Source: http://openjurist.org/142/f3d/1041
Timestamp: 2015-03-29 20:07:24
Document Index: 755450132

Matched Legal Cases: ['§ 1961', '§ 1962', '§ 1962', '§ 1961', '§ 1341', '§ 1343', '§ 1961']

142 F3d 1041 Corley v. Rosewood Care Center Inc of Peoria | OpenJurist
142 F. 3d 1041 - Corley v. Rosewood Care Center Inc of Peoria	Home142 f3d 1041 corley v. rosewood care center inc of peoria
142 F3d 1041 Corley v. Rosewood Care Center Inc of Peoria 142 F.3d 1041
RICO Bus.Disp.Guide 9485
Robert N. CORLEY and Vera M. Corley, Plaintiffs-Appellants,v.ROSEWOOD CARE CENTER, INC. OF PEORIA, et al., Defendants-Appellees.
Nos. 96-2464, 96-3758, 97-1815 and 97-2052.
Argued June 6, 1997.Decided April 29, 1998.
Richard L. Steagall, John P. Nicoara, Nicoara & Steagall, Peoria, IL, Sherman L. Cohn (argued), Georgetown University Law Center, Washington, DC, for Robert and Vera Corley.
Steven M. Hamburg (argued), Stephen L. Ukman, Summers, Compton, Wells, & Hamburg, P.C., St. Louis, MO, for Rosewood Care Center, Inc. of Peoria, Rosewood Care Center Holding Company, Peoria Real Estate, Inc., Hovan Enterprises, Inc., HSM Management Services, Inc., HSM Development Corporation, Larry Vander Maten, Individually and as Trustee of the Larry Vander Maten Revocable Trust, and Darrell Hoefling, Individually and as Trustee of the Darrell Hoefling Revocable Trust in Nos. 96-2464, 96-3758, 97-1815, and 97-2052.
Robert Corley and his mother Vera allege that defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, by engaging in a scheme to defraud the residents of two nursing homes--one in Peoria and the other in East Peoria, Illinois.1 The gravamen of that scheme, according to Corley, was a classic "bait and switch," in which defendants made certain promises to induce Corley to place his mother in defendants' nursing home and then reneged on those promises. Corley maintains that he and numerous others were victims of this "bait and switch" scheme. The district court initially sustained Corley's complaint, finding that it sufficiently alleges a pattern of racketeering activity under the RICO statute. On summary judgment, however, the court found that Corley had failed to come forward with evidence to establish that RICO pattern. The main appeal before us today challenges that determination. The three additional appeals challenge later orders entered by the district court relating to costs and a monetary sanction. For the reasons that follow, we reverse the summary judgment on Corley's RICO claim and remand that claim for further proceedings. We also vacate the award of costs and the monetary sanction.2
Underlying Corley's RICO claim is a contract he executed on October 25, 1989 with defendant Rosewood Care Center, Inc. of Peoria ("Rosewood"). That contract outlined the care Rosewood would provide to Corley's mother at its Peoria nursing home, and the contract was conditioned on Rosewood's guarantee that Mrs. Corley would be provided a private suite for the duration of her stay. Under the contract, the initial base rate for that private suite was $70 per day. Corley maintains that defendants induced him to execute the contract by making a series of promises relating to the quality of care his mother would receive at Rosewood. In addition to the guarantee of a private suite, defendants told Corley that his mother would be provided a choice of two entrees at every meal and that she would be permitted to remain in the Peoria facility as a Medicaid patient even if she were to exhaust her personal resources. Defendants also told Corley that in the event of a price increase, the differential between the rate for a private suite and the rate for a semi-private room would remain constant. Corley contends that Rosewood never had any intention of honoring these promises.
