Deck v. Engineered Laminates

• Decision Date: 17 November 2003
• Docket Number: No. 02-3100.,02-3100.
• Citation: 349 F.3d 1253
• Parties: Brent DECK, Plaintiff-Appellant, v. ENGINEERED LAMINATES; Keith Illig; Elkin McCallum; KHI, Inc.; Excel Laminates, Inc.; Joan Fabrics, Inc.; Joan Automotive Industries, Inc.; Joan Laminates, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

349 F.3d 1253

Brent DECK, Plaintiff-Appellant, v. ENGINEERED LAMINATES; Keith Illig; Elkin McCallum; KHI, Inc.; Excel Laminates, Inc.; Joan Fabrics, Inc.; Joan Automotive Industries, Inc.; Joan Laminates, Inc., Defendants-Appellees.

No. 02-3100.

United States Court of Appeals, Tenth Circuit.

November 17, 2003.

COPYRIGHT MATERIAL OMITTED

Submitted on the briefs:^* Brent Deck, Pro Se.

Bill Hays, Jason E. Pepe, and Chelsi Hayden, of Shook, Hardy & Bacon, L.L.P., and Lawrence L. Ferree, III, of Ferree, Bunn, O'Brady & Rundberg, Overland Park, KS, for Defendants-Appellees.

Before HARTZ, Circuit Judge, BARRETT and BRORBY, Senior Circuit Judges.

HARTZ, Circuit Judge.

Plaintiff Brent Deck, proceeding pro se, appeals the district court's entry of judgment on the pleadings on his civil claim under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-68. We must reverse.

RICO provides certain advantages to plaintiffs, but it also presents substantial hurdles for plaintiffs to overcome to establish a proper claim. Of specific concern on this appeal, RICO requires the plaintiff to prove that the defendants committed at least two predicate acts (violations of criminal statutes listed in RICO, § 1961(1)) and that the plaintiff has suffered injury to his business or property as a result of those predicate acts. Defendants have challenged whether some of the acts alleged by Plaintiff are proper RICO predicate acts and whether Plaintiff has alleged cognizable injury to his business or property.

We agree in part with Defendants. We hold that witness tampering in a state-court proceeding is not a RICO predicate act. We also hold that although extortion is a proper predicate act, a claim of extortion cannot be based on mere abusive litigation. On the other hand, mail fraud and wire fraud are proper predicate acts (a proposition not challenged by Defendants), and we hold that Plaintiff has adequately alleged that fraud injured his business or property. In particular, Plaintiff had a property interest in a cause of action allegedly prejudiced by the fraud; and restrictions on his competing with Defendants (which allegedly were imposed by a fraudulently induced agreement) would constitute an injury to his business. Finally, we reject Defendants' contention that Plaintiff's RICO claim must be dismissed as unripe.

BACKGROUND

Because the district court entered judgment on the pleadings under Fed.R.Civ.P. 12(c), we "accept[] all well-pleaded allegations in the complaint as true, and constru[e] them in the light most favorable to the plaintiff." Estes v. Wyo. Dep't of Transp., 302 F.3d 1200, 1203 (10th Cir. 2002). The complaint at issue is Plaintiff's Revised Third Amended Complaint.

Plaintiff is a former employee of Defendant Engineered Laminates (EL). EL was a general partnership between Joan Laminates, Inc., whose president is Elkin McCallum, and KHI, Inc., whose president is Keith Illig. Excel Laminates, Inc., Joan Fabrics, Inc., and Joan Automotive Industries, Inc., are successors, agents, or transferees of EL. Illig is the president of Excel Laminates, Inc., and McCallum is president of the other two companies.

After Plaintiff's employment with EL ended, Plaintiff began to compete with EL. EL sued Plaintiff in Kansas state court on the ground that he was using its proprietary trade secrets. Plaintiff counterclaimed, alleging abuse of process, fraud, and breach of contract. On December 2, 1994, the parties reached a settlement agreement, which was executed by Illig, with McCallum's authorization. Under the agreement Plaintiff released EL from his countersuit in return for payment to Plaintiff of $35,000 in five installments during the following four years. Plaintiff's complaint, although far from clear on the point, also appears to allege that the agreement restricted his ability to compete with EL. In light of our duty to construe pro se pleadings liberally, see Hunt v. Uphoff, 199 F.3d 1220, 1223 (10th Cir. 1999), we will assume that Plaintiff has made such an allegation.

Beginning in October 1994, EL "transferred assets, employees, associates, representatives, and business from [EL] to Excel Laminates" and other entities owned and controlled by Illig and McCallum, R., Vol. 1, Doc. 26, at 7-8, ¶¶ 19, 22, although EL "remained in existence until September of 1998, when it had a cash value of about $70,000." Id. at 15, ¶ 52. EL defaulted on the settlement agreement in December 1997, failing to make the final two payments amounting to $15,000.

