Smith v. Berg

• Decision Date: 13 April 2001
• Docket Number: No. 00-2881,00-2881
• Citation: 247 F.3d 532
• Parties: (3rd Cir. 2001) LEROY J. SMITH; GEORGETTE BECKON; MARCIA T. SMITH, INDIVIDUALLY; VALISE C. MATTHEWS, INDIVIDUALLY, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED v. JOHN G. BERG; COLUMBIA NATIONAL INCORPORATED; FIRST TOWN MORTGAGE CORPORATION; COUNTRYWIDE CREDIT INDUSTRIES, INC., THROUGH ITS SUBSIDIARY, COUNTRYWIDE HOME LOANS, INC.; FIDELITY NATIONAL FINANCIAL, THROUGH ITS SUBSIDIARY, FIDELITY NATIONAL TITLE INSURANCE COMPANY OF PENNSYLVANIA; FIDELITY NATIONAL TITLE INSURANCE COMPANY OF PENNSYLVANIA COLUMBIA NATIONAL INCORPORATED, FIRST TOWN MORTGAGE CORPORATION; COUNTRYWIDE CREDIT INDUSTRIES, INC.; FIDELITY NATIONAL TITLE INSURANCE COMPANY OF PENNSYLVANIA, APPELLANTS
• Court: U.S. Court of Appeals — Third Circuit

Page 532

247 F.3d 532 (3rd Cir. 2001)

LEROY J. SMITH; GEORGETTE BECKON; MARCIA T. SMITH, INDIVIDUALLY; VALISE C. MATTHEWS, INDIVIDUALLY, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED v. JOHN G. BERG; COLUMBIA NATIONAL INCORPORATED; FIRST TOWN MORTGAGE CORPORATION; COUNTRYWIDE CREDIT INDUSTRIES, INC., THROUGH ITS SUBSIDIARY, COUNTRYWIDE HOME LOANS, INC.; FIDELITY NATIONAL FINANCIAL, THROUGH ITS SUBSIDIARY, FIDELITY NATIONAL TITLE INSURANCE COMPANY OF PENNSYLVANIA; FIDELITY NATIONAL TITLE INSURANCE COMPANY OF PENNSYLVANIA

COLUMBIA NATIONAL INCORPORATED, FIRST TOWN MORTGAGE CORPORATION; COUNTRYWIDE CREDIT INDUSTRIES, INC.; FIDELITY NATIONAL TITLE INSURANCE COMPANY OF PENNSYLVANIA, APPELLANTS

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 00-2881

Argued March 12, 2001

Filed April 13, 2001

Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 99-CV-02133) District Judge: Honorable Thomas N. O'Neill, Jr. [Copyrighted Material Omitted]

James N. Gross, Esquire (Argued) Suite 1400 117 South 17th Street Philadelphia, PA 19103 Dean B. Webb, Esquire Suite 316 7904 NE 6th Avenue Vancouver, WA 98665 Counsel for Appellees

Elliott A. Kolodny, Esquire Mellon, Webster & Mellon 87 North Broad Street Doylestown, PA 18901 Counsel for Appellant Columbia National, Inc.

Natalie Finkelman, Esquire Shepherd, Finkelman & Gaffigan, LLC 117 Gayley Street, Suite 200 Media, PA 19063 Counsel for Appellant First Town Mortgage Corp.

Burt M. Rublin, Esquire Ballard Spahr Andrews & Ingersoll, LLP 1735 Market Street, 51st Floor Philadelphia, PA 1910-37599 Counsel for Appellant Countrywide Credit Industries, Inc.

Edward J. Hayes, Esquire Lisa Carney Eldridge, Esquire (Argued) Fox Rothschild O'Brien & Frankel, LLP 2000 Market Street, 10th Floor Philadelphia, PA 19103-3291 Counsel for Appellant Fidelity National Title Insurance Company of Pennsylvania

Before: Mansmann, Barry and Cowen, Circuit Judges.

OPINION OF THE COURT

Mansmann, Circuit Judge.

This case presents two questions: First, in light of the Supreme Court's decision in Salinas v. United States, 552 U.S. 52 (1997), may liability under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") conspiracy statute codified at 18 U.S.C. S 1962(d) be limited to those who would, on successful completion of the scheme, have participated in the operation or management of a corrupt enterprise? Second, did the Supreme Court's more recent decision in Beck v. Prupis, 529 U.S. 494 (2000), limit application of its holding in Salinas to criminal cases? Ruling against the Appellants on both issues, we will affirm the Orders of the District Court for the Eastern District of Pennsylvania. In doing so, we hold that any reading of United States v. Antar, 53 F .3d 568 (3d Cir. 1995), to the effect that conspiracy liability under section 1962(d) extends only to those who have conspired personally to operate or manage the corrupt enterprise, or otherwise suggesting that conspiracy liability is limited to those also liable, on successful completion of the scheme, for a substantive violation under section 1962(c), is inconsistent with the broad application of general conspiracy law to section 1962(d) as set forth in Salinas.

I.