According to Corley, defendants began to implement the "switch" component of their scheme shortly after he executed the contract and settled his mother into the Peoria facility. After only two months, Corley received a letter from Rosewood's administrator indicating that the demand for Rosewood's services had exceeded expectations and that as a result, Rosewood would be required to limit the number of residents residing in private suites. The letter urged Corley to consider transferring his mother to a semi-private room and warned that if he did not, the price of her private suite would increase by $14 per day. Corley refused to give up his mother's private suite, however, and on March 1, 1990, Rosewood raised the per-day rate for that suite to $84. Rosewood subsequently raised the rate to $88 per day as of March 30, 1990, and then to $122 per day as of October 29, 1990.3 In the meantime, Rosewood also began to offer residents only one entree choice at meals, despite its earlier promise that it would provide Mrs. Corley two entree choices. If Mrs. Corley refused the available entree on any given day, she was served leftovers from the previous day. Finally, in the fall of 1990, Rosewood notified residents that its Peoria facility would not be honoring the promise of continuing care if residents should exhaust their personal resources. Residents would instead be required to relocate to Rosewood's East Peoria facility in order to obtain that guarantee of continuing care. With respect to Corley and his mother, the complaint alleges that defendants utilized the United States mails in furtherance of their scheme to defraud when they mailed the executed contract to Corley sometime after October 25, 1989, when Rosewood's administrator sent his December 1989 letter urging Corley to transfer his mother to a semi-private room, when they mailed notices of rate increases to Corley on March 30, 1990 and October 24, 1990, and when they mailed him bills on a monthly basis from March 1, 1990 through March 1, 1992. On March 31, 1992, Corley removed his mother from Rosewood's Peoria nursing home.
The predicate acts of racketeering alleged in the complaint are not limited to Corley and his mother, however, for the complaint alleges that similar acts of mail fraud were directed against other Rosewood residents and their relatives. Because defendants had not yet produced the names of those other residents by the time Corley filed his fourth amended complaint, the details alleged in that complaint are somewhat sparse. The complaint alleges, however, that the same or similar representations and promises that had been made to Corley were also made to other residents and their relatives who contracted for private suites between the May 21, 1989 opening of the Peoria facility and the Rosewood administrator's December 1989 letter, which urged relatives of private-suite residents to consider a transfer to a semi-private room. Although Corley did not list the names of all such residents given the lack of discovery, the complaint includes allegations about seven other residents in addition to Vera Corley. The complaint alleges that similar mailings in furtherance of the scheme were made by defendants with respect to each of those residents. Moreover, these and other residents were also affected by Rosewood's pricing practices, and by its refusal to honor the promise of two entree choices at each meal and the guarantee of continuing care with Medicaid reimbursement. According to the complaint, a number of residents transferred to Rosewood's East Peoria facility once defendants announced that the Peoria nursing home would not be accepting Medicaid reimbursement. Yet on October 8, 1991, defendants decided that the East Peoria facility also would no longer accept Medicaid reimbursement, thereby effectively nullifying any guarantee of continuing care. Certain residents of the East Peoria facility aggrieved by that decision filed suit in the Circuit Court of Tazewell County, Illinois, alleging that Rosewood Care Center, Inc. of East Peoria had violated the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS pp 505/1 et seq., when it canceled the guarantee of continuing care. They prevailed on that claim before the circuit court.4
Corley alleges that the foregoing acts violated the following provision of the RICO statute:
