Allington v. Carpenter

• Citation: 619 F. Supp. 474
• Decision Date: 29 August 1985
• Docket Number: No. CV 84-8403 PAR.,CV 84-8403 PAR.
• Parties: May M. ALLINGTON and Parkway 200, Plaintiffs, v. Kathleen & Noel CARPENTER, Gae & Don Rude, C & R Financial, Inc., Noriko Ishikawa, Joy White, Rank Centaur International Inc., Project 80, Target Renewal, Ltd., Defendants.
• Court: U.S. District Court — Central District of California

619 F. Supp. 474

May M. ALLINGTON and Parkway 200, Plaintiffs, v. Kathleen & Noel CARPENTER, Gae & Don Rude, C & R Financial, Inc., Noriko Ishikawa, Joy White, Rank Centaur International Inc., Project 80, Target Renewal, Ltd., Defendants.

No. CV 84-8403 PAR.

United States District Court, C.D. California.

August 29, 1985.

COPYRIGHT MATERIAL OMITTED

Dolores Cordell, Clark & Trevithick, Los Angeles, Cal., for Allington and Parkway 200.

Michael E. Plotkin, Beverly Hills, Cal., for Carpenters and C & R Financial.

Thomas R. Sheridan, David N. Shafer, Simon & Sheridan, Los Angeles, Cal., for Don and Gae Rude.

ORDER

RYMER, District Judge.

On June 19, 1985, plaintiffs filed a second amended complaint alleging violations of the Racketeering Influenced and Corrupt Organizations (RICO) statute, 18 U.S.C. § 1962(c) and (d). According to the complaint, the five individual and five corporate defendants formed an "association in fact" through which the defendants carried out a scheme to defraud plaintiffs of approximately $190,000 during the period April 1983 to June 1984. The essence of the scheme was falsely to promise high rates of return on loans that were secured by worthless promissory notes or real estate trust deeds. A number of fraudulently induced loans are alleged: a $30,000 loan in April 1983; a $13,000 loan in May 1983; a $20,000 loan in August 1983; a $10,000 loan in September 1983; and a $100,000 loan in March 1984. As pleaded, the moving defendants' participation in the scheme was limited to the March 1984 transaction.

For the reasons stated below, I conclude that the complaint fails adequately to plead a RICO violation against Gae Rude (hereinafter "Rude"), Don Rude, and Don Rude Incorporated. However, because the Supreme Court's clarification of RICO's requirements in Sedima v. Imrex Co., Inc., ___ U.S. ___, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) occurred subsequent to the filing of the complaint, plaintiffs are given leave to file an amended pleading within 30 days of the receipt of this order.

I. Section 1962(c).

To be liable under 18 U.S.C. § 1962(c), a defendant must (1) participate (2) in the affairs of an "enterprise" (3) through a "pattern" of (4) "racketeering activity." In this case, plaintiffs have not adequately pleaded the substantive counts of "racketeering activity," nor have they shown the continuity necessary to establish a "pattern." The complaint also fails to allege an "enterprise" having an existence apart from the pattern of racketeering activity. Finally, plaintiffs have not alleged that defendants Don Rude and Don Rude Inc. participated in the affairs of the enterprise.¹

A. Pleading the Racketeering Acts

"Racketeering activity" is defined in 18 U.S.C. § 1961 as including any act "indictable" under certain enumerated federal criminal statutes. One of these statutes, 18 U.S.C. § 1343, makes wire fraud a criminal offense. Plaintiffs contend that defendants have committed three violations of § 1343 in carrying out their scheme to defraud. To allege a violation of the wire fraud statute, it is necessary to show that (1) the defendant knowingly participated in a scheme to defraud; (2) the defendant used the United States wires or caused a use of the United States wires for the purpose of carrying out the scheme; and (3) the defendant did so with the intent to defraud. United States v. Green, 745 F.2d 1205 (9th Cir.1984); United States v. Bohonus, 628 F.2d 1167 (9th Cir.), cert. denied, 447 U.S. 928, 100 S.Ct. 3026, 65 L.Ed.2d 1122 (1980).

The complaint fails adequately to plead these elements as to some or all of the moving defendants. First, there is no allegation that any of the defendants acted with an intent to defraud. Specific intent must be pleaded in an indictment for mail or wire fraud, see Bohonus, 628 F.2d at 1172, and the same rule should apply to civil complaints alleging such an offense. Second, the complaint does not show that defendants Don Rude and Don Rude Inc. used or caused the use of the United States wires: only Gae Rude is alleged actually to have placed the calls, and the other defendants are not shown to have caused such use.

