DOUGLAS et al v. LALUMIERE et al

2:20-cv-00227Med29.09.2021

Gesamter Gesetzestext

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
JOEL DOUGLAS, et al., 	)
)
Plaintiffs, 	)
)
v. 	) 2:20-cv-00227-JDL
)
SCOTT LALUMIERE, et al., 	)
)
Defendants. 	)
ORDER ON CAMDEN NATIONAL BANK’S MOTION TO DISMISS
Joel Douglas, Steven Fowler, and James Lewis (collectively, “Plaintiffs”) bring
this action against Scott Lalumiere and twenty-five other defendants (collectively,
“Defendants”), asserting seventeen claims arising out of an alleged scheme to defraud
the Plaintiffs and obtain control or ownership of their real estate properties for the
purpose of borrowing against the properties’ equity. 	In total, the Defendants have
filed thirteen motions to dismiss the First Amended Complaint (the “Complaint”)
(ECF No. 11) for failure to state a claim upon which relief can be granted pursuant
to Federal Rule of Civil Procedure 12(b)(6).1 This order addresses Camden National
Bank’s (“CNB”) motion to dismiss the claims asserted against it under the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.A. §§ 1961-1968 (West
2021) and Maine contract law (ECF No. 61). 	For the reasons that follow, I grant
1 The following defendants have filed motions to dismiss: Androscoggin Savings Bank (ECF No. 37);
Camden National Bank (ECF No. 61); TTJR, LLC, LH Housing, LLC, and Eric Holsapple (ECF No.
65); LOSU, LLC and David Hirshon (ECF No. 70); Bangor Savings Bank and Robert Burgess (ECF
No. 98); Wayne Lewis (ECF No. 110); Machias Savings Bank (ECF No. 111); Coastal Realty Capital,
LLC, Michael Lyden, and Shawn Lyden (ECF No. 118); Andre Bellucci (ECF No. 147); BLR Capital,
LLC (ECF No. 197); F.O. Bailey Real Estate, LLC and David Jones (ECF No. 203); Russell Oakes (ECF
No. 223); and David Clarke (ECF No. 225). 	Only Defendants Scott Lalumiere, MECAP, LLC, and
Birch Point Storage, LLC have not filed motions to dismiss.
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CNB’s Motion to Dismiss, deny the Plaintiffs’ Motion for Limited Discovery,2 and
deny as moot the Plaintiffs’ objection to the Magistrate Judge’s order denying the
Plaintiffs’ Motion for Limited Discovery.
I. BACKGROUND
The Complaint alleges the following facts, which I treat as true for purposes of
ruling on this Motion to Dismiss.
The Complaint asserts that Scott Lalumiere and other defendants engaged in
three distinct but intertwined schemes to defraud the Plaintiffs. In the first scheme,
the Complaint alleges that Scott Lalumiere, funded by various banks and private
lenders, fraudulently induced several vulnerable individuals, including Plaintiffs
Steven Fowler and Joel Douglas, who lacked access to conventional credit, to enter
into unfavorable lease/buy-back agreements. Under the terms of the agreements, the
title of the victim’s property would be transferred to a corporate entity controlled by
Lalumiere with the victim, as the lessee, retaining a purchase option. The Lalumiere-
controlled entity would subsequently mortgage the property to banks and private
lenders, and, when the entity defaulted on its loan, the mortgagees foreclosed on the
property, frustrating the victim’s option to purchase.
In 	the 	second 	alleged 	scheme, 	Fowler 	entered 	into 	an 	agreement 	with
Lalumiere whereby he would provide labor and materials at a discounted rate to
renovate certain properties controlled by Lalumiere, with the understanding that
2 I recognize that Magistrate Judge John C. Nivison denied the Motion for Limited Discovery on
January 21, 2021 (ECF No. 156). His order expressly recognized, however, that the Plaintiffs’ request
for limited discovery should be revisited as part of the Court’s assessment of the Motion to Dismiss.
Accordingly, I have treated the earlier order denying the motion as a deferral of action on the motion.
Further, I have considered the merits of the motion and, for the reasons explained herein, I deny the
motion.
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Fowler could purchase the properties back upon the completion of the renovations.
