Source: https://m.openjurist.org/978/f2d/344
Timestamp: 2019-12-06 07:01:38
Document Index: 25525209

Matched Legal Cases: ['§ 1964', '§ 1962', '§ 1964', '§ 1962', '§ 1964', '§ 904', '§ 1962', '§ 41', '§ 1964', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962']

978 F. 2d 344 - Schiffels v. Kemper Financial Services Incorporated H M
978 F2d 344 Schiffels v. Kemper Financial Services Incorporated H M
978 F.2d 344
61 USLW 2279, 24 Fed.R.Serv.3d 283, RICO
Bus.Disp.Guide 8132
Carolyn M. SCHIFFELS, Plaintiff-Appellant,
KEMPER FINANCIAL SERVICES, INCORPORATED, a corporation,
Thomas H. Richards, Charles M. Kierscht, et al.,
RICO's standing provision, 18 U.S.C. § 1964(c), provides that "[a]ny person injured in his business or property by reason of a violation of section 1962" may bring a civil action under RICO. 18 U.S.C. § 1962 sets out the activities RICO prohibits. Sections 1962(a), (b), and (c) set out substantive violations;1 section 1962(d) makes it unlawful "for any person to conspire to violate any of the provisions of sections 1962(a), (b), or (c)." Schiffels contends that she was injured "by reason of" the defendants' conspiracy because her harassment and eventual firing were acts taken expressly to further the conspiracy. The defendants argue, as the district court held, that Schiffels did not have standing under § 1964(c) because she was not directly injured by any of the defendants' alleged predicate acts of racketeering activity. The circuits have split on the issue of whether a person has standing to sue for conspiracy to violate RICO if he is injured by conspirators' acts that do not constitute predicate acts of racketeering. Compare Miranda v. Ponce Fed. Bank, 948 F.2d 41, 48 (1st Cir.1991); Reddy v. Litton Industries, Inc., 912 F.2d 291, 294-95 (9th Cir.1990), cert. denied, --- U.S. ----, 112 S.Ct. 332, 116 L.Ed.2d 272 (1991); and Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir.1990) (all holding that to have standing to bring RICO conspiracy claim, plaintiff must allege injury directly caused by predicate acts of racketeering) with Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1168-70 (3d Cir.1989) (injury from overt act that furthers RICO conspiracy is sufficient to confer standing, even if overt act is not a predicate act of racketeering). See also Reddy v. Litton Indus., Inc., --- U.S. ----, 112 S.Ct. 332, 116 L.Ed.2d 272 (1991) (White, J., dissenting from denial of certiorari) (noting split in the circuits); Flinders v. Datasec Corp., 742 F.Supp. 929, 932-35 (E.D.Va.1990) (injury from overt act, not necessarily a predicate act of racketeering, is sufficient to confer standing if the overt act is wrongful).
We conclude that the approach expounded in Shearin is the correct approach because it is consistent with RICO's unambiguous language and with traditional concepts of conspiracy law. As we noted in United States v. Neapolitan, 791 F.2d 489 (7th Cir.1986), RICO conspiracy is governed by traditional concepts of conspiracy law; "a conspiracy to violate RICO should not require anything beyond that required for a conspiracy to violate any other crimes." Id. at 497. Section 1962(d)'s target, like that of all provisions prohibiting conspiracies, is the agreement to violate RICO's substantive provisions, not the actual violations themselves. See United States v. Glecier, 923 F.2d 496, 500 (7th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 54, 116 L.Ed.2d 31 (1991); Shearin, 885 F.2d at 1169; United States v. Angiulo, 847 F.2d 956, 964 (1st Cir.), cert. denied, 488 U.S. 852, 109 S.Ct. 138, 102 L.Ed.2d 110 and cert. denied, 488 U.S. 928, 109 S.Ct. 314, 102 L.Ed.2d 332 (1988); United States v. Phillips, 664 F.2d 971, 1038 (5th Cir.1981), cert. denied, 457 U.S. 1136, 102 S.Ct. 2965, 73 L.Ed.2d 1354 and cert. denied, 459 U.S. 906, 103 S.Ct. 208, 74 L.Ed.2d 166 (1982). Thus, while a conspiracy to violate RICO requires an agreement to commit a pattern of predicate acts, Neapolitan, 791 F.2d at 499, it does not require that any predicate acts actually be committed. Shearin, 885 F.2d at 1169; Phillips, 664 F.2d at 1038.
