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Old Town Utility & Technology Park, LLC v. Consolidated Edison, Solutions, Inc.

United States District Court, D. Maine

September 30, 2019

OLD TOWN UTILITY & TECHNOLOGY PARK, LLC, et al., Plaintiffs,
v.
CONSOLIDATED EDISON, SOLUTIONS, INC., et al., Defendants.

          ORDER ON DEFENDANTS’ MOTIONS TO DISMISS

          JON D. LEVY CHIEF U.S. DISTRICT JUDGE

         The Plaintiffs, Old Town Utility & Technology Park, LLC, Relentless Capital Company, LLC, and Samuel Eakin, allege that several of the named Defendants operated a criminal enterprise to procure a long-term energy supply contract with the University of Maine System (the “University”). The Defendants have filed two motions to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). The first, brought by 14 of the Defendants, seeks to dismiss the complaint in its entirety (ECF No. 48).[1] The second, filed by two of the Defendants-the Trustees of the University and former University Chancellor James Page (together, the “University Defendants”)-seeks the dismissal of Count XIV, which prays for injunctive and declaratory relief (ECF No. 49).[2] For reasons I will explain, I grant the Defendants’ motions to dismiss in part and deny them in part.

         I. BACKGROUND

         The complaint (ECF No. 1-4) alleges the following facts, which I treat as true for purposes of the motions to dismiss. Because the complaint is voluminous, containing 385 numbered paragraphs spread over 126 pages, I focus on the allegations implicated by the motions to dismiss. I treat the facts alleged in the complaint as true for purposes of ruling on the motions to dismiss.

         In short, the complaint alleges that certain of the Defendants operated a criminal enterprise to procure a long-term energy supply contract with the University, and were able to do so because public entities and officials associated with the University failed to follow governmental procurement and public corruption laws. At the heart of the alleged conspiracy are the complaint’s allegations that former University Chancellor Page had an undisclosed financial interest in James W. Sewall Company (“Sewall Company”), that he faced a significant financial gain or loss depending on whether Sewall Company and its business partners succeeded in obtaining the energy contract with the University, and that he manipulated the public bid process to favor Sewall Company and its partners. The complaint alleges that, as a result, the Plaintiffs were wrongfully excluded from potential business opportunities they would have been entitled to under contracts with Sewall Company and some other defendants. The alleged conspiracy involves a complicated matrix of individual actors and their related entities.

         A. Formation of Old Town Utility and the Request for Proposals

         In December 2015, Plaintiff Relentless Capital Company, LLC (“Relentless Capital”) and Sewall Company formed Plaintiff Old Town Utility & Technology Park, LLC (“Old Town Utility”) for the purpose of acquiring and redeveloping the Expera Mill Facility (the “Mill”), a roughly 300-acre property containing a warehouse building, a waste water treatment plant, a 16-megawatt biomass boiler, and additional power generation assets. Plaintiff Samuel Eakin is the manager of both Relentless Capital and Old Town Utility. David Edson is the President and CEO of Sewall Company. In December 2015, Old Town Utility began discussions with the Mill’s owner about purchasing the Mill. In January 2016, Old Town Utility began discussions with the City of Old Town about investing in and/or financing the acquisition of the Mill. Some time later, Old Town Holdings II, LLC (“Old Town Holdings”) joined Old Town Utility, and in July 2016, the three members of Old Town Utility executed the Old Town Utility Operating Agreement. Joseph Deschenes is the sole member of Old Town Holdings.

         In February 2016, the University posted a request for proposals (the “RFP”) seeking a proposal for long-term energy solutions to meet the University’s energy needs. Relentless Capital and Sewall Company agreed to jointly develop a proposal in response to the RFP. Relentless Capital recruited Self-Gen Inc., a power generation engineering firm, to collaborate on developing the proposal. Self-Gen Inc., in turn, recruited Consolidated Edison Solutions, Inc. (“Con Ed Solutions”) to join the team.[3] The parties agreed that Con Ed Solutions would act as the engineering, procurement, and construction contractor; Self-Gen Inc. would act as subcontractor for engineering; and Relentless Capital and Sewall Company would handle financial arrangements and negotiations to acquire, finance, and fund the development of the Mill. In March 2016, Relentless Capital and Con Ed Solutions entered into a “Teaming Agreement” related to their submission of a joint proposal for the RFP. The Teaming Agreement provided that it would automatically terminate after twelve months, absent a written renewal. Under the Teaming Agreement, Con Ed Solutions had primary responsibility for submitting proposals to the University and was required to name Relentless Capital as the subcontractor if Con Ed Solutions won the RFP bid.