However, 	Lalumiere 	frustrated 	Fowler’s 	right 	to 	purchase 	the 	properties 	by
defaulting on the mortgages, causing the mortgagees to foreclose on the properties.
In the third alleged scheme, several of the Defendants agreed to pay-off and
discharge Plaintiff James Lewis’s defaulted mortgage and to lend him money to make
improvements to his property in exchange for him deeding the property to a
corporation and making certain payments. 	After the title was transferred, they
refused to loan him the money and subsequently foreclosed on the property.
The Plaintiffs’ claims against CNB involve the second scheme noted above in
relation to one property: 181 St. John Street, Portland, Maine. 	In June 2015,
MECAP, LLC—a Lalumiere-controlled entity—purchased the property from S & K
Properties LLC. 	CNB extended a commercial loan to MECAP, LLC secured by a
$140,000 mortgage to purchase this property. 	In May 2016, Lalumiere and Fowler
entered into a renovation agreement involving the St. John Street property. In this
agreement, Lalumiere would pay Fowler for renovation work on the St. John Street
property in exchange for the right to purchase the property for the payoff amounts on
the outstanding conventional mortgages once the work was completed. 	Because
Lalumiere and his co-conspirators defaulted on their mortgage, in January 2020,
CNB used a non-judicial foreclosure to auction off the St. John Street property,
depriving Fowler of his right to purchase the property.3
3 CNB claims it did not foreclose on the property, highlighting certain documents, and the lack thereof,
that have been recorded in the Cumberland County Registry of Deeds. At this stage, however, the
Court accepts all well-pleaded factual allegations as true, and thus for purposes of this Motion to
Dismiss, I accept that CNB foreclosed on the property.
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The Plaintiffs filed a Motion for Limited Discovery from CNB in connection
with their response to the motions to dismiss. 	On January 21, 2021, Magistrate
Judge John C. Nivison entered an order denying the Plaintiffs’ limited discovery
request 	without 	prejudice, 	stating 	that 	“[t]he 	Court 	will 	consider 	Plaintiffs’
[discovery] requests as part of the Court’s assessment of each defendant’s motion to
dismiss.” 	ECF No. 156 at 3. 	On January 28, 2021, the Plaintiffs filed a timely
objection to the Magistrate Judge’s order (ECF No. 162). 	Below, I address the
Plaintiffs’ Motion for Limited Discovery and the Plaintiffs’ objection to Magistrate
Judge Nivison’s order as it relates to CNB’s Motion to Dismiss.
II. LEGAL ANALYSIS
In reviewing a motion to dismiss for failure to state a claim, a court must
“accept as true all well-pleaded facts alleged in the complaint and draw all reasonable
inferences therefrom in the pleader’s favor.” 	Rodríguez-Reyes v. Molina-Rodríguez,
711 F.3d 49, 52-53 (1st Cir. 2013) (quoting Santiago v. Puerto Rico, 655 F.3d 61, 72
(1st Cir. 2011)). 	To survive a motion to dismiss, the complaint “must contain
sufficient factual matter to state a claim to relief that is plausible on its face.” Id. at
53 (quoting Grajales v. P.R. Ports Auth., 682 F.3d 40, 44 (1st Cir. 2012)). Additionally,
a court may consider inferences “gleaned from documents incorporated by reference
into the complaint, matters of public record, and facts susceptible to judicial notice.”
Id. (quoting Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011)).
To assess the complaint’s adequacy, courts apply a “two-pronged approach,”
Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011): First, the court
must “isolate and ignore statements in the complaint that simply offer legal labels
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and conclusions or merely rehash cause-of-action elements,” and, second, the court
will “take the complaint’s well-pled (i.e., non-conclusory, non-speculative) facts as
true, drawing all reasonable inferences in the pleader’s favor, and see if they plausibly
narrate a claim for relief,” Schatz v. Republican State Leadership Comm., 669 F.3d
50, 55 (1st Cir. 2012). 	To determine the plausibility of a claim is “a context-specific
task that requires the reviewing court to draw on its judicial experience and common
sense.” 	Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). 	Although legal conclusory
statements may “provide the framework of a complaint, they must be supported by
factual allegations.” 	Id. 	The court must determine whether the factual allegations
“plausibly give rise to an entitlement to relief.” Id.
