RICO: In Determining Whether Pattern Stated against a Defendant, Court Considers Only Alleged Offenses That Defendant Was Involved in — Continuity: Relevant Period Is When Predicates Occurred, Not Duration of Scheme

Sterling Nat’l Mortg. Co. v. Infinite Title Solutions, LLC, 2011 WL 13220625 (S.D. Fla. Mar. 3, 2011):

REPORT AND RECOMMENDATIONS ON MOTIONS TO DISMISS

*1 THIS MATTER is before the Court concerning motions to dismiss filed by Defendants Infinite Title Solutions, LLC, Rudy Hernandez (the “Infinite Defendants”), Theodore Wojtas, Edelweiss, Inc. and Ibis Club International, LLC (the “Ibis Defendants”). (DE# 57; DE# 95).1 I held an extensive hearing on these motions on February 16, 2011 and also reviewed the motions and memoranda and the proposed Reports and Recommendations submitted by the parties after the hearing.

As I discuss below, Plaintiff Sterling National Mortgage Co., Inc. (“Sterling”) failed to state a claim for either a substantive RICO violation or RICO conspiracy, which are the only two of the thirteen counts in its complaint that could provide federal court jurisdiction. Consequently, I respectfully recommend that the District Court: (1) grant both motions to dismiss; (2) dismiss Sterling’s complaint without prejudice and with leave to amend; and (3) stay discovery until Sterling files an amended complaint, if it so chooses.

I. GENERAL OVERVIEW AND PROCEDURAL POSTURE

Sterling is a mortgage lender and a wholly-owned subsidiary of a federally chartered bank. (DE# 1, ¶ 17). It alleges that it made a loan for much of the $415,000 purchase of an Ibis Club condominium apartment and suffered damages of approximately $332,000 (plus interest and costs) when the buyer defaulted on the loan.

Instead of pursuing a traditional state court mortgage foreclosure lawsuit or one for other common law claims, however, Sterling filed a diffuse 42-page, 13-count federal court complaint against the myriad individuals and entities involved in any way with the marketing, sale, purchase, financing and underwriting of the one condominium apartment at issue in this lawsuit.2

Sterling’s only jurisdictional grounds to be in federal court are its two claims under the federal Racketeer Influenced Corrupt Organization Act (“RICO”). Specifically, Sterling alleges (in Count 11, entitled “civil RICO”) a violation of 18 U.S.C. § 1962(c) and (in count 12, entitled “RICO conspiracy”) a violation of 18 U.S.C. § 1962(d).

*2 At the hearing, Sterling’s counsel began his argument by describing himself as a former “mortgage fraud prosecutor” who worked in that capacity in California until two years ago. He described the sale of the Ibis Club condominiums as fitting the mold of a classic “builder-buyout scheme.” Sterling previously elaborated on this theme in its complaint by explaining that this well-known “scheme to use loan fraud to minimize the losses suffered by a developer and its investors is commonly referred to as a ‘Builder Bailout’ or ‘Builder Bust Out’ Scheme.” (DE# 1, ¶ 43.)

Sterling, however, made only one loan, concerning one apartment, which resulted in one closing on one day. (E.g., DE# 76, p. 2.) Although Sterling’s RICO Case Statement lists unnamed “Tenants at Ibis Club Condos,” the “Public of Collier County, Florida” and “Other Lenders” as additional victims of the alleged RICO pattern of racketeering activity, these parties are not named as plaintiffs and Sterling’s counsel has not claimed to represent them in this case.

In its complaint and RICO Case Statement, as well as at the hearing, Sterling alleges a smorgasbord of other extreme and unlawful business misconduct, ranging from breach of fiduciary duties (Count II) and fraudulent misrepresentation (Count VIII) to civil conspiracy (Count X).

While those allegations may well provide Sterling with a substantial state court lawsuit for common law, non-federal claims, Sterling chose to file its lawsuit in federal district court. Consequently, it must, based only on its allegations in its complaint and civil RICO statement, state a claim under either RICO or RICO conspiracy in order to pursue its lawsuit here. This is true regardless of the merits of its common law claims and regardless of its attorney’s experience as a California state court mortgage fraud prosecutor. But as outlined below, Sterling failed to state a RICO or RICO conspiracy claim.

I am recommending that the dismissal be without prejudice, although it seems, based on Plaintiff’s presentation at the hearing, that Sterling may encounter a significant challenge if it wishes to continue pursuing federal RICO claims against all defendants for the loss of one loan concerning one closing involving the purchase of one apartment.3 This recommendation is based upon Sterling’s counsel expressing his strong belief at the hearing that he could satisfactorily amend and improve the complaint. Friedlander v. Nims, 755 F.2d 810, 813 (11th Cir. 1985) (“a district court should give a plaintiff an opportunity to amend his complaint rather than dismiss it when it appears that a more carefully drafted complaint might state a claim upon which relief could be granted”).

