Court Opinion

ID: 1031341
Source: CourtListenerOpinion
Date Created: 2013-07-05 08:30:01.589661+00
Date Added: 2024-06-11T09:57:35.603142
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 08-2356

C. ALLEN FOSTER; SUSAN C. FOSTER; WILLIAM F. JONES,

                Plaintiffs - Appellants,

           v.

WINTERGREEN REAL ESTATE COMPANY; RICHARD C. CARROLL; PETER
V. FARLEY; TIMOTHY C. HESS; KYLE T. LYNN,

                Defendants - Appellees.

Appeal from the United States District Court for the Western
District of Virginia, at Charlottesville.    Norman K. Moon,
District Judge. (3:08-cv-00031-nkm-bwc)

Argued:   December 4, 2009                 Decided:   January 29, 2010

Before TRAXLER, Chief Judge, and AGEE and DAVIS, Circuit Judges.

Affirmed by unpublished per curiam opinion.

Edward B. Lowry, MICHIE, HAMLETT, LOWRY, RASMUSSEN & TWEEL, PC,
Charlottesville, Virginia, for Appellants.     Lloyd Lee Byrd,
SANDS, ANDERSON, MARKS & MILLER, Richmond, Virginia, for
Appellees.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

     Allen Foster (“A. Foster”), Susan Foster (“S. Foster”), and

William Jones (“Jones”) (collectively, “Plaintiffs”) appeal the

judgment of the United States District Court for the Western

District of Virginia, which dismissed their Complaint against

Wintergreen     Real     Estate        Company   (“WREC”),   Richard   Carroll

(“Carroll”), Peter Farley (“Farley”), Timothy Hess (“Hess”), and

Kyle Lynn (“Lynn”) (collectively, “Defendants”) for failure to

state    a   claim     under   the      Racketeer   Influenced   and   Corrupt

Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., and the

Lanham Act, 15 U.S.C.A. § 1125(a). 1              The Plaintiffs also appeal

the district court’s subsequent denial of a motion to amend the

Complaint.    For the following reasons, we affirm the judgment of

the district court.

                                          I.

                                          A.

     During     a    period       of     approximately   three   years,   the

Plaintiffs, three real estate investors, purchased and sold a

     1
       The Complaint and Amended Complaint also make various
state law claims, including fraud, misrepresentation, breach of
fiduciary duty, breach of contract, breach of express warranty,
statutory and common law conspiracy, false advertising, and
tortious interference.   The dismissal of these claims is not
challenged on appeal.

                                           2
number of properties in the Wintergreen Resort (“Resort”) using

the services of WREC and the individual Defendants.

      Plaintiffs allege that, during the course of their business

dealings,    Defendants          made    various     false         statements      and/or

concealed    material      facts,       which   include,       generally:        that   the

Defendants are members of the Multiple Listing Service (“MLS”)

and   that   all    of    the    properties       would   be       listed   on    the   MLS

(hereinafter       “MLS   scheme”); 2      that    WREC   is       the   dominant       real

estate    company    in    the    Resort    (Complaint         &    Amended      Complaint

