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Virginia Surety Company, Inc. v. Jack Macedo

May 6, 2011

VIRGINIA SURETY COMPANY, INC. PLAINTIFF,
v.
JACK MACEDO, SANDRA MACEDO-BILYNSKY, CARLOS PEIXOTO, MACEDOS CONSTRUCTION CO., INC. OF NEW JERSEY,
C.C.S. SERVICES OF EAST HANOVER, INC., JOSE MOREIRA, AND JANE DOES 1-3, DEFENDANTS.



The opinion of the court was delivered by: Hon. Garrett E. Brown, Jr.

NOT FOR PUBLICATION

MEMORANDUM OPINION

BROWN, Chief Judge:

This matter comes before the Court on the renewed motion to dismiss (Doc. No. 68) filed by Defendants Jack Macedo, Sandra Macedo-Bilynsky, Macedos Construction Co. Inc., of New Jersey, and C.C.S. Services of East Hanover, Inc. and joined by Defendant Carlos Peixoto (collectively "Macedos Defendants"), and the renewed motion to dismiss (Doc. No. 67) filed by Defendant Jose Moreira. The Court has considered the parties' submissions and decided the matter without oral argument pursuant to Federal Rule of Civil Procedure 78. For the following reasons, the Court will deny Defendants' motions.

I. BACKGROUND

For the purpose of this motion, the Court accepts as true the factual allegations in the Amended Complaint and draws all reasonable inferences in favor of Plaintiff. See, e.g., Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). This matter arises from an October 2005 residential construction project accident and involves allegations of insurance fraud by an insurance company against an insured construction company and an injured carpenter. Plaintiff Virginia Surety Company, Inc. ("VSC") issued a workers' compensation policy and a commercial general liability (CGL) policy to Defendant Macedos Construction Company Inc. of New Jersey (MCC), a New Jersey corporation that performed commercial concrete construction work, that was in effect at the time of the accident. Defendant C.C.S. Services of East Hanover, Inc. (CCS) was effectively a subsidiary of MCC owned in whole or part by members of the Macedo family. (Am. Compl. ¶¶ 7--10, 18--21.) VSC alleges that MCC, CCS, various individuals who are principals and employees with these companies, and Jose Moreira, the injured carpenter, engaged in a scheme to procure workers' compensation benefits for Moreira, despite the fact that Moreira did not work for MCC, and despite the fact that MCC was not the contractor for the construction project.

According to the Amended Complaint, Defendant Carlos Peixoto and his wife purchased undeveloped real property at Block 27, Lot 115.01, 1 Parsonage Lot Road in Tewksbury, New Jersey, and in the fall of 2005, were in the process of building a family residence on the property (hereinafter the "Parsonage Lot Property"). At the time of this residential construction project, Peixoto was employed by MCC as a foreman. While the residence was in development, Peixoto and his wife resided at 7 Dell Road in Stanhope, New Jersey. The construction permits issued by Tewksbury Township in November 2004 and April 2005, Permit Nos. T-04-516 and T-04-516, listed Peixoto as the "Contractor" for the home construction project at the Property and did not list MCC as a contractor. (Am. Compl. ¶¶ 26--41.) According to VSC, in September 2005, Peixoto asked two MCC employees if they could recommend any carpenters for the building of the home. (Id. ¶¶ 48--49.) These employees referred Peixoto to Manuel Covas (id. ¶ 50), and Peixoto hired Covas and his co-worker Moreira to provide carpentry services for the home construction project (id. ¶ 54). VSC alleges that Moreira and Covas were employed by D. Reis Contracting and its owner Dominick Reis when they began working on the Parsonage Lot Property. (Id. ¶¶ 42--47.) On October 1, 2005, while working at the Property, Moreira climbed onto a raised scaffold approximately 25 feet above the ground, and the scaffolding collapsed, causing Moreira to fall to the ground and suffer substantial injuries requiring hospitalization. (Id. ¶¶ 63--66.) Because of these injuries, Moreira has been unable to work since the incident.

