United States Court of Appeals
For the First Circuit
No. 99-1679
DAVID EFRON, INDIVIDUALLY, AS A CLASS A SPECIAL PARTNER
OF ES HOTEL ISLA VERDE, S.E., A PUERTO RICO CIVIL PARTNERSHIP,
AND FOR AND ON BEHALF OF THAT PARTNERSHIP,
Plaintiff, Appellant,
v.
EMBASSY SUITES (PUERTO RICO), INC.,
EMBASSY SUITES (ISLA VERDE), INC., PROMUS HOTEL CORPORATION,
MORA DEVELOPMENT CORPORATION, FIRST BIG ISLAND STEAKHOUSE,
INC., CLEOFE RUBI GONZALEZ, MORAIMA CINTRON DE RUBI,
EMMA M. CANCIO-SANTOS, E.S. HOTEL ISLA VERDE, S.E.,
CORPORACION DE DESARROLLO HOTELERO, AND
FUNDACION SEGARRA BOERMAN E HIJOS, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Hector M. Laffitte, U.S. District Judge]
Before
Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Boudin, Circuit Judge.
Guy B. Bailey, Jr. and Alan M. Dershowitz, with whom
Victoria B. Eiger and Karin B. Morrell were on brief, for
appellant.
Salvador Antonetti-Zequeira for appellees.
Maria del Carmen Taboas on brief for First Big Island
Steakhouse, Inc., and Emma M. Cancio-Santos.
Arturo Diaz-Angueira and Roberto Feliberti on brief for
Embassy Suites (Puerto Rico), Inc., Embassy Suites (Isla Verde),
Inc., and Promus Hotel Corporation.
Luis Sanchez Betances on brief for Mora Development, Cleofe
Rubi Gonzalez and Moraima Cintron de Rubi.
August 14, 2000
COFFIN, Senior Circuit Judge. Plaintiff-appellant David
Efron, a member of a limited partnership formed to build and
operate an Embassy Suites hotel in Puerto Rico, claims that
several of his partners intentionally caused the project to
experience financial difficulties in a scheme to extract
additional money from him and other investors and, ultimately,
to squeeze down the value of Efron’s substantial interest in the
partnership. Efron brought a civil suit under the Racketeer
Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §
1962(c), (d), and Puerto Rico law. Concluding that the
allegations in the complaint did not show RICO violations, the
court dismissed the federal claims and declined to exercise
supplemental jurisdiction over the Commonwealth claims. See
Efron v. Embassy Suites (Puerto Rico), Inc., 47 F. Supp.2d 200
(D.P.R. 1999). We affirm, agreeing with the district court that
appellant has failed to adequately allege a "pattern of
racketeering activity," see 18 U.S.C. § 1962(c), but adding
elaboration to its rationale.
I. Factual Background
We narrate the allegations contained in the complaint and
RICO case statement in the light most favorable to appellant.
See Feinstein v. Resolution Trust Corp., 942 F.2d 34, 37 (lst
Cir. 1991). Efron and his associates formed the ES Hotel Isla
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Verde, S.E. Partnership ("the Partnership") in 1995 to develop
and operate an Embassy Suites hotel and casino in the Carolina
section of San Juan, Puerto Rico. Efron contributed
approximately $5 million in property and cash, receiving in
return twenty-two percent of the equity in the project. Of the
six other partners, four are defendants in this case: Cleofe
Rubi Gonzalez ("Rubi"); his wife, Moraima Cintron de Rubi
("Cintron"); Mora Development Corporation ("MDC"), a company
owned by Rubi; and Embassy Suites Isla Verde, Inc. ("ESIV"). Two
other partners are described as co-victims, although they did
not join Efron’s suit: Corporacion De Desarollo Hotelero
("CDH"), a public corporation that is a subsidiary of Puerto
Rico’s Department of Tourism; and Fundacion Segarra Boerman e
Hijos ("FSBH"). Also named as defendants were several
corporations affiliated with the defendant partners, including
Embassy Suites (Puerto Rico), Inc. ("ESPR"), a company hired by
the Partnership to manage the hotel, and First Big Island
Steakhouse, Inc., a Rubi-controlled company that leased space
from the Partnership for a restaurant ("Outback"). Emma Cancio
Santos, an attorney for ESIV and Rubi, also was named as a
defendant.
