Professional Assets Manage. v. Penn Square Bank

• Decision Date: 30 August 1985
• Docket Number: Civ-84-1678-A,Civ-83-69-A,Civ-83-1596-A,Civ-84-1672-A,Civ-83-1583-A,No. Civ-82-1357-A,Civ-84-1671-A,and Civ-84-1612-A.,Civ-84-1663-A,Civ-83-3117-A,Civ-82-1357-A
• Citation: 616 F. Supp. 1418
• Parties: PROFESSIONAL ASSETS MANAGEMENT, INC., Plaintiff, v. PENN SQUARE BANK, N.A., et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

616 F. Supp. 1418

PROFESSIONAL ASSETS MANAGEMENT, INC., Plaintiff, v. PENN SQUARE BANK, N.A., et al., Defendants.

Nos. Civ-82-1357-A, Civ-83-69-A, Civ-83-1583-A, Civ-83-1596-A, Civ-83-3117-A, Civ-84-1663-A, Civ-84-1671-A, Civ-84-1672-A, Civ-84-1678-A, and Civ-84-1612-A.

United States District Court, W.D. Oklahoma.

August 30, 1985.

Stanley W. Levy, Ross Arbiter, Lyle R. Mink & K. Phillip Knierim, Barbara Brown, Mark S. Simonian, Gordon, Weinberg, Zipser, Los Angeles, Cal., Erwin E. Adler, Rogers & Wells, Patricia A. Beaman, Carol B. Sherman, Allan E. Ceran, Los Angeles, Cal., William Doyle, Jones, Givens, Gotcher, Doyle & Bogan, Inc., Tulsa, Okla., Gene A. Castleberry & Robert A. Wiener, Law Offices of Gene A. Castleberry, Oklahoma City, Okla., for plaintiff.

Stephen P. Friot, Spradling, Alpern, Friot & Gum, Oklahoma City, Okla., John W. Vardaman, Jr. and David D. Aufhauser, John K. Villa, Gerson A. Zweifach, Williams & Connolly, Washington, D.C., Peter B. Bradford, Bradford, Haswell, Jones, Oklahoma City, Okla., Jack G. Bush, Gary R. Underwood, Tulsa, Okla., Murray E. Abowitz, Abowitz & Welch, Oklahoma City, Okla., Robert C. Margo, George F. Short, S. Thomas Adler, Short, Barnes, Wiggins, Margo, Adler & Worten, Oklahoma City, Okla., Richard E. Comfort, Claire E. Barrett, Hall, Estill, Hardwick, Gable, Collingsworth & Nelson, Tulsa, Okla., John C. Snodgrass & David T. Hedges, Jr., Vinson & Elkins, Houston, Tex., James E. Work, Shirk, Work, Robinson & Williams, Oklahoma City, Okla., J. William Conger & James C. Prince, Larry D. Hartzog, Hartzog, Conger & Cason, Oklahoma City, Okla., Earl D. Mills, John M. Perry III, Mills, Whitten, Mills & Mills, Oklahoma City, Okla., Charles C. Green, Turner, Turner, Green & Braun, Oklahoma City, Okla., Richard B. Talley, Talley, Perrine & Smith, Norman, Okla., James W. Bill Berry, James W. Bill Berry & Associates, Oklahoma City, Okla., Harold M. Durall, Oklahoma City, Okla., Reid E. Robison, John N. Hermes, McAfee & Taft, Oklahoma City, Okla., Stephen D. Powell, Kirk & Chaney, Oklahoma City, Okla., John N. Goodman, Oklahoma City, Okla., Burck Bailey, Warren F. Bickford IV, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okla., Charles C. Baker, Oliver S. Howard, Gable & Gotwals, Tulsa, Okla., Noma D. Gurich, Murray E. Abowitz, Abowitz & Welch, Oklahoma City, Okla., Andrew B. Weissman, Wilmer, Cutler & Pickering, Washington, D.C., Judson M. Fink, Oklahoma City, Okla., K. Phillip Knierim, Mark S. Simonian, Wood, Lucksinger & Epstein, Los Angeles, Cal., for defendants.

ORDER

ALLEY, District Judge.

Background

Plaintiff Professional Assets Management, Inc., has moved to vacate this Court's Order of November 26, 1984, which dismissed the civil RICO claims asserted under 18 U.S.C. § 1962 in PAM's Second Amended Complaint against defendant Peat, Marwick, Mitchell & Co. The Order of November 26 was based on PAM's failure to plead a separate racketeering injury. On July 1, 1985, in Sedima, SPRL v. Imrex Co., ___ U.S. ___, 105 S.Ct. at 3275, 87 L.Ed.2d 346 (1985), the Supreme Court held that a separate racketeering injury was not an element of civil RICO liability, and that violation of 18 U.S.C. § 1962(c), as alleged by PAM, consists of (1) the conduct, (2) of an enterprise, (3) through a pattern, (4) of racketeering activity. (Sedima, ___ U.S. at ___, 105 S.Ct. at 3285). The Court notes in Sedima that "the questions whether the defendants committed the requisite predicate acts, and whether the commission of those acts fell into a pattern, are not before us." ___ U.S. at ___, 105 S.Ct. at 3287. This court has not examined the pattern requirement under the faint light Sedima casts on it. (See Rother v. LaRenovista Estates, Inc., No. 83-206-R (W.D.Okl. Aug. 7, 1985) at 2).

