Gott v. Simpson, Civ. No. 89-0266-P.

• Citation: 745 F. Supp. 765
• Decision Date: 21 September 1990
• Docket Number: Civ. No. 89-0266-P.
• Parties: Audrey GOTT, et al., Plaintiffs, v. Edward F. SIMPSON and J. Michael Hughes, Defendants.
• Court: U.S. District Court — District of Maine

745 F. Supp. 765

Audrey GOTT, et al., Plaintiffs, v. Edward F. SIMPSON and J. Michael Hughes, Defendants.

Civ. No. 89-0266-P.

United States District Court, D. Maine.

September 21, 1990.

COPYRIGHT MATERIAL OMITTED

Charles Kadish, Portland, Me., for plaintiffs.

Severin M. Beliveau, Stephen E.F. Langsdorf, Preti, Flaherty, Beliveau & Pachios, Augusta, Me., for defendants.

MEMORANDUM OF DECISION AND ORDER REJECTING THE RECOMMENDED DECISION OF THE MAGISTRATE AND GRANTING DEFENDANTS' MOTION TO DISMISS

GENE CARTER, Chief Judge.

The issue presented by this objection to the Recommended Decision of the United States Magistrate, the Honorable David M. Cohen, is whether Plaintiffs' amended complaint alleges that Defendants have engaged in conduct that constitutes a "pattern of racketeering activity" for the purposes of establishing civil liability under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68. After de novo review, the Court concludes that the amended complaint fails to allege that the conduct of Defendants amounts to or poses a threat of continued criminal activity, an element essential to the establishment of a RICO "pattern of racketeering activity." The Court, therefore, must dismiss Counts I and II of Plaintiffs' complaint for failure to state a claim under RICO. Because the Court's subject matter jurisdiction over this action is based on the presence of a federal question, and because Plaintiffs' federal claims will be dismissed, the Court will also dismiss Plaintiffs' state-law causes of action.

DISCUSSION

In ruling on a motion to dismiss, the Court must take the material allegations of the complaint as true and construe the pleadings in the light most favorable to Plaintiffs. Roeder v. Alpha Industries, Inc., 814 F.2d 22, 25 (1st Cir.1987); Chongris v. Board of Appeals, 811 F.2d 36, 37 (1st Cir.1987). The motion will be granted "only if, when viewed in this manner, the pleading shows no set of facts which could entitle Plaintiff to relief." Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir.1988). The Court, however, has "no duty to `conjure up unpled allegations', in order to bolster the plaintiffs' chances of surviving a 12(b)(6) motion to dismiss." Fleet Credit Corp. v. Sion, 893 F.2d 441, 444 (1st Cir. 1990), quoting Gooley, 851 F.2d at 514. Plaintiffs must "set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory." Gooley, 851 F.2d at 515.

I.

In brief the amended complaint alleges that Defendants, through the use of the mails and wires, carried out a scheme to defraud Plaintiffs of over $400,000. Pursuant to the alleged scheme, Defendants fraudulently induced Plaintiffs to provide funds for the acquisition of resort property in Maine, purportedly to develop the properties into time-share units. It is alleged that Defendants have not acquired the property for Plaintiffs as promised, have made several misrepresentations to Plaintiffs, and have converted Plaintiffs' investment to their own use.

Applying the appropriate standard for a motion to dismiss, the Magistrate summarized the facts as alleged in the complaint as follows:

The plaintiffs are an informal group of investors who became interested in purchasing resort property in Ogunquit, Maine in order to market time-shares therein. In March, 1989 plaintiff Bernard Twomey was approached by Phyllis Perkins who represented that she was the owner of two properties in Ogunquit suitable for time-sharing: a five-unit condominium building known as Cove Landing and a thirty-six-unit hotel with attached restaurant and lounge known as the Georges Grant Hotel. These properties were heavily mortgaged and were in danger of default or foreclosure. Defendant Hughes, Perkins' friend, claimed to have the contacts to obtain local zoning and other approvals needed to effect the time-share plans. Hughes introduced the plaintiffs to defendant Simpson as a person who had the contacts and expertise to overcome whatever resistance the mortgagee banks might have to transferring the properties. At least two meetings were held at which the parties discussed the acquisition and the progress of other aspects of the arrangement. The plaintiffs clearly stated at these meetings that their participation was based on the understanding that one of the properties, Cove Landing, was to be immediately available for time-share marketing. The defendants assured the plaintiffs that all the necessary approvals had been obtained or were in the process of being obtained for the time-sharing of Cove Landing and that attorneys were drafting the necessary papers. Based upon these representations the plaintiffs agreed to enter a letter of intent with the defendants outlining the terms and conditions of the acquisition, sale and management of the properties. The letter of intent provided, among other things, that title to the properties was to be taken in the name of separate realty trusts. On or about April 12, 1989 defendant Simpson transmitted via telefacsimile an execution copy of the letter of intent to plaintiff Audrey Gott in Montreal, Canada. At or about the same time Simpson sent Mrs. Gott copies of the purported purchase and sale agreements for both properties.

