Smith v. Berg ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
4-13-2001
Smith v. Berg
Precedential or Non-Precedential:
Docket 00-2881
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Recommended Citation
"Smith v. Berg" (2001). 2001 Decisions. Paper 76.
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Filed April 13, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-2881
LEROY J. SMITH; GEORGETTE BECKON; MARCIA T.
SMITH, individually; VALISE C. MATTHEWS, individually,
on behalf of themselves and all others similarly situated
v.
JOHN G. BERG; COLUMBIA NATIONAL INCORPORA TED;
FIRST TOWN MORTGAGE CORPORATION;
COUNTRYWIDE CREDIT INDUSTRIES, INC., thr ough its
subsidiary, Countrywide Home Loans, Inc.; FIDELITY
NATIONAL FINANCIAL, through its subsidiary, Fidelity
National Title Insurance Company of Pennsylvania;
FIDELITY NATIONAL TITLE INSURANCE COMPANY
OF PENNSYLVANIA
Columbia National Incorporated, First Town
Mortgage Corporation; Countrywide Credit
Industries, Inc.; Fidelity National Title
Insurance Company of Pennsylvania,
Appellants
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 99-CV-02133)
District Judge: Honorable Thomas N. O'Neill, Jr .
Argued March 12, 2001
Before: MANSMANN, BARRY and COWEN, Circuit Judges.
(Filed: April 13, 2001)
James N. Gross, Esquire (Argued)
Suite 1400
117 South 17th Street
Philadelphia, PA 19103
Dean B. Webb, Esquire
Suite 316
7904 N.E. 6th Avenue
Vancouver, WA 98665
Counsel for Appellees
Elliott A. Kolodny, Esquire
Mellon, Webster & Mellon
87 North Broad Street
Doylestown, PA 18901
Counsel for Appellant
Columbia National, Inc.
Natalie Finkelman, Esquire
Shepherd, Finkelman &
Gaffigan, LLC
117 Gayley Street, Suite 200
Media, PA 19063
Counsel for Appellant
First Town Mortgage Corp.
Burt M. Rublin, Esquire
Ballard Spahr Andrews &
Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 1910-37599
Counsel for Appellant
Countrywide Credit Industries, Inc.
2
Edward J. Hayes, Esquire
Lisa Carney Eldridge, Esquire
(Argued)
Fox Rothschild O'Brien &
Frankel, LLP
2000 Market Street, 10th Floor
Philadelphia, PA 19103-3291
Counsel for Appellant Fidelity
National Title Insurance Company
of Pennsylvania
OPINION OF THE COURT
MANSMANN, Circuit Judge.
This case presents two questions: First, in light of the
Supreme Court's decision in Salinas v. United States, 552
U.S. 52 (1997), may liability under the federal Racketeer
Influenced and Corrupt Organizations Act ("RICO")
conspiracy statute codified at 18 U.S.C. S 1962(d) be limited
to those who would, on successful completion of the
scheme, have participated in the operation or management
of a corrupt enterprise? Second, did the Supr eme Court's
more recent decision in Beck v. Prupis , 529 U.S. 494
(2000), limit application of its holding in Salinas to criminal
cases? Ruling against the Appellants on both issues, we will
affirm the Orders of the District Court for the Eastern
District of Pennsylvania. In doing so, we hold that any
reading of United States v. Antar, 53 F .3d 568 (3d Cir.
1995), to the effect that conspiracy liability under section
1962(d) extends only to those who have conspir ed
personally to operate or manage the corrupt enterprise, or
otherwise suggesting that conspiracy liability is limited to
those also liable, on successful completion of the scheme,
for a substantive violation under section 1962(c), is
inconsistent with the broad application of general
conspiracy law to section 1962(d) as set forth in Salinas.
3
I.
