United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 28, 2000 Decided January 5, 2001
No. 00-7021
Western Associates Limited Partnership, individually and on
behalf of Avenue Associates Limited Partnership,
Appellant
v.
Market Square Associates, et al.,
Appellees
Appeal from the United States District Court
for the District of Columbia
(No. 97cv02452)
Barry Wm. Levine argued the cause for appellant. With
him on the briefs was Richard J. Conway.
Paul B. Gaffney argued the cause for appellees. With him
on the brief were Paul Martin Wolff, Joseph B. Tompkins,
Jr., and Christine Liverzani Prame. James D. Miller, Mi-
chael R. Smith and Peter M. Todaro entered appearances.
Before: Henderson, Rogers and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Rogers.
Rogers, Circuit Judge: In this appeal the court again
addresses the continuity prong of the "pattern of racketeer-
ing activity" requirement of the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C. s 1961, et
seq. Western Associates Limited Partnership ("Western")
sued various individuals and investors associated with Market
Square Associates (collectively, "Market"), its partner in the
development of a real estate project known as Market
Square. Western alleged violations under RICO and District
of Columbia law based on an accounting dispute in the
partnership. The district court, applying the multi-factor
analysis of Edmondson & Gallagher v. Alban Towers Tenants
Association, 48 F.3d 1260 (D.C. Cir. 1995), dismissed the
complaint pursuant to Fed. R. Civ. P. 12(b)(6) because West-
ern failed to allege the requisite pattern of racketeering
activity.1 Western contends that in finding the "continuity"
element lacking, the district court erred by failing to focus on
the length of the time period during which Market's predicate
acts occurred, and misread Edmondson. We disagree, and
accordingly we affirm.
I.
Market Square is a mixed-use property in downtown Wash-
ington, D.C. that consists of office and retail space and
residential condominium units. In 1985, Western, a District
of Columbia limited partnership, formed Avenue Associates
Limited Partnership ("Avenue Associates") to "develop, own,
manage, and ultimately dispose of the Market Square Pro-
ject." In 1987, Western invited Market Square Associates, a
Washington, D.C. general partnership, to join Avenue Associ-
ates. Upon completion of the construction of the project,
Western held a 30 percent limited partnership interest, and
__________
1 After dismissing the RICO claims, the district court dismissed
the remaining claims for lack of subject matter jurisdiction. See 28
U.S.C. s 1367(c)(3).
Market Square Associates owned a 67.5 percent limited part-
nership interest and a 2.5 percent general partnership inter-
est.
In October 1997, Western filed suit in the United States
District Court for the District of Columbia, alleging that
beginning in 1988 and continuing for more than eight years
thereafter, Market repeatedly violated partnership agree-
ments, transmitted fraudulent accounting statements, and
stole the value of Western's partnership interest. At the
heart of the alleged fraud are alleged misrepresentations of
expected costs and profits that Market made in budget
projections for the Market Square project. According to the
complaint, after Western was deceived into approving a
fraudulent budget in 1989, Market covered up its misrepre-
sentations by exaggerating the economic viability of the pro-
ject in annual financial statements. Western alleged that
Market also violated the terms of the partnership agreement
regarding the priority of cash flow distribution by improperly
favoring itself over Western for cash flow disbursements, and
caused the partnership to repay loans for cost overruns that
Market alone was responsible for repaying. Western assert-
ed that as a result of Market's violations of the RICO Act,
Western had suffered over $89 million in damages.2
The following month, in November 1997, Western filed for
an injunction to prevent Market from transferring some of its
interests in the Market Square Project. Relying on
Edmondson, the district court denied the request for an
injunction, ruling that because Western had alleged a single
scheme, a single discrete injury, and a single victim, Western
had not demonstrated the requisite "pattern of racketeering
activity" under s 1961(5) of the RICO Act, and thus, was
unlikely to succeed on the merits.