On or about April 28, 1989 the Gotts wired approximately $165,000 (U.S.) from Montreal to the account of the Bostonian Corporation in Massachusetts. A portion of this money was to be used to pay arrearages on the existing mortgage on Cove Landing so that it would be released for time-share sales. On or about May 15-16, 1989 the plaintiffs delivered $207,000 to the defendants for use in connection with the purchase of Georges Grant. On or about May 17, 1989 defendant Simpson acquired title to the Georges Grant property in the name of Snow's Island, Inc., a Maine corporation in which Simpson is believed to be sole shareholder. No shares in Snow's Island have ever been transferred to the plaintiffs or to an independent real estate trust or other entity in which the plaintiffs hold any legal or equitable interest. At a meeting held on or about May 21, 1989 among the parties the defendants told the plaintiffs that everything was going as planned and showed them the "reservation agreement" that was to be used for taking time-share deposits at Cove Landing. Approximately three weeks after that meeting defendant Simpson telephoned plaintiff William McCauley in Canada to tell him, among other things, that Cove Landing would require an immediate $60,000 to get started. The plaintiffs delivered the money to the defendants in Boston on June 8, 1989. Simpson confirmed that things were on track and told McCauley that he would be providing the plaintiffs with financial statements. Two days later the plaintiffs provided an additional $15,000 to the defendants for the Cove Landing project. Hughes again reassured McCauley that everything was going forward with the project and that he would have the lights and water turned on, but he provided no financial statements. Subsequently, the defendants encouraged McCauley and Twomey to prepare marketing material for Cove Landing and falsely represented that physical improvements were already being made to the premises.

At a meeting held on June 19, 1989 in Franconia Notch, New Hampshire, defendant Simpson told the plaintiffs that the Cove Landing property would not be timeshared and disclosed for the first time that it had not even been purchased. He stated further that an additional $150,000 was required to purchase the property. He refused to account for the funds not yet spent and promised to provide financial statements by July 8, 1989 and to be in touch with McCauley. The plaintiffs have not been provided with any financial statements. None of the funds has been returned and no disclosure had been made as to the whereabouts of any remaining funds. There has been no further communication from the defendants except in connection with the pending litigation.

In addition to these allegations, Paragraph 40 of the amended complaint states that

On information and belief, Simpson has extensive commercial real estate holdings in the Commonwealth of Massachusetts, the state sic of Maine, and elsewhere.... Simpson has conducted such enterprise through a pattern of racketeering, i.e., the instances of fraud averred in this complaint, and, on information and belief, similar frauds perpetrated against others, in violation of 18 U.S.C. § 1962(c). In addition, on information and belief, Simpson has acquired and maintained his interest in and control over such enterprise through a pattern of racketeering, including without limitation the frauds alleged in this complaint, in violation of 18 U.S.C. § 1962(b).

Rule 9(b) of the Federal Rules of Civil Procedure, which requires that fraud cases be pled with particularity,¹ applies to civil RICO claims, including those based on mail and wire fraud. New England Data Services, Inc. v. Becher, 829 F.2d 286, 289 (1st Cir.1987); see also Fleet Credit Corp. v. Sion, 893 F.2d at 445. The degree of specificity required in pleading RICO mail and wire fraud "is no more nor less than is required in general fraud and securities fraud cases." Becher, 829 F.2d at 290, citing McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226 (1st Cir.1980); Wayne Investment Inc. v. Gulf Oil Corp., 739 F.2d 11 (1st Cir.1984). Thus the complaint must state "the time, place and content of an alleged false representation, but not the circumstances or evidence from which fraudulent intent could be inferred." McGinty, 633 F.2d at 228. Allegations based on "information and belief" do not satisfy Rule 9(b) unless the complaint also sets forth facts on which the belief is founded. Wayne, 739 F.2d at 13.

In RICO mail and wire fraud cases, however, dismissal is not automatic once the court determines that Rule 9(b) is not satisfied; in appropriate cases, a...