John VILD, Plaintiff-Appellant, Cross-Appellee,
v.
Dominic A. VISCONSI; Patricia Sattenfield; Sea/Mountain
Resorts, Inc.; C. W. Sattenfield; Gerald
Plonski; John Does;
Defendants-Appellees, Cross-Appellants.
Nos. 90-4048, 90-4088.
United States Court of Appeals,
Sixth Circuit.
Argued Nov. 4, 1991.
Decided Feb. 10, 1992.
Rehearing and Rehearing In Banc Denied March 27, 1992.
Gregory T. Stralka (argued and briefed), Cleveland, Ohio, for John Vild.
Mark I. Wachter (argued and briefed), Paul A. Caimi, Mays, Karberg & Wachter, Cleveland, Ohio, for Dominic A. Visconsi, Patricia Sattenfield, Sea/Mountain Resorts, Inc., C. W. Sattenfield, Gerald Plonski, John Does (Nos. 1-10).
Before GUY, Circuit Judge, WELLFORD, Senior Circuit Judge, and CHURCHILL*, Senior District Judge.
WELLFORD, Senior Circuit Judge.
John Vild, the plaintiff, appeals from the district court's denial of his Fed.R.Civ.P. 59(e) motion to alter or amend an earlier judgment dismissing his RICO1 complaint and Fed.R.Civ.P. 15(a) motion to amend his RICO complaint. The defendants, various persons involved in a series of real estate enterprises, cross-appeal from the district court's denial of their Fed.R.Civ.P. 11 motion for sanctions against the plaintiff. Put simply, Vild tries to convince us that he has properly stated a RICO claim in his complaint or proposed amended сomplaint, while the defendants maintain that he failed to state a claim, and that his failure should bring about sanctions. We find that the district court did not err when it denied the plaintiff's motions under Rules 15(a) and 59(e), and therefore, we AFFIRM that portion of the decision. Although we do not rule on the merits of the sanctions issue, we find it appropriate to REMAND this issue for clarification as to the basis for the district court's denial of sanctions.I. BACKGROUND
Plaintiff, an Ohio citizen, sued Dominic Visconsi of Ohio, C.W. and Patricia Sattenfield of Florida, Gerald Plonski of Ohio, and ten other unnamed individuals and several business entities, for alleged violations of RICO, common law fraud, intentional interference with business relationships, conversion, negligence and breach of contract. Vild's allegations arose from a failеd scheme in which he was to market interests in the Longboat Bay Club (Club), a real estate resort venture.
In addition to the original complaint, the plaintiff filed, or attempted to file, three amended complaints, the details of which are necessary for a complete understanding of the controversy before us. The plaintiff alleged throughout subject matter jurisdiction under RICO and under 28 U.S.C. § 1332 (diversity of citizenship).
The original complaint alleges that in late January, 1989, defendant C.W. Sattenfield, on behalf of the other named defendants, Dominic Visconsi, Patricia Sattenfield, and Gerald Plonski, contacted the plaintiff by telephone to induce him to sign a marketing agreement to sell real estate interests in the Club. Vild contends that the defendants made material misrepresentаtions regarding the marketing agreement. He maintains in particular that the defendants represented that there was sufficient start-up capital to begin business operations. Allegedly due to these material misrepresentations, Vild complained that he entered into an exclusive marketing agreement and shortly thereafter signed a note for money advanced to him by defendants to initiate the venture. Vild asserts that the defendants encouraged him to establish the business so that they could later force him out and acquire the enterprise for themselves.
From the outset, the arrangement was a failure. Once the plaintiff entered into the business relationship, C.W. Sattenfield telephoned him seeking to change the terms of the marketing agreement and proposing that the defendants receive "kickbacks" on any interests sold to the public. According to Vild, C.W. Sattenfield made threats to him, his family and to ruin his reputation. When Vild did not comply with the proposed changes, the defendants allegedly refused to provide additional inventory and start-up money.2 The original complaint also alleges that the defendants refused to compensate Vild for sales made by him under the marketing agreement. Plaintiff maintains that these threats, phone calls, and material misrepresentations all constitute predicate acts under RICO because they are violations of mail fraud, wire fraud and extortion statutes as well as the Hobbs Act.
