Stephen Ouwinga v. Benistar 419 Plan Services

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 12a0339p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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STEPHEN OUWINGA; LEANN OUWINGA;

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DAVID OUWINGA; CHRISTINE OUWINGA;

STONEY CREEK FISHERIES AND EQUIPMENT -

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No. 10-2531

INC., on behalf of themselves and all others

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Plaintiffs-Appellants, -

similarly situated,

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v.

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BENISTAR 419 PLAN SERVICES, INC.;

Defendants, -

BENISTAR LTD.,

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JOHN HANCOCK VARIABLE LIFE INSURANCE

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COMPANY; JOHN HANCOCK LIFE INSURANCE

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COMPANY; EDWARDS ANGELL PALMER &

DODGE, LLP; JOHN H. REID, III; KRIS -

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LESLEY; ROBERT FOGG; PASCIAK JOHN

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HANCOCK AGENCY LLC, fka West Michigan

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Pasciak General Agency,

Defendants-Appellees. -

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Appeal from the United States District Court

for the Western District of Michigan at Grand Rapids.

No. 1:09-cv-60—Janet T. Neff, District Judge.

Argued: April 11, 2012

Decided and Filed: September 19, 2012

Before: SUHRHEINRICH, STRANCH, and DONALD, Circuit Judges.

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COUNSEL

ARGUED: W. Ralph Canada, Jr., CANADA RIDLEY, LLP, Grapevine, Texas, for

Appellants. Eric S. Mattson, SIDLEY AUSTIN LLP, Chicago, Illinois, John R.

Oostema, SMITH HAUGHEY RICE & ROEGGE, Grand Rapids, Michigan, David M.

Saperstein, MADDIN, HAUSER, WARTELL, ROTH & HELLER, P.C., Southfield,

1

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 2

Michigan, for Appellees. ON BRIEF: W. Ralph Canada, Jr., K. Adam Rothey,

CANADA RIDLEY, LLP, Grapevine, Texas, Frederick D. Dilley, RHOADES McKEE,

PC, Grand Rapids, Michigan, David R. Deary, Jeven R. Sloan, LOEWINSOHN

FLEGLE DEARY, LLP, Dallas, Texas, Joe R. Whatley, Jr., WHATLEY DRAKE &

KALLAS, LLC, New York, New York, for Appellants. Eric S. Mattson, Joel S.

Feldman, Jason M. Adler, SIDLEY AUSTIN LLP, Chicago, Illinois, Melissa C. Brown,

DYKEMA GOSSETT PLLC, Grand Rapids, Michigan, John R. Oostema, Calvin J.

Sterk, SMITH HAUGHEY RICE & ROEGGE, Grand Rapids, Michigan, Kathleen H.

Klaus, MADDIN, HAUSER, WARTELL, ROTH & HELLER, P.C., Southfield,

Michigan, for Appellees.

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OPINION

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JANE B. STRANCH, Circuit Judge. Plaintiff-Appellants Stephen, Leann, David,

and Christine Ouwinga and their company, Stoney Creek Fisheries and Equipment, Inc.,

(the “Ouwingas”) appeal the dismissal of their Complaint against various Defendant-

Appellees related to a purported tax-deductible welfare benefit plan—the Benistar 419

Plan (“Benistar Plan” or “Plan”)—marketed and sold by the Appellees to the Ouwingas.

The Internal Revenue Service determined that the Plan was an abusive tax shelter, and

the Ouwingas were ultimately assessed back taxes, interest, and penalties. They filed

this class action on behalf of themselves and all others similarly situated, alleging

violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) as well

as several state law claims. For the following reasons, we REVERSE the district court’s

dismissal of the Amended Complaint and remand for further proceedings.

I. BACKGROUND

A. Factual Background

Because this appeal arises from a decision at the motion to dismiss stage, we

draw the facts from the allegations of the Amended Complaint. Plaintiffs Stephen,

Leann, David, and Christine Ouwinga own Plaintiff Stoney Creek Fisheries and

Equipment, Inc., a company based in Newaygo County, Michigan. In September 2001,

the Ouwingas were approached by Defendant Kris Lesley (a former high school

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 3

classmate of David Ouwinga) about financial products offered by Defendant John

Hancock. The Ouwingas attended a meeting with Lesley and his supervisor, Defendant

Robert Fogg, at which both highlighted the “incredible tax liabilities” of the Ouwingas

and offered to research potential tax-liability-reduction options.