Efron alleges that the defendants deliberately caused the
hotel project to lose money by generating excessive construction
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costs, engaging in sweetheart leases with the on-site restaurant
and gift shop, overpricing rooms, and performing other acts of
mismanagement. According to the complaint, ESPR purposefully
created artificial cash shortfalls, which under the Partnership
agreement could be covered by capital calls to the limited
partners. The agreement specified that a partner who did not
provide the requested capital could have his interest reduced
proportionately. Efron alleges that, to protect his initial
investment and avoid losing his equity, he was forced to invest
an additional $1 million in response to such capital calls.1
Efron filed suit in October 1997. The amended complaint
identified seventeen instances of alleged mail or wire fraud
during a twenty-one-month period as the unlawful acts supporting
a RICO claim, the first of which was a letter sent to the
partners by Rubi on January 11, 1996, stating that the project
was experiencing cost overruns of about $7 million. The
1The complaint elaborated on the improper practices as
follows: the cost overruns allegedly resulted from (1) payments
to a Rubi-owned company in excess of the value of goods and
services received; (2) subcontractor bills from other Rubi
projects that were shifted onto the Partnership, and (3)
construction delays from the late addition to the project of the
Outback restaurant. Cash shortfalls continued to build after
the hotel was completed because the defendants allegedly
overpriced rooms and failed to adequately market the hotel’s
services. In addition, the lease arrangement with Outback
allegedly benefited Rubi to the detriment of the Partnership,
and the lease to the hotel’s gift shop allegedly was below
market value.
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subsequent letters fall into two general categories: (1)
communications that relate to the project’s cost overruns and
possible solutions, namely, capital contributions from the
partners and refinancing, and (2) communications that concern
appellant’s efforts to review the Partnership books and obtain
information about the restaurant and other lease arrangements.
In addition to the substantive RICO claim, see 18 U.S.C. §
1962 (c), the amended complaint asserted a RICO conspiracy cause
of action, see 18 U.S.C. § 1962(d), as well as claims under
Commonwealth law for fraud, breach of contract, breach of
fiduciary duty, and violation of the Puerto Rico RICO act.
The district court rejected defendants’ argument that the
amended complaint lacked the particularity required for fraud
claims under Fed. R. Civ. P. 9(b), but it concluded that
appellant had not adequately alleged a pattern of racketeering
activity. It alternatively ruled that Efron lacked standing to
bring the RICO claims either individually or derivatively on
behalf of the Partnership. Having dismissed the federal RICO
claims, the court declined to exercise supplemental jurisdiction
to hear the Commonwealth law claims. On appeal, Efron contends
that the court improperly viewed the alleged facts and
inferences in the defendants’ favor, leading it to conclude
wrongly that he had failed to establish the elements of a RICO
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violation and conspiracy. He further maintains that the amended
complaint demonstrates his standing, both individually for his
unique damages and derivatively for the Partnership.
We turn now to the issue which we deem dispositive – whether
the amended complaint described a "pattern" of racketeering
activity. We first sketch the general principles governing RICO
claims and then evaluate appellant’s specific contentions in
light of those standards.
II. Discussion
To state a RICO claim under section 1962(c), a plaintiff
must allege each of the four elements required by the statute:
"'(1) conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity.’" Feinstein, 942 F.2d at 41 (quoting
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)).2 This
case centers on whether Efron alleged sufficient facts to
support a jury finding of a "pattern," there being no dispute
that the complaint adequately alleged the other components of a
RICO violation. By statute, the "pattern" element requires a
2 Section 1962(c) provides, in relevant part:
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 .
. . .