In addition, the Plaintiffs’ fraud-related claims are subject to Federal Rule of
Civil Procedure 9(b), which requires that a complaint “state with particularity the
circumstances constituting fraud.” 	To satisfy this requirement, the complaint must
set forth the “time, place and content of an alleged false representation.” 	Howell v.
Advantage Payroll Servs., Inc., No. 2:16-cv-438-NT, 2017 WL 782881, at *6 (D. Me.
Feb. 28, 2017) (quoting Hayduk v. Lanna, 775 F.2d 441, 444 (1st Cir. 1985)). 	The
Plaintiffs’ RICO claims are based in part on the predicate acts of mail and wire fraud,
which 	“must 	satisfy 	the 	particularity 	requirements 	of 	Rule 	9(b).” 	Ahmed 	v.
Rosenblatt, 118 F.3d 886, 889 (1st Cir. 1997).
The Plaintiffs assert three claims against CNB: (A) the RICO claim, (B) the
breach of contract claim, and (C) the unjust enrichment claim. 	The RICO claim
includes a single count against the alleged enterprise operating the conspiracy. The
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contract claim and unjust enrichment claim stand for themselves. 	I address each
category in turn.
A. 	RICO Claim (Count IV)
The Complaint asserts that CNB participated in a RICO conspiracy under
18 U.S.C.A. § 1962(d) (West 2021). 	“To prove a RICO conspiracy offense, the
[plaintiff] must show that ‘the defendant knowingly joined the conspiracy, agreeing
with one or more coconspirators “to further the endeavor, which, if completed, would
satisfy all the elements of a substantive RICO offense.”’” United States v. Velazquez-
Fontanez, 6 F.4th 205, 212 (1st Cir. 2021) (alterations omitted) (quoting United States
v. Rodríguez-Torres, 939 F.3d 16, 23 (1st Cir. 2019)). It is not necessary to “prove that
the defendant or his co-conspirators committed any overt act in furtherance of the
conspiracy.” United States v. Leoner-Aguirre, 939 F.3d 310, 317 (1st Cir. 2019).
Here, the Complaint alleges CNB conspired to violate 18 U.S.C.A. § 1962(a),
which 	makes 	it 	unlawful 	to 	use 	or 	invest 	income 	derived 	from 	a 	pattern 	of
racketeering activity under certain circumstances:
It shall be unlawful for any person who has received any income derived,
directly or indirectly, from a pattern of racketeering activity . . . in which
such person has participated as a principal . . . to use or invest, directly
or indirectly, any part of such income, or the proceeds of such income, in
acquisition of any interest in, or the establishment or operation of, any
enterprise which is engaged in . . . interstate or foreign commerce.
An “enterprise” includes “any individual, partnership, 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.A. § 1961(4) (West 2021). 	“To establish a pattern of
racketeering, a plaintiff must show at least two predicate acts of ‘racketeering
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activity’, as the statute defines such activity, and must establish that the ‘predicates
are related, and that they amount to or pose a threat of continued criminal activity.’”
McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 788 (1st Cir. 1990)
(quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239). 	“Racketeering activity”
encompasses mail fraud under 18 U.S.C.A. § 1341 (West 2021), wire fraud under
18 U.S.C.A. § 1343 (West 2021), and money laundering under 18 U.S.C.A. § 1956
(West 2021). 	18 U.S.C.A. § 1961(1). 	A plaintiff asserting a § 1962(a) claim must
further prove that he was “injured ‘in his business or property by reason of’ the
defendant’s violation.” 	Compagnie De Reassurance D’Ile de France v. New England
Reinsurance Corp., 57 F.3d 56, 91 (1st Cir. 1995) (quoting 18 U.S.C.A. § 1964(c) (West
2021)).
The Plaintiffs’ theory is that CNB conspired with the Lalumiere Defendants4
to reinvest the income from a pattern of racketeering activity back into the enterprise.
The alleged racketeering activity was money laundering and mail and wire fraud.