The Supreme Court's decision in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), does not, as Kemper insists, require a different result. In Sedima, the plaintiff alleged that it had been cheated out of money by the defendants' acts of mail and wire fraud. See id. at 483-84, 105 S.Ct. at 3278. The plaintiff sued, alleging that the defendants violated § 1962(c)-(d). The district court dismissed the RICO claims, and the Second Circuit affirmed. The court of appeals held among other things that to have standing under § 1964(c), a plaintiff must allege a "racketeering injury," which it defined as an injury " 'different in kind from that occurring as a result of the predicate acts themselves, or not simply caused by the predicate acts, but also caused by an activity which RICO was designed to deter.' " Id. at 485, 105 S.Ct. at 3279 (quoting Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482, 496 (2d Cir.1984).
Underlying the desire to limit standing to raise RICO conspiracy claims seems to be the notion that, as the district court candidly put it, "some limits must be put on [RICO's] reach." See 767 F.Supp. at 912. The desire to limit civil RICO litigation is understandable. But the Supreme Court has told us that "RICO is to be read broadly," not only because of "Congress' self-consciously broad language," but also because "of its express admonition that RICO is to 'be liberally construed to effectuate its remedial purposes.' " Sedima, 473 U.S. at 497-98 (quoting Pub.L. 91-452, § 904(a), 84 Stat. 947). A reading of §§ 1962(d) and 1964(c) that limits standing to sue for RICO conspiracy only to those injured by predicate acts--a limitation that does not appear on the face of those sections and is inconsistent with a natural reading of those sections--is inconsistent with this dictate.
In any event, civil RICO liability is not unlimited even under Shearin 's approach to standing. In Holmes v. Securities Investor Protection Corp., --- U.S. ----, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), the Supreme Court held that the common law principle of proximate cause provides a limit on standing to sue under RICO. Proximate cause embodies more than the requirement that "but for" the RICO violation, the plaintiff's injury would not have occurred. Id. --- U.S. at ----, 112 S.Ct. at 1316. Rather, proximate cause "reflects 'ideas of what justice demands, or of what is administratively possible and convenient.' " Id. --- U.S. at ----, 112 S.Ct. at 1318 (quoting W. Page Keeton, et al., Prosser and Keeton on the Law of Torts § 41, at 264 (5th ed. 1984)). In other words, proximate cause is a means of limiting the potentially limitless liability flowing factually from a person's acts.
At common law, the concept of proximate cause required, among other things, "some direct relation between the injury asserted and the injurious conduct alleged." Id. Therefore, the Court held in Holmes that a person did not have standing to sue under RICO based on the theory that a RICO violation inflicted injury on a third party, which injury in turn caused injury to the plaintiff. Id. --- U.S. at ----, 112 S.Ct. at 1319-21.
In a concurring opinion in Holmes, Justice Scalia argued that standing under § 1964(c) depends not only on proximate causation but also on the " 'zone of interests' test, which seeks to determine whether, apart from the directness of the injury, the plaintiff is within the class of persons sought to be benefitted by the provision at issue." Id. --- U.S. at ----, 112 S.Ct. at 1328. Although "zone of interests" depends in large part on limitations written into a statute, those limitations do not preclude judicial inference of others. Id. Thus, while RICO's zone of interests does not extend beyond any person "injured in his business or property by reason of" the RICO violation, it does not necessarily include all those injured "by reason of" the RICO violation. Id.
The defendants contend that this court is not free to adopt Shearin 's approach to RICO conspiracy standing because in Rylewicz v. Beaton Services, Ltd., 888 F.2d 1175 (7th Cir.1989), we decided that standing to bring a RICO conspiracy action requires that a plaintiff be injured by a predicate act. In Rylewicz, the plaintiffs sued defendants for violating § 1962(c)-(d), alleging that the "defendants had engaged in various acts of 'harassment, intimidation and terrorism' " against them to force them to accede to a compromise of a jury verdict the plaintiffs had won in another case. Id. at 1178. Among the overt acts in furtherance of the conspiracy, the plaintiffs alleged that one of the defendants had induced a plaintiff's employer to fire him. Id. at 1179. This court held that the firing was not sufficient to give the plaintiff standing to sue under RICO because the plaintiff's damage "was not caused by the predicate acts." Id.