Finally, plaintiffs have failed to establish that Don Rude and his company participated in the scheme in any way. The complaint simply alleges that Don Rude "knowingly and willingly permitted the use of the premises of D. Rude Inc. for the conduct of the scheme," and that Don Rude Inc. "allowed its offices to be used as a location from which the scheme was practiced upon plaintiffs and further allowed C & R to operate from that location, with knowledge of C & R's fraudulent activities." These allegations clearly do not show that defendants participated as principals in the commission of the predicate acts. Furthermore, to be liable as aiders and abettors, the defendants must be shown consciously to have assisted the commission of the predicate acts in some active way. See Nye & Nissen v. United States, 336 U.S. 613, 620, 69 S.Ct. 766, 770, 93 L.Ed. 919 (1949). The present allegations of knowledge plus presence fall far short of showing such participation in the scheme. See Laterza v. American Broadcasting Co., 581 F.Supp. 408 (S.D.N.Y. 1984).²

B. Pleading the Pattern

If properly pleaded, the acts of wire fraud alleged in the complaint satisfy § 1961(5)'s threshold requirement that a "pattern" include at least two acts of racketeering activity. However, as the Supreme Court noted in Sedima, "proof of two acts of racketeering, without more, does not establish a pattern." 105 S.Ct. at 3285 n. 14 (quoting statement of Sen. McClellan). It is the factor of "continuity plus relationship" which combines to produce a pattern, S.Rep. No. 91-617, p. 158 (1969), U.S.Code Cong. & Admin.News 1970, p. 4007; and therefore the alleged predicate acts must show both "continuity" and "relatedness" to constitute a "pattern" under § 1962. See Sedima, 105 S.Ct. at 3285 n. 14.

The relatedness of the predicate acts is established through proof of common perpetrators, common methods of commission, or common victims. Id.; see also United States v. Stofsky, 409 F.Supp. 609, 614 (S.D.N.Y.1973), aff'd, 527 F.2d 237 (2d Cir.1975), cert. denied, 429 U.S. 819, 97 S.Ct. 66, 50 L.Ed.2d 80 (1976) ("the racketeering acts must have been connected with each other by some common scheme, plan or motive"). Here, the participants (Rude and Carpenter) were the same, and the three wire fraud acts had a single victim. Moreover, the acts had the same purpose: to persuade defendant Allington to transfer $100,000 to a bank account in Switzerland as part of a "deal" whereby she would receive $500,000 a few weeks later in the Grand Cayman Islands. With the same perpetrators, the same victim, and the same motive, it is clear that the three acts were not disconnected but were parts of a single scheme.

To show continuity of racketeering activity, on the other hand, the predicate acts must have occurred in different criminal episodes. Such a requirement is consistent with the connotation of multiple events implicit in the term "pattern." See Northern Trust Bank v. Inryco, Inc., 615 F.Supp. 828 (S.D.N.Y.1985) ("surely the continuity inherent in the term pattern presumes repeated criminal activity, not merely repeated acts to carry out the same criminal activity"); see also United States v. Moeller, 402 F.Supp. 49 (D.Conn.1975). More importantly, it is the only construction which gives meaning to Congress' intended rejection of RICO liability predicated upon isolated or sporadic criminal acts. The legislative history contains repeated references to such a limitation, see, e.g., 116 Cong.Rec. 35193 (statement of Rep. Poff) (RICO "not aimed at the isolated offender"), and the Senate Report makes it clear that the continuity requirement was intended to exclude such isolated criminal events:

The target of RICO is thus not sporadic activity. The infiltration of legitimate business normally requires more than one "racketeering activity" and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce the pattern.³

S.Rep. No. 91-617, p. 158 (1969).

Consistent with this intent to exclude single criminal events, a "pattern" of racketeering activity must include racketeering acts sufficiently unconnected in time or substance to warrant consideration as separate criminal episodes. The acts of wire fraud alleged in the complaint do not meet this standard. Each act was a part of the same criminal transaction: a telephone call to induce Allington to send $100,000 to Switzerland, on the understanding the the money plus a finder's fee would be delivered a short time later to the Grand Cayman Islands; Allington's wiring of the money to Switzerland the next day; and a telephone call six weeks later to the Grand Cayman Islands to set up the account into which the money was to be transferred. Together the acts comprise a single criminal episode; they do not constitute a "pattern" of racketeering activity.

C. Pleading the Enterprise

Two elements are necessary to establish an "enterprise" under §§ 1961(4) and 1962(c). First, there must be "evidence that the various associates function as a continuing unit," United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528-29, 69 L.Ed.2d 246 (1981); and second, the enterprise must have an existence "separate and apart from the pattern of activity in which it engaged." Id.

The circuits are divided as to the proper interpretation of these tests. The Eighth Circuit has held that a RICO enterprise must have "an ascertainable structure distinct from that inherent in the conduct of a pattern of racketeering activity," United States v. Bledsoe, 674 F.2d 647, 665 (8th Cir.1982), cert. denied, 459 U.S. 1040, 103 S.Ct. 456, 74 L.Ed.2d 608 (1983), and the Third and Fourth Circuits also have endorsed the separate existence requirement. See United States v. Riccobene, 709 F.2d 214 (3rd Cir.),...