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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-2082
ANNETTE B. DeMAURO,
Plaintiff, Appellant,
v.
JOSEPH M. DeMAURO, EDWARD MARTIN, DeMAURO CO., INC.,
NICHOLAS DeMAURO, TRI-AREA DEVELOPMENT CO., INC. and JOAN MARTIN,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge]
____________________
Before
Boudin, Circuit Judge,
Bownes, Senior Circuit Judge,
and Lynch, Circuit Judge.
____________________
S. James Boumil for appellant.
Kathleen M. Morrissey with whom Bernard A. Dwork, Roger T.
Manwaring, Barron & Stadfeld, P.C., Richard L. Fox and Carragher & Fox
were on brief for appellees Edward Martin, DeMauro Co., Inc., Nicholas
DeMauro, Tri-Area Development Co., Inc. and Joan Martin.
____________________
June 11, 1997
____________________
BOUDIN, Circuit Judge. In this case, one of the
participants in a pending divorce action has invoked the
federal racketeering statute to challenge asset transfers by
her spouse. The district court responded by dismissing the
complaint without prejudice on abstention grounds. Because
dismissal was on the pleadings, we assume the truth of
statements in the complaint, cautioning that they have yet to
be proved.
Annette and Joseph DeMauro were married in 1979. Joseph
worked in the construction business and, according to Annette,
earned "millions of dollars," promising to share monies with
Annette. But the marriage proved less successful than his
business. The couple separated, and in 1994, Annette--a New
Hampshire resident--sued for divorce in New Hampshire state
court.
The divorce action has been a bitter and prolonged
contest. At various times, Joseph has refused to pay spousal
support orders (which total more than $250,000), has failed to
appear for court proceedings, has resisted discovery requests
concerning his income and property interests by invoking the
Fifth Amendment, and has been held in contempt of court. After
more than two years, the divorce action remains unresolved.
In May 1996, Annette filed the instant suit in the federal
district court in Massachusetts. The complaint named Joseph
and five other defendants: Joseph's 42-year-old son, Nicholas
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DeMauro; Joseph's sister and brother-in-law, Joan and Edwar
ons allegedly controlled by Joseph and
icholas--DeM auro Co., Inc. and Tri-Area Development Co., Inc.
Joseph d Martin; and two corporati N was alleged to have a residence in Massachusetts and
both corporations had offices in the state.
The complaint set forth a RICO claim for civil conspiracy,
18 U.S.C. S 1961 et seq., specifying predicate racketeering
acts of (1) mail fraud, 18 U.S.C. S 1341, (2) wire fraud, 18
U.S.C. S 1343, and (3) "extortionate threats," 18 U.S.C.
S 1951. The complaint also alleged pendent state-law claims1
for intentional infliction of emotional distress, breach of
fiduciary duty, conspiracy, fraudulent conveyances, and illegal
telephone recordings.
In support of the RICO claim, the complaint charged inter
alia that Joseph and the other defendants fraudulently
concealed from Annette separate and marital property to prevent
her from sharing in these assets. Annette alleged that Joseph
and the other defendants
by means of false pretenses, representations, and
devices established bank and investment accounts in
Switzerland, [the] Middle East, France,
Liechtenstein, several states of the United States
and various and sundry other locations most of which
accounts were established under the names of straws,
sham trusts, shell companies and phony
1 Diversity jurisdict ion was not available because although
Joseph is apparently not a New Hampshire resident, Annette and
the Martins are New Hampshire residents, thus defeating the
complete diversity requirement. Casas Office Machines, Inc. v.
Mita Copystar America, Inc., 42 F.3d 668, 673 (1st Cir. 1994).
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"foundations, " all designed to conceal the location,
extent, and existence of assets from [Annette] and
persons with whom [Joseph] did business.
The alleged activity was undertaken not by Annette's
husband alone, but also by others who comprised an alleged RICO
"enterprise," and it involves alleged concealments "well in
excess of a million dollars." And, allegedly, Joseph not only
threatened to deprive Annette of assets but also boasted that
he had bribed foreign officials to secure himself a false
identity and foreign passport.
