Whitney, Bradley & Brown, Inc. v. Christian Kammermann ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1880
WHITNEY, BRADLEY & BROWN, INC.,
Plaintiff – Appellant,
v.
CHRISTIAN L. KAMMERMANN,
Defendant – Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:09-cv-00596-CMH-IDD)
Argued: May 10, 2011 Decided: June 23, 2011
Before NIEMEYER, KING, and KEENAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Michael Nicholas Petkovich, JACKSON LEWIS, LLP, Reston,
Virginia, for Appellant. David Philip Korteling, CAPLAN,
BUCKNER, KOSTECKA & KORTELING, CHARTERED, Bethesda, Maryland,
for Appellee. ON BRIEF: Kara Ariail, Amanda Vaccaro, JACKSON
LEWIS, LLP, Reston, Virginia, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Plaintiff Whitney, Bradley & Brown, Inc. (“WBB”), appeals
from the district court’s award of summary judgment to the
defendant, Christian L. Kammermann, on the basis of the court’s
conclusion that Kammermann had not contravened 18 U.S.C.
§ 1962(c) (the “civil RICO statute”). See Whitney, Bradley &
Brown, Inc. v. Kammermann, No. 1:09-cv-00596, Memorandum Opinion
(E.D. Va. July 7, 2010) (the “Opinion”). 1 More specifically, the
Opinion rejected WBB’s civil RICO claim because WBB was unable
to show that Kammermann engaged in a pattern of racketeering
activity. As explained below, we affirm.
I.
A.
The civil RICO statute, which underlies the RICO tort claim
at issue here, provides, in pertinent part, that it is illegal
for any person employed by or associated with any
enterprise engaged in, or the activities of which
affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of
such enterprise’s affairs through a pattern of
racketeering activity.
1
The Opinion is found at J.A. 238-54. (Citations herein to
“J.A. __” refer to the contents of the Joint Appendix filed by
the parties in this appeal.)
2
18 U.S.C. § 1962(c). The Supreme Court has explained that a
civil RICO claim has four essential elements: (1) conduct; (2)
of an enterprise; (3) through a pattern; (4) of racketeering
activity. See Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S.
479, 496 (1985). Only the third element — proof of a pattern
(hereinafter the “Pattern Element”) — is relevant here. In
order to prove the Pattern Element, a RICO plaintiff must show
“a relationship between the predicate[] [acts and] the threat of
continuing activity.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S.
229, 239 (1989) (internal quotation marks omitted). The
continuity-of-activity requirement of the Pattern Element has
been described as “both a closed- and open-ended concept,
referring either to a closed period of repeated conduct, or to
past conduct that by its nature projects into the future with a
threat of repetition.” Id. at 241.
As alluded to by the Supreme Court in H.J., the
alternatives for establishing the continuity of activity
essential to the Pattern Element are typically referred to as
“open-ended” and “closed-ended” patterns. The Court has
recognized that, in order to show an open-ended pattern for
purposes of a civil RICO claim, a plaintiff is obliged to
demonstrate the continuity of the racketeering activities by
presenting evidence of conduct “that by its nature projects into
the future with a threat of repetition.” H.J., 492 U.S. at 241.
3
On the other hand, in order to show a closed-ended racketeering
pattern, a multi-factor test must be satisfied, and a careful
assessment must be made of “the number and variety of predicate
acts and the length of time over which they were committed, the
number of victims, the presence of separate schemes and the
occurrence of distinct injuries.” Morgan v. Bank of Waukegan,
804 F.2d 970, 975 (7th Cir. 1986); see HMK Corp. v. Walsey, 828
F.2d 1071, 1073 (4th Cir. 1987).
B.
WBB is a federal government contractor, headquartered in
Reston, Virginia, that facilitates business relationships
between private enterprise and the Department of Defense. WBB
continuously employed Kammermann as a manager from May 2004
until January 2009. In May 2006, unbeknownst to WBB, Kammermann
formed and also began working for a business entity called CLK
Executive Decisions, LLC (“CLK”), which provided services nearly
identical to those performed by WBB. In January 2009, WBB
terminated Kammermann’s employment upon learning of his
conflicting involvement in and ownership of CLK.
On March 29, 2010, WBB filed the operative complaint in
this case, that is, its Second Amended Complaint (the
4
“Complaint”), in the Eastern District of Virginia. 2 The
Complaint alleges that Kammermann, while employed by WBB,
engaged in a scheme that encompassed two types of fraudulent
activities: (1) the weekly transmission of false time entry
reports to WBB; plus (2) the submission of duplicative expense
reports to WBB and clients of CLK for the same activities. 3
According to the Complaint, Kammermann transmitted weekly time
entry reports to WBB documenting that he was working for WBB
when he was actually working for CLK. The Complaint also
specifies fourteen instances of duplicate billing that occurred
in the nine-month period between March and December 2008:
• On March 18, 2008, Kammermann billed $300 to WBB
for expenses he also billed to Electrovaya;
• Between March 31 and December 18, 2008,
Kammermann submitted nine separate billings,
totalling approximately $9300, to WBB for
expenses he also billed to Schiebel;
• On August 26 and September 3, 2008, Kammermann
submitted two billings, totalling approximately
$1800, to WBB for expenses he also billed to
Security First;
2
The Complaint is found at J.A. 14-42. The original
version thereof was filed in the district court on May 27, 2009.
