Blake v. Dierdorff

Decision Date08 September 1988
Docket NumberNo. 87-5819,87-5819
Citation856 F.2d 1365
Parties, RICO Bus.Disp.Guide 7026 Aaron BLAKE; Ruth Blake; Aaron Blake, D.D.S., P.C. Employees Pension Trust; Aaron Blake, D.D.S., P.C. Retirement Trust, Plaintiffs-Appellants, v. Daniel W. DIERDORFF; Harry L. Summers; Tadashi Fujita; John McKenna Case; Allan Koljonen; Richard C. Raimann; Leff & Mason; Ernest Leff; John Grosvenor; Van D. Greenfield; Sun Savings and Loan Association; Arthur Young & Company; and Kenneth Clare, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Simon J. Freedman and William S. Lerach, Milberg Weiss Bershad Specthrie & Lerach, San Diego, Cal., for plaintiffs-appellants.

Scott L. Metzger, Duckor & Spradling, Alex C. McDonald, McDonald, Hecht & Solberg, David Pendarvis, Gibson, Dunn &amp Daniel W. Dierdorff, La Jolla, Cal., in pro. per.

Crutcher, San Diego, Cal., Eugene R. Erbstoesser, Arthur Young & Company, Associate General Counsel, New York City, Michael I. Goode, Newport Beach, Cal., for defendants-appellees.

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

Before FERGUSON, BEEZER and LEAVY, Circuit Judges.

LEAVY, Circuit Judge:

The appellants, Aaron and Ruth Blake and their retirement and pension trusts (Blake), appeal the district court's dismissal of their multiple defendant civil RICO action and their claim under section 17(a) of the Securities Act of 1933, 15 U.S.C. Sec. 77q(a). Subsequent to our decision in In re Washington Public Power Supply System Securities Litigation, 823 F.2d 1349 (9th Cir.1987), which holds there is no private right of action under section 17(a), the appellants have withdrawn the appeal of the dismissal of their section 17(a) claim. We affirm the dismissal of defendants Arthur Young, Kenneth Clare, Greenfield, and Grosvenor on the RICO claim.

FACTS

Blake made numerous purchases of stock in Sun Savings & Loan Association (Sun Savings) between February 1984 and October 1984. After the purchases, the stock value declined until July 18, 1986, when the Federal Home Loan Bank Board placed Sun Savings in receivership and appointed the Federal Savings and Loan Insurance Corporation (FSLIC) as its sole receiver for the purpose of liquidation. Blake filed an action in California Superior Court against Sun Savings, the accounting firm of Arthur Young & Company and its employee, Kenneth Clare (Arthur Young), the law firm of Leff & Mason and its attorneys, John Grosvenor and Ernest Leff, members of the Sun Savings Board of Directors Allan Koljonen, John Grosvenor, Van Greenfield, Harry Summers, Tadashi Fujita, John Case, and Richard Raimann, and Daniel Dierdorff, a founder, president, chief executive officer, and chair of the Board of Directors of Sun Savings. 1 The FSLIC was substituted for Sun Savings. The case was removed to the United States District Court for the Southern District of California.

Blake filed an amended complaint in federal court, asserting five separate claims: fraud and deceit against all defendants (Count I), negligent misrepresentation against all defendants (Count II), violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1962(c) and (d), against Sun Savings, Leff & Mason, and Arthur Young (Count III), RICO violations against all defendants except Sun Savings (Count IV), and violation of section 17(a) of the Securities Act of 1933 (Count V). In support of these claims Blake alleged that during 1983 and 1984 the defendants conspired and schemed to defraud Blake into purchasing and holding Sun Savings stock. The complaint alleges that the scheme and conspiracy were effectuated over a fourteen month period through misrepresentations made in person, over the telephone, and in press releases, annual and quarterly reports, and offering statements concerning Sun Savings' financial condition and the advisability of owning Sun Savings stock.