Subsequently, Western filed an amended complaint, in-
creasing the number of schemes and victims alleged. The
__________
2 Under RICO's civil provisions, treble damages may be sought
by "any person injured in his business or property," 18 U.S.C.
s 1964(c), by one or more of four types of "prohibited activities,"
which are defined in 18 U.S.C. s 1962.
amended complaint alleges that Market conspired to commit
and engaged in four separate but related schemes to defraud
Avenue Associates, Western, and the general and limited
partners that make up Western. The four schemes consist
of: (1) the Revised Budget-Approval Scheme; (2) the Cost-
Shifting Scheme; (3) the Income Projection Scheme; and (4)
the Going-Concern Scheme.
The four alleged schemes are briefly summarized as fol-
lows. (1) The Revised Budget-Approval Scheme was a plot
to conceal cost overruns. According to the complaint, Market
knew as early as April 1988 that the total cost of the project
would exceed the original budget, and improperly approved
and conspired to conceal cost increases. In August 1989,
after 18 months, Market sent a revised budget to Western,
knowing that the cost projections in this budget were also
inaccurate. Western relied on the false representations in
the revised budget and approved it in December 1989. (2)
The Cost-Shifting Scheme addresses the priority of alloca-
tions and the continuing cost increases. The partnership's
budgets called for costs to be divided into "guaranteed" and
"non-guaranteed" categories, and prohibited guaranteed cost
overruns from being repaid from partnership cash flow. Ac-
cording to the complaint, Market circumvented these account-
ing restrictions by shifting guaranteed cost items into the
non-guaranteed category, used improperly authorized option-
al loans to cover these cost increases, and repaid these loans
out of partnership distributions. This fraudulent scheme was
concealed by annual financial statements mailed to Western
each year between 1990 and 1996. (3) The Income Projection
Scheme arises from Market's attempt to conceal the impact of
the budget overruns. According to the complaint, in 1992, in
a series of financial documents, Market falsely represented
the expected revenues from Market Square over the next 15
years, overstated the value the cost increases had added to
the project, and deceived Western regarding the partner-
ship's debt. Due to these misrepresentations, Western re-
frained from suing appellees or pursuing other remedies. (4)
The Going-Concern Scheme relates to a failure to provide
honest annual accounting statements. The complaint alleges
that from 1994 to 1996, Market sent Western financial state-
ments that omitted a "going-concern clause," in an effort to
conceal Avenue Associates' burdensome debt.
According to the amended complaint, Western did not
become aware that the Market Square Project's financial
health was in jeopardy until early 1997, when it received a
financial statement indicating that the partnership was having
difficulty meeting its financial obligations. This statement
also acknowledged that Market Square would not meet Mar-
ket's 1992 income projections. The amended complaint al-
leged that the four schemes included numerous violations of
the mail and wire fraud statutes, 18 U.S.C. ss 1341 and 1343,
and that these allegedly fraudulent acts violated s 1962(c) of
the RICO Act. Western also alleged a violation of s 1962(d)
of the RICO Act, which prohibits conspiracy to violate
s 1962(c). Finally, Western alleged common law claims of
fraud, civil conspiracy to defraud, breach of fiduciary duty,
aiding and abetting a fiduciary, and breach of contract, and
requested various types of injunctive relief, including access
to the records of Avenue Associates.
The district court granted Market's motion to dismiss
under Fed. R. Civ. P. 12(b)(6), based on Western's failure to
allege a "pattern of racketeering activity," as required by
s 1961(5) of the RICO Act. Relying on similarities to
Edmondson, 48 F.3d 1260, the district court found Western's
RICO claims deficient because Western had alleged a single
fraudulent scheme, the single harm of a diminished partner-
ship interest, and, at most, one set of victims. The district
court rejected Western's argument that because it had al-
leged fraudulent acts over an eight-year period of time, it had
successfully distinguished Edmondson and established a pat-
tern of racketeering activity.
II.
On appeal, Western contends that the district court misap-
plied Edmondson and overlooked the importance of the eight-
year time period during which the alleged fraud occurred.
