Old Time Enterprises, Inc. v. International Coffee Corp.

• Decision Date: 13 January 1989
• Docket Number: No. 87-3293,87-3293
• Citation: 862 F.2d 1213
• Parties: , RICO Bus.Disp.Guide 7126 OLD TIME ENTERPRISES, INC., Plaintiff-Appellant, v. INTERNATIONAL COFFEE CORPORATION, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1213

862 F.2d 1213

12 Fed.R.Serv.3d 1415, RICO Bus.Disp.Guide 7126

OLD TIME ENTERPRISES, INC., Plaintiff-Appellant, v. INTERNATIONAL COFFEE CORPORATION, et al., Defendants-Appellees.

No. 87-3293.

United States Court of Appeals, Fifth Circuit.

Jan. 13, 1989.

Louis R. Koerner, Jr., New Orleans, La., for plaintiff-appellant.

Douglas S. Draper, Friend, Wilson, Spedale & Draper, New Orleans, La., for Intern. Coffee, Madary, Browning & Spuhler.

R. Patrick Vance, Robert B. Bieck, Thomas K. Potter, III, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, La., for Nottebohm and Pimentel.

Eugene R. Preaus, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for Fidelity & Deposit.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before CLARK, Chief Judge, and GOLDBERG and GARWOOD, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant Old Time Enterprises, Inc. (OTE), a debtor in possession under Chapter 11 of the Bankruptcy Code, appeals the dismissal pursuant to Fed.R.Civ.P. 12(b)(6) of its action for civil damages for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-1968, and the remand to the bankruptcy court of its pendent state law claims. We modify and affirm.

Facts and Proceedings Below

OTE is a Small Business Administration certified minority enterprise that roasts and packages coffee for government contracts. These contracts require a blend of Brazilian and Colombian coffee. Coffee purchases in these countries apparently are controlled by nationwide cartels, which set prices, quotas, and discounts. These cartels either sell to registered roasters exclusively or offer significant price incentives solely to roasters.

Defendant-appellee International Coffee Corporation (ICC) is an importer and broker of green (i.e., unroasted) coffee and was OTE's exclusive agent for purchasing coffee from "early 1985" until March 1986. When OTE received a solicitation to bid on a government contract, OTE would notify ICC, which would provide a firm offer to sell OTE the necessary coffee at a set price. At some point, either before quoting a price to OTE or after OTE was notified that it had received the contract, ICC purchased the coffee and registered the purchases with the cartels in OTE's name. Not all of the coffee purchased by ICC in OTE's name was actually sold to OTE. ICC received payment from OTE when OTE received payment from the government agencies.

ICC also leased equipment and provided some financing to OTE, which was by its own admission undercapitalized from the start. In January 1986, ICC became more extensively involved in financing OTE after the failure of the bank with which OTE had a line of credit. ICC agreed to purchase about eight percent of OTE stock and to provide a $100,000 line of credit secured by assignment to ICC of the accounts receivable on eight government contracts. On March 13, 1986, ICC cancelled OTE's line of credit and on March 26, 1986, OTE filed for relief under Chapter 11.

The day after OTE filed its bankruptcy petition, ICC obtained a temporary injunction from the bankruptcy court that prohibited OTE from selling coffee or disposing of the government contract proceeds that secured the line of credit. On April 2, 1986, the bankruptcy court entered a temporary injunction ordering OTE not to dispose of funds assigned to ICC under a September 6, 1985 assignment agreement. As a result of these injunctions, OTE ceased operations.

On April 16, however, the parties entered into an agreement under which ICC agreed to supply operating capital and coffee, and OTE resumed operations and agreed to turn over certain monies and to assign certain accounts receivable to ICC. Although approved by the bankruptcy court on April 22, the agreement was short-lived. On April 24, ICC refused to advance additional funds or coffee because, claimed ICC, OTE had breached the agreement. The bankruptcy court held a hearing and, on May 28, set aside the April 16 agreement on the ground of mutual mistake. An initial appeal by ICC to the district court was remanded in December 1986 because the bankruptcy court had not entered judgment on a separate document as required by Bankruptcy Rule 9021. Following this remand, the bankruptcy court entered substantively the same order (though this time complying with Rule 9021) in April 1987, and on ICC's appeal, the district court in August 1987 reversed and remanded the bankruptcy court's decision. OTE has appealed that order to this Court and we recently dismissed the appeal, holding that the district court's judgment of remand was not a final one for purposes of 28 U.S.C. Sec. 158(d). See Old Time Enterprises, Inc. v. International Coffee Corporation, No. 87-3652 (5th Cir. December, 1988) (unpublished).

