Tabas v. Tabas

Opinions of the United

1995 Decisions States Court of Appeals

for the Third Circuit

2-13-1995

Tabas v Tabas

Precedential or Non-Precedential:

Docket 92-1495

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995

Recommended Citation

"Tabas v Tabas" (1995). 1995 Decisions. Paper 42.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/42

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 92-1495; 92-1529

HARRIETTE S. TABAS; RICHARD S. TABAS;

NANCY C. TABAS; GERALD LEVINSON,

As Executors of the Estate of CHARLES L. TABAS

Appellants

v.

DANIEL M. TABAS; JOSEPH P. CAMPBELL;

JAMES J. MCSWIGGAN; LEE A. TABAS; ROBERT TABAS;

SUSAN TABAS TEPPER; LINDA TABAS STEMPEL;

JOANNE TABAS WURZAK; CAROL TABAS STOFMAN; HOWARD WURZAK

On Appeal From the United States District Court

For the Eastern District of Pennsylvania

(D.C. Civil Action No. 91-01355)

Argued: January 26, 1993

Before: GREENBERG, ROTH and LEWIS,

Circuit Judges

Reargued In Banc October 18, 1994

Before: SLOVITER, Chief Judge, BECKER, STAPLETON,

MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN,

NYGAARD, ALITO, LEWIS, ROTH, MCKEE,

Circuit Judges

(Opinion Filed February 13, 1995)

Richard A. Sprague, Esquire (Argued)

Daniel L. Lemisch, Esquire

Denise Pallante, Esquire

Sprague & Sprague

135 South 19th Street

Wellington Building, Suite 400

Philadelphia, PA 19103

Howard K. Goldstein, Esquire

Astor, Weiss, Kaplan & Rosenblum

Broad Street at Walnut

The Bellevue, Sixth Floor

Philadelphia, PA 19102

Attorneys for Appellants

Harold E. Kohn, Esquire

Robert J. LaRocca, Esquire

Joanne Zack, Esquire (Argued)

Kohn, Nast & Graf, P.C.

1101 Market Street, 24th Floor

Philadelphia, PA 19107

Attorneys for Appellees

OPINION OF THE COURT

ROTH, Circuit Judge:

In this action, brought under the Racketeer Influenced

and Corrupt Organizations Act ("RICO"), Pub. L. 91-452, Title IX,

84 Stat. 941, as amended, 18 U.S.C. §§ 1961-1968, we are

presented with the question whether defendants' acts, as alleged,

constituted a "pattern of racketeering activity." Specifically,

we must determine what showing is required for plaintiffs to meet

the "continuity" prong of RICO's "pattern" requirement. Because

we find that plaintiffs have alleged a series of acts sufficient

to satisfy RICO's continuity requirement, we will reverse the

district court's grant of summary judgment and remand this case

for further proceedings consistent with this opinion.

The plaintiffs are four of the executors of the Estate

of Charles Tabas ("the Estate"): Charles's widow, Harriette

Tabas; Richard Tabas and Nancy Tabas, two of Charles and

Harriette's children; and Gerald Levinson, one of Charles's

business associates.1 In addition to Daniel Tabas, who is

President and Chief Executive Officer of Tabas Enterprises, the

named defendants include Joseph Campbell, the Executive Vice

President of Tabas Enterprises; James McSwiggan, the Comptroller

of Tabas Enterprises; Daniel's children; and one of Daniel's

sons-in-law.

I.

A.

In 1964, brothers Charles and Daniel Tabas formed a

partnership, Tabas Enterprises, to conduct real estate and other

business ventures. The partnership agreement governing the

brothers' joint property holdings required that, in the event of

the death of either partner, the surviving partner would

distribute partnership income equally to himself and to the

estate of the deceased partner, regardless of any personal

1There are six heirs to the Estate, including the Charles L.

Tabas Foundation.

services either brother might render. See Appendix ("App.") at

62 (Partnership Agreement ¶ 3). The partnership agreement also

provided that:

It is the intent of the parties that the survivor of

them shall be free to exercise his judgment for the

joint benefit of ownership . . . provided always, that

the responsibility and obligation of the survivor to

the estate of the deceased shall be that required of a

fiduciary.

App. at 62 (Partnership Agreement ¶ 4(b)).