Because I conclude that Sterling failed to state claims for RICO and RICO conspiracy and because those two claims are the only federal jurisdictional theories alleged, I need not address the sufficiency of the purportedly pendent or supplemental state court claims.4 The state claims must simply be dismissed as a matter of course. Scarfo v. Ginsberg, 175 F.3d 957, 962 (11th Cir. 1999) (“once the district court determines that subject matter jurisdiction over a plaintiff’s federal claims does not exist, courts must dismiss a plaintiff’s state law claims”).

II. PLAINTIFF’S FACTUAL ALLEGATIONS

*3 The following facts are taken directly from Sterling’s complaint:

Defendant Theodore J. Wojtas (“Wojtas”) acquired the 134-unit Ibis Club residential complex in Naples, Florida (“Ibis Club”) in 2006, with the intention of converting it into a condominium community and selling the units individually. (DE# 1 ¶¶ 26-27.) Wojtas formed Defendant Ibis Club International LLC (“Ibis Club Int’l”) previously in 2005 for the anticipated purpose of transferring title of the complex to it. (Id. at ¶ 28.) Wojtas completed the transfer to Ibis Club Int’l on March 13, 2006. (Id. at ¶ 29). Wojtas also formed Defendants Edelweiss, Inc. to manage the Ibis Club, Steal A Condo, LLC to market the complex, and Ibis Club Equity Fund to act as an alternate receiver of condominium sales funds. (Id. at ¶¶ 30, 33.) Wojtas, Ibis Club Int’l and others then schemed to sell the condominiums at inflated prices. (Id. at ¶ 36.)

Sterling made the loan the centerpiece of this lawsuit. Or, in Sterling’s own words, the “central claim” in the complaint “arises out of one mortgage loan transaction ... funded by Sterling for the purchase of an Ibis Club condominium.” (Id. at ¶ 64) (emphasis supplied).

Sterling funded the sole loan at issue in the complaint so that Tyrone Cassimy (aka Tyron Cassiny) (“Buyer”) could purchase an Ibis Club condominium unit. (Id. at ¶¶ 3, 64.) On or before November 17, 2008, Buyer became familiar with the Ibis Club community and thereafter called Plaintiff to apply for a loan to purchase a unit. (Id. at ¶¶ 87-88.) Sterling employed Sean McCrary (“Appraiser”) through the Ibis Club Int’l, who acted as Sterling’s agent for purposes of obtaining an appraisal. (Id. at ¶ 68.) On November 13, 2008, the Appraiser completed an appraisal and drafted an appraisal report that Sterling discovered, well after the fact, contained material misstatements and a greatly inflated value of the subject condominium unit. (Id. at ¶¶ 71-79.)

Sterling approved the loan for the Buyer. (Id. at ¶ 73.) On February 27, 2009, the Infinite Defendants closed the sale of the Ibis Club unit to Buyer, with Hernandez serving as the closing agent. (Id. at ¶¶ 117, 123.) Sterling provided closing instructions to the Infinite Defendants, detailing how they should disburse the loan proceeds. (Id. at ¶¶ 146, 151.) Infinite, however, made disbursements to entities affiliated with Wojtas and Ibis Club Int’l that did not comply with Sterling’s closing instructions. (Id. at ¶¶ 153-159.) Infinite did not notify Sterling of unusual disbursement requests made at the time of the closing. (Id. at ¶ 160.) Infinite also did not notify Sterling that it could not verify that the funds used as a down payment actually came from Buyer. (Id. at ¶ 164.)

The Buyer made one mortgage loan payment and subsequently defaulted. (Id. at ¶¶ 185, 187.) In filing suit, Sterling asserts that all parties to the loan transaction formed a racketeering enterprise and devised an elaborate scheme to defraud Sterling and that the scheme caused Sterling to sustain monetary damages. (Id. at ¶¶ 295-336.)

III. APPLICABLE LEGAL STANDARDS

a. Motion to Dismiss Standard

*4 To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In Twombly, the Supreme Court explained that the line “between the factually neutral and the factually suggestive ... must be crossed to enter the realm of plausible liability.” Twombly, 550 U.S. at 557 n.5.

