Rolo v. City Investing Co. Liquidating Trust ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
8-31-1998
Rolo v. City Investing Co
Precedential or Non-Precedential:
Docket 95-5768
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"Rolo v. City Investing Co" (1998). 1998 Decisions. Paper 210.
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Filed August 31, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 95-5768 & 96-5128
JOSE and ROSA ROLO; and DR. WILLIAM and
ROSEANNE TENERELLI
v.
CITY INVESTING COMPANY LIQUIDATING TRUST;
AmBASE CORPORATION; CARTERET BANCORP, INC.;
FEDERAL DEPOSIT INSURANCE CORPORATION, as
Successor to RESOLUTION TRUST CORPORATION, in its
capacity as RECEIVER OF CARTERET SAVINGS BANK,
FA; THE HOME INSURANCE COMPANY; GEORGE T.
SCHARFFENBERGER; MARSHALL MANLEY; EDWIN I.
HATCH; EBEN W. PYNE; REUBIN O'D. ASKEW;
HOWARD L. CLARK, JR.; CHARLES J. SIMONS;
PETER R. BRINKERHOFF; DAVID F. BROWN; ROBERT F.
EHRLING; CRAVATH, SWAINE & MOORE; DAVID G.
ORMSBY; FEDERAL DEPOSIT INSURANCE
CORPORATION, in its capacity as RECEIVER OF
SOUTHEAST BANK, NA; PAINEWEBBER INCORPORATED;
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.; THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA;
NATIONAL BANK OF CANADA; CITICORP REAL ESTATE,
INC.; FIRST NATIONAL BANK OF BOSTON; FEDERAL
NATIONAL MORTGAGE ASSOCIATION; FEDERAL HOME
LOAN MORTGAGE CORPORATION; CHASE FEDERAL
BANK, FSB; CITIZENS AND SOUTHERN TRUST
COMPANY (FLORIDA), NA; REGIONS BANK OF
LOUISIANA, as Successor to SECOR BANK, FSB;
OXFORD FIRST CORP.; THE OXFORD FINANCE
COMPANIES, INC.; LASALLE BUSINESS CREDIT, INC.; as
Successor to STANCHART BUSINESS CREDIT, INC.;
HARBOR FEDERAL SAVINGS AND LOAN ASSOCIATION;
GREYHOUND FINANCIAL CORPORATION; LLOYDS BANK
PLC; and JOHN DOES 1-10
Jose Rolo, Rosa Rolo, Dr. William
Tenerelli, and Roseanne Tenerelli,
and proposed intervenor plaintiffs
Dominick J. Capezza, Estrelita
Capezza, Jacques Cormier, Anite
Cormier, Steven Kalinowski,
Bernard Kalinowski, Charles R.
Panellino, and Clarisse Panellino,
Appellants in 95-5768
proposed intervenor plaintiffs
Dominick J. Capezza, Estrelita
Capezza, Jacques Cromier, Anite
Cormier, Steven Kalinowski,
Bernard Kalinowski, Charles R.
Panellino, and Clarisse Panellino,
Appellants in 96-5128
(Caption amended per Clerk's 11/27/95, 1/3/96 &
2/29/96 orders)
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 90-cv-04420)
Argued September 16, 1996
Before: BECKER, NYGAARD and ROTH, Circuit Judges
(Opinion Filed August 31, 1998)
2
Herbert I. Deutsch, Esq.
Roy A. Heimlich, Esq. (Argued)
Deutsch & Frey
18 East 41st Street
6th Floor
New York, NY 10017
William J. O'Brien, Esq.
Delany & O'Brien
306 West Somerdale Road
Voorhees, NJ 08043
Attorneys for Appellants
Jose Rolo; Rosa Rolo; William
Tenerelli; Roseanne Tenerelli;
Dominick J. Capezza; Estrelita
Capezza; Jacques Cormier; Anite
Cormier; Steven Kalinowski;
Bernard Kalinowski; Charles R.
Panellino and Clarisse Panellino
Douglas S. Eakeley, Esq. (Argued)
Lowenstein, Sandler, Kohl,
Fisher & Boylan
65 Livingston Avenue
Roseland, NJ 07068
Paul M. Dodyk, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attorneys for Appellees
AmBase; City Investing Company
Liquidating Trust; Carteret
Bancorp Inc.; George T.
Scharffenberger; Marshall Manley;
Edwin I. Hatch; and Eben W. Pyne
3
Nicholas deB. Katzenbach, Esq.
(Argued)
906 Great Road
Princeton, NJ 08540
Peter N. Perretti, Jr., Esq.
Riker, Danzig, Scherer, Hyland &
Perretti
One Speedwell Avenue
Headquarters Plaza
Morristown, NJ 07962-1981
Attorneys for Appellees
Cravath, Swaine & Moore and
David G. Ormsby
Alan J. Kluger, Esq. (Argued)
Steve I. Silverman, Esq.
Kluger, Peretz, Kaplan & Berlin
201 South Biscayne Boulevard
Suite 1970
Miami, FL 33131
Joseph A. Boyle, Esq.
Kelley, Drye & Warren
5 Sylvan Way
Parsippany, NJ 07054
Attorneys for Appellee
Greyhound Financial Corporation
John W. Little, III, Esq.
Gerry S. Gibson, Esq. (Argued)
Steel, Hector & Davis
777 South Flagler Drive
1900 Phillips Point West
West Palm Beach, FL 33401
4
Joseph J. Schiavone, Esq.
Budd, Larner, Gross, Rosenbaum,
Greenberg & Sade
150 John F. Kennedy Parkway
CN 1000
Short Hills, NJ 07078-0999
Attorneys for Appellee
Federal National Mortgage
Association
Steven M. Edwards, Esq.
Davis, Scott, Weber & Edwards
100 Park Avenue
32nd Floor
New York, NY 10017
Attorneys for Appellees
David F. Brown and Robert F.
Ehrling
Elizabeth J. Sher, Esq.
Pitney, Hardin, Kipp & Szuch
P.O. Box 1945
Morristown, NJ 07962-1945
Attorney for Appellee
Home Insurance Co.
Peter W. Homer, Esq.
Homer & Bonner
100 Southeast 2nd Street
3400 International Place
Miami, FL 33131
Attorney for Appellee
Citizens and Southern Trust
Company
National Association
5
Joseph L. Buckley, Esq.
Mark E. Duckstein, Esq.
Sills, Cummis, Zuckerman, Radin,
Tischman, Epstein & Gross
One Riverfront Plaza
Newark, NJ 07102
Robert T. Wright, Jr., Esq.
Shutts & Bowen
201 South Biscayne Boulevard
1500 Miami Center
Miami, FL 33131
Attorneys for Appellees
Reubin O'D. Askew; Howard L.
Clark, Jr.; Charles J. Simons; and
Peter R. Brinkerhoff
James J. Hagan, Esq.
Bruce D. Angiolillo, Esq.
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
James M. Altieri, Esq.
Shanley & Fisher
131 Madison Avenue
Morristown, NJ 07962-1979
Attorneys for Appellee
Painewebber, Inc.
Warren H. Colodner, Esq.
Kirkpatrick & Lockhart
1251 Avenue of the Americas
45th Floor
New York, NY 10020-2195
Attorneys for Appellee
Merrill, Lynch, Pierce, Fenner &
Smith, Inc.
6
Steven H. Reisberg, Esq.