In 1983, Charles Tabas died. Soon after Charles's

death, John Van Der Wal, a financial advisor to Daniel and to

Tabas Enterprises, was asked by Daniel to recommend a reasonable

financial arrangement between Daniel and Charles's widow,

Harriette. In response, Van Der Wal sent a letter to Harriette

in which he recommended that Daniel receive a $180,000 annual

management fee from Tabas Enterprises, prior to profit sharing by

the partners. Van Der Wal further recommended that Harriette and

Daniel each receive a $10,000 monthly draw check from Tabas

Enterprises.2

Beginning in March 1983, monthly distribution checks of

$10,000 were drawn on a Tabas Enterprises account and sent to

Harriette through the United States mail. Daniel was also

provided with a $10,000 monthly draw. In addition, from March

2

Prior to Charles's death, each brother received a monthly

disbursement of $10,000 from Tabas Enterprises. In addition, the

brothers appeared to have an arrangement under which Tabas

Enterprises paid for many personal and business expenses.

1983 to September 1986, Tabas Enterprises paid for various

personal expenses incurred by Harriette and Daniel.

In September 1986, Tabas Enterprises stopped paying

Harriette's personal expenses and also eliminated Harriette's

$10,000 monthly draw. Instead, Tabas Enterprises began paying a

$15,000 monthly draw to the Estate. At the same time, Daniel's

monthly draw was increased to $15,000. Tabas Enterprises

continued to pay Daniel management fees and to cover his personal

expenses.3

Shortly thereafter, the Estate brought suit against

Daniel and others in the Montgomery County, Pennsylvania, Court

of Common Pleas. The complaint alleged, inter alia, that the

Estate was not being allocated an equal share of the partnership

income, that Daniel used Tabas Enterprises funds for personal

purposes, that Daniel misled the Estate by directing the

preparation of false and misleading financial statements, and

that Daniel had breached his fiduciary duties to the Estate.

3

The parties dispute whether plaintiffs were aware that

Daniel was receiving substantial compensation from Tabas

Enterprises in addition to his monthly draw check. Defendants

argue that, soon after Charles's death, plaintiffs knew of

Daniel's compensation and therefore could not have been deceived

by the monthly checks which served as the basis of the mail fraud

predicate acts. Plaintiffs acknowledge that they believed Daniel

was taking more than he was entitled to under the partnership

agreement; this was partly the basis for the 1986 state suit.

They contend, however, that they did not know the extent to which

they were being short-changed until Price Waterhouse was given

access to Tabas Enterprises' records. Consequently, plaintiffs

assert that they initiated this suit as soon as they discovered

the extent of the alleged fraudulent activity.

On November 20, 1987, the parties settled the state

suit and agreed that the assets of Tabas Enterprises would be

sold. The settlement agreement established a schedule and method

for liquidating the majority of the jointly held properties.4 In

conjunction with the liquidation of the joint assets, the

settlement agreement provided that "the Estate shall be given

complete access to all properties, books and records in

connection therewith[.]" App. at 67 (Settlement Agreement at ¶

4(a)(i)). The settlement agreement did not address the

distribution of income earned after November 20, 1987, but did

provide that:

To the extent that the Partnership Agreement dated

March 12, 1964 is not inconsistent with the provisions

of this [Settlement] Agreement, the Partnership

Agreement shall continue in full force and effect until

the liquidation and auction [of Tabas Enterprises'

assets] are completed.

App. at 70 (Settlement Agreement ¶ 13). Another provision of the

settlement agreement provided that the parties would agree to

execute a mutual general release:

4

The settlement agreement also provided that Daniel would

purchase the Estate's interest in Acorn Iron and Supply Company

and $1.5 million in Royal Bank stock. In addition, the Estate's

interest in property on City Line Avenue was transferred to

Daniel, apparently in exchange for monies from Tabas Enterprises.

Defendants, pointing to the $16.9 million that the Estate has

received pursuant to the settlement agreement and liquidation of

Tabas Enterprises, assert that plaintiffs have been treated

equally. While plaintiffs do not appear to dispute the amount

the Estate has received, they do assert that it has not received

an equal one-half of the income as required under the partnership

agreement.

requiring the dismissal with prejudice of all parties

in all litigation between or among Daniel, on the one

hand, and the Estate or any of its executors, on the

other hand, and excluding only the terms and conditions

contained herein.

App. at 69 (Settlement Agreement ¶ 9).

Lastly, the Honorable William H. Yohn, Jr.,5 was named

to act as the arbitrator of any future disputes arising from the

implementation of the settlement agreement that could not be

resolved by the parties' legal representatives. The settlement

agreement specifically provided that Judge Yohn's decisions on

such matters "shall be final, binding, and non-appealable." App.

at 70 (Settlement Agreement ¶ 12).

