Opinion ID: 167719
Heading Depth: 2
Heading Rank: 4

Heading: Tal, Inc. and Bricktown, Inc.'s Rico Claims

Text: 54 As stated previously, Tal, Inc. and Bricktown, Inc. brought RICO claims against the Developers under 18 U.S.C. § 1962(b), against Douglas under 18 U.S.C. § 1962(c) and against the Developers and Douglas under 18 U.S.C. § 1962(d). The elements of a civil RICO claim are (1) investment in, control of, or conduct of (2) an enterprise (3) through a pattern (4) of racketeering activity. 18 U.S.C. § 1962(a), (b), & (c). 16 Racketeering activity is defined in 18 U.S.C. § 1961(1)(B) as any act which is indictable under federal law and specifically includes mail fraud, wire fraud and racketeering. These underlying acts are referred to as predicate acts, because they form the basis for liability under RICO. BancOklahoma Mortgage Corp. v. Capital Title Co., 194 F.3d 1089, 1102 (10th Cir. 1999) (internal quotation omitted). [A] person does not have to be formally convicted of any predicate act before liability under 18 U.S.C. § 1962[] may attach. 17 Id. 55 In the Second Amended Complaint and RICO Case Statement, 18 Bricktown, Inc. and Tal, Inc. alleged the Developers and Douglas engaged in predicate acts of mail fraud in violation of 18 U.S.C. § 1341, wire fraud in violation of 18 U.S.C. § 1343 and bribery in violation of 18 U.S.C. § 201. 19 Specifically, Bricktown, Inc. and Tal, Inc. allege the Developers fraudulently procured the Bricktown redevelopment contract by misrepresenting to the Renewal Authority and the city council that they were backed by Torchmark Corporation. They also allege the Developers acquired or maintained . . . interest in or control over the Renewal Authority and the city council through bribery. (Appellants' App., Ex. 1 at 58.) The district court dismissed the subsection (b) claim against the Developers for failure to specifically allege predicate acts and failure to show an interest in or control over the Renewal Authority or the city council. It dismissed the subsection (c) claim against Douglas for failure to specifically allege predicate acts and failure to show a continuing threat to other parties from the alleged RICO activities. The district court also dismissed the subsection (d) claim against the Developers and Douglas for failing to sufficiently allege a predicate violation of subsections (b) or (c). Because subsections (b) and (c) both require allegations of racketeering activity, we first determine whether Bricktown, Inc. and Tal, Inc. sufficiently alleged predicate acts that can serve as a basis for RICO liability.
56 Plaintiffs allege Defendants engaged in predicate acts of mail fraud, wire fraud and bribery. To establish the predicate act of mail fraud, Bricktown, Inc. and Tal, Inc. must allege (1) the existence of a scheme or artifice to defraud or obtain money or property by false pretenses, representations or promises, and (2) use of the United States mails for the purpose of executing the scheme. Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 892 (10th Cir.1991). See United States v. Kennedy, 64 F.3d 1465, 1475 (10th Cir. 1995). The elements of wire fraud are very similar, but require that the defendant use interstate wire, radio or television communications in furtherance of the scheme to defraud. BancOklahoma Mortgage Corp., 194 F.3d at 1102 (internal quotation omitted). 57 [T]he common thread among . . . these crimes is the concept of fraud. Actionable fraud consists of (1) a representation; (2) that is false; (3) that is material; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent it be acted on; (6) the hearer's ignorance of the falsity of the representation; (7) the hearer's reliance; (8) the hearer's right to rely on it; and (9) injury. 58 Id. at 1103. Failure to adequately allege any one of the nine elements is fatal to the fraud claim. 59 The particularity requirement of Rule 9(b), Federal Rules of Civil Procedure, applies to claims of mail and wire fraud. 20 Robbins v. Wilkie, 300 F.3d 1208, 1211 (10th Cir.2002); Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982, 989-90 (10th Cir.1992); Cayman Exploration Corp. v. United Gas Pipe Line Co., 873 F.2d 1357, 1362 (10th Cir.1989). Thus, a complaint alleging fraud [must] `set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.' Koch v. Koch Indus., 203 F.3d 1202, 1236 (10th Cir.2000) (quoting Lawrence Nat'l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th Cir. 1991)). A plaintiff asserting fraud must also identify the purpose of the mailing within the defendant's fraudulent scheme. McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir.1992). 60 The federal anti-bribery statute, 18 U.S.C. § 201(b), requires the bribes to be directed toward public official[s] or person[s]. . . selected to be a public official within the meaning of 18 U.S.C. § 201(a). 