Summary
The Second Circuit, sitting en banc, reviewed the dismissal of a civil RICO class action arising from alleged fraudulent materials used in converting the Parkchester apartment complex into condominiums. The court held that the amended complaint sufficiently alleged a RICO enterprise and a pattern of racketeering activity based on related mail frauds and continuity or a threat of continuity, while noting possible deficiencies under Federal Rule of Civil Procedure 9(b). The court vacated the panel decision and district court judgment and remanded for further proceedings.
Topics
Practice areas
Questions Presented
- Whether the amended complaint adequately pleaded a RICO enterprise.
- Whether the alleged fraudulent mailings and related acts adequately pleaded a pattern of racketeering activity under RICO.
- Whether the district court's dismissal of the amended complaint should be vacated and the case remanded for further proceedings.
Holdings
- The amended complaint adequately pleaded the RICO enterprise element by alleging both the partnership sponsoring the condominium conversion and the defendants acting in association with one another as statutory enterprises.
- A RICO pattern may be established without multiple schemes, multiple episodes, or multiple transactions; each individual racketeering act should be separately counted, and acts need not be widely separated in time or space.
- The amended complaint adequately pleaded relatedness because the alleged mailings were directed to groups connected by their tenancy in Parkchester or their potential interest in purchasing apartments and allegedly pursued the common goal of inflating defendants' profits.
- The amended complaint adequately pleaded continuity or a threat of continuity by alleging repeated fraudulent mailings, amendments perpetuating the alleged misrepresentations, thousands of unsold apartments, and the likelihood of further amendments and mailings over additional years.
Key quotations
“Our Indelicato analysis has persuaded us that a RICO pattern may be established without proof of multiple schemes, multiple episodes, or multiple transactions; and that acts that are not widely separated in time or space may nonetheless properly be viewed as separate acts of racketeering activity for purposes of establishing a RICO pattern.” (1390)
“We impose no multiple episode requirement, and we conclude that for a determination of whether there is a RICO pattern, each individual racketeering act should be separately counted.” (1391)
“We conclude that the relatedness and continuity factors have been adequately revealed in the pleading and that the amended complaint did not fail to satisfy the pattern requirement.” (1393)
“We recognize that our reframing today of the enterprise and pattern requirements, and particularly our rejection of any requirements that there be multiple schemes or long-term goals or temporal separation of racketeering acts, will open the door to far more civil RICO cases than have heretofore survived our scrutiny.” (1393)
Factual background
The action concerned the conversion of the Parkchester apartment complex in the Bronx, New York, into condominiums. Plaintiffs alleged that defendants concealed serious structural defects, asbestos, and the need to replace plumbing and electrical systems in offering plans and amendments mailed to tenants and potential purchasers. Plaintiffs alleged that the fraudulent materials inflated condominium prices and were transmitted through thousands of mailings, constituting mail fraud and a pattern of racketeering activity under RICO.
Procedural history
The district court dismissed the amended complaint, concluding that the alleged fraudulent mailings relating to the Parkchester condominium conversion did not establish a pattern of racketeering activity, and declined supplemental jurisdiction over state-law claims. It also denied leave to file a second amended complaint. A Second Circuit panel affirmed, but the case was reheard en banc alongside United States v. Indelicato. The en banc court vacated both the panel decision and the district court judgment and remanded for further proceedings.
Remand instructions
The panel decision and the district court judgment were vacated. The matter was remanded for further proceedings not inconsistent with the opinion; the court suggested that plaintiffs be permitted to file a new pleading complying with the Federal Rules of Civil Procedure, including Rules 9(b) and 8(a).