Antitrust Law Daily Wrap Up, RICO—W.D. Ky.: RICO claims against former cemetery owner dismissed, (Apr 15, 2015)

By Michael Menzhuber, J.D., LL.M.

In an action alleging that the owner of a cemetery operation illegally withdrew funds from the cemetery’s trust account before selling the opeartion, the purchasers failed to properly plead a RICO claim or mail fraud. The federal district court in Paducah, Kentucky, therefore, declined jurisdiction and granted the defendants’ motion to dismiss (Strader v. Marshall, April 10, 2015, Stivers, G.)

Jason and Taunya Strader purchased a cemetery operation from Milton Marshall. Although, at the time of the purchase, an accounting firm represented that the trust funds were in full compliance with Kentucky law, the couple later determined that a significant amount of the trust funds were missing and that, in order to be in compliance, almost $3 million needed to be added to the trust account.

The couple brought an action in federal court against Milton, his wife and their current cemetery operation (collectively “defendants”) alleging that, during Milton’s ownership, the enterprise carried out a number of schemes to illegally withdraw funds from the cemetery operation’s trust account.

Subject matter jurisdiction. The defendants motioned to dismiss the case on the basis that the court lacked subject matter jurisdiction under the Racketeer Influenced and Corrupt Organizations (RICO) Act. A claim for civil damages pursuant to RICO provides a basis for a federal court to hear a civil action. However, the court noted that to state a RICO claim, a plaintiff must plead: (1) conduct (2) an enterprise (3) through a pattern (4) of racketeering activity. The defendants argued that the couple failed to sufficiently plead the existence of an enterprise and the court agreed. The court found that, while the couple alleged a large amount of factual allegations against Milton, they did not offer sufficient factual allegations regarding either Milton’s wife or their cemetery operation in order to make a plausible argument that they were members of Milton’s alleged enterprise.

The court also noted that the couples’ allegations of mail fraud were insufficiently pleaded. Federal Rule of Civil Procedure 9(b) requires that a party alleging mail fraud “must state with particularity the circumstances constituting fraud.” While the couple did provide information about the customers allegedly harmed in the defendants’ scheme, they did not specify the statements which they contended were fraudulent. Since the couple failed to properly plead a RICO claim or mail fraud, their claim had no independent basis for federal jurisdiction and the court declined jurisdiction.

The case is No. 5:14-cv-00013-GNS.

Attorneys: Thomas L. Osborne (Thomas L. Osborne PLLC) for Jason Strader, Greenhill Memorial Gardens of Christian County, Inc., and Greenhill Trust Funds. Glenn D. Denton (Denton & Keuler, LLP) for Milton Marshall, and Resthaven Memorial Gardens, Inc.

Companies: Greenhill Memorial Gardens of Christian County, Inc.; Greenhill Trust Funds; Resthaven Memorial Gardens, Inc.

Cases: RICO KentuckyNews