Rennell v. Rowe

• Decision Date: 25 March 2011
• Docket Number: No. 10–1388.,10–1388.
• Citation: 635 F.3d 1008
• Parties: Richard J. RENNELL, Jr. and R.E. Fund Management Group, LLC, Plaintiffs–Appellants,v.Randall K. ROWE, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

635 F.3d 1008

Richard J. RENNELL, Jr. and R.E. Fund Management Group, LLC, Plaintiffs–Appellants,

v.Randall K. ROWE, et al., Defendants–Appellees.

No. 10–1388.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 17, 2010.Decided March 25, 2011.

Christian M. Bates (argued), Attorney, Westlake, OH, for Plaintiffs–Appellants.Kristi Lynn Nelson (argued), Attorney, DLA Piper U.S. LLP, Chicago, IL, for Defendants–Appellees.Before POSNER, KANNE, and WOOD, Circuit Judges.WOOD, Circuit Judge.

Richard Rennell and Randall Rowe ran a company that managed manufactured-housing communities. In 2007 Rowe bought out Rennell's interest in the joint venture. At the time, Rowe told Rennell that he was terminating the joint venture and essentially gave Rennell an offer he couldn't refuse: either take approximately $300,000 and walk away, or walk away with nothing. Rennell took the money, but he was not pleased. He and his company, R.E. Fund responded with this lawsuit against Rowe, Rowe's existing company, Green Courte, and Green Courte's managers, Stephen Wheeler and James Goldman. (We refer only to “Rennell” and “Rowe” unless the context demands otherwise.) Rennell alleged that Rowe's heavy-handed purchase technique amounted to extortion, in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962(b), 1962(c) and 1964(c). The district court dismissed, concluding that Rowe's conduct did not meet the definition of extortion under the Hobbs Act, 18 U.S.C. § 1951. We affirm.

I

Rennell and Rowe first combined forces in 2004. They created a joint venture that they called Green Courte R.E. Fund, and through it they owned and managed manufactured-housing communities in New York, Michigan, Pennsylvania, Wisconsin, and Minnesota. The joint-venture agreement provided that Rowe's company was to supply most of the necessary financing for each community, while Rennell's company would oversee operations and management. The duties and liabilities for the management of Green Courte R.E. Fund's properties were recorded in property-management agreements, which established that Rennell would be paid management fees for each community; the fees would be between 3 and 4% of the gross revenue produced by that community. Rennell's operations were successful, generating profits and earning “excellent reviews” from Rowe.

A few years later, Wheeler joined Rowe's company, confusingly also called Green Courte (to be distinguished from the joint venture, Green Courte R.E. Fund), as Managing Director of Asset Management. Wheeler announced that, rather than continue the joint venture, he would bring all property-management responsibilities under the direct control of Green Courte. In November 2007, in order to bring Wheeler's plan to fruition, Rowe told Rennell that he was terminating their joint venture. Rowe proposed that Rennell sign a termination release, which included a promise not to sue Rowe in exchange for payment. But the amount that Rowe offered was quite low. While he had recently estimated on a June 2007 loan application that the value of Rennell's share of the joint venture was $3.5 million, Rowe was now offering Rennell only $282,980. Worse, Rowe gave Rennell only 24 hours to decide whether he would sign the release and warned that if Rennell refused to sign it he would get nothing. Rowe also threatened to make the termination public—a move that would have harmed Rennell's business prospects. Rennell agreed to the terms of the release, and his share in the joint venture reverted to Rowe.

But Rennell believed that he had been wronged. Soon after, despite the promise not to sue, Rennell filed this action, alleging that Rowe's conduct was extortion. His complaint described two different theories of liability under civil RICO, as well as nine state-law claims. Rowe responded with a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that his conduct was not extortion as a matter of law. The district court agreed and granted the motion. Declining to exercise supplemental jurisdiction, the court dismissed all of the state-law claims. Rennell appeals.

II

A

We review de novo the district court's conclusion that Rennell failed to state a claim upon which relief can be granted. Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir.2009). To assess whether Rennell has presented enough to go forward, “we construe the complaint in the light most favorable to the plaintiff, accepting as true all well-pleaded facts alleged, and drawing all possible inferences in [his] favor.” Golden v. Helen Sigman & Associates, Ltd., 611 F.3d 356, 360 (7th Cir.2010) (internal citations omitted).

