Civil Rico Complaint 645o5i
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Case 3:11-cv-01826 Document 1
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO NOEMI TORRES RONDA; ANGELO RIVERA LAMBOY
* * * Plaintiffs, * * v., * * T UNDERWRITING ASSOCIATION; * CARIBBEAN ALLIANCE INSURANCE COMPANY; * CHARTIS INSURANCE COMPANY OF PUERTO * RICO; COOPERATIVA DE SEGUROS MULTIPLES * RICO DE PUERTO RICO; INTEGRAND ASSURANCE* COMPANY; MAPFRE-PRAICO; NATIONAL * INSURANCE COMPANY; OPTIMA INSURANCE * COMPANY; REAL LEGACY ASSURANCE COMPANY, * INC.; ROYAL & SUN ALLIANCE OF PUERTO * RICO, INC.; SEGUROS TRIPLE-S PROPIEDAD * INC.; UNIVERSAL INSURANCE COMPANY; * ALLSTATE INSURANCE COMPANY; GENERAL * ACCIDENT INSURANCE COMPANY; NATIONWIDE * MUTUAL INSURANCE COMPANY; INSURANCE * COMMISSIONER OF THE COMMONWEALTH OF * PUERTO RICO, RAMÓN L. CRUZ-COLÓN, in * his official capacity; SECRETARY OF THE * DEPARTMENT OF TRANSPORTATION AND PUBLIC * WORKS, RUBEN A. HERNANDEZ GREGORAT, in * his official capacity; and, SECRETARY * OF THE DEPARTMENT OF THE TREASURY of * the COMMONWEALTH OF PUERTO RICO, JESUS * F. MENDEZ, in his official capacity, * * Defendants. * *****************************************
CIVIL NO.:
RE: CIVIL CLASS ACTION PLAINTIFFS DEMAND TRIAL BY JURY
PLAINTIFFS’ CLASS ACTION COMPLAINT
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INDEX Page(s) I. NATURE OF THE ACTION
1-4
II. JURISDICTION AND VENUE
4-5
III. PARTIES
5-17
A. PLAINTIFFS AND CLASS DEFINITION
5-7
B. THE DEFENDANTS
7-17
IV. ASSOCIATED IN FACT INDIVIDUALS
17-19
V. OTHER PARTICIPANT INDIVIDUALS
19
VI. THE COMPULSORY LIABILITY INSURANCE SYSTEM
19-27
VII. DEFENDANTS’ SCHEME TO DEFRAUD
28-30
VIII. THE ENTERPRISE
30-32
IX. COMMON FACTUAL ALLEGATIONS
32-49
X. THE PREDICATE ACTS
50-51
XI. THE PATTERN OF RACKETEERING ACTIVITY
51-52
XII. CLASS ALLEGATIONS
53-59
XIII. LAW VIOLATIONS IN FURTHERANCE OF THE SCHEME TO DEFRAUD
59-76
COUNT I – VIOLATIONS TO SECTION 1962(c) OF RICO
59-65
A. THE ENTERPRISE
59-61
B. RACKETEERING PREDICATE ACTS
61-63
C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(c)
63-65
COUNT II – VIOLATIONS TO SECTION 1962(a) OF RICO
65-70
A. THE ENTERPRISE
65
B. THE RACKETEERING INCOME
65-68 Page(s)
ii
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C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(a) COUNT III – VIOLATIONS TO SECTION 1962(d) OF RICO
68-70 70-72
A. THE ENTERPRISE
70
B. THE CONSPIRACY
70-71
C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(d)
71-72
COUNT IV – THE INSURANCE CODE VIOLATIONS
73-75
COUNT V – DECEIT (“DOLO”) IN THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS
75-76
XIV. PERMANENT INJUNCTION AND DECLARATORY JUDGMENT
76-78
XV. PRAYER FOR RELIEF
78
iii
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TO THE HONORABLE COURT: Plaintiffs,
by
through
the
undersigned
counsels,
very
respectfully state, allege, and request: I. NATURE OF THE ACTION 1.1
The
present
litigation
vehicle owners, pursuant to
is
a
class
action
of
motor
Title IX of the Organized Crime
Control Act of 1970, otherwise known as Racketeer Influenced and Corrupt Organizations Act (henceforth "RICO"), as well as the provisions of Rule 23 of Federal Civil Procedure, in which the Representative Plaintiffs, on behalf of the Class, request that the Defendants return to the owners of motor vehicles
those
portions of the annual dollar- collected from them when they acquired the policies of the compulsory liability insurance established by law, and which were withheld and misappropriated by the Defendants, in violation to the Puerto Rico Insurance Code. 1.2
The Representative Plaintiffs were insured under the
Compulsory Motor Vehicle Liability Insurance Act, Law 253 of December 27, 1995, codified at 26 P.R. Laws Ann. §§ 8051 et seq. (henceforth "Law 253"), which came into effect on January 1, 1998. They had to pay either a of $99.00 for a private unit or a of $148 for a commercial unit, which are uniform, the same as approximately the other 2,400,000 owners of private and commercial motor vehicles in Puerto Rico.
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1.3
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The Defendants, the entity created by Law 253 and the
individual advantage
insurance of
their
companies
interlocking
that
comprise
directorships,
it,
taking
conspired
and
agreed with each other to engage, and did in fact engage, in millions of predicate acts of mail fraud, in violation of RICO, 18 U.S.C. §§ 1341, 1962, as part of a scheme to defraud and obtain money from Puerto Rican motor vehicle owners. 1.4
The Defendants devised a scheme or artifice to defraud
whereby they charged all Puerto Rican motor vehicle owners an 8% of the dollar by concept of an “acquisition cost” for services of brokers that they knew were not going to be used by the
insured,
plus
an
amount
estimated
in
4%
of
the
do1lar
by concept of an “istrative cost" for the issuance of paper copies of policies, which they never intended to issue to the insured. The Defendants, thereafter, failed to reimburse to the motor vehicle owners the price they had unknowingly paid for such non-incurred charges, hidden in the annual insurance
rate,
amounting
to
12%
of
its
cost.
Instead,
the
Defendants embezzled such funds for their own pecuniary benefit. 1.5
The collection of the acquisition and istrative
costs, without the corresponding refund or return of the portion of the not incurred as costs constitutes illegal dealing in s prohibited by the dispositions of the Puerto Rico Insurance Code. 2
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1.6
The
illegal
retention
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and
embezzlement
by
the
Defendants of the portion of the or charge for insurance in excess of the amount spent resulted in million of dollars of illegal gains for them. 1.7
From the year 1998 to the present, in furtherance of
the scheme to defraud Puerto Rican motor vehicle owners, the Defendants
caused,
and
continue
to
cause,
the
United
States
mails to be used to send millions of licenses or registrations to the over 2,400,000 motor vehicle owners, which contained the charges for the payment of the compulsory insurance policy. Each of these mailings is an act that is indictable as mail fraud and together they constitute a pattern of racketeering activity. By conspiring to conduct, and in fact conducting, the affairs of their ENTERPRISE, as defined hereunder, through this pattern of racketeering activity, the Defendants violated RICO, 18 U.S.C. § 1962(c) & (d). As result, the Representative Plaintiffs and the Class were injured in their property. 1.8
Furthermore,
the
insurer
created
by
Law
253
transmitted, by means of interstate wire, racketeering proceeds gained from the scheme to defraud to a financial institution in Chicago, Illinois. Each of these wire transfers is a predicate act that is indictable as wire fraud, under 18 U.S.C. § 1343, and together they constitute a separate and distinct pattern of racketeering activity. This insurer then used or invested income 3
Case 3:11-cv-01826 Document 1
received
from
both
Filed 08/19/11 Page 7 of 82
patterns
of
racketeering
activity
respectively comprised of predicate acts of mail or wire fraud, in
its
business
operations,
in
order
to
further
engage
in
illegal dealing in s, in violation of RICO, 18 U.S.C. § 1962(a). As result, the Representative Plaintiffs and the Class continued to be injured in their property. 1.9
Moreover, the Representative Plaintiffs are requesting
declaratory and injunctive relief. A declaratory judgment and permanent injunction will guarantee that the Defendants and all parties cease and permanently desist from engaging in illegal dealings in s as to the Representative Plaintiffs and the Class regarding the costs for brokerage services and paper copies of policies, in violation of the applicable laws, statutes and regulations. Such relief will also ensure that the Puerto Rico Insurance Commissioner, the Secretary of the Puerto Rico
Department
of
Transportation
and
Public
Works
and
the
Secretary of the Treasury Department do not acquiesce to the Defendants’ conduct. 1.10 Pursuant to the Seventh Amendment of the United States Constitution, the Representative Plaintiffs demand a trial by jury in the instant case. Fed. R. Civ. P. 38b. II. JURISDICTION AND VENUE 2.1
This Honorable Court has jurisdiction over this civil
action pursuant to 28 U.S.C. § 1331, this being a civil action 4
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which arises under 18 U.S.C. §§ 1961-1968, 901(a) of RICO, and in particular, under 18 U.S.C. § 1964. 2.2
Venue
is
proper
in
the
instant
case
as
all
claims
arise from events that have occurred and are occurring within the jurisdiction of this Court in the Commonwealth of Puerto Rico. 2.3
The
Representative
Plaintiffs
further
invoke
the
supplemental jurisdiction of this Court to hear and adjudicate claims arising under the laws of the Commonwealth of Puerto Rico,
specifically,
under
Article
27.160
of
the
Puerto
Rico
Insurance Code, 26 P.R. Laws Ann. § 2716, Articles 1054 and 1060 of the Puerto Rico Civil Code, 31 P.R. Laws Ann. §§ 3018, 3024, and Act No. 118 of June 25, 1971, 32 P.R. Laws Ann. § 3341, since they are so related to the afore stated federal claims that they all form part of the same case or controversy under Article III of the Constitution of the United States. 2.4
Pursuant to Rule 65(b) of the Federal Rules of Civil
Procedure,
this
Court
has
jurisdiction
to
issue
a
Permanent
Injunction. III. PARTIES A. PLAINTIFFS AND CLASS DEFINITION: 3.1
The individual Plaintiffs and Class represent
two Classes of Plaintiffs.
5
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3.2
The
First
Class
of
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Plaintiffs
is
defined
as
all
private motor vehicle owners in the Commonwealth of Puerto Rico, who in compliance with the Compulsory Motor Vehicle Liability Insurance Act, acquired compulsory insurance during the years 1998 to the present, paying the uniform annual of $99.00 (henceforth referred to as the “Private-Vehicle Class”). 3.3
The Plaintiff Representative, who appears on her own
behalf, and on behalf and for the benefit of all other of the
Private-Vehicle
resident
of
Cabo
Class,
Rojo,
is
NOEMI
Puerto
Rico,
TORRES and
RONDA,
owner
of
married, the
motor
vehicle model Mirage, make Mitsubishi, year 1998, and license plate CZM631. 3.4
The
Second
Class
of
Plaintiffs
is
defined
as
all
commercial motor vehicle owners in the Commonwealth of Puerto Rico,
who
in
compliance
with
the
Compulsory
Motor
Vehicle
Liability Insurance Act, acquired compulsory insurance during the years 1998 to the present, paying the uniform annual of $148.00 (henceforth referred to as the “Commercial-Vehicle Class”). 3.5
The Plaintiff Representative, who appear on his own
behalf, and on behalf and for the benefit of all other of the Commercial-Vehicle Class, is ANGELO RIVERA LAMBOY, married, resident
of
Aibonito,
Puerto
Rico,
6
and
owner
of
the
motor
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vehicle model F150, make Ford, year 1997, and license plate 795770. 3.6 Vehicle
Excluded Classes
from
are:
the
Private-Vehicle
Defendants;
and
Defendants’
Commercial-
employees,
co-
conspirators, officers, directors, legal representatives, heirs, successors and wholly or partly owned subsidiaries or d companies; judicial
class
counsel
and
their
officers
and
their
employees;
immediate
the
family
Judge
and and
associated court staff assigned to this case; and, all persons within the third degree of relationship to any such persons. 3.7
The Plaintiffs have learned of the facts object of the
present action within the four years prior to the filing of the present
complaint.
Moreover,
as
a
result
of
the
Defendants’
fraudulent concealment, the applicable statutes of limitations have been tolled or have not yet begun to run. B. THE DEFENDANTS: 3.8 The Defendants are: the T UNDERWRITING ASSOCIATION or, in Spanish, “Asociación de Suscripción Conjunta De Seguro De Responsabilidad
Obligatorio”
("JUA");
CARIBBEAN
ALLIANCE
INSURANCE COMPANY (“CAICO”); CHARTIS INSURANCE CO., OF PUERTO RICO
(“CHARTIS”),
formerly
known
as
AMERICAN
INTERNATIONAL
INSURANCE COMPANY OF PUERTO RICO (“AIG”); COOPERATIVA DE SEGUROS MULTIPLES DE PUERTO RICO (“COOPERATIVA”); INTEGRAND ASSURANCE COMPANY (“INTEGRAND”); MAPFRE-PRAICO, formerly known as PUERTO 7
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RICO AMERICAN INSURANCE COMPANY (“PRAICO”); NATIONAL INSURANCE COMPANY (“NATIONAL”); OPTIMA INSURANCE COMPANY (“OPTIMA”); REAL LEGACY ASSURANCE COMPANY, INCORPORATED (“REAL LEGACY”); ROYAL & SUN
ALLIANCE
OF
PUERTO
RICO,
INCORPORATED
(“ROYAL
&
SUN”);
SEGUROS TRIPLE-S PROPIEDAD, INCORPORATED (“TRIPLE-S”); UNIVERSAL INSURANCE COMPANY (“UNIVERSAL”); MAPFRE PREFERRED RISK INSURANCE COMPANY,
formerly
(“PREFERRED GENERAL
RISK”);
ACCIDENT
NATIONWIDE
know
MUTUAL
as
PREFERRED
ALLSTATE INSURANCE
RISK
INSURANCE COMPANY
INSURANCE
INSURANCE
COMPANY (“GENERAL
COMPANY
COMPANY
(“ALLSTATE”); ACCIDENT”);
(“NATIONWIDE”);
the
Insurance Commissioner of the Commonwealth of Puerto Rico, RAMON L. CRUZ-COLON (“CRUZ-COLON”); the Secretary of the Department of Transportation
and
Public
Works,
RUBEN
A.
HERNANDEZ-GREGORAT
(“HERNANDEZ-GREGORAT”); and, the Secretary of the Department of the Treasury of the Commonwealth of Puerto Rico, JESUS F. MENDEZ (“MENDEZ”). 3.9
The JUA was created by Law 253 as a private legal
entity, for profit, and with “general corporate powers,” such as the faculties to sue and be sued. See, 26 P.R. Laws Ann. §§ 8055(A), §2905. 3.10 The JUA is composed of all “private insurers” whose volume
of
s
underwritten
for
motor
vehicle
liability
insurance is greater than one percent (1%) of the total volume of motor vehicle liability insurance s underwritten in 8
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Puerto Rico. 26 P.R. Laws Ann., §
8052(b). Presently, these
insurance companies are CAICO, CHARTIS, COOPERATIVA, INTEGRAND, MAPFRE–PRAICO,
NATIONAL,
OPTIMA,
REAL
LEGACY,
TRIPLE-S
and
UNIVERSAL. In the past, at some point or another in time, AIG (now known as CHARTIS), PRAICO (now known as MAPFRE–PRAICO), ROYAL
&
SUN,
PREFERRED
RISK,
ALLSTATE,
GENERAL
ACCIDENT
and
NATIONWIDE also formed part of the JUA. 3.11
At
COOPERATIVA,
all
times
INTEGRAND,
relevant
herein,
MAPFRE–PRAICO,
CAICO,
NATIONAL,
CHARTIS,
OPTIMA,
REAL
LEGACY, TRIPLE-S, UNIVERSAL, AIG, PRAICO, ROYAL & SUN, PREFERRED RISK,
ALLSTATE,
collectively
GENERAL
referred
ACCIDENT
to
as
and
NATIONWIDE
“traditional
(henceforth
insurers”)
were
incorporated or organized under the laws of, and with their principal
places
of
business
in,
the
Commonwealth
of
Puerto
Rico, where they were authorized to conduct, as they conducted, the business of insurance. 3.12 Since its creation, the JUA’s Board of Directors, by law, was to be comprised of five Directors. The of the JUA elected four Directors, while the fifth Director was the officer in charge of the JUA. In the year 2002, the number of of the JUA’s Board of Directors was increased by law to seven, of which three were to be appointed by the Governor of the
Commonwealth
of
Puerto
Rico
and
the
remaining
four
are
of the JUA. However, the Governor, as mandated by law, 9
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never appointed the three additional directors of the JUA. The 2009 amendment to Law 253 provided that the three governmental appointees cannot be public officers and must be knowledgeable of the insurance market. 26 P.R. Laws Ann. § 8055(f). 3.13 The Board of Directors of the JUA, since its creation in December 27, 1995, and up to the present, has served as a conduit for the ENTERPRISE’S fraudulent objectives, by which the interlocking directors of the JUA and the traditional insurer
of
knowingly, devised,
such
ENTERPRISE,
intentionally organized,
tly
and
and
with
unlawfully,
assisted
in
other
individuals,
have
met,
planned,
the
adoption
and
implementation of part, or all, of the fraudulent artifices that form part of the Scheme to Defraud defined herein after. 3.14 In the years 1996 and 1997, the Board of Directors of the JUA was comprised of the following individuals: Juan Antonio Terrassa
(“Terrassa”),
President,
and
also,
President
of
the
Board of Directors of PRAICO; Luis Miranda-Casañas (“MirandaCasañas”), Vice-President, and also, President of the Board of Directors of UNIVERSAL; Edwin Quiñones (“Quiñones”), Director, and also, President of the Board of Directors of COOPERATIVA; Dennis
Hanftwurzel
(“Hanftwurzel”),
Director,
and
also,
President of the Board of Directors of GENERAL ACCIDENT; Hilda Rodriguez-Forteza,
Esq.
(“Rodriguez-Forteza”);
Rodriguez, Esq.(“Rodriguez). 10
and,
Alberto
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3.15 In the year 1998, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
of
the
Board
Vice-President,
Directors
of
of
and
UNIVERSAL;
Directors
also,
of
President
Adrian
Ortiz
PRAICO; of
the
(“Ortiz”),
Executive Director; Quiñones, Director, and also, President of the Board of Directors of COOPERATIVA; Rodriguez-Forteza; and, Rodriguez. 3.16 In the year 1999, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
Quiñones,
of
the
Board
Vice-President,
Directors Director,
of
and
UNIVERSAL;
and
also,
of
Directors
also,
Ortiz,
President
of
PRAICO;
President Executive of
the
of
the
Director; Board
of
Directors of COOPERATIVA; Patricia Gonya (“Gonya”), Director, and
also,
Director
of
the
Board
of
NATIONWIDE;
Rodriguez-
Forteza; and, Rodriguez. 3.17 In the year 2000, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
Quiñones,
of
the
Board
Vice-President,
Directors Director,
of
and
UNIVERSAL;
and
also,
11
of
Directors
also,
Ortiz,
President
of
PRAICO;
President Executive of
the
of
the
Director; Board
of
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Directors of COOPERATIVA; Gonya, Director, and also, Director of the Board of NATIONWIDE; Rodriguez-Forteza; and, Rodriguez. 3.18 In the year 2001, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
Director,
the
Board
Vice-President,
Directors and
of
also,
of
and
UNIVERSAL;
President
of
of
Directors
also, Rene
the
of
PRAICO;
President Campos
Board
of
of
the
(“Campos”), Directors
of
COOPERATIVA; Victor Salgado-Micheo (“Salgado-Micheo”), Director, and also, Director of the Board of INTEGRAND. 3.19 In the year 2002, the Board of Directors of the JUA was comprised of the following individuals:
Campos,
President,
and also, President of the Board of Directors of COOPERATIVA; Miranda-Casañas,
Vice-President,
and
also,
President
of
the
Board of Directors of UNIVERSAL; Salgado-Micheo, Director, and also, Director of the Board of INTEGRAND; and, Antonio Huertas (“Huertas”),
Director,
and
also
President
of
the
Board
of
Directors of PRAICO. 3.20 In the year 2003, the Board of Directors of the JUA was comprised of the following individuals:
Campos,
President,
and also, President of the Board of Directors of COOPERATIVA; Salgado-Micheo, Vice-President, and also, President of the Board of Directors of INTEGRAND; Miranda-Casañas, Director, and also, President of the Board of Directors of UNIVERSAL; and, Huertas, 12
Case 3:11-cv-01826 Document 1
Director,
and
also
President
Filed 08/19/11 Page 16 of 82
of
the
Board
of
Directors
of
PRAICO. 3.21 In the year 2004, the Board of Directors of the JUA was comprised of the following individuals:
Campos,
President,
and also, President of the Board of Directors of COOPERATIVA; Miranda-Casañas,
Vice-President,
and
also,
President
of
the
Board of Directors of UNIVERSAL; Salgado-Micheo, Director, and also, President of the Board of Directors of INTEGRAND; and, Raul Costilla (“Costilla”), Director, and also, President of the Board of Directors of PRAICO. 3.22 In the year 2005, the Board of Directors of the JUA was
comprised
of
the
following
individuals:
Miranda-Casañas,
President, and also, President of the Board of Directors of UNIVERSAL; Salgado-Micheo, Vice-President, and also, President of the Board of Directors of INTEGRAND; Campos, Director, and also, President of the Board of Directors of COOPERATIVA; and, Costilla,
Director,
and
also,
President
of
the
Board
of
Directors of PRAICO. 3.23 In the year 2006, the Board of Directors of the JUA was
comprised
of
(“Rios”),
President,
Directors
of
REAL
the and
following also,
LEGACY;
President
Eva
President, and also, President
individuals:
Salgado
of
Victor the
Rios
Board
(“Salgado”),
of
Vice-
of the Board of Directors of
TRIPLE-S; Costilla, Director, and also, President of the Board 13
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of Directors of PRAICO; and, Francisco Diaz, Director, and also, President of the Board of Directors of AIG, now CHARTIS. 3.24 In the year 2007, the Board of Directors of the JUA was
comprised
of
the
following
individuals:
Miranda-Casañas,
President, and also, President of the Board of Directors of UNIVERSAL; Salgado-Micheo, Vice-President, and also, President of the Board of Directors of INTEGRAND; Campos, Director, and also, President of the Board of Directors of COOPERATIVA; and, Costilla,
Director,
and
also,
President
of
the
Board
of
Directors of PRAICO. 3.25 In the year 2008, the Board of Directors of the JUA was comprised of the following individuals: Rios, President, and also, President of the Board of Directors of REAL LEGACY; Luis Berrios (“Berrios”), Vice-President, and also, President of the Board of Directors of UNIVERSAL; Salgado, Director, and also, President of the Board of Directors of TRIPLE-S; and, Costilla, Director,
and
also,
President
of
the
Board
of
Directors
of
MAPFRE-PRAICO. 3.26 In the year 2009, the Board of Directors of the JUA was comprised of the following individuals: Rios, President, and also,
President
of
the
Board
of
Directors
of
REAL
LEGACY;
Berrios, Vice-President, and also, President of the Board of Directors of UNIVERSAL; Salgado, Director, and also, President
14
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of the Board of Directors of TRIPLE-S; and, Costilla, Director, and also, President of the Board of Directors of PRAICO. 3.27 In the year 2010, the Board of Directors of the JUA was comprised of the following individuals: Rios, President, and also,
President
Monique
of
Miranda,
the
Board
of
Vice-President,
Directors and
also,
of
REAL
President
LEGACY; of
the
Board of Directors of UNIVERSAL; Salgado, Director, and also, President
of
Director,
and
the
Board
also,
MAPFRE–PRAICO;
of
Directors
President
Eduardo
R
of
the
Emanuelli;
of
TRIPLE-S;
Board
of
Terrassa;
Costilla,
Directors and,
Angel
of M
Cintrón. 3.28 The Defendants, either on their own or through their agents, are currently found in, and/or transact business within, the
Commonwealth
of
Puerto
Rico,
and/or
at
the
time
of
the
commission of the acts alleged hereunder were found in, and/or transacted business within the Commonwealth of Puerto Rico, and the cause of action which is the object of this complaint arises out of those business transactions in the Commonwealth of Puerto Rico. 3.29 At all times relevant herein, the Defendants, on their own
or
through
their
agents
or
employees,
have
knowingly,
intentionally and unlawfully, aided and abetted and conspired with the other of the ENTERPRISE defined hereunder to commit within the Commonwealth of Puerto Rico the wrongful acts 15
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alleged in this complaint and/or committed or participated in the commission of those acts within or outside the Commonwealth of Puerto Rico, purposefully directing their wrongful acts toward the forum of Puerto Rico, causing in Puerto Rico, directly or indirectly, the violations of RICO and the injuries sustained by the Representative Plaintiffs and Class . 3.30 Each of the Defendants, individually, and through its association-in-fact with the other Defendants (the ENTERPRISE), is or has been engaged in, or its activities affect or have affected, interstate commerce. 3.31 Defendants'
racketeering
activities
were
conducted
through a pattern of acts and transactions, which occurred and/or had their effect within the Commonwealth of Puerto Rico. 3.32 CRUZ-COLON, as Insurance Commissioner, sets the of the compulsory liability insurance policy, the rate, and
the
amount
of
coverage.
By
statute,
the
Insurance
Commissioner is directed to establish the manner of distribution of
the
total
amount
of
s
received
by
the
JUA,
the
structure and operation of the JUA, and its direction by its Board of Directors, so that the JUA may accomplish its goals in a "cost-effective, fair and nondiscriminatory" manner; and, he has considerable supervision over the operating plan and the method of distribution.
16
26 P.R. Laws Ann., §§ 8055,
Case 3:11-cv-01826 Document 1
8056.
CRUZ-COLON
is
sued
in
Filed 08/19/11 Page 20 of 82
his
official
capacity
only
for
purposes of the implementation of injunctive relief. 3.33 HERNANDEZ-GREGORAT
oversees
and
isters
the
operations of the Department of Transportation and Public Works (“DTPW”), which issues and mails, via the U.S. Postal Service, the
motor
vehicle
registration,
which
includes
the
annual
for the compulsory liability insurance policy, to each motor vehicle owner. By statute, the Secretary of the DTPW is directed
to
provide
to
the
JUA
all
relevant
information
regarding the insured motor vehicle owners and the payment of the license stickers.
