Itt Corp. v. Intelnet Intern.
| Decision Date | 26 April 2004 |
| Docket Number | No. 02-4035.,02-4035. |
| Citation | 366 F.3d 205 |
| Parties | ITT CORPORATION; ITT Sheraton Corporation; Starwood Hotels and Resorts Worldwide, Inc. Appellants v. INTELNET INTERNATIONAL CORPORATION; Intelnet Services of North America, Inc.; Concierge Plus; INNtraport International, Inc.; Intelnet N.A., Inc.; Intelepower N.A., Inc.; Intelecable N.A., Inc.; Intelemedia N.A., Inc.; Associated Business Telephone System Corp.; A.B.T.S. International Corporation; Dominic Dalia; Michael Dalia; Craig Brunet; John Does 1-10 Intelnet International Corporation; Intelnet Services of North America, Inc.; INNtraport International, Inc.; Intelnet N.A., Inc.; Intelepower N.A., Inc.; Intelemedia N.A., Inc.; Associated Business Telephone Systems Corp.; A.B.T.S. International Corporation; Michael Dalia; Craig Brunet Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Edward J. Yodowitz, Skadden, Arps, Slate, Meagher & Flom, New York, NY, Robert J. Del Tufo, (Argued), Cynthia V. Fitzgerald, Danielle A. Cutrona, Skadden, Arps, Slate, Meagher & Flom, Newark, NJ, for Appellants/Cross-Appellees.
Arthur R. Miller, (Argued), Harvard Law School, Cambridge, MA, Jerome M. Congress, Milberg, Weiss, Bershad, Hynes & Lerach, New York, NY, Carl D. Poplar, Poplar & Eastlack, Cherry Hill, NJ, for Appellees/Cross-Appellants.
Before AMBRO, FUENTES and GARTH, Circuit Judges.
Plaintiffs ITT Corporation ("ITT Corp."), ITT Sheraton Corporation ("Sheraton") and Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") appeal the District Court's dismissal of their Racketeer Influenced and Corrupt Organization Act ("RICO") action against various Intelnet entities1 for failure to comply with the applicable statute of limitations. ITT's RICO claims allege that Intelnet has engaged in a pattern of entering into contracts it cannot perform with the intent of seizing upon its customers' purported breaches to extort settlements by threats of vexatious litigation. Prior to initiating its federal action, ITT raised substantially identical claims in a state court case by means of a motion to amend its pleadings. The state court denied the motion.
On cross-appeal, Intelnet argues that the District Court erred in holding that it had jurisdiction, as the Rooker-Feldman doctrine "preclude[s] lower federal court jurisdiction over claims that were actually litigated or `inextricably intertwined' with adjudication by a state's courts." Parkview Assocs. P'shp. v. City of Lebanon, 225 F.3d 321, 325 (3d Cir.2000) (quoting Gulla v. North Strabane Township, 146 F.3d 168, 171 (3d Cir.1998)). We agree with Intelnet that Rooker-Feldman bars federal jurisdiction in this case.
ITT Corp. owns and operates hotels and casinos.2 Its affiliates include Sheraton and Caesar's World, Inc. ("Caesar's"). Intelnet International Corp. ("Intelnet International"), Intelnet Services of North America, Inc. ("Intelnet Services"), INN-traport International, Inc., Intelecable N.A., Inc., and Intelemedia N.A., Inc. purchase telephone services in volume from major carriers and resell those services to hotels and hotel companies, as well as residential customers, at a reduced rate.
In 1996, ITT and Intelnet entered into a series of contracts for Intelnet's provision of telecommunications and media services to ITT's hotels and casinos. Intelnet represented that it would provide to ITT a proprietary system called the "Intelnet Platform," which it claimed would provide enhanced services such as high-speed internet access and video-on-demand. The principal contracts were the C+ Operating Agreement ("C+ Agreement"), dated July 3, 1996, and the Amended and Restated Master Promotional Agreement ("RMPA"), dated October 3, 1996.
The C+ Agreement formed a limited liability company, Concierge Plus, L.L.C., through which Intelnet International and ITT Intelnet Investment Corp., a wholly owned subsidiary of ITT Corp., would share future profits and Intelnet International would provide telecommunications products and services. But Concierge Plus never provided any of the promised services. The RMPA, a contract between ITT Corp. and Intelnet Services, gave the latter the exclusive right to provide certain enhanced telecommunications products and services, including high-speed internet access, to the offices, hotels, and casinos of ITT Corp. and several of its affiliates.
