Appeal from judgment of the United States District Court for the Eastern District of New York, Leonard D. Wexler, Judge, dismissing civil RICO claim for lack of sufficient pattern of racketeering activity. Cross-appeal from court's refusal to impose sanctions against plaintiffs under Fed. R. Civ. P. 11. Affirmed.
Lumbard, Kearse, and Altimari, Circuit Judges.
Plaintiffs Creative Bath Products, Inc. ("Creative Bath"), Mathias Meinzinger and Gunther Bartsch appeal from so much of a final judgment of the United States District Court for the Eastern District of New York, Leonard D. Wexler, Judge, as summarily dismissed their amended complaint for failure to assert a claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (1982 & Supp. IV 1986) ("RICO"). The court dismissed plaintiffs' RICO claim for lack of a sufficient pattern of racketeering activity, see 18 U.S.C. § 1961(5), and dismissed their pendent state-law claims for lack of subject matter jurisdiction. Defendants Connecticut General Life Insurance Company ("Connecticut General") and Robert Ferina cross-appeal from so much of the judgment as denied their motion to sanction plaintiffs pursuant to Fed. R. Civ. P. 11. For the reasons below, we affirm.
Plaintiffs commenced the present action in 1985, alleging that they had purchased four life insurance policies from Connecticut General through Ferina, a licensed insurance agent. As finally amended, the complaint alleged that, in selling the policies to plaintiffs, Ferina made three false representations: (I) he falsely assured the plaintiffs that the policies could be returned at any time without penalty; (2) he inserted in the application for the insurance policies a statement that the new policies were not replacing older policies, knowing that statement to be false, and allowed the application to be processed through the mails and wires; and (3) he told the plaintiffs in writing that their policies would have a substantial cash surrender value at the end of the first year, when in fact the policies would have no real cash surrender value. Plaintiffs alleged conclusorily that defendants had also used the mails and wires in making fraudulent misrepresentations to other insureds. Discovery revealed, inter alia, that Meinzinger and Bartsch were partners in Creative Bath and another company and that the life insurance policies in question had been purchased by the companies and insured the lives of the partners in favor of the companies.
Following discovery, defendants moved to dismiss the amended complaint pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(6), and 56, on the ground that plaintiffs' allegations and the evidence unearthed during discovery failed to demonstrate that defendants had engaged in the pattern of racketeering activity required to sustain a civil RICO claim. Defendants also moved for sanctions pursuant to Rule 11 on the ground, inter alia, that the attempted assertion of a civil RICO claim was frivolous. Plaintiffs argued that the motion to dismiss should be denied either because the three alleged misrepresentations to the plaintiffs constituted a sufficient RICO pattern or because defendants had engaged in more than one scheme to defraud insurance buyers. In support of the latter contention, plaintiffs proffered Connecticut General worksheets used in connection with insurance policies written for other persons and argued that defendants had also made fraudulent misrepresentations, by statement and material omission, to these other insurance buyers.
In a Memorandum and Order dated April 17, 1987, the district court granted defendants' motion to dismiss, finding that plaintiffs had "failed adequately to support their claim that defendants engaged in a pattern of improper activities in the sale of insurance policies." Id. at 4. The court found that plaintiffs had not adequately shown more than a single scheme since the documents submitted by plaintiffs, purporting to demonstrate that defendants had also defrauded others, did not reflect affirmative misrepresentations and were not required to be complete as to all details of the insurance; the court found that the allegedly omitted information was revealed in the policies themselves. It also rejected plaintiffs' principal contention, ruling that the "three supposedly fraudulent actions taken during the course of a single 'scheme' involving a single transaction, namely, the sale of life insurance policies to Meinzinger and Bartsch, cannot justifiably be deemed to satisfy RICO's requirement that there be a 'pattern' of racketeering activity." Id. at 3.
Having ruled that the complaint failed to state a claim under RICO, which was the only basis for federal jurisdiction, the court also dismissed plaintiffs' pendent state-law claims. The court denied defendants' Rule 11 motion sub silentio and ordered each side to bear its own costs of the lawsuit.
Plaintiffs have appealed the dismissal of their complaint, arguing that even if the complaint reveals but one scheme, a finding with which they disagree but do not argue, the commission of three fraudulent acts in furtherance of a single scheme suffices to meet RICO's requirement of a "pattern" of racketeering acts. Defendants have cross-appealed the denial of sanctions.
We conclude that this Court's RICO decisions require affirmance of the dismissal and that the district court did not abuse its discretion in denying the motion for sanctions.
In Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 495-96, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985), the Supreme Court explored the contours of RICO's requirement of a pattern of racketeering activity. The court stated, inter alia, that the legislative history of RICO supported 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 ...