O'Ferral v. Corporation

• Court: Court of Appeals for the First Circuit
• Decided: July 9, 1993
• Docket: 92-2303
• Status: Published

Opinion

USCA1 Opinion

July 9, 1993          [NOT FOR PUBLICATION]
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                 ____________________

        No. 92-2303

                          MANUEL RODRIGUEZ-O'FERRAL, ET AL.,

                               Plaintiffs, Appellants,

                                          v.

                          TREBOL MOTORS CORPORATION, ET AL.,

                                Defendants, Appellees.

                                 ____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                     [Hon. Carmen C. Cerezo, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                 Breyer, Chief Judge,
                                         ___________

                                    Selya and Cyr,

                                   Circuit Judges.
                                   ______________

                                 ____________________

Luis  G. Rull n-Mar n  with whom  Zoraida Buxo  was on  brief for
             _____________________             ____________
        appellants.
             Mari   del Carmen  Taboas  with whom  Heriberto J.  Burgos-P rez,
             _________________________             __________________________
        Fiddler,  Gonz lez &  Rodr guez,  Rafael  P rez-Bachs, and  McConnell,
        _______________________________   ___________________       __________
        Vald s,  Kelley,  Sifre,  Griggs  &  Ruiz-Suria  were  on  brief   for
        _______________________________________________
        appellees.

                                 ____________________

                                 ____________________

Per  Curiam.    Plaintiffs Manuel  Rodriguez  O'Ferral, Edma
                  Per  Curiam.
                  ___________

        Mirta Diaz,  and their  conjugal partnership,  appeal from  a district

        court  judgment  dismissing their  civil  action  under the  Racketeer

        Influenced  and  Corrupt   Organizations  Act   ("RICO"),  18   U.S.C.

          1964(c), pursuant to  Fed. R.  Civ. P. 12(b)(6),  and denying  their

        motion to certify a plaintiff class pursuant to Fed. R. Civ. P. 23(a).

        Finding no error, we affirm.

I
                                          I

                                      BACKGROUND
                                      BACKGROUND
                                      __________

                  We  review a Rule 12(b)(6)  dismissal de novo, accepting all
                                                        __ ____

        allegations in  the complaint,  and drawing all  reasonable inferences

        favorable  to plaintiffs.  Heno v. Federal Deposit Ins. Corp., No. 92-
                                   ____    __________________________

        1936, slip op. at 2 (1st Cir. June 3, 1993);   Feinstein v. Resolution
                                                       _________    __________

        Trust Corp.,  942 F.2d 34,  37 (1st  Cir. 1991).   In September  1986,
        ___________

        appellants purchased  a new Volvo  from Trebol Motors  Corporation and

        Trebol  Motors Distributor  Corporation  ("Trebol"),  exclusive  Volvo

        distributors in Puerto  Rico.  Appellants,  who had planned  to buy  a

        Volvo  240 DL  ("Volvo DL"),  were persuaded  by a Trebol  salesman to

        purchase  a  Volvo  240 GLE  ("Volvo  GLE"),  a  more prestigious  and

        expensive  model.    Thereafter,  appellants  discovered documentation

        inside the  vehicle, listing its identification  number and describing

        it as a Volvo DL.

                  In  May  1991,  appellants  filed  a  civil  RICO  complaint

against,  inter alia,  Trebol, Volvo  Cars of  North America,  and the
                  _____ ____

        foreign  manufacturers,  Volvo  Car Corporation  and  Volvo Gothenburg

        Sweden, see  18 U.S.C.    1964(c),1 alleging  that the  defendants had
                ___

        engaged  in a  seven-year  scheme  to  defraud Trebol's  customers  by

        selling  Volvo DL  vehicles "doctored"  by Trebol  to look  like their

        pricier  cousin     the  Volvo GLE.2    As the  predicate  "pattern of

        racketeering  activity,"  see  18  U.S.C.    1961(1),  (5), appellants
                                  ___

        alleged  that  the defendants  committed  "millions"  of "public"  and
                              
          ____________________

               1RICO   1964(c) provides:

               Any  person  injured in  his  business  or property  by
               reason of a  violation of section 1962 of  this chapter
               may sue  therefor  in  any  appropriate  United  States
               district court and shall recover  threefold the damages
               he sustains  and  the cost  of  the suit,  including  a
               reasonable attorney's fee.

