North Bridge Assoc v. Boldt, 01-1622

• Decision Date: 05 November 2001
• Docket Number: No. 01-1622,01-1622
• Citation: 274 F.3d 38
• Parties: (1st Cir. 2001) NORTH BRIDGE ASSOCIATES, INC., AND RALPH H. SCOTT, III, Plaintiffs, Appellants, v. BENJAMIN J. BOLDT, BOLDT FAMILY TRUST, MARTHA'S VINEYARD HARBOR LANDINGS CONDOMINIUM TRUST, AND ARTHUR D. SMITH, Defendants, Appellees. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 38

274 F.3d 38 (1st Cir. 2001)

NORTH BRIDGE ASSOCIATES, INC., AND RALPH H. SCOTT, III, Plaintiffs, Appellants, v. BENJAMIN J. BOLDT, BOLDT FAMILY TRUST, MARTHA'S VINEYARD HARBOR LANDINGS CONDOMINIUM TRUST, AND ARTHUR D. SMITH, Defendants, Appellees.

No. 01-1622

United States Court of Appeals For the First Circuit

Heard Nov. 5, 2001

Decided December 19, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Mark L. Wolf, U.S. District Judge

[Copyrighted Material Omitted] Glenda H. Ganem, with whom Michael L. Snyder and McGovern, Hug & Ganem were on brief, for appellants.

Peter E. Ball, with whom Seth B. Kosto and Hill & Barlow were on brief, for appellees.

Before Selya, Circuit Judge, Coffin, Senior Circuit Judge, and Lipez, Circuit Judge.

COFFIN, Senior Circuit Judge.

Appellants claim that they twice were victims of real estate frauds perpetrated by appellee Benjamin Boldt and others.¹ They brought suit alleging a variety of state law claims and a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c). The district court concluded, inter alia, that appellants could not show the pattern of racketeering activity required to support RICO liability and therefore dismissed the complaint.² Appellants argue that their factual allegations were sufficient to support recovery and that, in any event, the court should not have dismissed the complaint without providing them a hearing and an opportunity to amend or conduct discovery. We affirm.

I. Background

In summarizing plaintiffs' allegations, we are mindful that we must accept the well pled facts of the complaint as true and indulge every reasonable inference in favor of allowing the lawsuit to proceed. See Tompkins v. United Healthcare of New England, Inc., 203 F.3d 90, 93 (lst Cir. 2000); Fed. R. Civ. P. 12(b)(6). We thus sketch the facts relating to the two alleged frauds as if they were proven.

Time-Share Scheme. Between 1977 and 1980, Ralph and Betty Scott purchased three time-share condominium unit intervals from appellee Martha's Vineyard Harbor Landings Condominium Trust ("Harbor Landings Trust"). Appellee Boldt, a Harbor Landings trustee, lent the Scotts about $6,500 toward the purchase price of the units in exchange for a promissory note ("the Note") and a security interest. The Note barred the Scotts from transferring title to the units and provided that transfer of the Note could result in its acceleration and foreclosure. The Note also provided that the Scotts would be liable for costs of collection, including reasonable attorney's fees.

Sometime later, the Scotts assigned title to the units to Angels Realty Trust ("Angels"), which was set up for the benefit of their children, and Boldt assigned the Note and Mortgage to appellee Boldt Family Trust. In 1992, Angels began withholding payments because Boldt refused to provide information about whether he was protecting the corpus of the Harbor Landings Trust. In retaliation, Boldt Family Trust in 1995 accelerated the Note under the pretext that the Scotts had improperly transferred title to Angels. Boldt Family Trust threatened to institute foreclosure proceedings.

In response to Angels' request in July 1996 for a payoff figure, Boldt Family Trust demanded about $10,000 in principal, interest and legal fees. Through its counsel, appellee Smith, the Trust also instituted foreclosure proceedings. Angels paid the approximately $7,000 in principal and interest, but refused to pay "spurious and unsubstantiated legal fees."³ In April 1997, the time-share units were sold at foreclosure. Appellants claim that Boldt and Smith fraudulently inflated legal fees for the purpose of bringing about foreclosure.

Lot 1 Fraud. In July 1978, Boldt sold Betty Scott approximately thirty acres of land, designated Lot 1, in Edgartown, Massachusetts. Scott informed Boldt that she intended to develop and subdivide the lot into single-family homes. At the time of purchase, the lot was not connected to a state road, and Boldt advised Scott that he would provide an easement through a neighboring property he owned. Boldt, however, failed to obtain permission for the easement from his partner, and he later offered Scott the alternative of obtaining access to the highway through purchase of a lot, No. 407, in an adjacent development, Edgartown Forest. The $12,000 purchase price included a $2,000 cash payment and a $10,000 note. Boldt, who had been hired to sell residential lots in Edgartown Forest, told Scott that he would pay the note because of his failure to secure the right of way that he previously had promised. Boldt, however, again failed to follow through.

