VIRGINIA A. D‘ADDARIO, individuаlly, and on behalf of the F. Francis D‘Addario Testamentary Trust and the Virginia D‘Addario Trust; and VIRGINIA A. D‘ADDARIO, EXECUTRIX, as Executrix of the Probate Estate of Ann T. D‘Addario, Deceased, and on behalf of the F. Francis D‘Addario Testamentary Trust and the Ann T. D‘Addario Marital Trust v. DAVID D‘ADDARIO, MARY LOU D‘ADDARIO KENNEDY, GREGORY S. GARVEY, RED KNOT ACQUISITIONS, LLC, SILVER KNOT, LLC, NICHOLAS VITTI
Docket No. 17-1162 cv
United States Court of Appeals FOR THE SECOND CIRCUIT
August 14, 2018
August Term, 2017 (Argued: October 31, 2017)
Before: LYNCH and CARNEY, Circuit Judges, and HELLERSTEIN, District Judge.+
F. DEAN ARMSTRONG (Edward C. Taiman, Jr., Sabia Taiman, LLC, Hartford, CT, on the brief), Armstrong Law Firm PC, Frankfort, IL, for Plaintiffs-Appellants.
ALFRED U. PAVLIS (Tony Miodonka, on the brief), Finn Dixon & Herling LLP, Stamford, CT, for Defendants-Appellees David D‘Addario, Mary Lou D‘Addario Kennedy, Silver Knot, LLC, and Nicholas Vitti.
NATHAN BUCHOK (Brian E. Spears, on the brief), Spears Manning LLC, Southport, CT,
SUSAN L. CARNEY, Circuit Judge:
Virginia D‘Addario appeals the dismissal of her claim brought under the
Virginia‘s father, Connecticut resident and entrepreneur F. Francis D‘Addario, died unexpectedly in 1986 and bequeathed his fortune—once estimated to have a net value above $111 million—to his wife and their five children. Virginia‘s youngest brother, David, has been an Executor of the Estate since their father‘s death. Since then, she alleges, he has systematically looted the assets of the Estate, with the active assistance of their sister Mary Lou and David‘s friends Nicholas Vitti and Gregory Garvey, and by means of two corporate entities formed by David and Garvey. Virginiа contends that the Estate—which has remained open in Connecticut Probate Court for more than thirty years—is now insolvent and that, because of Defendants’ actions, neither she nor her mother‘s estate will receive any portion of the multi-million-dollar inheritance to which they were entitled. Virginia seeks damages based on two types of injury: the loss of the inheritance they would have received if not for David‘s fraudulent schemes and the approximately $200,000 in legal expenses that she has incurred in the course of Connecticut state court proceedings in which she sought to remove David as Executor. The United States District Court for the District of Connecticut (Arterton, J.) dismissed her complaint under
We conclude that: (1) Virginia‘s claim for distribution of her inheritance and that of her mother‘s estate is not ripe under RICO because the Estate is not closed and the amount of the lost inheritance is too speculative; (2) her claim under RICO for legal expenses incurred in pursuing her grievances against David and other defendants is ripe; (3) she has plausibly alleged that her legal expense injuries were proximately caused by Defendants’ RICO violations; (4) she has adequately pleaded that David, Garvey, and Red Knot violated
VACATED AND REMANDED.
Virginia D‘Addario appeals the dismissal of her claim brought under the
Virginia‘s father, Connecticut resident and entrepreneur F. Francis D‘Addario, died unexpectedly in 1986 and bequeathed his fortune—once estimated to have a net value above $111 million—to his wife and their five children. Virginia‘s youngest brother, David, has been an Executor of the Estate since their father‘s death. Since then, she alleges, David has systematically looted the assets of the Estate, with the active assistance of her sister Mary Lou, David‘s friends Nicholas Vitti and Gregory Garvey, and by means of two corporate entities formed by David and Garvey. Virginia contends that the Estate—which has remained open in Connecticut Probate Court for more than thirty years—is now insolvent and that, because of Defendants’ actions, neither she nor her mother‘s estate will receive any portion of the multi-million-dollar inheritance to which they were entitled. Virginia seeks damages based on two types of injury: the loss of the inheritance they would have received if not for David‘s fraudulent schemes and the approximately $200,000 in legal expenses that she has incurred in the course of Connecticut state court proceedings in which she sought to remove David as Executor. The United States District Court for the District of Connecticut (Arterton, J.) dismissed her complaint under
We conclude that: (1) Virginia‘s claim for distribution of her inheritance and that of her mother‘s estate is not ripe under RICO because the Estate is not closed and the amount of the lost inheritance is too speculative; (2) her claim under RICO for legal expenses incurred in pursuing her grievances against David and other defendants is ripe; (3) she has plausibly alleged that her legal expense injuries were proximately caused by Defendants’ RICO violations; (4) she has adequately pleaded that David, Garvey, and Red Knot violated
BACKGROUND1
I. Francis‘s death and David‘s management of the Estate
F. Francis “Hi Ho” D‘Addario (“Francis“), a successful Connecticut businessman and the head of D‘Addario Industries, died unexpectedly in early 1986, the victim of an airplane crash. At the time of his death, his net worth was estimated to exceed $111 million. He was survived by his wife, Ann, and their five children: in order of birth, Virginia, Larry, Mary Lou, Lisa, and David.