          18 U.S.C.   1964(c).   Appellants alleged violations of   1962(a)
          (to  "use  or   invest"  income  derived   from  a  "pattern   of
          racketeering  activity"),    1962(b)  (to "acquire  or  maintain"
          through a "pattern  of racketeering activity" an interest  in any
          enterprise),    1962(c) (to  "conduct or  participate"  through a
          "pattern  of  racketeering  activity"   in  the  conduct  of  any
          enterprise), and    1962(d) (to "conspire" to  violate   1962(a),
          (b), or (c)).

               2Appellants alternatively allege that Volvo discontinued its
          premium GLE model by 1984 (a material fact which Trebol allegedly
          withheld from its Puerto Rico customers), or that if factory-made
          GLEs  were still in production  at Volvo, Trebol  chose to import
          the less expensive DL  models, which had been fitted  with $2,000
          worth  of additional  options.   Trebol  sent  the Volvo  DLs  to
          Showroom   Auto   Services,   Inc.,   which   replaced   the   DL
          identification "badge" on  the automobile with  a GLE badge,  and
          removed  all   other  documentary   evidence  of  the   DL  model
          classification.  Trebol listed the disguised DLs as GLEs at $7000
          over  the price for  its standard  DL models,  a price  which far
          exceeded the  cost of the  $2000 option  package incorporated  in
          each car.  The alleged "scheme" resulted in net damages of $5,000
          to each Trebol customer.

                                          3

"private" acts of  mail, wire, and bank fraud, see  18 U.S.C.    1341,
                                                       ___

        1343, 1344, in furtherance of their GLE scam.  The predicate "private"

        acts allegedly consisted of an  unspecified number of telephone, wire,

        and  mail communications  among  the various  defendants.   Appellants

        asserted  that  further  discovery  of defendants'  internal  business

        records  would  be  necessary to  enable  them  to  specify the  exact

        contents and participants  in these communications.   See New  England
                                                              ___ ____________

        Data Servs.,  Inc.  v.  Becher, 829  F.2d  286, 291  (1st  Cir.  1987)
        __________________      ______

        (favoring liberal pre-dismissal discovery to permit RICO plaintiffs to

        allege  "scheme to  defraud"  by obtaining  information regarding  the

        time,  place,  and  contents  of  confidential  communications  within

        defendants'  exclusive control).   On  the other  hand, the  predicate

        "public"  acts allegedly consisted  of Trebol's  commercial advertise-

        ments and  direct promotional mailings enticing  customers into Trebol

        to purchase Volvo GLEs during the  period from 1984 to 1991.  Attached

        to  their complaint were photocopies  of nine ads  and eight mailings,

        all dated after July 1989.  Appellants  themselves allegedly sustained
                  _____

        property damage in  the amount  of $5,000, the  net cost  differential

        between  the  Volvo DL  and the  pseudo-Volvo  GLE, and  sought certi-

        fication  of a plaintiff  class, estimated at  15,000 Trebol customers

        who purchased GLEs from 1984 to 1991, holding aggregate  claims of $75

        million trebled ($225 million).

                  The   district  court   stayed  further   discovery  pending

        disposition of defendants' Rule 12(b)(6) motion and appellants' motion

        for  certification under  Rule 23(a).   Meantime,  the  court directed

                                          4

appellants to submit  a more  particularized statement  of their  RICO

        claim, fleshing out  the factual underpinnings for the  allegations in

        their  complaint.3  In September 1992, based on the unmended vagueness

        of  appellants' particularized seventy-nine page RICO-claim statement,

        the court denied  their motion for class  certification, and dismissed

        the  complaint  for failure  to allege  predicate  acts of  fraud with

        sufficient particularity  under Fed.  R. Civ.  P. 9(b).4   Thereafter,

        the court denied plaintiffs' motion to amend the complaint.  See infra
                                                                     ___ _____

        note 8.