In this putative class action brought in the Eastern
District of Pennsylvania, the Plaintiffs allege that
Defendant, John G. Berg ("Berg"), acting through corporate
entities, misled them into purchasing homes which they
could not afford by fraudulently asserting that their homes
would be entitled to various tax abatements and mortgage
credit certificates.1 The Plaintiffs further allege that the
Defendant title insurance and lending companies 2
("Appellants") conspired with Ber g to defraud the Plaintiffs
and realize the maximum profits fr om the sales and related
title insurance and financings. Specifically, they allege that
the Appellants conspired to further Ber g's fraudulent
enterprise by allowing Berg to assume many of their normal
functions during settlements, recording false information
on HUD-1 Settlement Statements, contacting pr ospective
home buyers and encouraging them to make the
purchases, communicating and negotiating with Berg
rather than directly with the Plaintiffs, failing to make
Truth-In-Lending Law disclosures, and granting mortgages
for which they knew the Plaintiffs wer e unqualified.
Accordingly, the Complaint asserts claims against the
Appellants for participation in a RICO conspiracy with Berg
in violation 18 U.S.C. S 1962(d).
The District Court first denied the Appellants' motion to
dismiss these claims by its Memorandum Opinion of April
10, 2000, rejecting the Appellants' argument that the
claims failed as a matter of law because the Appellants'
conduct was not alleged to violate section 1962(c). 3 The
_________________________________________________________________
1. Plaintiffs allege that in furtherance of his scheme, Berg used
misleading mailings and radio and television advertisements. His
fraudulent enterprise allegedly encompassed at least nine residential
developments in Philadelphia from 1994 to 1997.
2. The additional defendants are Columbia National, Inc.; First Town
Mortgage Corporation; Countrywide Credit Industries, Inc.; Fidelity
National Financial; and Fidelity National Title Insurance Company of
Pennsylvania.
3. The Plaintiffs do not allege that the Appellants committed any of the
predicate acts or operated or managed, or agr eed personally to operate
or manage, the enterprise. Rather, the Plaintiffs only allege that the
Appellants agreed with Berg to the violation of section 1962(c) and took
certain overt acts in furtherance of that agr eement. See April 10, 2000
Mem. Op. at 6.
4
District Court looked to the Supreme Court's decision in
Salinas v. United States, 522 U.S. 52 (1997), and concluded
that it implicitly overruled our prior holding in United
States v. Antar, 53 F.3d 568 (3d Cir . 1995) and that, in
accordance with Salinas, liability under section 1962(d) is
met by "1) knowledge of the corrupt enterprise's activities
and 2) agreement to facilitate those activities."4 The District
Court concluded these elements were sufficiently pled.
Shortly thereafter, on April 26, 2000, the District Court
requested briefing from the parties on the import of the
Supreme Court's decision in Beck v. Prupis , 529 U.S. 494
(2000).5 The District Court expr essed concern that the
Supreme Court's statement in Beck that"injury caused by
an overt act that is not an act of racketeering or otherwise
wrongful under RICO . . . is not sufficient to give rise to a
cause of action under S 1964(c) for a violation of S1962(d)"
might require dismissal of the conspiracy claims.6 On
consideration, however, the District Court concluded that
Beck did not affect the Plaintiffs' claims in this case
because they, unlike Beck, allege direct injury as a result
of the racketeering. See July 7, 2000 Mem. Op. at 5-6.
The District Court certified its decisions for immediate
appeal pursuant to 28 U.S.C. S 1292(b) on July 7, 2000
and we granted the Appellants' Petition on September 26,
2000.
_________________________________________________________________
4. April 10, 2000 Mem. Op. at 7 (citing Salinas, 522 U.S. at 66). Salinas
involved a deputy who had knowledge of, and facilitated, a bribery
scheme where an inmate paid off a sherif f for "contact visits" with his
wife and girlfriend. The jury acquitted Salinas of liability under section
1962(c) because he had not committed any predicate acts, but convicted
him of conspiracy because of his agreement to the scheme and his
assistance therein.
5. The decision in Beck was handed down that very day.
6. Mr. Beck, the CEO of an insurance company, was terminated after
discovering that certain of the company's dir ectors and officers were
engaged in racketeering. The Supreme Court r ejected his theory that
S 1964(c) provided a cause of action because his injury -- termination of
employment -- was done in furtherance of the criminal conspiracy. See
529 U.S. 498-499.
5
II.