21 Section 201(a) generally limits application of the federal bribery statute to federal officials or persons acting for or on behalf of the United States, or any department, agency or branch of Government thereof. . . . 18 U.S.C. § 201(a)(1). 61 To determine whether any particular individual falls within this category, the proper inquiry is not simply whether the person had signed a contract with the United States or agreed to serve as the Government's agent, but rather whether the person occupies a position of public trust with official federal responsibilities. Persons who hold such positions are public officials within the meaning of section 201 and liable for prosecution under the federal bribery statute. 62 Dixson v. United States, 465 U.S. 482, 496, 104 S.Ct. 1172, 79 L.Ed.2d 458 (1984). The federal anti-bribery law also applies to bribes offered to state and local officials if the organization, government, or agency receives in any one year period, benefits in excess of $10,000 under a Federal program involving a grant, contract, subsidy, loan, guarantee, insurance, or other form of Federal assistance. 18 U.S.C. § 666(b). 63 Bricktown, Inc. and Tal, Inc. set forth their allegations of predicate acts in Section X of their Second Amended Complaint. In support of their mail fraud allegation, Bricktown, Inc. and Tal, Inc. listed forty-six letters with descriptions of the parties, dates and general statements concerning the title or contents of the letters. Tal, Inc. and Bricktown, Inc.'s allegations of mail fraud center around the alleged Torchmark misrepresentation. 64 The Torchmark misrepresentation consists of TMK/Hogan's alleged intentional misrepresentation to the Renewal Authority and the city council during the bidding process that it was backed by the $11 billion Torchmark Corporation, (Appellants' App., Ex. 2 at 2), which Tal, Inc. and Bricktown, Inc. allege was a major factor in [its] selection as [a] developer for the project, and in Plaintiffs' failure to be selected as [the] developer . . . . ( Id., Ex. 1 at 29.) Tal, Inc. and Bricktown, Inc. alleged that Stonegate, not Torchmark was the true 50% partner [with] Defendant Hogan Property in Defendant TMK/Hogan. ( Id., Ex. 2 at 3.) In other words, Defendants' Torchmark Misrepresentation stated that Defendant TMK/Hogan is a 50/50 joint venture between Defendant Hogan Property and Torchmark Development Corporation, and not between Defendant Hogan Property and Defendant Stonegate, as the official Oklahoma Secretary of State's record shows. 22 ( Id. at 5.) 65 In support of their Torchmark misrepresentation claim, Tal, Inc. and Bricktown, Inc. alleged Hogan sent a letter to the Renewal Authority on July 26, 1996, detailing TMK/Hogan's qualifications and financial responsibility which included a statement that Defendant TMK/Hogan's 50% partner was Defendant TDC, identified by Defendants therein as `a wholly owned subsidiary' of Torchmark. ( Id., Ex. 1 at 14-15.) Tal, Inc. and Bricktown, Inc. also alleged Hogan and Elgin mailed various financial documents detailing information about Torchmark on several occasions. 23 This material itself is not alleged to have been false, but rather was used in support of the initial misrepresentation. 66 In the district court, the Developers argued Stonegate was a wholly owned subsidiary of Torchmark. In support, they cited to the public records of the Alabama Secretary of State which allegedly show that Torchmark formed TDC on June 10, 1988, and was subsequently merged into TDC Company, LLC, on November 24, 1999. Further, they argued that Oklahoma County Clerk records indicated that TDC and Hogan Property Management filed a Fictitious Name Certificate on January 12, 1996, which stated that those entities associated themselves as partners under the name of TMK/ Hogan Joint Venture. 24 (Appellees' Supp.App. Vol IV at 0966 (internal quotation omitted).) The Developers also alleged that TDC assigned its interest in TMK/Hogan in November 1996 to its wholly-owned subsidiary Stonegate Management Corporation which was then merged into Stonegate Management Company, LLC. 67 The Second Amended Complaint acknowledged that Stonegate Management Company was formed on November 22, 1999, and Stonegate Management Corporation was merged into it on November 24, 1999. It also alleged TDC Company, LLC, was created on November 22, 1999, and merged with Torchmark Development Corporation on November 24, 1999. But the complaint specifically alleged there was no affiliation between Stonegate and Torchmark Development. 