¶¶18, 22); that Carroll is the top real estate agent at WREC

(Complaint & Amended Complaint ¶¶18, 22); that WREC engages in

an “effective marketing program”; 3 that Defendants fraudulently

      2
       Plaintiffs allege that “inclusion in the MLS is a critical
factor in the exposure of ‘for sale’ properties to the
marketplace and, thereby, in securing the best price for such
properties.” (Complaint & Amended Complaint ¶35). Plaintiffs
further allege that, “even in the cases in which the Defendants
actually did put Plaintiffs’ ‘for sale’ lots in MLS, they did
not include a picture of the lot in the listing, thereby making
the   MLS  listing   essentially  worthless,   contrary  to   the
representations the Defendants had made to the Plaintiffs” (so-
called “sham” listings). (Complaint ¶66; Amended Complaint ¶75).
In the Amended Complaint, Plaintiffs further allege that
Defendants “utilized similar ‘sham’ MLS listings . . . to
defraud hundreds of sellers other than the Plaintiffs, beginning
no later than January, 2000 . . . .” (Amended Complaint ¶76).
      3
       Specifically, “contrary to the representations which the
Defendants had made to the Plaintiffs,” “Defendants did not
prepare [or distribute] color brochures for Plaintiffs’ ‘for
sale’ homes” (Complaint ¶¶68-69; Amended Complaint ¶¶80-81);
“Defendants did not hold an open house” (Complaint ¶70; Amended
Complaint ¶82); “Defendants did not put Plaintiff’s ‘for sale’
(Continued)
                                           3
assured Plaintiffs that the Summit House property was the “last

piece   of     developable     multifamily          land    left     at    [the]        Resort”

(Complaint       ¶¶100-09;       Amended           Complaint           ¶¶121-32);          that

Defendants      failed    to   disclose          that    there    was     a    noisy      stump

grinder operating next to property Plaintiffs purchased in the

Stoney Creek area of the Resort (Complaint ¶¶110-15; Amended

Complaint       ¶¶133-38);       and        that        Defendants        violated         dual

representation        restrictions            (Complaint           ¶¶85-96;             Amended

Complaint      ¶¶105-17),      and    other      realtor     standards         of       conduct.

(Amended Complaint ¶¶148-51).

       Plaintiffs    contend         that   at     least    some     of    these        alleged

fraudulent acts were conducted through interstate communication

via the mail and wire, and were perpetrated on “hundreds” of

other out-of-state clients.                 They claim that all of these acts

were    committed        so    that     Defendants          would       earn        a    higher

commission, at the expense of potential profit for Plaintiffs.

(Complaint ¶¶84, 96, 108, 113, 123; Amended Complaint ¶¶104,

112, 131, 136, 146).

       Based    on   these       allegations,            Plaintiffs           alleged      that

Defendants       violated      several        statutes:          (1)      conducting         or

properties on any exclusive Wintergreen TV channel” (Complaint
¶71; Amended Complaint ¶83); and “Defendants did not advertise
Plaintiffs’ ‘for sale’ properties in any commercial print
medium.” (Complaint ¶72; Amended Complaint ¶84).

                                             4
participating in a RICO enterprise, in violation of 18 U.S.C. §

1962(c) (Count I); (2) investment of proceeds of racketeering

activity, in violation of 18 U.S.C. § 1962(a) (Count II); (3)

conspiracy to violate RICO, in violation of 18 U.S.C. § 1962(d)

(Count     III)    (collectively,       “RICO       claims”);       and        (4)    false

advertisement,      in    violation     of    the    Lanham    Act,       15    U.S.C.    §

1125(a) (Count XI).

                                         B.

     The    district      court   dismissed         the    Complaint      pursuant       to

Federal Rule of Civil Procedure 12(b)(6) for failure to state a

claim,   holding,    in    relevant     part,       that    Plaintiffs         failed    to

allege     facts   supporting     the    RICO       claims    and     did       not   have

standing to assert the Lanham Act claim.                   As to the RICO claims,

the court held that

     the pattern alleged by the Plaintiffs is based solely
     on predicate acts of wire and mail fraud. Such cases
     require   closer   scrutiny  before  concluding  that
     Plaintiffs have shown a pattern of racketeering
     activity.    When considering the alleged scheme at
     issue in this case, it does not appear to be the type
     of social evil meant to be addressed by RICO. While
     Plaintiffs allege the scheme was directed at other
     victims besides themselves, those allegations are too
     speculative to support a finding of a pattern of
     racketeering activity.

J.A. 213.

     As to the Lanham Act claim, the district court held that

Plaintiffs    lacked     standing     because       “[t]he    Fourth      Circuit       has

                                         5
squarely held that consumers do not have standing to sue under

the Lanham Act,” J.A. 216-17, and “in this case . . . it is

difficult    to      imagine   how     the    Plaintiffs         might   have    had   any

relationship with the Defendants other than as a consumer.” J.A.

