Schaafsma v. Marriner

• Decision Date: 08 August 1986
• Docket Number: Civ. A. No. 85-300.
• Citation: 641 F. Supp. 576
• Parties: Hubert Alle SCHAAFSMA and Maria Schaafsma v. Richard A. MARRINER.
• Court: U.S. District Court — District of Vermont

641 F. Supp. 576

Hubert Alle SCHAAFSMA and Maria Schaafsma v. Richard A. MARRINER.

Civ. A. No. 85-300.

United States District Court, D. Vermont.

August 8, 1986.

Robert B. Hemley, Gravel & Shea, Burlington, Vt., for plaintiffs.

R. Scott McClain, McClain, Morgan & Savoy, Lake Charles, La., Thomas P. Salmon, Salmon & Nostrand, Bellows Falls, Vt., for defendant.

OPINION AND ORDER

BILLINGS, District Judge.

On June 27, 1986, defendant Richard A. Marriner ("defendant") filed with this Court a motion to dismiss the action for failure to state a claim pursuant to Fed.R. Civ.P. 12(b)(1),(6). On July 15, 1986, plaintiffs Hubert Alle Schaafsma and Maria Schaafsma ("plaintiffs") filed timely opposition to the motion to dismiss. For the reasons stated below the motion to dismiss is GRANTED.

This action follows an earlier decision in a related case, Schaafsma v. Morin Vermont Corporation, No. 83-254 (D.Vt.) appeal docketed, No. 85-7733 (2d Cir.1985). Plaintiffs assert a civil claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18, U.S.C. §§ 1961 et seq. Plaintiffs had originally included this RICO claim in the earlier action but withdrew it in light of clear adverse law in Sedima, S.P.R.L. v. Imrex Company Inc., 741 F.2d 482 (2d Cir.1984), requiring two predicate convictions and a racketeering injury. The Supreme Court subsequently struck down these requirements in Sedima, S.P.R.L. v. Imrex Company, Inc., 473 U.S. ___, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985).

FACTS

In 1981, plaintiffs purchased all of the stock of the Lamoille Realty Corporation, whose only assets were two lots of land in Troy, Vermont. Plaintiffs allege that defendant's agents represented that the land had a market value of $100,000 and consisted of 100.5 acres as described in an "Official Registered Survey Map." In fact, Lamoille's parcels amounted to only 75.4 acres with a market value of only $65,000. The complaint alleges that after the sale defendant's company, IMDA, S.A. received a $35,000 "commission" on the property in violation of Vermont Real Estate Commissions regulations. It is alleged defendant continues to cover-up the fraud by further misrepresentations.

In the complaint, plaintiffs have charged defendant with six acts of mail or wire fraud and one act of securities fraud in connection with the sale and subsequent cover-up. The mail and wire fraud charges involve a false prospectus, a director's consent letter, false maps and false title insurance descriptions.

DISCUSSION

With a motion to dismiss, the factual allegations of the complaint must be taken as true. Dahlberg v. Becker, 748 F.2d 85 (2d Cir.1984) cert. denied ___ U.S. ___, 105 S.Ct. 1845, 85 L.Ed.2d 144 (1985). Taking all facts pleaded by plaintiffs as true, plaintiffs have not stated a claim over which this Court has subject matter jurisdiction under 18 U.S.C. 1962.

Plaintiffs' burden in fashioning a private civil RICO action includes the following elements:

They must allege that the defendant has violated the substantive RICO statute, 18 U.S.C. § 1962 (1976), commonly known as "criminal RICO". In so doing they must allege the existence of seven constituent elements: (1) that the defendant (2) through commission of two or more acts (3) constituting a "pattern" (4) of "racketeering activity" (5) directly or indirectly invests in, or maintains an interest in or participates in (6) an "enterprise" (7) the activities of which affect interstate or foreign commerce. 18 U.S.C. § 1962(a)-(c)(1976).

Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir.1983), cert. denied 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984)

Plaintiffs allege that defendant has "directly and indirectly used income derived from a pattern of racketeering activity,—to operate and control Morin Vermont Corporation, IMDA and Lamoille Realty Corporation in violation of 18 U.S.C. sec. 1962(a)"; that defendant has "directly and indirectly maintained his interest in and/or control of Morin Vermont Corporation, IMDA and Lamoille Realty Corporation through a pattern of racketeering activity—in violation of 18 U.S.C. Sec. 1962(b)"; and that defendant has "directly and indirectly participated in the conduct of said enterprises through a pattern of racket-eering activity—in violation of 18 U.S.C. Sec. 1962(c)." Complaint at ¶¶ 22-24.

Defendant contends that the alleged predicate acts were motivated by and in furtherance of the sale to plaintiffs of property owned by Lamoille Realty Corporation. Further defendant argues that this land transaction constitutes a single, closed-end episode which does not qualify under RICO as a pattern of racketeering activity. Defendant's Memorandum in Support of Motion to Dismiss filed June 27, 1986 at pp. 5-6.

