Dоminick ANNULLI and Janet Annulli, his wife, individually and trading and doing business as Annulli Nurseries, Appellants v. Ananda K. PANIKKAR and Linga D. Panikkar, his wife, William C. Wright and Joanne Wright, his wife; Evergreen Express, Inc.; Lawrence D. Wright and Lisa Wright
No. 98-7449.
United States Court of Appeals, Third Circuit.
Decided Dec. 30, 1999.
John J. Soroko, (Argued), Teresa N. Cavenagh, Duane, Morris & Heckscher, LLP, Philadelphia, PA, Joseph P. Lenahan, Lenahan & Dempsey, Scranton, PA,
Before: BECKER, Chief Judge, GREENBERG, and CUDAHY,* Circuit Judges.
OPINION OF THE COURT
BECKER, Chief Judge.
The principal question presented by this appeal is whether torts, breaches of contract, and state law crimes—which are not enumerated in the Racketeering Influenced and Corrupt Organizations Act (RICO),
The appeal also requires that we clarify the time at which a cause of action accrues for statute-of-limitations purposes under the civil RICO statute. We confirm that the “injury and pattern” discovery rule announced by this Court in Keystone Ins. Co. v. Houghton, 863 F.2d 1125 (3d Cir. 1988), remains the law of the Circuit, notwithstanding the Supreme Court‘s decision in Klehr v. A.O. Smith Corp., 521 U.S. 179, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997), which rejected an exception we had grafted on to Keystone‘s general rule. We note, however, that the Supreme Court has granted writ of certiorari in Rotella v. Wood, 147 F.3d 438 (5th Cir. 1998), cert. granted, — U.S. —, 119 S.Ct. 1139, 143 L.Ed.2d 207 (1999), and will likely decide this Term what rule will control in the future: the injury and pattern discovery rule employed by this court of appeals and others; the “pure injury discovery” rule employed by other courts of appeals; the “injury rule” endorsed by Justices Scalia and Thomas in Klehr, 521 U.S. at 198, 117 S.Ct. 1984 (Scalia, J., concurring); or some other rule.
Our determinations as to what constitutes a predicate act of racketeering activity and the time at which a civil RICO action accrues compel the conclusion that the District Court did not err in granting summary judgment for the defendants on plaintiffs-appellants’ civil RICO claims. We further conclude that the District Court did not abuse its discretion under the supplemental jurisdiction statute,
* Honorable Richard D. Cudahy, United States Circuit Judge for the Seventh Circuit, sitting by designation.
I. Factual Background and Procedural History
Doctors William Wright and Ananda Panikkar were friends and practicing physicians in Bloomsburg, Pennsylvania. Each owned adjoining land on the River Hill farm, where they grew Christmas trees for sale. Each man and his family also owned other tree farms. Wright‘s family formed a corporation to sell trees, Evergreen Express, Inc. (Evergreen), while Panikkar sold trees under his own name. Until 1989, both families participated in the management of their farms but employed outside help to do much of the work. This arrangement proved erratic and generally unprofitable.
In 1989, Wright contacted Dominick Annulli, who was experienced in the tree farm business, and told him that he needed someone to manage his farm and to maintain and sell his trees. Annulli and Wright
Not all remained merry, however, in the Christmas tree business. Annulli alleges that, although the Wrights’ and Panikkars’ farms were becoming quite successful, Wright‘s son, Lawrence, made Annulli‘s life miserable by constantly interfering with Annulli‘s management duties. Frustrated with Lawrence‘s intrusiveness, Annulli wrote to Wright and Evergreen on April 6, 1991, requesting that they terminate their agreement before the end of the term. Annulli‘s offer was not accepted, and he was told by the Wrights that they expected him to meet his obligations for the next two years.