Willkie, Farr & Gallagher
153 East 53rd Street
One Citicorp Center
New York, NY 10022
Robert E. Bartkus, Esq.
Pinto, Rodgers and Kopf
107 Washington Street
Morristown, NJ 07960
Attorneys for Appellee
Prudential Insurance Company of
America
L. Louis Mrachek, Esq.
Roy E. Fitzgerald, Esq.
Gunster, Yoakley, Valdes-Fauli &
Stewart
777 South Flagler Drive
Suite 500 East
West Palm Beach, FL 33401
Attorney for Appellee
National Bank of Canada
George J. Wade, Esq.
Shearman & Sterling
153 East 53rd Street
New York, NY 10022
Steven M. Richman, Esq.
Herrick, Feinstein
104 Carnegie Center
Suite 200
Princeton, NJ 08540
Attorneys for Appellee
Citicorp Real Estate
7
Steven I. Adler, Esq.
Cole, Schotz, Meisel, Forman &
Leonard
25 Main Street
P.O. Box 800, Court Plaza North
Hackensack, NJ 07602
Attorney for Appellee
The First National Bank of Boston
Gerald J. Houlihan, Esq.
Houlihan & Partners
Douglas Centre
2600 Douglas Road
Suite 600
Miami, FL 33134
Attorneys for Appellee
Chase Federal Bank
Robert L. Young, Esq.
Carlton, Fields, Ward, Emmanuel,
Smith & Cutler
P.O. Box 1171
Orlando, FL 32802
Attorney for Appellee
Harbor Federal Savings and Loan
Association
David T. Eames, Esq.
Bodian & Eames
450 Lexington Avenue
Suite 3810
New York, NY 10017
Attorney for Appellee
Lloyds Bank, PLC
8
Edward B. Deutsch, Esq.
McElroy, Deutsch & Mulvaney
1300 Mount Kemble Avenue
P.O. Box 2075
Morristown, NJ 07962-2075
Attorney for Appellee
Regions Bank LA, as Successor to
SECOR Bank, FSB
Kevin M. Hart, Esq.
Stark, & Stark
993 Lenox Drive, Princeton Pike
Corporate Center
CN 5315
Princeton, NJ 08543-5315
Attorney for Federal Deposit
Insurance Corporation, in its
capacity as Receiver of Southeast
Bank, NA and Federal Deposit
Insurance Corporation, as
Successor to Resolution Trust, in
its capacity as Receiver of Carteret
Savings Bank, FA
John H. Denton, Esq.
Connell, Foley & Geiser
85 Livingston Avenue
Roseland, NJ 07068
Attorneys for Appellee
Federal Deposit Insurance
Corporation, as Successor to
Resolution Trust, in its capacity as
Receiver of Carteret Savings
Bank, FA
9
J. Marbury Rainer, Esq.
Parker, Hudson, Rainer & Dobbs
285 Peach Center Avenue
1500 Marquis Two Tower
Atlanta, GA 30303
Attorney for Appellee
LaSalle Business Credit, as
Successor to Stanchart Business
Credit, Inc.
George Kielman, Esq.
Mailstop 202
Federal Home Loan Mortgage
Corporation
Legal Department
8200 Jones Branch Drive
McLean, VA 22102
George T. Ford, Esq.
Landman, Corsi, Ballaine & Ford
One Gateway Center
Suite 500
Newark, NJ 07102
Attorneys for Appellee
Federal Home Loan Mortgage
Corporation
Alan I. Moldoff, Esq.
Adelman, Lavine, Gold & Levin
1900 Two Penn Center
Philadelphia, PA 19102
Attorney for Appellees
Oxford Fin Co., And Oxford First
Corp.
OPINION OF THE COURT
ROTH, Circuit Judge:
This case arises from the sale of residential realty in
Florida. Plaintiffs, Jose and Rosa Rolo and Dr. William and
10
Rosanne Tenerelli, purchased lots and homes from General
Development Corporation ("GDC") and its subsidiary GDV
Financial, Inc. ("GDV"). They claim that they were deceived
by a fraudulent marketing scheme which induced them to
purchase residential lots and homes at inflated prices. This
case and its related proceedings have a long and convoluted
history. The present appeal is the third time this Court has
considered this case.
Plaintiffs originally filed suit in 1989 in the United States
District Court for the District of New Jersey alleging claims
under the Racketeer Influenced and Corrupt Organizations
Act, 18 U.S.C. S 1961 et seq (RICO), the Interstate Land
Sales Full Disclosure Act, 15 U.S.C. S 1701 et seq ("Land
Sales Act"), federal securities laws, and common law fraud
against thirty-five named defendants. They also sought to
represent a putative class consisting of all persons who
purchased houses or homesites from GDC or GDV over the
period from 1957 to 1990 and who are members of the
North Port Out-of-State Lot Owners Association ("NPA").
The district court dismissed plaintiffs' claims in their
entirety. Rolo v. City Investing Co. Liquidating Trust, 845 F.
Supp. 182 (D.N.J. 1993). The court held that plaintiffs'
RICO claims were time-barred; plaintiffs had failed to plead
adequately the existence of a RICO conspiracy; and they
had failed to satisfy the essential requirements for pleading
aider and abettor liability under RICO. Although the court
found that plaintiffs' complaint stated claims under the
Land Sales Act for aiding and abetting against some
defendants, but not others, all of their Land Sales Act
Claims were time barred. The district court dismissed
plaintiffs' Securities Act claims on the grounds that the
sales contracts and mortgage notes were not securities
within the meaning of S 10 of the 1934 Act or Rule 10b-5.
Having dismissed all of plaintiffs' federal claims, the court
declined to exercise pendent jurisdiction over plaintiffs'
common law fraud claims. Finally, the district court denied
plaintiffs' Motion to file a Second Amended Complaint that
would have restructured and reformulated their action.
Following a remand for reconsideration of plaintiffs' claims
in light of our decision in Jaguar Cars, Inc. v. Royal Oaks
Motor Car Co., 46 F.3d 258 (3d Cir. 1995), the district court
11
reaffirmed its dismissal of each of plaintiffs' claims and its
denial of further leave to amend the complaint. Rolo v. City
Investing Co. Liquidating Trust, 897 F. Supp. 826 (D.N.J.
1995).
The present appeal is from the district court's decision on
remand. Plaintiffs assert that the district court erred in
dismissing their RICO claims and abused its discretion by
denying them leave to amend their complaint. We conclude
that there were adequate grounds to dismiss each of
plaintiffs' RICO claims and that the district court did not
abuse its discretion by denying plaintiffs further leave to
amend their complaint. Accordingly, we will affirm the
district court's decision on remand in its entirety.
I. BACKGROUND
A. The Fraudulent Scheme
Plaintiffs allege that GDC and GDV engaged in a
fraudulent marketing scheme to sell real estate in violation
of several federal criminal and civil statutes. The First
Amended Complaint alleges that GDC improved only a
small portion of the 1,000 square mile tract of land that it
owned in Florida and that it had no intention of developing
the land further. Prospective purchasers were told,
however, that the entire tract would be developed.
According to plaintiffs, GDC targeted unsophisticated
purchasers, particularly those who spoke English only as a
second language. Prospective purchasers were invited to
attend lavish "investment seminars" at which GDC
represented that the value of the real estate continually
appreciated, that there was a good resale market for the
lots and houses, and that the real estate was an excellent
investment. The Complaint further alleges that much
information was concealed from prospective purchasers,
including the very low resale value of the lots, the artificial
nature of the original sale prices of the lots, and the fact
that most purchasers defaulted within two years, allowing
GDC to cancel their contracts and resell the same lots over
and over again. According to plaintiffs, similar tactics were
also used to sell homes to those who already owned lots.
