Opinion ID: 2974425
Heading Depth: 3
Heading Rank: 1

Heading: Moon’s RICO Claims

Text: Moon asserts a claim under RICO, a federal statute that affords a civil remedy to an individual who is injured by virtue of certain types of unlawful activity. RICO provides in relevant part: 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. 18 U.S.C. § 1962(c). Thus, to state a RICO claim, Moon must plead the following elements: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). Because we conclude that the Complaint lacks facts establishing a “pattern of racketeering activity,” and thus fails to state a RICO claim, we do not address any of the other RICO elements. 1. Moon Has Failed To Allege Adequately A “Pattern Of Racketeering Activity”
To establish a RICO violation under §1962(c), a plaintiff must allege that the RICO enterprise engaged in a “pattern of racketeering activity” consisting of at least two predicate acts of racketeering activity occurring within a ten-year period. 18 U.S.C. § 1961(5). The alleged predicate acts may consist of offenses “which are indictable” under any of a number of federal statutes, including the mail (18 U.S.C. § 1341) and wire fraud statutes (18 U.S.C. § 1343). 18 U.S.C. § 1961(1). Here, the district court concluded that Moon pleaded five predicate acts of racketeering activity with the requisite particularity. See Bender v. Southland Corp., 749 F.2d 1205, 1216 (consistent with Rule 9(b), RICO plaintiffs must allege “the time, place and contents of the misrepresentations”). These alleged acts include: (1) the Fund’s July 24, 2003 mailing to Moon of No. 05-1808 Moon v. Harrison Piping Supply et al. Page 4 the Notice terminating his benefits on the fraudulent grounds that Moon was capable of resuming his job responsibilities; (2) the Fund’s March 25, 2004 mailing of a Notice of Examination to be performed by Dr. Ray, which examination was part of Defendants’ scheme to fraudulently deprive Moon of his benefits; (3) Dr. Ray’s mailing, between April 8, 2004 and April 26, 2004, of his medical report, which fraudulently opined that Moon was no longer disabled; (4) Defendants’ agent’s (attorney Felker) April 26, 2004 mailing of Dr. Ray’s fraudulent medical report to Moon’s counsel; and (5) the Fund’s April 16, 2004 mailing to Moon of the Second Notice terminating Moon’s benefits, which again fraudulently stated that Moon was not disabled. The district court correctly concluded that Moon adequately pleaded a minimum of two predicate acts.2 Although necessary to sustain a RICO claim, the pleading of two predicate acts may not be sufficient because § 1961(5) “assumes that there is something to a RICO pattern beyond the number of predicate acts involved.” H.J., Inc. v. Northwestern Bell Tele. Co., 492 U.S. 229, 238 (1989). In H.J., the Supreme Court held that “the term pattern itself requires the showing of a relationship between the predicates and of the threat of continuing activity. It is this factor of continuity plus relationship which combines to produce a pattern.” Id. at 239 (internal citations omitted). “Continuity and relationship constitute two analytically distinct prongs of the pattern requirement.” Vild v. Visconsi, 956 F.2d 560, 566 (6th Cir. 1992), cert. denied, 506 U.S. 832 (1992).
Moon has satisfied the “relatedness” requirement because he has alleged predicate acts that 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. The predicate acts pleaded in the Complaint had the same purpose of depriving Moon of his benefits, the same result in that Moon periodically lost his benefits, the same participants in Harrison and the Fund, the same victim in Moon, and the same method of commission in mail fraud.