Our review of the district court's order dismissing the com-
plaint is de novo. The court assumes that the factual allega-
tions in the complaint are true, but it is not bound by the
complaint's legal conclusions. See Whitacre v. Davey, 890
F.2d 1168, 1168 n.1 (D.C. Cir. 1989).
A violation of s 1962(c) of the RICO Act consists of four
elements: "(1) conduct (2) of an enterprise (3) through a
pattern (4) of racketeering activity." Pyramid Securities
Ltd. v. IB Resolution, Inc., 924 F.2d 1114, 1117 (D.C. Cir.
1991) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479,
496 (1985)). The RICO Act defines the term "pattern of
racketeering activity" as requiring the commission of at least
two predicate racketeering offenses over a ten year period.
See 18 U.S.C. s 1961(5). These predicate offenses are acts
punishable under certain state and federal criminal laws,
including mail and wire fraud. See 18 U.S.C. s 1961(1)(B).
The Supreme Court has interpreted the pattern require-
ment to include two additional elements: relatedness and
continuity. H.J. Inc. v. Northwestern Bell Telephone Co., 492
U.S. 229, 239 (1989). "To prove a pattern of racketeering a
plaintiff or prosecutor must show that the racketeering predi-
cates are related, and that they amount to or pose a threat of
continued criminal activity." Id. The Court further de-
scribed the relatedness element as criminal acts that share
"similar purposes, results, victims, or methods of commission,
or otherwise are interrelated by distinguishing characteris-
tics." Id. at 240. Continuity, the most relevant prong in the
instant case, may be proved by establishing either a "closed
period of repeated conduct" or a threat of future criminal
activity. Id. at 241. Western alleged a closed period of
continuous criminal activity between 1988 and 1997.
The Supreme Court in H.J. Inc. suggested that the related-
ness and continuity concepts required further development in
subsequent cases, and urged a "natural and commonsense
approach to RICO's pattern element." Id. at 237. In
Edmondson, this court provided more guidance on the nebu-
lous issue of what constitutes a pattern of racketeering activi-
ty. Edmondson involved a real estate developer that accused
a tenants' association of illegally attempting to block the sale
of the building in which members of the tenants' association
lived. See Edmondson, 48 F.3d at 1263-64. The real estate
developer alleged that the tenants had "exploited [a] quiet-
title action, holding the building sale hostage and thereby
attempting to force [the developer] to pay them off." Id.
Based on predicate acts such as extortion, bribery, and
perjury, the developer asserted that the association had vio-
lated RICO. The court affirmed the dismissal of the RICO
claims because "the single scheme alleged--designed to frus-
trate one transaction and inflicting a single, discrete injury on
a small number of victims--fail[ed] to meet RICO's require-
ment of a 'pattern of racketeering activity.' " Id. at 1263.
Edmondson identified six factors that a court should con-
sider "in deciding whether a [RICO] pattern has been estab-
lished." Id. at 1265. These factors are: "the number of
unlawful acts, the length of time over which the acts were
committed, the similarity of the acts, the number of victims,
the number of perpetrators, and the character of the unlawful
activity." Id. (quoting Kehr Packages, Inc. v. Fidelcor, Inc.,
926 F.2d 1406, 1411-13 (3d Cir. 1991)) (internal quotation
marks omitted). Edmondson does not establish a rigid test,
but rather presents a flexible guide for analyzing RICO
allegations on a case by case basis. The court in Edmondson
acknowledged that in some cases "some factors will weigh so
strongly in one direction as to be dispositive." Id. The court
also indicated that if a plaintiff alleges only a single scheme, a
single injury, and few victims it is "virtually impossible for
plaintiffs to state a RICO claim." Id.
Analyzing the allegations of the amended complaint
through the six-factor lens of Edmondson inexorably leads to
the conclusion that Western failed to state a legally cogniza-
ble claim under RICO. Edmondson provides a compelling
analogy because Western has alleged only a single scheme, a
single injury, and a single victim (or single set of victims).
Thus, Western has failed to satisfy the continuity prong of
RICO's "pattern of racketeering activity" requirement.