The original complaint also alleges other predicate acts which are seрarate and distinct from the previously described scheme to defraud and extort the plaintiff. Vild contends that the defendants used, and continue to use, telephones and facsimile machines to solicit customers in Ohio to purchase interests in the Club. According to Vild, these solicitations constitute wire fraud because the defendants' salespersons are not licensed and registered to do business in Ohio. The plaintiff also alleges that the defendants engaged in, and continue to engage in, mail fraud because they used, and continue to use, letters which technically violate several laws and regulations governing direct mail solicitation in Ohio. For instance, the letters do not contain, as required by law, the odds of winning prizes. They also improperly use the word "sweepstake." Vild further complains that the defendants sent similar letters to potential consumers in Indiana in violation of that state's laws. Plaintiff maintains also that the defendants violated Florida law by fraudulently using real estate contracts which did not contain a mandatory ten-day cancellation provision.
Vild amended his original complaint by introducing several additional defendants, Gerald Plonski and ten unnamed individuals, who allegedly also violated the RICO statute. The plaintiff contends that Plonski, his sales agent, refused to pay him money earned from Club sales because of "kickbacks" to the other defendants. The ten unnamed defendants were alleged officers, directors and shareholders of Sea/Mountain Resorts Inc. (Sea Mountain) established by defendants to market real estate interests in Ohio. These added individual defendants also allegedly engaged in the same type of racketeering, wire and mail fraud activities as the other defendants.
The plaintiff also attempted to file a second amended complaint, but the court denied his motion to amend. The second amended complaint alleges several new predicate acts and introduces a host of additional defendants. The new predicate acts center on the allegedly illegal status of another business entity controlled by the defendants. Vild maintains that Longboat Venture Ltd. (Longboat), the owner of the Club, was prohibited from doing business in Ohio and Florida because its general partner, DVB, Inc. (DVB), failed to maintain its legal corporatе status and also failed properly to register to do business. The plaintiff maintains that any solicitations by Longboat accordingly constitute wire and mail fraud.
The second amended complaint also alleges that several new RICO defendants were a part of the illegal enterprise. Vild contends that the defendants' law firm and three lawyers representing defendants fraudulently represented DVB's corporate status and its capacity to do business. One defendant lawyer allegedly sent a letter to the state of Ohio which indicated incorrectly that DVB had good standing in Ohio. Another defendant lawyer allegedly made a similar misrepresentation to the Court of Common Pleas of Cuyahoga County stating that Longboat was a valid limited partnership. Plaintiff's contentiоn is that Longboat was not a valid limited partnership because of DVB's status. These misrepresentations were allegedly intentionally made with knowledge that they were false.
Vild moved to file still another amended complaint, but this motion was denied. The third amended complaint adds very little to the earlier versions. Defendants further committed mail fraud by misrepresenting DVB's status to the State of Florida in order to validate its certificate to do business. The plaintiff also alleges that the defendants committed another RICO predicate act by misrepresenting DVB's status to the State of Ohio during the course of settlement negotiations.
II. DISTRICT COURT ACTIONS
After Vild filed his first amended complaint, the defendants moved to dismiss the action under Fed.R.Civ.P. 12(b)(6) for failure to state a claim and under Fed.R.Civ.P. 9(b) for failure to allege fraud with particularity. While these motions were pending, the plaintiff requested leave to file his second amended complaint which the court denied.
The next day, the district court granted defendants' motion to dismiss for failure to state a RICO claim because Vild did not allege "a pattern of racketeering activity," as defined by H.J. Inc. v. Northwestern Bell Telephone Co.,
Without a valid RICO claim, the district court concluded that there was no subject matter jurisdiction. The plaintiff could not invoke 28 U.S.C. § 1332 diversity jurisdiction because he did not show that "each defendant [was] a citizen of a different State from each plaintiff."
Following the dismissal, Vild filed a motion to alter or amend the judgment under Fed.R.Civ.P. 59(e) and also to amend the complaint once again under Fed.R.Civ.P. 15(a). By a marginal entry, the district judge denied the plaintiff's motion: "After careful consideration of the pleadings, the Court finds that the acts alleged amount to breach of contract. Accordingly, the Motion is denied." The plaintiff now appeals from the district court's action.
Prior to the district court's denial of the plaintiff's motion to alter or amend, the defendants filed a motion for Fed.R.Civ.P. 11 sanctions on the ground that the plaintiff's counsel failed to make an adequate prefiling inquiry into RICO requirements. By use of another marginal entry, the district court denied the defendants' motion. The defendants accordingly cross-appeal.