In addition to “relatedness,” the predicate acts pleaded must have sufficient “continuity.” “‘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 241. Whether a pattern of racketeering activity satisfies the continuity requirement depends on the particular facts of each case. Id. at 242. Continuity may be established at the pleading stage by alleging facts of either closed- or open-ended racketeering activity. A closed period of continuity may be demonstrated “by proving a series of related predicates extending over a substantial period of time.” Id. at 242. Here, the predicate acts set forth in the Complaint cover a nine-month period (from July 2003 to April 2004). Although there are no rigid rules regarding what amounts to “a substantial period of time,” racketeering activity lasting only “a few weeks or months and threatening no future criminal conduct” is insufficient. Id. at 242; see also Vemco, Inc. v. Camardella, 23 F.3d 129, 134 (6th Cir. 1994), cert. denied, 513 U.S. 1017 (1994) (predicate acts over 17 months did not satisfy the closed period analysis); Vild, 956 F.2d at 569 (predicate acts over six or seven months not sufficient under closed-period analysis). 2 We do not reach the issue, decided by the district court, of whether a RICO plaintiff must plead at least two predicate acts against each defendant alleged to have participated in a racketeering enterprise. Since the parties do not challenge this portion of the district court’s order, and since we hold that Moon’s RICO pleading fails on other grounds, we decline to express an opinion on this subject. No. 05-1808 Moon v. Harrison Piping Supply et al. Page 5 Moon argues that the district court erred by failing to consider the allegations in his Second Amended Complaint when it concluded that he failed to allege a closed period of racketeering activity. The Second Amended Complaint is virtually identical to the Complaint (i.e., the First Amended Complaint) except that the former pleads that Moon’s benefits were first unlawfully terminated in September 2001 and that this constituted the first predicate act in the Defendants’ racketeering scheme. Had the district court taken into account the additional facts pleaded in his Second Amended Complaint, contends Moon, the pattern of racketeering would have extended for two-and-a-half years, rather than nine months, and therefore would have satisfied the closed period requirement. Moon is mistaken. The Second Amended Complaint was not properly before the district court, nor is it before this Court. The magistrate judge granted Moon’s motion to file a Second Amended Complaint subject to the district judge denying the motions to dismiss, which the district judge did not do. Moon did not appeal the order of the magistrate judge to the district judge. Even though Moon’s notice of appeal to this Court includes the magistrate judge’s order, this Court lacks jurisdiction to review that order where the magistrate judge did not have plenary jurisdiction over Moon’s case (the district judge merely referred to the magistrate judge Moon’s motion for leave to3 file his Second Amended Complaint) and Moon failed to seek review before the district judge first. See McQueen v. Beecher Cmty. Schs., 433 F.3d 460, 471 (6th Cir. 2006) (declining to entertain appeal of magistrate judge’s order denying a motion for a default judgment where the magistrate did not exercise plenary jurisdiction and the appellant did not appeal to the district judge). In any event, even if the racketeering activity lasted for two-and-a-half years, as Moon insists, facts establishing a closed period of continuity are still lacking. Moon has pleaded that the Defendants embarked upon a coordinated scheme to wrongfully terminate his workers’ compensation benefits. All of the predicate acts—the mailing of the Notice and Second Notice cutting off his benefits and the mailing of Dr. Ray’s fraudulent medical report—were keyed to Defendants’ single objective of depriving Moon of his benefits. No other schemes, purposes, or injuries are alleged, and there are no facts suggesting that the scheme would continue beyond the Defendants accomplishing their goal of terminating Moon’s benefits. In circumstances such as these, the purported racketeering activity does not bear the markings of the “long-term criminal conduct” about which “Congress was concerned” when it enacted RICO. H.J., Inc., 492 U.S. at 242. This Court’s prior decisions compel the conclusion that Moon has not pleaded a closedended period of continuity. For instance, in Vemco, the parties entered into a contract under which the defendant agreed to build a “paint finishing system” in the new facility of the plaintiff car-parts manufacturer. Id. at 131. Displeased with the defendant’s repeated demands for payment beyond that specified in the contract and defendant’s performance under the contract, the plaintiff brought suit alleging predicate acts of fraud and extortion under RICO. Id. at 131-32. This Court held that a single scheme emanating from a dispute over an ordinary construction contract did not possess the requisite RICO continuity: Vemco has alleged a single fraudulent scheme by Flakt to misrepresent a guaranteed price in a building contract, and later to extort a higher price from Vemco. The total scheme, from the time of contract negotiations until the last threat alleged, lasted only seventeen months. The goal of the ‘single criminal episode,’ as the district court accurately characterized it, was to get Vemco to pay the cost of one paint 3 28 U.S.C. § 636(c)(1) provides that “[u]pon the consent of the parties, a . . . magistrate judge . . . may conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case, when specially designated to exercise such jurisdiction by the district court . . . .” Orders from magistrate judges who exercise plenary jurisdiction over a case are directly appealable to this Court. See In re Bell & Beckwith, 838 F.2d 844, 848 n.5 (6th Cir. 1988). No. 05-1808 Moon v. Harrison Piping Supply et al. Page 6 system. [¶] There are no facts pleaded suggesting anything but that once Flakt received