H & Q Properties, Inc. v. David Doll

United States Court of Appeals
For the Eighth Circuit
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No. 14-2811
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H & Q Properties, Inc., a Nebraska corporation; John Quandahl; Mark Houlton
lllllllllllllllllllll Plaintiffs - Appellants
v.
David E. Doll; Double D Properties, L.L.C., a Nebraska limited liability company;
DDE, Inc., a Nebraska corporation formerly known as Double D Excavating, Inc.;
HNGC, Inc., a Nebraska corporation formerly known as Dougle D Hook-N-Go
Containers, Inc.; Nebraska Lowboy Services, Inc., a Nebraska corporation; Double
D Excavating, Inc., an Iowa corporation; Load Rite Excavating, L.L.C., a Nebraska
limited liability company formerly known as Down Dirty, L.L.C.; Doll
Construction, L.L.C., a Nebraska limited liability company; New Era Excavation
Company, a Nebraska corporation; Malvern Trust & Savings Bank, an Iowa
state-chartered bank
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the District of Nebraska - Omaha
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Submitted: May 14, 2015
Filed: July 15, 2015
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Before WOLLMAN, SMITH, and BENTON, Circuit Judges.
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SMITH, Circuit Judge.
Appellants H & Q Properties, Inc., John Quandahl, and Mark Houlton
(collectively, "H&Q") appeal the district court's1 dismissal of their claims and denial
of their motion for leave to file a second amended complaint alleging violations of
both state law and the Racketeer Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1961–1968, against appellees. We affirm.
I. Background2
H & Q Properties, Inc. and appellees Double D Properties, L.L.C.; DDE, Inc.;
and HNGC, Inc. owned membership units of Double D Excavating, L.L.C. (the
"LLC").3 On March 2, 2010, certain appellees (collectively, the "Doll Companies"4)
opened account number 121224 ("Account 121224") at Malvern Trust & Savings
Bank ("Malvern Bank") in the name of "Double D Excavating" and deposited into that
account a check made payable to the LLC. That same day, the Doll Companies also
opened account number 119992 ("Account 119992") at Malvern Bank in the name of
"David E. Doll."
In the coming weeks, the Doll Companies deposited into Account 121224
multiple payments that the LLC's customers made to the LLC. The Doll Companies
thereafter transferred funds from Account 121224 to Account 119992, commingled
1
The Honorable Laurie Smith Camp, Chief Judge, United States District Court
for the District of Nebraska.
2
The following summary of material facts is derived from H&Q's amended
complaint. We assume these facts are true for purposes of this appeal. Rochling v.
Dep't of Veterans Affairs, 725 F.3d 927, 930 (8th Cir. 2013) (citation omitted).
3
The LLC was formerly known as Doll Excavating, L.L.C.
4
The "Doll Companies" include appellees David E. Doll; Double D Properties,
L.L.C.; DDE, Inc.; HNGC, Inc.; Nebraska Lowboy Services, Inc.; Double D
Excavating, Inc.; and Load Rite Excavating, L.L.C.
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funds from Account 119992 with funds belonging to the Doll Companies, and used
those funds to pay certain of the Doll Companies' own expenses.
H&Q asserts that the Doll Companies failed to give notice or obtain consent for
any of the foregoing activities, which H&Q deems actionable. In addition, the Doll
Companies allegedly represented to H&Q that the LLC was struggling financially and
needed additional financial assistance from H&Q. The Doll Companies contributed
a portion of the funds from Account 119992 back to the LLC and, according to H&Q,
represented to H&Q that these were fresh capital contributions to the LLC. Thereafter,
H&Q also invested additional capital into the LLC.
After discovering the Doll Companies' alleged conduct, H&Q filed this suit
asserting various state law and RICO claims against the Doll Companies, two entities
associated with the Doll Companies (Doll Construction, L.L.C. and New Era
Excavation Company), and Malvern Bank. The appellees moved to dismiss the claims
under Federal Rule of Civil Procedure 12(b)(6), and H&Q then moved for leave to file
a second amended complaint.
The district court ultimately granted the appellees' motions to dismiss and
denied H&Q's motion for leave to amend. The court found, among other things, that
H&Q failed to state a RICO claim because it did not sufficiently allege any
racketeering activity. The court also denied H&Q's motion to file a second amended
complaint because the proffered complaint would not cure the existing pleading
deficiencies. The court chose not to exercise supplemental jurisdiction over the
remaining state law claims and dismissed them without prejudice.
II. Discussion
On appeal, H&Q argues that the court erred in dismissing its RICO claims and
likewise erred in denying its motion for leave to amend. "We review a grant of a
motion to dismiss under a de novo standard of review." Grand River Enters. Six
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Nations, Ltd. v. Beebe, 574 F.3d 929, 935 (8th Cir. 2009) (citing Taxi Connection v.
Dakota, Minn. & E. R.R. Corp., 513 F.3d 823, 825 (8th Cir. 2008)). "Generally, we
review the denial of leave to amend a complaint under an abuse of discretion standard;
however, 'when the district court bases its denial on the futility of the proposed
amendments, we review the underlying legal conclusions de novo.'" Crest Const. II,
Inc. v. Doe, 660 F.3d 346, 359 (8th Cir. 2011) (quoting Walker v. Barrett, 650 F.3d
1198, 1210 (8th Cir. 2011)).
A. RICO
RICO prohibits "any person employed by or associated with any enterprise
engaged in . . . interstate . . . commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering
activity." 18 U.S.C. § 1962(c). RICO, however, "'does not cover all instances of
wrongdoing. Rather, it is a unique cause of action that is concerned with eradicating
organized, long-term, habitual criminal activity.'" Doe, 660 F.3d at 353 (quoting
Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir. 2006)). To establish their civil claim
under RICO, H&Q must show that the appellees engaged in "'(1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity.'" Nitro Distrib., Inc. v.