Shortly after the accident, Francis‘s will (the “Will“) was filed for probate in the Probate Court of Trumbull, Connecticut. That court appointed Francis‘s two sons, David and Larry, to serve with three non-family members as Executors of the Estate.2 At the time of his appointment, David, the youngest of the five D‘Addario siblings, was 24 years old and had been working for his father‘s business. As an Executor, David was suddenly able to exert significant control over the entirety of the business empire known as D‘Addario Industries: substantially all of his father‘s business assets lay within the Estate.
The Will provided that one-half of Francis‘s assets would be placed into a marital trust for the benefit of his wife, Ann D‘Addario (“Ann“); the other half would be divided equally among their five children. The anticipated distributions, however, have never been made. When the District Court dismissed Virginia‘s Complaint in March 2017, more than thirty years after Francis‘s death, his Estate remained open in the Connecticut Probate Court, and the record before us reflects no change since then.
The extensive passage of time has had a significant impact on the siblings’ respective expectations regarding their inheritances, both because of the extensive transactions undertaken by David, as described in the Complaint, but also because, under the terms of the Will, if any of the five children predeceases the others while the Estate is still open, the deceased child‘s interests return to the Estate for pro rata distribution to the remaining siblings. Thus, in 1990, when Lisa D‘Addario died, her interest as legatee passed back to the Estate in accordance with the Will‘s provisions.3
In keeping with that threat, Virginia alleges, the Estate remains open. No distributions had been made as of 2016, when she filed suit (or, indeed, has been made to date). The Connecticut Probate Court has effected no meaningful oversight of David‘s activities, she charges. Rather, David and the Estate have successfully sidestepped enforcement of court orders requiring production of discovery related to the Estate‘s financial management. David has filed interim accountings of the Estate‘s assets with the Probate Court only infrequently, and, in any event, the accountings that he has filed have been both vague and inaccurate because they omitted “numerous” property transactions. Id. at 65 (Am. Compl. ¶ 24). Virginia also alleges that from 1986 until 2010 David made “substantial (but undisclosed)” contributions to the reelection campaigns of the Connecticut Probate Court judge who presided over the Estate. Id. at 93 (Am. Compl. ¶ 99). When these contributions came to light in 2010, she asserts, the probate judge recused himself from further supervision of the Estate. Id.
II. David‘s schemes for enrichment
The Complaint alleges that David “plunder[ed], pillage[d,] and loot[ed] the assets of the Estate to the extent that the Estate is now insolvent . . . .” App. 66 (Am. Compl. ¶ 27). David “ran the Estate as his personal piggy bank,” conducting its affairs for his own financial benefit, both to the detriment of his sister Virginia and his mother‘s estate and in violation of his fiduciary duties and RICO. Id. at 64 (Am. Compl. ¶ 21). In the Complaint, Virginia identifies and details several specific “schemes” through which David allegedly siphoned value from the Estate to himself. Virginia alleges that defendant Nicholas Vitti, David‘s “personal financial advisor and confidant for matters pertaining to the Estate,” assisted and advised David in all matters related to the Estate, including many of the identified schemes. App. 60 (Am. Compl. ¶ 8.6). The remaining defendants (Mary Lou, David‘s friend Gregory Garvey, and the entities Red Knot Acquisitions, LLC and Silver Knot, LLC) were
A. The Honeyspot Road scheme
In 1986, the Estate owned a 16-acre undeveloped plot of real estate on Honeyspot Road in Stratford, Connecticut. The property was leased by Pace Motor Lines, Inc., a trucking company owned by the Pacelli brothers, friends of the D‘Addario family. Shortly after Francis‘s death, the property was appraised and valued at $3.8 million. In January 1989, the Estate accepted an offer to purchase the land for $3.2 million. This sale, however, never closed.
Instead, “[s]ometime after 1990,” David stopped having the Estate pay real estate taxes on the property. App. 67 (Am. Compl. ¶ 32). In 1996, after the Estate had accrued a real estate tax delinquency of more than $149,000, the Town scheduled the property for a tax foreclosure sale. Rather than pay the overdue taxes—although the Estate was legally and financially able to do so—David allowed the foreclosure sale to occur. At that sale, in June 1996, the property was purchased by Dennis and William Miko, friends of Mary Lou, for just over $179,000.
Although the Estate could have redeemed the property by paying its tax bill and a penalty within one year of the sale, David elected not to do so. Instead, he set up a limited liability company, Honeyspot Ventures, LLC (“HSV“), co-owned by himself, Mary Lou, and Larry, and, in September 1997, HSV purchased the property from the Miko brothers for $250,000. Approximately one year after purchasing the parcel, HSV sold it for $1.1 million to an entity owned by the Pacelli brothers. David, Larry, and Mary Lou divided the $850,000 profit evenly, and David proceeded to partner with the Pacellis in a separate “very profitable” business venture. App. 69 (Am. Compl. ¶¶ 35-36).
B. The Red Knot forbearance scheme
When the Estate opened in March 1986, it reported liabilities totaling $41,363,977 and assets totaling $162,636,000. Of the Estate‘s roughly $41 million in debt, more than half ($25,218,084) was owed to three banks: Connecticut National Bank, Connecticut Bank and Trust Company, and People‘s Bank (collectively, the “Bank Group“). In December 1990, the Bank Group, acting as one, loaned an additional $14 million to the Estate. As a condition of the 1990 loan, the Executors agreed to abide by a “stringent budget and strict reporting requirements,” with the goal of selling assets to pay off the Estate‘s creditors, including the Bank Group, and timely closing the Estate. App. 73 (Am. Compl. ¶ 49).
