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Bailey v. Atlantic Automotive Corp.

United States District Court, Fourth Circuit

January 17, 2014

OLIVIA BUCKNER BAILEY On Her Own Behalf and on Behalf of all Other Consumers Similarly Situated, Plaintiff,
v.
ATLANTIC AUTOMOTIVE CORP., et al., Defendants.

MEMORANDUM AND ORDER RE: MOTION TO DISMISS

MARVIN J. GARBIS, District Judge.

The Court has before it Defendants' Motion to Dismiss Second Amended Complaint [Document 21] and the materials submitted relating thereto. The Court has held a hearing and has had the benefit of the arguments of counsel.

I. BACKGROUND[1]

In 2009, Plaintiff Olivia Buckner Bailey ("Plaintiff" or "Bailey") purchased a used vehicle ("the Vehicle") from Heritage Chevrolet-Buick, Inc. ("Heritage") that was not identified as having been a prior short-term rental. Subsequent to her purchase, Bailey discovered that the vehicle had in fact formerly been used commercially as a short-term rental. Bailey has filed the instant class action complaint[2] against Heritage, its 100% owner Atlantic Automotive Corporation ("Atlantic"), and some twenty[3] other wholly owned subsidiaries of Atlantic ("the Other Dealer Defendants")[4] that sell used cars in the course of their business.

Bailey asserts that Heritage and the Other Dealer Defendants have engaged in a concerted and fraudulent scheme to sell prior short-term rental vehicles to consumers without disclosing that fact. Bailey seeks to proceed on behalf of a class consisting of persons who purchased former short-term rentals from Heritage and the Other Dealer Defendants without receiving disclosure or identification of that information in violation of Maryland law.

The Second Amended Complaint ("SAC") presents claims in ten Counts:

Count One Implied Warranty of Merchantability,
Count Two Magnuson-Moss Warranty Act,
Count Three Maryland Consumer Protection Act,
Count Four Deceit by Non-Disclosure or Concealment,
Count Five Unjust Enrichment,
Count Six Negligent Misrepresentation,
Count Seven Breach of Contract,
Count Eight Racketeer Influenced and Corrupt Organizations Act ("RICO") - 18 U.S.C. § 1962(a),
Count Nine RICO - 18 U.S.C. § 1962(c), and
Count Ten RICO - 18 U.S.C. § 1962(d).

By the instant motion:

• The Other Dealer Defendants seek dismissal of all claims against them pursuant to Federal Rule of Civil Procedure 12(b)(1)[5] for lack of standing, and
• Heritage and Atlantic seek dismissal of the claims asserted against them in Counts One, Two Three, Eight, Nine, and Ten pursuant to Rule 12(b)(6).

II. STANDING TO SUE THE OTHER DEALER DEFENDANTS

In June, 2009, Bailey purchased the Vehicle from Heritage in a transaction in which Heritage violated Maryland law by failing to disclose properly the Vehicle's pertinent history. Bailey had no relevant contact or communication with any of the Other Dealer Defendants. The Other Dealer Defendants contend that Bailey lacks standing to sue them on any of the claims made in the SAC.

The Defendants assert that Bailey lacks standing under Article III of the Federal Constitution to pursue the claims against the Other Dealer Defendants because she had no direct commercial dealings with those defendants pertinent to this action and because there is no cognizable claim of conspiracy capable of salvaging her lack of standing.

A. Nature of the Motion

A motion to dismiss for lack of constitutional or prudential standing is generally treated as a motion under Rule 12(b)(1) because, absent a Plaintiff with standing, a court lacks subject matter jurisdiction over a claimant's case. See McInnes v. Lord Balt. Emp. Ret. Income Account Plan , 823 F.Supp.2d 360, 362 (D. Md. 2011); cf. Pitt Cnty. v. Hotels.com, L.P. , 553 F.3d 308, 312 (4th Cir. 2009) ("Our determination that the County has standing to bring this action countermands the district court's dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1).").