CNB argues that the Complaint fails to plausibly allege that CNB knowingly joined
the 	overall 	conspiracy 	or 	that 	its 	actions 	resulted 	in 	an 	investment 	injury
independent from the underlying predicate acts.5 I agree.
4 This term refers to Defendant Scott Lalumiere and the corporate entities he controlled: Defendants
Birch Point Storage, LLC and MECAP, LLC.
5 As I will explain, the Complaint fails to plausibly allege that CNB knowingly joined Lalumiere’s
conspiracy or that the Plaintiffs suffered a distinct investment injury. For those reasons alone, the
Plaintiffs’ RICO claims against CNB fail. Therefore, I do not address CNB’s additional argument that
the Complaint fails to sufficiently plead a plausible pattern of racketeering activity.
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1. 	Knowingly Conspired
The Plaintiffs assert that CNB knowingly conspired with Lalumiere because
CNB was privy to information that the funds used to purchase the St. John Street
property 	were 	part 	of 	a 	larger conspiracy 	to 	launder the 	enterprise’s 	money.
Specifically, the Complaint alleges that the St. John Street property was paid for with
proceeds from a fraudulent transaction involving the property at 75 Queen Street,
Gorham, Maine. 	For the reasons I will explain, the Complaint’s generalized
allegations regarding CNB’s knowledge are not sufficient to establish the required
element of knowledge.
First, the Complaint alleges that CNB was “informed of the fraudulent conduct
in late November 2019.” However, while knowledge can be pled generally, it cannot
be alleged vaguely. 	The Complaint does not allege that CNB knew Lalumiere’s
purchase of the St. John Street property was funded by the proceeds from fraudulent
transactions involving 75 Queen Street. 	The conclusory allegation that CNB was
“informed of the fraudulent conduct” and then foreclosed on the St. John Street
property is not sufficient to survive CNB’s motion to dismiss.
Second, the Plaintiffs assert that CNB knew Lalumiere was involved in
lease/buy-back agreements, and this information should have put CNB on notice that
the transaction for the St. John Street property was fraudulent. 	However, this
assertion is made for the first time in the Plaintiffs’ opposition to CNB’s Motion to
Dismiss and is not contained in the Complaint. Regardless of the failure to properly
plead this allegation, the Complaint fails to point to specific terms of the lease
arrangement that, without more, would have put CNB on notice that this transaction
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was used to launder money. 	The allegations suggest nothing more than a bank
engaged in arm’s-length financing in the normal course of business. 	See Terry A.
Lambert Plumbing, Inc. v. W. Sec. Bank, 934 F.2d 976, 981 (8th Cir. 1991) (“Bankers
do not become racketeers by acting like bankers”). 	The Complaint’s conclusory
allegations to the contrary are not enough to survive CNB’s Motion to Dismiss.
Accordingly, 	the 	Complaint 	fails 	to 	allege 	facts 	that, 	if 	proven, 	would
demonstrate that CNB knowingly joined the conspiracy.
2. 	Investment Injury
“[T]o have a private cause of action, a plaintiff asserting a civil RICO
conspiracy claim must show ‘injur[y] in his business or property by reason of a
violation of Section 1962.’” 	Veilleux v. Elec. Maine, LLC, No. 1:16-cv-571-NT, 2017
WL 5490838, at *8 (D. Me. Nov. 15, 2017) (quoting 18 U.S.C.A. § 1964(c)). 	In the
context of § 1962(a), this requirement is referred to as the “investment use rule,”
whereby “many courts have concluded that the mere reinvestment of racketeering
proceeds in a corporate enterprise with the result that the enterprise continues to
engage in the predicate acts of racketeering[] is insufficient to give rise to a ‘use or
investment injury’ that is distinct from the harm caused by the predicate acts.”
MyFreeMedicine.com, LLC v. Alpine Investors, 739 F. Supp. 2d 8, 20 n.10 (D. Me.
2010). “[A] plaintiff cannot comply with the ‘investment use rule’ simply by ‘repeating
the crux of [his or her] allegations in regard to the pattern of racketeering.’” 	Id.
(citations omitted). “[A] plaintiff must show that his or her injury was caused by the
defendant’s use or investment of racketeering proceeds,” distinct from the injury
caused by the predicate acts. Id. (citing Compagnie De Reassurance, 57 F.3d at 91).
