Case 4:16-cv-00094-ALM Document 180 Filed 04/26/17 Page 1 of 9 PageID #: 3909
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`United States District Court
`EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
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`DIAMOND CONSORTIUM, INC., DAVID
`BLANK
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`MEMORANDUM OPINION AND ORDER
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`v.
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`BRIAN MANOOKIAN, CUMMINS
`MANOOKIAN, PLC, THE DALLAS
`MORNING NEWS, INC, BRIAN
`CUMMINGS, MARK HAMMERVOLD,
`HAMMERVOLD, PLC
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`Civil Action No. 4:16-CV-00094
`Judge Mazzant
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`Pending before the Court is Defendants Mark Hammervold and Hammervold, PLC’s
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`Amended Motion to Dismiss (Dkt. #137). Having considered the pleadings, the Court finds that
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`the motion should be denied.
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`BACKGROUND
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`Plaintiff Diamond Consortium, Inc. d/b/a The Diamond Doctor (“The Diamond Doctor”)
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`is a retailer and wholesaler of diamonds and other jewelry. Plaintiff David Blank (“Blank”) owns
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`The Diamond Doctor (collectively, “Plaintiffs”). Plaintiffs allege that Defendant Brian Manookian
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`(“Manookian”) and his law firm, Defendant Cummings Manookian, PLC (“Cummings
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`Manookian”) engaged in a scheme to defame and extort Plaintiffs. According to Plaintiffs,
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`Manookian created websites and distributed fliers falsely accusing The Diamond Doctor of having
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`committed “diamond fraud” and “cheating customers through the sale of over-graded diamonds.”
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`Plaintiffs allege that Manookian threatened Plaintiffs with several diamond over-grading lawsuits,
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`unless Plaintiffs retained Cummings Manookian as counsel and paid a $25,000 monthly retainer
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`fee for a period of 120 months, totaling three million dollars. Plaintiffs state that Manookian told
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`Blank that if Cummings Manookian represented The Diamond Doctor, Manookian would be
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`conflicted out of continuing any negative advertising campaigns. The Diamond Doctor did not
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`retain Cummings Manookian. Plaintiffs allege that Manookian continued to defame Plaintiffs
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`utilizing websites, Facebook posts, YouTube videos, fliers, and door hangers accusing Blank and
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`The Diamond Doctor of being “fraudsters” and “stealing customers cash.” Plaintiffs allege that
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`Manookian has threatened several other jewelers with similar “smear campaigns” to extort the
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`jewelers into paying Cummings Manookian large retainer fees.
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`Plaintiffs further allege that Defendant Mark Hammervold and his law firm, Defendant
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`Hammervold, PLC (collectively, the “Hammervold Defendants”) “are necessary to Manookian’s
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`illegal acts . . . because Manookian solicits clients to sue the targeted jewelers and then refers those
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`cases to Hammervold and/or Hammervold, PLC to prosecute, thereby avoiding the appearance of
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`a conflict when Manookian subsequently enters into ‘engagement agreements’ to represent the
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`targeted jewelers as part of his extortion scheme.” Plaintiffs allege that Cummings Manookian,
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`and the Hammervold Defendants are members of an association-in-fact enterprise because they
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`“together function as a unit with a common purpose: extorting millions of their victims.” Plaintiffs
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`bring claims against the Hammervold Defendants for violations of the Racketeer Influenced
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`Corrupt Organizations Act, 18 U.S.C. § 1962(c) (the “RICO Act”) and for civil conspiracy.
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`On October 26, 2016, Plaintiffs filed a Consolidated Amended Complaint (Dkt. #131). On
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`November 9, 2016, the Hammervold Defendants filed the pending amended motion to dismiss
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`(Dkt. #137). On December 9, 2016, Plaintiffs filed a response (Dkt. #147). On December 23,
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`2016, the Hammervold Defendants filed a reply (Dkt. #151). On December 30, 2016, Plaintiffs
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`filed a sur-reply (Dkt. #153).
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`LEGAL STANDARD
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`The Federal Rules of Civil Procedure require that each claim in a complaint include a “short
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`and plain statement . . . showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Each
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`claim must include enough factual allegations “to raise a right to relief above the speculative level.”
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`Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
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`A Rule 12(b)(6) motion allows a party to move for dismissal of an action when the
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`complaint fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). When
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`considering a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded
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`facts in plaintiff’s complaint and view those facts in the light most favorable to the plaintiff.