While a 12(b)(1) motion permits the district court to consider evidence outside the pleadings without converting the motion to dismiss into one for summary judgment, [6] the parties in the instant case have not requested consideration of such evidence. See Evans v. B.F. Perkins Co. , 166 F.3d 642, 647 (4th Cir. 1999). As a result, when considering a motion to dismiss under Rule 12(b)(1) and "a defendant has not provided evidence to dispute the veracity of the jurisdictional allegations in the complaint, the court accepts facts alleged in the complaint as true just as it would under Rule 12(b)(6)." Nat'l Alliance for Accessibility, Inc. v. Big Lots Stores, Inc., No. 1:11-CV-941 , 2012 WL 1440226, at *3 (M.D. N.C. Apr. 26, 2012).

Plaintiff bears the ultimate burden "clearly to allege facts demonstrating that [s]he is a proper party to invoke judicial resolution of the dispute." Warth v. Seldin , 422 U.S. 490, 518 (1975).

B. Legal Principles

"In every federal case, the party bringing the suit must establish [Article III] standing to prosecute the action. In essence, the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues.'" Elk Grove Unified Sch. Dist. v. Newdow , 542 U.S. 1, 11 (2004) (quoting Warth , 422 U.S. at 498). To meet the standing requirement, "[a] plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Allen v. Wright , 468 U.S. 737, 751 (1984). That is, "the party invoking federal court jurisdiction must show that (1) it has suffered an injury in fact, (2) the injury is fairly traceable to the defendants' actions, and (3) it is likely, and not merely speculative, that the injury will be redressed by a favorable decision.'" Pitt Cnty. , 553 F.3d at 312 (citation omitted). These elements are the constitutional components of standing. See Allen , 468 U.S. at 751.

With respect to injury in fact, the plaintiff must demonstrate the "invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.'" Lujan v. Defenders of Wildlife , 504 U.S. 555, 560 (1992) (citations omitted). "[T]he injury must affect the plaintiff in a personal and individual way." Id. at 560 n.1. In line with this requirement, third party standing is generally forbidden because "a litigant must assert his or her own legal rights and interests, and cannot rest a claim to relief on the legal rights or interests of third parties." Powers v. Ohio , 499 U.S. 400, 410 (1991). The general prohibition against third party standing is one of the prudential components of standing, which are not constitutionally required, but are "matters of judicial self-governance." See Elk Grove , 542 U.S. at 12.

These constitutional and prudential standing requirements and the principles applicable thereto are pertinent in the context of a putative class action. As the United States Supreme Court has noted:

"That a suit may be a class action... adds nothing to the question of standing, for even named plaintiffs who represent a class must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong and which they purport to represent.'"

Lewis v. Casey , 518 U.S. 343, 357 (1996) (alteration in original) (quoting Simon v. E. Ky. Welfare Rights Org. , 426 U.S. 26, 40 n. 20 (1976)). The United States Court of Appeals for the Fourth Circuit has echoed this outlook, stating that in the class action context, it "is essential that named class representatives demonstrate standing through a requisite case or controversy between themselves personally and'" each defendant. Cent. Wesleyan Coll. v. W.R. Grace & Co. , 6 F.3d 177, 188 (4th Cir. 1993) (quoting Blum v. Yaretsky , 457 U.S. 991, 1001 n. 13 (1982)); see also Lieberson v. Johnson & Johnson Consumer Co., Inc. , 865 F.Supp.2d 529, 537 (D.N.J. 2011) (holding that the plaintiff lacked standing to pursue putative class action claims of consumer fraud against a baby bath product manufacturer as to any products the named plaintiff did not allege she used or purchased).

When a named plaintiff in a putative class action seeks to pursue claims against defendants with whom the named plaintiff did not have direct dealings, significant questions arise as to whether the plaintiff can establish an injury in fact with respect to those defendants. In such a situation, a plaintiff may be able to satisfy the injury aspect of standing through sufficient allegations of conspiracy. For instance, the Fourth Circuit has recognized that "allegations of conspiracy among parties with whom a plaintiff did not directly deal may confer standing upon the plaintiff to sue the non[-]dealing parties." Cent. Wesleyan Coll. , 6 F.3d at 188 (citing Brown v. Cameron-Brown Co. , 652 F.2d 375, 378 (4th Cir. 1981)). However, a plaintiff's reliance on allegations of conspiracy "may make it substantially more difficult'" to satisfy the "case or controversy" requirement of Article III, [7] given the indirectness of the injury. See id. (quoting Warth , 422 U.S. at 505).

