Title Tabas v. Tabas
Date 1995
By
Subject Other\Concurring
Contents
Page 1
39 of 52 DOCUMENTS
HARRIETTE S. TABAS; RICHARD S. TABAS; NANCY C. TABAS; GERALD LEVINSON, As Executors of the Estate of CHARLES L. TABAS Appellants v. DANIEL M. TABAS; JOSEPH P. CAMPBELL; JAMES J. MCSWIGGAN; LEE A. TABAS; ROBERT TABAS; SUSAN TABAS TEPPER; LINDA TABAS STEMPEL; JOANNE TABAS WURZAK; CAROL TABAS STOFMAN; HOWARD WURZAK
Nos. 92-1495, 92-1529
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
47 F.3d 1280; 1995 U.S. App. LEXIS 2585
January 26, 1993, Argued
February 13, 1995, Filed
SUBSEQUENT HISTORY: **1 As Amended February 23, 1995. Second Amendment March 1, 1995. Third Amendment March 7, 1995. Fourth Amendment May 2, 1995.
PRIOR HISTORY: On Appeal From the United States
District Court For the Eastern District of Pennsylvania.
(D.C. Civil Action No. 91-01355).
CASE SUMMARY:
PROCEDURAL POSTURE: Plaintiff executors sought review of a decision from the United States District Court For the Eastern District of Pennsylvania that granted sum- mary judgment in favor of defendant president of partner- ship with decedent, in an action alleging RICO violations as well as several state law claims stemming from defen- dants' handling and distribution of the business assets.
OVERVIEW: Plaintiff executors filed a claim against defendant president of partnership with decedent, alleg- ing that defendant was not allocating decedent's estate an equal share of the partnership income, defendant was using funds for personal purposes, was misleading the estate by false and misleading financial statements, and that defendant breached his fiduciary duty to the estate. Subsequently, a settlement agreement was entered into and the parties agreed that the assets of the partnership would be sold. Plaintiffs were dissatisfied with defen- dant's compliance with the agreement and brought an action alleging violation of RICO as well as other claims stemming from defendants' handling and distribution of the partnership assets. The district court granted sum- mary judgment to defendant. Upon review, the court was presented with the question of whether defendants' acts alleged by plaintiffs constituted a pattern of racketeering
activity that met the continuity prong of RICO's pattern requirement. The court held that plaintiffs had alleged a series of acts sufficient to satisfy RICO's continuity re- quirement. The decision of the district court was reversed and the cause was remanded.
OUTCOME: The court reversed the decision of the dis- trict court because the acts alleged by plaintiff execu- tors were sufficient to satisfy the continuity prong of RICO's pattern requirement, plaintiffs established contin- uing fraudulent conduct, and the evidence was clear that defendant president of partnership's practices of misrep- resenting expenditures continued even after the complaint was filed.
LexisNexis(R) Headnotes
Civil Procedure > Appeals > Standards of Review > Standards Generally
Civil Procedure > Summary Judgment > Summary
Judgment Standard
HN1 In reviewing a grant of summary judgment, the court must be convinced that the prevailing party has suc- cessfully demonstrated that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
Civil Procedure > Summary Judgment > Summary
Judgment Standard
HN2 In determining whether summary judgment is ap- propriate, the evidence of the non-movant is to be be- lieved, and all justifiable inferences are to be drawn in his favor. The inquiry is whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law.
47 F.3d 1280, *; 1995 U.S. App. LEXIS 2585, **1
Page 2
Civil Procedure > Alternative Dispute Resolution > Judicial Review
Civil Procedure > Alternative Dispute Resolution > Validity of ADR Methods
HN3 An arbitrator's decision is binding under federal law unless an arbitrator manifests an infidelity to her obligation to interpret the agreement at issue, or there is corruption, fraud or partiality, or a party was denied a fundamentally fair hearing. An arbitrator's decision shall not be set aside unless it is alleged and proven by clear, precise and convincing evidence that the parties were de- nied a hearing or that there was fraud, misconduct, cor- ruption or some other irregularity of this nature on the part of the Arbitrator which caused him to render an unjust, inequitable or unconscionable finding.
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN4 The RICO statute provides for civil damages for any person injured in his business or property by rea- son of a violation of 18 U.S.C.S. § 1962. 18 U.S.C.S. §
1964(c). A common thread running throughout § 1962 is that an injured party must demonstrate that the defendant was engaged in a pattern of racketeering activity. Section
1962(a) prohibits any person who has received any in- come derived from a pattern of racketeering activity from using that money to acquire or operate any enterprise en- gaged in interstate commerce. Section 1962(b) prohibits any person from acquiring, maintaining an interest in, or controlling any such enterprise through a pattern of rack- eteering activity. Section 1962(c) prohibits any person employed by or associated with an enterprise engaged in interstate commerce from conducting or participating in the affairs of the enterprise through a pattern of racketeer- ing activity. Finally, section 1962(d) prohibits any person from conspiring to violate subsections (a), (b), or (c). Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN5 The RICO statute defines a pattern of racketeer- ing activity as requiring at least two acts of racketeering activity within a ten year period. 18 U.S.C.S. § 1961(5). The statute also enumerates the offenses which constitute racketeering activity, including crimes that have tradition- ally been associated with the transgressions of racketeers: murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, and dealing in nar- cotic or other dangerous drugs. 18 U.S.C.S. § 1961 (1). Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN6 See 18 U.S.C.S. § 1341.
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN7 18 U.S.C.S. 1961(5) defines pattern as requiring at least two acts of racketeering activity.
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN8 Under the relatedness requirement of the RICO statute predicate acts are related if they have the same or similar purposes, results, participants, victims, or meth- ods of commission, or otherwise are interrelated by dis- tinguishing characteristics and are not isolated events. Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN9 Continuity is both a closed-and open-ended con- cept, referring either to a closed period of repeated con- duct, or to past conduct that by its nature projects into the future with a threat of repetition. It is, in either case, centrally a temporal concept, so that a party may establish continuity as a closed-ended concept by proving a series of related predicates extending over a substantial period of time.
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN10 The continuity requirement of the RICO statute is satisfied where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate busi- ness in the sense that it is not a business that exists for criminal purposes, or of conducting or participating in an ongoing and legitimate RICO enterprise.
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN11 Fraudulent conduct lasting twelve months does not establish closed-ended continuity. Eight month pe- riod of predicate acts without a threat of future criminal conduct does not satisfy continuity requirement. Seven month single-victim, single-injury scheme does not sat- isfy continuity requirement.
Criminal Law & Procedure > Criminal Offenses > Fraud > Mail Fraud
HN12 Completely innocent mailings can satisfy the mailing element. Indeed, mailings designed to lull fraud victims into a false sense of security, postpone their ul- timate complaint to the authorities, and therefore make the apprehension of the defendants less likely than if no mailings had taken place have been found to constitute ac- tionable mail fraud. So long as the mailings are incident
47 F.3d 1280, *; 1995 U.S. App. LEXIS 2585, **1
Page 3
to an essential part of the scheme, the mailing element is satisfied.
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN13 The statutory definition of pattern is at least two acts of racketeering activity within a ten year period. 18
U.S.C.S. § 1961(5).
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN14 If a RICO action is brought before a plaintiff can establish long-term criminal conduct, the continuity prong may still be met if a plaintiff can prove a threat of continued racketeering activity. Whether the predicate acts constitute a threat of continued racketeering activ- ity depends on the specific facts of each case, suggests that open-ended continuity may be satisfied where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate business or of conduct- ing or participating in an ongoing and legitimate RICO
'enterprise.
Criminal Law & Procedure > Criminal Offenses
> Racketeering > Racketeer Influenced & Corrupt
Organizations
HN15 There is no requirement in civil RICO that the predicate acts pose a societal threat.
COUNSEL: Richard A. Sprague, Esquire (Argued), Daniel L. Lemisch, Esquire, Denise Pallante, Esquire, Sprague & Sprague, 135 South 19th Street, Wellington Building, Suite 400, Philadelphia, PA 19103, Howard K. Goldstein, Esquire, Astor, Weiss, Kaplan & Rosenblum,
Broad Street at Walnut, The Bellevue, Sixth Floor, Philadelphia, PA 19102, Attorneys for Appellants.
Harold E. Kohn, Esquire, Robert J. LaRocca, Esquire, Joanne Zack, Esquire (Argued), Kohn, Nast & Graf, P.C.
1101 Market Street, 24th Floor, Philadelphia, PA 19107, Attorneys for Appellees.
JUDGES: Before: GREENBERG, ROTH and
LEWIS, Circuit Judges Reargued In Banc October 18,
1994 Before: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, LEWIS, ROTH, MCKEE, Circuit Judges.
OPINIONBY: ROTH
OPINION: *1281 OPINION OF THE COURT
ROTH, Circuit Judge:
In this action, brought under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), Pub. L. 91-452, Title IX, 84 Stat. 941, as amended, 18 U.S.C. §§ 1961-
1968, we are presented with the question **2 whether defendants' acts, as alleged, constituted a "pattern of rack- eteering activity." Specifically, we must determine what showing is required for plaintiffs to meet the "continu- ity" prong of RICO's "pattern" requirement. Because we find that plaintiffs have alleged a series of acts sufficient to satisfy RICO's continuity requirement, we will reverse the district court's grant of summary judgment and re- mand this case for further proceedings consistent with this opinion.
47 F.3d 1280, *1282; 1995 U.S. App. LEXIS 2585, **2
Page 4
*1282 The plaintiffs are four of the executors of the Estate of Charles Tabas ("the Estate"): Charles's widow, Harriette Tabas; Richard Tabas and Nancy Tabas, two of Charles and Harriette's children; and Gerald Levinson, one of Charles's business associates. n1 In addition to Daniel Tabas, who is President and Chief Executive Officer of Tabas Enterprises, the named defendants in- clude Joseph Campbell, the Executive Vice President of Tabas Enterprises; James McSwiggan, the Comptroller of Tabas Enterprises; Daniel's children; and one of Daniel's sons-in--law.
n1 There are six heirs to the Estate, including the Charles L. Tabas Foundation.
**3 I. A.
In 1964, brothers Charles and Daniel Tabas formed a partnership, Tabas Enterprises, to conduct real estate and other business ventures. The partnership agreement gov- erning the brothers' joint property holdings required that, in the event of the death of either partner, the surviving partner would distribute partnership income equally to himself and to the estate of the deceased partner, regard- less of any personal services either brother might render. See Appendix ("App.") at 62 (Partnership Agreement P
3). The partnership agreement also provided that:
It is the intent of the parties that the survivor of them shall be free to exercise his judgment for the joint benefit of ownership . . . provided always, that the responsibility and obligation of the survivor to the estate of the deceased shall be that required of a fiduciary.
App. at 62 (Partnership Agreement P 4(b)).
In 1983, Charles Tabas died. Soon after Charles's death, John Van Der Wal, a financial advisor to Daniel and to Tabas Enterprises, was asked by Daniel to recommend a reasonable financial arrangement between Daniel and Charles's widow, Harriette. In response, Van Der Wal sent a letter to Harriette in which **4 he recommended that Daniel receive a $180,000 annual management fee from Tabas Enterprises, prior to profit sharing by the part- ners. Van Der Wal further recommended that Harriette and Daniel each receive a $10,000 monthly draw check from Tabas Enterprises. n2
n2 Prior to Charles's death, each brother re- ceived a monthly disbursement of $10,000 from Tabas Enterprises. In addition, the brothers ap- peared to have an arrangement under which Tabas Enterprises paid for many personal and business expenses.
Beginning in March 1983, monthly distribution checks of $10,000 were drawn on a Tabas Enterprises account and sent to Harriette through the United States mail. Daniel was also provided with a $10,000 monthly draw. In addition, from March 1983 to September 1986, Tabas Enterprises paid for various personal expenses in- curred by Harriette and Daniel.
In September 1986, Tabas Enterprises stopped paying Harriette's personal expenses and also elimi- nated Harriette's $10,000 monthly draw. Instead, Tabas Enterprises began paying **5 a $15,000 monthly draw to the Estate. At the same time, Daniel's monthly draw was increased to $15,000. Tabas Enterprises continued to pay Daniel management fees and to cover his personal expenses. n3
n3 The parties dispute whether plaintiffs were aware that Daniel was receiving substantial com- pensation from Tabas Enterprises in addition to his monthly draw check. Defendants argue that, soon after Charles's death, plaintiffs knew of Daniel's compensation and therefore could not have been deceived by the monthly checks which served as the basis of the mail fraud predicate acts. Plaintiffs acknowledge that they believed Daniel was taking more than he was entitled to under the partnership agreement; this was partly the basis for the 1986 state suit. They contend, however, that they did not know the extent to which they were being short- changed until Price Waterhouse was given access to Tabas Enterprises' records. Consequently, plain- tiffs assert that they initiated this suit as soon as they discovered the extent of the alleged fraudulent activity.
**6
Shortly thereafter, the Estate brought suit against Daniel and others in the Montgomery County, Pennsylvania, Court of Common Pleas. The complaint alleged, inter alia, that the Estate was not being allocated an equal share of the partnership income, that Daniel used Tabas Enterprises funds for personal
47 F.3d 1280, *1283; 1995 U.S. App. LEXIS 2585, **6
Page 5
*1283 purposes, that Daniel misled the Estate by di- recting the preparation of false and misleading financial statements, and that Daniel had breached his fiduciary duties to the Estate.
On November 20, 1987, the parties settled the state suit and agreed that the assets of Tabas Enterprises would be sold. The settlement agreement established a schedule and method for liquidating the majority of the jointly held properties. n4 In conjunction with the liquidation of the joint assets, the settlement agreement provided that "the Estate shall be given complete access to all properties, books and records in connection therewith . " App. at 67
(Settlement Agreement at P 4(a)(i)). The settlement agree- ment did not address the distribution of income earned after November 20, 1987, but did provide that:
n4 The settlement agreement also provided that Daniel would purchase the Estate's interest in Acorn Iron and Supply Company and $1.5 mil- lion in Royal Bank stock. In addition, the Estate's interest in property on City Line Avenue was trans- ferred to Daniel, apparently in exchange for monies from Tabas Enterprises. Defendants, pointing to the $16.9 million that the Estate has received pur- suant to the settlement agreement and liquidation of Tabas Enterprises, assert that plaintiffs have been treated equally. While plaintiffs do not appear to dispute the amount the Estate has received, they do assert that it has not received an equal one-half of the income as required under the partnership agree- ment.
**7
To the extent that the Partnership Agreement dated March
12, 1964 is not inconsistent with the provisions of this
Settlement Agreement, the Partnership Agreement shall continue in full force and effect until the liquidation and auction of Tabas Enterprises' assets are completed.
App. at 70 (Settlement Agreement P 13). Another provi- sion of the settlement agreement provided that the parties would agree to execute a mutual general release:
requiring the dismissal with prejudice of all parties in all litigation between or among Daniel, on the one hand, and the Estate or any of its executors, on the other hand, and excluding only the terms and conditions contained herein.
App. at 69 (Settlement Agreement P 9).
