Timothy MOON, Plaintiff-Appellant, v. HARRISON PIPING SUPPLY; Michigan Tooling Association Workers Compensation Fund; Asit K. Ray; Michigan Tooling Association Service Company, Defendants-Appellees.
No. 05-1808.
United States Court of Appeals, Sixth Circuit.
Argued: June 8, 2006. Decided and Filed: Sept. 28, 2006.
465 F.3d 719
Before: MOORE, COLE, and CLAY, Circuit Judges.
OPINION
R. GUY COLE, JR., Circuit Judge.
Timothy Moon filed suit under the Racketeer Influenced and Corrupt Organiza-
I. BACKGROUND
According to his First Amended Complaint (the “Complaint“), Timothy Moon was an employee of Harrison Piping Supply (“Harrison“), who was injured at work on October 23, 2000. Although he initially received workers’ compensation benefits, Moon alleges that Harrison colluded with the Michigan Tooling Association Workers’ Compensation Fund (the “Fund“), the Michigan Tooling Association Service Company (the “Service Company“), and Dr. Asit Ray to terminate those benefits. Moon named as defendants: (1) Harrison, his employer; (2) the Fund, which is Harrison‘s insurer; (3) the Service Company, which was the Fund‘s adjuster; and (4) Ray, an independent physician.
Moon alleges that the Defendants collectively formed an “enterprise” for purposes of RICO and engaged in a pattern of rack-1eteering in the form of mail fraud and witness-tampering. Specifically, Moon claims that the Fund sent him a Notice of Dispute (the “Notice“) via United States mail on July 24, 2003, which stated that Moon was capable of fully resuming his job responsibilities even though Defendants knew that examining doctors had determined that Moon was still disabled. The Notice terminated Moon‘s benefits.
After receiving the Notice, Moon brought a workers’ compensation claim before the Michigan Workers’ Disability Compensation Bureau (the “Bureau“). According to Moon, the Defendants reinstated his benefits on the eve of his hearing before the Bureau. On the same day, March 25, 2004, the Fund and the Service Company sent notice to Moon that he was to be examined by Dr. Ray. According to Moon, the other Defendants gave Dr. Ray express or tacit instructions to issue a “cut-off” report, i.e., a medical report that could form the basis for terminating Moon‘s benefits. Dr. Ray, who Moon claims has a reputation for rendering medical opinions supporting rejection of claimants’ benefits, examined Moon on April 8, 2004, and issued an allegedly fraudulent report opining that Moon was no longer disabled. The report was mailed to various persons and entities, including the Bureau. Finally, on April 16, 2004, the Fund mailed a second Notice of Dispute the (“Second Notice“), which, according to Moon, falsely claimed that he was no longer disabled.
Moon filed a RICO claim in district court, as well as a claim for intentional infliction of emotional distress (“IIED“) under Michigan common law. The Defendants filed a motion to dismiss for, inter alia, failure to state a claim upon which
II. STANDARD OF REVIEW
In assessing a motion to dismiss for failure to state a claim under
III. DISCUSSION
A. Moon‘s RICO Claims
Moon asserts a claim under RICO, a federal statute that affords a civil remedy to an individual who is injured by virtue of certain types of unlawful activity. RICO provides in relevant part:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise‘s affairs through a pattern of racketeering activity or collection of unlawful debt.
1. Moon Has Failed To Allege Adequately A “Pattern Of Racketeering Activity”
(a) Predicate Acts
To establish a RICO violation under
Here, the district court concluded that Moon pleaded five predicate acts of racketeering activity with the requisite particularity. See Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir. 1984) (consistent with
The district court correctly concluded that Moon adequately pleaded a minimum of two predicate acts.2 Although necessary to sustain a RICO claim, the pleading of two predicate acts may not be sufficient because
(b) Relatedness
Moon has satisfied the “relatedness” requirement because he has alleged predicate acts that have “the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” H.J., Inc., 492 U.S. at 240. The predicate acts pleaded in the Complaint had the same purpose of depriving Moon of his benefits, the same result in that Moon periodically lost his benefits, the same participants in Harrison and the Fund, the same victim in Moon, and the same method of commission in mail fraud.
(c) Continuity
In addition to “relatedness,” the predicate acts pleaded must have sufficient “continuity.” “‘Continuity’ is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.” Id. at 241. Whether a pattern of racketeering activity satisfies the continuity requirement depends on the particular facts of each case. Id. at 242. Continuity may be established at the pleading stage by alleging facts of either closed- or open-ended racketeering activity.
A closed period of continuity may be demonstrated “by proving a series of related predicates extending over a substantial period of time.” Id. at 242. Here, the predicate acts set
Moon argues that the district court erred by failing to consider the allegations in his Second Amended Complaint when it concluded that he failed to allege a closed period of racketeering activity. The Second Amended Complaint is virtually identical to the Complaint (i.e., the First Amended Complaint) except that the former pleads that Moon‘s benefits were first unlawfully terminated in September 2001 and that this constituted the first predicate act in the Defendants’ racketeering scheme. Had the district court taken into account the additional facts pleaded in his Second Amended Complaint, contends Moon, the pattern of racketeering would have extended for two-and-a-half years, rather than nine months, and therefore would have satisfied the closed period requirement.