The defendants argue that Schiffels has not properly alleged either a conspiracy to violate § 1962(c) or an injury connected to any RICO violation. We agree with the defendants that Schiffels' complaint is deficient in several respects. To allege a conspiracy to violate § 1962(c), Schiffels had to plead that each defendant agreed to conduct the affairs of an enterprise, that each agreed to the commission of at least two predicate acts, and that each defendant knew that those predicate acts were part of a pattern of racketeering activity. See Rose v. Bartle, 871 F.2d 331, 366 (3d Cir.1989); Hecht, 897 F.2d at 25; see also Neapolitan, 791 F.2d at 499. Conclusory allegations of "conspiracy" are not sufficient to state a claim under § 1962(d); rather, Schiffels must allege facts from which one can infer each defendant's agreement to violate § 1962(c). See Otto v. Variable Annuity Life Ins. Co., 814 F.2d 1127, 1137 (7th Cir.1986), cert. denied, 486 U.S. 1026, 108 S.Ct. 2004, 100 L.Ed.2d 235 (1988); see also Rose, 871 F.2d at 366 (conspiracy claim must contain "supportive factual allegations" sufficient to describe the conspiracy's general composition, its objectives, and the defendant's general role in the conspiracy).
Schiffels' complaint did allege that the defendants agreed to send out fraudulent mailings to cover up Richards' scheme. Perhaps, then, the conspiracy to cover up Richards' scheme constituted a separate scheme to violate RICO. However, the allegations of fraudulent mailings fail to meet Fed.R.Civ.P. 9(b)'s requirement that "the circumstances constituting fraud ... shall be stated with particularity." This means that the complaint must state "the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated...." Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir.1992) (citations omitted); see also Graue Mill Dev. Co. v. Colonial Bank & Trust Co., 927 F.2d 988, 992-93 (7th Cir.1991). Schiffels' complaint does set out the general subject matter of the alleged misrepresentations (the omission of material information concerning Richards' trading). But the complaint does not even mention the general time frame in which the reports were sent, much less pin down or even approximate any dates. Nor does the complaint provide any detail as to the precise reports involved or who prepared or sent the reports. It is true that Rule 9(b) may require less detail if a plaintiff alleging fraud against a third party does not have access to all the facts necessary to detail his claim. See Segal v. Gordon, 467 F.2d 602, 607 (2d Cir.1972); 2A James W. Moore et al., Moore's Federal Practice p 9.03, at 9-29 (2d ed. 1992). However, Schiffels does not suggest that she did not have access to the allegedly fraudulent documents. Indeed, the fact that she alleges fraudulent documents were sent indicates that she had some access to those documents; how else would she know that the documents omitted material information?
Schiffels' complaint is very vague about the temporal relationship between Richards' scheme and the alleged agreement of the other defendants, and about how long Richards' scheme actually lasted or how long fraudulent documents were sent. This makes it difficult to determine whether the predicate acts Schiffels has alleged the defendants agreed to commit (assuming she has properly alleged any such predicate acts) amount to a pattern of racketeering activity. To allege a pattern, Schiffels must allege facts from which one may infer that the predicate acts were both related and continuous. H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). At issue here is continuity, that is that the acts occurred "over a substantial period of time" or that the acts demonstrate "a specific threat of repetition extending indefinitely into the future." Id. at 242, 109 S.Ct. at 2902. RICO is concerned "with long-term criminal conduct," not with short-lived episodes of crime unlikely to be repeated. See id. The vagueness of Schiffels' complaint concerning the time frame of the alleged fraud in this case makes it impossible to determine which side of the line the alleged fraud falls.
Finally, we question whether Schiffels has properly alleged any injury to her business or property proximately caused by a conspiracy to violate RICO. It is hard to see how the defendants' alleged harassment injured her business or property. Schiffels was placed on paid leaves of absence, and she does not allege that she lost any pay or other property because of the harassment. The defendants' actions might have caused Schiffels embarrassment, humiliation, and emotional distress, but injury "to business or property" does not include such personal injuries, even if those injuries resulted in a pecuniary loss. Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir.1990).
The defendants raise other deficiencies in Schiffels' complaint that we need not detail. Suffice it to say that as it now stands, Schiffels' complaint is subject to dismissal under Fed.R.Civ.P. 12(b)(6) does not adequately set forth that she was directly injured by a conspiracy to violate RICO. However, because the district court incorrectly held that only injuries directly resulting from predicate acts are sufficient to confer standing to sue for a conspiracy to violate RICO, it did not consider the sufficiency of Schiffels' complaint or give her an opportunity to amend. The defendants had not filed an answer when the district court dismissed Schiffels' RICO claim. Federal Rule of Civil Procedure 15(a) provides that "[a] party may amend the party's pleading once as a matter of course at any time before a responsive pleading is due." Since Schiffels did not have an opportunity to amend her complaint in the district court, we will remand this case to the district court to give her that opportunity. The defendants of course are free to move to dismiss Schiffels' amended complaint and the district court, if it does dismiss the amended complaint, may decide in its discretion whether to allow any further amendments.