En banc rehearing of panel decision, 843 F.2d 103 (1988), affirming a judgment of the United States District Court for the Southern District of New York, Robert W. Sweet, Judge, 650 F. Supp. 548 (1986), dismissing civil RICO complaint, see 18 U.S.C. § 1964(c), for failure to allege a sufficient pattern of racketeering activity. Held: allegation that defendants made fraudulent mailings to thousands of persons and that such mailings were likely to continue sufficed to allege a RICO "pattern."
Oakes, Chief Judge,*fn* Lumbard, Feinberg,*fn* Meskill, Newman, Kearse, Cardamone, Pierce, Winter, Pratt, Miner, Altimari, and Mahoney, Circuit Judges. Oakes, Circuit Judge (dissenting). Chief Judge Oakes dissents in a separate opinion, joined by Judge Lumbard and Judge Feinberg.
Plaintiffs Roslyn O. Beauford, et al., appeal from a final judgment of the United States District Court for the Southern District of New York, Robert W. Sweet, Judge, dismissing their amended complaint which sought damages from defendants for mailings of allegedly fraudulent materials relating to the sale of condominium apartments, in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. (1982 & Supp. IV 1986). The district court dismissed the amended complaint on the ground, inter alia, that it failed to state a claim upon which relief can be granted under RICO because it failed to allege a sufficient "pattern of racketeering activity," see id. § 1961(5). A unanimous panel of this Court affirmed the decision of the district court, but suggested that the appeal be "reheard en banc to clarify Second Circuit law." Beauford v. Helmsley, 843 F.2d 103, 110 (1988). On rehearing, we conclude for the reasons stated below and in United States v. Indelicato, 865 F.2d 1370 (" Indelicato "), heard en banc in tandem with the present case and published simultaneously herewith, that the amended complaint sufficiently alleged a pattern of racketeering activity. We therefore vacate the panel decision and the judgment of the district court and remand to the district court for further proceedings.
The present lawsuit, styled a class action, focuses on the conversion of a large Bronx, New York apartment complex known as "Parkchester" into condominiums. Parkchester comprises 51 buildings containing a total of 12,271 apartments; it is divided into the North, East, South, and West quadrants. It is principally the conversion of the East, West, and South quadrants ("EWS quadrants") that is at issue here.
Plaintiffs are one tenant of Parkchester who purchased his apartment and four tenants who did not. Defendants are the partners in Parkchester Apartments Co., which is the real estate partnership sponsoring the conversion, the sponsor's sales agent (all of the foregoing collectively referred to as the "sponsoring defendants"), and an engineering firm and an individual engineer (collectively the "engineering defendants") who supplied reports and studies as part of the conversion.
The amended complaint alleged that in connection with the offering plan for the conversion of the EWS quadrants, comprising 8,286 apartments, defendants made a number of material misrepresentations including the concealment of (a) serious structural defects in the buildings, (b) the presence of asbestos in their insulation, and (c) the need to replace their plumbing and electrical systems. The alleged means of concealment included material misstatements by the engineering defendants, failures to disclose by the sponsoring defendants, and absorption by the sponsoring defendants of certain repair costs in order to set forth artificially low maintenance levels for the apartments. Plaintiffs alleged that had they received accurate and complete information, their decisions whether or not to purchase condominiums would have been affected, and that defendants' frauds artificially inflated the purchase prices of the apartments.
In addition to alleging that defendants' conduct constituted common-law fraud, the amended complaint alleged that the frauds had been committed through the mailing of the conversion offering plans and plan amendments to tenants of all 8,286 apartments and to other potential buyers, in violation of 18 U.S.C. § 1341 (1982); that both the partnership itself and the defendants as a group constituted enterprises within the meaning of RICO, 18 U.S.C. § 1961(4); and that plaintiffs were entitled to recover under civil RICO, 18 U.S.C. § 1964(c).
In an opinion reported at 650 F. Supp. 548 (1986), the district court granted defendants' motion to dismiss the amended complaint for failure to state a federal claim on which relief could be granted because it failed to allege a pattern of racketeering activity. With respect to the RICO claim, the court stated as follows:
Even assuming that plaintiffs have adequately alleged fraud, they have failed to adequately allege a "pattern" of racketeering, despite their conclusory description of the fraud as "several distinct schemes to defraud" both potential buyers and partners and investors. All alleged misrepresentations appear in one document, the offering plan for condominium conversion. Even under the most liberal reading of "pattern," the defrauding of potential buyers of condominium units by individually mailing them copies of a single fraudulent document and failing to remedy the fraud in subsequent amendments does not constitute a pattern of racketeering activity.
Id. at 551. Having also dismissed plaintiffs' only other alleged basis for federal-question jurisdiction, and there being no claim of diversity of citizenship, the court also declined to entertain plaintiffs' pendent state-law claims.
The court denied plaintiffs' motion for leave to file a second amended complaint that would have added allegations that defendants had, inter alia, denied claims by tenants based on water damage; misallocated expenses from one quadrant to another; destroyed documents; lowered the levels of services in categories such as hot water, electricity, elevators, painting, landscaping, and central mall maintenance; failed to disclose purchases of supplies through a related company; and engaged in discriminatory enforcement of regulations against tenants. The court was unpersuaded that the proposed new allegations would cure the amended complaint's failure to allege a pattern of racketeering activity. Accordingly, judgment was entered dismissing the action.
On appeal, a panel of this Court affirmed the judgment of dismissal. We noted that the pattern of this circuit's RICO precedents was somewhat confusing, in that it had imposed a continuity requirement on the enterprise element and had
f[ound] insufficient evidence of continuity in a single criminal episode regardless of how many fraudulent acts it entails. In other words, a single criminal episode or scheme does not charge a claim under RICO because it lacks sufficient continuity to constitute an enterprise, even if its fraudulent acts constitute a pattern.
843 F.2d at 110. We concluded that given our precedents, the present case was properly dismissed for lack of a RICO enterprise, stating that "a single alleged scheme" to defraud tenants and other prospective buyers is not sufficient to permit a plaintiff to take advantage of RICO where the scheme, though "widespread," is "discrete," and, though "continuing," is "finite." Id.
The panel recommended that the appeal be reheard en banc to clarify Second Circuit law, and this rehearing was joined with an en banc rehearing of an appeal from a judgment of conviction in Indelicato, which raises a similar issue with regard to the RICO requirement of a "pattern" of racketeering activity. For the reasons stated below and in ...