Larry Melton v. Harold Blankenship ( 2009 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0025n.06
Filed: January 13, 2009
No. 08-5346
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
LARRY S. MELTON, JOHN MELTON, )
AMERICAN HOME FINANCIAL SERVICES, et al., )
)
Plaintiffs-Appellants, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE WESTERN
) DISTRICT OF TENNESSEE
HAROLD WALDEN BLANKENSHIP, FRANKIE K. )
STANFILL, DIANE TUCKER, RICHARD )
WALKER, et al., )
)
Defendants-Appellees. )
)
BEFORE: GUY and GRIFFIN, Circuit Judges; and WATSON, District Judge.*
GRIFFIN, Circuit Judge.
Plaintiffs filed a civil RICO claim against defendants, arguing that defendants conspired
against them in a previous suit by maliciously filing a counterclaim that lacked a factual basis.
Because we conclude that the remedy for this alleged injury lies in state law claims of malicious
prosecution and abuse of process, and because neither of these acts are RICO predicates, we affirm
the district court’s judgment dismissing all claims as to all defendants.
I.
*
The Honorable Michael H. Watson, United States District Judge for the Southern District
of Ohio, sitting by designation.
No. 08-5346
Melton, et al. v. Blankenship, et al.
The present dispute arose from two separate lawsuits: Melton v. Bank of Lexington, et al.,
02-1152 (W.D. Tenn. filed June 21, 2002) (hereinafter “Melton I”), a civil action; and In re Harold
Walden Blankenship, 06-11119 (Bankr. W.D. Tenn. filed May 23, 2006). Plaintiffs in the case at
bar were plaintiffs in Melton I. Harold Walden Blankenship, one of the defendants in Melton I, was
represented by Kevin Carter, Frankie K. Stanfill, and Bradley Kirk, attorneys affiliated with the law
firm of Carter, Stanfill & Kirk, PLLC. The three attorneys and the law firm were defendants
themselves in Melton I and are defendants in this action (“Stanfill Defendants”).
The present appeal is in reaction to a counterclaim that Blankenship filed against the Melton
I plaintiffs. Plaintiffs argue that defendant Carter informed Blankenship that the Melton I plaintiffs
intended to settle their claims with all of the Melton I defendants, except for those involving
Blankenship, Blankenship’s father, and the Stanfill Defendants, and that Blankenship needed to file
a counterclaim to prevent this settlement from occurring. Plaintiffs allege that Blankenship and the
Stanfill Defendants “conspired, planned and endeavored to cause harm to the Plaintiffs’ property and
business by bringing a counterclaim in [Melton I] . . . without probable cause and based on false
representations in an attempt to deceive and defraud the Plaintiffs herein through the federal court
system.” Plaintiffs note that defendants “used the United States mails and wires in their scheme to
deceive and defraud . . . .” Plaintiffs allege that the Stanfill Defendants used “Blankenship, to pursue
their own purposes with the aid and assistance of Defendant, Diane Tucker.” The counterclaim was
filed on August 5, 2004. Plaintiffs argue further that on May 23, 2006, the Stanfill Defendants, in
cooperation with defendants Ken Walker, Richard Walker, and Walker, Walker & Walker, PLC
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(“Walker Defendants”), filed a bankruptcy petition in Blankenship’s name that contained fraudulent
allegations. The heart of plaintiffs’ complaint is that they relied to their detriment on the fraudulent
representations contained in the counterclaim and bankruptcy petition. Blankenship, through his
attorney Ken Walker, voluntarily withdrew the bankruptcy petition.
Blankenship attempted to end his participation in the lawsuit during July 2006, when he
spoke with Johnny and Larry Melton and drafted an affidavit stating that he filed the counterclaim
because the Stanfill Defendants convinced him that it was the only way to protect his interests and
prevent the Melton I plaintiffs from settling with the remaining Melton I defendants. Blankenship
stated that the Stanfill Defendants “were my attorneys and I depended on them for the proper legal
advice in dealing with this litigation.” The district court eventually terminated the countersuit in
favor of the Melton I plaintiffs.
