CVLR Performance Horses, Inc. v. John Wynne ( 2013 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1591
CVLR PERFORMANCE HORSES, INC.,
Plaintiff – Appellant,
v.
JOHN L. WYNNE; 1650 PARTNERS, LLC; RIVERMONT CONSULTANTS,
INC., f/k/a The Rivermont Banking Co., Inc.,
Defendants – Appellees,
and
OLD DOMINION NATIONAL BANK; ADVANTAGE TITLE & CLOSING LLC;
S & R FARM, LLC; RALPH BECK; SHANA LESTER, f/k/a Shana Beck,
Defendants.
No. 12-1787
CVLR PERFORMANCE HORSES, INC.,
Plaintiff – Appellant,
v.
JOHN L. WYNNE; 1650 PARTNERS, LLC; RIVERMONT CONSULTANTS,
INC., f/k/a The Rivermont Banking Co., Inc.,
Defendants – Appellees,
and
OLD DOMINION NATIONAL BANK; ADVANTAGE TITLE & CLOSING LLC;
S & R FARM, LLC; RALPH BECK; SHANA LESTER, f/k/a Shana Beck,
Defendants.
Appeals from the United States District Court for the Western
District of Virginia, at Lynchburg. Norman K. Moon, Senior
District Judge. (6:11-cv-00035-NKM)
Argued: March 21, 2013 Decided: May 29, 2013
Before TRAXLER, Chief Judge, SHEDD, Circuit Judge, and David A.
FABER, Senior United States District Judge for the Southern
District of West Virginia, sitting by designation.
Reversed in part, dismissed in part, and remanded by unpublished
opinion. Judge Shedd wrote the opinion, in which Chief Judge
Traxler and Senior Judge Faber joined.
ARGUED: Gary M. Bowman, Roanoke, Virginia, for Appellant. Chad
Allan Mooney, PETTY, LIVINGSTON, DAWSON & RICHARDS, PC,
Lynchburg, Virginia, for Appellees. ON BRIEF: John E. Falcone,
PETTY, LIVINGSTON, DAWSON & RICHARDS, PC, Lynchburg, Virginia,
for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
SHEDD, Circuit Judge:
CVLR Performance Horses, Inc. appeals the district court’s
order dismissing its claims against John Wynne, 1650 Partners,
LLC, and Rivermont Consultants, Inc. pursuant to Federal Rule of
Civil Procedure 12(b)(6). For the reasons explained below, we
reverse the district court’s order and remand for further
proceedings. 1
I.
Because this appeal stems from a dismissal under Rule
12(b)(6), we accept the facts as alleged in CVLR’s Amended
Complaint. See Martin Marietta v. Int’l. Tel. Satellite Org.,
991 F.2d 94, 97 (4th Cir. 1992). Wynne is the sole owner of
Rivermont and 1650 Partners, both of which Wynne used in his
fraudulent schemes. Although Rivermont was not authorized at
any relevant time to engage in banking activities under Virginia
law, Wynne held out Rivermont as a bank as part of his
enterprise and used this entity in various ways to facilitate
his fraudulent schemes, many of which “targeted women in
financial distress, who thought he was a banker.” J.A. 57.
Wynne “continues to advertise [Rivermont] on the internet as a
1
CVLR also appeals the district court’s order denying its
motion for relief from the order granting the Appellees’ motion
to dismiss. Because we reverse the district court’s dismissal
of CVLR’s complaint, we dismiss this portion of the appeal as
moot.
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bank, providing mortgage loans, construction loans, and reverse
mortgages.” J.A. 57 (internal quotation marks omitted).
We first discuss the schemes that involved CVLR or its
President, Crystal Rivers. In late 2006, Wynne advertised
pasture land for rent, and Rivers responded to the advertisement
on behalf of CVLR. After Rivers contacted Wynne, Wynne
convinced her to purchase a horseback riding center for CVLR.
Wynne told Rivers that Rivermont was a bank that would finance
the purchase. However, because Rivermont was not a bank, Wynne
arranged for Old Dominion National Bank to provide the
financing. Wynne then proceeded to cut CVLR out of the
transaction and arranged for 1650 Partners to purchase the
riding center with Rivers serving as a guarantor on the loan
from Old Dominion to 1650 Partners. Even after the transaction
was complete, Rivers incorrectly believed that CVLR owned the
riding center.
In February 2007, Wynne worked with Rivers to purchase and
finance a truck for CVLR’s use. However, unbeknownst to Rivers,
Wynne engaged in a series of acts over the next seven months
that left Rivermont owning the truck and CVLR obligated to repay
the loan. Wynne also told the financing institution that
Rivermont would purchase insurance on the truck, but he arranged
for Rivers to insure it instead.