When analyzing a complaint, a court may determine that a claim “has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft, 129 S. Ct. at 1940 (emphasis added). See also American Dental Ass’n v. Cigna Corp., 605 F.3d 1283, 1289 (11th Cir. 2010) (affirming dismissal of RICO claims and noting that Supreme Court now requires the initial pleading to contain “enough fact to raise a reasonable expectation that discovery will reveal evidence of the claim”) (emphasis supplied; internal quotations omitted).

Because mere labels and bald conclusions are insufficient to survive a motion to dismiss, “a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. See also Fed. R. Civ. P. 8(a)(2) (requiring “a short and plain statement of the claim showing that the pleader is entitled to relief”).

Although a court must accept all factual allegations as true in deciding a motion to dismiss, that rule does not apply to a legal conclusion that is “couched as a factual allegation.” Twombly, 550 U.S. at 555 (internal quotations omitted). See also Iqbal, 129 S. Ct. at 1949-50 (same). Moreover, even where a complaint presents appropriate factual allegations, a court must still determine whether those facts, accepted as true, “plausibly give rise to an entitlement to relief.” Iqbal, 129 S. Ct. at 1950 (emphasis added). The allegations must “permit the court to infer more than the mere possibility of misconduct.” Id. “In sum, for a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Servc., 572 F.3d 962, 969 (9th Cir. 2009).

b. RICO Pleading Requirements

In order to establish a federal civil RICO violation under § 1962(c), a plaintiff must allege four elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Williams v. Mohawk Indus., Inc., 411 F.3d 1252, 1256 (11th Cir. 2005). See also Super Vision Int’l, Inc. v. Mega Int’l Commercial Bank Co., Ltd. 534 F. Supp. 2d 1326, 1330, 1337-40 (S.D. Fla. 2008) (dismissing RICO claims against a bank under the Twombly pleading standard). Moreover, a civil RICO plaintiff must plead with specificity (1) injury to its “business or property,” and (2) as to the alleged predicate RICO activity, that its injury was proximately caused by the alleged acts. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 647, 654 (2008). See also Anza v. Ideal Supply Corp., 547 U.S. 451, 462 (2006); Super Vision, 534 F. Supp. 2d at 1339-1340.

The proximate causation requirement is sometimes referred to as RICO standing—i.e., the RICO plaintiff must allege that the pattern of racketeering activity caused injury to him, as opposed to only others. See generally Holmes v. Securities Investor Prot. Corp., 503 U.S. 258 (1992); Anza, 547 U.S. 451; Bridge; 553 U.S. 639; Hemi Group, LLC v. City of New York, 130 S. Ct. 983 (2010).

*5 The proximate cause element flows from the language of the RICO statute itself, which provides that “[a]ny person injured in his business or property by reason of a violation of ... [the RICO statute] may sue.” 18 U.S.C. § 1964(c) (emphasis supplied). Nevertheless, not all “factually injured” persons can recover under RICO because the plaintiff’s injuries must be a “direct result” of the alleged racketeering activity. Bivens Gardens Office Building, Inc. v. Barnett Banks of Fla., Inc., 140 F.3d 898, 906 (11th Cir. 1988). Therefore, a RICO plaintiff must allege and demonstrate that the defendant’s commission of the predicate racketeering acts was the proximate and direct cause of his injuries. Holmes, 503 U.S. at 266 n.11.

When, as here, a wire fraud (or bank fraud) scheme provides the predicate racketeering acts for the alleged RICO claim, the plaintiff may not assert misrepresentations directed toward others—because he must have been the target of the scheme to defraud and detrimentally relied on the misrepresentations. Byrn v. Nezhat, 261 F.3d 1075, 1110 (11th Cir. 2001). See also Pelletier v. Zweifel, 921 F.2d 1465, 1499-1500 (11th Cir. 1991). The Supreme Court has emphasized the “directness” rule for the proximate cause requirement, noting the difficulty which can arise when a court must determine the amount of damages indirectly attributable to a defendant’s alleged misconduct. Anza, 547 U.S. at 458.5

The pattern of racketeering activity element requires a plaintiff to allege that “(1) that defendants committed two or more predicate acts within a ten-year time span; (2) the predicate acts were related to one another; and (3) the predicate acts demonstrate criminal conduct of a continuing nature.” Jackson v. BellSouth Telecomms., 372 F.3d 1250, 1264 (11th Cir. 2004) (emphasis in original).