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plaintiff to show at least two predicate acts of "racketeering
activity," which is defined to include violations of specified
federal laws, such as the mail and wire fraud statutes, see 18
U.S.C. § 1961(1)(B), (5). Although showing two predicate acts
is the only statutory requirement, case law establishes that
this is not sufficient to prove a "pattern" – the plaintiff also
must demonstrate that the "predicates are related, and that they
amount to or pose a threat of continued criminal activity."
H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239
(1989); see also Feinstein, 942 F.2d at 44.
We have more than once remarked upon the difficulty of
articulating concrete guidelines for this "continuity plus
relationship" standard for identifying a pattern. See Schultz
v. Rhode Island Hosp. Trust Nat’l Bank, N.A., 94 F.3d 721, 731
(lst Cir. 1996); Apparel Art Int’l, Inc. v. Jacobson, 967 F.2d
720, 722 (lst Cir. 1992); see also H.J. Inc., 492 U.S. at 236
("[D]eveloping a meaningful concept of 'pattern' within the
existing statutory framework has proved to be no easy task.").3
The Supreme Court has noted that the "relationship" portion of
3 The "continuity plus relationship" description was quoted
by the Supreme Court in H.J. Inc. from the legislative history
of the RICO statute. See 492 U.S. at 239 (quoting 116 Cong.
Rec. 18940 (1970)). Justice Scalia in a concurrence in H.J.
Inc. termed that formulation "about as helpful . . . as 'life is
a fountain.'" Id. at 252 (Scalia, J., concurring).
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the standard is easier to grasp, in part because there exists a
relevant statutory definition in another portion of the
legislation of which RICO was a part. See H.J. Inc., 492 U.S.
at 240. Under Title X of the partially repealed Organized Crime
Control Act of 1970, the pattern requirement was defined "solely
in terms of the relationship of the defendant’s criminal acts
one to another: '[C]riminal 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.’" Id. (quoting 18 U.S.C. § 3575(e)).
The parties do not dispute the relatedness of the communications
at issue here.
The continuity element, which lacks statutory illumination,
has proved more puzzling. Noting that it is "difficult to
formulate in the abstract any general test for continuity," the
Supreme Court in H.J. Inc. nonetheless provided a starting point
for analysis. See 492 U.S. at 241-43; Feinstein, 942 F.2d at
45. We previously have summarized the court’s guidance as
follows:
For there to be continuity, the plaintiff must show
that the related predicates "amounted to, or posed a
threat of, continued criminal activity." . . . Under
the "amount[ing] to" approach, "[a] party alleging a
RICO violation may demonstrate continuity . . . by
proving a series of related predicates extending over
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a substantial period of time." H.J., 492 U.S. at 242.
Because RICO was intended by Congress to apply only to
enduring criminal conduct, "[p]redicate acts extending
over a few weeks or months . . . do not satisfy this
requirement." Id. Under the "threat" approach,
however, even where the predicate acts occur in a
narrow time frame and suit is brought before the
pattern has taken definitive shape, the requirement
can still be satisfied by . . . a showing that "the
racketeering acts themselves include a specific threat
of repetition extending indefinitely into the future
[or] . . . are part of an ongoing entity’s regular way
of doing business." Id.
Feinstein, 942 F.2d at 45 (some citations omitted).
The Supreme Court thus described continuity as "both a
closed- and open-ended concept, referring either to a closed
period of repeated conduct, or to past conduct that by its
nature projects into the future with a threat of repetition."
H.J. Inc., 492 U.S. at 241. The Justices also explained in H.J.
Inc. that showing a "pattern" does not necessarily require proof
of multiple criminal "schemes." Finding that the "multiple-
scheme" prerequisite "brings a rigidity to the available methods
of proving a pattern that simply is not present in the idea of
'continuity’ itself," id. at 240-41, the Court emphasized
instead the temporal focus of the "continuity" requirement.
Thus, one scheme that extends over a substantial period of time,
or that shows signs of extending indefinitely into the future,
can establish a pattern.