The Executors breached these requirements and came nowhere near the stated goal. Accordingly, in July 1992, the Bank Group turned to the Probate Court for relief, filing a “Joint Application for Removal of Executors,” and expressing “extreme[] concern[]” about the “negligent and improper manner in which the Executors have administered this Estate.” App. 73-74 (Am. Compl. ¶¶ 50-51). They alleged that both David and Larry had “serious
By the end of December 1997, the Estate owed the Bank Group more than $48 million on the loan, in principal, accrued interest, and penalties. Citing their own “substantial financial difficulties,” the Bank Group offered to extinguish the entirety of the Estate‘s loan obligations to them, and release the liens it held on Estate assets, in exchange for a one-time cash payment of $4,750,000. App. 75 (Am. Compl. ¶ 53). David declined the offer. Instead, at David‘s instance, his friend, defendant Gregory Garvey, created an entity called Red Knot Acquisitions, LLC (“Red Knot“), as a vehicle for purchasing the entirety of the Estate‘s debt to the Bank Group. It did so, paying the $4,750,000 amount proposed by the lenders.5
Red Knot and the Estate then also entered into a so-called Forbearance Agreement, prepared by David‘s attorney (who is not a defendant here). The Forbearance Agreement gave Red Knot a lien on “virtually all” assets of the Estate, and provided that, if David was ever removed as an Executor of the Estate, Red Knot would have the “immediate right” to foreclose on those assets and collect on the Estate‘s accumulated debts. App. 77 (Am. Compl. ¶ 59). This agreement has made it practically impossible to remove David as an Executor.
Unsurprisingly, although it succeeded to the Bank Group‘s rights in other respects, Red Knot did not pursue the Bank Group‘s pending motion to remove David and Larry as Executors. Red Knot also later opposed a Motion to Remove the Executors filed by another Estate creditor, The Cadle Company, citing Red Knot‘s position as “the Estate‘s largest secured creditor.” In 2002, Vitti represented to the Connecticut Superior Court in related proceedings that, if David was removed as Executor, Red Knot would promptly foreclose on the Estate‘s assets, and thereby “destroy” the Estate. App. 82 (Am. Compl. ¶ 70).
With his position as an Executor secured, David flagrantly mismanaged the Estate, failing to pay its debts (which would have allowed him to close the Estate) and, instead, continuing to loot its assets and usurp its business opportunities. Egregiously, David failed to take advantage of a contractual provision in the Forbearance Agreement (the “Estate Purchase Option“) that would have allowed the Estate to repurchase the Bank Group‘s loan position from Red Knot at a “steep discount,” eliminating the largest portion of the Estate‘s overall debt, as long as the purchase was made by January 7, 2003. App. 78 (Am. Compl. ¶ 60). On August 31, 2000, for example, the Estate could have bought out Red Knot‘s position under the Estate Purchase Option for a mere $828,383, an amount that the Estate then had available in cash. Instead, David let the option lapse, and Red Knot‘s hold on the Estate grew in tandem with the size of the debt. By February 27, 2012, the Estate owed Red Knot (standing, in essence, in the Bank Group‘s stead) more than $100 million.
C. Wrongful transfers of residential properties
The Estate held title to several residential properties. These included furnished
D. The Frenchtown Road scheme
The Estate owned a 50% interest in a 34.4-acre parcel of undeveloped land in Trumbull, Connecticut, on Frenchtown Road. In a financial statement completed shortly before Francis‘s death, that interest was valued at $1.25 million. In the spring of 1998, David discovered that the Town of Trumbull was interested in purchasing the property to use as a location for a new elementary school. He proceeded to form a limited liability company, Sunny Spot Associates, LLC (“SSA“), and at summer‘s end that year, acting through SSA, David purchased the remaining 50% interest in the property from the then-owners, paying $450,000. In October 1999, the Town of Trumbull then purchased the entire parcel from SSA and the Estate for $6 million. Completing the transaction, it seems, the Estate then contributed $750,000 to the Town of Trumbull in exchange for the right to have the school that would be built on the land named after Ann D‘Addario, the siblings’ mother.
Virginia contends that, in this transaction, David breached his fiduciary duty by usurping a business оpportunity that rightfully belonged to the Estate. If the Estate had purchased the remaining 50% interest in the Frenchtown Road property in August 1998 on the same terms as SSA obtained, it would have earned a $2.55 million profit. Instead, David pocketed that profit himself.
E. The Silver Knot scheme
In early 1999, David and his friend Gregory Garvey created Silver Knot, LLC, ostensibly to acquire a controlling interest in a particular producer of aluminum can stock. Over several years, Silver Knot did just that. In 2014, fifteen years later, an international aluminum company, Constellium N.V., purchased Silver Knot for $1.4 billion, $455 million of which was in cash. Virginia asserts that David funded the venture with moneys misappropriated from the Estate, and accordingly, she argues, the Estate is entitled to an equitable interest in the proceeds of the sale.
F. The Cadle suit settlement scheme
On May 31, 2012, The Cadle Company (“Cadle“)—a creditor of the Estate that tried unsuccessfully for decades to obtain payment on the $1 million promissory note it held—filed suit in the District of Connecticut against David, Garvey, Red Knot, and others, alleging a civil RICO conspiracy similar to that asserted here by Virginia. (Cadle had earlier pursued legal action against the Estate in state court, including, in 1997, by filing an unsuccessful motion to remove Larry and David as Executors of the Estate.)
