Foster v. Wintergreen Real Estate Co. , 363 F. App'x 269 ( 2010 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-2356
C. ALLEN FOSTER; SUSAN C. FOSTER; WILLIAM F. JONES,
Plaintiffs - Appellants,
v.
WINTERGREEN REAL ESTATE COMPANY; RICHARD C. CARROLL; PETER
V. FARLEY; TIMOTHY C. HESS; KYLE T. LYNN,
Defendants - Appellees.
Appeal from the United States District Court for the Western
District of Virginia, at Charlottesville. Norman K. Moon,
District Judge. (3:08-cv-00031-nkm-bwc)
Argued: December 4, 2009 Decided: January 29, 2010
Before TRAXLER, Chief Judge, and AGEE and DAVIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Edward B. Lowry, MICHIE, HAMLETT, LOWRY, RASMUSSEN & TWEEL, PC,
Charlottesville, Virginia, for Appellants. Lloyd Lee Byrd,
SANDS, ANDERSON, MARKS & MILLER, Richmond, Virginia, for
Appellees.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Allen Foster (“A. Foster”), Susan Foster (“S. Foster”), and
William Jones (“Jones”) (collectively, “Plaintiffs”) appeal the
judgment of the United States District Court for the Western
District of Virginia, which dismissed their Complaint against
Wintergreen Real Estate Company (“WREC”), Richard Carroll
(“Carroll”), Peter Farley (“Farley”), Timothy Hess (“Hess”), and
Kyle Lynn (“Lynn”) (collectively, “Defendants”) for failure to
state a claim under the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., and the
Lanham Act, 15 U.S.C.A. § 1125(a). 1 The Plaintiffs also appeal
the district court’s subsequent denial of a motion to amend the
Complaint. For the following reasons, we affirm the judgment of
the district court.
I.
A.
During a period of approximately three years, the
Plaintiffs, three real estate investors, purchased and sold a
1
The Complaint and Amended Complaint also make various
state law claims, including fraud, misrepresentation, breach of
fiduciary duty, breach of contract, breach of express warranty,
statutory and common law conspiracy, false advertising, and
tortious interference. The dismissal of these claims is not
challenged on appeal.
2
number of properties in the Wintergreen Resort (“Resort”) using
the services of WREC and the individual Defendants.
Plaintiffs allege that, during the course of their business
dealings, Defendants made various false statements and/or
concealed material facts, which include, generally: that the
Defendants are members of the Multiple Listing Service (“MLS”)
and that all of the properties would be listed on the MLS
(hereinafter “MLS scheme”); 2 that WREC is the dominant real
estate company in the Resort (Complaint & Amended Complaint
¶¶18, 22); that Carroll is the top real estate agent at WREC
(Complaint & Amended Complaint ¶¶18, 22); that WREC engages in
an “effective marketing program”; 3 that Defendants fraudulently
2
Plaintiffs allege that “inclusion in the MLS is a critical
factor in the exposure of ‘for sale’ properties to the
marketplace and, thereby, in securing the best price for such
properties.” (Complaint & Amended Complaint ¶35). Plaintiffs
further allege that, “even in the cases in which the Defendants
actually did put Plaintiffs’ ‘for sale’ lots in MLS, they did
not include a picture of the lot in the listing, thereby making
the MLS listing essentially worthless, contrary to the
representations the Defendants had made to the Plaintiffs” (so-
called “sham” listings). (Complaint ¶66; Amended Complaint ¶75).
In the Amended Complaint, Plaintiffs further allege that
Defendants “utilized similar ‘sham’ MLS listings . . . to
defraud hundreds of sellers other than the Plaintiffs, beginning
no later than January, 2000 . . . .” (Amended Complaint ¶76).