26 P.R. Laws Ann., § 8055.
HERNANDEZ-
GREGORAT is sued in his official capacity only for purposes of the implementation of injunctive relief. 3.34 MENDEZ oversees and isters the operations of the Department
for
of
the
the
Treasury
compulsory
(“Treasury”), liability
which
insurance
collects paid
by
the each
motor vehicle owner at the time he/she acquires or renews the motor vehicle's license. 26 P.R. Laws Ann., §§ 8051, 8053(a). The Secretary of the Treasury then turns over the total amount of the s so received to the JUA. Id., § 8055(c). MENDEZ is
sued
in
his
official
capacity
implementation of injunctive relief.
17
only
for
purposes
of
the
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IV. ASSOCIATED IN FACT INDIVIDUALS 4.1
Juan
A.
Garcia
(“Garcia”)
is
the
former
Insurance
Commissioner of the Commonwealth of Puerto Rico, for the period covering 1993 to 2001. As such, he knowingly, intentionally and unlawfully, aided and abetted and conspired with the of the ENTERPRISE in approving rates, rules and regulations that were used in carrying out the Scheme to Defraud described hereunder. 4.2
CRUZ-COLON
was
the
Assistant
to
the
Insurance
Commissioner Garcia, for the period covering 1993 to 2001. As such,
he
knowingly,
intentionally
and
unlawfully,
aided
and
abetted and conspired with the of the ENTERPRISE in furtherance of the Scheme to Defraud described hereunder. 4.3 the
Ortiz held the position of President of the JUA, in
years
Directors,
1997 in
to
the
2000, years
and
was
1998,
1999
member and
of
2000.
its He
Board
of
knowingly,
intentionally and unlawfully, planned, devised and concocted the fraudulent artifices that form part of the Scheme to Defraud defined hereunder, and aided and abetted and conspired with the of the ENTERPRISE in furtherance thereof. 4.4
Miranda-Casañas was a member of the Board of Directors
of the JUA, in the years 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005 and 2007. He knowingly, intentionally and unlawfully,
planned,
devised
and 18
concocted
the
fraudulent
Case 3:11-cv-01826 Document 1
artifices
that
form
part
of
Filed 08/19/11 Page 22 of 82
the
Scheme
to
Defraud
defined
hereunder, and aided and abetted and conspired with the of the ENTERPRISE in furtherance thereof. 4.5
Terrassa was a member of the Board of Directors of the
JUA, in the years 1996, 1997, 1998, 1999, 2000, 2001 and 2010. He knowingly, intentionally and unlawfully, planned, devised and concocted the fraudulent artifices that form part of the Scheme to
Defraud
conspired
defined
with
the
hereunder,
and
of
the
aided
and
ENTERPRISE
abetted
in
and
furtherance
thereof. V. OTHER PARTICIPANT INDIVIDUALS 5.
The
Insurance
Commissioners
of
the
Commonwealth
of
Puerto Rico, for the period covering from 2001, and up to the present
time,
were
either
willfully
blind,
and/or
knowingly,
intentionally and unlawfully, aided and abetted and conspired with
the
other
of
the
ENTERPRISE
in
allowing
the
perpetuation of the Scheme to Defraud defined hereunder. VI. THE COMPULSORY LIABILITY INSURANCE SYSTEM 6.1
Before
the
enactment
of
Law
253,
uninsured
drivers
caused over $110 million in damages to other vehicles each year in Puerto Rico, and it was estimated that only 25 percent to 30 percent of the vehicles in Puerto Rico were covered under some type of liability insurance.
19
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6.2
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In view of the problem of financial loss as a result
of uncompensated damages to motor vehicles in traffic accidents, Law
253
created
a
compulsory
automobile
liability
insurance
system, which covers the damages caused to other motor vehicles in such accidents. To such ends, Law 253 requires every motor vehicle owner in Puerto Rico to obtain and keep a liability insurance coverage in effect to respond for damages caused by said individual to motor vehicles of third parties in a traffic accident. 26 P.R. Laws Ann., § 8051. 6.3
Beginning in the year 1998, this compulsory insurance
system provided each insured motor vehicle owner with $3,000 of coverage
for
damages
caused
to
another
motor
vehicle
per
accident in exchange for a uniform , set at $99 for each private enger vehicle and $148 for each commercial vehicle. 26 P.R. Laws Ann., §§ 8052(j) and 8056(a)). In the year 2009, the coverage of the compulsory insurance was increased to
a
$4,000 limit per accident. 26 P.R. Laws Ann., § 8052(k). 6.4
Law 253 allows the motor vehicle owners to obtain the
compulsory coverage through the traditional insurers or through the JUA. The traditional insurers are required by law to offer the
compulsory
traditional
liability
insurers
to
a
insurance
in
defined
class
two of
ways: drivers
both
as
and
as
of the JUA, to which they belong. 26 P.R. Laws Ann. §§ 8053(d),
8054(a),
8055(a).
Law 20
253
allows
the
traditional
Case 3:11-cv-01826 Document 1
insurers
to
reject
certain
Filed 08/19/11 Page 24 of 82
applicants
for
the
compulsory
insurance, pursuant to regulations promulgated by the Insurance Commissioner. Id., § 8054(b). The criteria for rejection are defined by the Insurance Commissioner's Puerto Rican Insurance Rule LXX ("Rule LXX"), promulgated in Regulation No. 6254, in December
of
2000.
Most
of
the
criteria
in
Rule
LXX
for
permissible rejections identify applicants who are bad drivers or otherwise of high risk. Rule LXX, Art. 8. 6.5
Law 253 created the JUA as a residual market insurer
to provide insurance coverage to the high-risk drivers rejected by the traditional insurers, 26 P.R. Laws Ann. § 8055(b), which were originally calculated to be around 3% of the applicants. 6.6
Law 253 allows motor vehicle owners to opt out of the
compulsory liability insurance scheme by purchasing traditional liability insurance with comparable or better coverage. Id., § 8061; Rule LXX, Art. 12(a). 6.7
Law 253 requires the traditional insurers to offer the
policy despite the availability of coverage from the JUA, 26 P.R. Laws Ann. §§ 8054(a), 8055(b), and allows them to apply for approval and to sell the compulsory insurance at less than the rate set by the Commonwealth, id. § 8056(c). The legislative history suggests that Law 253 was meant to encourage competition "between insurance companies wanting to have a greater number of insured, which will have to extend offers in order to attract 21
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them." Daily Sessions Record, Senate of Puerto Rico, Monday, October 9, 1995. As a result, the statutory scheme contemplated competition in compulsory insurance for non-high-risk drivers between traditional insurers themselves and between them and the JUA. See, Arroyo-Melecio v. Puerto Rican Am. Ins. Co., 398 F.3d 56, 60 (1st Cir. 2005). 6.8
The
DTPW
is
in
charge
of
the
billing
for
the
compulsory liability insurance. To that effect, the DTPW places in the post offices or authorized depositories for mail matter, the
registrations
containing
the
for
annual
all
motor
for
vehicles the
in
Puerto
compulsory
Rico,
insurance
policy, which are then delivered, by the U.S. Postal Service, to the motor vehicles owners. 6.9
Each
vehicle
owner
must
pay
the
for
the
compulsory liability insurance to the Secretary of the Treasury at the time he acquires or renews the vehicle's license. 26 P.R. Laws Ann., §§ 8051, 8053(a). The Secretary then turns over the total amount of the s so received to the JUA, which is then responsible for distributing the s among its and itself, as the case may be. Id., § 8055(c); Rule LXX, Art. 19. 6.10 The
motor
vehicle
registration
stamped
as
paid
constitutes evidence of compliance with the compulsory liability insurance system. 22
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6.11 Every motor vehicle for which the requisite compulsory liability insurance has been paid is considered to be insured by the JUA, unless the owner of the same has selected a traditional insurer or purchased a traditional insurance policy. See, Rule LXX, Art. 12(a). 6.12 When the owner of the motor vehicle had traditional liability insurance in effect at the time of the issuance or renewal of the license, the JUA was supposed to issue a check payable to the Secretary of the Treasury to be used by such insured to pay for the compulsory liability insurance ; but, in reality, the practice was that the insured paid such
to
the
Secretary
of
the
Treasury
at
the
moment
of
issuance or renewal of the license and could thereafter seek a credit of that to his traditional insurance from his insurer. Rule LXX, Art 10(a); 26 P.R. Laws Ann., § 8061(b). 6.13 The 2009 amendment to Law 253 requires the traditional insurer to issue to its insured a certification authorized by the JUA as evidence of compliance with the compulsory liability insurance, which the motor vehicle owner
may present to
the
Secretary of the Treasury to avoid making duplicate compulsory insurance payments. 26 P.R. Laws Ann., § 8061(b). When the motor vehicle owner pays the compulsory insurance directly to the Secretary of the Treasury, which is usually the case,
the
traditional
insurer
then 23
credits
in
the
s
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charged to the insured for the traditional liability insurance the amount of the payment received from the Secretary of the Treasury in compliance with the provisions of Law 253. Id. 6.14 All
of
the
JUA
share
in
its
profits
and
losses. 26 P.R. Laws Ann. § 8055(e). To compensate for the fact that the JUA would supposedly insure drivers considered to be high
risk
by
traditional
insurers,
all
the
JUA's
profits,
including those distributed to the traditional insurers, were originally exempt from income taxes, until the law was amended on September 24, 2002. But the 2009 amendment reestablished the tax exemption when the profits are deposited in governmental banks (“Banco Gubernamental de Fomento” or “Banco de Desarrollo Economico”). Id., § 8055. Through the JUA, the risk of insuring these high-risk drivers was supposed to be spread among all the traditional insurers. The profits distributed to the JUA (the traditional insurers) also encom the profits from the sale of non-high-risk policies insured by the JUA. See, ArroyoMelecio, 398 F.3d, at 62. 6.15 For both the traditional insurers and the JUA, the Commonwealth, through the Insurance Commissioner, sets the of
the
compulsory
policy
itself,
the
rate,
and
the
amount of coverage. 6.16 The Puerto Rico Mandatory Liability Insurance Uniform Policy,
the
policy
defining
the 24
of
the
compulsory
Case 3:11-cv-01826 Document 1
liability
insurance,
is
Filed 08/19/11 Page 28 of 82
set
forth
in
the
Insurance
Commissioner's rules. Rule LXX, Art. 22. This Uniform Policy is the sole written contract between the insured and the JUA. Id. Law 253 provides that such Uniform Policy shall be subject to the provisions of Chapter 11 of Title 26 of Puerto Rico Laws Annotated. 26 P.R. Laws Ann § 8054(c). Chapter 11, in turn, requires the issuance of a paper policy to the insured. 26 P.R. Laws
Ann
§
1114.
In
reality,
however,
a
paper
copy
of
the
Uniform Policy is not issued to the insured. 6.17 In
Arroyo-Melecio,
the
First
Circuit
squarely
held
that, while created by law, the JUA is "private in nature, for profit, and ... subject to the provisions of the [Insurance] Code applicable to insurers." 398 F.3d, at 62, quoting Rule LXX, Art. 2(c). See, also, Asociacion De Subscripcion Conjunta Del Seguro
De
Responsabilidad
Obligatorio
v.
Flores
Galarza,
484
F.3d 1, 20 (1st Cir. 2007) (same). 6.18 The
provisions
of
the
Puerto
Rico
Insurance
Code
relevant to the facts object of this action are listed below. A. Article 3.290, which requires that all insurance business be transacted through resident authorized agents or broker producers, in its relevant part, states the following: (1) No insurer may effectuate any direct insurance upon or relative to any person, property or other material object of insurance that resides, is located in or is to be carried out in Puerto Rico, nor any insurance related thereto, except through an 25
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authorized representative of Puerto Rico.
said insurer residing in
26 P.R. Laws Ann. § 329(a). B. Article 11.14 requiring the issuance of an insurance policy and specifying its contents, in its relevant part, states the following: (1) The written instrument in which insurance is set forth is the policy.
a
contract
of
(3) The policy shall specify: (a)
The names of the parties to the contract, and the status of any party where such status is material to the contract. The policy shall be headed by the insurer's name.
(b)
The subject of the insurance.
(c)
The hazards insured against.
(d)
The amount of the insurance and benefits.
(e)
The time at which the insurance thereunder takes effect and the period during which the insurance is to continue.
(f)
A statement of the , and the rate if other than life, disability, or title insurance. ... .
(g)
The conditions pertaining to the insurance.
26 P.R. Laws Ann § 1114. C. Article 27.160 regarding illegal dealing in s, which reads, in its relevant part, as follows: (2) No person shall collect as or charge for insurance any sum in excess of the amount actually expended or in due course to be expended for insurance applicable to the subject on of which the was collected or charged.
26
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(3) Any sum collected as or charge for insurance in excess of the amount actually expended for insurance or for medical examination in the case of life insurance, applicable to the subject on of which the or charge was collected shall be returned to the person entitled thereto within thirty (30) days from the date in which it is requested, and if not requested, within the term of ninety (90) days. Any person who fails to return said sums within the term set forth in this subsection shall be bound to pay legal interest on the amount to be returned. 26 P.R. Laws Ann. § 2716(2)-(3). 6.19 The
OIC’s
Interpretive
Rulings
of
Article
27.160,
regarding the charging of broker’s fees for insurance coverage, provides that in such cases where a broker is not used -- as the exception to the rule requiring that all policies be transacted through brokers (Article 3.290) -- the charging of broker’s fees would violate Article 27.160. 6.20 On
April
29,
2009,
as
result
of
the
First
Circuit
holding in Flores Galarza, supra, to the effects that the JUA operates as a private enterprise and is, in fact, a private enterprise, compulsory
and
that
liability
the
s
insurance
collected
are,
likewise,
by of
concept a
of
private
nature, the Commonwealth Legislature amended those provisions of Law 253 affected by such judicial determination See, Statement of Purposes, Act 347 of April 29, 2009.
27
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VII. DEFENDANTS’ SCHEME TO DEFRAUD 7.1
The
Individual
Plaintiffs
(“Plaintiffs”)
bring
this
action on behalf of themselves and two Classes of similarly situated
persons
(“Class
”)
seeking
redress
for
the
illegal acts of the Defendants, which have resulted in a loss of their property, and for declaratory and injunctive relief to end those practices and prevent further losses. 7.2
From on or about 1997, and up to the present time, the
Defendants herein, at the same knowingly, conspired
intentionally and
associated
and in
or different points in time,
unlawfully, fact
aided
between
and
abetted,
themselves,
through
their ENTERPRISE, to confederate and agree with each other, for the purpose of devising, or intending to devise a scheme or artifice to defraud and to obtain money, by means of false or fraudulent pretenses, representations or promises; and, directly participated
in,
or
aided
and
abetted,
counseled,
commanded,
induced, procured or caused and conspired in, the perpetration of such scheme to defraud and to obtain money. 7.3 The scheme to defraud and to obtain money consisted in the following: a)
Defendants, utilizing the motor vehicle licenses or registrations printed by the DTPW as a conduit to create an appearance of unquestionable legitimacy, billed all Puerto Rican motor vehicle owners for compulsory liability insurance coverage at the time of the issuance or renewal of such licenses or registrations; 28
Case 3:11-cv-01826 Document 1
7.4
Filed 08/19/11 Page 32 of 82
b)
Defendants willfully and wrongfully charged all motor vehicle owners therein an 8% of the dollar by concept of an “acquisition cost” for services of brokers that they very well knew were not going to be used by the insured, plus an amount estimated in 4% of the do1lar by concept of an “istrative cost" for the issuance of paper copies of policies, which they never intended to issue to the insured; and,
c)
thereafter, Defendants, illegally, unlawfully, knowingly, deliberately and maliciously deprived said motor vehicle owners of their monies, by not reimbursing them the price they paid for such non-incurred costs included in the annual insurance rate, amounting to 12% of its cost, thereby embezzling such monies for the pecuniary benefit and economic interest of the of the ENTERPRISE (the “Scheme to Defraud”).
The
Defendants
had
a
statutory
duty,
under
Commonwealth Law, to return to the Puerto Rican motor vehicle owners the costs charged for brokerage services that were not rendered and the costs charged for issuance of policies that were not incurred. See, 26 P.R. Laws Ann. § 2716(2)-(3) (Illegal Dealings in s). 7.5
The
istrative
collection cost
of
without
the the
acquisition corresponding
cost refund
and
the
of
the
portion of the not incurred constitutes a violation to the provisions of the Puerto Rico Insurance Code. Id. 7.6 part
of
The use of the mails was an integral and essential the
Scheme
to
Defraud
29
since
the
billing
for
the
Case 3:11-cv-01826 Document 1
compulsory
liability
insurance
Filed 08/19/11 Page 33 of 82
was
done
through
the
United
States Postal Service. 7.7 caused
In furtherance of the Scheme to Defraud, Defendants
the
DTPW
depositories
for
to
place
mail
in
matter
the
post
offices
envelopes,
or
containing
authorized the
motor
vehicles licenses or registrations that included the billing for the annual for the compulsory insurance policy, which were thereafter delivered, by the United States Postal Service, to all motor vehicles owners in Puerto Rico. VIII. THE ENTERPRISE 8.1
At
all
times
relevant
herein,
the
Defendants
associated in fact for the common purpose of furthering and engaging in the Scheme to Defraud. 8.2
The ENTERPRISE is an association-in-fact, an entity
separate
from
and
bigger
than
any
of
the
“persons”
(the
Defendants and other of the Enterprise) comprising the same; where, at all times relevant herein, these “persons” were systematically
linked
with
overlapping
leadership,
structural
and financial ties, and continuing coordination. 8.3
At
all
times
relevant
herein,
the
ENTERPRISE
was
composed by the association in fact of the JUA and its former or current
,
INTEGRAND,
CAICO,
MAPFRE–PRAICO
CHARTIS
(formerly
(formerly
PRAICO),
AIG),
COOPERATIVA,
NATIONAL,
OPTIMA,
REAL LEGACY, TRIPLE-S, UNIVERSAL, ROYAL & SUN, PREFERRED RISK, 30
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 34 of 82
ALLSTATE, GENERAL ACCIDENT and NATIONWIDE, together with Garcia, CRUZ-COLON, Ortiz, Miranda-Casañas, Terrassa and other unnamed and
yet
unknown
associations
individuals,
(the
partnerships,
“ENTERPRISE”).
It
corporations
includes
the
or
forenamed
Defendants and associated individuals, as well as persons who have not violated RICO. 8.4
Structurally,
the
ENTERPRISE
is
an
association
comprised of the Defendants and other persons and entities whose common link is the purpose and nature of their business, i.e., selling motor vehicle compulsory liability insurance policies and providing coverage to the insured. 8.5
The
legitimate
association-in-fact
ongoing
organization,
Enterprise functioning
was as
a
a
formal
continuing
unit, pursuing an interrelated course of conduct, and with a common
or
shared
purpose
and
continuity
of
structure
and
personnel. 8.6
The
forenamed
Defendants,
as
of
the
ENTERPRISE, used said formal and legitimate association-in-fact ENTERPRISE as an instrument to perpetrate the Scheme to Defraud, through the pattern of racketeering activity, as fully described herein after. The aim of the Scheme to Defraud was the sale of motor
vehicle
compulsory
liability
insurance
policies
fraudulently containing hidden charges for non-incurred costs to derive racketeering income. 31
Case 3:11-cv-01826 Document 1
8.7
The
ENTERPRISE
is
Filed 08/19/11 Page 35 of 82
engaged
in
interstate
commerce
through the activities of its associates, as described herein before. IX. COMMON FACTUAL ALLEGATIONS 9.1 for
Law 253 created the JUA as a residual market insurer
high-risk
drivers
who
had
been
rejected
by
traditional
insurance carriers. This statute sought to encourage competition in
compulsory
liability
insurance
for
non-high-risk
drivers
between the traditional insurers themselves and between them and the JUA. In reality, however, this has not been the practice, and the JUA has been selling the compulsory liability insurance to all Puerto Rican drivers. In doing so, the JUA changed its nature
as
a
residual
insurer
to
a
primary
insurer
and
monopolized this market, which has facilitated the execution of the Scheme to Defraud. 9.2 effect,
Prior to January 1, 1998, when Law 253 would be in the
commissioned
Office an
of
advisory
the or
Insurance technical
Commissioner committee
(“OIC”)
(“TC”)
from
different sectors of the local insurance community, in order to rollout and implement Law 253. 9.3 (now
hip of the TC included, among others: PRAICO
known
as
MAPFRE–PRAICO),
GENERAL
ACCIDENT,
TRIPLE-S,
GENERAL ACCIDENT, Association of General Agents of Miscellaneous Insurances
(“Association”),
Professional 32
Insurance
Agents
of
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 36 of 82
Puerto Rico and the Caribbean, Inc. (Professional”), Saldaña & Associates,
Inc.,
(“Saldaña”),
Antilles
Insurance
Company
(“Antilles”), Toledo, Del Valle & Company, and First Insurance Group, Inc. (“First”). 9.4
Early meetings between Insurance Commissioner Garcia
and the TC began at least in early October 1996, and extended to November
1997.
Among
topics
of
discussion,
were
the
“coordination” of Law 253 insurance and traditional insurance coverage. 9.5
On March 17, 1997, in furtherance of the Scheme to
Defraud, Insurance Commissioner Garcia, on behalf of the OIC, met with the of the TC -- including, PRAICO, GENERAL ACCIDENT, TRIPLE-S and GENERAL ACCIDENT -- and representatives of insurance companies AIG (now known as CHARTIS), INTEGRAND, NATIONAL, First American Company and Royal Insurance Company of Puerto
Rico;
and,
acting
in
concert,
tly,
aiding
and
abetting and conspiring with each other, they all agreed that all motor vehicle owners would pay the for compulsory liability insurance coverage during the year 1997, at the time each acquired or renewed the vehicle's license -- even those who had traditional insurance policies and should have been exempted from paying duplicative s for insurance coverage in the year 1997. Yet Law 253 provided that it would be in effect and
33
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 37 of 82
implemented in the year 1998. These were overt acts committed as part of the conspiracy to violate RICO. 9.6
In furtherance of the Scheme to Defraud, a subsequent
TC and OIC meeting was held on March 21, 1997, wherein the following were present: Insurance Commissioner Garcia; Eunice Betancourt Figueroa
from from
PRAICO;
Edwin
Professional;
Diaz
Carmen
from
Association;
Figueroa
from
Carlos
TRIPLE-S;
Rafael Laffitte from Saldaña; Ramon Antonio Perez from First; Noemi Ramirez from Antilles; and, Cristina Moran, as Advisor. Ortiz, Executive President of JUA, appeared as a guest. Arleen Medina from COOPERATIVA was excused from the meeting. 9.7
During the TC March 21 meeting, it was agreed that the
Model Mandatory Coverage Application and Policy, which had been previously
prepared
by
the
TC,
would
be
a
guide
for
the
structuring of the application and policy that the JUA and the traditional insurers, individually, could use in the issuance of the compulsory insurance policy. It was further agreed that the TC would draft a letter for the traditional insurance carriers, notifying
them
corresponding
that
to
payment
compulsory
for
the
liability
portion
of
insurance
the could
not
be
differed and had to be paid at the moment of renewal or issuance of the license; and, that the TC would draft a cover letter to all the traditional insurance carriers, informing them about the implementation
of
the
compulsory 34
liability
insurance
system,
Case 3:11-cv-01826 Document 1
accompanied Policy.
by
These
the
Model
were
overt
Filed 08/19/11 Page 38 of 82
Mandatory acts
Coverage
committed
Application as
part
of
and the
conspiracy to violate RICO. 9.8 the
On April 7, 1997, the TC held another meeting, wherein
following
Eunice
were
Betancourt
present:
from
Insurance
PRAICO;
Edwin
Commissioner
Diaz
from
Garcia;
Association;
Carlos Figueroa from Professional; Carmen Figueroa from TRIPLES; Rafael Laffitte from Saldaña; Arleen Medina from COOPERATIVA; Noemi Ramirez from Antilles; and, Cristina Moran, as Advisor. Ortiz, Executive President of JUA, appeared as a guest. 9.9
The main topic of discussion in the April 7 meeting,
was the procedure that should be followed to coordinate the payment of the compulsory liability insurance coverage and the payment of the traditional insurance policy, in light of the requirements and limitations expressed by Treasury and the DTPW. To that end, among several alternatives, the of the TC selected
and
suggested
to
Insurance
Commissioner
Garcia
the
following procedure in order to avoid duplicative payments of s for compulsory insurance coverage: Everyone pays his/her insurer the of the traditional liability insurance or the of the compulsory liability insurance, depending on the type of insurance each individual selects, and receives a certificate of insurance as evidence of payment. The insured shall present the certificate, at payment centers, for the renewal of the license sticker and will not have to pay any money. The procedure shall be similar 35
Case 3:11-cv-01826 Document 1
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to the presentation of the certificate of inspection of the vehicle. TC’s Act No. 42 of April 7, 1997. 9.10 The JUA’s Ortiz voted against the procedure approved by the TC in Act No. 42. 9.11 On or about April 9 or 10, 1997, in furtherance of the Scheme to Defraud, the Board of Directors of the JUA (comprised of Terrassa of PRAICO, Miranda-Casañas of UNIVERSAL, Quiñones of COOPERATIVA, Hanftwurzel of GENERAL ACCIDENT, Rodriguez-Forteza and Rodriguez) held an emergency meeting. Insurance Commissioner Garcia and Ortiz, Executive President of JUA, participated in this meeting. 9.12
During
UNIVERSAL,
this
early
COOPERATIVA,
April,
GENERAL
1997
ACCIDENT,
meeting, JUA
and
PRAICO, the
OIC,
acting in concert, tly, aiding and abetting and conspiring with each other, rejected the procedure approved by the TC in Act
No.
