McLaughlin v. Anderson
| Decision Date | 21 April 1992 |
| Docket Number | No. 557,D,557 |
| Citation | 962 F.2d 187 |
| Parties | RICO Bus.Disp.Guide 8001 Thomas V. McLAUGHLIN; Joseph Gall; Macgall, Inc.; and Macgall Associates Limited Partnership, Plaintiffs-Appellants, v. Arthur ANDERSON; Capital Housing Financing Corporation, Inc.; Imagineers, Inc.; David Harrity; and Handler and Friar Architects, Inc., also known as Handler Associates Architects, Defendants-Appellees. ocket 91-6184. |
| Court | U.S. Court of Appeals — Second Circuit |
Terrance G. Reed (Samuel J. Buffone, Asbill, Junkin, Myers & Buffone Chartered, Washington, D.C.), for plaintiffs-appellants.
David E. Rosengren, Pepe & Hazard, Hartford, Conn., for defendants-appellees, Arthur Anderson, Capital Housing Financing Corporation, Inc., and Imagineers, Inc.
Carl J. Schuman, Asst. U.S. Atty., for the D. of Conn., Hartford, Conn. (Albert S. Dabrowski, U.S. Atty., for the D. Conn., New Haven, Conn.), for defendant-appellee David B. Harrity.
Richard S. Order (Bruce W. Raphael, Updike, Kelly & Spellacy P.C., Hartford, Conn.), for defendant-appellee Handler & Friar Architects, Inc., a/k/a Handler Associates Architects.
Before: OAKES, Chief Judge, WALKER, Circuit Judge, and PARKER, District Judge. *
This case draws us once again into the thicket created by civil actions under the Racketeer Influence and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (RICO). The plaintiffs, Thomas McLaughlin, Joseph Gall, Macgall, Inc., and Macgall Associates Limited Partnership (collectively Macgall), filed a complaint alleging that the defendants committed and conspired to commit a series of mail frauds and extortions in violation of RICO § 1962(c) and (d). The district court dismissed the complaint on the ground that Macgall had failed to allege a pattern of racketeering activity. We now affirm, though for somewhat different reasons than those advanced by the district court. In analyzing the issues on this motion to dismiss, we must take as true the facts as alleged in the complaint and as supplemented by the RICO case statement ordered by the district court.
This case arose out of plaintiffs' efforts to acquire a Department of Housing and Urban Development (HUD) project to rehabilitate thirty-two buildings for low-income housing in Hartford, Connecticut. Plaintiffs successfully bid for the project on March 19, 1986 and acquired title on May 8, 1986. The defendants are Capital Housing Financing Corporation (CHFC), which financed the purchase and rehabilitation of the project; Imagineers, Inc., which administered the project for CHFC; Arthur Anderson (no relation to the accounting firm), an officer or agent of CHFC and Imagineers who oversaw the bidding for and management of the project; David Harrity, who worked for HUD's Hartford office; and Handler & Friar Architects, Inc., which prepared specifications for the required renovations.
Plaintiffs allege that after they had successfully bid for the project, defendants engaged in a course of fraud and extortion in an effort to force plaintiffs to surrender the project or turn over an interest in it to the second highest bidder, Harold Rothstein. In some tension with this allegation, plaintiffs also allege that defendants conspired with HUD to induce plaintiffs to bid on the project in the first instance.
Macgall alleges that the scheme began in January of 1986, when HUD mailed a Prospectus and Invitation to Bid to Macgall. That bid document stated the terms of the offering and instructed interested parties to deal with Anderson in arranging financing for acquisition and completion of the project. Macgall then contacted Anderson, and Anderson allegedly made numerous representations about the availability of highly favorable financing terms. In reliance on these terms, Macgall bid $863,200 for the project. On March 19, 1986, HUD determined that Macgall was the highest bidder. The next highest bidder, Harold Rothstein, bid only $350,000.
After being declared the high bidder, Macgall deposited $86,320 with HUD and began negotiating with Anderson for financing so that the deal could close, as required, within thirty days of the bid. Up to this point, plaintiffs allege that Anderson was attempting to induce them to acquire the project. At a meeting on March 21, however, Anderson indicated his displeasure with Macgall's high bid. Indeed, Macgall alleges that at this meeting Anderson threatened that Following this threat, Anderson allegedly urged Macgall to enter into a joint venture with Harold Rothstein.