18 U.S.C. S 1962(c) provides:
It shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the
activities of which affect, interstate or for eign
commerce, to conduct or participate, dir ectly or
indirectly, in the conduct of such enterprise's affairs
through a pattern of racketeering activity or collection
of unlawful debt.
18 U.S.C. S 1962(d) provides: "It shall be unlawful to
conspire to violate [S 1962(c)]."
As the District Court observed, the starting point for our
analysis is the Supreme Court's decision in Reves v. Ernst
& Young, 507 U.S. 170 (1993). In Reves, the Court held
that to be liable under section 1962(c), a person must
participate in the "operation or management" of the corrupt
enterprise's affairs. Id. at 179. In Antar, we considered a
line of cases holding that conspiracy liability does not
require a showing that the defendant himself participated
in the operation or management of the enterprise. W e
considered these cases to be in tension with Reves, at least
if read broadly. In an attempt to r esolve this perceived
tension, we crafted a novel distinction "between, on the one
hand, conspiring to operate or manage an enterprise, and,
on the other hand, conspiring with someone who is
operating or managing the enterprise." 53 F .3d at 581
(emphasis added). We concluded that liability under section
1962(d) would attach only in the first instance because only
then is the defendant conspiring to do something for which
he would, if successful, be liable under section 1962(c). Id.
This language in Antar was unnecessary to our holding,
as our Opinion in this conspiracy withdrawal case
concluded, in effect, that the defendant met either standard.7
_________________________________________________________________
7. See 53 F.3d at 581. See also G. Robert Blakey & Kevin P. Roddy,
Reflections on Reves v. Ernst & Young: Its Meaning and Impact on
Substantive, Accessory, Aiding Abetting and Conspiracy Liability Under
RICO, 33 Am. Crim. L. Rev. 1345, 1504 (Spec. Ed. 1996) (describing
Antar as "unfortunately offer[ing] misguided dicta on the scope of RICO
conspiracy").
6
In addition, the majority of our sister Courts of Appeals
presented with the same question have not applied the
"operation or management" test set forth in Reves to a
RICO conspiracy. They have instead concluded that"Reves
addressed only the extent of conduct or participation
necessary to violate a substantive provision of the statute;
the holding in that case did not address the principles of
conspiracy law undergirding S 1962(d)."8
The question then is whether the language of Antar is
dispositive, requiring dismissal of the conspiracy counts or
whether, as the District Court concluded, it was vitiated by
the Supreme Court's decision in Salinas. In Salinas, the
defendant was charged with criminal violations of both
section 1962(c) and section 1962(d) but convicted on the
conspiracy charge alone. The Supreme Court resolved a
conflict among the Courts of Appeals, finding-- as had the
majority of our sister Courts of Appeals -- that a RICO
conspiracy defendant need not himself commit or agr ee to
_________________________________________________________________
8. United States v. Quintanilla, 2 F .3d 1469, 1484-85 (7th Cir. 1993),
accord United States v. Starrett, 55 F.3d 1525, 1547 (11th Cir. 1995),
cert. denied 517 U.S. 1111 (1996). See also United States v. Posada-Rios,
158 F.3d 832, 857 (5th Cir. 1998); Napoli v. United States, 45 F.3d 680,
683-84 (2d Cir. 1995). The Ninth Circuit has been the only other Circuit
to suggest that the Reves test applies to a RICO conspiracy. See Neibel
v. Trans World Assurance Co., 108 F .3d 1123, 1128 (9th Cir. 1997).
See also Blakey, Reflections on Reves, 33 Am. Crim. L. Rev. at 1513-
14:
Reves is not a conspiracy decision; its holding focuses solely on
what is required to violate S 1962(c) as a principle in the first
degree.
Reves says nothing about the scope of S 1962(d). The issue in
Antar,
however, was how to read S 1962(d), not how to read Reves . . . .
