No RICO Continuity Where Predicates Are Part of Single, Otherwise Lawful Transaction — Outside Lawyers Don’t Operate / Manage Client — No Liability for Routine Legal Services — Contract Claim in RICO Garb (Good Quotes)

Zastrow v. Houston Auto Imports Greenway Ltd., 2015 U.S. App. LEXIS 9918 (5th Cir. June 12, 2015):

Plaintiffs-Appellants Mark Zastrow and his company Heights Autohaus (collectively, "Zastrow") appeal from the district court's grant of summary judgment on their claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, and 42 U.S.C. §§ 1981 and 1982. For the reasons to be explained, we AFFIRM the district court's judgment on Zastrow's civil RICO claim and § 1982 claim, but VACATE its judgment on Zastrow's retaliation claim under § 1981 and REMAND the case for further proceedings consistent with this opinion.

I.

Zastrow owns Heights Autohaus, an automobile repair shop that performs mechanical repairs on German cars. Zastrow previously purchased all of his Mercedes-Benz parts from Houston Auto M. Imports, Ltd. d/b/a Mercedes-Benz of Houston Greenway ("Mercedes Greenway") at a 25% discount. In September of 2012, Zastrow's customer and attorney in this action, Reginald E. McKamie, Sr., brought Zastrow a 2006 Mercedes-Benz CLK ("CLK") to inspect. Unbeknownst to Zastrow at the [*2]  time, the vehicle was the subject of a lawsuit against Mercedes Greenway that had been compelled to arbitration. The plaintiffs in that suit, Jesse Howard and JoAnn Jefferson-Howard (collectively, the "Howards"), also represented by McKamie, alleged that the CLK that Mercedes Greenway sold them was defective, and asserted claims against the dealership for fraud, negligence, breach of contract, breach of warranty, breach of fiduciary duty, credit discrimination, and racial discrimination and retaliation.

Zastrow inspected the CLK and discovered a number of mechanical problems with the vehicle. McKamie then asked Zastrow if he would testify as an expert witness in the Howards' lawsuit and Zastrow agreed. Zastrow's deposition was scheduled for January 8, 2013. Zastrow alleges that on January 7, 2013, he received a phone call from a Mercedes Greenway employee advising him not to sit for the deposition and warning him that he would regret it. Zastrow, however, appeared for the deposition and testified about his inspection of the vehicle. On January 9, 2013, the day after his deposition, Zastrow received a phone call from the same Mercedes Greenway employee, who then informed Zastrow that [*3]  Mercedes Greenway would no longer sell parts to him.

The final arbitration hearing began the following week on January 14 and concluded on January 17, 2013. On January 14, Mercedes Greenway's counsel, George A. Kurisky, Jr., mailed Zastrow a letter on behalf of Mercedes Greenway formally severing the dealership's business relationship with Zastrow because of his deposition testimony.1 Zastrow did not testify at the arbitration hearing and was unaware it was taking place. His deposition testimony, however, was read to the arbitrator.

1 The letter from Kurisky stated, in relevant part: "Pursuant to your expert testimony in the above-referenced matter, this correspondence will serve as notice that Mercedes-Benz of Houston Greenway is terminating their relationship with Heights Autohaus, effective immediately."

On January 23, 2013, McKamie sent the arbitrator a letter captioned "Notice of Retaliation Against Witness in Discrimination Suit and Intent to Sue." On March 4, 2013, Zastrow filed the instant lawsuit naming as defendants Mercedes Greenway, Kurisky, and Kurisky's law firm, Johnson, Deluca, Kurisky & Gould, P.C. Although Zastrow propounds a potpourri of legal theories, the gravamen of his complaint is that Mercedes Greenway threatened him to prevent him from testifying and then, with the assistance of Kurisky, retaliated against him by refusing to sell him auto parts after he gave [*4]  his deposition. The district court granted summary judgment to defendants on all claims, and Zastrow appealed the judgment as to his claims under RICO and 42 U.S.C. §§ 1981 and 1982.

II.

We review a district court's grant of summary judgment de novo, applying the same legal standard as the district court. Performance Autoplex II Ltd. v. Mid-Continent Cas. Co., 322 F.3d 847, 853 (5th Cir. 2003) (per curiam). Summary judgment is appropriate only if, interpreting all facts and drawing all reasonable inferences in favor of the non-moving party, "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

Where a summary judgment motion mounts challenges solely to the sufficiency of a plaintiff's pleadings, we review those challenges under a motion to dismiss standard. Ashe v. Corley, 992 F.2d 540, 544 (5th Cir. 1993). Under this standard, "[t]he plaintiff must plead enough facts to state a claim to relief that is plausible [*5]  on its face." Gines v. D.R. Horton, Inc., 699 F.3d 812, 816 (5th Cir. 2012) (internal quotation marks omitted). "We accept all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." Id. (alteration and internal quotation marks omitted).

