Lobster 207, LLC v. Pettegrow

LOBSTER 207, LLC, Plaintiff, v. WARREN B. PETTEGROW, ANTHONY D. PETTEGROW, JOSETTE G. PETTEGROW,STEPHEN M. PEABODY, POSEIDON CHARTERS INC.,and TRENTON BRIDGE LOBSTER POUND, INC., Defendants.

1:19-CV-00552-LEW

UNITED STATES DISTRICT COURT DISTRICT OF MAINE

June 1, 2020

MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS AND DEFENDANT WARREN PETTEGROW'S MOTION TO COMPEL ARBITRATION AND FOR STAY

In this action, Plaintiff Lobster 207, a Maine LLC, contends its former chief executive officer, Warren Pettegrow, conspired with his parents, owners of the Trenton Bridge Lobster Pound ("the Pettegrow Defendants"), and others, to cheat Lobster 207 out of substantial revenue through a variety of self-dealing schemes. Although the case principally involves state law contract and tort claims, Lobster 207 filed suit in federal court because it believes its allegations against the Defendants also state a plausible claim for relief under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 - 1968 ("RICO").

The matter is before the Court on Lobster 207's Motion for Attachment and Attachment on Trustee Process (ECF No. 4), the Pettegrow Defendants' Motion to Dismiss (ECF No. 45), Stephen Peabody's Motion to Dismiss (ECF No. 42), and Warren Pettegrow's Motion to Compel Arbitration (ECF No. 44). This Order resolves the motions to dismiss and the motion to compel arbitration and stay, but reserves judgment on the motion for attachment (and the attendant motions to strike), pending a hearing.

I. BACKGROUND FACTS

Plaintiff Lobster 207, LLC, is a wholesaler of live lobsters. Lobster 207 acquired its wholesale business from Defendant Trenton Bridge Lobster Pound, Inc., with a closing date of March 24, 2017. Through an Asset Purchase Agreement (ECF No. 1-2), Lobster 207 acquired all outstanding corporate stock, real estate, inventory, equipment, goodwill, and other assets of the wholesale business, from Defendants Anthony and Josette Pettegrow, the holders of Trenton Bridge Lobster Pound's outstanding stock. The Asset Purchase Agreement did not include Trenton Bridge Lobster Pound's restaurant and lobster retail business in Trenton, which continues to operate under the Pettegrows' management.

Integral to the Purchase Agreement is a Noncompetition Agreement (ECF No. 1-3), through which Trenton Bridge Lobster Pound and Anthony and Josette Pettegrow agreed to reject all wholesale orders and refer them to Lobster 207 for the duration of the noncompetition period.

The same parties also agreed that Trenton Bridge Lobster Pound could continue to operate as a lobster buying station, and that the Pettegrows could continue to operate a lobster smack boat, The Poseidon, but that they would sell to Lobster 207 all lobsters theylanded that were not used in the retail operations of Trenton Bridge Lobster Pound, at the then-existing, standard offer dock price. Supply and Offtake Agreement (ECF No. 1-4).

Lastly, as part of the parties' negotiations over the purchase and sale of the wholesale business, Lobster 207 agreed to employ Anthony and Josette Pettegrow's son, Warren Pettegrow, to serve as the chief executive officer of the wholesale business, for a period of ten years. Warren's Employment Agreement (ECF No. 1-5) includes a non-competition provision.

Lobster 207 terminated Warren Pettegrow on April 4, 2019, purportedly for his participation in a variety of schemes with the other Pettegrow Defendants and Stephen Peabody, dock manager at the Beals Jonesport Co-op ("B.J. Co-op"), which schemes, according to Lobster 207, fraudulently or unreasonably enriched the Pettegrows at Lobster 207's expense.

II. MOTIONS TO DISMISS - SUBJECT MATTER JURISDICTION

Lobster 207 alleges the Pettegrow Defendants engaged in multiple schemes that deprived Lobster 207 of substantial revenue through means varyingly described as embezzlement, fraud, theft, conversion, breach of trust, and self-dealing (and breach of contract). Lobster 207 filed suit in this Court because it believes the alleged schemes give rise to RICO liability. The Pettegrow Defendants and Stephen Peabody contend Lobster 207 has failed to state a claim under RICO and, if they are correct, this Court lacks jurisdiction to hear the other claims presented in the action.