Reading S 1962(d) was a question to be answer ed by reading [it]
against the background of general conspiracy jurisprudence, as
modified, if at all, by the text of RICO. . . . Antar's dicta that
limits
the scope of conspiracy under RICO making RICO conspiracy
jurisprudence more narrow than general conspiracy jurisprudence
. . . cannot be squared with basic techniques of statutory
interpretation, much less with the purpose of RICO, which sought to
broaden, not narrow the law, its plain text, its liberal
construction
clause, or well-established RICO jurisprudence and the developing
post-Reves RICO conspiracy jurisprudence in other circuits.
7
commit predicate acts. In upholding the r esult in the
Salinas case, the Supreme Court found that a violation of
section 1962(c) was not a prerequisite to a violation of
section 1962(d). Rather, the Court found that for purposes
of conspiracy it "suffices that [defendant] adopt the goal of
furthering or facilitating the criminal behavior ." 522 U.S. at
65.9 Moreover, the Supreme Court provided an extensive
discussion indicating that RICO's conspiracy section--
section 1962(d) -- is to be interpreted in light of the
common law of criminal conspiracy and that all that is
necessary for such a conspiracy is that the conspirators
share a common purpose.10
Thus, as the District Court observed, Salinas makes
"clear that S 1962(c) liability is not a pr erequisite to
S 1962(d) liability." April 10, 2000 Mem. Op. at 7. The plain
implication of the standard set forth in Salinas is that one
who opts into or participates in a conspiracy is liable for
the acts of his co-conspirators which violate section 1962(c)
even if the defendant did not personally agr ee to do, or to
conspire with respect to, any particular element.11 The
_________________________________________________________________
9. A conspirator must intend to further an endeavor which, if
completed, would satisfy all of the elements of a substantive
criminal offense, but it suffices that he adopt the goal of
furthering
or facilitating the criminal endeavor. He may do so in any number
of ways short of agreeing to undertake all of the acts necessary
for
the crime's completion. One can be a conspirator by agreeing to
facilitate only some of the acts leading to the substantive
offense.
522 U.S. at 65.
10. See id. at 64 ("If conspirators have a plan which calls for some
conspirators to perpetrate the crime and others to provide support, the
supporters are as guilty as the perpetrators . . . so long as they share a
common purpose, conspirators are liable for the acts of their co-
conspirators.").
11. The Appellants' principal response to the prospect of conspiracy
liability in accordance with Salinas is that this definition of conspiracy
would impose liability on those who "merely provide services". This
phrase masks the fact that liability will arise only from services which
were purposefully and knowingly directed at facilitating a criminal
pattern of racketeering activity. If the Appellants' repeated
characterization of themselves as innocent service providers is not belied
by the evidence, they will incur no liability under section 1962(d).
8
Appellants' assertions to the contrary notwithstanding, the
Supreme Court did not confine its discussion in Salinas to
the element of predicate acts, in which event it might be
"harmonized" with Antar's discussion of requirements as to
levels of participation; rather, the Court expressed its
analysis in broad terms, defining an interpretation of
conspiracy liability directly at odds with Defendants'
reading of Antar.12 We therefore hold that any reading of
Antar suggesting a stricter standard of liability under
section 1962(d) is inconsistent with the broad application of
general conspiracy law set forth in Salinas. In accord with
the general principles of criminal conspiracy law, a
defendant may be held liable for conspiracy to violate
section 1962(c) if he knowingly agrees to facilitate a scheme
which includes the operation or management of a RICO
enterprise.
_________________________________________________________________
12. The Appellants rely heavily on the Seventh Circuit's recent decision
in Brouwer v. Raffensperger, 199 F.3d 961 (7th Cir. 2000), toassert that
predicate acts and levels of participation should be analyzed separately
in determining liability under section 1962(d). The Appellants urge us to
hold that the broad standard set forth in Salinas is limited to the former
element and that the stricter standard suggested in Antar governs with
regard to levels of participation. Sali
nas cannot be read so narrowly. See
Posada-Rios, 158 F.3d at 857 (concluding"that the better-reasoned rule"
is one which does not import the Reves test into a RICO conspiracy
claim, "especially in light of the Supreme Court's recent decision in
[Salinas]" which held "that S 1962(d) is governed by traditional
conspiracy law"); Baker v. Stewart Title & Trust, 5 P.3d 249, 258 (Ct.
