This is essence of Defendants' State Farm Mutual Automobile Co. (SFM), and State Farm Indmnity Co. (SFI), response to our Complaint.

This was a Motion to Dismiss, or in the Alternative to Stay, with a Memorandum in Support of that Motion. First, I've outlined the salient points as they exist in the Defendants' Memorandum.

	I. Plaintiffs have settled and dismissed their State Farm

	   Plaintiffs' action is barred by two fundamental legal
	   doctrines: accord and satisfaction and res judicata.

	II. Plaintiffs have failed to state a RICO claim.
		Must allege:
		(1) that defendant (2) through the commission of two
		acts (3) constituting a pattern of (4) racketeering
		activity (5) directly or indirectly invests in, or
	        mantains an interest in, or participates in (6) an
	        "enterprise," (7) the activities of which affect
	        interstate or foreign commerce 18 U.S.C 1962(a)-(c).

	    (A) Plaintiffs lack standing under RICO because have not
	        alleged injury in their business or property.

	    (B) Plaintiffs have failed to adequately [sic] plead predicate
	        criminal acts.

	    (C) Plaintiffs have failed to plead a "pattern" of "racketeering."

	    (D) Plaintiffs have not plead a RICO "enterprise".

	    (E) Plaitiffs RICO claim should be dismissed.

	III.  In the alternative, this action should be Stayed
                 pending the outcome of the
		"limited issue of underinsured motorist benefits."

Now the text of Defendants' full memorandum:

Memorandum in Support of Defendants' Motion to Dismiss, or in the Alternativem to Stay


Plaintiffs William Hammel and Allan [sic] Bellamente have filed this action *pro se*, literally seeking to transform a litany of complaints about the handling of their automobile accident claim into a federal case under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962. Plaintiffs' action should be dismissed, not only because their allegations fail to state a claim under RICO, but also because Plaintiffs have settled and released any causes of action arising from handling of their insurance claims. They have failed to plead any cognizable cause of action, and any they might attempt to plead is barred by their settlement and release. Accordingly, this action should be dismissed with prejudice.


Plaintiffs' Complaint, stripped of its colorful but legally irrelevent assertions, alleges:

It is important to note what Plaintiffs have failed to plead in their Complaint. They alleged that they have received and continue to receive extensive medical treatment in New Jersey and North Carolina. Nowhere do they allege that their injuries or conditions went untreated. Nor do plaintiffs apprise the Court of the outcome of the litigation against State Farm Indemnity in Bergen County, New Jersey, referred to in the Complaint. Court filings -- of which the Court may take judicial notice on a motion to dismiss -- establish that both Plaintiffs filed actions alleging breach of Contract and bad faith against State Farm Indemnity, the policy issuer, and each later filed a Stipulation of Dismissal reciting that their claims had "been amicably adjusted by and between the parties." Nor do Plaintffs allege the terms of the releases, which permit them to proceed with claims for Underinsured Motorist benefits, or apprise the Court of the status of their on going litigation with ! State Farm Indemnity concerning those benefits. The Defendants are making the Plaintiffs' releases and related court documents available to the Court through the Affidavit of Michelle Wall, filed in support of their alternative Motion to Stay.


1. Plaintiffs have settled and dismised their Claims against State Farm.

Plaintiffs action is barred by two fundamental legal doctrines: accord and satisfaction and *res judicata*. As the Complaint indicates, each of them instituted litigation in New Jersey alleging that State Farm Indemnity had denied their medical insurance benefits improperly and in bad faith. See Hammel New Jersey Complaint P4 and amended Complaint P2 (Wall Ex.1); Bellamente New Jersey Amended Complaint, Second Count P4 and Third CountP2(Wall Ex.2). Plaintiffs later settled their New Jersey actions and each filed a Stipulation of Dismissal reciting that their actions had been "amicably adjusted" and concluding the claims asserted in those actions. (Wall Ex. 6 and 7). [1] While Plaintiffs' Complaint was first received by this Court in March l999, the stipulations of dismissal in the New Jersey cases were filed in August.

The stipulations of dismissal, filed by counsel for each of the Plaintiffs, are themselves sufficient to establish that an accord and satisfaction was reach of the claims asserted in the Plaintiffs' New Jersey complaints and that those claims may not be reasserted in the guise of a federal RICO. (SEE GENERALLY FUTRELLE V. DUKE UNIV., 127 N.C. App.244,488 S.E.2d 635 (l997) (discussing elements of accord and satisfaction).