C. Conspiracy Contention

Bailey contends that the Other Dealer Defendants are liable as co-conspirators with Heritage and Atlantic because the relevant actions of Heritage were in furtherance of a conspiracy to sell former short-term rental vehicles to consumers without disclosing the vehicles' history.

A civil conspiracy is "a combination of two or more persons by and agreement or understanding to accomplish an unlawful act or to use unlawful means to accomplish an act not in itself illegal, with the further requirement that the act or the means employed must result in damages to the plaintiff.'" Hoffman v. Stamper , 385 Md. 1, 24, 867 A.2d 276, 290, (2005) (citation omitted); see also Beck v. Prupis , 529 U.S. 494, 500-04 (2000) (discussing a civil cause of action for conspiracy in the context of a RICO claim).

The SAC includes allegations that present a plausible claim that Heritage, the Other Dealer Defendants, and Atlantic acted in concert pursuant to an agreement to accomplish an unlawful purpose of selling prior rental cars without disclosing that information to customers, one of whom was Bailey, who sustained damage as a result.

Accordingly, Bailey would have a valid claim against the Other Dealer Defendants if it were not for the fact that Heritage and each of the Other Dealer Defendants was a 100%-owned subsidiary of Atlantic. This fact, however, renders pertinent the intracorporate conspiracy doctrine recognized by the Supreme Court in Copperweld Corp. v. Independence Tube Corp. , 467 U.S. 752 (1984), and its progeny. This doctrine will, absent a pertinent exception, require dismissal of Bailey's conspiracy claims against the Other Dealer Defendants. Cf. AGV Sports Grp., Inc. v. Protus IP Solutions, Inc., No. RDB 08-3388 , 2009 WL 1921152, at *4-5 (D. Md. July 1, 2009) (concluding that the plaintiff failed to make a prima facie showing of personal jurisdiction based on a conspiracy theory on the grounds that the defendants were legally incapable of conspiring with each other under the intracorporate conspiracy doctrine).

1. The Copperweld Decision

In Copperweld Corp. v. Independence Tube Corp ., the Supreme Court affirmed the validity of the intracorporate conspiracy doctrine[8] in antitrust cases, holding that a corporation is legally incapable of conspiring with its wholly owned subsidiary, or its agents, officers, or employees, because such a claim is tantamount to a conspiracy made up of a single actor or of the actions of a single actor.[9] 467 U.S. 752 , 766-67, 776-77 (1984). The Court explained that "[a] parent and its wholly owned subsidiary have a complete unity of interest[, and t]heir objectives are common [because] the subsidiary acts for the benefit of the parent." Id. at 771. Thus, "the coordinated activity of a parent and its wholly owned subsidiary must be viewed as that of a single enterprise." Id . Courts have applied the intracorporate conspiracy doctrine to a variety of civil conspiracy claims, including common law and RICO conspiracy claims. See, e.g., Lewin v. Cooke , 28 F.Appx. 186, 195 (4th Cir. 2002) (state law conspiracy claim); Walters v. McMahen , 795 F.Supp.2d 350, 351, 358-59 (D. Md. 2011) (RICO conspiracy claim), aff'd, 684 F.3d 435 (4th Cir. 2012); see also Locus v. Fayetteville State Univ. , 870 F.2d 655, at *1-2 (4th Cir. 1989) (acknowledging application of the doctrine in the civil rights context). The doctrine has also been extended to preclude, as a matter of law, claims of conspiracies among sister corporations wholly owned by the same parent. See, e.g., Advanced Health Care Servs., Inc. v. Radford Cmty. Hosp. , 910 F.2d 139, 145-47 (4th Cir. 1990) (examining an antitrust case).

