Source: http://openjurist.org/print/249717
Timestamp: 2015-05-29 22:39:59
Document Index: 661287548

Matched Legal Cases: ['§ 901', '§ 1961', '§ 501', '§ 407', '§ 1961', '§ 1964', '§ 1964', '§ 1216', '§ 1964']

685 F2d 1053 Bennett v. Berg R Sandford
685 F2d 1053 Bennett v. Berg R Sandford 685 F.2d 1053
RICO Bus.Disp.Guide 6100
Clarence E. BENNETT, et al., Appellants,v.Kenneth BERG, et al., Appellees.Dan R. SANDFORD, Jr., et al., Appellants,v.Kenneth BERG, et al., Appellees.
Submitted Nov. 10, 1981*.Decided Aug. 11, 1982.
Robert Plotkin, Robert P. Schuwerk, Plotkin & Jacobs, Ltd., Chicago, Ill., Jim Tom Reid, Shockley, Reid & Koger, Kansas City, Mo., for appellants.
James M. Beck, Steven M. Leigh, Johnson, Lucas, Bush, Snapp & Burgess, Kansas City, Mo., for John Knox Village.
Baker & Botts, James G. Ulmer, Randall A. Hopkins, Donna C. Kline, Robert E. Goodman, Jr., Houston, Tex., Swanson, Midgley, Gangwere, Clarke & Kitchin, James H. McLarney, Kansas City, Mo., for the Prudential Ins. Com. of America, appellee.
John H. Altergott, Jr., Suzanne K. Loseke, Shughart, Thomson & Kilroy, P. C., Kansas City, Mo., for appellee G. Dennis Sullivan.
James Borthwick, Shirley W. Keeler, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., for Snyder, Grant & Muehling.
Albert Thomson, Linde, Thomson, Fairchild, Langworthy, Kohn & Van Dyke, Kansas City, Mo., for appellees Kenneth Berg, Jeanne Berg, Christian Services Intern., Inc., Evangelical Christian Social Services, Inc., Lee Felsburg, Nat. Village Church Center, Lottie Jones, Irma Waddell, Elson Herndon, Floyd Sauer, Chris Coates, Glenn Smead, Maude Walker, Paul Edwards, Harvey Arbonies, and Mike Swingle.
Before HENLEY** and ARNOLD, Circuit Judges, and NICHOL,*** Senior District Judge.
This appeal arises upon the district court's granting of defendants' motion to dismiss for failure to state a claim. Fed.R.Civ.P. 12(b)(6). The case involves two consolidated complaints1 in which plaintiffs-appellants seek, inter alia, treble damages and equitable relief under the civil remedies provisions of the title popularly known as RICO. Title IX of the Organized Crime Control Act of 1970, "Racketeer Influenced and Corrupt Organizations," Pub.L.No.91-452, §§ 901-904, 84 Stat. 922, 941-48, codified at 18 U.S.C. §§ 1961-68 (1976). Appellants' basic allegation is that their retirement community, known as John Knox Village, has been subject to financial mismanagement and self-dealing such that they are in danger of losing the "life care" which they were promised.
The district court held that appellants' complaint was subject to dismissal because it failed to allege the existence of an identifiable "enterprise" within the meaning of RICO, and because the equitable relief sought by appellants is not available to a private plaintiff. Federal jurisdiction was predicated entirely upon the RICO Act. Dismissal of the RICO counts therefore resulted in dismissal of pendent state claims.
We reverse in part and affirm in part the district court's dismissal.
Plaintiffs-appellants are present and former residents of the John Knox Village retirement community in Lee's Summit, Missouri. The facility is owned and operated by a not-for-profit corporation of the same name organized under the general corporation law of Missouri.2 The Village is exempt from federal taxation pursuant to 26 U.S.C. § 501(c)(4), and is exempt from Missouri state and local taxation by virtue of its not-for-profit status.
The residential community consists of approximately 2,500 residents who occupy units in the facility pursuant to Occupancy Agreement contracts. Under the terms of the occupancy agreements,3 payment of an initial lump sum, or "Entrance Endowment," entitles a resident to occupy a specific apartment for life. Appellants allege4 that the endowment fee paid by various plaintiffs ranged in amount from $9,000.00 to more than $50,000.00.
In addition to the entrance endowment, the occupancy agreements call for the payment of a "monthly lodging and/or service charge ... in such amounts as determined by the Board of Directors of the Village." The agreements state that "the Village proposes to provide" some fifty-one services and facilities out of the monthly charges, including tray and diet service, building and grounds maintenance, scheduled transportation service, laundry service and various medical services.
Appellants allege that the Village is on the verge of bankruptcy, that services have markedly deteriorated, and that they face the loss of the "life care" which they expected and would have received but for fraud both in the inducement of residents to live in the community and in the operation of the Village. Their complaints in eleven counts stated causes of action for common law fraud under state law; violation of Missouri's Merchandising Practices Act, Mo.Rev.Stat. §§ 407.010 et seq. (1978); breach of fiduciary duty; and RICO violations. Only the RICO counts are directly at issue in this appeal.
