Opinion ID: 669116
Heading Depth: 2
Heading Rank: 2

Heading: Dismissal of Count II: Sec. 1962(c)

Text: Section 1962(c) of RICO provides in part: 24 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 an unlawful debt. 25 18 U.S.C. Sec. 1962(c). 26 A plaintiff thus must plead sufficient facts to establish the existence of a pattern of racketeering activity. See Sedima S.P.R.L. v. Imrex Corp., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). A pattern requires at least two predicate acts of racketeering activity within ten years of each other. H.J., Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 237-38, 109 S.Ct. 2893, 2900, 106 L.Ed.2d 195 (1989). A pattern is not automatically established, however, by a large number of unrelated acts; the acts must be ordered and arranged so as to exhibit relatedness and continuity. Id., 492 U.S. at 238, 109 S.Ct. at 2900. 27 Relatedness, that is, a relationship between or among the alleged predicate acts, is satisfied if the acts have the same or similar purposes, results, participants, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics and are not isolated events. Vild v. Visconsi, 956 F.2d 560, 566 (6th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 99, 121 L.Ed.2d 59 (1992). 28 The requirement of continuity, or a threat of continuing criminal activity, ensures that RICO is limited to addressing Congress's primary concern in enacting the statute, i.e. long-term criminal conduct. See H.J., Inc., 492 U.S. at 241-42, 109 S.Ct. at 2902. The Supreme Court has described continuity as either closed-ended, referring to a closed period of repeated conduct extending over a substantial period of time, or open-ended, referring to past conduct which by its nature projects into the future with a threat of repetition. Id. When a lawsuit is brought before the plaintiff can show activity over a long period of time, the crucial showing is whether the threat of continuity is demonstrated. Id. (emphasis in original). 29 The existence of only one scheme to defraud does not automatically preclude the finding of a pattern. H.J., Inc., 492 U.S. at 240-41, 109 S.Ct. at 2901. However, the number of schemes is relevant to the inquiry. We agree with the Seventh Circuit that while a single scheme cannot preclude the finding of a RICO pattern, we do believe it is significant when combined with other relevant factors in showing a lack of required 'continuity.'  U.S. Textiles, Inc. v. Anheuser Busch Cos., Inc., 911 F.2d 1261, 1269 (7th Cir.1990). 30 The district court found that Vemco did plead acts of sufficient relatedness to constitute a pattern. The court concluded, however, that the alleged conduct by Flakt did not demonstrate a sufficient threat of continuing racketeering activity to establish the required continuity. The court thus dismissed the Sec. 1962(c) claim for a failure to plead a pattern of racketeering activity. 31 Vemco argues that Flakt committed predicate acts of fraud, extortion, and obstruction of justice spanning more than four years from May 1987 through at least July 1991. The district court correctly concluded, however, that not all of the events alleged by Vemco qualify as predicate acts under RICO. Flakt's conduct in sending out billing notices from 1991 through 1992 pursuant to an allegedly fraudulent contract cannot be cited by plaintiffs to extend the duration of the fraudulent scheme. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1418 (3d Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991); Feinstein v. RTC, 942 F.2d 34, 36 (1st Cir.1991). A threat of litigation if a party fails to fulfill even a fraudulent contract, moreover, does not constitute extortion. American Nursing Care of Toledo, Inc. v. Leisure, 609 F.Supp. 419, 430 (N.D.Ohio 1984); see United States v. Enmons, 410 U.S. 396, 400, 93 S.Ct. 1007, 1010, 35 L.Ed.2d 379 (1973). Finally, actions taken years later by a party to avoid a court judgment on RICO predicate acts, such as Flakt's alleged refusal to turn over the blueprints which the district court ordered Flakt to produce, have been held to be too unrelated and distinct to be part of a pattern along with the earlier predicate acts. Apparel Art Int'l, Inc. v. Jacobson, 967 F.2d 720, 724 (1st Cir.1992). 32 When these acts are disregarded, the alleged predicate acts span a time period only from July, 1987, when the fraudulent contract was negotiated, through December, 1988, when Flakt allegedly threatened it would run Vemco out of business unless Vemco paid Flakt millions of dollars--a total of seventeen months. In addition, when the obstruction of justice allegation is disregarded, Vemco is left with allegations of fraud (in negotiating the contract; making representations to lenders; and reporting the status of the work) and one allegation of extortion (in threatening to run Vemco out of business). There is also only one victim. 33 We agree with the district court that the acts alleged are insufficient to show the continuity required for a pattern. 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 system. There is no allegation that Flakt had any association with Vemco other than the allegedly fraudulent paint finishing system contract. 34 We find the fraudulent scheme at issue here similar to that in Thompson v. Paasche, 950 F.2d 306 (6th Cir.1991). In Thompson, this Court found that a single scheme involving the fraudulent sale of nineteen lots of land did not have the requisite continuity to state a claim under RICO. We stated:Paasche's fraudulent scheme was an inherently short-term affair. He had nineteen lots to sell. Once he had sold all of the lots, the scheme was over. It had to be, he had no more land to sell. Thus, his scheme was, by its very nature, insufficiently protracted to qualify as a RICO violation. 35 Id. at 311. Here, Flakt has fewer victims than the defendant in Thompson. Flakt's instrumentality is not a finite piece of land, but rather a single construction job. 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. Moreover, there is no allegation that Flakt engaged in similar practices on other contracts involving other parties. As in Thompson, there is no indication of any continuing opportunity or scheme to extort additional monies from Vemco or anyone else, on this or other contracts. See id. 36 Vemco urges us to adopt instead the conclusion of the Second Circuit in a case similar on its facts, Procter & Gamble v. Big Apple Indus. Bldgs., Inc., 879 F.2d 10 (2d Cir.1989). The Procter & Gamble plaintiff alleged predicate acts of fraud lasting over two years, surrounding the construction and leasing of a studio complex, including fraudulently inducing the plaintiff to enter a lease for the project, inducing plaintiffs to guarantee financing for the project, diverting escrow funds, and fraudulently collecting interim rents for delays caused by the defendants. The court concluded that the plaintiff had alleged five separate schemes relating to the single construction project and single victim, and found that the plaintiff had satisfied the continuity requirement. 37 We decline to adopt the reasoning of the Second Circuit in Procter & Gamble. We do not find that a defendant who engages in several different forms of fraud for a single purpose, to defraud a single victim through activities surrounding one construction project, without more, has engaged in more than one criminal scheme. Moreover, we find the Second Circuit's definition of continuity as meaning that separate events occur over time and perhaps threaten to recur, 879 F.2d at 17, overinclusive in light of the Supreme Court's subsequent discussion in H.J. Inc. As the Court noted in H.J. Inc., [p]redicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy [the continuity] requirement.... 492 U.S. at 242, 109 S.Ct. at 2902. The allegations in Vemco's complaint simply do not meet H.J. Inc.'s continuity standard. 38 Vemco has failed to establish either closed-ended continuity, a closed period of repeated conduct over a substantial period of time, or open-ended continuity, conduct projecting into the future with a threat of repetition. We cannot conclude that Flakt's alleged actions here, involving a single victim and a single scheme for a single purpose over seventeen months, constitute the type of long-term criminal conduct Congress sought to prohibit with RICO. See H.J. Inc., 492 U.S. at 241-42, 109 S.Ct. at 2902. The district court's dismissal of the Sec. 1962(c) claim for a failure to plead facts establishing the requisite pattern of racketeering activity under RICO was thus proper.