Marshall & Ilsley Trust Co. v. Pate
| Citation | 819 F.2d 806 |
| Decision Date | 20 May 1987 |
| Docket Number | Nos. 86-1468,86-1537 and 86-1557,s. 86-1468 |
| Parties | Fed. Sec. L. Rep. P 93,348, RICO Bus.Disp.Guide 6634, 22 Fed. R. Evid. Serv. 1691 MARSHALL & ILSLEY TRUST CO., as personal representative of the Estate of Charles W. Landis, Plaintiff-Appellant, v. Joseph L. PATE, et al., Defendants-Appellees. Charles W. LANDIS, Plaintiff-Appellee, v. Jack LEONE, et al., Defendants-Appellants. Charles W. LANDIS, Plaintiff-Appellee, v. Raymond E. FRENCH, Defendant-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Alan Palwick, Chicago, Ill., Merle L. Royce, Chicago, Ill., for defendant-appellant.
Thomas R. Schrimpt, Kluwin, Dunphy & Hankin, Milwaukee, Wis., for plaintiff-appellee.
Before CUMMINGS, and CUDAHY, Circuit Judges, and WILL, Senior District Judge. *
On September 22, 1982, Dr. Charles W. Landis, now deceased and represented by the plaintiff Marshall & Ilsley Trust Co., purchased three limited-partnership shares from the defendant Joseph Pate for a total consideration of $30,000. Landis lost the entire investment, and he eventually sued the defendants alleging violations of the Securities Exchange Act of 1934 ("1934 Act") and the Racketeer Influenced and Corrupt Organizations Act ("RICO") and also alleging common law fraud. The district court dismissed the RICO counts for failure to state a claim upon which relief could be granted, granted summary judgment to the defendants based on their statute of limitations defense to the 1934 Act count and dismissed the pendent state fraud claim for lack of jurisdiction. We vacate and remand.
The plaintiff appeals from an adverse grant of summary judgment, so we credit its version of disputed facts.
Defendant Pate was an accountant for Landis and his medical practice. In September, 1982, Pate encouraged Landis to invest in a limited partnership known as Energy Conservation Partners ("EC Partners"), which was formed to fund the development and marketing of "energy management systems" manufactured by K.E.M. Systems, Inc. ("KEM Systems"). Landis was led to believe that K.E.M. Industries, Inc. ("KEM Industries") was planning to buy KEM Systems' product and go public with it. Pate assured Landis that he would receive $60,000 for his $30,000 investment. 1
Landis received little paperwork documenting his investment, and his concern gradually mounted when the predicted $60,000 return did not materialize. In January 1984, Landis asked Pate about the delay; Pate expressed surprise that Landis had received nothing. In February 1984, Landis contacted defendant Jack Leone about the delay. Leone told Landis that EC Partners had fallen apart and that the investment was lost. Landis filed his four-count complaint on July 27, 1984.
Count 1 of Landis' original complaint alleged that Pate and the other defendants (except Trans Global) violated sections 10(b) and 20 of the 1934 Act, 15 U.S.C. Secs. 78j(b), 78t(a), by deceiving Landis in connection with the sale of the limited partnership interest. The complaint alleged that Pate personally misled Landis and that the other defendants were all "controlling persons" liable for the actions of EC Partners and its agent Pate.
Counts 2 and 3 of Landis' original complaint alleged that the activities of the defendants described in Count 1 and similar acts defrauding other investors constituted racketeering activities violating section 1962 of RICO, 18 U.S.C. Sec. 1962. Count 4 alleged that all the defendants (except Trans Global) misrepresented facts to Landis, violating common law fraud duties.
No answer to the complaint was received from defendants Pate, Nicholas Leone, EC Partners, KEM Systems or Trans Global. Answers were filed by defendants Jack Leone, French, Deerfield, KEM Industries, and Ilice. A flurry of procedural parrying eventually resulted in a victory for all defendants--both those present and those absent. The district court reached the following dispositions. On Count 1 (securities fraud), summary judgment was granted in favor of the defendants based on the relevant Wisconsin statute of limitations. On Counts 2 and 3 (RICO), the defendants' motions to dismiss were granted with prejudice because the plaintiff did not allege two predicate acts that injured Landis. Count 4 (fraud) was dismissed for lack of pendent jurisdiction. The court on its own motion denied or dissolved default judgments against nonappearing defendants.
On Count 1, we vacate the summary judgment, and we remand the case with instructions to reinstate the state fraud claim and to permit the plaintiff to attempt to amend its RICO claims.