III. STANDARD OF REVIEW
There appears to be some confusion regarding the рroper standard of review of the district court's decision. Instead of appealing from the district court's original dismissal of the complaint under Fed.R.Civ.P. 12(b)(6), the plaintiff appeals from the later order which denied his motion to alter or amend the judgment pursuant to Fed.R.Civ.P. 59(e) and to amend the complaint for a third time under Fed.R.Civ.P. 15(a). Defendants maintain that a limited standard of review should apply, suggesting that the scope of our review is confined to whether the district court committed a "clear error of law." On the other hand, the plaintiff contends that we should apply the more liberal "abuse of discretion" standard because he also appeals from the district court's denial of leave to amend the complaint. See Janikowski v. Bendix Corp.,
We typically review a district court's denial of a party's motion to amend under the abuse of discretion standard. See id. When, however, the district court has based its decision on "a legal conclusion that the amended pleading would not withstand a motion to dismiss," there is authority that we review such a decision de novo. Martin v. Associated Truck Lines, Inc.,
If the third amended complaint is not sufficient to establish a RICO claim and rectify what the district court deemed to be jurisdictional deficiencies, then there was no errоr in denying the motion to amend. See Martin,
IV. RICO'S PATTERN REQUIREMENTS
A. RELATED ACTIVITIES
The district court held that the plaintiff failed to satisfy RICO's "pattern of racketeering" requirement. See Sedima, S.P.R.L. v. Imrex Co., Inc.,
The district court determined that the plaintiff failed to satisfy the continuity prong of the pattern requirement. Although we are prone to agree with the district court that the plaintiff has not alleged a RICO pattern, we reach this conclusion by using a slightly different analysis. The district court did not determine whether the plaintiff fulfilled the relationship prong of the test. We find it nеcessary to examine the relatedness issue first before arriving at the continuity prong.
The plaintiff may satisfy the relationship requirement if the predicate acts alleged "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." Id. at 2901. This "test is not a cumbersome one for a RICO plaintiff," but it sets forth a requirement for a RICO cause of action nevertheless. Feinstein v. Resolution Trust Corp.,
Here, Vild alleges two types of predicate acts to satisfy RICO's pattern requirement. The first type of conduct involves acts directed at the plaintiff by the defendants. Vild is the alleged victim of fraudulent and unlawful acts which include allegations of mail and wire fraud designed to induce him to enter into the marketing agreement plus allegations of extortion, threats and fraud in the administration of the marketing agreement. These events occurred over the course of a few months. The second type of conduct alleged in the proposed amended complaint involves improprieties by defendants directed at others including ultimate purchasers of real estate interests, the states of Florida, Ohio and Indiana, and an Ohio court. These allegations focus on wire and mail fraud resulting from technical violations of laws regulating direct mail solicitation and marketing, misrepresentations about the status of one of the defendant business entities, and the use of illegal real estate contracts in Floridа. The plaintiff maintains that all of these activities, whether directly involving him or others, are related for the purpose of the pattern requirement. We do not agree. Even if the predicates within each of the two types of conduct may be somehow interrelated, the two types of alleged conduct are not related within the meaning of RICO.
Applying the H.J., Inc. relationship test, we find that the two types of conduct have distinct and dissimilar "purposes, results, participants, victims, or methods of commission." H.J., Inc.,
The two types of conduct also had disparate results. The first line of activities resulted in the plaintiff's association with the defendants in a marketing agreement and the eventual demise of the business venture. The second line of conduct was directed toward ultimate purchasers and resulted in unspecified individuals attending sales meetings and perhaps acquiring real estate interests in the Club, Longboat, or some other venture of defendants.
That the two types of conduct were directed at different victims indicates another critical distinction which suggests to us that the alleged illegal acts were unrelated and dissimilar. The plaintiff was the only victim of the threats, extortion and fraud perpetrated with regard to the failed marketing agreement. He alleges no activity directed against anyone in his position. In contrast, ultimate purchasers and the states of Ohio, Florida and Indiana were the alleged victims of the illegal direct mail solicitations and the invalid real estate contracts. The plaintiff was never an ultimate purchaser of real estate interests, and never sought to be a customer or owner of the Club or Longboat. Plaintiff does not come to the court as an innocent purchaser of Florida swampland who was hoodwinked by the fast-talking defendants. He cannot complain about harm to these other persons or any state agency.3 The plaintiff alleges that the defendants denied him the benefits of a marketing agreement which would, in actuality, have put the plaintiff in the same position as the defendants, vis-a-vis third party purchasers, if the agreement had not been breached. Vild would have been an agent of dеfendant sellers. The plaintiff sues the defendants because he could not sell real estate interests, as he planned and contracted to do, to ultimate purchasers, the alleged victims of the conduct which the plaintiff now cites as related predicate acts under RICO. We do not hold that a civil RICO plaintiff must necessarily be directly harmed by all the alleged predicate acts, because harm from one enumerated violation may, in certain situations, be sufficiently connected. Our conclusion merely reflects that this plaintiff, under the circumstances of this case, may not use unrelated predicate acts that allegedly may have harmed ultimate purchasers or other third parties not similarly situated to the plaintiff. When Vild complains that he was not allowed to reap the benefits of the injury-causing enterprise, of which he would have been a part, he has failed the relationship test.
