Demauro v. Demauro

Opinion

[NOT FOR PUBLICATION--NOT TO BE CITED AS PRECEDENT]

United States Court of Appeals For the First Circuit

No. 99-1589

ANNETTE B. DEMAURO,

Appellant,

v.

JOSEPH DEMAURO, EDWARD MARTIN, DEMAURO CO., INC., NICHOLAS DEMAURO, TRI-AREA DEVELOPMENT CO., INC, and JOAN MARTIN,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Reginald C. Lindsay, U.S. District Judge]

Before

Selya, Circuit Judge,

Bownes, Senior Circuit Judge,

and Boudin, Circuit Judge.

S. James Boumil, for appellant.

Kathleen M. Morrissey, Zevnik, Horton, Guibord, McGovern, Palmer & Fognani, LLP with whom Bernard A. Dwork, Kevin P. Scanlon, Barron & Stadfelfd, P.C., Richard L. Fox, and Carragher & Fox, were on brief for appellees.

February 16, 2000

BOWNES, Senior Circuit Judge. This case is related to a lengthy and bitterly fought divorce proceeding in New Hampshire between plaintiff Annette B. DeMauro and the principal defendant, Joseph DeMauro. It would appear that the divorce proceedings were precipitated when Annette discovered that Joseph was having an affair with the household maid. As far as we know, there has been no final decree in the divorce proceeding. Plaintiff filed a six count amended complaint against her husband and the five other named defendants. Count One alleged violations of 18 U.S.C. 1961-1968 (1982), the Racketeer Influenced and Corrupt Organizations Act (RICO). Count Two alleged conspiracy by the defendants under RICO. The balance of the complaint alleged pendent state-law claims. Count Three alleged intentional infliction of emotional distress. Count Four alleged breach of fiduciary duty. Count Five alleged illegal telephonic recordings. Count Six alleged fraudulent conveyances. After a lengthy hearing, the district court dismissed the two RICO counts for failure to state a cause of action. It stated, inter alia: What I cannot find is a pattern of racketeering activity as defined by the RICO statute. Specifically, what I cannot find what the plaintiff claims to be a violation of the wire fraud and mail fraud statutes. [W]here this complaint is deficient is that it does not allege false or fraudulent pretenses, representations or promises, and to the extent that it does so allege, those allegations are not made with the specificity required by Rule 9(b).