Lastly, the Honorable William H. Yohn, Jr., n5 was named to act as the arbitrator of any future disputes aris- ing from the implementation of the settlement agreement that could not be resolved by the parties' legal represen- tatives. The settlement agreement specifically provided that Judge Yohn's decisions on such matters "shall be fi- nal, binding, and non-appealable." App. at 70 (Settlement Agreement P 12).
n5 At that time, Judge Yohn sat on the Pennsylvania Court of Common Pleas. He is now a United States District Judge for the Eastern District of Pennsylvania.
**8
On May 15, 1990, Daniel and the Estate executed the mutual general release, which provided that, except for the obligations of the parties under the settlement agree- ment, the parties would release and forever discharge one another from:
any and all actions, causes of action, demands, judgments, contracts, debts, dues, accounts, bonds, covenants, con- tracts, suits, claims, and demands of any nature what- soever, whether in law, equity, arbitration or otherwise, whether know sic or unknown at the present time, which
either party ever had, now has, hereinafter can, shall or may have, by reason of any matter, cause or thing what- soever, from the beginning of the world to November 20,
1987.
App. at 293 (emphasis added).
Despite the settlement agreement, plaintiffs remained dissatisfied with Daniel's compliance with the partnership agreement. On July 25, 1990, Judge Yohn held a hear- ing to consider whether the settlement agreement barred the Estate from asserting claims for breach of the part- nership agreement stemming from Daniel's management of Tabas Enterprises subsequent to November 20, 1987. Finding that "the provision of the partnership agreement of March 12, 1964 concerning **9 distribution of in- come is not inconsistent with the provisions of the settle- ment agreement . . . as the settlement agreement contains no provisions concerning the distribution of income af- ter November 20, 1987," Judge Yohn held that the Estate could
47 F.3d 1280, *1284; 1995 U.S. App. LEXIS 2585, **9
Page 6
*1284 "pursue any claims" against Daniel arising from the distribution of Tabas Enterprises' income af- ter November 20, 1987. App. at 1187 (Arbitration Award No. 8). n6
n6 These rulings were premised upon Judge Yohn's finding that: "By agreement of the parties and with the concurrence of the arbitrator, the ar- bitrator has jurisdiction to rule upon the issue of whether the Estate may make claims against Daniel M. Tabas concerning his management of Tabas Enterprises subsequent to November 20, 1987." App. at 1185.
Following this decision, Daniel's counsel requested that Judge Yohn mediate the issues raised by plaintiffs' proposed RICO complaint. Judge Yohn held two con- ferences with counsel to discuss, among other topics, the proposed RICO claims. During oral argument on February **10 1, 1991, Daniel's counsel asserted that, because plaintiffs' proposed RICO complaint sought damages against defendants not named in the settlement agreement, the proposed RICO complaint was outside the scope of arbitration and therefore could not be decided by Judge Yohn in his role as arbitrator. Nevertheless, Daniel's counsel expressed interest in having Judge Yohn serve as a mediator in an attempt to resolve the claims set forth in the proposed RICO complaint.
On February 20, 1991, Judge Yohn formally denied Daniel's request to mediate the dispute. Instead, Judge Yohn ordered that: "By agreement of the parties, and with the concurrence of the undersigned, the proposed 'RICO Complaint' may be filed in the United States District Court for the Eastern District of Pennsylvania and the issues raised therein will not be the subject of this procedure un- der the Settlement Agreement of November 20, 1987." App. at 1282 (Arbitration Award No. 10).
Soon thereafter, plaintiffs brought the instant action, alleging violations of RICO §§ 1962(a), (b), (c), and (d), as well as several state law claims stemming from de- fendants' handling and distribution of Tabas Enterprises assets. The initial **11 complaint was filed on March
4, 1991. The amended complaint was filed on May 20,
1991. n7
n7 On May 29, 1991, the district court entered a scheduling order. This schedule provided, inter alia, that discovery be completed by December 2,
1991. The schedule also provided that defendants' motion for summary judgment had to be filed on or before October 21, 1991, and that plaintiffs' re-
sponse was due by November 4, 1991. Because this schedule required plaintiffs to respond prior to the completion of discovery, and because the parties had further disagreements about discovery, the fac- tual record is not fully developed. Nonetheless, the record is sufficient to support our conclusion that the requisites for RICO continuity have been met.
Plaintiffs have appealed the district court's grant of defendants' motion for summary judgment. On appeal, we are required to base our review of the district court's decision on the evidence of record. Accordingly, before we turn to the merits of the parties' assertions, we will summarize **12 the record submitted to this court.
Most significantly, the record contains two financial reports by Price Waterhouse, analyzing Tabas Enterprises' financial and operational records. Plaintiffs' counsel re- tained Price Waterhouse to determine whether these records reflected the equal distribution of income to the Estate as required under P 3 of the partnership agreement. The first Price Waterhouse report analyzed Tabas Enterprises' financial records dating from Charles's death in 1983 through early 1990, focusing on the period af- ter November 20, 1987. Then, in late 1991, after the amended complaint was filed, Price Waterhouse com- pleted a supplemental report, analyzing Tabas Enterprises' records from October 1989 through July 1991. In to- tal, the Price Waterhouse reports documented more than three and one-half years of activity subsequent to the November 1987 settlement agreement. In both reports, Price Waterhouse concluded that "the books and records of Tabas Enterprises do not reflect the equal distribution of income," and that "indications of fraud exist." n8 App.
at 352, 460-61.
n8 Price Waterhouse noted that its formal "opin- ion" was subject to scope limitations as discussed within each report. Our review of these limita- tions indicates that most were caused by Tabas Enterprises' failure to cooperate with the Price Waterhouse auditors. In addition, Price Waterhouse described Tabas Enterprises' major records deposi- tory as in a "state of disarray." In considering these reports, we will weigh the effect of the scope limita- tions in light of our conclusion that most limitations to the analysis were a result of Tabas Enterprises' efforts to hinder the Price Waterhouse audits.
**13
47 F.3d 1280, *1285; 1995 U.S. App. LEXIS 2585, **13
Page 7
*1285 The Price Waterhouse reports revealed a con- tinuing series of transactions to divert Tabas Enterprises' income for the personal use of Daniel and his family, through direct monetary benefits as well as other types of benefits. In its first report, for instance, Price Waterhouse itemized a substantial number of items, purchased with Tabas Enterprises' income, for which there was no ad- equate documentation or explanation substantiating an ordinary and necessary business purpose for the expense. The report noted that, to the extent that Daniel purchased these items using Tabas Enterprises' income, such ex- penses "would inappropriately reduce the Estate's inter- est in Tabas Enterprises by reducing income available for distribution to the Estate." App. at 354. According to the Price Waterhouse report, these purchases included per- sonal apparel, homeowner's dues for Daniel's vacation home in Vermont, meals and other purchases in cities where Daniel had vacation homes, meals and other pur- chases in ten foreign countries, prescription medicine, and a pool heater installed at Daniel's home in Pennsylvania. The total cost of these and other similar expenses was approximated at $140,000.
Other problem **14 areas cited in the first report were Tabas Enterprises' payment of $67,000 in compen- sation for the provision of home services, such as maid, gardening, and handyman services, for Daniel and his family; the assignment of 24 automobiles owned by Tabas Enterprises to Daniel and his family, including family members who were not employed by Tabas Enterprises; Tabas Enterprises' payment of the automobile insurance, repairs and maintenance, gasoline, n9 car phones, auto club membership, registration fees, tags, and title fees for all 24 cars; Tabas Enterprises' payment of telephone bills for Daniel's primary and vacation residences; and Tabas Enterprises' payment of insurance coverage for non-partnership assets, including Daniel's six antique au- tomobiles.
n9 The report found these gasoline charges, in excess of $18,000, especially problematic, since the relevant documents revealed routine submissions of multiple requests for reimbursement arising from a single receipt.
Price Waterhouse's second report noted that, between
**15 the completion of the first and second reports, Daniel had reimbursed Tabas Enterprises for only a small portion of these expenses. n10 The second report also noted that many of the questionable expenses detailed in the first report continued to occur. For instance, the second report identified an additional $78,000 in payments for personal services and an additional $35,000 in phone bills for Daniel's private residences and mobile telephones. The second report also noted that Daniel and his family contin- ued to charge personal items to Tabas Enterprises, includ- ing personal apparel, homeowner's dues for his vacation home in Vermont, and meals.
n10 In his deposition, Daniel testified that all unreimbursed expenses represented legitimate business expenses. For most of these expenses, however, Daniel could not provide any specific rec- ollection of the business purpose involved.
In addition to investigating nonmonetary benefits, the Price Waterhouse reports also examined the direct monetary benefits received by Daniel **16 and his family from Tabas Enterprises. The reports found that between November 1987 and November 1989, Daniel received $1,502,000 in salary partnership distributions, management fees and incentives, gratuities, and bonuses from Tabas Enterprises, and that for the period between November 1989 and June 1991, he received $1,166,000. The reports also found that, during this period, in which Daniel was paid a total of $2,668,000, the Estate received partnership distributions totalling $660,000. n11
n11 Price Waterhouse also noted that, in addi- tion to his Tabas Enterprises income, Daniel re- ceived compensation as Chairman of the Board of Royal Bank. At his deposition, Daniel testified that he worked 60-70 hours per week for Tabas Enterprises, app. at 1683, and that his Royal Bank time commitment consisted of Thursday morning executive staff meetings and a board meeting one evening each month. App. at 614.
According to the Price Waterhouse reports, the mon- etary payments to Daniel's family during this time also eclipsed **17 those
47 F.3d 1280, *1286; 1995 U.S. App. LEXIS 2585, **17
Page 8
*1286 received by the Estate. The reports documented that between November 1987 and June 1991, Daniel's family, including his six children and one son-in--law, received $1,363,000 from Tabas Enterprises in the form of salaries, management fees and incentives, gratuities, bonuses, and consulting fees. The amended complaint alleges that payments to Daniel's children and son-in-- law "do not constitute reasonable salaries for work which they actually performed and that some of those children and/or their spouses were 'phantom' or 'ghost' employ- ees who performed little or no work at all." App. at 21
(Amended Complaint ("AC") P 25).
The first Price Waterhouse report also noted that, in addition to receiving compensation from Tabas Enterprises, certain members of Daniel's family also worked for and received compensation from Royal Bank. For instance, Lee Tabas served as President of Royal Bank, Robert Tabas served as Vice President, and Susan Tabas Tepper served as Director of Marketing.
Finally, in addition to the above findings, both Price Waterhouse reports noted that "the Estate may also have been subjected to the risk of additional taxes, interest, and penalties" due to apparent Internal **18 Revenue Service reporting violations by Tabas Enterprises. App. at 362, 467.
B.
Count I of the amended complaint alleges that, in violation of 18 U.S.C. § 1962(a), (b), and (c), the defen- dants conspired to defraud the Estate of its equal share of Tabas Enterprises' income, to which it was entitled under the partnership agreement, through a pattern of racke- teering activity including mail fraud in violation of 18
U.S.C. § 1341. n12 Specifically, plaintiffs allege that de- fendants conducted a scheme to defraud the Estate of its equal share of the partnership's income by wrongfully di- verting Tabas Enterprises funds to pay for the personal expenses of Daniel and his family and by understating the Estate's share of the income. Plaintiffs assert that, from the time of Charles's death through the period in which the amended complaint was filed, Daniel "contin- uously made false representations to the Estate by mail and fraudulently distributed millions of dollars of Tabas Enterprises' funds to himself and to members of his fam- ily in a scheme to defraud the Estate of income to which it was entitled." App. at 20 (AC P 24). **19
n12 Count II of the amended complaint alleges that defendants violated § 1962(d) by conspiring to violate subsections (a), (b), and (c).
Counts III-VI of the amended complaint allege state law claims that are not central to this appeal, including breach of fiduciary duty, breach of con- tract, fraud, and conversion. The district court dis- missed these state law claims without prejudice. Because we find that the district court erred in dis- missing Counts I and II, we will instruct the district court to vacate the dismissal of plaintiffs' supple- mental state law claims.
Plaintiffs specifically allege that Daniel, Campbell, and McSwiggan committed forty-one acts of mail fraud between December 1987 and February 1991 for "the pur- pose of executing the scheme to defraud the Estate of its equal share of income." App. at 43 (AC P 49). n13
Thirty-nine of these forty-one acts represented monthly disbursements of $15,000 from Tabas Brothers (a holding of Tabas Enterprises) to the Estate. The remaining two acts involve the mailing **20 of various IRS forms from Tabas Enterprises to the Estate reflecting income earned and business expenses incurred by certain Tabas Enterprises entities. Plaintiffs contend that the mailing of the monthly checks by defendants "constituted an inten- tional misrepresentation" that one-half of the income of Tabas Enterprises was being paid to the Estate pursuant to the partnership agreement. App. at 46 (AC P 50).
n13 Plaintiffs also allege as predicate acts de- fendants' use of the United States mails to send checks to Daniel's children and son-in--law for work not performed. We do not rely on these al- legations, however, because plaintiffs have not pro- duced any evidence to counter McSwiggan's depo- sition testimony that these checks were delivered by courier. See, e.g., Utz v. Correa, 631 F. Supp. 592,
596 (S.D.N.Y., 1986) (delivery of letter by messen- ger did not violate the mail fraud statute since the United States mails were not used).
Finding that the dispute did not present a sufficient
**21 threat to satisfy RICO's "continuity" requirement, the district court granted
47 F.3d 1280, *1287; 1995 U.S. App. LEXIS 2585, **21
Page 9
*1287 defendants' summary judgment motion. The dis- trict court reasoned that:
Plaintiffs' claims essentially allege one fraudulent scheme perpetrated against one victim by one perpetrator. The gist of plaintiffs' complaint is that Daniel Tabas has failed to abide by the partnership agreement made with his brother, Charles, and that Daniel has employed vari- ous methods of trickery to cheat Charles's heirs of their fifty percent share of the business that Charles and Daniel built. The sole victim of this scheme is Charles Tabas's estate. The sole perpetrator is Daniel Tabas or individuals under his control. No one else is affected. There is no threat to the community at large. This is not a case where the predicate acts are "part of an entity's regular way of do- ing business," such as would affect others doing business with the entity.
The partnership between Charles and Daniel is cur- rently in the process of liquidation. All of the fraudulent activity alleged in this suit will cease once the liquidation process is complete. Given the Court of Appeals' admo- nition that "it remains an open question whether RICO liability **22 is ever appropriate for a single-scheme, single-victim conduct threatening no future harm," we simply do not find that the defendants' alleged conduct in this case "poses a societal threat worthy of the draconian penalties and remedies available under RICO."
District Court opinion at 8-10; App. at 1376-78 (citations omitted) (footnotes omitted). Plaintiffs filed a timely no- tice of appeal of the district court's grant of summary judgment to defendants. Defendants also filed an appeal, seeking review of the district court's decision to dismiss the state claims without prejudice. Following the filing of the panel's decision, we granted appellants' petition for rehearing in banc and vacated the panel opinion.
II.
The district court had subject matter jurisdiction over this civil action pursuant to 28 U.S.C. §§ 1331 and 1367. The district court's federal question jurisdiction was in- voked because Counts I and II of the amended complaint raise claims under RICO, 18 U.S.C. §§ 1961 and 1962.