Alticor, Inc., 565 F.3d 417, 428 (8th Cir. 2009) (quoting Sedima S.P.R.L. v. Imrex Co.,
473 U.S. 479, 496 (1985)). Additionally, Federal Rule of Civil Procedure 9(b)
requires that "[i]n alleging fraud . . . a party must state with particularity the
circumstances constituting fraud." The "[c]ircumstances" of the fraud include "such
matters as the time, place and contents of false representations, as well as the identity
of the person making the misrepresentation and what was obtained or given up
thereby.'" Murr Plumbing, Inc. v. Scherer Bros. Fin. Servs. Co., 48 F.3d 1066, 1069
(8th Cir. 1995) (quoting Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir. 1982)).
H&Q contends that the appellees engaged in "a pattern of racketeering activity"
by committing bank fraud, mail fraud, and wire fraud. For the reasons discussed
herein, we disagree.
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1. Bank Fraud
To commit bank fraud, a person must "execute[], or attempt[] to execute, a
scheme or artifice" either "(1) to defraud a financial institution; or (2) to obtain any
of the moneys, funds, credits, assets, securities, or other property owned by, or under
the custody or control of, a financial institution, by means of false or fraudulent
pretenses, representations, or promises." 18 U.S.C. § 1344. "[T]he purpose of the bank
fraud statute 'is not to protect people who write checks to con artists but to protect the
federal government's interest as an insurer of financial institutions.'" United States v.
Staples, 435 F.3d 860, 867 (8th Cir. 2006) (quoting United States v. Davis, 989 F.2d
244, 247 (7th Cir. 1993)); see also Loughrin v. United States, ––– U.S. –––, 134 S. Ct.
2384, 2394–95 (2014) ("[T]he text of § 1344(2) [] limits its scope to deceptions that
have some real connection to a federally insured bank, and thus implicate the pertinent
federal interest." (citation omitted)).
H&Q has failed to allege that any appellee defrauded Malvern Bank. And H&Q
has likewise failed to sufficiently allege that any appellee engaged in the requisite
"false or fraudulent" activities to obtain bank property within the meaning of
§ 1344(2). The mere use of a bank's traditional customer services does not per se
transform the appellees' alleged misconduct into bank fraud; indeed, even assuming
arguendo that H&Q has sufficiently pleaded some kind of fraud, § 1344(2) is not "a
plenary ban on fraud" and does not "federaliz[e] frauds that are only tangentially
related to the banking system." Loughrin, 134 S. Ct. at 2392–93 (also noting that
§ 1344(2) should not be applied "to cover every pedestrian swindle happening to
involve payment by check"). The district court therefore did not err in finding that
H&Q failed to adequately allege bank fraud.
2. Mail and Wire Fraud
"When pled as RICO predicate acts, mail and wire fraud require a showing of:
(1) a plan or scheme to defraud, (2) intent to defraud, (3) reasonable foreseeability that
the mail or wires will be used, and (4) actual use of the mail or wires to further the
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scheme." Wisdom v. First Midwest Bank, of Poplar Bluff, 167 F.3d 402, 406 (8th Cir.
1999) (citing Murr Plumbing, Inc., 48 F.3d at 1069 n.6). "[T]he term 'scheme to
defraud' connotes some degree of planning by the perpetrator, [and] it is essential that
the evidence show the defendant entertained an intent to defraud." Atlas Pile Driving
Co. v. DiCon Fin. Co., 886 F.2d 986, 991 (8th Cir. 1989) (alterations in original)
(quoting United States v. McNeive, 536 F.2d 1245, 1247 (8th Cir. 1976)).
As the district court correctly noted:
[H&Q has] not alleged that their authorization was required for creation
of LLC accounts, or that such authorization was required for the transfer
[of] money from accounts belonging to the LLC. [H&Q's] allegations are
also devoid of any suggestion that [the Doll Companies] attempted to
conceal the existence of either account from [H&Q]. In fact, according
to [H&Q], [the Doll Companies] specifically revealed both accounts, at
the latest, in August of 2011. . . . In sum, there are no allegations from
which the Court can infer that [the Doll Companies] fraudulently sought
to deprive [H&Q] of any right to the customer payments, or that [the
Doll Companies] lacked any right to the customer payments transferred
to Account No. 119992. Thus, the Court cannot conclude that [the Doll
Companies'] representations were false or part of a fraudulent scheme.
Consequently, even assuming the Doll Companies used "mail or wires" to
deposit checks or transfer funds, H&Q's allegations fall woefully short of establishing
mail or wire fraud. See id. Thus, although certain of the appellees' alleged actions may
give rise to various state-law claims, they do not constitute racketeering activity within
the meaning of RICO.5
5
Given that H&Q has failed to adequately plead racketeering activity, we need
not address the district court's other reasons for dismissing H&Q's RICO claims. See
Wierman v. Casey's Gen. Stores, 638 F.3d 984, 1002 (8th Cir. 2011) ("[T]his court
may affirm for any reason supported in the record." (citation omitted)).
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B. Leave to Amend
Federal Rule of Civil Procedure 15(a) provides that "court[s] should freely give
leave [to amend a complaint] when justice so requires." Courts need not grant leave
to amend, however, if granting such leave would be futile. Doe, 660 F.3d at 358–59.
And, after reviewing H&Q's proposed second amended complaint, we agree with the
district court that H&Q's proposed amendments do not cure the above-described
deficiencies present in their RICO allegations. The district court therefore did not err
in denying H&Q's motion for leave. See id.III. Conclusion
Accordingly, we affirm the decision of the district court.
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