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`Bowlby v. City of Aberdeen, 681 F.3d 215, 219 (5th Cir. 2012). The Court may consider “the
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`complaint, any documents attached to the complaint, and any documents attached to the motion to
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`dismiss that are central to the claim and referenced by the complaint.” Lone Star Fund V (U.S.),
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`L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). The Court must then determine
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`whether the complaint states a claim for relief that is plausible on its face. ‘“A claim has facial
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`plausibility when the plaintiff pleads factual content that allows the [C]ourt to draw the reasonable
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`inference that the defendant is liable for the misconduct alleged.’” Gonzalez v. Kay, 577 F.3d 600,
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`603 (5th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “But where the well-
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`pleaded facts do not permit the [C]ourt to infer more than the mere possibility of misconduct, the
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`complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Iqbal,
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`556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
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`In Iqbal, the Supreme Court established a two-step approach for assessing the sufficiency
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`of a complaint in the context of a Rule 12(b)(6) motion. First, the Court should identify and
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`disregard conclusory allegations, for they are “not entitled to the assumption of truth.” Iqbal, 556
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`U.S. at 664. Second, the Court “consider[s] the factual allegations in [the complaint] to determine
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`if they plausibly suggest an entitlement to relief.” Id. “This standard ‘simply calls for enough
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`facts to raise a reasonable expectation that discovery will reveal evidence of the necessary claims
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`or elements.’” Morgan v. Hubert, 335 F. App’x 466, 470 (5th Cir. 2009) (citation omitted). This
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`evaluation will “be a context-specific task that requires the reviewing [C]ourt to draw on its judicial
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`experience and common sense.” Iqbal, 556 U.S. at 679.
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`Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter,
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`accepted as true, to ‘state a claim to relief that is plausible on its face.”’ Id. at 678 (quoting
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`Twombly, 550 U.S. at 570).
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`RICO Act Claims
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`ANALYSIS
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`To state a claim for a RICO Act violation, Plaintiffs must allege each of the following
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`elements: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”
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`Manax v. McNamara, 842 F.2d 808, 811 (5th Cir. 1988) (citing 18 U.S.C § 1962(c)). The
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`Hammervold Defendants move for dismissal pursuant to Rule 12(b)(6) arguing Plaintiffs have not
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`pleaded sufficient facts showing the requisite predicate acts of racketeering activity and the
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`existence of a RICO Act enterprise. The Court finds Plaintiffs have pleaded sufficient facts to
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`state plausible claims of Rico Act violations.
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`Requisite Predicate Acts of Racketeering Activity
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`The Hammervold Defendants first argue that Plaintiffs have not pleaded the requisite
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`predicate acts of racketeering activity required for a RICO Act claim. “A pattern of racketeering
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`activity requires two or more predicate acts and a demonstration that the racketeering predicates
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`are related and amount to or pose a threat of continued criminal activity.” Brown v. Protective Life
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`Ins. Co., 353 F.3d 405, 407 (5th Cir. 2003). Plaintiffs allege that Manookian engaged in a pattern
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`of racketeering activity consisting of violations of four federal criminal statutes: 18 U.S.C.§ 1341
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`(mail fraud); 18 U.S.C. § 1343 (wire fraud); 18 U.S.C. § 1951 (the Hobbs Act); and 18 U.S.C §
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`1953 (the Travel Act). Plaintiffs have sufficiently pleaded plausible facts to state a claim of mail
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`fraud, wire fraud, and violations of the Travel Act and thus have sufficiently pleaded a pattern of
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`racketeering activity.
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`Mail Fraud, Wire Fraud, and the Travel Act
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`“The mail fraud statute applies to anyone who knowingly causes to be delivered by mail
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`anything for the purpose of executing any scheme or artifice to defraud.” United States v. Whitfield,
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`590 F.3d 325, 355 (5th Cir.2009) (internal citations and quotation marks omitted). Similarly, wire
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`fraud involves the use of, or causing the use of, wire communications in furtherance of a scheme
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`to defraud. United States v. Stalnaker, 571 F.3d 428, 436 (5th Cir.2009). “Once membership in a
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`scheme to defraud is established, a knowing participant is liable for any wire communication which
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`subsequently takes place or which previously took place in connection with the scheme.” Id. The
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`Travel Act prohibits travel in interstate commerce or use of interstate facilities to promote or carry
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`on certain unlawful activities. 18 U.S.C. § 1952.