The Ouwingas met again with Lesley and Fogg who presented the Benistar

419 Plan and explained the purported tax benefits of the Plan, asserting that Plan

contributions were tax-deductible and that the Ouwingas could take money out of the

Plan at any time tax-free. On October 18, the Ouwingas, their accountant, and their

attorney met with Lesley and Fogg, who gave a detailed presentation regarding the

structure and purported tax benefits of the Plan. A tax attorney for the John Hancock

entities participated telephonically, providing legal assurances to the Ouwingas and

affirming the representations about the Plan’s tax benefits.

Lesley and Fogg then forwarded several documents to the Ouwingas including

John Hancock’s legal authority regarding welfare benefit trusts. They presented the

Benistar 419 Plan and Trust in the form of two large loose-leaf binders produced by the

Benistar Admin Services, Inc. (“the Benistar Books”). These Books contained

information about the Plan in general; touted its purported advantages, tax and

otherwise; and provided a legal opinion from Defendants Edwards Angell Palmer &

Dodge LLP (“Edwards Angell”) and John Reid. The Ouwingas allege that the John

Hancock entities adopted and advanced the representations made in these Books.

Defendant John Hancock Life Insurance Company inserted certain disclaimers into these

Books, asserting the Insurance Company made no representations about the tax benefits

of the Benistar Plan. The Benistar Books also contained copies of Internal Revenue

Code (“IRC”) sections 419 and 419a and copies of certain federal court rulings. The

Ouwingas allege the Defendants used the Benistar Books to highlight only positive

authority and ignored certain IRS Notices and Rulings that “would have given the

Plaintiffs an (accurate) indication that Plan Payments were not deductible.”

Based on the representations of Lesley and Fogg and the legal opinion of

Edwards Angell, the Ouwingas agreed to participate in the Benistar Plan in late 2001 and

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each Plaintiff made substantial contributions. These contributions were used by the Plan

to pay premiums to the John Hancock entities to purchase large insurance policies on the

lives of the Ouwingas.

On September 25, 2002, Lesley sent the Ouwingas a series of bulletins that he

claimed were “very encouraging for the continued existence of these plans,” showed that

“Benistar remains to be the leading authority on these plans,” and “also [gave] John

Hancock very high praise.” Several written statements and representations in these

bulletins assured that new tax shelter reporting rules would not affect participants in the

Benistar Plan and expressly represented that the Plan was not considered a tax shelter

under IRS guidelines.

In 2003, Lesley and Fogg told the Ouwingas that the IRS had changed the rules;

that the Ouwingas would need to contribute additional money so the Plan could purchase

new life insurance policies to keep the Plan compliant; and that each year they would

need to form a new plan. Lesley and Fogg assured the Ouwingas that, while this might

signal that the “loophole” in the Code might be closing soon, there was no reason to be

concerned about the tax benefits that had already been claimed in prior years or the

benefits that were going to be claimed in 2003. Reid of Edwards Angell also issued

letters dated October 24, 2003; November 4, 2003; and December 19, 2003 assuring that

under the “new IRS rules” the Benistar plan was still not a tax shelter and was viable

against any challenge by the IRS. In response to an inquiry by an advisor of the

Ouwingas, Lesley and Fogg sent a letter dated November 20, 2003 further representing

that the Plan was in compliance with the latest IRS rules.

In 2006, the Ouwingas decided to terminate and/or transfer policies out of the

Benistar Plans. The John Hancock entities again advised the Ouwingas that there would

be no taxable consequences of this transaction and that the Benistar Plan continued to

meet the IRS requirements for tax deductible treatment. They also assured the Ouwingas

that there “had [been] no audits or problems with clients who did buy outs.” At that

time, the Ouwingas were asked to and did sign a “Plan Termination and Policy Release

Form” for each transaction, which contained a purported liability release of Benistar 419

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Plan & Trust, Benistar Admin. Services, Inc., and Benistar 419 Plan Services from “any

and all claims.”

By letter dated January 23, 2007, the IRS notified the Ouwingas that their tax

returns for the years 2003 and 2004 were going to be examined. In early 2008, the IRS

notified the Ouwingas that it was disallowing deductions related to the Benistar Plan.

The IRS ultimately assessed back taxes, interest, and penalties as a result of the tax

benefits the Ouwingas claimed from the Benistar Plan, which the IRS deemed to be an

“abusive tax shelter.”

