Lead Opinion
Vicom, Inc. (‘Vicom”) brought an action against the defendants under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-68, and supplemental state law claims. The district court dismissed Vicom’s nine-count amended complaint for failure to allege fraud with particularity and for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 9(b) & 12(b)(6). Following dismissal, the district court denied Vicom’s motion for leave to file a second amended complaint. Vicom now .appeals. For the reasons that follow, we affirm the judgment of the district court.
I
BACKGROUND
A. Facts
At the time of the events at issue in this lawsuit, Vicom was the managing and general partner of American Network Leasing Partnership No. A-3, a partnership organized to purchase and lease electronic credit card processing equipment. Vicom’s duties included purchasing the equipment and arranging, negotiating, and entering into leases with interested merchants. One of the defendants in this action, Consolidated Funding Corporation (“Consolidated”), provides lease brokerage services. In May 1988, it introduced Vicom to another defendant in this action, Peach Tree Bancard Corporation (“Peach Tree”). Peach Tree sold, installed, and maintained electronic credit card processing equipment. Peach Tree also served as a clearinghouse for electronic credit card transactions performed on the equipment. Consolidated introduced Vicom to Peach Tree with the aim of facilitating an agreement between those two parties under which Vicom would purchase electronic credit card processing equipment from Peach Tree and lease it to merchants, and Peach Tree would service the merchants with credit card transaction processing.
On July 16, 1988, following several months of negotiations, Vicom and Peach Tree entered into a vendor agreement which provided that Peach Tree would identify prospective lessees and forward any completed applications and initial payments to Vicom. If Vicom approved the application and executed the lease, Peach Tree would install the equipment. After the merchant accepted delivery of the equipment and Vicom confirmed the delivery, Vicom would pay Peach Tree the purchase price of the equipment. Vicom assumed the responsibility of collecting the lease charges, except when Peach Tree elected- to guarantee a merchant’s account under the “Vendor Recourse” provision. (Under the Vendor Recourse provision, Peach Tree could request Vicom to reconsider a lease application that it had rejected if Peach Tree agreed to guarantee the lessee’s payments in the event the lessee defaulted.) At the end of a merchant’s lease term, both Vicom and Peach Tree were to share in the residual value of the equipment.
The vendor agreement included a merger clause, providing that the written agreement composed the entire agreement between the parties.- In addition, neither party could orally waive any provision in the agreement, and any modification had to be in writing. The vendor agreement also covered the form of the merchants’ leases, stating that they were to be noncancelable, which the merchant leases stated in large boxed type. Further, the agreement required merchants
Between July 15, 1988 and April 9, 1989, Vicom entered into 2,252 leases with merchants Peach Tree had introduced to it. As a result, Vicom purchased from Peach Tree over $4.1 million of electronic credit card processing equipment. During this time period, however, Vicom alleges that Peach Tree and the other named defendants engaged in a course of deceitful dealing and fraudulent activity. Vicom alleges that Peach Tree sales representatives fraudulently informed certain merchants that the leases were can-celable, and that the merchants would own the equipment at the end of the lease. Vi-com elsewhere alleges that Peach Tree led other merchants to believe that defendant Dallas Leasing Company (“DLC”), a Peach Tree affiliate, owned the equipment. Peach Tree thereby induced merchants to return the equipment to DLC upon termination of the lease, whereupon Peach Tree fraudulently converted the property.
Vicom further alleges that, because many of Peach Tree’s referrals failed to meet Vi-com’s credit requirements, Peach Tree officials orally agreed to guarantee the leases of various nonereditworthy merchants in the event of a default pursuant to the Vendor Recourse provision of the vendor agreement. Vicom states that Peach Tree never paid Vicom for the defaulting merchants’ accounts it guaranteed and, notwithstanding the fact that the vendor agreement required all modifications of the agreement to be in writing, alleges that it reasonably relied on these oral guarantees in entering into leases with merchants who eventually defaulted. In addition, Vieom’s amended complaint alleges that Peach Tree failed to maintain properly the leased equipment and to process credit card sales on time. It also asserts that much of the leased equipment was incomplete or not functional. As a result, the amended complaint states, merchants stopped making lease payments to Vicom. In response to these problems, Vicom alleges that Peach Tree fraudulently assured Vicom that it was correcting the troubles. On April 9, 1989, Vicom terminated its relationship with Peach Tree, citing Peach Tree’s deceptive activities as the reason. In April 1991, James Elliot, owner and president of Peach Tree and a defendant in this action, sold Peach Tree for $87 million to Peach Tree Acquisition Corporation, which subsequently changed Peach Tree’s name to Harbridge Merchants Services, Inc.