the money it was requesting in the billing statements, its scheme would be over, and it would end its association with Vemco. Vemco, 23 F.3d at 134-35. Similarly, in Thompson v. Paasche, 950 F.2d 306 (6th Cir. 1991), the plaintiff landowners asserted RICO claims against the defendant seller on the grounds that the seller fraudulently represented that the purpose of his reservation of oil and gas rights as part of the terms of the sales was to ensure that the land remained unspoiled. Id. at 309. In fact, claimed the plaintiffs, the seller had arranged to lease the oil and gas rights to a third party who would undertake drilling. Id. at 30910. This Court reversed the RICO verdict for the plaintiffs, concluding that the alleged RICO scheme ended once the defendant had sold all of his lots to the plaintiffs, and therefore it was “insufficiently protracted to qualify as a RICO violation.” Id. at 311; see also Efron v. Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 19 (1st Cir. 2000), cert. denied, 532 U.S. 905 (2001) (where the plaintiff alleged a pattern of racketeering acts focused on coercing him into relinquishing his ownership interest in a real estate development project, the court characterized the alleged racketeering activities as “finite in nature” and occurring over a “relatively modest period of time,” thus foreclosing a finding of closed-period continuity); Edmondson & Gallagher v. Alban Towers Tenants Assoc., 48 F.3d 1260, 1265 (D.C. Cir. 1995) (“We think that the combination of these factors (single scheme, single injury, and few victims) makes it virtually impossible for plaintiffs to state a RICO claim.”). As in the foregoing cases, Moon’s allegations center around a single RICO scheme with a single object stemming from a dispute about whether Moon is impaired by a workplace disability entitling him to benefits. Even assuming a period of two-and-a-half years of racketeering activity, these allegations do not give rise to closed-ended continuity. Moon’s allegations also do not give rise to a finding of open-ended continuity. This inquiry turns on whether the plaintiff has pleaded facts suggesting the threat of continued racketeering activities projecting into the future. In H.J., the Supreme Court held that open-ended continuity could be pleaded through facts showing “a distinct threat of long-term racketeering activity,” or by showing “that the predicate acts or offenses are part of an ongoing entity’s regular way of doing business.” H.J., Inc., 492 U.S. at 242. Here, Moon argues that open-ended continuity exists because there is nothing to stop the Defendants from persisting in their cycle of fraudulently terminating his benefits, restoring them, and then fraudulently terminating them again. The district court was not persuaded, finding that there is no risk of ongoing racketeering activity where Moon petitioned the Bureau for a resolution of his dispute with Defendants. We agree. A final decision of the Bureau (once all appellate options have been exhausted) is binding on the parties and, if favorable to Moon, would prevent the Defendants from withdrawing benefits in the absence of further action by the Bureau. See Mich. Comp. Laws Serv. §§ 418.847 & 418.851 (2006). In other words, the Defendants could no longer suspend Moon’s benefits through issuing Notices of Dispute, but would instead have to file a petition with the Bureau to stop their payments to Moon and prove that he is no longer entitled to them. Mich. Admin. Code R. 408.40 (2006). We do not hold that a RICO action for fraudulent termination of workers’ compensation benefits could never occur alongside a state administrative proceeding before the Bureau, but merely No. 05-1808 Moon v. Harrison Piping Supply et al. Page 7 that under the fact-specific continuity inquiry, Moon has not alleged facts sufficient to establish a pattern of racketeering activity.4 Finally, Moon has not pleaded any allegations to the effect that the fraudulent termination of workers’ compensation benefits is Defendants’ “regular way of doing business.” H.J., Inc., 492 U.S. at 242; see also Vild, 956 F.2d at 569 (plaintiff who asserted RICO violations stemming from fraudulent representations and extortion in connection with a marketing agreement did not allege facts demonstrating that the “conduct directed toward him is a normal way of doing business for defendants”). True, Moon pleads that “Dr. Ray was known to defendants, through their attorney Thaddeus Felker, as a doctor who could be relied upon to write ‘cut off’ reports in workers compensation cases; defendants and/or their attorney had relied upon him in the past to issue ‘cut off’ reports.” Moon also pleads that “[o]n information and belief, one or more members of the enterprise engaged in similar acts to defraud other persons of their workers’ compensation benefits.” These allegations do not reasonably support the notion that the alleged fraud of which Moon complains is Defendants’ regular way of doing business. “Regular” means “usual; normal; customary.” Random House Unabridged Dictionary 1624 (2d ed. 1993). Moon’s allegations regarding open-ended continuity amount to the following: (1) Moon—the only plaintiff in this case—was denied workers’ compensation benefits as a result of Defendants’ scheme to use Dr. Ray to fraudulently deny benefits; (2) Defendants had used Dr. Ray for this purpose in the past; and (3) at some point, Defendants treated some other people similarly to Moon. Moon does not allege the sort of longstanding relationship that would give rise to a threat of continued racketeering activity. Drawing all reasonable inferences in Moon’s favor may lead us to conclude that several instances of similar conduct have occurred, but they do not support a systematic threat of ongoing fraud. In short, the leap from Moon’s allegations to the conclusion that Defendants customarily bilked employees out of workers’ compensation benefits is too great, even drawing all reasonable inferences in favor of Moon. For the reasons described above, we AFFIRM the district court’s judgment dismissing Moon’s RICO claims under Rule 12(b)(6).