Pursuant to this request, Macgall met with Rothstein to discuss the prospect of a joint venture. Finding Rothstein's terms unreasonable, the plaintiffs decided to retain sole ownership of the project.
Plaintiffs next allege that Anderson decided to punish them for rejecting Rothstein. This punishment was designed either to force plaintiffs to default on their bid, allowing Rothstein to take over the project, or to cause plaintiffs such financial difficulties as to preclude them from competing with Rothstein for any future projects.
Plaintiffs allege a series of acts in furtherance of this purpose. These ranged from attempting to get Macgall's project manager disqualified, to reneging on various financing terms, to attempting to prevent Macgall from beginning work on the project. According to plaintiffs, these efforts prevented Macgall from closing on the project within thirty days of the bid, costing Macgall $22,000 in penalties, and greatly increasing the ultimate costs of completing the rehabilitation.
On December 18, 1989, plaintiffs filed suit in the District Court for the District of Connecticut, alleging that defendants had committed and conspired to commit a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. Plaintiffs also alleged a host of state law claims.
The district court dismissed plaintiffs' complaint. The court reasoned that plaintiffs (1) failed to plead at least two predicate acts with particularity as to defendants Harrity and Handler & Friar; (2) failed adequately to plead that Anderson, CHFC and Imagineers engaged in a pattern of racketeering activity; and (3) failed to allege an agreement between the defendants to conspire to violate RICO. The district court then declined to exercise pendant jurisdiction over plaintiffs' state law claims.
We agree with the district court's reasoning on grounds (1) and (3). We do not reach ground (2) because we think that plaintiffs have also failed to plead adequately that defendants Anderson, CHFC, and Imagineers committed two predicate acts. Accordingly, we affirm the decision of the district court without considering whether, if properly pled, Anderson's conduct would constitute a pattern of racketeering activity.
A district court should grant a motion to dismiss a RICO claim only if " 'it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.' " H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 109 S.Ct. 2893, 2905-06, 106 L.Ed.2d 195 (1989) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)). In applying this standard, the district court must "read the facts alleged in the complaint in the light most favorable to petitioners." Id., 492 U.S. at 249, 109 S.Ct. at 2906.
In order to prevail, a civil RICO plaintiff must establish that defendants "conduct[ed] or participate[d] ... in the conduct of [an] enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). Racketeering activity includes a whole host of criminal acts, including mail fraud and extortion. § 1961(1). The elements of a "pattern of racketeering activity" are not well defined. At a minimum, plaintiffs must demonstrate "at least two acts of racketeering activity" within a ten year period. § 1961(5).
Plaintiffs assert that they have alleged at least six predicate acts of racketeering activity. They identify the following mail frauds. (1) Pre-bid mailings by HUD containing fraudulent descriptions of the number of units eligible for HUD subsidies and the condition of the units; (2) a March 30, 1986 letter from HUD to Macgall's project supervisor, Madden, purporting to disqualify Madden from participating in the project; (3) a letter from Anderson to Macgall, dated April 9th, 1986, reneging on the financing terms offered to Macgall before the bidding; (4) a letter, dated May 19, 1986 from Handler & Friar to Macgall, setting forth a proposal for architectural services; and (5) a letter from Anderson to Macgall, dated June 16th, 1986, instructing Macgall to cease construction until the closing of the construction loan. In addition, plaintiffs allege a single act of attempted extortion by Anderson in the March 21 meeting when Anderson threatened to "bury" Macgall. We will consider each of these allegations in turn.
To prove a violation of the mail fraud statute, plaintiffs must establish the existence of a fraudulent scheme and a mailing in furtherance of the scheme. See Schmuck v. United States, 489 U.S. 705, 712, 109 S.Ct. 1443, 1448, 103 L.Ed.2d 734 (1989); Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435 (1954). While there is no requirement that the defendant personally mail a letter, the plaintiff must show "1) that the defendant 'caused' the mailing ... and 2) that the mailing was for the purpose of executing the scheme or ... 'incidental to an essential part of the scheme.' " United States v. Bortnovsky, 879 F.2d 30, 36 (2d Cir.1989) (quoting Pereira v. United...
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