Pyramid Securities Ltd. v. IB Resolution, Inc.

• Decision Date: 25 March 1991
• Docket Number: No. 90-7010,90-7010
• Citation: 288 U.S. App. D.C. 157,924 F.2d 1114
• Parties: , 18 Fed.R.Serv.3d 909, RICO Bus.Disp.Guide 7669 PYRAMID SECURITIES LIMITED, Appellant, v. IB RESOLUTION, INC.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1114

924 F.2d 1114

288 U.S.App.D.C. 157, 18 Fed.R.Serv.3d 909,

RICO Bus.Disp.Guide 7669

PYRAMID SECURITIES LIMITED, Appellant, v. IB RESOLUTION, INC.

No. 90-7010.

United States Court of Appeals District of Columbia Circuit.

Argued Oct. 29, 1990.

Decided Feb. 1, 1991.

Rehearing En Banc Denied March 25, 1991.

Appeal from the United States District Court for the District of Columbia Circuit (Civil Action No. 87-03541).

Michael J. McManus, with whom Warren Lutz and Michael S. Levine, Washington, D.C., were on the brief for appellant.

Sheila J. Carpenter, with whom Bruce R. Hegyi and Robert A. Spencer, Washington, D.C., were on the brief for appellee.

Before BUCKLEY, WILLIAMS and THOMAS, Circuit Judges.

Opinion for the Court filed by Circuit Judge STEPHEN F. WILLIAMS.

STEPHEN F. WILLIAMS, Circuit Judge:

Pyramid Securities Ltd. brought suit in district court against International Bank, claiming that it was liable under RICO, the Racketeer Influenced and Corrupt Organizations statutes, 18 U.S.C. Secs. 1961, 1962(c), (d), ¹ and under the common law, for acts allegedly performed by its Cayman Islands subsidiary, Washington International Bank and Trust, Ltd. The district court granted summary judgment for the defendant, finding that the alleged acts did not satisfy RICO's requirement of a "pattern" of racketeering activities and that the statute of limitations had run on the common law claims. Pyramid Securities v. International Bank, 726 F.Supp. 1377 (D.D.C.1989). IB Resolution, Inc., successor of International Bank by merger, has been substituted as defendant in this court. We affirm.

I

Edward Attridge, a resident of the Cayman Islands, created Pyramid as a vehicle for handling his investments in securities and commodities. He is its president and sole owner. In 1980 he hired Washington International to perform bookkeeping and "clearinghouse" functions for Pyramid. The bookkeeping duties were assumed by Pyramid's accountants in the fall of 1980, but Washington International continued with the clearinghouse function--balancing Pyramid's accounts with various brokerage firms by paying sums due for purchases and receiving sums due as a result of sales. For these services Washington International received a fee of 1/4 of 1%. Nicholas Duggan, Washington International's President and at the time Attridge's personal friend, oversaw the bank's performance of its work for Pyramid.

In September 1980 Pyramid started using the brokerage services of one Linda Pearson and her employer, originally Paine Webber and later E.F. Hutton. Attridge evidently chose Pearson on the basis of statements by a Washington International employee that she offered a good discount and was used by some of the bank's other customers. Pearson traded on Pyramid's behalf through late August 1981, when Attridge decided that Pyramid would in the future pursue only low-risk, long-term investments, and directed her to stop her trading activities. A few days later, he flew to Hawaii to be married and to take a long honeymoon. Pearson came to the wedding, remained in Hawaii for about a week, and then returned. Attridge told her when he would get back to the Cayman Islands--late November.

The cat being away, Pearson could play. On her return from Hawaii she began "churning" the account--i.e., making a series of unauthorized trades that generated commissions for her--and thereby severely reduced the account's value. Although Pyramid's British Virgin Islands office evidently received confirmation slips for the trades, Attridge did not personally discover the churning until he returned from his honeymoon.

Pyramid sued Pearson and Hutton, but settled the suit in December 1985. ² Throughout the Pyramid-Hutton litigation, Washington International employees testified that they were unaware of the September-November 1981 trades. It later became apparent, however, that at least a scrivener at the bank was aware of them, for in due course the parties discovered a record of them in a bank ledger book, which Pyramid has since branded the "secret ledger".

