Court Opinion

ID: 6926
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:22:53+00
Date Added: 2024-06-11T16:46:14.162659
License: Public Domain

United States Court of Appeals,

                          Fifth Circuit.

                           No. 94-40166.

 Larry D. CROWE and Sue Ellen Crowe Silman, as Administratrix of
the Succession of Reba Coody Crowe, Plaintiffs/Appellants,

                                v.

 Sam O. HENRY, III, the Law Firm of Blackwell, Chambliss, Hobbs &
Henry, Murray Blackwell, Jr., Frank N. Chambliss, James A. Hobbs,
Chet Harrod, Douglas C. Caldwell, K. Tod Cagle, and Continental
Insurance Co., d/b/a/ CNA, Defendants/Appellees.

                          Jan. 30, 1995.

Appeal from the United States District Court for the Western
District of Louisiana.

Before JOHNSON, HIGGINBOTHAM and DAVIS, Circuit Judges.

     JOHNSON, Circuit Judge:

     Larry D. Crowe1 brought this RICO2 action against Sam O. Henry,

III, his attorney, and against Henry's law firm, each individual

partner of that firm and the firm's insurer.      Crowe contended that

Henry, with the aid of the firm, engaged in a series of fraudulent

acts through which Henry converted, for his personal benefit,

certain property owned by Crowe.       The defendants brought a motion

to dismiss under Fed.R.Civ.P. 12(b)(6) which the district court

     1
      The central dispute in this case involves property
originally owned by Larry Crowe and the succession of his wife,
Reba Coody Crowe. Hence, this suit was actually brought by Larry
Crowe and Sue Ellen Crowe Silman as the administratrix of the
Succession of Reba Coody Crowe. However, as the interests of
Larry Crowe and the Succession are the same and as Larry Crowe is
the prime mover in the facts underlying the claim and in the
prosecution of this action, the plaintiffs will be hereinafter
collectively referred to as "Crowe."
     2
      Racketeer Influenced and Corrupt Organizations Act, 18
U.S.C. § 1961 et seq.

                                   1
granted finding that the plaintiffs had failed to sufficiently

plead a RICO enterprise.     We affirm in part, reverse in part and

remand.

I. FACTS3 AND PROCEDURAL HISTORY

     Larry Crowe is a farmer and a businessman.         In the early

1960s, he met Sam Henry and they became friends and business

associates.     Over the next twenty-five to thirty years, Henry,

through   his   firm   of   Blackwell,   Chambliss,   Hobbs   &   Henry

(hereinafter "the firm"), represented Crowe and his family in most

of their legal matters.

     In the mid-1980s, Crowe became involved in litigation with

James W. Smith and People's Homestead. Henry, who was representing

Crowe in that action, advised Crowe to accept $1.175 million in

settlement from People's Homestead so that they could concentrate

on the threat from Smith.      Moreover, to protect the settlement

funds from any possible judgment that Smith might obtain against

Crowe, the money was placed into accounts in the name of the law

firm.4

     At about this same time, Henry and Crowe began to discuss a

joint venture involving buying and developing farm land in East

     3
      The facts and allegations in the plaintiffs' complaint are
legion. This summary, drawn from the complaint, develops only
such facts as are needed for the resolution of this matter.
     4
      Henry and/or the firm wrote several checks from these funds
which Crowe contends were unauthorized. These checks included
amounts to pay down the mortgage on the West Carroll property, a
$30,000 check to the firm for disputed legal fees, and a $30,000
check to purchase a condominium for Henry in Baton Rouge.

                                   2
Carroll Parish (East Carroll).5   To accomplish the purchase of this

property, Crowe and Henry planned that land which Crowe owned in

West Carroll Parish (West Carroll)6 would be used as collateral.

Further, they anticipated that funds from the People's Homestead

settlement would be used to clear most of the debt on West Carroll

in order to get ready for the joint venture.

     However, still concerned about the possibility of a judgment

against Crowe in favor of Smith, Henry advised Crowe to transfer

various immovable properties to him in "trust."      Chiefly,7 this

involved Crowe "selling" West Carroll to Henry with the secret,

oral8 understanding that Henry would return the property to Crowe

upon request.   Despite any such sale, though, Crowe insists that

the parties understood that Crowe remained the true owner of the

land.