In December 1997 Intelnet filed an action in New Jersey state court against ITT for breach of contract.3 Intelnet alleged that in early 1997 Sheraton began working with other companies, such as Microsoft Corporation, to develop Sheraton.Net, which would service Sheraton hotel guests in Asia. Intelnet argued that the negotiations between Sheraton and Microsoft breached the C+ Agreement and the RMPA.4
In February 1998 ITT filed various state law counterclaims against Intelnet, including fraud, misrepresentation, and breach of contract. Some time later, based purportedly upon information obtained through discovery in the New Jersey state court action and through its independent investigation, ITT filed a motion to amend its pleadings to add counterclaims against Intelnet under the federal and New Jersey RICO statutes, 18 U.S.C. § 1962(c) & (d) and N.J. Stat. Ann. § 2C:41-2(c) & (d). The proposed counterclaims asserted that Intelnet had engaged in a pattern of racketeering activity by entering into contracts, knowing that it was incapable of performing them, with the intent of extorting settlements from its customers by threatening to entangle them in extensive and costly litigation based on their purported breaches. The State Court, per Judge John A. Fratto, denied the motion to amend. Judge Fratto explained:
The rule says that amendments to pleadings should be freely given. The rule provides that there be a motion in order to obtain the amendment to the pleading, so it does not mean that you are automatically entitled to amend the pleadings at any time.... Whether it be RICO or some other cause of action, there are judges ... that will allow all amendments on the theory that they can be dealt with later on when the other side makes a motion for summary judgment, a motion to dismiss[], motion to strike the pleadings. That has not been my procedure....
I've looked at the proposed amendments ... and at best it seems that the allegation is ... that the plaintiffs were unable to fulfill their contract, and every time they wrote a letter or sent a wire, knowing that they were unable to fulfill their contract, the[y] committed a RICO violation.
I don't think RICO is or was intended to encompass breaches of contract, even breaches of contract that involve $800 million.... And, I don't see sufficient in the proposed complaint that I should permit after three and a half years an amendment to an answer to raise a RICO claim with all of its concomitant results[;] so the motion to amend the answer will be denied.
Judge Fratto's accompanying Order did not specify whether ITT's motion was denied with or without prejudice. ITT suggests that the motion was denied without prejudice because it was filed three and one half years after the complaint. Intelnet, by contrast, contends that the state court also rejected the motion on the merits and therefore it was with prejudice.
ITT filed this action in the United States District Court for the District of New Jersey in November 2001. Its complaint states that "it only was after discovery commenced in the New Jersey Litigation ... that the ITT Parties discovered that the Intelnet Parties had no ability or intent to perform under Intelnet's contract with the ITT Parties, and further, that the Intelnet parties had a history of engaging in this pattern of fraudulent conduct and racketeering activity." ITT also alleges a variety of false representations by Intelnet regarding its capabilities, describes evidence of Intelnet's "extortionate objectives," and lists numerous acts of alleged mail and wire fraud. In essence, ITT's federal action raises the same claims it sought to introduce in the New Jersey case before Judge Fratto.5
In February 2002, Intelnet filed a motion to dismiss ITT's federal complaint based on the four-year statute of limitations. The District Court granted Intelnet's motion. In so doing, the Court applied the two-step "injury discovery" rule set out in Mathews v. Kidder, Peabody & Co., Inc., 260 F.3d 239, 250 (3d Cir.2001). It concluded that Intelnet had met its burden of demonstrating the existence of "storm warnings" more than four years prior to the initiation of the federal action (, as early as January 1997). It further determined that ITT had failed to show that it was unable to discover its injuries, despite exercising due diligence, within the applicable period.
ITT appeals on the bases that: (1) the District Court misconstrued the nature of its RICO claims, which were founded on extortion through threat of litigation rather than fraudulent inducement; (2) the District Court relied on information extrinsic to the pleadings, thereby converting Intelnet's motion to dismiss into a motion for summary judgment without providing notice of conversion; and (3) ITT did in fact act with reasonable diligence subsequent to the "storm warnings" cited by the District Court. Intelnet cross-appeals, alleging that the District Court lacked jurisdiction in light of the Rooker-Feldman doctrine or should have abstained from exercising jurisdiction under the Colorado River doctrine.6 Intelnet also argues that ITT has failed to plead its RICO claims with sufficient particularity. As the Rooker-Feldman doctrine bars federal jurisdiction in this case, we go no further.
Our Court's boundaries for the Rooker-Feldman doctrine are pinched indeed. See, e.g., Parkview Assocs. P'ship v. City of Lebanon, 225 F.3d...
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