Newport Ltd. v. Sears, Roebuck & Co., Civ. A. No. 86-2319.

• Decision Date: 21 May 1990
• Docket Number: Civ. A. No. 86-2319.
• Citation: 739 F. Supp. 1078
• Parties: NEWPORT LIMITED, etc. v. SEARS, ROEBUCK & CO.
• Court: U.S. District Court — Eastern District of Louisiana

739 F. Supp. 1078

NEWPORT LIMITED, etc. v. SEARS, ROEBUCK & CO.

Civ. A. No. 86-2319.

United States District Court, E.D. Louisiana.

May 21, 1990.

Phillip A. Wittmann, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., for plaintiff.

Harry McCall, Jr., Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, La., for defendant.

ORDER AND REASONS

ARCENEAUX, District Judge.

This matter comes before the Court on motion to dismiss filed by Sears, Roebuck & Co. ("Sears"), seeking the dismissal of two claims made by the plaintiff, Newport Limited ("Newport"), including Newport's seventh cause of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c). Sears argues that Newport has failed to allege facts sufficient to meet RICO's "continuity" requirement, and that the allegations relating to predicate acts and pattern, association with and participation in an enterprise, and damages are legally insufficient. For the reasons set forth hereinafter, the Court has determined that dismissal of the RICO claim is appropriate, and that the pendent state claims should be dismissed as well.

Discovery has been completed in this matter, and a motion for summary judgment has been filed by Sears (Doc. 442) in which its motion to dismiss the RICO claim is effectively incorporated, and in opposition to which Newport has incorporated its argument. (Doc. 448, p. 82). The facts have been extensively briefed by the parties, and to the degree that undisputed facts are relied upon, the motion to dismiss shall be treated as a motion for summary judgment under Fed.R.Civ.Pro. 56(b).¹

The facts germane to this Court's analysis of the RICO claim are largely undisputed. The parties signed a letter dated January 9, 1985, in which Sears stated:

We have analyzed the proposal offered by you for the construction of a new import/export warehousing facility to be located within the Newport Industrial Park, New Orleans, Louisiana, such construction to be on a build-to-suit basis. Based upon our analysis and subject to the preparation of mutually agreeable legal documentation, we are prepared to enter into the transaction on substantially the following terms and conditions.... It is to be understood that the matters contained in this letter will form the basis of a much more detailed document, the terms and conditions of which are subject to the mutual agreement of the parties. It is not intended to be a comprehensive statement of our respective rights, duties and obligations which will be fully set forth in said document.

Newport claims that sometime in the summer of 1986, "Sears management had made the decision not to go forward with the proposed project because of a change in their philosophy concerning their "`replenishment program'" and that "despite having internally reached the decision not to go forward with the project, Sears failed to communicate its decision to Newport opting instead to misrepresent its true intentions to Newport by advising that the project would continue as planned and agreed between the parties." (Doc. 323, p. 14). At the same time, Newport claims that the gist of the fraud is that Sears sought to create a contract dispute with Newport in order to coerce Newport into withdrawing from the project and shift the blame for the failure of the project from Sears to Newport. (See e.g.: Doc. 448, p. 23, 29, 79-81, att. p. 11, 13, 24).² Newport sets forth as predicate acts alleged violations of mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343, between July 1985 and May 1986. (Doc. 343, pp. 16-21).

In general, RICO liability requires proof of the existence of an enterprise, the defendant's employment by or association with that enterprise and the defendant's conduct of or participation in the conduct of the enterprise's affairs through a pattern of racketeering activity. United States v. Cauble, 706 F.2d 1322, 1333 (5th Cir.1983), cert. denied, 465 U.S. 1005, 104 S.Ct. 996, 79 L.Ed.2d 229 (1984). The defendant must be one who engages in a pattern of racketeering activity connected to the acquisition, establishment, conduct or control of an enterprise." Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183, 190 (5th Cir.1990). Liability under § 1962(c)³ is visited upon those persons "who being employed by or associated with ... an enterprise, conducts or participates in the conduct of its affairs through a pattern of racketeering activity." H.J., Inc. v. Northwestern Bell Telephone Co., ___ U.S. ___, 109 S.Ct. 2893, 2897, 106 L.Ed.2d 195 (1989).

