Crest Construction II, Inc. v. Doe, 2011 U.S. App. LEXIS 22037

Background

Crest and Metro entered into an Operating Agreement with On Time Auto, under which Crest would receive 100% of sale proceeds and On Time Auto would assign Loan Accounts to Crest and maintain liens and records.
On Time Auto kept the titles and liens, provided files for each Loan Account, and established a Reserve Account funded by Crest purchases of 20% of Loan Account value for potential delinquencies.
Myers, Hart, and others pooled funds and equity interests in On Time Auto; Metro invested $200,000 and later learned funds were used to buy out another owner, creating a three-way equity split among Hart, Myers, and Metro.
In June 2004 the Reserve Account was depleted and Crest began purchasing Loan Accounts at 65% of face value, contributing to deteriorating performance under the Operating Agreement.
Plaintiffs filed a six-count complaint in 2007 asserting RICO violations and state-law claims; the district court dismissed the RICO claim for failure to plead required elements and declined supplemental jurisdiction over state-law claims.
On appeal, plaintiffs challenged the district court’s rulings, but the Eighth Circuit affirmed dismissal of the RICO claim and declined to exercise supplemental jurisdiction over the remaining state-law claims.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiffs pled a RICO enterprise	Crest contends an association-in-fact enterprise existed.	Defendants argue no distinct enterprise beyond the pattern of activity exists.	No, the enterprise was not pled with an ascertainable, independent structure.
Whether plaintiffs pled a pattern of racketeering	Plaintiffs allege ongoing, open-ended fraud spanning multiple entities.	Defendants contend allegations lack sufficient continuity and specificity.	No, alleged acts do not show closed/open-ended continuity or a related-predicate pattern.
Whether two predicate acts were pled for each defendant	Complaint identified multiple predicate acts against several defendants.	Complaint failed to specify two acts per defendant with particularity.	No, the complaint failed to plead two specific predicate acts per defendant.
Whether mail and wire fraud were pled with Rule 9(b) specificity	Defendants engaged in mail and wire fraud to further the scheme.	Allegations were boilerplate and did not identify who, what, when, where, how.	No, the pleading did not satisfy Rule 9(b) specificity for mail/wire fraud.
Whether the district court properly denied leave to amend and dismissed state claims	Amendments would cure pleading deficiencies and salvage the RICO claim.	Amendment would be futile; the court properly dismissed and declined supplemental jurisdiction.	Yes, the district court did not abuse its discretion; amendment futile and state claims declined.

Key Cases Cited

Summerhill v. Terminix, Inc., 637 F.3d 877 (8th Cir. 2011) (de novo review of 12(b)(6) dismissal; plausibility standard)
Walker v. Barrett, 650 F.3d 1198 (8th Cir. 2011) (plausibility standard applied to Rule 12(b)(6))
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (claim must state plausible grounds, not just legal conclusions)
Stephens, Inc. v. Geldermann, Inc., 962 F.2d 808 (8th Cir. 1992) (enterprise/association pleading requires common purpose and structure)
Boyle v. United States, 556 U.S. 938 (2009) (enterprise elements; distinguish enterprise from pattern)
Turkette, 452 U.S. 576 (1981) (enterprise must have ascertainable structure distinct from racketeering)
Hively, 437 F.3d 752 (8th Cir. 2006) (continuity in racketeering inquiry; duration considerations)
Primary Care Investors, Seven, Inc. v. PHP Healthcare Corp., 986 F.2d 1208 (8th Cir. 1993) (closed-ended continuity duration threshold)
Rao v. BP Prods. N. Am., Inc., 589 F.3d 389 (7th Cir. 2009) (boilerplate pleading insufficient to establish group enterprise)
Craig Outdoor Adver., Inc. v. Viacom Outdoor, Inc., 528 F.3d 1001 (8th Cir. 2008) (open-ended continuity and enterprise pleading requirements)
Terry A. Lambert Plumbing, Inc. v. W. Sec. Bank, 934 F.2d 976 (8th Cir. 1991) (continuity and single-transaction limitations)
Gamboa v. Velez, 457 F.3d 703 (7th Cir. 2006) (RICO pattern requires two or more related acts)
Dahlgren v. First Nat'l Bank of Holdrege, 533 F.3d 681 (8th Cir. 2008) (open-ended/continuity analysis for pattern of racketeering)
Handeen v. Lemaire, 112 F.3d 1339 (8th Cir. 1997) (distinction between enterprise and predicate acts; ongoing structure)