Uni*Quality, Inc. v. Infotronx, Inc.

• Decision Date: 10 September 1992
• Docket Number: No. 91-3554,91-3554
• Citation: 974 F.2d 918
• Parties: Page 918 974 F.2d 918 23 Fed.R.Serv.3d 887, RICO Bus.Disp.Guide 8074 UNI*QUALITY, INCORPORATED, an Illinois corporation, Plaintiff-Appellant, v. INFOTRONX, INCORPORATED, an Illinois corporation, Charles J. Baker, individually, and Wade Baker, individually, Defendants-Appellees. United States Court of Appeals, Seventh Circuit
• Court: U.S. Court of Appeals — Seventh Circuit

Page 918

974 F.2d 918

23 Fed.R.Serv.3d 887, RICO Bus.Disp.Guide 8074

UNI*QUALITY, INCORPORATED, an Illinois corporation Plaintiff-Appellant v INFOTRONX, INCORPORATED, an Illinois corporation, Charles J.

Baker, individually, and Wade Baker, individually,

Defendants-Appellees.

No. 91-3554.

United States Court of Appeals Seventh Circuit.

Argued June 12, 1992.

Decided Sept. 10, 1992.

Suzan Sutherland, Mary Jane Fait (argued), Siegal, Lynn & Capitel, Northbrook, Ill., for plaintiff-appellant.

Steven J. Rosenberg (argued), Chicago, Ill., for defendants-appellees.

Before CUMMINGS and MANION, Circuit Judges, and GORDON, Senior District Judge. ^*

MANION, Circuit Judge.

Infotronx, Inc. could not (or would not) pay Uni*Quality, Inc., a company it had hired to perform services for it, despite promises to pay for those services. Characterizing the promises as false representations and part of scheme to defraud it of the value of its services, Uni*Quality sued Infotronx, Charles Baker, Infotronx's president, and Wade Baker, Infotronx's vice-president, in federal court. Uni*Quality's suit alleged that Infotronx violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-68 (RICO); mail and wire fraud, 18 U.S.C. §§ 1341 and 1343, were the alleged predicate acts. The complaint also alleged supplemental state law fraud and breach of contract claims. The district court dismissed Uni*Quality's RICO claim and relinquished jurisdiction over the state law claims pursuant to United Mineworkers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). The court subsequently denied Uni*Quality's motion under Fed.R.Civ.P. 59 to amend its judgment and denied Uni*Quality's request for leave to amend its complaint. Uni*Quality appeals, and we affirm.

I.

Since we are reviewing the grant of a motion to dismiss, our review is de novo. Caldwell v. City of Elwood, 959 F.2d 670, 671 (7th Cir.1992). We take all facts alleged in the complaint, as well as any reasonable inferences from those facts, in the light most favorable to Uni*Quality. Id.

Uni*Quality's complaint alleged that in January 1990, Infotronx began work on a project for the May Company to develop a computer software package for labor scheduling. In the spring of 1990, Infotronx presented a labor scheduling system to May, which May rejected. Shortly thereafter, Infotronx began to hire various software companies to help develop the labor scheduling system, despite the fact that Infotronx knew it did not have the funds to complete the project. Among these companies was Uni*Quality.

The complaint details Infotronx's hiring of Uni*Quality, and various meetings and conversations between representatives of the two companies during the course of the companies' business relationship. In July 1990, Tom Gruenwald, Uni*Quality's president, and Don O'Brien, its recruiting manager, met with Wade Baker and Randolph Reitz, an Infotronx vice-president, to discuss the services Uni*Quality might provide for Infotronx. During this meeting, Infotronx's representatives urged Uni*Quality to send resumes of some Uni*Quality employees. As a result of this discussion, Uni*Quality mailed Infotronx a letter along with two resumes.

Infotronx decided to hire Uni*Quality, and in August the two signed a contract for Uni*Quality to provide software development services for Infotronx. Under the contract, Uni*Quality provided software programmers to Infotronx and billed Infotronx for the programmers' time and for any software products Uni*Quality purchased for Infotronx. The contract was not limited to any particular time period. Between August 20, 1990 and March 31, 1991, Uni*Quality mailed weekly invoices to Infotronx.

Infotronx failed to pay most of the invoices. During August and September 1990, Infotronx paid Uni*Quality nothing. By October 11, 1990, Infotronx was far behind on its payments. On that day, O'Brien met with Kyle Hauser, an Infotronx financial officer. During the meeting, Hauser gave O'Brien the old line, "The check [--in this case for $25,000--] is in the mail." Hauser also told O'Brien that Infotronx would pay Uni*Quality $20,000 per week until the outstanding balance owed by Infotronx was paid.