218.

       Plaintiffs moved for reconsideration and for leave to amend

the Complaint.            In conjunction with these motions, Plaintiffs

proffered       an   Amended        Complaint       “on    the    grounds       that   the

additional       allegations         contained       in    the     proposed       Amended

Complaint would cure the defects in the original Complaint and

state a claim under [RICO].” J.A. 539.

       The Amended Complaint contained the same basic allegations

made in the Complaint, with greater detail and certain notable

additions: it included additional details about the properties

allegedly involved in the MLS scheme (Amended Complaint ¶¶43-

54); charged that the MLS scheme took place for eight years

instead    of    three      years    and     that    Defendants      perpetrated       the

scheme on hundreds of other clients (Amended Complaint ¶¶76-78);

included the names and addresses of some of these persons, J.A.

419-512; included allegations of how each individual Defendant

was personally involved in the scheme (Amended Complaint ¶86);

included an affidavit from Wesley C. Boatwright (“Boatwright”);

and    included      an    affidavit    from     Ivo      Romanesko      (“Romanesko”),

attesting that “the use of marketing tools, such as including

                                             6
properties in MLS . . . are essential” and “the standard in the

industry.” J.A. 235.

      The     district         court    denied        both      the        motion     for

reconsideration and the motion to amend.                      The court evaluated

the Amended Complaint and held that amendment would be futile as

      the additional allegations are insufficient to show
      that the alleged scheme extended beyond the Plaintiffs
      in scope or degree adequate to constitute a pattern of
      racketeering activity.

            . . . None of the additional allegations in the
      Amended Complaint serve to differentiate this case
      from a “garden variety fraud” or ordinary business
      dispute.

J.A. 542-43.

      Plaintiffs timely appealed the district court’s judgment,

and we have jurisdiction pursuant to 28 U.S.C. §§ 1291 and 1294.

                                            II.

      Plaintiffs contend that the district court erred in holding

that Counts I, II, and III failed to adequately allege a pattern

of   racketeering      activity.        Plaintiffs       also   contend       that     the

district     court     erred     in    finding    that       Count    XI     failed    to

adequately     state    a   cause      of    action    under     the       Lanham     Act.

Finally, Plaintiffs argue that the district court abused its

                                            7
discretion by denying the motion to amend on the grounds of

futility. 4

      We review a district court’s dismissal pursuant to Rule

12(b)(6) de novo.           Robinson v. Am. Honda Motor Co., 551 F.3d

218, 222 (4th Cir. 2009).            Courts should “read the facts alleged

in the complaint in the light most favorable to petitioners,”

H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 249-50 (1989), and

the “complaint must contain sufficient factual matter, accepted

as true, to ‘state a claim to relief that is plausible on its

face.’”       Ashcroft      v.    Iqbal,   129   S.   Ct.    1937,        1949   (2009)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

“A   claim    has    facial      plausibility    when      the    plaintiff      pleads

factual content that allows the court to draw the reasonable

inference     that    the     defendant    is    liable     for     the    misconduct

alleged.”     Iqbal, 129 S. Ct. at 1949.

      The standard of review applicable to the denial of a motion

to   amend    pursuant      to   Rule   15(a)    is   an    abuse    of    discretion

standard. Laber v. Harvey, 438 F.3d 404, 428 (4th Cir. 2006) (en

banc).

      4
       Plaintiffs do not appeal the district court’s denial of
the motion for reconsideration.

                                           8
                                          III.

                                     A. RICO Claims

         Count I alleges that Defendants conducted or participated

in   a       RICO    enterprise,   in   violation     of   18   U.S.C.   §   1962(c).