12
B. The Defendants
The Amended Complaint names thirty-five defendants
and classifies them according to the nature of their
participation in the allegedly fraudulent scheme, placing
some defendants in more than one category. The district
court adopted this classification and divided the defendants
into six categories:1 City Defendants, Inside Director
Defendants, Director Defendants, Financing Defendants,
Mortgagee Defendants and Lot Contract Defendants. The
Complaint did not specifically include the lawfirm Cravath,
Swaine & Moore ("Cravath") or David Ormsby, a Cravath
partner, in any of these categories. The Complaint alleges
that in rendering legal services to GDC and GDV, Cravath
and Ormsby assisted the defendants in concealing their
fraudulent scheme. Ormsby also acted as GDC's secretary
from 1985-1988.
The City Defendants include City Investing Company,
later City Trust, ("City"), its subsidiaries and several of its
directors.2 The Complaint alleges that City had an
ownership interest in and controlled GDC. After the sales
fraud was initially discovered, the City Defendants
attempted to distance themselves from GDC. With the
assistance of Cravath, City Investing sought to disassociate
itself from GDC by transferring itself into a liquidating
trust, City Trust. The City Defendants and Cravath
arranged for City to sell 62% of GDC stock to the public
and retain 38% in City Trust for later distribution. GDC
also borrowed in excess of $100 million,3 which was
remitted to City as a dividend.
The Inside Director Defendants include Edwin Hatch,
Marshall Manley, Eben Pyne and George Scharffenberger,
_________________________________________________________________
1. The Complaint also includes a seventh group, the "John Doe"
Defendants, those individuals who were involved in the alleged
conspiracy but who were not known to the appellants.
2. Specifically, the City Defendants include: City Trust, George
Scharffenberger, Marshall Manley, Edwin Hatch, Eben Pyne, Ambase
Corp., The Home Insurance Co., Carteret Bancorp, Inc., and Carteret
Savings Bank, FA.
3. It is unclear from the district court's opinion who lent this money to
GDC. See Rolo, 845 F. Supp. at 204.
13
individuals who served as directors of GDC and City Trust
for various periods from September 1985 onwards. The
Director Defendants, Reubin O'D. Askew, Howard L. Clark,
Jr., Charles J. Simons, and Peter R. Brinkerhoff, are
persons who served as "outside directors" of GDC for
various periods dating from September 1985. Also included
in this category are David F. Brown and Robert F. Ehrling,
who served as both officers and directors of GDC during
this period. Both Brown and Ehrling were convicted of
criminal charges in connection with their involvement in
the fraudulent scheme. Their convictions were
subsequently reversed on appeal. See infra. The Complaint
alleges that the Inside Director Defendants along with the
Director Defendants controlled the City Defendants and
used them in furtherance of the fraudulent scheme.
The Financing Defendants include banks and financial
institutions,4 who provided a variety of financial services to
the other defendants. Some, for example, underwrote the
$125,000,000 in notes issued by GDC in its 1988 public
offering. Others loaned GDC money and extended credit to
the company. Another "warehoused" new GDV mortgages
until they could be pooled and sold, while also lending GDV
money using these mortgages as collateral. The Complaint
alleges that these defendants knew or should have known
of GDC's sales fraud.
The mortgagee defendants, including the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac") and a number
of private institutions,5 purchased pools of mortgages on
_________________________________________________________________
4. The First Amended Complaint lists seven entities under the heading
"Financing Conspirators." These entities are: Southeast Bank, N.A.,
PaineWebber Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., The
Prudential Insurance Company of America, Citicorp Real Estate, Inc.,
National Bank of Canada and First National Bank of Boston.
5. The First Amended Complaint lists nine entities under the heading of
"Mortgagee Conspirators." In addition to Fannie Mae and Freddie Mac,
allegations were made against the following institutions: Chase Federal
Bank, FSB, Citizens and Southern Trust Co., N.A. n/k/a NationsBank
Trust Co., Secor Bank, FSB n/k/a Regions Bank of Louisiana, The Home
Insurance Co., Carteret Bancorp, Inc., Carteret Savings Bank, FA and
Prudential. The FDIC also appeared as successor to the Resolution Trust
Corporation in its capacity as receiver of Carteret Savings Bank, FA.
14
GDC houses. The Complaint alleges that these defendants
knew or recklessly disregarded information that the GDC
mortgages were overvalued. The Complaint also alleges that
Fannie Mae and Freddie Mac stopped purchasing GDV
mortgages in 1985 because GDV's practices did not meet
their standards, but that these defendants permitted GDV
to repurchase the mortgages through a confidential
agreement. In addition, they did not strip GDV of its
privileges to sell mortgages under the Federal Home
Mortgage Act.
The Lot Contract Defendants,6 purchased pools of
monthly payments due to GDC from the sale of residential
property in Florida. Some of these defendants authorized
GDC to service their contracts, including collection from
and negotiations with the lot owners. Others collected their
payments from owners directly. Under GDC's agreements
with these defendants, substitution pools were used as a
security. When a contract or note went into default, GDC
would replace it with a performing contract. Thus, these
defendants incurred no losses from defaults and had no
incentive to ensure that loans reflected the true value of the
property. The Complaint alleges that these defendants had
conducted extensive financial review of GDC and knew or
should have known of GDC's fraudulent scheme, but chose
to remain silent in order to protect their own interests.
The defendants must also be divided into two additional
categories, the primary and secondary defendants. The
primary defendants are those defendants who, plaintiffs
allege, participated in the operation and management of the
affairs of GDC through a pattern of racketeering activity.
The primary defendants are City Trust, George
Scharffenberger, Marshall Manley, Edwin Hatch, Eben
Pyne, David F. Brown, and Robert F. Ehrling. All of the
remaining defendants are categorized as secondary
_________________________________________________________________
6. The Lot Contract Defendants include the following entities: Oxford
First Corp. and the Oxford Finance Companies, Inc., Greyhound
Financial Corporation, StanChart Business Credit, Inc., Lloyds Bank,
PLC, Harbor Federal Savings and Loan Association, Merrill Lynch, Pierce,
Fenner & Smith, Inc., National Bank of Canada, Citicorp Real Estate,
Inc. and First National Bank of Boston.
15
defendants, who, it is alleged, aided and abetted the pattern
of racketeering activity devised and controlled by the
primary defendants. The plaintiffs allege that the actions of
the secondary defendants are also in violation of RICO.
C. Procedural History
Plaintiffs filed their original complaint on August 8, 1989,
in the United States District Court for the District of New
Jersey against GDC and its subsidiary, GDV, asserting
claims under RICO, S 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5, the Land Sales Act, various state
RICO statutes, and breach of fiduciary obligations. On
September 7, 1989, plaintiffs filed an amended complaint,
adding claims for breach of contract and fraud.
Defendants moved to dismiss the First Amended
Complaint, and in January 1990 the district court
dismissed the case in its entirety finding that plaintiffs had
failed to plead fraud with the particularity required by Fed.
R. Civ. P. 9(b). Plaintiffs were given 120 days in which to
file a second amended complaint. Before plaintiffs filed their
amended complaint, on April 16, 1990, the case was
administratively terminated because GDC had filed a
petition for bankruptcy under Chapter 11.
