Sun Sav. and Loan Ass'n v. Dierdorff

• Citation: 825 F.2d 187
• Decision Date: 07 August 1987
• Docket Number: No. 86-5811,86-5811
• Parties: , 8 Fed.R.Serv.3d 808, RICO Bus.Disp.Guide 6710 SUN SAVINGS AND LOAN ASSOCIATION, a corporation, Plaintiff-Appellant, v. Daniel W. DIERDORFF; Mary Dierdorff, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 187

825 F.2d 187

56 USLW 2110, 8 Fed.R.Serv.3d 808, RICO

Bus.Disp.Guide 6710

SUN SAVINGS AND LOAN ASSOCIATION, a corporation, Plaintiff-Appellant, v. Daniel W. DIERDORFF; Mary Dierdorff, Defendants-Appellees.

No. 86-5811.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 7, 1987.

Decided Aug. 7, 1987.

David E. Lundin, Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, San Diego, Cal., for plaintiff-appellant.

Virginia R. Gilson, San Diego, Cal., for defendants-appellees.

Appeal from the United States District Court for the Southern District of California.

Before PREGERSON and NORRIS, Circuit Judges, and BURNS, ^* District Judge.

PREGERSON, Circuit Judge:

Appellant Sun Savings & Loan Association ("Sun") brought an action against appellee Daniel Dierdorff ("Dierdorff"), Sun's former president, alleging that Dierdorff violated the federal Racketeering Influenced and Corrupt Organizations Act ("RICO"). ¹ The alleged racketeering activity consisted of four letters written by Dierdorff to various entities. In the letters, Dierdorff allegedly sought to cover up a scheme in which he received kickbacks from Sun's loan customers. Dierdorff moved to dismiss for lack of subject matter jurisdiction, arguing that Sun's RICO claims were invalid. The district court dismissed the complaint without leave to amend. Sun appeals that ruling. We reverse on the ground that the complaint adequately alleges a RICO cause of action.

I. BACKGROUND

Dierdorff served as Sun's president and chief executive officer from June 1980 until October 1984. Sun asserts that during his tenure Dierdorff solicited and received kickbacks from Sun's customers for whom he approved large loans. On February 3, 1983, Dierdorff allegedly created a secret checking account at Sun under the fictitious name of "Dan Danzer." Between February 3, 1983, and March 15, 1984, Dierdorff allegedly made cash deposits of $209,324 into the Danzer account. Sun avers that the money Dierdorff deposited was the money he received through the fraudulent kickback scheme.

Sun bases its RICO claim on four predicate acts of mail fraud. Dierdorff allegedly sent letters to certain state and federal agencies and to Sun's outside auditor. In these letters, Dierdorff allegedly attempted to conceal his wrongdoings from the letters' recipients and from Sun. Specifically Sun alleges:

1. On or about April 30, 1984, Dierdorff caused a letter to be produced and mailed by Sun's Assistant Operations Administrator to the Internal Revenue Service. The letter falsely represented that Dierdorff properly provided a tax identification number for the Danzer account.

2. On or about September 26, 1984, Dierdorff caused letters to be produced and mailed to both the Federal Home Loan Bank Board and the California Savings and Loan Commissioner. These letters represented that Dierdorff had done nothing "improper or illegal."

3. On or about June 15, 1984, Dierdorff caused a letter to be produced and mailed to Arthur Young Company, outside auditors for Sun. The letter represented that proper loan committee approval was not obtained for loans in "some instances" and blamed this failure on "irregular committee meetings and not enough members on the committee."

4. On or about June 20, 1984, Dierdorff caused a letter to be produced and mailed by Sun's Vice President/Financial Manager to the California Department of Savings and Loan. The letter transmitted a copy of the June 15 letter to Arthur Young Company and thereby represented to the Department of Savings and Loan that proper loan committee approval was not obtained in some instances and that this failure was due to irregular committee meetings and an insufficient number of committee members.

Dierdorff resigned from his position with Sun effective October 22, 1984. As part of the termination agreement, Sun agreed not to bring any action against Dierdorff arising out of the employment agreement after October 21, 1985.