Apparently, though not explicitly, PAM advances its motion based on Federal Rule of Civil Procedure 60(b)(5) or (6), which authorizes relief from a judgment when "(5) a prior judgment upon which it is based has been reversed or otherwise vacated, or (6) it is no longer equitable that the judgment should have prospective application; or any other reason justifying relief from the operation of the judgment." In this Circuit, relief under Rule 60(b) because of a change in precedent is directed to the trial court's discretion and consideration in equity. Pierce v. Cook & Co., Inc., 518 F.2d 720 (10th Cir.1975); cert. den. 423 U.S. 1079, 96 S.Ct. 866, 47 L.Ed.2d 89 (1976).¹ Peat opposes reinstatement of PAM's RICO claim on grounds that the allegations fail to establish a "pattern" of racketeering activity.

Discussion

RICO allegations in No. CIV-82-1357 and CIV-84-1663

As a matter of statutory definition (18 U.S.C. § 1961(5)), a "pattern" must be established by "at least two acts of racketeering activity." "To prove a pattern in a criminal RICO case, the government must establish two or more predicate offenses which are related to the activities of the enterprise." U.S. v. Zang, 703 F.2d 1186, 1194 (10th Cir.1982), cert denied, 464 U.S. 828, 104 S.Ct. 103, 78 L.Ed.2d 107 (1983); accord, U.S. v. Weinstein, 762 F.2d 1522 (11th Cir.1985). Moreover, RICO does not apply to every pattern of racketeering activity; the gravamen of a RICO violation "is the conduct of an enterprise through a pattern of racketeering activity." U.S. v. Phillips, 664 F.2d 971, 1011 (5th Cir.1981), cert. denied, 457 U.S. 1136, 102 S.Ct. 2965, 73 L.Ed.2d 1354 (1982) (emphasis supplied).

Taken as a whole, PAM's allegations concerning Peat pertain to the accounting firm's preparation and issuance of the December 31, 1981, audit report on Penn Square Bank. Count 4 of PAM's second amended complaint asserts that Peat's engagement and audit report constituted fraud; Count 5 asserts that Peat's execution of the audit was negligent, and Count 7 incorporates the congeries of prior allegations into the following RICO claim:

82. The aforesaid activities of defendants constituted, and were in furtherance of, schemes and artifices to defraud which were devised or intended to be devised by said defendants. PAM ... alleges that defendants, and each of them, employed the mails and wire or telephonic communications in interstate commerce on more than one occasion in order to execute such schemes or artifices, in violation of 18 U.S.C. sections 1341 and 1343.

83. Said acts of defendants constitute "racketeering activities" under 18 U.S.C. section 1961(1); and at least one such act, with respect to each defendant, occurred within ten years after the commission of a prior such act, so that said defendants are guilty of a `pattern of racketeering activity' under 18 U.S.C. section 1961(5) ...

84. Penn Square Bank, First Penn (Corp, the bank's holding company), and Peat Marwick are each an `enterprise' under 18 U.S.C. 1961(4), and are each involved in interstate commerce; and all said defendants are `persons' under 18 U.S.C. section 1961(3).

85. Said defendants conducted and participated in the conduct of the aforesaid enterprises' affairs through a pattern of racketeering activity, in violation of 18 U.S.C. section 1962(c), and said defendants conspired to do so, in violation of 18 U.S.C. section 1962(d).

Second Amended Complaint, para. 82-85, at 60-61 (July 11, 1983).

Many constituent actions were necessary to prepare the audit report, but it was a single, unified transaction. Viewed in the light most favorable to PAM, the complaint is insufficient.

Although Sedima did not reach the "pattern" issue, the Court addressed the elements of a "pattern" in terms of both numbers and relationships:

"As many commentators have pointed out, the definition of a `pattern of racketeering activity' differs from the other provisions in § 1961 in that it states that a pattern `requires at least two acts of racketeering activity,' § 1962(5) (emphasis added), not that it `means' two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common parlance two of anything do not generally form a `pattern.' The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: `The target of RICO is thus not sporadic activity. The infiltration of legitimate business normally requires more than one "racketeering activity" and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern.' S.Rep. No. 91-617, p. 158 (1969) (emphasis added).

Sedima, 53 U.S.L.W. at 5038, n. 14.

The recent case of Northern Trust Bank/O'Hare v. Inryco, Inc., 615 F.Supp. 828 (N.D.Ill.1985), applied Sedima's interpretation of RICO to a kickback scheme including several separate entities, payments and bank accounts. The Inryco court reasoned that "`pattern' ... connotes a multiplicity of events. Surely the continuity inherent in the term presumes repeated criminal activity, not merely repeated acts to carry out the same criminal activity. It places a real strain on the language to speak of a single fraudulent effort, implemented by several fraudulent acts, as a `pattern of racketeering activity.' (citation)." On this basis, Inryco held that several mailings in furtherance of the ongoing kickback scheme did not establish a RICO "pattern."

This Court agrees with the court in Inryco that, in light of Sedima, proper emphasis must be placed on "pattern" as an independent component of a RICO claim. Inryco, at 831. The pattern requirement, as one of the elements of a civil RICO claim, must be "strictly adhered to." Ralston v. Capper, 569 F.Supp. 1575, 1580 (E.D. Mich.1983). PAM's claim against Peat Marwick is not based on a "pattern", as that term was elaborated in Sedima and Inryco, but arises simply from one engagement to perform one audit of Penn Square Bank.²

The terms of this order extend as well to the motion of Wood Products Credit Union in Cause No. CIV-84-1663-A to reinstate its RICO clai...