**23 The district court's supplemental jurisdiction was invoked because Counts III through VI of the amended complaint raise claims that are so related to the claims in Count I and II that they form part of the same case or controversy under Article III of the United States Constitution. Under 28 U.S.C. § 1291, this Court has appellate jurisdiction over the final orders of the district court. n14
n14 The district court's first order, dated May
26, 1993, granted defendants' motion for summary judgment on Counts I and II, and dismissed Counts III, IV, and V pursuant to 28 U.S.C. § 1367(c)(3). The district court's second order, dated June 2,
1993, amended the first order to include dismissal of Count VI pursuant to § 1367(c)(3).
This Court has plenary review over the district court's grant **24 of summary judgment. See Northern Ins. Co. v. Aardvark Assocs., 942 F.2d 189, 194 n.5 (3d Cir.
1991). On review of the district court's order for sum- mary judgment, "we 'apply the same test the district court should have utilized initially.'" Erie Telecommunications v. Erie, 853 F.2d 1084, 1093 (3d Cir. 1988) (citation omit- ted). " HN1 In reviewing a grant of summary judgment, we must be convinced 'that the prevailing party has suc- cessfully demonstrated that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202,
106 S. Ct. 2505 (1986); Celotex Corp. v. Catrett, 477 U.S.
317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986)).
HN2 In determining whether summary judgment is appropriate, "the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255. The inquiry is
"whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one- sided that one **25 party must prevail as a matter of law." Id. at 251-52.
47 F.3d 1280, *1288; 1995 U.S. App. LEXIS 2585, **25
Page 10
*1288 III.
The first issue we must address is defendants' con- tention that this lawsuit is precluded by the 1987 settle- ment agreement and the 1990 mutual release. This ques- tion was considered by the panel only. We find defendants' argument to be without merit.
First, binding arbitration by Judge Yohn holds the present claims viable. The settlement agreement provides for final, binding arbitration of any dispute "as to the pro- visions of this Agreement or as to the implementation or operation of the provisions of this Agreement" between Daniel and the Estate. App. at 70 (Settlement Agreement P
12). The very issue of whether claims such as this lawsuit could be brought was submitted to Judge Yohn, the arbi- trator, who determined initially that "the arbitrator has ju- risdiction to rule upon the issue of whether the Estate may make claims against Daniel M. Tabas concerning his man- agement of Tabas Enterprises subsequent to November
20, 1987." App. at 1185 (Arbitration Award No. 8). On the merits, Judge Yohn held that the Estate could pursue any claims which it might have against Daniel "for an alleged breach of **26 his fiduciary duty to the Estate after November 20, 1987," and "for the unequal distri- bution of the income of Tabas Enterprises subsequent to November 20, 1987." Id. at 1187.
Under the settlement agreement, Judge Yohn's deci- sion is "final, binding, and non-appealable," app. at 70
(Settlement Agreement P 12), and we must adhere to it under federal and Pennsylvania law. See Apex Fountain Sales v. Kleinfeld, 818 F.2d 1089, 1094-95 & n.4 (3d Cir.
1987) ( HN3 an arbitrator's decision is binding under federal law unless "an arbitrator 'manifests an infidelity'" to her obligation to interpret the agreement at issue, or there is "corruption, fraud or partiality," or a party was denied a "fundamentally fair hearing") (citations omit- ted); International Brotherhood of Firemen & Oilers v. School Dist., 465 Pa. 356, 350 A.2d 804, 808 (Pa. 1976)
(an arbitrator's decision shall not be set aside "unless it is alleged and proven by clear, precise and convincing evi- dence that the parties were denied a hearing or that there
was fraud, misconduct, corruption or some other irregu- larity of this nature on the part of the Arbitrator which caused him to render **27 an unjust, inequitable or un- conscionable finding"). Defendants have not alleged any action on the part of Judge Yohn amounting to corruption, fraud, or partiality. In addition, defendants have presented no evidence that Judge Yohn failed to provide a hearing to consider each party's views prior to his decision. In fact, the record clearly indicates that Judge Yohn held a hear- ing on this question and considered numerous exchanges of correspondence before ruling on this matter.
Second, even if we were to make our own evaluation of whether the 1987 settlement agreement and the 1990 release precluded this lawsuit, we would conclude that it does not. Defendants' reliance on Main Line Theatres, Inc. v. Paramount Film Distrib. Corp., 298 F.2d 801 (3d Cir.), cert. denied, 370 U.S. 939, 8 L. Ed. 2d 807, 82 S. Ct.
1585 (1962), is misplaced. Defendants assert that Main Line stands for the proposition that where "the initial lawsuit contained prayers for injunctive relief, the execu- tion of a general release releases and extinguishes com- plaints for future conduct." Defendants-appellees' Brief at 21. Consequently, defendants contend, plaintiffs' suit is barred by **28 the settlement agreement and the mutual release signed by the Estate and Daniel.
In Main Line, plaintiffs demanded injunctive relief and treble damages in a civil antitrust suit stemming from Paramount's distribution of motion pictures. The district court dismissed the suit, holding that the case had been settled during pre-trial negotiations by an "oral agreement" between the parties. The oral agreement pro- vided that Main Line would drop its suit in exchange for
$10,000. Main Line refused to comply with the oral agree- ment, however, complaining that Paramount attempted to add language to the agreement when it was memorial- ized in writing. Specifically, Main Line rejected language that required it to acknowledge that the complained of distribution procedures were reasonable.
Main Line appealed the dismissal to this court. We then considered whether the initial
47 F.3d 1280, *1289; 1995 U.S. App. LEXIS 2585, **28
Page 11
*1289 oral agreement included a release to the effect that Paramount could continue to distribute films in the same manner it had prior to Main Line's suit for injunctive relief. We noted:
Had this been an action for damages only, without a prayer that the defendants be restrained from continuing or re- peating the licensing practices **29 of which the plain- tiff complained, the essential feature of any understand- ing to settle the suit for a stated sum would have been the plaintiffs' promise to forego a money claim, the only mat- ter in controversy. Here, the suit contained a demand for injunctive prohibition of future wrongful conduct as well as a claim for money damages for alleged past miscon- duct. In such circumstances a reasonable person agreeing, without any expression of limitation, to accept a sum in settlement of the litigation should and reasonably would understand that both aspects of the suit were covered by the settlement.
298 F.2d at 803 (emphasis added).
In Main Line, plaintiffs could point to no limitations, expressed or implied, in their oral agreement with defen- dants. Accordingly, their settlement agreement covered their prayers for both injunctive relief and money dam- ages. In the present case, however, the mutual release signed by plaintiffs and Daniel expressly limits the ap- plicability of the release to any claims arising "from the beginning of the world to November 20, 1987." App. at
294. This express limitation distinguishes the instant case from the facts presented **30 in Main Line.
Defendants also draw the Court's attention to our state- ment in Main Line that "certainly, a defendant offering a sum in settlement of a suit asking, among other things, for an injunction against similar conduct, would not un- derstand that a similar demand could be asserted the day after settlement." 298 F.2d at 803 (emphasis added). The Estate's state suit here, however, although denominated a "Complaint in Equity," did not seek broad injunctive relief. The holding in Main Line relies on the fact that the plaintiff specifically sought to enjoin Paramount from
distributing motion pictures using methods that plaintiff alleged violated the civil antitrust laws. In the instant case, the plaintiffs' state suit asked that Daniel be removed from any position at Tabas Enterprises and that its businesses and properties be liquidated. Rather than controlling fu- ture conduct, the state suit primarily sought a dissolu- tion of Tabas Enterprises and redress for the alleged past wrongs committed against the Estate's interest in the part- nership. It follows, therefore, that the subsequent federal action did not constitute an effort to enjoin **31 con- duct that the settlement of the first suit had resolved. This determination, together with our earlier finding that the settlement agreement bars only claims existing up to November 20, 1987, would lead us to conclude that defendants' reliance upon Main Line is misplaced.
IV.
Having found that plaintiffs' lawsuit is not precluded by the 1987 settlement agreement and the 1990 mutual release, we now turn to the district court's decision that plaintiffs failed to allege a course of conduct sufficient to establish a RICO "pattern of racketeering conduct" because plaintiffs failed to satisfy RICO's "continuity" requirement.
HN4 The RICO statute provides for civil damages for "any person injured in his business or property by reason of a violation of 18 U.S.C. § 1962 ." 18 U.S.C.
§ 1964(c). A common thread running throughout § 1962 is that an injured party must demonstrate that the defen- dant was engaged in a "pattern of racketeering activity." Section 1962(a) prohibits "any person who has received any income derived . . . from a pattern of racketeering activity" from using that money to acquire or operate any **32 enterprise engaged in interstate commerce. Section 1962(b) prohibits any person from acquiring, maintaining an interest in, or controlling any such enter- prise "through a pattern of racketeering activity." Section
1962(c) prohibits any person employed by or associated with an enterprise engaged in interstate commerce from conducting or participating in the affairs of the enterprise through "a pattern of racketeering activity." Finally, sec- tion 1962(d)
47 F.3d 1280, *1290; 1995 U.S. App. LEXIS 2585, **32
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*1290 prohibits any person from conspiring to violate subsections (a), (b), or (c).
Central to the dispute in this case is the question whether defendants participated in "a pattern of racketeer- ing activity." HN5 The RICO statute defines a "pattern" of racketeering activity as requiring "at least two acts of racketeering activity" within a ten year period. 18 U.S.C. §
1961(5). The statute also enumerates the offenses which constitute "racketeering activity," including crimes that have traditionally been associated with the transgressions of racketeers: murder, kidnapping, gambling, arson, rob- bery, bribery, extortion, dealing in obscene matter, and dealing in narcotic or other dangerous drugs. 18 U.S.C. §
1961 **33 (1). The statutory enumeration is, however, expansive and goes on to include specific federal offenses which, although they may often be committed by those whom we would categorize as "racketeers," also fall into the category of common law or "garden variety" fraud and which would, in the past, have been the subject of com- mercial litigation under state law. Among these broadly delineated federal offenses are mail fraud and wire fraud. n15 These offenses are the ones that many consider to be the most troublesome as RICO predicate acts. The in- clusion within the scope of civil RICO of these types of fraud, more prevalent in the commercial world than in the world of racketeers, has caused concern that RICO sweeps too broad a swathe. See, e.g., Note, Civil RICO: The Temptation and Impropriety of Judicial Restriction,
95 Harv. L. Rev. 1101, 1105 (1982) ("Given the preva- lence of mail and wire use in commercial transactions, RICO's provision for a private cause of action predicated on violations of the mail and wire fraud statutes virtually federalizes common law fraud").
n15 Mail fraud, 18 U.S.C. § 1341, is the rack- eteering activity involved in the case before us.
HN6 Section 1341 provides in pertinent part: Whoever, having devised . . . any scheme or artifice to defraud, or for obtaining money or property by means
of false or fraudulent pretenses, repre- sentations, or promises, . . . for the purpose of executing such scheme or artifice . . . places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, . . . shall be fined not more than $1,000 or imprisoned not more than five years, or both.
The federal offense of mail fraud was originally enacted by Congress in 1872 as a part of the recod- ification of the postal laws. The Supreme Court in its first review of the mail fraud statute made clear that its scope was broad. The Court held that the statute reached beyond the common law definition of "false pretences" to encompass "everything de- signed to defraud by representations as to the past or present, or suggestions and promises as to the future." Durland v. United States, 161 U.S. 306,
313, 40 L. Ed. 709, 16 S. Ct. 508 (1896). Fraud, in- volving the use of the postal system to carry it out, was made a federal offense by Congress with the
"purpose of protecting the public against all such intentional efforts to despoil, and to prevent the post office from being used to carry them into effect . .
.." Id. at 314.
Judge Greenberg, in his dissent, queries whether Congress intended RICO to be applied to a defendant, participating in a scheme to defraud, who mails substantial payments but not to a similar defendant who delivers the payments by hand. See
typescript at 14 . The clear answer to this question is "yes" because, first, the former example consti- tutes mail fraud and the latter does not and, second, Congress has chosen to include mail fraud as a RICO predicate act.
**34
If we examine the language of the statute itself, in an attempt to discern the scope of civil RICO, we find our- selves lost in a land with few signposts. HN7 Section
1961(5) defines "pattern" as requiring "at least two acts of racketeering activity." The breadth of the predicate acts, described in § 1961(1), combined with § 1961(5)'s loose definition of pattern, has led many courts to recoil from the inclusion within RICO of offenses which were not considered to be the crimes of gangsters. Such court- imposed limitations on the scope of civil RICO were first reviewed by the Supreme Court in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 87 L. Ed. 2d 346, 105 S. Ct.
3275 (1985). In Sedima, the Supreme Court set out an expansive definition of the concept of "pattern" in civil RICO.
Sedima arose from an action filed in the Eastern District of New York by a Belgian corporation, based on § 1964(c) and (d) and predicate acts of mail fraud and wire fraud, charging that Imrex, Sedima's partner in a joint venture, had presented inflated bills and had cheated Sedima out of a portion of its proceeds by collecting for nonexistent expenses. The district court dismissed the RICO counts **35 for failure to state a claim,
47 F.3d 1280, *1291; 1995 U.S. App. LEXIS 2585, **35
Page 13
*1291 holding that a RICO-type injury must be based on allegations of some sort of distinct "racketeering in- jury" or "competitive injury." 574 F. Supp. 963, 965
(1983). The dismissal was affirmed by a divided panel of the Second Circuit Court of Appeals. 741 F.2d 482
(1984). The court of appeals clarified the type of injury which it required to be alleged, finding that "it is better to identify the RICO standing requirement as a 'racketeer- ing injury' requirement rather than a 'competitive injury' requirement . . .." Id. at 496. The court of appeals further required that, before a private civil RICO action could be brought, the plaintiff must show that the defendants had been criminally convicted of the predicate acts. Id. at
503. The Supreme Court rejected both of these holdings. Justice White, writing for the majority in Sedima, stated "we can find no support in the statute's history, its language, or considerations of policy for a requirement that a private treble-damages action under § 1964(c) can proceed only against a defendant who has **36 already been criminally convicted." 473 U.S. at 493. Concerning the requirement of racketeering injury, Justice White
stated that
We perceive no distinct "racketeering injury" requirement. Given that "racketeering activ- ity" consists of no more and no less than commission of a predicate act, § 1961(1), we are initially doubtful about a requirement of a "racketeering injury" separate from the harm from the predicate acts. A reading of the statute belies any such requirement. . . . If the defendant engages in a pattern of racketeer- ing activity in a manner forbidden by these provisions § 1962(a)-(c) , and the racketeer- ing activities injure the plaintiff in his busi- ness or property, the plaintiff has a claim un- der § 1964(c). There is no room in the statu- tory language for an additional, amorphous
"racketeering injury" requirement.
Id. at 495.
Justice White based this less restrictive reading of the statute on prior case law and the general principles sur- rounding the statute: "RICO is to be read broadly. This is the lesson not only of Congress' self-consciously expan- sive language and overall **37 approach, but also of
its express admonition that RICO is to 'be liberally con- strued to effectuate its remedial purposes.'" Id. at 497-98
(citations omitted).