Section 1962(c) provides that:

         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).            “‘Racketeering activity’ is defined as any

of a number of predicate acts, including mail and wire fraud,”

Al-Abood v. El-Shamari, 217 F.3d 225, 238 (4th Cir. 2000), as

alleged in the case at bar. See 18 U.S.C. §1961(1). 5                             For a

pattern        of     racketeering      activity     to    exist,   “two     or    more

predicate acts of racketeering must have been committed within a

ten year period.” ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 181

(4th Cir. 2002).

         The        pattern   requirement       is   important      because       “[i]n

providing a remedy of treble damages . . . Congress contemplated

         5
       The elements of mail fraud are: “(1) a scheme to defraud,
and (2) the mailing of a letter, etc., for the purpose of
executing the scheme.” Pereira v. United States, 347 U.S. 1, 8
(1954). The elements of wire fraud are similar; applying to the
use of electronic or telephonic communication.   Plaintiffs have
pled multiple instances of mail and wire fraud.

                                            9
that only a party engaging in widespread fraud would be subject

to such serious consequences.” Menasco, Inc. v. Wasserman, 886

F.2d 681, 683 (4th Cir. 1989).                    For this reason, RICO’s remedies

are    not     appropriate       for        “the      ordinary       run    of    commercial

transactions.”        Id.;   see       also       ePlus     Tech.,    313    F.3d      at    181

(noting that the pattern requirement is “designed to prevent

RICO’s    harsh      sanctions     .    .    .     from    being     applied      to   garden-

variety      fraud    schemes”).            Instead,       “[w]e     have    reserved       RICO

liability      for    ‘ongoing     unlawful            activities      whose      scope     and

persistence pose a special threat to social well-being.’” Al-

Abood, 217 F.3d at 238 (quoting Menasco, 886 F.2d at 684).

       Consequently, “simply proving two or more predicate acts is

insufficient for a RICO plaintiff to succeed.”                                   Id. at 238.

Instead, “a plaintiff . . . must show that the racketeering

predicates are related, and that they amount to or pose a threat

of continued criminal activity.”                       H.J. Inc., 492 U.S. at 239.

Thus, “[i]n essence, the pattern requirement has been reduced to

a ‘continuity plus relationship’ test.” ePlus Tech., 313 F.3d at

181.

       As to the continuity requirement, “‘[c]ontinuity’ 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.”

H.J. Inc., 492 U.S. at 241.                 Closed-ended continuity is shown by

                                                 10
“proving    a   series      of    related         predicates         extending       over   a

substantial period of time.” Id. at 242.                        Open-ended continuity

“depends on the specific facts of each case” and may be shown,

for example, “if the related predicates themselves involve a

distinct threat of long-term racketeering activity,” or if “the

predicate    acts    or    offenses       are     part   of     an    ongoing    entity’s

regular way of doing business.” Id.

      Although Plaintiffs allege multiple instances of mail and

wire fraud over the course of an arguably substantial period of

time, “we are cautious about basing a RICO claim on predicate

acts of mail and wire fraud because it will be the unusual fraud

that does not enlist the mails and wires in its service at least

twice.” Al-Abood, 217 F.3d at 238 (internal quotations omitted).

“This   caution     is    designed      to    preserve      a    distinction         between

ordinary or garden-variety fraud claims better prosecuted under

state law and cases involving a more serious scope of activity.”

Id.

      The   case    at    bar    is   such    an    instance      of    “garden-variety

fraud.”         Essentially,          Plaintiffs         allege       that     Defendants

misrepresented      their       efforts      to    market       for-sale      properties,

misrepresented      or     failed      to     disclose        material       facts     about

specific properties, and breached their fiduciary duties.                              These

are quintessential state law claims, not a “scheme[] whose scope

                                             11
and   persistence     set    [it]    above      the    routine.”       HMK    Corp.      v.

Walsey, 828 F.2d 1071, 1074 (4th Cir. 1987).

      This conclusion is bolstered by the fact that Plaintiffs

failed to plead with particularity that any other persons were

similarly harmed by Defendants’ alleged fraud, and thus failed

to show “a distinct threat of long-term racketeering activity.”