The district court concluded that Landis "should have known that he might have been defrauded by January of 1983," Order, Feb. 24, 1986, and that, hence, his lawsuit was barred by the applicable one-year statute of limitations. See Wis.Stat. Sec. 551.59(5) (1979) (amended 1983); Gieringer v. Silverman, 731 F.2d 1272 (7th Cir.1984). Two factors seem to have pointed toward this conclusion. First, the district court apparently relied on the fact that at one point in his testimony Landis remarked that he had received neither proper documentation of his investment nor his $60,000 check by January 1983, despite assurances that the check would be mailed by December 31, 1982. Second, the court stated that Landis did not adequately counter the defendants' arguments that Landis knew or should have known of the fraud by January 1983. (Landis apparently relied on an earlier ruling by the district court that a three-year statute of limitations applied under Wisconsin law, which would not bar Landis' claim under any construction of the facts.) See Order, Jan. 11, 1986.
Neither reason justifies summary judgment for the defendants. First, the record reveals an unmistakable material issue of fact: some testimony suggests that the $60,000 check was to be mailed in December 1982; other testimony (and Landis in his brief) suggests it was to be December 1983. Cf. Appellant's Brief at 10-11. If it was the latter, Landis has a strong case that he reasonably delayed investigating the situation until January 1984, only six months before he filed this lawsuit.
Second, Landis had reason to ignore the defendants' summary judgment motion and its assertion of when Landis should have learned of the fraud. He understandably relied on an earlier order by the district court in the case stating that a three-year statute of limitations applied. (On appeal, the parties agree that a one-year statute of limitations applies.) Landis' earlier reliance on the three-year limit does not bar him from arguing now that a material issue of fact exists under a one-year statute--the defendants do not argue to the contrary and we fail to see any such bar. We cannot agree with the district court's conclusion that no material issue of fact exists as to the statute of limitations, and we vacate the grant of summary judgment with respect to Count 1.
The defendants suggest that an alternative ground supports the summary judgment on Count 1, namely that none of the defendants is a "controlling person" subject to liability under section 20 of the 1934 Act, 15 U.S.C. Sec. 78t(a). The district court declined to reach this issue when granting summary judgment on Count 1, but had considered this argument earlier in the case, when it rejected the contention. Order, Jan. 11, 1985. On appeal, the defendants have failed to show that no reasonable view of the record would support section 20 liability. Hence, we cannot affirm the summary judgment on these grounds.
In Counts 2 and 3 of Landis' original complaint, he alleged that the defendants violated section 1964(c) of RICO, 18 U.S.C. Sec. 1964(c), through securities fraud against him. The district court dismissed these counts with prejudice for failure to state a claim upon which relief could be granted, because Landis did not allege two acts of racketeering committed by the defendants. Order at 13, Jan. 11, 1985. Landis twice moved to amend his complaint in order to revive his RICO claims, but the court denied both motions. In denying Landis' first motion to amend, the court found that Landis alleged two predicate acts of securities fraud, but that one of these was a sale of securities to someone other than Landis. The court stated: "The RICO violations must be alleged in relation to the plaintiff and they must have been carried out by the defendants against whom the claim is made." Order at 2-3, March 28, 1985. In denying Landis' second motion to amend, the court amplified the reason for which it rejected Landis' allegations:
Landis alleges that one of the predicate acts was the fraudulent sale of the limited partnership to him and that the other act was the fraudulent sale of securities to several investors who are not parties to this lawsuit. The two predicate acts necessary to state a RICO violation must have harmed the plaintiff. The court cannot consider collateral acts supposedly committed against persons not a party to the lawsuit. To do so would necessitate holding a trial within a trial involving nonparties.
Order at 3, June 17, 1985.
Apparently, the district court construed the phrase "injured ... by reason of a violation of [RICO] section 1962," 18 U.S.C. Sec. 1964(c), to require that the plaintiff suffer injury from each of the (at least two) acts necessary to state a RICO violation. 2 Imposing such a requirement, however, would conflate what must be two separate inquiries: first, was there a pattern of racketeering activity violating RICO, and second, was the plaintiff injured by the RICO violation? We do not believe that a plaintiff, in order to state a claim under section 1964(c), must allege an injury to its business or property either caused by at least two predicate acts, or caused by all the acts adding up to a pattern. Rather, we believe a plaintiff must prove only: (1) a violation of ...
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