In June 1996, all the defendants except Joseph moved to
dismiss the suit on various grounds, including lack of standing
to bring RICO claims and failure to plead fraud with requisite
particularity, Fed. R. Civ. P. 9(b). Joseph did not join these
motions because he had not yet been served process, despite
efforts by Annette to locate and serve him. Joseph was finally
served with process while appearing involuntarily in New
Hampshire state court, having been arrested and brought there
for a hearing on his failure to pay ordered spousal support.
On July 26, 1996, the district judge issued a seven-page
order. He expressed doubt whether Annette had shown a property
interest protectible under the civil RICO statute; but he
ultimately did not decide this issue and instead dismissed
without prejudice Annette's claims against all the defendants.
The dismissal was based upon the doctrine of abstention
established in Burford v. Sun Oil Co., 319 U.S. 315 (1943).
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Rather than staying the federal proceedings, the court
dismissed, noting that Annette could
replead if and when she can show a "property" right
which . . . has been denied her by the defendants'
allegedly illegal transfers--that is, after the
resolution of the divorce action and the attendant
allocation of marital assets.
The parties had not addressed the possibility of
abstention in their filings. In August 1996, Annette moved for
reconsideration, arguing that abstention was not proper and
that, if it were proper, the court should stay proceedings
rather than dismissing the action. The court denied her motion
without comment. Annette now appeals.
1. For reasons that will become evident, we begin with
the threshold issue bypassed by the district court, namely,
whether the plaintiff has made out a claim of "injury" to her
"business or property," as is required for a civil RICO damages
action. 18 U.S.C. S 1964(c). This is sometimes described as
a "standing" issue. There is plainly a case or controversy
under Article III; but the statutory precondition of injury to
business or property must also be met. Sedima, S.P.R.L. v.
Imrex Co., 473 U.S. 479, 496 (1985).
One might think it obvious that a precondition in a
federal statute would be defined uniformly by federal law. Cf.
Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S.
143, 147-49 (1987) (civil RICO statute of limitations). This
is especially so where the same phrase--injury to business or
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property--is also a long-standing requirement under section 4
of the Clayton Act, 15 U.S.C. S 15(a). Yet, the RICO
precedents are filled with references to state property law,
which is often said to govern by implicit cross-reference.
E.g., Doe v. Roe, 958 F.2d 763, 768 (7th Cir. 1992) (citing
cases).
Some role does exist for state law. There is no general
federal law of property transfers, so the question who owns a
piece of property is likely to be settled by state law. On the
other hand, one might expect federal law to decide whether a
given interest, recognized by state law, rises to the level of
"business or property," or whether "injury" has been done to it
by the acts alleged.2 Where to set the "business or property"
threshold depends on federal statutory purpose, and that
purpose is likely to support a definition that is uniform
throughout the country.
In all events, the assets that Annette ultimately claims
to have been concealed are "property" by any definition: the
complaint alleges fraudulent concealment and transfers of real
property and bank account funds by Joseph. One difficulty--so
far as we can tell from the undeveloped record--is that most
(perhaps all) of this property may have been held from the
2 E.g. , A ssociated Gen. Contractors of California, Inc. v.
California State Council of Carpenters, 459 U.S. 519, 529-45
(1983) (examining the meaning of "injury" under section 4 of
the Clayton Act); compare Roma Constr. Co. v. aRusso, 96 F.3d
566, 579-80 n.10 (1st Cir. 1996) (Lynch, J., concurring).
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outset in Joseph's name or in the name of others such as
foundations that he controls. The complaint also implies that
most (perhaps all) of the underlying assets were the result of
the success of Joseph's construction business.
New Hampshire is not a community property state, see Baker
v. Baker , 421 A.2d 998, 1000 (N.H. 1980), and much of the real
property and monies described in the complaint may not yet be
Annette's property. To this extent, what Annette has is an
expectancy: in the divorce proceedings, some or much of this
property may be awarded to Annette. State law provides for
"equitable division" in divorce actions of "all tangible and
intangible property and assets . . . belonging to either or
both parties, whether title to the property is held in the name
of either or both parties." N.H. Rev. Stat. Ann. S 458:16-a.
An equal division is presumptively equitable. Id. S 458:16-
a(II).
If the real and other tangible property, or most of it,
belongs to Joseph, can it still be said that Annette's divorce-
suit claim to a share is also "property" protectible by RICO?