     This "sale" took place in early 1987.   To gain court approval

for the sale, Crowe alleges that Henry9 misled the court about the

value of the property, the amount of debt encumbering it, and the

     5
      This property was also known as Deborah plantation and was
a 2,414 acre tract.
     6
      This property consisted of about 900 acres of land and was
the site of the Crowe family home.
     7
      Crowe asserts that a similar pattern occurred with several
smaller parcels of land owned by Crowe in Catahoula Parish.
     8
      Crowe alleges that Henry advised him that it would be
unwise to prepare a counter letter evidencing this arrangement
because such a letter would be discoverable in the litigation
involving Smith. Accordingly, no counter letter exists.
     9
      Acting at Henry's direction, Douglas C. Caldwell, a member
of the firm, aided in this transaction by drawing up and mailing
to the court or the clerk several of the documents involved.

                                  3
danger of foreclosure.             According to the papers submitted to the

court, the consideration paid by Henry to purchase this property

was    the    assumption      of   certain       indebtedness.       However,       Crowe

maintains      that    both   he    and   Henry     knew    that    the    indebtedness

allegedly      assumed     had     either    already       been    satisfied      or     was

otherwise      not    valid   and    thus    that    Henry    effectively         gave    no

consideration. After this "sale," Crowe and his family remained on

the property.

       On the day that title to West Carroll was transferred to

Henry, he placed a collateral mortgage on it for the purchase of

East Carroll.         Title to East Carroll was placed in Henry's name.

Even    so,    Crowe    contends     that    the    parties       (Crowe    and    Henry)

understood that Crowe owned fifty percent of East Carroll10 and that

East Carroll was only titled in Henry's name alone to protect the

property from the Smith litigation.

       Initially, Henry financed the purchase by a loan from the

Federal Land Bank.         This was interim financing, however, and Crowe

expected that two new loans would be obtained.                     One loan would be

for $300,000 on West Carroll and the other would be for $1,000,000

on East Carroll. Crowe believed that this was the best arrangement

because it would keep the ownership and the financing on the two

properties separate.          However, in late 1989, Henry refinanced the

debt with a combined loan from an out-of-state bank.

       10
      Crowe maintains that his consideration for this ownership
percentage in East Carroll was the use of West Carroll as
collateral for the purchase and the utilization of his farming
expertise, his labor and his equipment in working the East
Carroll land.

                                             4
     From 1987 to 1989, East Carroll and West Carroll were farmed

as combined acreage either by Larry Crowe or under lease.     Even

when the property was under lease, though, Crowe provided equipment

and services to help with the farming.     Crop proceeds or lease

payments from those years went to pay the mortgage and to buy

additional farm equipment and make improvements to the land.11

     In 1990, Crowe and Henry decided to farm East Carroll and West

Carroll separately.   As the two properties were burdened by the

same mortgage, they drew up a Farm Operating Agreement under which

the mortgage payment would be allocated as twenty-nine percent to

West Carroll and seventy-one percent to East Carroll.    The funds

would be sent to Henry at his office and he would make the combined

mortgage payment.

     Crowe became concerned, however, when Henry made it known that

he wanted the money from West Carroll sent to him and marked as

rent. Under that arrangement, Crowe worried that Henry could claim

that he was paying all of the note on the properties.    Moreover,

Crowe began to suspect that all of Henry's actions were being taken

to freeze him out and to erase any evidence of his ownership.

Therefore, Crowe instead tendered West Carroll's portion of the

mortgage into the registry of the court.

     On June 22, 1990, Henry sent a letter to Crowe informing Crowe

     11
      In addition to farming the land, Crowe and Henry applied
for U.S. Department of Agriculture Agricultural Stabilization and
Conservation Service (ASCS) payments in the name of Crowe, Henry
and members of Henry's immediate family. From the years 1987-89,
checks in the amount of $207,087.35 were sent to Henry at his
office at the firm and were used for Henry's personal benefit.