25 According to Tal, Inc. and Bricktown, Inc., the purpose of the separate creation and mergers of Torchmark Development Corporation, Torchmark Development Company, Stonegate Management Corporation and Stonegate Management Company was to retroactively cover up and conceal [the] Torchmark Misrepresentation . . . by representing that Defendant Elgin Development is the owner of Defendant TDC and that TDC wholly owns Defendant Stonegate. (Appellants' App., Ex. 2 at 3.) 68 The district court's order did not specifically address the Torchmark misrepresentation. Rather, it found that none of the alleged mail communications sufficiently pled fraud with particularity. We disagree. The details of the Torchmark misrepresentation alleged in the Second Amended Complaint coupled with the documents listed in support of that claim sufficiently satisfy Rule 9(b)'s requirements. Tal, Inc. and Bricktown, Inc. identified the parties, the dates, the content of the communications, how they were allegedly fraudulent and how they furthered the fraudulent enterprise. Although the Developers' argument that Stonegate is a wholly owned subsidiary of Torchmark may be fully borne out by the public records of Alabama and Oklahoma, we decline to consider these materials. 26 Rule 12(b)(6) motions to dismiss are not designed to weigh evidence or consider the truth or falsity of an adequately pled complaint. Sutton, 173 F.3d at 1236. This is especially controlling in the face of a direct claim to the contrary in the complaint and in the absence of a ruling on the issue from the district court. Thus, Tal, Inc. and Bricktown, Inc. sufficiently alleged an act of mail fraud based on the alleged Torchmark misrepresentation. 69 In addition, we agree with the district court that the May 18, 1998 letter authored by Mr. Tolbert, which was allegedly caused to be mailed by the Developers, satisfies the requirements of Rule 9(b). This letter allegedly supported TMK-Hogan's earlier fraudulent statement on July 17, 1997 — that the Bricktown Association was a partner with TMK/Hogan. (Appellants' App., Ex. 1 at 36-37.) Like the Torchmark misrepresentation, this allegedly false statement was designed to increase the appeal of TMK/Hogan as a developer and help it secure the award of the development contract. 70 As to the remaining letters, we again agree with the district court that they appear to be innocuous business communications. (Appellants' App., Ex. 3 at 13.) While the Second Amended Complaint references these letters their fraudulent nature is not apparent on their face. This is especially problematic because Tal, Inc. and Bricktown, Inc. not only failed to allege how these communications were fraudulent but also how they specifically furthered the fraudulent enterprise. Moreover, eighteen of the forty-six exchanges occurred after July 21, 1998, the date the contract was awarded to the Developers. Thus, the eighteen post-award letters were at best concealment and could not have been used for the purpose of executing the scheme. See Kann v. United States, 323 U.S. 88, 94-95, 65 S.Ct. 148, 89 L.Ed. 88 (1944); United States v. Cardall, 885 F.2d 656, 680-82 (10th Cir.1989). Therefore, Bricktown, Inc. and Tal, Inc.'s allegations of mail fraud as a predicate act are limited to the documents involving the Torchmark and Bricktown Association misrepresentations. 71 In support of their wire fraud allegation, Bricktown, Inc. and Tal, Inc. list twenty-seven telephone calls, emails, faxes and cable broadcasts involving Appellees and the process granting the development contract to the Developers. All but three of the electronic transmissions relied upon suffer from the same problems as the majority of the communications supporting the mail fraud claim. Only three were alleged with sufficient particularity to establish cognizable claims for wire fraud: (1) the August 1, 1997 submission by Douglas to the city council of a fax sent to Douglas by TMK/Hogan, (Appellants' App., Ex. 1 at 32-33); (2) the August 5, 1997 broadcast of the city council meeting where Douglas allegedly made an intentionally fraudulent statement about her role in the selection process, ( id. at 33, 53); and (3) telephone conversations occurring between May 11, 1998, and May 18, 1999, between Hogan, Elgin and Douglas and Mr. Tolbert, the president of the Bricktown Association. ( Id. at 36, 54.) Unlike the other twenty-four wire communications alleged (and the forty-six letters), these three communications not only describe the date, the parties to the communication and the subject matter, but also how they were fraudulent and what they were designed to accomplish. Thus, Bricktown, Inc. and Tal, Inc. adequately alleged three acts of mail fraud in violation of 18 U.S.C. § 1343. 