O'Ferral v. Corporation ( 1993 )


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  • USCA1 Opinion









    July 9, 1993 [NOT FOR PUBLICATION]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

    ____________________

    No. 92-2303

    MANUEL RODRIGUEZ-O'FERRAL, ET AL.,

    Plaintiffs, Appellants,

    v.

    TREBOL MOTORS CORPORATION, ET AL.,

    Defendants, Appellees.

    ____________________


    APPEAL FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF PUERTO RICO

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

    ____________________

    Before

    Breyer, Chief Judge,
    ___________

    Selya and Cyr,

    Circuit Judges.
    ______________

    ____________________



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

    ____________________

    ____________________






















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

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

    court judgment dismissing their civil action under the Racketeer

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

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

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

    Finding no error, we affirm.


    I
    I

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

    allegations in the complaint, and drawing all reasonable inferences

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

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

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

    appellants purchased a new Volvo from Trebol Motors Corporation and

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

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

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

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

    expensive model. Thereafter, appellants discovered documentation

    inside the vehicle, listing its identification number and describing

    it as a Volvo DL.

    In May 1991, appellants filed a civil RICO complaint




















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

    foreign manufacturers, Volvo Car Corporation and Volvo Gothenburg

    Sweden, see 18 U.S.C. 1964(c),1 alleging that the defendants had
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    engaged in a seven-year scheme to defraud Trebol's customers by

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

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

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

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

    ____________________

    1RICO 1964(c) provides:

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

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

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

    3

















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

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

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

    and mail communications among the various defendants. Appellants

    asserted that further discovery of defendants' internal business

    records would be necessary to enable them to specify the exact

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

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

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

    allege "scheme to defraud" by obtaining information regarding the

    time, place, and contents of confidential communications within

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

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

    ments and direct promotional mailings enticing customers into Trebol

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

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

    all dated after July 1989. Appellants themselves allegedly sustained
    _____

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

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

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

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

    million trebled ($225 million).

    The district court stayed further discovery pending

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

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

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    appellants to submit a more particularized statement of their RICO

    claim, fleshing out the factual underpinnings for the allegations in

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

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

    the court denied their motion for class certification, and dismissed

    the complaint for failure to allege predicate acts of fraud with

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

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

    note 8.


    II
    II

    DISCUSSION
    DISCUSSION
    __________

    We have imposed a threshold requirement that a RICO

    ____________________

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

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

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

    racketeering activity within the reach of the RICO statute and















































    6

















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

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

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

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

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

    spicuous temporal impediments underlying appellants' "causal nexus"

    allegations.

    Appellants concede that Trebol's seventeen advertisements

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

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

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

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

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

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

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

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

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

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

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

    ____________________

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

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

    "causal nexus" argument.

    Even assuming their argument had merit, their alleged

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

    predicate acts alleged in the complaint constitute "racketeering

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

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

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

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

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

    and allegedly superior to the other models then manufactured by the

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

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

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

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

    Although we have combed the entire record, we find no

    indication that Trebol ever falsely represented that it was selling

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

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

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

    preparado especialemente para conmemorar") apparently configured with

    ____________________

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

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    optional equipment in essentially the same fashion as the vehicle

    plaintiffs purchased. Moreover, appellants never alleged or

    demonstrated that the nominal classification "GLE", whether generated

    at the factory or elsewhere along the distributional chain, invariably

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

    have appellants suggested that defendants misled them as to the

    options or features actually incorporated in the Volvo 240 GLE they

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

    plaintiffs presumed too much namely, that all Volvo GLEs were

    monolithic and immutable assemblages. Although various types of

    "deceptive conduct" other than affirmative misrepresentations may

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

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

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

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

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

    demand greater particularity than plaintiffs provided here, even in

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

    Appellants' complaint asserts that, even if defendants made

    no misrepresentations or misleading statements, the scheme to defraud

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

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

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

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

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

    9

















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

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

    depend on an allegation that the defendants were under an affirmative

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

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

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

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

    affirmative duty to disclose, or some special circumstance not

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

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

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

    deliberate acts of concealment, mail and wire fraud statutes cannot

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

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

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

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

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

    closure of material information, are best left to remediation under





    ____________________

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

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    state law).7

    Even if further particularization of the alleged "private"

    predicate acts might arguably await additional discovery, appellants

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

    act of misrepresentation or actionable nondisclosure by Trebol which

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

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

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

    Were these RICO plaintiffs licensed to launch a belated "fishing

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

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

    invite commonplace abuse of civil RICO and routine deferral of the

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

    propriately concluded that additional discovery would amount to an

    unwarranted and "expensive fishing expedition," and properly dismissed




    ____________________

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

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    the complaint for failure to state a claim.8

    Affirmed.
    Affirmed.
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    ____________________

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

    12