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Marks v. Forster

decided: February 9, 1987.


Appeal from the United States District Court for the Northern District of Illinois, No. 85-C-9399, William T. Hart, Judge.

Author: Campbell

Before CUMMINGS, Chief Judge, and CUDAHY, Circuit Judge, and CAMPBELL, Senior District Judge.*fn*

CAMPBELL Senior District Judge.

Plaintiff-appellant John L. Marks appeals the district court's dismissal of his action brought under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. For the reasons set forth below, we affirm the dismissal.

The facts in this case, as advanced by appellant and therefore viewed in a light most favorable to appellant are as follows. Defendants-appellees Pannell Kerr Forster and John P. Jaeger (Pannell/Jaeger) were hired as certified accountants to handle partnership arrangements principally owned and controlled by Anthony Antoniou. Appellant Marks alleges he acquired interests in 21 of these partnership between 1974 and 1983. It was customary that during this time period Pannell/Jaeger would view the partnerships' financial records and release to all partners involved K-1 tax schedules indicating the interest each partner had in the various partnerships.

According to Marks, on January 15, 1984 Antoniou notified him by letter that he no longer had any interests in the Antoniou partnerships. However, Marks alleges he has substantial interest in 21 partnership arrangements with Antoniou, the value of which exceeds $8,000,000. Marks claims that when he requested explanatory information from Antoniou as to how he could suddenly have no interests in the partnerships the request was turned down. On August 2, 1985 Marks filed suit in the Circuit Court of Cook County against Antoniou. Subsequently, defendants Pannell/Jaeger mailed four allegedly false K-1 tax schedules to marks indicating a termination of Marks' interest in the partnerships. Marks demanded corrected returns in an August 7 letter. The requests were denied by Pannell/Jaeger's attorney, who also advised Marks to cease communicating with his client. Thereafter, the 17 remaining K-1's were sent to Marks, indicating the capital in his account was at zero. Marks alleges the result was an Antoniou-Pannell/Jaeger conspiracy which diverted the capital he had invested into the partnerships to Antoniou and the other partners.

Furthermore, on October 4 of 1985, Marks alleges Pannell/Jaeger told his personal accountant all partnership tax returns would be unavailable to Marks. Marks claims the result of this was that he could no accurately compute his income for 1984. Finally, as further evidence that Pannell/Jaeger conspired with Antoniou to perpetuate an ongoing scheme to defraud him, Marks points to Pannell/Jaeger's filing of allegedly false IRS partnership tax returns which effectively deprived him of his $8,000,000 stake in the Antoniou partnerships.

This case represents a further post- Sedima opportunity*fn1 to articulate what constitutes a "patter of racketeering activity" within the meaning of 18 U.S.C. § 1961 et seq. In Sedima, the Supreme Court stated:

The implication is that while two acts are necessary, they may not be sufficient . . . The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: "The target of [RICO] is thus not sporadic activity. The infiltration of legitimate business normally requires more than one 'racketeering activity' to be effective. Is is this factor of continuity plus relationship which combines to produce a pattern." S. Rep. No. 91-617, p. 158 (1969) (emphasis added). Similarly, the sponsor of the Senate bill, after quoting this portion of the Report, pointed out to his colleagues that "the term 'pattern' itself requires the showing of a relationship . . . So, therefore, proof of two acts of racketeering activity without more, does not establish a pattern . . . ." 116 Cong. Rec. 18940 (1970) (statement of Sen. McClellan). See also id., at 35193 (statement of Rep. Poff) (RICO "not aimed at the isolated offender"); House Hearings, at 665. Significantly, in defining "pattern" in a later provision of the same bill, Congress was more enlightening: "criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." 18 U.S.C. § 3575(e). This language may be useful in interpreting other sections of the Act. Cf. Iannelli v. United States, 420 U.S. 770, 789, 95 S. Ct. 1284, 1295, 43 L. Ed. 2d 616 (1975).

105 S. Ct. at 3285, n.14.

Post- Sedima discussions by this Court pertaining to the meaning and scope of the RICO "pattern of racketeering activity" language found in § 1962 can be found in three cases: Illinois Department of Revenue v. Phillips, 771 F.2d 312 (7th Cir. 1985); Lipin Enterprises v. Lee, 803 F.2d 322 (7th Cir. 1986); and Margaret Morgan and Burton Morgan v. Bank of Waukegan, et al., 804 F.2d 970 (7th Cir. 1986). The Lipin case is the closet case on point to the instant case and we shall discuss and compare Lipin in order to show why affirmance of the district court's dismissal of Marks' complaint was appropriate. While centering our analysis on Lipin, we will also touch upon Phillips and Morgan.

In Lipin, plaintiff Lipin alleged he was fraudulently induced into purchasing a car leasing company by the defendant seller and sole shareholder of the company, a named Lee. Lipin alleged Lee conspired with lawyers, accounts and banks to inaccurately portray the company at an inflated value. Indeed, in order to accomplish the sale, the district court specifically ruled misrepresentations were advanced with it found constituted 12 separate acts of mail fraud. Included as misrepresentations were the overstatements of company net worth and the omission of lease agreements which committed the company's financial resources. Despite the finding of a dozen misrepresentations the district court granted defendant's 12(b)(6) motion to dismiss. We affirmed, ruling:

Lipin's complaint alleges racketeering acts all designed to defraud one victim, Lipin, on one occasion, the sale of Rifco. Lipin cannot allege that the defendants' defrauded another victim with similar racketeering activity and cannot allege that Lipin has been defrauded more than once by the defendants through similar racketeering acts.

Whatever more is required to allege a pattern of racketeering activity, that something more is lacking here. The pattern requirement was intended to limit RICO to those cases in which racketeering acts are committed in a manner characterizing the defendant as a person who regularly commits such crimes. RICO is not "aimed at the isolated offender." There must be some indication of a ...

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