Sun filed this action on October 21, 1985. On December 6, 1985, Sun filed an amended complaint that added additional parties. On January 8, 1986, Dierdorff filed a motion to dismiss. The district court granted the motion and dismissed the action without leave to amend on the ground that no federal claim had been stated and that federal subject matter jurisdiction was therefore lacking.

The district court found plaintiff's RICO allegations insufficient on two grounds. First, the court held that plaintiff failed to allege a "pattern of racketeering activity." Second, the court held that the predicate acts were not conducted by an "enterprise." Sun appeals both of these rulings and, in the alternative, argues that even if the district court was correct in dismissing the complaint, it should have allowed Sun leave to amend. Dierdorff argues on appeal that the district court's rulings on the pattern and enterprise issues were correct and that, in any case, the complaint failed to allege the predicate acts of mail fraud.

II. DISCUSSION

We review a district court's dismissal of a complaint de novo. Gibson v. United States, 781 F.2d 1334, 1337 (9th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 928, 93 L.Ed.2d 979 (1987). A complaint should not be dismissed for failure to state a cause of action "unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). All allegations of the complaint should be construed favorably to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90; De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir.1978), cert. denied, 441 U.S. 965, 99 S.Ct. 2416, 60 L.Ed.2d 1072 (1979).

A. Rico Generally

RICO, at 18 U.S.C. Sec. 1962(c), provides:

It shall be unlawful for any person employed by 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 or collection of unlawful debt. (Emphasis added.)

The Supreme Court has stated that "RICO is to be read broadly." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 3286, 87 L.Ed.2d 346 (1985). Liability under Sec. 1962(c) requires (1) the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Id. at 3285. "Racketeering activity" is any act indictable under several provisions of Title 18 of the United States Code, see 18 U.S.C. Sec. 1961, and includes the predicate act alleged in this case of mail fraud under 18 U.S.C. Sec. 1341.

B. Pattern of Racketeering Activity

In Sedima, 105 S.Ct. 3275, the Supreme Court in a footnote explored the contours of RICO's "pattern" requirement:

As many commentators have pointed out, the definition of a "pattern of racketeering activity" differs from the other provisions in Sec. 1961 in that it states that a pattern "requires at least two acts of racketeering activity," Sec. 1961(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). Similarly, the sponsor of the Senate bill, after quoting this portion of the Report, pointed out to his colleagues that "[t]he term 'pattern' itself requires the showing of a relationship.... So, therefore, proof of two acts of racketeering activity, without more, does not establish a pattern...." 116 Cong.Rec. 18940 (1970) (statement of Sen. McClellan). See also id., at 35193 (statement of Rep. Poff) (RICO "not aimed at the isolated offender."); House Hearings, at 665. Significantly, in defining "pattern" in a later provision of the same bill, Congress was more enlightening: "criminal conduct forms a pattern if it embraces criminal acts that 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." 18 U.S.C. Sec. 3575(e). This language may be useful in interpreting other sections of the Act. Cf. Iannelli v. United States, 420 U.S. 770, 789, 95 S.Ct. 1284, 1295, 43 L.Ed.2d 616 (1975).

Sedima, 105 S.Ct. 3275, 3285 n. 14. ²

Footnote 14 in Sedima has generated a plethora of differing views. Focusing on the Court's use of the "continuity plus relationship" language from S.Rep. No. 91-617, see Sedima, 105 S.Ct. at 3285 n. 14, various circuit and district courts have arrived at significantly different analyses of when a pattern does and does not exist. See, e.g., Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir.1986) (predicate acts must constitute "separate transactions" to form pattern); Superior Oil Co. v. Fulmer, 785 F.2d 252, 257 (8th Cir.1986) (where all predicate acts were committed in furtherance of single scheme, pattern requirement is not met); Bank of America Nat'l Trust & Sav. Ass'n v. Touche Ross & Co., 782 F.2d 966, 971 (11th Cir.1986) (rejecting requirement of more than one criminal scheme for pattern requirement); R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350, 1355 (5th Cir.1985) (one criminal scheme is sufficient for pattern requirement); Volckmann v. Edwards, 642 F.Supp. 109, 111-14 (N.D.Cal.1986) (predicate acts occurring during one criminal scheme constitute pattern); ...