H.J. Inc., 492 U.S. at 242; see also Menasco, 886 F.2d at 684.

The Complaint summarily draws the conclusion that other persons

were harmed by the MLS scheme because “a comparison of the MLS

listings    for    Nelson    County      with    the    Nelson       County    property

transfer records during the relevant period reveals hundreds of

properties . . . which were, on information and belief, listed

with Defendants but were not included in MLS.” J.A. 29.                             Based

on this fact and the vague reference to “interview[s] [with] a

number of sellers,” Plaintiffs argue that Defendants “did not

obtain     those   sellers’       consent       to     the     omission       of    those

properties from MLS.” J.A. 29.              However, a complaint must plead

sufficient facts to allow a court to infer “more than the mere

possibility of misconduct.” Iqbal, 129 S. Ct. at 1950.

      Plaintiffs     attempted      to    rectify      this     deficiency         in   the

Amended Complaint by including lists of properties handled by

Defendants    that    were    not    listed      on    MLS     and    the    names      and

addresses    of    the   sellers      associated        with    those       properties.

However,     regardless      of     these      lengthy       exhibits,       Plaintiffs

                                          12
nevertheless fail to plead with particularity that any specific

person was defrauded other then themselves, much less give any

particulars of the fraud.             Therefore, “[t]hese allegations lack

the specificity needed to show a ‘distinct’ threat of continuing

racketeering activity.” Menasco, 886 F.2d at 684.

       Ultimately, “this circuit will not lightly permit ordinary

business         contract   or   fraud    disputes    to   be    transformed    into

federal RICO claims.” Flip Mortg. Corp. v. McElhone, 841 F.2d

531,       538   (4th   Cir.     1988).     If   we   were      “to   adopt   such   a

characterization[, we] would transform every such dispute into a

cause of action under RICO.” Id. (internal quotation omitted).

In light of these considerations, we hold that this case is “not

sufficiently outside the heartland of fraud cases to warrant

RICO treatment.” Al-Abood, 217 F.3d at 238. 6                   The district court

thus did not err in granting the motion to dismiss.

       6
       The remaining RICO claims also fail, as they rely on
successfully pleading a pattern of racketeering activity.
Plaintiffs argue that the district court erred when it concluded
that the “allegations are insufficient under Rule 9(b) to state
a claim against the individual Defendants other than Mr.
Carroll,” because Plaintiffs did not “allege with specificity
that any . . . communications were with anyone other than
Defendant Carroll.” J.A. 208-09. However, because no pattern of
racketeering existed as to any Defendant, this argument must
fail.

     Plaintiffs’ argument as to Count II must also fail, because
§ 1962(a) requires as an element of proof that Defendants
“derived income from a pattern of racketeering activity.” United
(Continued)
                                           13
                                  B. Lanham Act

      The district court found that “[t]he Fourth Circuit has

squarely held that consumers do not have standing to sue under

the   Lanham     Act.”   J.A.    216-17.      Because     “it    is    difficult       to

imagine how the Plaintiffs might have had any relationship with

the Defendants other than as a consumer,” J.A. 218, the district

court concluded that “the Plaintiffs do not have standing to sue

under the Lanham Act.” Id.

      It is undisputed that “a consumer does not have standing

under the Lanham Act to sue for false advertising.” Made in the

USA Found. v. Phillips Foods, Inc., 365 F.3d 278, 281 (4th Cir.

2004) (emphasis added).           Instead, the “Lanham Act is ‘a private

remedy    [for    a]   commercial    plaintiff      who   meets       the   burden     of

proving    that    its   commercial    interests      have      been    harmed    by    a

competitor’s false advertising.’” Id. (quoting Mylan Lab., Inc.

v. Matkari, 7 F.3d 1130, 1139 (4th Cir. 1993)); see also Barrus

v. Sylvania, 55 F.3d 468, 470 (9th Cir. 1995) (“[I]n order to

satisfy    standing      the    plaintiff    must   allege      commercial       injury

States v. Vogt, 910 F.2d 1184, 1194 (4th Cir. 1990) (emphasis
added).