The district court (Young, J.) “administratively closed” Cadle‘s suit in June 2013 for a period of nine months, expressing a desire to allow David the opportunity to close the Estate, App. 132, and ruling at
Following these fruitless legal efforts, Cadle entered into a settlement agreement with Red Knot and Garvey in February 2015. In exchange for the assignment of its rights against the Estate to Red Knot and dismissal with prejudice of its RICO claims against David and others, Cadle accepted a payment of approximately $5.1 million, a sum significantly larger than the approximately $3.17 million it was then owed by the Estate. Red Knot, however, did not directly fund the settlement. Instead, the Estate transferred one of its assets (the Hi Ho Motel, in Fairfield, Connecticut) to Red Knot in exchange for a $4.5 million “credit” on the Estate‘s loan obligations. Red Knot then sold the motel to third parties for $3.7 million and used that money toward the Cadle settlement. David personally contributed the additional $1.5 million in settlement funds.
III. Procedural history
In January 2016, after fruitless efforts in the Connecticut state courts, Virginia filed this suit in the United States District Court for the District of Connecticut (Arterton, J.) against her brother, David; her sister, Mary Lou; Gregory Garvey; Nicholas Vitti; Red Knot; and Silver Knot (together, “Defendants“). Her primary сlaim against Defendants rested on provisions of the
From the start, Virginia has sought RICO treble damages based on two types of injuries: first, loss of the inheritance she contends that she (and her mother‘s estate) would have received from the Estate had David not rendered it insolvent (the parties refer to these as “lost debt” damages); and, second, the more than $200,000 in legal expenses that she incurred in the four years before filing this suit, in her efforts to oppose David‘s mismanagement of the Estate and unseat him as Executor (the parties refer to these as “collection expenses“) through various actions pursued in the courts of Connecticut. (David
The District Court granted Defendants’ motion to dismiss the Amended Complaint. D‘Addario v. D‘Addario, No. 3:16cv99 (JBA), 2017 WL 1086772 (D. Conn. Mar. 22, 2017) (Arterton, J.). In a detailed ruling, it determined that Virginia‘s claim for “lost debt” damages was not ripe for adjudication under applicable RICO case law because it remained uncertain whether Virginia would receive any distribution from the Estate to offset her claimed damages. This uncertainty made the amount she would ultimately be owed too speculative for recovery and trebling under RICO. The court ruled, in contrast, that her claim for collection expenses already incurred was ripe.
As to those expenses, however, the District Court concluded that the Complaint‘s allegations were insufficient to state a civil RICO claim. It explained that Virginia had failed to identify a distinct “acquisition and maintenance” injury, as required to make out a claim based on a violation of
This appeal followed.
DISCUSSION
Virginia contends that several aspects of the District Court‘s ruling are flawed. She identifies error in the court‘s determination that her lost debt damages were not yet ripe. She also argues that, contrary to the District Court‘s conclusion, the facts set forth in the Complaint are sufficient to establish that she suffered an “acquisition or maintenance injury” as required by
We review the District Court‘s ruling de novo, construing the facts alleged in the Complaint in the light most favorable to Virginia, and drawing all reasonable inferences in her favor. Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 118 (2d Cir. 2013). On such review, we conclude that the District Court correctly determined that Virginia‘s claim for her share of the Estate‘s assets is unripe and that her claim for collection expenses is ripe. We also determine that Virginia has sufficiently alleged that her collection expense injuries were proximately caused by the claimed RICO violations. In contrast to the District Court, we rule that Virginia has sufficiently identified a distinct acquisition and maintenance injury under
I. Ripeness of private actions brought under RICO
Our Circuit‘s statutory ripeness jurisprudence in the RICO context grows from the Supreme Court‘s decision in Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321 (1971), in which the Court ruled—in the context of a private action for treble damages recovery under the Sherman Act—that a cause of action has not accrued when “the fact of [future damages] is speculative or their amount and nature unprovable.” Id. at 339; see also David B. Smith & Terrance G. Reed, Civil RICO, ¶ 6.04[5][a] (Matthew Bender 2017). We have concluded that no civil RICO cause of action treble damages accrues “until the amount of damages becomes clear and definite.” First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994); see also id. at 767 (noting that “injury to business or property” is one of three “conditions a plaintiff must meet to satisfy RICO‘s [statutory] standing requirements“).
A. Distribution of Estate assets: claim for “lost debt” injuries
We agree with the District Court that Virginia‘s RICO claim for her rightful share of the Estate is not yet ripe. Our Circuit has consistently ruled in the RICO contеxt that claims for “lost debt” injuries—that is, for damages in the form of an owed, but as-yet-uncollected, amount—are unripe when parallel proceedings to collect the amount owed are ongoing in another forum. We have reasoned that, since “RICO [treble] damages are netted against recovery obtained from collateral and other sources,” the outcome of the parallel proceedings could significantly affect the total amount owed in the case at bar, and that this fundamental uncertainty renders the claim not ready for adjudication. Motorola Credit Corp. v. Uzan, 322 F.3d 130, 135-36 (2d Cir. 2003) (finding unripe plaintiffs’ RICO claim for injury based on unpaid loans where plaintiffs had not yet foreclosed on loan security and related arbitrations were pending). Although some other courts have taken a different approach, see, e.g., Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996), our jurisprudence on this point is long- and well-established. See, e.g., First Nationwide Bank, 27 F.3d at 769 (finding unripe RICO claims for injury arising from plaintiffs’ loans to defendant where, though information from defendants provided as a basis for the loans was alleged to be false, no default had yet occurred); Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 1165-66 (2d Cir. 1993) (finding unripe a RICO claim for injury in amount of two state court judgments entered against defendant where (1) one judgment was satisfied after initiation of RICO suit, and (2) second judgment was “likely to be fully satisfied“); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1105-06 (2d Cir. 1988) (RICO claim for lost debt injury unripe because fraudulently transferred assets might yet be recovered during bankruptcy proceedings).