Moreover, a RICO plaintiff must also establish both the existence of an enterprise and that the defendant participated in the operation or management of that enterprise. Reves v. Ernst & Young, 507 U.S. 170, 185 (1993) (emphasis supplied); United States v. Starrett, 55 F.3d 1525, 1541-42 (11th Cir. 1995). This means the plaintiff must provide concrete “factual allegations as to how [each of the] individual Defendants played a part in directing the affairs of the enterprise.” Comcast of South Florida, II, Inc. v. Best Cable Supply, Inc., No. 07-22335-CIV, 2008 WL 190584, at *8 (S.D. Fla. Jan. 22, 2008) (emphasis in original). A RICO Plaintiff must allege facts demonstrating “affirmative and deliberate participation” by each defendant in “the conduct of the affairs of the enterprise” by “knowingly implement[ing] and ma[king] decisions” concerning the alleged racketeering activity pattern. Official Comm. of Unsecured Creditors of PSA, Inc. v. Edwards, 437 F. 3d 1145, 1156 (11th Cir. 2006) (internal quotations omitted; brackets added).

Further, not only must a RICO claimant allege that each defendant meets the operation or management test established in Reves, but he must also establish each element under section § 1962(c) as to each individual defendant without exception. American Dental Ass’n, 605 F.3d at 1291. See also DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001) (section 1962(c)’s requirements “must be established as to each individual defendant”). Cf. United States v. Persico, 832 F.2d 705, 714-715 (2d Cir. 1987) (for purposes of analyzing the statute of limitations, the court looks solely to acts alleged against a particular defendant, regardless of the apparent commission of timely predicate acts by other members of the alleged racketeering enterprise).

*6 Additionally, because Plaintiff, in this instance, has asserted RICO claims based on bank and wire fraud, the allegations must comply with the heightened pleading standard in Federal Rule of Civil Procedure 9(b). American Dental Ass’n, 605 F.3d at 1291. The heightened standard requires that a party state with particularity the circumstances constituting fraud. Id.; Brooks v. BCBS of Florida, Inc., 116 F.3d 1364, 1380-81 (11th Cir. 1997).

Satisfying Rule 9(b) is an exacting task. The plaintiff must allege as to each defendant: (1) the precise statements, documents, or misrepresentations made; (2) the time and place of and person responsible for the statement; (3) the content and manner in which the statements misled the plaintiffs; and (4) what the Defendants gained by the alleged fraud. Ambrosia Coal & Constr. Co. v. Morales, 482 F.3d 1309, 1316-17 (11th Cir. 2007). The RICO allegations of fraud must specifically inform “each defendant of the nature of his alleged participation in the fraud.” Id. at 1316. RICO claims will be dismissed if a complaint “lump[s] together all of the defendants in their allegations of fraud.” Id.

Beyond the need to comply with the myriad requirements outlined above, a RICO plaintiff must also allege continuity. The continuity requirement means that a RICO plaintiff cannot allege two isolated sporadic predicate acts. Jackson, 372 F.3d at 1264. The continuity element is “crucial to a valid RICO claim to ensure that the crime alleged is the sort of offense that RICO is designed to address—one that is part of a pattern of ongoing, continuing criminality or that involves criminality that promises to continue into the future.” Id. at 1265. Continuity of the racketeering activity is both a closed-and open-ended concept, referring 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 1265 (citing H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 241-42 (1989)).

In open-ended RICO cases, plaintiff must establish “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.’ ” Id. (quoting H.J., Inc., 492 U.S. at 242). To allege a closed-ended RICO violation, a plaintiff must allege a series of related predicates extending over a substantial period of time. Id. at 1266.

For example, the Eleventh Circuit determined that an alleged fraud scheme lasting only six months was an insufficient time period to qualify as a closed-ended RICO violation. See Aldridge v. Lily-Tulip, Inc. Salary Ret. Plan Benefits Comm’n., 953 F.2d 587, 593 (11th Cir. 1992) (also finding no open-ended RICO violation in the alternative).6

*7 To determine whether a RICO plaintiff satisfied the requisite period for closed-ended continuity, the duration of the pattern of racketeering activity must be measured by the specific RICO predicate acts that a particular defendant allegedly committed. DeFalco, 244 F.3d at 322, n.22. Phrased differently, the mere fact that other defendants may have committed racketeering acts will not save a claim against other defendants that is deficient for failure to sufficiently allege closed-ended continuity.

Moreover, the relevant period for determining continuity is “the time during which predicate activity occurred, not the time during which the underlying scheme operated” Spool v. World Child Int’l. Adoption Agency, 520 F.3d 178, 184-85 (2d Cir. 2008) (affirming dismissal of civil RICO complaint alleging unspecified predicate acts spanning no more than 16 months because it failed to demonstrate closed-ended continuity).

IV. Analysis

a. Count XI—Civil RICO

Both the Infinite Defendants and the Ibis Defendants contend that Sterling failed to plead a “pattern of racketeering activity” because it did not sufficiently allege (1) two predicate acts and (2) criminal conduct of a continuing nature.

