McDonald v. Schencker

• Decision Date: 10 March 1994
• Docket Number: No. 93-2156,93-2156
• Citation: 18 F.3d 491
• Parties: , RICO Bus.Disp.Guide 8508 Johnie McDONALD, Plaintiff-Appellant, v. Alan T. SCHENCKER, Allan L. Grant and Grant & Schencker, P.C., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 491

18 F.3d 491

28 Fed.R.Serv.3d 711, RICO Bus.Disp.Guide 8508

Johnie McDONALD, Plaintiff-Appellant, v. Alan T. SCHENCKER, Allan L. Grant and Grant & Schencker, P.C., Defendants-Appellees.

No. 93-2156.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 28, 1993.

Decided March 10, 1994.

Terence J. Tyksinski, Chicago, IL, Robert A. Handelsman (argued), Chicago, IL, for plaintiff-appellant.

Alan T. Schencker (argued), Alan L. Grant, Grant & Schencker, Deerfield, IL, for defendants-appellees.

Before CUDAHY, RIPPLE and MANION, Circuit Judges.

MANION, Circuit Judge.

Johnie McDonald sued her attorney, Alan T. Schencker, his partner, Allan L. Grant, and their firm, Grant and Schencker, P.C., alleging that Schencker's excessive bill and certain actions taken by him to secure its payment violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1961 et seq., as well as several pendant state laws. She sought damages in the amount of $11,000 and attempted to treble these under 18 U.S.C. Sec. 1964(c). The district court granted Schencker's motion to dismiss because McDonald failed to sufficiently allege a pattern of racketeering. For the following reasons, we affirm. We also deny Schencker's motion for appellate sanctions under Fed.R.App.P. 38.

I.

In May and June of 1991, McDonald retained attorney Schencker to handle two different legal matters. The first involved the sale of certain Chicago real estate owned by McDonald. On May 31, 1991, McDonald gave Schencker an earnest money check in the amount of $5,000 which had been endorsed by both her and the purchaser, and instructed Schencker to hold this check in escrow until the sale had closed. Schencker promptly deposited the check in the law firm's account. The second matter involved defending an appeal from a civil judgment in the Cook County Circuit Court in which McDonald was the plaintiff/counter-defendant. On June 4, 1991, McDonald retained Schencker to represent her in the appeal. For his appellate services, Schencker requested that he be paid $6,000 in advance, which McDonald did in six $1,000 installments.

The controversy in this case came about on August 27, 1992, when Schencker mailed McDonald an itemized billing statement for his appellate services. This statement listed 110.8 hours at $225 per hour for a total of $24,900. McDonald refused to pay, claiming that the bill was fraudulent. According to McDonald, this was because Schencker billed an excessive amount of time in light of the issues raised on appeal, charged an excessive hourly rate as compared to the going rate of other attorneys in the Chicago area, and failed to give McDonald credit for the $6,000 she had paid in advance. She promptly fired Schencker.

Shortly before this confrontation, the sale had closed on McDonald's Chicago property. Schencker, however, had never paid McDonald the $5,000 held in escrow. On September 30, 1992, McDonald sent Schencker a letter demanding that he do so. Upon receipt of the letter, Schencker informed McDonald that he was applying (without having obtained any prior approval) the $5,000 towards his unpaid bill for the work in the Cook County appeal.

McDonald proceeded on two fronts. She first filed a formal complaint with the Illinois Attorney Registration and Disciplinary Commission ("ARDC"). She then filed a six-count complaint in the United States District Court for the Northern District of Illinois. This complaint alleged various state law claims for such things as conversion, fraud and breach of fiduciary duty. The complaint also contained a RICO claim, which formed the sole basis for federal jurisdiction. Thus, we first need to consider whether count one of the complaint constituted a valid claim under RICO.

In her original complaint, McDonald alleged as predicate acts of racketeering activity that Schencker had mailed a "fraudulent" billing, and had wrongfully converted the escrow funds. Later, she amended her complaint to add another act of racketeering--perhaps sensing that two predicate acts would not be enough. See, e.g., Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 922 (7th Cir.1992) (two acts of racketeering, while necessary to make a pattern, are normally not sufficient). Before submitting his first bill, Schencker had petitioned for and obtained leave to file a sur-reply brief in the Cook County appellate matter. McDonald alleges that this constituted an additional scheme to defraud her of her money through the U.S. mails because, had she agreed to this additional brief, this would have provided Schencker yet another opportunity to bill McDonald at the "fraudulently" excessive rate of $225 per hour. ¹