App. Ariz. 2000) (observing that Salinas"supports the rule adopted by
the majority of circuit courts that a person need not participate in the
enterprise's operation or management to be liable for a RICO
conspiracy"). Cf. Beck, 529 U.S. 501 n.6 (describing Salinas as defining
"what constitutes a violation of S 1962(d)", rather than a violation of
one
sub-element of (d)).
We also note that, at least in the pr esent context, application of the
separate framework proposed in Brouwer would not alter the result. At
bottom, the Court in Brouwer held that a conspirator must simply agree
to "knowingly facilitate the activities of the operators or managers to
whom subsection (c) applies." 199 F.3d at 967. The allegations in the
case before us are sufficient to meet this requirement.
9
III.
As noted above, Beck involved a CEO whose employment
was terminated when he discovered that certain of his
company's officers and directors were engaged in
racketeering. In rejecting the theory that this injury -- one
"caused by an overt act that [was] not an act of
racketeering or otherwise wrongful under RICO" -- was
"sufficient to give rise to a cause of action under S 1964(c)
for a violation of S 1962(d)", the Supr eme Court expressly
refuted the assertion that this interpr etation rendered the
conspiracy statute "mere surplusage." 529 U.S. at 506-507.
The Court specifically noted that, to the contrary, "a
plaintiff could, through a S 1964(c) suit for violation of
1962(d), sue co-conspirators who might not themselves
have violated one of the substantive provisions of S 1962."
Id.
Furthermore, although the Appellants assert that Beck
restricts Salinas to criminal cases, the only mention of
Salinas appears at footnote 6, in which the Supr eme Court
recites that "[w]e have turned to the common law of
criminal conspiracy to define what constitutes a violation of
S 1962(d)". 529 U.S. 501 n.6. The r eference to Salinas does
not in any way repudiate its holding about what constitutes
a conspiracy violation or indicate that the violation is
different in a civil context. To the contrary, the footnote
observes that Beck "does not present simply the question of
what constitutes a violation of S 1962(d), but rather the
meaning of a civil cause of action for private injury by
reason of such a violation." Id. The plain import of this
passage is that the question of what constitutes a violation
of section 1962(d) continues to be defined under and
governed by Salinas. It is a r eaffirmance.13
The holding of Beck is that an injury sufficient to support
a civil action under section 1964(c) must arise out of
wrongful conduct proscribed by the substantive provisions
of section 1962 (i.e., in the context of a section 1962(c)
_________________________________________________________________
13. Although the Appellants attempt to characterize Beck as
circumscribing liability, the decision actually limits the class of
plaintiffs
whose injuries are cognizable; it does not in any way limit the class of
defendants who are liable. Beck is simply a lack of standing case.
10
violation, the injury must arise out of the pr edicate acts).14
As the District Court correctly concluded, the Plaintiffs'
claims in this case stem from injury dir ectly attributable to
Berg's racketeering; they are the dir ect victims of
substantive RICO violations.15 Thus the Appellants remain
subject to liability under the reasoning enunciated by the
Supreme Court in Beck. See July 7, 2000 Mem. Op. at 6
(noting that "civil conspiracy often is not considered a
separate cause of action, but rather a ``mechanism for
subjecting co-conspirators to liability when one of their
member committed a tortious act' ") (quoting Beck, 529 U.S.
503).
IV.
For the reasons set forth above, we will affirm the Orders
of the District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
________________________________________________________________
14. This holding addressed a split in the Courts of Appeals as to whether
an employee discharged for discovering, or blowing the whistle on, a
RICO scheme could bring suit under section 1962(d). The Courts of
Appeals had consistently held that there was no direct liability under
section 1962(c) because the injury suffer ed was not a result of the
predicate acts underlying the RICO violation, but were divided as to
liability under section 1962(d).
15. See System Management Inc. v. Loiselle , 112 F. Supp. 112, 119 (D.
Mass. 2000) (rejecting defendant's argument for dismissal premised on
Beck where plaintiffs were "direct victims" of the alleged fraud).
11