Slightly more specifically, the defendants argue that Sterling did not plead two predicate acts with the specificity required by Rule 9(b) and also did not sufficiently explain the elements of RICO on a precise defendant-by-defendant basis.

These defendants also argue that Sterling inadequately alleged a pattern of racketeering activity, and cannot meet this requirement even by re-pleading, because Sterling’s injury relates only to one loan transaction which closed on one day (i.e., February 27, 2009).

Sterling responds in its Memorandum in Opposition to the Motion to Dismiss that it alleged with sufficient particularity facts to support the predicate acts of bank and wire fraud. (DE #76.) Sterling alleges that the one loan for the mortgage transaction at issue was part of an ongoing conspiracy that consisted of 17 other instances of mortgage fraud involving other mortgage lenders (i.e., other purported victims of the alleged RICO “builder-buyout” scheme, dating back to October 2006). (DE #76.)

Even viewing Sterling’s allegations in a light most favorable to it, I conclude that Sterling failed to state a civil RICO claim against either set of defendants for several reasons. Any single one of these defects is enough to warrant granting the motions, but in the interest of providing the District Court with a comprehensive analysis, I will address them all.

I. Lack of Specificity

First, the complaint does not allege fraud with the required specificity as to each defendant who filed a motion to dismiss. This defect constitutes, in effect, a double failure. The RICO counts do not satisfy Rule 9(b) as the fraud allegations are overly general and conclusory in nature even when they refer to a specific defendant. Moreover, the RICO allegations generally fail to include separate allegations as to each particular defendant and, instead, improperly refer to all defendants as “Conspirators.” (DE #1 ¶¶ 303-336.) Sterling cannot lump together the defendants as a catchall in bringing fraud allegations under RICO. Ambrosia Coal, 482 F.3d at 1317.

In addition, Sterling alleges (DE# 1, ¶ 50) suspicious circumstances which it brands as “indicia of fraud”—but does not pinpoint which particular defendant committed a racketeering act concerning a suspicious circumstance. For example, Sterling mentions that the purported witnesses to the mortgagor’s signature are Charles Manson and a person whose name appears to be from a Charles Dickens novel. But, even if correct, this unusual circumstance is not an allegation that a particular defendant engaged in a specific unlawful act. Instead, the fraudulent indicia appear to be a list of circumstances which are not linked to a particular defendant or a specific act of racketeering activity.

*8 To provide additional examples, Sterling alleges that all but one of the other 14 buyers of other condominium units are domiciled outside of Florida, that 13 were from Illinois, that all but one of these other mortgages (for other units) were in default within two years after the closings, that one of the buyers (but not the one involved in the one loan at issue here) purchased two units on the same date but the signatures of different witnesses appear on each mortgage and that the same notary was used on mortgages from different lenders during the same month.

Even if these events are, in fact, evidence of fraud, the allegations do not say how the fraud happened, they do not say who—which of the defendants—committed the fraudulent act or why the fraudulent act can fairly be attributed against a specific defendant. In fact, these allegations do not necessarily even imply any of the Infinite or Ibis defendants engaged in criminal violations concerning those other mortgage loans for other units.

Sterling’s complaint is not completely void of specific detail. For example, Sterling makes several specific allegations against the Buyer. According to Plaintiff, Buyer (i.e. Defendant Tyrone Cassimy) falsely declared that he intended to purchase the condominium apartment as a secondary residence, that he had sufficient liquid assets to fund the 20% contribution, and that he made material misrepresentations in the loan application. But, even assuming that these allegations could support a RICO claim against the Buyer, these particular allegations cannot be used to state a substantive RICO claim against other defendants, such as the Infinite and Ibis defendants. See, e.g., BCBS of New Jersey, Inc. v. Philip Morris, Inc., 113 F. Supp. 2d 345, 368 (E.D. N.Y. 2000) (“In determining whether a pattern has been stated against any particular defendant, the court considers only the alleged offenses in which that defendant was purportedly involved”) (quoting GREGORY P. JOSEPH, CIVIL RICO A DEFINITIVE GUIDE § 11.D.1.c (2d. ed. 1999)).

Sterling appears to believe that the Ibis Defendants are at the core of the “scheme,” but Sterling’s complaint lacks specificity about their particular wrongdoing as well. For example, Plaintiff alleges, in a conclusory way, that Wojtas, Seller “and others” had “schemed to sell the condominiums for values that might have existed at some point prior to the summer of 2006 but no longer reflect the realities of the South Florida condominium market.” (DE# 1, ¶ 36.) Likewise, Plaintiff alleges, again in a conclusory way, that “Wojtas and Seller collaborated with real estate brokers to find out-of-state investors who were unaware of [the] precipitous drop in Collier County property values; with naïve investors to obtain mortgage loans based on false pretenses; with appraisers to inaccurately inflate the property values; and with closing agents and title companies to make unauthorized and improper disbursements of mortgage loan funds.” (Id. at ¶ 37.)