18 U.S.C. § 1962(c). Corley maintains that the racketeering enterprise here is comprised of the various corporations controlled by individual defendants Larry Vander Maten and Darrell Hoefling, including defendant Rosewood, its corporate parent Rosewood Care Center Holding Company, defendant Peoria Real Estate, Inc., which owns the site on which Rosewood's Peoria facility is located, Rosewood Care Center, Inc. of East Peoria, and Hovan Enterprises, which manages the Peoria facility. The corporations comprising the enterprise allegedly operate as a single unit under the direction and control of Vander Maten and Hoefling. The complaint further alleges that Vander Maten and Hoefling conducted the affairs of the enterprise through the predicate acts of mail fraud detailed above for the purpose of maximizing their income and net worth. According to the complaint, the predicate acts of mail fraud are sufficient to form a pattern of racketeering activity under the statute. Corley also alleges that by investing income derived from this racketeering activity in the operations of the enterprise, the corporate defendants violated 18 U.S.C. § 1962(a).5
The district court found in response to defendants' motion to dismiss that Corley had sufficiently alleged a claim under the RICO statute.6 In denying the motion to dismiss, the court rejected defendants' arguments that certain of the predicate acts of mail fraud were insufficiently detailed in the complaint and that the acts alleged did not comprise a pattern of racketeering activity. Subsequent to that decision, Corley filed a series of notices of claims of additional predicate acts that he believed were also a part of the RICO pattern. Those included allegations addressed to the filing of a false prospectus in connection with a public bond offering, the failure to pay real estate transfer taxes based on a false exemption certification, the making of false statements to a local board reviewing property tax assessments, and the filing of false federal and state income tax returns by the individual defendants. The district court told the parties it would decide on summary judgment whether these additional acts could be considered part of the pattern of racketeering activity. After the district court then indicated at a hearing that it was inclined to grant defendants summary judgment on those additional notices of claims, defendants moved for summary judgment on the core RICO claim itself, arguing that if the acts alleged in the notices of claims were excluded, plaintiffs could not establish conduct qualifying as a pattern of racketeering activity. Corley responded with a motion for additional discovery under Fed. R. Civ. P. 56(f), in which he asked the court to delay any ruling on the summary judgment motion until the parties had completed discovery. After briefing was completed on that motion and on the motion for summary judgment, the district court granted summary judgment to defendants with respect to the notices of claims of additional predicate acts and on the core RICO claim itself. In so doing, the court necessarily denied Corley's Rule 56(f) motion for additional discovery. Corley then asked the district court to reconsider its summary judgment decision. He argued that the court had erred on the merits of that ruling and in refusing to afford him the opportunity to conduct additional discovery before being required to respond. By that time, Judge Mihm had recused himself, and the case was transferred to Judge Mills, who eventually refused to reconsider Judge Mihm's grant of summary judgment. Judge Mills also declined to exercise supplemental jurisdiction over Corley's state law claims, and he therefore dismissed those claims without prejudice. Corley then took the first of four appeals (No. 96-2464) before us today.7
As is so often the case with civil RICO, the viability of Corley's claims turns on whether he has established a pattern of racketeering activity. Such a pattern is an essential element of a claim under both sections 1962(a) and 1962(c). Vicom, Inc. v. Harbridge Merchant Serv., Inc., 20 F.3d 771, 778-79 (7th Cir.1994). The RICO statute itself is not particularly helpful in defining the all-important pattern requirement, as it notes only that a pattern requires at least two acts of racketeering activity within a ten-year period. 18 U.S.C. § 1961(5). And "racketeering activity" is defined to include, among other things, any act indictable under specified provisions of the United States Code, including 18 U.S.C. § 1341 (mail fraud) and 18 U.S.C. § 1343 (wire fraud). See 18 U.S.C. § 1961(1)(B); McDonald v. Schencker, 18 F.3d 491, 494 (7th Cir.1994). The Supreme Court has indicated that although two predicate acts of racketeering are necessary to form a pattern, two acts alone generally will not suffice. H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 237, 109 S.Ct. 2893, 2899-900, 106 L.Ed.2d 195 (1989). Rather, in addition to at least two predicate acts, a RICO plaintiff must show "that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." Id. at 239, 109 S.Ct. at 2900 (emphasis in original). In other words, a RICO plaintiff like Corley must show continuity plus relationship with respect to the alleged predicates. Id.; see also Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985).
