J.D. Marshall Intern., Inc. v. Redstart, Inc.
| Decision Date | 04 June 1991 |
| Docket Number | No. 90-1336,90-1336 |
| Citation | 935 F.2d 815 |
| Parties | , RICO Bus.Disp.Guide 7775 J.D. MARSHALL INTERNATIONAL, INC., an Illinois corporation, Plaintiff-Appellant, v. REDSTART, INC., an Illinois corporation, John Ewing and Satish Mathur; Inchcape, Inc., a Delaware corporation, and Inchcape PLC, a foreign corporation, Marshall International Trading Co., a Delaware corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Ralph A. Mantynband, Francesca J. Robertson, Arvey, Hodes, Costello & Burman, Chicago, Ill., Charles H. Williams, Orangeburg, S.C., Daryl L. Williams, Belton T. Zeigler, Boyd, Knowlton, Tate & Finlay Columbia, S.C., for plaintiff-appellant.
Jon K. Stromsta, Michael H. King, Ross & Hardies, Chicago, Ill., David R. Herzog Layfer, Cohen & Handelsman, Chicago, Ill., for defendants-appellees.
Before BAUER, Chief Judge, WOOD, Jr., and RIPPLE, Circuit Judges.
In this commercial litigation, we must grapple again with the meaning and interpretation of a "pattern of racketeering activity" pursuant to 18 U.S.C. Secs. 1961-64, the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Plaintiff-appellant J.D. Marshall International, Inc. ("Marshall") appeals the district court's denial of its motion to file a second amended complaint and the subsequent dismissal of its civil action against the defendants-appellees, Inchcape PLC, a foreign corporation; its wholly owned subsidiary Inchcape, Inc., a Delaware corporation; Inchcape, Inc.'s wholly owned subsidiaries, Marshall International Trading Company ("MITCO") and Redstart, Inc. ("Redstart"); and two former officers of Redstart, Inc., John Ewing and Satish Mathur (collectively "Defendants"). We find that the district court did not abuse its discretion by dismissing Marshall's action, and therefore, affirm its decision.
The chain of events that led to this litigation began when Marshall acquired various assets of Redstart's export management business on February 3, 1984, pursuant to an Agreement of Sale and Purchase ("Purchase Agreement") between Marshall and Redstart. The assets acquired by Marshall included certain accounts receivable and various other current assets, Redstart's agreements with suppliers and distributors, plant and equipment, and the right to use the name "J.D. Marshall International, Inc." . In the Purchase Agreement, Redstart agreed "to cease conducting active business operations under the name 'J.D. Marshall' " as of the February 3, 1984, closing date. The consideration for the assets purchased by Marshall consisted of a combination of cash and the assumption by Marshall of several of
Redstart's liabilities. The purchase price came to $2,378,636, of which $1,854,218 (or 78% of the total price) was "paid" by Marshall's contractual agreement to assume and satisfy in a timely fashion specific scheduled liabilities and contractual obligations of Redstart.
The present litigation originated as a cross-claim in a suit by Utica Tool Company ("Utica") against J.D. Marshall International, Inc. and Redstart, Inc. in the United States District Court for the District of South Carolina. In that action, Utica filed suit against both Marshall and Redstart for monies allegedly owed from a sale of merchandise to either Marshall or Redstart. Utica had been a supplier to Redstart prior to February 3, 1984, and became a supplier to Marshall at the time that Marshall acquired Redstart's business. Marshall denied owing Utica anything and filed a cross-claim against Redstart and two of its corporate officers, John Ewing and Satish Mathur. The district court in South Carolina severed the cross-claim and transferred it to the United States District Court for the Northern District of Illinois, Eastern Division, for the convenience of the parties.
The original cross-claim consisted of two counts: in count I, Marshall claimed that Redstart breached its covenant in the Purchase Agreement to stop conducting business under its former corporate name, "J.D. Marshall International, Inc.," and in count II, Marshall claimed that Redstart, Ewing, and Mathur violated RICO. The basis of the RICO claims rests on the breakdown of the relationship between Redstart and Marshall regarding the payment of Redstart's liabilities. In mid-1984, Redstart apparently learned that Marshall was failing to satisfy certain of the liabilities and obligations Marshall had assumed and that Marshall had converted certain letters of credit belonging to Redstart. After representatives from Redstart and Marshall unsuccessfully attempted to resolve these differences, Redstart apparently resorted to self-help measures to recover what it thought it was due--approximately $300,000.
