Court Opinion

ID: 8949920
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:41:51.620537+00
Date Added: 2024-06-11T17:09:56.253516
License: Public Domain

BOOCHEVER, Circuit Judge,
dissenting in part:
I would hold that the jury verdicts for the bank on the common law fraud claims collaterally estop prosecution of the RICO claims based on the predicate acts of mail fraud. Although the mail fraud statute is broader than common law fraud, I think that we must compare the specific allegations of both claims in order to determine whether collateral estoppel applies. If, to establish its RICO claims, Wilcox must prove the same elements required for common law fraud to the same degree of certainty, its RICO claims are estopped.
As the majority points out, the elements of common law fraud in Oregon are: “(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted on by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; and (9) his consequent and proximate injury.” Rice v. McAlister, 268 Or. 125, 128, 519 P.2d 1263, 1265 (1974).
The elements of the crime of mail fraud under 18 U.S.C. § 1341 (1982) are also clear: (1) a scheme to defraud, and (2) the use of the mails in furtherance of the scheme. Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435 (1954). A scheme to defraud need not include a material misrepresentation or a failure to disclose. See, e.g., United States v. Louderman, 576 F.2d 1383, 1387 (9th Cir.), cert. denied, 439 U.S. 896, 99 S.Ct. 257, 58 L.Ed.2d 243 (1978) (misappropriation of confidential and nonpublic information can be a scheme to defraud). When the government seeks a criminal conviction under section 1341, it need not prove that anyone was defrauded or that anyone suffered a loss. Farrell v. United States, 321 F.2d 409, 419 (9th Cir.1963), cert. denied, 375 U.S. 992, 84 S.Ct. 631, 11 L.Ed.2d 478 (1964).
The jury in these consolidated cases rendered general verdicts that the defendants were not guilty of fraud under Oregon law. On the surface, the disparity between the elements constituting common law fraud and those constituting the crime of mail fraud appear to prevent the verdicts on common law fraud from having preclusive effect on the RICO claims. The civil action for fraud must be compared, however, to a civil action under RICO that is based on mail fraud. The RICO statute requires that the racketeering activities injure the plaintiff in his business or property. 18 U.S.C. § 1964(c). Therefore, even though the crime of mail fraud does not require reliance or injury, a civil RICO action alleging mail fraud as the predicate act would appear to include these elements.
For Wilcox to prevail on its claims of mail fraud under RICO it must show, in addition to a pattern of racketeering activity, that: (1) the bank made a representation as to the applicable prime rate; (2) the representation was false; (3) it was material; (4) the bank knew it was false; (5) the bank intended Wilcox to pay a higher interest rate and that such payment was reasonably contemplated; (6) Wilcox was ignorant of the falsity of the representation of the applicable prime rate; (7) Wilcox relied on its truth; (8) Wilcox had a right to rely on it; and (9) Wilcox suffered consequential *533and proximate injuries. These are the same elements that it unsuccessfully attempted to prove for common law fraud. Wilcox would be estopped on its RICO claims, if we applied the same burden of proof to both causes of action, as it failed to prove at least one of the elements of common law fraud.
The Supreme Court in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) expressed uncertainty as to whether predicate acts must be established by proof beyond a reasonable doubt, but did not decide the standard of proof issue. Id. 105 S.Ct. at 3282-83. After Sedima, the Third Circuit held that, in a civil action brought by the government under RICO, the predicate acts of extortion may be proved by a preponderance of the evidence. United States v. Local 560, Int’l Bhd. of Teamsters, 780 F.2d 267, 279 n. 12 (3d Cir.), cert. denied, — U.S.-, 106 S.Ct. 2247, 90 L.Ed.2d 693 (1986). The Second Circuit, relying on the dicta in Sedima, stated that the plaintiffs would have to prove their RICO claims involving coercive solicitation of political contributions by a preponderance of evidence on remand. Cullen v. Margiotta, 811 F.2d 698, 731 (2d Cir.1987). The burden of proof was not at issue in the case. One of the significant issues was determining the appropriate statute of limitations for civil RICO claims. The Second Circuit borrowed New York’s statute of limitation for the state cause of action that most closely resembled the predicate acts alleged and applied both state and federal tolling doctrines to that limitations period. Id. at 717-27. Similarly, we should borrow Oregon’s standard of proof for the state cause of action most closely resembling the predicate acts. In this case, that cause of action is fraud.
RICO defines predicate acts as: (1) offenses chargeable under state law and punishable by imprisonment for more than one year; (2) offenses indictable under various sections of title 18 (federal crimes, including mail fraud) or title 29 (labor law); (3) offenses involving fraud under the bankruptcy code (title 11) or in the sale of securities (title 15); (4) any felony under any law of the United States involving narcotics or dangerous drugs; and (5) any offense indictable under the Currency and Foreign Transaction Reporting Act. 18 U.S.C. § 1961(1) (Supp. Ill 1985). I believe that the following rules should apply for determining the burden of proof necessary to establish predicate acts in civil RICO actions. For those relatively few state and federal criminal statutes that contain an implied or explicit private right of action, such as the federal securities laws, the standard of proof under RICO should be the same as in the private action under the federal or state statute. Where there is no right to sue privately, courts should look to the most analogous common law action, usually a tort, for the appropriate burden of proof. In most cases this analysis will lead courts to require a preponderance of evidence to establish the predicate acts.1 The most important exception is when a plaintiff alleges fraud as the predicate act.