The Court recognized that this interpretation of the statute would permit its use not only against mobsters and organized criminals but also against "respected and legit- imate 'enterprises.'" Id. at 499. Nevertheless, the Court found that Congress "wanted to reach both 'legitimate' and 'illegitimate' enterprises. "The former enjoy neither an inherent incapacity for criminal activity nor immunity from its consequences." Id. (citation omitted). The Court concluded:
It is true that private civil actions under the statute are being brought almost solely against such defendants, rather than against the archetypal, intimidating mobster. Yet this defect--if defect it is--is inherent in the statute as written, and its correction must lie with Congress. It is not for the judiciary to eliminate the private action in situations where Congress has provided it simply be- cause plaintiffs are not taking advantage of it in its more difficult applications.
**38
Id. at 499-500 (footnote omitted).
Justice White then suggested that Congress and the courts develop a meaningful concept of "pattern" in order to narrow the scope of civil RICO:
The "extraordinary" uses to which civil RICO has been put appear to be primarily the result of the breadth of the predicate of- fenses, in particular the inclusion of wire, mail, and securities fraud, and the failure of Congress and the courts to develop a mean- ingful concept of "pattern."
Id. at 500.
Despite this invitation from the Court, Congress to date has not chosen to enact legislation which would nar- row the scope of civil RICO or to define more exactly what is "pattern." Moreover, the efforts of the courts to do so have not been entirely successful. Our attempts to design a meaningful concept of pattern have continued to
47 F.3d 1280, *1292; 1995 U.S. App. LEXIS 2585, **38
Page 14
*1292 collide with the broad language of the statute. In response, however, to Sedima, the various circuits began to structure guidelines for determining whether a RICO pattern had been established. In the Third Circuit, for in- stance, in Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36 (3d Cir. 1987), **39 we rejected the district court's requirement in that case that there be two or more unlawful schemes, and we then set forth six factors to be used in determining whether a pattern of racketeering activity has been established in a given case. These factors are: (1) the number of unlawful acts; (2) the length of time over which the acts were committed;
(3) the similarity of the acts; (4) the number of victims;
(5) the number of perpetrators; and (6) the character of the unlawful activity. Id. at 39.
Other circuits established other criteria. In the Eighth Circuit, the test for a pattern of racketeering activity was much more restrictive: proof of multiple illegal schemes was required. See, e.g., Superior Oil Co. v. Fulmer, 785
F.2d 252 (8th Cir. 1986). Following this precedent, the Eighth Circuit Court of Appeals affirmed the district's court's dismissal of petitioners' complaint in H.J. Inc. v. Northwestern Bell Tel. Co., 829 F.2d 648 (8th Cir. 1987). The Supreme Court granted certiorari to resolve the con- flict between the circuits over whether single or multiple schemes were required **40 to demonstrate a RICO pattern.
In its opinion in H.J. Inc. v. Northwestern Bell Tel. Co.,
492 U.S. 229, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989), the Court set out its second analysis of the requirements of civil RICO. First, as to single versus multiple schemes, the Court noted that the word "scheme" is not found in the RICO statute and indeed that what constitutes a "scheme" is to be found "in the eye of the beholder, since whether a scheme exists depends on the level of generality at which criminal activity is viewed." 492 U.S. at 241 and n.3. The Court then examined the statute and its legislative history in an attempt to determine the elements of the pattern requirement. From this review, the Court concluded that
"to prove a pattern of racketeering activity a plaintiff must show that the racketeering predicates are related, and that
they amount to or pose a threat of continued criminal activity." Id. at 239.
HN8 Under the first, or "relatedness," requirement of the RICO statute, as interpreted in H.J. Inc., predicate acts are related if they "have the same or similar purposes,
**41 results, participants, victims, or methods of com- mission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Id. at 240
(quoting the partially repealed Title X of the Organized Crime Control Act of 1970, 18 U.S.C. § 3575, et seq.). n16
n16 The parties do not dispute that the related- ness prong has been met in the present case.
As for the second, or "continuity," prong of the anal- ysis, the Court in H.J. Inc. attempted to promulgate a somewhat flexible approach, based upon a "common- sense, everyday understanding of RICO's language and Congress' gloss on it." Id. at 241. With this analytical approach in mind, the Court decided that "what a plain- tiff or prosecutor must prove is continuity of racketeering activity, or its threat, simpliciter." Id.
In explicating how a plaintiff could make this continu- ity showing, the Court described HN9 continuity **42 as "both a closed-and open-ended concept, referring ei- ther to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." Id. "It is, in either case, centrally a temporal concept," id. at 241-42, so that a party may es- tablish continuity as a closed-ended concept by "proving a series of related predicates extending over a substantial period of time." Id. at 242 (emphasis added).
Thus, H.J. Inc. makes clear that the continuity re- quirement can be met by establishing long-term criminal conduct but does not define what length of time qualifies as "substantial" for this purpose. The Court in H.J. Inc. also gave examples of how the threat of continued rack- eteering activity might be demonstrated. One example is that of a hoodlum who sells "insurance" to storekeepers
47 F.3d 1280, *1293; 1995 U.S. App. LEXIS 2585, **42
Page 15
*1293 to prevent the breaking of their shop windows. Id. Another example is that of an ongoing entity which commits the predicate acts or offenses as its regular way of doing business. Id. In giving this last example, the Court noted that such a business **43 may be either a criminal or a legitimate enterprise and concluded:
HN10 The continuity requirement is like- wise satisfied where it is shown that the pred- icates are a regular way of conducting de- fendant's ongoing legitimate business (in the sense that it is not a business that exists for criminal purposes), or of conducting or par- ticipating in an ongoing and legitimate RICO
"enterprise."
Id. at 243 (footnote omitted). The clear implication of this language is that the ambit of RICO may encompass a "legitimate" businessman who regularly conducts his business through illegitimate means, that is, who repeat- edly defrauds those with whom he deals and in the process commits predicate acts, for instance by using the postal service as a means of accomplishing his scheme.
The Court went on in H.J. Inc., at the urging of var- ious amici, to consider, and to reject, a requirement that
"a defendant's racketeering activities form a pattern only if they are characteristic either of organized crime in the traditional sense, or of an organized-crime--type perpe- trator, that is, of an association dedicated to the repeated commission of criminal offenses." **44 Id. at 243-
44. The Court found that there was no textual support in the statute for such a requirement and that the statutory language did not support the limitation that racketeering acts be the work of an association or group rather than of an individual. Id. at 244.
These determinations in H.J. Inc., that the predicate acts may be the regular way in which a legitimate business operates and that the racketeering activities may form a pattern even though they are the acts of an individual rather than of a group or of an association, enforce the Court's holding in Sedima that RICO reaches both "le- gitimate" and "illegitimate" enterprises. The Court in H.J. Inc. also rejected the employment of a definitional device, such as "scheme," to delineate racketeering activity, when the device employed, like "scheme," may be manipulated
to satisfy the necessary criterion. See id. at 241 and n.3. Whatever view we may have of Congress's original in- tent in enacting the RICO statute, we feel constrained, in applying the statute today, to follow the **45 directives
given by the Court in Sedima and H.J. Inc.
Since H.J. Inc., this court has faced the question of continued racketeering activity in several cases, each time finding that conduct lasting no more than twelve months did not meet the standard for closed-ended continuity. See Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d
594, 610-11 (3d Cir. 1991) ( HN11 fraudulent conduct lasting twelve months does not establish closed-ended continuity); Hindes v. Castle, 937 F.2d 868, 875 (3d Cir.
1991) (eight month period of predicate acts without a threat of future criminal conduct does not satisfy conti- nuity requirement); Kehr Packages v. Fidelcor, Inc., 926
F.2d 1406, 1413 (3d Cir. 1991) (same); Banks v. Wolk, 918
F.2d 418, 422-23 (3d Cir. 1990) (same); Marshall-Silver Constr. Co. v. Mendel, 894 F.2d 593 (3d Cir. 1990) (seven month single-victim, single-injury scheme does not sat- isfy continuity requirement). n17 In Hughes, we distin- guished cases in other circuits in which closed-ended continuity had been established, noting **46 that those cases involved conduct lasting "years, sometimes over a decade." Hughes, 945 F.2d at 611.
n17 In Marshall-Silver, we considered whether Congress intended RICO to apply in the situation of an extended scheme which posed no "significant societal threat" beyond its extended duration. 894
F.2d at 597. Because the scheme there lasted only seven months and posed no threat of recurrence, we stated that we would not resolve the "societal threat" issue. In view, however, of the Court's refusal in Sedima and H.J. Inc. to require racketeering injury, or prior conviction of the predicate acts, or multiple schemes, or racketeering acts by an association or group rather than by an individual, we cannot con- clude that, in order to satisfy the RICO continuity requirement, the Court would require the existence of a "societal threat," whatever exactly that may be, beyond the commission of the criminal predicate acts. To the extent that Marshall-Silver can be read to hold otherwise, it is overruled.
**47
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Page 16
*1294
A.
In evaluating the present case in accord with this precedent, we will first consider whether closed-ended continuity has been established. At the outset, we note that in civil RICO complaints based on predicate acts of mail fraud
the continuity test requires us to look beyond the mailings and examine the underlying scheme or artifice. Although the mailing is the actual criminal act, the instances of deceit constituting the underlying fraudulent scheme are more relevant to the continuity analysis.
Kehr Packages, 926 F.2d at 1414. n18 Consequently, in determining whether or not continuity has been estab- lished in the present case, we must focus on the duration of the underlying scheme. Just as the mailings are an element of the federal offense of mail fraud, so too is the scheme or artifice to defraud. See 18 U.S.C. § 1341,
set out in footnote 15 supra. Each time defendants mis- represented the business nature of an expense, made a questionable charge, or received compensation to which they were not entitled, they lessened the income avail- able to the Estate. Plaintiffs have provided evidence that these activities, **48 which implemented defendants' purported scheme to defraud the Estate, lasted more than three and a half years, from November 10, 1987, to July
1991. We conclude that a scheme lasting over three years extends over a "substantial" period of time and therefore constitutes the type of "long-term criminal conduct" that RICO was enacted to address. See United States v. Pelullo,
964 F.2d 193, 209 (3d Cir. 1992) (holding that a jury could find a nineteen month period of racketeering activity suffi- cient to satisfy continuity requirement); Swistock v. Jones,
884 F.2d 755, 759 (3d Cir. 1989) (fourteen month period of conduct may be sufficient to establish closed-ended continuity). Accordingly, we find, from the strictly dura- tional aspect of the scheme, that plaintiffs in the present case have made a sufficient
47 F.3d 1280, *1295; 1995 U.S. App. LEXIS 2585, **48
Page 17
*1295 showing to survive summary judgment on the
"continuity" prong of the pattern analysis.
n18 Defendants' assertion that the mailings in- volved must themselves be relied upon by the vic- tim of the fraud in order for a RICO claim to be es- tablished is inaccurate. As this Court stated in Kehr Packages, " HN12 completely 'innocent' mailings can satisfy the mailing element." 926 F.2d at 1415
(citing Schmuck v. United States, 489 U.S. 705,
715, 103 L. Ed. 2d 734, 109 S. Ct. 1443 (1989)). Indeed, mailings "designed to lull fraud victims into a false sense of security, postpone their ultimate complaint to the authorities, and therefore make the apprehension of the defendants less likely than if no mailings had taken place" have been found to con- stitute actionable mail fraud. Kehr Packages, 926
F.2d at 1416 n.3 (quoting United States v. Lebovitz,
669 F.2d 894, 896 (3d Cir.), cert. denied, 456 U.S.
929, 72 L. Ed. 2d 446, 102 S. Ct. 1979 (1982)). Additionally, the use of the mails need not be an essential element of the fraudulent scheme. Rather, so long as the mailings are "incident to an essen- tial part of the scheme," Pereira v. United States,
347 U.S. 1, 8, 98 L. Ed. 435, 74 S. Ct. 358 (1954), the mailing element is satisfied. This principle is elucidated by a review of the facts in Schmuck v. United States, 489 U.S. 705, 103 L. Ed. 2d 734, 109
S. Ct. 1443 (1989). In that case, Wayne Schmuck was engaged in a fraudulent scheme in which he would purchase used cars, roll back their odome- ters, and sell the cars to retailers for a price higher than their actual worth. After purchasing an auto- mobile from Schmuck and selling it to a customer, the dealers, in order to complete the resale of each automobile, would submit a title application form to the Wisconsin Department of Transportation. The mailing of these forms constituted the mailing ele- ment of Schmuck's indictment on 12 counts of mail fraud. The Supreme Court found that those mailing were sufficient to sustain Schmuck's indictment on mail fraud charges, reasoning that
Schmuck's scheme would have come to an abrupt halt if the dealers either had lost faith in Schmuck or had not been able to resell the cars obtained from him. These resales and Schmuck's relationship with the retail dealers naturally depended on the suc- cessful passage of title among the various parties. Thus, although the registration-form mailings may not have contributed directly to the duping of ei- ther the retail dealers or the customers, they were necessary to the passage of title, which in turn was
essential to the perpetuation of Schmuck's scheme.
Id. at 712.
In the instant case, it is clear that the mail- ings were incident to an essential part of the scheme. Had the defendants failed to mail dis- bursement checks to plaintiffs, plaintiffs would have immediately been alerted to defendants' al- leged scheme. Consequently, by virtue of the dis- bursements mailed to plaintiffs, defendants were allegedly able to delay discovery of their scheme to misappropriate an excessive share of the partner- ship's profits. The scheme could not have continued unless the checks were delivered by one means or another. As long as the method of delivery was through the United States Postal Service, defen- dants' alleged scheme satisfied the elements of the federal offense of mail fraud.
**49
The Supreme Court cautions us, however, in H.J. Inc., that the existence of continuity may not always be appar- ent. 492 U.S. at 243. For example, HN13 the statutory definition of pattern is "at least two acts of racketeering activity" within a ten year period. 18 U.S.C. § 1961(5). It is clear that ten years is a period of long duration. Yet, would two related predicate acts, one committed in February 1982 and one committed in January 1992, be sufficient to form a pattern? It would seem unlikely. Indeed, Justice White noted in a footnote that, while §
1961(5) defines a pattern of racketeering activity as re- quiring at least two acts of racketeering activity, two acts may not be sufficient. 473 U.S. at 496 n.14.
The question remains, then, what more is required in order to evaluate whether continuity has been estab- lished when predicate acts have occurred over a period of several years. One helpful consideration can be found in the Court's requirements for open-ended continuity. In H.J. Inc. the Court states that open-ended continuity is established when the commission of the predicate acts is
"a regular **50 way of conducting defendant's ongo- ing legitimate business." 492 U.S. at 243. It would seem a valid analogy that, if the predicate acts have been a regular way of conducting defendant's legitimate busi- ness over a long period in the past, the RICO pattern has been satisfied. n19 In such a case, the relatedness and the frequency of the predicate acts would have created the pattern of racketeering activity. From our review of the record in the present case, we find that the allega- tions made by plaintiffs concerning defendants' manner of doing business over this period satisfy such a RICO continuity requirement. n20
47 F.3d 1280, *1295; 1995 U.S. App. LEXIS 2585, **50
Page 18
n19 In making this analogy, we in no way im- ply that the predicate acts must constitute a "regular way" of a defendant's doing business. We merely give one example of the manner in which "pattern" may be demonstrated.
n20 The district court, in granting summary judgment to defendants, found that "this is not a case where the predicate acts are 'part of an entity's regular way of doing business,' such as would af- fect others doing business with the entity." App. at
1377. (citing H.J. Inc., 492 U.S. at 242). See supra at page typescript at 16 .