Section 1962(b) of RICO makes it unlawful “for any person through a pattern of racketeering activity ... to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities which affect, interstate or foreign commerce.” 18 U.S.C. § 1962(b). Section 1962(c) adopts a slightly different focus, stating that “[i]t shall be unlawful for any person employed or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity....” Id. § 1962(c). In both provisions, “racketeering activity” is defined to mean “any act or threat involving ... extortion,” among other state and federal crimes. Id. § 1961(1). In turn, the Hobbs Act defines the federal crime of extortion as “the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear....” Id. § 1951(b)(2).

Rennell asserts that Rowe's behavior fits the statutory definition of extortion and thus establishes the predicate pattern of racketeering required by RICO. RICO permits a victim of racketeering activity to recover treble damages and reasonable attorney's fees in a civil action. Id. § 1964(c). The central question here is whether Rennell's complaint describes extortion, or something less than that. The district court took the latter approach, reasoning that the facts alleged by Rennell did not demonstrate that Rowe's buyout had been “wrongful” as the Hobbs Act uses the term. Accordingly, it thought, Rowe had not committed extortion and thus Rennell had failed to state a claim under RICO. (The court said nothing about the question whether the complaint described the kind of pattern of racketeering that RICO requires. We too put that issue to one side, since it is unnecessary to the outcome.)

B

Distinguishing between hard bargaining and extortion can be difficult. See, e.g., Stuart P. Green, Lying, Cheating, and Stealing: A Moral Theory of White–Collar Crime ch. 17 (2006). But the Supreme Court's decision in United States v. Enmons, 410 U.S. 396, 93 S.Ct. 1007, 35 L.Ed.2d 379 (1973), and our later decisions provide helpful guidance about what activities constitute the federal crime of extortion under the Hobbs Act.

Extortion is a federal crime, as we have noted, only when property is obtained by consent “induced by wrongful use of actual or threatened force, violence, or fear....” 18 U.S.C. § 1951(b)(2). The Enmons Court considered whether a union had committed extortion when its members engaged in violent acts during a strike undertaken to obtain raises from a utility company. Enmons, 410 U.S. at 397, 93 S.Ct. 1007. The Court reasoned that it would be redundant to read the term “wrongful” in the Hobbs Act to describe “force, violence, or fear,” which are always wrongful. Id. at 399–400, 93 S.Ct. 1007. Instead, it concluded that the use of force, violence, or fear to obtain property is “wrongful” for purposes of the statute only when the alleged extortionist has no claim of right to that property. Id. at 400, 93 S.Ct. 1007. Because the objective of the union's strike was to obtain compensation for which the striking workers had a lawful claim, the workers had not committed extortion under the Hobbs Act. Id. at 398, 410, 93 S.Ct. 1007. While this may seem odd at first glance, the Court emphasized that the Hobbs Act was never intended to “reach violence during a strike to achieve legitimate collective-bargaining objectives.” Id. at 404, 93 S.Ct. 1007.

We have understood Enmons to be limited to the context of organized labor. In United States v. Castor, 937 F.2d 293 (7th Cir.1991), we considered the defendant Castor's efforts to engage Smokey Mountain Chew, a maker of chewing tobacco substitutes, in a marketing agreement. Castor used the threat of force to bring Smokey Mountain Chew on board. Id. at 295. We held that the Enmons claim-of-right defense did not apply. “Whatever the contours of that defense may be,” we said, “they do not reach extortions based on threats of physical violence outside the labor context.... [Y]ou cannot beat someone up to collect a debt, even if you believe he owes it to you.” Id. at 299 (internal citations omitted).

Along similar lines, we have held that a defendant can be liable under the Hobbs Act for the wrongful exploitation of fear to obtain property, even if there is no explicit threat. See United States v. Lisinski, 728 F.2d 887, 891 (7th Cir.1984). The defendant in Lisinski demanded money from a restaurant owner who was in danger of losing his liquor license, in exchange for the defendant's efforts to influence the Illinois Liquor Control Commission. Even though the defendant had not explicitly threatened the restaurant owner, we found that the wrongful use of fear and the lack of any claim of right to the victim's property could be extortion under the Hobbs Act. Id. at 892.

In sum, extortion under the Hobbs Act can occur outside of the labor context when a person uses physical violence or the threat of violence to obtain property, whether or not the defendant has a claim to the property. If a defendant has no...