NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 11-4528
MATTHEW P. AMOS; CHRISTINE A. AMOS; ROBERT A. ABEL; PAMELA MOBIUS
ARMSTRONG; DAVID L. ENGLEHART; JANET C. NACLERIO; DONALD A. ERNEY;
TIMOTHY P. FARRELL; KEVIN M. FINN; DAWSON FLINCHBAUGH; CAROLE A.
FOWLER; PATRICIA A. HELM; BRUCE G. HOLRAN; RONALD N. HUGHMANICK;
JANET C. NACLERIO; EDWARD R. NORFORD; RONALD L. PROUGH; WILLIAM J.
REGAN; LOUIS M. ROBINSON; BRUCE A. SMITH; CHARLOTTE SPITZ; ROBERT M.
TROXELL; JANET M. WESTCOTT; CURT H. ZIMMERMANN; RICHARD ZLOGAR;
JEFFREY S. NICKUM,
Appellants
v.
FRANKLIN FINANCIAL SERVICES CORPORATION; LOWELL R. GATES; LINDA LEE
GATES; NICHOLAS J. DUNPHY; WILLIAM T. HABACIVICH; CHARLES J. HENRY;
ANDREW W. KOHR; SUSAN A. RUSSELL
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(Civ. No. 1-10-cv-01285)
District Judge: The Hon. William W. Caldwell
Argued: October 5, 2012
Before: McKEE, Chief Judge, JORDAN and
VANASKIE, Circuit Judges
(Opinion filed: January 11, 2013)
MICHAEL A. FARNAN, ESQ. (Argued)
The Farnan Law Office
3710 Forbes Avenue, 3rd Floor
Pittsburgh, PA 15213
JEANNE F. MULRY, ESQ.
Law Offices of Jeanne F. Mulry
8 Arlington Avenue
Rockville Centre, NY 11570
Attorneys for Appellants
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TIMOTHY J. NIEMAN, ESQ. (Argued)
STEPHEN MONIAK, ESQ.
RHOADS & SINON LLP
One South Market Square
P.O. Box 1146, 12th Floor
Harrisburg, PA 17108
Attorneys for Appellee, Franklin Financial Services, Inc.
IAN M. COMISKY, ESQ.
EVAN H. LECHTMAN, ESQ. (Argued)
JEFFREY N. ROSENTHAL, ESQ.
BLANK ROME LLP
One Logan Square
Philadelphia, PA 19103
Attorneys for Appellees, Lowell R. Gates, et al.
OPINION
McKEE, Chief Judge.
Matthew P. Amos and twenty four other plaintiffs have appealed the district court‟s order
dismissing their first amended complaint for failure to adequately plead a civil action under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”). They allege violations of 18
U.S.C. §§ 1962(b), (c) and (d), based on predicate acts of mail and wire fraud, 18 U.S.C. §§ 1341
and 1343, respectively. For the reasons that follow, we will affirm.
I. FACTS AND PROCEDURAL HISTORY
Because we write primarily for the parties, who are well familiar with the facts and
procedural history of this litigation, we will recite only those portions of the facts and procedural
history necessary to adjudicate this appeal.
Amos and the other twenty-four plaintiffs (hereinafter “Amos”) are former shareholders
in Community Financial, Inc. (“CFI”). Franklin Financial Services Corporation acquired CFI in
a merger whereby CFI ceased to exist and its shareholders and third parties were paid cash for
2
their shares. Amos filed an action against Franklin Financial and seven individual defendants,
viz., Lowell R. Gates, William T. Habacivch, Nicholas J. Dunphy, Charles J. Henry, Andrew J.
Kohr, Susan Russell and Linda Gates (hereinafter “Lowell Gates”), most of whom were
shareholders and officers of CFI, alleging that in the years leading up to the merger, Lowell
Gates operated CFI in a manner that diluted the value of Amos‟ shares upon the merger relative
to the value of Lowell Gates‟ shares. Amos alleges that to accomplish this goal, Lowell Gates
devised a fraudulent scheme and engaged in fraudulent conduct directed at Amos and other non-
defendant shareholders.
As we noted at the outset, Amos asserted claims under civil RICO, alleging violations of
18 U.S.C. §§ 1962(b), (c), and (d) where the predicate acts are alleged to have been mail and
wire fraud, 18 U.S.C. §§ 1341 and 1343, respectively. He also asserted state law claims for
conversion, unjust enrichment, breach of fiduciary duty, fraud and waste of corporate assets,
conspiracy, and a violation of the Pennsylvania Uniform Commercial Code. Amos‟ original
complaint was filed on June 19, 2010. Subsequently, Amos filed a first amended complaint.
Thereafter, Franklin Financial and Lowell Gates filed Rule 12(b)(6) motions to dismiss the first
amended complaint. The district court eventually dismissed the first amended complaint based
on its conclusion that Amos failed to state civil RICO claims because of the statutory exception
for fraud claims in the sale of securities found in 18 U.S.C. § 1964(c). Amos v. Franklin
Financial Services Corp., 2011 WL 2111991 (M.D. Pa. May 26, 2011).1
Thereafter, Amos filed a motion for reconsideration under Fed.R.Civ.P. 59(e), arguing,
inter alia, that the district court erred in dismissing the complaint because the transaction in
1
Because the district court dismissed the RICO claims, it declined to exercise
supplemental jurisdiction over the state law claims and dismissed the state law claims
without prejudice. 2011 WL 2111991 at *6
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question was a “freeze-out merger” and, therefore, could not constitute securities fraud. After
briefing, the district court issued a Memorandum Opinion on November 22, 2011 in which it
agreed with Amos. Amos v. Franklin Financial Services Corp., 2011 WL 5903875 (M.D. Pa.
