Court Opinion

ID: 8987084
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:57:38.337299+00
Date Added: 2024-06-11T17:10:50.318701
License: Public Domain

ALITO, Circuit Judge,
concurring in part and dissenting in part.
I concur in the decision of the court insofar as it affirms the dismissal of the plaintiffs’ claims under 18 U.S.C. § 1962(a) and (b), but I would reverse the dismissal of plaintiffs’ claims under 18 U.S.C. § 1962(c) and (d). As the majority notes, denial of plaintiffs’ motion for leave to amend and the dismissal of their claims may be sustained only if the amended complaint proffered by the plaintiffs failed to state a claim upon which relief could be granted. Maj. op. at 1408-10. The majority affirms the dismissal of the claims under 18 U.S.C. § 1962(c) and (d) on the ground that the amended complaint did not sufficiently allege a “pattern” of racketeering activity. I respectfully disagree with the majority’s analysis of the pattern requirement and with its application in the present case.
I.
The amended complaint alleged that the bank and several officers carried out a scheme to defraud the McMurtries, who obtained more than four million dollars of secured loans to finance their leveraged buyout of Kehr Packages, Inc. The bank and its officers allegedly induced the McMurtries to enter into loan agreements that provided insufficient working capital for successful operation of the company. This was accomplished, the complaint asserts, by fraudulent oral promises that additional financing would be provided. According to the complaint, the purpose of this scheme was to obtain large interest payments and, ultimately, the pledged collateral, which exceeded the value of the loans. The complaint alleged that the defendants, in carrying out this scheme, committed numerous acts of mail fraud, 18 U.S.C. § 1341, during a period of one year and seven months, from December 1986 to July 1988.
The specific factual allegations in the complaint are set out in the majority opinion (maj. op. at 1410-11), but the following salient allegations merit emphasis. At the settlement of the loans on December 12, 1986, two bank officers, Neil Cohen, a commercial loan officer, and James Noon, a vice president, orally promised that an additional $185,000 in working capital would be provided. App. 241a-42a. For the next *1420eight months, Cohen and Noon repeated this promise during “numerous” telephone conversations with James McMurtrie. Id. at 242a. Cohen and Noon, however, never intended to fulfill their promises but made them to obtain interest payments and the pledged collateral for their employer. Id. at 243a.
In September 1987, after Cohen and Noon had left the bank, Thomas Donnelly, another vice president, took over responsibility for the loan and began a “course of conduct ... aimed at misleading plaintiffs into believing that he would attempt to secure additional working capital” when his real purpose was to prepare for foreclosure on the assets of the company and the personal assets of the McMurtries. Id. at 243a-46a. To carry out this plan, Donnelly “act[ed] for months on the pretense of being a management consultant” {id. at 248a) although he actually worked in the bank’s Asset Recovery Group. Id. at 245a-46a, 248a. Donnelly promised to look into the question of increased working capital, when in fact he had no intention of doing so. Id. at 244a-46a. He also requested that plaintiffs draft a “plan of attack” for profitably operating the company, although he was actually preparing for foreclosure. Id. at 245a-46a. Finally, Donnelly undermined an agreement for sale of the company during the summer of 1988 by unreasonably delaying approval of the transaction, and in September 1989 he ordered Kehr to cease operations and liquidate. Id. at 248a-49a. I stress that these are merely the unproven factual allegations in the complaint, but at the present stage we are bound to accept them as true. In my view, these allegations sufficiently allege a “pattern of racketeering activity.”
II.
The RICO statute, 18 U.S.C. § 1961(1) defines “racketeering activity” to mean any of a long list of predicate offenses, including mail fraud (18 U.S.C. § 1341). The statute states that a “ ‘pattern of racketeering activity’ requires at least two acts of racketeering activity” (18 U.S.C. § 1961(5)) (emphasis added). The complaint in this case alleges more than two such acts.
In H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989), the Supreme Court held that a “pattern of racketeering activity” must satisfy two additional requirements not mentioned in the statute itself: “relatedness” and “continuity.” I agree with the majority that the complaint in the present case satisfied the requirement of “relatedness,” and therefore the sole remaining hurdle is the requirement of “continuity.”
In H.J. Inc., 492 U.S. at 241, 109 S.Ct. at 2902, the Supreme Court explained that “ ‘[continuity’ is both a closed- and open-ended concept.” For present purposes, I think it is helpful to discuss these two concepts in reverse order.
The open-ended concept of continuity refers to a series of predicate acts that is cut short, either by law enforcement efforts or other intervening events, but that threatened long-term criminal conduct. Id. In H.J. Inc., the Court gave several examples of how such threatened criminal conduct may be shown. In some cases, the Court noted {id. 242), it may be proven that the perpetrators expressly threatened repeated acts of racketeering. In other eases, the Court observed {id.), it may be shown that the predicate offenses were part of an ongoing entity’s regular way of doing business, thus giving rise to the inference that such offenses would have continued if not interrupted.