                                5
that no one in the firm represented him any longer.       Litigation

ensued shortly thereafter and Henry sought to evict Crowe from West

Carroll.    Members of the firm participated in drawing up documents

and submitting them to the court to accomplish this eviction.

     Crowe brought the instant suit against Henry, the firm, each

individual partner of the firm and the firm's insurer on a myriad

of state theories and on a civil RICO claim.    As to the RICO claim,

Crowe sought relief for alleged violations of 18 U.S.C. §§ 1962(a),

(b), (c) and (d).    In response, the defendants filed a motion to

dismiss under Fed.R.Civ.P. 12(b)(6) contending that Crowe had

failed to adequately plead 1) a pattern of racketeering activity;

2) violations of 18 U.S.C. § 1962;     and 3) a RICO enterprise.

     The district court found sufficient allegations as to a

pattern of racketeering activity and as to violations of 18 U.S.C.

§ 1962, but agreed with the defendants that Crowe had failed to

adequately plead a RICO enterprise.        Accordingly, the district

court dismissed the RICO claim.       The pendent state claims were

later dismissed making the action final.    Crowe now appeals to this

Court.

II. STANDARD OF REVIEW

         In the instant case, the district court dismissed Crowe's

claims for failure to state a claim under Fed.R.Civ.P. 12(b)(6).

A motion to dismiss an action for failure to state a claim "admits

the facts alleged in the complaint, but challenges plaintiff's

right to relief based upon those facts."    Ward v. Hudnell, 366 F.2d
247, 249 (5th Cir.1966).     Dismissal cannot be upheld unless it

                                  6
appears beyond doubt that the plaintiffs would not be entitled to

recover under any set of facts that they could prove in support of

their claim.         Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99,

102, 2 L. Ed. 2d 80 (1957);        Worsham v. Pasadena, 881 F.2d 1336, 1339

(5th    Cir.1989).        This   Court    independently       applies    the   same

standards employed by the district court.                   Tel-Phonic Services,

Inc.    v.    TBS    International,   Inc.,     975 F.2d 1134,    1138   (5th

Cir.1992).

III. RICO VIOLATIONS

        Crowe has alleged RICO violations under 18 U.S.C. § 1962(a),

(b),   (c),    and    (d).    Reduced     to   their   simplest     terms,     these

subsections state that:

(a) a person who has received income from a pattern of racketeering
     activity cannot invest that income in an enterprise;

(b)    a person cannot acquire or maintain an interest in                         an
       enterprise through a pattern of racketeering activity;

(c) a person who is employed by or associated with an enterprise
     cannot conduct the affairs of the enterprise through a pattern
     of racketeering activity; and

(d) a person cannot conspire to violate subsections (a), (b), or
     (c).

Common elements are present in all four of these subsections.

Ocean Energy II, Inc. v. Alexander & Alexander, Inc., 868 F.2d 740,

742 (5th Cir.1989).          These common elements teach that any RICO

claim necessitates "1) a person who engages in 2) a pattern of

racketeering         activity,   3)      connected     to     the   acquisition,

establishment, conduct, or control of an enterprise."                  Delta Truck

& Tractor, Inc. v. J.I. Case Co., 855 F.2d 241, 242 (5th Cir.1988);

cert. denied, 489 U.S. 1079, 109 S. Ct. 1531, 103 L. Ed. 2d 836 (1989)

                                          7
(emphasis in original).    See also, Calcasieu Marine Nat. Bank v.

Grant, 943 F.2d 1453, 1461 (5th Cir.1991).

A. RICO Persons

     The RICO person in a civil or criminal RICO action is the

defendant.   Landry v. Air Line Pilots Ass'n Int'l, 901 F.2d 404,

425 (5th Cir.), cert. denied, 498 U.S. 895, 111 S. Ct. 244, 112
L. Ed. 2d 203 (1990).       The statute defines the RICO person as

including "any individual or entity capable of holding a legal or

beneficial interest in property."     18 U.S.C. § 1961(3).   This is a

very broad definition.    However, this Court has recognized that if

we are to restrict RICO to the type of conduct that Congress

intended to proscribe,

     the RICO person must be one that either poses or has posed a
     continuous threat of engaging in acts of racketeering.... The
     continuous threat requirement may not be satisfied if no more
     is pled than that the person has engaged in a limited number
     of predicate racketeering acts.