To the extent that the district court suggests that effects upon others doing business with the entity are relevant to a finding of "continuity," we are not certain if the district court is requiring that those af- fected be outsiders doing business with the entity, as opposed to investors or partners in or beneficia- ries of the entity. If so, we find no support in H.J. Inc. for such a requirement. The implication of the cited passage in H.J. Inc. does not limit its holding to require that the effect be on those who are doing business with the entity.
If, on the other hand, the district court was mak- ing a finding of fact on the scope of the defendants' regular way of doing business, i.e., that the alleged scheme to defraud the Estate and its beneficiaries, through the repeated actions described by Price
Waterhouse, did not constitute defendants' regu- lar way of doing business, then in view of the facts of record, we must conclude that such a finding of fact is clearly erroneous.
**51
B.
Moreover, even if we were not to have found that conduct lasting three and one-half years was sufficient to establish closed-ended continuity, we conclude that con- tinuity still would have been established for the purposes of summary judgment in the present case under an "open- ended" continuity analysis. Under H.J. Inc., HN14 if a RICO action is brought before a plaintiff can establish long-term criminal conduct, the "continuity" prong may still be met if a plaintiff can prove a threat of continued racketeering activity. Whether the predicate acts consti- tute a threat of continued racketeering activity depends on
"the specific facts of each case," 492 U.S. at 242, but H.J. Inc. suggests that open-ended continuity may be satisfied
"where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate business .
. . or of conducting or participating in an ongoing and legitimate RICO 'enterprise.'" Id. at 243.
Mindful that Kehr Packages instructs us, in determin- ing continuity, to focus on the mail fraud element of the underlying fraudulent
47 F.3d 1280, *1296; 1995 U.S. App. LEXIS 2585, **51
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*1296 activity as well as on **52 the element of the mailings, we are persuaded that the evidence here meets the standard for open-ended continuity. Plaintiffs have presented evidence that defendants continuously took questionable expenses, which directly affected the partnership income available to the Estate. Both Price Waterhouse reports are replete with examples of expense charges taken by defendants for which there is not ad- equate documentation or explanation to substantiate an ordinary and necessary business purpose. These included trips, meals, home services, cars, gasoline, insurance ex- penditures, and telephone bills.
At this stage of the litigation, we must view the facts in the light most favorable to plaintiffs, the non-movants, i.e., that as a regular way of doing business, defendants were fraudulently misrepresenting expenditures to benefit themselves and to deprive the Estate and its beneficiaries of their legitimate share of the profits of Tabas Enterprises. The evidence in the record is clear that these practices, de- fendants' regular way of doing business, continued even after plaintiffs' complaint was filed. As a consequence, plaintiffs have established a threat of continuing fraudu- lent conduct **53 as required under an "open-ended" continuity analysis.
C.
Because we have found a pattern of racketeering activ- ity in both the duration of and the on-going threat implicit in defendants' regular way of doing business, we will not go on to analyze this case under the six Barticheck factors. The fact that we do not employ the Barticheck factors in our analysis here does not, however, mean that they might not be relevant in a different case in determining if con- tinuity exists. As the Court noted in H.J. Inc., in those cases where relatedness and continuity are in doubt, other factors should be examined to discern if there is a "pattern of racketeering activity" under RICO:
The limits of the relationship and continuity concepts that combine to define a RICO pattern, and the precise meth- ods by which relatedness and continuity or its threat may be proved, cannot be fixed in advance with such clarity that it will always be apparent whether in a particular case a "pattern of racketeering activity" exists.
492 U.S. at 243. It is helpful, therefore, when determining whether "relatedness" or "continuity" has been proven, to use a fact-oriented, **54 case-by--case approach to
determine whether there is a "pattern of racketeering ac- tivity." n21
n21 Although we decided Barticheck before H.J. Inc., we have since noted that the six Barticheck factors are still relevant in determining whether a pattern exists. See Hindes v. Castle, 937
F.2d 868, 873 n.3 (3d Cir. 1991) ("The Barticheck factors, such as the number of acts, victims, and perpetrators and the character of the unlawful ac- tivity, may be relevant in some cases in assessing the threat of continuing criminal conduct by throw- ing light on whether the illegal activity was part of a legitimate business' regular way of conduct- ing business, or whether the predicates were at- tributable to a 'long-term association that exists for criminal purposes.'") (citation omitted).
It remains clear, however, that "duration is the sine qua non of continuity." Hindes, 937 F.2d at
873. For this reason, the Barticheck factors are best viewed as analytical tools available to courts when the issue of continuity cannot be clearly determined under either a closed-or open-ended analysis. It should also be noted that the H.J. Inc. decision cites the Third Circuit's holding in Barticheck for two narrow propositions only: (1) that continuity is both a closed-and open-ended concept, 492 U.S. at 238, and (2) that "scheme" is not a self-defining term, 492 U.S. at 241 n.3. Nowhere in H.J. Inc. does the Supreme Court expressly adopt the Barticheck factors as being required elements in the "continu- ity" analysis.
**55
In the present case, we find that plaintiffs have clearly presented evidence that is legally sufficient to survive summary judgment on the issue of continuity through the defendants' alleged commission of the predicate acts and of the underlying fraudulent activity as an ongoing way of doing business. Accordingly, we do not need to concern ourselves with the applicability of the Barticheck factors to the specific facts of this case.
D.
We recognize that our ruling means that RICO, with its severe penalties, may be applicable to many "garden- variety" fraud cases, see Marshall-Silver, 894 F.2d at 597,
47 F.3d 1280, *1297; 1995 U.S. App. LEXIS 2585, **55
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*1297 particularly considering the judiciary's broad in- terpretation of the mail fraud statute. See Kehr Packages,
926 F.2d at 1413-14. We are bound, however, by the lan- guage of RICO itself and the Supreme Court's instruction that "RICO is to be read broadly." Sedima, 473 U.S. at
497. Indeed, the Supreme Court has consistently struck down efforts by the courts of appeals to narrow RICO's scope. See NOW v. Scheidler, 127 L. Ed. 2d 99, 114 S. Ct. 798, 806 (1994) (rejecting **56 Seventh Circuit holding that RICO requires proof that either the racketeer- ing enterprise or the predicate acts of racketeering were motivated by an economic purpose); H.J. Inc., 492 U.S. at 250 (rejecting Eighth Circuit holding that RICO re- quires proof of multiple "schemes"); Sedima, 473 U.S. at
495 (rejecting Second Circuit holding that RICO requires proof of prior conviction on predicate act and that plaintiff must demonstrate specific "racketeering injury").
We share the Supreme Court's concern over the broad application of the civil RICO statute. We are nonetheless bound by the language of the statute and the Supreme Court's interpretation of it. Accordingly, it is for Congress to decide whether to narrow the scope of RICO; we are not in a position to do so by requiring that parties prove elements of a threat or of an injury, presented by pred- icate racketeering activity, beyond what is expressed in the language of the statute itself. n22
n22 The dissent relies upon our recent holding in Jordan v. Fox, Rothschild, O'Brien & Frankel,
20 F.3d 1250 (3d Cir. 1994) for the proposition that civil RICO should not be applicable in cases lack- ing a significant societal threat. But see footnote 17 in regard to our position that HN15 there is no requirement in civil RICO that the predicate acts pose a "societal threat." We find several significant differences, however, between Jordan and the dis- pute here. First, the duration and continuing nature of the underlying fraudulent activity alleged here is much greater. In addition, the district court in Jordan questioned the "relatedness" of the predi- cate acts, see Jordan v. Berman, 792 F. Supp. 380,
385-86 (E.D. Pa. 1992), and further held that plain- tiffs had failed to establish that they had sustained any injury from the purported predicate acts. Id. at 388. Finally, and perhaps most importantly, the district court in Jordan found that there was no ev- idence presented that would lead a jury to believe that mail fraud had been committed. Id. at 387. As discussed above, we have come to a different
conclusion in the present dispute.
**57
V.
Defendants have raised a number of alternative grounds for summary judgment claiming that insuffi- cient causation and injury have been pleaded and that some of the defendants are not potentially liable under RICO. Because discovery has not been completed, we find that it would be premature to address these alter- native grounds. Plaintiffs have sought to take additional depositions that could have substantial bearing upon these issues. Additionally, the district court did not rule on any of the alternative grounds, and, as a consequence, it would be inappropriate for us to consider them at this stage. n23
n23 We note that on remand the court should consider whether the decision in Reves v. Ernst & Young, 122 L. Ed. 2d 525, 113 S. Ct. 1163 (1993) has any bearing on this case. In Reves, the Supreme Court held that only defendants who participate in the operation or management of an enterprise can be held liable for violating 18 U.S.C. § 1962(c).
VI.
For the foregoing **58 reasons, we will reverse the district court's decision granting summary judgment against plaintiffs on their RICO claims, we will vacate the dismissal of plaintiffs' supplemental state claim, and we will remand this case to the district court for further proceedings consistent with this opinion. n24
n24 In view of our vacatur of the dismissal of plaintiffs' supplemental state claims, we do not need to rule on defendants' cross-appeal.
CONCURBY: BECKER; ALITO
CONCUR: BECKER, Circuit Judge, Concurring. I
I join in all of Judge Roth's lead opinion except Parts III and IV.D, and I concur in the judgement. I write sep- arately, however, because I believe that the opinion has
"stopped short," and not carried the logic of
47 F.3d 1280, *1298; 1995 U.S. App. LEXIS 2585, **58
Page 21
*1298 its argument to its ultimate conclusion. More specifically, while Judge Roth's opinion makes clear that the "Barticheck factors" cannot be the sine qua non of the continuity determination, and its opinion undoubt- edly erodes Barticheck's precedential value, the court's logic -- **59 as Judge Greenberg's dissent recognizes, see Dissenting Op. at page 7, especially lines 6-10-- com- pels the conclusion that Barticheck should be abandoned. Yet Judge Roth leaves it breathing and thereby will, I fear, cause mischief by engendering confusion in the district courts, in addition to a round of further appeals.
I recognize that Judge Roth's opinion does not in terms rest on application of the six Barticheck factors. It is a fact, however, that these factors have been at the heart of this court's civil RICO jurisprudence for the past seven years, and most district court opinions struggling with the ex- istence vel non of civil RICO continuity use Barticheck as their polestar. In my view, now that we are in banc on a civil RICO case, it is incumbent upon us to clarify the status of Barticheck, and the lead opinion's avoidance of the issue is not grounds for putting it off to another day. I therefore write separately in order to set forth my understanding of the implications of this court's decision.
II
Perhaps the most serious example of the uncertainty needlessly sown by the jurisprudential reticence of Judge Roth's opinion concerns Barticheck factor **60 #6, the "character of the unlawful activity." In my view, the opinion can be read as leaving open the possibility that this factor, along with the other Barticheck factors, sur- vives today's decision. See Lead Op. at page 40 ("The fact that we do not employ the Barticheck factors in our analysis here does not, however, mean that they might not be relevant in a different case in determining if con- tinuity exists.") (emphasis supplied); id. at 41 n.21 ("The Barticheck factors . . . may be relevant in some cases in assessing the threat of continuing criminal conduct .
. . .") (internal quotation marks omitted, emphases sup- plied). This is apparently the conclusion drawn by Judge Greenberg, whose dissent treats "character of the unlaw-
ful activity" as the most important of the factors. See Dissenting Op. at pages 12, 15. But Judge Roth's opin- ion does not explain how to distinguish this factor from
"societal threat," which, she properly holds (if less em- phatically than is warranted), cannot survive Sedima and H.J., Inc. See Lead Op. at page 34 n.17.
This reluctance to overrule Barticheck thus has the un- fortunate potential for contributing to **61 doctrinal confusion, for as Judge Greenberg argues in dissent, see Dissenting Op. at page 7, a given factor either is or is not relevant to the existence of a "pattern" of racketeering activity. The RICO statute does not have one provision for cases where relatedness and continuity (or their ab- sence) are clear and another for "those cases where relat- edness and continuity are in doubt." Lead Op. at page 40. Accordingly, I believe that we should inter Barticheck as a whole, and should forthrightly announce which, if any, Barticheck factors remain relevant to the continuity analysis and which do not.
A.
As I read Judge Roth's opinion, it properly treats the length of time over which the predicate acts were commit- ted (Barticheck factor #2), the number of unlawful acts
(factor #1), and the routineness or customariness of the acts (which in my view is, as I explain below, the only permissible interpretation of factor #6, the character of the unlawful activity) as relevant for the continuity in- quiry. Although Judge Roth does not discuss Barticheck factors #3-#5 (similarity of acts, number of victims, and number of perpetrators), I believe that its analysis shows that **62 these factors are irrelevant to the continuity inquiry.
As Judge Roth notes, continuity is "centrally a tem- poral concept." Lead Op. at page 31 (quoting H.J., Inc.,
492 U.S. 229, 242). It simply "refers either to a closed period of repeated conduct closed-ended continuity , or to past conduct that by its nature projects into the future with a threat of repetition open-ended continuity ." Id.
(quoting H.J., Inc., 492 U.S. at 241) (alterations supplied
47 F.3d 1280, *1299; 1995 U.S. App. LEXIS 2585, **62
Page 22
*1299 here). Thus duration, whether established dura- tion or likely duration, is central to the "continuity" aspect of a RICO "pattern." As a result, the length of time over which the predicate acts occurred (Barticheck factor #2) is of primary significance.
I agree with Judge Roth's view that something more is needed to make out a "pattern," and that two related pred- icate acts almost ten years apart are unlikely to suffice. See Lead Op. at page 37. But the number of predicate acts
(Barticheck factor #1), on which her opinion properly re- lies in finding continuity here, provides all that is needed for closed-ended continuity. In conjunction **63 with duration, the number of acts suffices to show frequency -- a concept that, as Judge Roth's opinion agrees, see Lead Op. at 6, provides an adequate interpretation of "pattern" where completed, related acts are concerned.
As the Supreme Court has explained, the definition of a RICO "pattern" should accord with the plain meaning of that term. In particular,
a "pattern" is an "arrangement or order of things or activity," and the mere fact that there are a number of predicates is no guarantee that they fall into any arrangement or order. It is not the number of predicates but the re- lationship that they bear to each other or to some external organizing principle that ren- ders them "ordered" or "arranged."
H.J., Inc., 492 U.S. at 238, 109 S. Ct. at 2900 (citation omitted).
As I see it, the continuity prong of pattern analysis should be explicitly directed toward ruling out RICO li- ability premised on two or more predicate acts that are related but nonetheless "isolated" or "sporadic." See H.J., Inc., 492 U.S. at 239, 109 S. Ct. at 2900 (discussing leg- islative history of the "pattern" **64 requirement). Courts then would be in a better position to engage in reasonably meaningful discussions of whether -- in the concrete circumstances of the case -- continuing racke- teering activity had been adequately alleged.