In addition to these examples provided by the Supreme Court, several factors previously identified by this court are useful in determining whether a threat of future racketeering acts has been alleged or shown. Factors such as the number of unlawful acts, the number of perpetrators, the number of victims, and the character of unlawful activity (Barticheck v. Fidelity Union Bank/First National State, 832 F.2d 36, 39 (3d Cir.1987)) may be indicative of threatened criminal conduct in particular cases. Based upon all of these factors and examples, I fully agree with the majority that the complaint in the present case does *1421not allege facts showing a threat of racketeering activity extending beyond the end of the completed scheme alleged. I therefore turn to the concept of “closed-ended” continuity.
Although the discussion of this concept in H.J. Inc. is brief, the Court’s opinion makes clear, in my view, that the predominant, if not sole, consideration in determining whether a closed-ended pattern has been alleged or proven is the duration of the racketeering activity. The Court stated flatly (492 U.S. at 242, 109 S.Ct. at 2902) that “[a] party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time.” Likewise, the Court observed (id.) that “[predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement.” These statements do not seem to leave room for anything other than a measurement of the duration of the racketeering activity. To be sure, the Court noted (id.) (emphasis added) that continuity is “centrally a temporal concept,” thus perhaps implying that the concept has another peripheral component. The Court, however, provided no clue regarding the nature of any such additional component.
Whether or not closed-ended continuity contains any such additional component, it seems clear that several factors have no place in determining whether closed-ended continuity has been alleged or shown. First, the absence of any threat of future racketeering activity is irrelevant in determining whether closed-ended continuity is present. The threat of future criminal activity is the essence of open-ended continuity but has no bearing on closed-ended continuity, which refers by definition to repeated conduct that has fully run its course.
Second, many of the factors listed by this court in Barticheck and related cases, with the obvious exception of “the length of time” of the criminal conduct (Barticheck, 832 F.2d at 39), have no logical connection to closed-ended continuity. Cf. Banks v. Wolk, 918 F.2d 418, 423 (3d Cir.1990) (“After H.J. Inc., we must focus on these factors as they bear upon the separate questions of continuity and relatedness.”) Factors such as the number of unlawful acts, the number of perpetrators, the number of victims, the similarity of the acts, and the societal harm associated with the unlawful activity have nothing to do with the duration of the racketeering activity. In addition, these factors, with the exception of the number of unlawful acts, are not logically related to the ordinary meaning of the term “continuous,” which refers to an “uninterrupted extension” in space, time, or sequence. WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 493-94 (1971).
Since closed-ended continuity, as described in H.J. Inc., is primarily a question of duration, it is critical to zero in on the line between “a substantial period of time,” which may satisfy H.J. Inc., and “a few weeks or months,” which do not. 492 U.S. at 242, 109 S.Ct. at 2902. In cases decided after H.J. Inc., this court has upheld the dismissal of complaints alleging racketeering activity over closed-ended periods of less than seven months (Marshall-Silver Construction Co., Inc. v. Mendel, 894 F.2d 593 (3d Cir.1990)) and eight months (Banks v. Wolk, supra). Since these periods are substantially shorter than that alleged in the present ease, these precedents do not control our decision here.
By contrast, in Swistock v. Jones, 884 F.2d 755, 759 (3d Cir.1989) (emphasis added), the court held that a complaint alleging predicate acts of wire and mail fraud “over a period of approximately fourteen months” was sufficient to show “either the existence of a closed-ended period of repeated conduct of sufficient length or a threat of continuity....” Although the majority attempts to distinguish Swistock based on the presence in that case of open-ended continuity (maj. op. at 1413), I believe the holding in Swistock rested on two independent grounds. I read Swistock to hold that, even without allegations suggesting the threat of future criminal conduct, the alleged acts of wire and mail fraud extending over 14 months satisfied the pattern requirement by showing closed-*1422ended continuity. Because the complaint in the present case alleges numerous acts of mail fraud extending over an even longer period (19 months), Swistock weighs in favor of reversal here.
The relevant legislative history points to the same result. In concluding that the “pattern” element necessitates proof of “continuity,” the Supreme Court relied1 primarily upon the following passage from the Senate Report on RICO (S.Rep. No. 91-617, at 158 (1969) (emphasis added):
The target of [RICO] is ... not sporadic activity. The infiltration of legitimate business normally requires more than one “racketeering activity” and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern.
This seminal passage appears to measure “continuity” by reference to the period of time normally required for the infiltration of legitimate business. As the Supreme Court has recognized, preventing the infiltration of legitimate business by organized crime was the major objective expressed during congressional consideration of the RICO statute.2