On May 15, 1990, Daniel and the Estate executed the

mutual general release, which provided that, except for the

obligations of the parties under the settlement agreement, the

parties would release and forever discharge one another from:

any and all actions, causes of action, demands,

judgments, contracts, debts, dues, accounts, bonds,

covenants, contracts, suits, claims, and demands of any

nature whatsoever, whether in law, equity, arbitration

or otherwise, whether know [sic] or unknown at the

present time, which [either party] ever had, now has,

hereinafter can, shall or may have, by reason of any

matter, cause or thing whatsoever, from the beginning

of the world to November 20, 1987.

App. at 293 (emphasis added).

5

At that time, Judge Yohn sat on the Pennsylvania Court of

Common Pleas. He is now a United States District Judge for the

Eastern District of Pennsylvania.

Despite the settlement agreement, plaintiffs remained

dissatisfied with Daniel's compliance with the partnership

agreement. On July 25, 1990, Judge Yohn held a hearing to

consider whether the settlement agreement barred the Estate from

asserting claims for breach of the partnership agreement stemming

from Daniel's management of Tabas Enterprises subsequent to

November 20, 1987. Finding that "[t]he provision of the

partnership agreement of March 12, 1964 concerning distribution

of income is not inconsistent with the provisions of the

settlement agreement . . . as the settlement agreement contains

no provisions concerning the distribution of income after

November 20, 1987," Judge Yohn held that the Estate could "pursue

any claims" against Daniel arising from the distribution of Tabas

Enterprises' income after November 20, 1987. App. at 1187

(Arbitration Award No. 8).6

Following this decision, Daniel's counsel requested

that Judge Yohn mediate the issues raised by plaintiffs' proposed

RICO complaint. Judge Yohn held two conferences with counsel to

discuss, among other topics, the proposed RICO claims. During

oral argument on February 1, 1991, Daniel's counsel asserted

that, because plaintiffs' proposed RICO complaint sought damages

6

These rulings were premised upon Judge Yohn's finding that:

"By agreement of the parties and with the concurrence of the

arbitrator, the arbitrator has jurisdiction to rule upon the

issue of whether the Estate may make claims against Daniel M.

Tabas concerning his management of Tabas Enterprises subsequent

to November 20, 1987." App. at 1185.

against defendants not named in the settlement agreement, the

proposed RICO complaint was outside the scope of arbitration and

therefore could not be decided by Judge Yohn in his role as

arbitrator. Nevertheless, Daniel's counsel expressed interest in

having Judge Yohn serve as a mediator in an attempt to resolve

the claims set forth in the proposed RICO complaint.

On February 20, 1991, Judge Yohn formally denied

Daniel's request to mediate the dispute. Instead, Judge Yohn

ordered that: "By agreement of the parties, and with the

concurrence of the undersigned, the proposed 'RICO Complaint' may

be filed in the United States District Court for the Eastern

District of Pennsylvania and the issues raised therein will not

be the subject of this procedure under the [Settlement] Agreement

of November 20, 1987." App. at 1282 (Arbitration Award No. 10).

Soon thereafter, plaintiffs brought the instant action,

alleging violations of RICO §§ 1962(a), (b), (c), and (d), as

well as several state law claims stemming from defendants'

handling and distribution of Tabas Enterprises assets. The

initial complaint was filed on March 4, 1991. The amended

complaint was filed on May 20, 1991.7

7

On May 29, 1991, the district court entered a scheduling

order. This schedule provided, inter alia, that discovery be

completed by December 2, 1991. The schedule also provided that

defendants' motion for summary judgment had to be filed on or

before October 21, 1991, and that plaintiffs' response was due by

November 4, 1991. Because this schedule required plaintiffs to

respond prior to the completion of discovery, and because the

parties had further disagreements about discovery, the factual

record is not fully developed. Nonetheless, the record is

Plaintiffs have appealed the district court's grant of

defendants' motion for summary judgment. On appeal, we are

required to base our review of the district court's decision on

the evidence of record. Accordingly, before we turn to the

merits of the parties' assertions, we will summarize the record

submitted to this court.

Most significantly, the record contains two financial

reports by Price Waterhouse, analyzing Tabas Enterprises'

financial and operational records. Plaintiffs' counsel retained

Price Waterhouse to determine whether these records reflected the

equal distribution of income to the Estate as required under ¶ 3

of the partnership agreement.

