63 F.4th 49
1st Cir.2023Background
- Plaintiffs Joel Douglas, Steven Fowler, and James Lewis sued 26 defendants alleging interrelated schemes to defraud Maine real estate owners; amended complaint added David Hirshon and LOSU, LLC on a RICO conspiracy claim (Count IV) and unjust enrichment claim (Count XVII).
- Complaint alleges three schemes: (1) lease/buy-back transactions where title was transferred to Lalumiere-controlled entities that mortgaged properties and were later foreclosed; (2) a renovation-for-option deal where Fowler was blocked from exercising his purchase option after mortgage defaults; (3) a title-transfer/loan promise to Lewis followed by foreclosure.
- The complaint contains minimal factual allegations about Hirshon and LOSU: labels them as a Maine resident and corporation, alleges they "realized the proceeds," that they "knew about the fraud" via participation in transactions for 661 Allen Ave and 75 Queen St, and includes a nonparty affidavit stating LOSU took a mortgage on 36 Settler Road and had notice of a lease/buy-back.
- Hirshon and LOSU moved to dismiss under Rule 12(b)(6); plaintiffs opposed with additional attachments not in the complaint and moved for limited discovery to cure pleading gaps. The district court dismissed the RICO claim against Hirshon and LOSU, denied the discovery request, and entered final judgment under Rule 54(b).
- The First Circuit affirmed: the complaint failed to plausibly allege that Hirshon or LOSU knowingly joined a RICO conspiracy; the district court did not abuse its discretion by declining to consider extrinsic attachments not pleaded or argued to fit narrow exceptions; and denial of pre-dismissal limited discovery was proper given the pleadings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint plausibly alleges Hirshon/LOSU knowingly joined a RICO conspiracy | Allegations and attached documents show Hirshon/LOSU knew of and received proceeds from the fraudulent enterprise | Complaint contains only bare, conclusory assertions and ordinary transaction records that do not show knowing participation | Dismissed: allegations too meager and conclusory to plausibly infer knowing agreement to join a RICO conspiracy |
| Whether district court erred in refusing to consider documents attached to plaintiffs' opposition when ruling on motion to dismiss | Attachments (e.g., mortgages from registries) fill gaps and are public records/authentic so the court should consider them | Attachments were neither part of nor referenced in the complaint and plaintiffs did not invoke narrow exceptions below; district court may decline to consider them | No error: district court did not abuse discretion in declining to consider extrinsic attachments absent argument they fit exceptions or amendment to complaint |
| Whether denial of plaintiffs' motion for limited discovery before dismissal was abuse of discretion | Limited discovery would likely reveal facts showing Hirshon/LOSU knowingly joined the conspiracy | Plaintiffs' complaint is not plausibly pled and lacks information indicating discovery would bridge the wide gap; Becher/Menard standards not satisfied | No error: discovery denied because pleadings fall well short of plausibility and plaintiffs gave no reason to expect discovery would supply the missing link |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for complaint allegations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (requirement that complaints plead factual content permitting reasonable inference of liability)
- New England Data Servs., Inc. v. Becher, 829 F.2d 286 (1st Cir. 1987) (limited discovery may be appropriate where scheme is pled generally but particulars peculiarly within defendants' knowledge)
- Menard v. CSX Transp., Inc., 698 F.3d 40 (1st Cir. 2012) (limited discovery where plausible claim and missing details likely controlled by defendant)
- Freeman v. Town of Hudson, 714 F.3d 29 (1st Cir. 2013) (narrow exceptions for considering extrinsic documents on a Rule 12(b)(6) motion)
- Watterson v. Page, 987 F.2d 1 (1st Cir. 1993) (authority on treating extrinsic documents in Rule 12(b)(6) contexts)
- United States v. Velazquez-Fontanez, 6 F.4th 205 (1st Cir. 2021) (defining the requirement to knowingly join a conspiracy)
- García-Catalán v. United States, 734 F.3d 100 (1st Cir. 2013) (plausibility inquiry may account for whether discovery can fill holes)
- Legal Sea Foods, LLC v. Strathmore Ins. Co., 36 F.4th 29 (1st Cir. 2022) (application of pleading standards on dismissal)