Marshall's proposed second amended complaint alleges that the defendants committed four separate acts of fraudulent documentation and wire transfer whereby Redstart and its officers deliberately sought to defraud Marshall of the proceeds from its sale of goods to various customers. Regarding these rather complex international exchanges, suffice it to say that Redstart allegedly accomplished the fraudulent transactions enumerated in the complaint largely by taking advantage of the uncertainty among banks, customers and suppliers concerning the use of the name "J.D. Marshall International, Inc." For instance, Marshall charges that Redstart maintained an account at the First National Bank of Chicago under the name "J.D. Marshall International, Inc." even after the February 1984 sale. Thus, when customers wired payment to the bank that purportedly should have been received by Marshall, Redstart and its officers allegedly caused such payment to be transferred to the "J.D. Marshall International, Inc." account under their control. These fraudulent practices constitute the predicate acts for Marshall's RICO claims.
On December 20, 1984, Marshall filed a demand for arbitration before the American Arbitration Association in Chicago pursuant to the Purchase Agreement, which provided that either party could elect to arbitrate disputes arising from the contract. On February 24, 1987, the district court stayed its proceedings because of the pending arbitration between Marshall and Redstart. J.D. Marshall International, Inc. v. Redstart, Inc., 656 F.Supp. 830 (N.D.Ill.1987). Apparently, however, the arbitration already had been concluded, with offsetting awards resulting in a net recovery by Marshall of $38,740.36.
Redstart, Ewing, and Mathur then moved to dismiss Marshall's action arguing that (1) the res judicata effects of the arbitration award precluded Marshall's RICO claim, and (2) Marshall failed to plead a RICO claim properly.
Before the district court could rule on that motion, Marshall filed a motion for leave to file a first amended complaint. In its first amended complaint, Marshall restated its RICO count under Sec. 1962(c), added two more RICO counts under Secs. 1962(a) and (d), and named three more defendants, Inchcape PLC, Inchcape, Inc., and MITCO. On May 24, 1988, the district court granted Marshall leave to file its first amended complaint and evaluated that complaint in light of the issues raised in Redstart's motion to dismiss. J.D. Marshall International, Inc. v. Redstart, Inc., 1988 WL 56287 (N.D.Ill.1988). The district court rejected Redstart's res judicata argument, 1 and proceeded to dismiss counts I and II of Marshall's first amended complaint for failure to allege RICO enterprises sufficiently. Counts III and IV of Marshall's first amended complaint, a Sec. 1962(a) federal claim, and the contract claim, survived.
Defendants then moved to dismiss the remaining RICO claim on the basis that, among other things, the claim did not adequately allege a pattern of racketeering. Inchcape PLC also moved to dismiss for lack of personal jurisdiction. On December 29, 1989, the district court granted Defendants' motion to dismiss, holding that Marshall failed to allege sufficiently a pattern of racketeering activity; that Inchcape PLC was not subject to personal jurisdiction in this case; that Marshall failed to allege sufficiently a mail fraud violation regarding the Utica Tool account; and that Marshall failed to allege sufficiently a RICO violation by either Inchcape PLC or Inchcape, Inc. J.D. Marshall International, Inc. v. Redstart, Inc., 1989 WL 165070 (N.D.Ill.1989). Having dismissed the remaining RICO allegations of Count III and the pendent contract claims of Count IV, 2 the district court dismissed the entire case and entered judgment for the defendants.
At a hearing on February 1, 1990, the district court denied Marshall's post-judgment motion for leave to file its second amended complaint, noting that Marshall's proposed second amended complaint did not cure the deficiencies that led to the dismissal of Marshall's first amended complaint. As the district court had stated repeatedly, even when it granted Marshall additional time to submit a proposed second amended complaint, Marshall simply could not satisfy the pattern requirements of a RICO count. Marshall appealed, challenging the February 1st denial of its motion for leave to file a second amended complaint.
Though Marshall raises several issues on appeal, the case really comes down to this: did the district court abuse its discretion when it denied Marshall leave to file a second amended complaint? The answer to this question, as revealed by Marshall's decision to abandon its challenge to the dismissal of its first amended complaint, is the heart of this dispute. What's more, at the heart of the answer lies the issue of whether Marshall has sufficiently pleaded or can...
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