Following a motion by Schencker, the district court dismissed McDonald's amended complaint. At the hearing on Schencker's motion, the district judge stated that although McDonald's allegations, if true, did indicate improper behavior on the part of Schencker, they did not state a claim under RICO. The district court found that this was a single victim, single scheme, single injury case which was wholly outside the scope of RICO. The court also found that even if McDonald had sufficiently pleaded a number of predicate bad acts, she had utterly failed to demonstrate how Schencker's actions posed a threat of continuing future criminal acts against McDonald. The district court dismissed McDonald's RICO claims and as a result refused to exercise jurisdiction over her state law claims. Following a motion by McDonald, the district court entered an order reflecting that its dismissal of the RICO claim was with prejudice and the state claims without prejudice, thus making its decision final.

In her appeal, McDonald claims that the district court erred in its determination that these allegations failed to sufficiently plead a pattern of racketeering. Schencker cross-appeals, claiming that we should sanction McDonald under Fed.R.App.P. 38 for filing a frivolous appeal.

II.

As this case comes to us from a dismissal of McDonald's first amended complaint, we must review the district court's dismissal de novo, taking all facts alleged in the complaint and the inferences reasonably drawn from them in the light most favorable to the non-movant McDonald. See Schiffels v. Kemper Fin. Serv., Inc., 978 F.2d 344, 346 (7th Cir.1992); Uni*Quality, 974 F.2d at 920.

A. Predicate Acts

McDonald argues that her complaint sufficiently stated a cause of action for RICO pursuant to 18 U.S.C. Sec. 1962(c). ² To make out a violation of Sec. 1962(c) it was incumbent upon McDonald to demonstrate "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." See Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1019 (7th Cir.1992) (citing Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985)). A pattern of racketeering activity consists of at least two predicate acts of racketeering committed within a ten-year period. See 18 U.S.C. Sec. 1961(5). RICO defines "racketeering activity," also referred to as "predicate acts," as acts indictable under any one of several federal or state offenses, including mail fraud under 18 U.S.C. Sec. 1341, and wire fraud under 18 U.S.C. Sec. 1343. See Midwest Grinding, 976 F.2d at 1019.

In her amended complaint, McDonald relies upon a number of mailings as the separate acts of mail fraud needed to provide the requisite amount of racketeering activity. To sufficiently plead an indictable act of mail fraud under 18 U.S.C. Sec. 1341, it was up to McDonald to allege that: (1) the defendant has participated in a scheme to defraud and (2) the defendant has mailed or has knowingly caused another to mail a letter or other matter for the purpose of executing the scheme. See United States v. Swinson, 993 F.2d 1299, 1300 (7th Cir.1993). Although the district court apparently assumed, and Schencker never challenged, that McDonald sufficiently alleged three acts of mail fraud, after examining the substance of McDonald's allegations, we conclude otherwise.

1. False and Fraudulent Billing

The gist of McDonald's first allegation of racketeering activity is that, with regard to the Cook County appellate matter, Schencker billed her for an inordinate amount of time at an excessive fee and failed to give her credit for an advance already paid. This is hardly mail fraud. Perhaps Schencker is slow or inefficient, which led him to spend the amount of hours that he did in preparing his appeal, but McDonald does not allege that Schencker did not actually accumulate these hours. This does not appear to be a case where a bill has been sent for work never done. Exhibits B2-B4 detail the time spent by Schencker in preparing this matter. In her amended complaint, McDonald did not allege that Schencker never engaged in this work. Of course, McDonald's contention that Schencker's fee of $225 per hour is grossly excessive, if true, may constitute a violation of Rule 1.5(a) of the Illinois Rules of Professional Conduct ("A lawyer's fee shall be reasonable."). But these allegations, standing alone, do not appear to constitute a scheme to defraud for purposes of mail fraud. ³ In addition, the mere allegation that Schencker failed to give McDonald credit for the $6000.00 advance by itself is insufficient to allege a scheme to defraud. Although the Federal Rules provide for very liberal pleading, Rule 9(b) of the Federal Rules of Civil Procedure requires RICO plaintiffs, like any other plaintiffs pleading fraud in the federal courts, to plead "all averments of fraud with particularity." Midwest Grinding, 976 F.2d at 1020. "Most importantly, complaints charging fraud must sufficiently allege the defendant's fraudulent intent." Graue Mill Dev. v. Colonial Bank & Trust Co., 927 F.2d 988, 992 (7th Cir.1991). There is simply nothing on the face of McDonald's complaint which gives us any basis for believing that Schencker possessed a fraudulent intent in failing...