Feinstein v. Resolution Trust Corp.

• Decision Date: 05 June 1991
• Docket Number: 91-1181,Nos. 91-1030,s. 91-1030
• Citation: 942 F.2d 34
• Parties: , RICO Bus.Disp.Guide 7806 William C. FEINSTEIN, et al., Plaintiffs, Appellants, v. RESOLUTION TRUST CORPORATION, etc., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 34

942 F.2d 34

20 Fed.R.Serv.3d 1093, RICO Bus.Disp.Guide 7806

William C. FEINSTEIN, et al., Plaintiffs, Appellants, v. RESOLUTION TRUST CORPORATION, etc., et al., Defendants, Appellees.

Nos. 91-1030, 91-1181.

United States Court of Appeals, First Circuit.

Heard June 5, 1991.

Decided Aug. 13, 1991.

Richard M. Howland with whom Leslie A. McLellan and Richard M. Howland, P.C., were on brief, Amherst, Mass., for plaintiffs, appellants.

Paul R. Devin with whom Deborah S. Griffin, Lon A. Berk and Peabody & Arnold, were on brief, Boston, Mass., for defendant, appellee Resolution Trust Corp.

Thomas M. Elcock with whom Jean M. Kelley, Cheryl A. Enright and Morrison, Mahoney & Miller, were on brief, Boston, Mass., for defendants, appellees Patrick Evans and Swartz, Evans, Dickinson, Parmeter, Tinker & Timmerman, P.C.

Stephen W. Gebo with whom Conboy, McKay, Bachman & Kendall, Watertown, N.Y., and Barnes & Etheredge, Northampton, Mass., were on brief, for defendants, appellees Carthage Federal Sav. and Loan Ass. and Edwin W. Sweet.

Before SELYA and CYR, Circuit Judges, and KEETON, ^* District Judge.

SELYA, Circuit Judge.

These appeals test the pleading threshold for civil actions brought under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. After studying the threshold's architecture, we affirm the district court's dismissal of the plaintiffs' complaint for failure to state an actionable claim.

I. BACKGROUND

We summarize the facts consistent with our obligation under the jurisprudence of Fed.R.Civ.P. 12(b)(6) to give the complaint a highly deferential reading, accepting the well-pleaded facts therein as true and drawing all reasonable inferences in the plaintiffs' favor. See Conley v. Gibson, 355 U.S. 41, 45-48, 78 S.Ct. 99, 101-03, 2 L.Ed.2d 80 (1957); Dartmouth Review v. Dartmouth College, 889 F.2d 13, 16 (1st Cir.1989). "We exempt, of course, those 'facts' which have since been conclusively contradicted by plaintiffs' concessions or otherwise, and likewise eschew any reliance on bald assertions, unsupportable conclusions, and opprobrious epithets." Chongris v. Board of Appeals, 811 F.2d 36, 37 (1st Cir.), cert. denied, 483 U.S. 1021, 107 S.Ct. 3266, 97 L.Ed.2d 765 (1987).

William Feinstein, Bennett Gaev, John Herbert, Richard Krasnor, Jan Krasnor, Henry Casten and Nancy Casten (collectively, "plaintiffs" or "appellants") entered into four separate joint venture agreements with Patrick Gleason. The purpose of each joint venture was "to hold, manage, buy, sell, mortgage, hypothicate [sic], exchange [and] pledge" certain real estate located in Watertown, New York. ¹ Gleason, a Massachusetts attorney, was to give legal advice to the plaintiffs, choose the properties, manage the joint ventures' affairs, and keep the necessary records. The plaintiffs were to provide the wherewithal for purchasing the properties, through bank financing if desirable. William Foster, a Massachusetts real estate broker, acted as a scout, finding suitable parcels for acquisition. In the harsh light of retrospect, the plaintiffs now allege that Gleason, Foster, and a host of other defendants practiced a scheme to defraud.

As set forth in the complaint, the scheme gained headway with the joint venturers' purchase of the Watertown properties. In the course of these acquisitions, Gleason and Foster dealt with Patrick Evans (a New York lawyer) and his law firm, Swartz, Evans, Dickinson, Parmeter, Tinker & Timmerman, P.C. (the "Swartz Firm"); Carthage Federal Savings and Loan Association (an institutional lender); and Edwin Sweet (who was both an appraiser and a director of Carthage Federal). The plaintiffs allege that Evans and the Swartz Firm, while representing the plaintiffs, prepared dual closing statements for these sales: one set for the sellers' use, reflecting the actual selling prices; the other set for the plaintiffs' consumption, reflecting inflated prices. The plaintiffs were not informed of the true costs of acquiring the real estate. Moreover, Evans supposedly doubled his legal fees in connection with the acquisitions by the Gaev and Feinstein joint ventures; Gleason and Foster allegedly induced Sweet to inflate his appraisals to square with the fictitious prices; and Carthage Federal is said to have accepted Sweet's rigged appraisals as a basis for granting purchase money mortgages on the properties. The Swartz Firm, Evans, Sweet, and Carthage Federal are all appellees.