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In this case, the district court ruled that the allegations
in appellant’s complaint failed to establish either type of
continuity. After trimming the number of actionable letters and
faxes to eight,4 it held that "[t]he acts are simply too few and
the time period too short" to establish a closed period of
racketeering activity, see 47 F. Supp.2d at 206,5 and it
concluded that there was no future threat of continuing mail and
wire fraud to establish open-ended continuity. Rejecting
appellant’s contention that the defendants were engaged in a
long-term, ongoing criminal enterprise, it characterized the
conflict as a "bitter local law dispute between partners." Id.
at 210 n.11.
Before we address the court’s conclusion on the merits, we
discuss two preliminary issues. Efron claims on appeal that the
court erred in disregarding the faxes and refusing to consider
all of the specified fraudulent mailings. He claims that, under
New England Data Servs., Inc. v. Becher, 829 F.2d 286 (lst Cir.
1987), he is entitled to an opportunity to particularize the
alleged predicate acts to remedy their deficiencies regarding
4
The court excluded seven faxes because Efron failed to
allege that they had been transmitted interstate and eliminated
two mailings as not in furtherance of the alleged scheme.
5
The court pointed out that, of the viable predicate acts,
all but two occurred during a 90-day period from June to
September 1997.
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when and where the mail or wires were used before his complaint
is dismissed. He extends this argument as well to his general
allegation that, in addition to the seventeen specifically
pleaded communications, there were "literally hundreds of acts"
and a "myriad of mail and wire frauds." But in this case, the
underlying rationale for relaxation of pleading requirements –
that the needed information is likely to be in the exclusive
control of the defendant, see id. at 290 – is absent. The gist
of Efron’s complaint is that he and his non-conspiring partners
were defrauded by communications that were sent to them, and
such communications would not be in defendants’ sole control.
Moreover, any need to flesh out allegations in the complaint
should have been raised first through a renewed request to
conduct discovery and a motion in the district court seeking
leave to amend the complaint to cure the infirmities identified
by that court. See Feinstein, 942 F.2d at 43-44. Nonetheless,
while we consider only those predicate acts specifically alleged
in evaluating the adequacy of appellant’s "pattern" allegations,
see Fleet Credit Corp. v. Sion, 893 F.2d 441, 445 (lst Cir.
1990), we are reluctant in the context of an interstate business
to exclude the faxes on the highly technical ground of
appellant’s failure to plead their interstate quality. We need
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not do so because including them will not change the outcome of
our review.
A second preliminary issue merits comment. It is whether
the pleadings sufficiently indicate that appellant’s injuries
were caused by the predicate acts of wire and mail fraud. That
such a causal nexus must exist is well established. See Holmes
v. Securities Investor Protection Corp., 503 U.S. 258, 266-68 &
n.12 (1992) (to state a RICO claim, plaintiff must show injury
proximately caused by racketeering activity); Moore v.
Painewebber, Inc., 189 F.3d 165, 172 (2d Cir. 1999) (plaintiffs
must show that the defendants’ misstatements were "the reason
the transaction[s] turned out to be . . . losing one[s]"
(citation omitted)); Bonilla v. Volvo Car Corp., 150 F.3d 62,
66-67 (lst Cir. 1998) (RICO requires plaintiffs to show that
they were "injured in [their] business or property by reason of"
the racketeering activity); Miranda v. Ponce Fed. Bank, 948 F.2d
41, 44, 47 (lst Cir. 1991) (to avert dismissal under Rule
12(b)(6), civil RICO complaint must state facts showing "a
causal nexus between [racketeering activity] and the harm
alleged"; the "injury itself" must be "the result of a predicate
act"); cf. Beck v. Prupis, 120 S. Ct. 1608, 1617 (2000) (holding
that the injury underlying a RICO conspiracy claim must be
caused not by any overt act but by conduct that constitutes
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racketeering activity or is otherwise unlawful under the RICO
statute).
