Richard Ferrell v. Harold E. Wolfe, Jr.

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
FILED
No. 07-14878 U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
FEB 09, 2009
D. C. Docket No. 07-10003-CV-JLK THOMAS K. KAHN
CLERK
RICHARD FERRELL,
GRAND LIFESTYLES RESORTS, INC.,
Plaintiffs-Appellants,
versus
LESLIE J. DURBIN,
GARY WILLIAMS,
Defendants,
HAROLD E. WOLFE, JR.,
HAROLD E. WOLFE, JR. REVOCABLE TRUST,
MICHAEL L. BROWNING,
THOMAS J. SIRECI,
WAYNE LARUE SMITH, et al.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(February 9, 2009)
Before EDMONDSON, Chief Judge, ANDERSON, Circuit Judge, and COHILL,*
District Judge.
PER CURIAM:
This case arises out of a dispute between former owners of a hotel and resort
located in Provincetown, Massachusetts. Richard Ferrell and Grand Lifestyles
Resorts, Inc. (“GLR”) (collectively “Appellants”) filed a complaint against Wolfe,
the Wolfe Revocable Trust, Browning, Sireci, Serelis, Botway, Green and Smith
(collectively “Appellees”) alleging violations of the Federal and Florida RICO
statutes and the federal securities laws. The district court dismissed the complaint.
Although the district court’s judgment relied upon numerous grounds, and although
this case might well have been affirmed on the basis of several such grounds, we
readily conclude that the judgment of the district court is due to be affirmed upon
the grounds set forth below.1
I. BACKGROUND
The complaint contains the following allegations.2 Appellant Ferrell was an
*
Honorable Maurice B. Cohill, Jr., United States Judge for the Western District of
Pennsylvania, sitting by designation.
1
Accordingly, we decline to address the other grounds upon which the district court
dismissed the complaint.
2
We review the grant of a motion to dismiss under Rule 12(b)(6) for failure to state
a claim de novo, accepting the allegations in the complaint as true and construing them in the
light most favorable to the plaintiff. Jackson v. BellSouth Telecomm., 372 F.3d 1250, 1262
(11th Cir. 2004).
2
investor in The Boatslip, L.L.C. (“The Boatslip” or “Company”), a company that
owns and operates a hotel in Provincetown, Massachusetts (“Hotel”). Under the
terms of the original Operating Agreement, GLR was The Boatslip’s manager.
Ferrell owned 25% of GLR and was the Hotel’s onsite manager. At its inception,
all Appellees, except Smith, owned a beneficial interest in the Company.
Ferrell and appellees Browning and Sireci were also principals in Atlantic
Shores Resorts, Ltd. (“Atlantic Shores”). Atlantic Shores owned properties in Key
West (“Key West Properties”), including the Atlantic Shores Hotel. In late 2004, a
dispute arose between appellant Ferrell and appellees Browning and Sireci over the
Key West Properties. At the same time, due to a personal tragedy, Ferrell granted
Browning a power of attorney to deal with business matters related to the Key West
Properties. Browning used the power of attorney to try and effectuate a sale of the
Atlantic Shores Hotel against Ferrell’s wishes. As a result of these disputes, Ferrell
and Browning reached an agreement to separate their business affairs (“Settlement
Agreement I”). Ferrell received Browning’s interest in The Boatslip and Browning
received Ferrell’s interest in Atlantic Shores.
After the settlement, Ferrell learned that Browning had agreed to purchase
additional membership units in The Boatslip from owners Durbin and Williams
(“Durbin/Williams Units”). Ferrell adamantly objected and the parties came to a
3
second agreement (“Agreement to Cooperate”). Browning agreed to purchase the
Durbin/Williams units and convey them to Ferrell.3
Browning then breached the confidentiality provisions of Settlement
Agreement I by revealing its terms to the other Defendant-Appellees. As a result,
appellees Serelis, Wolfe and Botway, among others, acquired the Durbin/Williams
Units from their original owners. However, Browning continued to falsely assure
Ferrell of his intention to complete the sale and transfer the Durbin/Williams Units
to Ferrell.
Thereafter, appellees Wolfe, Serelis, Botway and Green amended the
Boatslip Operating Agreement to remove GLR from its management position. By
this time, Ferrell owned all of GLR’s stock. Ferrell alleges that the amendments to
the management portions of the Operating Agreement could only be made by a
unanimous vote. On April 25, 2005 appellees Wolfe, Serelis, Botway and Green,
among others, commenced an action in a Monroe County, Florida Circuit Court
(“Monroe County Action”) to have the amendments declared valid and enforceable.