In November 1990, plaintiffs filed the present action. As
in their earlier action, plaintiffs allege that the defendants
participated in a fraudulent marketing scheme in violation
of several federal criminal and civil statutes. 7 Although
plaintiffs listed GDC and GDV as defendants in this action,
they did not serve either company with a copy of the
summons or the complaint. Rolo v. General Development
Corp., 949 F.2d 695, 698 (3d Cir. 1991). Plaintiffs asserted
before the district court their intention "to delete all
references to GDC and GDV as defendants." Rolo v. General
Dev. Corp., Civ. Action No. 90-4420, slip op. at 15 (D.N.J.
_________________________________________________________________
7. Specifically, plaintiffs assert claims underS 10(b) of the Securities
and
Exchange Act of 1934, 15 U.S.C. S 78j, the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. S 1964, and the Interstate Land
Sales Full Disclosure Act, 15 U.S.C. S 1703(a), as well as common law
fraud claims. The district court had jurisdiction over the statutory
claims
pursuant to 15 U.S.C. S 78aa, 18 U.S.C. S 1964, and 15 U.S.C. S 1719,
and exercised pendent jurisdiction over the common law claims.
16
April 26, 1990). Accordingly, neither the district court nor
this Court, in its 1991 decision, treated GDC or GDV as
defendants in this case. Rolo, 949 F.2d at 698.
About two weeks after the filing of this case, plaintiffs
filed a proof of claim with the bankruptcy court, on behalf
of all members of the NPA, a group of more than 5,000
individual who had purchased property from GDC and its
agents. Id. In support of their claim, plaintiffs reiterated the
allegations detailed in their complaint, which was attached
to their proof of claim. Id. During the bankruptcy
proceedings, the bankruptcy judge denied class treatment
of plaintiffs' claims and approved settlements in which over
60,000 homesite and house purchasers participated. See In
re GDC, No. 90-12231-BKC-AJC, slip op. at 1, 6 (Bankr.
S.D. Fla. Aug. 16, 1991).
Proceedings in this case were stayed by the district court
from December 1990 until March 1993, pending disposition
of GDC and GDV's bankruptcy proceedings. Rolo , 949 F.2d
at 699. In April 1991 the district court denied
reconsideration of its stay order and "further directed that
the action be stayed on the terms set forth in the December
Order pending the resolution of the criminal cases against
Brown and Ehrling."8 Id. The following month, the district
court also stayed plaintiffs' request for a preliminary
_________________________________________________________________
8. Prior to the filing of this case GDC, its Chairman David Brown, and
President Robert Ehrling, were indicted for their involvement in this
scheme. GDC pled guilty to fraud and established a $169 million fund
to pay its customers. It also filed for bankruptcy under Chapter 11.
United States v. Brown, 79 F.3d 1550, 1555 (11th Cir. 1996). A civil
action has also been brought by the United States against GDC. No. 90-
0879-Civ. Nesbitt (S.D. Fla.). For their participation in the scheme,
Brown and Ehrling were charged with 73 total counts of mail fraud,
interstate transportation of persons in furtherance of a fraud, and
conspiracy. Brown was convicted on one conspiracy count and Ehrling
was convicted on 39 counts. Id. Both received jail sentences for their
participation in the conspiracy. On appeal, however, the Eleventh Circuit
Court of Appeals reversed their convictions finding that "insufficient
evidence was presented that a scheme reasonably calculated to deceive
persons of ordinary prudence and comprehension was devised." Id. at
1553. Both Brown and Ehrling are named as defendants in the action
presently before this Court.
17
injunction to bar Ambase and City Investment from
liquidating and distributing their assets. Id. These stay
orders were the subject of the first appeal before this Court.9
On May 13, 1991, plaintiffs filed their First Amended
Complaint, which no longer named either GDC or GDV as
a defendant, but added a number of additional defendants.
This complaint also dropped plaintiffs' claim for breach of
contract. Later the same month, the defendants moved to
dismiss the First Amended Complaint pursuant to Rule
12(b)(2) and 12(b)(6). In June, plaintiffs voluntarily
withdrew their claims for breach of an implied covenant of
good faith, negligence and negligent misrepresentation.
In their response to the defendants' Motion to Dismiss,
plaintiffs first raised their challenge to the
enterprise/person distinction under RICO. Although this
argument raised allegations not contained in the amended
complaint, the plaintiffs did not formally request further
leave to amend the complaint. In considering the plaintiffs'
response, the district court treated these amended RICO
allegations as a Second Amended Complaint. In a lengthy
Opinion and Order dated December 27, 1993, the district
court granted defendant's motions to dismiss under Rule
12(b)(6), and granted the motions to dismiss pursuant to
Rule 12(b)(2) for lack of personal jurisdiction of
Scharffenberger, Manley, Hatch, Pyne, Askew, Brinkerhoff,
Clark and Simons. The dismissal of all of plaintiffs' claims
rendered the Motion for Class Certification moot. The court
dismissed the plaintiffs' complaint without granting leave to
file a further amended complaint. Plaintiffs appealed the
dismissal of their claims to this Court. Following oral
argument, on November 8, 1994, we issued a Judgment
Order affirming the decision of the district court for
_________________________________________________________________
9. On appeal, we held that the district court's order staying this action
pending final resolution of the related bankruptcy and criminal
proceedings was not an appealable order under the collateral-order
doctrine. Rolo, 949 F.2d at 700. Moreover, we concluded that plaintiffs
could not demonstrate exceptional circumstances sufficient to warrant
the grant of mandamus relief. Id. at 702. In contrast, however, the order
staying consideration of the request for preliminary injunction could be
appealed interlocutorily, and the district court erred in deferring
consideration of the merits of the requested injunction. Id. at 703-04.
18
"substantially the reasons" set out in the district court
opinion. Rolo v. City Investing Co. Liquidating Trust, 66 F.
3d 312 (3d Cir. 1994).
On November 18, 1994, plaintiffs filed a Petition for
Rehearing and Suggestion for Rehearing In Banc. Their
Petition requested this Court to reconsider its
jurisprudence on the person/enterprise distinction, which
was applied to claims brought under RICO. See , e.g., Hirsch
v. Enright Refining Co., 751 F.2d 628, 633 (3d Cir. 1984)
(concluding that defendant corporation could not be liable
under S 1962 in that "the `person' subject to liability cannot
be the same entity as the `enterprise' "). While plaintiffs'
Petition was pending, another panel of this Court decided
Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258
(3d Cir. 1995), holding that under RICO, officers or
employees "may properly be held liable as persons
managing the affairs of their corporation as an enterprise."
46 F.3d at 261. This holding endorsed the position taken by
plaintiffs in their Petition for Rehearing. By Order dated
April 4, 1995, we granted plaintiffs' Petition, vacated our
earlier Judgment Order, vacated the order of dismissal
issued by the district court, and remanded the case to the
district court for reconsideration in light of the decision in
Jaguar Cars. Rolo v. City Investing Co. Liquidating Trust,
No. 94-5057, 94-5058, slip op. at 2 (3d Cir. Apr. 4, 1995).
We did not retain jurisdiction over the case.
Following the remand, the parties disputed whether
reconsideration in light of the holding in Jaguar Cars was
necessary as there were other, independent grounds to
support dismissal of all of plaintiffs' claims. Plaintiffs also
advised the district court that they intended to seek leave
to file a further amended complaint, to add and drop
parties, and to restate their claims in light of Jaguar Cars.