B. Procedural Background

On January 22, 2009, the Ouwingas filed a class action Complaint against

Benistar 419 Plan Services, Inc. and Benistar Ltd. (the “Benistar Defendants”); John

Hancock Variable Insurance Company and John Hancock Insurance Company (the

“Hancock Defendants”); Edwards Angell Palmer & Dodge LLP and John Reid (the

“Lawyer Defendants”); and Kris Lesley, Robert Fogg, and Pasciak John Hancock

Agency LLC f/k/a West Michigan Pasciak General Agency (the “Agent Defendants”).

Shortly thereafter, the Ouwingas voluntarily dismissed the Benistar Defendants and

amended their Complaint. The Amended Complaint alleges that the Defendants

conspired to defraud employers such as the Ouwingas into adopting welfare benefits

plans supposedly in compliance with IRC § 419A(f)(6), which allows significant tax

benefits. Specifically, the Ouwingas assert violations of RICO, 18 U.S.C. §§ 1962(c),

(d), and negligent misrepresentation against all Defendants; and additional claims of

fraudulent misrepresentation/omission, unjust enrichment, breach of fiduciary duty,

breach of contract, and violations of state consumer protection laws against the Hancock

Defendants.

The Defendants filed motions to dismiss the Amended Complaint under Federal

Rule of Civil Procedure 12(b)(6). The Defendants asserted the Ouwingas’ RICO claims

were barred by the Private Securities Litigation Reform Act (“PSLRA”) and that the

allegations of “enterprise,” “conduct,” “racketeering,” and “conspiracy” in the Amended

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 6

Complaint were each defective. The Defendants primarily relied on the disclaimers

present in the Benistar Books to defeat the remaining state law claims.

On October 29, 2010, the district court entered an order granting each motion to

dismiss and dismissing the Ouwingas’ Amended Complaint in its entirety. Although the

district court did not find the Ouwingas’ RICO claims barred by the PSLRA, the court

found the Ouwingas failed to sufficiently plead the “conduct” and “enterprise” elements

for a valid RICO claim. The court dismissed all state law claims because the Ouwingas

signed “explicit disclaimers and disclosures that appear in multiple documents.” On

appeal, the Ouwingas challenge the district court’s dismissal of all their claims.

II. DISCUSSION

A. Standard of Review

We review the district court’s order granting a Rule 12(b)(6) motion to dismiss

de novo. Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 572 (6th Cir. 2008).

In assessing a complaint for failure to state a claim, we must construe the complaint in

the light most favorable to the plaintiff, accept all well-pled factual allegations as true,

and determine whether the complaint “contain[s] 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) (citation and internal quotation marks omitted).

B. The PSLRA

In the Private Securities Litigation Reform Act, Pub. L. No. 104-67, 109 Stat.

737 (1995), Congress amended RICO to exclude “any conduct that would have been

actionable as fraud in the purchase or sale of securities to establish a violation of section

1962.” 18 U.S.C. § 1964(c). The purpose behind this amendment was to avoid

duplicative recovery for fraud actionable under the securities laws: “Because the

securities laws generally provide adequate remedies for those injured by securities fraud,

it is both necessary [sic] and unfair to expose defendants in securities cases to the threat

of treble damages and other extraordinary remedies provided by RICO.” 141 Cong. Rec.

H13, 691-08, at H13, 704 (daily ed. Nov. 28, 1995) (statement of SEC Chairman Arthur

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 7

Levitt). The amendment not only eliminates securities fraud as a predicate act in civil

RICO claims, but also prevents plaintiffs from relying on other predicate acts if they are

based on conduct that would have been actionable as securities fraud. See Bald Eagle

Area Sch. Dist. v. Keystone Fin., Inc., 189 F.3d 321, 330 (3d Cir. 1991). The Ouwingas’

RICO claims are based on the purchases of variable life insurance policies which,

because they are “variable,” qualify as securities. The district court held that the PSLRA

does not bar the claims of the Ouwingas because the “securities transactions”—the sale

of the policies—were not integral to or “in connection with” the fraudulent scheme as

a whole.

The Defendants assert that even though the Ouwingas did not allege securities

fraud, their complaint could present a claim for violation of securities laws and is thus

barred by the PSLRA. The Defendants, however, fail to provide any specific reference

to a securities action available based on the Amended Complaint’s allegations. Instead,

the Defendants support their argument that fraud in the sale of the Benistar Plan was “in

connection with” the purchase of securities by citing cases primarily involving fraud that

directly coincided with the securities transaction. See, e.g., SEC v. Zandford, 535 U.S.