In 1980, the Town of Edgartown granted Scott subdivision approval for Lot 1 based on plans showing highway access across Lot 407. Construction of roads, utilities and foundations for forty-three residences was begun, and development costs reached approximately $2 million. In November 1987, Scott conveyed her interest in Lot 1 to appellant North Bridge Associates, Inc., whose officers, directors and shareholders are Scott and her husband.

Appellants contend that Boldt undermined the Lot 1 development by encouraging purchasers of lots in Edgartown Forest to take legal action to prevent highway access across Lot 407 from the North Bridge development. The property owners filed a lawsuit in October 1988. Although the litigation ultimately was unsuccessful, a lis pendens (notice of pending suit) was placed on Lot 1, prompting the bank that had advanced funds for the development to demand immediate repayment of its loans. The loss of funding, in turn, caused the development to fail. North Bridge claims that Boldt urged the meritless suit so that he could reacquire Lot 1, which he later did at a mortgagee's sale.

In their complaint, appellants alleged violations of RICO,⁴ and also brought state law claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and unfair business practices in violation of Mass. Gen. L. ch. 93A. In addition, Angels brought a state-law claim against Boldt and Boldt Family Trust for lender liability, and a claim against Smith alleging unjust enrichment. Appellees filed a motion to dismiss that asserted a variety of defects in the RICO cause of action, including lack of particularity in the allegations and a failure to show a pattern of racketeering activity.

In a two-page decision, the district court ruled in favor of appellees "[f]or the reasons stated in [their] memorandum." The court noted that, had the complaint's only problem been its lack of particularity, appellants might have been given an opportunity to amend. The court concluded that revision would be fruitless, however, because "the plaintiff has not, and evidently cannot, properly allege the required pattern of racketeering activity." The court declined to retain jurisdiction over the pendent state law claims and dismissed them without prejudice. This appeal followed.

II. Discussion

We begin by examining de novo the court's conclusion that the complaint as filed is inadequate to support a RICO cause of action. Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 443 (lst Cir. 2000). Because we agree with that determination, we go on to consider whether appellants should have been afforded the opportunity to amend their complaint or obtain discovery before the RICO claim was dismissed with prejudice.

A. The RICO Allegations

To state a claim under section 1962(c), a plaintiff must allege each of the four elements required by the statute: (1) conduct (2) of an enterprise, (3) through a pattern (4) of racketeering activity. Bessette, 230 F.3d at 448; Feinstein v. Resolution Trust Corp., 942 F.2d 34, 41 (lst Cir. 1991) (citing Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)); see also 18 U.S.C. § 1962(c). Appellees argue that the complaint in this case was deficient in multiple respects, but we focus on the shortcomings in the "pattern" showing because we view them as both serious and irremediable.

By statute, a successful RICO plaintiff seeking to establish a pattern must show at least two predicate acts of "racketeering activity," conduct that includes mail and wire fraud. Efron v. Embassy Suites (P.R.), Inc., 223 F.3d 12, 15 (lst Cir. 2000) (citing 18 U.S.C. § 1961(1)(B), (5)). In addition, the plaintiff must demonstrate that the "'predicates are related, and that they amount to or pose a threat of continued criminal activity,'" id. (quoting H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989)). Acts are "related" if they have "'"the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events."'" Id. (quoting H.J., 492 U.S. at 240 (quoting 18 U.S.C. § 3575(e))). To establish continuity, "the plaintiff must show that the related predicates 'amounted to, or posed a threat of, continued criminal activity.'" Feinstein, 942 F.2d at 45 (quoting Fleet Credit Corp. v. Sion, 893 F.2d 441, 445-46 (lst Cir. 1990)).

Plaintiffs specifically allege two predicate acts, both of which are mailings connected with the time-share scheme. A letter sent on January 2, 1997, demanded payment of the full sum due on the Note, plus legal expenses. A second letter was sent on April 2, after the Note had been paid, stating that Boldt would "continue with foreclosure proceedings" if the legal fees were not paid. Appellants contend that, by demanding "manufactured legal expenses," these mailings aided the scheme to unlawfully force Angels into default on the Note, and thus constituted mail fraud.

Assuming that these two letters are related acts of mail fraud, they nonetheless fail to support a RICO cause of action because continuity is wholly lacking. Predicate acts can satisfy the requirement of continuous criminal activity if they either...