Temporaries, Inc. v. Maryland National Bank

• Decision Date: 06 June 1986
• Docket Number: Civ. No. Y-84-4519.
• Citation: 638 F. Supp. 118
• Parties: TEMPORARIES, INC. v. MARYLAND NATIONAL BANK.
• Court: U.S. District Court — District of Maryland

638 F. Supp. 118

TEMPORARIES, INC. v. MARYLAND NATIONAL BANK.

Civ. No. Y-84-4519.

United States District Court, D. Maryland.

June 6, 1986.

COPYRIGHT MATERIAL OMITTED

Frederick C. Williams, Washington, D.C., for plaintiff.

Virginia W. Barnhart, K. Donald Proctor, Towson, Md., and Duncan W. Keir, Baltimore, Md., for defendant.

MEMORANDUM

JOSEPH H. YOUNG, District Judge.

Following this Court's Order of January 16, 1986, granting in part and denying in part plaintiff's motion for summary judgment and denying defendant's motion for summary judgment, 626 F.Supp. 1025, defendant filed additional motions that are now ripe for resolution. Defendant moves to dismiss from the amended complaint Count VI claiming punitive relief, Count VIII claiming recovery under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., and the claims for attorney's fees under Counts I, II, III, IV, and VII. Also, defendant requests reconsideration of this Court's decision to grant plaintiff's motion for summary judgment on Counts III and IV of the original complaint and moves for an altered judgment on those counts.

FACTS

This case arises out of plaintiff's loss of $233,000 which it advanced to a corporation which has since declared bankruptcy — Business Furniture Interiors, Inc. ("BFI"). Plaintiff, Temporaries, Inc. ("TI"), is in the business of providing temporary employment services to the general business community, and it contemplated acquiring BFI as a way of expanding into the office furniture business. TI knew that BFI was in need of financing but contends that it was unaware of the severity of BFI's financial condition. In the process of acquiring BFI, TI extended the advances to BFI which are at the base of this claim.

TI charges that defendant, Maryland National Bank ("MNB"), is responsible for the repayment of those advances because it induced TI to extend the financing. TI explains that it was in the Bank's interest to find alternative financing for the failing BFI, which owed money to the bank. In December, 1983, MNB instructed BFI to refinance its loans before February 15, 1984, or be liquidated. TI charges that during the first several months of 1984, MNB made negligent and fraudulent representations about the sufficiency of BFI's collateral and its potential to be a profitable operation, and that MNB also withheld information about the unreliability of BFI's bookkeeping. Through these communications, MNB allegedly was trying to induce TI to invest in or merge with BFI, so the bank could avoid losses.

In March, 1984, TI's formal accounting of BFI revealed that BFI had material operating losses and a negative net worth. Upon receiving this information, TI rescinded a conditional merger agreement that it had entered into with BFI, and that action triggered calling in BFI's notes by the Bank and eventual declaration of bankruptcy by BFI. TI now seeks to recover the advances, totaling $233,000, which it made to BFI and from which it claims the Bank benefitted, and TI also seeks treble damages under RICO, attorney's fees and punitive damages.

MOTION TO DISMISS

Defendant moves to dismiss Counts VI and VIII of plaintiff's amended complaint and further moves to dismiss plaintiff's claims for attorney's fees set forth in Counts I, II, III, V, and VII of the amended complaint. Count VI states a claim for punitive damages based on negligent misrepresentation and plaintiff concedes that the claim is subsumed under other counts and that it may be dismissed. Therefore, Count VI will be dismissed without discussion. The remaining claims merit discussion.

COUNT VIII — RICO

Defendant attacks plaintiff's RICO claim from a number of angles, drawing on the vigorous legal debate about the intended breadth of RICO. The requirements for a valid RICO claim are clearly defined by the statute, which creates a private cause of action and provides for the recovery of treble damages for "any person injured in ... business or property by reason of a violation of § 1962." 18 U.S.C. § 1964(c).

Plaintiff has plead violations of all four parts of § 1962, which in relevant part provides:

(a) It shall be unlawful for any person who has received any income, derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce ...;

(b) It shall be 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 of which affect, interstate or foreign commerce;

(c) 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 ...;

(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b) or (c) of this section.

As one requirement for recovery under any of these subsections, plaintiff must establish that its injury arose from a "pattern of racketeering activity." "Racketeering activity" is defined under § 1961(1)(B) as including mail fraud and wire fraud as indictable under Title 18, and including fraud in the sale of securities under Title 11, United States Code. To establish a "pattern" of such racketeering activity, plaintiff must allege "at least two acts of racketeering activity." 18 U.S.C. § 1961(5).

Plaintiffs allege, in their amended complaint (¶ 91) that on numerous occasions the Bank made use of the mail and telephone communication in interstate commerce in furtherance of its scheme. In paragraphs 27 through 43 of the amended complaint, there are precise allegations of approximately five phone calls, and indications that there were probably several more. The communications seem to have commenced around the beginning of February, 1984, continuing through mid-March, 1984.

Defendant contends that TI's allegations fail to establish the pattern of racketeering activity necessary to satisfy the requisities of RICO. MNB argues that there were only a few communications utilizing the mails or the telephones, and that it is not clear that those communications were interstate or were the communications in which the allegedly fraudulent statements were made. Defendant insists the alleged acts cannot constitute a "pattern" because they were actions taken in furtherance of only one scheme or transaction, and that more than one scheme is required under RICO.

For the purpose of evaluating the presence of a pattern, this Court will interpret the allegations favorably to plaintiff and assume that there were approximately ten to fifteen communications over the course of a nearly two months. However, even giving the plaintiff the benefit of the doubt, this Court finds that the scheme alleged does not fall within the intended scope of the extraordinary relief afforded under RICO for the reasons which follow.

Defendant's arguments arise at a time when the issues of the scope of RICO and the breadth of the concept of "pattern" are being hotly debated. The Supreme Court recently addressed the issue of the scope of RICO, and restated the generally accepted view that RICO is to be "liberally construed to effectuate its remedial purposes." Sedima, S.P.R.L. v. Imrex Company, Inc., ___ U.S. ___, 105 S.Ct. 3275, 3286, 87 L.Ed.2d 346 (1985) (citing Pub.L. 91-452, § 904(a), 84 Stat. 947). In Sedima, the Court refused to allow restrictions on the breadth of RICO which ran contrary to congressional intent and the statutory language. Yet the Court did concede that RICO is being applied too expansively, and that "in its private civil version, RICO is evolving into something quite different from the original conception of its enactors." Sedima, 105 S.Ct. at 3287. The undue breadth is to be attributed only partially to the sweeping statutory language, according to the Court. The rest of the responsibility rested with Congress and the courts, which have failed to "develop a meaningful concept of `pattern.'" Id. Thus, the Court suggested that some refinements — and perhaps limitations — of the meaning of pattern are due.

Although the question of what constitutes a pattern was not before the Sedima Court, it did comment that:

while two acts are necessary (to create a pattern), 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." 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 ..."

Sedima, 105 S.Ct. at 3285 n. 14 (citations omitted). Thus, the Court indicated that RICO can be interpreted less expansively yet fulfill its remedial function if the courts focus on developing a more specific definition of "pattern."

Prior to Sedima, some courts were willing to find the requisite pattern of racketeering activity in any case in which there were two predicate acts. See, e.g., United States v. Parness, 503 F.2d 430, 438 ...