         B. Former Chancellor Page’s Connection to Sewall Company

         Defendant James Page was appointed Chancellor of the University in March 2012. At the time, he was the CEO and a majority shareholder of Sewall Company. The complaint alleges that at the time of his appointment as Chancellor, Page claimed that he had divested himself of all business holdings with Sewall Company. The complaint, however, posits that (1) while CEO of Sewall Company, Page had signed a multimillion-dollar personal loan guarantee to help finance Sewall Company’s mortgage, and (2) before becoming Chancellor, Page sold his stock to Sewall Company in exchange for divestiture notes in the company. The complaint alleges that the net effect of Page serving as a creditor and guarantor of various Sewall Company notes would give Page a significant financial interest tied to Sewall Company’s success.

         C. The Phase I Proposal and Efforts to Exclude the Plaintiffs

         In March 2016, the Con Ed Solutions team submitted its proposal for Phase I of the RFP. At around the same time, the complaint alleges that Joseph Deschenes secretly introduced CVG, Inc. (“CVG”) and Maine Distributed Power, LLC to Con Ed Solutions to facilitate their acquisition of the Mill and participation in Con Ed Solutions’ RFP bid. Sewall Company, acting through Edson, and Con Ed Solutions, acting through Strosser, also recruited Treadwell Franklin Infrastructure Capital, LLC (“Treadwell”) to replace Relentless Capital on the Con Ed Solutions team. The Con Ed Solutions team recruited CVG to replace Old Town Utility as the purchaser of the Mill and recruited Treadwell to replace Relentless Capital as the finance subcontractor. Treadwell purchased Sewall Company in May 2018.

         The complaint alleges that the Con Ed Defendants knew Page had both a financial stake in Sewall Company and the ability to influence and ultimately decide the outcome of the RFP. The complaint further alleges that the Con Ed Defendants conspired to exclude Eakin, Old Town Utility, and Relentless Capital from acquiring the Mill and participating in the RFP process because they were concerned that Eakin would insist on publicly disclosing Page’s financial interest in Sewall Company to avoid any conflict of interest or appearance thereof. The Con Ed Defendants allegedly wanted to avoid such public disclosure because they did not want to risk losing the RFP bid, especially given that Sewall Company was having financial troubles and likely needed to win the RFP to survive.

         D. Phase II and the Ultimate Sale of the Mill

         Although the University was scheduled to announce the finalists who would be invited to provide submissions for Phase II of the RFP in May 2016, the complaint alleges that the Defendants used their influence with the University to delay the announcement so as to disrupt Old Town Utility’s purchase of the Mill, which was tied to the announcement timeline. While the Plaintiffs were allegedly working to close on their purchase of the Mill, Eakin was never notified that CVG and the Mill’s owner had signed a letter of intent on September 1, 2016, for CVG to buy the Mill. In October 2016, the Mill’s owner notified Old Town Utility that CVG had offered a “cash deal” for the Mill and gave Old Town Utility two weeks to make a counter-offer. Ultimately, the Mill’s owner, MFGR, LLC (“MFGR”), decided to sell the Mill to CVG. In the ensuing months, Con Ed Solutions removed Relentless Capital from the RFP team, and partnered with PEFCo, a company formed by CVG, Maine Distributed Power, and their partners to redevelop the Mill. This was done without notice to Eakin, and Eakin never received a formal notice terminating the Teaming Agreement with Con Ed Solutions.

         In July 2017, the Plaintiffs filed suit in Maine state court against MFGR and one of the seller’s principals, seeking, in part, to prevent the sale of the Mill to OTM Holdings, LLC and Powerhouse Holdings, LLC, which were created by CVG. Old Town Technology & Utility Park, LLC, et al. v. MFGR, LLC, et al. (“ ”), 2018 Me. Bus. & Consumer LEXIS 2018. The Plaintiffs later amended the complaint to add Old Town Holdings and Deschenes. In Eakin I, the Plaintiffs brought claims for breach of contract (including breach of the Old Town Utility Operating Agreement), promissory estoppel, unjust enrichment, breach of fiduciary duty, and violation of 10 M.R.S.A. § 1101. The Plaintiffs also sought a preliminary injunction prohibiting the transfer of the Mill.

         Despite the ongoing litigation, the Mill was conveyed to OTM Holdings and Powerhouse Holdings on January 29, 2018. The state court denied the Plaintiffs’ motion for a preliminary injunction two days later. Eakin I, 2018 Me. Bus. & Consumer LEXIS 5, *11. Later, the state court granted the Defendants’ motions to dismiss as to one of the claims of promissory estoppel, restraint of trade/monopoly and breach of fiduciary duty claims. See Eakin I, 2018 Me. Bus. & Consumer LEXIS 6, *32; Eakin I, 2018 Me. Bus. & Consumer LEXIS 18, *7. What remained of that case was ultimately dismissed.[4] The Plaintiffs filed this action on October 10, 2018, in Maine state court, and the Defendants later removed the case to federal court.