By letter dated April 12, 1995, the district court requested
briefing from the parties regarding the appropriate actions
for the court to take on reconsideration. As requested by
the district court, the parties filed their initial briefs on
June 1, 1995. The following day, plaintiffs also served their
formal motion for leave to serve a proposed Second
Amended Complaint10 and to add and drop parties. By
_________________________________________________________________
10. Although the district court had treated certain allegations contained
in the plaintiffs' response to the Motion to Dismiss as a Second Amended
19
letter dated June 8, 1995, the district court adjourned the
Motion for leave to serve an amended complaint until the
court had completed the reconsideration mandated by this
Court.
On August 24, 1995, the district court once again
dismissed this case in its entirety, holding all other grounds
for dismissing plaintiffs' claims were unaffected by Jaguar
Cars. Rolo, 897 F. Supp. at 833. The district court also
dismissed plaintiffs' Motion to file a Second Amended
Complaint and to add and drop parties. Id. Within ten days
after the court's final order, plaintiffs moved for relief
pursuant to Rule 60(b) of the Federal Rules of Civil
Procedure, seeking leave to serve their proposed Second
Amended Complaint and to add and/or intervene additional
parties. Following oral argument on the motion, on October
23, 1995, the district court ruled from the bench, denying
relief pursuant to Rule 60(b). On November 1, 1995,
plaintiffs filed their notice of appeal from the district court's
decisions dismissing the complaint and denying post-
judgment relief pursuant to Rule 60(b). Specifically,
plaintiffs appeal from the dismissal of their RICO claims
and from the denial of leave to amend the complaint.
II. JURISDICTION AND STANDARDS OF REVIEW
We have jurisdiction over this appeal pursuant to 28
U.S.C. S 1291, as the appeal arises from afinal decision of
the district court dismissing all of the remaining claims of
the First Amended Complaint, dismissing plaintiffs' motion
for leave to serve a Second Amended Complaint, and
denying plaintiffs' motion, pursuant to Rule 60(b), for leave
to serve a further amended complaint. The district court
had subject matter jurisdiction over plaintiffs' federal
claims pursuant to 28 U.S.C. S 1331 and exercised pendent
jurisdiction over their state claims.11
_________________________________________________________________
Complaint, the proposed Amended Complaint would have been the
Second Amended Complaint, and we will refer to it as such in this
Opinion.
11. This case was filed prior to the enactment of the supplemental
jurisdiction statute, 28 U.S.C. S 1367 in 1990, which combined the
concepts of pendent and ancillary jurisdiction. See In re: Prudential Ins.
Co. America Sales Practice Litigation Agent Actions, ___ F.3d ___, ___,
1998 WL 409156 at *11 (3d Cir. July 23, 1998).
20
Defendants contend, however, that we may not hear this
appeal because plaintiffs did not file a timely notice of
appeal. Rule 4 of the Federal Rules of Appellate Procedure
provides that a notice of appeal must be filed within 30
days after the date of entry of the order appealed, but that
if a party files a "timely motion" for relief under Rule 60(b),
the time for appeals runs from the entry of the order
disposing of the motion. In this case, the district court
dismissed plaintiffs' claims on August 24, 1995. Plaintiffs
moved for relief pursuant to Rule 60(b) within the 10 day
time limit provided by Rule 4(a)(4)(F) of the Federal Rules of
Appellate Procedure. The district court denied their Rule
60(b) Motion on October 23, 1995, and plaintiffsfiled their
notice of appeal on November 1, 1995, within the 30 day
time limit provided by the rule.
Defendants assert that plaintiffs' motion was not properly
cognizable pursuant to Rule 60(b) and therefore the motion
did not toll the time for filing a notice of appeal. Defendants
argue that the Rule 60(b) Motion sought only to persuade
the district court to reconsider issues that it had already
fully considered and rejected. Defendants correctly state
that a request for relief pursuant to Rule 60(b) cannot be
used as a substitute for an appeal. Martinez-McBean v.
Government of the V.I., 562 F.2d 908, 911 (3d Cir. 1977).
See also Union Switch & Signal v. United Electrical, Radio &
Machine Workers of America, Local 610, 900 F.2d 608, 615
(3d Cir. 1990) (finding that a party's characterization of
their motion is not dispositive, instead the court must look
to the "purpose the motion seeks to achieve"). In response,
plaintiffs contend that they filed a Rule 60(b) Motion rather
than an immediate appeal because they believed that the
district court had construed this Court's mandate as
precluding consideration of their Motion to file a Second
Amended Complaint. Plaintiffs considered the change in the
law following the original dismissal of their case coupled
with the district court's narrow construction of our
mandate to constitute "exceptional circumstances" meriting
review pursuant to Rule 60(b)(6).
Although plaintiffs' Rule 60(b) Motion was ultimately
unsuccessful, it was not so deficient that it was not
cognizable pursuant to Rule 60. Plaintiffs could reasonably
21
believe that the district court had dismissed plaintiffs'
Request for Leave to file an amended complaint because the
district judge believed that our mandate had limited review
to the issues created by the decision in Jaguar Cars and
that a Rule 60 motion might offer broader relief. Plaintiffs'
position is buttressed by the fact that within a relatively
short time frame, controlling precedent was reversed after
the prior dismissal had been affirmed by judgment order,
but before completion of their appeal, which concluded
when the prior dismissal was vacated on rehearing.
Accordingly, plaintiffs' notice of appeal was timelyfiled and
their present appeal is properly before us.
We have plenary review over plaintiffs' appeal from the
dismissal of their action. Lorenz v. CSX Corp., 1 F.3d 1406,
1411 (3d Cir. 1993). We may review the district court's
dismissal of their motion for leave to amend the complaint
and denial of their motion for post-judgment relief under
Rule 60(b) for abuse of discretion only. In re Burlington Coat
Factory Securities Litigation, 114 F.3d 1410, 1434 (3d Cir.
1997); Resolution Trust Corp. v. Forest Grove, Inc., 33 F.3d
284, 288 (3d Cir. 1994).
III. DISCUSSION
A. Denial of Leave to Amend
Plaintiffs argue that the district court must have
misconstrued this Court's April 4, 1995, mandate
remanding the case to the district court for reconsideration
in light of the decision in Jaguar Cars because, they
contend, it refused to consider their motion for leave to
serve a Second Amended Complaint. Plaintiffs also argue
that the district court abused its discretion when it denied
their Rule 60(b) Motion seeking leave to amend. Wefind
that the district court neither misunderstood our mandate
nor abused its discretion by denying plaintiffs further leave
to amend the complaint.
Our mandate was designed to offer the district court
broad flexibility to reconsider its earlier ruling in light of
our decision in Jaguar Cars. Our April 4, 1995, Order
provided in pertinent part:
22
The petition for rehearing is granted, the orders of the
district court from which the appeal were taken are
vacated, and the matters are remanded to the district
court for reconsideration in light of Jaguar Cars, Inc. v.
Royal Oaks Motor Car Co., 46 F.3d 258 (3d Cir. 1995).
We do not retain jurisdiction.
Rolo, No. 94-5057, 94-5058, slip op. at 2. The district court
was free to reconsider its original ruling, dismissing the
request for leave to amend, and also to consider the new
motion for leave to amend, in light of the decision in Jaguar
Cars.
