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CONTINENTAL REALTY CORP. v. J.C. PENNEY

February 5, 1990

CONTINENTAL REALTY CORPORATION, PLAINTIFF,
v.
J.C. PENNEY COMPANY, INC., J.C. PENNEY PROPERTIES, INC., JCP REALTY INC. AND PHILIP L. O'CONNELL, DEFENDANTS.



The opinion of the court was delivered by: Sand, District Judge.

OPINION

The Defendants move this Court for an order dismissing the Amended Complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) and for failure to plead fraud with particularity pursuant to Fed.R.Civ.P. 9(b). Counts VIII and IX of the Amended Complaint allege violations of the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO"), 18 U.S.C. § 1961 et seq., and this Court's jurisdiction is based upon RICO and principles of pendent jurisdiction. We grant the Defendants motion to dismiss Counts VIII and IX of the Amended Complaint and therefore also dismiss this case for lack of subject matter jurisdiction.

Background

This dispute arises out of a real estate transaction gone sour. By a Letter of Intent dated August 27, 1987, JCP Realty, Inc. ("JCP Realty"), on behalf of J.C. Penney Company, Inc. ("JCP") and J.C. Penney Properties, Inc. ("JCP Properties"), agreed to sell to Continental Realty Corporation ("Continental") their interests in three shopping center properties located in Florida. Philip O'Connell, an officer of JCP Realty, subsequently represented to Continental in a letter dated September 24, 1987 that the agreed terms would be recommended to JCP's Capital Appropriations Committee and that the formal written contract was being prepared. Those steps, however, were never taken because the Defendants received a higher bid for the same properties from Home Depot, Inc. ("Home Depot").

Rather than completing the sale to Home Depot, the Defendants offered on February 11, 1988 to sell the Florida properties to Continental if Continental would also agree to purchase two additional properties in Georgia that Home Depot had agreed to purchase and if Continental would match Home Depot's bid of $22 million for the five properties. Continental agreed and offered $22.5 million for the Florida properties, the Georgia properties and another small parcel of undeveloped land in Georgia. However, even though the Defendants and Continental executed an Agreement of Purchase and Sale on June 3, 1988, the parties did not close their deal because a dispute arose as to the documents that would be needed to convey marketable title.

Continental alleges in its Amended Complaint that the Defendants had no intention of selling the Florida properties to Continental (¶ 26), that O'Connell falsely represented to Continental the competing bid from Home Depot to induce Continental to raise its bid and purchase additional property (¶¶ 32-34) and that the Defendants concealed information necessary to establish marketable title in order to "re-direct the contract to defendants' former employee and/or colleague, William Harris of Home Depot" (¶¶ 48-49). The Amended Complaint seeks damages for breach of contract, fraud, tortious interference with contract, unjust enrichment and violations of § 1962(c) and (d) of RICO.

RICO Claims

We agree with the Defendants that the Amended Complaint does not allege a pattern of racketeering activity as required by H.J. Inc. v. Northwestern Bell Tel. Co., ___ U.S. ___, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989), United States v. Kaplan, 886 F.2d 536 (2d Cir. 1989), United States v. Indelicato, 865 F.2d 1370 (2d Cir. 1989) (en banc), cert. denied, ___ U.S. ___, 110 S.Ct. 56, 107 L.Ed.2d 24 (1989), and Beauford v. Helmsley, 865 F.2d 1386 (2d Cir. 1989) (en banc), vacated for further consideration, ___ U.S. ___, 109 S.Ct. 3236, 106 L.Ed.2d 584 (1989), upheld by order of Sept. 15, 1989. "To establish a RICO pattern it must also be shown that the predicates themselves amount to, or that they otherwise constitute a threat of, continuing racketeering activity." H.J. Inc., 109 S.Ct. at 2901 (emphasis in original). Because the allegations in the Amended Complaint do not indicate sufficient continuity or threat of continuity, the RICO claims are dismissed.

In H.J. Inc., the Supreme Court recently examined RICO's pattern requirement and elaborated on its definition:

  Congress had a more natural and commonsense
  approach to RICO's pattern element in mind,
  intending a more stringent requirement than proof
  simply of two predicates, but also envisioning a
  concept of sufficient breadth that it might
  encompass multiple predicates within a single
  scheme that were related and that amounted to, or
  threatened the likelihood of, continued criminal
  activity.

H.J. Inc., 109 S.Ct. at 2899. "Continuity" is "centrally a temporal concept" that can "refer[ ] either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." Id. at 2902 (citations omitted). "A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time." Id. Alternatively, "the threat of continuity may be established by showing that the predicate acts or offenses are part of an ongoing entity's regular way of doing business." Id. While its opinion offers these broad guidelines, the Supreme Court declined to provide a firm definition of the continuity requirement, noting that the proof required will depend on the specific facts of each case. Id.

The Second Circuit in Kaplan, reaffirming its earlier decision in Indelicato, held that continuity or threat of continuity can be shown by either related predicate acts extending over a long time period or by reference to external facts that indicate that the Defendant's activities are not "isolated" or "sporadic." Kaplan, 886 F.2d at 542-43. Those external facts can be the nature of the RICO enterprise, such as an entity whose business is racketeering, or other facts that indicate that the racketeering acts will continue. Id. While Plaintiffs are no longer required to allege "an ongoing scheme having no demonstrable ending point, . . . [w]hat is required is that the complaint plead a basis from which it could be inferred that the acts of racketeering activity were neither isolated nor sporadic." Beauford, 865 F.2d at 1391.

Other Circuits have identified several factors for assessing threat of continuity. See Jones v. Lampe, 845 F.2d 755, 757 (7th Cir. 1988) ("(1) the number and variety of predicate acts and the length of time over which they were committed; (2) the number of victims; (3) the presence of separate schemes; and (4) the occurrence of distinct injuries"); Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36, 39 (3d Cir. 1987) ("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"); see also Airlines Reporting Corporation n. AERO Voyagers, Inc., 721 F. Supp. 579 (S.D.N.Y. 1989) (collecting other cases).

In this case, Continental alleges that the Defendants committed several acts of mail and wire fraud over a period of more than one year in furtherance of a scheme to defraud them. Amended Complaint ΒΆ 65(a), 65(b). Continental also alleges ...


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