Delta Truck, 855 F.2d at 242.

      In this case, Crowe has alleged two RICO persons in his

complaint—Henry and the firm.    As to the firm, we note that Crowe

has only alleged a limited number of predicate acts.   The firm only

appears a few times in this drama.     Specifically, Crowe refers to

the firm's involvement in drawing up court documents for the 1987

sale and the 1990 eviction and to the firm writing, from funds

owned by Crowe but in the account of the firm, what Crowe contends

was an unauthorized check for legal fees in the amount of $30,000.

Even if all of these actions constituted predicate acts under RICO,

which we do not now decide, we find them to be too isolated and

                                  8
sporadic to support a finding that the firm was a RICO person.

These few acts, spread out over a four-year period, simply do not

show the continuous threat of racketeering activity that RICO was

designed to address.

      As to Henry, however, we conclude that Crowe has succeeded in

naming a sufficient RICO person.        Henry is certainly an individual

capable of holding a legal or beneficial interest in property and

thus he meets the statutory definition.           18 U.S.C. § 1961(3).

Moreover, for the reasons stated below, we find that Henry's

actions, as alleged, also meet the continuity requirement.

B. Pattern of Racketeering Activity

      The district court found that Crowe had adequately pled the

existence of a pattern of racketeering activity consisting of

numerous predicate acts of mail fraud12, wire fraud13, financial

institution fraud14 and theft of goods in interstate commerce.15     We

agree that Crowe's allegations are sufficient.

C. Enterprise

      A plaintiff asserting a RICO claim must allege the existence

of an enterprise. Montesano v. Seafirst Commercial Corp., 818 F.2d
423, 427 (5th Cir.1987).      A RICO enterprise can be either a legal

entity or an association-in-fact. Manax v. McNamara, 842 F.2d 808,

811 (5th Cir.1988).      In this case, Crowe has alleged enterprises

     12
          18 U.S.C. § 1341.
     13
          18 U.S.C. § 1343.
     14
          18 U.S.C. § 1344.
     15
          18 U.S.C. § 659.

                                    9
consisting of either Crowe himself, as a businessman and farmer, or

an association-in-fact consisting of Crowe, Henry and the firm or

any combination thereof.         For the reasons given in its opinion, we

agree with the district court that Crowe has not sufficiently pled

a RICO enterprise consisting of either Crowe as an individual or an

association-in-fact involving the law firm.               However, we disagree

with the district court and conclude that Crowe has alleged an

enterprise composed of an association-in-fact of Crowe and Henry.

          Crowe has pled that he and Henry associated in fact to

operate a farming venture.16         To establish an association-in-fact

enterprise,    a     plaintiff    must    "show    "evidence    of    an    ongoing

organization, formal or informal, and ... evidence that the various

associates function as a continuing unit.' "               Atkinson v. Anadarko

Bank and Trust Co., 808 F.2d 438, 440 (5th Cir.), cert. denied, 483
U.S. 1032, 107 S. Ct. 3276, 97 L. Ed. 2d 780 (1987) (quoting U.S. v.

Turkette, 452 U.S. 576, 582, 101 S. Ct. 2524, 2528, 69 L. Ed. 2d 246

(1981).      This formulation of an association-in-fact enterprise

incorporates the notion of continuity.                  Calcasieu, 943 F.2d at

1461.        Accordingly,     this       Court    has    determined        that   an

"association-in-fact enterprise 1) must have an existence separate

and apart from the pattern of racketeering, 2) must be an ongoing

organization and 3) its members must function as a continuing unit

as   shown    by    a   hierarchical      or     consensual    decision      making

structure."        Delta Truck, 855 F.2d at 243.           See, Calcasieu, 943

     16
      Even Henry, in his answer to this suit, characterizes the
Crowe and Henry collaboration as a joint venture.
10
F.2d at 1461;       Elliott v. Foufas, 867 F.2d 877, 881 (5th Cir.1989);

Old Time Enterprises, Inc. v. International Coffee Corp., 862 F.2d
1213, 1217 (5th Cir.1989);              Foval v. First National Bank of

Commerce, 841 F.2d 126, 129-30 (5th Cir.1988).

