Court Opinion

ID: 194823
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:25:53+00
Date Added: 2024-06-11T09:43:57.754248
License: Public Domain

July 9, 1993          [NOT FOR PUBLICATION]
                    UNITED STATES COURT OF APPEALS
                        FOR THE FIRST CIRCUIT

                                             

No. 92-2303

                  MANUEL RODRIGUEZ-O'FERRAL, ET AL.,

                       Plaintiffs, Appellants,

                                  v.

                  TREBOL MOTORS CORPORATION, ET AL.,

                        Defendants, Appellees.

                                             

             APPEAL FROM THE UNITED STATES DISTRICT COURT

                   FOR THE DISTRICT OF PUERTO RICO

             [Hon. Carmen C. Cerezo, U.S. District Judge]
                                                        

                                             

                                Before

                         Breyer, Chief Judge,
                                            

                            Selya and Cyr,

                           Circuit Judges.
                                         

                                             

     Luis  G. Rull n-Mar n  with whom  Zoraida Buxo  was on  brief for
                                                   
appellants.
     Mari   del Carmen  Taboas  with whom  Heriberto J.  Burgos-P rez,
                                                                     
Fiddler,  Gonz lez &  Rodr guez,  Rafael  P rez-Bachs, and  McConnell,
                                                                      
Vald s,  Kelley,  Sifre,  Griggs  &  Ruiz-Suria  were  on  brief   for
                                               
appellees.

                                             

                                             

          Per  Curiam.    Plaintiffs Manuel  Rodriguez  O'Ferral, Edma
          Per  Curiam.
                     

Mirta Diaz,  and their  conjugal partnership,  appeal from  a district

court  judgment  dismissing their  civil  action  under the  Racketeer

Influenced  and  Corrupt   Organizations  Act   ("RICO"),  18   U.S.C.

  1964(c), pursuant to  Fed. R.  Civ. P. 12(b)(6),  and denying  their

motion to certify a plaintiff class pursuant to Fed. R. Civ. P. 23(a).

Finding no error, we affirm.

                                  I

                              BACKGROUND
                                        

          We  review a Rule 12(b)(6)  dismissal de novo, accepting all
                                                       

allegations in  the complaint,  and drawing all  reasonable inferences

favorable  to plaintiffs.  Heno v. Federal Deposit Ins. Corp., No. 92-
                                                             

1936, slip op. at 2 (1st Cir. June 3, 1993);   Feinstein v. Resolution
                                                                      

Trust Corp.,  942 F.2d 34,  37 (1st  Cir. 1991).   In September  1986,
           

appellants purchased  a new Volvo  from Trebol Motors  Corporation and

Trebol  Motors Distributor  Corporation  ("Trebol"),  exclusive  Volvo

distributors in Puerto  Rico.  Appellants,  who had planned  to buy  a

Volvo  240 DL  ("Volvo DL"),  were persuaded  by a Trebol  salesman to

purchase  a  Volvo  240 GLE  ("Volvo  GLE"),  a  more prestigious  and

expensive  model.    Thereafter,  appellants  discovered documentation

inside the  vehicle, listing its identification  number and describing

it as a Volvo DL.

          In  May  1991,  appellants  filed  a  civil  RICO  complaint

against,  inter alia,  Trebol, Volvo  Cars of  North America,  and the
                    

foreign  manufacturers,  Volvo  Car Corporation  and  Volvo Gothenburg

Sweden, see  18 U.S.C.    1964(c),1 alleging  that the  defendants had
           

engaged  in a  seven-year  scheme  to  defraud Trebol's  customers  by

selling  Volvo DL  vehicles "doctored"  by Trebol  to look  like their

pricier  cousin     the  Volvo GLE.2    As the  predicate  "pattern of

racketeering  activity,"  see  18  U.S.C.    1961(1),  (5), appellants
                             

alleged  that  the defendants  committed  "millions"  of "public"  and

                      

       1RICO   1964(c) provides:

       Any  person  injured in  his  business  or property  by
       reason of a  violation of section 1962 of  this chapter
       may sue  therefor  in  any  appropriate  United  States
       district court and shall recover  threefold the damages
       he sustains  and  the cost  of  the suit,  including  a
       reasonable attorney's fee.