Moon is mistaken. The Second Amended Complaint was not properly before the district court, nor is it before this Court. The magistrate judge granted Moon‘s motion to file a Second Amended Complaint subject to the district judge denying the motions to dismiss, which the district judge did not do. Moon did not appeal the order of the magistrate judge to the district judge. Even though Moon‘s notice of appeal to this Court includes the magistrate judge‘s order, this Court lacks jurisdiction to review that order where the magistrate judge did not have plenary jurisdiction over Moon‘s case (the district judge merely referred to the magistrate judge Moon‘s motion for leave to file his Second Amended Complaint) and Moon failed to seek review before the district judge first.3 See McQueen v. Beecher Cmty. Schs., 433 F.3d 460, 471 (6th Cir. 2006) (declining to entertain appeal of magistrate judge‘s order denying a motion for a default judgment where the magistrate did not exercise plenary jurisdiction and the appellant did not appeal to the district judge).
In any event, even if the racketeering activity lasted for two-and-a-half years, as Moon insists, facts establishing a closed period of continuity are still lacking. Moon has pleaded that the Defendants embarked upon a coordinated scheme to wrongfully terminate his workers’ compensation benefits. All of the predicate acts—the mailing of the Notice and Second Notice cutting off his benefits and the mailing of Dr. Ray‘s fraudulent medical report—were keyed to Defendants’ single objective of depriving Moon of his benefits. No other schemes, purposes, or injuries are alleged, and there are no facts suggesting that the scheme would continue beyond the Defendants accomplishing their goal of terminating Moon‘s benefits. In circumstances such as these, the purported racketeering activity does not bear the mark-
This Court‘s prior decisions compel the conclusion that Moon has not pleaded a closed-ended period of continuity. For instance, in Vemco, the parties entered into a contract under which the defendant agreed to build a “paint finishing system” in the new facility of the plaintiff car-parts manufacturer. Id. at 131. Displeased with the defendant‘s repeated demands for payment beyond that specified in the contract and defendant‘s performance under the contract, the plaintiff brought suit alleging predicate acts of fraud and extortion under RICO. Id. at 131-32. This Court held that a single scheme emanating from a dispute over an ordinary construction contract did not possess the requisite RICO continuity:
Vemco has alleged a single fraudulent scheme by Flakt to misrepresent a guaranteed price in a building contract, and later to extort a higher price from Vemco. The total scheme, from the time of contract negotiations until the last threat alleged, lasted only seventeen months. The goal of the “single criminal episode,” as the district court accurately characterized it, was to get Vemco to pay the cost of one paint system. [1] There are no facts pleaded suggesting anything but that once Flakt received the money it was requesting in the billing statements, its scheme would be over, and it would end its association with Vemco.
Similarly, in Thompson v. Paasche, 950 F.2d 306 (6th Cir. 1991), the plaintiff landowners asserted RICO claims against the defendant seller on the grounds that the seller fraudulently represented that the purpose of his reservation of oil and gas rights as part of the terms of the sales was to ensure that the land remained unspoiled. Id. at 309. In fact, claimed the plaintiffs, the seller had arranged to lease the oil and gas rights to a third party who would undertake drilling. Id. at 309-10. This Court reversed the RICO verdict for the plaintiffs, concluding that the alleged RICO scheme ended once the defendant had sold all of his lots to the plaintiffs, and therefore it was “insufficiently protracted to qualify as a RICO violation.” Id. at 311; see also Efron v. Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 19 (1st Cir. 2000), cert. denied, 532 U.S. 905 (2001) (where the plaintiff alleged a pattern of racketeering acts focused on coercing him into relinquishing his ownership interest in a real estate development project, the court characterized the alleged racketeering activities as “finite in nature” and occurring over a “relatively modest period of time,” thus foreclosing a finding of closed-period continuity); Edmondson & Gallagher v. Alban Towers Tenants Assoc., 48 F.3d 1260, 1265 (D.C. Cir. 1995) (“We think that the combination of these factors (single scheme, single injury, and few victims) makes it virtually impossible for plaintiffs to state a RICO claim.“).
As in the foregoing cases, Moon‘s allegations center around a single RICO scheme with a single object stemming from a dispute about whether Moon is impaired by a workplace disability entitling him to benefits. Even assuming a period of two-and-a-half years of racketeering activity, these allegations do not give rise to closed-ended continuity.
