Liberty Mut. Ins. Co. v. Aftermath Servs.

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LIBERTY MUTUAL INSURANCE COMPANY, LIBERTY MUTUAL FIRE INSURANCE COMPANY, and LIBERTY MUTUAL PERSONAL INSURANCE COMPANY, Plaintiffs, v. AFTERMATH SERVICES LLC, AFTERMATH HOLDINGS LLC, J. DOUGLAS BERTO, KEVIN REIFSTECK, TINA BAO, MICHAEL LOPRESTI, CASEY DECKER, and John Does 1-10, Defendants.

Civil Action No. 22-cv-11052-ADB

United States District Court, D. Massachusetts

August 23, 2023

MEMORANDUM AND ORDER

ALLISON D. BURROUGHS, U.S. DISTRICT JUDGE

Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and Liberty Mutual Personal Insurance Company (collectively “Liberty Mutual” or “Plaintiff') allege that Aftermath Services LLC Aftermath Holdings LLC (collectively “Aftermath”), and Aftermath current and former employees, J. Douglas Berto, Kevin Reifsteck, Tina Bao Michael Lopresti, Casey Decker, and John Does 1-10 (collectively, “Aftermath Employees”) (collectively with Aftermath, “Aftermath and Employees” or “Defendants”), engaged in a scheme to defraud Plaintiff and its customers. See [ECF No. 26 (“First Amended Complaint” or “FAC”)]. Defendants, in turn, raise several counterclaims. See [ECF No. 49 (“Counterclaim Complaint” or “CC Compl.”)]. Currently before the Court are: (1) Defendants' partial motion to dismiss the First Amended Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6), [ECF No. 47], (2) Plaintiff's cross-motion to amend its First Amended Complaint, [ECF No. 50], and (3) Plaintiff's motion to dismiss Defendants' counterclaims, pursuant to Rule 12(b)(6), [ECF No. 54]. For the reasons set forth below, Defendants' partial motion to dismiss, [ECF No. 47], is GRANTED, Plaintiff's cross-motion to amend, [ECF No. 50], is DENIED, and Plaintiff's motion to dismiss Defendants' counterclaims, [ECF No. 54], is GRANTED.

I. PROCEDURAL BACKGROUND

Plaintiff filed its original complaint against Aftermath on June 30, 2022, [ECF No. 1],^[1]and its First Amended Complaint, against Aftermath and Employees, on July 22, 2022. The First Amended Complaint includes a Racketeer Influenced and Corrupt Organizations Act (“RICO”) claim, pursuant to 18 U.S.C. § 1962(c) (Count I), as well as claims for unjust enrichment (Count II); common law fraud (Count III); unfair or deceptive trade practices (Count IV); tortious interference with a business relationship (Count V); conversion (Count VI); and declaratory relief (Count VII). [FAC at 38-50]. On September 12, 2022, Defendants filed a motion to dismiss Counts I, V, and VI; all claims raised against the Individual Defendants; and the claims asserted on behalf of Plaintiff's insureds, [ECF No. 47], and asserted counterclaims for commercial disparagement (Counterclaim I) and tortious interference with business relationships (Counterclaim II), [CC Compl. ¶¶ 89-101]. Plaintiff opposed Defendants' partial motion to dismiss and filed motions to amend its First Amended Complaint, [ECF No. 50], and to dismiss Defendants' counterclaims, [ECF No. 54], both of which are opposed by Defendants, [ECF Nos. 56, 62].

II. LEGAL STANDARD

In reviewing a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded facts, analyze those facts in the light most favorable to the plaintiff, and draw all reasonable factual inferences in favor of the plaintiff. See Gilbert v. City of Chicopee, 915 F.3d 74, 76, 80 (1st Cir. 2019). “[D]etailed factual allegations” are not required, but the complaint must set forth “more than labels and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The alleged facts must be sufficient to “state a claim to relief that is plausible on its face.” Id. at 570. “To cross the plausibility threshold a claim does not need to be probable, but it must give rise to more than a mere possibility of liability.” Grajales v. P.R. Ports Auth., 682 F.3d 40, 44-45 (1^st Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “[T]he complaint should be read as a whole, not parsed piece by piece to determine whether each allegation, in isolation, is plausible.” Hernandez-Cuevas v. Taylor, 723 F.3d 91, 103 (1st Cir. 2013) (quoting Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 14 (1st Cir. 2011)). “The plausibility standard invites a two-step pavane.” A.G. ex rel. Maddox v. Elsevier, Inc., 732 F.3d 77, 80 (1st Cir. 2013) (citing Grajales, 682 F.3d at 45). First, “the [C]ourt must separate the complaint's factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited).” Id. (quoting Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012)). Second, “the [C]ourt must determine whether the remaining factual content allows a ‘reasonable inference that the defendant is liable for the misconduct alleged.'” Id. (quoting Morales-Cruz, 676 F.3d at 224).