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With respect to CNB, the bank proceeded with a non-judicial foreclosure to
auction off the St. John Street property. The Complaint asserts that the non-judicial
foreclosure sale, and the ultimate loss of the ability to purchase the property, was a
result of fraud. Fowler believed that the agreement was valid and that he would have
the option to purchase the property once the work was complete. However, because
CNB foreclosed on the property, Fowler lost his ability to exercise his option to
purchase.
While the Complaint alleges facts demonstrating that Fowler was harmed, it
fails to identify an investment injury distinct from the harm caused by the predicate
fraud. 	The Complaint alleges that the St. John Street property was “paid for with
the proceeds from the fraud in the transaction for 75 Queen Street.” ECF No. 11 at
¶ 180. 	Although the Complaint asserts that the proceeds were reinvested in the
enterprise and furthered the alleged fraud, these allegations do not satisfy the injury
requirement. 	Even if one accepts the Complaint’s theory that the Defendants’
transactions were fraudulent, the Complaint fails to allege a plausible investment
injury distinct from the loss of the property. Without a specifically alleged investment
injury, the Complaint fails to adequately plead an injury that is separate from the
predicate harm.
Without 	pleading 	facts 	that 	could establish 	the required element 	of 	an
investment injury, the Plaintiffs have failed to allege any substantive § 1962(a) claim,
and therefore the § 1962(d) conspiracy claims must be dismissed. 	See Efron v.
Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 21 (1st Cir. 2000) (“[I]f the pleadings
do not state a substantive RICO claim upon which relief may be granted, then the
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conspiracy claim also fails.”); see also MyFreeMedicine.com, 739 F. Supp. 2d at 30-31
(dismissing § 1962(d) conspiracy count because the complaint failed to allege a
substantive RICO violation).
In sum, with regards to RICO, the Complaint fails to allege that CNB
knowingly joined the overall conspiracy, and also fails to allege an investment injury
distinct from the predicate acts. 	Therefore, the RICO claim against CNB is
dismissed.
B. 	Contract Claim (Count X)
The 	Complaint 	asserts 	one 	claim 	against 	CNB 	based 	on 	Lalumiere’s
misrepresentation that Fowler would be able to purchase the St. John Street
property: breach of contract. The problem, as CNB points out, is that CNB was not a
party to the allegedly fraudulent transaction. In response, the Plaintiffs argue that
there was an enforceable contract but do not contest the fact that CNB was not a
party to that contract. Without more, the Complaint cannot sustain a claim against
a party that was not involved in the agreement at issue.
C. 	Unjust Enrichment Claim (Count XVII)
The Complaint asserts a claim for unjust enrichment against CNB based on
the alleged “extraction of equity from the homes at 661 Allen Avenue and 57 Queen
Street.” ECF No. 11 ¶ 255.
A claim for unjust enrichment requires proof that “(1) [the complaining party]
conferred a benefit on the other party; (2) the other party had appreciation or
knowledge of the benefit; and (3) the acceptance or retention of the benefit was under
such circumstances as to make it inequitable for it to retain the benefit without
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payment of its value.” 	Knope v. Green Tree Servicing, LLC, 2017 ME 95, ¶ 12,
161 A.3d 696, 699 (quoting Me. Eye Care Assocs., P.A. v. Gorman, 2008 ME 36, ¶ 17,
942 A.2d 707, 712).
The Complaint’s unjust enrichment claim fails for two reasons. 	First, the
Complaint does not allege that a benefit was conferred on CNB. The Complaint does
not allege that CNB had any involvement in the Allen Avenue or Queen Street
transactions, nor does it assert an unjust enrichment claim arising from the St. John
Street renovation work. 	Although Fowler suffered harm through the loss of his
ability to purchase the St. John Street property, the Complaint fails to plausibly
allege facts that would establish that a resulting benefit was conferred on CNB.
There cannot be an unjust enrichment without a “conferred benefit.”
Second, the Complaint does not allege that CNB had or should have had
“appreciation or knowledge” of the benefit received. The agreements that Lalumiere
allegedly never intended to honor were entered into before CNB became involved.