"Federal courts are courts of limited jurisdiction," possessing "only that power authorized by Constitution and statute." Kokkonen v. Guardian Life Ins. Co. of Am., 511U.S. 375, 377 (1994). Because the Plaintiff and the Defendants are citizens of Maine, this Court lacks jurisdiction to resolve their state law dispute unless a federal claim is part of the same case or controversy that gives rise to the state law dispute. See 28 U.S.C. §§ 1331, 1332, 1367; Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 - 53 (2005).

RICO is a federal statute designed to provide tools to combat organized criminal enterprise. Home Orthopedics Corp. v. Rodríguez, 781 F.3d 521, 527 (1st Cir. 2015). One such tool is a private right of action for those persons "injured in [their] business or property by reason of a violation of section 1962." Id. (quoting 18 U.S.C. § 1964(c)). Relevant to present purposes, section 1962(c) reads:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity ....

18 U.S.C. § 1962(c). As a remedial statute, RICO is deserving of a liberal construction. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 - 98 (1985).

Consistent with § 1962(c), a plaintiff who brings a civil RICO claim must plausibly allege that the defendant participated in the (1) conduct of (2) an enterprise, through (3) a pattern of related racketeering activity. Home Orthopedics, 781 F.3d at 528. As discussed in more detail below, baked into these elements are additional requirements that the plaintiff identify the specific so-called "predicate acts" that ground the RICO claim and explain how the predicate acts cohere to depict a pattern of racketeering activity.

To avoid dismissal, Lobster 207 must provide "a short and plain statement of the claim showing [it] is entitled to relief." Fed. R. Civ. P. 8(a)(2). Practically speaking, this means the Complaint must provide "enough facts to state a claim to relief that is plausibleon its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In applying this standard, the Court will accept factual allegations as true and consider whether the facts, along with reasonable inferences that may arise from them, describe a plausible, as opposed to merely conceivable, claim. Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 12 (1st Cir. 2011); Sepúlveda-Villarini v. Dep't of Educ. of P.R., 628 F.3d 25, 29 (1st Cir. 2010). However, this placid pleading standard does not apply to allegations of fraud. When alleging fraud, a plaintiff "must state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b).

A. Labor Management Embezzlement

Lobster 207 alleges that because its sole member is the Maine Lobster Union, every scheme alleged in the Complaint supports a RICO claim because RICO makes labor management embezzlement a predicate act of racketeering. See Complaint ¶¶ 14, 187, 189 & 197. The labor management embezzlement provision reads:

Any person who embezzles, steals, or unlawfully and willfully abstracts or converts to his own use, or the use of another, any of the moneys, funds, securities, property, or other assets of a labor organization of which he is an officer, or by which he is employed, directly or indirectly, shall be fined not more than $10,000 or imprisoned for not more than five years, or both.

29 U.S.C. § 501(c) (emphasis added). RICO includes this provision as the kind of criminal activity that can support a RICO civil action. 18 U.S.C. §§ 1961(1)(C), 1962(c), 1964(c).

Defendants argue that subject matter jurisdiction cannot be predicated on labor management embezzlement because Lobster 207 is an LLC and cannot plausibly allege it is a labor organization. Lobster 207 argues it does not matter that it is a separate corporate entity, because the Maine Lobster Union is its sole member, which makes Lobster 207 theasset of a labor organization, and which makes Warren Pettegrow the "indirect" employee of a labor organization.

Lobster 207's theory - that the MLU is a labor organization because it calls itself a union - is misguided. The Labor Management Reporting and Disclosure Act defines "labor organization" as "a labor organization engaged in an industry affecting commerce[,] ... which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours, or other terms or conditions of employment ...." 29 U.S.C. § 402(i). To qualify, then, Plaintiff must have pled the MLU exists, in whole or in part, for the purpose of dealing with employers concerning the labor-related grievances described in Section 402(i).

Plaintiff has not done so. Furthermore, the MLU is a "fish marketing association" organized under the auspices of Chapter 87 of Maine Revised Statutes Title 13. Maine fish marketing associations are authorized to "engage in any activity in connection with the marketing, selling, preserving, harvesting, drying, processing, manufacturing, canning, packing, grading, storing, handling or utilization of any fishery products produced or delivered to it by its members," and certain related activities. 13 M.R.S. § 2231. The list of authorized activities does not include labor organization activity, and Plaintiff does not otherwise plead in its Complaint that Lobster 207 or the MLU engages in the listed activities in Section 402(i). Moreover, membership in a fish marketing association is restricted to persons engaged in the fishery business. Id. §§...