On the facts, the lack of causation seems to be a
significant possibility. Efron entered the partnership before
any of the alleged predicate acts occurred, and thus without
reliance on any misrepresentations. He asserts that he was
coerced into paying $1 million beyond his original contribution
to preserve his equity, but he does not allege that he was
deceived by the written requests for additional capital.
Instead, he describes his "injury-in-fact" as the prospect of a
squeezed-down equity position in the partnership, which would
have been a by-product of his refusal to contribute all of the
requested funds but not necessarily a loss occasioned by
misrepresentations or false assurances. In his RICO case
statement, Efron suggests that he was the only one of the three
victim partners who was not deceived, asserting that the
defendants "conducted their misdeeds under unsuspecting eyes,
except for Efron." (Emphasis added.)
Despite this seeming weakness in appellant’s RICO claim, we
are disinclined to rest a judgment on a decision of the
causation issue. It was alluded to in appellees’ briefs only in
a list of pleading requirements, and it was the subject of brief
treatment by the parties at oral argument. It is conceivable
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that an extremely generous reading of the complaint might allow
the inference that Efron contributed $1 million beyond his
original investment in response to the defendants’ written
requests because he initially was deceived into believing there
was a legitimate need for the funds. In any event, our
disposition makes it unnecessary to explore further the question
of whether the mailings caused a loss to appellant.
We therefore move to the merits and the issue of continuity,
accepting for purposes of our discussion that all seventeen
alleged acts of wire and mail fraud are viable predicate acts
under the RICO statute. Although the twenty-one month time
frame for these communications meets the Supreme Court’s
requirement for closed continuity of more than "a few weeks or
months," H.J. Inc., 492 U.S. at 242, it is not so long a period
nor are there so many predicate acts that other indicators of
continuity – or the lack of them – are without significance.
Cf. Fleet Credit Corp., 893 F.2d at 447 (finding that ninety-
five fraudulent mailings over four and one-half years "is the
type of 'long-term criminal conduct’ defined by the [Supreme
Court] as constituting 'continued criminal activity’"); United
States v. Pelullo, 964 F.2d 193, 209 (3d Cir. 1992) ("[M]ost
courts that have found continuity in a closed period did so in
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cases involving periods of several years.")6; Hindes v. Castle,
937 F.2d 868, 875 (3d Cir. 1991) (collecting cases ranging from
a period of four and one-half to seventeen years).
The Supreme Court in H.J. Inc. noted Congress’s "natural and
commonsense approach to RICO’s pattern element," see 492 U.S. at
237, suggesting that its discussion of temporal factors did not
mean that other considerations were to be entirely ignored.
Indeed, in rejecting the notion that a pattern of racketeering
activity requires proof of multiple schemes, the Court noted
that "proof that a RICO defendant has been involved in multiple
criminal schemes would certainly be highly relevant to the
inquiry into the continuity of the defendant’s racketeering
activity." Id. at 240. Likewise, where the racketeering
activity exceeds in duration the "few weeks or months" that the
Supreme Court in H.J. Inc. deemed inadequate, but is neither so
extensive in reach nor so far beyond the minimum time period
that common sense compels a conclusion of continuity, the fact
that a defendant has been involved in only one scheme with a
singular objective and a closed group of targeted victims also
6 Although the court in Pelullo concluded that 19 months was
a sufficient period for a finding of continuity, see 964 F.2d at
209, it expressed some doubt that the facts established either
open or closed continuity. See id. at 209 n.15, 210. It
nonetheless remanded the case for retrial on the RICO count, as
well as on multiple wire fraud counts whose reversal was based
on evidentiary error.