  18 U.S.C.   1964(c).   Appellants alleged violations of   1962(a)
  (to  "use  or   invest"  income  derived   from  a  "pattern   of
  racketeering  activity"),    1962(b)  (to "acquire  or  maintain"
  through a "pattern  of racketeering activity" an interest  in any
  enterprise),    1962(c) (to  "conduct or  participate"  through a
  "pattern  of  racketeering  activity"   in  the  conduct  of  any
  enterprise), and    1962(d) (to "conspire" to  violate   1962(a),
  (b), or (c)).

       2Appellants alternatively allege that Volvo discontinued its
  premium GLE model by 1984 (a material fact which Trebol allegedly
  withheld from its Puerto Rico customers), or that if factory-made
  GLEs  were still in production  at Volvo, Trebol  chose to import
  the less expensive DL  models, which had been fitted  with $2,000
  worth  of additional  options.   Trebol  sent  the Volvo  DLs  to
  Showroom   Auto   Services,   Inc.,   which   replaced   the   DL
  identification "badge" on  the automobile with  a GLE badge,  and
  removed  all   other  documentary   evidence  of  the   DL  model
  classification.  Trebol listed the disguised DLs as GLEs at $7000
  over  the price for  its standard  DL models,  a price  which far
  exceeded the  cost of the  $2000 option  package incorporated  in
  each car.  The alleged "scheme" resulted in net damages of $5,000
  to each Trebol customer.

                                  3

"private" acts of  mail, wire, and bank fraud, see  18 U.S.C.    1341,
                                                  

1343, 1344, in furtherance of their GLE scam.  The predicate "private"

acts allegedly consisted of an  unspecified number of telephone, wire,

and  mail communications  among  the various  defendants.   Appellants

asserted  that  further  discovery  of defendants'  internal  business

records  would  be  necessary to  enable  them  to  specify the  exact

contents and participants  in these communications.   See New  England
                                                                      

Data Servs.,  Inc.  v.  Becher, 829  F.2d  286, 291  (1st  Cir.  1987)
                              

(favoring liberal pre-dismissal discovery to permit RICO plaintiffs to

allege  "scheme to  defraud"  by obtaining  information regarding  the

time,  place,  and  contents  of  confidential  communications  within

defendants'  exclusive control).   On  the other  hand, the  predicate

"public"  acts allegedly consisted  of Trebol's  commercial advertise-

ments and  direct promotional mailings enticing  customers into Trebol

to purchase Volvo GLEs during the  period from 1984 to 1991.  Attached

to  their complaint were photocopies  of nine ads  and eight mailings,

all dated after July 1989.  Appellants  themselves allegedly sustained
               

property damage in  the amount  of $5,000, the  net cost  differential

between  the  Volvo DL  and the  pseudo-Volvo  GLE, and  sought certi-

fication  of a plaintiff  class, estimated at  15,000 Trebol customers

who purchased GLEs from 1984 to 1991, holding aggregate  claims of $75

million trebled ($225 million).

          The   district  court   stayed  further   discovery  pending

disposition of defendants' Rule 12(b)(6) motion and appellants' motion

for  certification under  Rule 23(a).   Meantime,  the  court directed

                                  4

appellants to submit  a more  particularized statement  of their  RICO

claim, fleshing out  the factual underpinnings for the  allegations in

their  complaint.3  In September 1992, based on the unmended vagueness

of  appellants' particularized seventy-nine page RICO-claim statement,

the court denied  their motion for class  certification, and dismissed

the  complaint  for failure  to allege  predicate  acts of  fraud with

sufficient particularity  under Fed.  R. Civ.  P. 9(b).4   Thereafter,

the court denied plaintiffs' motion to amend the complaint.  See infra
                                                                      

note 8.