Following the district court’s dismissal of the counterclaim, plaintiffs filed the instant action
in the United States District Court for the Western District of Tennessee against Blankenship, the
Stanfill Defendants, the Walker Defendants, and John Does 1-5. Plaintiffs allege that defendants
“conspired, planned and endeavored to cause harm to the Plaintiffs’ property and business” and that
they utilized the United States mails and wires as part of this scheme. The four-count complaint
alleges that: (1) defendants engaged in a pattern of racketeering activity in violation of the Racketeer
Influence and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c); (2) defendants conspired
to engage in racketeering activity in violation of RICO, 18 U.S.C. § 1962(d); (3) defendants filed a
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“frivolous, baseless case against them” causing them damages and amounting to malicious
prosecution; and (4) defendants’ actions constituted the common law tort of abuse of process.
Defendant Diane Tucker filed a motion to dismiss for failure to state a claim upon which
relief could be granted. Plaintiffs responded, and the Stanfill Defendants filed a reply joining the
motion. The district court granted defendants’ motion to dismiss, dismissed plaintiffs’ RICO claims,
and declined to exercise jurisdiction over defendants’ remaining state law claims. Plaintiffs timely
appealed.
II.
Plaintiffs argue that the district court erred in ruling that they failed to state a RICO claim.
We review de novo a district court’s grant of a motion to dismiss. Doe v. Bredesen, 507 F.3d 998,
1002 (citing United States v. Bowman, 173 F.3d 595, 597 (6th Cir. 1999)). A complaint requires a
“short and plain statement of the claim” showing that the pleader is entitled to relief. Conley v.
Gibson, 355 U.S. 41, 47 (1957). However, “a plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1964-65
(2007) (citation omitted). When considering a motion to dismiss, courts “are not bound to accept
as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286
(1986) (citations omitted).
To state a civil RICO claim, a plaintiff must establish four elements: “(1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity.” Moon v. Harrison Piping Supply, 465
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F.3d 719, 723 (6th Cir. 2006) (quoting Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496
(1985)). Plaintiffs must establish that defendants “engaged in a ‘pattern of racketeering activity’
consisting of at least two predicate acts of racketeering activity occurring within a ten-year period.”
Id. (quoting 18 U.S.C. § 1961(5)). Specifically, plaintiffs must establish a predicate act enumerated
in 18 U.S.C. § 1961(1). Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass’n, 176 F.3d
315, 322 (6th Cir. 1999).
Plaintiffs contend that defendants engaged in “fraud in association with litigation, mail and
wire fraud, bankruptcy fraud, and tampering with a witness.” However, a closer examination of
plaintiffs’ arguments reveals that plaintiffs are in effect alleging that defendants engaged in malicious
prosecution and abuse of process, and that they used the mails and wires to do so by filing
Blankenship’s counterclaim and bankruptcy petition. Rather than deny this, plaintiffs argue that the
case law “is clear that, in certain circumstances, an attorney and/or law firm can violate the mail and
wire fraud statutes by perpetrating frauds involving litigation.” To support their argument, plaintiffs
rely on cases from other circuits in which the attorneys involved did far more than simply render
legal advice and file documents in the course of litigation.
For example, in plaintiffs’ lead case, Handeen v. Lemaire, 112 F.3d 1339 (8th Cir. 1997), the
defendant law firm went well beyond merely offering legal advice or filing legal documents. In
Handeen, the defendant law firm conspired with the other defendants to mail checks to a defendant’s
parents so the parents could mail the checks to the Bankruptcy Trustee and hide the fact that the
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defendant had moved out of state to accept a higher paying job. Id. at 1344. Clearly, the attorneys
in Handeen were involved in a level of fraud that far exceeded zealous advocacy.
The court in Handeen was careful to note that it would be “extremely difficult to fathom any
scenario in which an attorney might expose himself to RICO liability by offering conventional advice
to a client or performing ordinary legal tasks (that is, by acting like an attorney).” Id. at 1349. The
Eighth Circuit distinguished between criminal enterprises and the attorneys who represent them,
holding that “[f]urnishing a client with ordinary professional assistance, even when the client
happens to be a RICO enterprise, will not normally rise to the level of participation sufficient” to
establish RICO liability. Id. at 1348. In the instant case, the district court ruled that “[d]efendants
provided legal advice only to Blankenship, and those efforts and subsequent filings can not be
considered RICO predicate acts.” We agree. To the extent that defendants were overly zealous or
malicious, the remedy lies in a state law action for malicious prosecution or abuse of process, not
in a federal RICO claim. Plaintiffs must assert predicate acts described in 18 U.S.C. § 1961(1), and
they have not done so. Plaintiffs’ assertion of predicate acts in their complaint is merely a “legal
conclusion couched as a factual allegation,” and thus not sufficient to survive a motion to dismiss.