The first Price Waterhouse report analyzed Tabas

Enterprises' financial records dating from Charles's death in

1983 through early 1990, focusing on the period after November

20, 1987. Then, in late 1991, after the amended complaint was

filed, Price Waterhouse completed a supplemental report,

analyzing Tabas Enterprises' records from October 1989 through

July 1991. In total, the Price Waterhouse reports documented

more than three and one-half years of activity subsequent to the

November 1987 settlement agreement. In both reports, Price

Waterhouse concluded that "the books and records of Tabas

sufficient to support our conclusion that the requisites for RICO

continuity have been met.

Enterprises do not reflect the equal distribution of income," and

that "indications of fraud exist."8 App. at 352, 460-61.

The Price Waterhouse reports revealed a continuing

series of transactions to divert Tabas Enterprises' income for

the personal use of Daniel and his family, through direct

monetary benefits as well as other types of benefits. In its

first report, for instance, Price Waterhouse itemized a

substantial number of items, purchased with Tabas Enterprises'

income, for which there was no adequate documentation or

explanation substantiating an ordinary and necessary business

purpose for the expense. The report noted that, to the extent

that Daniel purchased these items using Tabas Enterprises'

income, such expenses "would inappropriately reduce the Estate's

interest in Tabas Enterprises by reducing income available for

distribution to the Estate." App. at 354. According to the

Price Waterhouse report, these purchases included personal

apparel, homeowner's dues for Daniel's vacation home in Vermont,

meals and other purchases in cities where Daniel had vacation

homes, meals and other purchases in ten foreign countries,

8

Price Waterhouse noted that its formal "opinion" was subject

to scope limitations as discussed within each report. Our review

of these limitations indicates that most were caused by Tabas

Enterprises' failure to cooperate with the Price Waterhouse

auditors. In addition, Price Waterhouse described Tabas

Enterprises' major records depository as in a "state of

disarray." In considering these reports, we will weigh the

effect of the scope limitations in light of our conclusion that

most limitations to the analysis were a result of Tabas

Enterprises' efforts to hinder the Price Waterhouse audits.

prescription medicine, and a pool heater installed at Daniel's

home in Pennsylvania. The total cost of these and other similar

expenses was approximated at $140,000.

Other problem areas cited in the first report were

Tabas Enterprises' payment of $67,000 in compensation for the

provision of home services, such as maid, gardening, and handyman

services, for Daniel and his family; the assignment of 24

automobiles owned by Tabas Enterprises to Daniel and his family,

including family members who were not employed by Tabas

Enterprises; Tabas Enterprises' payment of the automobile

insurance, repairs and maintenance, gasoline,9 car phones, auto

club membership, registration fees, tags, and title fees for all

24 cars; Tabas Enterprises' payment of telephone bills for

Daniel's primary and vacation residences; and Tabas Enterprises'

payment of insurance coverage for non-partnership assets,

including Daniel's six antique automobiles.

Price Waterhouse's second report noted that, between

the completion of the first and second reports, Daniel had

reimbursed Tabas Enterprises for only a small portion of these

expenses.10 The second report also noted that many of the

9

The report found these gasoline charges, in excess of

$18,000, especially problematic, since the relevant documents

revealed routine submissions of multiple requests for

reimbursement arising from a single receipt.

10

In his deposition, Daniel testified that all unreimbursed

expenses represented legitimate business expenses. For most of

these expenses, however, Daniel could not provide any specific

recollection of the business purpose involved.

questionable expenses detailed in the first report continued to

occur. For instance, the second report identified an additional

$78,000 in payments for personal services and an additional

$35,000 in phone bills for Daniel's private residences and mobile

telephones. The second report also noted that Daniel and his

family continued to charge personal items to Tabas Enterprises,

including personal apparel, homeowner's dues for his vacation

home in Vermont, and meals.

In addition to investigating nonmonetary benefits, the

Price Waterhouse reports also examined the direct monetary

benefits received by Daniel and his family from Tabas

Enterprises. The reports found that between November 1987 and

November 1989, Daniel received $1,502,000 in salary partnership

distributions, management fees and incentives, gratuities, and

bonuses from Tabas Enterprises, and that for the period between

November 1989 and June 1991, he received $1,166,000. The reports

also found that, during this period, in which Daniel was paid a

total of $2,668,000, the Estate received partnership

distributions totalling $660,000.11

According to the Price Waterhouse reports, the monetary

payments to Daniel's family during this time also eclipsed those

11

Price Waterhouse also noted that, in addition to his Tabas

Enterprises income, Daniel received compensation as Chairman of

the Board of Royal Bank. At his deposition, Daniel testified

that he worked 60-70 hours per week for Tabas Enterprises, app.

