Marshall-Silver Const. Co., Inc. v. Mendel
| Decision Date | 27 February 1990 |
| Docket Number | No. 87-1187,MARSHALL-SILVER,87-1187 |
| Citation | 835 F.2d 63 |
| Parties | RICO Bus.Disp.Guide 6819 CONSTRUCTION COMPANY, INC. and Silver Construction Inc., Appellants, v. MENDEL, M. Mark, Individually Murray, Daniel E., Individually M. Mark Mendel, LTD. |
| Court | U.S. Court of Appeals — Third Circuit |
Richard M. Jordon (argued), David E. Sandel, Jr., White and Williams, Philadelphia, Pa., for appellants.
H. Robert Fiebach (argued), David I. Bookspan, Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pa., for appellees.
Before WEIS and STAPLETON, Circuit Judges, and DIAMOND, District Judge. *
In this appeal, we once again confront the question of what constitutes a pattern of racketeering activity under the Racketeer Influenced and Corrupt Organizations statute, 18 U.S.C. Secs. 1961-1968 (1982 & 1986 Supp.) (RICO). Because we conclude that the allegations of racketeering activity in this case, even if proven to be true would be insufficient to support a finding that a pattern existed, we will affirm the order of the district court dismissing the complaint.
Plaintiff Marshall-Silver Construction Co., Inc. (Marshall-Silver) 1 is a general contractor that was engaged primarily in building nursing homes. Defendants M. Mark Mendel and Daniel Murray are shareholders and officers of Barton Engineering Co. (Barton), which is not a defendant here. Mendel and Murray are also attorneys; they are members of the law firm M. Mark Mendel, Ltd. (the Mendel firm), which is a defendant here. Mendel and the Mendel firm serve as Barton's attorneys.
Barton subcontracted business from Marshall-Silver during the first half of 1984. According to Marshall-Silver, Barton did not perform on its contracts on time or with acceptable work quality, and Marshall-Silver withheld payment as a result. Mendel had a stormy interview at Marshall-Silver on June 29, 1984 on the subject of the withheld payments; Mendel then wrote two strongly-worded letters, dated July 2, 1984 and July 3, 1984, in which he threatened to destroy Marshall-Silver unless it paid Barton for the latter's work. Despite these threats and the continued lack of payment to Barton, Mendel apparently took no further action for about six months.
On December 28, 1984, Barton filed a petition in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania, requesting that Marshall-Silver be put into involuntary bankruptcy. Marshall-Silver alleges that the allegations of the petition were false and that defendants knew them to be false. The press, including Dunn & Bradstreet and the Philadelphia Inquirer, thereupon reported that Marshall-Silver was bankrupt. Marshall-Silver alleges that defendants contacted the press themselves to be sure that news of the bankruptcy was widely publicized. After the reports of bankruptcy, Marshall-Silver was unable to obtain the construction bonds it needed to conduct its business. As a result, it could neither complete certain ongoing projects nor submit bids on new ones. In this way, Marshall-Silver was allegedly put out of business by defendants.
The bankruptcy petition was filed in the names of Barton and two other subcontractors of Marshall-Silver's Nester Brothers (Nester) and R.J. Skelding Co. (Skelding). Allegedly, neither Nester nor Skelding authorized Barton to include them in the petition.
After the requisite notice and hearing, the bankruptcy court ordered that Barton, Nester, and Skelding post bonds totalling $850,000, Barton's share of this total being $750,000. None of the three posted a bond. As a result, the petition for involuntary bankruptcy was dismissed on February 8, 1985.
Marshall-Silver subsequently filed this suit charging defendants with violations of RICO and of various state laws. Defendants moved to dismiss under Fed.R.Civ.P. 12(b)(6) and the district court, without explanation, granted the motion as to all claims. Plaintiff appeals from that dismissal.
We have jurisdiction pursuant to 28 U.S.C. Sec. 1291 (1982), and our review is plenary. We must accept as true all well-pleaded allegations of the complaint, and construe them in the light most favorable to the plaintiff; the dismissal may stand only if no set of facts in support of the claim could be proved which would entitle the plaintiff to relief. Labov v. Lalley, 809 F.2d 220, 221-22 (3d Cir.1987).
The allegations necessary to support a RICO claim under 18 U.S.C. Sec. 1962, as set forth in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985), are (1) the conducting of, (2) an enterprise, (3) through a pattern, (4) of racketeering activity. In addition, Sedima establishes that "the plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." Id. Defendants argue that Marshall-Silver has failed to properly allege an enterprise, racketeering activity, and a pattern. We find it necessary to address only defendant's argument regarding the absence of a pattern.