Papasan, 478 U.S. at 286.
Plaintiffs argue correctly that they have established conduct which states a claim for
malicious prosecution and abuse of process under state law. But the district court did not hold
otherwise; it merely refused to exercise supplemental jurisdiction over these state law claims because
it had dismissed the claims that formed the basis for its original jurisdiction. It was not an error to
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do so. See United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966) (stating that, “[i]t has
consistently been recognized that pendent jurisdiction is a doctrine of discretion, not of plaintiff’s
right.”). Thus, we affirm the dismissal of the RICO claims.
III.
Defendant Tucker filed the motion to dismiss, and the Stanfill Defendants joined it.
Plaintiffs argue that the district court erred by dismissing the claims against all of the defendants,
rather than limiting its order to those defendants who moved to dismiss. Specifically, defendants
assert that the district court erred by dismissing the claims against the nonmoving defendants:
Blankenship, the Walker Defendants,1 and John Does 1-5. The district court dismissed the John Doe
defendants in a separate order, holding that “[t]he allegations made against the Doe defendants are
the same that were made against the other defendants and which have now been dismissed. Thus,
the Doe defendants would have been dismissed in that order if they had been already [] named.”
Plaintiffs do not cite any authority for the proposition that a district court errs by dismissing
nonmoving defendants when it determines that the complaint has failed to state a claim.
Plaintiffs have alleged the same RICO claims against all of the parties. Logically, if they
have failed to state a RICO claim regarding the moving parties, they have also failed to state a claim
against the nonmoving parties. It is true that a “district court should proceed with great caution when
1
The district court did not specifically mention Blankenship or the Walker Defendants in its
order granting the motion to dismiss; it simply ruled that “[d]efendants’ motions to dismiss are
GRANTED, and Plaintiffs’ claims under RICO are hereby dismissed.” However, in issuing its order
dismissing the John Doe defendants, the district court clarified that it had dismissed “all defendants,
except the Doe defendants.” (Emphasis added.)
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dismissing a claim sua sponte.” Boddie v. Am. Broad. Cos., 731 F.2d 333, 336 n.2 (6th Cir. 1984).
However, the district court did not sua sponte dismiss plaintiffs’ claim; it sua sponte dismissed the
nonmoving parties who were in the same factual and procedural posture as the moving parties.
Plaintiffs had the opportunity to argue the sufficiency of their claim against the defendants; the
failure of Blankenship and the Walker Defendants to file their own motion to dismiss does not cure
the defects in plaintiffs’ complaint that prevented it from surviving a motion to dismiss. Thus, we
affirm the district court’s judgment regarding the nonmoving defendants.
IV.
Next, plaintiffs allege that the district court erred in denying their motion to amend the
complaint to include, inter alia, the Blankenship affidavit. A district court’s denial of a motion to
amend is reviewed for an abuse of discretion. Miller v. Admin. Office of Courts, 448 F.3d 887, 898
(6th Cir. 2006). We have held that a district court “abuses its discretion when we are left with the
definite and firm conviction that its conclusion was a clear error of judgment.” Days Inns
Worldwide, Inc. v. Patel, 445 F.3d 899, 906 (6th Cir. 2006) (citing In re Bever, 300 B.R. 262, 264
(B.A.P. 6th Cir. 2003)). Plaintiffs argue that “the District Court abused its discretion by denying
their motions to amend the Complaint because the Plaintiffs’ motions were filed early in the
litigation and the Defendants would not have been prejudiced at all by the Plaintiffs’ amendment.”
This is not sufficient to demonstrate an abuse of discretion. At best, plaintiffs have shown that it
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would have been permissible for the district court to have granted their motion; they have not shown
that the district court abused its discretion by refusing to do so.2
V.