MCC, through its co-manager Sandra Macedo-Bilynsky, filed workers' compensation and CGL claims under the VSC policies on behalf of Moreira, representing that he was a covered employee for the job. As a result of this and other representations, VSC paid $284,698.83 to Moreira in workers' compensation benefits and another $31,891.97 defending MCC from a collateral lawsuit filed by Moreira. (Id. ¶ 337.) On July 30, 2007, Moreira and his wife filed suit in Superior Court, Law Division, Huntington County, Docket No. L-464-07 against MCC, Peixoto, and others alleging negligence and loss of consortium (hereinafter "Moreira action"). In conjunction with the Moreira action, Moreira filed a certification indicating that he had never worked for MCC. VSC responded by filing this federal action alleging that Defendants fraudulently conspired to provide insurance coverage for Moreira's injuries under MCC's policies. (See RICO Statement at 22.) VSC's original Complaint asserted claims under the federal Racketeering Influence and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1962(c), (d), and various fraud-based state-law claims, against the Macedos Defendants (Macedo, Macedo-Bilynsky, MCC, CCS, and Peixoto), Moreira, and Moreira's wife Rosa Gomes. VSC also sought declaratory relief voiding and rescinding coverage for the Moreira claims. All Defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). In an Order issued September 29, 2009, and Opinion issued September 30, 2009, then United States District Judge and now Circuit Judge Joseph A. Greenaway, Jr., granted Defendants' motion to dismiss without prejudice.*fn1 Va. Surety Co. v. Macedo, No. 08-5586, 2009 WL 3230909 (D.N.J. Sept. 30, 2009). Judge Greenaway primarily concluded that VSC failed to plead its RICO and state-law fraud causes of action with sufficient particularity to satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). Id. at *7--8, *10--12. Judge Greenaway also stated that misrepresentations concerning Moreira's employment relationship with MCC were "not actionable as mail and wire fraud," because New Jersey law treats employment status as a mixed question of law and fact. Id. at *8. In December 2009, VSC filed an Amended Complaint. While its initial complaint contained RICO claims against Macedo, MacedoBilynsky, and Peixoto, VSC's Amended Complaint only includes a RICO claim against MacedoBilynsky. VSC also asserts claims of statutory insurance fraud, statutory workers' compensation fraud, common law fraud, fraud-based unjust enrichment, and conspiracy to defraud against all Defendants. Finally, VSC seeks various forms of declaratory relief rescinding and voiding coverage for Moreira under the insurance policies. VSC no longer asserts any claims against Moreira's wife, Rosa Gomes. Defendants renewed their motions to dismiss.

By Opinion and Order of August 27, 2010, this Court denied the Defendants' renewed motions to dismiss without prejudice and ordered VSC to file a RICO Case Statement pursuant to Local Civil Rule 16.1(b)(4). VSC timely filed the RICO Statement, and Defendants renewed their motions to dismiss. Defendants primarily argue that Judge Greenaway's September 29, 2009 Opinion is law of the case and requires dismissal of VSC's amended fraud claims, because representations regarding Moreira's employment status are not actionable as fraud. Defendants further argue that VSC's pleadings do not satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), or even the plausibility standard applicable under Rule 12(b)(6). Defendants also attack VSC's claims that are predicated on various Defendants' statements in legal filings before the state Workers' Compensation Division and in the Moreira action in state court, on the ground that such statements are shielded by the litigation privilege and the Noerr-Pennington doctrine. VSC responds that Judge Greenaway's opinion does not control their amended pleadings of fraud, that their amended claims satisfy applicable pleading requirements, and that the litigation privilege and Noerr-Pennington doctrine do not apply to the fraudulent court filings at issue in this case.

This Court has subject matter jurisdiction over VSC's RICO claim pursuant to 18 U.S.C. § 1964(c) and 28 U.S.C. § 1331, and supplemental jurisdiction over VSC's state law claims pursuant to 28 U.S.C. § 1367.