The "relationship" prong is relatively uncontroversial here. The predicate acts of racketeering satisfy the relationship test 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., 492 U.S. at 240, 109 S.Ct. at 2901 (internal quotation omitted); see also Vicom, 20 F.3d at 779. Neither defendants nor the district court have suggested that the core predicate acts comprising the alleged "bait and switch" scheme are insufficiently related to satisfy the relationship prong.8 So we accept that the core predicate acts are related and proceed to consider continuity. See Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1022 (7th Cir.1992).
The Supreme Court dealt extensively with this more controversial aspect of the pattern requirement in H.J. Inc. There, the Court explained that a RICO plaintiff must show "that the predicates themselves amount to, or that they otherwise constitute a threat of, continuing racketeering activity." 492 U.S. at 240, 109 S.Ct. at 2901 (emphasis in original). "Continuity," the Court observed, is both a closed- and open-ended concept, in that it refers "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, 109 S.Ct. at 2902.
Continuity over a closed period may be demonstrated by proof of "a series of related predicates extending over a substantial period of time." Id. at 242, 109 S.Ct. at 2902. The Court cautioned, however, that "[p]redicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement" because "Congress was concerned in RICO with long-term criminal conduct." Id.; see also Vicom, 20 F.3d at 779-80. Prior to H.J. Inc., this circuit had looked to five factors in analyzing whether predicate acts are sufficiently continuous to give rise to a pattern of racketeering activity: "the number and variety of predicate acts and the length of time over which they were committed, the number of victims, the presence of separate schemes and the occurrence of distinct injuries." Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir.1986). We have continued to look to the Morgan factors after H.J. Inc. when considering whether a closed period of related conduct is sufficient to establish continuity. E.g., Vicom, 20 F.3d at 780; Midwest Grinding, 976 F.2d at 1023; Olive Can Co. v. Martin, 906 F.2d 1147, 1151 n. 2 (7th Cir.1990).
"Open-ended continuity," by contrast, may involve predicate acts occurring over a short period of time so long as there is a threat that the conduct will recur in the future. H.J. Inc., 492 U.S. at 241, 109 S.Ct. at 2902 ("open-ended continuity" refers to "past conduct that by its nature projects into the future with a threat of repetition"); see also Midwest Grinding, 976 F.2d at 1023. Such a threat is present when: "(1) 'a specific threat of repetition' exists, (2) 'the predicates are a regular way of conducting [an] ongoing legitimate business,' or (3) 'the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes.' " Vicom, 20 F.3d at 782 (quoting H.J. Inc., 492 U.S. at 242-43, 109 S.Ct. at 2902); see also Midwest Grinding, 976 F.2d at 1023.
In denying defendants' motion to dismiss, the district court concluded that Corley had sufficiently alleged a pattern of racketeering activity. Yet by the time the case reached the summary judgment stage, the court found that proof of such a pattern was lacking. The court determined in response to the summary judgment motion that Corley had presented evidence of only five predicate acts of mail fraud, the first of which occurred on or about October 25, 1989, when Rosewood mailed Vera Corley's contract to her son, and the last of which occurred approximately fourteen months later (on December 18, 1990), when Rosewood's counsel (Stephen L. Ukman) mailed to the Illinois Attorney General a response to Corley's November 18, 1990 complaint.9 The district court therefore viewed Corley's complaint and evidentiary materials as establishing a closed-ended period of racketeering activity that spanned fewer than fourteen months, which the court did not view as "the type of long-term conduct Congress was concerned with when it enacted RICO." (R. 534 at 21.) Corley's primary argument in response to that ruling is that the court considered only the predicate acts of mail fraud involving him and his mother while neglecting the allegations that similar "bait and switch" tactics were employed against other Rosewood residents. The district court noted that the complaint made such allegations but that the summary judgment record included no evidentiary materials to support that aspect of Corley's claim. (Id. at 20 ("Corley proffers neither affidavits nor depositions to support these allegations.").) The court therefore concluded that the claim was limited to the five predicate acts of mail fraud involving Corley and his mother.