42
compulsory
to and
channel
the
traditional
payments
of
insurance
the
s
policies
of
through
the the
respective particular insurer of each motor vehicle owner. These were overt acts committed as part of the conspiracy to violate RICO. 9.13 On April 16, 1997, in furtherance of the Scheme to Defraud, Garcia, through the OIC, acting in concert, tly, aiding
and
abetting
and
conspiring 36
with
PRAICO,
UNIVERSAL,
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COOPERATIVA, GENERAL ACCIDENT and JUA, officially adopted the JUA’s Board of Director’s rejection of the procedure approved by the TC in Act No. 42. This was an overt act committed as part of the conspiracy to violate RICO. 9.14 In December 1997, the Legislature of the Commonwealth of Puerto Rico approved a bill granting a 100% tax exemption for the profits obtained by the JUA from the sale of compulsory liability insurance policies and the dividends declared by it to the member insurance companies. 9.15 Coincidentally, in December of 1997, in furtherance of the
Scheme
to
Defraud,
the
Board
of
Directors
of
the
JUA
(comprised of Terrassa of PRAICO, Miranda-Casañas of UNIVERSAL, Quiñones
of
COOPERATIVA,
Rodriguez-Forteza participation
of
and
Hanftwurzel
Rodriguez)
Insurance
held
of
GENERAL
a
meeting,
Commissioner
Garcia
ACCIDENT, with
and
the
Ortiz,
Executive President of the JUA. 9.16 During this December 1997 meeting, PRAICO, UNIVERSAL, COOPERATIVA, GENERAL ACCIDENT, the JUA and the OIC, acting in concert, tly, aiding and abetting and conspiring with each other, agreed that the JUA would be the only insurer that would provide motor
and
issue
vehicle
compulsory
owners
in
liability
Puerto
Rico.
insurance These
were
committed as part of the conspiracy to violate RICO.
37
coverage overt
to
acts
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9.17 Shortly thereafter, in December 1997, in furtherance of the Scheme to Defraud, during a meeting with the TC and
of
the
JUA,
Insurance
Commissioner
Garcia,
announced
that the JUA would be the only insurer that would provide Law 253 insurance coverage in Puerto Rico and that all payments of s would be channeled through the DTPW. This was an overt act committed as part of the conspiracy to violate RICO. 9.18 In
or
about
December
1997,
in
furtherance
of
the
Scheme to Defraud, Insurance Commissioner Garcia, through the OIC,
acting
in
concert,
tly,
aiding
and
abetting
and
conspiring with PRAICO, UNIVERSAL, COOPERATIVA, GENERAL ACCIDENT and
the
JUA,
promulgated
Regulation
LXX.
This
regulation
established that every motor vehicle owner shall pay the corresponding
to
the
compulsory
liability
insurance
to
the
Secretary of the Treasury at the time of the issuance or renewal of the license or registration; and, thereafter, the Secretary of the Treasury will transfer the funds of the s paid to the
JUA
for
its
eventual
distribution
among
itself
and
the
traditional insurers. Rule LXX, Art. 9(a). Every motor vehicle for which the has been paid is considered to be insured by
the
JUA
(unless
its
owner
has
purchased
a
traditional
insurance policy). Id., Art. 12(a). Further, the regulation sets forth
the
Policy,
Puerto
Rico
defining
the
Mandatory
of 38
Liability the
Insurance
compulsory
Uniform
liability
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insurance, as the sole written contract between the insured and the JUA. Id., Art. 22. The promulgation of Regulation LXX was an overt act committed as part of the conspiracy to violate RICO. 9.19 The effect of the foregoing was to change the nature of the JUA from a residual to a primary insurer, able to insure the motor vehicles directly, even if the traditional insurers have
not
rejected
the
same;
to
allow
the
JUA
to
effectuate
insurance coverage directly, without the use of any agent or broker,
eliminating
the
insurance
scheme;
and,
liability
insurance
latter to
from
the
establish
policy
compulsory
one
applicable
uniform
to
all,
liability compulsory
deliberately
obviating the issuance of individual policies to the insured. 9.20 Prior
to
January
1998,
before
Law
253
came
into
effect, the OIC issued notices advising that all motor vehicle owners would make the payments for compulsory liability coverage to
the
Department
of
the
Treasury,
as
billed
in
the
motor
vehicle license or registration. 9.21 Even before the implementation of Law 253 -- which mandated insurance
the on
competition;
use the and,
of
insurance consumer,
which
brokers
to
maximize
required
the
lower
the
coverage issuance
cost
and of
of
foster
individual
policies -- the Defendants, by agreeing that the JUA would be the
only
insurer
providing
compulsory
liability
insurance
coverage, through one uniform written policy, which all motor 39
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vehicle owners had to purchase at the time of the renewal or issuance of the registrations or licenses, conjured up their Scheme to Defraud. The utilization of insurance brokers and the issuance of paper policies were obviated from the compulsory liability insurance system. However, as shown below, all motor vehicle owners would be forced to pay the JUA brokerage fees and policy costs as part of the without the participation of any broker or the issuance of any paper policy in the process, in
violation
of
the
Puerto
Rico
Insurance
Code.
The
motor
vehicle owners were to pay such fees immediately and in full to the Secretary of the Treasury in order to be authorized to drive their vehicles through the Puerto Rico thoroughfares. 9.22 The Defendants, the JUA, PRAICO (now known as MAPFRE– PRAICO),
UNIVERSAL,
COOPERATIVA,
GENERAL
ACCIDENT,
TRIPLE-S,
INTEGRAND, NATIONAL and AIG (now known as CHARTIS), tly with the
Insurance
Commissioner
Garcia
and
the
other
forenamed
individuals and entities, conjured and designed these artifices to defraud and obtain money, which formed part of the Scheme to Defraud,
with
scienter
and
deliberate
intent
to
fraudulently
induce and force the Plaintiffs and Class purchasing the compulsory insurance policy to pay brokerage fees and policy costs
--
disguised
registration
printed
as
legitimate
and
mailed
to
charges them
in by
the the
license DTPW
--
or for
services that the Defendants had no intention of providing or 40
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making available to them, as part of the annual rate, to the Department of the Treasury, which would then transfer by wire such funds to the JUA. Once in the JUA’s coffers, the of the ENTERPRISE misappropriated the monies so paid by the Plaintiffs and Class for brokerage services that were never rendered and paper policies that were never issued. 9.23 Billing the Plaintiffs and Class by means of license and registrations issued by the DTPW and compelling them to pay the mandatory insurance to the Department of the Treasury had the effect of legitimizing the Scheme to Defraud by creating the appearance that it had been approved, sanctioned, and condoned by two State government agencies as lawful. 9.24 On August 3, 1999, in furtherance of the Scheme to Defraud, Ortiz of JUA wrote and mailed a letter to Insurance Commissioner
Garcia
notifying
the
OIC
that
the
Board
of
Directors (comprised of Terrassa of PRAICO, Miranda-Casañas of UNIVERSAL, Quiñones of COOPERATIVA, Gonya of NATIONWIDE, Ortiz of JUA, Rodriguez-Forteza and Rodriguez) had recently approved the distribution of gains or profits from the sale of compulsory insurance policies; and, requesting the OIC to furnish to the JUA the distribution of the dollar and the proportional participation of each of its for the year 1998. As Ortiz very well knew, the profits obtained from the sale of policies included
proceeds
from
charges 41
for
brokerage
services
not
Case 3:11-cv-01826 Document 1
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performed and for policy costs not incurred. This mailing was delivered in violation of the Mail Fraud Statute, 18 U.S.C. § 1341. Further, this was an overt act committed as part of the conspiracy to violate RICO. 9.25 On August 18, 1999, in furtherance of the Scheme to Defraud, Garcia wrote and mailed to Ortiz a letter approving the distribution of profits among the of the JUA for the year 1998, because the same conformed to the distribution of the dollar underlying the charged for the compulsory insurance. This mailing was delivered in violation of the Mail Fraud Statute, 18 U.S.C. § 1341. Further, this was an overt act committed as part of the conspiracy to violate RICO. 9.26 At
all
times
material
herein
--
as
stated
in
the
August 18, 1999 letter, from Garcia to Ortiz -- the distribution of the dollar underlying the annually charged for the compulsory insurance, as sanctioned by the OIC has been the following one: Concept
Percent
Acquisition Cost Taxes, Licenses and Charges istrative cost Gain Subtotal
8% 1% 7% 5% 21%
Losses & Adjustment for Losses
79%
TOTAL:
100%
42
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9.27 According to the distribution of the dollar established by the OIC, 8% is destined to cover the “acquisition cost” consisting in the commission to be paid to the insurance broker and other expenses inherent to the performance of the broker’s duties, as specifically acknowledged by the Insurance Commissioner Garcia, on August 25, 2000, in Ruling No. CA-81578-2000. 9.28 The JUA’s annual statements for the period covering from
1998
through
to
2010,
disclosed
that
it
only
paid
commissions amounting to $8,756.00 to agents as brokerage fees in the year 2000, stopping thereafter to make any additional payment
by
such
concept,
despite
the
mandates
of
the
Commonwealth’s Insurance Code that brokers had to be used for the sale of the insurance policies. 9.29 According to the distribution of the dollar established
by
the
OIC,
7%
is
earmarked
to
cover
the
“istrative cost” for the issuance of a paper copy of the insurance policy -- as mandated by 26 P.R. Laws Ann § 8054(c) in conjunction with Chapter 11 of Title 26 of Puerto Rico Laws Annotated -- and related expenses. However, the estimated real cost incurred by the JUA was a 3%, since it did not issue any policy nor mailed any to the insured, as it is the custom with other
insurances.
By
consequence,
there
is
a
4%
of
istrative cost of the dollar that was not spent. 43
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During such 12-year period, the traditional insurer Defendants did not have any istrative cost, or if they had, it was very small. 9.30 According
to
the
distribution
of
the
prime
dollar
established by the OIC, 5% was supposed to constitute the gain or
profit
to
the
insurer
for
the
sale
of
the
compulsory
liability insurance policy. 9.31 It follows from the forgoing that from 1998 to 2010, a 12% of the dollar destined for acquisition costs and istrative costs was not incurred by Defendants. Although the JUA received completely the $99 and $148 annual s and distributed
substantial
profits
from
those
proceeds
to
the
Defendant of the ENTERPRISE, the funds of expenses not incurred
were
not
reimbursed.
This
conduct
constitutes
a
violation to Article 27.160 of the Insurance Code. 9.32 Moreover, the profit or gain derived by the Defendant of the ENTERPRISE from the sale of compulsory liability insurance
policies
in
reality
amounted
to
17%
of
the
prime
dollar, instead of the 5% allowed by the OIC. 9.33 Table I below details the collected s, plus the acquisition
costs
not
incurred
that
were
collected
by
the
Defendants and not reimbursed to the Representative Plaintiffs and
Class
in
violation
Insurance Code. 44
to
Article
27.160
of
the
Case 3:11-cv-01826 Document 1
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TABLE I Year
s Collected
Percentage Acquisition Costs
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$219,486,751 $154,260,785 $150,211,815 $165,764,800 $178,840,198 $175,829,609 $186,627,928 $188,909,000 $198,456,178 $186,807,772 $202,428,047 $203,642,295 $192,218,965
TOTALS:
$2,403,484,143
8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Acquisition Costs
Cumulative Acquisition Costs Not Incurred
Percentage Interest
Interest
Acquisition Costs Plus Interests
$17,558,940 $12,340,863 $12,016,945 $13,261,184 $14,307,216 $14,066,369 $14,930,234 $15,112,720 $15,876,494 $14,944,622 $16,194,244 $16,291,384 $15,377,517
$17,558,940 $29,899,803 $41,916,748 $55,177,932 $69,485,148 $83,551,517 $98,481,751 $113,594,471 $129,470,965 $144,415,587 $160,609,831 $176,901,214 $192,278,731
6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
$1,053,536 $1,793,988 $2,515,005 $3,310,676 $4,169,109 $5,013,091 $5,908,905 $6,815,668 $7,768,258 $8,664,935 $9,636,590 $10,614,073 $11,536,724
$18,612,476 $14,134,851 $14,531,950 $16,571,860 $18,476,325 $19,079,460 $20,839,139 $21,928,388 $23,644,752 $23,609,557 $25,830,834 $26,905,456 $26,914,241
$78,800,558
$271,079,290
$192,278,731
9.34 As shown in Table I above, and Table II below, the s
collected
$2,403,484,143.00. “percentage
in
The
acquisition
percentage
of
the
the
8%
1998-2010
in
the
costs”
column
in
dollar
Table charged
period under I for
amount the
heading
represents the
to
the
insurance
broker’s commission. The cumulative acquisition costs collected from the insured motor vehicle owners, which in reality were not incurred
by
the
Defendants,
add
up
to $192,278,731.00.
These
monies were never reimbursed. The monies collected under the guise of “acquisition costs” plus the accrued interests totalize $271,079,290.00. 9.35 Table II below details the collected s, plus the part of the collected
by
istrative costs not incurred that were
the
Defendants
and 45
not
reimbursed
to
the
Case 3:11-cv-01826 Document 1
Representative
Plaintiffs
and
Filed 08/19/11 Page 49 of 82
Class
in
violation
to
Commonwealth Law. TABLE II Year
s Collected
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$219,486,751 $154,260,785 $150,211,815 $165,764,800 $178,840,198 $175,829,609 $186,627,928 $188,909,000 $198,456,178 $186,807,772 $202,428,047 $203,642,295 $192,218,965
TOTALS:
Percentage istrative Costs
4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
istrative Costs
Cumulative istrative Costs Not Incurred
$8,779,470 $6,170,431 $6,008,473 $6,630,592 $7,153,608 $7,033,184 $7,465,117 $7,556,360 $7,938,247 $7,472,311 $8,097,122 $8,145,692 $7,688,759
$8,779,470 $14,949,901 $20,958,374 $27,588,966 $34,742,574 $41,775,758 $49,240,875 $56,797,235 $64,735,483 $72,207,793 $80,304,915 $88,450,607 $96,139,366
$2,403,484,143
Percentage Interest
6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
$96,139,366
Interest
istrative Costs Plus Interests
$526,768 $896,994 $1,257,502 $1,655,338 $2,084,554 $2,506,545 $2,954,453 $3,407,834 $3,884,129 $4,332,468 $4,818,295 $5,307,036 $5,768,362
$9,306,238 $7,067,425 $7,265,975 $8,285,930 $9,238,162 $9,539,730 $10,419,570 $10,964,194 $11,822,376 $11,804,778 $12,915,417 $13,452,728 $13,457,121
$39,400,279 $135,539,645
9.36 The 4% in the column under the heading “percentage istrative costs” that appears in Table II represents the percentage
of
the
dollar
the
Defendants
charged
by
concept of issuing and sending the paper uniform policies to the insured
motor
vehicle
owners.
The
cumulative
istrative
costs collected from the insured motor vehicle owners amounts to $96,139,366.00.
In
reality,
the
Defendants
did
not
incur
in
these costs, since the compulsory insurance policies were never issued. The cost for this item was never reimbursed either. The monies collected under the guise of istrative costs plus accrued interests totalize $135,539,645.00.
46
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9.37 The grand total of costs collected and not reimbursed is $288,418,097.00. Accrued interests amount to $118,200,837.00. The sum of these amounts yields $406,618,935.00. Therefore, the injuries
suffered
by
the
Representative
Plaintiffs
and
Class
during the twelve-year period in question as result of the
collection
of
monies
in
excess
and
in
violation
to
Code
prohibits
the
Commonwealth law totalize $406,618,935.00. 9.38 Article collection
as
27.160
of
of
the any
Insurance amount
that
is
not
“actually
expended or in due course to be expended.” 26 P.R. Laws Ann. § 2716(2)-(3).
It
also
mandates
the
return
of
the
or
charge for insurance of any sum in excess of the amount really spent. Id. The Defendants failed to comply with the express mandate
of
the
law,
and
in
the
process
they
profited
with
$406,618,935.00, which they had to return to the Plaintiffs and the
Class
by
express
disposition
of
Article
27.160.
Nevertheless, the Defendants have made no effort to reduce the compulsory liability , enriching themselves in millions of dollars at the expense of the Puerto Rican motor vehicle owners. 9.39 Originally conceived as a residual insurer, the JUA was expected to sustain economic losses, which were supposed to be spread among all the traditional insurers that comprise it. The reality has been just the opposite. Since the inception of 47
Case 3:11-cv-01826 Document 1
the
compulsory
insurance
Filed 08/19/11 Page 51 of 82
system,
the
JUA
has
gained
extraordinary profits from the compulsory liability insurance scheme, held valuable investments and distributed substantial amounts in dividends to the traditional insurer Defendants. 9.40 According to the DTPW records, presently 2.4 million motor
vehicles
exist
in
Puerto
Rico,
of
which
only
sixteen
percent (16%) have traditional insurance. Between the years 1998 and 2010, the income in annual s for the JUA and the traditional insurer Defendants, as shown above in Tables I and II, exceeded 2.4 billion dollars ($2,400,000,000.00). Of that amount,
the
Defendants
misappropriated
more
than
288
million
dollars in acquisition costs and istrative costs collected, but not really incurred. 9.41 From 1998 to 2010, as shown in Table III below, the JUA reported in its financial statements net income derived from underwriting compulsory insurance policies and investments in the total amount of $452,635,690.00, and declared therein the distribution of $102,737,554.00 in dividends among the Defendant of the ENTERPRISE: CAICO, CHARTIS (formerly known as AIG), COOPERATIVA, INTEGRAND, MAPFRE–PRAICO (formerly known as PRAICO),
NATIONAL,
ROYAL
SUN,
&
OPTIMA,
PREFERRED
REAL
RISK,
LEGACY,
ALLSTATE,
NATIONWIDE.
48
TRIPLE-S, GENERAL
UNIVERSAL,
ACCIDENT
and
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Table III Year
Gross Income
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$31,084,738 $31,699,793 $28,393,696 $28,418,116 $11,785,549 $21,446,479 $13,096,583 $8,575,687 $26,342,497 $49,804,446 $75,345,496 $79,073,396 $47,569,214
Net Income Tax Tax Tax Tax
Exempt Exempt Exempt Exempt
TOTAL $452,635,690 9.42 In Defendants
furtherance JUA,
COOPERATIVA,
CAICO,
INTEGRAND,
PRAICO),
NATIONAL,
ROYAL
SUN,
&
of
$31,084,738 $31,699,793 $28,393,696 $28,418,116 $8,460,758 $15,641,566 $11,166,583 $8,404,910 $16,970,636 $33,681,536 $47,497,598 $54,697,238 $33,655,914
$0 $6,866,837 $7,597,475 $7,666,401 $7,885,243 $7,898,813 $8,717,221 $9,063,916 $7,593,556 $9,728,886 $9,457,678 $10,079,413 $10,182,115
$349,773,082
$102,737,554
the
CHARTIS
Scheme (formerly
MAPFRE–PRAICO
OPTIMA,
PREFERRED
Dividends
REAL
RISK,
Defraud,
known
(formerly
LEGACY,
ALLSTATE,
to
TRIPLE-S, GENERAL
as
the AIG),
known
as
UNIVERSAL,
ACCIDENT
and
NATIONWIDE, acting in concert, tly, aiding and abetting and conspiring with each other, knowingly and deliberately, failed, and still continue to fail, to comply with their statutory duty to return the monies collected for costs that were not incurred; and,
instead,
have
unlawfully
kept
and
distribute
among
themselves millions of dollars that legally correspond to the insured, the reimbursement of which is the object of this legal action.
49
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X. THE PREDICATE ACTS 10.1
In
furtherance
of
the
Scheme
to
Defraud,
the
Defendants and the other of the ENTERPRISE, knowingly, intentionally and unlawfully, aided and abetted, conspired and agreed, with each other, to attempt to commit, and each of them, in
fact,
did
commit,
as
principals,
the
predicate
acts
of
racketeering detailed hereunder, in violation of 18 U.S.C. § 2. 10.2 In addition, in furtherance of the Scheme to Defraud, each of the Defendants, all of them of the ENTERPRISE, conspired, confederated and agreed, with each other, to attempt to commit, and did commit, the predicate acts of racketeering detailed
hereunder,
and,
in
doing
so,
violated
the
RICO
complaint
that
any
it,
its
prohibitions, as defined in 18 U.S.C. § 1962. 10.3 Whenever Defendant Directors,
did
any
it act
Officers,
is or
alleged
in
the
thing,
it
is
agents,
employees,
meant or
that the
Directors,
Officers, agents or employees of its subsidiaries or s, performed or participated in such act or thing, and in each instance that such act or thing was authorized or ratified by, and done on behalf of, that Defendant. 10.4 In furtherance of the Scheme to Defraud, as explained hereunder, the predicate racketeering acts consisted of millions of violations of the Mail Fraud Statute, 18 U.S.C. § 1341 and the Wire Fraud Statute, 18 U.S.C. § 1343. 50
Case 3:11-cv-01826 Document 1
10.5 In Defendants
furtherance and
the
of
other
Filed 08/19/11 Page 54 of 82
the
Scheme
of
to
the
Defraud,
ENTERPRISE,
the also
knowingly, intentionally and unlawfully, aided and abetted and conspired in the commission of millions of violations of Puerto Rico statutes, including, among others, the following provisions of the Insurance Code: 26 P.R. Laws Ann. § 329(a) (conducting insurance transactions through unlicensed individuals); 26 P.R. Laws
Ann
§
1114
(requiring
the
issuance
of
paper
insurance
policies); and, 26 P.R. Laws Ann. § 2716(2)-(3) (illegal dealing in s). 10.6 These violations were committed by the Defendants and the other of the ENTERPRISE, through, or by means of, interrelated fraudulent artifices, all which formed part of the same common plan or Scheme to Defraud. XI. THE PATTERN OF RACKETEERING ACTIVITY 11.1 In the Scheme to Defraud, the millions of predicate racketeering defined
by
committed
acts 18
by
ENTERPRISE,
detailed
U.S.C. the
herein
1961(5),
Defendants
through
below
inasmuch
and
continuous,
the
form
a
pattern,
as
they
have
other
uninterrupted,
as
been
of
the
criminal
activity, which began on or around, 1998, which has continued up to
the
present
year,
2011,
and
continuing into the future.
51
which
has
a
high
risk
of
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11.2 In addition, within the Scheme to Defraud, as it is shown herein below, the predicate acts are related given that they have the following commonalties: a) the same purpose or goal: to illegally collect charges from motor vehicle owners for costs not incurred as part of the insurance s, namely brokerage and istrative costs not incurred, and to keep the monies so obtained for the economic benefit of the Defendants, as of the ENTERPRISE, when the Insurance Code prohibits such practice; b) the same results: to deprive said motor vehicle owners of their monies and the acquisition of such assets; c) the same participants: defined ENTERPRISE; d) the same victims: ; and,
the
the
Defendants
Plaintiffs
and
and the
the
Class
e) the same methods of commission: the Scheme to Defraud and the common predicate acts in furtherance thereof through the use of the mails. 11.3 These interrelated
by
predicate the
racketeering
foregoing
acts
distinguishing
are
otherwise
characteristics;
and, are not isolated events, since they were carried out for the
same
purposes
in
a
continuous
manner
throughout
a
substantial period of time. 11.4 In relatedness pattern
of
the of
Scheme these
racketeering
to
Defraud,
racketeering activities
U.S.C. § 1961(5). 52
the
activities within
the
continuity constitute meaning
of
and a 18
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XII. CLASS ALLEGATIONS 12.1 Plaintiffs bring this action on their own behalf and, pursuant to Rule 23(a), 23(b)(1)(A) & (B), 23 (b)(2) and/or (b)(3) as a class action on behalf of the Class Groups defined in
Section
III(A),
supra.
This
Class
seeks
certification
of
claims for declaratory and injunctive relief, and for damages pursuant to 18 U.S.C. § 1962(a)(b)(c) & (d). 12.2 Each named Plaintiff possesses the same interests and has suffered the same economic injury shared by all the of the Class that he represents, which claims for damages and equitable relief arise from the same operative facts and legal theories detailed herein below. A. RULE 23(a) NUMEROSITY 12.3 consist
The of
Plaintiffs the
owners
Classes of
are
over
reasonably
2,400,000
estimated
motor
vehicles
ed in the DTPW as duly authorized to travel Puerto
Rico
thoroughfares,
all
with
compulsory
to
through
liability
insurance, such as the Plaintiff Representatives. 12.4
The
exact
total
number
of
Class
can
be
reasonably ascertained from the records in the possession or under the control of the Defendants and the DTPW. 12.5 The
of
the
Group
Classes
are
certainly
numerous that der of all is impracticable.
53
so
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12.6 On the other hand, the identity and addresses of the of the Classes are reasonably ascertainable and can be readily identified from the business records maintained by the Defendants and the DTPW. 12.7 Moreover, individual lawsuits by Class are not practical due to the economic cost of the litigation, vis a vis, the monetary value of most individual claims which otherwise might well never be vindicated. 12.8 Finally,
the
reliefs
sought
by
the
Representative
Plaintiffs and to which Class are entitled are uniform within the two separate Classes. B. RULE 23(a) COMMONALITY OF FACTS AND LAW 12.9 The factual and legal issues raised in this complaint are common to all Plaintiff Representatives and Class , inasmuch as they arise from the same common nucleus of operative facts, the Scheme to Defraud and the different artifices carried out
by
the
Defendants
and
the
of
the
ENTERPRISE
to
achieve the objectives of such scheme (to acquire and maintain control
over
the
ENTERPRISE,
to
capitalize
the
ENTERPRISE
through fraudulent artifices, and to fraudulently deprive the Class
of
their
monies
for
the
Defendants’
and
the
been
all
ENTERPRISE'S economic benefit). 12.10
The
Plaintiffs
and
Class
have
injured in their property as a direct result of the Defendants’ 54
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Filed 08/19/11 Page 58 of 82
and the ENTERPRISE'S Scheme to Defraud and the artifices used by them
to
carry
it
out.
They
have
all
been
object
of
the
collection of a in excess of the monetary amount really spent or in the process of being spent by Defendants for the compulsory
liability
insurance
without
having
received
the
refund or return required by law. The Scheme to Defraud and artifices carried out by
the Defendants arise from a single
course of conduct that is identical for each Plaintiff and the two Classes that they represent. The illegal retention of these monies has resulted in exorbitant gains for the Defendants. 12.11 The adjudication of the issue whether the Defendants and the other of the ENTERPRISE acted throughout the alleged fact
patterns
and
law
of
that
racketeering are
common
activity to
all
involves
Plaintiffs
issues
of
and
Class
the
Class
. C. RULE 23(a) TYPICALITY 12.12
The
named
Plaintiff
Representatives
and
, each and all, have tangible and legitimate actionable claims and interests at stake in this action. 12.13
The
claims
of
the
named
Plaintiff
Class
Representatives are typical of the claims of the absent Class , all of whom have a common origin and share a common basis of fact and law.
