United States District Court, Southern District of New York
February 5, 1990
CONTINENTAL REALTY CORPORATION, PLAINTIFF,
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.
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.
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.
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.
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
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 ¶ 65(a), 65(b). Continental also alleges that
Defendants are likely to continue their fraudulent conduct:
(c) The aforesaid fraudulent acts of defendants
threaten to continue, in that (i) the
aforementioned personal relationships continue to
promote and advance the same by providing
defendants with a "competing bidder" in a variety
of real estate transactions, which bidder has no
bona fide interest in actually purchasing the
property in question, but only acts to fraudulently
inflate the price of the property being offered by
defendants, (ii) upon information and belief,
defendants have continued and continue to negotiate
with third parties, including Home Depot, regarding
the sale of the Property, (iii) the Property has
not been sold to Home Depot, notwithstanding
Sellers' failure to close sale of the Property with
plaintiff upon terms represented to be "identical"
to those allegedly offered by Home Depot, and (iv)
defendants' fraudulent actions in subverting the
Second Agreement [Agreement of Purchase and Sale
dated June 3, 1988] by concealing, failing to
disclose and withholding information relating to
title to the Property were and are of a kind and
nature readily susceptible to continuing
Amended Complaint, ¶ 65(c). Assuming that these allegations are
true, as we must on a motion to dismiss, they fail to satisfy
the continuity prong of RICO's pattern requirement. Defendant's
actions were narrowly directed toward a single allegedly
fraudulent goal. The scheme involved one victim (Continental),
one group of perpetrators (the Defendants) and a limited goal
(fraud and breach of contract in one real estate transaction).
If we treat the facts pleaded as alleging a closed-ended
scheme, the Defendants fraudulent acts occurred over too short
a time period to constitute the "long-term criminal conduct"
required by H.J. Inc. H.J. Inc., 109 S.Ct. at 2902 ("Predicate
acts extending over a few weeks or months and threatening no
future criminal conduct do not satisfy this requirement"); see
Airlines Reporting Corp., 721 F. Supp. at 585 (thirteen months
While Continental's allegations on their face also support
an open-ended scheme, nothing in the Defendants' actions
suggest "a distinct threat of long-term racketeering activity,
either implicit or explicit." H.J. Inc., 109 S.Ct. at 2902.
Continental fails to provide any factual support for its
contention that the Defendant's fraudulent activity will
continue in the future. None of its four allegations in
paragraph 65(c) of the Amended Complaint provide any factual
basis for a finding of continuity or threat of continuity.
Other than Continental's bare allegation, there is no reason to
believe that Home Depot will continue to provide dummy bids for
the Defendants in other real estate transactions. The fact that
the Defendants continue to seek a buyer for the same property
only provides the opportunity for future fraud, but does not
provide any evidence for its likelihood. The failure to sell
these properties to Home Depot only provides evidence of the
past fraud and again opportunity for future fraud.
Continental's final allegation also provides no factual support
for believing that the Defendants will continue to enter into
real estate contracts with the intent of concealing of failing
to deliver marketable title to those properties.
Continental does not allege that Defendants previously
engaged in similar acts, and allegations of future
opportunities to commit fraud are not sufficient to support a
finding of continuity or threat of continuity. Continental's
conclusory allegations fail to satisfy Fed.R.Civ.P. 9(b)'s
requirement that averments of fraud be stated with
particularity and therefore cannot be relied upon to
demonstrate a continuing pattern of fraudulent acts. See
Menasco, Inc. v. Wasserman, 886 F.2d 681, 685 (4th Cir. 1989)
("If the pattern requirement has any force whatsoever, it is to
prevent this type of ordinary commercial fraud from being
transformed into a federal RICO claim"). While any threat of
continuity is by its nature hypothetical, to infer a threat of
repeated fraud from a single alleged scheme would in effect
render the pattern requirement meaningless. Continental offers
no more than its unsupported belief that the Defendants will
continue to commit
fraud. There is no evidence that would permit this Court to
conclude that the Defendants committed anything other than
isolated or sporadic criminal acts.
In its once-amended complaint, Continental has failed to
plead facts indicating that the Defendants' conduct was
sufficiently continuous, or presents a sufficient threat of
continuity, to establish a "pattern of racketeering activity."
We grant the Defendants' motion to dismiss Claims VIII and IX
of the Amended Complaint. We also dismiss this case for lack
of subject matter jurisdiction over the remaining pendent
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