Defendant, relying on the infamous footnote 14 of the Supreme Court's opinion in Sedima, calls on the Court to find evidence of repeated and continuous activity plus a relationship between the specific criminal predicate acts involved.¹ In support of this position defendant has directed the Court to numerous court decisions of late requiring a pattern of racketeering to be shown by evidence of more than a single isolated episode.

Plaintiffs argue that the Second Circuit law stated in United States v. Parness, 503 F.2d 430 (2d Cir.1974), cert. denied 419 U.S. 1105, 95 S.Ct. 775, 42 L.Ed.2d 801 (1975) clearly rejects this argument and plaintiffs contend that two related predicate acts are all that is required. Moreover, plaintiffs state that the Court should not disregard Parness because of the dicta mentioned by the Supreme Court in Sedima. Plaintiffs' Memorandum of Law in Opposition to Motion to Dismiss filed July 15, 1986 at p. 4. Plaintiffs ask the Court to heed the call of Congress that RICO be read broadly and construed liberally. Pub.L. 91-452 § 904(a), 84 Stat. 947.

Defendant does rely on dicta stated in Sedima; but it is dicta which has been mentioned in virtually every case considering the pattern of racketeering element under RICO since the Supreme Court's decision in Sedima. The pattern of racketeering issue has become a mountain overshadowing much of the RICO landscape. Within the past year and one-half over forty decisions have been published by federal courts on what constitutes a pattern of rackeering activity. Three basic lines of cases have evolved: one line holds closely to the language of the statute requiring no more than two related predicate acts and two lines have interpreted the language in footnote 14 of Sedima to require more than two related predicate acts.²

The majority of courts have concluded that one limited episode of two or more predicate acts does not meet the element of a pattern of racketeering under RICO. See Medical Emergency Service Associates v. Foulke, 633 F.Supp. 156 (N.D.Ill.1986) (multiple meetings in furtherance of single criminal episode insufficient to allege pattern); Allright Missouri Inc. v. Billeter, 631 F.Supp. 1328 (E.D.Mo.1986) (multiple wire fraud acts underlying single real estate transaction does not show continuity sufficient to meet pattern element); Dunham v. Independence Bank of Chicago, 629 F.Supp. 983 (N.D.Ill.1986) (predicate acts in execution of single scheme do not satisfy pattern requirement); Torwest DBC Inc. v. Dick, 628 F.Supp. 163 (D.Colo. 1986) (single scheme to defraud insufficient); Medallion TV Enterprises, Inc. v. SelecTv of California, 627 F.Supp. 1290 (C.D.Cal.1986) (separate criminal episodes required); Fleet Management Systems, Inc. v. Archer-Daniels-Midland Company, Inc., 627 F.Supp. 550 (C.D.Ill.1986) (multiple criminal episodes required); Kredietbank N.V. v. Joyce Morris, Inc., No. 84-1903 (D.N.J. October 1985); Allington v. Carpenter, 619 F.Supp. 474 (D.C.Cal.1985) (pattern requires multiple criminal episodes and common perpetrators); Professional Assets Management Inc. v. Penn Square Bank, 616 F.Supp. 1418 (W.D.Okla.1985) (multiple criminal episodes required); Northern Trust Bank/O'Hare v. Inryco. Inc., 615 F.Supp. 828 (N.D.Ill.1985) (multiple criminal episodes required); Exeter Towers Associates v. Bowditch, 604 F.Supp. 1547 (D.Ma.1985) (two related predicate acts insufficient to meet pattern requirement). These decisions rest on the Supreme Court's statement that "while two acts are necessary, they may not be sufficient—It is this factor of continuity plus relationship which combines to produce a pattern." Sedima, 105 S.Ct. at 3285 n. 14. Additionally, the courts have relied on the legislative history of RICO. "Legislative history clearly indicates what Congress had in mind when it enacted RICO—to halt the infiltration of a legitimate business by organized crime." Fleet Management Systems, Inc. v. Archer-Daniels-Midland Company, Inc., 627 F.Supp. 550, 554 (C.D. Ill.1986).

The Second Circuit Court of Appeals has yet to rule on the issue. However, the position of most of the district courts in this Circuit is consistent with the majority of the federal courts nationally. "A single unlawful transaction does not give rise to a civil RICO claim, even if the transaction was accomplished through a number of constituent offenses, such as multiple mailings ... this construction of the pattern requirement is the only construction that effectuates Congress' intent to avoid imposition of RICO liability where there have been only isolated or sporadic criminal acts." Frankart Distributors, Inc. v. RMR Advertising, Inc., 632 F.Supp. 1198 (S.D.N.Y.1986 1986) (Tenney, J). "To hold a single scheme constitutes a pattern of racketeering activity would be to cause a single fraudulent episode into its component parts. The plaintiffs have not alleged that the defendants have engaged in similar schemes to deprive other investors, nor is there any evidence that this particular scheme is on-going or continuous." Richter v. Sudman, 634 F.Supp. 234, 240 (S.D.N. Y.1986) (Goettel, J.).

Case law in this Circuit clarifies that under the pattern element "to be `continuous' requires...