion by the lower court under these circumstances.

B. Application of 12(b)(6) Standard

We have recognized that in considering a Rule 12(b)(6) motion to dismiss, courts "must consider the complaint in its entirety, as well as other sources courts ordinarily examine . . . in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (quoting Tellabs, Inc. v. Makor Issues & Rights Ltd., 551 U.S. 308, 322 (2007)) (internal quotation marks omitted). Plaintiffs allege that the lower court erred by not considering all documents referenced in its complaint and attached as exhibits in Plaintiffs' motions opposing the 12(b)(6) dismissal. There was no error here. The lower court's decision contained numerous references to facts that could only be found in such documents.

C. RICO Claim

We review a district court's grant of a Rule 12(b)(6) motion to dismiss de novo. Bass v. Stryker Corp., 669 F.3d 501, 506 (5th Cir. 2012) (citing Wampler v. Sw. Bell Tel. Co., 597 F.3d 741, 744 (5th Cir. 2010)). We accept all well-pleaded facts as true and view the facts in the light most favorable to the nonmovant. Id. (citing Jebaco Inc. v. Harrah's Operating Co., 587 F.3d 314, 318 (5th Cir. 2009)). "Dismissal is appropriate when the plaintiff has not alleged enough facts to state a claim to relief that is plausible on its face or has failed to raise his right to relief above the speculative level." Id. (citing Wampler, 597 F.3d at 744). We also review a district court's dismissal for lack of standing de novo. Joffroin v. Tufaro, 606 F.3d 235, 238 (5th Cir. 2010).

To state a civil RICO claim under any subsection in 18 U.S.C. § 1962, "there must be: (1) a person who engages in (2) a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or control of an enterprise." Brown v. Protective Life Ins. Co., 353 F.3d 405, 407 (5th Cir. 2003)(quotation marks and citation omitted).⁴ A plaintiff must establish standing to bring a civil RICO claim. Price v. Pinnacle Brands, Inc., 138 F.3d 602, 606 (5th Cir. 1998). "Any person injured in his business or property by reason of a violation of section 1962" may sue pursuant to the civil cause of action created by RICO. 18 U.S.C. § 1964(c). Thus, a plaintiff...