Plaintiff's third amended complaint and its predecessors also fail to plead fraud with sufficient particularity under Fed.R.Civ.P. 9(b). To satisfy the requirements of this rule, the plaintiff must allege specifically times, places, contents and victims of the underlying fraud. See New England Data Servs., Inc. v. Becher,
Our conclusion that the two lines of conduct were unrelated is also bolstered by the different "methods of commission" used by the defendants. The allegations regarding the marketing scheme with Vild involved extortion, threats, wire and mail fraud. The other alleged conduct included only alleged mail and wire fraud in the form of illegal telephone, fax and mail communications under consumer protection laws and misrepresentations concerning DVB's corporate status. The claimed violations are technical in nature and would not necessarily preclude purchasers from enforcing contract rights. A mere allegation that the defendants used wire and mail fraud in two otherwise dissimilar schemes does not, under the circumstances, satisfy the relationship prong of the pattern test. We agree that multiple wire and mail fraud allegations "are perhaps unique among the various sorts of 'pattern of racketeering activity.' " U.S. Textiles, Inc. v. Anheuser-Busch Co.,
That some of the same participants engaged in both lines of conduct does not alter our conclusion that the predicate acts in the two schemes were unrelated. See Feinstein,
We draw support for our analysis from cases in which other courts have put teeth into the relationship prong of RICO's pattern requirement. See Feinstein,
We recognize that, as pleaded, the 1986 and 1988 episodes each featured serial transactions that had some common reference points, most notably the victim's identities and the Gleason/Foster axis.4 Moreover, the purpose of the underlying transactions were at least similar. But notwithstanding these facts, plaintiffs' RICO claim founders on the bald assertion that these two episodes, nearly two years apart in time, hundreds of miles apart in space and involving two largely distinct groups of participants, were somehow pieces of a unitary scheme. We fully agree with the court below that the facts as alleged ... did not implicate any of the other defendants in the same way.
Id. at 44-45. As in Feinstein, plaintiff has failed to allege facts sufficient to draw the necessary nexus between the two types of conduct perpetrated by the defendants, and Vild constructs a weaker nexus than the plaintiff in Feinstein.
We are aware that some cases hold that the relationship test is satisfied by conduct which seems to us to be disconnected or dissimilar. See e.g., Banks v. Wolk,
Three other cases do not conflict with our decision, in our view: United States v. Busacca,
B. CONTINUITY
We do not end our inquiry with the conclusion that the two lines of alleged conduct in this case are not related to one another for civil RICO purposes. We proceed to the second prong of RICO's pattern requirement to determine whether the plaintiff has alleged facts which demonstrate a "threat of continuing activity." H.J., Inc.,
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 2902. The plaintiff may prove continuity by showing a series of past related predicates occurring over an extended period of time. A few months period usually is not sufficient. A second means of establishing continuity is to show that the predicates, by their nature, "involve a distinct threat of long-term racketeering activity." Id. Though the Court was not able to craft a bright-line test to define further this type of continuity, it provided the often-quoted example of a hoodlum who extorts money from a number of shop owners and threatens to return each month to collect protection money. Id. A third way to prove continuity in this case is to allege "predicates [that] arе a regular way of conducting defendant's ongoing legitimate business ... or of conducting or participating in an ongoing and legitimate 'RICO enterprise.' " Id.