3
The five CLK clients involved in the double-billing aspect
of Kammermann’s fraud scheme are Schiebel Technology, Inc.
(“Schiebel”), Electrovaya Company (“Electrovaya”), Security
First Corporation (“Security First”), Recon Robotics, Inc.
(“Recon Robotics”), and Free Wave Technologies, Inc. (“Free
Wave”).
5
• On October 28, 2008, Kammermann billed $1,637 to
WBB for expenses he also billed to Schiebel and
Free Wave; and
• On November 12, 2008, Kammermann billed $973 to
WBB for expenses he also billed to Free Wave and
Recon Robotics.
The Complaint alleges six separate tort claims. Only one of
those claims, the civil RICO claim alleged in Count I, is
relevant to this appeal. 4
In the civil RICO claim, WBB alleges, inter alia, that
Kammermann
[f]rom at least March 2008 and continuing through
December 2008 . . . unlawfully, knowingly, and
intentionally conducted and participated, directly and
indirectly, in the conduct, management, and operation
of CLK . . . through a pattern of racketeering
activity consisting of numerous acts . . . indictable
under 18 U.S.C. §§ 1341 (mail fraud) and 1343 (wire
fraud).
4
The Complaint’s other five claims each arise under
Virginia law: Breach of Fiduciary Duty/Duty of Loyalty (Count
II); Actual Fraud: Hours Worked (Count III); Actual Fraud:
Expense Reimbursements (Count IV); Constructive Fraud: Hours
Worked (Count V), and Constructive Fraud: Expense Reimbursements
(Count VI). Upon granting summary judgment to Kammermann on
Count I, the district court declined to exercise supplemental
jurisdiction over the state law claims and dismissed them
without prejudice. See 28 U.S.C. § 1367(c). The district
court’s discretionary dismissal was initially identified as an
issue on appeal, but WBB has since withdrawn that challenge from
our consideration. We take scant pleasure in our affirmance
today of the district court’s award of summary judgment to
Kammermann, who has sought our succor notwithstanding his
apparent misdeeds. We note, however, that he could yet be held
accountable through an appropriate civil action in the courts of
the Commonwealth.
6
Complaint ¶ 99. The alleged predicate offenses of mail and wire
fraud underlying the civil RICO claim were Kammermann’s
submissions to WBB, through an overnight delivery service and
email transmissions, of the false time entry and expense
reports.
C.
On June 2, 2010, defendant Kammermann moved for summary
judgment on the RICO claim, submitting a stipulation that
spelled out more than 100 facts he deemed pertinent. Relying on
the stipulation, Kammermann contended that WBB could not, for
lack of the essential continuity of activity, establish the RICO
claim’s Pattern Element. According to Kammermann, neither an
open-ended nor a closed-ended pattern had been proved.
Kammermann argued that an open-ended pattern was not apparent
because there was no evidence that his fraudulent activities had
continued beyond December 2008. Kammermann maintained that his
scheme was not closed-ended either, because his fraudulent acts
— however despicable — were, even when viewed in the light most
favorable to WBB, merely an ordinary commercial fraud scheme
that failed to rise to the level of a RICO violation.
On June 14, 2010, plaintiff WBB responded to Kammermann’s
summary judgment motion, supporting its opposition primarily
with three items of evidence: (1) the affidavit of Ana R.
Richey, WBB’s Vice-President of Administration, explaining that
7
WBB’s “Employee Stock Ownership Plan (ESOP)” makes WBB a wholly
employee-owned company and that there were more than 150 ESOP
participants; (2) a stipulation of over 200 assertedly pertinent
facts detailing Kammermann’s employment history and relationship
with WBB, including his submission of various expense reports
and time entry reports (reporting hours worked) to WBB; 5 and (3)
an excerpt from Kammermann’s deposition in this case. WBB
emphasized that its position was supported by our unpublished
decision in Professionals, Inc. v. Berry, No. 91-1509, 1992 WL
64796 (4th Cir. Apr. 2, 1992) (affirming civil RICO liability
where predicate acts arose from commercial fraud scheme). WBB
also contended that Kammermann was incorrect on the number of
predicate acts, in that the fraud scheme actually involved more
than 150 such acts (including duplicate billings and false time
entry reports), the scheme in fact continued for nearly three
years (beginning shortly after Kammermann formed CLK in 2006 and
continuing until his termination from WBB in 2009), and there
were vastly more than the six victims acknowledged by Kammermann
(namely, WBB’s more than 150 ESOP participants).