Further, for the reasons I have already discussed, the Complaint fails to allege facts
that, if proven, would establish that CNB knew or should have known of the fraud
when it made its loan to Lalumiere.
In sum, the Complaint fails to plead facts that, if proven, would establish a
right of recovery based on unjust enrichment.
D. 	Motion for Limited Discovery
A dismissal is not automatic once the lower court determines that Rule 9(b)
has not been satisfied. 	New England Data Servs., Inc. v. Becher, 829 F.2d 286, 290
(1st Cir. 1987). 	Instead, after the Rule 9(b) determination, a “court should make a
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second determination as to whether the claim as presented warrants the allowance
of discovery and if so, thereafter provide an opportunity to amend the defective
complaint.” 	Id. 	The plaintiff may have a right to limited discovery, to the extent
necessary to cure a Rule 9(b) defect about “the details of just when and where the
mail or wires were used.” 	Id. 	A court also has “some latitude” to allow discovery
“where a plausible claim may be indicated ‘based on what is known,’ at least where
. . . ‘some of the information needed may be in the control of the defendants.’”
Menard v. CSX Transp., Inc., 698 F.3d 40, 45 (1st Cir. 2012) (alteration omitted)
(quoting Pruell v. Caritas Christi, 678 F.3d 10, 15 (1st Cir. 2012)).
Here, 	the 	Plaintiffs 	seek 	limited 	discovery 	from 	CNB 	to 	reveal
“communications between [CNB] and the other defendants” who were allegedly
involved in the conspiracy. 	ECF No. 103 at 3. 	Under the Plaintiffs’ theory, they
believe that CNB had exclusive access to communications which are necessary to
prove the elements of fraud. CNB opposes the motion, asserting the Plaintiffs have
failed to demonstrate a right to limited discovery because they have not pled a
plausible claim and limited discovery is granted to cure particularity deficiencies, not
plausibility defects.
The decisions in Becher and Menard establish two possible grounds for
granting limited discovery. 	First, under Menard, where modest discovery may
“provide the missing link” to satisfy the Rule 12(b)(6) plausibility standard, the court
may allow limited discovery “at least where . . . ‘some of the information needed may
be in the control of the defendants.’” 698 F.3d at 45 (quoting Pruell v. Caritas Christi,
678 F.3d 10, 15 (1st Cir. 2012)). 	Here, however, the Complaint is not lacking a
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“missing link.” The Complaint does not plausibly suggest that CNB had information
that would provide the “missing link” needed to remedy its deficiencies.
Second, as discussed in Becher, a court may allow discovery as to “the details
of just when and where the mail or wires were used” in a “RICO mail and wire fraud
case.” 	829 F.2d at 290; see also Ahmed v. Rosenblatt, 118 F.3d 886, 890 (1st Cir.
1997). Here, however, the Complaint already contains factual allegations as to how
the scheme involved the use of interstate wires. 	There is no doubt that CNB uses
interstate wires in the course of its regular business activity. Additional information
as to how the conspiracy used the mail or wires would not cure the Complaint’s failure
to sufficiently allege that CNB knowingly joined the conspiracy.
Neither Menard nor Becher offers a basis to grant limited discovery for the
Plaintiffs as against CNB. 	Thus, the Motion for Limited Discovery as to CNB is
denied, and the Plaintiffs’ objection to the Magistrate Judge’s Order (ECF No. 156)
deferring action on the Motion for Limited Discovery until the Court assessed the
motions to dismiss is denied as moot.
III. CONCLUSION
For the reasons stated above, it is ORDERED that Camden National Bank’s
Motion to Dismiss (ECF No. 61) is GRANTED. 	The Amended Complaint (ECF
No. 11) as to Camden National Bank is DISMISSED. 	The Plaintiffs’ Motion for
Limited Discovery (ECF No. 103) is DENIED and the Plaintiffs’ Objection to the
Magistrate Judge’s Order on Limited Discovery (ECF No. 162) is DENIED AS
MOOT as to Camden National Bank.
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SO ORDERED.
Dated: September 29, 2021
/s/ JON D. LEVY
CHIEF U.S. DISTRICT JUDGE
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