Fleet Credit Corp. v. Sion
| Decision Date | 01 August 1989 |
| Docket Number | No. 89-1206,89-1206 |
| Citation | 893 F.2d 441 |
| Parties | RICO Bus.Disp.Guide 7405 FLEET CREDIT CORPORATION, Plaintiff, Appellant, v. Anthony SION, et al., Defendants, Appellees. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Peter A. Biagetti with whom R. Robert Popeo, Elizabeth B. Burnett, John C. Plotkin, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Mass., Bruce W. Gladstone and Cameron & Mittleman, Providence, R.I., were on brief, for appellant.
John Boyajian with whom Boyajian, Harrington & Richardson, Providence, R.I., was on brief, for appellee Anthony Sion.
Matthew F. Medeiros with whom Anthony F. Cottone and Flanders & Medeiros, Inc., Providence, R.I., were on brief, for appellee Lillian Jaeger Sion.
Mark A. McSally with whom Taft & McSally, Cranston, R.I., was on brief, for appellee SEI, Inc.
Marc DeSisto with whom Carroll, Kelly & Murphy, Providence, R.I., was on brief, for appellee Katy Industries, Inc.
Before CAMPBELL, Chief Judge, TORRUELLA, Circuit Judge, and WOODLOCK, * District Judge.
The district court dismissed plaintiff's Racketeer Influenced and Corrupt Organizations Act (RICO) claim on the ground that the complaint failed to demonstrate a "pattern of racketeering activity" as required by 18 U.S.C. Sec. 1962. See Fleet Credit Corp. v. Sion, 699 F.Supp. 368, 369 (D.R.I.1988). Since the district court made its ruling, the Supreme Court has issued a unanimous decision in H.J. Inc. v. Northwestern Bell Telephone Company, --- U.S. ----, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989), seeking to clarify RICO's pattern requirement. Based on H.J., we reverse the district court's dismissal of plaintiff's RICO claim and remand so that the court may determine whether to allow plaintiff's pendent-party claims to proceed.
The amended complaint of plaintiff Fleet Credit Corporation (Fleet) alleges a single scheme devised and executed by Anthony Sion, with the assistance of his wife Lillian Sion, in which the Sions used two jewelry manufacturing companies, Federal Chain Company (Federal Chain) and Baroness, Inc. (Baroness) to defraud Fleet of around $7.5 million in loans during a seven year period from 1978 to 1985. The Sions were the sole shareholders of Federal Chain; Anthony Sion was the sole shareholder of Baroness.
The scheme allegedly involved three separate loan transactions. In 1978, Fleet extended a line of credit to Federal Chain of up to 80 percent of the latter's accounts receivable, not to exceed at any point $4,000,000, and to Baroness of up to 80 percent of its accounts receivable and 50 percent of its inventory, not to exceed at any one point $700,000. In 1980, Fleet loaned Federal Chain another $8,000,000. Finally, in 1983, Federal Chain and Baroness jointly and severally executed a promissory note to Fleet for $5,000,000.
In completing these transactions, the parties are alleged to have agreed to the following: Fleet would receive as collateral a security interest in the two companies' accounts receivable, general intangibles, inventory, machinery, equipment, and fixtures; the Sions would sign personal guarantees and Federal Chain and Baroness would sign cross-guarantees; Federal Chain and Baroness would keep Fleet informed of the financial status of the two companies through periodic reports; and Federal Chain and Baroness would not remove, transfer or destroy collateral.
According to the amended complaint, this latter promise was broken--again and again--as Anthony and Lillian Sion systematically looted Federal Chain and Baroness out of millions of dollars in property and services. In doing so, the Sions allegedly caused to be mailed at least 95 checks. These checks were the means by which the Sions used money from Federal Chain and Baroness to cover their own personal expenses and those of their family.
The two non-RICO defendants, SEI and Katy Industries, are not said to have been part of the scheme until the seventh year. In April 1985, Anthony Sion incorporated SEI and proceeded to convey fraudulently a valuable portion of Baroness and Federal Chain equipment and inventory to SEI. In August 1985, Katy Industries employed Anthony Sion and other Baroness personnel. Anthony Sion then diverted to Katy, among other things, equipment from Federal Chain and Baroness.
On August 25, 1985, due to non-payment of the loans and pursuant to the terms of the financing and security agreements, Federal Chain and Baroness executed voluntary possessory papers and Fleet took possession of the remaining assets of the two companies. Fleet then liquidated the Federal Chain and Baroness assets but was left with an outstanding deficiency of $7,531,495 in principal on its loans.