They were represented in that suit by appellee Smith. Appellants asserted a
counterclaim alleging that Serelis, Botway and Wolfe tortiously interfered with
3
The Agreement to Cooperate itself only says that if Browning and Sireci acquire
the Durbin/Williams Units they will convey them to Ferrell.
4
Browning’s agreement to purchase the Durbin/Williams Units and convey them to
Ferrell.
During mediation, the parties agreed (“Settlement Agreement II”) that
Appellants would purchase all the units in the Boatslip for $150,000 per unit.
Ferrell placed $220,000 in escrow with the mediator. However, Serelis, Botway,
Green and Wolfe refused to honor the agreement. Wolfe, Serelis and Smith alleged
that a third party had offered to buy the Boatslip Hotel for $388,888 per unit. They
faxed Ferrell a “bogus contract” of sale signed by the purported purchaser.
Ferrell and GLR sought to enforce Settlement Agreement II in the Monroe
County court. On September 13, 2005, the parties reached a third settlement
agreement (“Settlement Agreement III”). Ferrell and GLR agreed to purchase the
Boatslip units for $135,000 per unit plus payment of a certain amount of the
Company’s tax liabilities allocable to Appellees. Ferrell placed a non-refundable
deposit of $550,000 in escrow with appellee Smith. However, Ferrell was never
able to complete the purchase of The Boatslip because he was unable to get the
necessary financing. He attempted to take out a second mortgage on the Hotel.
However, the first mortgage required the mortgagees’ consent to subordinate
financing. They refused to do so. Ferrell alleges that “one or more Defendants”
communicated with the mortgagees and encouraged them not to consent to the
5
subordinate financing. Ferrell never recovered the non-refundable deposit he paid
into escrow. Thereafter, Defendant Smith attempted to loan the $550,000 held in
escrow to the Boatslip at an 18% interest rate.4
All parties agree that on January 13, 2006 the Monroe County court entered
an Agreed Final Order finding that the amendments to the Operating Agreement
were valid and dismissing Appellants counterclaims for tortious interference with
prejudice. On March 9, 2006, the court entered a second agreed order stating that
GLR resigned as manager of The Boatslip. These orders were entered after the
parties reached Settlement Agreement III.
On January 16, 2007, Ferrell and GLR filed the instant complaint in Florida
district court. They appeal the dismissal, with prejudice, of that complaint.
II. DISCUSSION
First, we discuss whether Appellants stated a RICO claim. Then, we address
whether Appellants have abandoned their securities claims in their brief to this
Court. Finally, in an alternative holding, we examine the adequacy of the securities
claims under Rule 9(b) and the Private Securities Litigation Reform Act
(“PSLRA”).
4
Smith strongly denies these allegations. He claims to have simply made a
distribution of the non-refundable deposit, which Ferrell forfeited when he could not obtain the
necessary financing to complete the purchase of The Boatslip.
6
A. The RICO Claims: Appellants Failed to Allege a “Pattern of
Racketeering Activity”
With respect to the federal and state RICO claims, we conclude that
Appellants’ complaint failed to state a claim upon which relief can be granted.5
Although Appellants very likely failed to allege facts sufficient to satisfy several of
the necessary elements, we focus in particular on the continuity requirement. With
respect to that requirement, it is clear that Appellants’ allegations are insufficient.
An essential element of any RICO claim is a “pattern of racketeering
activity.” Jackson v. BellSouth Telecomm., 372 F.3d 1250, 1264 (11th Cir. 2004).
In 1989, the Supreme Court fleshed out the pattern requirement, holding that the
racketeering predicates must “amount to, or . . . otherwise constitute a threat of,
continuing racketeering activity.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229,
240, 109 S. Ct. 2893, 2901, 106 L. Ed. 2d 195; see also Jackson, 372 F.3d at 1265.
There are two types of continuity: “closed-ended” and “open-ended.” H.J. Inc.,
492 U.S. at 241, 109 S. Ct. at 2902; Jackson, 372 F.3d at 1265. We will address
each in turn.