         II. LEGAL ANALYSIS

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The plausibility standard is not akin to a ‘probability requirement, ’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). A two-pronged approach is employed to resolve a motion to dismiss. Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011). First, the Court must first “isolate and ignore statements in the complaint that simply offer legal labels and conclusions.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). Second, the Court must take the remaining well-pleaded facts as true, “drawing all reasonable inferences in the pleader’s favor, and see if they plausibly narrate a claim for relief.” Id. In other words, the question is whether the well-pleaded facts “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

         The Defendants move to dismiss all of the Plaintiffs’ claims. I address each claim in order before turning to the Defendants’ final argument that the complaint fails to state any claims against the individual defendants.[5]

         A. Racketeer Influenced and Corrupt Organization Act (“RICO”) Claims (Counts I and II)

         The Plaintiffs assert a RICO claim under 18 U.S.C.A. § 1962(c) against all the Defendants except for the Trustees of the University and current University Chancellor Dannel P. Malloy.[6] Section 1962(c) makes it:

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 or collection of unlawful debt.

18 U.S.C.A § 1962(c) (West 2019). Thus, to state a civil RICO claim under § 1962(c), “a plaintiff must allege: (1) conduct, (2) of an enterprise, (3) through either a pattern of racketeering activity or a single collection of an unlawful debt.” Home Orthopedics Corp. v. Rodriguez, 781 F.3d 521, 528 (1st Cir. 2015) (internal quotation marks and alterations omitted). The Defendants contend the complaint fails to allege the existence of an enterprise, a pattern of racketeering, or any racketeering activity. I find that the complaint fails to allege a pattern of racketeering and I address only that element.[7]

         “[T]o prove a pattern of racketeering activity, a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989) (emphasis in original). This is known as the “continuity plus relationship” standard. Giuliano v. Fulton, 399 F.3d 381, 387 (1st Cir. 2005). Thus, a “pattern of racketeering activity . . . does not encompass a single criminal event, a single criminal episode, [or] a single ‘crime’ (in the ordinary, nontechnical sense of that word) . . . even if that single episode involves behavior that amounts to several crimes (for example, several unlawful mailings).” Apparel Art Int’l, Inc. v. Jacobson, 967 F.2d 720, 722–23 (1st Cir. 1992) (emphasis in original).

         There are two methods to satisfy the continuity plus relationship standard: the open-ended approach and the closed-ended approach. Giuliano, 399 F.3d at 387. Under the open-ended approach, a plaintiff “need not wait for a long-term pattern to develop . . . so long as the alleged ‘racketeering acts themselves include a specific threat of repetition extending indefinitely into the future [or] . . . are part of an ongoing entity’s regular way of doing business.’” Id. at 387 (quoting H.J. Inc., 492 U.S. at 242). Under the closed-ended approach, by contrast, a plaintiff must show “a series of related predicates extending over a substantial period of time.” H.J. Inc., 492 U.S. at 230. “[W]here the temporal duration of the alleged activity and the alleged number of predicate acts are so extensive that common sense compels a conclusion of continuity, closed-ended continuity should be found.” Giuliano, 399 F.3d at 387 (internal quotation marks and citation omitted). Accordingly, the First Circuit found that 95 fraudulent mailings over a four-and-a-half-year period was sufficient to show continued criminal activity. Fleet Credit Corp. v. Sion, 893 F.2d 441, 447 (1st Cir. 1990). By contrast, an allegation of “16 predicate acts over a six-month period is inadequate to establish a closed-ended pattern of racketeering activity.” Giuliano, 399 F.3d 381 at 390. Only in “middle ground” closed-ended cases “where the duration and extensiveness of the alleged conduct does not easily resolve the issue” does the court “examine other indicia of continuity.” Id. at 387.

         The Defendants contend that the complaint fails to establish either open- or closed-ended continuity.

         1. Open-Ended Continuity

         The complaint asserts that there is open-ended continuity because the complaint alleges that the racketeering activity “will continue into the future”:

The Enterprise’s key relationships are still operating, and there is a significant danger that the Enterprise’s pattern of racketeering activity will continue into the future. Sewall [Company], Treadwell and Con Ed Solutions intend to partner on future energy and infrastructure project bids (a relationship that is only tighter now that Treadwell has purchased Sewall [Company]), including public education energy services bids in Maine. [The] Chancellor of the [University] . . . is in a position to ensure favorable treatment for the Enterprise in exchange for future favors or as reward for rescuing him from his guarantee of [Sewall Company’s] debt.

ECF No. 1-4 ¶ 215. As I will explain, these allegations are unduly speculative.

