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MENG v. SCHWARTZ

February 6, 2004.

W.L. MENG, et al., Plaintiffs,
v.
BERNARD SCHWARTZ, et al., Defendants



The opinion of the court was delivered by: ROYCE LAMBERTH, District Judge

MEMORANDUM OPINION

Now before the Court are the defense motions to dismiss the Plaintiffs' Amended Complaint.*fn1 Specifically before the Court are Defendants Democratic National Committee (hereinafter "DNC"), DNC Services Corporation (hereinafter "DNC Services"), Democratic Senatorial Campaign Committee, Inc. (hereinafter "DSCC"), and Democratic Congressional Campaign Committee, Inc's (hereinafter "DCCC") Motion To Dismiss For Failure To State a Claim Upon Which Relief Can Be Granted; Defendants Albert Gore, Jr., Samuel R. Berger, Alexis Herman, Harold Ickes and Melissa Moss' Motion To Dismiss; Defendant John Huang's Motion To Dismiss the Amended Complaint; Defendant Marvin Rosen's Motion To Dismiss the Amended Complaint; Defendants William J. Clinton and Hillary R. Clinton's Motion To Dismiss Page 2 the Amended Complaint; and defendant Bernard Schwartz's Motion to Dismiss the Amended Complaint. Also before the Court are the Plaintiffs' Oppositions To All Motions To Dismiss and the Defendants' Reply Memoranda to the Plaintiffs' Oppositions.

Upon consideration of the foregoing motions, the applicable law, and the record in this case, the Court will GRANT the Defendants' Motions to Dismiss for the reasons stated herein.

  BACKGROUND

  The plaintiffs are shareholders of defendant Loral Space and Communications, Ltd. (hereinafter "Loral Space"), and respectively reside in Virginia and Maryland. The plaintiffs allege that defendant Bernard Schwartz, Chairman of the Board and Chief Executive Officer of defendant Loral Space, made unlawful campaign contributions to the Clinton Administration and various democratic organizations in exchange for favorable trade policies, and then sought and obtained reimbursement from Loral Space for the amount of the unlawful contributions. The plaintiffs maintain that this conduct gives rise to four causes of action, namely: (1) breach of fiduciary duty; (2) negligence; (3) civil conspiracy; and (4) unjust enrichment.

  The plaintiffs first made allegations similar to those in the instant complaint in a prior action filed on November 24, 1998 (hereinafter "Meng I"). The Meng I complaint named over fifteen defendants, including Loral Space, Loral Space CEO Bernard Schwartz, President Bill Clinton, Vice President Al Gore, the Democratic National Committee, Hillary Rodham Clinton, Harold Ickes, Melissa Moss, Alexis Herman, Marvin Rosen, Samuel Berger, John Huang, the Democratic Senatorial Campaign Committee, the Democratic Congressional Campaign Committee, several John and Jane Does, and Terrence R. McAuliffe.

  Based on the same conduct alleged in the instant complaint, the Meng I complaint Page 3 invoked the Court's federal question jurisdiction, alleging a count under the federal civil Racketeer Influenced Corrupt Organization statute (hereinafter "RICO") and attaching four pendant state law claims of breach of fiduciary duty, negligence, civil conspiracy, and unjust enrichment. In response to the Meng I complaint, the defendants filed motions to dismiss, essentially maintaining that even if the defendants committed the alleged RICO violations, the plaintiffs could not prove, under any set of facts, that those violations proximately caused their purported harm.

  On September 25, 2000, relying on the RICO statute requirements, the Supreme Court's interpretation of the RICO causation standard in Holmes v. Security Investor Protection Corp.*fn2 and the Second Circuit's distillation of Holmes.*fn3 this Court dismissed the plaintiffs' federal RICO count for failure to state a claim pursuant to Rule 12(b)(6) upon finding that the defendants' alleged RICO violations were not the proximate cause of the plaintiffs' alleged injuries. See Meng v. Schwartz. 116 F. Supp.2d 92, 97 (D.D.C. 2000). The Court then dismissed the remaining supplemental claims for lack of subject matter jurisdiction, without prejudice, pursuant to Fed. R. Civ. P. 12(b)(1) and 28 U.S.C. § 1367(c). See id. See also Meng v. Schwartz. 98-2589 (D.D.C. September 25, 2000) (Judgment).

  On October 10, 2000, the plaintiffs moved, pursuant to Fed.R.Civ.P. 59(e) and Fed.R.Civ.P. 60(b), to alter or amend the Court's judgment, attempting to dismiss Terence R. McAuliffe in an effort to establish diversity jurisdiction. On July 9, 2001, the Court denied the Page 4 Plaintiffs' 59(e) and 60(b) motions upon finding that the prior judgment was neither incorrect nor unjust as required under the rules. The Court also noted that despite the pragmatic arguments propounded by the plaintiffs in support of their decision to file Rule 59(e) and Rule 60(b) motions, the plaintiffs could have simply invoked the Court's jurisdiction over its state law claims by omitting Terrence R. McAuliffe from a newly filed complaint and otherwise properly pleading diversity jurisdiction. See Meng v. Schwartz, 98-2589 (B.B.C. July 9, 2001) (Memorandum and Order). On September 10, 2001, the plaintiffs filed the instant case against the same group of defendants, save Terry R. McAuliffe, invoking the Court's diversity jurisdiction.