                                  II

                              DISCUSSION
                                        

          We  have  imposed  a   threshold  requirement  that  a  RICO

                      

       3Far  from particularizing appellants'  complaint, the RICO-
  claim  statement provides  general  statistical  data  concerning
                                    
  Trebol's  total television and newspaper advertising expenses for
  the years 1988-1991.  Appellants also alleged that they had found
  that  15 more  Trebol advertisements  were published  in  a local
  newspaper  during August and September 1986, at or about the time
  they purchased their Volvo GLE.  No photocopies of these ads were
  appended.  As described by appellants, however, these ads  merely
  "offer[ed]  for sale  a Volvo  240 GLE,"  but contained  no other
  representations   by  Trebol.     Most   importantly,  appellants
  implicitly concede in  their complaint  that Trebol's  advertise-
  ments  and mailing  did not  lure them  into buying a  GLE, since
  appellants arrived on the Trebol lot in 1986 intent on purchasing
                    
  a Volvo DL.
            

       4Rule  9(b) requires that,  "[i]n all averments  of fraud or
  mistake,  the  circumstances constituting  the  fraud or  mistake
  shall be stated with particularity."  Fed. R. Civ. P. 9(b).  Rule
  9(b)  disqualifies conclusory  factual allegations  which  do not
  afford sufficient notice of the fraud  claim to enable defendants
  to  prepare  their  defense,  with  a  view  to   minimizing  the
  reputational harm caused by the filing of pretextual or frivolous
  fraud claims.  See New England Data, 829 F.2d at 289.
                                     

                                  5

complaint "state facts sufficient to portray (i) specific instances of
                                                                   

racketeering activity within the reach of the RICO statute and 

                                  6

(ii)  a  causal nexus  between that  activity  and the  harm alleged."
                     

Miranda v.  Ponce Fed. Bank, 948 F.2d 41, 44 (1st Cir. 1991) (emphasis
                           

added); see also  Figueroa-Ruiz v. Alegria, 896 F.2d 645, 648 n.3 (1st
                                          

Cir. 1990) (delineation of predicate acts of  fraud under RICO must go

beyond "vague references"); supra note  4.  We turn first to  the con-
                                 

spicuous  temporal impediments  underlying appellants'  "causal nexus"

allegations.

          Appellants  concede  that Trebol's  seventeen advertisements

and mailings, none of which preceded their own 1986 Volvo purchase and

most  of which (with one  exception) were not  directed to appellants,

could not  have been the proximate cause of their injury. See Arzuaga-
                                                                      

Collazo v.  Oriental Fed.  Sav. Bank,  913 F.2d 5,  7 (1st  Cir. 1990)
                                    

(defendants' misrepresentations took  place after plaintiffs'  injury,
                                                 

sustained at the  time they  moved into the  defective homes);  McEvoy
                                                                      

Travel Bureau, Inc. v.  Heritage Travel, Inc., 904 F.2d 786,  792 (1st
                                             

Cir.)  (illegal payments  occurred  after  RICO  defendant  terminated
                                         

contract),  cert. denied, 498 U.S. 992 (1990);  see also supra note 3.
                                                              

They argue, nonetheless, that recovery under RICO may be predicated on

what they characterize  as an  "indirect" section 1962  injury.5   For

                      

       5Appellants argue that Holmes v. Securities Investor Protec-
                                                                   
  tion Corp., 112 S. Ct. 1311 (1992), and Sedima, S.P.R.L. v. Imrex
                                                                   
  Co., 473 U.S. 479 (1985), support the view that specific allegat-
     
  ions  that other  Trebol customers probably  were induced  to buy
                  
  Volvo GLEs as a result of particular acts of mail and wire fraud,
  and that those customers  incurred "section 1961 injuries" (i.e.,
                                                                  
  damages  directly traceable  to  predicate acts  of fraud)  would
  suffice to establish Trebol's continuing "scheme to defraud."  It
  follows, say appellants,  that they need not allege  with further
  specificity any particular predicate  act of fraud which directly
                                                                   

                                  7

the reasons discussed below, we need  not reach appellants' circuitous

"causal nexus" argument.