Proceedings regarding the Estate are undеrway in Connecticut Probate Court, as we have described. That they have been
Nonetheless, the problem identified by the District Court and recognized in our case law remains: the amount of Virginia‘s ultimate distribution from the Estate—and, thus, the amount of her damages, as measured by the difference between any distribution she actually receives and the distribution she should have received—is remarkably uncertain. The value of the Estate is not static: David and Larry are still authorized, as co-executors, to conduct the Estate‘s business, to buy and sell its real estate and businesses, and thereby to control the Estate‘s net value. In fact, many of the “schemes” identified in the Complaint are examples of David‘s misappropriating for himself lucrative business opportunities that should have been treated as belonging to the Estate and the legatees. We have held in the civil RICO setting that defendants are “not liable for all losses that may occur, but only for those actually suffered.” Motorola Credit Corp., 322 F.3d at 136 (quoting First Nationwide Bank, 27 F.3d at 768) (emphasis in Motorola). Applying this standard, we cannot escape the conclusion that Virginia‘s lost debt claim is not ripe because she cannot even estimate with reasonable certainty the amount of her anticipated distributional share.
Virginia argues that there is no “realistic” possibility that the amount of her damages will fluctuate in light of circumstances described in the Complaint, Appellant‘s Br. 67, because these have rendered the Estate “hopelessly insolvent,” App. 66 (Am. Compl. ¶ 27). In her view, the likelihood that she will receive any distributional share when the Estate closes is nil, no matter what interim fluctuations in value the Estate‘s assets might experience.
The argument has some force, but we are skeptical that the law requires us to accept at face value the claim that the Estate‘s alleged insolvency is “hopeless[],” given the variability of the Estate‘s assets and liabilities and the unpredictability of the market forces at play. For example, Virginia has pleaded that the Estate‘s liabilities outstrip its assets, but she also alleges that David himself—through Red Knot—holds $100 million of the Estate‘s debt. That liability, accordingly, seems amenable to decrease or even elimination. Moreover, Virginia asserts that the Estate has an equitable interest in Silver Knot, because the latter was funded with moneys stolen from the Estate. A balance sheet that takes into account the Estate‘s entitlement to some portion of the $455 million cash payment that Silver Knot received in 2014 might reflect a more accurate assessment of the Estate‘s solvency.
Virginia‘s assessment of the Estate‘s condition also does not recognize that the Connecticut Probate Court is empowered to alter the Estate‘s balance of assets and liabilities in at least two potentially effective ways. First, the Probate Court may assess a significant surcharge against David for any fiduciary breaches that the court identifies. Gaynor v. Payne, 261 Conn. 585, 596-97 (2002). Virginia‘s allegations suggest that David would have access to assets sufficient to satisfy such a surcharge. Second, that court is authorized in certain circumstances to declare prior asset transfers null and void, and to impose a constructive trust on assets wrongfully transferred from an estate. See In the Matter of Edwin A. Jarmoc, 29 Quinnipiac Prob. L. J. 443, 451-52 (2016).7 These powers raise the possibility that some of the asset transfers identified by Virginia as “plundering” could be revoked and the assets returned to the Estate, increasing its net value and Virginia‘s proportionate share upon distribution. Accordingly, even those particular schemes for which a loss amount is theoretically calculable—such as the Honeyspot Road scheme—do not yet give rise to clear and definite damages. Such acts of rectification by the Connecticut Probate Court would doubtless not be easy to accomplish, but because “[t]hese contingencies, and other conceivable contingencies, remain,” our precedent teaches that Virginia‘s RICO claim for triple the value of her distributional share of the Estate is not ripe for adjudication. Motorola Credit Corp., 322 F.3d at 136.
Virginia has also alleged that final assessments of the Estate‘s value and distributions to legatees will simply never come to pass. She asserts that David intends, and is likely able, to keep the Estate open until her death (at 70, she is David‘s elder by 15 years), and that the bona fides of his threat are evidenced by David‘s undeniable success in keeping the Estate open for more than thirty years so far. Abiding by our RICO ripeness jurisprudence under these circumstances will, in effect, improperly enable David to carry out his unlawful plan, she insists: that is, he will keep the Estate unresolved until Virginia‘s death, at which point her share will devolve to the Estate and be divided equally among her surviving siblings.