Uni*Quality did receive a check for $25,000, dated October 12, 1990, through the mail. The next week, Infotronx mailed Uni*Quality another check for about $15,700. However, despite Hauser's promise, Uni*Quality received no regular weekly payments. Sometime later in October, Gruenwald met with Charles Baker and Randolph Reitz. During the meeting, Baker acknowledged that Infotronx owed Uni*Quality over $100,000. Baker told Gruenwald that Infotronx had good credit, and that it would pay Uni*Quality the balance in full within one week. Baker knew, however, that Infotronx would be unable to pay Uni*Quality in full for either its past or future services. The only reason Baker promised to pay Uni*Quality in full was to induce Uni*Quality to keep providing services in the future.

One week after another came and went without Uni*Quality receiving the payment Baker had promised. The weeks stretched into months, until finally, in December 1990, Gruenwald called Hauser to complain that Uni*Quality might not be able to pay the consultants working on the May project because Infotronx had not paid Uni*Quality. A short time later Wade Baker phoned Gruenwald to tell him that Infotronx liked Uni*Quality's work and wanted to continue to work with them. Wade Baker promised to send a check immediately for any balance outstanding for more than thirty days. True to form, however, Baker did not send the check. Gruenwald decided a week later to visit Wade Baker personally. At that time, Baker gave Gruenwald a check for approximately half of what he had promised. Besides receiving this check, Gruenwald also received more promises. Baker told Gruenwald that if Uni*Quality would continue to provide its services, Infotronx would provide future work for Uni*Quality and would pay Uni*Quality a percentage of the revenue Infotronx received from the labor scheduling system if any of the payments owed Uni*Quality were not paid.

Based on Baker's promises to Gruenwald, Uni*Quality continued to provide services for Infotronx through February 1991. In January, May finally accepted the labor scheduling system. Although the May project apparently ended happily for Infotronx, Uni*Quality was not so fortunate. Despite all of Infotronx's promises, Infotronx has not paid any of the outstanding balance it owed Uni*Quality, despite numerous demands. Nor has Infotronx given Uni*Quality any more work or paid to Uni*Quality any of the revenue it received from the labor scheduling system. Finally becoming fed up with Infotronx's recalcitrance, Uni*Quality filed this suit.

The district court denied Infotronx's original motion to dismiss the RICO claim, which was based solely on the ground that Uni*Quality had failed to plead the alleged predicate acts of mail and wire fraud with the specificity required by Fed.R.Civ.P. 9(b). Infotronx then submitted a second motion based on both a lack of specificity under Rule 9(b) and on the complaint's failure to allege a pattern of racketeering activity. A day before Uni*Quality's response brief was due, the district court granted Infotronx's motion. In a terse order, the court stated that the complaint failed to set forth any acts of mail fraud, and that even if it did, those acts did not amount to a pattern of racketeering activity. Having dismissed the RICO claim, the only basis for federal jurisdiction in this case, the court dismissed Uni*Quality's state law claims without prejudice.

Uni*Quality filed a timely motion to alter or amend the district court's judgment and also requested leave to amend its complaint. In that motion, Uni*Quality set forth additional facts concerning fraud that Infotronx allegedly had perpetrated against other companies that had performed services for it. The motion also raised legal arguments explaining why Uni*Quality believed it had properly alleged a pattern of racketeering activity.

In an order somewhat longer and more detailed than its original order, the district court denied Uni*Quality's motion. The court first held that the acts set forth in the complaint, even as elucidated by the motion, did not constitute mail or wire fraud. The court went on to hold that even if the complaint did allege mail or wire fraud, it did not set forth a pattern of racketeering activity. The information about alleged fraud against other companies did not change things, according to the court, because that information was not specific enough to meet Rule 9(b)'s requirements.

II.

Uni*Quality's theory of fraud is that Infotronx, not having enough money to complete the labor scheduling project for May, induced Uni*Quality and other companies to supply free (or cut-rate) services by falsely promising that it would pay in full for those services when it never had any intention of doing so. Thus, Infotronx fraudulently obtained the value of the services provided. The mailings and telephone conversations that turned this fraudulent scheme into mail and wire fraud included Uni*Quality's mailing of invoices and other information to Infotronx, the phone conversations in which Infotronx representatives assured Uni*Quality that payment was forthcoming, and even the mailing of checks for partial payment from Infotronx to Uni*Quality, which Uni*Quality says were intended to lull it into thinking that Infotronx really was going to eventually pay.

Infotronx says this was not fraud at all but, rather, just an imaginative lawyer's attempt to recast a simple debt collection case as a violation of a federal criminal statute so that Uni*Quality may use RICO's treble damages provisions and the adverse consequences that come from charges of "racketeering" to bludgeon Infotronx and obtain a favorable settlement. Whether Infotronx is correct need not...