November 22, 2011). However, the district court again dismissed the first amended complaint,
finding that it failed to satisfy the pleading requirements for a civil RICO action. Id. at *6-15.2
This appeal followed.3
II. GENERAL LEGAL PRINCIPLES
Amos‟ two substantive RICO claims are based on 18 U.S.C. §§ 1962(b) and 1962(c).4
Section 1962(b) provides:
(b) It shall be unlawful for any person through a pattern of
racketeering activity or through collection of an unlawful debt 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.
2
The district court once again declined to exercise supplemental jurisdiction over the
state-law claims after it dismissed the RICO claims. 2011 WL 5903875 at *15.
3
We review the district court‟s dismissal of a claim under Rule 12(b)(6) de novo.
Phillips v. County of Allegheny, 515 F.3d 224, 230 (3d Cir. 2008). “To survive a motion
to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a
claim that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662 (2009) (citation
omitted). A claim has “facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 129 S.Ct. at 1949 (citation omitted). A district court must
dismiss a complaint that pleads facts that are “merely inconsistent with” a defendant‟s
liability, if the complaint “stops short of the line between possibility and plausibility of
entitlement to relief.” Id. (citation and internal quotation marks omitted). “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements do
not suffice.” Id. (citation omitted).
4
As noted, Amos also brought claim under 18 U.S.C. § 1962(d), which provides: “It shall
be unlawful for any person to conspire to violate any of the provisions of subsection (a),
(b), or (c) of this section.”
4
Section 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.
“The RICO statute provides for civil damages for „any person injured in his business or
property by reason of a violation of [18 U.S.C. § 1962].‟” Tabas v. Tabas, 47 F.3d 1280, 1289
(3d Cir. 1995) (quoting 18 U.S.C. § 1964(c)). “A common thread running throughout § 1962 is
that an injured party must demonstrate that the defendant was engaged in a „pattern of
racketeering activity.‟” Id.
In Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985), the Court held:
A violation of § 1962(c) . . . requires (1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity. The
plaintiff must, of course, allege each of these elements to state a
claim. Conducting an enterprise that affects interstate commerce is
obviously not in itself a violation of § 1962, nor is the mere
commission of the predicate offenses. In addition, the plaintiff
only has standing if, and can only recover to the extent that, he has
been injured in his business or property by the conduct constituting
the violation.
Id. at 496. As noted, a RICO claim pursuant to § 1962(b) 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 of which affect,
interstate of foreign commerce.” 18 U.S.C. § 1962(b) (emphasis added).
A pattern of racketeering activity is established by showing that the defendants engaged
in at least two predicate acts within ten years of each other. 18 U.S.C. § 1961(1), (5); Lum v.
Bank of America, 361 F.3d 217, 223 (3d Cir. 2004) (“A pattern of racketeering activity requires
at least two predicate acts of racketeering activity.”) (citation omitted). “ „Racketeering activity‟
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is defined in RICO to mean „any act or threat involving‟ specified state-law crimes, any „act‟
indictable under specified federal statutes, and certain federal „offenses.‟” H.J. Inc. v.
Northwestern Bell Telephone Co., 492 U.S. 229, 232 (1989). The “predicate acts of racketeering
may include, inter alia, federal mail fraud under 18 U.S.C. § 1341 or federal wire fraud under 18
U.S.C. § 1343.” Lum, 361 F.3d at 223 (citing, inter alia, 18 U.S.C. § 1961(1)). As relevant here,
mail or wire fraud consists of: “(1) a scheme to defraud; (2) use of the mails [or wires] to further
that scheme; and (3) fraudulent intent.” United States v. Pharis, 298 F.3d 228, 234 (3d Cir.
2002) (citation omitted). “[N]o defendant can be liable under RICO unless he participated in two
or more predicate offenses sufficient to constitute a pattern.” Banks v. Wolk, 918 F.2d 418,421
(3d Cir. 1990).
DISCUSSION
In its opinion dismissing Amos‟ first amended complaint, the district court gave a number
of reasons why the first amended complaint failed to adequately allege a civil RICO action under
18 U.S.C. §§ 1962(b), (c), or (d). First, it found that Amos failed to show proximate cause
because the injury alleged in the first amended complaint is derivative of injury to CFI, not a
direct injury to Amos.5 2011 WL 5903875 at *6-9. Second, it found that Amos‟ RICO claims
failed because the first amended complaint did not plead a pattern of racketeering activity on the
part of both the individual defendants and Franklin Financial. Id. at *9-14. Third, it found that
the first amended complaint failed to plead the existence of an association-in-fact enterprise. Id.
5
As the district court held, Amos‟s failure to demonstrate that the alleged RICO
predicate acts were the proximate cause of his injury also meant that he lacked standing
to bring a civil RICO action. See Holmes v. Sec. Protection Corp., 503 U.S. 258, 268
(1992) (requiring that a RICO plaintiff “show[] that the defendant‟s violation not only
was a „but for‟ cause of his injury, but was the proximate cause as well.”).
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at 14-15. Fourth, it found that Amos‟s RICO conspiracy claim failed because the first amended
complaint did not adequately allege violations of §§ 1962(b) or (c). Id. at 15.
In this appeal, Amos advances a number of arguments in support of his overarching
contention that the district court‟s Rule 12(b)(6) dismissal of the first amended complaint was
error. We disagree.
In its through and well-reasoned November 22, 2011, opinion, the district court fully and
completely explained why the first amended complaint failed to adequately allege a civil RICO
action and why dismissal of the first amended complaint was appropriate. We can add nothing
to the district court‟s thoughtful analysis and discussion. Accordingly, we will affirm
substantially for the reasons set forth in the district court‟s November 22, 2011, opinion.
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