Finally, plaintiffs argue that the district court improperly converted the motion to dismiss into
a motion for summary judgment without notifying plaintiffs. Plaintiffs note correctly that generally
a district court must convert a motion to dismiss into a motion for summary judgment if it considers
material outside of the pleadings. The district court undoubtedly referred to material outside of the
pleadings. Specifically, the court referred to Blankenship’s affidavit and deposition, both of which
were submitted as exhibits to defendants’ reply brief in support of the motion to dismiss. However,
2
Furthermore, although not argued by the parties, we lack jurisdiction to resolve this issue
because it was not raised in plaintiffs’ notice of appeal. Rule 3(c)(1)(B) of the Federal Rules of
Appellate Procedure requires the parties to “designate the judgment, order, or part thereof being
appealed” in the notice of appeal. Plaintiffs’ notice of appeal specifically states that they “are
appealing the dismissal of this case by Order entered on the 6th day of March, 2008, docket #58
. . . . ” Docket #58 is the district court’s dismissal of the underlying claim. The district court denied
plaintiffs’ motion to amend with docket #46, and their second motion to amend with docket #53.
The Supreme Court has held that “Rule 3's dictates are jurisdictional in nature, and their
satisfaction is a prerequisite to appellate review.” Smith v. Barry, 502 U.S. 244, 248 (1992); see also
Isert v. Ford Motor Co., 461 F.3d 756, 759 (6th Cir. 2006) (describing Rule 3's requirements as
“mandatory and jurisdictional in nature”). Plaintiffs’ failure to reference the order denying their
motion to amend in the notice of appeal prevents this court from reviewing it. “Congress has limited
this Court’s appellate review to issues designated in the notice of appeal.” United States v. Glover,
242 F.3d 333, 335 (6th Cir. 2001); see also Brown v. Cassens Transport Co., 546 F.3d 347, 352 (6th
Cir. 2008) (“The plaintiffs filed a motion for leave to file an amended complaint, but they did not
appeal the district court’s denial of this motion in their Notice of Appeal. Therefore, that decision
is not before us.”); Caldwell v. Moore, 968 F.2d 595, 596 (6th Cir. 1992) (“where a notice of appeal
specifies a particular order, only the specified issues related to that order may be raised on appeal.”).
Thus, we conclude that this issue is not properly before the court.
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the district court did not explicitly convert the motion to dismiss to a motion for summary judgment.
Thus, we must determine whether the district court properly considered the Blankenship statements
in the context of a motion to dismiss, or whether the district court erred by converting the motion
into a motion for summary judgment without giving proper notice to plaintiffs of its intention to do
so.
Defendants note that we have identified circumstances in which a district court may consider
non-record material without converting the motion to dismiss into a motion for summary judgment.
In Weiner v. Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997), we held that while “a plaintiff is under
no obligation to attach to his complaint documents upon which his action is based . . . a defendant
may introduce certain pertinent documents if the plaintiff fails to do so.” The present case differs
from Weiner in that defendants did not file the Blankenship exhibits in response to plaintiffs’
complaint; rather, they filed them in response to plaintiffs’ supplemental brief. After defendants
filed the motion to dismiss, the district court ordered supplemental briefing on the question of
whether malicious prosecution and abuse of process can serve as a predicate act for purposes of
RICO. In their supplemental brief, plaintiffs rely heavily on the Blankenship affidavit. Plaintiffs
use the phrase “smoking gun” five times to describe the statement, but did not attach the statement
as an exhibit. We conclude that allowing defendants to introduce the statement that plaintiffs relied
upon is within the bounds of Weiner and that the district court could consider it without converting
the motion to dismiss into a motion for summary judgment.
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In the alternative, if the district court was required to treat the motion to dismiss as a motion
for summary judgment, such error was harmless. Plaintiffs cannot claim to have lacked notice that
the court would consider the Blankenship exhibits when plaintiffs themselves referred to the exhibits
in their own brief. See Dayco Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389, 393 (6th Cir.
1975) (holding that a party who itself referred to evidence outside the record cannot claim unfair
surprise when the district court treats the motion to dismiss as a motion for summary judgment).
VI.
For the reasons stated above, we affirm the judgment of the district court.
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