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strikes us as "highly relevant." Cf. Vicom, Inc. v. Harbridge
Merchant Servs., 20 F.3d 771, 780 (7th Cir. 1994) (various
factors considered in assessing continuity, including the number
of victims, the presence of separate schemes, and the occurrence
of distinct injuries); Resolution Trust Corp. v. Stone, 998 F.2d
1534, 1543 (1Oth Cir. 1993) (considering, in addition to
duration, "extensiveness" of the RICO scheme, including number
of victims, variety of racketeering acts, whether the injuries
caused were distinct, and the complexity and size of the
scheme); Pelullo, 964 F.2d at 208 ("We have eschewed the notion
that continuity is solely a temporal concept, though duration
remains the most significant factor.")7; United States Textiles,
Inc. v. Anheuser-Busch Co., 911 F.2d 1261, 1269 (7th Cir. 1990)
("'[I]t is not irrelevant, in analyzing the continuity
requirement, that there is only one scheme.’" (quoting
Sutherland v. O’Malley, 882 F.2d 1196, 1204 (7th Cir. 1989)).
Having considered carefully the various factors here, we
have concluded that the allegations do not demonstrate the kind
of broad or ongoing criminal behavior at which the RICO statute
was aimed. In essence, appellant alleges a scheme to diminish
7 The Third Circuit, en banc, later discussed the continuity
requirement at length in a series of opinions. See Tabas v.
Tabas, 47 F.3d 1280 (3d Cir. 1995) (en banc). The majority
adhered to the view that multiple factors may be relevant in
evaluating continuity.
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the value of the project in the short run, pressing plaintiff
and two others to yield up their interests so that the schemers
could own and control the whole project. Although multiple
related acts of deception were claimed to underlay the faxes and
mailings, all allegedly were aimed at the single goal of
transforming the ownership of the Partnership during its early
stages. See Amended Complaint, ¶ 19 (defendants’ goal was "to
dilute the interests of the Special Partners and to siphon away
Partnership assets" to gain "outright control of the
Partnership"). The three named victims were not separately
targeted through repetitions of criminal conduct, which could
have reflected persistent or broad-based crime; their injury
instead resulted from a single set of alleged misdeeds and
occurred at the same time.
This narrow attack on three partners’ participation in a
particular business venture is qualitatively different from the
single scheme underlying H.J. Inc. The plaintiffs there had
alleged that telephone company officials and others had engaged
in multiple acts of bribery over at least a six-year period to
obtain approval for unfairly and unreasonably high rates. 492
U.S. at 250. Thousands of telephone company customers
presumably were injured by the ongoing scheme.
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Although a RICO pattern need not have countless victims, the
finite nature of the racketeering activities alleged here,
together with their occurrence over a relatively modest period
of time, cannot, in our view, support a jury finding of a RICO
pattern under the "closed" continuity approach. Our own
precedent firmly rejects RICO liability where "the alleged
racketeering acts . . . , 'taken together, . . . comprise a
single effort’ to facilitate a single financial endeavor,"
Schultz, 94 F.3d at 732; see also Apparel Art, 967 F.2d at 723
("[A] single criminal episode, or event, is not a 'pattern’ . .
. [because] its parts, taken together, do not 'amount to or pose
a threat of continued criminal activity.’") (quoting H.J. Inc.,
492 U.S. at 239).8 And, while the cases in this volatile field
understandably cannot all be reconciled, we find ourselves in
good company. See, e.g., Edmondson & Gallagher v. Alban Towers
Tenants Ass’n, 48 F.3d 1260, 1265 (D.C. Cir. 1995) (combination
of "single scheme, single injury, and few victims . . . makes it
virtually impossible for plaintiffs to state a RICO
8 In Apparel Art, then Chief Judge Breyer noted that the
court deliberately used "a vague term like 'episode'" to
distinguish the concept of an isolated occurrence from the
technical concept of a scheme, as used by the Supreme Court in
H.J. Inc. See 967 F.2d at 722.
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claim");9 Stone, 998 F.2d at 1545 ("Where the scheme has a
limited purpose, most courts have found no continuity."); Sil-
Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1516 (1Oth Cir. 1990)
(affirming dismissal of RICO claim where a "closed-ended series
of predicate acts . . . constituted a single scheme to
accomplish 'one discrete goal,’ directed at one individual with
no potential to extend to other persons or entities" (citation
omitted)); Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th
Cir. 1989) ("Defendants’ actions were narrowly directed towards
a single fraudulent goal.").