2. The Independent Personal Stake Exception

a. Legal Principles

The Fourth Circuit has recognized "one narrow exception to the intracorporate immunity doctrine - the independent personal stake exception." Am. Chiropractic Ass'n v. Trigon Healthcare, Inc. , 367 F.3d 212, 224 (4th Cir. 2004). In an antitrust case in which a corporate defendant was alleged to have conspired with the president of the company, the Fourth Circuit acknowledged that while generally "a corporation cannot be guilty of conspiring with its officers or agents, ... an exception may be justified when the officer has an independent personal stake in achieving the corporation's illegal objective." Greenville Publ'g Co. v. Daily Reflector, Inc. , 496 F.2d 391, 399 (4th Cir. 1974). Stated differently, the exception is applied "only where a co-conspirator possesses a personal stake independent of his relationship to the corporation." ePlus Tech., Inc. v. Aboud , 313 F.3d 166, 179 (4th Cir. 2002) (citing Oksanen v. Page Mem'l Hosp. , 945 F.2d 696, 705 (4th Cir. 1991)). The independent personal stake exception is rooted in the notion "that there can be no unity of purpose between a corporation and its agents if the agents have a personal stake independent of the interests of the corporation." Baylor v. Comprehensive Pain Mgmt. Ctrs., Inc., No. 7:09cv00472, 2011 WL 1327396, at *13 (W.D. Va. Apr. 6, 2011); see also ShoreGood Water Co., Inc. v. U.S. Bottling Co., No. RDB 08-2470 , 2009 WL 2461689, at *7 (D. Md. Aug. 10, 2009) ("In order for this exception to apply, there must be a showing that the interests of the company and the conspirators are clearly distinct.").

The Fourth Circuit has considered there to be a personal stake of a corporate agent adequate to overcome the intracorporate conspiracy doctrine in only limited circumstances. For instance, the Fourth Circuit views the exception as covering situations in which the corporate agent personally stands to benefit financially from the conspiracy based upon the agent's economic interest in an entity separate from the principal corporation. See Greenville Publ'g Co. , 496 F.2d at 399-400. Additionally, the exception "plainly applies" when corporate agents conspire with each other to send the corporation into bankruptcy by siphoning money out of the corporation because in such an situation, the conspirator corporate agents "personally profited at [the corporation's] expense" as a result of the scheme. ePlus Tech. , 313 F.3d at 179-80; see also In re Rood , 482 B.R. 132, 144 (D. Md. 2012) (applying the independent personal stake exception when a corporate agent used corporate entities as "corporate shells to facilitate his illegal activities" by taking corporate monies for his own personal purposes), aff'd sub nom. S. Mgmt. Corp. Ret. Trust v. Rood, 12-2359, 532 F.Appx. 370 (4th Cir. 2013) and aff'd sub nom. S. Mgmt. Corp. Ret. Trust v. Jewell, No. 12-2319, 533 F.Appx. 228 (4th Cir. 2013). However, where a corporate agent's participation in the conspiracy merely yields higher compensation to the employee or officer from the corporation, courts have generally considered the interests of the company and the employee/officer conspirator to be aligned. See, e.g., United States v. Gwinn, No. 5:06-CV-00267 , 2008 WL 867927, at *25-26 (S.D. W.Va. Mar. 31, 2008).

b. Alleged Personal Stake of Heritage, Atlantic, and the Other Dealer Defendants

Bailey contends that she has alleged sufficiently the exception to the intracorporate conspiracy doctrine because the named corporate Defendants had an independent "personal financial stake in the above-referenced conspiracy and [associated] to illegally increase the individual profits and personal gain of each Dealer Defendant [and Heritage] and its employees." SAC ¶ 56. According to Bailey:

[P]ayments by [Plaintiff] and [the putative] Class members to one Defendant actually resulted in separate monetary benefits to each of the individual Defendants resulting from their conspiracy and association as MileOne Automotive. The Defendants and/or their owners and employees had an individual profit motive ...

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