Possibly so. Some precedent, at least under the Clayton Act,
extends protection to intangibles under certain circumstances.3
3E.g., E.A. McQuade Tours, Inc. v. Consolidated Air Tour
Manual Comm., 467 F.2d 178, 184 (5th Cir. 1972), cert. denied,
409 U.S. 1109 (1973) (contracts are "property" under the
Clayton Act); cf. Logan v. Zimmerman Brush Co., 455 U.S. 422,
430-33 (1982) (right to use adjudicatory procedures created by
state Fair Employment Practices Act is "property" protected by
the Due Process Clause).
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But even if we assume arguendo that Annette's claim is itself
protected property, the question remains whether Joseph's
alleged efforts to conceal what is still his property (real
property and cash) has "injured" Annette's property (her
inchoate claim).
Certainly, Annette may be worse off because of the
concealment; but her legal claim remains intact, together with
various remedies directed at concealment of assets. (In fact,
she has already obtained attachments in state court totalling
$33 million on property owned partly or solely by Joseph.) No
one knows what Annette will be awarded in the divorce action or
whether Joseph's alleged efforts to conceal will hamper her
ability to collect. In sum, any claim of present "injury" to
her claim is speculative, so long as we are concerned with the
movement of real property or cash that for now belongs to
Joseph.
Pertinent here is a decision of this court upholding
dismissal of a civil RICO claim brought by a plaintiff who
alleged injury based on a "hypothetical inability to recover"
if it won its pending contract lawsuit against the defendant.
The defendant had allegedly made fraudulent transfers of assets
to his wife; but we held that the RICO claim was not ripe for
adjudication because the claimed injury was too speculative.
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Lincoln House, Inc. v. Dupre, 903 F.2d 845, 847 (1st Cir.
1990). This and like decisions4 seem directly on point.
To be sure, there is a certain arbitrariness in drawing
the line here. But while RICO is to be construed broadly,
Sedima, 473 U.S. at 498, "injury to property" is not an
infinitely elastic concept. And in cases like this, it is hard
to see how a court would calculate damages now, given the dual
uncertainties of what Annette will be awarded and how it will
be affected by concealment. See First Nationwide Bank v. Gelt
Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994), cert. denied,
115 S. Ct. 728 (1995) ("[A]s a general rule, a cause of action
does not accrue under RICO until the amount of damages becomes
clear and definite.").
This conclusion--that Annette has not adequately alleged
injury to her property--applies only to the extent that the
concealed property currently belongs solely to Joseph or
others. However, the complaint also asserts that Joseph has
sought to conceal "marital" or "separate" property. To the
extent that Annette is claiming a present ownership interest,
she appears to be asserting injury to her property within the
terms of the RICO statute. Cf. Grimmett v. Brown, 75 F.3d 506,
4See Barnett v. Stern, 909 F.2d 973, 977 n.4 (7th Cir.
1990); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1106 (2d
Cir. 1988), cert. denied, 490 U.S. 1007 (1989); Capasso v.
Cigna Ins. Co., 765 F. Supp. 839, 842 (S.D.N.Y. 1991).
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516-17 (9th Cir.), cert. granted, 116 S. Ct. 2521 (1996), cert.
dismissed, 117 S. Ct. 759 (1997).
Admittedly, Annette's allegations of ownership are
confusing and in certain respects lack supporting detail. They
certainly could be explored through inquiry and discovery and
could be tested, if doubtful, by a motion to dismiss or by
summary judgment. Still, on the present pleadings the
possibility remains that Annette already owns some of the
property allegedly concealed by Joseph and others. On that
premise, we turn to the issue of abstention.
2. We note at the start that the district court's remedy-
-dismissal on abstention grounds--is not permissible. Just two
months before the district court issued its ruling, the Supreme
Court held that abstention, under Burford or otherwise, may be
appropriate in suits for damages. Quackenbush v. Allstate Ins.
Co. , 116 S. Ct. 1712, 1728 (1996). But the Court further held
that in a damages action, the district court may only order a
stay pending resolution of state proceedings; it cannot invoke
abstention to dismiss the suit altogether. Id.