      The farming venture alleged does appear to exist separate and

apart      from   the   pattern   of   racketeering.     Crowe   and    Henry's

association extended beyond Henry's alleged acts of fraud and

theft.      In order to shield Crowe's assets, they operated a jointly

owned farming business, produced and sold crops, and purchased

farming equipment.         Moreover, this farming operation lasted for

almost four years17 and Crowe contends that he and Henry acted as

equal partners and met on a regular basis to make decisions

concerning the operation.              Therefore, we find that Crowe has

adequately pled an association-in-fact enterprise consisting of

Crowe and Henry to operate a farming venture.

D. Violations of 18 U.S.C. § 1962(a), (b), (c), and (d)

      The defendants herein also contend that Crowe has failed to

adequately allege violations of the RICO subsections, 18 U.S.C. §

1962(a), (b), (c), and (d).             As to subsections (a) and (b), we

disagree.

        Under subsections (a) and (b), there must be a nexus between

the   claimed      RICO   violations    and   the   injury   suffered   by   the

plaintiff.        Old Time, 862 F.2d at 1219.       For subsection (a), this

means that the injury must flow from the investment of racketeering

      17
      In addition, this farming venture might have gone on
indefinitely had Crowe not become suspicious and had litigation
not ensued.

                                         11
income into the enterprise.        Parker and Parsley Petroleum Co. v.

Dresser Industries, 972 F.2d 580, 584 (5th Cir.1992).            Crowe has

alleged such an injury.       Funds that he owned, that were allegedly

fraudulently taken from the People's Homestead settlement, were

invested into the enterprise and used to reduce the indebtedness on

land that Crowe alleges was taken from him through a pattern of

racketeering activity. As to subsection (b), a plaintiff must show

that his injuries were proximately caused by a RICO person gaining

an interest in, or control of, the enterprise through a pattern of

racketeering activity.        Old Time, 862 F.2d at 1219.        Crowe has

certainly alleged that Henry gained ownership of his land and the

farming   venture   through    a   pattern   of   racketeering   activity.

Accordingly, we find that Crowe has adequately alleged substantive

violations of 18 U.S.C. § 1962(a) and (b).

      The defendants are correct, however, that Crowe cannot

successfully make out a claim under 18 U.S.C. § 1962(c).              This

subsection forbids any "person employed by or associated with any

enterprise " from participating in or conducting the affairs of the

enterprise   through   a   pattern   of   racketeering   activity.     Id.

(emphasis added).    Because of the structure of this language, this

Court has held that the RICO person and the RICO enterprise must be

distinct.    Bishop v. Corbitt Marine Ways, Inc., 802 F.2d 122, 123

(5th Cir.1986).

     In this case, Crowe has alleged that Henry is both the RICO

person and a member of the Crowe/Henry association-in-fact.           This

Court has found, though, that a RICO person cannot employ or

                                     12
associate with himself under this subsection. In re Burzynski, 989
F.2d 733, 743 (5th Cir.1993).            Accordingly, Crowe's claim under 18

U.S.C.    §   1962(c)     fails      because      there       is    not     a    sufficient

distinction between the person and the enterprise.                              Bishop, 802
F.2d at 123.

        Lastly, the defendants are also correct that Crowe has failed

to adequately allege a RICO conspiracy under 18 U.S.C. § 1962(d).

"[B]ecause the core of a RICO civil conspiracy is an agreement to

commit predicate acts, a RICO civil conspiracy complaint, at the

very least, must allege specifically such an agreement."                                  Tel-

Phonic, 975 F.2d at 1140 (citing Hecht v. Commerce Clearing House,

Inc., 897 F.2d 21, 25 (2d Cir.1990)).                    While Crowe has pled the

conclusory    allegation        that    the     defendants         herein       "conspired,"

nowhere does he allege facts implying any agreement to commit

predicate acts of racketeering.               Therefore, Crowe's claim under 18

U.S.C. § 1962(d) must also fail.

