Cordero-Hernández v. Hernández-Ballesteros

449 F.3d 240, 2006 U.S. App. LEXIS 13619, 2006 WL 1514289
CourtCourt of Appeals for the First Circuit
DecidedJune 2, 2006
DocketNo. 04-2435
StatusPublished
Cited by13 cases

This text of 449 F.3d 240 (Cordero-Hernández v. Hernández-Ballesteros) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cordero-Hernández v. Hernández-Ballesteros, 449 F.3d 240, 2006 U.S. App. LEXIS 13619, 2006 WL 1514289 (1st Cir. 2006).

Opinions

STAHL, Senior Circuit Judge.

The Paris Paris Boutique was a small shop located in San Juan, Puerto Rico. It was founded several years ago by Maria Teresa Hernández-Ballesteros (Hernán-dez), an entrepreneur who has also founded and operated at least two other shops in San Juan. Under Hernández’s management, the shop apparently dealt primarily in women’s clothing and accessories, and had at least two employees, a professional manager and a sales clerk. It purchased clothing from Puerto Rican and New York-based retailers and sold the goods to walk-in customers, primarily targeting passing tourists.

Hernández decided to give up the business in 2000 or 2001, and put Paris Paris Boutique, Inc. on the market. Among a number of interested buyers, Ana M. Cordero-Hernández (Cordero) won out. This suit was brought by Cordero and the boutique over the fallout from that purchase. Cordero and the Paris Paris company alleged various fraud- and contract-related claims against Hernández and George Moll, who was the realtor on the sale of the boutique. They also brought claims against Arnaldo Peñalvert-Vázquez [242]*242(Peñalvert), Hernandez’s accountant; FirstBank of Puei"to Rico, which holds the mortgage that Cordero assumed when she purchased the property; and Elba Maria Martinez (Martinez), the proprietor of the building in which the Paris Paris was located.

Cordero purchased 100% of the shares of the boutique from Hernandez on St. Valentine’s Day, 2001. The purchase price for the store was $69,000 in cash and the assumption of $156,000 in debt owed by Hernández to FirstBank. Included in the deal were promises by Hernández to offer training to Cordero in dealing with suppliers and in the other particulars of running the store, but none of these promises were ever honored. While Cordero had also been promised an easy and immediate monthly profit, earnings lagged behind expectations, and Cordero and the store quickly began to experience financial difficulties. Cordero argues that the store’s plight was worsened by the fact that Her-nández almost immediately set up a new dress shop, named El Sol de Puerto Rico, in the same building as the Paris Paris.

Soon after she established El Sol, Her-nández put it on the market, just as she had done with the Paris Paris. Believing that she had herself been defrauded, suspecting that Hernández was planning to perpetrate a similar fraud in the upcoming sale of El Sol, and hoping to catch Hernán-dez in a pattern of fraudulent activity, Cordero hired two investigators to come to El Sol and pretend to be interested purchasers. Hernández allegedly made representations about the new store to this pair, Damian Soto and Ester Morell, that sounded in the same register as her representations to Cordero about Paris Paris— high margins, valuable inventory, established clientele, and easy money. The hired detectives did not, of course, buy El Sol, and neither did anyone else. Finding no buyer, Hernández abandoned the store less than a year after opening it.

Meanwhile, in May 2001, with her financial problems worsening, Cordero and the Paris Paris company filed voluntary petitions for bankruptcy protection under Chapter 11. In the course of the bankruptcy proceedings, Cordero attempted to assert a handful of legal claims against Hernández and the other defendants in this action, all involved in the sale of the Paris Paris or the establishment of El Sol, and these claims were eventually removed to federal district court. In her original complaint in the district court, Cordero alleged that Hernández and her agents had misrepresented the value and profitability of the Paris Paris Boutique, and that Hernández had breached her contract with Cordero and had engaged in unfair competition by opening the competing store in the same building as the Paris Paris. In particular, she alleged that Hernández, personally and through Moll and Peñal-vert, misled her about the past profitability of the store and about its likely value going forward. She also alleged that FirstBank of Puerto Rico, which provided partial financing for the deal, had failed to abide by several of its own risk-management policies, was less than fully candid with Cordero about its interest in the transaction going ahead, and so ultimately contributed to Cordero’s injuries. In addition, Cordero also claimed that Hernández had violated an implied contractual obligation not to compete with her by opening up the new shop in the same building as the Paris Paris, and that Martinez, who leased space to both the Paris Paris and El Sol, violated a term of Cordero’s lease by permitting Hernández to open her new store next door to the Paris Paris.

Cordero amended her complaint in April 2002 to include a cause of action under the Racketeer Influenced and Corrupt Organi[243]*243zations (RICO) Act, 18 U.S.C. § 1964(c). In the newly added portion of the complaint stating a claim under RICO, Corde-ro incorporated her fraud allegations against all defendants, and further alleged that the defendants together comprised an enterprise organized for the purpose of defrauding potential buyers of the boutiques they developed. The specific RICO predicate that Cordero attempted to allege was interstate wire fraud under 18 U.S.C. § 1343 (defining wire fraud) and § 1961(5) (incorporating wire fraud as a RICO predicate): Cordero claimed that Hernández, along with other defendants, made fraudulent representations first to Cordero and later to her hired investigators, and that some of these representations were made over the phone. Cordero never explicitly alleged, however, that the phone calls were interstate calls nor stated specifically during which calls, when, and by whom, the fraudulent representations were made, failings which are the nub of this appeal.

A drawn-out discovery battle ensued, during which Cordero filed no fewer than four motions to compel discovery from a seemingly reluctant set of defendants, and the court noted in one of its orders compelling discovery that it was running out of patience with the parties. Early on in the discovery period, defendants moved together for 12(b)(6) dismissal for failure to state a claim, and Cordero responded. Discovery proceeded apace, while the motion to dismiss lingered on the docket. A year later, the district court issued an order dismissing the RICO action with prejudice pursuant to the defendants’ 12(b)(6) motion and dismissing the state law claims, over which it claimed1 only supplemental jurisdiction, without prejudice.2

In order to make out a civil claim under RICO by way of wire fraud, a plaintiff must allege that a group of defendants “engaged in a scheme to defraud with the specific intent to defraud and that they used ... the interstate wires in furtherance of the scheme,” McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 790 (1st Cir.1990), and in particular that defendants engaged in at least two instances of such predicate wire use, Ahmed v. Rosenblatt, 118 F.3d 886, 888 [244]*244(1st Cir.1997). The Federal Rules of Civil Procedure usually permit a plaintiff to make general allegations in a complaint, see

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Bluebook (online)
449 F.3d 240, 2006 U.S. App. LEXIS 13619, 2006 WL 1514289, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cordero-hernandez-v-hernandez-ballesteros-ca1-2006.