As to defendants' conduct directed toward the plaintiff himself, we find no error in the district court's decision holding that the plaintiff did not prove continuity because the improper activities lasted only a short time. The third amended complaint alleges that the first fraudulent conduct in the marketing agreement scheme occurred in January, 1989, and the last acts took place in the summer of the same year. If the allegations are to be taken as true, at most, the defendants threatened and defrauded the plaintiff over the course of about six or seven months. This limited period of time is not adequate to satisfy the closed-ended formulation of continuity. Cf. Dana Corp.,
The plaintiff's allegations rеgarding the second type of conduct--acts directed toward others including ultimate purchasers and the states of Florida, Ohio and Indiana--also fail to satisfy the continuity prong of the pattern test. These activities simply did not harm, nor threaten to harm, the plaintiff. We conclude that even if these activities by themselves were deemed to satisfy the continuity prong, the plaintiff would still fail to state a RICO pattern. Plaintiff may not complain about conduct which did not harm him under the guise of RICO continuity, unless those improper acts directed toward others are functionally related to the acts which harmed the plaintiff. A pattern of racketeering activity accordingly is not present in this case.5
We are persuaded that only conduct which is essentially related may be used to establish continuity. See, H.J., Inc.,
A pattern of conduct is an "arrangement or order of things or activity." Id. at 2900 (citation omitted). To form a pattern, all predicate actions must have a relationship to one another. The conduct cited by the plaintiff does not form a "pattern" under the general description of H.J. because the two types of activities--the fraudulent acts committed against the plaintiff in the context of forming and operating the marketing agreement, and the alleged unrelated fraudulent acts perpetrated against others--do not have an internal connection or arrangement; there is no real nexus between them.
We conclude that the plaintiff has failed to allege facts in his third amended complaint which would remedy the problems in the previous complaints. We conclude, for the reasons stated, that the third amended complaint fails to present facts which would satisfy the relationship and continuity prongs of RICO's pattern of rаcketeering test.
V. DIVERSITY JURISDICTION
Plaintiff also maintains that subject matter jurisdiction is proper under 28 U.S.C. § 1332. We find no error in the decision that complete diversity as required by Owen Equipment & Erection Co. v. Kroger,
VI. RULE 11 SANCTIONS
The standard of review for all aspects of a district court's Rule 11 determination is "abuse of discretion." Cooter & Gell v. Hartmarx Corp.,
We do not express any opinion on the merits of the district court's decision to deny the defendants' motions because we believe that a remand is appropriate in this case so that the district judge can specify the rationale for his holding. See Szabo Food Serv., Inc. v. Canteen Corp.,
The district court has not provided a rationale to allow us to review whether it has abused its discretion by denying the defendants' motions. In this case, the defendants filed two separate motions for sanctions--one which was attached to their brief in opposition to the plaintiff's Rule 59(e) motion and a second which was filed one and one-half months later as an independent motion. In a marginal entry, the district court denied the defendants' motion because "[defendants'] [a]ttorney has cited All Hawaii Tours v. Polynesian Cultural Center,
VII. CONCLUSION
The district court did not abuse its discretion by denying the plaintiff leave to amend once again. The district court was not in error in concluding thаt none of the complaints established a RICO claim, and it did not err when it denied the plaintiff's motion under Fed.R.Civ.P. 59(e) to alter or amend its earlier 12(b)(6) judgment. We AFFIRM the district court's decision on the RICO and jurisdictional issues. With regard to the Rule 11 question, we REMAND the decision to the district court so that it can clarify the basis for its decision.
RALPH B. GUY, Jr., Circuit Judge, dissenting.
The court concludes that the continuity requirement is not met because the defendants' allegedly fraudulent marketing practices are not related to the conduct involving Vild. Since I believe the two types of alleged conduct are sufficiently related to constitute a pattern of racketeering activity, I respectfully dissent.
The Supreme Court has held that predicate acts are related if they 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. v. Northwestern Bell Tel. Co.,
The two types of predicate acts alleged in Vild's complaint meet this broad test of relatedness because the two schemes have the same participants. This fact distinguishes this case from Feinstein v. Resolution Trust Corp.,
Since both sets of Vild's allegations involve the same participants, I would find that his complaint meets the relatedness requirement. Since Vild alleges that the defendants have fraudulently marketed the condominiums to investors for several years, I would also find that the continuity requirement is met. I would therefore reverse the district court's dismissal of Vild's RICO count.
Notes
The Honorable James P. Churchill, Senior United States District Judge for the Eastern District of Michigan, sitting by designation
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq
Defendants provided $20,000 to the plaintiff, but they did not supply additional funds and inventory allegedly promised under an oral agreement. No reference was made to this in the written agreement
The plaintiff's contentions present something akin to a standing problem, though we decline to use that analysis in this case
It should be noted that the court indicated that the allegations against Gleason and Foster were only arguably sufficient to meet the relationship portion of the test, Feinstein,
We do not believe that bolstering our analysis of the relationship test by citation to the continuity test violates the Supreme Court's admonition that "[f]or analytic purposes these two constituents of RICO's pattern requirement [relationship and continuity] must be stated separately." H.J., Inc.,