II. RICO CASE STATEMENT

According to VSC's RICO Statement, Moreira and Covas began work on the Parsonage Lot Property on September 24 and 25, 2005. Covas received payment for these services via a check drawn on the personal bank account of Peixoto and his wife. Moreira sustained the relevant injuries on the third day of work at the Parsonage Lot Property, October 1, 2005. Shortly after the injury occurred, Peixoto visited Moreira in the hospital and informed him that MCC would be covering payments for his injuries. (RICO Statement at 2; Am. Compl. ¶¶ 57--58, 61--64, 67--68.) VSC avers that MCC, through its principals Sandra Macedo-Bilynsky and Jack Macedo-who are Peixoto's sister-in-law and father-in-law, respectively-conspired with Peixoto and Moreira to submit false claims based on fraudulent documentation for the purpose of procuring insurance coverage for Moreira's injuries and shielding Peixoto from liability for the same. (See RICO Statement at 3, 22.)

VSC provides specific details about each Defendant's role in the alleged conspiracy. Beginning with Macedo-Bilynsky, VSC claims that this Defendant was the co-manager of MCC who conducted the daily administration of MCC's construction business, was involved in the procurement of the VSC insurance policies, and served as the primary contact for MCC's insurance broker. VSC alleges that Macedo-Bilynsky committed at least six fraudulent acts in the furtherance of the enterprise. First, VSC asserts that she completed and submitted a Worker's Compensation First Notice of Claim via MCC's insurance broker that falsely stated:

(i) that Moreira was a full-time carpenter hired by MCC on October 1, 2005 (the date of injury); and (ii) that MCC paid Moreira at a rate of $61.25 per hour / $2,450 per week. (RICO Statement at 5; Am. Compl. ¶¶ 71--81.) Second, VSC alleges that Macedo-Bilynsky caused MCC's insurance broker to submit a claim under the CGL policy on October 10, 2005. (RICO Statement at 6; Am. Compl. ¶¶ 86--87.) Third, VSC states that Macedo-Bilynsky sent a false construction agreement bearing the date March 15, 2004 (hereinafter "2004 construction agreement") to VSC's claims administrator on January 24, 2007, as proof that MCC had a construction agreement with Peixoto to be the general contractor on the Parsonage Lot Property at the time of Moreira's injury. (RICO Statement at 6; Am. Compl. ¶¶ 104--05.) Fourth, VSC avers that Macedo-Bilynsky sent VSC a false W-2 tax form on January 24, 2007, which stated that CCS (an MCC subsidiary) was Moreira's employer, and that Moreira had yearly earnings from CCS totaling $367.50. (RICO Statement at 7; Am. Compl. ¶¶ 113--15.) Fifth, VSC contends that Macedo-Bilynsky filed an Answer on behalf of MCC on or about February 2, 2007, in response to a Claim Petition filed in the State Department of Labor, Workers' Compensation Division, that failed to indicate whether Moreira was an MCC employee, whether his injury arose from his employment, and listed his occupation as "Under Investigation." (RICO Statement at 7; Am. Compl. ¶¶ 118--19.) Finally, VSC alleges that Macedo-Bilynsky prepared and submitted a false certification to the Superior Court in the Moreira action on or about March 20, 2008, which stated that Moreira was a non-union MCC employee at the time of his injury, whose pay was processed by CCS. (RICO Statement at 8; Am. Compl. ¶¶ 124--27.) VSC contends that these representations were fraudulent because: (1) Moreira was a full-time employee of D. Reis Contracting at the time of his injuries; (2) Moreira was hired by Peixoto to perform carpentry services for $7,500 and began work on September 24, 2005; (3) Moreira and Covas were paid for their services at the Parsonage Lot Property by a personal check from Peixoto's bank account; (4) neither Moreira nor Covas ever received payment from MCC or CCS; (5) the Tewksbury Township construction permits indicate that Peixoto was the general contractor for the residential construction project; (6) MCC represented on its insurance applications that it only performed commercial concrete construction work; and (7) the putative 2004 construction agreement between MCC and Peixoto listed the Parsonage Lot Property as Peixoto's mailing address, despite the fact that the residence had not been completed and was not habitable at the time of the alleged construction agreement. (See RICO Statement at 5--9.)

