RICO — No Closed-Ended Continuity If Only One Victim, Even If Acts Committed over Long Period of Time — No Open-Ended If Scheme Has a Clear and Terminable Goal (Which, Here, Was Achieved)

Daedalus Capital LLC v. Vinecombe, 2015 U.S. App. LEXIS 15808 (11th Cir. Sept. 4, 2015):

Appellants Daedalus Capital, LLC (Daedalus) and Lockwood Technology Corporation (LTC) appeal the district court's order granting partial summary judgment in favor of Appellees Bradford Vinecombe (Vinecombe), former president of LTC; Bruno Riegl (Riegl), former employee of LTC; Adam and Eric Vinecombe, former employees of LTC and Vinecombe's sons; Lockwood Worldwide, Inc. (LWW), and Swiftsure Group, LLC (Swiftsure). Appellants argue the district court erred in granting summary judgment as to their counts based on (1) violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. §§1962(c) and 1964, as well as Florida's Civil Remedies for Criminal Practices Act (the Florida RICO Act), Fla. Stat. § 772.103(3)-(4); (2) fraud; (3) civil conspiracy; (4) breach of fiduciary duty; and (5) aiding and abetting breach of fiduciary duty.1 For the reasons below, we affirm.2

1 More specifically, the district court granted partial summary judgment against Appellants on their claims of (1) federal RICO, (2) federal RICO conspiracy, (3) Florida RICO, (4) Florida RICO conspiracy, (5) fraud in the inducement, (6) common law fraud, (7) civil conspiracy, (8) aiding and abetting breach of fiduciary duty, and (9) breach of fiduciary duty. The analysis is the same with respect to each of the four RICO-based claims and with respect to both fraud-based claims. For clarity purposes, we discuss the four RICO-based claims collectively, as well as the two fraud-based claims.

2 After the district court granted partial summary judgment against all of Appellants' federal claims, all that remained were some state law claims. On November 14, 2014, the district [*3]  court entered a final order dismissing the remaining state law claims without prejudice for lack of subject matter jurisdiction and closing the case. Appellants timely appealed both orders. Because we affirm the district court's order granting partial summary judgment, we also affirm its order dismissing the remaining state law claims.

I. BACKGROUND

Vinecombe created LTC in 1994. LTC originally performed two services: (1) selling and developing asset tracking [*2]  software and (2) providing asset tracking services, such as physical inventory services. In 2003, Vinecombe created LWW. Vinecombe's intention in creating LWW was to give the business to his sons Adam, Eric, and Craig. His plan was for LWW to take over the physical inventory services, while LTC would continue developing and selling asset tracking software. LTC and LWW shared office space and often worked together on projects.

On May 8, 2009, Vinecombe entered into a stock purchase agreement with Daedalus. Under the stock purchase agreement, Vinecombe sold 100% of LTC's preferred stock, convertible into a 70% ownership interest in LTC, to Daedalus for a purchase price of $1,250,000. Of the purchase price, $250,000 was paid to Vinecombe and the remaining $1,000,000 was invested in LTC. After the transaction, Vinecombe retained a 30% ownership interest in LTC and remained President and CEO of the company. In conjunction with the stock purchase agreement, Vinecombe and Riegl also entered into two-year employment agreements with LTC.

On May 29, 2009, Vinecombe, as President of LTC, and his son Adam, as president of LWW, executed a Teaming Agreement. By its terms, the Teaming Agreement [*4]  was an "independent contractor teaming agreement." The agreement provided: "The rights, responsibilities and obligations of the parties shall be deemed to be independent contractors; one party cannot bind the other, and the employees of one party shall not be deemed to be employees of another party." The Teaming Agreement allowed one party to resell the services of the other party under their own individual contracts, or for the parties to jointly bid on project proposals.

In 2009, 2010, and 2011, LTC contracted with the Connecticut State Colleges and Universities (ConnSCU). LTC also contracted with a company called EMC in 2008 and 2010. LWW performed physical inventory work on these projects under the LTC contracts. EMC and ConnSCU sent checks to LTC for payment. The checks were made payable to LTC. Each check was endorsed "Lockwood" and deposited directly into LWW's bank account.