III.

Zastrow first argues that the district court erred in granting summary judgment to defendants on his civil RICO claim. A civil plaintiff has standing to sue under RICO if he has been "injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c). Zastrow brought his claim under § 1962(c), which we have distilled to mean that "a person who is employed by or associated with an enterprise cannot conduct the enterprise's affairs through a pattern of racketeering." In re Burzynski, 989 F.2d 733, 741 (5th Cir. 1993) (per curiam). To succeed on his claim, Zastrow must provide evidence of the existence of "1) a person who engages in 2) a pattern of racketeering activity, 3) connected to the acquisition, establishment, conduct, or control of an enterprise." Id. (internal quotation marks omitted).

"Racketeering activity" means any of the predicate acts specified in § 1961(1). Zastrow alleges that defendants obstructed justice in violation of 18 U.S.C. § 1503 by attempting to intimidate him to prevent him from giving deposition testimony and testifying at the arbitration hearing.3 As relevant here, that statute makes it a criminal offense to "corruptly or by threats or force, or by any threatening letter or communication . . . . endeavor[] to influence, obstruct, or impede, the due administration of justice." 18 U.S.C. § 1503(a).4 In support of his claim, Zastrow identifies three purported criminal actions by defendants: (1) the January 7 phone call from Mercedes Greenway warning him not to testify; (2) the January 9 phone call from Mercedes Greenway informing Zastrow that it would no longer sell him auto parts; and (3) the January 14 letter from Kurisky officially ending Mercedes Greenway's business relationship with Zastrow because of his deposition testimony.

3 To the extent that Zastrow also purports to raise an independent claim under 18 U.S.C. § 1503 itself, this claim fails because "§ 1503 is a criminal statute that does not provide for a private cause of action." Forsyth v. Humana, Inc., 114 F.3d 1467, 1482 (9th Cir. 1997), overruled in part on other grounds by Lacey v. Maricopa Cnty., 693 F.3d 896, 928 (9th Cir. 2012) (en banc); accord Hanna v. Home Ins. Co., 281 F.2d 298, 303 (5th Cir. 1960).

4 The government must establish three elements to prove an obstruction of justice violation under § 1503: "(1) there must be a pending judicial proceeding; (2) the defendant must have knowledge or notice of the pending proceeding; and (3) the defendant must have acted corruptly with the specific intent to obstruct or impede the proceeding in its due administration of justice." United States v. Williams, 874 F.2d 968, 977 (5th Cir. 1989) . An "arbitration is not a judicial proceeding," Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 222 (1985), and thus there is some question as to whether an arbitration compelled by a district court satisfies the first element of § 1503. Because Zastrow's RICO claim fails on other grounds and defendants did not raise this objection, we assume without deciding that the arbitration at issue qualifies as a judicial proceeding under § 1503.

A.

Zastrow's claim fails initially because he cannot show the "pattern of racketeering [*7]  activity" required to prosecute a civil RICO claim. A pattern of racketeering activity "consists of two or more predicate criminal acts that are (1) related and (2) amount to or pose a threat of continued criminal activity." Abraham v. Singh, 480 F.3d 351, 355 (5th Cir. 2007) (internal quotation marks omitted).

First, Zastrow has, at best, identified only a single predicate act under § 1503: the January 7 phone call. Although he attempts to squeeze all three of defendants' actions under § 1503, an obstruction of justice statute, it is clear that the phone call and letter terminating Mercedes Greenway's business relationship with Zastrow were not attempts "to obstruct or impede the proceeding," United States v. Williams, 874 F.2d 968, 977 (5th Cir. 1989), but, as Zastrow claims in his briefing, "retaliatory in nature." (emphasis added). That is, Mercedes Greenway's termination of dealings with Zastrow cannot be construed as threats to prevent his live testimony in the arbitration hearing because there was no threat of further penalty-the dealership unequivocally terminated its business with Zastrow because of his deposition testimony, it did not make future dealings contingent on his absence at the hearing (or indicate in any way that it would reconsider its decision if Zastrow did not testify).

Witness retaliation is a separate crime covered by 18 U.S.C. § 1513, the violation of which also qualifies as a predicate act under RICO. 18 U.S.C. § 1961(1). Defendants' [*9]  purported misconduct, however, clearly does not fall under this statute (and Zastrow does not argue that it does). See 18 U.S.C. § 1513(a)-(b) (prohibiting killing, causing bodily injury, or damaging the tangible property of another person, or threatening to do so, with the intent to retaliate against a witness); id. § 1513(e) (prohibiting the "interference with the lawful employment or livelihood of any person[] for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense"). Thus, even assuming the validity of Zastrow's theory that threatening to sever a voluntary business relationship constitutes obstruction of justice under § 1503,5 only Mercedes Greenway's initial phone call warning Zastrow not to testify would qualify as a predicate act under RICO.