The rationale of Quackenbush is that damages actions,
unlike suits for equitable relief, do not invoke the court's
equitable discretion. Id. at 1727. This rule may seem rather
wooden, given the merger of law and equity, but the Court means
what it says: Quackenbus h held that the dismissal of a damages
action on Burford grounds was reversible error, without
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deciding whether "a more limited abstention-based stay order
would have been warranted on the facts of this case." Id. at
1728. There is no question that the present RICO claim is
primarily a damages action. See complaint, qq 62-67. It is
uncertain whether equitable relief is even available to private
plaintiffs under civil RICO. Lincoln House, 903 F.2d at 848.
The question remains whether the district court has
authority at least to stay Annette's federal suit on abstention
grounds, pending resolution of the New Hampshire divorce
proceeding. In that proceeding, the state court might
determine what property is currently owned by Annette. See
N.H. Rev. Stat. Ann. S 458:16-a(II). For this reason, another
district court--cited by the district court in this case--has
abstained from adjudicating a federal RICO action brought by a
spouse involved in pending divorce proceedings. Farkas v.
D'Oca, 857 F. Supp. 300, 303-04 (S.D.N.Y. 1994). See also
Dibbs v. Gonsalves, 921 F. Supp. 44, 52 (D.P.R. 1996).
This is not a wholly persuasive reason given New Hampshire
law's stress on an equitable division of all the parties'
property. The New Hampshire decree may just as well not decide
who owned specific property prior to the divorce: its main
concern is with who will own what after the divorce. And, the
Supreme Court has discouraged abstention based solely on the
ground that a related state court action may address similar
issues, Colorado River Water Conservation Dist. v. United
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States , 424 U.S. 800, 817 (1976), with only limited exceptions,
e.g., Railroad Comm'n of Texas v. Pullman Co., 312 U.S. 496
(1941).
A more plausible basis for abstention is the possible
interference that a civil RICO action at this time might cause
to the state court's decision as to how to divide property in
the divorce. The so-called domestic relations exception does
not preclude federal courts from adjudicating tort actions
merely because the parties were married and are in the process
of divorce. Ankenbrandt v. Richards, 504 U.S. 689, 704 (1992).
But this case is not just a tort action between divorcing
parties: the civil RICO claim is directed to the same property
that is going to be allocated between the parties as a result
of the decree. Cf. Colorado River, 424 U.S. at 819.
In this instance, the state court may be unlikely to award
Joseph any interest in property now owned solely by Annette,
but that is hardly so clear with respect to property owned
jointly. Suppose Annette were awarded the value (or three
times the value) of disputed jointly owned property in the RICO
case and the state court then determined that the same property
ought to be allocated to Joseph. At the very least, there is
a possibility of conflict between judgments,
requiring one of them to be modified to take account of
the other. Otherwise, the state divorce decree's intended
allocation of property could easily be frustrated.
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Another potential conflict is Annette's expressed interest
in seeking interim relief from the federal court, presumably by
way of provisional attachments or other ad litem remedies. Cf.
Fed. R. Civ. P. 64; Teradyne, Inc. v. Mostek Corp., 797 F.2d
43, 53 (1st Cir. 1986). The federal court's ability to reach
and freeze out-of-state property may well be greater than the
New Hampshire divorce court's. At the same time, interim
allocations of property are standard fare for divorce courts,
and the obvious potential for interference with this function
is an extremely serious matter.
Our case, and those kinds of threatened interference, are
not a perfect fit with the Burford doctrine. There, the
Supreme Court approved abstention to avoid conflict with a
comprehensive state regime of business regulation.5 But
abstention doctrines are not "rigid pigeonholes," Pennzoil Co.
v. Texaco Inc., 481 U.S. 1, 11 n.9 (1987), and the ultimate
question is whether there are "exceptional circumstances" in
which abstention "would clearly serve an important . . .
interest." Colorado Rive r, 424 U.S. at 813 (citation omitted).
Such an interest is potentially present here. See also Minot
v. Eckardt-Minot, 13 F.3d 590, 593-95 (2d Cir. 1994).
5Burford, 319 U.S. at 326 (allocation of oil drilling
rights). See also Alabama Public Serv. Comm'n v. Southern Ry.
Co. , 341 U.S. 341, 346-48 (1951) (scheduling of local railroad
service); All state Ins. Co. v. Sabbagh, 603 F.2d 228, 229 (1st
Cir. 1979) (setting of automobile insurance rates).