The court declined to exercise supplemental jurisdiction with respect to Counts Three, Four, and Six. The court, sua sponte, dismissed the federal claim purported to be asserted in Count Five (entitled "Illegal Telephone Recordings") and declined to exercise jurisdiction over any state claim purported to be stated in that count. For the following reasons, we affirm, but on somewhat different grounds, as we can do. See Acushnet Co. v. Mohasco Co., 191 F.3d 69, 76 (1st Cir. 1999); see also Cablevision of Boston, Inc. v. Public Improvement Comm'n of the City of Boston, 184 F.3d 88, 97 (1st Cir. 1999). I. Standard of Review We review the district court's decision to dismiss Counts One and Two of the complaint de novo. See Doyle v. Hasbro, Inc., 103 F.3d 186, 190 (1st Cir. 1996). We accept as true "all well- pleaded factual averments and indulg[e] all reasonable inferences in the plaintiff's favor." Id. The district court's order of dismissal may be affirmed only if the "facts alleged, taken as true, do not justify recovery." Id. II. The Elements of a RICO Claim RICO makes it unlawful "for any person employed by or associated with any enterprise engaged in, or the activities of which effect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprises' affairs through a pattern of racketeering . . . ." 18 U.S.C. 1962(c). Section 1964(c) provides that a private party injured in his business or property as a result of a RICO violation may pursue a civil claim for treble damages. Although RICO is silent about what limitations period governs the filing of civil RICO claims, the Supreme Court has held that civil RICO actions are subject to a four-year limitations period. See Klehr v. A.O. Smith Corp., 521 U.S. 179, 183 (1997)(holding that civil RICO claims are subject to a four-year limitation period contained in 4B of the Clayton Act the statute of limitations that governs private civil antitrust actions seeking treble damages). For a civil RICO claim to survive a motion to dismiss, the complaint must allege: "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co.,Inc., 473 U.S. 479, 496 (1985); see also Doyle, 103 F.3d at 190. "In addition, the plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." Sedima, 473 U.S. at 496. The first requirement that the plaintiff must establish in order to survive a motion to dismiss is the existence of an enterprise. See Ahmed v. Rosenblatt, 118 F.3d 886, 889 (1st Cir. 1997). An "enterprise includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. 1961(4). Once the plaintiff establishes the existence of an enterprise, she must allege a pattern of racketeering activity. See McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 788 (1st Cir. 1990) ("Establishing a RICO violation under either section 1962(a) or section 1962(c), requires proof of a 'pattern of racketeering activity' . . . ."). A pattern of racketeering activity involves at least two predicate acts, the second of which must occur within 10 years of the first. See 18 U.S.C. 1961(5); see also Roeder v. Alpha Industries, Inc., 814 F.2d 22, 30 (1st Cir. 1987). This court has stated that "[i]t is not enough for a plaintiff to file a RICO action, chant the statutory mantra, and leave the identification of predicate acts to the time of trial." Feinstein v. Resolution Trust Corp., 942 F.2d 34, 42 (1st Cir. 1991). Predicate acts are acts indictable under certain specified laws, including the mail and wire fraud statutes. See McEvoy, 904 F.2d at 788. It is well-settled in this circuit that when a plaintiff relies on predicate acts containing fraud, they are subject to Rule 9(b)'s heightened pleading requirement. See New England Data Services, Inc. v. Becher, 829 F.2d 286, 288 (1st Cir. 1987)(stating that Rule 9(b) has been strictly applied where fraud lies at the core of the claim). Federal Rule of Civil Procedure 9(b) states that fraud must be pled with particularity. Thus, in order to survive a motion to dismiss, the plaintiff must state the time, place, and content of the alleged misrepresentation perpetuating that fraud. See Ahmed, 118 F.3d at 889. It is also well-established that a single criminal event does not constitute a pattern of racketeering activity. See Apparel Art Int'l, Inc., v. Jacobson, 967 F.2d 720, 722 (1st Cir. 1992); see also H.J. Inc. v. Northweatern Bell Telephone Co., 492 U.S. 229, 239 (1989)(finding "sporadic activity" does not form a pattern); Roeder, 814 F.2d at 31 (holding that a single bribe paid in three installments, each constituting a mail fraud violation, did not make out a "pattern"). Adequately alleging two predicate acts, although necessary, is not sufficient to establish a "pattern of racketeering activity." "The use of the word 'requires' as opposed to 'means' in 1651(5) indicates that alleging two acts of mail fraud (or two or more other statutorily defined predicate acts) is necessary but not sufficient to establish a pattern of racketeering activity." Fleet Credit Corp. v. Sion, 893 F.2d 441, 444 (1st Cir. 1990); see also H.J. Inc., 492 U.S. at 237; Roeder, 814 F.2d at 30 ("It is not enough that defendants may have engaged in racketeering 'acts'; these acts must constitute a 'pattern of racketeering activity' as construed under RICO for there to be liability."). Following the Supreme Court's lead in H.J., Inc., 492 U.S. at 238, we have held that a plaintiff seeking to establish a "pattern of racketeering activity" must establish that the "predicate acts are related and that they amount to or pose the threat of continued criminal activity (the 'continuity' requirement)." Ahmed, 118 F.3d at 889; see also Fleet, 893 F.2d at 444 (holding that a pattern of racketeering activity is formed if (a) the predicate acts were related, and (b) the predicate acts amount to, or pose a threat of, continued criminal activity); Roeder, 814 F.2d at 30 ("The constituent elements must be sufficiently related to one another and threaten to be more than an isolated occurrence."). To fulfill the relatedness requirement, the predicate acts must have the "same or similar purposes, participants, victims, or methods, or otherwise be interrelated by distinguishing characteristics and not be isolated events." Ahmed, 118 F.3d at 889; see also Fleet, 893 F.2d at 445. In establishing the continuity prong, the plaintiff must show "either that the related predicates 'amounted to' continued criminal activity or that there was, even though the predicate acts did not span a significant time, a 'threat' or realistic prospect of continued activity in time yet to come." Ahmed, 118 F.3d at 889 (quoting Feinstein, 942 F.2d at 45). The Supreme Court in H.J. Inc., 492 U.S. at 241, held that predicate acts amount to continued activity when they evince a "closed period of repeated conduct" or "past conduct that by its nature projects into the future with a threat of repetition." The Court has defined this as: a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct.