55
Case 3:11-cv-01826 Document 1
12.14
The
claims
of
Filed 08/19/11 Page 59 of 82
the
named
Plaintiff
Class
Representatives and Class arise from the same Scheme to Defraud and the artifices carried out by Defendants and the of the ENTERPRISE to achieve its goal. That is, the claims of the named Plaintiff Class Representatives and Class arise from the same patterns of racketeering activity and are based upon the same legal theories which are alleged to be
in
violations
of
the
RICO
Act.
Thus,
the
individual
characteristics of the named Plaintiffs are typical of the ones of the Class that they represent. 12.15
Defendants
have
acted
in
the
same
way
toward
Plaintiffs and the of the Classes they represent. As a result thereof, each named Plaintiff has been personally injured by the illegal conduct of Defendants in a way typical to the injury caused to the of the Classes they represent. 12.16 The claims of the named Plaintiffs will necessarily require proof of the same material and substantive facts, rely upon the same remedial theories, and seek the same relief than the claims that can be made by the Class they represent. 12.17 The claims and remedial theories pursued by the named class
representatives
are
sufficiently
aligned
with
the
interests of absent Class to ensure that the claims of the
Class
will
be
prosecuted
with
diligence
Plaintiffs as representatives of the Class. 56
and
care
by
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D. RULE 23(a) ADEQUACY OF REPRESENTATION 12.18 The claims of the named Plaintiffs and the of the two Classes they are willing and prepared to represent are so interrelated that the interests of the Class will be adequately protected in their absence by Plaintiffs, complying with all of the obligations and duties material thereto. 12.19 Plaintiffs have no interests adverse to the interests of the Class .
The self-interests of the named Class
Representatives are equal, and not antagonistic, to those of the absent Class . The proposed representatives will, thus, undertake to well and truly protect the interests of the absent Class . 12.20 The named plaintiffs have engaged the services of the undersigned counsels. Said counsels are experienced in complex litigation,
will
adequately
prosecute
this
action,
and
will
assert, protect and otherwise well represent the named Class Representatives and absent Class . E. RULE 23(b)(1)(A) & (B) 12.21
The
prosecution
of
separate
actions
by
individual
of the Class would create a risk of adjudications with respect to individual of the Class, which would, as a practical matter, be dispositive of the interests of the other similarly situated of the Class who are not parties to
57
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the action, and/or could substantially impair or impede their ability to protect their interests. 12.22
The
prosecution
of
separate
actions
by
individual
of the Class would also create a risk of inconsistent or varying adjudications with respect to individual of the Class, which would establish incompatible standards of conduct for the parties opposing the Class. Such incompatible standards and
inconsistent
or
varying
adjudications,
on
what
would
necessarily be the same issues of facts, evidence and theories of law, would also create and allow to exist inconsistent and incompatible rights within the Plaintiff Class. F. RULE 23(b)(2) 12.23 Defendants have acted or refused to act on grounds generally applicable to the Class, making final declaratory or injunctive relief appropriate. G. RULE 23(b)(3) 12.24 The questions of law and fact common to of the
Classes
predominate
over
any
questions
affecting
only
individual . 12.25 Under these circumstances, a class action is superior to individual claims and may be the only practical method for the fair and efficient adjudication of the controversies alleged in this complaint, inasmuch as:
58
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 62 of 82
a. Individual claims by the Class are impractical as the costs of litigation may far exceed what any one plaintiff or Class member has at stake. b. There has been no individual litigation over the federal RICO violations raised herein, and individual Class should have no interest in prosecuting and controlling separate federal RICO actions. c. The litigation of the federal RICO claims herein should be concentrated in this forum, because all the parties are found within, and are under the jurisdiction of this District Court. d. The proposed Class Action can be readily managed with the assistance of the guidelines contained in the Manual for Complex Litigation adopted by the Federal Judicial Center. XIII. LAW VIOLATIONS IN FURTHERANCE OF THE SCHEME TO DEFRAUD COUNT I – VIOLATIONS TO SECTION 1962(c) OF RICO A. THE ENTERPRISE: 13.1 The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.2 This cause of action arises under 18 U.S.C. § 1962(c) and is asserted against all the Defendants. 13.3
Each
of
the
Defendants,
the
JUA,
CAICO,
CHARTIS
(formerly known as AIG), COOPERATIVA, INTEGRAND, MAPFRE–PRAICO (formerly
known
as
TRIPLE-S,
UNIVERSAL,
PRAICO),
NATIONAL,
PREFERRED
RISK,
OPTIMA,
ROYAL
&
REAL SUN,
LEGACY,
ALLSTATE,
GENERAL ACCIDENT and NATIONWIDE, for purposes of this particular cause
of
action,
is
or
has
been
a
"person"
employed
by
or
associated with an enterprise engaged in, or the activities of 59
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Filed 08/19/11 Page 63 of 82
which affect, foreign or interstate commerce, and as such, has conducted conduct
or
of
participated,
such
directly
enterprise's
or
affairs
indirectly,
through
a
in
the
pattern
of
racketeering activity as described herein before. 13.4 For purposes of this particular cause of action under Section
1962(c),
the
ENTERPRISE
is
the
association
in
fact
defined in Section VIII, supra. 13.5 Since on or around, 1997, the Defendants and the other
of
the
ENTERPRISE,
knowingly,
intentionally
and
unlawfully, aided and abetted, and conspired with each other, to devise, or intend to devise the Scheme to Defraud, by which they were to illegally obtain, acquire and maintain control of the refundable payments paid by the Representative Plaintiffs and Class , to later illegally keep those assets for their own pecuniary benefit and interest. 13.6 In furtherance of their Scheme to Defraud and of their conspiracy,
and
in
order
to
effects
its
objectives,
the
ENTERPRISE, knowingly, intentionally and unlawfully, aided and abetted to commit, attempted to commit, conspired to commit, did commit, and caused to be committed, the below enumerated overt and/or
predicate
acts
of
racketeering
activity
to
illegally
charge the Representative Plaintiffs and Class monies for non-incurred costs as part of the annual insurance s
60
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 64 of 82
and subsequently retain the refundable payments made in excess by the Representative Plaintiffs and Class . B. RACKETEERING PREDICATE ACTS: 13.7 From executing caused
the
the
to
the
ENTERPRISE’s
DTPW
depositories vehicles
1998,
for
to
place
mail
licenses
present,
Scheme in
the
matter
or
to
for
the
Defraud,
post
registrations
Defendants
or
authorized
containing
which
of
the
offices
envelopes,
purpose
were
the
motor
thereafter
delivered, by the United States Postal Service, to all motor vehicles owners in Puerto Rico, in violation of the Mail Fraud Statute,
18
U.S.C.
§
1341.
The
motor
vehicles
licenses
or
registrations contained the billing for the annual for the compulsory insurance policy, which fraudulently included an acquisition
cost
that
was
never
going
to
be
spent,
plus
an
istrative cost that was never going to be incurred by the Defendants. registrations essential
Moreover,
the
fraudulently
information
that
motor
omitted those
vehicle the
parts
utterly of
the
licenses
or
relevant
and
dollar-
collected in excess were refundable. 13.8 Envelopes
containing
motor
vehicles
licenses
or
registrations were delivered by the United States Postal Service to: a.
Plaintiff
Representative
years 1998 through 2011. 61
Noemi
Torres
Ronda,
in
the
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 65 of 82
b. Plaintiff Representative Angelo Rivera Lamboy, in the years 2005 through 2011. 13.9
The
addressed
to
specific the
months
and
Plaintiffs
days
and
when
the
containing
envelopes,
licenses
or
registrations, were caused to be place in the post offices or authorized depositories for mail matter, as well as the specific dates
on
which
similar
, can be readily
envelopes
were
mailed
to
the
Class
ascertained from the records in the
possession or under the control of the DTPW. 13.10 Each of these mailings is a predicate act that is indictable as mail fraud and together they constitute a pattern of racketeering activity. 13.11 After receiving each annual license or registration by mail, each Representative Plaintiff, like every other Class Member, paid the for the compulsory liability insurance to the Secretary of the Treasury. 13.12
After
collecting
the
annual
s
from
the
Representative Plaintiffs and Class , the Secretary of the Treasury turned over the total proceeds to the JUA, including the
monies
amount
they
really
paid
spent
as or
s to
be
in
spend
excess by
the
of
the
monetary
Defendants
for
compulsory liability insurance coverage; and, thereafter, the JUA distributed such proceeds among the traditional insurers and itself. 62
Case 3:11-cv-01826 Document 1
13.13
The
Defendants,
Filed 08/19/11 Page 66 of 82
knowingly,
intentionally
and
unlawfully, failed to reimburse to the Representative Plaintiffs and
Class
incurred
costs
Instead,
the
the
price
hidden
in
Defendants
they
the
unknowingly
annual
embezzled
paid
insurance
such
funds
for
for
nonrate.
their
own
pecuniary benefit. 13.14
Through
furtherance
of
the
the
conduct
Scheme
to
described Defraud,
herein
the
above,
of
in the
ENTERPRISE knowingly, intentionally and unlawfully, aided and abetted
and
conspired
with
each
other
to
violate,
and
did
violate Article 27.160 of the of Puerto Rico Insurance Code, 26 P.R. Laws Ann. § 2716(2)-(3) (illegal dealing in s). 13.15
Through
the
conduct
described
herein
above,
the
Defendants and the other of the ENTERPRISE, which is engaged
in,
knowingly, conspired
and
which
activities
intentionally to,
and
each
affect
and
unlawfully,
of
them
participate,
directly
or
ENTERPRISE’s
affairs,
through
in
indirectly, a
interstate aided
fact in
the
pattern
of
commerce,
and
did,
conduct
conduct Mail
abetted,
of
Fraud,
or the in
violation of 18 U.S.C. § 1962(c). C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(c) 13.16 As proximate cause of the Defendants’ violations to Section 1962(c), the Plaintiffs and Class were injured in their property inasmuch as each has been object of fraud in 63
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the collection of a in excess of the monetary amount really spent or in the process of being spent by the Defendants for the compulsory liability insurance policy, without having received the refund or return required by law. 13.17
The
injuries
suffered
by
the
Representative
Plaintiffs and Class since 1998, and up to 2010, is reasonably estimated in the amount of $406,618,935.00. 13.18 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs and the Class Member they represent, shall recover threefold the damages they have sustained. 13.19 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs are entitled to reasonable attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class threefold the monies they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of ONE BILLION TWO HUNDRED NINETEEN MILLION EIGHT HUNDRED FIFTY TWO THOUSAND EIGHT HUNDRED AND FIVE DOLLARS ($1,219,852,805.00); granting them pre-judgment and post-judgment interests; awarding them a reasonable amount for attorneys’ fees, plus the costs of
-64-
Case 3:11-cv-01826 Document 1
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this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. COUNT II – VIOLATIONS TO SECTION 1962(a) OF RICO A. THE ENTERPRISE: 13.20
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.21 This cause of action arises under 18 U.S.C. § 1962(a) and is asserted only against the JUA. 13.22 For purposes of this particular cause of action under Section 1962(a), the JUA is the ENTERPRISE. 13.23 The JUA is "an entity capable of holding a legal or beneficial
interest
in
property",
and
a
"person"
within
the
meaning of 18 U.S.C. § 1961(3). 13.24 The JUA conducts in Puerto Rico, either directly or through its business transactions with the traditional insurer Defendants,
the
business
of
selling
motor
vehicle
compulsory
liability insurance policies. B. THE RACKETEERING INCOME: 13.25 Through the conduct described herein before, the JUA, as the ENTERPRISE, which is engaged in, and which activities affect
interstate
unlawfully,
received
commerce, income
knowingly,
derived,
-65-
intentionally
directly
or
and
indirectly,
Case 3:11-cv-01826 Document 1
from
the
pattern
of
Filed 08/19/11 Page 69 of 82
racketeering
activity
in
which
the
JUA
participated as a principal within the meaning of Section 2, Title
18,
United
States
Code
(18
U.S.C.
§
2),
committing
predicate acts of mail fraud; the JUA then used or invested, directly or indirectly, part of such income, or the proceeds of such income, in the operation of itself as an ENTERPRISE, i.e., the
sale
of
motor
vehicle
compulsory
liability
insurance
policies fraudulently containing hidden charges for non-incurred costs to derive racketeering income, in violation of 18 U.S.C. § 1962(a). 13.26 executing transmitted
From the
which
Scheme
to
to
the
ENTERPRISE’s
or
funds,
1998,
caused
included
Defraud,
in
to
be
present, Scheme
to
transmitted,
for
purpose
of
Defraud,
the
JUA
by
of
racketeering
proceeds
interstate
commerce,
the
means gained to
a
wire,
from
the
financial
institution in Chicago, Illinois. 13.27 In December 2002, the OIC completed an “Examination Report” of the JUA for the periods comprising from January 1, 1997,
through
June
30,
2001,
wherein
it
was
found
that
the
Northern Trust Company, in Chicago, Illinois, was handling 100% of the JUA’s investments. The investment transactions between the JUA and Northern Trust Company were all conducted by means of electronic transfers such as “book entries” effectuated by a
-66-
Case 3:11-cv-01826 Document 1
“registrar.”
The
evidence
of
Filed 08/19/11 Page 70 of 82
such
transfers
was
maintained
through electronic entries and devoid of physical documentary receipts
of
interstate
the
wire
investments. included
The
monies
the
funds
so
transferred
Defendants
embezzled
by or
misappropriated from the Plaintiffs and Class as result of
the
Scheme
to
Defraud,
in
violation
of
the
Wire
Fraud
Statute, 18 U.S.C. § 1341. 13.28 Upon information and belief, at least up to 2009, the Northern Trust Company continued to handle the JUA’s investments and the investment transactions continued to be conducted by means of electronic transfers. 13.29 The specific date when each wire transfer of funds was made can be readily ascertained from the records in the possession or under the control of the JUA and the Northern Trust Company. 13.30 Each of these wire transfers is a predicate act that is indictable as wire fraud and together they also constitute a pattern of racketeering activity. 13.31 From 1998 to 2008, as shown in Table IV below, the JUA
reported
$322,892,940.00
in net
investments, as follows:
-67-
income
derived
from
its
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 71 of 82
TABLE IV Total income From Investments
Year
Investment Income
Investment Gain
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
$6,767,898 $9,306,809 $12,142,524 $11,769,936 $6,316,884 $7,687,535 $9,349,563 $9,252,932 $9,836,631 $11,881,736 $12,470,940
$0 -$552,474 $710,511 $4,426,037 $1,769,451 $2,689,996 $1,907,637 $2,352,960 -$20,320 -$6,146,912
$6,767,898 $8,754,335 $12,853,035 $16,195,973 $8,086,335 $10,377,531 $11,257,200 $8,564,727 $9,836,631 $11,881,736 $64,152,640
Totals
$106,783,388
$7,136,886
$113,920,274 = $322,892,940
13.32 Through the conduct described above, the JUA, as the ENTERPRISE, which is engaged in, and which activities affect interstate
commerce,
knowingly,
intentionally
and
unlawfully,
received income from investments, which was derived, directly or indirectly, from the pattern of racketeering activity in which the
JUA
Section
participated 2,
Title
18,
as
a
principal
United
States
within Code
the (18
meaning USCS
§
of 2),
committing predicate acts of wire fraud; the JUA then used or invested, directly or indirectly, part of such income, or the proceeds
of
such
income,
in
the
operation
of
itself
as
an
ENTERPRISE, i.e., the sale of motor vehicle compulsory liability insurance policies fraudulently containing hidden charges for non-incurred costs to derive racketeering income, in violation of 18 U.S.C. § 1962(a).
-68-
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C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(a): 13.33 As proximate cause of the JUA’s violations to Section 1962(a), the Plaintiffs and Class were injured in their property
inasmuch
as
each
has
been
object
of
fraud
in
the
collection of a in excess of the monetary amount really spent or in the process of being spent by Defendants for the compulsory liability insurance policy, without having received the refund or return required by law. 13.34
The
injuries
suffered
by
the
Representative
Plaintiffs and Class since 1998, and up to 2010, is reasonably estimated in the amount of $406,618,935.00. 13.35 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs and the Class Member they represent, shall recover threefold the damages they have sustained. 13.36 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs are entitled to reasonable attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class threefold the monies they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount
-69-
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Filed 08/19/11 Page 73 of 82
of ONE BILLION TWO HUNDRED NINETEEN MILLION EIGHT HUNDRED FIFTY TWO THOUSAND EIGHT HUNDRED AND FIVE DOLLARS ($1,219,852,805.00); granting them pre-judgment and post-judgment interests; awarding them a reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. COUNT III – VIOLATIONS TO SECTION 1962(d) OF RICO A. THE ENTERPRISE: 13.37
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.38 This cause of action arises under 18 U.S.C. § 1962(d) and is asserted against all the Defendants. 13.39 For purposes of this particular cause of action under Section
1962(d),
the
ENTERPRISE
is
the
association
in
fact
defined in Section VIII, supra. B. THE CONSPIRACY: 13.40 All the Defendants and others unknown, aiding and abetting each other, acting in concert and/or combination, did knowingly,
intentionally,
and
unlawfully
agree
to
commit
the
multiple predicate acts of mail fraud (specifically described herein
before)
activity
(also
forming
the
described
alleged
herein
-70-
pattern
before),
as
of
racketeering
part
of
their
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unlawful Scheme to Defraud the, and to obtain money from, the Representative
Plaintiffs
acquired
motor
policies
the
costs,
Class
vehicle
fraudulently
incurred
and
and
compulsory
containing thereby
the
who
purchased
liability
hidden
charges
unlawfully
or
insurance for
non-
defrauded
the
Representative Plaintiffs and Class . 13.41
All
the
Defendants
have
violated
Section
1962(d),
inasmuch as, in furtherance of their Scheme to Defraud and in order to effects its objectives, they knowingly, intentionally, and unlawfully, aiding and abetting each other, conspired to conduct and participate in, and did conduct and participate in, directly or indirectly, the affairs of the ENTERPRISE, through the pattern of racketeering activity described herein before, in violation to Section 1962(c). C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(d): 13.42 As proximate cause of the JUA’s violations to Section 1962(d), the Plaintiffs and Class were injured in their property
inasmuch
as
each
has
been
object
of
fraud
in
the
collection of a in excess of the monetary amount really spent or in the process of being spent by Defendants for the compulsory liability insurance policy, without having received the refund or return required by law.
-71-
Case 3:11-cv-01826 Document 1
13.43
The
injuries
Filed 08/19/11 Page 75 of 82
suffered
by
the
Representative
Plaintiffs and Class since 1998, and up to 2010, is reasonably estimated in the amount of $406,618,935.00. 13.44 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs and the Class Member they represent, shall recover threefold the damages they have sustained. 13.45 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs are entitled to reasonable attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class threefold the monies they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of ONE BILLION TWO HUNDRED NINETEEN MILLION EIGHT HUNDRED FIFTY TWO THOUSAND EIGHT HUNDRED AND FIVE DOLLARS ($1,219,852,805.00); granting them pre-judgment and post-judgment interests; awarding them a reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court.
-72-
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COUNT IV – THE INSURANCE CODE VIOLATIONS 13.46
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.47 This cause of action arises under the Puerto Rico Insurance Code and is asserted against all the Defendants. 13.48 Article 27.160 of the Insurance Code prohibits the insurers to collect s for its policies that include items or charges which are improper, speculative or do not adjust to reality and the insurers are obliged to give back the excess of the amount really spent or on the way to being spent for the corresponding insurance. 13.49
The
Defendants
conspired
to,
and
did,
engage
in
conduct designed to deceive the Representative Plaintiffs and the Class and take their money and property under false pretenses and through improper, inequitable and illegal means. 13.50 Not reimbursing the 8% of acquisition costs and the 4% of istrative costs for the uniform s of $99 and $148, which were not incurred, constitutes a flagrant violation to
Article
27.160
of
the
Insurance
Code,
which
forbids
the
illegal dealing in s. 13.51 As a result of the mentioned conspiracy and illegal conduct, the Defendants wrongfully obtained money belonging to
-73-
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the Representative Plaintiffs and the Class and were thereby unjustly enriched at the latter’s expense. 13.52 The Defendants are tly and severally responsible and
liable
for
disgorging
all
money
that
they
wrongfully
obtained through their illegal conduct, and for restoring such money to the Representative Plaintiffs and the Class , plus pre-judgment and post-judgment interest. 13.53
The
Defendants
have
denied
responsibility
for
the
damages claimed herein. Due to said obstinate and temerarious denial, and pursuant to the provisions of Rule 44 of the Rules of
Civil
Procedure
Representative
of
the
Plaintiffs
Commonwealth and
the
of
Class
Puerto
Rico,
are
the also
entitled to be awarded a reasonable amount for attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class the amounts of money they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of
FOUR
HUNDRED
HUNDRED THIRTY
pre-judgment
MILLION
FIVE
and
SIX
DOLLARS
HUNDRED
EIGHTEEN
THOUSAND
NINE
($406,618,935.00);
granting
them
post-judgment
-74-
interests;
awarding
them
a
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reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. COUNT V – DECEIT (“DOLO”) IN THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS 13.54
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.55 This cause of action arises under the Puerto Rico Civil Code and is asserted against all the Defendants. 13.56 The Defendants, knowingly and intentionally, through deceitful
means,
avoided
complying
with
their
contractual
obligation of reimbursing the costs for the uniform s of $99 and $148, which were not incurred, to the Representative Plaintiffs and the Class . 13.57 The Defendants are tly and severally responsible and
liable
for
disgorging
all
money
that
they
wrongfully
obtained through their illegal conduct, and for restoring such money to the Representative Plaintiffs and the Class , plus pre-judgment and post-judgment interest. 13.58
The
Defendants
have
denied
responsibility
for
the
damages claimed herein. Due to said obstinate and temerarious denial, and pursuant to the provisions of Rule 44 of the Rules of
Civil
Procedure
of
the
Commonwealth -75-
of
Puerto
Rico,
the
Case 3:11-cv-01826 Document 1
Representative
Plaintiffs
and
Filed 08/19/11 Page 79 of 82
the
Class
are
also
entitled to be awarded a reasonable amount for attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class the amounts of money they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of
FOUR
HUNDRED
HUNDRED THIRTY
pre-judgment
MILLION
FIVE
and
SIX
DOLLARS
HUNDRED
EIGHTEEN
THOUSAND
NINE
($406,618,935.00);
granting
them
post-judgment
interests;
awarding
them
a
reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. XIV. PERMANENT INJUNCTION AND DECLARATORY JUDGMENT 14.1
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 14.2 A permanent injunction and a declaratory judgment will serve the public interest in putting an end to the Defendants’ fraudulent
conduct,
where
they,
knowingly,
intentionally
and
willfully, fraudulently collected and continue to collect funds
-76-
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Filed 08/19/11 Page 80 of 82
in their annual insurance as the purported acquisition (i.e.
brokerage
going
to
be
fees)
and
incurred,
istrative
without
costs
thereafter
that
are
not
effectuating
the
corresponding refund or return of such non-incurred costs to the Representative Plaintiffs and the Class , in violation to the dispositions of the Puerto Rico Insurance Code. 14.3
The
declaratory
issuance
judgment
of
will
a
also
permanent serve
the
injunction public
and
a
interest
in
putting an end to the illegal retention by Defendants of the portion of or charge for compulsory insurance in excess of the amount really spent by the insurer, which resulted and continues to result in a windfall to Defendants of millions of dollars of illegal gains, in violation of RICO. 14.4 prevail,
The will
Defendants’ cause
the
unlawful
conduct,
Representative
if
Plaintiffs
allowed and
to
Class
permanent irreparable injury, as discussed, ante. 14.5 Class
The
injuries far
to
outweigh
the
Representative
any
harm
which
Plaintiffs
may
be
caused
and to
Defendants should the Court grant the injunctive relief. 14.6 A permanent injunction and a declaratory judgment will serve the public interest in that the Representative Plaintiffs and
Class
will
not
be
subjected
to
the
Defendants’
unlawful conduct and will not be deprived of their personal
-77-
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property. XV. PRAYER FOR RELIEF WHEREFORE, it is respectfully requested that Judgment be entered by this Honorable Court in favor of the Plaintiffs and tly and severally against the Defendants: A.
Certifying the Classes defined in this complaint.
B.
Granting the Plaintiffs and Class all the monetary
compensations
and
equitable
relief
requested in the complaint. C.
Impoon the Defendants the payment of all costs
and
expenses
to
be
incurred
in
this
lawsuit. D.
Granting
the
Plaintiffs
and
Class
reasonable attorneys’ fees. E.
The
issuance
declaratory
of
a
judgment
permanent barring
injunction the
and
Defendants
continued conduct and practices. F.
Granting
the
Plaintiffs
any
other
relief
that
they may be entitled to as a matter of law.
RESPECTFULLY SUBMITTED. In San Juan, Puerto Rico, this 18th day of August, 2011.