3
Specifically, “contrary to the representations which the
Defendants had made to the Plaintiffs,” “Defendants did not
prepare [or distribute] color brochures for Plaintiffs’ ‘for
sale’ homes” (Complaint ¶¶68-69; Amended Complaint ¶¶80-81);
“Defendants did not hold an open house” (Complaint ¶70; Amended
Complaint ¶82); “Defendants did not put Plaintiff’s ‘for sale’
(Continued)
3
assured Plaintiffs that the Summit House property was the “last
piece of developable multifamily land left at [the] Resort”
(Complaint ¶¶100-09; Amended Complaint ¶¶121-32); that
Defendants failed to disclose that there was a noisy stump
grinder operating next to property Plaintiffs purchased in the
Stoney Creek area of the Resort (Complaint ¶¶110-15; Amended
Complaint ¶¶133-38); and that Defendants violated dual
representation restrictions (Complaint ¶¶85-96; Amended
Complaint ¶¶105-17), and other realtor standards of conduct.
(Amended Complaint ¶¶148-51).
Plaintiffs contend that at least some of these alleged
fraudulent acts were conducted through interstate communication
via the mail and wire, and were perpetrated on “hundreds” of
other out-of-state clients. They claim that all of these acts
were committed so that Defendants would earn a higher
commission, at the expense of potential profit for Plaintiffs.
(Complaint ¶¶84, 96, 108, 113, 123; Amended Complaint ¶¶104,
112, 131, 136, 146).
Based on these allegations, Plaintiffs alleged that
Defendants violated several statutes: (1) conducting or
properties on any exclusive Wintergreen TV channel” (Complaint
¶71; Amended Complaint ¶83); and “Defendants did not advertise
Plaintiffs’ ‘for sale’ properties in any commercial print
medium.” (Complaint ¶72; Amended Complaint ¶84).
4
participating in a RICO enterprise, in violation of 18 U.S.C. §
1962(c) (Count I); (2) investment of proceeds of racketeering
activity, in violation of 18 U.S.C. § 1962(a) (Count II); (3)
conspiracy to violate RICO, in violation of 18 U.S.C. § 1962(d)
(Count III) (collectively, “RICO claims”); and (4) false
advertisement, in violation of the Lanham Act, 15 U.S.C. §
1125(a) (Count XI).
B.
The district court dismissed the Complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6) for failure to state a
claim, holding, in relevant part, that Plaintiffs failed to
allege facts supporting the RICO claims and did not have
standing to assert the Lanham Act claim. As to the RICO claims,
the court held that
the pattern alleged by the Plaintiffs is based solely
on predicate acts of wire and mail fraud. Such cases
require closer scrutiny before concluding that
Plaintiffs have shown a pattern of racketeering
activity. When considering the alleged scheme at
issue in this case, it does not appear to be the type
of social evil meant to be addressed by RICO. While
Plaintiffs allege the scheme was directed at other
victims besides themselves, those allegations are too
speculative to support a finding of a pattern of
racketeering activity.
J.A. 213.
As to the Lanham Act claim, the district court held that
Plaintiffs lacked standing because “[t]he Fourth Circuit has
5
squarely held that consumers do not have standing to sue under
the Lanham Act,” J.A. 216-17, and “in this case . . . it is
difficult to imagine how the Plaintiffs might have had any
relationship with the Defendants other than as a consumer.” J.A.
218.
Plaintiffs moved for reconsideration and for leave to amend
the Complaint. In conjunction with these motions, Plaintiffs
proffered an Amended Complaint “on the grounds that the
additional allegations contained in the proposed Amended
Complaint would cure the defects in the original Complaint and
state a claim under [RICO].” J.A. 539.
The Amended Complaint contained the same basic allegations
made in the Complaint, with greater detail and certain notable
additions: it included additional details about the properties
allegedly involved in the MLS scheme (Amended Complaint ¶¶43-
54); charged that the MLS scheme took place for eight years
instead of three years and that Defendants perpetrated the
scheme on hundreds of other clients (Amended Complaint ¶¶76-78);
included the names and addresses of some of these persons, J.A.
419-512; included allegations of how each individual Defendant
was personally involved in the scheme (Amended Complaint ¶86);
included an affidavit from Wesley C. Boatwright (“Boatwright”);
and included an affidavit from Ivo Romanesko (“Romanesko”),
attesting that “the use of marketing tools, such as including
6
properties in MLS . . . are essential” and “the standard in the
industry.” J.A. 235.
The district court denied both the motion for
reconsideration and the motion to amend. The court evaluated
the Amended Complaint and held that amendment would be futile as
the additional allegations are insufficient to show
that the alleged scheme extended beyond the Plaintiffs
in scope or degree adequate to constitute a pattern of
racketeering activity.