at 1683, and that his Royal Bank time commitment consisted of

Thursday morning executive staff meetings and a board meeting one

evening each month. App. at 614.

received by the Estate. The reports documented that between

November 1987 and June 1991, Daniel's family, including his six

children and one son-in-law, received $1,363,000 from Tabas

Enterprises in the form of salaries, management fees and

incentives, gratuities, bonuses, and consulting fees. The

amended complaint alleges that payments to Daniel's children and

son-in-law "do not constitute reasonable salaries for work which

they actually performed and that some of those children and/or

their spouses were 'phantom' or 'ghost' employees who performed

little or no work at all." App. at 21 (Amended Complaint ("AC")

¶ 25).

The first Price Waterhouse report also noted that, in

addition to receiving compensation from Tabas Enterprises,

certain members of Daniel's family also worked for and received

compensation from Royal Bank. For instance, Lee Tabas served as

President of Royal Bank, Robert Tabas served as Vice President,

and Susan Tabas Tepper served as Director of Marketing.

Finally, in addition to the above findings, both Price

Waterhouse reports noted that "the Estate may also have been

subjected to the risk of additional taxes, interest, and

penalties" due to apparent Internal Revenue Service reporting

violations by Tabas Enterprises. App. at 362, 467.

B.

Count I of the amended complaint alleges that, in

violation of 18 U.S.C. § 1962(a), (b), and (c), the defendants

conspired to defraud the Estate of its equal share of Tabas

Enterprises' income, to which it was entitled under the

partnership agreement, through a pattern of racketeering activity

including mail fraud in violation of 18 U.S.C. § 1341.12

Specifically, plaintiffs allege that defendants conducted a

scheme to defraud the Estate of its equal share of the

partnership's income by wrongfully diverting Tabas Enterprises

funds to pay for the personal expenses of Daniel and his family

and by understating the Estate's share of the income. Plaintiffs

assert that, from the time of Charles's death through the period

in which the amended complaint was filed, Daniel "continuously

made false representations to the Estate by mail and fraudulently

distributed millions of dollars of Tabas Enterprises' funds to

himself and to members of his family in a scheme to defraud the

Estate of income to which it was entitled." App. at 20 (AC ¶

24).

Plaintiffs specifically allege that Daniel, Campbell,

and McSwiggan committed forty-one acts of mail fraud between

December 1987 and February 1991 for "the purpose of executing the

12

Count II of the amended complaint alleges that defendants

violated § 1962(d) by conspiring to violate subsections (a), (b),

and (c).

Counts III-VI of the amended complaint allege state law

claims that are not central to this appeal, including breach of

fiduciary duty, breach of contract, fraud, and conversion. The

district court dismissed these state law claims without

prejudice. Because we find that the district court erred in

dismissing Counts I and II, we will instruct the district court

to vacate the dismissal of plaintiffs' supplemental state law

claims.

scheme to defraud the Estate of its equal share of income." App.

at 43 (AC ¶ 49).13 Thirty-nine of these forty-one acts

represented monthly disbursements of $15,000 from Tabas Brothers

(a holding of Tabas Enterprises) to the Estate. The remaining

two acts involve the mailing of various IRS forms from Tabas

Enterprises to the Estate reflecting income earned and business

expenses incurred by certain Tabas Enterprises entities.

Plaintiffs contend that the mailing of the monthly checks by

defendants "constituted an intentional misrepresentation" that

one-half of the income of Tabas Enterprises was being paid to the

Estate pursuant to the partnership agreement. App. at 46 (AC ¶

50).

Finding that the dispute did not present a sufficient

threat to satisfy RICO's "continuity" requirement, the district

court granted defendants' summary judgment motion. The district

court reasoned that:

Plaintiffs' claims essentially allege one fraudulent

scheme perpetrated against one victim by one

perpetrator. The gist of plaintiffs' complaint is that

Daniel Tabas has failed to abide by the partnership

agreement made with his brother, Charles, and that

Daniel has employed various methods of trickery to

13

Plaintiffs also allege as predicate acts defendants' use of

the United States mails to send checks to Daniel's children and

son-in-law for work not performed. We do not rely on these

allegations, however, because plaintiffs have not produced any

evidence to counter McSwiggan's deposition testimony that these

checks were delivered by courier. See, e.g., Utz v. Correa, 631

F.Supp. 592, 596 (S.D.N.Y., 1986) (delivery of letter by

messenger did not violate the mail fraud statute since the United

States mails were not used).

cheat Charles's heirs of their fifty percent share of

the business that Charles and Daniel built. The sole

victim of this scheme is Charles Tabas's estate. The

sole perpetrator is Daniel Tabas or individuals under

his control. No one else is affected. There is no

threat to the community at large. This is not a case

where the predicate acts are "part of an entity's

regular way of doing business," such as would affect

others doing business with the entity.