II
                                          II

                                      DISCUSSION
                                      DISCUSSION
                                      __________

                  We  have  imposed  a   threshold  requirement  that  a  RICO
                              
          ____________________

               3Far  from particularizing appellants'  complaint, the RICO-
          claim  statement provides  general  statistical  data  concerning
                                     _______
          Trebol's  total television and newspaper advertising expenses for
          the years 1988-1991.  Appellants also alleged that they had found
          that  15 more  Trebol advertisements  were published  in  a local
          newspaper  during August and September 1986, at or about the time
          they purchased their Volvo GLE.  No photocopies of these ads were
          appended.  As described by appellants, however, these ads  merely
          "offer[ed]  for sale  a Volvo  240 GLE,"  but contained  no other
          representations   by  Trebol.     Most   importantly,  appellants
          implicitly concede in  their complaint  that Trebol's  advertise-
          ments  and mailing  did not  lure them  into buying a  GLE, since
          appellants arrived on the Trebol lot in 1986 intent on purchasing
                     _______
          a Volvo DL.
            ________

               4Rule  9(b) requires that,  "[i]n all averments  of fraud or
          mistake,  the  circumstances constituting  the  fraud or  mistake
          shall be stated with particularity."  Fed. R. Civ. P. 9(b).  Rule
          9(b)  disqualifies conclusory  factual allegations  which  do not
          afford sufficient notice of the fraud  claim to enable defendants
          to  prepare  their  defense,  with  a  view  to   minimizing  the
          reputational harm caused by the filing of pretextual or frivolous
          fraud claims.  See New England Data, 829 F.2d at 289.
                         ___ ________________

                                          5

complaint "state facts sufficient to portray (i) specific instances of
                                                         ________ _________

        racketeering activity within the reach of the RICO statute and 

6

(ii)  a  causal nexus  between that  activity  and the  harm alleged."
                 ______ _____

        Miranda v.  Ponce Fed. Bank, 948 F.2d 41, 44 (1st Cir. 1991) (emphasis
        _______     _______________

        added); see also  Figueroa-Ruiz v. Alegria, 896 F.2d 645, 648 n.3 (1st
                ___ ____  _____________    _______

        Cir. 1990) (delineation of predicate acts of  fraud under RICO must go

        beyond "vague references"); supra note  4.  We turn first to  the con-
                                    _____

        spicuous  temporal impediments  underlying appellants'  "causal nexus"

        allegations.

                  Appellants  concede  that Trebol's  seventeen advertisements

        and mailings, none of which preceded their own 1986 Volvo purchase and

        most  of which (with one  exception) were not  directed to appellants,

        could not  have been the proximate cause of their injury. See Arzuaga-
                                                                  ___ ________

        Collazo v.  Oriental Fed.  Sav. Bank,  913 F.2d 5,  7 (1st  Cir. 1990)
        _______     ________________________

        (defendants' misrepresentations took  place after plaintiffs'  injury,
                                                    _____

        sustained at the  time they  moved into the  defective homes);  McEvoy
                                                                        ______

        Travel Bureau, Inc. v.  Heritage Travel, Inc., 904 F.2d 786,  792 (1st
        ___________________     _____________________

        Cir.)  (illegal payments  occurred  after  RICO  defendant  terminated
                                            _____

        contract),  cert. denied, 498 U.S. 992 (1990);  see also supra note 3.
                    _____ ______                        ___ ____ _____

        They argue, nonetheless, that recovery under RICO may be predicated on

        what they characterize  as an  "indirect" section 1962  injury.5   For
                              
          ____________________

               5Appellants argue that Holmes v. Securities Investor Protec-
                                      ______    ___________________________
          tion Corp., 112 S. Ct. 1311 (1992), and Sedima, S.P.R.L. v. Imrex
          __________                              ________________    _____
          Co., 473 U.S. 479 (1985), support the view that specific allegat-
          ___
          ions  that other  Trebol customers probably  were induced  to buy
                     _____
          Volvo GLEs as a result of particular acts of mail and wire fraud,
          and that those customers  incurred "section 1961 injuries" (i.e.,
                                                                      ____
          damages  directly traceable  to  predicate acts  of fraud)  would
          suffice to establish Trebol's continuing "scheme to defraud."  It
          follows, say appellants,  that they need not allege  with further
          specificity any particular predicate  act of fraud which directly
                          __________                               ________

                                          7

the reasons discussed below, we need  not reach appellants' circuitous

        "causal nexus" argument.