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`Plaintiffs allege that Manookian engaged in “an attempt to defraud through a systematic
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`scheme of targeting The Diamond Doctor through a barrage of false, misleading, and harassing
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`publicity on the internet, social media, email, and fliers” (Dkt. #131 at ¶ 103). Plaintiffs allege
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`that “Manookian participated in the fraudulent scheme . . . knowingly, willfully, and with specific
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`intent to generate fear on the part of The Diamond Doctor such that The Diamond Doctor would
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`execute the [engagement agreement] and pay Manookian $3 million.” (Dkt. #131 at ¶ 105).
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`Plaintiffs also allege that the Hammervold Defendants knowingly accepted referrals of cases to
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`prosecute against The Diamond Doctor and other targeted jewelers as part of Manookian’s scheme
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`to extort jewelers. Plaintiffs allege the Hammervold Defendants are a necessary part of the scheme
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`because they allow Manookian and his firm to avoid an appearance of conflict when they enter
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`into engagement agreements with the targeted jewelers.
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`Plaintiffs have sufficiently alleged that the Hammervold Defendants participated in a
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`scheme to defraud Plaintiffs of three million dollars. Defendants point to Manax v. McNamara,
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`660 F. Supp. 657 (1987) to argue that Plaintiffs have not pleaded sufficient facts to support a claim
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`for mail and wire fraud or a violation of the travel act. In Manax, a defendant lawyer similarly
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`initiated an investigation into plaintiff, allegedly spread defamatory information regarding
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`plaintiff, and referred medical malpractice claims to a co-defendant lawyer to file against plaintiff.
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`In that case, the court found that the alleged scheme “when reduced to its essentials, appears to be
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`one to damage the reputation of [plaintiff] and is in no way a ‘fraud’ on his tangible or intangible
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`rights.” Id. at 660. In that case, there was no allegation, as there is here, that the scheme intended
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`to defraud plaintiff of his property. Here, Plaintiffs have sufficiently pleaded that Manookian’s
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`scheme had the express purpose of coercing Plaintiffs into retaining Cummings Manookian and
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`paying Manookian three million dollars. Plaintiffs have also sufficiently alleged that the
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`Hammervold Defendants were a necessary part of this scheme to allow Manookian and his firm to
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`avoid an appearance of conflict when they entered into engagement agreements.
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`Plaintiffs have pleaded sufficient facts to state a claim of the requisite predicate acts of
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`racketeering activity required for a RICO Act claim.
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`Hobbs Act
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`Although Plaintiffs have sufficiently pleaded requisite predicate acts of racketeering
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`activity required for a RICO Act claim, Plaintiffs have not pleaded a claim for a violation of the
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`Hobbs Act. “[T]he extortion provision of the Hobbs Act . . . require[s] not only the deprivation
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`but also the acquisition of property.” Scheidler v. Nat'l Org. for Women, Inc., 537 U.S. 393, 404
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`(2003) (noting that acts of interference and disruption that shut down a clinic that performed
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`abortions “did not constitute extortion because petitioners did not ‘obtain’ respondents’
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`property . . . To conclude that such actions constituted extortion would effectively discard the
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`statutory requirement that property must be obtained from another, replacing it instead with the
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`notion that merely interfering with or depriving someone of property is sufficient to constitute
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`extortion.”).
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`Plaintiffs’ complaint states “Manookian attempted to obtain The Diamond Doctor’s
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`property (i.e., $25,000 per month for 10 years or $3 million).” (emphasis added). However,
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`Plaintiffs do not allege that Defendants actually obtained Plaintiffs property, even if their actions
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`were disruptive to The Diamond Doctor’s business. Plaintiffs’ have not stated a Hobbs Act claim.