The partnership between Charles and Daniel is

currently in the process of liquidation. All of the

fraudulent activity alleged in this suit will cease

once the liquidation process is complete. Given the

Court of Appeals' admonition that "[i]t remains an open

question whether RICO liability is ever appropriate for

a single-scheme, single-victim conduct threatening no

future harm," we simply do not find that the

defendants' alleged conduct in this case "pose[s] a

societal threat worthy of the draconian penalties and

remedies available under RICO."

District Court opinion at 8-10; App. at 1376-78 (citations

omitted) (footnotes omitted). Plaintiffs filed a timely notice

of appeal of the district court's grant of summary judgment to

defendants. Defendants also filed an appeal, seeking review of

the district court's decision to dismiss the state claims without

prejudice. Following the filing of the panel's decision, we

granted appellants' petition for rehearing in banc and vacated

the panel opinion.

II.

The district court had subject matter jurisdiction over

this civil action pursuant to 28 U.S.C. §§ 1331 and 1367. The

district court's federal question jurisdiction was invoked

because Counts I and II of the amended complaint raise claims

under RICO, 18 U.S.C. §§ 1961 and 1962. The district court's

supplemental jurisdiction was invoked because Counts III through

VI of the amended complaint raise claims that are so related to

the claims in Count I and II that they form part of the same case

or controversy under Article III of the United States

Constitution. The district court's supplemental jurisdiction

was invoked because Counts III through VI of the amended

complaint raise claims that are so related to the claims in Count

I and II that they form part of the same case or controversy

under Article III of the United States Constitution. Under 28

U.S.C. § 1291, this Court has appellate jurisdiction over the

final orders of the district court.14

This Court has plenary review over the district court's

grant of summary judgment. See Northern Ins. Co. v. Aardvark

Assocs., 942 F.2d 189, 194 n.5 (3d Cir. 1991). On review of the

district court's order for summary judgment, "we 'apply the same

test the district court should have utilized initially.'" Erie

Telecommunications v. Erie, 853 F.2d 1084, 1093 (3d Cir. 1988)

(citation omitted). "In reviewing a grant of summary judgment,

we must be convinced 'that the prevailing party has successfully

demonstrated that there is no genuine issue as to any material

fact and that the moving party is entitled to judgment as a

14

The district court's first order, dated May 26, 1993,

granted defendants' motion for summary judgment on Counts I and

II, and dismissed Counts III, IV, and V pursuant to 28 U.S.C. §

1367(c)(3). The district court's second order, dated June 2,

1993, amended the first order to include dismissal of Count VI

pursuant to § 1367(c)(3).

matter of law.'" Id. (citing Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 250 (1986); Celotex Corp. v. Catrett, 477 U.S. 317,

322 (1986)).

In determining whether summary judgment is appropriate,

"[t]he evidence of the non-movant is to be believed, and all

justifiable inferences are to be drawn in his favor." Anderson,

477 U.S. at 255. The inquiry is "whether the evidence presents a

sufficient disagreement to require submission to the jury or

whether it is so one-sided that one party must prevail as a

matter of law." Id. at 251-52.

III.

The first issue we must address is defendants'

contention that this lawsuit is precluded by the 1987 settlement

agreement and the 1990 mutual release. This question was

considered by the panel only. We find defendants' argument to be

without merit.

First, binding arbitration by Judge Yohn holds the

present claims viable. The settlement agreement provides for

final, binding arbitration of any dispute "as to the provisions

of this Agreement or as to the implementation or operation of the

provisions of this Agreement" between Daniel and the Estate.

App. at 70 (Settlement Agreement ¶ 12). The very issue of

whether claims such as this lawsuit could be brought was

submitted to Judge Yohn, the arbitrator, who determined initially

that "the arbitrator has jurisdiction to rule upon the issue of

whether the Estate may make claims against Daniel M. Tabas

concerning his management of Tabas Enterprises subsequent to

November 20, 1987." App. at 1185 (Arbitration Award No. 8). On

the merits, Judge Yohn held that the Estate could pursue any

claims which it might have against Daniel "for an alleged breach

of his fiduciary duty [to the Estate] after November 20, 1987,"

and "for the unequal distribution of the income of Tabas

Enterprises subsequent to November 20, 1987." Id. at 1187.