Nor is it reasonable to infer from the allegations here that
there is a risk of a broader scheme, or that the fraudulent acts
directed at appellant would continue indefinitely into the
future, either of which might support a conclusion of "open-
ended" continuity. There is nothing to suggest that the
defendants would seek to repeat their fraud in other
partnerships or similar business settings, or to employ mail and
wire fraud indefinitely in the Embassy Suites partnership,
thereby showing that racketeering activity might be a "regular
way of conducting defendant’s ongoing legitimate business . . .
9
In Alban Towers, the court noted that "[t]he number of
alleged predicate acts (fifteen), and the most generous estimate
of the length of time the acts continued (three years . . .),
are not enough to overwhelm the three narrowing factors." 48
F.3d at 1265.
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or of conducting or participating in an ongoing and legitimate
RICO 'enterprise,’" H.J. Inc., 492 U.S. at 243; cf. Roeder v.
Alpha Indus., Inc., 814 F.2d 22, 31 (lst Cir. 1987) ("no
suggestion that defendants used similar means to obtain other
subcontracts, or that they bribed anyone else").
Viewing the Partnership as either the RICO enterprise or
defendants’ "ongoing legitimate business," the scenario painted
by Efron’s pleadings does not threaten the "long-term criminal
conduct" with which Congress was concerned, see H.J. Inc., 492
U.S. at 242. Almost by definition, the alleged fraud had a
limited life expectancy. The scheme’s objective, as reasonably
understood from Efron’s not fully consistent allegations,10 was
10 In paragraph 19 of the amended complaint and on page 6 of
the RICO case statement, for example, Efron describes the
defendants’ goal to be "gaining outright control of the
Partnership." In paragraph 22 of the amended complaint, he
alleges that MDC and Rubi made "continual capital calls either
to defraud the Special Partners of more money or, alternatively,
to try to 'squeeze down’ their interests in the Partnership."
(Emphasis added.) Paragraph 41, section a, described the first
alleged predicate act as a letter sent by Rubi to the special
partners concerning cost overruns. Efron alleges: "This was the
implementation, carrying out, and continuation of the previously
designed scheme to defraud Efron out of additional monies or
alternatively to dilute his interest and to deprive him of the
full realization of his investment, or all of these." In
section r of that paragraph, at the conclusion of the full list
of predicate acts, he asserts: "All of the noted predicate acts
were meant to defraud, misrepresent, mislead, and to deprive the
Special Partners, including Efron, of their ownership interest
in the Partnership."
Thus, although the amended complaint and RICO case statement
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to squeeze appellant and two co-partners out of the partnership
early in its existence so that the remaining partners could reap
greater profits through the self-interested operation of this
hotel and their other businesses. See Vicom, Inc., 20 F.3d at
782 ("[S]chemes which have a clear and terminable goal have a
natural ending point . . . [and] therefore cannot support a
finding of any specific threat of continuity that would
constitute open-ended continuity.").
It is true that the scheme as alleged already had spanned
twenty-one months, and that its exact endpoint could not be
ascertained from the pleadings because it depended upon Efron’s
and the other victim partners’ refusal to respond to capital
calls large enough to result in squeezing down their interests
in the Partnership. This is far different, however, from the
open-ended continuity illustrated by the single scheme described
in H.J. Inc., an endeavor that apparently would have gone on
without end had it not been detected. See 492 U.S. at 250. Had
Efron argued that the defendants planned to operate the hotel
refer to a general goal to defraud Efron and the other victim
partners of "more money," the amended complaint read as a whole
does not depict this as a long-term objective but simply as a
necessary step toward defendants’ specific goal of "tak[ng]
unrestricted control of the enterprise." See RICO case statement
at 7. His brief and oral argument were framed similarly. See,
e.g., Brief at 27 ("By their nature, the [defendants’] goals
will not be reached, at least until such time as plaintiff loses
his entire interest in the partnership.")