Plaintiffs contend that the district court thought that
under this Court's mandate, it could not consider their
Motion for Leave to Amend. The district court's August 24,
1995, Opinion states that plaintiffs' Motion for Leave to
Amend is "dismissed." Rolo, 897 F. Supp. at 833. The court
wrote, "the remand order did not contemplate that plaintiffs
be allowed to reconstitute and restructure their action
through the vehicle of an amended complaint and the
addition and deletion of parties" and that "the motion to
serve a second amended and supplemental complaint and
to add and drop parties should not be considered." Id. at
827-28. On the other hand, the district court discussed the
proposed amended complaint, noting that it would
fundamentally alter the nature of the claims and
concluding that it did "not believe that the Third Circuit
intended the reconsideration to be on the basis of an
amendment to an already much amended complaint." Id. at
831. The district judge did not "consider the mandate as
requiring consideration of the Proposed Complaint or any
other proposed amended complaint." Id. at 832. Similarly,
at oral argument on plaintiffs' Rule 60(b) Motion, the Judge
stated, "I concluded that the remand order did not require
and the circumstances did not warrant hearing a motion
for leave to file a further amended and supplemental
complaint and to substitute new plaintiffs." Rolo v. City
Investing Co. Liquidating Trust, No. 90-4420 slip op. at *24
(D.N.J. Oct. 23, 1995) (transcript of hearing denying
plaintiffs' Rule 60(b) motion).
Under these circumstances, we conclude that the actions
of the district court are consistent with this Court's
23
mandate. The court considered the impact of Jaguar Cars
and determined that, in light of the procedural posture of
the case, our mandate did not require that leave to amend
be granted when there were other adequate grounds for
upholding the decision to dismiss the complaint.
In addition, the district court did not abuse its discretion
by denying plaintiffs leave to amend pursuant to Rule 15(a)
or Rule 60(b)(6). Rule 15(a) of the Federal Rules of Civil
Procedure provides that a party may seek leave of the court
to amend a pleading and that such leave "shall be freely
given when justice so requires." The decision whether to
grant or to deny a motion for leave to amend rests within
the sound discretion of the district court. Howze v. Jones &
Laughlin Steel Corp., 750 F.2d 1208, 1212 (3d Cir. 1984).
The Supreme Court has stated, however, that, "[i]n the
absence of any apparent or declared reason -- such as
undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendment
previously allowed, undue prejudice to the opposing party
by virtue of allowance of the amendment, etc. -- the leave
sought should, as the rules require, be `freely given.' "
Foman v. Davis, 371 U.S. 178, 182 (1962). The same
standard applies when considering a request to add or drop
parties. In contrast, relief under Rule 60(b) is extraordinary
and requires a "showing of exceptional circumstances."
Marshall v. Board of Education, 575 F.2d 417, 425-26 (3d
Cir. 1978).
In this case, the plaintiffs' proposed Second Amended
Complaint primarily seeks to replead facts and arguments
that could have been pled much earlier in the proceedings.
In Gasoline Sales, Inc. v. Aero Oil Company, 39 F.3d 70 (3d
Cir. 1994), affirming the district court's refusal to grant
leave to amend, we reasoned:
. . . . as the district court stated, "three attempts at a
proper pleading is enough" and a "plaintiff has to
carefully consider the allegations to be placed in a
complaint before it is filed." [Plaintiff] is not seeking to
add claims it inadvertently omitted from its prior
complaints or which it did not know about earlier.
Rather [plaintiff] is modifying the allegations in hopes
24
of remedying factual deficiencies in its prior pleadings,
even to the point of contradicting its prior pleadings.
Id. at 74. This description is equally applicable to the
procedural posture of this case. Plaintiffs have not only had
the opportunity to file an amended complaint, but the
district court also accepted certain allegations contained in
their response to defendants' motion to dismiss as a Second
Amended Complaint. Plaintiffs have already had ample
opportunity to plead their allegations properly and
completely.
The duration of this case, and the substantial effort and
expense of resolving defendants' Motion to Dismiss the First
Amended Complaint also support the district court's denial
of leave to amend. Although the district court did not make
specific factual findings on this question, these factors
could constitute undue delay, bad faith or prejudice to the
defendants. See Adams v. Gould, 739 F.2d 858, 863-64 (3d
Cir. 1984). Finally, in our Judgment Order of November 8,
1994, which was later vacated, we ruled that the district
court had not erred in denying plaintiffs leave to amend.
Rolo v. City Investing Co. Liquidating Trust, Nos. 94-5057,
94-5058, slip op. at 2 (3d Cir. Nov. 8, 1994). Because the
new legal analysis established in Jaguar Cars does not form
the basis for plaintiffs' requested amendments, the district
court did not abuse its discretion by summarily dismissing
plaintiffs' renewed Motion for Leave to Amend.
B. Statute of Limitations
In its original opinion dismissing this case, the district
court concluded that plaintiffs' RICO claims against the
primary defendants could not survive because plaintiffs had
"failed to plead that the RICO `persons' (GDC's officers,
directors and controlling shareholders) were separate and
distinct from the `enterprise' (GDC)." Rolo, 897 F. Supp. at
832. In the alternative, the district court found that these
claims could also be dismissed on the grounds that they
were time barred. Id. Plaintiffs' aiding and abetting claims
under RICO were dismissed because they did not meet the
"operation or management" test of Reves v. Ernst & Young,
507 U.S. 170 (1993), and for "failure to plead anything
more than general and conclusory allegations of knowledge
25
or participation in a scheme." Rolo, 897 F. Supp. at 833.
Following our decision in Jaguar Cars, the
enterprise/person distinction no longer constituted a
grounds for dismissing their RICO claims against the
primary defendants. The district court found that other,
independent reasons supported dismissal of all plaintiffs'
RICO claims. The court concluded that plaintiffs' RICO
claims could be dismissed as to all defendants on the
grounds that they were not timely filed. Rolo, 897 F. Supp.
at 833. In addition, the grounds for the dismissal of the
aiding and abetting claims against the secondary
defendants were unaffected by the decision in Jaguar Cars.
Id.
Although RICO does not contain an express statute of
limitations for civil actions, the Supreme Court has held
that RICO claims are subject to the four year statute of
limitations applicable to civil enforcement actions under the
Clayton Act, 15 U.S.C. S 15b. Agency Holding Corp. v.
Malley-Duff & Assocs., Inc., 483 U.S. 143, 152-56 (1987).
Accordingly, to be timely, plaintiffs' claims can have
accrued no earlier than November 8, 1986, for the claims
contained in the original complaint and May 13, 1987, for
those claims contained in the First Amended Complaint.
At the time plaintiffs filed both their original complaint
and their First Amended Complaint, this Court recognized
the "last predicate act" method for calculating the accrual
of civil RICO claims. Under the "last predicate act" method
of accrual:
Civil RICO claims accrue at the time when the plaintiff
knew or should have known that the elements of a civil
RICO action existed. However, if further predicate acts
occur that are part of the same pattern of racketeering,
regardless of whether they injure the plaintiff or if the
plaintiff suffers further injury from a predicate act that
is part of the same pattern of racketeering, even if that
predicate act occurred outside the limitations period,
the statute of limitations begins to run from the date
that the plaintiff knew or should have known of the
last such act or the last such injury.
Davis v. Grusemeyer, 996 F.2d 617, 623 (3d Cir. 1993)
(citation omitted). Relying in part upon this accrual
26
method, plaintiffs contend that the district court erred in
concluding that their RICO claims were not timely filed.
