McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc.

• Citation: 904 F.2d 786
• Decision Date: 05 March 1990
• Docket Number: No. 89-1999,89-1999
• Parties: RICO Bus.Disp.Guide 7478 McEVOY TRAVEL BUREAU, INC., Plaintiff, Appellant, v. HERITAGE TRAVEL, INC., et al., Defendants, Appellees. . Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 786

904 F.2d 786

RICO Bus.Disp.Guide 7478

McEVOY TRAVEL BUREAU, INC., Plaintiff, Appellant, v. HERITAGE TRAVEL, INC., et al., Defendants, Appellees.

No. 89-1999.

United States Court of Appeals, First Circuit.

Heard March 5, 1990.

Decided June 1, 1990.

Daniel F. Featherston, Jr., with whom Christopher L. Maclachlan, Boston, Mass., was on brief, for plaintiff, appellant.

Louis M. Ciavarra with whom Michael P. Angelini, Vincent F. O'Rourke, Jr., and Bowditch & Dewey, Worcester, Mass., were on brief, for defendant, appellee Norton Company.

Marcus E. Cohn, P.C., with whom J. William Codinha, P.C., Fred A. Kelly, Jr., and Peabody & Brown, Boston, Mass., were on brief, for defendants, appellees Heritage Travel, Inc. and Donald R. Sohn.

Before CAMPBELL, Chief Judge, BOWNES, Senior Circuit Judge, and CYR, Circuit Judge.

LEVIN H. CAMPBELL, Chief Judge.

McEvoy Travel Bureau, Inc. brought a four count complaint under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-1968, against Heritage Travel, Inc., the President of Heritage, and Norton Company. The district court, 721 F.Supp. 15, granted the defendants' motions to dismiss for failure to state a claim. McEvoy appeals. We conclude that McEvoy's complaint fails to allege any predicate acts of racketeering activity. We, therefore, affirm.

I.

Since this appeal is from a dismissal for failure to state a claim, we narrate the facts of the complaint in a light most favorable to the plaintiff-appellant, McEvoy Travel Bureau, Inc. ("McEvoy"). See, e.g., Chongris v. Andover Board of Appeals, 811 F.2d 36, 37 (1st Cir.), cert. denied, 483 U.S. 1021, 107 S.Ct. 3266, 97 L.Ed.2d 765 (1987). In 1980, McEvoy and defendant-appellee, Norton Company ("Norton") entered into a long-term oral contract under which McEvoy was to be the exclusive agent for all of Norton's travel business in the Worcester, Massachusetts, area. McEvoy was a small travel agency operating in Worcester. Norton is a large corporation headquartered in Worcester. Under the Norton-McEvoy contract, Norton was entitled to rebates representing a share in McEvoy's commissions generated by car rentals, hotel reservations and convention business. At the time the contract was entered into, according to the complaint, travel agencies such as McEvoy were prohibited by federal regulations from giving rebates from air fare commissions to their corporate customers. However, beginning in 1983, regulations were modified to permit air fare commission rebates on domestic air travel, but not on international travel. At this time, McEvoy began permitting Norton to share in domestic air fare commissions. By 1983, the Norton account represented about two thirds of McEvoy's total commission income.

In March 1983, Norton made requests to several travel agencies, including McEvoy, to submit bids to serve as Norton's exclusive agent. McEvoy viewed this as a breach of its contract to serve as Norton's exclusive agent. McEvoy, therefore, refused to take part in the bidding and informed Norton of the reasons for its refusal. On May 5, 1983, the exclusive contract was awarded to defendant-appellee, Heritage Travel, Inc. ("Heritage"). Shortly thereafter, on May 16, 1983, Norton terminated McEvoy's services, effective July 31, 1983. After the loss of the Norton account, McEvoy's profits rapidly decreased until October 1985, when all McEvoy's assets were sold for $140,000.

In October 1983, McEvoy brought suit against Norton in the Massachusetts Superior Court, alleging breach of contract, deceit, and unfair or deceptive acts or practices under Massachusetts G.L. ch. 93A. The jury found for McEvoy on both the deceit and contract counts and awarded damages of $465,000. The Superior Court ruled, however, that McEvoy's arrangement with Norton in 1980 was not an enforceable contract because of the statute of frauds. The court accordingly entered judgment notwithstanding the verdict for Norton on the contract count. On the deceit count, the court denied Norton's motion for judgment notwithstanding the verdict, but ordered a new trial on that count unless McEvoy would accept a remittitur of $165,000. McEvoy accepted the remittitur, reducing its damages to $300,000. The court then ruled that Norton was liable for a knowing or wilful deceptive practice under Mass.G.L. ch. 93A and, therefore, doubled the damage award to $600,000 and entered judgment for McEvoy on the deceit and the deceptive practices claims. Appeals by both Norton and McEvoy are now pending in the state court.

II.