But the Barticheck factors fail to provide the needed guidance, and any attempt to use all six in continuity anal- ysis, in my view, is destined for failure, in part because
these factors were not originally intended to govern the continuity inquiry. Rather, they originated as an attempt to distill our case law on the RICO pattern requirement, simpliciter, not as an explication of separate relatedness and continuity requirements. See Barticheck, 832 F.2d at
38-39 ("Those cases . . . recognized that the existence of a RICO pattern . . . turns on . . . a combination of specific factors . . . .") (emphasis supplied). Some of the Barticheck factors are relevant to this general notion of pattern. n25
Once "pattern" is analytically severed into "relatedness" and "continuity," however, there is no reason to insist that all six of the factors will logically bear on both continuity and relatedness. Barticheck did not do so. **65 Rather, it discussed the various factors and concluded simply that the plaintiffs had adequately alleged a RICO pattern. See id. at 39.
n25 I do not mean to suggest that the number of perpetrators or victims, while irrelevant to con- tinuity, is relevant to relatedness, for it is not. The identity or other defining characteristics of the vic- tims and perpetrators, however, may help establish relatedness of predicate acts.
What Barticheck did do, however, was recognize that continuity might be either open-ended or closed-ended, rejecting the defendants' argument that RICO reached only conduct that was potentially ongoing. See id. at 39-
40. Furthermore -- and this accords with my view that the factors should be analyzed as they bear on screening out isolated or sporadic activity -- the Barticheck panel said that the "continuity" language in the legislative history cited in Sedima
simply called for an inquiry into the extent of the racketeering **66 activity. Although temporal open-endedness may be one mea- sure of extent, it is not the only one. We decline to adopt a verbal formula for deter- mining when unlawful activity is sufficiently extensive to be "continuous."
832 F.2d at 40. I would explicitly hold, therefore, that al- though the duration of the predicate acts does not without more show continuity, if the acts occurred (as shown by the number of acts) or establish a threat of
47 F.3d 1280, *1300; 1995 U.S. App. LEXIS 2585, **66
Page 23
*1300 occurring (as shown by also considering whether they are repetitive in nature) with some frequency, they satisfy the continuity requirement, and, provided they are related, a pattern is shown.
"A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time." H.J., Inc., 492 U.S. at 242, 109 S. Ct. at 2902. What constitutes a "substantial" period of time for these purposes (as long as in excess of "a few weeks or months," see infra) should vary with the number of acts in "the se- ries" of predicates. As the number of acts in a given period of time increases, the predicates **67 begin to look less sporadic and a pattern begins to emerge. The only (rel- ative) absolute here should be that the predicates must stretch out at least for more than three or four months to establish closed-ended continuity in light of the Court's instruction that "predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy" the continuity requirement. Id. at 242, 109 S. Ct. at 2902.
For open-ended continuity, in contrast, we are looking for "conduct that by its nature projects into the future with a threat of repetition." Thus, while I agree with Judge Roth that the two types of continuity are cognate, I believe that to see whether open-ended continuity is established, what we should ask is simply whether the activity threatens to demonstrate close-ended continuity at some future time. This, I believe, is the point of the three examples of open- ended continuity in the H.J., Inc. opinion, including the scenario where the defendant's commission of predicate acts is "a regular way of conducting defendant's ongoing legitimate business." 492 U.S. at 242-43, 109 S. Ct. at
2902. **68
To return to Barticheck factor #6, in my view, threat of recurrence is also the only respect in which the "char- acter" of the predicate acts is relevant to the continuity inquiry. As the Supreme Court and Judge Roth's opinion have explained, open-ended continuity merely refers to
"past conduct that by its nature projects into the future with a threat of repetition." Lead Op. at page 24 (quoting H.J., Inc., 492 U.S. at 241, 109 S. Ct. at 2902) (emphasis supplied here). For example, if extortion is a defendant's regular way of conducting business, then the nature or character of the conduct in the sense of its routineness
or literal open-endedness makes it likely to continue into the future. That is the sense in which the character of the activity is relevant to continuity. n26
n26 This interpretation of "character" of the un- lawful activity as "repetitive character" also makes sense of the admonition in Kehr Packages to con- sider the underlying scheme in mail fraud cases. To the extent that the underlying scheme indicates a likelihood of a defendant's continuing to commit predicate acts, it may be relevant to open-ended continuity. (Of course, the underlying scheme also may supply an "organizing principle" that estab- lishes relatedness. See supra at page (quoting H.J., Inc. 492 U.S. at 238, 109 S. Ct. at 2900).) In all cases, however, we are looking for a pattern (and thus continuity and relatedness) of the predicate acts of racketeering activity, see H.J., Inc., 492 U.S. at 237-40, 109 S. Ct. at 2900-01; id. at 242, 109
S. Ct. at 2902.
**69
As Judge Roth's opinion correctly holds, "character of the unlawful activity" may not refer to some notion of
"societal threat." Lead Op. at page 34 n.17. Because the opinion does not clarify the extremely limited sense in which "character" of the predicate acts is relevant to the continuity inquiry, the dissent unfortunately devotes great energy to arguing that the "character" of the predicate acts, meaning the species of act involved, weighs against a find- ing of continuity. See Dissenting Op. at pages 12-18. I believe that this effort is fundamentally at odds with the RICO statute and Supreme Court precedent interpreting it.
B.
The "societal threat" requirement can be traced back to this court's opinion in the first Marshall-Silver case,
835 F.2d 63 (3d Cir. 1987). There, we reasoned that "the target of RICO . . . is criminal activity that, because of its organization, duration, and objectives poses, or during its existence posed, a threat of a series of injuries over a significant period of time." Id. at 66-67 (emphases sup- plied). The panel dismissed the case in part because it involved "a single victim, **70 a single injury, and a single short-lived scheme
47 F.3d 1280, *1301; 1995 U.S. App. LEXIS 2585, **70
Page 24
*1301 with only two active perpetrators," id. at 67, and thus did not pose the appropriate sort of threat. This was an eminently prudent attempt to make sense of the RICO pattern requirement. It appears to be an effort to get at the ongoing or potentially ongoing criminal activ- ity that concerned Congress. It was essentially an extent requirement.
In the cases after H.J., Inc., however, the concern over extent of injury was transmogrified to a focus on societal injury. Rather than worry about a "series of injuries," we have come to focus on a normative evaluation of the in- juries alleged in a civil RICO case. Such focus is the basis for Judge Greenberg's dissent in this case, but with all due respect, given what Congress and the Supreme Court have said about the RICO statute, see Lead Op. at page
34 n.17, I believe that the focus is inappropriate in this context.
Congress in the RICO statute specified an extensive laundry list of serious and arguably less serious acts that all constitute racketeering activity, and so it strikes me as improper to maintain that the statute's "pattern" re- quirement **71 builds in a normative evaluation of the seriousness of the predicate acts. The concern about feder- alizing and attaching drastic penalties to "garden variety fraud," see Dissenting Op. at pages 20-21, is a legiti- mate one, but one that must be addressed by Congress rather than the courts. And Congress has told us what sorts of acts to worry about. Our concern with the pat- tern requirement is simply to insure that RICO liability is not attached to "isolated" or "sporadic" predicate acts. That task requires no inquiry into the seriousness of the acts. The "threat" for which we are looking is the threat of repeated prohibited conduct, not the threat of grievous harm.
With this in mind, I believe that this court should plainly state that the number of victims (factor #4) and number of perpetrators (factor #5) do not bear on the con- tinuity inquiry. Certainly, neither the number of victims nor the number of perpetrators should affect the analy- sis of duration which, as the Judge Roth explains, the
Supreme Court has rendered the centerpiece of the conti- nuity jurisprudence. Indeed, these factors seem to inform the notion of societal threat, and hence are out of bounds. Nor does the number of **72 victims or perpetra- tors go to making out a pattern. For example, one office- tower bomb triggered during business hours could result in a tragically large number of victims, but just because the bombing happened during the day instead of at night when few people were there does not make it more likely that the bombing reflects non-isolated or non-sporadic ac- tivity. Similarly, three bombings by several conspirators trying to eliminate one target would not (if successful) reflect a greater threat of continuing racketeering activity than would three bombings by the Unabomber, because it is only the repetitive nature of the activity and not the number of victims or perpetrators that helps establish a
threat of continuity.
The number of predicate acts could indicate an extent of activity that would bear on whether the activity is spo- radic or frequent, and extent of the predicate activity is therefore relevant to continuity, as Judge Roth seems to recognize. See Lead Op. at page 38 (" If the predicate acts have been a regular way of conducting defendant's legitimate business over a long period in the past, the RICO pattern been satisfied."). But number of victims is not relevant, **73 for, under the present congressional scheme, we are looking for continuity in order to show a pattern of racketeering acts, not harm from the acts. See supra page n..
C.
We have previously held that "similarity" (factor #3)
does not bear on continuity, see, e.g., Marshall-Silver, 894
F.2d at 595 n.1, and Judge Roth has already made length of time (factor #2) and number of unlawful acts (factor
#1) part of her core analysis, irrespective of Barticheck. In my view, the lead opinion leaves virtually nothing of Barticheck and I believe -- along with Judge Greenberg in dissent, see Dissenting Op. at page 7, especially lines
6-10 -- that we should say so. While I share Judge Roth's uneasiness as to where this leaves the law, I can only hope
47 F.3d 1280, *1302; 1995 U.S. App. LEXIS 2585, **73
Page 25
*1302 that its eloquent and clarion call will not be ignored by Congress.
Judges Stapleton and McKee join in this concurrence.
ALITO, Circuit Judge, concurring:
I concur in the judgment, and I join parts I, II, V, and VI of the opinion of the court While the discussion of the "continuity" requirement in part IV of Judge Roth's opinion is a welcome step away from the approach taken in some of **74 this court's prior decisions, I do not agree with certain portions of that discussion. I set out my understanding of the concept of "continuity" in Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1419-26
(3d Cir. 1991) (Alito, J., concurring and dissenting), and pursuant to that analysis, I think that closedended conti- nuity was sufficiently established here to defeat summary judgment. My principal points of disagreement with the discussion in part IV of Judge Roth's opinion are as fol- lows.
First, I do not agree with the intimation (Typescript at 34) that closed-ended continuity requires activity last- ing years. See Kehr Packages, Inc., 926 F.2d at 1421-22
(Alito, J., concurring and dissenting).
Second, I do not agree with the suggestion (Typescript at 36-37) that a plaintiff who establishes "closed-ended continuity" may also be required to show that the predi- cate acts were part of the defendant's regular way of con- ducting its business. I see no support for this requirement in the language of the RICO statute or relevant Supreme Court decisions.
Third, I do not agree that, in a RICO case based on mail fraud predicates, **75 we must "focus on the un- derlying fraudulent activity, rather that on the otherwise innocent mailings, in determining continuity." (Typescript at 38.) In my view, we must focus on the duration of the predicate violations. See Kehr Packages, Inc., 926 F.2d at
1422-23 (Alito, J., concurring and dissenting).
Finally, I do not think that the Barticheck factors
should be considered except to the extent that they have some logical bearing on "relatedness" or "continuity." See Kehr Packages, 926 F.2d at 1421 (Alito, J., concurring and dissenting).
DISSENTBY: GREENBERG
DISSENT: GREENBERG, Circuit Judge, dissenting.
In its amended complaint, the Estate of Charles L. Tabas seeks to transform its state-law dispute with the defendants over the proper allocation of a partnership's profits into a federal RICO case simply by alleging that the defendants used the United States mail to commu- nicate with it over a substantial period of time. While we have not considered directly whether a plaintiff can bring a RICO action in such circumstances, our prece- dents clearly forbid such alchemy. See Hughes v. Consol- Pennsylvania Coal Co., 945 F.2d 594, 609-11 (3d Cir.
1991), **76 cert. denied, 501 U.S. 1222, 112 S. Ct.
2300, 119 L. Ed. 2d 224 (1992); Hindes v. Castle, 937
F.2d 868 (3d Cir. 1991); Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406 (3d Cir.), cert. denied, 501 U.S. 1222,
111 S. Ct. 2839, 115 L. Ed. 2d 1007 (1991); Banks v. Wolk,
918 F.2d 418 (3d Cir. 1990); Marshall-Silver Constr. Co. v. Mendel, 894 F.2d 593 (3d Cir. 1990); Swistock v. Jones,
884 F.2d 755 (3d Cir. 1989). Therefore, I would affirm the grant of summary judgment in favor of the defendants, and I respectfully dissent. n27
n27 The Estate may have valid claims under state law, but I would hold that the district court did not abuse its discretion in dismissing these claims pursuant to 28 U.S.C. § 1367.
I agree with the majority that the central issue in this appeal is whether the Estate has alleged that the **77 defendants engaged in a "pattern of racketeering activity" as defined in 18 U.S.C. § 1961(5). n28 Majority typescript at 24. As noted by the majority, to establish a pattern of racketeering activity, a plaintiff "must show that the rack- eteering predicates are related, and that they amount
47 F.3d 1280, *1303; 1995 U.S. App. LEXIS 2585, **77
Page 26
*1303 to or pose a threat of continued criminal activ- ity." H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229,
239, 109 S. Ct. 2893, 2900, 106 L. Ed. 2d 195 (1989)
(emphasis in original). Thus, a plaintiff seeking to bring a RICO claim must allege, among other things, relatedness and continuity.
n28 I also agree with the majority that the 1987 settlement and the subsequent mutual release do not preclude the Estate from bringing this case. I mention this point because, as the majority notes, this issue was considered by the panel only and I was a member of the panel.
As the majority states, the predicate acts are 41 in- stances of alleged mail fraud. Of these, 39 were the
**78 mailing of $15,000 checks to the Estate, totalling
$585,000, representing monthly distributions from Tabas Enterprises. The remaining two were the mailing of yearly tax forms to the Estate. Amended Complaint P 49, App. at
43-46. According to the amended complaint, the checks were sent from December 22, 1987, to February 19, 1991, a period of over three years. n29 The Estate also alleges as predicate acts that the defendants used the United States mail to send checks to members of Daniel Tabas's family for work not performed. Amended Complaint P 51, App. at 46-47. n30 The majority, however, does not rely on these allegations as the Estate did not provide evidence that these checks were mailed, and the evidence on the motion for summary judgment established that a courier delivered them. I agree with this disposition and thus con- clude that we are concerned only with the mailing of the
$15,000 checks and the tax forms.
n29 The amended complaint recites that the last two checks were sent on January 18, 1990, and February 19, 1990. Amended Complaint at 34. However, these dates appear to be typographical er- rors because they are listed in an otherwise chrono- logical sequence in which the next preceding date was December 14, 1990.
**79
n30 In their brief, the defendants maintain that this allegation does not satisfy the pleading require- ments of Fed. R. Civ. P. 9(b). Brief at 30 n.6; see Banks v. Wolk, 918 F.2d at 422 n.1 (noting that alle- gations of mail fraud must be plead with specificity required by Fed. R. Civ. P. 9(b)). I do not address this contention because even assuming that the plead- ing requirement is met, the allegations were refuted and, in any event, the Estate's allegations as a whole
do not state a claim under RICO.