During the pendency of this appeal, the Supreme Court
held that the last predicate act accrual method was not a
proper interpretation of the RICO statute of limitations.
Klehr v. A.O. Smith Corp., 117 S. Ct. 1984 (1997). The
Court declined, however, to determine which of the
remaining accrual methods is the appropriate one.
The accrual method that provides plaintiffs with the
longest period of time in which to file their claims is the
"injury and pattern discovery" method, which has also been
applied in this Circuit. See Keystone Ins. Co. v. Houghton,
863 F.2d 1125, 1130 (3d Cir. 1988). Under this method,
plaintiffs have four years in which to file suit from the time
that they discover or should have discovered either their
injury or the defendants' pattern of racketeering activity.
Given that plaintiffs purchased their properties in the
1970s, it seems likely that they should have discovered the
defendants' allegedly fraudulent activities prior to 1986 or
1987, when their complaints were filed.12 We will not,
however, address this issue directly as other adequate
grounds exist for dismissing the plaintiffs' RICO claims.
C. Aiding and Abetting Liability
The claims against the vast majority of defendants are
secondary claims, contentions that these defendants
assisted the primary defendants in defrauding the plaintiffs.
The district court dismissed the complaint as to these
defendants, because the plaintiffs had failed to plead that
the alleged aiders and abettors had "participated in the
operation or management" of the alleged enterprise, as
required by the Supreme Court's decision in Reves v. Ernst
_________________________________________________________________
12. In addition, plaintiffs' claim that they could not have discovered
their
claims due to the fraudulent concealment of the defendants is
unavailing. In Klehr, the Court clarified that in order to use fraudulent
concealment to toll the statute of limitations, plaintiffs must have been
reasonably diligent in protecting their interests. 117 S. Ct. at 1993.
Whether or not plaintiffs should have discovered their claims prior to
1986, there is no evidence that plaintiffs were reasonably diligent in
supervising the defendants' actions with regard to their property.
27
& Young, 507 U.S. 170, 183 (1993). Rolo, 897 F. Supp. at
829. The district court also found that had the allegations
of the Amended Complaint satisfied the Reves requirement,
these allegations would be insufficient because they fail to
meet the essential pleading requirements for aiding and
abetting claims and are barred by RICO's four year statute
of limitations. Id. (citing Walck v. American Stock Exchange,
Inc., 687 F.2d 778, 791 (3d Cir. 1982)). We will affirm the
district court's dismissal of the plaintiffs' RICO aiding and
abetting claims without reaching either of the district
court's grounds for dismissing these allegations because we
are convinced that a private cause of action for aiding and
abetting a RICO violation cannot survive the Supreme
Court's decision in Central Bank of Denver, N.A. v. First
Interstate Bank of Denver, N.A., 511 U.S. 164 (1994).
In Central Bank, the Supreme Court addressed the
question of whether a private plaintiff may bring a cause of
action for aiding and abetting under the Securities
Exchange Act of 1934, S 10(b). The Court's analysis began
and ended with a review of the language of the statute. "It
is inconsistent with the settled methodology inS 10(b) cases
to extend liability beyond the scope of conduct prohibited
by the statutory text." Id. at 177. Reasoning that the text of
S 10(b) does not reach aiding and abetting a violation of
S 10(b), the Court concluded that "the statute itself resolves
the case." Id. at 177-78. The Court rejected the argument
that Congress had intended to permit private actions for
aiding and abetting, stating "Congress knew how to impose
aiding and abetting liability when it chose to do so." Id. at
176. The Court explained,
Congress has not enacted a general civil aiding and
abetting statute . . .. [W]hen Congress enacts a statute
under which a person may sue and recover damages
from a private defendant for violation of some statutory
norm, there is no general presumption that the plaintiff
may also sue aiders and abettors.
Id. at 181. The Court refused to entertain arguments based
upon reference to general tort principles or the policy
considerations supporting inference of a Rule 10b-5 aiding
and abetting cause of action. Id. at 181, 188.
28
The Court also rejected the argument that a private
cause of action for aiding and abetting in violation of S 10(b)
could be implied by reference to 18 U.S.C. S 2, the criminal
aiding and abetting statute. The Court wrote,
[W]hile it is true that an aider and abettor of a criminal
violation of any provision of the 1934 Act, including
S 10(b), violates 18 U.S.C. S 2, it does not follow that a
private civil aiding and abetting cause of action must
also exist. We have been quite reluctant to infer a
private right of action from a criminal prohibition alone
. . ..
Id. at 190. Thus, the Court concluded that because the text
of S 10(b) itself does not prohibit aiding and abetting, a
private plaintiff may not maintain a suit for aiding and
abetting in violation of S 10(b).
We conclude that the same analysis controls our
construction of the civil RICO provision, 18 U.S.C.S 1964.
Section 1964(c) establishes a civil remedy in favor of "[a]ny
person injured in his business or property by reason of a
violation of section 1962." Like S 10(b), the text of S 1962
itself contains no indication that Congress intended to
impose private civil aiding and abetting liability under
RICO. Criminal liability for aiding and abetting a violation
of S 1962 is imposed by reference to the general aiding and
abetting statute, 18 U.S.C. S 2. This provision has no
application to private causes of action. See Central Bank of
Denver, 511 U.S. at 181-82. Thus, reference to 18 U.S.C.
S 2 cannot provide the basis for the imposition of civil
liability for aiding and abetting a RICO violation.
Similarly, despite the existence of cogent policy
arguments in support of extending civil liability to aiders
and abettors of RICO violations, under Central Bank of
Denver, we must "interpret and apply the law as Congress
has written it, and not [ ] imply private causes of action
merely to effectuate the purported purposes of the statute."
In re Lake States Commodities, Inc. 936 F. Supp. 1461,
1475 (N.D. Ill. 1996). Because the text of the RICO statute
does not encompass a private cause of action for aiding and
abetting a RICO violation, "in accordance with the policies
articulated in Central Bank of Denver", we have no
29
authority to imply one. Hayden v. Paul, Weiss, Rifkind,
Wharton & Garrison, 955 F. Supp. 248, 255-56 (S.D.N.Y.
1997); see also In re Lake States, 936 F. Supp. at 1475-76;
Department of Economic Dev. v. Arthur Anderson & Co., 924
F. Supp. 449, 475-77 (S.D.N.Y. 1996). On this basis, we
will affirm the district court's dismissal of the RICO claims
against all of the secondary defendants.
We reach this result despite our discussion of aiding and
abetting liability in Jaguar Cars, a case decided after
Central Bank of Denver. See 46 F.3d at 270. In Jaguar
Cars, the opinion did not address the impact of Central
Bank of Denver on earlier cases that had recognized a
private cause of action for aiding and abetting under RICO.
The decision in Jaguar Cars focused on whether there had
been sufficient evidence to find the defendant liable for
aiding and abetting a RICO violation. See 46 F.3d at 270.
The parties did not challenge the existence of a cause of
action for aiding and abetting, and we did not raise the
issue sua sponte. Although, under this Court's Internal
Operating Procedures, we are bound by, and lack the
authority to overrule, a published decision by a prior panel,
see I.O.P. 9.1, we conclude that the discussion of a private
cause of action for aiding and abetting a RICO violation in
Jaguar Cars does not control our analysis in this case. The
decision in Central Bank of Denver was not called to the
attention of the panel in Jaguar Cars, and the panel's
opinion neither explicitly nor implicitly decided the impact
of Central Bank of Denver on the continued availability of a
private cause of action for aiding and abetting a RICO
violation.