-78-
Case 3:11-cv-01826 Document 1
ATTORNEYS FOR PLAINTIFFS: S/JOSE F. QUETGLAS JORDAN USDC-PR NO. 203411 Email: [email protected] QUETGLAS LAW OFFICES PO Box 16606 San Juan PR, 00908-6606 Tel: (787) 722-0635/722-7745 Fax: (787) 725-3970
-79-
Filed 08/19/11 Page 82 of 82
Filed 08/19/11 Page 1 of 82
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO NOEMI TORRES RONDA; ANGELO RIVERA LAMBOY
* * * Plaintiffs, * * v., * * T UNDERWRITING ASSOCIATION; * CARIBBEAN ALLIANCE INSURANCE COMPANY; * CHARTIS INSURANCE COMPANY OF PUERTO * RICO; COOPERATIVA DE SEGUROS MULTIPLES * RICO DE PUERTO RICO; INTEGRAND ASSURANCE* COMPANY; MAPFRE-PRAICO; NATIONAL * INSURANCE COMPANY; OPTIMA INSURANCE * COMPANY; REAL LEGACY ASSURANCE COMPANY, * INC.; ROYAL & SUN ALLIANCE OF PUERTO * RICO, INC.; SEGUROS TRIPLE-S PROPIEDAD * INC.; UNIVERSAL INSURANCE COMPANY; * ALLSTATE INSURANCE COMPANY; GENERAL * ACCIDENT INSURANCE COMPANY; NATIONWIDE * MUTUAL INSURANCE COMPANY; INSURANCE * COMMISSIONER OF THE COMMONWEALTH OF * PUERTO RICO, RAMÓN L. CRUZ-COLÓN, in * his official capacity; SECRETARY OF THE * DEPARTMENT OF TRANSPORTATION AND PUBLIC * WORKS, RUBEN A. HERNANDEZ GREGORAT, in * his official capacity; and, SECRETARY * OF THE DEPARTMENT OF THE TREASURY of * the COMMONWEALTH OF PUERTO RICO, JESUS * F. MENDEZ, in his official capacity, * * Defendants. * *****************************************
CIVIL NO.:
RE: CIVIL CLASS ACTION PLAINTIFFS DEMAND TRIAL BY JURY
PLAINTIFFS’ CLASS ACTION COMPLAINT
Case 3:11-cv-01826 Document 1
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INDEX Page(s) I. NATURE OF THE ACTION
1-4
II. JURISDICTION AND VENUE
4-5
III. PARTIES
5-17
A. PLAINTIFFS AND CLASS DEFINITION
5-7
B. THE DEFENDANTS
7-17
IV. ASSOCIATED IN FACT INDIVIDUALS
17-19
V. OTHER PARTICIPANT INDIVIDUALS
19
VI. THE COMPULSORY LIABILITY INSURANCE SYSTEM
19-27
VII. DEFENDANTS’ SCHEME TO DEFRAUD
28-30
VIII. THE ENTERPRISE
30-32
IX. COMMON FACTUAL ALLEGATIONS
32-49
X. THE PREDICATE ACTS
50-51
XI. THE PATTERN OF RACKETEERING ACTIVITY
51-52
XII. CLASS ALLEGATIONS
53-59
XIII. LAW VIOLATIONS IN FURTHERANCE OF THE SCHEME TO DEFRAUD
59-76
COUNT I – VIOLATIONS TO SECTION 1962(c) OF RICO
59-65
A. THE ENTERPRISE
59-61
B. RACKETEERING PREDICATE ACTS
61-63
C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(c)
63-65
COUNT II – VIOLATIONS TO SECTION 1962(a) OF RICO
65-70
A. THE ENTERPRISE
65
B. THE RACKETEERING INCOME
65-68 Page(s)
ii
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C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(a) COUNT III – VIOLATIONS TO SECTION 1962(d) OF RICO
68-70 70-72
A. THE ENTERPRISE
70
B. THE CONSPIRACY
70-71
C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(d)
71-72
COUNT IV – THE INSURANCE CODE VIOLATIONS
73-75
COUNT V – DECEIT (“DOLO”) IN THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS
75-76
XIV. PERMANENT INJUNCTION AND DECLARATORY JUDGMENT
76-78
XV. PRAYER FOR RELIEF
78
iii
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TO THE HONORABLE COURT: Plaintiffs,
by
through
the
undersigned
counsels,
very
respectfully state, allege, and request: I. NATURE OF THE ACTION 1.1
The
present
litigation
vehicle owners, pursuant to
is
a
class
action
of
motor
Title IX of the Organized Crime
Control Act of 1970, otherwise known as Racketeer Influenced and Corrupt Organizations Act (henceforth "RICO"), as well as the provisions of Rule 23 of Federal Civil Procedure, in which the Representative Plaintiffs, on behalf of the Class, request that the Defendants return to the owners of motor vehicles
those
portions of the annual dollar- collected from them when they acquired the policies of the compulsory liability insurance established by law, and which were withheld and misappropriated by the Defendants, in violation to the Puerto Rico Insurance Code. 1.2
The Representative Plaintiffs were insured under the
Compulsory Motor Vehicle Liability Insurance Act, Law 253 of December 27, 1995, codified at 26 P.R. Laws Ann. §§ 8051 et seq. (henceforth "Law 253"), which came into effect on January 1, 1998. They had to pay either a of $99.00 for a private unit or a of $148 for a commercial unit, which are uniform, the same as approximately the other 2,400,000 owners of private and commercial motor vehicles in Puerto Rico.
Case 3:11-cv-01826 Document 1
1.3
Filed 08/19/11 Page 5 of 82
The Defendants, the entity created by Law 253 and the
individual advantage
insurance of
their
companies
interlocking
that
comprise
directorships,
it,
taking
conspired
and
agreed with each other to engage, and did in fact engage, in millions of predicate acts of mail fraud, in violation of RICO, 18 U.S.C. §§ 1341, 1962, as part of a scheme to defraud and obtain money from Puerto Rican motor vehicle owners. 1.4
The Defendants devised a scheme or artifice to defraud
whereby they charged all Puerto Rican motor vehicle owners an 8% of the dollar by concept of an “acquisition cost” for services of brokers that they knew were not going to be used by the
insured,
plus
an
amount
estimated
in
4%
of
the
do1lar
by concept of an “istrative cost" for the issuance of paper copies of policies, which they never intended to issue to the insured. The Defendants, thereafter, failed to reimburse to the motor vehicle owners the price they had unknowingly paid for such non-incurred charges, hidden in the annual insurance
rate,
amounting
to
12%
of
its
cost.
Instead,
the
Defendants embezzled such funds for their own pecuniary benefit. 1.5
The collection of the acquisition and istrative
costs, without the corresponding refund or return of the portion of the not incurred as costs constitutes illegal dealing in s prohibited by the dispositions of the Puerto Rico Insurance Code. 2
Case 3:11-cv-01826 Document 1
1.6
The
illegal
retention
Filed 08/19/11 Page 6 of 82
and
embezzlement
by
the
Defendants of the portion of the or charge for insurance in excess of the amount spent resulted in million of dollars of illegal gains for them. 1.7
From the year 1998 to the present, in furtherance of
the scheme to defraud Puerto Rican motor vehicle owners, the Defendants
caused,
and
continue
to
cause,
the
United
States
mails to be used to send millions of licenses or registrations to the over 2,400,000 motor vehicle owners, which contained the charges for the payment of the compulsory insurance policy. Each of these mailings is an act that is indictable as mail fraud and together they constitute a pattern of racketeering activity. By conspiring to conduct, and in fact conducting, the affairs of their ENTERPRISE, as defined hereunder, through this pattern of racketeering activity, the Defendants violated RICO, 18 U.S.C. § 1962(c) & (d). As result, the Representative Plaintiffs and the Class were injured in their property. 1.8
Furthermore,
the
insurer
created
by
Law
253
transmitted, by means of interstate wire, racketeering proceeds gained from the scheme to defraud to a financial institution in Chicago, Illinois. Each of these wire transfers is a predicate act that is indictable as wire fraud, under 18 U.S.C. § 1343, and together they constitute a separate and distinct pattern of racketeering activity. This insurer then used or invested income 3
Case 3:11-cv-01826 Document 1
received
from
both
Filed 08/19/11 Page 7 of 82
patterns
of
racketeering
activity
respectively comprised of predicate acts of mail or wire fraud, in
its
business
operations,
in
order
to
further
engage
in
illegal dealing in s, in violation of RICO, 18 U.S.C. § 1962(a). As result, the Representative Plaintiffs and the Class continued to be injured in their property. 1.9
Moreover, the Representative Plaintiffs are requesting
declaratory and injunctive relief. A declaratory judgment and permanent injunction will guarantee that the Defendants and all parties cease and permanently desist from engaging in illegal dealings in s as to the Representative Plaintiffs and the Class regarding the costs for brokerage services and paper copies of policies, in violation of the applicable laws, statutes and regulations. Such relief will also ensure that the Puerto Rico Insurance Commissioner, the Secretary of the Puerto Rico
Department
of
Transportation
and
Public
Works
and
the
Secretary of the Treasury Department do not acquiesce to the Defendants’ conduct. 1.10 Pursuant to the Seventh Amendment of the United States Constitution, the Representative Plaintiffs demand a trial by jury in the instant case. Fed. R. Civ. P. 38b. II. JURISDICTION AND VENUE 2.1
This Honorable Court has jurisdiction over this civil
action pursuant to 28 U.S.C. § 1331, this being a civil action 4
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which arises under 18 U.S.C. §§ 1961-1968, 901(a) of RICO, and in particular, under 18 U.S.C. § 1964. 2.2
Venue
is
proper
in
the
instant
case
as
all
claims
arise from events that have occurred and are occurring within the jurisdiction of this Court in the Commonwealth of Puerto Rico. 2.3
The
Representative
Plaintiffs
further
invoke
the
supplemental jurisdiction of this Court to hear and adjudicate claims arising under the laws of the Commonwealth of Puerto Rico,
specifically,
under
Article
27.160
of
the
Puerto
Rico
Insurance Code, 26 P.R. Laws Ann. § 2716, Articles 1054 and 1060 of the Puerto Rico Civil Code, 31 P.R. Laws Ann. §§ 3018, 3024, and Act No. 118 of June 25, 1971, 32 P.R. Laws Ann. § 3341, since they are so related to the afore stated federal claims that they all form part of the same case or controversy under Article III of the Constitution of the United States. 2.4
Pursuant to Rule 65(b) of the Federal Rules of Civil
Procedure,
this
Court
has
jurisdiction
to
issue
a
Permanent
Injunction. III. PARTIES A. PLAINTIFFS AND CLASS DEFINITION: 3.1
The individual Plaintiffs and Class represent
two Classes of Plaintiffs.
5
Case 3:11-cv-01826 Document 1
3.2
The
First
Class
of
Filed 08/19/11 Page 9 of 82
Plaintiffs
is
defined
as
all
private motor vehicle owners in the Commonwealth of Puerto Rico, who in compliance with the Compulsory Motor Vehicle Liability Insurance Act, acquired compulsory insurance during the years 1998 to the present, paying the uniform annual of $99.00 (henceforth referred to as the “Private-Vehicle Class”). 3.3
The Plaintiff Representative, who appears on her own
behalf, and on behalf and for the benefit of all other of the
Private-Vehicle
resident
of
Cabo
Class,
Rojo,
is
NOEMI
Puerto
Rico,
TORRES and
RONDA,
owner
of
married, the
motor
vehicle model Mirage, make Mitsubishi, year 1998, and license plate CZM631. 3.4
The
Second
Class
of
Plaintiffs
is
defined
as
all
commercial motor vehicle owners in the Commonwealth of Puerto Rico,
who
in
compliance
with
the
Compulsory
Motor
Vehicle
Liability Insurance Act, acquired compulsory insurance during the years 1998 to the present, paying the uniform annual of $148.00 (henceforth referred to as the “Commercial-Vehicle Class”). 3.5
The Plaintiff Representative, who appear on his own
behalf, and on behalf and for the benefit of all other of the Commercial-Vehicle Class, is ANGELO RIVERA LAMBOY, married, resident
of
Aibonito,
Puerto
Rico,
6
and
owner
of
the
motor
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vehicle model F150, make Ford, year 1997, and license plate 795770. 3.6 Vehicle
Excluded Classes
from
are:
the
Private-Vehicle
Defendants;
and
Defendants’
Commercial-
employees,
co-
conspirators, officers, directors, legal representatives, heirs, successors and wholly or partly owned subsidiaries or d companies; judicial
class
counsel
and
their
officers
and
their
employees;
immediate
the
family
Judge
and and
associated court staff assigned to this case; and, all persons within the third degree of relationship to any such persons. 3.7
The Plaintiffs have learned of the facts object of the
present action within the four years prior to the filing of the present
complaint.
Moreover,
as
a
result
of
the
Defendants’
fraudulent concealment, the applicable statutes of limitations have been tolled or have not yet begun to run. B. THE DEFENDANTS: 3.8 The Defendants are: the T UNDERWRITING ASSOCIATION or, in Spanish, “Asociación de Suscripción Conjunta De Seguro De Responsabilidad
Obligatorio”
("JUA");
CARIBBEAN
ALLIANCE
INSURANCE COMPANY (“CAICO”); CHARTIS INSURANCE CO., OF PUERTO RICO
(“CHARTIS”),
formerly
known
as
AMERICAN
INTERNATIONAL
INSURANCE COMPANY OF PUERTO RICO (“AIG”); COOPERATIVA DE SEGUROS MULTIPLES DE PUERTO RICO (“COOPERATIVA”); INTEGRAND ASSURANCE COMPANY (“INTEGRAND”); MAPFRE-PRAICO, formerly known as PUERTO 7
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RICO AMERICAN INSURANCE COMPANY (“PRAICO”); NATIONAL INSURANCE COMPANY (“NATIONAL”); OPTIMA INSURANCE COMPANY (“OPTIMA”); REAL LEGACY ASSURANCE COMPANY, INCORPORATED (“REAL LEGACY”); ROYAL & SUN
ALLIANCE
OF
PUERTO
RICO,
INCORPORATED
(“ROYAL
&
SUN”);
SEGUROS TRIPLE-S PROPIEDAD, INCORPORATED (“TRIPLE-S”); UNIVERSAL INSURANCE COMPANY (“UNIVERSAL”); MAPFRE PREFERRED RISK INSURANCE COMPANY,
formerly
(“PREFERRED GENERAL
RISK”);
ACCIDENT
NATIONWIDE
know
MUTUAL
as
PREFERRED
ALLSTATE INSURANCE
RISK
INSURANCE COMPANY
INSURANCE
INSURANCE
COMPANY (“GENERAL
COMPANY
COMPANY
(“ALLSTATE”); ACCIDENT”);
(“NATIONWIDE”);
the
Insurance Commissioner of the Commonwealth of Puerto Rico, RAMON L. CRUZ-COLON (“CRUZ-COLON”); the Secretary of the Department of Transportation
and
Public
Works,
RUBEN
A.
HERNANDEZ-GREGORAT
(“HERNANDEZ-GREGORAT”); and, the Secretary of the Department of the Treasury of the Commonwealth of Puerto Rico, JESUS F. MENDEZ (“MENDEZ”). 3.9
The JUA was created by Law 253 as a private legal
entity, for profit, and with “general corporate powers,” such as the faculties to sue and be sued. See, 26 P.R. Laws Ann. §§ 8055(A), §2905. 3.10 The JUA is composed of all “private insurers” whose volume
of
s
underwritten
for
motor
vehicle
liability
insurance is greater than one percent (1%) of the total volume of motor vehicle liability insurance s underwritten in 8
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Puerto Rico. 26 P.R. Laws Ann., §
8052(b). Presently, these
insurance companies are CAICO, CHARTIS, COOPERATIVA, INTEGRAND, MAPFRE–PRAICO,
NATIONAL,
OPTIMA,
REAL
LEGACY,
TRIPLE-S
and
UNIVERSAL. In the past, at some point or another in time, AIG (now known as CHARTIS), PRAICO (now known as MAPFRE–PRAICO), ROYAL
&
SUN,
PREFERRED
RISK,
ALLSTATE,
GENERAL
ACCIDENT
and
NATIONWIDE also formed part of the JUA. 3.11
At
COOPERATIVA,
all
times
INTEGRAND,
relevant
herein,
MAPFRE–PRAICO,
CAICO,
NATIONAL,
CHARTIS,
OPTIMA,
REAL
LEGACY, TRIPLE-S, UNIVERSAL, AIG, PRAICO, ROYAL & SUN, PREFERRED RISK,
ALLSTATE,
collectively
GENERAL
referred
ACCIDENT
to
as
and
NATIONWIDE
“traditional
(henceforth
insurers”)
were
incorporated or organized under the laws of, and with their principal
places
of
business
in,
the
Commonwealth
of
Puerto
Rico, where they were authorized to conduct, as they conducted, the business of insurance. 3.12 Since its creation, the JUA’s Board of Directors, by law, was to be comprised of five Directors. The of the JUA elected four Directors, while the fifth Director was the officer in charge of the JUA. In the year 2002, the number of of the JUA’s Board of Directors was increased by law to seven, of which three were to be appointed by the Governor of the
Commonwealth
of
Puerto
Rico
and
the
remaining
four
are
of the JUA. However, the Governor, as mandated by law, 9
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never appointed the three additional directors of the JUA. The 2009 amendment to Law 253 provided that the three governmental appointees cannot be public officers and must be knowledgeable of the insurance market. 26 P.R. Laws Ann. § 8055(f). 3.13 The Board of Directors of the JUA, since its creation in December 27, 1995, and up to the present, has served as a conduit for the ENTERPRISE’S fraudulent objectives, by which the interlocking directors of the JUA and the traditional insurer
of
knowingly, devised,
such
ENTERPRISE,
intentionally organized,
tly
and
and
with
unlawfully,
assisted
in
other
individuals,
have
met,
planned,
the
adoption
and
implementation of part, or all, of the fraudulent artifices that form part of the Scheme to Defraud defined herein after. 3.14 In the years 1996 and 1997, the Board of Directors of the JUA was comprised of the following individuals: Juan Antonio Terrassa
(“Terrassa”),
President,
and
also,
President
of
the
Board of Directors of PRAICO; Luis Miranda-Casañas (“MirandaCasañas”), Vice-President, and also, President of the Board of Directors of UNIVERSAL; Edwin Quiñones (“Quiñones”), Director, and also, President of the Board of Directors of COOPERATIVA; Dennis
Hanftwurzel
(“Hanftwurzel”),
Director,
and
also,
President of the Board of Directors of GENERAL ACCIDENT; Hilda Rodriguez-Forteza,
Esq.
(“Rodriguez-Forteza”);
Rodriguez, Esq.(“Rodriguez). 10
and,
Alberto
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3.15 In the year 1998, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
of
the
Board
Vice-President,
Directors
of
of
and
UNIVERSAL;
Directors
also,
of
President
Adrian
Ortiz
PRAICO; of
the
(“Ortiz”),
Executive Director; Quiñones, Director, and also, President of the Board of Directors of COOPERATIVA; Rodriguez-Forteza; and, Rodriguez. 3.16 In the year 1999, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
Quiñones,
of
the
Board
Vice-President,
Directors Director,
of
and
UNIVERSAL;
and
also,
of
Directors
also,
Ortiz,
President
of
PRAICO;
President Executive of
the
of
the
Director; Board
of
Directors of COOPERATIVA; Patricia Gonya (“Gonya”), Director, and
also,
Director
of
the
Board
of
NATIONWIDE;
Rodriguez-
Forteza; and, Rodriguez. 3.17 In the year 2000, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
Quiñones,
of
the
Board
Vice-President,
Directors Director,
of
and
UNIVERSAL;
and
also,
11
of
Directors
also,
Ortiz,
President
of
PRAICO;
President Executive of
the
of
the
Director; Board
of
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Directors of COOPERATIVA; Gonya, Director, and also, Director of the Board of NATIONWIDE; Rodriguez-Forteza; and, Rodriguez. 3.18 In the year 2001, the Board of Directors of the JUA was comprised of the following individuals: Terrassa, President, and
also,
President
Miranda-Casañas, Board
of
Director,
the
Board
Vice-President,
Directors and
of
also,
of
and
UNIVERSAL;
President
of
of
Directors
also, Rene
the
of
PRAICO;
President Campos
Board
of
of
the
(“Campos”), Directors
of
COOPERATIVA; Victor Salgado-Micheo (“Salgado-Micheo”), Director, and also, Director of the Board of INTEGRAND. 3.19 In the year 2002, the Board of Directors of the JUA was comprised of the following individuals:
Campos,
President,
and also, President of the Board of Directors of COOPERATIVA; Miranda-Casañas,
Vice-President,
and
also,
President
of
the
Board of Directors of UNIVERSAL; Salgado-Micheo, Director, and also, Director of the Board of INTEGRAND; and, Antonio Huertas (“Huertas”),
Director,
and
also
President
of
the
Board
of
Directors of PRAICO. 3.20 In the year 2003, the Board of Directors of the JUA was comprised of the following individuals:
Campos,
President,
and also, President of the Board of Directors of COOPERATIVA; Salgado-Micheo, Vice-President, and also, President of the Board of Directors of INTEGRAND; Miranda-Casañas, Director, and also, President of the Board of Directors of UNIVERSAL; and, Huertas, 12
Case 3:11-cv-01826 Document 1
Director,
and
also
President
Filed 08/19/11 Page 16 of 82
of
the
Board
of
Directors
of
PRAICO. 3.21 In the year 2004, the Board of Directors of the JUA was comprised of the following individuals:
Campos,
President,
and also, President of the Board of Directors of COOPERATIVA; Miranda-Casañas,
Vice-President,
and
also,
President
of
the
Board of Directors of UNIVERSAL; Salgado-Micheo, Director, and also, President of the Board of Directors of INTEGRAND; and, Raul Costilla (“Costilla”), Director, and also, President of the Board of Directors of PRAICO. 3.22 In the year 2005, the Board of Directors of the JUA was
comprised
of
the
following
individuals:
Miranda-Casañas,
President, and also, President of the Board of Directors of UNIVERSAL; Salgado-Micheo, Vice-President, and also, President of the Board of Directors of INTEGRAND; Campos, Director, and also, President of the Board of Directors of COOPERATIVA; and, Costilla,
Director,
and
also,
President
of
the
Board
of
Directors of PRAICO. 3.23 In the year 2006, the Board of Directors of the JUA was
comprised
of
(“Rios”),
President,
Directors
of
REAL
the and
following also,
LEGACY;
President
Eva
President, and also, President
individuals:
Salgado
of
Victor the
Rios
Board
(“Salgado”),
of
Vice-
of the Board of Directors of
TRIPLE-S; Costilla, Director, and also, President of the Board 13
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of Directors of PRAICO; and, Francisco Diaz, Director, and also, President of the Board of Directors of AIG, now CHARTIS. 3.24 In the year 2007, the Board of Directors of the JUA was
comprised
of
the
following
individuals:
Miranda-Casañas,
President, and also, President of the Board of Directors of UNIVERSAL; Salgado-Micheo, Vice-President, and also, President of the Board of Directors of INTEGRAND; Campos, Director, and also, President of the Board of Directors of COOPERATIVA; and, Costilla,
Director,
and
also,
President
of
the
Board
of
Directors of PRAICO. 3.25 In the year 2008, the Board of Directors of the JUA was comprised of the following individuals: Rios, President, and also, President of the Board of Directors of REAL LEGACY; Luis Berrios (“Berrios”), Vice-President, and also, President of the Board of Directors of UNIVERSAL; Salgado, Director, and also, President of the Board of Directors of TRIPLE-S; and, Costilla, Director,
and
also,
President
of
the
Board
of
Directors
of
MAPFRE-PRAICO. 3.26 In the year 2009, the Board of Directors of the JUA was comprised of the following individuals: Rios, President, and also,
President
of
the
Board
of
Directors
of
REAL
LEGACY;
Berrios, Vice-President, and also, President of the Board of Directors of UNIVERSAL; Salgado, Director, and also, President
14
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of the Board of Directors of TRIPLE-S; and, Costilla, Director, and also, President of the Board of Directors of PRAICO. 3.27 In the year 2010, the Board of Directors of the JUA was comprised of the following individuals: Rios, President, and also,
President
Monique
of
Miranda,
the
Board
of
Vice-President,
Directors and
also,
of
REAL
President
LEGACY; of
the
Board of Directors of UNIVERSAL; Salgado, Director, and also, President
of
Director,
and
the
Board
also,
MAPFRE–PRAICO;
of
Directors
President
Eduardo
R
of
the
Emanuelli;
of
TRIPLE-S;
Board
of
Terrassa;
Costilla,
Directors and,
Angel
of M
Cintrón. 3.28 The Defendants, either on their own or through their agents, are currently found in, and/or transact business within, the
Commonwealth
of
Puerto
Rico,
and/or
at
the
time
of
the
commission of the acts alleged hereunder were found in, and/or transacted business within the Commonwealth of Puerto Rico, and the cause of action which is the object of this complaint arises out of those business transactions in the Commonwealth of Puerto Rico. 3.29 At all times relevant herein, the Defendants, on their own
or
through
their
agents
or
employees,
have
knowingly,
intentionally and unlawfully, aided and abetted and conspired with the other of the ENTERPRISE defined hereunder to commit within the Commonwealth of Puerto Rico the wrongful acts 15
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alleged in this complaint and/or committed or participated in the commission of those acts within or outside the Commonwealth of Puerto Rico, purposefully directing their wrongful acts toward the forum of Puerto Rico, causing in Puerto Rico, directly or indirectly, the violations of RICO and the injuries sustained by the Representative Plaintiffs and Class . 3.30 Each of the Defendants, individually, and through its association-in-fact with the other Defendants (the ENTERPRISE), is or has been engaged in, or its activities affect or have affected, interstate commerce. 3.31 Defendants'
racketeering
activities
were
conducted
through a pattern of acts and transactions, which occurred and/or had their effect within the Commonwealth of Puerto Rico. 3.32 CRUZ-COLON, as Insurance Commissioner, sets the of the compulsory liability insurance policy, the rate, and
the
amount
of
coverage.
By
statute,
the
Insurance
Commissioner is directed to establish the manner of distribution of
the
total
amount
of
s
received
by
the
JUA,
the
structure and operation of the JUA, and its direction by its Board of Directors, so that the JUA may accomplish its goals in a "cost-effective, fair and nondiscriminatory" manner; and, he has considerable supervision over the operating plan and the method of distribution.
16
26 P.R. Laws Ann., §§ 8055,
Case 3:11-cv-01826 Document 1
8056.
CRUZ-COLON
is
sued
in
Filed 08/19/11 Page 20 of 82
his
official
capacity
only
for
purposes of the implementation of injunctive relief. 3.33 HERNANDEZ-GREGORAT
oversees
and
isters
the
operations of the Department of Transportation and Public Works (“DTPW”), which issues and mails, via the U.S. Postal Service, the
motor
vehicle
registration,
which
includes
the
annual
for the compulsory liability insurance policy, to each motor vehicle owner. By statute, the Secretary of the DTPW is directed
to
provide
to
the
JUA
all
relevant
information
regarding the insured motor vehicle owners and the payment of the license stickers.