I would hold that these mailings are related. n31 See Kehr Packages, 926 F.2d at 1414 (noting that relatedness test almost always will be satisfied "in cases alleging at least two acts of mail fraud stemming from the same fraud- ulent transaction"). However, in my view these mailings do not satisfy the continuity requirement as defined by the Supreme Court's and our precedents. In H.J. Inc., the Supreme Court stated that continuity "is both a closed-and open-ended concept, referring either to a closed period of repeated conduct, or to past **80 conduct that by its nature projects into the future with a threat of repetition."
492 U.S. at 241, 109 S. Ct. at 2902 (citing Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36, 39 (3d Cir. 1987)). If a plaintiff does not allege that the predi- cate acts lasted over a "substantial period of time," then it must allege a threat of continued criminal activity. Id. at
242, 109 S. Ct. at 2902; Marshall-Silver, 894 F.2d at 596. Conversely, if a plaintiff alleges that the predicate acts lasted a substantial period of time, then it need not allege a threat of future criminal conduct. Therefore, a plaintiff alleging a closed-ended scheme has both a lesser burden in that it does not have to demonstrate a threat of future harm, and a greater burden in that it must establish that the predicate acts continued over a substantial period of time.
n31 While the majority does not hold explic- itly that they are related, it implicitly reaches this conclusion.
**81
Although we do not have a bright-line rule establish- ing how long the predicate acts must last to constitute a
"substantial period of time," I will assume that the period of over three years in this case would satisfy any such def- inition. n32 Yet, simply by clearing this duration hurdle the Estate does not establish continuity for we have stated clearly and repeatedly that duration is a necessary but not sufficient condition to proving continuity. In Hindes v. Castle, for example, we stated:
n32 While I treat this case as a closed-ended case, obviously if I considered it as open-ended my result would be the same.
The post-H.J. Inc. cases decided by this court which have focused on pattern all make clear that duration is the sine qua non of continuity.
47 F.3d 1280, *1303; 1995 U.S. App. LEXIS 2585, **81
Page 27
While it is not in itself sufficient to establish a pattern, a determination that must be made
in light of all of
47 F.3d 1280, *1304; 1995 U.S. App. LEXIS 2585, **81
Page 28
*1304 the Barticheck factors, no pattern can be shown without the required duration.
937 F.2d at 873 (emphasis **82 added). Likewise, in
Marshall-Silver we recognized:
If the Court in H.J. Inc. intended that the duration of the predicate acts or the threat arising therefrom should be determinative
. . . we would not have expected the Court to eschew providing a specific standard in favor of a fact oriented, case-by--case devel- opment.
894 F.2d at 597 (emphasis in original) (dicta); see also Kehr Packages, 926 F.2d at 1412 (noting that "the length of time over which the criminal activity occurs or threat- ens to occur is an important factor," but not stating that it is dispositive). Accordingly, a more detailed analysis of the complaint is required. n33
n33 Our rule that duration is a necessary but not sufficient condition to establish continuity is con- sistent with the Supreme Court's statement in H.J. Inc.: "petitioners claim that the racketeering pred- icates occurred with some frequency over at least a 6-year period, which may be sufficient to satisfy the continuity requirement." 492 U.S. at 250, 109
S. Ct. at 2906 (emphasis added). By using the word
"may," the Court implicitly rejected the notion that duration alone establishes continuity.
Precedents in other circuits could be read to suggest that duration alone can satisfy continuity. See, e.g., Dana Corp. v. Blue Cross & Blue Shield Mutual, 900 F.2d 882, 886-87 (6th Cir. 1990) (stat- ing that in a single-scheme, single-victim case "the allegations of fraud occurring for a period of sev- enteen years, along with the specific mailings ev- idencing such a scheme, are sufficient to state a claim of a pattern of racketeering activity"); Fleet Credit Corp. v. Sion, 893 F.2d 441, 446-47 (1st Cir. 1990) (finding that 95 fraudulent mailings sent over a four and one-half year period are sufficient to establish continuity); Walk v. Baltimore & Ohio
& R., 890 F.2d 688, 690 (4th Cir. 1989) (reversing dismissal where complaint alleged 10-year scheme to defraud plaintiffs); Jacobson v. Cooper, 882 F.2d
717, 720 (2d Cir. 1989) (stating that continuity ex- isted because predicate acts alleged occurred over
"a matter of years"). However, it is not clear that
in any of these cases, the courts of appeals faced a factual situation analogous to the one presented here, i.e., a dispute over the profits of a partner- ship. This case most similar to this one is Jacobson. In Jacobson, the plaintiff alleged that the two de- fendants, one of which was his son, attempted to defraud him out of real estate holdings that he owned. While the nature of the dispute is some- what similar, the alleged predicate acts went beyond mail fraud and included extortion, larceny, offering false instruments for filing, and usury. 882 F.2d at
719. Thus, the character of the unlawful activity in Jacobson is vastly different than that alleged here. In any event, we are not bound by Jacobson.
**83
In Barticheck v. Fidelity Union Bank/First Nat'l State,
832 F.2d 36, we set forth six factors that a court should address in considering whether the plaintiff has alleged a pattern of racketeering: (1) the number of unlawful acts;
(2) the length of time over which the acts were committed
(duration); (3) the similarity of the acts; (4) the number of the victims; (5) the number of perpetrators; and (6) the character of the unlawful activity. Id. at 39. The majority nevertheless concludes that having "found a pattern of racketeering activity in both the duration of and the on- going threat implicit in defendants' regular way of doing business it will not go on to analyze this case under the six Barticheck factors." Majority typescript at 40. The majority then indicates that its decision not to employ the Barticheck factors does not mean that they are irrelevant in determining where there is continuity, as a court may consider the factors if relatedness and continuity are in doubt.
I reject the majority's approach. To start with, conti- nuity is in doubt here. But quite aside from that consider- ation it seems to me that **84 the majority's approach inevitably leads to analytical looseness in determining whether there has been a pattern of racketeering activ- ity. While I do not doubt that in practice the Barticheck factors cannot be applied with mathematical precision, at least the factors are guidelines in determining whether the plaintiff has demonstrated continuity and relatedness.
The majority opinion would be more justifiable if it were to say that after H.J., Inc., the earlier explicated Bartichek factors are no longer relevant in any continuity analysis. While I would disagree with that holding, such a result would have some analytical consistency. But by saying the Bartichek factors are relevant in some cases but not in others, see majority typescript at 40-41 & n.21, the majority winds up saying that the Bartichek factors -- which are designed to answer the broader question of whether particular facts
47 F.3d 1280, *1305; 1995 U.S. App. LEXIS 2585, **84
Page 29
*1305 fairly can be characterized as a RICO case-- may shed light on whether a three-month long scheme consti- tutes a pattern of racketeering activity but not on whether a three-year long scheme constitutes such a pattern. It seems to me self-evident that there are three-month long
**85 schemes that clearly fall within RICO's purview and three-year schemes that clearly do not. Thus, if the Bartichek factors are relevant at all, they are relevant in shedding light on all cases. The majority's approach to the complex statute does injustice to the Supreme Court's admonitions to courts to take a "flexible approach" when interpreting the "continuity" prong of the statute and to develop the concepts behind "pattern of racketeering ac- tivity" on a case by case basis. See H.J. Inc., 492 U.S. at
238, 243, 109 S. Ct. at 2900, 2902-03. See also Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 500, 105 S. Ct. 3275,
3287, 87 L. Ed. 2d 346 (1985) (Congress "and the courts" should "develop a meaningful concept of 'pattern.'") (em- phasis added).
Of course, as I have indicated, we decided Barticheck before the Supreme Court's decision in H.J. Inc. Nevertheless, we have noted in post-H.J. Inc. cases that the Barticheck factors are still relevant and must be con- sidered "'as they bear upon the separate questions of continuity and relatedness.'" Hindes, 937 F.2d at 873
**86 (quoting Banks, 918 F.2d at 423); accord Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1023-25 (7th Cir. 1992) (noting that factors set forth in Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir. 1986), which are similar to Barticheck factors, apply even after H.J. Inc.). In Marshall-Silver, we recognized that all of the Barticheck factors except the third, the similarity of criminal acts, are relevant to the question of continuity. 894 F.2d at 595 n.1; see also Hindes, 937 F.2d at 873 (reaffirming this view). Thus, the question of continuity is an "'inquiry into the ex- tent of the defendant's racketeering activity,'" Marshall- Silver, 894 F.2d at 595 (quoting Barticheck, 832 F.2d at
40), and requires an examination of the five Barticheck factors relevant to continuity. Moreover, in applying these factors, we must take a "natural and common sense ap- proach" to continuity. H.J. Inc., 492 U.S. at 237, 109 S.
Ct. at 2899. **87 In view of these precedents in which so many of the judges of this court have joined, I am perplexed at the majority's subordination of Barticheck. Inasmuch as I would apply Barticheck in this case I will now make an analysis of the factors it set forth. The first factor, the number of unlawful acts, might ap- pear to weigh in favor of continuity as the Estate alleged that the defendants engaged in over 40 predicate acts. However, as we stated in Kehr Packages, "the continuity question should not be affected by the fact that a par- ticular fraudulent scheme involved numerous otherwise
'innocent' mailings, rather than only a few." 926 F.2d at
1414. Rather, what needs to be considered is the underly- ing scheme: "Although the mailing is the actual criminal act, the instances of deceit constituting the underlying fraudulent scheme are more relevant to the continuity analysis." Id.; see also Midwest Grinding Co., 976 F.2d at 1024 ("Although the sheer number of predicate acts might appear at first glance to prove continuity, when it comes to a pattern premised on acts of mail or wire fraud, the volume of mailings is not **88 dispositive.").
In this case, the alleged underlying scheme was an attempt to defraud the Estate out of its rightful share of the partnership income. Thus, the allegations of fraud relate to a discrete dispute, rather than to numerous dis- tinct attempts to defraud. To paraphrase Kehr Packages,
"it should not be relevant . . . that the defendants sent
checks on a monthly basis, rather than quarterly or yearly." 926 F.2d at 1414. Thus, "the sizable number of mailings does not show that the defendants operated a long-term criminal operation." Midwest Grinding Co.,
976 F.2d at 1025. Accordingly, this factor weighs against a finding of continuity.
The second factor is duration. As I noted above, the alleged fraudulent activity lasted for at least three years. However, the significance of the length of the alleged scheme is diminished by the nature of the scheme itself. In this regard, I reiterate that the defendants repeated the same allegedly fraudulent act over three years. Thus, this is not a case in which each mailing constituted
47 F.3d 1280, *1306; 1995 U.S. App. LEXIS 2585, **88
Page 30
*1306 a new fraudulent act. See Kehr Packages, 926
F.2d at 1415 **89 (distinguishing Fleet Credit Corp. v. Sion, 893 F.2d 441 (lst Cir. 1990), because in Fleet Credit
"each mailing constituted a new fraudulent act"). As we noted in Marshall-Silver:
Where such a fraudulent scheme inflicts or threatens only a single injury, we continue to doubt that Congress intended to make the availability of treble damages and aug- mented criminal sanctions dependent solely on whether the fraudulent scheme is well enough conceived to enjoy prompt success or requires pursuit for an extended period of time.
894 F.2d at 597. Therefore, while the second factor, du- ration, does weigh in favor of continuity, it is not a heavy weight on the scale. I will not discuss the third factor, the similarity of the alleged criminal acts, as that factor concerns relatedness, which I have found in this case.
The fourth factor, number of victims, weighs against a finding of continuity for, as the district court correctly indicated, this is a single-victim case. The Estate disputes this conclusion, contending that all six of the beneficiaries of the Estate are victims, including a charitable foundation that ultimately **90 benefits hundreds, if not thousands, of people. Brief at 27 n.18. Yet, this argument is supported neither by the case law nor the amended complaint itself. In Kehr Packages, we addressed an analogous situation and found that the only victim of the defendants' alleged criminal activity was the company and not its sharehold- ers or its guarantors. We reached this conclusion because
"Kehr's individual shareholders and guarantors, and the holders of pledged collateral, were affected only indi- rectly." 926 F.2d at 1418-19; see also Hughes, 945 F.2d at 611 (noting that alleged scheme affected single vic- tim, "albeit a class of victims," in rejecting RICO claim). Similarly, here the scheme affected the beneficiaries of the Estate only indirectly.
Additionally, throughout its amended complaint, the
Estate maintains that the fraudulent conduct deprived it,
the Estate, of its rightful share of the income. Indeed, ac- cording to the 1964 Partnership Agreement, the deceased party's share of the income is payable to his estate, not to his heirs. App. at 155. While it is true that the presence of only one victim, like the existence of **91 only one scheme, does not necessarily preclude the finding of a RICO pattern, this fact clearly weighs against the finding of continuity. See United States Textiles, Inc. v. Anheuser- Busch Cos., 911 F.2d 1261, 1268 (7th Cir. 1990). Indeed, when there is only one victim and that victim is engaged in a business relationship with the defendant, the dispute between the parties may be nothing more than a civil controversy.
The fifth factor, the number of perpetrators, does ap- pear to weigh in the Estate's favor. The district court stated that there was only one perpetrator, "Daniel Tabas or in- dividuals under his control." Opin. at 8-9. But this con- clusion is inherently contradictory for even if the other perpetrators are under Daniel's control, they still existed. In fact, the district court's description could be used to describe an organized crime family, yet clearly Congress meant RICO to cover organized crime. Nonetheless, this error is not significant, for even if the number were as large as the Estate argues, the fact that more than one person was involved in a scheme to defraud that lasted a substantial period of time cannot without more establish continuity. **92 Indeed, in some ways this is the least important factor. Cf. Wade v. Hopper, 993 F.2d 1246, 1251
(7th Cir.) (per curiam) (listing factors relevant for conti- nuity determination similar to those listed in Barticheck but not including number of perpetrators), cert. denied,
126 L. Ed. 2d 151, 114 S. Ct. 193 (1993); Morgan v. Bank of Waukegan, 804 F.2d at 975 (listing same factors in pre- H.J. Inc. case). Thus, this factor does not place a heavy weight on the continuity side of the scale.
The final factor, the character of the unlawful activ- ity, is perhaps most important in assuring that RICO is applied in a manner consistent with congressional intent. Congress aimed to prevent long-term criminal activity, but not to federalize every garden-variety claim of fraud.
"The concept of 'continuity' plays an important constrain- ing role
47 F.3d 1280, *1307; 1995 U.S. App. LEXIS 2585, **92
Page 31
*1307 in the operation of the RICO statute" by requir- ing a court to examine not only the "period of time over which the predicate acts occurred or . . . during which any threatened criminal activity would be likely to last," but also the character of the predicate acts and the extent
**93 of the injury generated by the acts. Marshall- Silver, 894 F.2d at 596-97. In this case the character of the alleged acts of mail fraud and the confined extent of the injury weigh heavily against the Estate. "Repeated mailings in furtherance of a single scheme to inflict one fraudulent injury may be no indication of the underlying fraud's continuity." Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1295 (7th Cir. 1992).