Likewise, the doctrine of *res judicata*, or claim preclusion, holds that one a claim has been litigated and resolved it may not be reasserted elsewhere. It bars attempts to relitigate under RICO claims that have been resolved in another court proceeding. SEE, E.G.,HMK CORP. V WALSEY, 637 F. Supp. 710, 716-18 (E.D.Va. 1986) aff'd, 828 F.2d 1071 (4th Cir. l987), CERT. DENIED, 484 U.S.1009,108 S.Ct. 706 (l988). Yet that is precisely what Plaintiffs improperly seek to do by filing this purported RICO Action.

Plaintiffs seek to somehow distinguish between "the issue of performance," implicitly conceding that those claims have been and settled and "the intent of nonperformance," which they contend is the basis for this action.

Neither accord and satisfaction or *res judicata* recognizes such a distinction.

The Plaintiffs have settled their claims arising from State Farm Indemnity's denial of benefits and its alleged bad faith in handling their insurance claims, and have dismissed their actions containing those causes of action.

The Court should not allow then to attempt to renew those claims under RICO.

II Plaintiffs have failed to state a rico claim.

Plaintiffs purport to bring this action under the RICO statue. They allege that State Farm Indemnity and State Farm Mutual have violated 18 U.S.C. l964(c). To state a RICO claim, a plaintiff must allege that "each and every one of seven constituent elements" exists:

(1) That the defendant (2)through the commission of two or more acts(3)constituting a pattern of (4)racketeering activity (5)directly or indirectly invests in, or maintains an interest in, or participates in (6)an "enterprise," (7)the activities of which affect interstate or foreign commerce. 18 U.S.C. l962(a)-(c) (Ownby v Cohen) 19F.Supp. 2d 558, 564 (W.D. Va. l998)

Plaintiff's attempt to plead a RICO claim is deficient in several respects, as discussed below. The Court should note that, although Plaintiffs are proceeding *pro se*, they "are not generally entitled to special consideration beyond the usual construction of a complaint upon a motion to dismiss." (Ownby, 19F.Supp.2d at 563.) The 'Ownby' court explained that, while *pro se* plaintiffs in civil rights cases might be held to a less strict standard than other litigants, plaintiffs in suits alleging breach of contract or fraud claims (and RICO) are subject to a more conventional standard. In such a case, "dismissal may be appropriate where the complaint contains a detailed description of underlying facts which fail to state a viable claim. (Id. at 563) This is precisely such a case.

A. Plaintiffs Lack Standing Under RICO because they have not alleged Injury in their Business or Property.

At the outset, Plaintiffs do not have standing to sue under RICO. The statute provides a civil remedy for one "injured in his business or property" by a RICO violation (18 U.S.C. l964(c) Plaintiff's Complaint goes on at length about physical injuries and conditions resulting from their September l994 motor vehicle accident, which in turn led to their insurance claim against State Farm Indemnity. While their Complaint also refers to business reverses they suffered and expenses they incurred following their accident, RICO affords them no recovery for such alleged injuries. "An allegation of personal injury and pecuniary losses occurring therefrom are not sufficient to meet the statutory requirement of injury to 'business or property.' (Bast v Cohen, Dunn & Sinclair, PC, 59 F.3d 492, 495 (4th cir. l995) See also (McMurtry v Brasfield, 654 R. Supp, l224-25 (E.D..Va.l987) (plaintiffs lacked standing to sue for emotional distress and similar personal injuries.)

Put another way, ther must be a "discernable causal connection" or "nexus" between the acts of the defendant and the complained-of harm to the plaintiff. (HMK Corp. v Walsey, 637 F. Supp. at 716).

Because the personal injuries and pecuniary losses alleged in the Complaint resulted from a motor vehicle accident, and were not proximately caused by any alleged conduct by Defendants, Plaintiffs lack RICO standing.

B. Plaintiffs have failed to adequately pleas predicate criminal acts.

Plaintiffs'Complaint is also deficient in that it fails to plead two or more predicate acts constituting a "pattern of criminal activity." It appears that Plaintiffs intend to allege mail fraud, wire fraud, and extortion as the requisite criminal acts. But their vague and conclusory allegations do not allege "indictable" acts as required by l8 U.S.C. l961(1)(B). They fail to meet even the most minimal standards of pleading.