72 In support of their bribery claim under 18 U.S.C. § 201, Bricktown, Inc. and Tal, Inc. list ten actions by both the Developers and members of the Renewal Authority, including Douglas, that arguably benefitted each other. 27 However, Douglas, the Renewal Authority Commissioners and the city council are all municipal state actors with no ties to federal programs apparent from the pleadings. This is fatal to Bricktown, Inc. and Tal, Inc.'s bribery claim because they fail to adequately allege that the relevant parties are public officials or acting on behalf of the federal government under 18 U.S.C. § 201(a) or § 666. Bricktown, Inc. and Tal, Inc. conceded to the district court that they could not state a claim against Douglas under the federal anti-bribery statute but argued she violated a state anti-bribery statute. 28 While violations of state bribery laws can serve as predicate acts under RICO, see United States v. Welch, 327 F.3d 1081 (10th Cir. 2003), the plaintiffs failed to plead that Douglas had violated a state anti-bribery statute in either their RICO Case Statement or their Second Amended Complaint. Additionally, as noted by the district court, Bricktown, Inc. and Tal, Inc. never requested leave to amend their complaint in order to allege a violation of a state anti-bribery statute. (Appellants' App., Ex. 3 at 14.) 73 Bricktown, Inc. and Tal, Inc.'s belated request on appeal that if the Court finds that some of the allegations stated in the almost 300 paragraphs and sub-paragraphs are not too clear, at the least, the Court should point to the unclear allegations and permit the Appellants to amend and clarify these issues, comes too late to offer escape from an adverse Rule 12(b)(6) order. (Corporate Br. at 43.) Bricktown, Inc. and Tal, Inc. could and should have sought leave to amend their Second Amended Complaint with the district court, not with this Court on appeal. See The Tool Box, Inc. v. Ogden City Corp., 419 F.3d 1084, 1088 (10th Cir.2005) (Courts have refused to allow a postjudgment amendment when, as here, the moving party had an opportunity to seek the amendment before entry of judgment but waited until after judgment before requesting leave.) Thus the only allegations sufficient to support a claim of a predicate act are the letters involving the Torchmark and Bricktown Association misrepresentations and the three wire communications which allege Douglas, Hogan and Elgin engaged in wire fraud. 74 As a final point, we question whether Plaintiffs' allegations of predicate acts satisfied the requirement of a pattern of racketeering activity. A pattern of racketeering is defined as at least two acts of racketeering activity, . . . which occurred within ten years of each other. 18 U.S.C. § 1961(5). However, because RICO is not aimed at the isolated offender, Resolution Trust Corp., 998 F.2d at 1544, proof of two or more predicate acts are not sufficient to prove a pattern unless there is a relationship between the predicate acts and a threat of continuing activity. H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989); Duran v. Carris, 238 F.3d 1268, 1271 (10th Cir.2001). Continuity of threat requires both proof of a series of related predicates extending over a substantial period of time, as well as a showing that the predicates themselves involve a distinct threat of long-term racketeering activity . . . or that the predicates are a regular way of conducting the defendant's ongoing legitimate business or the RICO enterprise. Resolution Trust Corp., 998 F.2d at 1543. To determine continuity we examine both the duration of the related predicate acts and the extensiveness of the RICO enterprise's scheme. Id. In determining the extensiveness of the predicate acts we consider a variety of factors as well as external facts that are not necessarily charged as predicate acts. Id. at 1544. 75 Here, none of the Appellants specifically allege a continuing threat by the Developers and Douglas to control the Renewal Authority and the city council. The allegations are confined to the award of one, albeit large, development contract to the Developers. There is no reason to believe that the grant of one development contract acquired through misrepresentation of financial backing and partnership constitutes a distinct threat of long-term racketeering activity. Id. at 1543. In theory, we could consider material outside of the alleged predicate acts to find a more extensive threat to the Renewal Authority and the city council. Id. at 1544. However, because the extensiveness of the threat is a question of fact, id., we will assume for the purposes of this opinion that the predicate acts alleged by Bricktown, Inc. and Tal, Inc. establish a pattern of racketeering activity. We next consider whether the pattern of racketeering activity states a claim under 18 U.S.C. § 1962(b), (c), or (d).