Id. at 242. We have previously stated that a threat of continued criminal activity for purposes of RICO is not established "merely by demonstrating that the [defendants'] acts of common law fraud were a regular way of conducting their ongoing businesses. Rather, the [plaintiff] must demonstrate that the predicate acts . . . were a regular way of conducting the ongoing businesses." Fleet, 893 F.2d at 448. With these tenets in mind, we turn to the plaintiff's complaint. III. Analyisis Paragraphs 12 through 17 of Count One of the complaint allege in effect: Paragraph 12: At the time of their marriage Annette and Joseph had few assets. Joseph was "in effect bankrupt." In 1975 they left Japan and moved to the Middle East where Joseph sought opportunities to engage in heavy construction; "an opportunity was found." Paragraph 13: Before taking Annette to the "extreme hardship" of the Middle East, Joseph promised Annette that they would "share and share alike" in any success they achieved. Paragraph 14: Joseph established a bank account for Annette and himself, first in the Middle East, and then in Switzerland. Joseph deposited the profits from the business into "their" account to pay their expenses and "apparently to induce her to believe that he was maintaining accounts in both names as promised." Joseph induced Annette to believe, "by his repeated promises, [that] they would share equally and hold" money earned in the Middle East for their "mutual benefit and control." Paragraph 15: Annette enhanced the success of the business by actually working in the office with Joseph, by arranging and providing entertainment and social activities for employees and customers, by providing counseling and psychological assistance to employees of the company and their families, and by sharing the physical risk of the location. Paragraph 16: Joseph, either directly or indirectly, established bank accounts in foreign jurisdictions in the name of Nicholas DeMauro. Into those accounts, Joseph deposited or caused to be deposited profits from the business and joint assets, thus concealing the assets from Annette. This scheme continues to this day. Paragraph 17: Over the years the business earned millions of dollars by Joseph's own accounting; substantial money was earned on these profits. Annette did not object to the receipt and management of these funds by Joseph because he represented that he was taking care of their monetary affairs and was investing for both of them.

None of the allegations in paragraphs 12 through 17 show an enterprise engaged in a pattern of racketeering activity. Concealment of assets by a husband from a wife is reprehensible and may be a crime under certain circumstances but that does not render it a pattern of racketeering activity perpetuated through an enterprise. Moreover, paragraph 17 states that "Annette did not object to the management of these funds by Joseph."

Paragraphs 18 through 21 allege in effect: Paragraph 18: Starting in 1976, Joseph started a pattern of racketeering activity "known as the RICO conduct" which continues to this day. This pattern of activity was designed to conceal from Annette the assets accumulated from the business and to convince Annette and others that the assets were being held jointly while actually Joseph defrauded her and misled her and others as to their nature, location, extent and existence. Paragraph 19: Joseph conspired with the other defendants in a continuous enterprise continuing to this day. The corporate defendants were used as shams to further the RICO enterprise. All the named personal defendants were agents and co-conspirators of Joseph. Paragraph 20: Joseph, acting in concert with the other defendants from time to time, by means of "false pretenses, representations and 'devices' established bank and investment accounts in Switzerland, Middle East, France, Liechtenstein, several states of the United States." Most of these accounts were established under the names of "straws, sham trusts and phony foundations." This was all done to conceal the assets from Annette and other creditors. Thus, assets of Annette, including assets from her first marriage, were taken from her and concealed. Paragraph 21: In doing the things alleged in Paragraph 20, Joseph made "extensive use of the wires and mails of the United States."