IV. AIDING AND ABETTING AND VICARIOUS LIABILITY

        The law firm challenges Crowe's claim that the firm aided and

abetted    Henry   in     his   alleged       scheme     to    defraud          Crowe.     To

sufficiently plead aider and abetter liability for this fraud,

Crowe    would   have     had   to     allege    facts    showing         that     the    firm

participated in the fraud as something it wished to bring about,

and sought by its actions to make it succeed.                            Armco Industrial

Credit    Corporation      v.   SLT     Warehouse      Co.,        782 F.2d 475    (5th

Cir.1986).         Mere     negative      acquiescence             in     the     fraud    is

insufficient.      Id.

                                           13
        In the complaint, Crowe specifically alleges that the firm

aided and abetted Henry. Further, Crowe explains how and when this

aid occurred—in particular, that members of the firm helped draw up

documents for the sale of West Carroll in 1987 and for the eviction

of Crowe in 1990.      Nothing in the complaint is inconsistent with

these allegations.18    Hence, we find that Crowe has adequately pled

that the firm aided and abetted Henry in his alleged scheme to

defraud.

        Finally, the firm argues that it cannot be held vicariously

liable for the actions of Henry.19     In examining this question, we

note that, as discussed in part IIID above, the only claims that

remain open to Crowe are for violations of 18 U.S.C. § 1962(a) and

(b).    With this in mind, we find no barrier to vicarious liability

in this case as such liability has been found to be available under

subsections (a) and (b) when the principal has derived some benefit

       18
      The complaint does provide that in August of 1990, Crowe
and his mother sent a letter to each partner in the firm
complaining of Henry's actions. The firm argues from this that
since Crowe had to notify the firm's partners of Henry's alleged
fraud, this shows that the firm was not aware of it. However, we
conclude that this merely shows that Crowe was uncertain whether
the members of the firm knew of the alleged fraud and is not
inconsistent with Crowe's allegation that the firm aided and
abetted Henry. Moreover, while the firm notes that Crowe
describes Henry's plan as "secret," it is perfectly possible that
Henry hid the plan from Crowe but shared it with the firm.
       19
      In Landry, this Court found that under 18 U.S.C. §
1962(c), an entity that is the RICO enterprise cannot be held
vicariously liable because to do so would be to treat it as both
the RICO person and the RICO enterprise. 901 F.2d at 425. This
holding is inapplicable here, though, because as discussed in
part IIID above, Crowe's underlying claim based on 18 U.S.C. §
1962(c) is not valid.

                                  14
from the agent's wrongful acts.20    Landry, 901 F.2d at 425;   Liquid

Air Corp. v. Rogers, 834 F.2d 1297, 1307 (7th Cir.1987), cert.

denied, 492 U.S. 917, 109 S. Ct. 3241, 106 L. Ed. 2d 588 (1989).

V. CONCLUSION

     Crowe has failed to adequately plead facts to support that the

firm is a RICO person and thus that it committed RICO violations.

Also, Crowe has failed to sufficiently plead violations of 18

U.S.C. § 1962(c) and (d).   To that extent, we AFFIRM the judgment

of the district court.   However, Crowe has adequately pled

1) an association-in-fact enterprise consisting of Crowe and Henry
     to operate a farming venture;

2) that Henry, a RICO person, engaged in a pattern of racketeering
     activity connected to the acquisition, establishment, conduct,
     or control of that enterprise;

3) that Henry committed violations of 18 U.S.C. § 1962(a) and (b);
     and

4) that the firm aided and abetted Henry in his scheme to defraud.

Accordingly, we REVERSE the judgment of the district court and

REMAND for proceedings consistent with this opinion.

     20
      Crowe has alleged that the firm has received some benefit
from the actions of Henry. Specifically, Crowe alleged that the
firm received at least $30,000 in disputed legal fees.

                                15