813, 820 (2002) (“[R]espondent’s fraud coincided with the sales themselves.”); Swartz

v. KPMG LLP, 476 F.3d 756, 761 (9th Cir. 2007) (finding that “[t]he entire purpose” of

the scheme was to allow the transfer of stock so that the plaintiff’s basis in those assets

would be artificially inflated).

The Ouwingas respond that they do not allege fraud relating to the purchase of

the variable life insurance policies by the Plan. They note that their fraud claim relates

only to the tax consequences of the Benistar Plan, and it is merely incidental that the

policies happened to be securities. The Southern District of New York articulated the

distinction well:

Plaintiffs do not allege a securities fraud, but rather a tax fraud. There

was nothing per se fraudulent from a securities standpoint about the

financial mechanism and schemes used to generate the tax losses. While

the alleged fraud could not have occurred without the sale of securities

at the inflated basis (which created the artificial loss to offset Plaintiffs’

major capital gains), it is inaccurate to suggest that the actual purchase

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and sale of securities were fraudulent. In actuality, the securities

performed exactly as planned and marketed; it was the overall scheme

that allegedly defrauded the Plaintiffs and Class Members. . . . This Court

as well finds that the alleged fraud here involved a tax scheme, with the

securities transactions only incidental to any underlying fraud.

Accordingly this Court will not apply the PSLRA bar to Plaintiffs’ RICO

claims.

Kottler v. Deutsche Bank AG, 607 F. Supp. 2d 447, 458 n.9 (S.D.N.Y. 2009). The Ninth

Circuit relied on similar reasoning when it found a tax-shelter RICO claim was not

barred by the PSLRA, holding that it was “not sufficient merely to allege a defendant has

committed a proscribed act in a transaction of which the pledge of a security is a part.”

Rezner v. Bayerische Hypo-Und Vereinsband AG, 630 F.3d 866, 871-72 (9th Cir. 2010)

(citation and alteration omitted).

The analysis in the cases cited by the Ouwingas, including Kottler and Rezner,

applied to the factual allegations in this case support the finding that the securities

transactions here were not integral to or “in connection with” the fraudulent scheme as

a whole. The district court correctly found that the PSLRA did not bar the Ouwingas’

RICO claims because the fraud and the securities transactions were essentially

independent events.

C. RICO Violation under § 1962(c)

The Ouwingas challenge the dismissal of their substantive RICO claim under

18 U.S.C. § 1962(c), which provides:

It shall be 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.

To state a RICO claim, a plaintiff must plead the following elements: “(1) conduct (2) of

an enterprise (3) through a pattern (4) of racketeering activity.” Moon v. Harrison

Piping Supply, 465 F.3d 719, 723 (6th Cir. 2006) (quoting Sedima, S.P.R.L. v. Imrex Co.,

Inc., 473 U.S. 479, 496 (1985)). The Ouwingas challenge the district court’s finding that

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 9

they did not sufficiently plead the first two elements. The district court made no finding

as to whether the Ouwingas properly pled a “pattern of racketeering activity.” We

address each element.

1. “Conduct”

A plaintiff must set forth allegations to establish that the defendant conducted or

participated, “directly or indirectly, in the conduct of [the RICO] enterprise’s affairs.”

18 U.S.C. § 1962(c). In Reves v. Ernst & Young, the Supreme Court held that

participation in the conduct of an enterprise’s affairs requires proof that the defendant

participated in the “operation or management” of the enterprise. 507 U.S. 170, 183

(1993). RICO liability is not limited to those with primary responsibility for the

enterprise’s affairs; only “some part” in directing the enterprise’s affairs is required. Id.

at 179. However, defendants must have “conducted or participated in the conduct of the

‘enterprise’s affairs,’ not just their own affairs.” Id. at 185 (emphasis in original).

Concluding that the Agents sold “pre-packaged” Plans and the Lawyers merely rendered

traditional legal services, the district court held the Ouwingas failed to allege that the

Defendants participated in any affairs beyond the operation of their own businesses.

We disagree. The Amended Complaint alleges participation by the Defendants

in the enterprise sufficiently to satisfy the “operation or management” test. We have

held:

Although Reves does not explain what it means to have some part in

directing the enterprise’s affairs, subsequent decisions from our sister

circuits have persuasively explained that it can be accomplished either by

making decisions on behalf of the enterprise or by knowingly carrying

them out.