Paragraphs 18 through 21 fail to plead fraud with particularity. Paragraph 18 uses the words "pattern of racketeering activity," "RICO conduct," and "defrauded," but does not specify as to when the activity took place and what was done. Paragraphs 19, 20, and 21, similarly use broad conclusory language. The last sentence of paragraph 20 does not state either the value of Annette's assets or of what they consisted. We do not doubt that Joseph made "extensive use of the wires and mails of the United States" but that is only one factor to consider in determining the validity of the complaint. As we have stated previously, to plead fraud with particularity pursuant to Rule 9(b), a plaintiff must state the time, place, and content of the alleged misrepresentation perpetuating the fraud. Annette fails to do this.

Paragraphs 22 through 28 allege in effect: Paragraph 22: Joseph caused property known as 2595 Ocean Blvd., Rye Beach, NH to be placed in the name of the "Klaidonis Foundation" despite the fact that a Purchase and Sale Agreement for the property had been executed in the names of Annette and Joseph. Annette had not been informed of the change in ownership of the property. Paragraph 23: In operating the Klaidonis Foundation, Joseph used the wires and mails of the United States to transfer "in excess of $2 million in interstate commerce in furtherance of this scheme." The existence of the Klaidonis Foundation was concealed from Annette and only discovered recently. The existence of this sham foundation was only discovered after the divorce action commenced. Paragraph 24: Exhibit A is a true and accurate copy of the deposition of the Honorable John Maher (now a judge) concerning the purchase of the 2595 Ocean Blvd. property. It summarizes the deposition testimony of Judge Maher in four subparagraphs. Paragraph 25: Joseph induced Judge Maher to place the property in the name of the Klaidonis Foundation. This inducement was obtained by fraud on the part of Joseph. Paragraph 26: Since January 13, 1988, Joseph has used the wires and mails of the United States to "contact, instruct and compensate his foreign agents who hold and maintain the Klaidonis Foundation for his benefit." This is part of a plan and scheme through an illegal enterprise which continues to this day. Paragraph 27: Joseph has taken the position and has instructed his attorneys and agents to take the false position that he has no interest in or knowledge of the Klaidonis Foundation. Joseph has an outstanding warrant against him. Joseph makes constant threats to Annette to the effect that he will abandon any interest in the Rye Beach property and let his creditors take it and "auction Annette's interest in the property." This is to increase Joseph's pressure on Annette and pressure her to settle all outstanding cases against him, including this one, on his own terms. Paragraph 28: On November 16, 1988, Joseph signed a building permit application listing himself as owner of the property. This shows that the Klaidonis Foundation is a mere straw.

We think that paragraphs 22 through 28, construed most favorably to Annette, set forth sufficient facts to allege one RICO predicate act. Although it is a close call, we think the allegations of fraud meet the specificity requirement of Fed. R. Civ. P. 9(b). As we construe these allegations, they state that at the time of purchasing the property described therein, Joseph led Annette to believe that the title to the real estate would be in both their names. We construe this to allege that there was a deliberate misrepresentation by Joseph on which Annette relied and that Joseph defrauded her by placing the property in the name of the Klaidonis Foundation, which was owned and controlled by Joseph.