Plaintiff brought suit in federal court, alleging RICO violations (a substantive violation and a conspiracy) by Defendants and state-law claims of breach of contract, fraud, unjust enrichment, and outrageous conduct. Federal jurisdiction over the lawsuit hinges on the adequacy of the RICO allegations. The RICO allegations center on the state-court action, which Plaintiff contends was filed without a sound basis in fact or law. He claims that Defendants gave or suborned perjured testimony during discovery, prolonged the litigation, and then settled the case with the intention of liquidating EL without its paying Plaintiff the agreed-upon amount. He further claims that he settled in reliance on fraudulent representations by Defendants and that he performed all his duties under the settlement agreement.

Defendants moved for judgment on the pleadings. The district court dismissed the RICO claims with prejudice and then declined to exercise supplemental subject-matter jurisdiction over Plaintiff's state causes of action, dismissing them without prejudice. Upon Plaintiff's motion for reconsideration, the court modified its order slightly, but did not change the result. This appeal followed.

DISCUSSION

We review de novo a ruling on a motion for judgment on the pleadings under Fed. R.Civ.P. 12(c). As with a ruling under Fed.R.Civ.P. 12(b)(6), we uphold a dismissal "only when it appears that the plaintiff can prove no set of facts in support of the claims that would entitle the plaintiff to relief." Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 529 (10th Cir.1992) (internal quotation marks omitted).

RICO allows private parties to bring civil suits for treble damages. 18 U.S.C. § 1964(c). To state a RICO claim, a plaintiff must allege that the defendant violated the substantive RICO statute, 18 U.S.C. § 1962, by setting forth "four elements: `(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir.2002) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)). A pattern of racketeering activity must include commission of at least two predicate acts. Resolution Trust Corp. v. Stone, 998 F.2d 1534, 1543 (10th Cir.1993). Also, a plaintiff has standing to bring a RICO claim only if he was injured in his business or property by reason of the defendant's violation of § 1962. Robbins, 300 F.3d at 1210.

The district court dismissed Plaintiff's RICO claims for lack of standing on the ground that he had failed to allege the requisite injury. To determine whether Plaintiff properly alleged an injury to his business or property, we first examine the alleged predicate acts that purportedly caused the injury. See Sedima, 473 U.S. at 497, 105 S.Ct. 3275 ("[T]he compensable injury necessarily is the harm caused by predicate acts...."). Plaintiff alleges as predicate acts that Defendants committed mail and wire fraud by using the United States mail and facsimile-machine transmissions to submit settlement offers and exchange a fraudulent settlement agreement, in violation of 18 U.S.C. §§ 1341, 1343. He also alleges witness tampering in connection with the state case, in violation of 18 U.S.C. § 1512; extortion through threats of prolonged, baseless litigation, in violation of 18 U.S.C. §§ 1951, 1961(1)(A); and wire fraud predicated on a defendant's false statement that EL no longer existed.

We must, however, disregard two of the alleged predicate acts. First, witness tampering is actionable under 18 U.S.C. § 1512 only if it takes place "in an official proceeding," which is defined in § 1515(a)(1) to include only federal proceedings. Accordingly, tampering with a witness in a state judicial proceeding, the offense that Plaintiff alleged, is not a RICO predicate act.

As for extortion, Plaintiff alleges no more than abusive litigation. His complaint states the following:

Interference with Commerce or Extortion

(18 USC 1951) (18 USC 1961(1)(A))

54. In a final meeting with [Plaintiff] after November 30, 1992, Illig threatened that, regardless of merit, Illig could "tie you up in court" if [Plaintiff] exercised his right to compete against EL rather than agree to Defendant's new contractual terms.

55. About April, 1993, Illig, acting through EL, brought a suit against [Plaintiff], which Illig maintained through the use of fraudulent pleadings or false testimony regarding material facts, until two years after [Plaintiff] had severed relations with Defendant.

56. Pleadings and testimony included known and deliberate false or misleading allegations that [Plaintiff] had entered into an oral covenant not to compete, that EL had a secret new machine design which it sought to protect, and that EL had taken customary steps to protect its alleged secrets.

57. Illig used force, or fear of economic harm, or color of official right, to seek or obtain [Plaintiff]'s non-competition, or services, or contractual agreement, or property.

R., Vol. 1, Doc. 26 at 15-16.

Although the alleged conduct is certainly reprehensible, it does not in itself constitute extortion under § 1951. Section 1951(b)(2) defines "extortion" as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." We recognize that litigation can induce fear in a defendant; and it would be fair, at...