The district court properly rejected Western's notion that
numerous schemes to defraud were perpetrated by Market.
"The court need not accept inferences drawn by plaintiffs if
such inferences are unsupported by the facts set out in the
complaint. Nor must the court accept legal conclusions cast
in the form of factual allegations." Kowal v. MCI Communi-
cations Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994) (citing
Papasan v. Allain, 478 U.S. 265, 286 (1986)). As the district
court found, Market's conduct is more accurately character-
ized as a single effort to diminish the value of Western's
partnership interest, primarily by concealing cost overruns or
shifting the burden of financing them. Indeed, Western's
four-scheme division appears specious on its face. Compar-
ing the amended complaint with the original complaint fur-
ther demonstrates that Western's four purported schemes are
merely a cosmetic disguise of a single scheme. The amended
complaint simply subdivides Western's initial allegations.
Despite Western's protests that the court must focus on its
amended complaint, it is appropriate for the court to look
beyond the amended complaint to the record, which includes
the original complaint. See Philips v. Bureau of Prisons, 591
F.2d 966, 969 (D.C. Cir. 1979); 5A Charles Alan Wright and
Arthur R. Miller, Federal Practice and Procedure s 1357 (2d
ed. 1990). Thus, the district court properly observed not only
that the amended complaint merely "dress[ed] up the old
[complaint] with ... boilerplate RICO verbiage," but also
that "W[estern] appears to have distorted the allegations
against [Market] to create the appearance of multiple injuries
to multiple victims in an apparent effort to satisfy the statuto-
ry language of RICO."
It is true that depending on the specific circumstances a
single scheme may suffice for purposes of RICO. The Su-
preme Court in H.J. Inc. rejected the idea that multiple
schemes must be proved to establish a pattern of racketeer-
ing activity. See H.J. Inc., 492 U.S. at 240. Our holding in
Edmondson is not to the contrary. See Edmondson, 48 F.3d
at 1265. The Supreme Court also emphasized that the con-
cept of a racketeering "scheme" does not appear in the RICO
statute, and indicated that it should be applied with caution
because it is amorphous, highly elastic, and subject to "the
level of generality at which criminal activity is viewed." H.J.
Inc., 492 U.S. at 241 n.3. However, the number of schemes
alleged remains a useful consideration. For example, the
Supreme Court in H.J. Inc. stated 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. Although the definition of "scheme" is imprecise, this
court can help to clarify how this term should be understood
by providing examples and by indicating "what lies beyond
[its] conceptual scope." Apparel Art Int'l, Inc. v. Jacobson,
967 F.2d 720, 722 (1st Cir. 1992).
The instant case serves as an example of a vain attempt to
make a RICO claim seem more viable by parsing one scheme
into multiple schemes. See Sil-Flo, Inc. v. SFHC, Inc., 917
F.2d 1507, 1516 (10th Cir. 1990). Western's subdivision of
Market's alleged fraudulent activity is unavailing because the
four schemes are so similar in nature and purpose (i.e., they
involve contested bookkeeping entries), and they resulted in a
single harm rather than separate injuries. See supra p. 4.
For the term "scheme" to retain any utility, it cannot be so
easily invoked that it allows such closely related accounting
misrepresentations involving a single project to be considered
distinct schemes. Under Western's interpretation of what
constitutes a scheme, almost any fraudulent act could be
subdivided to establish a RICO claim. Cf. Apparel Art, 967
F.2d at 722-23.
Western's allegations of multiple victims are dubious for
similar reasons. By alleging harm to each individual member
of its partnership, Western has again artificially subdivided
an aspect of its allegations in a transparent effort to make
Market's alleged fraudulent conduct seem more expansive.