The district court dismissed, without opposition, Blake's claims against the FSLIC. The remaining defendants moved for dismissal of the complaint pursuant to Federal Rules of Civil Procedure 9(b) for lack of specificity in the allegations of fraud and 12(b)(6) for failure to state a claim upon which relief could be granted. Arthur Young argued in support of its motion to dismiss that its single audit did not constitute a pattern of racketeering activity. The district court dismissed the RICO claims against Arthur Young "for reasons given by counsel." It dismissed the RICO claims against the other defendants because Blake "failed to allege that any defendant Blake timely appealed the dismissal of Counts III and IV, the RICO claims, and Count V, the Securities Act claim. The Securities Act claim has been withdrawn. Blake does not argue on appeal that the district court erroneously found the appellants consented to the dismissal of Count III. Therefore, only Count IV, a RICO claim, is before us.

                engaged in or conspired to engage in a 'pattern of racketeering activity' as required by 18 U.S.C. Sec. 1962."    The district court held that two or more schemes were necessary to meet the pattern requirement.  Because Blake had alleged only one scheme, the court found that the requirement was not met.  It also found Blake had consented to dismissal of Count III, one of the RICO claims.  Because the FSLIC was no longer a party, and because Counts I and II alleged only claims that arose under state law, the district court remanded the action back to the Superior Court of San Diego County
                
STANDARD OF REVIEW

This court reviews de novo the district court's dismissal for failure to state a claim. Gibson v. United States, 781 F.2d 1334, 1337 (9th Cir.1986), cert. denied, 479 U.S. 1054, 107 S.Ct. 928, 93 L.Ed.2d 979 (1987). All material allegations in the complaint are accepted as true and all doubts are resolved in favor of the plaintiff. Ernest W. Hahn, Inc. v. Codding, 615 F.2d 830, 834-35 (9th Cir.1980). We may affirm the dismissal "on any basis supported by the record even if the district court did not rely on that basis." Shaw v. California Dep't of Alcoholic Beverage Control, 788 F.2d 600, 603 (9th Cir.1986).

DISCUSSION

The district court dismissed the RICO claim against all defendants based on its conclusion that a "pattern of racketeering activity" requires more than one fraudulent scheme or criminal episode. This view was rejected by this circuit after the district court rendered its decision:

[I]f a defendant commits two or more predicate acts that are not isolated events, are separate in time, and are in furtherance of a single criminal scheme, then RICO's pattern requirement is satisfied.

Sun Sav. and Loan Ass'n v. Dierdorff, 825 F.2d 187, 193 (9th Cir.1987).

Most of the defendants do not dispute that the allegations of Blake's complaint meet this description. However, they argue the dismissal may be affirmed for failure to meet Federal Rule of Civil Procedure 9(b)'s requirement to plead fraud with particularity.

"[P]leading is sufficient under Rule 9(b) if it identifies 'the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations.' " Semegen v. Weidner, 780 F.2d 727, 735 (9th Cir.1985) (quoting Gottreich v. San Francisco Inv. Corp., 552 F.2d 866 (9th Cir.1977)).

Count IV of the amended complaint, directed against all defendants except Sun Savings for violation of RICO, alleges in relevant part:

58. Defendants were, at all times relevant to the events alleged herein, associated with an enterprise engaged in and the activities of which affected interstate commerce. That enterprise is Sun.

59. The defendants named in this Cause of Action conspired to conduct and to participate in the conduct of the affairs of the enterprise described in paragraph 58 and conducted and participated, directly and indirectly, in the conduct of the affairs of said enterprise through the pattern of racketeering activity described and set forth in paragraph 55, which is herein incorporated by reference.

60. As a direct and proximate result of defendants' illegal activities violative of RICO, plaintiffs have suffered substantial loss and damage to their business and property, entitling them to recover treble damages against defendants and their costs of suit, including reasonable attorneys' fees, pursuant to 18 U.S.C. Sec. 1964(c).

Paragraph 55 of the amended complaint states:

The defendants named in this Count conspired to conduct and to participate in the conduct of the affairs of the enterprise described in paragraph 59 and conducted and participated, directly and indirectly, in the conduct of the affairs of said enterprise through a pattern of racketeering activity consisting of repeated acts of mail fraud violative of 18 U.S.C. Sec. 1341, repeated acts of wire fraud violative of 18 U.S.C. Sec. 1343, and repeated acts of fraud in the purchase and sale of securities. These acts all occurred after RICO was enacted and within 10 years of one another. Each of defendants' racketeering activities was taken for the purpose of furthering defendants' common scheme to inflate the price of Sun guarantee stock and defraud the plaintiffs ... and each such act had similar purposes, involved the same or similar participants and methods of commission, and had similar results impacting similar victims, and thus constituted a pattern of racketeering activity within the meaning of RICO. The racketeering activities engaged in by the defendants and the other participants in the enterprise included, but are not limited to the mailing of false and misleading reports, including false financial statements, to plaintiffs, and the mailing of false and misleading press releases and newsletters.

Paragraph 47 of the complaint sets forth the general allegations of conspiracy:

For the purpose of inducing plaintiffs to purchase and hold Sun's guarantee stock and with intent to deceive plain...

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