26 P.R. Laws Ann., § 8055.
HERNANDEZ-
GREGORAT is sued in his official capacity only for purposes of the implementation of injunctive relief. 3.34 MENDEZ oversees and isters the operations of the Department
for
of
the
the
Treasury
compulsory
(“Treasury”), liability
which
insurance
collects paid
by
the each
motor vehicle owner at the time he/she acquires or renews the motor vehicle's license. 26 P.R. Laws Ann., §§ 8051, 8053(a). The Secretary of the Treasury then turns over the total amount of the s so received to the JUA. Id., § 8055(c). MENDEZ is
sued
in
his
official
capacity
implementation of injunctive relief.
17
only
for
purposes
of
the
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IV. ASSOCIATED IN FACT INDIVIDUALS 4.1
Juan
A.
Garcia
(“Garcia”)
is
the
former
Insurance
Commissioner of the Commonwealth of Puerto Rico, for the period covering 1993 to 2001. As such, he knowingly, intentionally and unlawfully, aided and abetted and conspired with the of the ENTERPRISE in approving rates, rules and regulations that were used in carrying out the Scheme to Defraud described hereunder. 4.2
CRUZ-COLON
was
the
Assistant
to
the
Insurance
Commissioner Garcia, for the period covering 1993 to 2001. As such,
he
knowingly,
intentionally
and
unlawfully,
aided
and
abetted and conspired with the of the ENTERPRISE in furtherance of the Scheme to Defraud described hereunder. 4.3 the
Ortiz held the position of President of the JUA, in
years
Directors,
1997 in
to
the
2000, years
and
was
1998,
1999
member and
of
2000.
its He
Board
of
knowingly,
intentionally and unlawfully, planned, devised and concocted the fraudulent artifices that form part of the Scheme to Defraud defined hereunder, and aided and abetted and conspired with the of the ENTERPRISE in furtherance thereof. 4.4
Miranda-Casañas was a member of the Board of Directors
of the JUA, in the years 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005 and 2007. He knowingly, intentionally and unlawfully,
planned,
devised
and 18
concocted
the
fraudulent
Case 3:11-cv-01826 Document 1
artifices
that
form
part
of
Filed 08/19/11 Page 22 of 82
the
Scheme
to
Defraud
defined
hereunder, and aided and abetted and conspired with the of the ENTERPRISE in furtherance thereof. 4.5
Terrassa was a member of the Board of Directors of the
JUA, in the years 1996, 1997, 1998, 1999, 2000, 2001 and 2010. He knowingly, intentionally and unlawfully, planned, devised and concocted the fraudulent artifices that form part of the Scheme to
Defraud
conspired
defined
with
the
hereunder,
and
of
the
aided
and
ENTERPRISE
abetted
in
and
furtherance
thereof. V. OTHER PARTICIPANT INDIVIDUALS 5.
The
Insurance
Commissioners
of
the
Commonwealth
of
Puerto Rico, for the period covering from 2001, and up to the present
time,
were
either
willfully
blind,
and/or
knowingly,
intentionally and unlawfully, aided and abetted and conspired with
the
other
of
the
ENTERPRISE
in
allowing
the
perpetuation of the Scheme to Defraud defined hereunder. VI. THE COMPULSORY LIABILITY INSURANCE SYSTEM 6.1
Before
the
enactment
of
Law
253,
uninsured
drivers
caused over $110 million in damages to other vehicles each year in Puerto Rico, and it was estimated that only 25 percent to 30 percent of the vehicles in Puerto Rico were covered under some type of liability insurance.
19
Case 3:11-cv-01826 Document 1
6.2
Filed 08/19/11 Page 23 of 82
In view of the problem of financial loss as a result
of uncompensated damages to motor vehicles in traffic accidents, Law
253
created
a
compulsory
automobile
liability
insurance
system, which covers the damages caused to other motor vehicles in such accidents. To such ends, Law 253 requires every motor vehicle owner in Puerto Rico to obtain and keep a liability insurance coverage in effect to respond for damages caused by said individual to motor vehicles of third parties in a traffic accident. 26 P.R. Laws Ann., § 8051. 6.3
Beginning in the year 1998, this compulsory insurance
system provided each insured motor vehicle owner with $3,000 of coverage
for
damages
caused
to
another
motor
vehicle
per
accident in exchange for a uniform , set at $99 for each private enger vehicle and $148 for each commercial vehicle. 26 P.R. Laws Ann., §§ 8052(j) and 8056(a)). In the year 2009, the coverage of the compulsory insurance was increased to
a
$4,000 limit per accident. 26 P.R. Laws Ann., § 8052(k). 6.4
Law 253 allows the motor vehicle owners to obtain the
compulsory coverage through the traditional insurers or through the JUA. The traditional insurers are required by law to offer the
compulsory
traditional
liability
insurers
to
a
insurance
in
defined
class
two of
ways: drivers
both
as
and
as
of the JUA, to which they belong. 26 P.R. Laws Ann. §§ 8053(d),
8054(a),
8055(a).
Law 20
253
allows
the
traditional
Case 3:11-cv-01826 Document 1
insurers
to
reject
certain
Filed 08/19/11 Page 24 of 82
applicants
for
the
compulsory
insurance, pursuant to regulations promulgated by the Insurance Commissioner. Id., § 8054(b). The criteria for rejection are defined by the Insurance Commissioner's Puerto Rican Insurance Rule LXX ("Rule LXX"), promulgated in Regulation No. 6254, in December
of
2000.
Most
of
the
criteria
in
Rule
LXX
for
permissible rejections identify applicants who are bad drivers or otherwise of high risk. Rule LXX, Art. 8. 6.5
Law 253 created the JUA as a residual market insurer
to provide insurance coverage to the high-risk drivers rejected by the traditional insurers, 26 P.R. Laws Ann. § 8055(b), which were originally calculated to be around 3% of the applicants. 6.6
Law 253 allows motor vehicle owners to opt out of the
compulsory liability insurance scheme by purchasing traditional liability insurance with comparable or better coverage. Id., § 8061; Rule LXX, Art. 12(a). 6.7
Law 253 requires the traditional insurers to offer the
policy despite the availability of coverage from the JUA, 26 P.R. Laws Ann. §§ 8054(a), 8055(b), and allows them to apply for approval and to sell the compulsory insurance at less than the rate set by the Commonwealth, id. § 8056(c). The legislative history suggests that Law 253 was meant to encourage competition "between insurance companies wanting to have a greater number of insured, which will have to extend offers in order to attract 21
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them." Daily Sessions Record, Senate of Puerto Rico, Monday, October 9, 1995. As a result, the statutory scheme contemplated competition in compulsory insurance for non-high-risk drivers between traditional insurers themselves and between them and the JUA. See, Arroyo-Melecio v. Puerto Rican Am. Ins. Co., 398 F.3d 56, 60 (1st Cir. 2005). 6.8
The
DTPW
is
in
charge
of
the
billing
for
the
compulsory liability insurance. To that effect, the DTPW places in the post offices or authorized depositories for mail matter, the
registrations
containing
the
for
annual
all
motor
for
vehicles the
in
Puerto
compulsory
Rico,
insurance
policy, which are then delivered, by the U.S. Postal Service, to the motor vehicles owners. 6.9
Each
vehicle
owner
must
pay
the
for
the
compulsory liability insurance to the Secretary of the Treasury at the time he acquires or renews the vehicle's license. 26 P.R. Laws Ann., §§ 8051, 8053(a). The Secretary then turns over the total amount of the s so received to the JUA, which is then responsible for distributing the s among its and itself, as the case may be. Id., § 8055(c); Rule LXX, Art. 19. 6.10 The
motor
vehicle
registration
stamped
as
paid
constitutes evidence of compliance with the compulsory liability insurance system. 22
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6.11 Every motor vehicle for which the requisite compulsory liability insurance has been paid is considered to be insured by the JUA, unless the owner of the same has selected a traditional insurer or purchased a traditional insurance policy. See, Rule LXX, Art. 12(a). 6.12 When the owner of the motor vehicle had traditional liability insurance in effect at the time of the issuance or renewal of the license, the JUA was supposed to issue a check payable to the Secretary of the Treasury to be used by such insured to pay for the compulsory liability insurance ; but, in reality, the practice was that the insured paid such
to
the
Secretary
of
the
Treasury
at
the
moment
of
issuance or renewal of the license and could thereafter seek a credit of that to his traditional insurance from his insurer. Rule LXX, Art 10(a); 26 P.R. Laws Ann., § 8061(b). 6.13 The 2009 amendment to Law 253 requires the traditional insurer to issue to its insured a certification authorized by the JUA as evidence of compliance with the compulsory liability insurance, which the motor vehicle owner
may present to
the
Secretary of the Treasury to avoid making duplicate compulsory insurance payments. 26 P.R. Laws Ann., § 8061(b). When the motor vehicle owner pays the compulsory insurance directly to the Secretary of the Treasury, which is usually the case,
the
traditional
insurer
then 23
credits
in
the
s
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charged to the insured for the traditional liability insurance the amount of the payment received from the Secretary of the Treasury in compliance with the provisions of Law 253. Id. 6.14 All
of
the
JUA
share
in
its
profits
and
losses. 26 P.R. Laws Ann. § 8055(e). To compensate for the fact that the JUA would supposedly insure drivers considered to be high
risk
by
traditional
insurers,
all
the
JUA's
profits,
including those distributed to the traditional insurers, were originally exempt from income taxes, until the law was amended on September 24, 2002. But the 2009 amendment reestablished the tax exemption when the profits are deposited in governmental banks (“Banco Gubernamental de Fomento” or “Banco de Desarrollo Economico”). Id., § 8055. Through the JUA, the risk of insuring these high-risk drivers was supposed to be spread among all the traditional insurers. The profits distributed to the JUA (the traditional insurers) also encom the profits from the sale of non-high-risk policies insured by the JUA. See, ArroyoMelecio, 398 F.3d, at 62. 6.15 For both the traditional insurers and the JUA, the Commonwealth, through the Insurance Commissioner, sets the of
the
compulsory
policy
itself,
the
rate,
and
the
amount of coverage. 6.16 The Puerto Rico Mandatory Liability Insurance Uniform Policy,
the
policy
defining
the 24
of
the
compulsory
Case 3:11-cv-01826 Document 1
liability
insurance,
is
Filed 08/19/11 Page 28 of 82
set
forth
in
the
Insurance
Commissioner's rules. Rule LXX, Art. 22. This Uniform Policy is the sole written contract between the insured and the JUA. Id. Law 253 provides that such Uniform Policy shall be subject to the provisions of Chapter 11 of Title 26 of Puerto Rico Laws Annotated. 26 P.R. Laws Ann § 8054(c). Chapter 11, in turn, requires the issuance of a paper policy to the insured. 26 P.R. Laws
Ann
§
1114.
In
reality,
however,
a
paper
copy
of
the
Uniform Policy is not issued to the insured. 6.17 In
Arroyo-Melecio,
the
First
Circuit
squarely
held
that, while created by law, the JUA is "private in nature, for profit, and ... subject to the provisions of the [Insurance] Code applicable to insurers." 398 F.3d, at 62, quoting Rule LXX, Art. 2(c). See, also, Asociacion De Subscripcion Conjunta Del Seguro
De
Responsabilidad
Obligatorio
v.
Flores
Galarza,
484
F.3d 1, 20 (1st Cir. 2007) (same). 6.18 The
provisions
of
the
Puerto
Rico
Insurance
Code
relevant to the facts object of this action are listed below. A. Article 3.290, which requires that all insurance business be transacted through resident authorized agents or broker producers, in its relevant part, states the following: (1) No insurer may effectuate any direct insurance upon or relative to any person, property or other material object of insurance that resides, is located in or is to be carried out in Puerto Rico, nor any insurance related thereto, except through an 25
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authorized representative of Puerto Rico.
said insurer residing in
26 P.R. Laws Ann. § 329(a). B. Article 11.14 requiring the issuance of an insurance policy and specifying its contents, in its relevant part, states the following: (1) The written instrument in which insurance is set forth is the policy.
a
contract
of
(3) The policy shall specify: (a)
The names of the parties to the contract, and the status of any party where such status is material to the contract. The policy shall be headed by the insurer's name.
(b)
The subject of the insurance.
(c)
The hazards insured against.
(d)
The amount of the insurance and benefits.
(e)
The time at which the insurance thereunder takes effect and the period during which the insurance is to continue.
(f)
A statement of the , and the rate if other than life, disability, or title insurance. ... .
(g)
The conditions pertaining to the insurance.
26 P.R. Laws Ann § 1114. C. Article 27.160 regarding illegal dealing in s, which reads, in its relevant part, as follows: (2) No person shall collect as or charge for insurance any sum in excess of the amount actually expended or in due course to be expended for insurance applicable to the subject on of which the was collected or charged.
26
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(3) Any sum collected as or charge for insurance in excess of the amount actually expended for insurance or for medical examination in the case of life insurance, applicable to the subject on of which the or charge was collected shall be returned to the person entitled thereto within thirty (30) days from the date in which it is requested, and if not requested, within the term of ninety (90) days. Any person who fails to return said sums within the term set forth in this subsection shall be bound to pay legal interest on the amount to be returned. 26 P.R. Laws Ann. § 2716(2)-(3). 6.19 The
OIC’s
Interpretive
Rulings
of
Article
27.160,
regarding the charging of broker’s fees for insurance coverage, provides that in such cases where a broker is not used -- as the exception to the rule requiring that all policies be transacted through brokers (Article 3.290) -- the charging of broker’s fees would violate Article 27.160. 6.20 On
April
29,
2009,
as
result
of
the
First
Circuit
holding in Flores Galarza, supra, to the effects that the JUA operates as a private enterprise and is, in fact, a private enterprise, compulsory
and
that
liability
the
s
insurance
collected
are,
likewise,
by of
concept a
of
private
nature, the Commonwealth Legislature amended those provisions of Law 253 affected by such judicial determination See, Statement of Purposes, Act 347 of April 29, 2009.
27
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VII. DEFENDANTS’ SCHEME TO DEFRAUD 7.1
The
Individual
Plaintiffs
(“Plaintiffs”)
bring
this
action on behalf of themselves and two Classes of similarly situated
persons
(“Class
”)
seeking
redress
for
the
illegal acts of the Defendants, which have resulted in a loss of their property, and for declaratory and injunctive relief to end those practices and prevent further losses. 7.2
From on or about 1997, and up to the present time, the
Defendants herein, at the same knowingly, conspired
intentionally and
associated
and in
or different points in time,
unlawfully, fact
aided
between
and
abetted,
themselves,
through
their ENTERPRISE, to confederate and agree with each other, for the purpose of devising, or intending to devise a scheme or artifice to defraud and to obtain money, by means of false or fraudulent pretenses, representations or promises; and, directly participated
in,
or
aided
and
abetted,
counseled,
commanded,
induced, procured or caused and conspired in, the perpetration of such scheme to defraud and to obtain money. 7.3 The scheme to defraud and to obtain money consisted in the following: a)
Defendants, utilizing the motor vehicle licenses or registrations printed by the DTPW as a conduit to create an appearance of unquestionable legitimacy, billed all Puerto Rican motor vehicle owners for compulsory liability insurance coverage at the time of the issuance or renewal of such licenses or registrations; 28
Case 3:11-cv-01826 Document 1
7.4
Filed 08/19/11 Page 32 of 82
b)
Defendants willfully and wrongfully charged all motor vehicle owners therein an 8% of the dollar by concept of an “acquisition cost” for services of brokers that they very well knew were not going to be used by the insured, plus an amount estimated in 4% of the do1lar by concept of an “istrative cost" for the issuance of paper copies of policies, which they never intended to issue to the insured; and,
c)
thereafter, Defendants, illegally, unlawfully, knowingly, deliberately and maliciously deprived said motor vehicle owners of their monies, by not reimbursing them the price they paid for such non-incurred costs included in the annual insurance rate, amounting to 12% of its cost, thereby embezzling such monies for the pecuniary benefit and economic interest of the of the ENTERPRISE (the “Scheme to Defraud”).
The
Defendants
had
a
statutory
duty,
under
Commonwealth Law, to return to the Puerto Rican motor vehicle owners the costs charged for brokerage services that were not rendered and the costs charged for issuance of policies that were not incurred. See, 26 P.R. Laws Ann. § 2716(2)-(3) (Illegal Dealings in s). 7.5
The
istrative
collection cost
of
without
the the
acquisition corresponding
cost refund
and
the
of
the
portion of the not incurred constitutes a violation to the provisions of the Puerto Rico Insurance Code. Id. 7.6 part
of
The use of the mails was an integral and essential the
Scheme
to
Defraud
29
since
the
billing
for
the
Case 3:11-cv-01826 Document 1
compulsory
liability
insurance
Filed 08/19/11 Page 33 of 82
was
done
through
the
United
States Postal Service. 7.7 caused
In furtherance of the Scheme to Defraud, Defendants
the
DTPW
depositories
for
to
place
in
matter
the
post
offices
envelopes,
or
containing
authorized the
motor
vehicles licenses or registrations that included the billing for the annual for the compulsory insurance policy, which were thereafter delivered, by the United States Postal Service, to all motor vehicles owners in Puerto Rico. VIII. THE ENTERPRISE 8.1
At
all
times
relevant
herein,
the
Defendants
associated in fact for the common purpose of furthering and engaging in the Scheme to Defraud. 8.2
The ENTERPRISE is an association-in-fact, an entity
separate
from
and
bigger
than
any
of
the
“persons”
(the
Defendants and other of the Enterprise) comprising the same; where, at all times relevant herein, these “persons” were systematically
linked
with
overlapping
leadership,
structural
and financial ties, and continuing coordination. 8.3
At
all
times
relevant
herein,
the
ENTERPRISE
was
composed by the association in fact of the JUA and its former or current
,
INTEGRAND,
CAICO,
MAPFRE–PRAICO
CHARTIS
(formerly
(formerly
PRAICO),
AIG),
COOPERATIVA,
NATIONAL,
OPTIMA,
REAL LEGACY, TRIPLE-S, UNIVERSAL, ROYAL & SUN, PREFERRED RISK, 30
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ALLSTATE, GENERAL ACCIDENT and NATIONWIDE, together with Garcia, CRUZ-COLON, Ortiz, Miranda-Casañas, Terrassa and other unnamed and
yet
unknown
associations
individuals,
(the
partnerships,
“ENTERPRISE”).
It
corporations
includes
the
or
forenamed
Defendants and associated individuals, as well as persons who have not violated RICO. 8.4
Structurally,
the
ENTERPRISE
is
an
association
comprised of the Defendants and other persons and entities whose common link is the purpose and nature of their business, i.e., selling motor vehicle compulsory liability insurance policies and providing coverage to the insured. 8.5
The
legitimate
association-in-fact
ongoing
organization,
Enterprise functioning
was as
a
a
formal
continuing
unit, pursuing an interrelated course of conduct, and with a common
or
shared
purpose
and
continuity
of
structure
and
personnel. 8.6
The
forenamed
Defendants,
as
of
the
ENTERPRISE, used said formal and legitimate association-in-fact ENTERPRISE as an instrument to perpetrate the Scheme to Defraud, through the pattern of racketeering activity, as fully described herein after. The aim of the Scheme to Defraud was the sale of motor
vehicle
compulsory
liability
insurance
policies
fraudulently containing hidden charges for non-incurred costs to derive racketeering income. 31
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8.7
The
ENTERPRISE
is
Filed 08/19/11 Page 35 of 82
engaged
in
interstate
commerce
through the activities of its associates, as described herein before. IX. COMMON FACTUAL ALLEGATIONS 9.1 for
Law 253 created the JUA as a residual market insurer
high-risk
drivers
who
had
been
rejected
by
traditional
insurance carriers. This statute sought to encourage competition in
compulsory
liability
insurance
for
non-high-risk
drivers
between the traditional insurers themselves and between them and the JUA. In reality, however, this has not been the practice, and the JUA has been selling the compulsory liability insurance to all Puerto Rican drivers. In doing so, the JUA changed its nature
as
a
residual
insurer
to
a
primary
insurer
and
monopolized this market, which has facilitated the execution of the Scheme to Defraud. 9.2 effect,
Prior to January 1, 1998, when Law 253 would be in the
commissioned
Office an
of
advisory
the or
Insurance technical
Commissioner committee
(“OIC”)
(“TC”)
from
different sectors of the local insurance community, in order to rollout and implement Law 253. 9.3 (now
hip of the TC included, among others: PRAICO
known
as
MAPFRE–PRAICO),
GENERAL
ACCIDENT,
TRIPLE-S,
GENERAL ACCIDENT, Association of General Agents of Miscellaneous Insurances
(“Association”),
Professional 32
Insurance
Agents
of
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Puerto Rico and the Caribbean, Inc. (Professional”), Saldaña & Associates,
Inc.,
(“Saldaña”),
Antilles
Insurance
Company
(“Antilles”), Toledo, Del Valle & Company, and First Insurance Group, Inc. (“First”). 9.4
Early meetings between Insurance Commissioner Garcia
and the TC began at least in early October 1996, and extended to November
1997.
Among
topics
of
discussion,
were
the
“coordination” of Law 253 insurance and traditional insurance coverage. 9.5
On March 17, 1997, in furtherance of the Scheme to
Defraud, Insurance Commissioner Garcia, on behalf of the OIC, met with the of the TC -- including, PRAICO, GENERAL ACCIDENT, TRIPLE-S and GENERAL ACCIDENT -- and representatives of insurance companies AIG (now known as CHARTIS), INTEGRAND, NATIONAL, First American Company and Royal Insurance Company of Puerto
Rico;
and,
acting
in
concert,
tly,
aiding
and
abetting and conspiring with each other, they all agreed that all motor vehicle owners would pay the for compulsory liability insurance coverage during the year 1997, at the time each acquired or renewed the vehicle's license -- even those who had traditional insurance policies and should have been exempted from paying duplicative s for insurance coverage in the year 1997. Yet Law 253 provided that it would be in effect and
33
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implemented in the year 1998. These were overt acts committed as part of the conspiracy to violate RICO. 9.6
In furtherance of the Scheme to Defraud, a subsequent
TC and OIC meeting was held on March 21, 1997, wherein the following were present: Insurance Commissioner Garcia; Eunice Betancourt Figueroa
from from
PRAICO;
Edwin
Professional;
Diaz
Carmen
from
Association;
Figueroa
from
Carlos
TRIPLE-S;
Rafael Laffitte from Saldaña; Ramon Antonio Perez from First; Noemi Ramirez from Antilles; and, Cristina Moran, as Advisor. Ortiz, Executive President of JUA, appeared as a guest. Arleen Medina from COOPERATIVA was excused from the meeting. 9.7
During the TC March 21 meeting, it was agreed that the
Model Mandatory Coverage Application and Policy, which had been previously
prepared
by
the
TC,
would
be
a
guide
for
the
structuring of the application and policy that the JUA and the traditional insurers, individually, could use in the issuance of the compulsory insurance policy. It was further agreed that the TC would draft a letter for the traditional insurance carriers, notifying
them
corresponding
that
to
payment
compulsory
for
the
liability
portion
of
insurance
the could
not
be
differed and had to be paid at the moment of renewal or issuance of the license; and, that the TC would draft a cover letter to all the traditional insurance carriers, informing them about the implementation
of
the
compulsory 34
liability
insurance
system,
Case 3:11-cv-01826 Document 1
accompanied Policy.
by
These
the
Model
were
overt
Filed 08/19/11 Page 38 of 82
Mandatory acts
Coverage
committed
Application as
part
of
and the
conspiracy to violate RICO. 9.8 the
On April 7, 1997, the TC held another meeting, wherein
following
Eunice
were
Betancourt
present:
from
Insurance
PRAICO;
Edwin
Commissioner
Diaz
from
Garcia;
Association;
Carlos Figueroa from Professional; Carmen Figueroa from TRIPLES; Rafael Laffitte from Saldaña; Arleen Medina from COOPERATIVA; Noemi Ramirez from Antilles; and, Cristina Moran, as Advisor. Ortiz, Executive President of JUA, appeared as a guest. 9.9
The main topic of discussion in the April 7 meeting,
was the procedure that should be followed to coordinate the payment of the compulsory liability insurance coverage and the payment of the traditional insurance policy, in light of the requirements and limitations expressed by Treasury and the DTPW. To that end, among several alternatives, the of the TC selected
and
suggested
to
Insurance
Commissioner
Garcia
the
following procedure in order to avoid duplicative payments of s for compulsory insurance coverage: Everyone pays his/her insurer the of the traditional liability insurance or the of the compulsory liability insurance, depending on the type of insurance each individual selects, and receives a certificate of insurance as evidence of payment. The insured shall present the certificate, at payment centers, for the renewal of the license sticker and will not have to pay any money. The procedure shall be similar 35
Case 3:11-cv-01826 Document 1
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to the presentation of the certificate of inspection of the vehicle. TC’s Act No. 42 of April 7, 1997. 9.10 The JUA’s Ortiz voted against the procedure approved by the TC in Act No. 42. 9.11 On or about April 9 or 10, 1997, in furtherance of the Scheme to Defraud, the Board of Directors of the JUA (comprised of Terrassa of PRAICO, Miranda-Casañas of UNIVERSAL, Quiñones of COOPERATIVA, Hanftwurzel of GENERAL ACCIDENT, Rodriguez-Forteza and Rodriguez) held an emergency meeting. Insurance Commissioner Garcia and Ortiz, Executive President of JUA, participated in this meeting. 9.12
During
UNIVERSAL,
this
early
COOPERATIVA,
April,
GENERAL
1997
ACCIDENT,
meeting, JUA
and
PRAICO, the
OIC,
acting in concert, tly, aiding and abetting and conspiring with each other, rejected the procedure approved by the TC in Act
No.