For the purposes of RICO pattern analysis, this set of victims
should be viewed as a single victim. The district court
correctly noted that if "W[estern] was injured then naturally
those who have a financial interest in [Western] may be
affected." To the extent that Western's partners were in-
jured, they were injured indirectly, which does not make
them individual victims under RICO. Cf. Wade v. Hopper,
993 F.2d 1246, 1250 (7th Cir.), cert. denied, 114 S. Ct. 193
(1993). For example, in Wade, the court affirmed the dis-
missal of a RICO claim brought by shareholders against
alleged looters of a corporation, because the shareholders
sued individually, and not on the corporation's behalf. See id.
The court held that the RICO claim belonged only to the
corporation, and thus the shareholders were not the "proper
parties to bring a RICO claim for harm done to [the corpora-
tion]." Id. The court also faulted the plaintiff-appellants for
failing to "describe how they were directly and personally
injured by the alleged RICO violations." Id.
Furthermore, the concept of a single set of victims is
distinct from a class of victims who are all similarly and
directly injured, and who should not be considered to be a
single victim. For example, in H.J. Inc. the class of victims
was thousands of customers who were each directly injured
by a telephone company accused of charging unreasonable
rates. Similarly, the single injury to Western was its dimin-
ished partnership interest, and Western does not appear to
have alleged multiple injuries.
Consequently, Western can meet the RICO pattern re-
quirement only if it is able to effectively distinguish
Edmondson. Western's primary contention in that regard
focuses on the length of time during which Market mailed and
faxed alleged financial misrepresentations. The amended
complaint alleges dozens of predicate acts extending continu-
ally over an eight-year period, in contrast with Edmondson,
where the predicate acts extended only over three years, with
most of the acts occurring in a one-month period. Western
relies on the Supreme Court's statement that "continuity is
centrally a temporal concept," H.J. Inc., 492 U.S. at 242, in
maintaining that the time difference between the two fact
patterns is sufficient to establish a dispositive difference.
According to Western, the district court misinterpreted
Edmondson by not regarding the length of time over which
the predicate acts occurred as the most important factor in its
analysis.
This line of reasoning is unpersuasive for at least two
reasons: it distorts both Supreme Court and D.C. Circuit
precedent. First, Western misinterprets H.J. Inc. to the
extent that it claims that time is such an important factor that
an eight-year span must create a viable RICO action. As the
district court explained, "[t]he mere longevity of a scheme or
schemes does not necessarily mean that a 'pattern of racke-
teering activity' is present." H.J. Inc. requires that predicate
acts be committed over a period longer than "a few weeks or
months," but an eight-year time period, though highly rele-
vant, is not dispositive. Even if temporal length was sup-
posed to be the most heavily weighted factor in the multi-
faceted Edmondson analysis (an assumption that is not neces-
sarily mandated by H.J. Inc.), it may be trumped by other
factors of the Edmondson analysis. Although H.J. Inc.
stresses that RICO is directed towards "long-term criminal
conduct," id., it also makes plain that a pattern can be defined
with "reference to a range of different ordering principles or
relationships between predicates, within the expansive bounds
set." Id. at 239.
Second, Western misreads Edmondson to stand for the
proposition that "sporadic criminal activity ... does not satis-
fy H.J. Inc.'s mandate that predicate acts occur over a
substantial period of time." Although the court took tempo-
ral length into account in Edmondson, its rationale relied
more on three other factors: "single scheme, single injury,
and few victims." Edmondson, 48 F.3d at 1265. Instead of
concluding that the predicate acts were too sporadic, the
court stated in Edmondson that even an assumption that the
acts were committed over a three year time period could not
salvage the plaintiff's RICO claims. See id.