United States v. Fowler, 535 F.3d 408, 418 (6th Cir. 2008) (emphasis added). Even if

the Benistar Plan was designed by the Benistar entities, the Agent and Lawyer

Defendants carried out the directions of the Benistar entities by marketing the Plan

directly to investors and providing allegedly incomplete and misleading legal opinions.

Importantly, the Ouwingas allege the Defendants carried out these directions, all the

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 10

while knowing that contributions to the Plan were not likely to be allowed as deductions

by the IRS. The district court held these allegations to be merely conclusory. The

Amended Complaint reveals otherwise—it lists the specific IRS rulings and notices that

should have put the Defendants on notice of the likelihood that the Benistar Plan was not

compliant with IRC § 419A(f)(6), but which were allegedly ignored in favor of older

rulings and notices that were more favorable. Assuming the truth of these allegations,

as a court must for a 12(b)(6) motion, it is plausible that the Defendants were aware of

the falsity of the tax benefits that they represented as flowing from the Benistar Plans

and that they promoted to the Ouwingas.

The Defendants rely on Stone v. Kirk, 8 F.3d 1079 (6th Cir. 1993), to argue that

the marketing of a fraudulent plan is not sufficient participation to satisfy the “operation

or management” test. In Stone, the defendant was a sales representative for Sagittarius

Recording Company, which used fraudulent appraisals and other misrepresentations to

lure investors into a master-recording leasing program. Id. at 1082. In fact, Sagittarius

was so convincing about the tax benefits of the leasing program that the agent defendant

invested some of his own money in the program. Id. With little explanation, Stone held

that the agent defendant did not participate in the operation or management of the RICO

entity, which was defined to be Sagittarius and its associates. Id. at 1092.

The Agent Defendants here argue that they, like the defendant in Stone, were

merely sales agents and did not participate in the operation or management of the alleged

RICO enterprise. However, the Amended Complaint alleges: that the Agent Defendants

were more than a mere conduit of information supplied by Benistar; that all the

Defendants were aware of the IRS notices, which put the Plan’s legality into question;

and that, notwithstanding, the Agent Defendants continued to represent the tax benefits

of the Benistar Plan over several years. Fowler makes clear that knowingly carrying out

the orders of the enterprise satisfies the “operation or management” test. 535 F.3d at

418.

Though the Lawyer Defendants provided opinion letters to a client, Benistar,

relating the tax consequences of the Benistar Plan, the Ouwingas allege that they knew

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the purpose of the Benistar Plan was to falsely represent tax benefits, knew of IRS

warnings that these type of plans would not qualify for deductions, and created their

opinions letters for the purpose of falsely promoting the plan as a tax-saving device to

potential investors. In Davis v. Mutual Life Insurance Co. of New York, we relied on the

knowledge and continued endorsement of a fraudulent scheme by an insurance company,

MONY, to find the “conduct” element satisfied:

[E]ven after MONY had received numerous warnings concerning [the

agent’s] fraudulent sales tactics, MONY continued to allow, if not

actively encourage, [the agent] and his associates to carry on with their

scheme. In light of this state of affairs, and of the central role that

MONY’s life insurance policies played in [the] scheme, we have little

difficulty in ruling that MONY exercised sufficient control over the

affairs of the RICO enterprise to withstand scrutiny under Reves.

6 F.3d 367, 380 (6th Cir. 1993). Because the Ouwingas alleged the continued promotion

of the Benistar Plan by all the Defendants in the face of this information, the Amended

Complaint plausibly alleges that the Defendants participated in the enterprise’s affairs

and not merely their own.

We recognize that although this analysis applies to all Defendants, the various

Defendants acted in different capacities and those differences may ultimately impact the

determination of whether a particular Defendant only participated in his own affairs. But

that is a matter to be fleshed out in discovery and to be resolved through motion practice

or by the jury. At this stage in the litigation, the Ouwingas have alleged sufficient facts

to satisfy Reves’s “operation or management” test, as interpreted in this circuit by

Fowler, and the district court erred in finding otherwise.