In Delta Truck & Tractor, Inc. v. J.I. Case Co., 855 F.2d 241, 242 (5th Cir. 1988), cert. denied, ___ U.S. ___, 109 S.Ct. 1531, 103 L.Ed.2d 836 (1989), the Fifth Circuit delineated how "the principle of continuity limits the types of persons, patterns and enterprises that civil RICO may reach." The principle of continuity requires that the RICO person be one that either poses or has posed a continuous threat of engaging in acts of racketeering. Generally, that continuity is supplied by pleading the existence of a pattern of racketeering activity. However, "the continuous threat requirement may not be satisfied if no more is pled than that the person has engaged in a limited number of predicate racketeering acts." Delta Truck, 855 F.2d at 242.

In H.J., Inc., supra, the Supreme Court established that a RICO pattern requires a showing that the racketeering predicates are related and that they amount to or pose a threat of continued criminal activity. With regard to continuity, the Supreme Court held:

"Continuity" is both a closed- and openended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition ... It is, in either case, centrally a temporal concept—and particularly so in the RICO context, where what must be continuous, RICO's predicate acts or offenses, and the relationship these predicates must bear one to another, are distinct requirements. A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct. Often a RICO action will be brought before continuity can be established in this way. In such cases, liability depends on whether the threat of continuity is demonstrated.

H.J., Inc., 109 S.Ct. at 2901 (emphasis original).

The Supreme Court concluded that related predicates occurring with some frequency over at least six years may be sufficient to satisfy the continuity requirement, as would a showing at trial that such predicates were a regular way of conducting the defendant's business, or a regular way of conducting or participating in the conduct of the alleged and ongoing RICO enterprise. H.J., Inc., 109 S.Ct. at 2906. The Court rejected the argument that very short periods of criminal activity that do not carry a threat of continued criminal activity fall within the reach of RICO: "... when Congress said predicates must demonstrate `continuity' before they may form a RICO pattern, it expressed an intent that RICO reach activities that amount to or threaten long-term criminal activity." H.J., Inc., 109 S.Ct. at 2902, fn. 4.

The Fifth Circuit has applied H.J., Inc.'s pattern requirement in two recent cases. In Howell Hydrocarbons, supra, a single misrepresentation or fraudulent statement was found insufficient in the absence of proof of activities that indicate long-term criminal activity. In Landry v. Air Line Pilots Assn. Int'l AFL-CIO, 901 F.2d 404 (5th Cir.1990), reh. granted in part & denied in part (5th Cir. Ap. 27, 1990), the Fifth Circuit singled out the allegation that one of the defendants had fraudulently received and continued to receive retirement benefits for a number of years as a fact relevant to the existence of a continuing threat. In finding a continuing threat adequately pleaded, the Court ignored three acts of alleged mail fraud directly involving the plaintiffs, which took place over a period of approximately one month, thereby implicitly finding that such acts insufficiently alleged a closed-end pattern by virtue of a lack of continuity.

Here, the predicates pleaded by Newport are alleged acts of mail and wire fraud between July 1985 and May 1986. (Doc. 323, pp. 16-21). The Court finds, as a matter of law, that these acts do not provide the continuing threat required of a closed-ended RICO pattern. Neither do they constitute, implicitly or explicitly, the continuous threat required for an open-ended pattern. No allegations relating to an open-ended are pleaded, and none exist under the facts relied upon by Newport in support of its claims in this matter.

In addition, Newport has not shown that all of the predicate acts constitute violations of the applicable statutes. While Newport alleges that "each of the predicate acts alleged by Newport relates to Sears' plan to defraud Newport in connection with the development of the Newport Industrial Park," (Doc. 323, p. 22), the statutes require more.⁴ At a minimum, the crimes of mail and wire fraud require that the communication be in furtherance of the scheme to defraud, and that the communication relate to material facts. Newport does not allege and the facts do not support the allegation that all of the acts listed were made in furtherance of the alleged scheme to defraud or related to a material fact.

As it pertains to Newport's allegations concerning enterprise, the Court refuses to find, as a matter of law, that a plaintiff cannot be deemed the enterprise under § 1962(c). However, Sears' arguments regarding the deficiency regarding its alleged association with the enterprise are well-taken. In this regard, Newport is alleging that "Sears...