Hartz v. Friedman

• Decision Date: 04 December 1990
• Docket Number: Nos. 90-1042,90-1043,s. 90-1042
• Citation: 919 F.2d 469
• Parties: , RICO Bus.Disp.Guide 7633 Bettye HARTZ and Carroll Hartz, Plaintiffs-Appellants, v. Albert Brooks FRIEDMAN, Albert Brooks Friedman, Ltd., Dawn Elizabeth Wellman, Max Cohen, and Law Firm of Cohen and Thiros, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 469

919 F.2d 469

18 Fed.R.Serv.3d 112, RICO Bus.Disp.Guide 7633

Bettye HARTZ and Carroll Hartz, Plaintiffs-Appellants, v. Albert Brooks FRIEDMAN, Albert Brooks Friedman, Ltd., Dawn

Elizabeth Wellman, Max Cohen, and Law Firm of

Cohen and Thiros, Defendants-Appellees.

Nos. 90-1042, 90-1043.

United States Court of Appeals,

Seventh Circuit.

Argued Sept. 27, 1990.

Decided Dec. 4, 1990.

William P. Hapaniewski, Merrillville, Ind., for plaintiffs-appellants.

Robert F. Parker, Beckman, Kelly & Smith, Hammond, Ind., for Albert B. Friedman, and Albert Brooks Friedman, Ltd.

David C. Jensen, Eichhorn, Eichhorn & Link, Hammond, Ind., for Dawn E. Wellman, Max Cohen and Law Firm of Cohen and Thiros.

Before WOOD, Jr., and EASTERBROOK, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge.

Plaintiffs Bettye Hartz and her husband, Carroll, employed defendant Friedman, an Illinois lawyer, to recover damages for injuries Bettye sustained in 1980 and for medical malpractice in diagnosis and treatment of an injury she suffered in 1976. In 1981 Friedman brought an action on those claims in an Indiana court. Friedman, however, had failed to present the malpractice complaint to a medical review panel as required by Indiana law. Ind.Code Sec. 16-9.5-9-2. On that account, the malpractice claims were dismissed without prejudice in 1983.

In 1985 the Hartzes, on Friedman's recommendation, additionally employed Indiana lawyers Wellman and Cohen, and the personal injury claims were then settled. By that time, Friedman had brought the malpractice complaint against Dr. Alexander Kott and two others before a medical review panel. On August 16, 1986, the panel issued its opinion, finding evidence of negligence as to Dr. Kott, but not the others. Plaintiff had ninety days within which to bring suit. Ind.Code Sec. 16-9.5-9-1. Friedman, Wellman, and Cohen asked the Hartzes to advance $8,500, apparently for The Hartzes brought the present action against Friedman, Wellman, and Cohen and their law firms in 1988. They attempted to state a RICO claim as authorized by 18 U.S.C. Sec. 1964(c), within the jurisdiction of the federal district court. They also asserted state law claims for professional malpractice, breach of fiduciary relationship, and breach of contract, invoking pendent jurisdiction.

expenses of suit, but the Hartzes refused. No action was brought and the statute of limitations expired in November, 1986.

On motion of defendants, the district court dismissed the RICO count with prejudice and the pendent claims without prejudice. The court found sanctions against plaintiffs' counsel appropriate under Rule 11, and awarded $1,734 in favor of defendant Friedman and $8,075 in favor of defendants Wellman and Cohen and their firm. The Hartzes and their counsel appealed.

DISCUSSION

The district court might well have dismissed the plaintiffs' complaint on the ground that it was an egregious violation of Rule 8(a) of the Federal Rules of Civil Procedure. Rule 8(a) requires that a complaint set forth "a short and plain statement of the claim." The plaintiffs' complaint is neither short nor plain. It contains 125 pages (323 paragraphs) including a mass of details which might be relevant and appropriate at trial, but which are clearly surplusage in stating a claim. The volume and form of the pleading make it difficult to sort out the necessary elements of a RICO claim. Nonetheless, we will treat the complaint on its merits because the district court chose to do so and because doing so will dispose of the RICO claim with finality. See Jennings v. Emry, 910 F.2d 1434, 1436 (7th Cir.1990).

The plaintiffs claim the defendants violated Sec. 1962(c) of RICO. ¹ A violation of this section requires "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985) (footnote omitted). The district court decided that these elements were not shown.

