AD-X International, Inc. v. Kolbjornsen ( 2004 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
APR 27 2004
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
AD-X INTERNATIONAL, INC.;
ALL STATES MEDIA, INC.; ALL
STATES LEGAL REFERRAL
SERVICES, INC.; ALL STATES
CAPITAL CORPORATION; Nos. 03-1192, 03-1219, 04-1033
LARRY MACPHALE, (D.C. No. 99-D-332 (CBS))
(D. Colo.)
Plaintiffs-Appellants-
Cross-Appellees,
v.
KENNETH E. KOLBJORNSEN;
HANNELORE S. KOLBJORNSEN,
Defendants-Appellees-
Cross-Appellants,
and
MICHAEL M. NOYES; THE LAW
OFFICES OF MICHAEL M. NOYES;
DAVID FOGEL; FOGEL &
BLUESTEIN; DONALD
MCNURLIN; MCNURLIN &
ASSOCIATES; MICHAEL
MERRION; THE OFFICES OF
MICHAEL MERRION, CPA; DOUG
ENGLER; DOUGLAS ENGLER,
P.C.; ANDREW SNYDER; THE
LAW FIRM OF ANDREW SNYDER;
NATIONAL LAWYERS REFERRAL
NETWORK, INC.; LAWYERS
AMERICA, INC.,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before SEYMOUR , Circuit Judge, BRORBY , Senior Circuit Judge, and
HENRY , Circuit Judge.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
these appeals. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The cases are
therefore ordered submitted without oral argument.
Plaintiffs filed this action for bankruptcy fraud, misrepresentation, and
racketeering against Kenneth and Hannelore Kolbjornsen, their now-defunct
corporations, and several legal and financial professionals who allegedly assisted
the Kolbjornsens in orchestrating and then concealing a pre-petition transfer of
assets intended to deprive the creditor plaintiffs of any recovery in a Chapter 13
proceeding filed by Mr. Kolbjornsen. The district court dismissed the complaint
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
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against the professional defendants, but plaintiffs went to trial and obtained
a substantial money judgment against the Kolbjornsens. Plaintiffs now appeal
(in No. 03-1192) the dismissal of their claim against the professional defendants
under the Racketeering Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1961, 1962, 1964. The Kolbjornsens cross-appeal (in No. 03-1219)
the judgment entered on the jury verdict against them. We affirm both rulings. 1
Plaintiffs’ Appeal
The district court granted the professional defendants’ motion to dismiss
the RICO claim, concluding that the pertinent allegations lacked “the level of
particularity required to state a claim for [] relief.” Aplt. App., Doc. 8, at 144.
Predicate acts of fraud for a RICO claim must satisfy the heightened pleading
standard of Fed. R. Civ. P. 9(b). Cayman Exploration Corp. v. United Gas Pipe
Line Co. , 873 F.2d 1357, 1362 (10 th Cir. 1989); accord Lum v. Bank of Am. , 361
F.3d 217, 220 (3d Cir. 2004). On de novo review, Robbins v. Wilkie , 300 F.3d
1208, 1209 (10 th Cir. 2002), we agree that the broad-brushed and conclusory
allegations involving the professional defendants were deficient under Rule 9.
1
The third appeal in the caption, No. 04-1033, was opened when plaintiffs
filed a “Certificate of Compliance and Amendment to Notice of Appeal” to notify
this court of the disposition of a post-trial motion filed after the other appeals
were commenced. Plaintiffs have now moved to dismiss No. 04-1033, stating that
they had mistakenly added the reference to an amended notice and “did not intend
[to] . . . initiate a new appeal.” We grant the motion.
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Indeed, at the hearing on the motion to dismiss, plaintiffs’ counsel repeatedly
stated that the complaint was framed (inappropriately) in reference to the general
notice pleading standards of Fed. R. Civ. P. 8, and now on appeal plaintiffs make
virtually no effort to demonstrate how the pertinent allegations are sufficient
under the proper legal standard applied by the district court. Instead, they focus
on the district court’s denial of their informal request to amend their complaint to
correct its deficiencies. This line of attack, however, is foreclosed by circuit
precedent.
Plaintiffs did not file a motion for leave to amend their complaint, much
less detail the additional factual allegations they could provide to shore up their
RICO claim against the professional defendants. Rather, at the hearing on the
motion to dismiss, plaintiffs’ counsel merely made a generic “offer that if
additional allegations to supplement those [made] will satisfy the Court, we’d
request the opportunity to do so.” Aplt. App., Doc. 7, at 118. In the district
court’s view, it was “disingenuous” to make this belated provisional offer: “If
[plaintiffs] really wanted to amend, the time to seek to amend would have been
before today’s hearing so that the Court would have had something else to look at
[to] figure out if [plaintiffs] have more to say than what [they have] already said.”
Id. The district court’s handling of the matter was appropriate under Calderon v.