On December 2, 1988, McEvoy brought this action in the United States District Court for the District of Massachusetts against Norton, Heritage, and the President of Heritage, Donald Sohn (collectively referred to as "appellees"). The complaint alleges four counts under the Racketeer Influenced and Corrupt Organizations Act ("RICO")--two against Norton under 18 U.S.C. Sec. 1962(a) and (c); one against Heritage under 18 U.S.C. Sec. 1962(a), and one against Sohn under 18 U.S.C. Sec. 1962(c). Alleging that it was injured, "by reason of" the alleged RICO violations, McEvoy seeks treble damages and attorney's fees pursuant to 18 U.S.C. Sec. 1964(c). ¹

Establishing a RICO violation under either section 1962(a) or section 1962(c), requires proof of a "pattern of racketeering activity" or of "collection of unlawful debt." See 18 U.S.C. Sec. 1962; H.J. Inc. v. Northwestern Bell Telephone Co., --- U.S. ----, 109 S.Ct. 2893, 2897, 106 L.Ed.2d 195 (1989). ² McEvoy's claims rely only on the contention that the appellees engaged in a pattern of racketeering activity; there are no allegations of the collection of an unlawful debt. To establish a pattern of racketeering, a plaintiff must show at least two predicate acts of "racketeering activity", as the statute defines such activity, and must establish that the "predicates are related, and that they amount to or pose a threat of continued criminal activity." Id. 109 S.Ct. at 2900. Racketeering activity is defined in 18 U.S.C. Sec. 1961(1) as constituting certain specified state or federal crimes. These include mail fraud in violation of 18 U.S.C. Sec. 1341 and wire fraud in violation of 18 U.S.C. Sec. 1343. See 18 U.S.C. Sec. 1961(1).

The basis of McEvoy's RICO claims is McEvoy's contention that the appellees fraudulently ousted McEvoy as Norton's exclusive agent by means of a pattern of racketeering activity consisting of numerous acts of mail and wire fraud. According to the complaint, the fraudulent scheme consisted of three elements.

The first element involved the execution and performance of an allegedly illegal contract between Norton and Heritage that took effect in September 1983. McEvoy alleges that the only reason Norton terminated its exclusive contract was that Heritage was able to provide services at a lower cost. The complaint further alleges that Heritage was able to provide Norton with services at a lower cost solely because of an illegal contract under which Heritage rebated to Norton commissions from international travel air fares and made certain rent payments to Norton, both of which McEvoy contends violated Federal Aviation laws, 49 U.S.C.App. Sec. 1373(b)(1) and 49 U.S.C.App. Sec. 1472(d)(1) and (2), and corresponding federal regulations promulgated by the Civil Aeronautics Board. ³

As the second element of the alleged scheme, McEvoy alleges that to commence business under the illegal contract, Norton and Heritage were required to obtain approval from the air industry's two self-regulatory associations, the Air Traffic Conference ("ATC") and the International Air Transport Association ("IATA"). See Costantini v. Trans World Airlines, 681 F.2d 1199, 1200 (9th Cir.) (approvals from ATC and IATA "are a prerequisite for a branch office to issue interstate and international airline tickets"), cert. denied, 459 U.S. 1087, 103 S.Ct. 570, 74 L.Ed.2d 932 (1982). In order to secure this necessary approval, on June 16, 1983, the appellees allegedly submitted a fraudulent contract to the two regulatory associations. The submitted contract did not reveal the illegal rent payments and rebates on international air commissions, and specifically stated that Heritage would not in any way grant rebates to Norton. The actual Norton-Heritage contract, however, allegedly provided that Heritage would make the illegal rebates and rent payments. Although the actual contract was dated October 1983, by its terms, it was to take effect on September 1, 1983.

As the third element of the alleged fraudulent scheme, McEvoy alleges that Sohn and Heritage engaged in a "kickback" scheme with American Airlines, under which Sohn and Heritage allegedly received payments from American Airlines in violation of 49 U.S.C.App. Secs. 1373 and 1472. ⁴ These payments are alleged to be part of the appellees' scheme to defraud McEvoy, because they were necessary to make the Norton-Heritage arrangement "financially viable for Heritage."

McEvoy alleges that in the course of securing ATC-IATA approval of the Norton-Heritage contract and carrying out the various alleged illegal payments, the appellees committed numerous acts of racketeering activity. The pattern of racketeering activity allegedly consists of the numerous uses of the mails and interstate wires that were necessary to carry out the three-part fraudulent scheme, i.e., the usages of the mails and wires necessary to secure ATC-IATA approval of the Norton-Heritage contract; ⁵ the mail and wire usages necessary to perform the Norton-Heritage contract (including the "thousands" of mailings and telephone calls necessary to arrange Norton's international travel arrangements from which Norton received the illegal rebates); and the usages of the mails in connection with the alleged illegal "kickback" deal that Sohn made on behalf of Heritage with American Airlines.

All three defendants moved in the district court for dismissal on several grounds: failure to state a...