D. Failure to Plead Fraud with the Requisite Particularity
The Amended Complaint alleges that the primary
defendants, those defendants who actually participated in
the operation and management of the fraudulent scheme,
committed mail and wire fraud as predicate racketeering
acts. Because the Complaint alleges that these defendants
participated in the operation or management of the
racketeering enterprise, the allegations against the primary
defendants conform with the requirements for liability
under RICO established by Reves v. Ernst & Young.
Originally, the district court dismissed these claims for
30
failure to plead that the RICO "persons" were separate and
distinct from the RICO "enterprise." Rolo, 897 F. Supp. at
829. Following the decision in Jaguar Cars, the district
court reaffirmed its dismissal of these claims against the
primary defendants, finding that they were time barred. Id.
at 833. We will affirm the dismissal of these claims without
reaching the statute of limitations question because
plaintiffs' allegations fail to satisfy the pleading
requirements established by Fed. R. Civ. P. 9(b).
Rule 9(b) states, "In all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be
stated with particularity. Malice, intent, knowledge, and
other condition of mind of a person may be averred
generally." Thus, under Fed. R. Civ. P. 9(b), plaintiffs must
plead with particularity the "circumstances" of the alleged
fraud. They need not, however, plead the "date, place or
time" of the fraud, so long as they use an "alternative
means of injecting precision and some measure of
substantiation into their allegations of fraud." Seville Indus.
Machinery v. Southmost Machinery, 742 F.2d 786, 791 (3d
Cir. 1984). The purpose of Rule 9(b) is to provide notice of
the "precise misconduct" with which defendants are
charged and to prevent false or unsubstantiated charges.
Id. Courts should, however, apply the rule with some
flexibility and should not require plaintiffs to plead issues
that may have been concealed by the defendants. See
Christidis v. First Pennsylvania Mortg. Trust, 717 F.2d 96,
99 (3d Cir. 1983).
In Seville, the plaintiff met this standard because the
subject and nature of each alleged misrepresentation was
adequately plead. 742 F.2d at 791. We found that,
Seville adequately satisfied the requirements of Rule
9(b) by incorporating into the complaint a list
identifying with great specificity the pieces of
machinery that were the subject of the alleged fraud
. . .. The Complaint sets forth the nature of the alleged
misrepresentations, and while it does not describe the
precise words used, each allegation of fraud adequately
describes the nature and subject of the alleged
misrepresentation.
31
Id. In contrast, in Saporito v. Combustion Engineering, 843
F.2d 666 (3d Cir. 1988), cert. granted and judgment vacated
on other grounds, 489 U.S. 1049 (1989), the plaintiffs failed
to satisfy this standard. The plaintiffs' complaint alleged
that ". . . defendants and/or persons under their direction
or control provided notice to certain C-E employees other
than plaintiffs during the [options period], that C-E was in
the process of planning and promulgating [a Voluntary
Separation Incentive Plan]." Id. at 673. This Court held that
their Complaint was deficient because it did not adequately
allege who made the statements ("defendants and/or
persons under their direction or control") or who received
the allegedly fraudulent information ("certain C-E
employees other than the plaintiffs"). Id. at 675.
In this case, plaintiffs have alleged numerous
misrepresentations, and the fraudulent scheme is described
in some detail. For example, the Complaint alleges that
"[d]uring standard sales presentations, the moderators
acting for GDC would misrepresent the supply, demand
and value of the lots" by stating that the prices for the lots
would increase the following day and that the number of
lots for sale had decreased due to prior purchases.
Amended Complaint at P 84. The moderators also allegedly
misrepresented GDC's intentions and abilities with regard
to development of the communities. Amended Complaint at
PP 82-115. Similarly, the Complaint alleges that in the trips
sponsored by GDC to the communities, GDC "arranged
with hotel staff to screen incoming telephone calls" and to
"turn away calls from independent Realtors." Amended
Complaint at P 123.
While many of the allegations relating to the allegedly
fraudulent scheme are quite detailed, the Complaint lacks
any specific allegations about the presentations made to
any of the named plaintiffs. The Complaint includes no
information about the actual presentations made to either
the Rolos or the Tenerellis, including who made the
presentation, when it took place, or with reference to what
property it was made. The same is true with regard to the
allegedly fraudulent mailings. The content of the mailings is
described in reasonably specific terms, but when, by whom,
and to whom a mailing was sent, and the precise content
32
of each particular mailing are not detailed. The Complaint
also includes some general allegations such as,"[a]t the
time plaintiffs purchased their Lots, when they purchased
houses from GDC, and thereafter, the material facts alleged
in paragraphs 87 and 138 herein were unknown to them
and were actively concealed from them by the defendants."
Amended Complaint at P 143. It remains unclear, however,
who misrepresented and concealed the information, when
and how. For example, plaintiffs allege that GDC concealed
its fraud through a Customer Service Office. It is unclear
from the Complaint, however, whether the Rolos or
Tenerellis ever contacted this office. The Complaint only
alleges what happened to "most purchasers," "the vast
majority of complaints" and what happened "typically."
Amended Complaint at P 145.
Under Rule 9(b), failure to plead fraud with particularity
with respect to what happened to a specific plaintiff
prevents the defendants from being able to prepare a
defense as to this particular allegation of fraud. To link
their own injuries to the alleged RICO enterprise, plaintiffs
must allege what happened to them. At the least, this
includes specific allegations as to which fraudulent tactics
were used against them and should include some
allegations of what was said to them to induce them to
purchase their properties from GDC. Although the First
Amended Complaint links the Rolos and Tenerellis to the
scheme in a general way, as purchasers of GDC properties,
the manner in which the fraudulent scheme allegedly
caused them injury has not been adequately pled. Plaintiffs
appear to have confused this complaint with a class action
complaint.13 The class must, however, be certified before it
may become a class action. Until the putative class is
certified, the action is one between the Rolos, the Tenerellis
and the defendants. Accordingly, the First Amended
Complaint must be evaluated as to these particular
plaintiffs. Because the Complaint fails to allege what
actually happened to either the Rolos or the Tenerellis,
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13. For example, in one of the paragraphs alleging mail fraud, many
individuals are listed as plaintiffs, including "Paul and Agnes Duncan."
Amended Complaint at P 396. Paul and Agnes Duncan are not parties to
this case.
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plaintiffs have not pled fraud with the specificity required
by Rule 9(b), and the district court's dismissal of their
complaint as to the primary defendants will be affirmed on
this basis.14
CONCLUSION
The district court did not abuse its discretion by denying
plaintiffs leave to amend their complaint when they had
already had ample opportunity to plead their claims fully.
Nor did the district court err in dismissing plaintiffs' RICO
claims. The claims against the secondary defendants,
alleging liability for aiding and abetting a RICO conspiracy,
cannot survive the Supreme Court's decision in Central
Bank of Denver. Plaintiffs' claims against the primary
defendants also fail because their allegations are not pled
with the particularity required by Rule 9(b). Accordingly, we
will affirm the district court's dismissal of this case in its
entirety.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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14. Because plaintiffs have already had ample opportunity to plead their
allegations fully and in the proper form, we will not remand this case to
the district court in order to provide them with a further opportunity to
amend their defective complaint. Cf. Saporito, 843 F.2d at 675-76
(remanding in order to provide plaintiffs with the opportunity to amend
their complaint to provide greater specificity).
34