In sum, Sterling’s allegations are far too superficial and nebulous to meet the strict, specific pleading requirement necessary to allege fraud under Fed. R. Civ. Pro. 9(b) or the RICO statute generally.

II. Lack of Continuity

Second, there are insufficient allegations to establish continuity. The continuity requirement that the criminal activity be ongoing means that a plaintiff cannot merely allege two isolated sporadic predicate acts. Jackson, 372 F.3d at 1264. The continuity element is “crucial to a valid RICO claim to ensure that the crime alleged is the sort of offense that RICO is designed to address—one that is part of a pattern of ongoing, continuing criminality or that involves criminality that promises to continue into the future.” Id. at 1265.

*9 The allegations do not support a finding of either open or closed continuity. The complaint concerns one loan transaction on one day. The mere fact that Sterling suffered only one injury flowing from one closing of one loan on one day is not, in and of itself, fatal to the RICO claims. A plaintiff need not suffer injury from every predicate act compromising the pattern in order to state a claim. As long as a RICO plaintiff has been injured by at least one predicate act committed as part of a continuing pattern of racketeering activity and there is proximate cause, then he has RICO standing. Deppe v. Tripp, 863 F.2d 1356, 1366 (7th Cir. 1988) (“a RICO verdict can be sustained when a pattern of racketeering acts existed, but when only one act caused injury”). See also Banks v. Wolt, 918 F.2d 418, 423 (3d Cir. 1990) (a plaintiff need not be injured by more than one predicate act). Cf. Landry v. Air Line Pilots Ass’n Int’l AFL-CIO, 892 F.2d 1238 (5th Cir. 1990) (recognizing that “[a]ny injury to business or property caused by a violation ... is sufficient” but dismissing the RICO claim because all the predicate acts actually benefitted, not damaged, the plaintiffs) (internal quotations omitted; emphasis in original), cert. denied, 498 U.S. 895 (1990).

The difficulty Plaintiff confronts with the single-transaction focus of its complaint is that the only specific date contained in the complaint regarding the predicate acts allegedly committed by the Infinite Defendants is the date of the closing. See e.g. Kolar v. Preferred Real Estate Invs., Inc., 361 Fed.Appx. 354, 365 (3d Cir. 2010) (a “single, finite transaction cannot by itself underpin a pattern of racketeering activity”). The Eleventh Circuit has determined that an alleged fraud scheme lasting only six months was an insufficient time period to qualify as a pattern of racketeering activity. See Aldridge, 953 F.2d at 593.

Not surprisingly, Plaintiff’s RICO Case Statement (DE# 61) also alleges (in paragraphs 9–13) only one day when the Infinite Defendants committed predicate racketeering acts: February 27, 2009. I am unaware of any published or electronically available (i.e. Westlaw or Lexis Nexus) federal case where the court concluded that one day’s worth of illegal acts is sufficient to demonstrate the requisite closed-ended continuity, and, despite having ample opportunity and certain motive to do so, Sterling could not call the Court’s attention to such a case either.

Concerning the Ibis Defendants, the complaint does not pinpoint any specific predicate racketeering acts and therefore does not allege specific dates for purposes of assessing continuity. The complaint does not allege that the Ibis Defendants made any misrepresentations to Sterling and therefore does not demonstrate how Sterling allegedly relied on any specific fraudulent misstatements made by them. Sterling cannot bootstrap the misrepresentations it alleges were made by the Buyer to sustain a substantive RICO claim against other defendants, such as the Ibis Defendants.

III. Lack of Proximate Cause

Third, the complaint fails to adequately allege proximate cause. The Supreme Court, in Holmes, 503 U.S. 258, set forth the civil RICO proximate causation standard. Under civil RICO, the plaintiff is required to show that a RICO predicate offense caused direct injury to the plaintiff. Id. at 271. A link that is too remote, purely contingent, or indirect is insufficient. Id. Accord Anza, 547 U.S. 451; Hemi Group, LLC, 130 S. Ct. 983; Halpin v. Crist, No. 10-10339, 2010 WL 5078222 (11th Cir. Dec. 14, 2010). In this case, Sterling attempted to proffer predicate acts against and damages sustained by third parties (other mortgage lenders and persons not parties to this action, such as the public at large) to show that it was damaged by at least two RICO violations. However, these other acts did not directly cause Sterling any damage and therefore cannot be used to help Sterling state a civil RICO claim.