In this putative class action brought in the Eastern District of Pennsylvania, the Plaintiffs allege that Defendant, John G. Berg ("Berg"), acting through corporate entities, misled them into purchasing homes which they could not afford by fraudulently asserting that their homes would be entitled to various tax abatements and mortgage credit certificates.¹ The Plaintiffs further allege that the Defendant title insurance and lending companies² ("Appellants") conspired with Berg to defraud the Plaintiffs and realize the maximum profits from the sales and related title insurance and finances. Specifically, they allege that the Appellants conspired to further Berg's fraudulent enterprise by allowing Berg to assume many of their normal functions during settlements, recording false information on HUD-1 Settlement Statements, contacting prospective home buyers and encouraging them to make the purchases, communicating and negotiating with Berg rather than directly with the Plaintiffs, failing to make Truth-In-Lending Law disclosures, and granting mortgages for which they knew the Plaintiffs were unqualified. Accordingly, the Complaint asserts claims against the Appellants for participation in a RICO conspiracy with Berg in violation 18 U.S.C. S 1962(d).

The District Court first denied the Appellants' motion to dismiss these claims by its Memorandum Opinion of April 10, 2000, rejecting the Appellants' argument that the claims failed as a matter of law because the Appellants' conduct was not alleged to violate section 1962(c).³ The District Court looked to the Supreme Court's decision in Salinas v. United States, 522 U.S. 52 (1997), and concluded that it implicitly overruled our prior holding in United States v. Antar, 53 F.3d 568 (3d Cir . 1995) and that, in accordance with Salinas, liability under section 1962(d) is met by "1) knowledge of the corrupt enterprise's activities and 2) agreement to facilitate those activities."⁴ The District Court concluded these elements were sufficiently pled.

Shortly thereafter, on April 26, 2000, the District Court requested briefing from the parties on the import of the Supreme Court's decision in Beck v. Prupis, 529 U.S. 494 (2000).⁵ The District Court expressed concern that the Supreme Court's statement in Beck that "injury caused by an overt act that is not an act of racketeering or otherwise wrongful under RICO . . . is not sufficient to give rise to a cause of action under S 1964(c) for a violation of S1962(d)" might require dismissal of the conspiracy claims.⁶ On consideration, however, the District Court concluded that Beck did not affect the Plaintiffs' claims in this case because they, unlike Beck, allege direct injury as a result of the racketeering. See July 7, 2000 Mem. Op. at 5-6.

The District Court certified its decisions for immediate appeal pursuant to 28 U.S.C. S 1292(b) on July 7, 2000 and we granted the Appellants' Petition on September 26, 2000.

II.

18 U.S.C. S 1962(c) provides:

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. S 1962(d) provides: "It shall be unlawful to conspire to violate [S 1962(c)]."

As the District Court observed, the starting point for our analysis is the Supreme Court's decision in Revs v. Ernst & Young, 507 U.S. 170 (1993). In Revs, the Court held that to be liable under section 1962(c), a person must participate in the "operation or management" of the corrupt enterprise's affairs. Id. at 179. In Antar, we considered a line of cases holding that conspiracy liability does not require a showing that the defendant himself participated in the operation or management of the enterprise. We considered these cases to be in tension with Revs, at least if read broadly. In an attempt to resolve this perceived tension, we crafted a novel distinction "between, on the one hand, conspiring to operate or manage an enterprise, and, on the other hand, conspiring with someone who is operating or managing the enterprise." 53 F .3d at 581 (emphasis added). We concluded that liability under section 1962(d) would attach only in the first instance because only then is the defendant conspiring to do something for which he would, if successful, be liable under section 1962(c). Id.

This language in Antar was unnecessary to our holding, as our Opinion in this conspiracy withdrawal case concluded, in effect, that the defendant met either standard.⁷ In addition, the majority of our sister Courts of Appeals presented with the same question have not applied the "operation or management" test set forth in Revs to a RICO conspiracy. They have instead concluded that "Revs addressed only the extent of conduct or participation necessary to violate a substantive provision of the statute; the holding in that case did not address the principles of conspiracy law undergirding S 1962(d)."⁸

The question then is whether the language of Antar is dispositive, requiring dismissal of the conspiracy counts or whether, as the District Court concluded, it was vitiated by the Supreme Court's decision in Salinas. In Salinas, the defendant was charged with criminal violations of both section 1962(c) and section 1962(d) but convicted on the conspiracy charge alone. The Supreme Court resolved a conflict among the Courts of Appeals, finding-- as had the majority of our sister Courts of Appeals -- that a RICO conspiracy defendant need not himself commit or agree to commit predicate acts. In upholding the result in the Salinas case, the Supreme Court found that a violation of section 1962(c) was not a prerequisite to a violation of section 1962(d). Rather, the Court found that for purposes of conspiracy it "suffices that [defendant] adopt the goal of furthering or facilitating the criminal behavior." 522 U.S. at 65.⁹ Moreover, the Supreme Court provided an extensive discussion indicating that RICO's conspiracy section-- section 1962(d) -- is to be interpreted in light of the common law of criminal conspiracy and that all that is necessary for such a conspiracy is that the conspirators share a common purpose.¹⁰

Thus, as the District Court observed, Salinas makes "clear that S 1962(c) liability is not a prerequisite to S 1962(d) liability." April 10, 2000 Mem. Op. at 7. The plain implication of the standard set forth in Salinas is that one who opts into or participates in a conspiracy is liable for the acts of his co-conspirators which violate section 1962(c) even if the defendant...