                  Even  assuming  their  argument  had  merit,  their  alleged

        "section  1962  injury" would  be actionable  under  RICO only  if the

        predicate  acts  alleged  in  the complaint  constitute  "racketeering

        activity" or, in other  words, were "indictable" under the  mail, wire

        or bank  fraud  statutes.   See 18  U.S.C. 1961(1).   Their  complaint
                                    ___

        alleged that the defendants  "falsely represented to customers willing
                                      _______ ___________

        to purchase motor vehicles  that they have available for  sale factory
                                                                       _______

        made models  (such as the  Volvo 240 GLE), which  were models distinct
        ____

        and  allegedly superior to the  other models then  manufactured by the

        company (such as  the Volvo 240 DL)," and that  plaintiffs "relied on,
                                                                    ______ __

        and  accepted as  true[,] the representations  [that] . . .  they were

        actually purchasing a superior automobile, a so-called  'international

        classic', factory built and inherently more expensive motor vehicle."
                  _______ _____

                  Although we  have  combed  the entire  record,  we  find  no

        indication  that Trebol ever  falsely represented that  it was selling

        "factory made" Volvo  GLEs, as  plaintiffs assert.   On the  contrary,

        during its  twenty-fifth anniversary sale at  least, Trebol advertised

        for  sale its  own  customized versions  of the  Volvo  GLE ("ha  sido

        preparado especialemente para  conmemorar") apparently configured with
                              
          ____________________

          caused  them  to  buy their  1986  Volvo,  provided  their injury
          proximately resulted from Trebol's sale  of a disguised Volvo DL,
          or in other  words, as an  integral part of  the same "scheme  to
          defraud."   See 18 U.S.C.    1964(c) ("Any person  injured in his
                      ___
          business or property  by reason  of a violation  of section  1962
                                __ ______  __
          . . . .") (emphasis added).

                                          8

optional  equipment  in essentially  the same  fashion as  the vehicle

        plaintiffs  purchased.     Moreover,   appellants  never  alleged   or

        demonstrated that the nominal  classification "GLE", whether generated

        at the factory or elsewhere along the distributional chain, invariably

        connotes a fixed set of features or options of determinate value,  nor

        have appellants  suggested  that  defendants  misled them  as  to  the

        options  or features actually incorporated  in the Volvo  240 GLE they

        purchased.   Rather,  these ads  and mailings  suggest, at  most, that

        plaintiffs  presumed  too much     namely,  that  all Volvo  GLEs were

        monolithic  and  immutable assemblages.    Although  various types  of

        "deceptive  conduct"  other  than  affirmative  misrepresentations may

        amount to  a "scheme to defraud"  under the mail, wire,  or bank fraud

        statutes, see United  States v. Brien,  617 F.2d 299, 307  (1st Cir.),
                  ___ ______________    _____

        cert. denied, 446  U.S. 919 (1980); see also United States v. Fontana,
        _____ ______                        ___ ____ _____________    _______

        948 F.2d  796, 806 (1st Cir.  1991) (mail fraud); McEvoy,  904 F.2d at
                                                          ______

        791 (mail  fraud and  RICO), we think  the requirements  of Rule  9(b)

        demand greater  particularity than  plaintiffs provided here,  even in

        the liberal environs of Rule 12(b)(6).

                  Appellants' complaint asserts that, even  if defendants made

        no misrepresentations or misleading  statements, the scheme to defraud

        was perpetuated  "through their nondisclosure . . .  of material facts
                                        _____________           ________ _____

        involved  in the purchases, namely,  the non-existence of  the 240 GLE

        . . .  or the  fact  that  they  were  making  minor  and  inexpensive

        modifications to the less expensive models in order for them to appear

        to be  more expensive  models and/or the  fact that these  models were

                                          9

modified  in  situ and  were not  built  at the  manufacturing plant."

        (Emphasis added.)   They argue that  their civil RICO  claim need  not

        depend  on an allegation that the defendants were under an affirmative

        duty  to  disclose.    We  do  not agree.    Especially  when  alleged

        violations  of the  mail,  wire,  or  bank  fraud  statutes  form  the

        predicate acts relied on in a civil RICO complaint, mere nondisclosure

        will  not  defeat   a  Rule  12(b)(6)  motion  absent  a  demonstrated

        affirmative  duty  to  disclose,  or  some  special  circumstance  not

        presented here.   See, e.g., Reynolds v. East Dyer  Dev. Co., 882 F.2d
                          ___  ____  ________    ___________________

        1249, 1252 (7th Cir.  1989) (absent some statutory or  fiduciary duty,

        affirmative   misrepresentations,   "half-truths,"  or   elaborate  or

        deliberate acts  of concealment, mail  and wire fraud  statutes cannot

        form  predicate  for  RICO  violation).6    Absent  such  a  threshold

        requirement,  civil RICO could be  invoked for the  redress of routine

        "consumer  protection" and "breach of contract"  claims.  See Arzuaga-
                                                                  ___ ________