42
compulsory
to and
channel
the
traditional
payments
of
insurance
the
s
policies
of
through
the the
respective particular insurer of each motor vehicle owner. These were overt acts committed as part of the conspiracy to violate RICO. 9.13 On April 16, 1997, in furtherance of the Scheme to Defraud, Garcia, through the OIC, acting in concert, tly, aiding
and
abetting
and
conspiring 36
with
PRAICO,
UNIVERSAL,
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COOPERATIVA, GENERAL ACCIDENT and JUA, officially adopted the JUA’s Board of Director’s rejection of the procedure approved by the TC in Act No. 42. This was an overt act committed as part of the conspiracy to violate RICO. 9.14 In December 1997, the Legislature of the Commonwealth of Puerto Rico approved a bill granting a 100% tax exemption for the profits obtained by the JUA from the sale of compulsory liability insurance policies and the dividends declared by it to the member insurance companies. 9.15 Coincidentally, in December of 1997, in furtherance of the
Scheme
to
Defraud,
the
Board
of
Directors
of
the
JUA
(comprised of Terrassa of PRAICO, Miranda-Casañas of UNIVERSAL, Quiñones
of
COOPERATIVA,
Rodriguez-Forteza participation
of
and
Hanftwurzel
Rodriguez)
Insurance
held
of
GENERAL
a
meeting,
Commissioner
Garcia
ACCIDENT, with
and
the
Ortiz,
Executive President of the JUA. 9.16 During this December 1997 meeting, PRAICO, UNIVERSAL, COOPERATIVA, GENERAL ACCIDENT, the JUA and the OIC, acting in concert, tly, aiding and abetting and conspiring with each other, agreed that the JUA would be the only insurer that would provide motor
and
issue
vehicle
compulsory
owners
in
liability
Puerto
Rico.
insurance These
were
committed as part of the conspiracy to violate RICO.
37
coverage overt
to
acts
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9.17 Shortly thereafter, in December 1997, in furtherance of the Scheme to Defraud, during a meeting with the TC and
of
the
JUA,
Insurance
Commissioner
Garcia,
announced
that the JUA would be the only insurer that would provide Law 253 insurance coverage in Puerto Rico and that all payments of s would be channeled through the DTPW. This was an overt act committed as part of the conspiracy to violate RICO. 9.18 In
or
about
December
1997,
in
furtherance
of
the
Scheme to Defraud, Insurance Commissioner Garcia, through the OIC,
acting
in
concert,
tly,
aiding
and
abetting
and
conspiring with PRAICO, UNIVERSAL, COOPERATIVA, GENERAL ACCIDENT and
the
JUA,
promulgated
Regulation
LXX.
This
regulation
established that every motor vehicle owner shall pay the corresponding
to
the
compulsory
liability
insurance
to
the
Secretary of the Treasury at the time of the issuance or renewal of the license or registration; and, thereafter, the Secretary of the Treasury will transfer the funds of the s paid to the
JUA
for
its
eventual
distribution
among
itself
and
the
traditional insurers. Rule LXX, Art. 9(a). Every motor vehicle for which the has been paid is considered to be insured by
the
JUA
(unless
its
owner
has
purchased
a
traditional
insurance policy). Id., Art. 12(a). Further, the regulation sets forth
the
Policy,
Puerto
Rico
defining
the
Mandatory
of 38
Liability the
Insurance
compulsory
Uniform
liability
Case 3:11-cv-01826 Document 1
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insurance, as the sole written contract between the insured and the JUA. Id., Art. 22. The promulgation of Regulation LXX was an overt act committed as part of the conspiracy to violate RICO. 9.19 The effect of the foregoing was to change the nature of the JUA from a residual to a primary insurer, able to insure the motor vehicles directly, even if the traditional insurers have
not
rejected
the
same;
to
allow
the
JUA
to
effectuate
insurance coverage directly, without the use of any agent or broker,
eliminating
the
insurance
scheme;
and,
liability
insurance
latter to
from
the
establish
policy
compulsory
one
applicable
uniform
to
all,
liability compulsory
deliberately
obviating the issuance of individual policies to the insured. 9.20 Prior
to
January
1998,
before
Law
253
came
into
effect, the OIC issued notices advising that all motor vehicle owners would make the payments for compulsory liability coverage to
the
Department
of
the
Treasury,
as
billed
in
the
motor
vehicle license or registration. 9.21 Even before the implementation of Law 253 -- which mandated insurance
the on
competition;
use the and,
of
insurance consumer,
which
brokers
to
maximize
required
the
lower
the
coverage issuance
cost
and of
of
foster
individual
policies -- the Defendants, by agreeing that the JUA would be the
only
insurer
providing
compulsory
liability
insurance
coverage, through one uniform written policy, which all motor 39
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vehicle owners had to purchase at the time of the renewal or issuance of the registrations or licenses, conjured up their Scheme to Defraud. The utilization of insurance brokers and the issuance of paper policies were obviated from the compulsory liability insurance system. However, as shown below, all motor vehicle owners would be forced to pay the JUA brokerage fees and policy costs as part of the without the participation of any broker or the issuance of any paper policy in the process, in
violation
of
the
Puerto
Rico
Insurance
Code.
The
motor
vehicle owners were to pay such fees immediately and in full to the Secretary of the Treasury in order to be authorized to drive their vehicles through the Puerto Rico thoroughfares. 9.22 The Defendants, the JUA, PRAICO (now known as MAPFRE– PRAICO),
UNIVERSAL,
COOPERATIVA,
GENERAL
ACCIDENT,
TRIPLE-S,
INTEGRAND, NATIONAL and AIG (now known as CHARTIS), tly with the
Insurance
Commissioner
Garcia
and
the
other
forenamed
individuals and entities, conjured and designed these artifices to defraud and obtain money, which formed part of the Scheme to Defraud,
with
scienter
and
deliberate
intent
to
fraudulently
induce and force the Plaintiffs and Class purchasing the compulsory insurance policy to pay brokerage fees and policy costs
--
disguised
registration
printed
as
legitimate
and
mailed
to
charges them
in by
the the
license DTPW
--
or for
services that the Defendants had no intention of providing or 40
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making available to them, as part of the annual rate, to the Department of the Treasury, which would then transfer by wire such funds to the JUA. Once in the JUA’s coffers, the of the ENTERPRISE misappropriated the monies so paid by the Plaintiffs and Class for brokerage services that were never rendered and paper policies that were never issued. 9.23 Billing the Plaintiffs and Class by means of license and registrations issued by the DTPW and compelling them to pay the mandatory insurance to the Department of the Treasury had the effect of legitimizing the Scheme to Defraud by creating the appearance that it had been approved, sanctioned, and condoned by two State government agencies as lawful. 9.24 On August 3, 1999, in furtherance of the Scheme to Defraud, Ortiz of JUA wrote and mailed a letter to Insurance Commissioner
Garcia
notifying
the
OIC
that
the
Board
of
Directors (comprised of Terrassa of PRAICO, Miranda-Casañas of UNIVERSAL, Quiñones of COOPERATIVA, Gonya of NATIONWIDE, Ortiz of JUA, Rodriguez-Forteza and Rodriguez) had recently approved the distribution of gains or profits from the sale of compulsory insurance policies; and, requesting the OIC to furnish to the JUA the distribution of the dollar and the proportional participation of each of its for the year 1998. As Ortiz very well knew, the profits obtained from the sale of policies included
proceeds
from
charges 41
for
brokerage
services
not
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performed and for policy costs not incurred. This mailing was delivered in violation of the Mail Fraud Statute, 18 U.S.C. § 1341. Further, this was an overt act committed as part of the conspiracy to violate RICO. 9.25 On August 18, 1999, in furtherance of the Scheme to Defraud, Garcia wrote and mailed to Ortiz a letter approving the distribution of profits among the of the JUA for the year 1998, because the same conformed to the distribution of the dollar underlying the charged for the compulsory insurance. This mailing was delivered in violation of the Mail Fraud Statute, 18 U.S.C. § 1341. Further, this was an overt act committed as part of the conspiracy to violate RICO. 9.26 At
all
times
material
herein
--
as
stated
in
the
August 18, 1999 letter, from Garcia to Ortiz -- the distribution of the dollar underlying the annually charged for the compulsory insurance, as sanctioned by the OIC has been the following one: Concept
Percent
Acquisition Cost Taxes, Licenses and Charges istrative cost Gain Subtotal
8% 1% 7% 5% 21%
Losses & Adjustment for Losses
79%
TOTAL:
100%
42
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9.27 According to the distribution of the dollar established by the OIC, 8% is destined to cover the “acquisition cost” consisting in the commission to be paid to the insurance broker and other expenses inherent to the performance of the broker’s duties, as specifically acknowledged by the Insurance Commissioner Garcia, on August 25, 2000, in Ruling No. CA-81578-2000. 9.28 The JUA’s annual statements for the period covering from
1998
through
to
2010,
disclosed
that
it
only
paid
commissions amounting to $8,756.00 to agents as brokerage fees in the year 2000, stopping thereafter to make any additional payment
by
such
concept,
despite
the
mandates
of
the
Commonwealth’s Insurance Code that brokers had to be used for the sale of the insurance policies. 9.29 According to the distribution of the dollar established
by
the
OIC,
7%
is
earmarked
to
cover
the
“istrative cost” for the issuance of a paper copy of the insurance policy -- as mandated by 26 P.R. Laws Ann § 8054(c) in conjunction with Chapter 11 of Title 26 of Puerto Rico Laws Annotated -- and related expenses. However, the estimated real cost incurred by the JUA was a 3%, since it did not issue any policy nor mailed any to the insured, as it is the custom with other
insurances.
By
consequence,
there
is
a
4%
of
istrative cost of the dollar that was not spent. 43
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During such 12-year period, the traditional insurer Defendants did not have any istrative cost, or if they had, it was very small. 9.30 According
to
the
distribution
of
the
prime
dollar
established by the OIC, 5% was supposed to constitute the gain or
profit
to
the
insurer
for
the
sale
of
the
compulsory
liability insurance policy. 9.31 It follows from the forgoing that from 1998 to 2010, a 12% of the dollar destined for acquisition costs and istrative costs was not incurred by Defendants. Although the JUA received completely the $99 and $148 annual s and distributed
substantial
profits
from
those
proceeds
to
the
Defendant of the ENTERPRISE, the funds of expenses not incurred
were
not
reimbursed.
This
conduct
constitutes
a
violation to Article 27.160 of the Insurance Code. 9.32 Moreover, the profit or gain derived by the Defendant of the ENTERPRISE from the sale of compulsory liability insurance
policies
in
reality
amounted
to
17%
of
the
prime
dollar, instead of the 5% allowed by the OIC. 9.33 Table I below details the collected s, plus the acquisition
costs
not
incurred
that
were
collected
by
the
Defendants and not reimbursed to the Representative Plaintiffs and
Class
in
violation
Insurance Code. 44
to
Article
27.160
of
the
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TABLE I Year
s Collected
Percentage Acquisition Costs
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$219,486,751 $154,260,785 $150,211,815 $165,764,800 $178,840,198 $175,829,609 $186,627,928 $188,909,000 $198,456,178 $186,807,772 $202,428,047 $203,642,295 $192,218,965
TOTALS:
$2,403,484,143
8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Acquisition Costs
Cumulative Acquisition Costs Not Incurred
Percentage Interest
Interest
Acquisition Costs Plus Interests
$17,558,940 $12,340,863 $12,016,945 $13,261,184 $14,307,216 $14,066,369 $14,930,234 $15,112,720 $15,876,494 $14,944,622 $16,194,244 $16,291,384 $15,377,517
$17,558,940 $29,899,803 $41,916,748 $55,177,932 $69,485,148 $83,551,517 $98,481,751 $113,594,471 $129,470,965 $144,415,587 $160,609,831 $176,901,214 $192,278,731
6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
$1,053,536 $1,793,988 $2,515,005 $3,310,676 $4,169,109 $5,013,091 $5,908,905 $6,815,668 $7,768,258 $8,664,935 $9,636,590 $10,614,073 $11,536,724
$18,612,476 $14,134,851 $14,531,950 $16,571,860 $18,476,325 $19,079,460 $20,839,139 $21,928,388 $23,644,752 $23,609,557 $25,830,834 $26,905,456 $26,914,241
$78,800,558
$271,079,290
$192,278,731
9.34 As shown in Table I above, and Table II below, the s
collected
$2,403,484,143.00. “percentage
in
The
acquisition
percentage
of
the
the
8%
1998-2010
in
the
costs”
column
in
dollar
Table charged
period under I for
amount the
heading
represents the
to
the
insurance
broker’s commission. The cumulative acquisition costs collected from the insured motor vehicle owners, which in reality were not incurred
by
the
Defendants,
add
up
to $192,278,731.00.
These
monies were never reimbursed. The monies collected under the guise of “acquisition costs” plus the accrued interests totalize $271,079,290.00. 9.35 Table II below details the collected s, plus the part of the collected
by
istrative costs not incurred that were
the
Defendants
and 45
not
reimbursed
to
the
Case 3:11-cv-01826 Document 1
Representative
Plaintiffs
and
Filed 08/19/11 Page 49 of 82
Class
in
violation
to
Commonwealth Law. TABLE II Year
s Collected
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$219,486,751 $154,260,785 $150,211,815 $165,764,800 $178,840,198 $175,829,609 $186,627,928 $188,909,000 $198,456,178 $186,807,772 $202,428,047 $203,642,295 $192,218,965
TOTALS:
Percentage istrative Costs
4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
istrative Costs
Cumulative istrative Costs Not Incurred
$8,779,470 $6,170,431 $6,008,473 $6,630,592 $7,153,608 $7,033,184 $7,465,117 $7,556,360 $7,938,247 $7,472,311 $8,097,122 $8,145,692 $7,688,759
$8,779,470 $14,949,901 $20,958,374 $27,588,966 $34,742,574 $41,775,758 $49,240,875 $56,797,235 $64,735,483 $72,207,793 $80,304,915 $88,450,607 $96,139,366
$2,403,484,143
Percentage Interest
6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
$96,139,366
Interest
istrative Costs Plus Interests
$526,768 $896,994 $1,257,502 $1,655,338 $2,084,554 $2,506,545 $2,954,453 $3,407,834 $3,884,129 $4,332,468 $4,818,295 $5,307,036 $5,768,362
$9,306,238 $7,067,425 $7,265,975 $8,285,930 $9,238,162 $9,539,730 $10,419,570 $10,964,194 $11,822,376 $11,804,778 $12,915,417 $13,452,728 $13,457,121
$39,400,279 $135,539,645
9.36 The 4% in the column under the heading “percentage istrative costs” that appears in Table II represents the percentage
of
the
dollar
the
Defendants
charged
by
concept of issuing and sending the paper uniform policies to the insured
motor
vehicle
owners.
The
cumulative
istrative
costs collected from the insured motor vehicle owners amounts to $96,139,366.00.
In
reality,
the
Defendants
did
not
incur
in
these costs, since the compulsory insurance policies were never issued. The cost for this item was never reimbursed either. The monies collected under the guise of istrative costs plus accrued interests totalize $135,539,645.00.
46
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9.37 The grand total of costs collected and not reimbursed is $288,418,097.00. Accrued interests amount to $118,200,837.00. The sum of these amounts yields $406,618,935.00. Therefore, the injuries
suffered
by
the
Representative
Plaintiffs
and
Class
during the twelve-year period in question as result of the
collection
of
monies
in
excess
and
in
violation
to
Code
prohibits
the
Commonwealth law totalize $406,618,935.00. 9.38 Article collection
as
27.160
of
of
the any
Insurance amount
that
is
not
“actually
expended or in due course to be expended.” 26 P.R. Laws Ann. § 2716(2)-(3).
It
also
mandates
the
return
of
the
or
charge for insurance of any sum in excess of the amount really spent. Id. The Defendants failed to comply with the express mandate
of
the
law,
and
in
the
process
they
profited
with
$406,618,935.00, which they had to return to the Plaintiffs and the
Class
by
express
disposition
of
Article
27.160.
Nevertheless, the Defendants have made no effort to reduce the compulsory liability , enriching themselves in millions of dollars at the expense of the Puerto Rican motor vehicle owners. 9.39 Originally conceived as a residual insurer, the JUA was expected to sustain economic losses, which were supposed to be spread among all the traditional insurers that comprise it. The reality has been just the opposite. Since the inception of 47
Case 3:11-cv-01826 Document 1
the
compulsory
insurance
Filed 08/19/11 Page 51 of 82
system,
the
JUA
has
gained
extraordinary profits from the compulsory liability insurance scheme, held valuable investments and distributed substantial amounts in dividends to the traditional insurer Defendants. 9.40 According to the DTPW records, presently 2.4 million motor
vehicles
exist
in
Puerto
Rico,
of
which
only
sixteen
percent (16%) have traditional insurance. Between the years 1998 and 2010, the income in annual s for the JUA and the traditional insurer Defendants, as shown above in Tables I and II, exceeded 2.4 billion dollars ($2,400,000,000.00). Of that amount,
the
Defendants
misappropriated
more
than
288
million
dollars in acquisition costs and istrative costs collected, but not really incurred. 9.41 From 1998 to 2010, as shown in Table III below, the JUA reported in its financial statements net income derived from underwriting compulsory insurance policies and investments in the total amount of $452,635,690.00, and declared therein the distribution of $102,737,554.00 in dividends among the Defendant of the ENTERPRISE: CAICO, CHARTIS (formerly known as AIG), COOPERATIVA, INTEGRAND, MAPFRE–PRAICO (formerly known as PRAICO),
NATIONAL,
ROYAL
SUN,
&
OPTIMA,
PREFERRED
REAL
RISK,
LEGACY,
ALLSTATE,
NATIONWIDE.
48
TRIPLE-S, GENERAL
UNIVERSAL,
ACCIDENT
and
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 52 of 82
Table III Year
Gross Income
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$31,084,738 $31,699,793 $28,393,696 $28,418,116 $11,785,549 $21,446,479 $13,096,583 $8,575,687 $26,342,497 $49,804,446 $75,345,496 $79,073,396 $47,569,214
Net Income Tax Tax Tax Tax
Exempt Exempt Exempt Exempt
TOTAL $452,635,690 9.42 In Defendants
furtherance JUA,
COOPERATIVA,
CAICO,
INTEGRAND,
PRAICO),
NATIONAL,
ROYAL
SUN,
&
of
$31,084,738 $31,699,793 $28,393,696 $28,418,116 $8,460,758 $15,641,566 $11,166,583 $8,404,910 $16,970,636 $33,681,536 $47,497,598 $54,697,238 $33,655,914
$0 $6,866,837 $7,597,475 $7,666,401 $7,885,243 $7,898,813 $8,717,221 $9,063,916 $7,593,556 $9,728,886 $9,457,678 $10,079,413 $10,182,115
$349,773,082
$102,737,554
the
CHARTIS
Scheme (formerly
MAPFRE–PRAICO
OPTIMA,
PREFERRED
Dividends
REAL
RISK,
Defraud,
known
(formerly
LEGACY,
ALLSTATE,
to
TRIPLE-S, GENERAL
as
the AIG),
known
as
UNIVERSAL,
ACCIDENT
and
NATIONWIDE, acting in concert, tly, aiding and abetting and conspiring with each other, knowingly and deliberately, failed, and still continue to fail, to comply with their statutory duty to return the monies collected for costs that were not incurred; and,
instead,
have
unlawfully
kept
and
distribute
among
themselves millions of dollars that legally correspond to the insured, the reimbursement of which is the object of this legal action.
49
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X. THE PREDICATE ACTS 10.1
In
furtherance
of
the
Scheme
to
Defraud,
the
Defendants and the other of the ENTERPRISE, knowingly, intentionally and unlawfully, aided and abetted, conspired and agreed, with each other, to attempt to commit, and each of them, in
fact,
did
commit,
as
principals,
the
predicate
acts
of
racketeering detailed hereunder, in violation of 18 U.S.C. § 2. 10.2 In addition, in furtherance of the Scheme to Defraud, each of the Defendants, all of them of the ENTERPRISE, conspired, confederated and agreed, with each other, to attempt to commit, and did commit, the predicate acts of racketeering detailed
hereunder,
and,
in
doing
so,
violated
the
RICO
complaint
that
any
it,
its
prohibitions, as defined in 18 U.S.C. § 1962. 10.3 Whenever Defendant Directors,
did
any
it act
Officers,
is or
alleged
in
the
thing,
it
is
agents,
employees,
meant or
that the
Directors,
Officers, agents or employees of its subsidiaries or s, performed or participated in such act or thing, and in each instance that such act or thing was authorized or ratified by, and done on behalf of, that Defendant. 10.4 In furtherance of the Scheme to Defraud, as explained hereunder, the predicate racketeering acts consisted of millions of violations of the Mail Fraud Statute, 18 U.S.C. § 1341 and the Wire Fraud Statute, 18 U.S.C. § 1343. 50
Case 3:11-cv-01826 Document 1
10.5 In Defendants
furtherance and
the
of
other
Filed 08/19/11 Page 54 of 82
the
Scheme
of
to
the
Defraud,
ENTERPRISE,
the also
knowingly, intentionally and unlawfully, aided and abetted and conspired in the commission of millions of violations of Puerto Rico statutes, including, among others, the following provisions of the Insurance Code: 26 P.R. Laws Ann. § 329(a) (conducting insurance transactions through unlicensed individuals); 26 P.R. Laws
Ann
§
1114
(requiring
the
issuance
of
paper
insurance
policies); and, 26 P.R. Laws Ann. § 2716(2)-(3) (illegal dealing in s). 10.6 These violations were committed by the Defendants and the other of the ENTERPRISE, through, or by means of, interrelated fraudulent artifices, all which formed part of the same common plan or Scheme to Defraud. XI. THE PATTERN OF RACKETEERING ACTIVITY 11.1 In the Scheme to Defraud, the millions of predicate racketeering defined
by
committed
acts 18
by
ENTERPRISE,
detailed
U.S.C. the
herein
1961(5),
Defendants
through
below
inasmuch
and
continuous,
the
form
a
pattern,
as
they
have
other
uninterrupted,
as
been
of
the
criminal
activity, which began on or around, 1998, which has continued up to
the
present
year,
2011,
and
continuing into the future.
51
which
has
a
high
risk
of
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11.2 In addition, within the Scheme to Defraud, as it is shown herein below, the predicate acts are related given that they have the following commonalties: a) the same purpose or goal: to illegally collect charges from motor vehicle owners for costs not incurred as part of the insurance s, namely brokerage and istrative costs not incurred, and to keep the monies so obtained for the economic benefit of the Defendants, as of the ENTERPRISE, when the Insurance Code prohibits such practice; b) the same results: to deprive said motor vehicle owners of their monies and the acquisition of such assets; c) the same participants: defined ENTERPRISE; d) the same victims: ; and,
the
the
Defendants
Plaintiffs
and
and the
the
Class
e) the same methods of commission: the Scheme to Defraud and the common predicate acts in furtherance thereof through the use of the mails. 11.3 These interrelated
by
predicate the
racketeering
foregoing
acts
distinguishing
are
otherwise
characteristics;
and, are not isolated events, since they were carried out for the
same
purposes
in
a
continuous
manner
throughout
a
substantial period of time. 11.4 In relatedness pattern
of
the of
Scheme these
racketeering
to
Defraud,
racketeering activities
U.S.C. § 1961(5). 52
the
activities within
the
continuity constitute meaning
of
and a 18
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XII. CLASS ALLEGATIONS 12.1 Plaintiffs bring this action on their own behalf and, pursuant to Rule 23(a), 23(b)(1)(A) & (B), 23 (b)(2) and/or (b)(3) as a class action on behalf of the Class Groups defined in
Section
III(A),
supra.
This
Class
seeks
certification
of
claims for declaratory and injunctive relief, and for damages pursuant to 18 U.S.C. § 1962(a)(b)(c) & (d). 12.2 Each named Plaintiff possesses the same interests and has suffered the same economic injury shared by all the of the Class that he represents, which claims for damages and equitable relief arise from the same operative facts and legal theories detailed herein below. A. RULE 23(a) NUMEROSITY 12.3 consist
The of
Plaintiffs the
owners
Classes of
are
over
reasonably
2,400,000
estimated
motor
vehicles
ed in the DTPW as duly authorized to travel Puerto
Rico
thoroughfares,
all
with
compulsory
to
through
liability
insurance, such as the Plaintiff Representatives. 12.4
The
exact
total
number
of
Class
can
be
reasonably ascertained from the records in the possession or under the control of the Defendants and the DTPW. 12.5 The
of
the
Group
Classes
are
certainly
numerous that der of all is impracticable.
53
so
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Filed 08/19/11 Page 57 of 82
12.6 On the other hand, the identity and addresses of the of the Classes are reasonably ascertainable and can be readily identified from the business records maintained by the Defendants and the DTPW. 12.7 Moreover, individual lawsuits by Class are not practical due to the economic cost of the litigation, vis a vis, the monetary value of most individual claims which otherwise might well never be vindicated. 12.8 Finally,
the
reliefs
sought
by
the
Representative
Plaintiffs and to which Class are entitled are uniform within the two separate Classes. B. RULE 23(a) COMMONALITY OF FACTS AND LAW 12.9 The factual and legal issues raised in this complaint are common to all Plaintiff Representatives and Class , inasmuch as they arise from the same common nucleus of operative facts, the Scheme to Defraud and the different artifices carried out
by
the
Defendants
and
the
of
the
ENTERPRISE
to
achieve the objectives of such scheme (to acquire and maintain control
over
the
ENTERPRISE,
to
capitalize
the
ENTERPRISE
through fraudulent artifices, and to fraudulently deprive the Class
of
their
monies
for
the
Defendants’
and
the
been
all
ENTERPRISE'S economic benefit). 12.10
The
Plaintiffs
and
Class
have
injured in their property as a direct result of the Defendants’ 54
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and the ENTERPRISE'S Scheme to Defraud and the artifices used by them
to
carry
it
out.
They
have
all
been
object
of
the
collection of a in excess of the monetary amount really spent or in the process of being spent by Defendants for the compulsory
liability
insurance
without
having
received
the
refund or return required by law. The Scheme to Defraud and artifices carried out by
the Defendants arise from a single
course of conduct that is identical for each Plaintiff and the two Classes that they represent. The illegal retention of these monies has resulted in exorbitant gains for the Defendants. 12.11 The adjudication of the issue whether the Defendants and the other of the ENTERPRISE acted throughout the alleged fact
patterns
and
law
of
that
racketeering are
common
activity to
all
involves
Plaintiffs
issues
of
and
Class
the
Class
. C. RULE 23(a) TYPICALITY 12.12
The
named
Plaintiff
Representatives
and
, each and all, have tangible and legitimate actionable claims and interests at stake in this action. 12.13
The
claims
of
the
named
Plaintiff
Class
Representatives are typical of the claims of the absent Class , all of whom have a common origin and share a common basis of fact and law.