Moreover, even assuming that the two phone calls and the letter constitute three predicate acts under § 1503, Zastrow would still fail to satisfy the continuity requirement. "To establish continuity, plaintiffs must prove 'continuity of racketeering activity, or its threat.'" Word of Faith World Outreach Ctr. Church, Inc. v. Sawyer, 90 F.3d 118, 122 (5th Cir. 1996) (quotingH.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 241 (1989)). "This may be shown by either [*10]  a closed period of repeated conduct, or an open-ended period of conduct that 'by its nature projects into the future with a threat of repetition.'" Id. (quoting H.J. Inc., 492 U.S. at 241). Continuity over a closed period requires proof of "a series of related predicates extending over a substantial period of time." H.J. Inc., 492 U.S. at 242. "Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement . . . ." Id. Continuity over an open period requires "a threat of continued racketeering activity." Id. This may be established where the predicate acts "themselves involve a distinct threat of long-term racketeering activity" or "are part of an ongoing entity's regular way of doing business." Id. at 242-43.

The alleged witness intimidation and retaliation were committed within one week and were directed towards, at most, two discrete events: Zastrow's deposition and his possible testimony at the arbitration hearing. "[W]here alleged RICO predicate acts are part and parcel of a single, otherwise lawful transaction, a 'pattern of racketeering activity' has not been shown." Word of Faith, 90 F.3d at 123. We have held that, where all of the alleged predicate acts took place in the context of defending a lawsuit, the unlawful conduct "did not constitute or threaten long-term criminal activity." Burzynski, 989 F.2d at 742-43 (dismissing civil RICO claims because multiple acts of alleged mail and wire fraud were committed in an "otherwise lawful" defense of a lawsuit that was "now over"). As in Burzynski, the alleged predicate acts here were committed in the context of Mercedes Greenway's defense of a lawsuit. Zastrow cannot credibly argue that obstructing justice is part of defendants' regular way of doing business or that their purported attempts to intimidate him create a threat of long-term racketeering [*12]  activity. The entirety of Zastrow's claim is that Mercedes Greenway refused to sell him parts after he served as an expert witness against the dealership in an arbitration. Any argument that Mercedes Greenway's business decision threatens long-term criminal activity is frivolous. Thus, Zastrow has not shown that defendants' alleged predicate acts amount to or constitute a threat of continuing racketeering activity.

B.

Finally, even if Zastrow had produced evidence of a pattern of racketeering activity, he has not demonstrated the existence of an enterprise.  Zastrow argues that he has properly pled an "association-in-fact" enterprise6 between Mercedes Greenway, Kurisky, and his law firm,7 and points to the allegation in his complaint that "[defendants] in combination agreed to engage in unlawful acts of obstructing, impeding or influencing the due administration of justice by communicating by telephone and later threatening letter to a witness in an arbitration hearing in violation of 18 U.S.C. § 1503." "An enterprise is a group of persons or entities associating together for the common purpose of engaging in a course of conduct." [*13]  Whelan v. Winchester Prod. Co., 319 F.3d 225, 229 (5th Cir. 2003). An association-in-fact enterprise "must have an ongoing organization or be a continuing unit, such that the enterprise has an existence that can be defined apart from the commission of the predicate acts." Montesano v. Seafirst Commercial Corp., 818 F.2d 423, 427 (5th Cir. 1987). Construed generously, Zastrow's complaint alleges an enterprise created by the alleged racketeering activity itself. This is obviously not sufficient to plead the existence of an enterprise "separate and apart from the pattern of racketeering activity in which it engages." Whelan, 319 F.3d at 229.

6 The RICO statute defines an enterprise as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4).

7 Zastrow also summarily states that "[Mercedes] Greenway fits the definition of an enterprise on its own." However, § 1962(c) "requires that the RICO person be distinct from the RICO enterprise," St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 445 (5th Cir. 2000), and thus Zastrow could not proceed against the dealership if it alone is the enterprise. To the extent that Zastrow would be content to continue on against Kurisky and his law firm, he would be unable to do so because—in addition to the litany of other reasons described above—they did not "participate in the operation or management of the enterprise." Reves v. Ernst & Young, 507 U.S. 170, 185 (1993) ("[W]e hold that 'to conduct or participate, directly or indirectly, in the conduct of such enterprise's [*14]  affairs,' § 1962(c), one must participate in the operation or management of the enterprise itself."); see RSM Prod. Corp. v. Freshfields Bruckhaus Deringer U.S. LLP, 682 F.3d 1043, 1051 n.7 (D.C. Cir. 2012) (stating that "[t]he circuit courts of appeals have declined to extend RICO liability under § 1962(c) to an attorney's provision of routine legal services" and listing cases).

The district court properly granted summary judgment on Zastrow's breach of contract claim dressed in civil RICO garb.

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