4
Also in February 2007, Wynne purchased another truck in
Rivermont’s name but added it to Rivers’ insurance policy
without her knowledge. Thereafter, Wynne’s son totaled the
truck. At that point, Wynne convinced Rivers’ insurance company
that Rivers was not the insured party and that the insurance
company should pay Wynne the value of the truck. Thus, the
insurance company paid Wynne $10,630.
Wynne proceeded to divert more insurance funds from CVLR to
Rivermont over the first several months of 2008. Because Rivers
believed that CVLR owned the riding center, she insured it, and,
when high winds damaged the riding center’s barn, CVLR filed an
insurance claim. The insurance company approved the claim and
issued checks jointly to CVLR and Old Dominion, the bank that
held the mortgage on the riding center. Wynne then asked an Old
Dominion employee to transfer the funds into the account of 1650
Partners, telling the employee that he would use the money to
repair the wind damage and make “capital additions” to the
riding center. J.A. 21 (internal quotation marks omitted). The
Amended Complaint does not indicate whether the Old Dominion
employee complied. However, it alleges that Wynne submitted
false invoices to the insurance company and made
misrepresentations to Old Dominion that led Old Dominion to
believe that one of Wynne’s employees had repaired the barn,
which, in fact, remained unrepaired. Old Dominion then issued
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checks to Wynne’s employee, who endorsed the checks to
Rivermont.
By October 2008, Rivers had become a member of 1650
Partners. Wynne exploited Rivers’ status as a member by forging
her signature on a 1650 Partners check to himself for $3000.
Wynne also used Rivermont and 1650 Partners in schemes that
did not involve CVLR or Rivers. For example, Karen Foster, who
believed that Rivermont was a bank, sought financing from
Rivermont in early 2006. Over time, Wynne loaned Foster small
amounts of money, and Foster came to consider Wynne a friend.
In August 2006, Wynne convinced Foster to execute a note
agreeing to repay him $40,000 for the series of small loans he
had made and to secure the note with Foster’s home. Wynne
listed Foster’s home as an asset on a financial statement he
submitted to a bank in conjunction with a loan he sought for
1650 Partners. On that financing statement, Wynne stated that
the home was not subject to any mortgage, which was false
because Bank of America held a mortgage on the home. The bank
made the loan in April 2009 based, in part, on Wynne’s false
representation in the financial statement.
Finally, Wynne used Rivermont in a scheme against another
acquaintance, Vicki Marsh. In November 2006, Wynne bought a
certificate of deposit for Rivermont from First Bank and Trust
Company. He then used his status as a customer of First Bank to
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convince the bank to open a credit line for Marsh, which
increased her credit score. With Marsh’s credit score
increased, another bank was willing to loan her approximately
$500,000, secured by a mortgage on her property on Pawley’s
Island, South Carolina. However, Wynne arranged for the
$500,000 to be paid to him, not Marsh. Wynne made payments on
the loan for approximately 18 months until he ceased making
payments in September 2008. Once the payments had fallen into
arrears, Wynne attempted to purchase Marsh’s interest in the
home from the mortgage holder for a reduced price.
II.
CVLR sued the Appellees and several other defendants in
federal court, asserting one claim for violating the
Racketeering and Corrupt Organizations Act (“RICO”), 18 U.S.C. §
1962, and three state-law claims.
The Appellees moved to dismiss under Rule 12(b)(6), arguing
that the Amended Complaint failed to state a claim upon which
relief may be granted as to each count asserted against the
Appellees. The district court granted the motion as to the RICO
claim. Because no federal claims remained in the litigation,
the district court declined to exercise supplemental
jurisdiction and dismissed the action. CVLR filed a Rule 60(b)
motion for relief from the dismissal, which the district court
denied.
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III.
We review the district court's dismissal of CVLR’s RICO
claim de novo. Wag More Dogs, Ltd. Liab. Corp. v. Cozart, 680
F.3d 359, 364–65 (4th Cir. 2012). To survive the Appellees’
Rule 12(b)(6) motion, CVLR’s Amended Complaint must establish
“facial plausibility” by pleading “factual content that allows
the court to draw the reasonable inference that [the Appellees
are] liable for the misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009).
RICO imposes civil liability for various types of
“racketeering activity,” 18 U.S.C. § 1962, and should be
“liberally construed to effectuate its remedial purposes.”
Boyle v. United States, 556 U.S. 938, 944 (2009) (internal
citations omitted). Although “[t]he occasion for Congress’
action [when it passed RICO] was the perceived need to combat
organized crime,” RICO is “not limited in application to
organized crime.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229,
248 (1989). Courts have thus applied RICO in a variety of
contexts outside the realm of traditional organized crime. See,
e.g., United States v. Pryba, 900 F.2d 748 (4th Cir. 1990)
(applying RICO against pornographers); Northeast Women’s Ctr.,
Inc. v. McMonagle, 868 F.2d 1342 (3d Cir. 1989) (applying RICO
against antiabortion activists).