5
The stipulation filed with WBB’s response was somewhat
more comprehensive than the stipulation filed with Kammermann’s
summary judgment motion. However, none of the stipulated facts
appear to contradict one another.
8
D.
On July 7, 2010, the district court issued its Opinion,
ruling that, because WBB was unable to satisfy the continuity-
of-activity requirement of the Pattern Element, Kammermann was
entitled to summary judgment on the civil RICO claim.
Significantly, the court recognized that the only fraudulent
activity supported by the record was the submission of
duplicative expense reports to WBB and clients of CLK on
fourteen occasions between March and December 2008. The court
characterized WBB’s allegations of an open-ended pattern as “pro
forma,” concluding that no such pattern existed absent evidence
that Kammermann’s fraudulent activities continued after December
2008. Opinion 9. The court also agreed with Kammermann that a
closed-ended pattern had not been shown, explaining that only
“fourteen predicate acts over a twelve month period is
insufficient to make out a case for RICO.” Id. at 14. In so
ruling, the district court emphasized that (1) we have been
reluctant to find civil RICO liability where the only predicate
acts are mail and wire fraud offenses; (2) the only participants
in the fraud scheme were Kammermann and CLK; (3) the only
victims of the scheme were WBB and the five clients of CLK; (4)
the scheme was limited to “misrepresentations made in order to
obtain expense reimbursements from WBB”; and (5) the Complaint
and evidence failed to show any distinct injuries. Id. at 16.
9
WBB filed a timely notice of appeal, and we possess
jurisdiction pursuant to 28 U.S.C. § 1291.
II.
We review de novo a district court’s award of summary
judgment. See S.C. Green Party v. S.C. State Election Comm’n,
612 F.3d 752, 755 (4th Cir. 2010). In so doing, we view the
underlying facts and the permissible inferences drawn therefrom
in the light most favorable to the non-moving party. See In Re
French, 499 F.3d 345, 352 (4th Cir. 2007).
III.
In pursuing this appeal, WBB contends that there are
genuine disputes of material fact that preclude an award of
summary judgment. Furthermore, WBB urges, the relevant
evidence, when viewed in the proper light, compels the
conclusion that Kammermann contravened the civil RICO statute
because the facts of this case parallel those presented in
Professionals, Inc. v. Berry, where we affirmed a finding of
civil RICO liability. See No. 91-1509, 1992 WL 64796 (4th Cir.
Apr. 2, 1992). As explained below, both of these contentions
are without merit.
10
A.
WBB maintains that the district court erred in failing to
recognize three genuine disputes of material fact. More
specifically, WBB contends that Kammermann’s fraud scheme
involved more than 150 predicate acts, continued for nearly
three years, and had more than 150 victims. WBB’s assertions of
disputed fact, however, are not supported by the evidentiary
record, and therefore are not genuine.
First, WBB maintains that, in addition to the duplicate
billings to WBB and CLK’s clients, Kammermann submitted false
expense reports and weekly time entry reports to WBB from 2006
until 2009. The record, however, discloses no evidence of
wrongdoing beyond the duplicate billing recognized by the
district court in its Opinion. Thus, the court did not
erroneously determine — viewing the evidence most favorably to
WBB — that only fourteen predicate acts were shown as part of
Kammermann’s fraud scheme. 6
Second, WBB asserts that Kammermann’s fraud scheme
continued for nearly three years, beginning when he formed CLK
in 2006 and continuing until his termination from WBB in 2009.
6
If Kammermann’s transmission of expense reports to CLK’s
clients are also deemed to be predicate acts for the purposes of
our civil RICO analysis, the number of such acts would increase
from fourteen to about thirty. Such an increase would not,
however, have any bearing on our analysis.
11
The evidence, however, fails to support this assertion,
establishing only the duplicate billing scheme that occurred in
the nine-month period between March and December 2008.
Finally, WBB entreaties us to conclude that there were more
than 150 victims of Kammermann’s fraud scheme, mainly by adding
WBB’s ESOP participants. Unfortunately for WBB, however, it is
“[a] basic tenet of American corporate law . . . that the
corporation and its shareholders are distinct entities.” Dole
Food Co. v. Patrickson, 538 U.S. 468, 474 (2003). Thus,
“[p]eople dealing with a corporation are obliged to look to the
corporation for satisfaction of their claims. Only in
extraordinary circumstances are directors liable for corporate
debts.” Flip Mortg. Corp. v. McElhone, 841 F.2d 531, 534 (4th
Cir. 1988). As a corollary, a corporate entity is generally
treated as a single victim for purposes of civil RICO liability.