As I already have noted, this case evolves from an ongoing dispute regarding the appropriate split of a part- nership's profits. The allegations of fraud do not pertain to how Tabas Enterprises conducts its business, but only to its internal functioning. Moreover, unlike other con- duct which can constitute racketeering activity, such as extortion, robbery, or murder, there is nothing inherently criminal in mailing a letter containing a check or a tax form. See 18 U.S.C. § 1961(1). Indeed, the vast majority of mailings undoubtedly are lawful. Thus, in this case the mailings could be regarded as racketeering activity only by reference to matters beyond the **94 letters and their contents.
The unreasonableness of regarding the mailing of the thirty-nine $15,000 checks as RICO predicate acts in this case is demonstrated by considering what would have hap- pened if the defendants had delivered the checks rather than mailed them. In that case, they could not have com- mitted mail fraud and the Estate could not have pleaded a RICO case, as there would have been no predicate acts on which to base the complaint. Rather than seeking three- fold damages under RICO, 18 U.S.C. § 1964(c), the Estate would have been limited to a state law claim -- even though at bottom the unlawful activity in both that hypo- thetical case and this case involves conduct of precisely the same character. I thus ask the following question: is it conceivable that Congress intended that RICO could be applied to a defendant who mails substantial payments to the plaintiff, but not to the same defendant if it delivers the payments? n34 The question answers itself. Thus, the fact that this case involves mail fraud rather than some
other type of fraud is entirely fortuitous, and that fortuity should not result in a windfall to the plaintiffs. **95 But by ignoring the Bartichek factors, and therefore fail- ing to inquire into the character of the unlawful activity, the majority endorses just that counterintuitive result.
n34 While the majority answers that Congress did intend to distinguish between mailings and hand deliveries as the former but not the latter could be mail fraud, this answer misses my point. My point is that in considering the character of the unlawful acts in accordance with the sixth Barticheck factor, the use of the mails was purely fortuitous in this particular case and it was the alleged fraud and not how the checks were delivered which injured the Estate.
I recognize that the complaint is rife with contentions that the defendants' activity defrauded the Estate out of its fair share of the partnership's income. Yet the Estate does not allege that the defendants' conduct has ramifications outside the confines of the immediate dispute regarding the division of the partnership's profits. Thus, the broader threat is minimal at most. See **96 Meade v. Meade,
1991 U.S. Dist. LEXIS 16654, 1991 WL 243539, * 5 (E.D. Pa. Nov. 18, 1991) ("This is a dispute between a small number of parties, and neither directly affects nor has wider implications for a large number of people. Actual and threatened societal injury is little, if any. Finally, each alleged act of mail and wire fraud forms part of one, ex- tended scheme, reinforcing the essentially isolated nature of the alleged racketeering activity."), reconsideration de- nied, 1992 U.S. Dist. LEXIS 300, 1992 WL 6929 (E.D. Pa. 1992), aff'd, 998 F.2d 1004 (3d Cir. 1993) (table); Rumbaugh v. Chandler, 1991 U.S. Dist. LEXIS 11948,
*11, 1991 WL 169046, * 4 (E.D. Pa. Aug. 27, 1991) (App. at 1893-900) ("This action does not concern an extensive criminal enterprise whose long-standing, repeated con- duct has caused and will continue to cause a severe injury to the community. Rather, it is a private dispute between two ex-partners that has continued over twelve years in various forms.").
47 F.3d 1280, *1308; 1995 U.S. App. LEXIS 2585, **96
Page 32
*1308 I make one final but critical point with respect to the character of the unlawful activity in this case. I focus on this point because I regard the character of the activity as the most significant Barticheck factor in this case. As the majority points **97 out, 39 of the predicate acts consist of the mailing of $15,000 checks to the Estate and the other two concern mailing tax forms. Reliance on such predicate acts is problematic because the Estate is plead- ing in essence that the defendants committed "mail fraud" by sending it money. I can conceive of cases in which a defendant's act of sending money may constitute fraud; perhaps, even, the defendants' activities (as alleged in this case) theoretically could be prosecuted under the mail fraud statute, n35 although it must be remembered that
"not every use of the mails . . . in connection with a scheme is punishable" as mail fraud. United States v. Frey, 42 F.3d
795, 1994 U.S. App. LEXIS 34772, *3 (3d Cir. 1994). But three undisputed facts belie the conclusion that this is therefore a RICO case. First, between March 1983 and September 1986, "Tabas Enterprises paid for various per- sonal expenses incurred by Harriette as well as Daniel." Majority typescript at 4. Second, "prior to Charles's death
. . . the brothers appeared to have an arrangement under which Tabas Enterprises paid for many personal and busi- ness expenses." Majority typescript **98 at 4 n.2 (em- phasis added). Finally, as the majority indicates, plaintiffs acknowledge that as of the time of the state court lawsuit,
"they believed Daniel was taking more than he was enti- tled to under the partnership agreement . . . They contend
only that they did not know the extent to which they were being short-changed . . . ." Majority typescript at 5 n.3 (emphasis added).
n35 See Schmuck v. United States, 489 U.S. 705,
714-15, 109 S. Ct. 1443, 1450, 103 L. Ed. 2d 734
(1989) ("To the extent that Schmuck would draw from these previous cases a general rule that rou- tine mailings that are innocent in themselves cannot supply the mailing element of the mail fraud of- fense, he misapprehends this Court's precedents.").
These facts make difficult to accept the majority's conclusion that the "mailings were 'designed to lull the Estate into a false sense of security, postpone its ul- timate complaint to the authorities, and therefore make
the apprehension of the defendants less likely than **99
if no mailings had taken place.'" Majority typescript at
35 n.18 (citation omitted). In any event, no matter how the Estate characterizes this case, and even if there were some fraudulent acts, this suit is first and last a dispute about how the partnership income should have been dis- tributed. Seen in this context, the mailing of the checks was so benign an act that it is a thin foundation on which to build the continuity element. At bottom, regardless of the pejorative words which the Estate uses to characterize the defendants' conduct, this case involves a commercial dispute over a discrete issue, the amount due to the Estate in its monthly draws. Such a dispute is simply not a RICO controversy. n36
n36 Keeping in mind that this case is really about who gets to use the partnership income for what purpose, consider what would have happened if the defendants had paid nothing to the Estate over the three-year period in which they actually paid
$585,000. The Estate would have gotten nothing and there would not be a RICO case.
**100
I recognize that the majority has listed numerous ques- tionable expenses charged against Tabas Enterprises and I further acknowledge that the defendants may have state law liability for some of these expenses. But it is important in considering this case to keep in mind that the incurring of these expenses is not the predicate criminal conduct charged in this case. Rather, the predicate acts to estab- lish RICO jurisdiction are the use of the mails to disburse checks and to distribute forms. Overall, therefore, after consideration of the character of the unlawful activity, together with the other relevant Barticheck factors, both qualitatively and quantitatively, I conclude that the Estate has failed to establish a genuine issue of material fact over continuity and that this case is yet another attempt by a plaintiff "to fit a square peg in a round hole by squeezing garden-variety business disputes into civil RICO actions." Midwest Grounding Co., 976 F.2d at 1025.
In reaching my conclusions, I have taken particular note of our opinion in Jordan v. Fox, Rothschild, O'Brien
& Frankel, 20 F.3d 1250
47 F.3d 1280, *1309; 1995 U.S. App. LEXIS 2585, **100
Page 33
*1309 (3d Cir. 1994), which affirmed **101 the dis- trict court's judgment granting certain of the defendants
"summary judgment on the RICO claim against them for failure to show relatedness and continuity . . . essentially for the reasons given by the district court." Id. at 1254. The district court opinion is reported as Jordan v. Berman, 792
F. Supp. 380 (E.D. Pa. 1992). Jordan is a complex case involving a controversy between tenants and a landlord, the details of which I need not discuss. Germane here is the district court's conclusion that the plaintiffs had not adduced "evidence from which one could reasonably find a pattern of racketeering activity under prevailing case law." Id. at 388. The district court explained the basis for its decision as follows:
Few relationships in our society seem to en- gender more conflict than that of landlord and tenant. The aggressive landlord and the dis- gruntled tenant have almost become stereo- typical. The instant case involves a typical landlord-tenant dispute about the construc- tion of a lease and what sums or services the respective parties are entitled to. Permitting trash to accumulate **102 for a day, dis- rupting utility service for half a day and vig- orously pursuing a plausible contract inter- pretation are generally not the kind of things from which RICO cases are made. The ac- tions of defendants and their agents, however characterized, do not pose the type of signif- icant societal threat that RICO was designed to deter or penalize.
Id. (emphasis added). By affirming "essentially for the reasons given by the district court," we approved the fore- going statement, even though the case involved the use of the mails and thus, in theory, could have been a RICO case.
If we substituted the relationship between partners for the landlord-tenant relationship, the underscored lan- guage in the above quotation would describe this case. Certainly the partnership relationship, like the landlord- tenant relationship, is a frequent source of disputes. The dispute in this case, to quote from and to paraphrase Jordan v. Berman:
involves a typical partnership dispute about the construction of a partnership agreement and what sums . . . the respective parties are entitled to. . . . The actions of defendants and their agents, however characterized, do not pose the type of significant **103 societal threat that RICO was designed to deter or penalize.
Thus, this case is no more a RICO case than was Jordan. In coming to my conclusions I also have found it use- ful to consider United States v. Pelullo, 964 F.2d 193 (3d Cir. 1992), a case which the majority cites and on which the Estate relies. Pelullo is a post-H.J. Inc. case in which we found that a RICO violation could be proved based on a closed-ended scheme that lasted 19 months. In Pelullo, the defendant was a chief executive officer of The Royale Group, Ltd., a publicly held corporation which through subsidiaries acquired six hotels in Miami Beach. In June
1984, the hotels obtained a $13.5 million loan from a subsidiary of American Savings and Loan Association. Under the terms of the loan, $6.2 million was to be used for renovation, with American retaining this portion and disbursing the funds as renovation costs were incurred. To obtain a disbursement, Royale was required to submit draw requests which set forth a certified itemization of the costs.
The indictment charged Pelullo with three fraudulent schemes: (1) defrauding American, Royale, and Royale's shareholders **104 by submitting false documents in connection with certain draw requests; (2) defrauding Royale of $114,000 by diverting cash from one of its subsidiaries to repay a debt Pelullo owed; and (3) de- frauding Royale of approximately $500,000 by diverting money for uses other than for the purposes of the loans. Accordingly, the alleged number of schemes in Pelullo was larger than the one scheme alleged here. And while the number of victims in Pelullo could be characterized as small, the nature of the unlawful activity had a differ- ent ring to it, because in Pelullo the alleged perpetrator was an officer in a public company and the main victims
(American and Royale) were public entities. Moreover, the alleged fraud was not confined to Royale's internal operations, but took place in the
47 F.3d 1280, *1310; 1995 U.S. App. LEXIS 2585, **104
Page 34
*1310 context of its normal external business opera- tions. Thus, even though the Estate relies on Pelullo, that case involved much more than a dispute between partners and does not support the Estate's position. Pelullo never- theless is instructive to illustrate the contrast between a real RICO case and the Tabas's dispute.
While I do not suggest that a plaintiff alleging a single fraudulent scheme **105 injuring a single victim in the context of a private dispute never can maintain a RICO claim, it would be unusual for such a case to be covered by RICO, especially where the alleged predicate acts are mail fraud. In reaching this conclusion, I am cognizant that "RICO's pattern requirement does not require the ex- istence of more than one 'scheme,'" Marshall-Silver, 894
F.2d at 596, and that the Supreme Court has declared that the RICO statute should be read broadly "to reach both 'le- gitimate' and 'illegitimate' enterprises," Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 499, 105 S. Ct. 3275, 3286, 87
L. Ed. 2d 346 (1985). Furthermore, I recognize that the Court has noted that civil RICO appears to be "evolving into something quite different from the original concep- tion of its enactors," and that this problem is for Congress, not the courts, to correct. Id. at 499-500, 105 S. Ct. at
3287. See also NOW v. Scheidler, 127 L. Ed. 2d 99, 114
S. Ct. 798, 806 (1994).
Yet our precedents clearly establish that Congress did not intend RICO to cover every garden-variety fraud. See **106 Marshall-Silver, 894 F.2d at 597; accord Midwest Grinding Co., 976 F.2d at 1025 ("It is equally evident that RICO has not federalized every state com- mon-law cause of action available to remedy business deals gone sour."). Rather, the Supreme Court, "by refo- cusing the pattern requirement on the sort of long-term criminal activity that carries some quantum of threat to society," Midwest Grinding Co., 976 F.2d at 1025, has attempted "to prevent RICO from becoming a surrogate for garden-variety fraud actions properly brought under state law," id, at 1022; see also Marshall-Silver, 894 F.2d at 596-97 (noting that continuity plays an important role in constraining operation of RICO statute to only those activities which threaten societal injury). Moreover, the Supreme Court has confined the scope of RICO by lim- iting the persons who can be liable under 18 U.S.C. §
1962(c). See Reves v. Ernst & Young, 122 L. Ed. 2d 525,
113 S. Ct. 1163 (1993).
In my view, the majority's opinion inexorably will
**107 result in federalizing numerous internal business disputes in a way that Congress never could have intended. The opinion as applied in this circuit will lead attorneys to
repackage as RICO actions ordinary commercial contro- versies in which the parties have communicated by mail or wire. Indeed, it seems obvious that the principles of this case could be applied to routine commercial disputes in many situations in which the parties have been in an ongo- ing relationship, e.g., partnerships, tenancies, employer- employee, service contracts, supply contracts, equipment rentals, brokerage accounts, and others as well. A party in such a relationship, dissatisfied with the other party's per- formance, will be able to establish RICO jurisdiction by alleging fraud and pointing to the other party's numerous mailings in furtherance of its understanding of the terms of the relationship. For the foregoing reasons, I dissent. Chief Judge Sloviter, n37 and Judges Hutchinson, Scirica, Cowen, and Nygaard n38 join in this dissent.
n37 Judge Sloviter joins with the following statement. Although I do not agree with every de- tail of Judge Greenberg's dissent, I join it because it comes closest to expressing my frustration that the analytic litany that the courts must now conduct in civil RICO cases leads to a result, the federalization of garden variety fraud, that is directly contrary to Congress's expressed intent.
**108
n38 Judge Nygaard joins in the dissent, be- lieving that the district court properly granted sum- mary judgment in favor of the defendants. He bases his conclusion that summary judgment was proper, however, upon plaintiffs' failure to show facts giv- ing rise to mail fraud under RICO rather than upon a failure to establish a pattern of racketeering activ- ity. Under Judge Nygaard's analysis, the mailings here were, as in United States v. Maze, 414 U.S.
395, 94 S. Ct. 645, 38 L. Ed. 2d 603 (1974), merely post-fraud means of transmitting matter from one place to another. Judge Nygaard believes that inas- much as the fraud "had reached fruition," at the time of the mailing, it cannot be said that the mailings in question were for the purpose of executing the scheme, as required by the statute. Kann v. United States, 323 U.S. 88, 65 S. Ct. 148, 89 L. Ed. 88
(1944). Hence, it was not "an essential step" in the success of the fraud. Schmuck v. United States, 489
U.S. 705, 714, 109 S. Ct. 1443, 1450, 103 L. Ed. 2d
734 (1989).
**109
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