Most states, but not all, require plaintiffs to establish fraud by clear and convincing evidence. See C. McCormick, McCormick on Evidence 959-61 (3d ed. 1984). Oregon applies this standard of proof. According to the Supreme Court, courts of equity created this burden of proof for a particular class of claims:
A higher standard of proof apparently arose in courts of equity when the chancellor faced claims that were unenforcea*534ble at law because of the Statute of Wills, the Statute of Frauds, or the parol evidence rule. See Note, Appellate Review in the Federal Courts of Findings Requiring More than a Preponderance of the Evidence, 60 Harv.L.Rev. Ill, 112 (1946). Concerned that claims would be fabricated, the chancery courts imposed a more demanding standard of proof. The higher standard subsequently received wide acceptance in equity proceedings to set aside presumptively valid written instruments on account of fraud.
Herman & MacLean v. Huddleston, 459 U.S. 375, 388 n. 27, 103 S.Ct. 683, 690 n. 27, 74 L.Ed.2d 548 (1983) (case citations omitted); see also 37 Am.Jur.2d Fraud and Deceit §§ 468-69 (1968).
The Note cited by the Supreme Court in Huddleston states:
The requirement in civil actions of more than a preponderance of the evidence was first applied in equity to claims which experience had shown to be inherently subject to fabrication, lapse of memory, or the flexibility of conscience. Conceding the validity of policies which the parol evidence rule and the Statutes of Wills and Frauds were designed to carry out, the chancery courts compromised between becoming a mecca for the trumped-up prayer for relief and refusing altogether to mitigate the stern fulfillment of these policies in the law courts, by granting relief only in cases where the evidence in support of this type of claim was “clear and convincing.”
Note, 60 Harv.L.Rev. at 112 (footnotes omitted). Federal common law, in the days before Erie, required clear and convincing evidence of fraud. See United States v. California Midway Oil Co., 259 F. 343, 352-53 (S.D.Cal.1919), affd, 279 F. 516 (9th Cir.1922), affd, 263 U.S. 682, 44 S.Ct. 136, 68 L.Ed. 504 (1923).
Requiring that RICO claims based on mail fraud be proved by clear and convincing evidence would further the policy of discouraging claims that are difficult and time-consuming to prove. Borrowing the standard of proof used in the analogous state-law cause of action would make plaintiffs who bring both state law claims of fraud and RICO claims based on mail fraud prove these claims by identical weights of evidence. Requiring different burdens of proof under these circumstances must be confusing to a jury. Here, if the burden of proof for the RICO claims is by a preponderance of the evidence, the bank is exposed to treble damages for the same acts that failed to establish liability at common law. It seems incongruous and unfair to impose greater liability on the basis of factual determinations that will be made with less certainty. Moreover, in almost any case of common law fraud where the mails are involved, plaintiffs, by bringing state and federal actions, can have two bites at the apple unless collateral estoppel is applied.
As Judge Kennedy pointed out in his concurring opinion in Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393 (9th Cir.1986), the combination of civil RICO and mail fraud may create the mecca for trumped-up claims feared by the equity courts:
The potential range of criminal prosecution under the federal mail and wire fraud laws is vast, made so in part by expansive judicial interpretation. The reach of those statutes exists against a backdrop of prosecutorial discretion, however, discretion which, if sensitively exercised, operates as a check to the improvident exertion of federal power. No such check operates in the civil realm. A company eager to weaken an offending competitor obeys no constraints when it strikes with the sword of the Racketeer Influenced and Corrupt Organizations Act.
It is most unlikely that Congress envisaged use of the RICO statute in a case such as the one before us, but we are required to follow where the words of the statute lead, Sedima, S.P.R.L. v. Im-rex Co. [473 U.S. 479], 105 S.Ct. 3275 [87 L.Ed.2d 346] (1985)____ Thus federal power inches forward when a statute is left unattended, whether from Congress’ indifference or its acquiescence.
*535Id. at 1402 (Kennedy, J., concurring) (some citations omitted). In the absence of a Supreme Court holding explicitly to the contrary, I see no need to expand RICO claims based on mail fraud by allowing a lesser burden of proof than required for state law fraud. I would hold that Wilcox’s RICO claims are collaterally es-topped.

. Private claimants alleging fraud in the sale of securities must establish their case by a preponderance of the evidence. See Herman & MacLean v. Huddleston, 459 U.S. 375, 387-91, 103 S.Ct. 683, 689-92, 74 L.Ed.2d 548 (1983). Creditors alleging that a debtor should not be granted a discharge because of fraud must prove the fraud by clear and convincing evidence in some courts, see, e.g., In re Hames (Northern State Bank v. Hames), 53 B.R. 868, 871 (D.Minn.1985); by a “fair preponderance” of the evidence in some, see, e.g., In re Carr (McReynolds v. Carr), 49 B.R. 208, 210 (W.D.Ky.1985); and by a preponderance in others, see, e.g., Farmers Co-op. Ass’n v. Strunk, 671 F.2d 391, 395 (10th Cir. 1982). Other than in the context of RICO, federal appellate courts hold that there is no private right of action for mail fraud under 18 U.S.C. § 1341. Ryan v. Ohio Edison Co., 611 F.2d 1170, 1177-79 (6th Cir.1979); Bell v. Health-Mor, Inc., 549 F.2d 342 (5th Cir.1977).