Closed-ended continuity can be established by “proving a series of related
5
All parties agree that the Florida RICO statute is patterned after the Federal RICO
statute and Florida RICO cases follow Federal RICO cases. Thus, the analysis of the Federal
RICO claims is equally applicable to the Florida RICO claims. See Jackson v. BellSouth
Telecomm., 372 F.3d 1250, 1263-64 (11th Cir. 2004).
7
predicates extending over a substantial period of time.” Jackson, 372 F.3d at 1265(quoting H.J. Inc., 492 U.S. at 242, 109 S. Ct. at 2902). In this Circuit, “closed-
ended continuity cannot be met with allegations of schemes lasting less than a
year.” Id. at 1266. Furthermore, “where the RICO allegations concern only a
single scheme with a discrete goal, the courts have refused to find a closed-ended
pattern of racketeering even when the scheme took place over longer periods of
time.” Id. at 1267. Being abundantly generous to Appellants, the series of alleged
misrepresentations took place from late-2004 to mid-2006. Given the scant
allegations, the limited time frame, the single scheme and the existence of only two
victims, we conclude that the complaint did not sufficiently allege closed-ended
continuity.6
6
This conclusion is amply supported by persuasive authority from other circuits.
For example, in Efron v. Embassy Suites, the plaintiff alleged that his partners in a hotel project
intentionally caused the business to lose money in order to force the plaintiff to sell his interest so
that defendants could own and control the entire hotel. 223 F.3d 12, 13-14, 18 (1st Cir. 2000).
The court accepted the allegation that seventeen predicate acts occurred over a period of twenty-
one months. Id. at 17. Nonetheless, the court held that, “the finite nature of the racketeering
activities alleged here, together with their occurrence over a relatively modest period of time,
cannot in our view, support a jury finding of a RICO pattern under the ‘closed’ continuity
approach.” Id. at 19.
In Al-Abood v. El-Shamari, the defendant carried out three different schemes over a
period of several years to defraud the plaintiff, a close family friend, of significant sums of
money. 217 F.3d 225, 238 (4th Cir. 2000). At trial, the plaintiff prevailed on claims of fraud,
breach of fiduciary duty and conversion. Id. at 229. However, the Fourth Circuit affirmed the
district court’s grant of summary judgment in favor of defendant on plaintiff’s RICO claims. The
court held that “the narrow focus of the scheme here – essentially a dispute between formerly
close family friends – combined with the commonplace predicate acts persuades us that the facts
8
Open-ended continuity can be established by showing that the
misrepresentations were part of the “regular way of doing business” or threaten
repetition in the future. Jackson v. BellSouth Telecomm., 372 F.3d 1250, 1265
(11th Cir. 2004). These acts did not take place in the regular course of business.
They involved the extraordinary act of transferring ownership interests in The
Boatslip. Furthermore, it is clear that single schemes with a specific objective and
a natural ending point can almost never present a threat of continuing racketeering
activity.7 See Aldridge v. Lily-Tulip, Inc., 953 F.2d 587, 593-94 (11th Cir. 1992)
here do not satisfy the [RICO] pattern requirement.” Id. at 238.
In Edmondson & Gallagher v. Alban Towers Tenants Assoc., the plaintiffs alleged RICO
violations arising from a failed attempt to purchase the Alban Towers apartment building. 48
F.3d 1260, 1262 (D.C. Cir. 1995). Given that there was a single scheme, a single injury and only
a few victims, the D.C. Circuit held that it was “virtually impossible” for the plaintiffs to
establish closed-ended continuity. Id. at 1265. The court expressly found that alleging fifteen
predicate acts over a period of three years was insufficient to overcome these other factors. Id.7
See, e.g., First Capital Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 180-81 (2d Cir.
2004) (concluding that alleged bankruptcy fraud was “inherently terminable” because a scheme
to fraudulently convey the debtors assets was essentially complete when the debtor filed for
bankruptcy and, thus, did not suggest a threat of continued racketeering activity); GE Inv. Private
Placement Partners v. Parker, 247 F.3d 543, 549 (4th Cir. 2001) (“Where the fraudulent conduct
is part of the sale of a single enterprise, the fraud has a built-in ending point, and the case does
not present the necessary threat of long-term, continued criminal activity.”) Efron v. Embassy
Suites, 223 F.3d 12, 19-21 (1st Cir. 2000) (concluding that a scheme to squeeze appellant and
two co-partners out of a business partnership early in its existence so that the remaining partners
could reap greater profits had a limited life expectancy “almost by definition” and, consequently,
could not satisfy the element of open-ended continuity); Vicom, Inc. v. Harbridge Merch. Servs.,
Inc., 20 F.3d 771, 782 (7th Cir. 1994) (“In assessing whether a threat of continued racketeering
activity exists, we have made clear that schemes which have a clear and terminable goal have a
natural ending point. Such schemes therefore cannot support a finding of any specific threat of
continuity that would constitute open-ended continuity.”); Thompson v. Paasche, 950 F.2d 306,
9
(concluding that a scheme to deprive employees of their vacation benefits for the
year 1982 did not pose a threat of repetition despite the fact that the defendant
company allegedly continued to take steps to conceal their wrongdoing).