An enterprise is "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. Sec. 1961(4). The Supreme Court has said that an enterprise is an "ongoing organization" and that "the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (1981). The Seventh Circuit recently said an enterprise requires "an ongoing 'structure' of persons associated through time, joined in purpose, and organized in a manner amenable to hierarchial or consensual decision-making." Jennings v. Emry, 910 F.2d 1434, 1440 (7th Cir.1990) (no enterprise because plaintiffs did not allege the structure which the American Medical Association, the Indiana State Police and the Attorney General of Indiana used to persecute Indiana chiropractors). An enterprise is not merely a conspiracy; an enterprise must involve more than an agreement to commit a pattern of racketeering activity. United States v. Neapolitan, 791 F.2d 489, 500 (7th Cir.), cert. denied, 479 U.S. 939, 940, 107 S.Ct. 421, 422, 93 L.Ed.2d 371, 372 (1986).

The law firms with which the defendants were associated might well meet the requirements for being "enterprises," but that is not the plaintiffs' claim. The plaintiffs allege that Friedman, Cohen, and Wellman formed an association in fact that provided legal services (Complaint p 192A). The complaint does not allege that Friedman associated with Wellman and Cohen apart from the Hartzes' case. The association did no more than continue the representation of the Hartzes, earlier begun by Friedman. Whether this ad hoc association for carrying on the Hartz litigation has the structure, purpose, and continuity needed in order to qualify as an "enterprise" under RICO is open to question. We need not resolve it, however. As will be seen, we find no pattern of racketeering activity.

The next requirement of RICO is that the defendants engage in a pattern of racketeering activity. The pattern requirement is difficult to define and requires courts to use common sense. H.J., Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S.Ct. 2893, 2901, 106 L.Ed.2d 195 (1989); United States Textiles, Inc. v. Anheuser-Busch Companies, Inc., 911 F.2d 1261, 1269 (7th Cir.1990). In H.J., Inc., the Supreme Court said that the continuity plus relationship test first described in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285, n. 14, 87 L.Ed.2d 346 (1985), was still valid. H.J., Inc., 109 S.Ct. at 2900. Predicate acts are related if the acts " 'have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.' " H.J., Inc., 109 S.Ct. at 2901 (quoting 18 U.S.C. Sec. 3575(e) (definition of pattern for Dangerous Special Offender Sentencing Act)). Continuity is more difficult to explain. The Supreme Court said multiple schemes were not necessary, but plaintiffs had to prove a "continuity of racketeering activity, or its threat." Id. Whether there is continuity depends on the facts of each case. Id. at 2902.

The Seventh Circuit has decided several cases since H.J., Inc. and has in each case concluded that the necessary continuity was absent. United States Textiles, 911 F.2d at 1269 (no pattern where criminal activity does not present a significant social threat); New Burnham Prairie Homes, Inc. v. Village of Burnham, 910 F.2d 1474, 1478-79 (7th Cir.1990) (no pattern where there is one injury to one person and no threat of future fraud); Olive Can Co. v. Martin, 906 F.2d 1147, 1151 (7th Cir.1990) (no pattern where defendants were involved in fraud to pay back a business loan and fraud was not the regular way of doing business); Management Computer Services, Inc. v. Hawkins, Ash, Baptie & Co., 883 F.2d 48, 51 (7th Cir.1989) (no pattern where all wrongdoing occurred at one time); Sutherland v. O'Malley, 882 F.2d 1196, 1205 (7th Cir.1989) (no pattern where defendant is "an 'isolated offender' engaged in a 'one-shot' effort to inflict a single injury").

Since the Supreme Court decided H.J., Inc., the Seventh Circuit has not found patterns to exist in any civil RICO cases which have presented the issue. The most recent pre-H.J., Inc. case in which the Seventh Circuit found a pattern of racketeering is Ashland Oil, Inc. v. Arnett, 875 F.2d 1271, 1279 (7th Cir.1989). Ashland Oil involved defendants who committed a variety of predicate acts (wire fraud, bankruptcy fraud, and arson). They defrauded four victims in the same manner through independent sequential actions over a period of four months. Their use of several unlawful means separated the case from "ordinary business fraud." Id. at 1279.

In all of its cases, the Seventh Circuit has evaluated the pattern requirement with reference to four factors: "(1) the number and variety of predicate acts and the length of time over which they were committed; (2) the number of victims; (3) the presence of separate schemes; and, (4) the occurrence of distinct injuries." United States Textiles, 911 F.2d at 1266 (citing Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir.1986)).

The RICO statute defines "racketeering activity," often referred to as predicate acts, as any one of several federal or state offenses, including wire and mail fraud. 18 U.S.C. Sec. 1961(1). Plaintiffs' counsel seems to rely on a number of interstate telephone calls and mailings as acts of racketeering, making up a pattern. He has not realized that in pleading a violation of 18 U.S.C. Sec. 1341 (mail fraud) and Sec. 1343 (wire fraud) he must identify some scheme or artifice to defraud which is furthered by each alleged use of the mails or interstate transmission by wire. We have found allegations of sixteen telephone calls and mailings. Some of...