Under the settlement agreement, Judge Yohn's decision

is "final, binding, and non-appealable," app. at 70 (Settlement

Agreement ¶ 12), and we must adhere to it under federal and

Pennsylvania law. See Apex Fountain Sales v. Kleinfeld, 818 F.2d

1089, 1094-95 & n.4 (3d Cir. 1987) (an arbitrator's decision is

binding under federal law unless "an arbitrator 'manifests an

infidelity'" to her obligation to interpret the agreement at

issue, or there is "corruption, fraud or partiality," or a party

was denied a "fundamentally fair hearing") (citations omitted);

International Brotherhood of Firemen & Oilers v. School Dist.,

350 A.2d 804, 808 (Pa. 1976) (an arbitrator's decision shall not

be set aside "unless it is alleged and proven by clear, precise

and convincing evidence that the parties were denied a hearing or

that there was fraud, misconduct, corruption or some other

irregularity of this nature on the part of the Arbitrator which

caused him to render an unjust, inequitable or unconscionable

finding"). Defendants have not alleged any action on the part of

Judge Yohn amounting to corruption, fraud, or partiality. In

addition, defendants have presented no evidence that Judge Yohn

failed to provide a hearing to consider each party's views prior

to his decision. In fact, the record clearly indicates that

Judge Yohn held a hearing on this question and considered

numerous exchanges of correspondence before ruling on this

matter.

Second, even if we were to make our own evaluation of

whether the 1987 settlement agreement and the 1990 release

precluded this lawsuit, we would conclude that it does not.

Defendants' reliance on Main Line Theatres, Inc. v. Paramount

Film Distrib. Corp., 298 F.2d 801 (3d Cir.), cert. denied, 370

U.S. 939 (1962), is misplaced. Defendants assert that Main Line

stands for the proposition that where "the initial lawsuit

contained prayers for injunctive relief, the execution of a

general release releases and extinguishes complaints for future

conduct." Defendants-appellees' Brief at 21. Consequently,

defendants contend, plaintiffs' suit is barred by the settlement

agreement and the mutual release signed by the Estate and Daniel.

In Main Line, plaintiffs demanded injunctive relief and

treble damages in a civil antitrust suit stemming from

Paramount's distribution of motion pictures. The district court

dismissed the suit, holding that the case had been settled during

pre-trial negotiations by an "oral agreement" between the

parties. The oral agreement provided that Main Line would drop

its suit in exchange for $10,000. Main Line refused to comply

with the oral agreement, however, complaining that Paramount

attempted to add language to the agreement when it was

memorialized in writing. Specifically, Main Line rejected

language that required it to acknowledge that the complained of

distribution procedures were reasonable.

Main Line appealed the dismissal to this court. We

then considered whether the initial oral agreement included a

release to the effect that Paramount could continue to distribute

films in the same manner it had prior to Main Line's suit for

injunctive relief. We noted:

Had this been an action for damages only, without a

prayer that the defendants be restrained from

continuing or repeating the licensing practices of

which the plaintiff complained, the essential feature

of any understanding to settle the suit for a stated

sum would have been the plaintiffs' promise to forego a

money claim, the only matter in controversy. Here, the

suit contained a demand for injunctive prohibition of

future wrongful conduct as well as a claim for money

damages for alleged past misconduct. In such

circumstances a reasonable person agreeing, without any

expression of limitation, to accept a sum in settlement

of the litigation should and reasonably would

understand that both aspects of the suit were covered

by the settlement.

298 F.2d at 803 (emphasis added).

In Main Line, plaintiffs could point to no limitations,

expressed or implied, in their oral agreement with defendants.

Accordingly, their settlement agreement covered their prayers for

both injunctive relief and money damages. In the present case,

however, the mutual release signed by plaintiffs and Daniel

expressly limits the applicability of the release to any claims

arising "from the beginning of the world to November 20, 1987."

App. at 294. This express limitation distinguishes the instant

case from the facts presented in Main Line.