The elements of mail fraud under l8 U.S.C. 1341 are "(1)a scheme disclosing an intent to defraud, and (2) the use of the mails in furtherance of the scheme." (Chisolm v Transouth Financial Corp., 95 F.3d 33l,336(4th Cir. l996). Wire fraud under l8 U.S.C. 1343 is similar, except that "wire, radio, or television," rather than the mails, provides the means to further the fraud. (See Kerby v Mortgage Funding Corp., 992 F.Supp.787,798 (D.Md.l998). In addition, reliance on the alleged misrepresentation is an element of civil RICO claims based on mail or wire fraud. (Caviness v Derand Resources Corp., 983 F.2d l295 (4th Cir. l993)

Rule 9 (b), requiring particularity in pleading applies to claims arising under RICO, and a RICO claim alleging fraud as its underlying predicate act must do so with particularity or it is subject to dismissal. (Kerby 992 799.) This typically requires allegations of the circumstances of the fraud, including such things as the time, place and contents of the alleged false representation, as well as the identity of the person making the representation and what was obtained through the misrepresentation.(Id)

Plaintiffs fail to plead mail or wire fraud, or any instance of fraud, with any particularity. The Complaint alleges only generally that they were denied insurance coverage for treatment recommended by physicians. Comp.PP97-99. In Paragraphs 98(4) and (5) and 99 (4) and (5), Plaintiffs simply recite in conclusory terms that the mail, telephone, and fax were used in the "fraud." Nowhere do Plaintiffs specify a specific misrepresentation of fact, made by a specific person, on which they reasonably relied to their detriment. Plaintiffs allegation simply establish that they were denied insurance benefits.

Plaintiffs' allegations also fail to link any mail fraud or wire fraud to the business reverses they claim they suffered following their accident. "RICO requires both reliance and damage proximately caused by the violation." (Caviness, 983 F.2d at l305) While they allege that a video business "began to fail because of Plaintiffs' incapacity or need for medical treatment," any such incapacity was caused by their automobile accident, not by any misrepresentation.. Plaintiffs simply allege that they were denied benefits, and have not alleged any misrepresentation that proximately caused any injury cognizable under RICO.

For similar reasons, Plaintiff's non-specific references to "extortion" are inadequate to plead a predicate act. Extortion is defined by 18 U.S.C. l951 as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." Nothing in plaintiffs' lengthy Complaint and attachments can be construed as pleading these elements. As in (Cardwell v Sears Roebuck & Co., 821 F. Supp. 406, 408 (D.S.C. l993), it would "strain reason and distort the law" to find that Plaintiffs had alleged extortion here.

C. Plaintiffs have failed to Plead a "Pattern" of "Racketeering."

Likewise, Plaintiffs' allegations do not establish a pattern of rackereering sufficient to allow their RICO claim to go forward. The Fourth Circuit has recognized that RICO is a statute of limited application, "reserved for schemes whose scope and persistence set them above the routine." (HMK Corp. v Walsey, 828 F.2d 1071, 1074. This has prompted that court, like the SupremeCourt, to closely examing allegations of a "pattern of racketeering." It has held that the alleged predicate acts must be "part of a prolonged criminal endeavor" and that there must be both continuity of and a relationship between the predicate acts. (Mensaco, Inc. v. Wasserman,886 F.2d 681-84 (4th Cir. l989). <-- READ THIS An alleged scheme with a single goal, directed toward a limited number of persons, over a short period of time does not constitute a "pattern." Id.

The "pattern" alleged by Plaintiffs fails completely to meet the Fourth Circuit's standard. At most, Plaintiffs allege that after paying medical benefits for a time, State Farm Indemnity denied coverage for further treatment and consistently denied coverage thereafter. Plaintiffs allegedly were advised of this by mail and telephone but that does not constitute fraud or racketeering. The fact that a particular transaction generates mail or telephone calls does not mean that a "pattern" exists, let alone that there is a threat of "future criminal conduct." (See H.J.Inc. v. Northwestern Bell Telephone Co., 494 U.S.229,242,109 S.Ct. 2893, 2902 (1989).

As in (Menasco,) Plaintiffs' allegations fail to allege "ongoing unlawful acitvities whose scope and persistence pose a special threat to social well-being." Id. at 684, quoting (Internat'l Data Bank, Ltd. v Zepkin, 812 F.2d 149, 155 (4th Cir. l987).