     Consequently, because the Plaintiffs failed to state claims
as to §§ 1962(a) or (c), Plaintiffs’ charge of conspiracy to
violate RICO pursuant to § 1962(d) is also without merit. See GE
Inv. Private Placement Partners II v. Parker, 247 F.3d 543, 551
n.2 (4th Cir. 2001).

                                        14
based upon a misrepresentation about a product, and also that

the injury was ‘competitive,’ i.e., harmful to the plaintiff’s

ability to compete with the defendant.”).                 Although some courts

have held that a party need not be in direct competition with

the    defendant     to   have   standing, 7    no    court    has    held   that    a

consumer has standing.

       Plaintiffs attempt to avoid classification as “consumers”

by    arguing      that   they   have     a   “business       relationship”       with

Defendants.         Nevertheless,       Plaintiffs     squarely      fit   into   the

“consumer”      category.        Plaintiffs     were    typical      consumers      of

Defendants’ services as a real estate company and real estate

agents.       The “business relationship” to which Plaintiffs refer

is simply a different term for the ordinary relationship between

a    seller   of   real   estate   services     and    the    consumer     of   those

services.       Thus, as consumers, Plaintiffs lack standing to sue

under the Lanham Act and the district court did not err in

granting the motion to dismiss.

       7
       See Berni v. Int’l Gourmet Rests. of Am., Inc., 838 F.2d
642, 648 (2d Cir. 1988); Camel Hair and Cashmere Inst. of Am.,
Inc. v. Associated Dry Goods Corp., 799 F.2d 6, 12 (1st Cir.
1986) (holding that a trade group had standing, because its
commercial   interest had   been  harmed  even   though  not  a
competitor).

                                         15
                              C. Motion to Amend

       “[A] post-judgment motion to amend is evaluated under
       the same legal standard”—grounded on Rule 15(a)—“as a
       similar motion filed before judgment was entered.”
       Rule 15(a) directs that leave to amend shall be freely
       given when justice so requires. . . . Our court
       therefore reads Rule 15(a) to mean that leave to amend
       should be denied only when the amendment would be
       prejudicial to the opposing party, there has been bad
       faith on the part of the moving party, or amendment
       would be futile.

Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d

172, 193 (4th Cir. 2009) (quoting Laber, 438 F.3d at 426-27)

(internal citations omitted).              “Leave to amend . . . should only

be denied on the ground of futility when the proposed amendment

is clearly insufficient . . . on its face.” Johnson v. Oroweat

Foods Co., 785 F.2d 503, 510 (4th Cir. 1986).

       The    district    court     considered     the       Amended     Complaint    and

held   that    it   would    be   futile    to     grant      the   motion   to    amend

because      “the   additional      allegations        are   insufficient     to     show

that the alleged scheme extended beyond the Plaintiffs in scope

or   degree     adequate    to    constitute       a    pattern     of    racketeering

activity.” J.A. 542.

       As discussed above, neither the Complaint nor the Amended

Complaint allege a pattern of racketeering activity sufficient

to support a RICO claim, nor did the Amended Complaint cure

Plaintiffs’ lack of standing under the Lanham Act.                        Thus, “[t]he

proposed      amendment     would    not    have    corrected       the    fundamental

                                           16
defect in the complaint.” New Beckley Min. Corp. v. Int’l Union,

United    Mine     Workers,       18   F.3d    1161,   1164   (4th   Cir.     1994).

Therefore, the district court did not abuse its discretion in

holding that amendment would be futile and denying the motion to

amend.

                                          IV.

     For the foregoing reasons, we conclude that the district

court    did     not   err   in    dismissing     Plaintiffs’      Complaint      for

failure to state a claim.              Nor did the district court abuse its

discretion       in    denying     Plaintiffs’     motion     to   amend    due    to

futility.      Accordingly, the judgment of the district court is

                                                                           AFFIRMED.

                                          17