B. District Court Proceedings
On November 14,1991, Vicom initiated this case by filing a complaint in the United States District Court for the Northern District of New York; it alleged various RICO and supplemental state law claims. In March 1992, following the defendants’ January 1992 motion for dismissal, the case was transferred by stipulation of the parties to the Northern District of Illinois. Soon thereafter, Vicom filed a 119-page, 385-para-graph, nine-count amended complaint in which Vicom sought relief under RICO and supplemental state law theories. The amended complaint alleged five schemes upon which Vicom based various predicate acts of mail and wire fraud:
(1) a scheme to induce Vicom to enter into leases falling outside of Vicom’s established credit parameters;
(2) a scheme to induce merchants to enter into leases upon terms materially different from those Vicom had previously approved as acceptable for its lease portfolio;
(3) a scheme to interfere with Vicom’s lease arrangements;
(4) a scheme to commit larceny by conversion;
(5) an overall scheme to inflate Peach Tree’s net worth.
Following transfer to the Northern District of Illinois, the defendants renewed their motions to dismiss.
On January 8, 1993, the district court dismissed the nine RICO causes of actions Vi-
On January 26, 1993, the district court heard arguments on Vicom’s motion for leave to file a second amended complaint, but Vi-com’s counsel failed to make an appearance. The court indicated that it was' inclined to deny Vicom’s motion, but to allow Vicom to refile the motion if Vicom attached its proposed second amended complaint to it. But before the district court made its decision, the defendants’ counsel pointed out that Vi-com had made its motion not under Rules 59(e) or 60(b), as required following a Rule 58 judgment, but rather under Rule 15(a). As a result, the court denied Vicom’s motion for leave to file a second amended complaint as an inappropriate post-judgment motion.
II
ANALYSIS
Vicom presents two issues on appeal. First, Vicom submits that the district court erred in dismissing all the RICO counts alleged in Vicom’s amended complaint. We shall review the district court’s decision to dismiss Vicom’s amended complaint de novo, Schiffels v. Kerruper Fin. Servs., Inc.,
A. Dismissal of Vicom’s Amended Complaint
1.
The defendants invite us to affirm the district court’s dismissal of Vicom’s amended complaint under Rule 8(a) on the basis of the amended complaint’s prolixity. The district court appears to have come close to taking this route. Because we too are dismayed by Vicom’s 119-page, 385-paragraph less-than-coherent amended complaint, we shall address the defendants’ argument.
Rule 8(a)(2) requires a “short and plain statement of the claim showing that the pleader is entitled to relief.” In addition, Rule 8(e)(1) states that “[e]ach averment of a pleading shall be simple, concise, and direct.” The primary purpose of these provisions is rooted in fair notice: Under Rule 8, a complaint “ ‘must be presented with intelligibility sufficient for a court or opposing party to understand whether a valid claim is alleged and if so what it is.’ ” Wade v. Hopper,
Because it is difficult to file a pleading in response to a prolix and confusing complaint, doing so also can be costly. The Ninth Circuit discussed the expenditure of a defendant’s resources, as well as the costs to non-party litigants, when it affirmed the district court’s dismissal with prejudice of a plaintiffs verbose and confusing amended complaint:
The appellees herein have had to spend a large amount of time and money defending against Cissna’s poorly drafted proceedings in this and related actions. The right of these defendants to be free from this costly and harassing litigation and the rights of litigants awaiting their turns to have other matters resolved must be considered and the judgment of dismissal with prejudice affirmed.