IV. Lack of Management Participation

Fourth, Plaintiff has failed to adequately allege “affirmative and deliberate participation” by the Infinite and Ibis Defendants in the “conduct of the affairs of the enterprise” by “knowingly implement[ing] and ma[king] decisions” about the alleged pattern of racketeering activity. Edwards, 437 F.3d at 1156. See also generally Super Vision, 534 F. Supp. 2d at 1326. Without these allegations, Plaintiff cannot meet the “operation or management” requirement established by the Supreme Court in Reves.

*10 In Super Vision, United States District Judge Alan Gold dismissed a RICO claim brought against a bank for allegedly associating with its customer to defraud the customer’s creditors. Specifically, the Court dismissed the RICO claim for failure to satisfy the Reves management and control test and held that none of the allegations permitted the Court to draw the reasonable inference that the bank directed, managed or controlled “any aspect of the alleged enterprise, nor did [the bank] control the funds from [its customer] or [its customer]’s companies.” 534 F. Supp. 2d at 1338.

For example, although the Infinite Defendants were involved in the closing of one mortgage loan made by Sterling, this alone does not constitute management or control. Indeed, “providing important services to a racketeering enterprise is not the same as directing the affairs of an enterprise” because “even the provision of services essential to the operation of the RICO enterprise itself is not the same as participating in the conduct of the affairs of the enterprise.” Department of Econ. Dev. v. Arthur Andersen & Co., 924 F. Supp. 449, 466-67 (S.D. N.Y. 1996) (internal citations omitted). Moreover, most of the allegations attempting to implicate the Ibis Defendants in a RICO scheme describe innocuous behavior given their relationship to Sterling (e.g., “the dual purpose of each transaction was to relieve Seller of ownership of the property and to provide Wojtas and Seller with the capital they needed to pay investors and to service construction-related debts”). In other words, most of Sterling’s vague allegations against the Ibis Defendants simply describe what legitimate developers do in their business.

Plaintiff’s complaint urges the theme that Wojtas and Seller created the “scheme” which “caused substantial harm to many parties” (DE# 1, ¶ 57) and its Civil Rico Case Statement (DE# 61, p. 2) alleges, albeit in conclusory fashion, that Wojtas committed bank fraud and “racketeering” through “entities created and controlled by him.” (emphasis added). This allegation—that Wojtas controlled the entities involved in the purported racketeering—seems inconsistent with the notion that the Infinite Defendants managed or controlled the alleged enterprise.

To be sure, Sterling alleges, in conclusory fashion (DE# 1, ¶ 309), that “Conspirators conducted or participated, directly or indirectly, in the conduct of the enterprise’s affairs through a ‘pattern of racketeering activity’ within the meaning of RICO.” (emphasis supplied). But this entirely conclusory language, which parrots the statutory language, is insufficient to meet the management or control requirement. Sterling does not sufficiently allege the specific facts needed to demonstrate that any defendants had some role in directing, operating or managing the alleged enterprise’s affairs.

In its Civil RICO Case Statement (pages 15-16), Sterling was supposed to explain “how each separate defendant participated in the direction or conduct of the affairs of the enterprise.” Sterling’s answer was cryptic and conclusory and did not provide specifics to show how any defendant met the Reves operation or management requirement. On page 20 of its RICO Case Statement (DE # 61), Plaintiff contends that Defendants Wojtas, Edelweiss and others “orchestrat[ed] a scheme to defraud Plaintiff and other mortgage lenders.” To the extent that this allegation is designed to show how the Ibis Defendants meet the operation or management element, it is far too vague, far too conclusory and far too detail-free to accomplish that critical purpose.