Nothing about the denial of benefits suggests a "distinct threat of long-term racketeering activity, either implicit or explicit." (H.J. Inc., 494U.S. at 242, 109 2902. [2] (**2 below). And, as in Menasco, Plaintiffs' conclusory allegations do not satisfy Rule 9(b).

They do not establish a continuing pattern of fraudulent acts.

D. Plaintiffs have not pled a RICO "Enterprise."

In the Fourth Circuit, as elsewhere, a RICO plaintiff proceeding under 1962(c) must allege the existence of defendant "person" that has an identity seperate and distinct from the RICO "enterprise." (See Busby v. Crown Supply, Inc., 896 F.2d 833, 840 (4th Cir. l996); (U.S. v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th cir.l982, cert denied, 495 U.S. 1105, l03 S.Ct. 729 (l983)

Here Plaintiffs have failed to make any disinction between the Defendants or between the Defendants and a RICO "enterprise."They appear to try to plead an "enterprise" in Complaint P102: it alleges that the "the whole of this enterprise necessarily extends to the New Jersey Department of Insurance and Banking, and even to the Government of the State of New Jersey."

Apart from the inherent implausibility of this allegation, Plaintiffs do not allege any specific facts showing how any of these governmental entities or any other "enterprise" was used by either Defendant to conduct racketeering activities.

Plaintiffs do not distinguish between State Farm Indemnity and State Farm Mutual, but say that their "allegations are directly against State Farm Indemnity, a wholly owned subsidiary of State Farm Mutual, and therefore also against State Farm Mutual." (Comp. P4).

In (NCNB National Bank of North Carolina v tiller, 814 F.2d 931, 936 (4th Cir.l987), the fourth Circuit held "that a 'person' is not distinct from an 'enterprise' when a corporation and it's wholly owned subsidiary are involved," despite the fact that the two are otherwise separate legal entities.

Therefore, Plaintiffs cannot claim that one State Farm entity is a "person" and the other is the "enterprise" required to state a RICO claim under l962(c).

E. Plaintiffs' RICO Claim Should be Dismissed.

As shown above, Plaintiffs' attempt to assert a RICO claim arising from a denial of insurance benefits is deficient in many respects. Their Complaint and the attachments filed with it contain detailed allegations, but they fail to constitute any cognizable claim.

III In the Alternative, this action should be stayed.

For the manifold reasons set out above, this action should be dismissed with prejudice. In the alternative, in view of the fact that the Plaintiffs continue to proceed with litigation against State Farm Indemnity in New Jersey regarding the limited issue of Underinsured Morotist benefits, this action should be stayed. Any causes of action relating to the handling of Plaintiffs' claims or alleged "bad faith" by State Farm have been settled and released. Only the issue of what, if any, UIM benefits Plaintiffs are entitled to recover over and above the $25,000 they each received in settlement of their bodily injury claims remains to be arbitrated. See Affidavit of Michelle Wall PP 7-8. Nonetheless, the doctrines of judicial comity and abstention would dictate that this Court not entertain RICO litigation between the parties while they continue to litigate the UIM claim to an arbitration award.

It would appear to be improper and inefficient for the Plaintiffs to proceed in the Court with complaints about their insurance claim before the total of benefits paid under their policy has been determined. Accordingly, in the event that the Court does not dismiss this action, Defendants request that it be stayed pending the outcome of the UIM proceedings in New Jersey.

Courts in the Fourth Circuit and elsewhere have held that documents that are matters of public record may be attached to or submitted in connection with a motion to dismiss and considered by the court without converting the motiom to one for summary judgment. (SEE, E.G., MACNAIR V LEND LEASE TRUCKS, INC., 95 F. 3rd 325, 328 n. 3 (4th Cir. l996) (adopting holding in prior decision at 62 F.3rd 651,655-56) NORFOLK BUS. DIST.V DEPT. OF HOUSING AND URBAN DEV., 932 F. Supp.730, 736-37(E.D.Va. l996);GASNER V COUNTY OF DINWIDDIE, 162 F.R.D. 280,282 (E.D.Va.l995)(citing cases,) aff'd, 103 R, 3rd 351(4th Cir. l996). Defendants ask the Court to take judicial notice of the documents attached to the Wall Affidavit under Rule 201, F.R.Evid.

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Created: October 1, 1999
Last Updated: May 28, 2000