2. “Enterprise”

RICO defines an “enterprise” as “any individual, corporation, association, or

other legal entity and any union or group of individuals associated in fact although not

a legal entity.” 18 U.S.C. § 1961(4). The Ouwingas allege that the Defendants created

an association-in-fact enterprise. In order to establish the existence of an “enterprise”

under § 1962(c), a plaintiff is required to prove: (1) an ongoing organization with some

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 12

sort of framework or superstructure for making and carrying out decisions; (2) that the

members of the enterprise functioned as a continuing unit with established duties; and

(3) that the enterprise was separate and distinct from the pattern of racketeering activity

in which it engaged. United States v. Chance, 306 F.3d 356, 372 (6th Cir. 2002) (citing

Frank v. D’Ambrosi, 4 F.3d 1378, 1386 (6th Cir. 1993)). The district court found that

the Ouwingas failed to satisfy the third element because they did not make allegations

sufficient to show that the enterprise existed for a purpose separate and distinct from the

pattern of racketeering.

The Supreme Court recently clarified what is required to show an association-in-

fact enterprise in Boyle v. United States, 556 U.S. 938 (2009). The Court stated that “an

association-in-fact enterprise must have at least three structural features: a purpose,

relationships among those associated with the enterprise, and longevity sufficient to

permit these associates to pursue the enterprise’s purpose.” Id. at 946. An association-

in-fact enterprise “require[s] a certain amount of organizational structure which

eliminates simple conspiracies from the Act’s reach.” VanDenBroeck v. CommonPoint

Mortg. Co., 210 F.3d 696, 699 (6th Cir. 2000), abrogated on other grounds by Bridge

v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008). The Supreme Court clarified that

this organizational structure need not be hierarchical, can make decisions on an ad hoc

basis, and does not require the members to have fixed roles. Boyle, 556 U.S. at 948. Put

another way, a plaintiff must show “simply a continuing unit that functions with a

common purpose.” Id.; see also id. at 949 (emphasizing “the breadth of the ‘enterprise’

concept”).

Though the district court recognized both the importance of the wide reach of

RICO to stymie corruption and the refusal of Boyle to narrowly interpret the statute, it

determined that the Ouwingas did not allege a structure distinct from the pattern of

racketeering. It warned that if allegations of mirror-image, ill-motivated activity of

normal business conduct are sufficient to establish an enterprise, all business conduct

gone awry would constitute a per se RICO enterprise. This concern is not well founded

and ignores the statutory requirement of liberal construction to effectuate RICO’s

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remedial purposes. Moreover, our decision in Hofstetter v. Fletcher, 905 F.2d 897 (6th

Cir. 1988), directly addresses the issue:

“RICO applies both to legitimate enterprises conducted through

racketeering operations as well as illegitimate enterprises.” United States

v. Qaoud, 777 F.2d 1105, 1115 (6th Cir. 1985) (citing United States v.

Turkette, 452 U.S. 576 (1981)). In Qaoud, we held that although

“enterprise” and “pattern of racketeering activity” are separate elements,

they may be proved by the same evidence.

905 F.2d at 903 (finding an association-in-fact enterprise consisting of a group of

insurance agents who joined together to sell insurance policies by emphasizing false tax

advantages). This understanding is consistent with Boyle, where the Supreme Court

recognized that although the existence of an enterprise is a separate element that must

be proved, the evidence used to prove the pattern of racketeering activity and the

evidence establishing an enterprise “may in particular cases coalesce.” 556 U.S. at 947

(quoting Turkette, 452 U.S. at 583). In Boyle, the Court upheld an instruction that

allowed a jury to find an association-in-fact enterprise “form[ed] solely for the purpose

of carrying out a pattern of racketeering acts” and instructed that “[c]ommon sense

suggests that the existence of an association-in-fact is oftentimes more readily proven

by what it does, rather than by abstract analysis of its structure.” Id. at 942 n.1. “[A]

pattern of racketeering activity may be sufficient in a particular case to permit a jury to

infer the existence of an association-in-fact [enterprise].” Id. at 951.

The Amended Complaint alleges an organizational structure that satisfies the

standard in Boyle. It delineates the specific roles and relationships of the Defendants,

alleges the enterprise functioned at least five years, and alleges it functioned for the

common purpose of promoting a fraudulent welfare benefit plan to generate

commissions and related fees. That pattern of activity is sufficient to permit a jury to

infer the existence of an enterprise. See Hofstetter, 905 F.2d at 903.1

1

As an alternative argument, the Hancock Defendants argue that only “individuals” and not

corporations or entities can form an association-in-fact enterprise. They rely on the language of § 1961(4),

which they argue describes either “any individual, corporation, association, or other legal entity,” on the

one hand, or “any union or group of individuals associated in fact although not a legal entity,” on the other

hand. Such a limited reading of § 1961(4), however, is directly contrary to clear Sixth Circuit precedent.