On December 31, 1987, Pyramid filed its complaint in the present litigation, suing International Bank for alleged wrongdoing by its subsidiary, Washington International. (We assume the validity of piercing the corporate veil; the issue was raised before the district court but not decided by it or briefed by the parties here.) Pyramid alleged that Washington International's involvement constituted complicity in the churning scheme and amounted to a "pattern of racketeering" under RICO that entitled Pyramid to treble damages. Pyramid also asserted related common law claims, including fraud, negligence, civil conspiracy, breach of contract, and breach of fiduciary duty.

After considerable discovery the defendant filed a motion to dismiss the complaint, which the court treated as one for summary judgment. See Fed.R.Civ.P. 56(c). The court granted the motion, finding that there was an insufficient "pattern" to sustain the RICO claims. Although finding no diversity of citizenship, it went on to treat the state law claims and found them time-barred.

II

As the court granted summary judgment, we must decide whether a jury could reasonably have found for Pyramid on the record before the district court; although we must resolve all serious conflicts of evidence in Pyramid's favor, a mere scintilla in its favor is not enough to defeat the motion. See Riddell v. Riddell Washington Corp., 866 F.2d 1480, 1484-85 (D.C.Cir.1989). We start with the RICO claims.

A violation of RICO Sec. 1962(c) consists of "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985) (footnote omitted). Pyramid argues that International Bank (through its subsidiary Washington International), Duggan, Pearson, and Hutton had formed an enterprise (or "association-in-fact") for the legitimate trading of securities long before the events at issue in this case, and that this enterprise conducted "racketeering activity" in the form of securities fraud, mail fraud, wire fraud, and obstruction of justice.

As the district court threw out the RICO claims only for want of a pattern of racketeering, we assume that Washington International engaged in some acts of racketeering. The assumption is something of a strain, in view of the tenuous character of Pyramid's evidence. Granted, the testimony of Washington International employees that they did not receive records of the churning while it took place raises a question as to who kept the "secret ledger". If it was one of those witnesses, or if one of them knew of the record-keeping while it was going on, that witness obviously lied, suggesting a possible entanglement with Pearson that he or she wished to cover up. But any such mendacious concealment, if it occurred, is also consistent with a misbegotten effort to conceal negligence by the bank. The inference that Washington International bungled its handling of Pyramid on purpose appears a stretch--especially as nothing in the record suggests that it could have expected to profit from the churning; it could hardly have expected to collect a fee for any clearinghouse work performed in violation of Attridge's instructions, and in fact there is no claim that Pearson's churning presented any occasion for the sort of services it formerly provided. ³ In any event, we agree with the district court that any racketeering did not amount to a pattern.

In H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989), the Supreme Court set out limits on what could constitute a RICO pattern. Apart from the minimum of two predicate acts required by RICO's text, the plaintiff or prosecutor "must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." 109 S.Ct. at 2900 (emphasis added).

In turn, the plaintiff can satisfy the "continuity" requirement by showing either a "closed period of repeated conduct, or ... past conduct that by its nature projects into the future with a threat of repetition." Id. at 2902. Pyramid invokes both.

A. A "closed-ended" period.

Where there is no threat of further racketeering, H.J. states that "acts extending over a few weeks or months" are not enough. 109 S.Ct. at 2902. Here the securities fraud lasted three months, from early September to late November 1981. Similarly, assuming that a conspiracy to violate securities fraud laws is also a predicate offense under RICO, see United States v. Weisman, 624 F.2d 1118, 1123-24 (2d Cir.1980), any such conspiracy ended with the abandonment of the churning when Attridge returned to the Cayman Islands.

Pyramid apparently argues that Washington International extended the "conspiracy" through 1984 or 1985 by "concealing" its knowledge of (and alleged participation in) the churning. But the Supreme Court held long ago that a conspiracy generally ends when the design to commit substantive misconduct ends; it does not continue beyond that point "merely because the conspirators take steps to bury their traces, in order to avoid detection and punishment after the central criminal purpose has been accomplished." Grunewald v. United States, 353 U.S. 391, 405, 77 S.Ct. 963, 974, 1 L.Ed.2d 931 (1957). After-the-fact concealment "indicate[s] nothing more than that the conspirators do not wish to be apprehended--a concomitant, certainly, of every crime since Cain attempted to conceal the murder of Abel from the Lord." Id. at 406, 77 S.Ct. at 974.

While Grunewald holds open the possibility that concealment could extend a conspiracy if the conspirators expressly plotted it in advance of the substantive crimes, it imposes an almost insurmountable evidentiary hurdle--"direct evidence [of] an express original agreement among the conspirators to continue to act in concert in order...