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`Plaintiffs’ Hobbs Act claim cannot serve as requisite predicate acts of racketeering activity
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`required for a RICO Act claim
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`Existence of a RICO Association-In-Fact Enterprise
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`The Hammervold Defendants next contest the existence of a RICO association-in-fact
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`enterprise. RICO defines an enterprise as “any individual, partnership, corporation, association or
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`other legal entity, and any union or group of individuals associated in fact although not a legal
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`entity.” 18 U.S.C § 1961(4). Plaintiffs allege that Cummings Manookian and the Hammervold
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`Defendants are members of an association-in-fact enterprise. An association-in-fact enterprise
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`“(1) must have an existence separate and apart from the pattern of racketeering, (2) must be an
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`ongoing organization, and (3) its members must function as a continuing unit as shown by a
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`hierarchical or consensual decision making structure.” Allstate Ins. Co. v. Plambeck, 802 F.3d
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`665, 673 (5th Cir. 2015). “A pattern of racketeering activity does not, by itself, necessarily show
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`that an enterprise exists . . . But the evidence establishing the enterprise and the pattern of
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`racketeering may ‘coalesce.’” Id. (citations omitted). “An association-in-fact enterprise is simply
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`a continuing unit that functions with a common purpose. Such a group need not have a hierarchical
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`structure or a ‘chain of command’ . . . members of the group need not have fixed roles.” Boyle v.
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`United States, 556 U.S. 938, 948 (2009).
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`The Hammervold Defendants argue that “there is no allegation that shows the existence of
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`an enterprise or an association-in-fact, separate and apart from the alleged pattern of racketeering
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`activity.” As discussed above, Plaintiffs have sufficiently pleaded that Manookian and the
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`Hammervold Defendants engaged in racketeering activity of mail fraud, wire fraud, and violations
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`of the Travel Act. Separate and apart from this activity, Plaintiffs allege the Hammervold
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`Defendants represent Manookian in unrelated litigations and have acted as co-counsel with
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`Manookian in unrelated litigations (Dkt. #131 at ¶ 18). Further, evidence establishing the
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`enterprise and the pattern of racketeering may “coalesce.” Plambeck, 802 F.3d at 673. Plaintiffs
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`here have sufficiently alleged Manookian referred litigation to the Hammervold Defendants,
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`including the litigations that formed part of the alleged racketeering activity.
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`Plaintiffs have pleaded plausible facts of the existence of an enterprise or association-in-
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`fact.
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`Civil Conspiracy
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`The Hammervold Defendants argue the Court should dismiss Plaintiffs’ civil conspiracy
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`claims because the factual basis for the claims is premised “on absolutely privileged activity.”
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`(Dkt. #137 at p. 19). The Hammervold Defendants state that the Texas Citizen’s Participation Act
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`(“TCPA”) protects individuals from retaliatory lawsuits if a defendant shows that a plaintiff’s
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`claim is based on, relates to, or is in response to the defendant’s exercise of the right to petition.
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`(Dkt. #137 at p. 20 (citing Tex. Civ. Prac. & Rem. Code § 27.005(b)). The Hammervold
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`Defendants argue the TCPA applies because the sole factual basis for Plaintiffs’ claims is the
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`allegation that Hammervold accepted client referrals from Manookian.
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`Plaintiffs respond that The Hammervold Defendants’ willingness and availability to
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`prosecute claims against The Diamond Doctor and other jewelers is part of Manookian’s overall
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`scheme to extort jewelers. Plaintiffs allege that outside of any judicial proceeding, the
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`Hammervold Defendants and Manookian “agreed and conspired to smear the business names and
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`ownership of various jewelry retailers across the country, including, without limitation, The
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`Diamond Doctor, and extort millions of dollars from them.” (Dkt. #131 at ¶ 116).
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`“Under Texas law, it is well settled that any communication, oral or written, uttered or
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`published in the due course of a judicial proceeding is absolutely privileged and cannot constitute
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`the basis of a civil action.” Beta Health All. MD PA v. Kelley Witherspoons LLP, No. CIV A 309-
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`CV-0399-BF, 2009 WL 2222630, at *2 (N.D. Tex. July 22, 2009). Here, Plaintiffs allege the
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`Hammervold Defendants conspired with Manookian to file suit against Plaintiffs as part of the
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`fraud and extortion scheme. This scheme, and not the judicial proceedings themselves, form the
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`basis of Plaintiffs civil action. Plaintiffs have pleaded sufficient facts to state a plausible claim of
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`civil conspiracy.
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`CONCLUSION
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`It is therefore ORDERED that Defendants Mark Hammervold and Hammervold, PLC’s
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`Amended Motion to Dismiss (Dkt. #137) is hereby DENIED.
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