Dana Corp. v. Blue Cross & Blue Shield Mut. of N. Ohio, 900 F.2d 882, 887 (6th Cir. 1990) (recognizing

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3. “Pattern of Racketeering”

To establish a substantive RICO violation, a plaintiff must show “a pattern of

racketeering activity.” 18 U.S.C. § 1962(c). A pattern of racketeering activity requires,

at a minimum, two acts of racketeering activity within ten years of each other. 18 U.S.C.

§ 1961(5) (emphasis in original). The Supreme Court has held, however, that the

minimum two acts are not necessarily sufficient and that a plaintiff 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, 237-39 (1989) (emphasis

in original). This requirement is known as the “relationship plus continuity” test. See

Brown v. Cassens Transp. Co., 546 F.3d 347, 355 (6th Cir. 2008).

The relationship prong is satisfied by showing the predicate acts have “similar

purposes, results, participants, victims, or methods of commission, or otherwise are

interrelated by distinguishing characteristics and are not isolated events.” H.J. Inc.,

492 U.S. at 240. A particular defendant’s predicate acts are not required to be

interrelated with each other; instead, the predicate acts must be connected to the affairs

and operations of the criminal enterprise. Fowler, 535 F.3d at 421. The Ouwingas

allege as predicate acts mail and wire fraud based on the various communications from

the Defendants, which fraudulently misrepresented the tax consequences of the Benistar

Plan. All predicate acts allegedly had the same purpose of misrepresenting the Plan’s

tax consequences, were directed toward the Ouwingas, and were presented to the

Ouwingas through the same participants, the Agent Defendants, purportedly as

continued assurances about the Plan’s benefits. The relationship prong is satisfied here.

The continuity prong of the test is satisfied by demonstrating either “a ‘close-

ended’ pattern (a series of related predicate acts extending over a substantial period of

time) or an ‘open-ended’ pattern (a set of predicate acts that poses a threat of continuing

criminal conduct extending beyond the period in which the predicate acts were

performed).” Heinrich v. Waiting Angels Adoption Servs., 668 F.3d 393, 409-10 (6th

that a group of corporations can form an enterprise). As the Defendants correctly recognize, their

argument is foreclosed by Dana Corp.

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 15

Cir. 2012) (citing H.J. Inc., 492 U.S. at 241-42). In other words, the continuity prong

“is sufficiently established where the predicates can be attributed to a defendant

operating as part of a long-term association that exists for criminal purposes.” H.J. Inc.,

492 U.S. at 242-43. This prong is clearly met for the Agent and Hancock Defendants

who communicated consistently with the Ouwingas for at least five years.

The analysis is closer for the Lawyer Defendants. The Lawyer Defendants issued

four opinion letters, the first dated in 1998 and the other three sent over the span of two

months in 2003. The similarity in the representations of tax consequences in all letters

can plausibly indicate that the Lawyer Defendants participated in the fraudulent

enterprise over that entire period. The allegations against the Lawyer Defendants in the

Amended Complaint are sufficient to withstand a motion to dismiss.

D. RICO Conspiracy under § 1962(d)

The district court dismissed the Ouwingas’ RICO conspiracy claim under

§ 1962(d) “for the same reason” it dismissed their § 1962(c) claim and because it found

the allegations regarding a conspiracy to be merely conclusory. Although the Amended

Complaint’s allegations in the conspiracy section appear to be conclusory, the Amended

Complaint expressly incorporates all prior allegations therein. It is a plausible inference

from the incorporated factual allegations that the Defendants agreed and conspired to

commit the predicate acts in furtherance of the fraudulent scheme. Therefore, the

Amended Complaint “contain[s] 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 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Because the

allegations are not merely conclusory, and because the Ouwingas have pled a claim

under § 1962(c), the district court erred in dismissing the Ouwingas’ RICO conspiracy

claim under § 1962(d).

E. State Law Claims

The Ouwingas allege six claims under state law: one claim of negligent

misrepresentation against all Defendants and five claims against the Hancock

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 16

Defendants, including fraudulent misrepresentation/omission, unjust enrichment, breach

of fiduciary duty, breach of contract, and violation of state consumer protection laws.

