Opinion ID: 3003776
Heading Depth: 3
Heading Rank: 3

Heading: Fraud Claim Inadequate

Text: Like most of Kaye’s claims, his allegation of fraud fails to meet the definition of a RICO predicate act. Kaye alleges that Defendants used e‐mail to organize themselves and create a new voting method in order to elect people to the EVA Board who would otherwise not have received a majority vote. Supposedly, the new method violated the EVA bylaws, which required a simple majority vote, and Defendants announced the new method to voters minutes before the election, presumably so voters would not have time to object. These allegations do not amount to a claim under the federal wire fraud statute. An act of wire fraud requires a showing that (1) Defendants participated in a scheme to defraud; (2) Defendants intended to defraud; and (3) Defendants used wires in furtherance of the fraudulent scheme. United States v. Radziszewski, 474 F.3d 480, 484‐85 (7th Cir. 2007). “A scheme to defraud requires ‘the making of a false statement or material misrepresentation, or the concealment of material fact.’” United States v. Sloan, 492 F.3d 884, 890 (7th Cir. 2007) (quoting United States v. Stevens, 421 F.3d 503, 507 (7th Cir. 2005). The district court noted that Kaye failed to allege any misrepresentation, omission, or half‐truth, and alleged only one communication – an e‐mail that was not directed toward any No. 09-1091 10 of the victims of the alleged scheme, nor alleged to be dishonest. Although a wire communication need not itself contain a misrepresentation, Schmuck v. United States, 489 U.S. 705, 712‐15 (1989), it must be “incidental to an essential part of the scheme.” Pereira v. United States, 347 U.S. 1, 8 (1954). The district court found, and we agree, that Kaye has not alleged a situation in which anyone was misled or fraudulently induced to engage in activity to their detriment. Although Kaye’s allegations, if true, may amount to questionable conduct on the part of Defendants, “[n]ot all conduct that strikes a court as sharp dealing or unethical conduct is a ‘scheme or artifice to defraud’” as those terms are used in the mail and wire fraud statutes. Reynolds v. East Dyer Dev., 882 F.2d 1249, 1252 (7th Cir. 1989) (holding that seller’s failure to disclose known soil conditions was not a scheme to defraud where seller did not affirmatively lie to buyer). Kaye’s allegation of wire fraud is supported by a single e‐mail sent to supporters of the new voting method, and contained no misrepresentations or false statements. This is not enough to sufficiently allege a predicate act of wire fraud. Kaye also alleges various acts of honest services fraud relating several transactions surrounding the alleged land swap. However, the allegations fail to meet Federal Rule of Civil Procedure 9(b)’s heightened pleading standard. Specifically, Kaye failed to allege facts including who, what, when, where, and how, for each of his honest services fraud allegations. See DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990) (allegations of fraud require pleading who, what, when, where, and how); Slaney, 244 F.3d at 597 (RICO plaintiff must describe acts of fraud with specificity and state the time, place, and content of the false representations, the method by which the representations were communicated, and the identities of the parties to the representations). Of the numerous predicate acts alleged by Kaye, the district court concluded that only two acts of extortion were sufficiently pleaded. As discussed previously, the extortion claim involving the police officers was specious, and without it Kaye cannot establish the “pattern of racketeering activity” required by RICO. See H.J., 492 U.S. at 237 (a pattern of racketeering requires a minimum of two predicate acts). However, because the deficiencies in Kaye’s RICO claim only become clearer as we engage in further analysis, we will continue under the district court’s assumption that two predicate acts were adequately pleaded.