Finally, not to be overlooked is the character of the alleged
racketeering activity. The amended complaint describes a
business dispute about cost and income projections, and the
priority of allocations, rather than a wide-ranging series of
extensive criminal schemes. Market's conduct can basically
be characterized as beginning with fraudulent budget under-
estimates, with the subsequent predicate acts serving as
attempts to cover up or shift the debt burden caused by cost
overruns. Additionally, many of the predicate acts consist of
mailings of annual financial reporting statements that Market
was ostensibly obligated to provide to Western. Because
most of the predicate acts were mailings or faxes that relate
back to an initial misrepresentation, and because the parties'
dispute appears to be more in the nature of an ordinary
business deal gone sour, the activity encompassed by West-
ern's amended complaint is similar to that in Efron v. Embas-
sy Suites (Puerto Rico), Inc., 223 F.3d 12, 21 (1st Cir. 2000),
where the First Circuit recently affirmed the dismissal of a
RICO claim. In Efron, a real estate deal disintegrated into a
bitter dispute between partners, and one partner alleged that
he had been defrauded by financial misrepresentations in
mailings and faxes. Affirming the dismissal of RICO claims,
the First Circuit held that "[t]aken 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."
See id. at 21.
We recognize that the Supreme Court has interpreted the
RICO Act broadly, to include many "garden-variety fraud and
breach of contract cases" that might best be prosecuted
under state rather than federal law. Sedima, 473 U.S. at 525
(Powell, J., dissenting). The Court has acknowledged that
"[i]nstead of being used against mobsters and organized
criminals, RICO has become a tool for everyday fraud cases
brought against respected and legitimate enterprises." Sedi-
ma, 473 U.S. at 499. In the absence of congressional action
to narrow RICO's scope, the Supreme Court has refused to
countenance procedural limitations crafted by the courts of
appeals, and has refused to limit RICO to organized crime, or
to organizations rather than individuals. See H.J. Inc., 492
U.S. at 244.
Nevertheless, we do not understand the Supreme Court to
disparage interpreting RICO's pattern requirement to guard
"against finding continuity too easily in the context of a single
dishonest undertaking involving mail or wire fraud." See
Efron, 223 F.3d at 20. As other circuits have observed,
"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." Id. This
caution stems from the fact that "[i]t will be the unusual fraud
that does not enlist the mails and wires in its service at least
twice." Al-Abood ex rel. Al-Abood v. El-Shamari, 217 F.3d
225, 238 (4th Cir. 2000); see also United States Textiles, Inc.
v. Anheuser-Bush Cos., Inc., 911 F.2d 1261, 1268 (7th Cir.
1990); cf. Tabas v. Tabas, 47 F.3d 1280, 1290 (3d Cir. 1995)
(en banc). Although a RICO claim may be based only on
predicate acts consisting exclusively of mail and wire fraud,
scrutiny of such claims is necessary, and not inconsistent with
the breadth of RICO. The pattern requirement thus helps to
prevent ordinary business disputes from becoming viable
RICO claims, with defendants subject to treble damages,
simply because the parties used the United States mails or a
fax machine to transmit contested financial documents.
Thus, in Menasco, Inc. v. Wasserman, 886 F.2d 681 (4th Cir.
1989), the Fourth Circuit declined to find a RICO pattern
where an individual allegedly defrauded two corporations in
an oil and gas prospecting venture, because the perpetrator's
"actions were narrowly directed towards a single fraudulent
goal [and] involved a limited purpose." Id. at 684. In so
ruling, the Fourth Circuit observed that "[i]f the pattern
requirement has any force whatsoever, it is to prevent ...
ordinary commercial fraud from being transformed into a
federal RICO claim.... If we were to recognize a RICO
claim based on the narrow fraud alleged here, the pattern
requirement would be rendered meaningless." Id. at 685
(citations omitted).
Neither the instant case nor Edmondson establishes a per
se rule for RICO pattern analysis. Instead, the court contin-
ues to endorse a case-by-case, fact-specific approach. The six
factors prescribed in Edmondson should be applied in a
manner that is fluid, flexible, and commonsensical, rather
than rigid or formulaic. Holding that the district court did
not err in ruling that Western failed to allege a pattern of
racketeering activity is consistent with this method of analy-
sis.3 Accordingly, we affirm the order dismissing the com-
plaint.
__________
3 Western makes no contention that the district court erred in
dismissing the non-RICO claims for lack of subject matter jurisdic-
tion. In view of our disposition, we, like the district court, do not
reach Market's contention that the complaint is barred by the
statute of limitations.