         “Although the pleadings should generally be construed liberally” when evaluating a motion to dismiss, “a greater level of specificity is required in RICO cases.” Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 443 (1st Cir. 2000), amended on denial of reh’g (Dec. 15, 2000) (internal citations omitted). To plead open-ended continuity, a plaintiff must point to facts that would establish that the alleged criminal conduct is a continuing threat. Thus, in Systems Management, Inc. v. Loiselle, 303 F.3d 100 (1st Cir. 2002), the First Circuit dismissed a RICO case alleging that an employer engaged in mail fraud to conceal its non-compliance with state wage laws so as to maintain its contract. Id. at 103, 106. The court stated that, “[i]f [the defendant] had concrete plans to bid on contracts on other jobs and to carry them out through acts of mail fraud, the ‘continuing threat’ label would be supported, and the case would fit within what the Supreme Court has viewed as an ‘open ended’ pattern of racketeering sufficient under RICO.” Id. at 106. But the plaintiffs in that case could not point to any such evidence and thus could not establish a continuing threat. Id.

         Here, as in Loiselle, the Plaintiffs allege no “concrete plans” by the Defendants. Although the Plaintiffs warn of a “significant danger” of future racketeering activity, ECF No. 1-4 ¶ 215, and argue that “there is no reason to believe [the Defendants] will not replicate the business model with future, similar projects, ” ECF No. 60 at 35, the complaint contains no specific allegations of any future plans by the Defendants to do so, or of any actions taken by the Defendants suggesting an intent to do so. The complaint also contains no allegations that “racketeering activity might be a regular way of conducting defendant’s ongoing legitimate business . . . or of conducting or participating in an ongoing and legitimate RICO enterprise.” Efron v. Embassy Suites (P.R.), Inc., 223 F.3d 12, 19 (1st Cir. 2000) (internal quotation marks omitted). Therefore, the allegations in the complaint do not support open-ended continuity. See Kenda Corp. v. Pot O’Gold Money Leagues, Inc., 329 F.3d 216, 233 (1st Cir. 2003) (holding that multiple criminal acts “directed toward one transaction” did not establish open-ended continuity where the plaintiffs could not prove that the defendants “had plans to take over another company or pool league in the same fraudulent manner”).

         2. Closed-Ended Continuity

         Nor do the complaint’s allegations support closed-ended continuity. “[A] closed-ended pattern sometimes can be established by examining only the number of alleged predicate acts and the duration of the alleged racketeering activity.” Home Orthopedics Corp., 781 F.3d at 529. Here, the complaint alleges that the Defendants’ racketeering activity spanned approximately two years, but it does not clearly enumerate the alleged predicate acts. Thus, it is difficult to say whether “the temporal duration of the alleged activity and the alleged number of predicate acts are so extensive that common sense compels a conclusion of continuity.” Giuliano, 399 F.3d at 387.

         Nevertheless, even considering other indicia of continuity under the “middle ground” analysis, see id., the complaint fails to establish closed-ended continuity. These indicia include, “for instance, whether the defendants were involved in multiple schemes, as opposed to one scheme with a singular objective; whether the scheme affected many people, or only a closed group of targeted victims; and whether the scheme had the potential to last indefinitely, instead of having a finite nature.” Home Orthopedics Corp., 781 F.3d at 529 (internal quotation marks omitted).

         The First Circuit’s decision in Efron is instructive. 223 F.3d at 12. In Efron, the plaintiff partnered with the defendants in a business venture that went awry. Id. at 13. The plaintiff alleged that the defendants deliberately caused a project involving the development of a hotel and casino to lose money through various acts of mismanagement, and the complaint identified seventeen instances of alleged mail or wire fraud during a twenty-one-month period as the unlawful acts supporting a RICO claim. Id. at 13-14. Because the court found that seventeen acts over twenty-one months did not compel a finding of closed-ended continuity, the court looked to other indicia of continuity, conducting what is now known as a “middle ground” analysis. Id. at 18; see also Giuliano, 399 F.3d at 387, 390. The court concluded that the complaint, as a whole, did not establish closed-ended continuity because the alleged deceptive acts aimed to accomplish the “single goal of transforming the ownership of the Partnership” and inflicted a single injury on a “closed group of targeted victims.” Efron, 223 F.3d at 18; see also Apparel Art, 967 F.2d at 723-24 (holding that the allegations did not show closed-ended continuity where “several instances of criminal behavior . . . comprise[d] a single effort to obtain . . . one $96 million Defense Department contract”).

         As in Efron, the Plaintiffs’ complaint alleges a single scheme spanning roughly two years and pursuing a specific goal: here, procuring an energy contract with the University. The Plaintiffs concede that all alleged racketeering activity concerning the energy contract has ceased. A focused, finite scheme such as this does not establish closed-ended continuity. See Schultz v. R.I. Hosp. Tr. Nat’l Bank, N.A., 94 F.3d 721, 732 (1st Cir. 1996) (affirming the dismissal of a RICO case where “the alleged racketeering acts attributed to [the defendant], taken together, comprise a ...


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