Paragraphs 29 through 32 bring another foundation into the picture. They allege in effect: Paragraph 29: Joseph established the Redonia Foundation as a sham entity. Joseph used the mails and wires of the United States to deposit, in five named banks and other banks, "hundreds of thousands of dollars" which he used to make, improve and conceal the ownership of investments here in the U.S. Paragraph 30: Twenty-five specific examples of wire transfers of money to a Luxembourg Bank, Credit Swisse Bank, and Union Bank-Switzerland are stated. The money was hidden in the "Redonia Foundation." This is part of Joseph's scheme and artifice to defraud Annette "and as an integral part of defendant's RICO activity." Paragraph 31: There were numerous other wire transfers "siphoning off" Annette's assets "from the foreign bank accounts to which [Joseph] had removed them to Defendant DeMauro Co., and each of the other defendants." Paragraph 32: Nicholas DeMauro knew that the Redonia Foundation was a sham used by Joseph to conceal assets in offshore entities and then wire them into the United States.

None of these paragraphs state that a fraud was committed against Annette with the specificity required by Fed. R. Civ. P. 9(b). Although Annette has alleged the use of the U.S. mails and/or wires, by documenting some times and places of these transfers, she fails to allege the content of any misrepresentation.

The balance of the complaint fails to state a second predicate act, which is required for a RICO violation. Some of the remaining paragraphs repeat prior allegations and others are window dressing. Paragraphs 33 through 66 allege in effect: Paragraph 33: Joseph, Nicholas DeMauro, Edward Martin, DeMauro Co., Inc. and Tri-Area Development Co., Inc., have conspired to place in excess of a million dollars into defendant corporations. There are nine separate sub-paragraphs detailing how this conspiracy was carried out. Paragraph 34: Joseph used the wires and mails to deposit money in the Lowell Five Cents Savings Bank to acquire and maintain properties which he concealed from Annette. Paragraph 35: Identification of some of the concealed properties and the names of those holding the properties are stated. The properties have no mortgages and their estimated value is "hundreds of thousands of dollars." Paragraph 36: Most, if not all, of the money used to acquire the properties described in Paragraph 35 is a joint asset. Paragraph 37: Joseph and Nicholas DeMauro acquired property in Tyngsborough, MA with Annette's money. This property is in the names of DeMauro Co., Inc. and Tri-Area Development Co., Inc. Paragraph 38: There were no mortgages on the Tyngsborough properties, and DeMauro Co., Inc. and Tri-Area Development Co., Inc., the named owners, had no viable source of credit, but construction costing hundreds of thousands of dollars is being done. Joseph has "wire transferred" money to both corporations "in furtherance of the scheme." There are seven sub-paragraphs detailing a purported money laundering scheme involving $60,000. Paragraph 39: Joseph makes multiple phone calls to Annette telling her that he has hidden her assets and she will get nothing. The amount of Annette's money so concealed is "well in excess of ten million dollars." Paragraph 40: Joseph has been using DeMauro Co., Inc. and Tri-Area Development Co., Inc. to provide a means of support for his two sons, Nicholas and Michael. The sons are assisting him in conducting his racketeering activity and fraud. Paragraph 41: The payments to Joseph's sons deprived Annette of money and property due her. Paragraph 42: DeMauro Co., Inc. has provided assets to Joseph's brother-in-law Edward Martin and his sister Joan Martin by listing on its financial statements a false account payable to Edward Martin in the amount of $135,000. Paragraph 43: More details are laid out about the $135,000 referred to in paragraph 42. Paragraph 44: Assets of more than $500,000 have been fraudulently transferred to Edward and Joan Martin. Paragraph 45: Joseph and some other defendants have participated in money laundering. Paragraph 46: Joseph has used other persons "innocent and otherwise" to attend real estate auctions and bid on property for him and he concealed such purchases from Annette. Paragraph 47: Property in the name of Tri-Area Development Co., Inc. as described by deed in Exhibit L is an example of Joseph acquiring property from marital assets and concealing it in the name of another. Paragraph 48: Joseph and