Near the end of 2010, LTC began running low on funds. Ken Baritz (Baritz), a managing member of Daedalus, and Vinecombe discussed several options for the company. These options included (i) immediately shutting down LTC, (ii) terminating a software engineer, [*5]  or (iii) having Daedalus invest more money in LTC to give the company a chance to get by while Baritz searched for another investor. Baritz agreed Daedalus would invest another $100,000 in LTC if Vinecombe and Reigl would agree to defer half of their salaries during that time period, to which they agreed.

In early 2011, an inquiry was received from Qatar University (QU) regarding LTC's asset tracking software. This agreement culminated in a three-phase asset management project that included use and integration of LTC's asset tracking software. LWW paid LTC $100,000 for the use of LTC's asset tracking software on December 30, 2011.

Riegl resigned from LTC on April 30, 2011. Around that time, Riegl and Vinecombe traveled to Qatar to begin the QU Project and were paid for their work by LWW.

In April 2011, Daedalus entered into a stock purchase agreement with Infrax Systems (Infrax). Under this agreement, Daedalus received $1,650,000 worth of stock in Infrax and warrants to buy 660,000 additional shares of Infrax stock. In exchange, Infrax took control of LTC. Vinecombe resigned as president of LTC on June 3, 2011, but agreed to continue [*6]  helping LTC as an independent contractor.

On March 1, 2013, Appellants Daedalus and LTC sued Appellees Vinecombe, Riegl, Adam, Eric, LWW, and Swiftsure alleging, in short, they were unlawfully targeted and defrauded of their property.

II. STANDARD OF REVIEW

We review a district court's grant of summary judgment de novo, construing all inferences in favor of the nonmoving party. Leigh v. Warner Bros., 212 F.3d 1210, 1214 (11th Cir. 2000). Summary judgment is appropriate only when there are no genuine issues of material fact. Id.

III. DISCUSSION

1. Federal and State RICO

The district court did not err in granting summary judgment on Appellants' federal and state RICO counts. To prove a RICO violation under both federal and Florida law, a plaintiff must establish, among other things, "continuity." See Jackson v. BellSouth Telecomm., 372 F.3d 1250, 1264 (11th Cir. 2004) (explaining that, in addition to showing two or more related predicate acts, federal RICO plaintiffs must show "the predicate acts demonstrate[] criminal conduct of a continuing nature"); Lugo v. State, 845 So. 2d 74, 99 (Fla. 2003) (explaining Florida RICO plaintiffs must establish "that a continuity of particular criminal activity exists"). There are two types of continuity that may establish a RICO claim: closed-ended continuity and open-ended [*7]  continuity. H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 241 (1989). Closed-ended continuity refers to "a closed period of repeated conduct." Id. Open-ended continuity refers to "past conduct that by its nature projects into the future with a threat of repetition." Id.

Appellants cannot establish either form of continuity. They cannot show closed-ended continuity because there is only one victim, LTC, and "only a single scheme with a discrete goal" connecting the predicate acts-i.e., Appellees' alleged scheme to divert business proceeds from LTC to LWW and themselves. See Jackson, 372 F.3d at 1267 ("[W]here the RICO allegations concern only a single scheme with a discrete goal, the courts have refused to find a closed-ended pattern of racketeering even when the scheme took place over longer periods of time."); Sil-Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1516 (10th Cir. 1990) (affirming dismissal of RICO claim when a "closed-ended series of predicate acts . . . constituted a single scheme to accomplish one discrete goal, directed at one individual with no potential to extend to other persons or entities" (quotations omitted)).

Nor can they show open-ended continuity because there is no threat of continuing criminal activity. See Jackson, 372 F.3d at 1265 ("In 'open-ended' cases that rely on alleging the [*8]  threat of continuity, plaintiffs can meet their burden by establishing either that the racketeering acts themselves include a specific threat of repetition extending indefinitely into the future, or that the predicate acts or offenses are part of an ongoing entity's regular way of doing business." (quotations omitted)). We agree with the district court "[t]here is no threat that [Appellees'] alleged pattern of racketeering activity will continue into the future because their goal has been realized in the acquiring of the QU Project, and there is no longer a working relationship between the two companies giving rise to the opportunity for Defendants' pattern of predicate acts to persist into the future." See also Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 782 (7th Cir. 1994) ("In assessing whether a threat of continued racketeering activity exists, we have made clear that schemes which have a clear and terminable goal have a natural ending point. Such schemes therefore cannot support a finding of any specific threat of continuity that would constitute open-ended continuity.").

Accordingly, the district court did not err in granting summary judgment to Appellees on the federal and Florida RICO counts.

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