(2) Count XII—RICO Conspiracy

*11 Section 1962(d) of the RICO statutes make it illegal for anyone to conspire to violate one of the substantive provisions of RICO, including § 1962(c). 18 U.S.C. § 1962(d); Kivisto v. Miller, Canfield, Paddock and Stone, PLC, No. 10-12654, 2011 WL 207898, at *3 (11th Cir. 2011). A plaintiff can establish a RICO conspiracy claim in one of two ways: (1) by showing that the defendant agreed to the overall objective of the conspiracy; or (2) by showing that the defendant agreed to commit two predicate acts.7 American Dental Ass’n, 605 F.3d at 1293. Further, “[t]o be guilty of conspiracy, ... parties must have agreed to commit an act that is itself illegal—parties cannot be found guilty of conspiring to commit an act that is not itself against the law.” Jackson, 372 F.3d at 1269 (internal quotations omitted; ellipsis in original). Moreover, “[c]onclusory allegations or a ‘bare bones’ statement of conspiracy” will not survive a motion to dismiss. In re Sahlen & Assocs., Inc. Securities Litig., 773 F. Supp. 342, 370 (S.D. Fla. 1991) (quoting O’Malley v. O’Neill, 887 F.2d 1557, 1560 (11th Cir. 1989)). To the contrary, a plaintiff must allege facts to support each defendant’s willingness and intent to participate in a conspiracy. O’Malley v. O’Neill, 887 F.2d at 1560. See also generally Liquidation Comm’n of Banco Intercontinental, S.A. v. Renta, 530 F.3d 1339, 1353 (11th Cir. 2008) (RICO conspiracy requires plaintiff to “demonstrate that a defendant objectively manifested, through words or actions, an agreement to participate in the conduct of the affairs of the enterprise through a pattern of racketeering activity”) (internal quotations omitted).

The Plaintiff failed to plead a valid RICO conspiracy claim. The Compliant does not contain sufficiently specific, fact-based allegations to support an alleged agreement by the Infinite and Ibis Defendants to any illegal conspiratorial objective or to commit two predicate acts. Instead, Count XII sweepingly refers to all defendants as “conspirators” and alleges, in conclusory fashion, that they agreed and conspired to commit acts in violation of RICO—while providing no specific facts to support these allegations. “[F]ormulaic recitations of a conspiracy claim are insufficient,” as there must be a plausibly alleged “meeting of the minds” to satisfy Twombly. American Dental Ass’n, 605 F.3d at 1294. There are no plausible allegations that reference or detail any communications or interaction, much less an agreement, to commit a substantive RICO violation. In sum, this is a case where the substantive RICO offense fails and the conspiracy claim also fails because the plaintiff failed to make additional allegations showing a conspiracy to commit a RICO offense. E.g., Rogers v. Nacchio, 241 Fed.Appx. 602, 609 (11th Cir. 2007).

V. Conclusions

*12 I respectfully recommend that the district court: (1) grant both motions to dismiss; (2) dismiss Sterling’s complaint without prejudice and with leave to amend; and (3) stay discovery until Sterling files an amended complaint, if it so chooses.

The Court has not reached any conclusions about the merits of the myriad common law claims, but “even if only a portion of the egregious wrongs [Sterling] complain[s] about were borne out by a trial on the merits [in state court], the adjudication conceivably could yield recovery, counting possible punitive damages, approaching any award [Sterling] might obtain if [its] RICO claims were sufficient and ultimately prevailed in this Court.” Gross v. Waywell, 628 F. Supp. 2d 475, 482-483 (S.D. N.Y. 2009) (granting motion to dismiss RICO claims, denying plaintiffs’ request for file an amended RICO complaint, noting the “grim statistical record documenting plaintiffs’ limited success rate in RICO litigation”8 and observing that “plaintiffs’ visions of RICO awards are out of touch with the dismal empirical reality borne out by RICO litigation”). Similar to the advice provided in Gross, the Court suggests that Sterling take “time to ponder whether to seek to amend [its] complaint, or withdraw it in favor of proceeding with the litigation of [its] common law claims in state court.” 628 F. Supp. 2d at 479.

VI. Objections

Pursuant to 28 U.S.C. § 636(b)(1) and Local Magistrate Rule 4(b), parties normally have fourteen (14) days from the date of a report and recommendations to serve and file written objections, if any, with the District Court. However, where appropriate, I have the authority to shorten the objections period. E.g., Weiss v. Standard Ins. Co., No. 08-80712-Civ, 2009 WL 1833963, at *4 (S.D. Fla. June 25, 2009). In this case, I indicated on the record at the hearing, after extensive argument, what my likely recommendations would be, but I allowed the parties to submit proposed reports and recommendations nonetheless. Thus, to the extent the parties may disagree with my analysis here, they have already had, in effect, the opportunity to object (by submitting proposed reports and recommendations). Given that fact, and the fact that all parties will be best served if the question of whether this already long-pending lawsuit belongs in federal court is answered promptly, I find that a shortened objections period is appropriate.9

*13 The parties therefore have 7 days to serve and file written objections and each party may file a response to the other party’s objection within 3 days of the objections. Failure to timely file objections shall bar the parties from a de novo determination by the District Judge of an issue covered in this report and bar the parties from attacking on appeal the factual findings contained herein. Resolution Trust Corp. v. Hallmark Builders, Inc., 996 F.2d 1144, 1149 (11th Cir. 1993) (citing LoConte v. Dugger, 847 F.2d 745, 749-50 (11th Cir. 1988)).

 

 

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