Appellants’ complaint attempts to characterize the scheme as ongoing by alleging
that Appellees engaged in a pattern of racketeering activity to acquire and maintain
control of The Boatslip. However, it is clear that the predicate acts form the basis
of a single scheme to drive Ferrell and GLR from the management of the Company.
According to the complaint, that scheme has been accomplished. Appellants
alleged that some appellees are still acquiring ownership interests in the enterprise
from non-party investors via fraudulent use of the wires and mails and through
money laundering activities. However, this allegation lacks any factual support.
Accordingly, the district court did not err in finding that Appellants failed to satisfy
the requirements for pleading a RICO claim because they did not to adequately
311 (6th Cir. 1991) (concluding that a fraudulent scheme to sell nineteen plots of land was “an
inherently short-term affair” that was, “by its very nature, insufficiently protracted to qualify as a
RICO violation”); Lange v. Hocker, 940 F.2d 359, 362 (8th Cir. 1991) (holding that the allegedly
illegal takeover of a controlling interest in a corporation and the attempt to ratify it was complete
and posed no on-going threat of racketeering activity sufficient to establish a RICO pattern);
Banks v. Wolk, 918 F.2d 418, 423 (3d Cir. 1990) (holding that a single episode of real estate
fraud could not establish open-ended continuity without a factor indicating that the actions of the
defendants would threaten future harm to others); Phelps v. Wichita Eagle-Beacon, 886 F.2d
1262, 1273-74 (10th Cir. 1989) (“[T]here is no open-ended ongoing pattern of racketeering
activity alleged here. At most, plaintiff has alleged a scheme to accomplish one discrete goal,
which he alleges was accomplished. That is insufficient to state a claim for relief under RICO.”)
(internal quotations and citations omitted).
10
allege that the defendants were engaged in a pattern of racketeering activity.
B. The Securities Claims: Appellants Abandoned Their Claims
With respect to Appellants’ securities claims, the district court held that
Appellants had failed to state a claim upon which relief can be granted. On appeal,
Appellants merely recite the law, listing the elements of the claim, and then in one
short sentence make a conclusory assertion that all elements have been properly
pled. We conclude that the claim has been abandoned for failure to present any
argument in support thereof. See Fed. R. App. P. 28(a) (“appellant’s brief must
contain . . . the argument, which must contain . . . appellant’s contentions and the
reason for them”); Perera v. U.S. Fidelity and Guar. Co., No. 06-10925, slip op.
158, 164 n.4 (11th Cir. Oct. 9, 2008) (concluding that a brief must be sufficiently
precise to alert the court to the party’s argument). The brief’s mere citation by
number of 83 paragraphs in the complaint is insufficient to preserve the issue.
C. Appellants Failed to Plead with Particularity
Alternatively, with respect to the securities claims, we hold also that
Appellants’ complaint fails to satisfy the particularity requirements of Fed. R. Civ.
P. 9(b) and the PSLRA. Claims based on securities fraud must be stated with the
particularity required by Rule 9(b) and the PSLRA. See Garfield v. NDC Health
Corp., 466 F.3d 1255, 1262 (11th Cir. 2006). Under the PSLRA, the complaint
11
must plead fraud with particularity and allege facts giving rise to a strong inference
of scienter. Phillips v. Scientific-Atlanta, Inc., 374 F.3d 1015, 1016 (11th Cir.
2004). Specifically, the plaintiff must “specify each statement alleged to have
been misleading, the reason or reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on information and belief,
the complaint shall state with particularity all facts on which that belief is formed.”