          Even  assuming  their  argument  had  merit,  their  alleged

"section  1962  injury" would  be actionable  under  RICO only  if the

predicate  acts  alleged  in  the complaint  constitute  "racketeering

activity" or, in other  words, were "indictable" under the  mail, wire

or bank  fraud  statutes.   See 18  U.S.C. 1961(1).   Their  complaint
                               

alleged that the defendants  "falsely represented to customers willing
                                                 

to purchase motor vehicles  that they have available for  sale factory
                                                                      

made models  (such as the  Volvo 240 GLE), which  were models distinct
    

and  allegedly superior to the  other models then  manufactured by the

company (such as  the Volvo 240 DL)," and that  plaintiffs "relied on,
                                                                     

and  accepted as  true[,] the representations  [that] . . .  they were

actually purchasing a superior automobile, a so-called  'international

classic', factory built and inherently more expensive motor vehicle."
                       

          Although we  have  combed  the entire  record,  we  find  no

indication  that Trebol ever  falsely represented that  it was selling

"factory made" Volvo  GLEs, as  plaintiffs assert.   On the  contrary,

during its  twenty-fifth anniversary sale at  least, Trebol advertised

for  sale its  own  customized versions  of the  Volvo  GLE ("ha  sido

preparado especialemente para  conmemorar") apparently configured with

                      

  caused  them  to  buy their  1986  Volvo,  provided  their injury
  proximately resulted from Trebol's sale  of a disguised Volvo DL,
  or in other  words, as an  integral part of  the same "scheme  to
  defraud."   See 18 U.S.C.    1964(c) ("Any person  injured in his
                 
  business or property  by reason  of a violation  of section  1962
                                     
  . . . .") (emphasis added).

                                  8

optional  equipment  in essentially  the same  fashion as  the vehicle

plaintiffs  purchased.     Moreover,   appellants  never  alleged   or

demonstrated that the nominal  classification "GLE", whether generated

at the factory or elsewhere along the distributional chain, invariably

connotes a fixed set of features or options of determinate value,  nor

have appellants  suggested  that  defendants  misled them  as  to  the

options  or features actually incorporated  in the Volvo  240 GLE they

purchased.   Rather,  these ads  and mailings  suggest, at  most, that

plaintiffs  presumed  too much     namely,  that  all Volvo  GLEs were

monolithic  and  immutable assemblages.    Although  various types  of

"deceptive  conduct"  other  than  affirmative  misrepresentations may

amount to  a "scheme to defraud"  under the mail, wire,  or bank fraud

statutes, see United  States v. Brien,  617 F.2d 299, 307  (1st Cir.),
                                     

cert. denied, 446  U.S. 919 (1980); see also United States v. Fontana,
                                                                     

948 F.2d  796, 806 (1st Cir.  1991) (mail fraud); McEvoy,  904 F.2d at
                                                        

791 (mail  fraud and  RICO), we think  the requirements  of Rule  9(b)

demand greater  particularity than  plaintiffs provided here,  even in

the liberal environs of Rule 12(b)(6).

          Appellants' complaint asserts that, even  if defendants made

no misrepresentations or misleading  statements, the scheme to defraud

was perpetuated  "through their nondisclosure . . .  of material facts
                                                                      

involved  in the purchases, namely,  the non-existence of  the 240 GLE

. . .  or the  fact  that  they  were  making  minor  and  inexpensive

modifications to the less expensive models in order for them to appear

to be  more expensive  models and/or the  fact that these  models were

                                  9

modified  in  situ and  were not  built  at the  manufacturing plant."

(Emphasis added.)   They argue that  their civil RICO  claim need  not

depend  on an allegation that the defendants were under an affirmative

duty  to  disclose.    We  do  not agree.    Especially  when  alleged

violations  of the  mail,  wire,  or  bank  fraud  statutes  form  the

predicate acts relied on in a civil RICO complaint, mere nondisclosure

will  not  defeat   a  Rule  12(b)(6)  motion  absent  a  demonstrated

affirmative  duty  to  disclose,  or  some  special  circumstance  not

presented here.   See, e.g., Reynolds v. East Dyer  Dev. Co., 882 F.2d
                                                            

1249, 1252 (7th Cir.  1989) (absent some statutory or  fiduciary duty,

affirmative   misrepresentations,   "half-truths,"  or   elaborate  or

deliberate acts  of concealment, mail  and wire fraud  statutes cannot

form  predicate  for  RICO  violation).6    Absent  such  a  threshold

requirement,  civil RICO could be  invoked for the  redress of routine

"consumer  protection" and "breach of contract"  claims.  See Arzuaga-
                                                                      

Collazo, 913 F.2d at 5, 6-7 (suggesting that RICO claims which  reduce
       

to ordinary  "consumer protection"  claims, based on  sellers' nondis-

closure of  material information, are  best left to  remediation under

                      