Accordingly, the district court correctly recognized that there
were, at most, six victims of Kammermann’s fraud scheme — WBB
and the five clients of CLK.
B.
At bottom, WBB is left to rely solely on our Berry
decision. Unfortunately for WBB, however, that decision is
neither controlling nor apposite. First, the Berry decision
bears no precedential weight. See Local Rule 32.1; Pressly v.
Tupperware Long Term Disability Plan, 553 F.3d 334, 338 (4th
12
Cir. 2009) (recognizing that unpublished decisions are not
binding in this Court). Second, the Berry decision is readily
distinguishable on its facts, and therefore not on point. That
case involved a real estate company (Professionals), a family
(the Berrys), and another business that the Berrys formed and
operated (Berry Associates). In 1985, the Berrys solicited
investments for two plots of land, which they titled to Berry
Associates. Professionals later contracted with Berry
Associates to develop the land in exchange for part of any
profits.
During the following three years, the Berrys diverted
approximately $500,000 from Professionals. In so doing, they,
inter alia, (1) caused Professionals to pay salaries to Berry
family members who were performing no services; (2) fraudulently
purchased and resold land; (3) wrote checks to themselves to
cover unsubstantiated expenses; (4) directed their accountant to
falsely indicate that a loan from Professionals had been repaid;
(5) made false entries in check records on which their
accountant relied; and (6) filed misleading financial reports.
Additionally, the Berrys opened bank accounts for sham
construction companies that had failed to maintain business
records, pay taxes, or register under state law. Nevertheless,
the Berrys fraudulently charged Professionals in excess of
$325,000 for services never performed by the construction
13
companies. As a result, Professionals pursued a civil RICO
claim against the Berrys and Berry Associates. After conducting
a bench trial, the district court ruled in favor of
Professionals, rendering a plaintiff’s judgment on the RICO
claim.
On appeal to this Court, the Berrys contended that the RICO
claim’s predicate acts failed to constitute a pattern of
racketeering activity. We disagreed, however, and affirmed the
district court’s judgment for the plaintiff. For our purposes
today, two observations are pertinent. First, although the
Berrys used mail and wire transfers and communications, they did
so in a variety of ways — by “solicitation of initial and
multiple subsequent fiscal contributions, preparation and
furnishing of false and misleading financial reports, and
participation in shareholders’ meetings during which the Berrys
disseminated false and misleading reports on the progress of the
sites.” Berry, 1992 WL 64796, at *3. The extensive and varied
manner in which the Berrys used mail and wire transfers is an
important distinction from this case, where Kammermann used mail
and wire transfers solely to file his false expense reports.
Second, in Berry there were fifty-eight fraudulent acts over a
three-year period that victimized sixteen investors and involved
three individual schemes and participants.
14
As our unpublished decision in Berry emphasized, “[t]he
acts encompassed a variety of techniques to deplete corporate
assets and support the Berrys’ method of operating the
corporation, including falsified invoices and creation of
fictitious subcontractors.” 1992 WL 64796, at *3. These facts
stand in contrast to the ordinary commercial fraud cases where
we have been consistently reluctant to approve use of the civil
RICO statute, such as where “one perpetrator undertook actions
directed toward a single fraudulent goal that impacted two
investors over a period of approximately one year” — a set of
facts much more analogous to those presented here. Id. (citing
Menasco, Inc. v. Wasserman, 886 F.2d 681, 684 (4th Cir. 1989)).
As we have emphasized, “[i]f the pattern requirement [of the
civil RICO statute] has any force whatsoever, it is to prevent
. . . ordinary commercial fraud from being transformed into a
federal RICO claim.” Menasco, 886 F.2d at 685. Moreover, “we
are cautious about basing a RICO claim on predicate acts of mail
and wire fraud because it will be the unusual fraud that does
not enlist the mails and wires in its service at least twice.”
GE Inv. Private Placement Partners v. Parker, 247 F.3d 543, 549
(4th Cir. 2001) (internal quotation marks omitted).
As the district court explained in its Opinion, there was
no showing of the continuity-of-activity aspect of the Pattern
Element. Kammermann’s fraudulent activities actually ceased by
15
December 2008, foreclosing the possibility of an open-ended
pattern. On the closed-ended pattern question, the record
circumscribes the predicate acts, and, as the court properly
recognized, those acts are insufficient to form the basis for
such a scheme. Put simply, this dispute exemplifies the
situation of a RICO plaintiff who seeks to transform an ordinary
commercial fraud scheme into a RICO claim, something we are
loath to approve. In such circumstances, we are satisfied to
affirm the award of summary judgment to Kammermann.
IV.
Pursuant to the foregoing, we reject WBB’s appellate
contentions and affirm the summary judgment award.
AFFIRMED
16