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Filed: Patrick Fisher
Filed: Patrick Fisher
Filed: Patrick Fisher
PUBLISH
NOV 17 2003
PATRICK FISHER
TENTH CIRCUIT
Clerk
BRENT DECK,
Plaintiff-Appellant,
No. 02-3100
v.
ENGINEERED LAMINATES;
KEITH ILLIG; ELKIN McCALLUM;
KHI, INC.; EXCEL LAMINATES,
INC.; JOAN FABRICS, INC.;
JOAN AUTOMOTIVE INDUSTRIES,
INC.; JOAN LAMINATES, INC.,
Defendants-Appellees.
Plaintiff Brent Deck, proceeding pro se, appeals the district courts entry of
judgment on the pleadings on his civil claim under the Racketeer Influenced and
Corrupt Organizations Act (RICO), 18 U.S.C. 1961-68. We must reverse.
RICO provides certain advantages to plaintiffs, but it also presents
substantial hurdles for plaintiffs to overcome to establish a proper claim. Of
specific concern on this appeal, RICO requires the plaintiff to prove that the
defendants committed at least two predicate acts (violations of criminal statutes
listed in RICO, 1961(1)) and that the plaintiff has suffered injury to his business
or property as a result of those predicate acts. Defendants have challenged
whether some of the acts alleged by Plaintiff are proper RICO predicate acts and
whether Plaintiff has alleged cognizable injury to his business or property.
We agree in part with Defendants. We hold that witness tampering in a
state-court proceeding is not a RICO predicate act. We also hold that although
extortion is a proper predicate act, a claim of extortion cannot be based on mere
abusive litigation. On the other hand, mail fraud and wire fraud are proper
predicate acts (a proposition not challenged by Defendants), and we hold that
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Plaintiff has adequately alleged that fraud injured his business or property. In
particular, Plaintiff had a property interest in a cause of action allegedly
prejudiced by the fraud; and restrictions on his competing with Defendants (which
allegedly were imposed by a fraudulently induced agreement) would constitute an
injury to his business. Finally, we reject Defendants contention that Plaintiffs
RICO claim must be dismissed as unripe.
BACKGROUND
Because the district court entered judgment on the pleadings
under Fed. R.
Estes v. Wyo.
Dept of Transp ., 302 F.3d 1200, 1203 (10th Cir. 2002). The complaint at issue is
Plaintiffs Revised Third Amended Complaint.
Plaintiff is a former employee of Defendant Engineered Laminates (EL).
EL was a general partnership between Joan Laminates, Inc., whose president is
Elkin McCallum, and KHI, Inc., whose president is Keith Illig. Excel Laminates,
Inc., Joan Fabrics, Inc., and Joan Automotive Industries, Inc., are successors,
agents, or transferees of EL. Illig is the president of Excel Laminates, Inc., and
McCallum is president of the other two companies.
After Plaintiffs employment with EL ended, Plaintiff began to compete
with EL. EL sued Plaintiff in Kansas state court on the ground that he was using
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F.3d 1220, 1223 (10th Cir. 1999), we will assume that Plaintiff has made such an
allegation.
Beginning in October 1994, EL transferred assets, employees, associates,
representatives, and business from [EL] to Excel Laminates and other entities
owned and controlled by Illig and McCallum, R., Vol. 1, Doc. 26, at 7-8,
19,
agreement in December 1997, failing to make the final two payments amounting
to $15,000.
Plaintiff brought suit in federal court, alleging RICO violations (a
substantive violation and a conspiracy) by Defendants and state-law claims of
breach of contract, fraud, unjust enrichment, and outrageous conduct. Federal
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jurisdiction over the lawsuit hinges on the adequacy of the RICO allegations. The
RICO allegations center on the state-court action, which Plaintiff contends was
filed without a sound basis in fact or law. He claims that Defendants gave or
suborned perjured testimony during discovery, prolonged the litigation, and then
settled the case with the intention of liquidating EL without its paying Plaintiff
the agreed-upon amount. He further claims that he settled in reliance on
fraudulent representations by Defendants and that he performed all his duties
under the settlement agreement.
Defendants moved for judgment on the pleadings. The district court
dismissed the RICO claims with prejudice and then declined to exercise
supplemental subject-matter jurisdiction over Plaintiffs state causes of action,
dismissing them without prejudice. Upon Plaintiffs motion for reconsideration,
the court modified its order slightly, but did not change the result. This appeal
followed.
DISCUSSION
We review de novo a ruling on a motion for judgment on the pleadings
under Fed. R. Civ. P. 12(c). As with a ruling under Fed. R. Civ. P. 12(b)(6), we
uphold a dismissal only when it appears that the plaintiff can prove no set
of facts in support of the claims that would entitle the plaintiff to relief.
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Mock v.
T.G. & Y. Stores Co. , 971 F.2d 522, 529 (10th Cir. 1992) (internal quotation
marks omitted).
RICO allows private parties to bring civil suits for treble damages.
18 U.S.C. 1964(c). To state a RICO claim, a plaintiff must allege that the
defendant violated the substantive RICO statute, 18 U.S.C.
1962, by setting
forth four elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity.
plaintiff has standing to bring a RICO claim only if he was injured in his business
or property by reason of the defendants violation of 1962.
at 1210.
The district court dismissed Plaintiffs RICO claims for lack of standing on
the ground that he had failed to allege the requisite injury. To determine whether
Plaintiff properly alleged an injury to his business or property, we first examine
the alleged predicate acts that purportedly caused the injury.
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Co., Inc. v. J. Lauritzen A/S , 751 F.2d 265, 267-68 (8th Cir. 1984);
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I.S. Joseph
Dias v.