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Not only divorce, but the allocation of property incident
to a divorce, are longstanding local functions governed by
state law. Ankenbrandt, while curtailing the domestic
relations exception, nevertheless made clear the priority given
the state resolution of family law issues, including alimony
determinations. 504 U.S. at 704, 706. See also Friends of
Children, Inc. v. Matava, 766 F.2d 35, 37 (1st Cir. 1985).
Divorces are frequently accompanied by disputes about property,
including both interim and final allocations. Such state court
authority would be threatened if civil RICO actions become the
shadow proceeding for policing such disputes.
We conclude that abstention by use of a stay may be
permissible where a RICO action is directed against concealment
or transfer of property that is the very subject of a pending
divorce proceeding. The divorce proceedings might or might not
resolve the federal dispute--there are many possible
permutations and plenty of unanswered legal questions. But
staying the federal RICO claim will reduce the risk of
interfering with interim state allocations and permit the
federal court to tailor any final federal judgment to avoid
undermining the divorce court's allocation of property.
3. While abstention may be permissible, it cannot be
automatic in a case of this kind. A decision to abstain
requires not only that certain preconditions be met, but also
that the district court reasonably find that such abstention is
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appropriate in the case at hand.6 Of course, this may not be
much of an issue when the particular abstention rubric itself
resumes stro
defendant seeks a federal injunction interfering with an
ongoing state criminal trial. Younger, 401 U.S. at 45, 54.
Cases like the present one differ markedly from situations
like Younger. Not only do we have far less experience with p ngly in favor of abstention--for example, where a
civil RICO actions that overlap divorce proceedings, but
extreme variations can be imagined both as to underlying facts
and equitable concerns. Certainly in some instances a civil
RICO claim might be so plausible and so distinct from an
ordinary divorce action property dispute as to undermine any
argument for a stay; or even if a trial were stayed, there
might be a compelling argument for interim relief to protect
the plaintiff's right to ultimate relief in the RICO action.
In sum, abstention here is a possible, but not a
mechanical answer. The district court's judgment cannot stand,
simply because it conflicts with Quackenbush. Nor do we think
that the dismissal on abstention grounds can simply be
transformed into a stay; such a stay might in the end be
equitably justifiable, but not without giving the parties a
6See Quackenbush, 116 S. Ct. at 1726-28; Colorado River,
424 U.S. at 818; Younger v. Harris, 401 U.S. 37, 54 (1971);
Bath Memorial Hosp. v. Maine Health Care Fin. Comm'n, 853 F.2d
1007, 1015 (1st Cir. 1988); Friends of Children, Inc., 766 F.2d
at 37.
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chance to address the matter and not without an appraisal by
the court that goes beyond the possible overlap in issues.
In making such an appraisal, the district court is free to
consider the plausibility of this civil RICO claim as a
freestanding cause of action, the actual threat in this case
for conflict between such a suit and the pending state divorce
action, any threat of immediate harm associated with alleged
ongoing civil RICO violations, and other consequences or
concerns that make it equitably reasonable to accelerate or to
defer consideration of federal relief. Once the pertinent
factors are mustered and assessed, the district court's
exercise of judgment is normally respected. Friends of
Children, Inc., 766 F.2d at 37.
The district court has no obligation to pursue the
abstention issue at all if the matter can be disposed of more
appropriately on other grounds. Motions to dismiss have been
made for lack of standing (an issue discussed above), for
failure to plead fraud with particularity, and for other
reasons. Possibly, further exploration will reveal that
Annette has no standing as to any of the property in question.
In all events, the order in which to consider issues is a
matter for the district judge.
The treatment of the pendent state claims depends, in
turn, on the outcome of the inquiries just described. If the
district court finds no basis for a claim of injury to
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property, presumably it will dismiss the pendent claims without
prejudice. See 28 U.S.C. S 1367(c)(3). If it determines to
stay the civil RICO claim on abstention grounds, then the
treatment of the pendent claims is less clear-cut, see id.
S 1367(c)(4), but the parties have not addressed that issue,
and we express no view upon it.
The judgment of the district court is vacated and the
matter remanded for further proceedings consistent with this
decision.
It is so ordered.
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Document Info
Docket Number： 96-2082
Filed Date： 6/11/1997
Precedential Status： Precedential
Modified Date： 3/3/2016