As for Defendant Peixoto, an MCC foreman and the property owner where the accident occurred, VSC alleges that this Defendant conspired with Macedo-Bilynsky and his father-in-law "to fraudulently induce coverage from VSC" through the submission of the aforementioned false documents because he did not possess a homeowner's insurance policy that would provide coverage for the injuries sustained by Moreira. (Id. at 10.) In the furtherance of this enterprise, VSC avers that Peixoto met with Moreira in the hospital shortly after the injury occurred to inform him that MCC would be covering payments for his injuries. (Id.; Am. Compl. ¶¶ 67--68.) VSC contends that these acts were fraudulent, because the Tewksbury Township construction permits unambiguously listed Peixoto as the property owner and general contractor. (RICO Statement at 10.)

With regard to Defendant Jack Macedo, Peixoto's father-in-law and the principal and/or owner of MCC, VSC alleges that this Defendant participated in the conspiracy by executing the false 2004 construction agreement (subsequently submitted to VSC) between MCC and Peixoto after Moreira's injury occurred in October 2005. (Id. at 8--9; Am. Compl. ¶ 111.) Furthermore, after Moreira instituted the state court action against MCC, VSC alleges that this Defendant arranged a meeting with Moreira and Moreira's then-current employer, Dominick Reis (coincidentally Macedo's brother-in-law), at "Churrasqueira Bairrada" restaurant in February 2008. At this meeting, VSC alleges that Macedo attempted to persuade Moreira to abandon the state court action against MCC and pursue the workers' compensation benefits from VSC. (RICO Statement at 9; Am. Compl. ¶¶ 133--47.)

Finally, as for Defendant Moreira, the injured carpenter, VSC alleges that this Defendant participated in the enterprise by completing and submitting Workers Compensation Claim No. 0028139132 Questionnaire to VSC's claims administrator on October 14, 2005, which falsely stated that he was an employee hired by MCC on October 1, 2005. Thereafter, VSC asserts that Moreira completed and submitted an Employee's Claim Petition to the New Jersey Division of Workers' Compensation that contained a false statement regarding his gross weekly wages from his employment with MCC. (RICO Statement at 11; Am. Compl. 88--99.) Moreira subsequently filed a certification in Superior Court in the Moreira action generally denying that he worked for MCC or CCS. (RICO Statement at 11--12.) Specifically, Moreira certified the following facts:

(1) that he and Covas were hired to perform carpentry work on the Parsonage Lot Property by Peixoto on or about September 17, 2005; (2) that he and Covas worked on the property the weekend prior to the incident, September 24--25, 2005; (3) that all materials related to his work on the property were provided by Peixoto, the property owner; (4) that he received no paycheck from MCC for his work prior to the incident, but that Covas received payment from Peixoto and his wife; (5) that he "first learned that [he] would be treated as if [he] was an employee of [MCC]" while he was in the hospital receiving treatment for his injuries, whereupon he was told that MCC would provide workers' compensation benefits to cover the expenses of his injuries; (6) that he never received a W-2 tax form from MCC; (7) that "at no point in time, up to and including the date of the incident, did [he] understand to be employed through [MCC] or did anyone from [MCC] retain control over [his] conduct, prescribe the manner in which [his] work was performed [] while on the [Parsonage Lot] Property"; and (8) that he was subsequently provided with a W-2 tax form, ostensibly issued by CCS, during discovery, but that he "[was] not familiar with such an entity nor was [he] employed by them." (RICO Statement at 11--12; Am. Compl. ¶ 153 (quoting Mills Decl. Ex. B (Moreira Certif.)).)