We are not enabled by these pleas to depart from our precedent. Unfortunate as Virginia‘s situation might be, the RICO statute as construed in our Circuit simply does not provide a remedy before a plaintiff has suffered reasonably ascertainable damages. Nor may a RICO plaintiff, through predictions of a defendant‘s future plans, artificially ripen a claim that is unripe under our jurisprudence. Cf. Kurtz v. Verizon New York, Inc., 758 F.3d 506, 516 (2d Cir. 2014) (endorsing application of ripeness inquiry that governs Fifth Amendment takings claims to due process claims as well to “prevent[] evasion of ripeness test by artful pleading“). Moreover, even accepting Virginia‘s allegations as true, we are not convinced that—barring something unexpected—the Estate is sure not to close until after Virginia‘s death. Although Virginia alleges that David has kept the Estate open without significant interference by the Connecticut Probate Court, the appointment of a new Probate Judge in 2010 and the Connecticut legislature‘s substantial reform of the Connecticut Probate Court system in 2011 raise the possibility that closure will now in fact occur. See generally Margaret E. St. John, The Connecticut Probate Court System Reform: A Step in the Right Direction, 24 Quinnipiac Prob. L. J. 290, 301-02 (2011). For instance, the new judge appears to have been more active in managing the Estate than was his predecessor in earlier years, as demonstrated by his 2012 order directing the Executors to file quarterly updates reporting on their steps toward finalizing the administration of the Estate.
For these reasons, we conclude that Virginia‘s RICO claim for “lost debt” damages based on the amount of her expected inheritance (and that of her mother‘s estate) is unripe.
B. RICO claim for collection expenses
Virginia‘s claim for RICO damages based on the amount of collection expenses
Defendants mount only a cursory challenge to that conclusion: they assert by way of a footnote that the collection expenses claim is not ripe since the full extent of the expenses that she will ultimately have incurred—including, presumably, from this litigation—is yet unknown. The law of our Circuit does not support their contention. Unlike her claims with respect to her future distributional interest, as to which collateral proceedings are pending, Virginia has already suffered a “clear” and “definite” loss in the form of her legal expenses. Although the amounts may increase over time, the past expenses will not disappear when the Estate is closed. See First Nationwide Bank, 27 F.3d at 768. The “collection expenses” damages Virginia claims in this litigation—that is, the $200,000 that she allegedly incurred over the four years before she filed the Complaint (as allowed by the RICO statute of limitations)—are thus neither “speculative” nor “unprovable.” Bankers Trust Co., 859 F.2d at 1106. The possibility that Virginia will bear additional related legal expenses has no bearing on this conclusion. Her RICO claim based on the legal expenses she has incurred is therefore ripe.
II. Proximate causation of Virginia‘s legal expenses
As we have commented elsewhere, “proximate cause requires ... some direct relation between the injury asserted and the injurious conduct alleged, and excludes ... those links that are too remote, purely contingent, or indirect.” Ideal Steel Supply Corp. v. Anza, 652 F.3d 310, 323 (2d Cir. 2011) (internal quotation marks and alterations omitted). Here, the causal relationship between Defendants’ conduct and Virginia‘s collection expenses injury is easily identifiable: Defendants (chiefly David), through their violations of
Defendants cite primarily to the Sixth Circuit‘s decision in Firestone v. Galbreath, 976 F.2d 279 (6th Cir. 1992), in their effort to divorce these interests, but it is not to the contrary. The Firestone court found that beneficiaries of an estate had not suffered a “direct injury” cognizable under RICO from the defendants’ alleged wrongdoing. Id. at 285. There, the testator‘s grandchildren, beneficiaries of her estate, brought various fraud and RICO claims against certain relatives and former associates of the testator, id. at 281-82, alleging that the defendants had “looted [the testator‘s] estate as she lay dying,” diminishing their inheritances when she later died. Id. at 282. Here, in contrast, the alleged looting took place after Francis died, when the Estate already existed and Virginia‘s interest in the Estatе had vested, aligning her interest and that of the Estate temporally and conceptually. See Gaynor, 261 Conn. at 592.
Accordingly, we conclude that Virginia‘s injuries are not so removed from Defendants’ misdeeds as to place them outside the reach of the proximate causation chain as a matter of law. The expenses that she has incurred to stop the incursion are sufficiently proximate to the identified RICO violations support a claim under
III. Section 1962(b) theory of recovery
The “acquisition or maintenance” requirement in our Circuit stems from our decision in Discon, Inc. v. NYNEX Corp., 93 F.3d 1055 (2d Cir. 1996), vacated on other grounds by NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998). In that case, plaintiff
Virginia has certainly alleged in some detail that her collection expense injuries are traceable to Defendants’ control over the Estate, and that Defendants’ control was maintained through a pattern of racketeering activity. Although David is not alleged to have “acquire[d]” his position as an Executor through racketeering acts, the facts as stated in the Complaint provide a more than sufficient basis from which to infer that David maintained his position (and its attendant control of the Estate) through the Red Knot forbearance scheme.
When David and Garvey created Red Knot, the Estate‘s largest secured creditors had sought to remove David as an Executor. By replacing those creditors with an entity that he is alleged to control, David neutralized a threat that could have led to his removal as an Executor and fortified his position through the Forbearance Agreement, purportedly making his position impervious to attack. And, later, when Cadle sought a court order removing him as an Executor, Red Knot opposed that motion, invoking its status as the Estate‘s major secured creditor to give weight to its support of David. Several of the schemes—including two sets in particular (the allegedly wrongful transfers of residential property from the Estate to David, Larry, and Mary Lou, and the Cadle suit settlement scheme, all of which directly removed assets from the Estate)—occurred after the Red Knot forbearance scheme had cemented David‘s hold on the Estate. The expense collection losses attributable to those alleged breaches can reasonably be attributed to David‘s “maintenance” of control over the Estate.