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Kansas Department of Social & Rehabilitation Services , 181 F.3d 1180, 1186-87
(10 th Cir. 1999). 2
Plaintiffs focus much of their briefing on a motion they filed for relief
under Fed. R. Civ. P. 60(b) after they appealed from the entry of final judgment
incorporating the dismissal of the professional defendants and the subsequent
verdict against the Kolbjornsens. The denial of the Rule 60(b) motion is beyond
the scope of this appeal, which is limited to orders in existence when the notice of
appeal was filed. See, e.g. , EEOC v. Wal-Mart Stores, Inc. , 187 F.3d 1241, 1250
(10 th Cir. 1999); Breeden v. ABF Freight Sys., Inc. , 115 F.3d 749, 752 (10 th Cir.
1997); Nolan v. United States Dep’t of Justice , 973 F.2d 843, 846 (10 th Cir.
1992). In any event, our conclusion that the district court proceeded correctly on
the motion to dismiss would undercut plaintiffs’ claim that the court abused its
discretion in denying their Rule 60(b) motion challenging that disposition.
Kolbjornsens’ Appeal
The Kolbjornsens appeal from the entry of judgment on the jury’s award of
compensatory and punitive damages against them on plaintiffs’ RICO claims.
2
Plaintiffs now assert they had a right to amend their pleadings, with or
without leave of court, because some of the defendants had not yet answered the
complaint. Even if that were true, they “failed to exercise their right to amend
prior to the trial court’s decision” and thereafter they “could have amended their
complaint only by leave of court.” Glenn v. First Nat’l Bank in Grand Junction ,
868 F.2d 368, 370 (10 th Cir. 1989) (emphasis altered).
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They contend that the district court erred in instructing the jury regarding the
“enterprise” and “person” elements of a RICO claim. See 18 U.S.C. § 1962(c)
(making it unlawful “for any person” who is “associated with any enterprise” to
conduct its affairs through a pattern of racketeering activity). Specifically, they
argue that Kenneth Kolbjornsen’s bankruptcy estate does not constitute a RICO
enterprise and that, in any event, the estate lacks the requisite distinctness from
the person (debtor Kenneth Kolbjornsen) who allegedly used it as a vehicle for
racketeering activity. Neither of these contentions has merit.
In addition to individuals associated in fact, any legal entity may qualify as
a RICO enterprise. Id. § 1961(4). Indeed, because the enterprise must be
separate from the pattern of racketeering itself, United States v. Turkette , 452
U.S. 576, 583 (1981), and distinct from the person engaging in it, Cedric Kushner
Promotions, Ltd. v. King , 533 U.S. 158, 161-62 (2001), RICO requirements are
most easily satisfied when the enterprise is a formal legal entity. Bennett v. Berg ,
685 F.2d 1053, 1060 (8 th Cir. 1982), adopted on reh’g en banc , 710 F.2d 1361,
1363-64 (8th Cir. 1983); see also United States v. Blinder , 10 F.3d 1468, 1474
(9th Cir. 1993). A bankruptcy estate is clearly such an entity. The only published
decision to address the matter had no difficulty concluding that a bankruptcy
estate qualified as a RICO enterprise. Handeen v. Lemaire , 112 F.3d 1339, 1353
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(8th Cir. 1997); see also Gunther v. Dinger , 547 F. Supp. 25, 27 (S.D.N.Y. 1982)
(same conclusion as to probate estate). We agree.
Basically the same reasons undercut the Kolbjornsens’ argument that the
requisite distinction between “enterprise” and “person” was lacking here. They
insist that a bankruptcy estate and debtor are legally indistinguishable. On the
contrary, “the debtor and the bankruptcy estate are distinct entities in an
individual’s bankruptcy proceeding.” Katz v. Comm’r , 335 F.3d 1121, 1127
(10 th Cir. 2003). Indeed, the creation of the estate as a formal entity in its own
right is the immediate consequence of filing a bankruptcy case. 11 U.S.C. § 541.
Though speaking about a corporation rather than a bankruptcy estate, the Supreme
Court’s analysis of the RICO distinctiveness requirement in Cedric Kushner
Promotions is instructive: “The corporate owner/employee, a natural person, is
distinct from the corporation itself, a legally different entity with different rights
and responsibilities due to its different legal status. And we can find nothing in
the statute that requires more ‘separatedness’ than that.” 533 U.S. at 163. As the
facts here reflect, a debtor may “victimize” an estate or use it as a “vehicle” for
unlawful activity directed at others just as an owner/employee may exploit his
relationship with a corporation. See id. at 164. To paraphrase the Court, we
conclude that “the statute requires nothing more than the formal legal distinction
between [debtor] and [estate] that is present here.” Id. at 165.
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Appeal No. 04-1033 is DISMISSED on plaintiffs-appellants’ own motion;
the district court’s order dismissing the claims against the professional defendants
is AFFIRMED in appeal No. 03-1192; and the money judgment entered on the
jury verdict in favor of the plaintiffs is AFFIRMED in appeal No. 03-1219.
Entered for the Court
Stephanie K. Seymour
Circuit Judge
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