The complaints include two RICO counts. In Count I, all defendants except John Knox Village are charged with participation in a pattern of racketeering through numerous acts of mail fraud, and conspiracy to engage in such a course of conduct, in violation of RICO provisions codified at 18 U.S.C. §§ 1961(5), 1962(a), (b), (c), and (d). Count II incorporates the factual allegations of Count I against John Knox Village with a prayer for equitable relief in the form of reorganization of the Village.
The essence of the scheme alleged is that various defendants fraudulently promoted the retirement community with materially false statements as to the Village's financial soundness and the promise of affordable "life care." Defendants are further alleged to have breached their fiduciary duty in operating the Village through a pattern of self-dealing. Finally, various defendants, including the Village's mortgage lender and former accountants, are charged with conspiracy to conceal the fraudulent promotion and operation of the Village.
The named defendants are the not-for-profit corporation John Knox Village; the founder of the Village, Kenneth Berg (hereinafter "Berg"); various not-for-profit corporations allegedly controlled by Berg; the mortgage lender to the Village, Prudential Life Insurance Company of America (hereinafter "Prudential"); the Village's former accountants, Snyder, Grant & Muehling (hereinafter "SG&M"); two former attorneys employed by various defendants; and various officers and directors of the Village and other not-for-profit organizations named in the complaint.
On March 11, 1981 the district court entered an order granting various defendants' motions to dismiss, followed by an unpublished memorandum opinion, order and judgment dismissing the complaints in both actions. The court held that the complaints failed to allege an "enterprise" within the meaning of RICO, and that the relief sought in Count II, a reorganization of defendant John Knox Village pursuant to 18 U.S.C. § 1964(a), was not available to private plaintiffs under the RICO Act.
On appeal, appellees renew their contention that (1) appellants failed to allege such "injury to (their) business or property" as is cognizable under RICO, 18 U.S.C. § 1964(c); (2) appellants failed to allege a RICO "enterprise" separate from the "pattern of racketeering"; (3) appellants failed to allege a RICO "enterprise" separate from the "person" or persons who may be culpable under RICO; (4) appellants failed to allege a "pattern of racketeering activity"; (5) appellants failed to allege that defendants "invested" racketeering proceeds in an enterprise, "acquired an interest in" an enterprise through racketeering activity, or "associated with" an enterprise to conduct the enterprise's affairs through a pattern of racketeering; (6) appellants failed to allege that organized crime was involved in their injury; and (7) the equitable relief requested is not available to private plaintiffs.
This litany of grounds for affirmance includes a number of issues of first impression in the Circuit Courts of Appeals. In reversing, we stress that today's decision is rendered on the pleadings without the benefit of a full factual record. Moreover, we are bound by a stringent standard in reviewing a Rule 12(b)(6) dismissal. "(A) complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957) (footnote omitted). A complaint must be viewed in the light most favorable to the plaintiff and should not be dismissed merely because the court doubts that a plaintiff will be able to prove all of the necessary factual allegations. "Thus, as a practical matter, a dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief (citations omitted)." Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir. 1982), quoting Jackson Sawmill Co. v. United States, 580 F.2d 302, 306 (8th Cir. 1978), cert. denied, 439 U.S. 1070, 99 S.Ct. 839, 59 L.Ed.2d 35 (1979).
Pleadings should be construed to do substantial justice. Fed.R.Civ.P. 8(f). Specificity sufficient to supply fair notice of the nature of the action will withstand a motion under Rule 12(b)(6). Bramlet v. Wilson, 495 F.2d 714, 716 (8th Cir. 1974); 5 C. Wright & A. Miller, Federal Practice and Procedure, § 1216 at 120-121 (1969).
We are uncertain whether the facts developed at trial will sustain a cause of action under RICO. We are compelled under these standards, however, to reverse in part the district court's dismissal.
Appellees JKV, Prudential, and SG&M argue as a preliminary matter that appellants failed to allege the kind of injury which supports standing to bring a civil RICO suit. RICO provides that a civil action for treble damages may be brought by "(a)ny person injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c).
Appellants' complaints alleged several forms of monetary loss. Appellants' entrance endowment payments are alleged to be worth 10% of what appellants bargained for, due to appellees' alleged conversion to their own use of funds which were deposited in trust for "life care." Monthly service charges are also alleged to be higher than expected due to appellees' unlawful conduct.
Appellees respond that the complaints do not allege a RICO injury for two reasons. First, the complaints are said to assert no breach of contract. Thus they allegedly do not state any injury whatsoever. Alternatively, any injury stated in the complaints allegedly is not an "injury to property" recognizable under the RICO Act. RICO is said to require competitive injury.
We are not convinced. Even if breach of contract is not directly and clearly stated in the complaints, this is irrelevant. Appellants' basic contention is that the value of their occupancy agreements was misrepresented ab initio, and that appellees' conduct has further lessened the value of their contracts. The essence of this alleged injury is not so much that contractual terms have been breached, but that the value of the contracts is different than appellants were led to expect through extracontractual statements and promises. The allegation sounds as one of injury flowing from fraud rather than breach of contract. Appellants claim essentially to have been deprived of the benefit of their bargain.
Appellees' second argument is somewhat more troublesome. They contend that eve