In light of this legislative history, closed-ended continuity should not require racketeering activity extending over a longer period of time than Congress felt would normally be required for the infiltration of a legitimate business by means of the various RICO predicates, such as murder, kidnapping, arson, bribery, or fraud. 18 U.S.C. §§ 1961(1) and 1962(b). It would be anomalous to construe the concept of closed-ended continuity so narrowly that efficient campaigns to infiltrate legitimate businesses — the heart of congressional concern when RICO was originally enacted— are excluded from the coverage of that concept. And there is no reason to suppose that Congress felt such campaigns ordinarily take longer than 19 months (the period at issue here) or 14 months (the period in Swistock). Accordingly, in my view, the 19 month period alleged in this case constituted, in the terminology of H.J. Inc., 492 U.S. at 242, 109 S.Ct. at 2902, a “substantial” period of time, rather than “a few weeks or months,” and thus satisfied closed-ended continuity.
III.
Although the complaint in this case alleges acts of mail fraud extending over a period of 19 months, the majority whittles this period down to eight months. The majority achieves this result in two stages. First, the majority concludes that in RICO cases grounded on mail fraud predicates the duration of the racketeering activity should be measured, not by the duration of the mail fraud violations, which may be based on “innocent” mailings, but by the duration of the “instances of deceit.” Maj. op. at 1413-15. Second, the majority concludes that the only relevant “instances of deceit” in this case are the alleged misrepresentations of Cohen and Noon, because the allegations against Donnelly, when viewed in isolation, do not establish criminal conduct. Maj. op. at 1415-17. I disagree with both parts of this analysis.
The first part of this analysis is inconsistent with the plain language of the RICO statute. The statute, 18 U.S.C. § 1961(1), equates “racketeering activity” with the listed predicate offenses.3 Therefore, the duration of racketeering activity for the purpose of judging closed-ended continuity *1423must equal the duration of the related predicates.
Moreover, even if it were proper in a case with mail fraud predicates to look beyond the duration of the mail fraud violations and measure the duration of the deceitful conduct, the focus of inquiry should be on the fraudulent scheme, not the repetition of fraudulent statements. If a fraudulent scheme is launched convincingly, there may be no need for a repetition of the fraudulent statements made at the outset. But as long as the scheme continues — as long as the original false statements are left uncorrected and victims continue to be deceived — the deceitful conduct must be regarded as continuing. Under the majority’s analysis, the deceitful conduct in such a case would apparently be regarded as finished once the original false statements were made — although the deceitful conduct would apparently be regarded as continuing if the original false statements were not entirely convincing and therefore had to be repeated over and over. This approach does not seem to make sense.4
The second part of the majority’s analysis is also flawed. The majority labors to show that if the allegations against Cohen and Noon are disregarded, the remaining factual allegations against Donnelly would not establish that he committed mail fraud; the majority then reasons that the allegations against Donnelly should not be considered in calculating the duration of the deceitful activity. Maj. op. at 1415-17.
In my view, there is no justification for examining the specific allegations against Donnelly in isolation. Fairly read, the complaint alleges that Cohen and Noon launched the fraudulent scheme with outright misrepresentations and that Donnelly later joined the scheme and perpetuated it by means of statements and conduct that were misleading in light of what Cohen and Noon had said and done before. Consequently, I think it is entirely artificial to judge Donnelly’s alleged behavior without considering its claimed role in the entire scheme.
In the present case, the complaint alleged that the fraudulent scheme and the mailings in furtherance of the scheme continued for 19 months. That period, I believe, is ample to show closed-ended continuity.

. In United States v. Turkette, 452 U.S. 576, 591, 101 S.Ct. 2524, 2532, 69 L.Ed.2d 246 (1981) (footnote omitted), the Court wrote:
[T]he legislative history forcefully supports the view that the major purpose of [RICO] is to address the infiltration of legitimate business by organized crime. The point is made time and again during the debates and in the hearings before the House and Senate.

.The statute provides in pertinent part (18 U.S.C. § 1961(1)) that "racketeering activity" means any of a long list of predicates, including "(B) any act which is indictable under any of the following provisions of title 18, United States Code: ... section 1341 (relating to mail fraud)."

. The term "innocent mailings" confuses analysis of the question before us. This is a term of art that was used in Schmuck v. United States, 489 U.S. 705, 109 S.Ct. 1443, 103 L.Ed.2d 734 (1989), and related cases to refer to mailings that contain no false information but form part of the execution of the criminal scheme. See 489 U.S. at 715, 109 S.Ct. at 1449. Since such mailings help to execute the criminal scheme, they are not really innocent.