the other defendants conspired to hide Annette's assets, thus depriving her of millions of dollars. Paragraph 49: Joseph falsely represented to the Town of Rye, NH that the Klaidonis Foundation is the owner of 2595 Ocean Blvd. in Rye, NH. Joseph invested hundreds of thousands of dollars, obtained from abroad, in renovating the property. Paragraph 50: Joseph has used the wire and mails to conceal assets and siphon off assets belonging to Annette. Paragraph 51: Joseph, working with Nicholas DeMauro, submitted false and misleading loan applications to FDIC insured lending institutions. Paragraph 52: Specific threats, intimidations, harassment and extortion of Annette by Joseph are described. Paragraph 53: The allegations in paragraph 52 violate the laws of New Hampshire and the United States. Paragraph 54: Joseph has secretly tape-recorded conversations with Annette and played portions of the tapes to third parties. Paragraph 55: Joseph has used a law firm in West Palm Beach, Florida to pay bills and conceal from Annette the origin of his funds. Paragraph 55(a): Annette and Joseph, through a trust established by Joseph, own property in Manalapan, Florida. Five sub-paragraphs detail how Joseph has extorted Annette and misused the property causing her damages in excess of $50,000. Paragraph 56: Joseph misused credit cards in Annette's name to purchase goods. Paragraph 57: Joseph has falsely registered at hotels with other women posing as Annette. Paragraph 58: Joseph purchased a yacht with another person and then deliberately damaged it so that he could claim it did not meet contract specifications. A judgment has been entered against Joseph, threatening Annette in the amount of many hundreds of thousands of dollars. Paragraph 59: Joseph has, within the last two years, furthered a conspiracy to defraud and extort Annette. There are four sub-paragraphs of specifications. We have read the sub- paragraphs carefully and they neither singly nor in the aggregate allege facts sufficient to prove a present conspiracy to defraud and extort Annette. Paragraph 60: The defendants have repeatedly used wires, mails, and other means of interstate commerce to violate RICO. Paragraph 61: As the result of Joseph's illegal activities, Annette has been unable to locate and control her assets. Paragraph 62: Nicholas DeMauro has admitted in a public document that the stock of DeMauro Co., Inc. is owned by Joseph. Three sub-paragraphs from a pre-trial memorandum filed in Massachusetts Probate Court follow. Paragraph 63: Nicholas DeMauro is causing valuable property to be deeded to him by DeMauro Co., Inc. in fraud of Annette's rights. Paragraph 64: Joseph, during his deposition, invoked the 5th Amendment privilege "to virtually every question." There is no paragraph numbered 65. Paragraph 66: Joseph has stolen private papers of Annette and refuses to return them. Paragraph 66(a) states that the complaint does not allege: that Joseph is guilty of income tax evasion, has received any illegally paid wages, or that any wages he has earned from his own employment are from any criminal enterprise. The final sub- paragraph (d) states that the purpose of this statement is because Joseph has invoked the fifth amendment in his depositions without any basis for doing so.

Although the allegations described in paragraphs 33 through 66 recite serious crimes and reprehensible conduct, none of them, singly or consolidated, set forth a second predicate act sufficient to meet the legal requirements for a RICO violation. IV. Conclusion Paragraphs 12 through 17 do not show an enterprise engaged in a pattern of racketeering activity. Paragraphs 18 through 21 fail to plead fraud with particularity. Paragraphs 22 through 28 set forth sufficient facts to allege one predicate act. Paragraphs 29 through 32 do not state that a fraud was committed against Annette with the specificity required by Rule 9(b). Paragraphs 33 through 66 fail to set forth a second predicate act. Therefore, we affirm the district court's ruling to dismiss Counts One and Two of the complaint. We point out that our affirmance of the dismissal does not leave Annette without other remedies. As noted in our prior opinion, she has obtained attachments in state court totaling 33 million dollars in property owned partly or solely by Joseph. See DeMauro, 115 F.3d at 97. We find no merit in plaintiff's objections to the district court's dismissal of the other counts in the complaint. See 28 U.S.C. 1367(c) (1990). Judgment affirmed.