Relying on Discon, however, the District Court concluded that the expense injuries attributable to Defendants’ alleged acquisition or maintenance of control over the Estate were insufficiently “separate and distinct” from the injuries that resulted from the predicate acts alleged in the Complaint. D‘Addario, 2017 WL 1086772, at *18. We disagree. To successfully plead a RICO claim, a plaintiff must indeed allege distinct damages arising from the acquisition or maintenance of control of the enterprise. In other words, those damages must be different from the damages that flow from the predicate acts themselves. For example, a racketeer might use a pattern of physical threats and violence, including an act of arson against the plaintiff‘s property, to extort an interest in the plaintiff‘s business. The cost of replacing or repairing property damaged in the fire is a loss caused by the predicate act, the arson, not by the ultimate acquisition of an interest in the plaintiff‘s business. The “separate and distinct” damages caused by the RICO violation, as opposed to by the predicate acts, is the value of the share of the plaintiff‘s business that the owner turned over to the defendant.
The question remains, however, whether Virginia has adequately pleaded such an injury as to each of the six defendants: David, Mary Lou, Garvey, Vitti, Red Knot, and Silver Knot. Of these defendants, only David as an Executor had a formal position through which he exerted control over the Estate. (Recall that Virginia did not name Larry, her brother and now the other Executor, as a defendant in this suit.) We accept Virginia‘s argument that the Complaint plausibly asserts that, along with David, Red Knot and Garvey also exerted significant control over the Estate, helping to perpetuate David‘s control and each contributing thereby to the requisite “acquisition or maintenance” injury. For example, the Complaint alleges that by purchasing the Estate‘s loans from the Bank Group, Red Knot gained not only a standard secured creditor‘s interest in the Estate‘s assets, but also the contractual right under the Forbearance Agreement to initiate potentially disastrous wholesale foreclosure proceedings upon David‘s removal. Red Knot‘s power to foreclose on “virtually all” of the Estate‘s assets in the event of a management change plausibly represents a meaningful form of “control” over the Estate. App. 77 (Am. Compl. ¶ 59). And it would be imprudent to conclude, at this early stage in the proceedings, that Gregory Garvey—as Red Knot‘s nominal owner—lacked any power or control over Red Knot, or, through Red Knot, the Estate. Accordingly, Virginia has pleaded a viable claim under
The remaining defendants, however, are not themselves alleged to have exerted any direct control over the Estate‘s manаgement, much less control that was acquired or maintained through any alleged racketeering acts. Virginia alleges generally that Mary Lou, Silver Knot, and Vitti took part in (or, in Vitti‘s case, advised David regarding) one or more of the various schemes by which David looted the Estate. Without more, however, participation as a third party in a business transaction with the Estate does not constitute either maintenance of an “interest in” or exercise of “control over” the Estate for purposes of
IV. Section 1962(c) theory of recovery
All six Defendants claim that, even accepting the Complaint‘s allegations, they were not associated with an “enterprise”
A. Association-in-fact of the six Defendants
The RICO statute defines “enterprise” as “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.”
In line with this general approach, the Supreme Court has rejected attempts to graft onto the statute formal strictures that would tend to exclude amorphous or disorganized groups of individuals from being treated as RICO “enterprises.” Accordingly, it has explained, RICO associations-in-fact need exhibit only three structural features: (1) a shared purpose; (2) relationships among the associates; and (3) “longevity sufficient to permit these associates to pursue the enterprise‘s purpose.” Id. at 946.
Defendants do not meaningfully contest that the Complaint adequately alleges longevity, inasmuch as Defendants’ charged association in connection with the Estate has persisted for decades (and indeed, several of the individual sсhemes were carried out over a period of years). They argue, however, that Virginia has failed to allege sufficiently the existence of relationships among the Defendants or a common purpose. Rather, for example, they highlight David‘s alleged purpose—to enrich himself—and contrast it with each defendant‘s self-regarding, and separate, individual purpose in individual transactions: for example, Mary Lou‘s desire to obtain a particular residential property and Garvey‘s profit-oriented investment in the aluminum can company through Silver Knot. Although not in the end dispositive, see infra Discussion Part IV.B, we find Defendants’ argument on this point persuasive.
The concept of an association-in-fact is protean, and, as such, variability is invited by the statutory language and the Supreme Court‘s construction of that language. District Courts and Courts of Appeals
We agree further with Defendants that, if proven, the facts alleged in the Complaint would establish that David engaged in a series of separate frauds involving different sets of individuals. This, they say, is insufficient to make out relationships among “the defendants as a whole” that would satisfy even Boyle‘s relaxed test for an association-in-fact. D‘Addario, 2017 WL 1086772, at *19. That each defendant agreed to join forces with David to defraud the Estate in a particular way does not support an inference that they all agreed to join forces with each other to pursue a goal of defrauding the Estate over decades in a variety of ways. Rather, at most, it suggests that Defendants (and in a few cases, perhaps, a small subgroup of Defendants) each agreed with David to engage in individual schemes.