       6See also United States v. Biesiadecki, 933 F.2d 539, 542-43
                                             
  (7th Cir. 1991)  (distinguishing Reynolds as  nondisclosure case,
                                           
  noting  that nondisclosure  may serve  as evidence of  fraud when
  coupled with affirmative misrepresentations); Kehr Packages, Inc.
                                                                   
  v. Fidelcor, Inc., 926  F.2d 1406, 1416 (3d Cir.),  cert. denied,
                                                                  
  111 S.  Ct. 2839  (1991); California Architectural  Bldg. Prods.,
                                                                   
  Inc.  v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1472 (9th Cir.
                                    
  1987), cert. denied, 484 U.S. 1006 (1988).
                     

                                  10

state law).7

          Even if further particularization  of the alleged  "private"

predicate acts  might arguably await additional  discovery, appellants

have  failed to allege even one "public"  predicate act    that is, an
                               

act of  misrepresentation or actionable nondisclosure  by Trebol which

satisfies the specificity requirement  of Fed. R. Civ.  P. 9(b).   See
                                                                      

New England Data, 829 F.2d  at 291 (liberal discovery allowed only  if
                

RICO complaint "otherwise  alleges detailed facts")  (emphasis added).
                         

Were  these RICO  plaintiffs  licensed to  launch  a belated  "fishing

expedition"  on the brink of a Rule 12(b)(6) dismissal, without having

made  at least one manifest  allegation of actionable  fraud, we would
                                       

invite commonplace abuse  of civil  RICO and routine  deferral of  the

particularized pleading required by Rule 9(b).  The district court ap-

propriately  concluded that  additional discovery  would amount  to an

unwarranted and "expensive fishing expedition," and properly dismissed

                      

       7As  newfound grounds  for asserting  that defendants  had a
  duty  to disclose,  appellants ask  this court  to take  judicial
  notice of the Disclosure of Automobile Information Act, 15 U.S.C.
     1231-1233, and  its Commonwealth  analog, P.R. Laws  Ann. tit.
  13,   7351, which purportedly proscribe the removal of automobile
  manufacturers'  labels  disclosing new-vehicle  model classifica-
  tions.    Neither statute  was cited  or  argued to  the district
  court.   Issues raised  for the first  time on appeal  are deemed
  waived.   See Arzuaga-Collazo,  913  F.2d at  7 (RICO  plaintiffs
                               
  cannot rely  on Thrift  Institutions Restructuring Act  on appeal
  from a  Rule 12(b)(6)  dismissal if  they did  not assert  a TIRA
  claim "either before or  after judgment was entered"  in district
  court); see also Goldman v. First Nat'l Bank, 985 F.2d 1113, 1116
                                              
  n. 3 (1st Cir.  1993); Miller v. United States  Postal Serv., 985
                                                              
  F.2d 9, 12 (1st Cir. 1993).

                                  11

the complaint for failure to state a claim.8

          Affirmed.
                  

                      

       8Appellants  moved to  amend their  complaint  following its
  dismissal.   The  motion identified,  for the  first time,  a few
                                                           
  other members of  the proposed plaintiff  class (persons who  had
  bought Volvo GLEs from Trebol), and adverted to additional Trebol
  advertisements  published just  prior to  appellants' 1986  Volvo
  purchase.   For the reasons previously  stated, neither amendment
  would have cured the  essential deficiency in their complaint    
  the failure to allege even one affirmative misrepresentation or a
  duty  to  disclose  material   facts.    See  Correa-Martinez  v.
                                                               
  Arrillaga-Belendez,  903 F.2d 49, 59 (1st Cir. 1990) (no abuse of
                    
  discretion  where  RICO  complaint  was so  vague  that  proposed
  amendment would be "futile").

                                  12