. . . None of the additional allegations in the
Amended Complaint serve to differentiate this case
from a “garden variety fraud” or ordinary business
dispute.
J.A. 542-43.
Plaintiffs timely appealed the district court’s judgment,
and we have jurisdiction pursuant to 28 U.S.C. §§ 1291 and 1294.
II.
Plaintiffs contend that the district court erred in holding
that Counts I, II, and III failed to adequately allege a pattern
of racketeering activity. Plaintiffs also contend that the
district court erred in finding that Count XI failed to
adequately state a cause of action under the Lanham Act.
Finally, Plaintiffs argue that the district court abused its
7
discretion by denying the motion to amend on the grounds of
futility. 4
We review a district court’s dismissal pursuant to Rule
12(b)(6) de novo. Robinson v. Am. Honda Motor Co., 551 F.3d
218, 222 (4th Cir. 2009). Courts should “read the facts alleged
in the complaint in the light most favorable to petitioners,”
H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 249-50 (1989), and
the “complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Iqbal, 129 S. Ct. at 1949.
The standard of review applicable to the denial of a motion
to amend pursuant to Rule 15(a) is an abuse of discretion
standard. Laber v. Harvey, 438 F.3d 404, 428 (4th Cir. 2006) (en
banc).
4
Plaintiffs do not appeal the district court’s denial of
the motion for reconsideration.
8
III.
A. RICO Claims
Count I alleges that Defendants conducted or participated
in a RICO enterprise, in violation of 18 U.S.C. § 1962(c).
Section 1962(c) provides that:
It shall be unlawful 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 or
collection of unlawful debt.
18 U.S.C. § 1962(c). “‘Racketeering activity’ is defined as any
of a number of predicate acts, including mail and wire fraud,”
Al-Abood v. El-Shamari, 217 F.3d 225, 238 (4th Cir. 2000), as
alleged in the case at bar. See 18 U.S.C. §1961(1). 5 For a
pattern of racketeering activity to exist, “two or more
predicate acts of racketeering must have been committed within a
ten year period.” ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 181
(4th Cir. 2002).
The pattern requirement is important because “[i]n
providing a remedy of treble damages . . . Congress contemplated
5
The elements of mail fraud are: “(1) a scheme to defraud,
and (2) the mailing of a letter, etc., for the purpose of
executing the scheme.” Pereira v. United States, 347 U.S. 1, 8
(1954). The elements of wire fraud are similar; applying to the
use of electronic or telephonic communication. Plaintiffs have
pled multiple instances of mail and wire fraud.
9
that only a party engaging in widespread fraud would be subject
to such serious consequences.” Menasco, Inc. v. Wasserman, 886
F.2d 681, 683 (4th Cir. 1989). For this reason, RICO’s remedies
are not appropriate for “the ordinary run of commercial
transactions.” Id.; see also ePlus Tech., 313 F.3d at 181(noting that the pattern requirement is “designed to prevent
RICO’s harsh sanctions . . . from being applied to garden-
variety fraud schemes”). Instead, “[w]e have reserved RICO
liability for ‘ongoing unlawful activities whose scope and
persistence pose a special threat to social well-being.’” Al-
Abood, 217 F.3d at 238 (quoting Menasco, 886 F.2d at 684).
Consequently, “simply proving two or more predicate acts is
insufficient for a RICO plaintiff to succeed.” Id. at 238.
Instead, “a plaintiff . . . must show that the racketeering
predicates are related, and that they amount to or pose a threat
of continued criminal activity.” H.J. Inc., 492 U.S. at 239.
Thus, “[i]n essence, the pattern requirement has been reduced to
a ‘continuity plus relationship’ test.” ePlus Tech., 313 F.3d at
181.
As to the continuity requirement, “‘[c]ontinuity’ is 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.”
H.J. Inc., 492 U.S. at 241. Closed-ended continuity is shown by
10
“proving a series of related predicates extending over a
substantial period of time.” Id. at 242. Open-ended continuity
“depends on the specific facts of each case” and may be shown,
for example, “if the related predicates themselves involve a
distinct threat of long-term racketeering activity,” or if “the
predicate acts or offenses are part of an ongoing entity’s
regular way of doing business.” Id.Although Plaintiffs allege multiple instances of mail and
wire fraud over the course of an arguably substantial period of
time, “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.” Al-Abood, 217 F.3d at 238 (internal quotations omitted).