55
Case 3:11-cv-01826 Document 1
12.14
The
claims
of
Filed 08/19/11 Page 59 of 82
the
named
Plaintiff
Class
Representatives and Class arise from the same Scheme to Defraud and the artifices carried out by Defendants and the of the ENTERPRISE to achieve its goal. That is, the claims of the named Plaintiff Class Representatives and Class arise from the same patterns of racketeering activity and are based upon the same legal theories which are alleged to be
in
violations
of
the
RICO
Act.
Thus,
the
individual
characteristics of the named Plaintiffs are typical of the ones of the Class that they represent. 12.15
Defendants
have
acted
in
the
same
way
toward
Plaintiffs and the of the Classes they represent. As a result thereof, each named Plaintiff has been personally injured by the illegal conduct of Defendants in a way typical to the injury caused to the of the Classes they represent. 12.16 The claims of the named Plaintiffs will necessarily require proof of the same material and substantive facts, rely upon the same remedial theories, and seek the same relief than the claims that can be made by the Class they represent. 12.17 The claims and remedial theories pursued by the named class
representatives
are
sufficiently
aligned
with
the
interests of absent Class to ensure that the claims of the
Class
will
be
prosecuted
with
diligence
Plaintiffs as representatives of the Class. 56
and
care
by
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D. RULE 23(a) ADEQUACY OF REPRESENTATION 12.18 The claims of the named Plaintiffs and the of the two Classes they are willing and prepared to represent are so interrelated that the interests of the Class will be adequately protected in their absence by Plaintiffs, complying with all of the obligations and duties material thereto. 12.19 Plaintiffs have no interests adverse to the interests of the Class .
The self-interests of the named Class
Representatives are equal, and not antagonistic, to those of the absent Class . The proposed representatives will, thus, undertake to well and truly protect the interests of the absent Class . 12.20 The named plaintiffs have engaged the services of the undersigned counsels. Said counsels are experienced in complex litigation,
will
adequately
prosecute
this
action,
and
will
assert, protect and otherwise well represent the named Class Representatives and absent Class . E. RULE 23(b)(1)(A) & (B) 12.21
The
prosecution
of
separate
actions
by
individual
of the Class would create a risk of adjudications with respect to individual of the Class, which would, as a practical matter, be dispositive of the interests of the other similarly situated of the Class who are not parties to
57
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the action, and/or could substantially impair or impede their ability to protect their interests. 12.22
The
prosecution
of
separate
actions
by
individual
of the Class would also create a risk of inconsistent or varying adjudications with respect to individual of the Class, which would establish incompatible standards of conduct for the parties opposing the Class. Such incompatible standards and
inconsistent
or
varying
adjudications,
on
what
would
necessarily be the same issues of facts, evidence and theories of law, would also create and allow to exist inconsistent and incompatible rights within the Plaintiff Class. F. RULE 23(b)(2) 12.23 Defendants have acted or refused to act on grounds generally applicable to the Class, making final declaratory or injunctive relief appropriate. G. RULE 23(b)(3) 12.24 The questions of law and fact common to of the
Classes
predominate
over
any
questions
affecting
only
individual . 12.25 Under these circumstances, a class action is superior to individual claims and may be the only practical method for the fair and efficient adjudication of the controversies alleged in this complaint, inasmuch as:
58
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a. Individual claims by the Class are impractical as the costs of litigation may far exceed what any one plaintiff or Class member has at stake. b. There has been no individual litigation over the federal RICO violations raised herein, and individual Class should have no interest in prosecuting and controlling separate federal RICO actions. c. The litigation of the federal RICO claims herein should be concentrated in this forum, because all the parties are found within, and are under the jurisdiction of this District Court. d. The proposed Class Action can be readily managed with the assistance of the guidelines contained in the Manual for Complex Litigation adopted by the Federal Judicial Center. XIII. LAW VIOLATIONS IN FURTHERANCE OF THE SCHEME TO DEFRAUD COUNT I – VIOLATIONS TO SECTION 1962(c) OF RICO A. THE ENTERPRISE: 13.1 The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.2 This cause of action arises under 18 U.S.C. § 1962(c) and is asserted against all the Defendants. 13.3
Each
of
the
Defendants,
the
JUA,
CAICO,
CHARTIS
(formerly known as AIG), COOPERATIVA, INTEGRAND, MAPFRE–PRAICO (formerly
known
as
TRIPLE-S,
UNIVERSAL,
PRAICO),
NATIONAL,
PREFERRED
RISK,
OPTIMA,
ROYAL
&
REAL SUN,
LEGACY,
ALLSTATE,
GENERAL ACCIDENT and NATIONWIDE, for purposes of this particular cause
of
action,
is
or
has
been
a
"person"
employed
by
or
associated with an enterprise engaged in, or the activities of 59
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which affect, foreign or interstate commerce, and as such, has conducted conduct
or
of
participated,
such
directly
enterprise's
or
affairs
indirectly,
through
a
in
the
pattern
of
racketeering activity as described herein before. 13.4 For purposes of this particular cause of action under Section
1962(c),
the
ENTERPRISE
is
the
association
in
fact
defined in Section VIII, supra. 13.5 Since on or around, 1997, the Defendants and the other
of
the
ENTERPRISE,
knowingly,
intentionally
and
unlawfully, aided and abetted, and conspired with each other, to devise, or intend to devise the Scheme to Defraud, by which they were to illegally obtain, acquire and maintain control of the refundable payments paid by the Representative Plaintiffs and Class , to later illegally keep those assets for their own pecuniary benefit and interest. 13.6 In furtherance of their Scheme to Defraud and of their conspiracy,
and
in
order
to
effects
its
objectives,
the
ENTERPRISE, knowingly, intentionally and unlawfully, aided and abetted to commit, attempted to commit, conspired to commit, did commit, and caused to be committed, the below enumerated overt and/or
predicate
acts
of
racketeering
activity
to
illegally
charge the Representative Plaintiffs and Class monies for non-incurred costs as part of the annual insurance s
60
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and subsequently retain the refundable payments made in excess by the Representative Plaintiffs and Class . B. RACKETEERING PREDICATE ACTS: 13.7 From executing caused
the
the
to
the
ENTERPRISE’s
DTPW
depositories vehicles
1998,
for
to
place
licenses
present,
Scheme in
the
matter
or
to
for
the
Defraud,
post
registrations
Defendants
or
authorized
containing
which
of
the
offices
envelopes,
purpose
were
the
motor
thereafter
delivered, by the United States Postal Service, to all motor vehicles owners in Puerto Rico, in violation of the Mail Fraud Statute,
18
U.S.C.
§
1341.
The
motor
vehicles
licenses
or
registrations contained the billing for the annual for the compulsory insurance policy, which fraudulently included an acquisition
cost
that
was
never
going
to
be
spent,
plus
an
istrative cost that was never going to be incurred by the Defendants. registrations essential
Moreover,
the
fraudulently
information
that
motor
omitted those
vehicle the
parts
utterly of
the
licenses
or
relevant
and
dollar-
collected in excess were refundable. 13.8 Envelopes
containing
motor
vehicles
licenses
or
registrations were delivered by the United States Postal Service to: a.
Plaintiff
Representative
years 1998 through 2011. 61
Noemi
Torres
Ronda,
in
the
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b. Plaintiff Representative Angelo Rivera Lamboy, in the years 2005 through 2011. 13.9
The
addressed
to
specific the
months
and
Plaintiffs
days
and
when
the
containing
envelopes,
licenses
or
registrations, were caused to be place in the post offices or authorized depositories for mail matter, as well as the specific dates
on
which
similar
, can be readily
envelopes
were
mailed
to
the
Class
ascertained from the records in the
possession or under the control of the DTPW. 13.10 Each of these mailings is a predicate act that is indictable as mail fraud and together they constitute a pattern of racketeering activity. 13.11 After receiving each annual license or registration by mail, each Representative Plaintiff, like every other Class Member, paid the for the compulsory liability insurance to the Secretary of the Treasury. 13.12
After
collecting
the
annual
s
from
the
Representative Plaintiffs and Class , the Secretary of the Treasury turned over the total proceeds to the JUA, including the
monies
amount
they
really
paid
spent
as or
s to
be
in
spend
excess by
the
of
the
monetary
Defendants
for
compulsory liability insurance coverage; and, thereafter, the JUA distributed such proceeds among the traditional insurers and itself. 62
Case 3:11-cv-01826 Document 1
13.13
The
Defendants,
Filed 08/19/11 Page 66 of 82
knowingly,
intentionally
and
unlawfully, failed to reimburse to the Representative Plaintiffs and
Class
incurred
costs
Instead,
the
the
price
hidden
in
Defendants
they
the
unknowingly
annual
embezzled
paid
insurance
such
funds
for
for
nonrate.
their
own
pecuniary benefit. 13.14
Through
furtherance
of
the
the
conduct
Scheme
to
described Defraud,
herein
the
above,
of
in the
ENTERPRISE knowingly, intentionally and unlawfully, aided and abetted
and
conspired
with
each
other
to
violate,
and
did
violate Article 27.160 of the of Puerto Rico Insurance Code, 26 P.R. Laws Ann. § 2716(2)-(3) (illegal dealing in s). 13.15
Through
the
conduct
described
herein
above,
the
Defendants and the other of the ENTERPRISE, which is engaged
in,
knowingly, conspired
and
which
activities
intentionally to,
and
each
affect
and
unlawfully,
of
them
participate,
directly
or
ENTERPRISE’s
affairs,
through
in
indirectly, a
interstate aided
fact in
the
pattern
of
commerce,
and
did,
conduct
conduct Mail
abetted,
of
Fraud,
or the in
violation of 18 U.S.C. § 1962(c). C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(c) 13.16 As proximate cause of the Defendants’ violations to Section 1962(c), the Plaintiffs and Class were injured in their property inasmuch as each has been object of fraud in 63
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Filed 08/19/11 Page 67 of 82
the collection of a in excess of the monetary amount really spent or in the process of being spent by the Defendants for the compulsory liability insurance policy, without having received the refund or return required by law. 13.17
The
injuries
suffered
by
the
Representative
Plaintiffs and Class since 1998, and up to 2010, is reasonably estimated in the amount of $406,618,935.00. 13.18 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs and the Class Member they represent, shall recover threefold the damages they have sustained. 13.19 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs are entitled to reasonable attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class threefold the monies they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of ONE BILLION TWO HUNDRED NINETEEN MILLION EIGHT HUNDRED FIFTY TWO THOUSAND EIGHT HUNDRED AND FIVE DOLLARS ($1,219,852,805.00); granting them pre-judgment and post-judgment interests; awarding them a reasonable amount for attorneys’ fees, plus the costs of
-64-
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 68 of 82
this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. COUNT II – VIOLATIONS TO SECTION 1962(a) OF RICO A. THE ENTERPRISE: 13.20
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.21 This cause of action arises under 18 U.S.C. § 1962(a) and is asserted only against the JUA. 13.22 For purposes of this particular cause of action under Section 1962(a), the JUA is the ENTERPRISE. 13.23 The JUA is "an entity capable of holding a legal or beneficial
interest
in
property",
and
a
"person"
within
the
meaning of 18 U.S.C. § 1961(3). 13.24 The JUA conducts in Puerto Rico, either directly or through its business transactions with the traditional insurer Defendants,
the
business
of
selling
motor
vehicle
compulsory
liability insurance policies. B. THE RACKETEERING INCOME: 13.25 Through the conduct described herein before, the JUA, as the ENTERPRISE, which is engaged in, and which activities affect
interstate
unlawfully,
received
commerce, income
knowingly,
derived,
-65-
intentionally
directly
or
and
indirectly,
Case 3:11-cv-01826 Document 1
from
the
pattern
of
Filed 08/19/11 Page 69 of 82
racketeering
activity
in
which
the
JUA
participated as a principal within the meaning of Section 2, Title
18,
United
States
Code
(18
U.S.C.
§
2),
committing
predicate acts of mail fraud; the JUA then used or invested, directly or indirectly, part of such income, or the proceeds of such income, in the operation of itself as an ENTERPRISE, i.e., the
sale
of
motor
vehicle
compulsory
liability
insurance
policies fraudulently containing hidden charges for non-incurred costs to derive racketeering income, in violation of 18 U.S.C. § 1962(a). 13.26 executing transmitted
From the
which
Scheme
to
to
the
ENTERPRISE’s
or
funds,
1998,
caused
included
Defraud,
in
to
be
present, Scheme
to
transmitted,
for
purpose
of
Defraud,
the
JUA
by
of
racketeering
proceeds
interstate
commerce,
the
means gained to
a
wire,
from
the
financial
institution in Chicago, Illinois. 13.27 In December 2002, the OIC completed an “Examination Report” of the JUA for the periods comprising from January 1, 1997,
through
June
30,
2001,
wherein
it
was
found
that
the
Northern Trust Company, in Chicago, Illinois, was handling 100% of the JUA’s investments. The investment transactions between the JUA and Northern Trust Company were all conducted by means of electronic transfers such as “book entries” effectuated by a
-66-
Case 3:11-cv-01826 Document 1
“registrar.”
The
evidence
of
Filed 08/19/11 Page 70 of 82
such
transfers
was
maintained
through electronic entries and devoid of physical documentary receipts
of
interstate
the
wire
investments. included
The
monies
the
funds
so
transferred
Defendants
embezzled
by or
misappropriated from the Plaintiffs and Class as result of
the
Scheme
to
Defraud,
in
violation
of
the
Wire
Fraud
Statute, 18 U.S.C. § 1341. 13.28 Upon information and belief, at least up to 2009, the Northern Trust Company continued to handle the JUA’s investments and the investment transactions continued to be conducted by means of electronic transfers. 13.29 The specific date when each wire transfer of funds was made can be readily ascertained from the records in the possession or under the control of the JUA and the Northern Trust Company. 13.30 Each of these wire transfers is a predicate act that is indictable as wire fraud and together they also constitute a pattern of racketeering activity. 13.31 From 1998 to 2008, as shown in Table IV below, the JUA
reported
$322,892,940.00
in net
investments, as follows:
-67-
income
derived
from
its
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 71 of 82
TABLE IV Total income From Investments
Year
Investment Income
Investment Gain
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
$6,767,898 $9,306,809 $12,142,524 $11,769,936 $6,316,884 $7,687,535 $9,349,563 $9,252,932 $9,836,631 $11,881,736 $12,470,940
$0 -$552,474 $710,511 $4,426,037 $1,769,451 $2,689,996 $1,907,637 $2,352,960 -$20,320 -$6,146,912
$6,767,898 $8,754,335 $12,853,035 $16,195,973 $8,086,335 $10,377,531 $11,257,200 $8,564,727 $9,836,631 $11,881,736 $64,152,640
Totals
$106,783,388
$7,136,886
$113,920,274 = $322,892,940
13.32 Through the conduct described above, the JUA, as the ENTERPRISE, which is engaged in, and which activities affect interstate
commerce,
knowingly,
intentionally
and
unlawfully,
received income from investments, which was derived, directly or indirectly, from the pattern of racketeering activity in which the
JUA
Section
participated 2,
Title
18,
as
a
principal
United
States
within Code
the (18
meaning USCS
§
of 2),
committing predicate acts of wire fraud; the JUA then used or invested, directly or indirectly, part of such income, or the proceeds
of
such
income,
in
the
operation
of
itself
as
an
ENTERPRISE, i.e., the sale of motor vehicle compulsory liability insurance policies fraudulently containing hidden charges for non-incurred costs to derive racketeering income, in violation of 18 U.S.C. § 1962(a).
-68-
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 72 of 82
C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(a): 13.33 As proximate cause of the JUA’s violations to Section 1962(a), the Plaintiffs and Class were injured in their property
inasmuch
as
each
has
been
object
of
fraud
in
the
collection of a in excess of the monetary amount really spent or in the process of being spent by Defendants for the compulsory liability insurance policy, without having received the refund or return required by law. 13.34
The
injuries
suffered
by
the
Representative
Plaintiffs and Class since 1998, and up to 2010, is reasonably estimated in the amount of $406,618,935.00. 13.35 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs and the Class Member they represent, shall recover threefold the damages they have sustained. 13.36 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs are entitled to reasonable attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class threefold the monies they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount
-69-
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 73 of 82
of ONE BILLION TWO HUNDRED NINETEEN MILLION EIGHT HUNDRED FIFTY TWO THOUSAND EIGHT HUNDRED AND FIVE DOLLARS ($1,219,852,805.00); granting them pre-judgment and post-judgment interests; awarding them a reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. COUNT III – VIOLATIONS TO SECTION 1962(d) OF RICO A. THE ENTERPRISE: 13.37
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.38 This cause of action arises under 18 U.S.C. § 1962(d) and is asserted against all the Defendants. 13.39 For purposes of this particular cause of action under Section
1962(d),
the
ENTERPRISE
is
the
association
in
fact
defined in Section VIII, supra. B. THE CONSPIRACY: 13.40 All the Defendants and others unknown, aiding and abetting each other, acting in concert and/or combination, did knowingly,
intentionally,
and
unlawfully
agree
to
commit
the
multiple predicate acts of mail fraud (specifically described herein
before)
activity
(also
forming
the
described
alleged
herein
-70-
pattern
before),
as
of
racketeering
part
of
their
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 74 of 82
unlawful Scheme to Defraud the, and to obtain money from, the Representative
Plaintiffs
acquired
motor
policies
the
costs,
Class
vehicle
fraudulently
incurred
and
and
compulsory
containing thereby
the
who
purchased
liability
hidden
charges
unlawfully
or
insurance for
non-
defrauded
the
Representative Plaintiffs and Class . 13.41
All
the
Defendants
have
violated
Section
1962(d),
inasmuch as, in furtherance of their Scheme to Defraud and in order to effects its objectives, they knowingly, intentionally, and unlawfully, aiding and abetting each other, conspired to conduct and participate in, and did conduct and participate in, directly or indirectly, the affairs of the ENTERPRISE, through the pattern of racketeering activity described herein before, in violation to Section 1962(c). C. THE INJURY BY REASON OF THE VIOLATION OF SECTION 1962(d): 13.42 As proximate cause of the JUA’s violations to Section 1962(d), the Plaintiffs and Class were injured in their property
inasmuch
as
each
has
been
object
of
fraud
in
the
collection of a in excess of the monetary amount really spent or in the process of being spent by Defendants for the compulsory liability insurance policy, without having received the refund or return required by law.
-71-
Case 3:11-cv-01826 Document 1
13.43
The
injuries
Filed 08/19/11 Page 75 of 82
suffered
by
the
Representative
Plaintiffs and Class since 1998, and up to 2010, is reasonably estimated in the amount of $406,618,935.00. 13.44 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs and the Class Member they represent, shall recover threefold the damages they have sustained. 13.45 Pursuant to 18 U.S.C. § 1964(c), the Plaintiffs are entitled to reasonable attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class threefold the monies they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of ONE BILLION TWO HUNDRED NINETEEN MILLION EIGHT HUNDRED FIFTY TWO THOUSAND EIGHT HUNDRED AND FIVE DOLLARS ($1,219,852,805.00); granting them pre-judgment and post-judgment interests; awarding them a reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court.
-72-
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 76 of 82
COUNT IV – THE INSURANCE CODE VIOLATIONS 13.46
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.47 This cause of action arises under the Puerto Rico Insurance Code and is asserted against all the Defendants. 13.48 Article 27.160 of the Insurance Code prohibits the insurers to collect s for its policies that include items or charges which are improper, speculative or do not adjust to reality and the insurers are obliged to give back the excess of the amount really spent or on the way to being spent for the corresponding insurance. 13.49
The
Defendants
conspired
to,
and
did,
engage
in
conduct designed to deceive the Representative Plaintiffs and the Class and take their money and property under false pretenses and through improper, inequitable and illegal means. 13.50 Not reimbursing the 8% of acquisition costs and the 4% of istrative costs for the uniform s of $99 and $148, which were not incurred, constitutes a flagrant violation to
Article
27.160
of
the
Insurance
Code,
which
forbids
the
illegal dealing in s. 13.51 As a result of the mentioned conspiracy and illegal conduct, the Defendants wrongfully obtained money belonging to
-73-
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 77 of 82
the Representative Plaintiffs and the Class and were thereby unjustly enriched at the latter’s expense. 13.52 The Defendants are tly and severally responsible and
liable
for
disgorging
all
money
that
they
wrongfully
obtained through their illegal conduct, and for restoring such money to the Representative Plaintiffs and the Class , plus pre-judgment and post-judgment interest. 13.53
The
Defendants
have
denied
responsibility
for
the
damages claimed herein. Due to said obstinate and temerarious denial, and pursuant to the provisions of Rule 44 of the Rules of
Civil
Procedure
Representative
of
the
Plaintiffs
Commonwealth and
the
of
Class
Puerto
Rico,
are
the also
entitled to be awarded a reasonable amount for attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class the amounts of money they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of
FOUR
HUNDRED
HUNDRED THIRTY
pre-judgment
MILLION
FIVE
and
SIX
DOLLARS
HUNDRED
EIGHTEEN
THOUSAND
NINE
($406,618,935.00);
granting
them
post-judgment
-74-
interests;
awarding
them
a
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 78 of 82
reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. COUNT V – DECEIT (“DOLO”) IN THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS 13.54
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 13.55 This cause of action arises under the Puerto Rico Civil Code and is asserted against all the Defendants. 13.56 The Defendants, knowingly and intentionally, through deceitful
means,
avoided
complying
with
their
contractual
obligation of reimbursing the costs for the uniform s of $99 and $148, which were not incurred, to the Representative Plaintiffs and the Class . 13.57 The Defendants are tly and severally responsible and
liable
for
disgorging
all
money
that
they
wrongfully
obtained through their illegal conduct, and for restoring such money to the Representative Plaintiffs and the Class , plus pre-judgment and post-judgment interest. 13.58
The
Defendants
have
denied
responsibility
for
the
damages claimed herein. Due to said obstinate and temerarious denial, and pursuant to the provisions of Rule 44 of the Rules of
Civil
Procedure
of
the
Commonwealth -75-
of
Puerto
Rico,
the
Case 3:11-cv-01826 Document 1
Representative
Plaintiffs
and
Filed 08/19/11 Page 79 of 82
the
Class
are
also
entitled to be awarded a reasonable amount for attorneys’ fees. THEREFORE, the Plaintiffs demand that Judgment be entered in their favor and the Class they represent, and against the Defendants: ordering the Defendants, to reimburse to the Plaintiff Representatives and Class the amounts of money they have collected as s in excess of the monetary amount really
spent
by
the
Defendants
for
compulsory
liability
insurance coverage, which up to the year 2010 yield the amount of
FOUR
HUNDRED
HUNDRED THIRTY
pre-judgment
MILLION
FIVE
and
SIX
DOLLARS
HUNDRED
EIGHTEEN
THOUSAND
NINE
($406,618,935.00);
granting
them
post-judgment
interests;
awarding
them
a
reasonable amount for attorneys’ fees, plus the costs of this action; and, granting such other further relief that under the circumstances may seem appropriate to this Honorable Court. XIV. PERMANENT INJUNCTION AND DECLARATORY JUDGMENT 14.1
The
preceding
paragraphs
are
hereby
incorporated
herein as though fully set forth and are made a part of this paragraph. 14.2 A permanent injunction and a declaratory judgment will serve the public interest in putting an end to the Defendants’ fraudulent
conduct,
where
they,
knowingly,
intentionally
and
willfully, fraudulently collected and continue to collect funds
-76-
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 80 of 82
in their annual insurance as the purported acquisition (i.e.
brokerage
going
to
be
fees)
and
incurred,
istrative
without
costs
thereafter
that
are
not
effectuating
the
corresponding refund or return of such non-incurred costs to the Representative Plaintiffs and the Class , in violation to the dispositions of the Puerto Rico Insurance Code. 14.3
The
declaratory
issuance
judgment
of
will
a
also
permanent serve
the
injunction public
and
a
interest
in
putting an end to the illegal retention by Defendants of the portion of or charge for compulsory insurance in excess of the amount really spent by the insurer, which resulted and continues to result in a windfall to Defendants of millions of dollars of illegal gains, in violation of RICO. 14.4 prevail,
The will
Defendants’ cause
the
unlawful
conduct,
Representative
if
Plaintiffs
allowed and
to
Class
permanent irreparable injury, as discussed, ante. 14.5 Class
The
injuries far
to
outweigh
the
Representative
any
harm
which
Plaintiffs
may
be
caused
and to
Defendants should the Court grant the injunctive relief. 14.6 A permanent injunction and a declaratory judgment will serve the public interest in that the Representative Plaintiffs and
Class
will
not
be
subjected
to
the
Defendants’
unlawful conduct and will not be deprived of their personal
-77-
Case 3:11-cv-01826 Document 1
Filed 08/19/11 Page 81 of 82
property. XV. PRAYER FOR RELIEF WHEREFORE, it is respectfully requested that Judgment be entered by this Honorable Court in favor of the Plaintiffs and tly and severally against the Defendants: A.
Certifying the Classes defined in this complaint.
B.
Granting the Plaintiffs and Class all the monetary
compensations
and
equitable
relief
requested in the complaint. C.
Impoon the Defendants the payment of all costs
and
expenses
to
be
incurred
in
this
lawsuit. D.
Granting
the
Plaintiffs
and
Class
reasonable attorneys’ fees. E.
The
issuance
declaratory
of
a
judgment
permanent barring
injunction the
and
Defendants
continued conduct and practices. F.
Granting
the
Plaintiffs
any
other
relief
that
they may be entitled to as a matter of law.
RESPECTFULLY SUBMITTED. In San Juan, Puerto Rico, this 18th day of August, 2011.
-78-
Case 3:11-cv-01826 Document 1
ATTORNEYS FOR PLAINTIFFS: S/JOSE F. QUETGLAS JORDAN USDC-PR NO. 203411 Email: [email protected] QUETGLAS LAW OFFICES PO Box 16606 San Juan PR, 00908-6606 Tel: (787) 722-0635/722-7745 Fax: (787) 725-3970
-79-
Filed 08/19/11 Page 82 of 82
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