Summary
The Ninth Circuit reversed and remanded the dismissal with prejudice of Schreiber Distributing Company's civil RICO claims. The court held that the complaint adequately addressed the person-enterprise relationship and predicate acts at the pleading stage, but failed to allege continuity and sufficient particularity under Federal Rule of Civil Procedure 9(b); the plaintiff was entitled to amend.
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Practice areas
Questions Presented
- Whether the complaint adequately alleged a RICO enterprise separate from the defendant persons under 18 U.S.C. § 1962(a), (b), and (c).
- Whether the complaint adequately alleged a pattern of racketeering activity under RICO.
- Whether the complaint adequately pleaded the predicate acts of mail and wire fraud with particularity under Federal Rule of Civil Procedure 9(b).
- Whether the district court abused its discretion by dismissing the RICO claims with prejudice without allowing amendment.
Holdings
- A corporation that engages in racketeering activity and is the direct or indirect beneficiary of the resulting pattern may be both the RICO person and the enterprise under § 1962(a) and (b).
- The complaint adequately alleged the individual defendants as RICO persons and Serv-Well and Landmark as the RICO enterprises; the district court therefore erred in dismissing the claims against the individual defendants on the person-enterprise ground.
- The complaint alleged related predicate acts but failed to allege facts establishing the required threat of continuing activity; therefore, it did not adequately plead a RICO pattern.
- The complaint pleaded the basic elements of mail and wire fraud sufficiently to withstand a motion to dismiss, but it did not identify the circumstances of the alleged fraud with the particularity required by Rule 9(b).
- The district court abused its discretion by dismissing the RICO claims with prejudice without allowing amendment.
Key quotations
“Thus, we hold that where a corporation engages in racketeering activities and is the direct or indirect beneficiary of the pattern of racketeering activity, it can be both the “person” and the “enterprise” under section 1962(a).” (806 F.2d at 1397-98)
“Because of the failure to allege facts establishing the “threat of continuing activity,” Schreiber’s complaint did not meet the requirement of a showing of “continuity plus relationship which combines to produce a pattern.”” (806 F.2d at 1399)
“The allegations of paragraph 30, standing alone, were not sufficiently particular to satisfy Rule 9(b).” (806 F.2d at 1401)
“Because the district court did not determine, nor can we conclude, that the allegation of other facts could not possibly cure the deficiencies in Schreiber’s complaint, the district court abused its discretion in dismissing the RICO counts with prejudice.” (806 F.2d at 1402)
Factual background
Schreiber was the exclusive wholesale distributor in Southern California for Chambers Corporation appliances and had previously supplied those products to Serv-Well for resale. Serv-Well allegedly used Landmark Development Corporation as a diversion vehicle by representing to Chambers that the products would be distributed in Canada and Alaska, while secretly diverting the products to Southern California for Serv-Well to sell in competition with Schreiber. Schreiber alleged that the defendants used mail and interstate telephone communications in furtherance of the scheme and asserted RICO claims based on mail and wire fraud.
Procedural history
Schreiber sued the defendants under RICO and asserted fifteen pendent state claims. The district court dismissed the RICO counts with prejudice, concluding that Schreiber had not alleged an organized-crime connection, a separate racketeering injury, special standing facts, or a person separate from the RICO enterprise; it dismissed the state claims without prejudice. The Ninth Circuit held that several grounds for dismissal were erroneous, concluded that the complaint nevertheless failed to allege RICO continuity and failed to plead the fraud circumstances with sufficient particularity, and held that dismissal with prejudice without leave to amend was improper.
Remand instructions
The district court was instructed to allow Schreiber to amend its complaint, including its allegations under 18 U.S.C. § 1962(d).