2013 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

1-11-2013

Matthew P. Amos v. Franklin Fin Ser Corp

Precedential or Non-Precedential: Non-Precedential

Docket No. 11-4528

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"Matthew P. Amos v. Franklin Fin Ser Corp" (2013). 2013 Decisions. Paper 1399.

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1

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 11-4528

MATTHEW P. AMOS; CHRISTINE A. AMOS; ROBERT A. ABEL; PAMELA MOBIUS 

ARMSTRONG; DAVID L. ENGLEHART; JANET C. NACLERIO; DONALD A. ERNEY; 

TIMOTHY P. FARRELL; KEVIN M. FINN; DAWSON FLINCHBAUGH; CAROLE A. 

FOWLER; PATRICIA A. HELM; BRUCE G. HOLRAN; RONALD N. HUGHMANICK; 

JANET C. NACLERIO; EDWARD R. NORFORD; RONALD L. PROUGH; WILLIAM J. 

REGAN; LOUIS M. ROBINSON; BRUCE A. SMITH; CHARLOTTE SPITZ; ROBERT M. 

TROXELL; JANET M. WESTCOTT; CURT H. ZIMMERMANN; RICHARD ZLOGAR; 

JEFFREY S. NICKUM,

 Appellants 

v.

FRANKLIN FINANCIAL SERVICES CORPORATION; LOWELL R. GATES; LINDA LEE 

GATES; NICHOLAS J. DUNPHY; WILLIAM T. HABACIVICH; CHARLES J. HENRY; 

ANDREW W. KOHR; SUSAN A. RUSSELL

On Appeal from the United States District Court

for the Middle District of Pennsylvania

(Civ. No. 1-10-cv-01285)

District Judge: The Hon. William W. Caldwell

Argued: October 5, 2012

Before: McKEE, Chief Judge, JORDAN and 

VANASKIE, Circuit Judges

(Opinion filed: January 11, 2013)

MICHAEL A. FARNAN, ESQ. (Argued)

The Farnan Law Office

3710 Forbes Avenue, 3rd Floor

Pittsburgh, PA 15213

JEANNE F. MULRY, ESQ.

Law Offices of Jeanne F. Mulry

8 Arlington Avenue

Rockville Centre, NY 11570

Attorneys for Appellants
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TIMOTHY J. NIEMAN, ESQ. (Argued)

STEPHEN MONIAK, ESQ.

RHOADS & SINON LLP

One South Market Square

P.O. Box 1146, 12th Floor

Harrisburg, PA 17108

Attorneys for Appellee, Franklin Financial Services, Inc.

IAN M. COMISKY, ESQ.

EVAN H. LECHTMAN, ESQ. (Argued)

JEFFREY N. ROSENTHAL, ESQ.

BLANK ROME LLP

One Logan Square

Philadelphia, PA 19103

Attorneys for Appellees, Lowell R. Gates, et al.

OPINION

McKEE, Chief Judge.

Matthew P. Amos and twenty four other plaintiffs have appealed the district court‟s order 

dismissing their first amended complaint for failure to adequately plead a civil action under the 

Racketeer Influenced and Corrupt Organizations Act (“RICO”). They allege violations of 18 

U.S.C. §§ 1962(b), (c) and (d), based on predicate acts of mail and wire fraud, 18 U.S.C. §§ 1341 

and 1343, respectively. For the reasons that follow, we will affirm.

I. FACTS AND PROCEDURAL HISTORY

Because we write primarily for the parties, who are well familiar with the facts and 

procedural history of this litigation, we will recite only those portions of the facts and procedural 

history necessary to adjudicate this appeal. 

Amos and the other twenty-four plaintiffs (hereinafter “Amos”) are former shareholders 

in Community Financial, Inc. (“CFI”). Franklin Financial Services Corporation acquired CFI in 

a merger whereby CFI ceased to exist and its shareholders and third parties were paid cash for 
3

their shares. Amos filed an action against Franklin Financial and seven individual defendants, 

viz., Lowell R. Gates, William T. Habacivch, Nicholas J. Dunphy, Charles J. Henry, Andrew J. 