Four months later, the Wrights and Evergreen “accepted” Annulli‘s offer to terminate the contract. They did so after a summer during which Annulli had labored and spent his own money to maintain the Wrights’ trees. Annulli submits that the Wrights’ acceptance of his offer to terminate was not only legally invalid, but was motivated by the Wrights’ unlawful desire to profit at his expense.1 Annulli submitted an affidavit prepared by one George Bellum, who reprеsented that Wright had offered him a job to manage the Wrights’ farms while Annulli was still engaged in doing so. Bellum also asserted that Lawrence Wright explained that the reason for replacing Annulli with Bellum was that, under their contract, Annulli was making all the money and the Wrights wanted to reap these profits. Additionally, Bellum claimed that, after Annulli‘s contract was terminated, Lawrence Wright and his brother, Lee, tried to enlist Bellum in an attempt to use a price list stolen from Annulli to steal Annulli‘s customers for nursery stock trees.
Believing that the Wrights’ actions constituted a breach of contract, Annulli sued Evergreen in Pennsylvania state court in November 1991. The case was purged from the state court‘s docket after two years for lack of prosecution. While Annulli‘s case against Evergreen languished in state court, Annulli‘s contractual relationship with Panikkar continued. Wright, whо lived next to one of Panikkar‘s farms, began calling Panikkar and informing him that Annulli was not maintaining the Panikkars’ trees, and that he was cutting and selling their trees without informing him. Panikkar visited his tree farms, and upon discovering what he perceived to be neglect, informed Annulli that he needed to take better care to meet his contractual obligations. The neglect is said to have persisted, and Panikkar terminated his agreement with Annulli in the Spring of 1993. Since then, the Wrights have performed maintenance and managerial duties at the Panikkars’ farms.
In November 1994, Annulli filed suit against Panikkar and his wife in Pennsylvania state court for breach of contract.2
On June 24, 1996, Annulli began proceedings against the Wrights, Panikkars, and Evergreen (hereinafter “the Defendants“) in the District Court for the Middle District of Pennsylvania; he averred civil RICO claims as well as pendent state law claims. (Annulli‘s counsel rеpresented at oral argument that these state law claims are currently pending in state court.) In his RICO action, Annulli alleged that the Wrights and the Panikkars engaged in a conspiracy between 1983 and 1993 to steal Annulli‘s services and expertise. He alleged that he first discovered this conspiracy and pattern of racketeering during the June 4, 1996 deposition of Panikkar.
The Defendants moved for summary judgment, and the District Court granted it based on the statute-of-limitations defense they had advanced. The Court held that Annulli‘s civil RICO action against the Defendants accrued in 1991 when the Wrights terminated their contract with Annulli and published an allegedly stolen price list. At this moment, the District Court concluded, Annulli knew or should have known the Defendants had engaged in acts forming the predicate acts of racketeering, on which a civil RICO claim could be based. Under this reasoning, since Annulli waited until 1996 to file suit to recover damages arising out of this alleged pattern of racketeering, his claim was time-barred by RICO‘s four-year statute of limitations.
In reaching this conclusion, the District Court rejected Annulli‘s arguments that he first discovered the RICO conspiracy against him during the June 6, 1996 deposition of Panikkar. The Court concluded that nothing in the deposition supported the contention that the Wrights and Panikkars had decided unlawfully to transfer management duties of the farm to the Wrights; therefore, there was nothing for Annulli to discover. Moreover, even if the deposition contained new evidence that the Wrights persuaded the Panikkars to terminate their contract with Annulli: (1) the Court suggested that this act did not constitute a predicate RICO violation, but merely tortious interference with contract; and (2) it concluded that evеn if there were a RICO violation, the statute of limitations would not start running upon its discovery, but upon the discovery of the first act of the conspiracy and its attendant injury—the Wrights’ 1991 decision to terminate its agreement with Annulli and publish a stolen price list. Having dismissed Annulli‘s federal claims, the Court exercised its discretion to dismiss his pendent claims as well.
