Allwaste, Inc. v. Hecht, 93-16537

• Decision Date: 19 September 1995
• Docket Number: No. 93-16537,93-16537
• Citation: 65 F.3d 1523
• Parties: , RICO Bus.Disp.Guide 8894, 95 Cal. Daily Op. Serv. 7352, 95 Daily Journal D.A.R. 12,569 ALLWASTE, INC., a Delaware corporation; Allwaste Recycling, Inc., a Delaware corporation; Golden State Recycling, LP, a California partnership; Circo Glass Company, Inc., a California corporation, d/b/a Circo Recyclers; The Bassichis Company, Inc., an Ohio corporation, Plaintiffs-Appellants, v. Roger D. HECHT; George T. Henebury; Irving Stern; Michael D. Hinson; Robert V. Hinson; Cull Trucking; Roy Dennis Hinson; Nationwide Recycling, Inc., a Delaware corporation; G & M Enterprises, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1523

65 F.3d 1523

33 Fed.R.Serv.3d 287, RICO Bus.Disp.Guide 8894,

95 Cal. Daily Op. Serv. 7352,

95 Daily Journal D.A.R. 12,569

ALLWASTE, INC., a Delaware corporation; Allwaste Recycling Inc., a Delaware corporation; Golden State Recycling, LP, a California partnership; Circo Glass Company, Inc., a California corporation, d/b/a Circo Recyclers; The Bassichis Company, Inc., an Ohio corporation, Plaintiffs-Appellants, v. Roger D. HECHT; George T. Henebury; Irving Stern; Michael D. Hinson; Robert V. Hinson; Cull Trucking; Roy Dennis Hinson; Nationwide Recycling, Inc., a Delaware corporation G & M Enterprises, Defendants-Appellees.

No. 93-16537.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 16, 1995.

Decided Sept. 19, 1995.

Andrea Sheridan Ordin, Morgan, Lewis & Bockius, Los Angeles, CA, for appellants.

Peter W. James, Baker & Hostetler, Los Angeles, CA, for appellees Rogert D. Hecht and Nationwide Recycling, Inc.

Marcus Daniel Merchasin, San Francisco, CA, for appellees, George Henebury, Michael Henebury, Peter Henebury, John Henebury and G & M Enterprises.

Jonathon M. Yarger, Kohrman, Jackson & Krantz, Cleveland, OH, for appellee Irving Stern.

Stephen M. Moskowitz, San Francisco, CA, for appellees Michael D. Hinson, Robert V. Hinson, Cull Trucking and Roy Dennis Hinson.

Appeal from the United States District Court for the Northern District of California.

Before FLETCHER, PREGERSON, and RYMER, Circuit Judges.

PREGERSON, Circuit Judge:

Plaintiffs-Appellants Allwaste, Inc., Allwaste Recycling, Inc., Golden State Glass Recycling, L.P., Circo Glass Company, Inc., and Bassichis Company, Inc. ("Allwaste"), sued Defendants-Appellees Roger D. Hecht, George T. Henebury, Michael G. Henebury, Peter Henebury, John T. Henebury, Michael D. Hinson, Roy Dennis Hinson, Robert V. Hinson, Irving Stern, G & M Enterprises, Cull Trucking, and Nationwide Recycling, Inc. ("Defendants"), for violating the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961 et seq. (1970). The district court dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6). The court reasoned that the alleged predicate acts were not sufficiently prolonged to satisfy the "pattern of racketeering activity" under RICO, 18 U.S.C. Sec. 1962.

To prevail under RICO, plaintiffs must establish that the predicate acts were continuous. This can be done either by pleading "closed-ended continuity" or by pleading "open-ended continuity." Closed-ended continuity refers to a closed period of repeated conduct. It is established by showing that the predicate acts occurred over a substantial period of time. If closed-ended continuity cannot be established, plaintiffs may plead open-ended continuity. Open-ended continuity refers to past conduct that by its nature indicates a threat of future criminal conduct. It is established by showing either that the predicate acts specifically threaten repetition or that they were an ongoing entity's regular way of doing business.

The district court concluded that the closed-ended continuity requirement under RICO meant that the alleged predicate acts must span at least one year. The court also refused to grant Allwaste leave to amend its complaint. We have jurisdiction under 28 U.S.C. Sec. 1291. We reverse and remand.

BACKGROUND

Plaintiff Allwaste, a recycling company, claims that Defendants, various corporate officers and their families, successfully solicited kickbacks, received and distributed illicit gratuities and commissions, secretly invested the proceeds in businesses that compete with Allwaste, and created false receipts overcharging Allwaste for transportation of goods and services.

