Torwest DBC, Inc. v. Dick

• Decision Date: 18 February 1986
• Docket Number: Civ. A. No. 85-M-625.
• Citation: 628 F. Supp. 163
• Parties: TORWEST DBC, INC., a Colorado corporation, Plaintiff, v. John W. DICK, Werner C. Heinrichs, William B. Pauls, Canusa Investments (CI) Ltd., a Jersey, Channel Islands corporation, and Barclays Bank of Canada, a Canadian corporation, Defendants.
• Court: U.S. District Court — District of Colorado

628 F. Supp. 163

TORWEST DBC, INC., a Colorado corporation, Plaintiff, v. John W. DICK, Werner C. Heinrichs, William B. Pauls, Canusa Investments (CI) Ltd., a Jersey, Channel Islands corporation, and Barclays Bank of Canada, a Canadian corporation, Defendants.

Civ. A. No. 85-M-625.

United States District Court, D. Colorado.

February 18, 1986.

Gary T. Cornwell, F. Kelly Smith, Robert Blakey, McGuire, Cornwell & Blakey, Denver, Colo., for plaintiff.

David A. Zisser, O'Connor & Hannan, Denver, Colo., for defendant John W. Dick.

James A. Clark, Bruce D. Pringle, Baker & Hostetler, Denver, Colo., for defendants Werner Heinrichs and Canusa Investments (CI) Ltd.

Charles F. Brega, Roath & Brega, Denver, Colo., for defendant William B. Pauls.

Craig R. Maginness, Sherman & Howard, Denver, Colo., for defendant Barclays Bank of Canada.

MEMORANDUM OPINION AND ORDER

MATSCH, District Judge.

The complaint alleges that the defendants John W. Dick, Werner C. Henrichs and William B. Pauls secretly purchased real property and resold it at a substantial profit to Torwest DBC, Inc., (Torwest DBC) a corporation in which they were directors. Torwest DBC invoked this court's jurisdiction by claiming under provisions of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (RICO). The first claim brought under section 1962(d) alleges a conspiracy to violate RICO provisions; the second claim based on section 1962(c) alleges that the defendants conducted the affairs of an enterprise through a pattern of racketeering activity within the meaning of section 1961(1)(B) and (5). The complaint also alleges thirteen other claims for relief based on Colorado law, including Colorado's statutory analogue to RICO. Jurisdiction is alleged under the RICO statute, 18 U.S.C. § 1965, and 28 U.S.C. § 1331.

Now before the court are defendants' motions to dismiss upon the contention that the RICO claims are time-barred and for the failure to state claims for relief under RICO. At oral argument held on November 19, 1985, the parties agreed that the court may proceed under F.R.Civ.P. 56, by accepting the statement of facts contained in the plaintiff's brief filed September 26, 1985 as the factual support for the RICO claims.

In summary, the plaintiffs assert that in 1974, defendants Dick, Heinrichs and Pauls, operating through Vace Securities (Vace), entered into an agreement with Great-West Life Assurance Company (Great-West) for the purpose of acquiring and developing real property. Vace was to find new properties for development, while Great-West's primary role was to finance the ventures. As part of the agreement, a third corporation, Torwest Properties Limited (Torwest) was formed. Vace appointed defendants Dick, Heinrichs and Pauls to the Torwest board of directors, and GreatWest appointed three other members.

In 1977, Dick, Heinrichs and Pauls formed Canusa Investments Limited (Canusa) in Jersey, Channel Islands, for the purpose of secretly acquiring an interest in commercial property known as the Denver Business Center (DBC). The purchase was made by Canusa for $5,400,000. The defendants then proposed to the other members on the Torwest board that Torwest purchase the property from Canusa. Acting on the recommendations of Dick, Heinrichs and Pauls, the Torwest board voted in favor of the DBC purchase. Torwest then formed Torwest DBC to acquire and develop the property, and the sale was consummated. It is alleged that the defendants received an immediate secret profit of $1,250,000, plus a potential $6 million additional profit through a participation agreement.

To recover on the section 1962(c) claim, Torwest DBC must show the defendants' (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima v. IMREX Company, ___ U.S. ___, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). For the purposes of these motions, it is assumed that the defendants committed numerous acts of mail fraud, 18 U.S.C. § 1341, wire fraud, 18 U.S.C. § 1343, and transportation of money taken by fraud, 18 U.S.C. § 2314. Thus, racketeering activity is assumed.

A "pattern of racketeering activity" as defined in the statute "requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter ... and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5). The principal question left open in the Sedima opinion is whether the courts may develop a more complete definition of a pattern of racketeering activity in applying RICO. It is the view of this court that the Supreme Court strongly suggested that this element is an appropriate area for further consideration by the language of footnote 14, as follows:

As many commentators have pointed out, the definition of "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." § 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 "the 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. § 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, supra, 105 S.Ct. at 3285, n. 14. The Senate report referred to in footnote 14 includes the following language:

The concept of "pattern" is essential to the operation of the statute. One isolated "racketeering activity" was thought insufficient to trigger the remedies provided under the proposed chapter, largely because the net would be too large and the remedies disproportionate to the gravity of the offense.

S.Rep. No. 617, 91st Cong., 1st Sess. 159 (1969)

Courts should look to the purposes, results, participants, victims and methods of commission to determine whether a pattern of racketeering activity exists. The number of predicate acts, if more than one, is irrelevant. The question is the nature of the conduct under all of the circumstances.

The plaintiff's statement of facts does not show a pattern of racketeering activity. First, the defendants' conduct had a single purpose — to obtain a secret profit in the sale of one parcel of commercial property. Second, the conduct had a single result — Torwest DBC paid more for the property than it would have paid had the fraud not occurred. Third, there was only one set of participants. Fourth, there is a single victim, Torwest DBC. Fifth, there was one method of commission — an elaborate scheme, that included the formation of Canusa and the secret purchase of DCB. Where there is only one purpose, one result, one set of participants, one victim and one method of commission, there is no continuity and, therefore, no pattern of racketeering activity.

RICO also requires that the predicate acts must be related to the statutorily proscribed conduct. There must be "continuity plus relationship." The required relationship will be different, depending upon the prohibited conduct. Under section 1962(a), the predicate acts must be related in the sense that they produce proceeds which are then invested in an enterprise. Under section 1962(b), the predicate acts must be related to the objective of acquiring or maintaining control of an enterprise. Section 1962(c) requires all of the acts to be related to the conduct of the affairs of the enterprise. See United States v. Elliott, 571 F.2d 880, 899 n. 23 (5th Cir.), cert. denied, 439 U.S. 953, 99 S.Ct. 349, 58 L.Ed.2d 344 (1978).

In United States v. Zang, 703 F.2d 1186 (10th Cir.1982), cert. denied, 464 U.S. 828, 104 S.Ct. 103, 78 L.Ed.2d 107 (1983), a case decided prior to Sedima, the court examined the RICO pattern requirement in the context of a criminal prosecution under section 1962(a). There, the defendants purchased lower tier priced controlled crude oil, fraudulently recertified it as more expensive higher tier oil, and sold it at a substantial profit from December of 1976 through September of 1978. The scheme depended upon the mailing of fraudulent invoices containing tier certifications.

The result in Zang is consistent with the continuity requirement of Sedima. In Zang, the government proved that the defendants altered many invoices, each involving different shipments of oil. Every time oil was sold, the purchaser paid more than the seller was legally entitled to charge under applicable government regulations, and the fraud...