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Among other things, RICO prohibits being “associated with
any enterprise . . . [and] conduct[ing] or participat[ing] . . .
in the conduct of such enterprise’s affairs through a pattern of
racketeering activity.” 18 U.S.C. § 1962(c). To allege “a
pattern of racketeering activity,” a plaintiff must allege acts
of racketeering that are both related and continuous. GE Inv.
Private Placement Partners II v. Parker, 247 F.3d 543, 549 (4th
Cir. 2001). The district court found that the racketeering acts
alleged in the Amended Complaint were not sufficiently
continuous to support a RICO claim. 2 We disagree.
Two types of continuity can support a RICO claim: “closed-
ended” or “open-ended.” Id. Although, the district court found
that the Amended Complaint did not plead sufficient facts to
show either type of continuity, CVLR only challenges the
district court’s conclusion that the Amended Complaint fails to
support an inference of open-ended continuity. We find that
facts pled in the Amended Complaint do support an inference of
open-ended continuity and that the district court erred by
concluding otherwise.
2
RICO defines “racketeering activity” as “‘any act or
threat involving’ specified state-law crimes, any ‘act’
indictable under various specified federal statutes, and certain
federal ‘offenses.’” H.J. Inc., 492 U.S. at 232 (quoting 18
U.S.C. § 1961(1)). The Appellees do not argue that the Amended
Complaint failed to allege “racketeering activity” within the
meaning of RICO or that the acts of racketeering were unrelated.
9
In H.J. Inc., 492 U.S. at 241, the Supreme Court stated
that a plaintiff establishes open-ended continuity by showing
“past conduct that by its nature projects into the future with a
threat of repetition.” The Court gave several examples—that
were illustrative but not exhaustive—of facts that would
establish open-ended continuity. One example involved
racketeering acts that, on their face, pose “a distinct threat
of long-term racketeering activity,” such as where a hoodlum
demands payment from storekeepers not to break their windows and
states that he will return each month demanding the same
payment. Id. at 242. The two other examples involved
situations where racketeering acts are “part of an ongoing
entity’s regular way of doing business.” Id.The district court’s analysis focused on the first example
from H.J. Inc. and concluded that CVLR failed to plead open-
ended continuity because each racketeering act did not, on its
face, threaten to continue long term. However, the district
court’s analysis overlooked the more general point that the
Appellees’ conduct “projects into the future with a threat of
repetition.” Id. at 241. The Amended Complaint alleges that
Wynne used Rivermont and 1650 Partners for over three years in a
series of racketeering acts. In particular, Rivermont’s
function as a bank was an integral part of the RICO operation
because Wynne lured victims into the scheme by holding Rivermont
10
out as a bank or otherwise used Rivermont to facilitate his
scheme. CVLR also alleges that Rivermont continues to advertise
as a bank, and the Amended Complaint creates no inference that
Rivermont has ended its fraudulent activities. Therefore, the
allegations in the complaint support an inference that the
activity “projects into the future with a threat of repetition”
and that racketeering acts are the Appellees’ “regular way of
doing business.” Id. 241, 242; see also EPlus Technology Inc.
v. Aboud, 313 F.3d 166, 182-83 (4th Cir. 2002) (three examples
of looting companies of assets prior to filing for bankruptcy
established open-ended continuity).
The district court also concluded that the Amended
Complaint fails to plead open-ended continuity because the
Appellees’ racketeering activity had a “‘built-in ending
point’.” J.A. 104 (quoting GE Investment, 247 F.3d at 549).
Specifically, the district court found it implausible that the
racketeering acts would continue into the future because all of
the victims identified in the Amended Complaint “have been
bilked” and, presumably, know better than to do more business
with Appellees. J.A. 105. Again, we disagree. “The lack of a
threat of continuity of racketeering activity cannot be asserted
merely by showing a fortuitous interruption of that activity.”
United States v. Busacca, 936 F.2d 232, 238 (6th Cir. 1991).
Instead, “the threat of continuity must be viewed at the time
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the racketeering activity occurred.” Id. Here, as explained
above, at the time the Appellees’ acts occurred, the conduct
“project[ed] into the future with a threat of repetition,” H.J.
Inc., 492 U.S. at 241, and there was no other indication that
Wynne’s conduct was to be limited to only the identified
victims. Thus, the victims’ discovery of the Appellees’
misconduct does not prevent CVLR from establishing open-ended
continuity.
In sum, we conclude that the Amended Complaint pleads open-
ended continuity. Because the district court based its
dismissal on a conclusion to the contrary, we reverse the
district court’s order granting the motion to dismiss.
IV.
For the reasons explained above, we (1) reverse the
district court’s order granting Appellees’ motion to dismiss,
(2) dismiss as moot CVLR’s Rule 60(b) motion, and (3) remand for
further proceedings in the district court.
REVERSED IN PART,
DISMISSED IN PART,
AND REMANDED
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