Annulli appealed. We have appellate jurisdiction pursuant to
A. The Applicable Accrual Rule for Civil RICO Claims
In enacting RICO, Congress did not include a statute-of-limitations provision for private civil claims arising under the statute. The Supreme Court filled this gap in Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), holding that civil RICO actions are subject to the four-year statute-of-limitations provision that governs private civil antitrust actions. The Court in Malley-Duff, however, did not announce when a civil RICO action “accrues“—i.e., the time at which the four-year statute of limitations begins to run.
The courts of appeals have adjudicated this question, but a split in authority has developed. In Keystone Ins. Co. v. Houghton, 863 F.2d 1125, 1130 (3d Cir. 1988), we announced the “injury and pattern discovery” rule. The rule provides that a civil RICO claim accrues and the statute of limitations begins to run when the plaintiff knew or should have known that each element of a civil RICO claim existed—namely, that he was injured, that the defendant was the source of this injury, and that a pattern of activity prohibited by RICO caused this harm. See id.; see also Klehr v. A.O. Smith Corp., 521 U.S. 179, 185, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997) (noting that the 8th, 10th, and 11th Circuits follow this approach). Other courts of appeals have adopted the “pure injury discovery” rule; it does not require that the plaintiff have knowledge of a pattern of racketeering activity before the statute begins to run, but holds instead that a civil RICO cause of action accrues when the plaintiff discovers or should have discovered his injury. See Klehr, 521 U.S. at 191, 117 S.Ct. 1984; see also id. at 185-86, 117 S.Ct. 1984 (noting that the 1st, 2d, 4th, 7th, 9th, and likely the D.C. Circuits follow this approach); Rotella v. Wood, 147 F.3d 438 (5th Cir. 1998) (following this approach).
The Supreme Court seemed poised to resolve this circuit split in Klehr. Instead of doing so, however, the Court merely eliminated an exception to one of the two contending theories. The Klehr majority rejected this court‘s “last predicate act” exception to our general injury and pattern discovery rule, see Keystone, 863 F.2d at 1130, while explicitly refusing to endorse either the injury and pattern discovery rule or the pure injury discovery rule. See Klehr, 521 U.S. at 182, 191, 117 S.Ct. 1984.4 As Klehr purposefully avoided endorsing our general accrual rule in Keystone or rejecting it in favor of an alternative, Keystone remains the law of this Circuit unless and until the Supreme Court (or our court en banc) says otherwise. In applying Keystone, we note that it is the most lenient accrual rule among
B. The Injury and Pattern Discovery Rule Applied to Annulli‘s Claims
In applying Keystone, we must discern when Annulli was injured, when he knew or should have known about these injuries, and when he knew or should have known about the source and alleged pattern of racketeering that caused his injuries. Annulli has complicated matters by advancing alternative theories regarding the time at which the alleged Wright-Panikkar conspiracy arose, the exact predicate acts of racketeering that harmed him, and the time at which he did or should have discovered this conspiracy and its resulting harms.
Annulli‘s theory of the Wright-Panikkar conspiracy and pattern of racketeering can be summarized as follows. In 1983, Wright convinced his wife and family and the Panikkars to buy land for Christmas tree farms. In 1989, Wright, in bad faith, contracted with Annulli in an attempt to learn and eventually steal his business seсrets; Wright then encouraged Panikkar to do the same. The Wrights and the Panikkars then made misrepresentations to Annulli that convinced Annulli to render services on their behalf. Once the Wrights and Panikkars had learned Annulli‘s secrets, stolen his price lists, and exploited his labor, Wright then caused Evergreen to breach its contract with Annulli, and soon after, convinced the Panikkars to do likewise. With Annulli out of the way, the two doctors and their families could now take a greater share in the profits of their tree businesses and steal Annulli‘s customers.