The district court found all state claims against the Hancock Defendants were foreclosed

by “the explicit disclaimers and disclosures that appear in multiple documents signed by

plaintiffs.” The court dismissed the negligent misrepresentation claim against all

Defendants because it determined the Ouwingas could not prove justifiable reliance in

the face of those same disclaimers. The district court further noted that the Lawyer

Defendants could not be liable for fraudulent misrepresentation because they issued

opinions only, which are not actionable as misrepresentations.

The Ouwingas argue the district court’s reliance on the disclaimers was

inappropriate because they were presented and considered out of the context of the

volume of documents in which they were contained. It is undisputed that “[d]ocuments

that a defendant attaches to a motion to dismiss are considered part of the pleadings if

they are referred to in the plaintiff’s complaint and are central to her claim.” Weiner v.

Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997). The Defendants attached to their motions

to dismiss copies of the disclaimer forms provided to the Ouwingas, most of which had

been included in the Benistar Books. The Ouwingas expressly challenge the scope,

validity, and enforceability of the disclaimers based on the context in which the

disclaimers were presented to them. The Ouwingas argue that the disclaimers were

interspersed in the Benistar Books amidst a mountain of documents containing repeated

representations about the tax benefits of the Benistar Plan, the very representations that

the disclaimers submit were not being made or relied upon.

“While documents integral to the complaint may be relied upon, even if they are

not attached or incorporated by reference, it must also be clear that there exist no

material disputed issues of fact regarding the relevance of the document.” Mediacom

Se. LLC v. BellSouth Telecomms., Inc., 672 F.3d 396, 400 (6th Cir. 2012) (citations,

internal quotation marks, and alterations omitted). This principle is equally applicable

where issues of fact regarding the validity and enforceability of the disclaimers exist.

See Knowlton v. Shaw, 708 F. Supp. 2d 69, 75 (D. Me. 2010) (“[I]f the parties do not

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 17

dispute a central document, a court may consider it in ruling on a motion to dismiss; yet,

if there is a genuine dispute, the legal sufficiency of the cause of action is better tested

in a motion for summary judgment.”). Thus, the district court erred in relying on a

document whose validity was in question.

The district court also found that the fraudulent misrepresentation claim against

the Lawyer Defendants should be dismissed because the opinion letters stated they were

not to be relied on by anyone else besides Benistar and because opinions could not form

the basis for misrepresentations. As with the disclaimers in the Benistar Books, the

Ouwingas challenge the validity of disclaimers in the letters, and also emphasize that the

1998 opinion letter—the only letter the Ouwingas possessed when deciding whether to

participate in the Benistar Plan—did not contain any reliance disclaimer.

The district court noted that mere opinions are generally not actionable as

misrepresentations, but did not explain why the opinion letters should fit into this general

rule at the motion to dismiss stage, where all inferences are to be drawn in the

Ouwingas’ favor. The district court relied on City National Bank of Detroit v. Rodgers

& Morgenstein, 399 N.W.2d 505 (Mich. Ct. App. 1986), for this proposition, but that

court distinguished its facts “from the situation in which an ordinary person deals in

reliance upon an attorney’s opinion on a point of law.” Id. at 508. The Ouwingas allege

the purpose of the opinion letters was to add a legal stamp of approval to the fraudulent

tax plan and to give potential clients the peace of mind to participate in the Plan. Thus,

they allege the Lawyer Defendants were giving legal tax advice not only to Benistar, its

direct client, but also to the intended recipients, taxpayers evaluating the Plan. The

Supreme Court has recognized that “[w]hen an accountant or attorney advises a taxpayer

on a matter of tax law, such as whether a liability exists, it is reasonable for the taxpayer

to rely on that advice.” United States v. Boyle, 469 U.S. 241, 250 (1985). Therefore, it

is plausible that the Ouwingas could show reliance on the opinion letters.

The district court erred in considering the disclaimers at the 12(b)(6) stage when

their validity was directly in question based on the full context of their presentation to

No. 10-2531 Ouwinga, et al. v. Benistar, et al. Page 18

the Ouwingas. Because this formed the basis for the district court’s analysis of the state

law claims, we must reverse dismissal of those claims.

III. CONCLUSION

For the foregoing reasons, the judgment of the district court judgment dismissing

the Ouwingas’ Amended Complaint is reversed and the matter is remand for further

proceedings consistent with this opinion.