“This caution is designed to preserve a distinction between
ordinary or garden-variety fraud claims better prosecuted under
state law and cases involving a more serious scope of activity.”
Id.The case at bar is such an instance of “garden-variety
fraud.” Essentially, Plaintiffs allege that Defendants
misrepresented their efforts to market for-sale properties,
misrepresented or failed to disclose material facts about
specific properties, and breached their fiduciary duties. These
are quintessential state law claims, not a “scheme[] whose scope
11
and persistence set [it] above the routine.” HMK Corp. v.
Walsey, 828 F.2d 1071, 1074 (4th Cir. 1987).
This conclusion is bolstered by the fact that Plaintiffs
failed to plead with particularity that any other persons were
similarly harmed by Defendants’ alleged fraud, and thus failed
to show “a distinct threat of long-term racketeering activity.”
H.J. Inc., 492 U.S. at 242; see also Menasco, 886 F.2d at 684.
The Complaint summarily draws the conclusion that other persons
were harmed by the MLS scheme because “a comparison of the MLS
listings for Nelson County with the Nelson County property
transfer records during the relevant period reveals hundreds of
properties . . . which were, on information and belief, listed
with Defendants but were not included in MLS.” J.A. 29. Based
on this fact and the vague reference to “interview[s] [with] a
number of sellers,” Plaintiffs argue that Defendants “did not
obtain those sellers’ consent to the omission of those
properties from MLS.” J.A. 29. However, a complaint must plead
sufficient facts to allow a court to infer “more than the mere
possibility of misconduct.” Iqbal, 129 S. Ct. at 1950.
Plaintiffs attempted to rectify this deficiency in the
Amended Complaint by including lists of properties handled by
Defendants that were not listed on MLS and the names and
addresses of the sellers associated with those properties.
However, regardless of these lengthy exhibits, Plaintiffs
12
nevertheless fail to plead with particularity that any specific
person was defrauded other then themselves, much less give any
particulars of the fraud. Therefore, “[t]hese allegations lack
the specificity needed to show a ‘distinct’ threat of continuing
racketeering activity.” Menasco, 886 F.2d at 684.
Ultimately, “this circuit will not lightly permit ordinary
business contract or fraud disputes to be transformed into
federal RICO claims.” Flip Mortg. Corp. v. McElhone, 841 F.2d
531, 538 (4th Cir. 1988). If we were “to adopt such a
characterization[, we] would transform every such dispute into a
cause of action under RICO.” Id. (internal quotation omitted).
In light of these considerations, we hold that this case is “not
sufficiently outside the heartland of fraud cases to warrant
RICO treatment.” Al-Abood, 217 F.3d at 238. 6 The district court
thus did not err in granting the motion to dismiss.
6
The remaining RICO claims also fail, as they rely on
successfully pleading a pattern of racketeering activity.
Plaintiffs argue that the district court erred when it concluded
that the “allegations are insufficient under Rule 9(b) to state
a claim against the individual Defendants other than Mr.
Carroll,” because Plaintiffs did not “allege with specificity
that any . . . communications were with anyone other than
Defendant Carroll.” J.A. 208-09. However, because no pattern of
racketeering existed as to any Defendant, this argument must
fail.
Plaintiffs’ argument as to Count II must also fail, because
§ 1962(a) requires as an element of proof that Defendants
“derived income from a pattern of racketeering activity.” United
(Continued)
13
B. Lanham Act
The district court found that “[t]he Fourth Circuit has
squarely held that consumers do not have standing to sue under
the Lanham Act.” J.A. 216-17. Because “it is difficult to
imagine how the Plaintiffs might have had any relationship with
the Defendants other than as a consumer,” J.A. 218, the district
court concluded that “the Plaintiffs do not have standing to sue
under the Lanham Act.” Id.
It is undisputed that “a consumer does not have standing
under the Lanham Act to sue for false advertising.” Made in the
USA Found. v. Phillips Foods, Inc., 365 F.3d 278, 281 (4th Cir.