76 18 U.S.C. § 1962(b) makes it illegal for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in. . . interstate . . . commerce. The purpose of the statute is to prohibit efforts to muscle in on legitimate business through the commission of a pattern of racketeering activity. SMITH & REED, CIVIL RICO, ¶ 6.04[5][b]. To state a claim under section 1962(b), the plaintiff must allege the defendant (1) acquired or maintained an interest in or control of (2) an enterprise engaged in interstate commerce (3) through a pattern (4) of racketeering activity, or collection of an unlawful debt. See Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 296 (3d Cir.1991). As with other section 1962 claims, the injury must be attributable to the prohibited action. Danielsen v. Burnside-Ott Aviation Training Ctr., Inc., 941 F.2d 1220, 1231 (D.C.Cir.1991). 77 Section 1962(b) claims are relatively uncommon because the first element requires sufficient allegations of an interest in or control of an enterprise, as opposed to the less demanding requirement of association with the enterprise in section 1962(c) claims. Interest in or control of requires more than a general interest in the results of its actions, or the ability to influence the enterprise through deceit. See Univ. of Maryland at Baltimore v. Peat, Marwick, Main & Co., 996 F.2d 1534, 1539-40 (3d Cir.1993) (allegedly preparing false financial statements on behalf of the enterprise is not participation). Rather, it requires some ownership of the enterprise or an ability to exercise dominion over it. 29 78 Bricktown, Inc. and Tal, Inc.'s claims founder on the combination of elements (1) and (4). They failed to adequately allege Appellees acquired or maintained an interest in or control of the Renewal Authority or the city council through the predicate acts. Bricktown, Inc. and Tal, Inc.'s alleged three acts of wire fraud fall short of demonstrating control of or an interest in the Renewal Authority and the city council; at best they show a misrepresentation to those bodies. Perhaps the allegations of bribery might have been sufficient to demonstrate an interest in or control of the Renewal Authority or the city council, 30 if they had been adequately plead. But in the absence of sufficient allegations of bribery, Bricktown, Inc. and Tal, Inc. did not adequately allege the defendants acquired or maintained an interest in or control of the Renewal Authority or the city council based on the three alleged acts of wire fraud.
79 18 U.S.C. § 1962(c) makes it illegal 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. . . . To survive a Rule 12(b)(6) motion, a civil RICO claim must allege the defendants (1) participated in the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Cayman Exploration Corp., 873 F.2d at 1362; see Sedima, S.P.R.L., 473 U.S. at 496, 105 S.Ct. 3275. The Supreme Court has adopted the operation or management test to determine whether the defendant has conducted or participated in the conduct of the enterprise by having some part in directing the affairs of the enterprise. Reves v. Ernst & Young, 507 U.S. 170, 179, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). For liability to be imposed under that test, the defendants must have participated in the operation or management of the RICO enterprise, BancOklahoma Mortgage Corp., 194 F.3d at 1100, although it is not necessary for the participant to have significant control. Resolution Trust Corp., 998 F.2d at 1541(internal quotation omitted). 80 In this case, Bricktown, Inc. and Tal, Inc. have failed to allege sufficient predicate acts to establish Appellees participated in the operation or management of the Renewal Authority or the city council. All the alleged predicate acts relate to TMK/Hogan's bid for the award of the Bricktown development contract, and at most involve an attempt to influence the Renewal Authority and the city council through misrepresentations, not through operation or management. Misrepresenting material facts to influence a selection process is a serious allegation to be sure, but does not rise to the level of participation in the operation or management of the Renewal Authority and the city council. Again, had Appellants adequately alleged Douglas was involved in any of the predicate acts, this would be a different case, as it would be if the Appellants had adequately alleged bribery. See Resolution Trust Corp., 998 F.2d at 1542 (holding chief executive officer of the enterprise participated in the conduct of the enterprise); Reves, 507 U.S. at 184, 113 S.Ct. 1163 (noting [a]n enterprise also might be operated or managed by others associated with the enterprise who exert control over it . . . by bribery.) (internal quotations omitted). As it stands, Appellants' allegations of mail and wire fraud fail to establish a violation of § 1962(c).
81 18 U.S.C. § 1962(d) makes it illegal for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section. Tal, Inc. and Bricktown, Inc.'s § 1962(d) claim also fails. By its terms, § 1962(d) requires that a plaintiff must first allege an independent violation of subsections (a), (b), or (c), in order to plead a conspiracy claim under subsection (d). See United States v. Hampton, 786 F.2d 977, 978 (10th Cir.1986) (The object of a RICO conspiracy must be to violate a substantive RICO provision.); Schroder v. Volcker, 864 F.2d 97, 98 (10th Cir.1988). If a plaintiff has no viable claim under § 1962(a), (b), or (c), then its subsection (d) conspiracy claim fails as a matter of law. See Condict v. Condict, 826 F.2d 923, 927 (10th Cir.1987) ([A]ny claim under § 1962(d) based on a conspiracy to violate the provisions of 18 U.S.C. § 1962(a), (b), or (c) must necessarily fall if the substantive claims are themselves deficient.); BancOklahoma Mortgage, 194 F.3d at 1103; Edwards v. First Nat'l Bank, Bartlesville, Okla., 872 F.2d 347, 352 (10th Cir.1989); Grider v. Texas Oil & Gas Corp., 868 F.2d 1147, 1151 (10th Cir. 1989); Torwest DBC, Inc. v. Dick, 810 F.2d 925, 927 n. 2 (10th Cir.1987). Because Appellants have failed to allege a sufficient claim under subsections (b) or (c), their subsection (d) conspiracy claim fails as a matter of law.