Moon‘s allegations also do not give rise to a finding of open-ended continuity. This inquiry turns on whether the plaintiff has pleaded facts suggesting the threat of continued racketeering activities projecting into the future. In H.J., Inc., the Supreme Court held that open-ended continuity
Here, Moon argues that open-ended continuity exists because there is nothing to stop the Defendants from persisting in their cycle of fraudulently terminating his benefits, restoring them, and then fraudulently terminating them again. The district court was not persuaded, finding that there is no risk of ongoing racketeering activity where Moon petitioned the Bureau for a resolution of his dispute with Defendants. We agree. A final decision of the Bureau (once all appellate options have been exhausted) is binding on the parties and, if favorable to Moon, would prevent the Defendants from withdrawing benefits in the absence of further action by the Bureau. See
We do not hold that a RICO action for fraudulent termination of workers’ compensation benefits could never occur alongside a state administrative proceeding before the Bureau, but merely that under the fact-specific continuity inquiry, Moon has not alleged facts sufficient to establish a pattern of racketeering activity.4
Finally, Moon has not pleaded any allegations to the effect that the fraudulent
For the reasons described above, we AFFIRM the district court‘s judgment dismissing Moon‘s RICO claims under
B. Moon‘s IIED Claim
Having dismissed Moon‘s RICO claim, the district court proceeded to analyze whether Moon stated a claim for intentional infliction of emotional distress under Michigan common law. We review a district court‘s decision to exercise pendent jurisdiction for abuse of discretion, Landefeld v. Marion Gen. Hosp., Inc., 994 F.2d 1178, 1182 (6th Cir. 1993), meaning that this Court will not reverse unless the district court “relies on clearly erroneous findings of fact, improperly applies the law, or uses an erroneous legal standard.” United States v. Chambers, 441 F.3d 438, 446 (6th Cir. 2006) (internal citation omitted).
As the district court recognized, a federal court that has dismissed a plaintiff‘s federal-law claims should not ordinarily reach the plaintiff‘s state-law claims. See
Contrary to the analysis of the district court, this is not such a case. Moon‘s IIED claim has no bearing on his RICO claim. Moreover, although we decline to address whether Moon‘s RICO claim is precluded by the McCarran-Ferguson Act,
IV. CONCLUSION
For the reasons described above, we AFFIRM the district court‘s dismissal of Moon‘s RICO claim for failure to state a claim upon which relief can be granted under
COLE, J., delivered the opinion of the court, in which CLAY, J., joined.
KAREN NELSON MOORE, Circuit Judge, concurring.
The Supreme Court has indicated two ways a RICO plaintiff may prove (or, as is the case here, allege) a “pattern of racketeering activity” by showing open-ended continuity. First, “[a] RICO pattern may surely be established if the related predicates themselves involve a distinct threat of long-term racketeering activity, either implicit or explicit.” H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 242 (1989). Alternatively, “the threat of continuity may be established by showing that the predicate acts or offenses are part of an ongoing entity‘s regular way of doing business.” Id. I wholly agree with the majority‘s analysis of the “regular way of doing business” method of alleging open-ended continuity. Further, I agree with the majority that Moon fails to allege a “distinct threat of long-term racketeering activity.” However, I offer different reasons for this conclusion.
As an initial matter, in determining whether Moon has alleged a threat of long-term racketeering activity, I do not believe we should consider events that transpired after the alleged racketeering acts ended. In United States v. Busacca, 936 F.2d 232 (6th Cir. 1991), we noted that “the threat of continuity must be viewed at the time the racketeering activity occurred.” Id. at 238. See also Blue Cross & Blue Shield of Mich. v. Kamin, 876 F.2d 543, 545 (6th Cir. 1989) (concluding that racketeering activity was open-ended because “if he had not been caught, there is no reason to believe [the defendant] would not still be submitting false claims“). Thus, the question we must answer is whether Moon has pleaded sufficient facts to conclude that, on the date of the last alleged racketeering
Moon‘s First Amended Complaint alleges the following:
- Moon‘s benefits were terminated on July 24, 2003, J.A. at 10 (First Am. Compl. ¶ 9c);
- On March 25, 2004, his benefits were reinstated, J.A. at 11 (First Am. Compl. ¶ 9e);
- That same day, the Fund and the Service Company sent him a notice of examination, requiring him to be examined by Dr. Ray, J.A. at 11 ((First Am. Compl. ¶ 9f));
- The defendants previously had relied on Dr. Ray to write cut-off reports, id.;1
- On April 8, 2004, Dr. Ray examined Moon and wrote (and subsequently mailed) a fraudulent report concluding that Moon was not disabled, id.;
- On April 16, 2004, an employee of the Fund mailed Moon a notice of dispute claiming that he had no work-related disability, J.A. at 12 (First Am. Compl. ¶ 10).
Although nothing in these allegations indicates that, as of April 2004, the alleged racketeering activity would immediately cease, nothing indicates the type of “distinct threat of long-term racketeering activity” the Supreme Court referred to in H.J., Inc. In explaining what might constitute such a distinct threat, the Supreme Court offered the example of a thug‘s extorting money from storekeepers and “telling his victims he would be reappearing each month to collect” additional payments. H.J., Inc., 492 U.S. at 242. This example led us to state that a plaintiff seeking to prove open-ended continuity in
For these reasons, I respectfully concur.