A second group of appellees entered the picture in or after June 1988, when, at a series of meetings with the various plaintiffs, Gleason and Foster proposed trading the Watertown properties for properties in Houston, Texas. Commonwealth Federal Savings and Loan Association, represented here by its conservator, Resolution Trust Corporation ("RTC"), allegedly offered to exchange foreclosed Houston real estate for the Watertown properties. In order to do the deal, Gleason is said to have induced the plaintiffs to execute limited powers of attorney. He then altered these documents to expand his apparent authority, enlisting Carol Majkowski to execute false notarial affidavits in connection with the forged powers of attorney. The plaintiffs claim that Gleason and Foster hired Thomas Humes, a New York real estate broker, to provide overgenerous appraisals of the Watertown properties; and that these fraudulent appraisals, along with assignments executed by virtue of the bogus powers of attorney, were embraced by Commonwealth Federal when, in August 1988, it loaned Gleason and Foster funds secured by second mortgages on plaintiffs' Watertown assets, enabling Gleason and Foster to purchase the Houston properties in their own names using the plaintiffs' equity as collateral.

The plaintiffs also charged that, as part of the overall scheme, Gleason continually exceeded his authority to draw on the funds of the joint ventures; refused to provide an accounting of his actions as required in the joint venture agreements; commingled the assets of the four joint ventures; and wrongfully transferred funds to other accounts. None of the appellees is alleged to have been involved in, or to have benefitted from, these flagitious activities.

Eventually, the bubble burst. On June 5, 1990, the plaintiffs, invoking federal question jurisdiction, 28 U.S.C. § 1331, brought suit in the United States District Court for the District of Massachusetts against Gleason, Foster, Evans, the Swartz Firm, Carthage Federal, Sweet, Commonwealth Federal, Majkowski, Humes, and two others (Regina Gleason and Daniel Gleason). ² Count 1 of the complaint alleged that the eleven defendants, "[t]hrough their scheme to defraud Plaintiffs ..., have conspired to and have engaged in a pattern of racketeering activity in violation of 18 U.S.C. [s] 1962(c) and (d)." The remaining counts asserted claims under state law for alleged breach of fiduciary duty, common law fraud, breach of contract, and legal malpractice.

The several defendants filed no fewer than four separate motions to dismiss. It would serve no useful purpose to describe the motions individually. Collectively, the motions contended that the complaint was open to dismissal for (a) failure to state claims upon which relief could be granted, (b) lack of subject matter and/or personal jurisdiction, and (c) improper venue. Following plethoric briefing and oral argument, the district court ruled ore tenus that, as to the six appellees, the RICO count fell short of articulating an actionable claim. ³ In the court's view, the complaint failed sufficiently to allege either "a pattern of racketeering activity" or that defendants "comprised an association which functioned as a criminal enterprise." Finding no other basis for the assertion of federal jurisdiction over the appellees, the court dismissed the state-law counts, without prejudice, for lack of subject matter jurisdiction. These appeals ensued.

II. THRESHOLD MATTERS

We turn first to certain preliminary matters which, conceivably, might pretermit our consideration of the merits of these appeals.

A. Appellate Jurisdiction.

Fed.R.Civ.P. 54(b) permits the entry of one or more final judgments as to fewer than all the parties in a multi-party action, and thus an appeal, "upon an express determination that there is no just reason" to delay the entry of judgment. The district court allowed the appellees' motions for entry of final judgments in this case, ⁴ notwithstanding that the suit was to proceed as against certain other defendants. In so doing, however, the district court neglected to make specific findings or otherwise to state its reasons for allowing earlier-than-usual appeals to be taken.

We painstakingly portrayed the preferred practice under Rule 54(b) in Spiegel v. Trustees of Tufts College, 843 F.2d 38 (1st Cir.1988). We stressed that, in most cases, a statement of reasons would likely be necessary to justify resort to Rule 54(b). Id. at 43 & n. 4. We warned that "[a] party who seeks the special dispensation that Rule 54(b) envisions has an obligation, at the very least, to point out the requirement and to ask that the court ... make a brief but particularized statement of its reasons [for acting]," in order to demonstrate that the rule was being properly invoked. Id. at 44 n. 5. That warning went unheeded in this case.

While we could, of course, refuse to accept jurisdiction under the circumstances, we have concluded that this is the rare case where the absence of Rule 54(b) findings can be overlooked. Without lengthy enumeration, it suffices to say that, here, the district court, faced with motions asking that it "enter a separate and final judgment in [the movants'] favor ... making an express determination that there is no just reason for delay of the entry of this judgment," granted them. Each motion was accompanied by a memorandum explaining why the request conformed to the imperatives of Rule 54(b). Under these circumstances,...