Under 18 U.S.C. Sec. 1961(5), two predicate racketeering acts may be sufficient to constitute a pattern of racketeering activity. Specific predicate acts are listed in Sec. 1961(1), and include any act which is indictable under the statutes prohibiting obstruction of justice (18 U.S.C. Sec. 1503) 2 or mail fraud (18 U.S.C. Sec. 1341), 3 as well as "any offense involving fraud connected with a case under title 11," the title pertaining to bankruptcy. 18 U.S.C. Sec. 1961(1)(B), (D).
Marshall-Silver contends that defendants conducted the affairs of Barton through a pattern of racketeering activity consisting of the following predicate acts: knowingly and falsely including Nester and Skelding as creditors on the bankruptcy petition, causing a fraudulent bankruptcy petition to be filed, giving false testimony under oath at the bankruptcy hearing, falsely publicizing that Marshall-Silver was bankrupt, and using the mails to transmit threatening letters and to further the false bankruptcy scheme.
Marshall-Silver further contends that the defendants, in the course of their efforts to drive it out of business through the institution of the fraudulent bankruptcy proceeding, violated Pennsylvania statutes that proscribe conspiracy and attempted theft by extortion (18 Pa.Cons.Stat.Ann. Sec. 3923(a)(7)), threatening to inflict harm (18 Pa.Cons.Stat.Ann. Secs. 901, 903), and making false and misleading statements (18 Pa.Cons.Stat.Ann. Sec. 4107).
The latest guidance from the Supreme Court regarding the concept of a pattern of racketeering activity is found in the now famous footnote from the Sedima case, 473 U.S. at 496, n. 14, 105 S.Ct. at 3285, n. 14. The Court there cautioned that "while two acts are necessary, they may not be sufficient." It went on to conclude that a pattern requires "continuity plus relationship":
The legislative history supports the view that two isolated acts of racketeering do not constitute a pattern. As the Senate Report explained: S.Rep. No. 91-617, p. 158 (1969) (emphasis added).
This guidance has not resulted in uniform treatment of the pattern issue in the lower courts. The Court of Appeals for the Eighth Circuit has taken the strict view that no pattern can exist absent multiple fraudulent schemes or criminal episodes. See Superior Oil Co. v. Fulmer, 785 F.2d 252, 257 (8th Cir.1986) (). Other federal courts of appeal have generally been less strict. See, e.g., International Data Bank Ltd. v. Zepkin, 812 F.2d 149, 154-55 (4th Cir.1987) (); California Architectural Bldg. Prods. Inc. v. Franciscan Ceramics Inc., 818 F.2d 1466, 1469 (9th Cir.1987) (); Bank of America Nat'l Trust & Savings Ass'n v. Touche Ross & Co., 782 F.2d 966, 971 (11th Cir.1986) ().
This court has dealt with the pattern issue on a number of occasions. In most of our decisions, we have found no need to define "pattern" specifically since the existence of one was clear under any definition of that term. See Town of Kearny v. Hudson Meadows Urban Renewal Corp., 829 F.2d 1263 (3d Cir. Sept. 25, 1987); Petro-Tech, Inc. v. Western Co. of N. Am., 824 F.2d 1349, 1351 (3d Cir.1987); United States v. Grayson, 795 F.2d 278, 288-90 (3d Cir.1986), cert. denied sub nom. Robinson v. United States, 107 S.Ct. 927, 93 L.Ed.2d 978 (1987); Malley-Duff & Associates, Inc. v. Crown Life Insurance Co., 792 F.2d 341 (3d Cir.1986), aff'd on other grounds sub nom. Agency Holding Corp. v. Malley-Duff & Associates, Inc., --- U.S. ----, 107 S.Ct. 2759, 2763-64, 97 L.Ed.2d 120, 55 U.S.L.W. 4952, 4954, (1987). Recently, however, we were called upon to review a RICO case in which the "complaint ... arguably depict[ed] an unlawful venture more modest than those involved in our earlier cases." Barticheck v. Fidelity Union Bank, 832 F.2d 36, 38 (3d Cir.1987). We there confronted and rejected the Eighth Circuit's position that a RICO pattern must involve at least two distinct unlawful schemes. We also rejected "the view that racketeering acts committed pursuant to a single scheme can constitute a R...
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