Nevijel v. North Coast Life Ins. Co.,
Many plaintiffs attempt to excuse lengthy and confusing complaints by pointing to the type of claim or theory under which they are pleading. RICO plaintiffs, for instance, often state that the complexity of the RICO statute somehow exempts RICO complaints from the strictures of Rule 8. Vicom stated as much at oral argument in this case. However, the caselaw is clear that, although RICO complaints often might need to be somewhat longer than many complaints, RICO complaints must meet the requirements of Rule 8(a)(2) and Rule 8(e)(1). See, e.g., Hartz v. Friedman,
Vicom’s confusing, redundant, and seemingly interminable amended complaint violated the letter and the spirit of Rule 8(a). However, the district court decided not to dismiss it under Rule 8(a) because the court did not believe that dismissal with leave to replead would have resulted in a vastly improved second amended complaint. The district court’s reluctance to give Vicom a third chance is understandable. But given the fact that Vicom had already amended its complaint once, we think the district court should have given more serious consideration to dismissing Vicom’s amended complaint with prejudice. Nonetheless, despite Vicom’s “egregious violation of Rule 8(a),” we shall “treat the complaint on its merits because the district court chose to do so.” Hartz,
2.
The district court dismissed one of the RICO counts in Vicom’s amended complaint for failing to plead fraud with particularity as required by Rule 9(b). Further, although the district court dismissed the rest of the counts alleged in the amended corn-
Rule 9(b) states that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” The rule is said to serve three main purposes: (1) protecting a defendant’s reputation from harm; (2) minimizing “strike suits” and “fishing expeditions”; and (3) providing notice of the claim to the adverse party. See Uni*Quality, Inc. v. Infotronx, Inc.,
The district court concluded that two RICO counts in Vicom’s amended complaint failed to satisfy any of these particularized pleading requirements. The district court focused specifically on Vicom’s failure to allege the specific identity of the individuals who made the alleged misrepresentations. Many of the allegations simply state that the misrepresentations were made “at the direction, under the supervision, or with the knowledge and consent” of all the defendants. Such pleading would appear to fall short of the standards set forth in the case-law. Because fair notice is “[p]erhaps the most basic consideration” underlying Rule
An examination of the amended complaint brings us to the conclusion that, at many points, Vicom’s complaint lacks the requisite specifity. Vicom has often failed to identify with particularity the actors who participated in the various schemes it alleges. Moreover, Vicom seems not to have done so because of lack of knowledge, but rather out of poor pleading. For example, in Count 1, Vicom alleges that a Peach Tree sales representative misrepresented to a merchant that its lease for the electronic credit card processing equipment was cancelable. The amended complaint states neither who made the misrepresentation nor on what date it was made. Amended Complaint at If 235. However, in Exhibit G of the amended complaint, Vicom has included the letter in which the misrepresentation was -made, and that letter contains both the name of the Peach Tree sales representative and the date of the misrepresentation.
We certainly can see why the district court concluded that, at least with respect to some allegations, Vicom had not met Rule 9(b) standards. Nonetheless, instead of parsing the 119-page, 385-paragraph, we think it more expeditious to decide the main substantive issue presented by this appeal: whether Vicom has pleaded successfully the RICO violations at the heart of the amended complaint. See In re Scarlata,
3.
Vicom’s amended complaint alleges counts of RICO violations based on 18 U.S.C. § 1962(c) and § 1962(a). A RICO plaintiff alleging a violation of § 1962(c) must show “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co.,
In H.J., Inc., the Supreme Court stated that 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.”
a.