III. DEFENDANTS' PARTIAL MOTION TO DISMISS AND PLAINTIFF'S CROSS-MOTION TO AMEND

A. Background

The following facts are taken from the First Amended Complaint, the factual allegations of which are assumed to be true when considering a motion to dismiss. Ruivo v. Wells Fargo Bank, N.A., 766 F.3d 87, 90 (1st Cir. 2014).

Liberty Mutual is a nationwide provider of home insurance. [FAC ¶ 67]. Aftermath is a provider of biohazard remediation services, that is, “cleanup of . . . various biohazard losses, including unattended deaths, crime scenes, suicides, and other losses of human life which result in blood, body fluids, and other biological substances.” [Id. ¶ 4]. As noted above, the Individual Defendants are employed by Aftermath. [Id. ¶ 2].

Beginning in January 2016 through at least the date of the filing of the First Amended Complaint, Defendants have engaged in a scheme “to create overinflated and fraudulent charges” associated with Aftermath's remediation services, which are then passed on to Plaintiff and its insureds, family members, and their estates. [FAC ¶¶ 11, 18]. Plaintiff's policies provide coverage “for accurate, reasonable, and necessary charges” for remediation services performed in insured homes. [Id. ¶ 68]. As such, Plaintiff regularly works with “service vendors[] and contractors,” including Aftermath, and “receives and pays bills and invoices for [remediation] services completed in” insured homes. [Id. ¶ 73].

Generally, either the remediation services provider or the homeowner puts Plaintiff on notice of the need for such services before any remediation work begins, [FAC ¶¶ 70-72], but Defendants regularly delay giving notice of their work to Plaintiff, sometimes by several days, and almost always submit invoices only after remediation work has begun, see [id. ¶¶ 79-86, 91]. Defendants also encourage homeowners to sign contracts to allow the work to commence quickly, by “inducement, false promises of full payment [for the work] by the home insurance carrier, and threats of harm to the home should the contracting party not allow Defendants to complete the work.” [Id. ¶ 134]. In some cases, homeowners refuse to allow Defendants to begin work without Plaintiff's approval, but Defendants ignore homeowners' refusal and Plaintiff's lack of approval and begin their work anyway. [Id. ¶¶ 136-137]. Defendants also force homeowners to leave their homes while work is being completed, resulting in them being unable to verify what work is or is not being done. [Id. ¶¶ 138-139]. This all ensures that Plaintiff is unable to conduct its own assessment of the damage or the necessity and reasonableness of any remediation services before Defendants begin work, which forces Plaintiff to rely on invoices and other documents provided by Defendants in reviewing and approving claims. [Id. ¶¶ 89-91]. As a consequence, Defendants are able to “perform [and charge for] excessive, unnecessary, and unwarranted demolition.” [Id. ¶ 90].

Defendants also over-charge for equipment, supplies, and chemicals by, for example, inflating the cost of chemicals and other supplies, as compared to industry standard costs and even common retail prices, see [FAC ¶¶ 95-99, 101-107, 113-123], and double-billing for the use and cleaning of reusable equipment, [id. ¶¶ 128-132]. Further, Defendants' invoices obscure overbilling by using vague and overlapping descriptions of work, such as “Hazard Safety & Site Assessment,” “Biohazard Removal,” “Content Manipulation,” “Cleaning / BioWash,” and “Biohazard Waste Management.” [Id. ¶¶ 124-127]. Defendants also claim that all work is conducted by their own employees when in fact they use subcontractors, [id. ¶¶ 148-149], misrepresent that their employees are specially trained in biohazard remediation services, [id. ¶¶ 140-142], and then charge more for their work based on this special training, when in fact they have no such training or specialized certifications, [id. ¶¶ 146-147].

B. Discussion

1. Count I: Pattern of Racketeering Activity, 18 U.S.C. § 1962(c)

To state a claim for a violation of § 1962(c) a plaintiff must allege “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985).^[2] Further, a plaintiff, “must allege . . . the existence of two distinct entities: (1) a ‘person'; and (2) an ‘enterprise' that is not simply the same ‘person' referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001). Defendants argue that Plaintiff's § 1962(c) claim must be dismissed because Plaintiff “has not alleged a ‘person' and a separate ‘enterprise,' or how the ‘person' has used the ‘enterprise' for racketeering purposes.” [ECF No. 48 at 5]; see [id. at 5-8]. Plaintiff responds that it “ha[s] identified the correct participants who further the criminal enterprise and have taken over the corporation's legitimate organization and purposes,” [ECF No. 50 at 4], and, without...