In December 1987, Fleet brought this damages action in the District Court for the District of Rhode Island against Anthony Sion, Lillian Sion, SEI, and Katy Industries. In the amended complaint, Fleet pleaded a RICO claim, 18 U.S.C. Secs. 1961, et seq., against Anthony and Lillian Sion, and ten non-RICO state law claims against the Sions, SEI, and Katy Industries. In its RICO claim, Fleet alleged that Anthony Sion had injured Fleet's business by using or investing income derived from "a pattern of racketeering activity" to acquire an interest in or to operate an enterprise engaged in interstate commerce. See 18 U.S.C. Sec. 1962(a). Fleet further alleged that both Anthony and Lillian Sion had injured its business by conducting or participating in the conduct of an enterprise's affairs through "a pattern of racketeering activity," see 18 U.S.C. Sec. 1962(c), and by conspiring to violate subsections 1962(a) and (c), see 18 U.S.C. Sec. 1962(d).
In May of 1988, Lillian Sion, Katy Industries, and SEI, Inc. moved to dismiss the amended complaint, asserting, among other things, that Fleet had failed to state a claim upon which relief could be granted. Anthony Sion did not join in these motions.
In a memorandum and opinion, the district court dismissed Fleet's complaint against Lillian Sion, holding that it failed to allege a "pattern of racketeering activity" as required by 18 U.S.C. Sec. 1962. The court also held that it would not exercise pendent-party jurisdiction over the state law claims against Lillian Sion, SEI, and Katy Industries.
On January 31, 1989, the district court, acting on its own, dismissed the RICO claim against Anthony Sion and entered judgment for all defendants. Fleet appeals.
We must decide whether the district court erred when it ruled that, accepting Fleet's allegation of facts as true, the complaint had failed to demonstrate a pattern of racketeering activity. We turn first to the relevant language of RICO.
Subsection 1961(5) of title 18 states that a pattern of racketeering activity "requires at least two acts of racketeering activity...." Subsection 1961(1)(B) defines an act of "racketeering activity" to include any act indictable under one of numerous federal criminal provisions, including 18 U.S.C. Sec. 1341, the mail fraud statute.
Fleet has alleged the mailing of 95 checks in violation of the federal mail fraud statute. It has thus alleged many more than just two predicate acts which fit within the statutory definition of racketeering activity. This does not, however, end the inquiry. The use of the word "requires"--as opposed to "means"--in section 1961(5) indicates that alleging two acts of mail fraud (or two or more other statutorily defined predicate acts) is necessary but not sufficient to establish a pattern of racketeering activity. See H.J. Inc. v. Northwestern Bell Telephone Company, --- U.S. ----, 109 S.Ct. 2893, 2899, 106 L.Ed.2d 195 (1989) (); Roeder v. Alpha Industries, Inc., 814 F.2d 22 (1st Cir.1987) (). In addition, a party must demonstrate that the predicate acts "are related, and that they amount to or pose a threat of continued criminal activity." H.J., 109 S.Ct. at 2900 (emphasis in original).
We, therefore, look closely at the predicate acts alleged by Fleet to determine (1) whether the acts are related; and (2) whether they could be found to amount to or pose a threat of continued criminal activity.
We begin by looking at the allegations as to the type and number of fraudulent mailings initiated by the Sions. While an appeals court should construe the pleadings in the light most favorable to the plaintiff, see 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), it has no duty to "conjure up unpled allegations" in order to bolster the plaintiff's chances of surviving a 12(b)(6) motion to dismiss. Gooley v. Mobil Oil Co., 851 F.2d 513, 514 (1st Cir.1988). See also Natal v. Christian and Missionary Alliance, 878 F.2d 1575, 1576 (1st Cir.1989).
In the amended complaint's 23-page section entitled "The Facts," there is no allegation that any of the fraudulent acts or groups of acts purportedly committed by the Sions involved the use of the mails. However, the amended complaint's four-page section entitled "Count One: Violations of RICO by Anthony and Lillian Sion," asserts that during the period 1978-85 the Sions committed multiple violations of the mail fraud statute, 18 U.S.C. Sec. 1341, and that these "included, but were not limited to [the Sions'] causing to be mailed 95 checks identified in Exhibit S of the complaint." Exhibit S is entitled "List of Mailings in Violation of 18 U.S.C. Sec. 1341 (Mail Fraud)." The exhibit lists 86 Federal Chain checks and nine Baroness checks payable to various companies, including Atwood Travel, Master Charge and American Express. The dates of the checks run from October 23, 1981 to February 8, 1985.
While Count One alleges that the Sions' acts of mail...
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