In order to demonstrate a pattern over a closed period, a RICO plaintiff must “prov[e] a series of related predicates extending over a substantial period of time.” Id. In H.J., Inc., the Supreme Court emphasized this durational aspect of closed-ended continuity: “Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this
With this background in mind, we examine Vieom’s RICO allegations with respect to duration — the length of time over which the alleged predicate acts were committed. Duration “is perhaps the closest thing we have to a brightline continuity test.” Midwest Grinding Co. v. Spitz,
In both its amended complaint and its opening brief, Vicom concedes that the predicate acts behind the alleged schemes took place over a time span of less than nine months (i.e., July 1988 to April 1989). We have not ventured as far as the Third Circuit in holding that predicate acts spanning less than one year do not as a matter of law constitute a “substantial period of time” as required by H.J., Inc.,
Although duration is the single most important aspect of the closed-ended continuity analysis, we still must examine Vicom’s amended complaint under the rest of the Morgan factors. We therefore consider the number and variety of the predicate acts. See Morgan,
Mail fraud and wire fraud are perhaps unique among the various sorts of ‘racketeering activity’ possible under RICO in that the existence of a multiplicity of predicate acts ... may be no indication of the requisite continuity of the underlying fraudulent activity. Thus, a multiplicity of mailings does not necessarily translate directly into a ‘pattern’ of racketeering activity.
Id. at 325 (Cudahy, J., concurring); see also Hartz,
The next Morgan factor, the number of victims involved, see Morgan,
Another factor we look to under Morgan is the number of schemes involved. See Morgan,
Finally, the last Morgan factor which we consider in determining whether closed-ended continuity exists is “the occurrence of distinct injuries,” Morgan,
In short, we conclude that Vicom has not alleged closed-ended continuity in its amended complaint. Many circuits would not have gone any further than determining that the predicate acts spanned only nine months, thereby failing to constitute a “substantial period of time” under H.J., Inc.,
b.
Because the predicate acts alleged in Vieom’s amended complaint cannot support a finding of closed-ended continuity, we now examine whether Vicom can fulfill the continuity prong by establishing open-ended continuity. Continuity as an open-ended concept refers “to past conduct that by its nature projects into the future with a threat of repetition.” H.J., Inc.,
In assessing whether a threat of continued racketeering activity exists, we have made clear that schemes which have a clear and terminable goal have a natural ending point. Such schemes therefore cannot support a finding of any specific threat of continuity that would constitute open-ended continuity.
primarily on the undisputed evidence that the purpose of the allegedly fraudulent scheme was to pay [the defendant’s] loan. The scheme, therefore, had a natural ending with no threat of continued criminal activity. This single scheme was to be short-lived and there is no evidence that, had the scheme worked, it would have been repeated in the future.
We thus concluded that no “ ‘specific threat of repetition’” existed. Id. (quoting H.J., Inc.,
Because Vicom alleges a scheme that had a natural ending point, it too has failed to show a specific threat of continued racketeering activity. Vicom alleges throughout its amended complaint that Peach Tree had attempted to sell as much equipment as possible in order to inflate its value in the eyes of a prospective purchaser. For instance, Vi-com states that the defendants’ “collective goal was to sell as much Equipment to plaintiff as possible in a short period of time with the intent to sell Peach Tree.” Amended Complaint at ¶ 83.
If no specific threat of continuity exists, however, a RICO plaintiff can also allege open-ended continuity by showing that “the predicate acts are a regular way of conducting [the] defendant’s ongoing legitimate business.” H.J., Inc.,
A threat of continued criminal activity for purposes of RICO is not established merely by demonstrating that the [defendant’s] acts of common law fraud were a regular way of conducting their ongoing businesses. Rather, [the plaintiff] must demonstrate that the predicate acts — here the acts of mail fraud — were a regular way of conducting the ongoing businesses.
Id. at 448; see also Johnston v. Wilbourn,
Because the third way to show open-ended continuity concerns “long-term association^] that exist[] for criminal purposes,” H.J., Inc.,
B. Denial of Motion for Leave -to File a Second Amended Complaint
Vicom argues in the alternative that we should reverse the district court’s denial of Vicom’s motion for leave to file a second amended complaint. Because Vicom styled its motion as a Rule 15(a) motion for leave to file an amended complaint, and not as a Rule 59(e) motion, the district court summarily denied the motion. See Tr. at 3 (“I will just consider it under what it is. It is not a 59(e) motion. It’s a 15(a) motion. It is denied.... I think it is an inappropriate motion to bring.”). On appeal, Vicom concedes that it should have expressly argued the motion under Rule 59(e) instead of Rule 15(a). Nonetheless, Vicom submits that, by denying the motion solely because it was not expressly labelled a Rule 59(e) motion, the district court abused its discretion.