  The plaintiffs also appealed Meng I, and the B.C. Circuit upheld the decision in Meng I for substantially the same reasons given by this Court. See Meng v. Schwartz, 48 Fed. Appx. 1, 2-3 (B.C. Cir. 2002). In upholding this Court's decision in Meng I, the B.C. Cir. agreed that the plaintiffs failed to state a claim upon which relief could be granted because they could not establish that the defendants' alleged activities proximately caused their injuries. See Meng, 48 Fed. Appx. at 2-3. In addition, the B.C. Cir. held that prior litigation before a New York State court,*fn4 which fully and fairly litigated the bonus payment issue, precluded relitigation of the bonus payment/reimbursement issue in the plaintiffs' case. See id. On November 21, 2002, the plaintiffs petitioned for a rehearing, which the B.C. Cir. denied on December 23, 2002.

  As just mentioned, on September 10, 2001,*fn5 the plaintiffs filed the instant shareholder Page 5 derivative action pursuant to Rule 23.1 for recovery by and on behalf of Loral Space. With the exception of the federal RICO claim and the naming of Terrence McAuliffe as a defendant, the instant action was filed by the same plaintiffs, asserts the same facts, alleges the same counts and names the same parties as in Meng I.

  Specifically, the four counts alleged in the instant complaint are: (1) breach of fiduciary duty as to defendant Schwartz; (2) negligence as to defendant Schwartz; (3) unjust enrichment as to defendants DNC, DSCC, and DCCC; and 4) civil conspiracy as to all of the defendants. In aggregate, the defendants move to dismiss the instant action pursuant to Rule 12(b)(1), maintaining that this Court does not have subject matter jurisdiction over the instant action because the plaintiffs have failed to establish complete diversity. The defendants also move to dismiss the plaintiffs' action pursuant to Rule 12(b)(6), maintaining that: (1) res judicata bars the action in its entirety; (2) collateral estoppel precludes relitigation of each count alleged in the complaint; (3) the counts alleged in the action are time-barred; and (4) the plaintiffs fail to meet the requirements of Rule 23.1 certification.

 I. Dismissal For Lack Of Subject Matter Jurisdiction

  For the reasons stated below, the Court dismisses the plaintiffs' action for lack of subject matter jurisdiction pursuant to Rule 12(b)(1).

  The plaintiffs assert that this Court has subject matter jurisdiction over their claims pursuant to 28 U.S.C. § 1332, which permits federal district courts to exercise jurisdiction over actions that lie in diversity. See 28 U.S.C. § 1332. The defendants maintain that the Court lacks subject matter jurisdiction because the plaintiffs have failed to demonstrate complete diversity of Page 6 citizenship, and, therefore, move to dismiss the plaintiffs' complaint for lack of subject matter jurisdiction.

  Pursuant to Rule 12(b)(1), a district court should dismiss an action for lack of subject matter jurisdiction when the facts and allegations before the court belie the plaintiffs' averment that federal jurisdiction exists. See Fed.R.Civ.P. 12(b)(1). In the case of an action invoking a court's diversity jurisdiction under § 1332, it is the invoking party's burden to show that: (1) complete diversity exists; and (2) the claim in good faith exceeds $75,000. See Tavoulareas v. Comnas. 720 F.2d 192, 195 (B.C. Cir. 1983.); Group Hospitalization and Medical Services. Inc. v. Richardson. 946 F. Supp. 50, 52 (D.D.C. 1996) (citing Cameron v. Hodges. 127 U.S. 322 (1888)). The requisite jurisdictional amount must be met by each plaintiff, and complete diversity must be established upon a showing that each plaintiff has a different citizenship from each defendant. See Owen Equipment & Erection Co. v. Kroger. 437 U.S. 365. 374 (1978). For the purposes of establishing complete diversity under § 1332, the citizenship of every party to the action must be distinctly alleged and cannot be established presumptively or by mere inference. See Charles A. Wright, Miller & Cooper, Federal Practice and Procedure § 3605 (3d ed. 1984). Currently in dispute is whether the plaintiffs have demonstrated complete diversity in satisfaction of 28 U.S.C. § 1332.