On July 23, 1986, shortly after the bankruptcy court's decision setting aside the April 16 agreement, OTE filed the present action against ICC; William B. Madary, president of ICC; and Michael L. Browning, controller and treasurer of ICC and a former member of OTE's board of directors. OTE sought damages for violations of RICO, 18 U.S.C. Secs. 1962(a), (b), (c), (d), 1964(c), and state law. The gist of OTE's RICO claim is that ICC overcharged OTE, used OTE's registration to purchase coffee that was sold to others, and acted fraudulently with regard to the bankruptcy proceeding, particularly the securing of the injunctions. On August 25, 1986, defendants moved for a more definite statement of OTE's RICO allegations. The district court granted defendants' motion on October 2, 1986, and entered in this case its "Standing Order: Cases Under RICO, 18 U.S.C. Sec. 1961-1968" (Standing Order), which set forth specific pleading requirements. On October 27, 1986, OTE filed a case statement (fifty-two pages, including exhibits) in response to the Standing Order, and on November 26, 1986, OTE filed, with permission from the district court, its first amended complaint. This complaint, filed after substantial discovery between the parties, added as defendants Clifford L. Spuhler, secretary of ICC; Carlos L. Nottebohn, chairman of the board of ICC; Jose de Barros Pimentel and Import e Export, S.A., ICC's Brazilian agents; and Fidelity & Deposit Insurance Company (Fidelity), the surety in ICC's initial appeal to the district court in the bankruptcy proceeding. The amended complaint is ninety-three pages long (including exhibits, among which is the case statement).

On January 28, 1987, Nottebohn filed a motion to dismiss for failure to state a claim upon which relief can be granted, Fed.R.Civ.P. 12(b)(6), which defendants ICC, Madary, Browning, and Spuhler joined. On February 3, the district court withdrew reference to the bankruptcy court of the adversary proceeding involving the parties. On February 8, the surety filed a motion for summary judgment, arguing that the bond was no longer in effect. On March 26, 1987, the district court granted the motions for summary judgment and to dismiss the RICO claim, remanding the remaining claims to the bankruptcy court. Concerning the RICO claim, the court tersely stated:

"We decline to waste scarce judicial resources upon a detailed discussion of plaintiff's RICO claim. Suffice it to say that what is involved is an ordinary contract dispute which can and should be tried as an adjunct to the bankruptcy proceeding. Analysis of plaintiff's complaint, amended complaint, and 'compliance' with the court's standing RICO order demonstrates conclusively that plaintiff's attempt to characterize the transactions between the parties as involving fraud and other criminal activity falls woefully short."

OTE then moved for reconsideration and to file a second amended complaint. The district court denied these motions and this appeal followed.

Discussion

I. The Standing Order

OTE argues that the Standing Order requiring specific factual allegations violated Fed.R.Civ.P. 8(a) and 83. Rule 8(a) sets forth the general pleading requirement of "a short and plain statement of the claim"; Rule 83 provides for promulgation of local court rules and orders that regulate local practice in any manner not inconsistent with the federal or local rules. OTE argues that the pleading requirement of the Standing Order is inconsistent with Rule 8(a) and is not a properly promulgated local rule.

OTE, however, misconstrues the district court's order. The Standing Order was entered in this case in response to a Rule 12(e) motion for more definite statement. Rule 12(e) orders are reviewed under an abuse of discretion standard. See generally 2A J. Moore & J. Lucas, Moore's Federal Practice p 12.18 (1987). OTE claims fraudulent conduct by defendants as a basis for its RICO claim. Rule 9(b) requires fraud to be pleaded with factual specificity and the district court properly sought to enforce this rule. The district court's order also properly sought to enforce the requirements in Rules 8(a) and 8(e)(1) of a "short and plain statement of the claim" and that "pleadings shall be simple, concise and direct," which apply to fraud allegations along with Rule 9(b). See Corwin v. Marney, Orton Investments, 788 F.2d 1063, 1068 n. 4 (5th Cir.1986). Furthermore, considering the requirements to state a RICO claim, which we discuss below, the district court did not err in requiring a more specific, clear, and direct statement of the RICO claims. Thus, the district court did not abuse its discretion.

II. RICO

Section 1964(c) provides a RICO plaintiff with a civil action to recover treble damages for injuries caused by a violation of section 1962. A violation of section 1962(c) "requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Montesano v. Seafirst Commercial Corp., 818 F.2d 423, 424 (5th Cir.1987) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985)). These are separate...