On February 23, 1993, Allwaste filed the instant suit in the United States District Court for the Northern District of California. Specifically, Allwaste alleged that: (1) Defendants Roger Hecht and George Henebury arranged and received $100,000 in kickbacks from Sierra West Glass Recycling ("Sierra West"); (2) Henebury received the final $50,000 from Sierra West on September 10, 1992; (3) Hecht and Henebury committed at least three criminal predicate acts in violation of California Penal Code Sec. 641.3 (commercial bribery), 18 U.S.C. Sec. 1951 (interference with commerce), 18 U.S.C. Sec. 1952 (using interstate commerce to promote unlawful activities), and/or 18 U.S.C. Sec. 1341 (mail fraud); (4) Henebury and Hecht each received $20,000 in kickbacks from A & A Recycling on September 24, 1992 and October 5, 1992, respectively, violating California Penal Code Sec. 641.3; (5) Hecht and Henebury received $21,600 from a Circo real estate agent, violating California Penal Code Sec. 461.3, 18 U.S.C. Sec. 1951, and 18 U.S.C. Sec. 1952; (6) Several of the Defendants created at least one false transportation receipt, which they sent via telecopy to an Allwaste supplier, violating 18 U.S.C. Sec. 1951, and 18 U.S.C. Sec. 1952; (7) Henebury received a $4,000 kickback from Golden State Glass Recycling, L.P., violating California Penal Code Sec. 641.3; (8) Henebury and Hinson converted a cullet ¹ processor and truckloads of cullet belonging to Allwaste, violating 18 U.S.C. Sec. 1951, and 18 U.S.C. Sec. 1952; and (9) with the proceeds of the above described activities, Defendants established San Diego Cullet Supply violating 18 U.S.C. Sec. 1341, 18 U.S.C. Sec. 1343, 18 U.S.C. Sec. 1952, and 18 U.S.C. Sec. 1962.

Allwaste terminated Hecht on October 5, 1992. On February 3, 1993, Allwaste terminated the last of the Defendants.

In April 1993, the Defendants filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). On June 3, 1993, the district court heard the Motion. During the 12(b)(6) hearing, Allwaste asserted that it could allege facts to demonstrate that the predicate acts occurred for more than one year. Transcript 14:16-17, ER 36. On August 5, 1993, the court granted the Defendants' motion and dismissed Allwaste's complaint with prejudice on the ground that Allwaste did not plead continuity of alleged criminal activity, as required under RICO, 18 U.S.C. Secs. 1962(c) and (d).

ANALYSIS

I. Continuity Requirement of a Valid RICO Claim

We review de novo a dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Everest and Jennings v. American Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir.1994). We limit our review to the contents of the complaint. Buckey v. Los Angeles, 968 F.2d 791, 794 (9th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 599, 121 L.Ed.2d 536 (1992). We construe all allegations of material fact in the light most favorable to the nonmoving party. Everest and Jennings, 23 F.3d at 229. We will not dismiss a complaint unless it appears beyond doubt that a plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Id.

To prevail under RICO, a plaintiff must establish a "pattern of criminal activity". 18 U.S.C. Sec. 1962. At a minimum, a "pattern" requires that the predicate criminal acts be "related" and "continuous." H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 2900-01, 106 L.Ed.2d 195 (1989).

In H.J. Inc., the Supreme Court observed that the term "continuity" escapes strict definition: " '[c]ontinuity' is both a closed- and open-ended concept, referring either to a closed period of repeated conduct or to past conduct that by its nature projects into the future with a threat of repetition." Id. at 241, 109 S.Ct. at 2902. "Closed-ended" continuity is established by showing that related predicate acts occurred over a "substantial period of time." Id. at 242, 109 S.Ct. at 2902. The Court thus noted that "[p]redicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement," and concluded that "Congress was concerned in RICO with long-term criminal conduct." Id.

Where long-term criminal conduct cannot be established, "open-ended" continuity may be proved. Id. Open-ended continuity is the threat that criminal conduct will continue into the future. It is established by showing either that the predicate acts "include a specific threat of repetition extending indefinitely into the future" or that the predicate acts were "part of an ongoing entity's regular way of doing business." Id.

The Court warned that "the precise methods by which relatedness and continuity or its threat may be proved, cannot be fixed in advance with such clarity that it will always be apparent whether in a particular case a 'pattern of racketeering activity' exists." Id. at 243, 109 S.Ct. at 2903.

A. Closed-Ended Continuity

Defendants argue that closed-ended continuity requires that predicate acts continue for at least one year. The problem with Defendants' argument is that it misconstrues the flexible continuity requirement under RICO by creating a bright line, one-year rule.

In H.J. Inc., Northwestern Bell bribed utility officials for four years. In exchange for a sum of money, the officials agreed to allow Northwestern Bell to charge its customers, one of which was H.J. Inc., excessive rates. H.J. Inc. sued Northwestern Bell for RICO violations. The Court held that RICO's continuity requirement does not require multiple criminal schemes in the commission of the predicate acts, but that continuity may be established with predicate acts that are part of a single scheme. Id. at 240, 109 S.Ct. at 2901.

Rejecting the multiple schemes requirement, the Court concluded that precise guidelines cannot be set to determine the existence of a pattern of racketeering activity. Id. at 243, 109 S.Ct. at 2902-03. The Court reasoned that Congress "had a fairly flexible concept of pattern in mind." Id. at 239, 109 S.Ct. at 2902; see also Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985) ("RICO is to be read broadly."). The Court explained that although Congress was...