Garfield, 466 F.3d at 1262 (citing 15 U.S.C. § 78u-4(b)(1)). Under Rule 9(b),
plaintiffs must allege: (1) the precise statements, documents, or misrepresentations
made; (2) the time, place, and person responsible for the statement; (3) the content
and manner in which these statements misled the plaintiffs; and (4) what the
defendants gained by the alleged fraud. Id.
In shotgun style pleading, the complaint incorporates all of the general
factual allegations by reference into each subsequent claim for relief. Neither this
Court nor the district court is required to parse the complaint searching for
allegations of misrepresentations that could conceivably form the basis of each of
Appellants’ claims. Appellants were required to clearly connect each factual
allegation to the appropriate count in the complaint in order to satisfy Rule 9(b).
See Wagner v. First Horizon Pharm. Corp., 464 F.3d 1273, 1279-80 (11th Cir.
12
2006).8 However, despite this serious defect, we have carefully examined all the
factual allegations in the complaint and construed them in the light most favorable
to Appellants, and conclude that the alleged misrepresentations were stated with
insufficient particularity.9
8
When presented with a shotgun complaint, the district court should order
repleading sua sponte. See Wagner, 464 F.3d at 1280. As we have noted on several recent
occasions, shotgun pleadings “wreak havoc on the judicial system” and “divert already stretched
judicial resources into disputes that are not structurally prepared to use those resources
efficiently.” Id. at 1279. Nonetheless, because there are clear grounds to affirm and the interest
of efficiency would not be served by a remand, we proceed to resolve the dispute.
9
Below we address the allegations in the complaint that are stated with the most
clarity. Other allegations are so lacking in any specificity as to not warrant discussion. We also
note that while the allegations in Paragraphs 27-32 of the complaint lay the factual background
for the complaint it is clear that these events are not included in the securities counts, which
allegedly began when Browning and Sireci misrepresented that they would convey the
Durbin/Williams interests to Ferrell.
In Paragraph 42, Appellants allege that “upon information and belief, Browning used the
wires to breach Settlement Agreement I’s strict confidentiality provisions by informing Wolfe
and other Defendants of its terms.” However, Appellants failed to allege with particularity any
factual basis upon which that information and belief was formed.
In Paragraph 44, Appellants allege that Browning e-mailed Ferrell on February 16, 2005
and falsely assured Ferrell of his intention to transfer the Durbin/Williams units to Ferrell despite
the fact that Browning knew that the Durbin/Williams units had already been purchased by
Wolfe, Serelis, Baetz, Jelsenianski and Botway. Here, the complaint fails to allege with
particularity facts giving rise to a strong inference that Browning was aware of the prior transfer.
In Paragraph 55, Appellants state that Serelis, Smith and Wolfe faxed Ferrell a bogus
contract of sale in order to drive up the purchase price of The Boatslip. Appellants alleged:
“Upon information and belief, there was never a bona fide, arms-length offer to purchase the
Hotel.” However, Appellants failed to plead with particularity any facts upon which that
information and belief was formed.
In Paragraph 65, Appellants allege that “one or more Defendants” communicated with
The Boatslip’s mortgagees and encouraged them to refuse to consent to subordinated financing.
This does not sufficiently identify the precise nature of the alleged misrepresentation or the
13
We note that Appellants filed no motion in the district court seeking leave to
amend and their cursory and conditional request to amend in their response in
opposition to defendants’ motion to dismiss failed to adequately apprise the district
court of the substance of allegations that would satisfy the particularity
requirements with respect to the securities claims or the continuity requirement
with respect to the RICO claims. See Long v. Satz, 181 F.3d 1275, 1279-80 (11th
Cir. 1999). Thus, under the circumstances here, we decline to require the district
court to sua sponte grant leave to amend.
III. CONCLUSION10
For the foregoing reasons, the judgment of the district court is
AFFIRMED.11
person responsible for it.
In Paragraph 72, Appellants allege that Serelis sent a fraudulent e-mail representing that
the Company could not obtain a second mortgage on the Hotel and had to resort to private
financing at 18%. However, Appellants do not allege with particularity facts to support the
conclusion that this e-mail was misleading. The only factual allegation is a bald assertion in
Paragraph 73 that there was sufficient equity in the Hotel to obtain a loan.
10
Other arguments of Appellants are rejected without need for further discussion.
11
The post-argument submissions and/or motions are denied as moot, in light of the
fact that our disposition of this case made it unnecessary to address the issue upon which they
focused.
14