Annulli claims three separate injuries arising out of these alleged conspiratorial activities. The first harm is said to have taken place when the Wrights terminated Evergreen‘s contract with Annulli in 1991 and used a price list stolen from Annulli to sell a product that Annulli had developed for the Wrights—the highly profitable dug and balled nursery stock trees—to Annulli‘s nursery customers. This harm would have arisen in 1991, when these alleged misdeeds took place. Annulli‘s second claim is that he relied on the Panikkars’ and Wrights’ fraudulent representations that they would be in the tree business for a long time, and thus devoted time, money, skill, and labor to working on the Defendants’ farms. This purported harm—years of hard work exchanged for false promises—continued to accrue as long as Annulli worked with the two families: from 1989 to 1991 in the Wrights’ case, and from 1989 to 1993 in the Panikkars’ case. The final harm that Annulli allegedly suffered is his lost ability, under Annulli‘s separate contracts with the Wrights and the Panikkars, to sell the trees he planted and maintained. Under this liability theory, the Wrights harmed Annulli when they canceled their contract in 1991; the Panikkars harmed Annulli in 1993 when they did the same.
Since Klehr rejected our last predicate act rule, see supra note 4, Annulli cannot rely on new injuries arising out of predicate acts of racketeering within the four years preceding June 1996 to recover for any injuries caused by these “earlier predicate acts that took place outside the limitations period.” Klehr, 521 U.S. at 190, 117 S.Ct. 1984. Therefore, the District Court rightly granted summary judgment in favor of the Wrights and Evergreen on this first—and untimely—set of claims.
Annulli‘s other two sets of claims cannot be disposed of as easily. As Klehr also teaches, plaintiffs in civil RICO actions may seek redress for new injuries arising out of new predicate acts that occur within the statutory period, even if those new predicate acts and resulting injuries arise out of the same pattern of racketeering behavior that began outside the four-year statutory period. See Klehr, 521 U.S. at 189-90, 117 S.Ct. 1984 (nоting that under the “separate accrual” rule, adopted by some courts of appeals and applicable in antitrust law, plaintiffs could recover for new predicate acts occurring within the statutory period if they could show that the new acts could have caused them harm over and above the harm that the earlier acts caused). As explained above, the only limitation on this separate accrual rule is that these new acts cannot be used “as a bootstrap to recover for injuries caused by other earlier predicate acts that took place outside the statutory period.” Id.
Under this framework, which is consistent with Keystone‘s general rule, Annulli‘s second and third claims would be timely, assuming that they were based on valid predicate acts of racketeering. The Defendants allegedly injured Annulli in 1993, when Wright purportedly convinced Panikkar to terminate his contract with Annulli and employ the Wrights to manage his farm. Annulli‘s years of labor for the Panikkars were now for naught because he could not share in the profits from the sales of the trees he planted and maintained, as was his contractual right.
Both of these injuries occurred within four years of the time that Annulli filed his civil RICO claims in June 1996, and thus,
III. Can State Law Crimes, Torts, and Breaches of Contract Constitute Predicate Acts of Racketeering
We may affirm a District Court‘s summary judgment ruling on different grounds, “provided the issue which forms the basis of our decision was before the lower court.” Morse v. Lower Merion School District, 132 F.3d 902, 904 n. 1 (3d Cir. 1997); see also Salley v. Circuit City Stores, Inc., 160 F.3d 977, 978 (3d Cir. 1998). In moving for summary judgment, the Defendants presented several alternative theories on which the District Court could dismiss Annulli‘s civil RICO claims. In addition to the statute-of-limitations argument adopted by the District Court, the Defendants contended that (1) the Panikkars’ breach of their contract with Annulli, and the Wrights’ alleged interference with that contraсt were not predicate acts of racketeering necessary for a civil RICO claim; (2) Annulli‘s alleged four million dollars of lost profits from future sales of trees on the Panikkars’ farms were not proximately caused by the alleged RICO violation; and (3) Panikkar‘s wife and Wright‘s wife and daughter had nothing to do with the conspiracy. We focus our attention on the first of these arguments, because its resolution is dispositive of the remainder of Annulli‘s civil RICO claims.