        Collazo, 913 F.2d at 5, 6-7 (suggesting that RICO claims which  reduce
        _______

        to ordinary  "consumer protection"  claims, based on  sellers' nondis-

        closure of  material information, are  best left to  remediation under

____________________

               6See also United States v. Biesiadecki, 933 F.2d 539, 542-43
                ___ ____ _____________    ___________
          (7th Cir. 1991)  (distinguishing Reynolds as  nondisclosure case,
                                           ________
          noting  that nondisclosure  may serve  as evidence of  fraud when
          coupled with affirmative misrepresentations); Kehr Packages, Inc.
          _______                                       ___________________
          v. Fidelcor, Inc., 926  F.2d 1406, 1416 (3d Cir.),  cert. denied,
             ______________                                   _____ ______
          111 S.  Ct. 2839  (1991); California Architectural  Bldg. Prods.,
                                    _______________________________________
          Inc.  v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1472 (9th Cir.
          ____     _________________________
          1987), cert. denied, 484 U.S. 1006 (1988).
                 _____ ______

                                          10

state law).7

                  Even if further particularization  of the alleged  "private"

        predicate acts  might arguably await additional  discovery, appellants

        have  failed to allege even one "public"  predicate act    that is, an
                                    ___

        act of  misrepresentation or actionable nondisclosure  by Trebol which

        satisfies the specificity requirement  of Fed. R. Civ.  P. 9(b).   See
                                                                           ___

        New England Data, 829 F.2d  at 291 (liberal discovery allowed only  if
        ________________

        RICO complaint "otherwise  alleges detailed facts")  (emphasis added).
                        _________

        Were  these RICO  plaintiffs  licensed to  launch  a belated  "fishing

        expedition"  on the brink of a Rule 12(b)(6) dismissal, without having

        made  at least one manifest  allegation of actionable  fraud, we would
                           ________  __________

        invite commonplace abuse  of civil  RICO and routine  deferral of  the

        particularized pleading required by Rule 9(b).  The district court ap-

        propriately  concluded that  additional discovery  would amount  to an

        unwarranted and "expensive fishing expedition," and properly dismissed

____________________

               7As  newfound grounds  for asserting  that defendants  had a
          duty  to disclose,  appellants ask  this court  to take  judicial
          notice of the Disclosure of Automobile Information Act, 15 U.S.C.
             1231-1233, and  its Commonwealth  analog, P.R. Laws  Ann. tit.
          13,   7351, which purportedly proscribe the removal of automobile
          manufacturers'  labels  disclosing new-vehicle  model classifica-
          tions.    Neither statute  was cited  or  argued to  the district
          court.   Issues raised  for the first  time on appeal  are deemed
          waived.   See Arzuaga-Collazo,  913  F.2d at  7 (RICO  plaintiffs
                    ___ _______________
          cannot rely  on Thrift  Institutions Restructuring Act  on appeal
          from a  Rule 12(b)(6)  dismissal if  they did  not assert  a TIRA
          claim "either before or  after judgment was entered"  in district
          court); see also Goldman v. First Nat'l Bank, 985 F.2d 1113, 1116
                  ___ ____ _______    ________________
          n. 3 (1st Cir.  1993); Miller v. United States  Postal Serv., 985
                                 ______    ___________________________
          F.2d 9, 12 (1st Cir. 1993).

                                          11

the complaint for failure to state a claim.8

                  Affirmed.
                  Affirmed.
                  ________

____________________

               8Appellants  moved to  amend their  complaint  following its
          dismissal.   The  motion identified,  for the  first time,  a few
                                                ___ ___  _____ ____
          other members of  the proposed plaintiff  class (persons who  had
          bought Volvo GLEs from Trebol), and adverted to additional Trebol
          advertisements  published just  prior to  appellants' 1986  Volvo
          purchase.   For the reasons previously  stated, neither amendment
          would have cured the  essential deficiency in their complaint    
          the failure to allege even one affirmative misrepresentation or a
          duty  to  disclose  material   facts.    See  Correa-Martinez  v.
                                                   ___  _______________
          Arrillaga-Belendez,  903 F.2d 49, 59 (1st Cir. 1990) (no abuse of
          __________________
          discretion  where  RICO  complaint  was so  vague  that  proposed
          amendment would be "futile").

                                          12