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indefinitely at a paper loss as a means of perpetually
defrauding him, rather than asserting the specific objective of
squeezing him out of the Partnership, he would have a stronger
argument for an open-ended RICO pattern. His pleadings and
argument, however, depict an undertaking with a soon-to-be
reached endpoint. Indeed, Efron’s refusal to contribute any
more funds and his decision to file suit to protect his interest
suggest that the objective was virtually accomplished.
We note that c ourts, including our own, have suggested that
RICO claims premised on mail or wire fraud must be particularly
scrutinized because of the relative ease with which a plaintiff
may mold a RICO pattern from allegations that, upon closer
scrutiny, do not support it. See, e.g., Schultz, 94 F.3d at
732; Roeder, 814 F.2d at 31. The Seventh Circuit has been
explicit in cautioning against finding continuity too easily in
the context of a single dishonest undertaking involving mail or
wire fraud:
Virtually every garden-variety fraud is
accomplished through a series of wire or mail fraud
acts that are "related" by purpose and spread over a
period of at least several months. Where such a
fraudulent scheme inflicts or threatens only a single
injury, we continue to doubt that Congress intended to
make the availability of treble damages and augmented
criminal sanctions [under RICO] dependent solely on
whether the fraudulent scheme is well enough conceived
to enjoy prompt success or requires pursuit for an
extended period of time. Given its "natural and
common sense approach to RICO’s pattern element," we
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think it unlikely that Congress intended RICO to apply
in the absence of a more significant societal threat.
United States Textiles, Inc., 911 F.2d at 1268 (quoting
Marshall-Silver Constr. Co. v. Mendel, 894 F.2d 593, 597 (3d
Cir. 1990)11); cf. Tabas v. Tabas, 47 F.3d 1280, 1290 (3d Cir.
1995) (en banc) ("The inclusion within the scope of civil RICO
of [mail and wire fraud], more prevalent in the commercial world
than in the world of racketeers, has caused concern that RICO
sweeps too broad a swathe."); Menasco, 886 F.2d at 683
("Congress contemplated that only a party engaging in widespread
fraud would be subject to such serious consequences. . . . The
pattern requirement . . . ensure[s] that RICO’s extraordinary
remedy does not threaten the ordinary run of commercial
transactions; that treble damage suits are not brought against
isolated offenders for their harassment and settlement value .
. . .").
In sum, while the complaint pleads a series of related
racketeering acts and permits an inference that defendants
defrauded appellant and two of his partners, we agree with the
district court’s determination that no reasonable jury could
11In Tabas, 47 F.3d at 1293 n.17, the Third Circuit noted
that, to the extent Marshall-Silver could be read to require the
existence of a "societal threat" to establish RICO continuity,
it is overruled. We deem this narrowing of Marshall-Silver
unimportant for present purposes.
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find that these allegations establish a RICO "pattern." Taken
together, the acts as alleged comprise a single effort, over a
finite period of time, to wrest control of a particular
partnership from a limited number of its partners. This cannot
be a RICO violation.
III. Other issues
Our conclusion that appellant has failed to adequately plead
a substantive violation of RICO makes it unnecessary for us to
consider his other claims of error. Questions concerning his
standing obviously are moot. In addition, his conspiracy claim
is without merit. A conspiracy claim under section 1962(d) may
survive a factfinder’s conclusion that there is insufficient
evidence to prove a RICO violation, Howard v. America Online,
Inc., 208 F.3d 741, 751 (9th Cir. 2000), petition for cert.
filed, 68 U.S.L.W. 3003 (U.S. June 27, 2000) (No. 99-2089), but
if the pleadings do not state a substantive RICO claim upon
which relief may be granted, then the conspiracy claim also
fails, id.; see also Salinas v. United States, 522 U.S. 52, 65
(1997) ("A conspirator must intend to further an endeavor which,
if completed, would satisfy all of the elements of a substantive
criminal offense . . . .").
The judgment of the district court is therefore affirmed.
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