Bogins , No. 97-1612, 1998 WL 13089, at **1 (1st Cir. Jan. 13, 1998)
(unpublished); G-I Holdings, Inc. v. Baron & Budd
, 726
F. Supp. 1083, 1093-97 (E.D. Mich. 1989) (lawsuit was component of the
extortion).
Extortion is the antithesis of litigation as a means of resolving disputes. To
promote social stability, we encourage resort to the courts rather than resort to
force and violence. Yet recognizing abusive litigation as a form of extortion
would subject almost any unsuccessful lawsuit to a colorable extortion (and often
a RICO) claim. Whenever an adverse verdict results from failure of the factfinder
to believe some evidence presented by the plaintiff, the adverse party could
contend that the plaintiff engaged in extortionate litigation. Comfortable that the
adjective wrongful in the extortion statute was not intended to apply to
litigation, we hold that Plaintiffs allegations of bad-faith litigation do not state
the predicate act of extortion.
That leaves the mail and wire fraud allegations as the only potential RICO
predicate acts pleaded by Plaintiff. The complaint describes the fraud (both mail
and wire) relating to the settlement agreement as follows: Defendant Illig made
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false and material representations in the form of one or more proposed settlement
agreements . . . promising payment over a four year period in order to induce
Plaintiff into accepting the settlement agreement. R., Vol. 1, Doc. 26, at 6,
16a. Before executing the settlement agreement, Illig and Defendant McCallum
had agreed to a plan wherein they would be able to liquidate [EL] without paying
its obligation to [Plaintiff],
and McCallum knew that EL would be unable to make payments over the four
years promised in the proposed settlement agreement.
concealed this information from Plaintiff,
upon [their] misrepresentations,
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Fargo AG Credit Corp ., 990 F.2d 1169, 1172 (10th Cir. 1993).
An additional wire fraud allegation is more straightforward. The complaint
states that in a December 11, 1997, telephone conversation Defendant Illig falsely
stated that EL no longer existed, thereby leading Plaintiff not to sue for breach of
contract while EL still had assets.
The mail fraud and wire fraud allegations in Plaintiffs complaint are
proper predicate acts. There may be a serious question whether the alleged
predicate acts could support the required finding of a
pattern of racketeering
activity; but Defendants have not raised that issue on appeal. We therefore turn
to their argument that Plaintiff failed to allege an injury to his business or
property.
Defendants argue extensively that Plaintiffs litigation costs in the original
proceeding brought in state court by EL do not constitute injuries to Plaintiffs
business or property. But we need not reach that issue, because the alleged
causes of those litigation costsDefendants alleged extortion and witness
tamperingare not, as explained above, RICO predicate acts. The alleged mail
fraud and wire fraud did not cause Plaintiff to incur litigation costs, so those costs
are not recoverable in Plaintiffs RICO action.
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With respect to the injuries allegedly caused by the mail and wire fraud,
however, we disagree with Defendants and hold that the injuries can properly be
characterized as injuries to business and property. The mail fraud allegedly
caused Plaintiff to enter into a settlement to which he would not otherwise have
agreed. As a result of the settlement, he relinquished claims he had against EL
and agreed not to compete with EL in certain ways.
In our view, both these alleged consequences of the settlement were
injuries to Plaintiffs business or property. The Supreme Court has held that a
cause of action is a species of property protected by the Fourteenth Amendments
Due Process Clause.
We agree with the Third Circuit that [a] cause of action, of course, is a form of
property, and when it arises out of the termination of a business, we think it is
not unfair to characterize conduct tending to impair it as business injury.
Malley-Duff & Assocs, Inc.. v. Crown Life Ins. Co.
1986). Likewise, fraud, as alleged in this case, that causes one to relinquish a
cause of action arising out of his business is an injury to business or property.
Plaintiff also claims a second cognizable injury resulting from the alleged
fraud. If, as he asserts, the fraudulently induced settlement agreement required
him to limit the extent to which he could compete with EL, then the fraud injured
his business, within the meaning of the term in RICO.
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Although Defendants argue that Plaintiff has not adequately alleged that his
injuries were proximately caused by Defendants predicate acts, their argument
does not appear to address the injuries to Plaintiffs cause of action against EL
and the injury to his opportunity to compete with EL. In any event, the
allegations are adequate with respect to causation of these injuries.
Turning to Plaintiffs additional wire fraud allegation, he alleges that the
false statement that EL no longer existed caused him to forego suing for breach of
the settlement agreement until ELs assets had been dissipated. This allegation
adequately states a RICO claim of injury to Plaintiffs propertyhis contractual
right to receive payments from EL.
Defendants respond, however, that this claim is not yet ripe and should be
dismissed because Plaintiff does not have a judgment regarding his breach of
contract claim, much less any evidence that the judgment went unsatisfied.
Aplee. Br. at 15. Defendants argument might be correct if Plaintiffs only alleged
injury were prejudice to his ability to collect damages for breach of contract.
Motorola Credit Corp. v. Uzan , 322 F.3d 130, 135-37 (2d Cir. 2003);
See
Lincoln
House, Inc. v. Dupre , 903 F.2d 845, 847 (1st Cir. 1990). But Plaintiff also
alleges injury from being fraudulently induced to enter into the settlement
agreementa settlement that required him to limit his competition with EL and to
dismiss his counterclaim against EL. Damages from that injury are not dependent
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on the Plaintiffs being unable to recover fully on his contract claim. Thus,
Plaintiffs RICO claim is ripe, even though some alleged damages may be too
speculative to recover before the contract claim is resolved.
CONCLUSION
We hold that we cannot affirm (on the grounds raised on appeal) the district
courts dismissal of Plaintiffs complaint. We REVERSE the judgment below and
REMAND for further proceedings consistent with this opinion.
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