A. Annulli‘s Evidentiary Burden at Summary Judgment
Annulli‘s civil RICO claims arise under
To recover under § 1962(c), a plaintiff must prove the following four elements: (1) the existence of an enterprise affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated, either directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that the defendant participated through a pattern of racketeering activity that included at least two racketeering acts. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1165 (3d Cir. 1989). At the summary judgment stage of proceedings, if the movant—in this case the Defendants—can point to the absence of any factual support for one of these essential elements, then the non-movant, bearing the burden of persuasion at trial, must introduce specific facts showing a need for trial, pursuant to
B. What Types of Acts Qualify as Racketeering Activity?
The Defendants point to an absence of factual support for the fourth element of Annulli‘s § 1962(c) civil RICO claim—i.e., that the Defendants engaged in a pattern of racketeering activity. The Defendants argue that with respect to his last two claims of injury—those accruing in 1993—Annulli has, at most, provided factual support for state contract, tort, and criminal claims, but has not introduced any evidence of “racketeering activity” as it is defined by
The relevant portion of § 1961(1) defining “racketeering activity” provides, inter alia, that the term encompasses
(A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical ..., which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), ... sections 2314 and 2315 (relating to interstate transportation of stolen property), ...
That said, Annulli has provided no evidence establishing that the Defendants engaged in racketeering activity within the statutory period. More particularly, Annulli has made no allegation that the Defendants committed one of the state law crimes defined as racketeering activity in § 1961(1)(A). Hе argues instead that the Defendants are guilty of the Pennsylvania state law crime of “theft by deception,”
This is for good reason. First, RICO‘s list of acts constituting predicate acts of racketeering activity is exhaustive. See, e.g., Harvey v. Harvey, 931 F.Supp. 127, 130 (D.Conn. 1996); Red Ball Interior Demolition Corp. v. Palmadessa, 874 F.Supp. 576, 586 (S.D.N.Y. 1995). To read it otherwise would be to usurp the role of Congress in drafting statutes. Second, if garden-variety state law crimes, torts, and contract breaches were to constitute predicate acts of racketeering (along with mail and wire fraud), civil RICO law, which is already a behemoth, would swallow state civil and criminal law whole. Virtually every litigant would have the incentive to file their breach of contract and tort claims under the federal civil RICO Act, as treble damages and attorney‘s fees would be in sight. We will not read language into § 1961 to federalize every state tort, contract, and criminal law action.
As for those predicate acts listed in the statute, Annulli has provided no evidence that the Defendants engaged in § 1961(1)(B) mail fraud, wire fraud, or interstate transportation of stolen property during the four-year statutory period. He has adduced evidence that the Wrights stole Annulli‘s price list in 1991 and faxed it from Pennsylvania to оne of Annulli‘s customers in Connecticut. See supra note 6. This may have the makings of wire fraud and interstate transportation of stolen property, which are enumerated predicate acts of racketeering in § 1961(1)(B). As noted in Section II.B, supra, however, a 1996 civil RICO action arising out of this predicate act is untimely by one year. That leaves Annulli with the Wrights’ and Panikkars’ alleged acts of conspiracy and racketeering in 1993 both to defraud Annulli of his labor and contractual rights with Panikkar, and to share the profits from tree sales to which Annulli was entitled. This intentionally fraudulent activity, if proven, might constitute mail or wire fraud if Annulli could also provide sufficient evidence that the Defendants used inter or intrastate mail or interstate wire in furtherance of this scheme.9 This they have not done.