  In the instant case, this Court does not have subject matter jurisdiction over the action because the plaintiffs have failed to show complete diversity of citizenship. The complaint alleges that the plaintiffs reside in Virginia and Maryland, while the named defendants reside and/or have their principle place of business in New York, Tennessee, California, Florida or Washington, B.C. The plaintiffs also name unknown "John and Jane Does 1-10" as defendants, Page 7 but fatally fail to plead their places of citizenship. Nowhere in the complaint do the plaintiffs make a distinct or affirmative statement that establishes the citizenship of the John and Jane Does. Although, the plaintiffs maintain in subsequent pleadings that the Court should infer the diverse citizenship of the John and Jane Does because plaintiffs would not name non-diverse John and Jane Does so as to destroy their own basis of jurisdiction, this type of backdoor pleading is insufficient to establish diversity because it would require the Court to draw the precise type of inference that the rules of diversity under § 1332 proscribe.

  The plaintiffs' contention that 28 U.S.C. § 1441, the removal statute, some how saves the day is also unavailing. The plaintiffs maintain that § 1441(a), which permits the citizenship of fictitious defendants to be disregarded when assessing whether complete diversity exists, applies to the instant case. However, the plaintiffs fail to note that § 1441(a)'s permissive diversity standard only applies to cases that have been removed from state court to federal court pursuant to 28 U.S.C. § 1441. See Howell v. Tribune Entertainment Co., 106 F.3d 215, 218 (7th Cir. 1997) (holding that "because the existence of diversity jurisdiction cannot be determined without knowledge of every defendant's place of citizenship, `John Doe' defendants are not permitted in federal diversity suits."). Prior to § 1441(a)'s amendment in 1988, it was common practice for plaintiffs to name fictitious defendants in state court actions in order to destroy diversity and prevent defendants from exercising their right to remove cases to federal court. See Charles A. Wright, Miller & Cooper, 14 Federal Practice & Procedure § 3642 (3d ed. 1998) (citing Judicial Improvements and Access to Justice Act of 1988, Pub.L. 100-702 § 1016(a), 10 Stat. 4669 (1988)). As noted in Wright and Miller, "[t]he Judicial Improvements and Access to Justice Act was limited to removal jurisdiction, however, and it did not address the effect of the presence of Page 8 Doe defendants on the original subject matter jurisdiction of federal courts." Id. If Congress had intended for § 1441(a)'s type of permissive diversity standard to apply to cases brought under § 1332, it could have expressly stated so in the 1988 amendments. However, Congress took no such action. Although this Court can pontificate on why Congress did not take such action, perhaps because the policy concerns underlying the § 1441(a) amendment are not at issue in cases originally brought in federal court under § 1332, this Court is powerless to extend § 1441(a)'s permissiveness to actions brought under § 1332 and will deny the plaintiffs' request to do so.

  Equally unavailing is the plaintiffs' argument that voluntary dismissal at a later date of a John or Jane Doe who is found to be non-diverse would cure the current jurisdictional defect. The plaintiffs cannot win on this argument because diversity must exist at the time that the action is commenced. See Richardson. 946 F. Supp. at 52 (citing Freeport-McMoran, Inc. v. KN Energy. Inc., 498 U.S. 426, 428 (1991)). Moreover, the Court has no assurances that the plaintiffs would be able to dismiss a non-diverse John or Jane Doe at a later date without otherwise destroying the action because the plaintiffs' complaint fails to aver whether the John and Jane Does are necessary and indispensable parties to the suit. See Fed.R.Civ.P. 19(a)-(b). If the John and Jane Does are not necessary parties to the suit, then their later dismissal would not adversely impact the posture of the action. However, if they are necessary parties, then their later dismissal would adversely impact the preservation and perfection of the diversity claim and destroy the action in any event. See Fed.R.Civ.P. 19(b). The plaintiffs' total failure to address this issue, leaves the Court with no basis on which to seriously entertain this point.

  For these reasons, the Court finds that plaintiffs have failed to demonstrate complete diversity as required by 28 U.S.C. § 1332, thereby, failing to establish this Court's subject matter Page 9 jurisdiction over this action. The Court, therefore, will dismiss this action for lack of subject matter jurisdiction pursuant to Rule 12(b)(1).

 II. Dismissal For Failure To State a Claim Upon Which Relief Can Be Granted

  Even if it were found that this Court has subject matter jurisdiction over the plaintiffs' claims, all four counts of the action would still be subject to dismissal pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted.

  Pursuant to Rule 12(b)(6), a district court should dismiss a complaint for failure to state a claim when it is clear that no relief could be granted under any set of facts that could be proved consistent with the complaint's allegations. See Hishon v. King Spalding. 476 U.S. 69, 73 (1984): EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997). For the purposes of a Rule 12(b)(6) motion, all well-pleaded allegations are presumed to be true, and all doubts and inferences are resolved in the pleader's favor and drawn in the light most favorable to the pleader. See Phillips v. Bureau of Prisons. 591 F.2d 966, 968 (D.C. Cir. 1979). However, the court need not accept bald or controverted statements as true. See Wiggins v. Kitchens. 853 F. Supp. 505, 508 (D.D.C. 1994). ...


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