Proof that “several individuals, independently and without coordination, engaged in a pattern of crimes listed as RICO predicates, ... [is] not ... enough to show that the individuals were members of an enterprise.” Boyle, 556 U.S. at 947 n.4; see also In re Insurance Brokerage, 618 F.3d at 374 (rejecting allegations that defendants took similar actions because they “do not plausibly imply concerted action—as opposed to merely parallel conduct“); Rao v. BP Products N. Am., Inc., 589 F.3d 389, 400 (7th Cir. 2009) (finding complaint did not make out an “enterprise” where it alleged “different [groups of] actors for each event” and “d[id] not indicate how the different actors are associated” or “act[ed] together for a common purpose“); cf. Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 355 (8th Cir. 2011) (explaining that RICO enterprise is not adequately alleged where “the only common factor that linked the individually named defendants and defined them as a distinct group was their direct or indirect participation in the engineered investment scheme to defraud the plaintiff” (internal quotation marks and alteration omitted)).
Nor does the allegation that the various Defendants and subgroups agreed at different times to engage in various fraudulent schemes plausibly support the inference, essential to a RICO association-in-fact
For these reasons, we conclude that the Complaint‘s allegations do not plausibly make out the association-in-fact enterprise proposed by Virginia, in which the six Defendants together were “devoted to ... allowing David ... to acquire an interest in, and then maintain control over, the affairs of the Estate,” App. 200 (Amended RICO Case Statement), under her
B. The Estate as association-in-fact RICO enterprise
As adverted to above in our discussion of Virginia‘s proposed enterprise among the six defendants, however, another potential
Connecticut law holds that an estate is “not a legal entity. It ... is merely a name to indicate the sum total of the assets and liabilities of the decedent or incompetent.” Freese v. Dep‘t of Social Servs., 169 A.3d 237, 251 (Conn. App. Ct. 2017) (quoting Isaac v. Mount Sinai Hosp., 490 A.2d 1024, 1026 (Conn. App. Ct. 1985)). Unlike the somewhat eclectic group of defendants Virginia attempts to join together with David as an association-in-fact, however, the individuals who were formally associated with the (inchoate) Estate—that is, David and Larry, the Executors—indisputably comprise an “association-in-fact.” They have a shared purpose, in fact one prescribed by law: settling the Estate by paying off its debts and distributing its assets among the heirs. As co-Executors, they have a legal relationship with each another and a shared responsibility of fulfilling that purpose. And, as the Estate is now in its fourth decade of existence, this association of the Executors has the requisite longevity: it has certainly existed long enough to allow its members to pursue their purpose.12 We therefore conclude that the Estate—an association-in-fact of David and Larry—comprises an “enterprise” under
A person violates
Virginia‘s allegations as to David easily satisfy the Reves “operation or management” test. Taking the facts alleged in the Complaint as true, David went far beyond merely participating in the management of the Estate: he was a “dictatorial” Executor of the Estate. App. 62 (Am. Compl. ¶ 15). Whether Defendants other than David, however, may be said to satisfy the test by their alleged participation in the Estate‘s operation or management, despite not having an official position within it, is less clear. See Reves, 507 U.S. at 184; see also First Capital Asset Mgmt., Inc., 385 F.3d at 178 (“[O]utsiders, like all other people, will be liable under RICO ... if their actions satisfy the operation or management test.“) (alteration omitted). While the “operation or management” test presents a “relatively low hurdle for plaintiffs to clear, ... especially at the pleading stage,” RICO plaintiffs must plausibly allege that each defendant played “some part in directing the enterprise‘s affairs” if the RICO claim is to survive a motion to dismiss. First Capital Asset Mgmt., 385 F.3d at 176 (internal citations and alterations omitted).
In First Capital Asset Management, we explained that a RICO plaintiff adequately pleaded thаt a defendant parent had participated in the operation or management of the defendant‘s son‘s bankruptcy estate, despite not having a formal position within that estate. Id. at 178. The defendant had aided her debtor son in defrauding the Bankruptcy Court in various material ways that adversely affected the administration of the bankruptcy estate: for example, she accepted his transfer of assets to her (so that the money would not be included in his bankruptcy estate), sent him monthly payments from those fraudulently transferred assets, and made various false statements and misrepresentations to the Bankruptcy Court. Id. at 177-78. Based on these actions, we concluded that the defendant parent “participated in the conduct of the affairs” of the enterprise sufficient to sustain
The same analysis applies to the remaining defendants here. The individual defendants (Mary Lou, Garvey, and Vitti) are alleged to have actively assisted David when he operated the Estate to effectuate his schemes, which directly affected his management of the Estate. Although the entity defendants (Silver Knot and Rеd Knot) were used simply to effectuate David‘s schemes, they also can be understood to have sufficiently assisted David in his conduct of the Estate‘s affairs simply by their formation and existence: they were necessary tools for the schemes’ operation. Such assistance may fairly be considered “participation” in the operation or management of an enterprise, at least in the circumstances alleged here.14
We bear in mind that the “operation or management” test is “essentially one of fact.” Id. at 176. Accordingly, at this early pleading stage in the suit, we conclude that Virginia‘s allegations suffice to support her claim that each Defendant participated in the operation or management of the Estate as enterprise, in violation of
CONCLUSION
For the reasons stated above, we conclude that Virginia has adequately pleaded a RICO claim under
We therefore VACATE the District Court‘s judgment and REMAND the cause for further proceedings in the District Court.
Notes
Section 1962(c) prohibits “any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, [from] conduct[ing] or participat[ing], directly or indirectly, in the conduct of such enterprise‘s affairs through a pattern of racketeering activity . . . .”
Section 1962(d) prohibits conspiracy to violate the other subsections of section 1962.