Based on these allegations, VSC submits that Defendant Macedo-Bilynsky engaged in the following RICO predicate acts of mail and wire fraud, in violation of 18 U.S.C. §§ 1341 and 1343: (1) wire submission of the false Workers Compensation First Notice of Claim, on behalf of MCC, to VSC via MCC's insurance broker on or about October 5--6, 2005; (2) wire and/or mail submission of the false Acord General Liability Notice of Occurrence Form, on behalf of MCC, to VSC via MCC's insurance broker on or about October 10, 2005; (3) wire and/or mail submission of the false 2004 construction agreement, allegedly prepared after-the-fact by Defendant Jack Macedo, to VSC on or about January 24, 2007; and (4) wire and/or mail submission of a false 2005 W-2 tax form indicating that Moreira worked for and earned income from MCC's subsidiary CCS, to VSC on or about January 24, 2007. (RICO Statement at 13--14.) VSC asserts that Defendants MCC, CCS, Macedo, Macedo-Bilynsky, and Peixoto formed an association-in-fact enterprise, and VSC contends that they have sufficiently alleged a "pattern of racketeering activity" under 18 U.S.C. § 1961(5), because they have alleged multiple predicate acts within a ten-year period, and the predicate acts are related and continuous.

III. SUPERIOR COURT'S DECISION ON VSC'S CLAIMS

After the renewed motions to dismiss were initially filed with this Court, the Superior Court in the Moreira action decided similar motions filed by the Defendants in this case, which sought to dismiss VSC's fraud-based claims.*fn2 As they do with the present motions, the defendants had relied on Judge Greenaway's September 29, 2009 Opinion that the representation regarding employment status could not be actionable as fraud, and that certain statements made during the course of litigation were protected by the litigation privilege and the Noerr- Pennington doctrine. By opinion and order of June 11, 2010, the Honorable Peter A. Buchsbaum, J.S.C., denied the Peixotos and Macedos defendants motions. (Mills Decl. Ex. D at 11--16.) Applying the motion to dismiss standard, Judge Buchsbaum concluded that VSC's allegations stated claims for insurance fraud under N.J. Stat. Ann. § 17:33A-1 et seq., workers' compensation fraud under N.J. Stat. Ann. §§ 34:15-1 et seq. and 34:14-57.4, common law fraud, unjust enrichment, and civil conspiracy. (Id.) Judge Buchsbaum specifically rejected these defendants' litigation privilege and Noerr-Pennington arguments, noting that these doctrines did not provide protection to "shams," and stating that he was unaware of any First Amendment right or privilege that would protect fraud on the court. (Id. at 13--14 ("While defamatory statements may be protected, on free speech grounds, the extension of that protection to allegations of outright fraud designed to in effect steal from an insurance company would be breathtaking.").) Judge Buchsbaum also rejected defendants' contention that Judge Greenaway's September 29, 2009 opinion controlled the disposition of VSC's counterclaims, making the following observations:

The arguments as to whether Moreira was an 'employee' overly complicate the allegation that factually he did not work for Macedos in any way, and notwithstanding that fact, the defendants allegedly came together, created a false employment contract, and falsely stated Moreira worked for Macedos in order to obtain insurance benefits. There are factual questions for a jury not technical legal conclusions amounting to opinion. Involved are not arcana of employment law, but whether there was a scheme to cook up a wholly fictional relationship in order to obtain insurance. The ink spilled on the status of 'employment' as a matter of law is thus irrelevant to the actual allegations. . . . [I]t is far from clear that Judge Greenaway's past ruling on the employment issue would control. His opinion does not directly focus on that issue. In fact, the portion of Judge Greenaway's opinion dealing with state fraud claims does not mention the employment issue at all.

. . . . . . Although the defendants argue issues of law cannot constitute the basis for fraud, that argument contradicts the Court's holding in Westervelt v. Demarest, 46 N.J.L. 37, 40 (1884). Furthermore, VSC alleged a misrepresentation other than employment status in the form of a lack of information with the insurance application as to residential projects. [citations omitted] In addition, reading the pleadings with a generous and hospitable view, as the Court must, the focus of VSC's claims appears to be whether Moreira worked for Macedos in any capacity, not just within the legal definition of an employee. (Id. at 11--14.)

IV. MOTIONS TO DISMISS

Defendants argue that VSC's claims are barred by the law of the case, Federal Rules of Civil Procedure 8, 9(b), and 12(b)(6), the litigation privilege, and the Noerr-Pennington ...


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