2004) (emphasis added). Instead, the “Lanham Act is ‘a private
remedy [for a] commercial plaintiff who meets the burden of
proving that its commercial interests have been harmed by a
competitor’s false advertising.’” Id. (quoting Mylan Lab., Inc.
v. Matkari, 7 F.3d 1130, 1139 (4th Cir. 1993)); see also Barrus
v. Sylvania, 55 F.3d 468, 470 (9th Cir. 1995) (“[I]n order to
satisfy standing the plaintiff must allege commercial injury
States v. Vogt, 910 F.2d 1184, 1194 (4th Cir. 1990) (emphasis
added).
Consequently, because the Plaintiffs failed to state claims
as to §§ 1962(a) or (c), Plaintiffs’ charge of conspiracy to
violate RICO pursuant to § 1962(d) is also without merit. See GE
Inv. Private Placement Partners II v. Parker, 247 F.3d 543, 551
n.2 (4th Cir. 2001).
14
based upon a misrepresentation about a product, and also that
the injury was ‘competitive,’ i.e., harmful to the plaintiff’s
ability to compete with the defendant.”). Although some courts
have held that a party need not be in direct competition with
the defendant to have standing, 7 no court has held that a
consumer has standing.
Plaintiffs attempt to avoid classification as “consumers”
by arguing that they have a “business relationship” with
Defendants. Nevertheless, Plaintiffs squarely fit into the
“consumer” category. Plaintiffs were typical consumers of
Defendants’ services as a real estate company and real estate
agents. The “business relationship” to which Plaintiffs refer
is simply a different term for the ordinary relationship between
a seller of real estate services and the consumer of those
services. Thus, as consumers, Plaintiffs lack standing to sue
under the Lanham Act and the district court did not err in
granting the motion to dismiss.
7
See Berni v. Int’l Gourmet Rests. of Am., Inc., 838 F.2d
642, 648 (2d Cir. 1988); Camel Hair and Cashmere Inst. of Am.,
Inc. v. Associated Dry Goods Corp., 799 F.2d 6, 12 (1st Cir.
1986) (holding that a trade group had standing, because its
commercial interest had been harmed even though not a
competitor).
15
C. Motion to Amend
“[A] post-judgment motion to amend is evaluated under
the same legal standard”—grounded on Rule 15(a)—“as a
similar motion filed before judgment was entered.”
Rule 15(a) directs that leave to amend shall be freely
given when justice so requires. . . . Our court
therefore reads Rule 15(a) to mean that leave to amend
should be denied only when the amendment would be
prejudicial to the opposing party, there has been bad
faith on the part of the moving party, or amendment
would be futile.
Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d
172, 193 (4th Cir. 2009) (quoting Laber, 438 F.3d at 426-27)
(internal citations omitted). “Leave to amend . . . should only
be denied on the ground of futility when the proposed amendment
is clearly insufficient . . . on its face.” Johnson v. Oroweat
Foods Co., 785 F.2d 503, 510 (4th Cir. 1986).
The district court considered the Amended Complaint and
held that it would be futile to grant the motion to amend
because “the additional allegations are insufficient to show
that the alleged scheme extended beyond the Plaintiffs in scope
or degree adequate to constitute a pattern of racketeering
activity.” J.A. 542.
As discussed above, neither the Complaint nor the Amended
Complaint allege a pattern of racketeering activity sufficient
to support a RICO claim, nor did the Amended Complaint cure
Plaintiffs’ lack of standing under the Lanham Act. Thus, “[t]he
proposed amendment would not have corrected the fundamental
16
defect in the complaint.” New Beckley Min. Corp. v. Int’l Union,
United Mine Workers, 18 F.3d 1161, 1164 (4th Cir. 1994).
Therefore, the district court did not abuse its discretion in
holding that amendment would be futile and denying the motion to
amend.
IV.
For the foregoing reasons, we conclude that the district
court did not err in dismissing Plaintiffs’ Complaint for
failure to state a claim. Nor did the district court abuse its
discretion in denying Plaintiffs’ motion to amend due to
futility. Accordingly, the judgment of the district court is
AFFIRMED.
17