We cannot accept Vicom’s argument. There exists in this circuit a line of cases that require a plaintiff seeking leave to amend in the post-judgment context to file a Rule 59(e) or 60(b) motion prior to filing a Rule 15(a) motion. See Twohy v. First Nat’l Bank,
Conclusion
For the foregoing reasons, we affirm the judgment of the district court.
Affirmed.
Notes
. This rendition is based not only on the plaintiff’s prolix and confusing complaint but also on the statement of facts in the plaintiff's brief.
. See Bower v. Jones,
. See also Gordon v. Green,
. First, some commentators argue that "Rule 9(b) does not adequately protect reputations and should not be intended to do so in any event.'' Jeff Sovern, Reconsidering Federal Civil Rule 9(b): Do We Need Particularized Pleading Requirements in Fraud Cases?,
. Exceptions to individualizing'defendants’ roles do exist — e.g., when a plaintiff is alleging fraud against a third party' and thus may lack the requisite Rule 9(b) information, see Uni*Quality,
. Because § 1962(a) prohibits any person who has received income from a pattern of racketeering activity from "us[ing] or investing], directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise," the issue of standing arises when a RICO plaintiff alleges that the subsection has been violated. Although our circuit has not addressed the issue to date, the majority of circuits hold that the use or investment of the racketeering income must proximately cause the plaintiff’s injury; injury caused by the predicate racketeering acts is inadequate. See Nugget Hy
. See, e.g., Olive Can Co. v. Martin,
. Although we have found continuity to exist in cases in which the predicate acts have spanned very little time, the continuity alleged in those cases was open-ended continuity, which is discussed below. See, e.g., Ashland Oil, Inc. v. Arnett,
. Other circuits have examined closed-ended periods of more-or-less similar duration, and these periods "have been held not to be substantial even when they extend up to more than one year in duration.” Gregory P. Joseph, Civil RICO: A Definitive Guide 88 (1992) (citing Feinstein v. RTC,
. Peach Tree was in fact sold in April 1991.
. The amended complaint also contained supplemental state law claims pursuant to 28 U.S.C. § 1367(a). However, because federal jurisdiction was predicated solely on RICO, the district court declined to exercise supplemental jurisdiction over the state causes of action after it had dismissed the RICO claims. See 28 U.S.C. § 1367(c)(3).
. See also Figgie Int’l, Inc. v. Miller,
. We note that there is caselaw in another circuit stating that a Rule 15(a) motion ought to be treated as a Rule 59(e) motion. See Quartana v. Utterback,
Moreover, denial of Vicom's motion was not without any justification under Vicom's proposed Rule 59(e) standard. Relying on Dussouy v. Gulf Coast Investment Corp.,
party's part, or when amendment would be futile. See also Figgie Int'l,
We have little doubt that Vicom caused prejudice to the defendants by failing to request leave to amend before judgment was entered. Although Vicom disputes this, our caselaw indicates otherwise. For example, in Figgie Int’l,
Concurrence Opinion
concurring:
I hesitate to try to add anything to such a searching and exhaustive effort to bring to ground this typically meandering and divaga-tory complaint. RICO is a judge’s nightmare and doggedly persistent efforts to hammer it into a rational shape deserve the utmost respect even though they can rarely accomplish the impossible.
Certainly in pursuing the issue of pattern the majority has addressed the aspect of RICO upon which the Supreme Court has focused most in trying to separate the good RICO from the bad. See H.J. Inc. v. Northwestern Bell Telephone Co.,
My only reservation may be about assigning somewhat arbitrary significance to duration as such. I do not favor any bright-line (e.g., eight months, one year) duration rule. In the case before us there were more than 2000 lease transactions in the 8 months involved. If the “fraudulent acts” had been spread out over 16 months, the case would not seem to be much different. I would not think such a scheme is immune from RICO merely because it lasted eight months instead of twelve or more. Cf. H.J. Inc. v. Northwestern Bell,