Kohr, Susan Russell and Linda Gates (hereinafter “Lowell Gates”), most of whom were 

shareholders and officers of CFI, alleging that in the years leading up to the merger, Lowell 

Gates operated CFI in a manner that diluted the value of Amos‟ shares upon the merger relative 

to the value of Lowell Gates‟ shares. Amos alleges that to accomplish this goal, Lowell Gates 

devised a fraudulent scheme and engaged in fraudulent conduct directed at Amos and other nondefendant shareholders.

As we noted at the outset, Amos asserted claims under civil RICO, alleging violations of 

18 U.S.C. §§ 1962(b), (c), and (d) where the predicate acts are alleged to have been mail and 

wire fraud, 18 U.S.C. §§ 1341 and 1343, respectively. He also asserted state law claims for 

conversion, unjust enrichment, breach of fiduciary duty, fraud and waste of corporate assets, 

conspiracy, and a violation of the Pennsylvania Uniform Commercial Code. Amos‟ original 

complaint was filed on June 19, 2010. Subsequently, Amos filed a first amended complaint. 

Thereafter, Franklin Financial and Lowell Gates filed Rule 12(b)(6) motions to dismiss the first 

amended complaint. The district court eventually dismissed the first amended complaint based 

on its conclusion that Amos failed to state civil RICO claims because of the statutory exception 

for fraud claims in the sale of securities found in 18 U.S.C. § 1964(c). Amos v. Franklin 

Financial Services Corp., 2011 WL 2111991 (M.D. Pa. May 26, 2011).1

Thereafter, Amos filed a motion for reconsideration under Fed.R.Civ.P. 59(e), arguing, 

inter alia, that the district court erred in dismissing the complaint because the transaction in 

 

1Because the district court dismissed the RICO claims, it declined to exercise 

supplemental jurisdiction over the state law claims and dismissed the state law claims 

without prejudice. 2011 WL 2111991 at *6
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question was a “freeze-out merger” and, therefore, could not constitute securities fraud. After 

briefing, the district court issued a Memorandum Opinion on November 22, 2011 in which it 

agreed with Amos. Amos v. Franklin Financial Services Corp., 2011 WL 5903875 (M.D. Pa. 

November 22, 2011). However, the district court again dismissed the first amended complaint, 

finding that it failed to satisfy the pleading requirements for a civil RICO action. Id. at *6-15.2

This appeal followed.3

II. GENERAL LEGAL PRINCIPLES

Amos‟ two substantive RICO claims are based on 18 U.S.C. §§ 1962(b) and 1962(c).4 

Section 1962(b) provides:

(b) It shall be unlawful for any person through a pattern of 

racketeering activity or through collection of an unlawful debt to 

acquire or maintain, directly or indirectly, any interest in or control 

of any enterprise which is engaged in, or the activities of which, 

affect, interstate or foreign commerce.

 

2

The district court once again declined to exercise supplemental jurisdiction over the 

state-law claims after it dismissed the RICO claims. 2011 WL 5903875 at *15. 

3 We review the district court‟s dismissal of a claim under Rule 12(b)(6) de novo. 

Phillips v. County of Allegheny, 515 F.3d 224, 230 (3d Cir. 2008). “To survive a motion 

to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a 

claim that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662 (2009) (citation 

omitted). A claim has “facial plausibility when the plaintiff pleads factual content that 

allows the court to draw the reasonable inference that the defendant is liable for the 

misconduct alleged.” Iqbal, 129 S.Ct. at 1949 (citation omitted). A district court must 

dismiss a complaint that pleads facts that are “merely inconsistent with” a defendant‟s 

liability, if the complaint “stops short of the line between possibility and plausibility of 

entitlement to relief.” Id. (citation and internal quotation marks omitted). “Threadbare 

recitals of the elements of a cause of action, supported by mere conclusory statements do 

not suffice.” Id. (citation omitted). 

4As noted, Amos also brought claim under 18 U.S.C. § 1962(d), which provides: “It shall 

be unlawful for any person to conspire to violate any of the provisions of subsection (a), 

(b), or (c) of this section.” 
5

 Section 1962(c) provides:

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.

“The RICO statute provides for civil damages for „any person injured in his business or 

property by reason of a violation of [18 U.S.C. § 1962].‟” Tabas v. Tabas, 47 F.3d 1280, 1289 

(3d Cir. 1995) (quoting 18 U.S.C. § 1964(c)). “A common thread running throughout § 1962 is 

that an injured party must demonstrate that the defendant was engaged in a „pattern of 

racketeering activity.‟” Id. 

In Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985), the Court held:

A violation of § 1962(c) . . . requires (1) conduct (2) of an 

enterprise (3) through a pattern (4) of racketeering activity. The 

plaintiff must, of course, allege each of these elements to state a 

claim. Conducting an enterprise that affects interstate commerce is 

obviously not in itself a violation of § 1962, nor is the mere 

commission of the predicate offenses. In addition, the plaintiff 

only has standing if, and can only recover to the extent that, he has 

been injured in his business or property by the conduct constituting 

the violation.

Id. at 496. As noted, a RICO claim pursuant to § 1962(b) makes it “unlawful for any person 

through a pattern of racketeering activity . . . to acquire or maintain, directly or indirectly, any 

interest in or control of any enterprise which is engaged in, or the activities of which affect, 

interstate of foreign commerce.” 18 U.S.C. § 1962(b) (emphasis added).

A pattern of racketeering activity is established by showing that the defendants engaged 

in at least two predicate acts within ten years of each other. 18 U.S.C. § 1961(1), (5); Lum v. 

Bank of America, 361 F.3d 217, 223 (3d Cir. 2004) (“A pattern of racketeering activity requires 

at least two predicate acts of racketeering activity.”) (citation omitted). “ „Racketeering activity‟ 
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is defined in RICO to mean „any act or threat involving‟ specified state-law crimes, any „act‟ 

indictable under specified federal statutes, and certain federal „offenses.‟” H.J. Inc. v. 

Northwestern Bell Telephone Co., 492 U.S. 229, 232 (1989). The “predicate acts of racketeering 

may include, inter alia, federal mail fraud under 18 U.S.C. § 1341 or federal wire fraud under 18 

U.S.C. § 1343.” Lum, 361 F.3d at 223 (citing, inter alia, 18 U.S.C. § 1961(1)). As relevant here, 

mail or wire fraud consists of: “(1) a scheme to defraud; (2) use of the mails [or wires] to further 

that scheme; and (3) fraudulent intent.” United States v. Pharis, 298 F.3d 228, 234 (3d Cir. 

2002) (citation omitted). “[N]o defendant can be liable under RICO unless he participated in two 

or more predicate offenses sufficient to constitute a pattern.” Banks v. Wolk, 918 F.2d 418,421 

(3d Cir. 1990). 

DISCUSSION

In its opinion dismissing Amos‟ first amended complaint, the district court gave a number 

of reasons why the first amended complaint failed to adequately allege a civil RICO action under 

18 U.S.C. §§ 1962(b), (c), or (d). First, it found that Amos failed to show proximate cause 

because the injury alleged in the first amended complaint is derivative of injury to CFI, not a 

direct injury to Amos.5 2011 WL 5903875 at *6-9. Second, it found that Amos‟ RICO claims 

failed because the first amended complaint did not plead a pattern of racketeering activity on the 

part of both the individual defendants and Franklin Financial. Id. at *9-14. Third, it found that 

the first amended complaint failed to plead the existence of an association-in-fact enterprise. Id. 

 

5 As the district court held, Amos‟s failure to demonstrate that the alleged RICO 

predicate acts were the proximate cause of his injury also meant that he lacked standing

to bring a civil RICO action. See Holmes v. Sec. Protection Corp., 503 U.S. 258, 268 

(1992) (requiring that a RICO plaintiff “show[] that the defendant‟s violation not only 

was a „but for‟ cause of his injury, but was the proximate cause as well.”). 
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at 14-15. Fourth, it found that Amos‟s RICO conspiracy claim failed because the first amended 

complaint did not adequately allege violations of §§ 1962(b) or (c). Id. at 15.

In this appeal, Amos advances a number of arguments in support of his overarching 

contention that the district court‟s Rule 12(b)(6) dismissal of the first amended complaint was 

error. We disagree.

In its through and well-reasoned November 22, 2011, opinion, the district court fully and 

completely explained why the first amended complaint failed to adequately allege a civil RICO 

action and why dismissal of the first amended complaint was appropriate. We can add nothing 

to the district court‟s thoughtful analysis and discussion. Accordingly, we will affirm 

substantially for the reasons set forth in the district court‟s November 22, 2011, opinion.