Antitrust Law Daily Wrap Up, RICO—M.D. Tenn.: RICO claims were not compulsory counterclaims in related case, (Jun 20, 2014)

By Edward L. Puzzo, J.D.

A party was not required to make its RICO allegations as a compulsory counterclaim in a separate case because, while its claims in both cases arose out of the same transactions, those transactions were not the subject of the opposing parties' claim, the federal court in Nashville has ruled (The Adam Group, Inc. of Middle Tennessee v. Tunnell, June 19, 2014, Sharp, K.).

Background. In a separate action in the federal court in Atlanta (Homecare CRM, LLC, v. The Adam Group, Inc. d/b/a PlayMaker, Civil Action No. 1:12-cv-0958-TCB), Homecare CRM accused Playmaker of trademark infringement, false designation of origin; misappropriation of trade secrets; false advertising; common law unfair competition; unjust enrichment; and violations of the Georgia Deceptive Trade Practices Act and the Tennessee Consumer Protection Act. Playmaker responded with counterclaims against Homecare and Daniel Tunnell for libel, slander, false advertising, tortious interference with business relations, common law unfair competition, and misappropriation of trade secrets, computer fraud, cyber torts and violation of the Georgia Deceptive Trade Practices Act.

Subsequently, Playmaker filed the present action in the federal court in Nashville against Tunnell as well as Keagan Brown, Annie McDaniel and Karl Dumas, alleging Racketeer Influenced and Corrupt Organization (RICO) violations. Tunnell, et al moved to dismiss Playmaker's Nashville court claims on the grounds that (1) they arose out of the same transactions as the Atlanta court claims and thus were compulsory counterclaims under Federal Rule of Civil Procedure 13(a), and (2) that Playmaker's claims failed to distinguish between RICO "persons" and the RICO "enterprise."

Compulsory counterclaim. The court noted that Federal Rule of Civil Procedure 13(a) makes it mandatory that a responsive pleading assert a compulsory counterclaim or have it thereafter barred. A compulsory counterclaim is one where the issues of law and fact raised by the claims are largely the same. Tunnell et al. argued that Playmaker's RICO claims in the Nashville court case arose out of the same transactions and against the same parties in the Atlanta court case, and should have been filed as counterclaims in the Atlanta case.

The court stated that it had little difficulty in finding that Tunnell, et al. were also "opposing parties' in the Atlanta case. However, for a counterclaim to be compulsory, the court continued, Fed. R. Civ. P. 13(a) also requires that the claims must "arise out of the same transaction or occurrence that is the subject matter of the opposing party's claim."

So while many of Playmaker's factual allegations in this case are similar, if not identical, to its counterclaims in the Atlanta case, it was Homecare CRM, not Tunney et al., that made claims against Playmaker in the Atlanta case. Consequently, the RICO claims were not compulsory counterclaims in the Atlanta action, the court ruled, because Tunney et al. did not assert claims against Playmaker in that action. This case was also not duplicative of the Atlanta action because there are different legal theories presented and different parties in the two lawsuits, the court stated.

RICO distinctness. Playmaker's complaint alleges that Homecare CRM was the enterprise for purposes of RICO, and Tunnell et al. were persons employed by the enterprise who conspired with each other in a pattern of racketeering. In their motion to dismiss, Tunnell et al. argued that the complaint violated the "non-identity" or "distinctness" requirement of RICO: that a corporation cannot be both the enterprise and the person conducting the affairs of the enterprise. The court disagreed, stating that individual defendants are always distinct from corporate enterprises because they are legally distinct entities, even when those individuals own the corporation or act only on their behalf.

The case is Civil Action No. 3:13-00258.

Attorneys: Eli J. Richardson (Bass, Berry & Sims), and Joshua Ray Denton (Gullett, Sanford, Robinson & Martin) for The Adam Group, Inc. of Middle Tennessee. Brian M. Clark (Wiggins, Childs, Quinn & Pantazis, PLLC) for Daniel Christopher Tunnell.

Companies: The Adam Group, Inc. of Middle Tennessee

Cases: RICO TennesseeNews