Efron v. Embassy Suites (Puerto Rico), Inc.

223 F.3d 12, 2000 U.S. App. LEXIS 19965, 2000 WL 1127835
CourtCourt of Appeals for the First Circuit
DecidedAugust 14, 2000
Docket99-1679
StatusPublished
Cited by175 cases

This text of 223 F.3d 12 (Efron v. Embassy Suites (Puerto Rico), Inc.) 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
Efron v. Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 2000 U.S. App. LEXIS 19965, 2000 WL 1127835 (1st Cir. 2000).

Opinion

COFFIN, Senior Circuit Judge.

Plaintiff-appellant David Efron, a member of a limited partnership formed to build and operate an Embassy Suites hotel in Puerto Rico, claims that several of his partners intentionally caused the project to experience financial difficulties in a scheme to extract additional money from him and other investors and, ultimately, to squeeze down the value of Efron’s substantial interest in the partnership. Efron brought a civil suit under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c), (d), and Puer-to Rico law. Concluding that the allegations in the complaint did not show RICO violations, the court dismissed the federal claims and declined to exercise supplemental jurisdiction over the Commonwealth claims. See Efron v. Embassy Suites (Puerto Rico), Inc., 47 F.Supp.2d 200 (D.P.R.1999). We affirm, agreeing with the district court that appellant has failed to adequately allege a “pattern of racketeering activity,” see 18 U.S.C. § 1962(c), but adding elaboration to its rationale.

I. Factual Background

We narrate the allegations contained in the complaint and RICO case statement in the' light most favorable to appellant. See Feinstein v. Resolution Trust Corp., 942 F.2d 34, 37 (1st Cir.1991). Efron and his associates formed the ES Hotel Isla Verde, S.E. Partnership (“the Partnership”) in 1995 to develop and operate an Embassy Suites hotel and casino in the Carolina section of San Juan, Puerto Rico. Efron contributed approximately $5 million in property and cash, receiving in return twenty-two percent of the equity in the project. Of the six other partners, four are defendants in this case: Cleofe Rubi Gonzalez (“Rubi”); his wife, Moraima Cintron de Rubi (“Cintron”); Mora Development Corporation (“MDC”), a company owned by Rubi; and Embassy Suites Isla Verde, Inc. (“ESIV”). Two other partners are described as co-victims, although they did not join Efron’s suit: Corporación De Desarrollo Hotelero (“CDH”), a public corporation that is a subsidiary of Puerto Rico’s Department of Tourism; and Fun-dación Segarra Boerman e Hijos (“FSBH”). Also named as defendants were several corporations affiliated with the defendant partners, including Embassy Suites (Puerto Rico), Inc. (“ESPR”), a company hired by the Partnership to manage the hotel, and First Big Island Steakhouse, Inc., a Rubi-controlled company *14 that leased space from the Partnership for a restaurant (“Outback”). Emma Cancio Santos, an attorney for ESIV and Rubi, also was named as a defendant.

Efron alleges that the defendants deliberately caused the hotel project to lose money by generating excessive construction costs, engaging in sweetheart leases with the on-site restaurant and gift shop, overpricing rooms, and performing other acts of mismanagement. According to the complaint, ESPR purposefully created artificial cash shortfalls, which under the Partnership agreement could be covered by capital calls to the limited partners. The agreement specified that a partner who did not provide the requested capital could have his interest reduced proportionately. Efron alleges that, to protect his initial investment and avoid losing his equity, he was forced to invest an additional $1 million in response to such capital calls. 1

Efron filed suit in October 1997. The amended complaint identified seventeen instances of alleged mail or wire fraud during a twenty-one-month period as the unlawful acts supporting a RICO claim, the first of which was a letter sent to the partners by Rubi on January 11, 1996, stating that the project was experiencing cost overruns of about $7 million. The subsequent letters fall into two general categories: (1) communications that relate to the project’s cost overruns and possible solutions, namely, capital contributions from the partners and refinancing, and (2) communications that concern appellant’s efforts to review the Partnership books and obtain information about the restaurant and other lease arrangements.

In addition to the substantive RICO claim, see 18 U.S.C. § 1962(c), the amend- ' ed complaint asserted a RICO conspiracy cause of action, see 18 U.S.C. § 1962(d), as well as claims under Commonwealth law for fraud, breach of contract, breach of fiduciary duty, and violation of the Puerto Rico RICO act.

The district court rejected defendants’ argument that the amended complaint lacked the particularity required for fraud claims under Fed.R.Civ.P. 9(b), but it concluded that appellant had not adequately alleged a pattern of racketeering activity. It alternatively ruled that Efron lacked standing to bring the RICO claims either individually or derivatively on behalf of the Partnership. Having dismissed the federal RICO claims, the court declined to exercise supplemental jurisdiction to hear the Commonwealth law claims. On appeal, Efron contends that the court improperly viewed the alleged facts and inferences in the defendants’ favor, leading it to conclude wrongly that he had failed to establish the elements of a RICO violation and conspiracy. He further maintains that the amended complaint demonstrates his standing, both individually for his unique damages and derivatively for the Partnership.

We turn now to the issue which we deem dispositive — whether the amended complaint described a “pattern” of racketeering activity. We first sketch the general principles governing RICO claims and then evaluate appellant’s specific contentions in light of those standards.

II. Discussion

To state a RICO claim under section 1962(c), a plaintiff must allege each of the four elements required by the statute: “ ‘(1) conduct (2) of an enterprise (3) *15 through a pattern (4) of racketeering activity.’ ” Feinstein, 942 F.2d at 41 (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)). 2 This case centers on whether Efron alleged sufficient facts to support a jury finding of a “pattern,” there being no dispute that the complaint adequately alleged the other components of a RICO violation. By statute, the “pattern” element requires a plaintiff to show at least two predicate acts of “racketeering activity,” which is defined to include violations of specified federal laws, such as the mail and wire fraud statutes, see 18 U.S.C. § 1961(1)(B), (5).

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Bluebook (online)
223 F.3d 12, 2000 U.S. App. LEXIS 19965, 2000 WL 1127835, Counsel Stack Legal Research, https://law.counselstack.com/opinion/efron-v-embassy-suites-puerto-rico-inc-ca1-2000.