Annulli sufficiently pled the elements of mail and wire fraud violations to survive judgment on the pleadings, but sinсe then, he has introduced nothing into the record establishing that, “incident to an essential part of their scheme” to defraud him, Tabas, 47 F.3d at 1294 n. 18, the Defendants (1) mailed anything to one other or to Annulli, or (2) had phone communications with each other or with Annulli across state lines. The only mailings that Annulli has referenced include checks mailed to him for trees sold before 1991 and the
All other communications between the parties appear to have occurred face to face or during intrastate telephone conversations, which are not covered under the wire fraud act. See supra note 9. Panikkar terminated his contract with Annulli in person. Wright informed Panikkar оf Annulli‘s negligent work—and purportedly at the same time conspired with him to defraud Annulli—in a series of telephone conversations that were presumably intrastate, given that the two physicians are Bloomsburg, Pennsylvania neighbors. Annulli presented no evidence that these conversations between the Wrights and the Panikkars, or any other conversation in furtherance of their conspiracy to defraud Annulli, took place across interstate phone lines, as we detail in the margin.10 Accordingly, Annulli‘s civil RICO claims based on predicate acts of wire and mail fraud, which are unsupported by any record evidence, cannot survive summary judgment.11
IV. The Dismissal of Annulli‘s Pendent State Law Claims
Rejecting Annulli‘s civil RICO claims leaves his pendent state law claims against the Panikkars for breach of contract and those against the Wrights and Evergreen for intentional interference with contract. As noted above, the District Court dismissed these pendent claims after it granted summary judgment on Annulli‘s touchstone federal claims. Annulli argues that this decision was in error.
The supplemental jurisdiction statute governs our review. The statute provides that “[t]he district court may decline to exercise supplemental jurisdiction over a claim” if “the district court has dismissed all claims over which it has original jurisdiction.”
Annulli argues that two years of litigation, fifteen pages of court docket, 1,800 pages of deposition testimony, and 2,800 pages of discovery documents militate in favor of retaining jurisdiction over his case, especially as he was on the eve of trial when the Defendants filed their motion for summary judgment. Although district courts have chosen to retain pendent jurisdiction in similar situations,12 courts of appeals have acknowledged the authority of district courts to refuse to do so.13
The judgment of the District Court will be affirmed.
BECKER
CHIEF JUDGE
Notes
Annulli further asserted in his summary judgment opposition brief that “the Wrights operated their business schemes from Lake Placid, Florida during the winter months.” From this, he would presumably have us draw the inference that the Wrights called Annulli and furthered their scheme to defraud him over interstate phone lines. To support the contention giving rise to this inference, Annulli cites Exhibits 41 and 42 from the trial record and Joanne Wright‘s February 22, 1998 deposition in its entirety. This evidence similarly fails to establish an issue of material fact regarding Annulli‘s mail and wire fraud allegations. Exhibit 41 is a phone bill of an unidentified person or company dated April 10, 1990, on which a March 20, 1990 phone call is logged to Lake Placid, Florida. Exhibit 42 is a canceled check written on March 11, 1989 from Evergreen to United Telephone. Neither of these documents even begins to prove that Wrights used interstate wire in furtherance of a conspiracy to defraud Annulli, absent some explanation in the record as to why this telephone bill and canceled check have anything to do with the Defendants’ alleged racketeering activity. Cf. Scheiner v. Wallace, 860 F.Supp. 991, 997-98 (S.D.N.Y. 1994) (noting that, when alleging mail and wire fraud as predicate acts in a RICO claim, plaintiff‘s pleadings must identify the purpose of the mailing within the defendant‘s fraudulent scheme and specify the fraudulent statement, the time, place, and speaker and content of the alleged misrepresentations). Even if Annulli did offer such explanations, the predicate acts of racketeering they would tend to prove are well outside the statutory period. As for Jоanne Wright‘s 220 page deposition, it too provides Annulli with no assistance. It makes not one mention of the Wrights operating their tree business from Florida during the winter months; instead, it primarily contains extensive discussions regarding the Wrights’ unprofitable tree business before they hired Annulli.