Defendants also draw the Court's attention to our

statement in Main Line that "[c]ertainly, a defendant offering a

sum in settlement of a suit asking, among other things, for an

injunction against similar conduct, would not understand that a

similar demand could be asserted the day after settlement." 298

F.2d at 803 (emphasis added). The Estate's state suit here,

however, although denominated a "Complaint in Equity," did not

seek broad injunctive relief. The holding in Main Line relies on

the fact that the plaintiff specifically sought to enjoin

Paramount from distributing motion pictures using methods that

plaintiff alleged violated the civil antitrust laws. In the

instant case, the plaintiffs' state suit asked that Daniel be

removed from any position at Tabas Enterprises and that its

businesses and properties be liquidated. Rather than controlling

future conduct, the state suit primarily sought a dissolution of

Tabas Enterprises and redress for the alleged past wrongs

committed against the Estate's interest in the partnership. It

follows, therefore, that the subsequent federal action did not

constitute an effort to enjoin conduct that the settlement of the

first suit had resolved. This determination, together with our

earlier finding that the settlement agreement bars only claims

existing up to November 20, 1987, would lead us to conclude that

defendants' reliance upon Main Line is misplaced.

IV.

Having found that plaintiffs' lawsuit is not precluded

by the 1987 settlement agreement and the 1990 mutual release, we

now turn to the district court's decision that plaintiffs failed

to allege a course of conduct sufficient to establish a RICO

"pattern of racketeering conduct" because plaintiffs failed to

satisfy RICO's "continuity" requirement.

The RICO statute provides for civil damages for "any

person injured in his business or property by reason of a

violation of [18 U.S.C. § 1962]." 18 U.S.C. § 1964(c). A common

thread running throughout § 1962 is that an injured party must

demonstrate that the defendant was engaged in a "pattern of

racketeering activity." Section 1962(a) prohibits "any person

who has received any income derived . . . from a pattern of

racketeering activity" from using that money to acquire or

operate any enterprise engaged in interstate commerce. Section

1962(b) prohibits any person from acquiring, maintaining an

interest in, or controlling any such enterprise "through a

pattern of racketeering activity." Section 1962(c) prohibits any

person employed by or associated with an enterprise engaged in

interstate commerce from conducting or participating in the

affairs of the enterprise through "a pattern of racketeering

activity." Finally, section 1962(d) prohibits any person from

conspiring to violate subsections (a), (b), or (c).

Central to the dispute in this case is the question

whether defendants participated in "a pattern of racketeering

activity." The RICO statute defines a "pattern" of racketeering

activity as requiring "at least two acts of racketeering

activity" within a ten year period. 18 U.S.C. § 1961(5). The

statute also enumerates the offenses which constitute

"racketeering activity," including crimes that have traditionally

been associated with the transgressions of racketeers: murder,

kidnapping, gambling, arson, robbery, bribery, extortion, dealing

in obscene matter, and dealing in narcotic or other dangerous

drugs. 18 U.S.C. § 1961(1). The statutory enumeration is,

however, expansive and goes on to include specific federal

offenses which, although they may often be committed by those

whom we would categorize as "racketeers," also fall into the

category of common law or "garden variety" fraud and which would,

in the past, have been the subject of commercial litigation under

state law. Among these broadly delineated federal offenses are

mail fraud and wire fraud.15 These offenses are the ones that

15

Mail fraud, 18 U.S.C. § 1341, is the racketeering activity

involved in the case before us. Section 1341 provides in

pertinent part:

Whoever, having devised . . . any scheme or

artifice to defraud, or for obtaining money

or property by means of false or fraudulent

pretenses, representations, or promises, . .

. for the purpose of executing such scheme or

artifice . . . places in any post office or

authorized depository for mail matter, any

many consider to be the most troublesome as RICO predicate acts.

The inclusion within the scope of civil RICO of these

types of fraud, more prevalent in the commercial world than in

the world of racketeers, has caused concern that RICO sweeps too

broad a swathe. See, e.g., Note, Civil RICO: The Temptation and

Impropriety of Judicial Restriction, 95 Harv. L. Rev. 1101, 1105

(1982) ("Given the prevalence of mail and wire use in commercial

transactions, RICO's provision for a private cause of action

predicated on violations of the mail and wire fraud statutes

virtually federalizes common law fraud").

matter or thing whatever to be sent or

delivered by the Postal Service, . . . shall

be fined not more than $1,000 or imprisoned

not more than five years, or both.

The federal offense of mail fraud was originally

enacted by Congress in 1872 as a part of the recodification of

the postal laws. The Supreme Court in its first review of the

mail fraud statute made clear that its scope was broad. The

Court held that the statute reached beyond the common law

definition of "false pretences" to encompass "everything designed

to defraud by representations as to the past or present, or

suggestions and promises as to the future." Durland v. United

States, 161 U.S. 306, 313 (1896). Fraud, involving the use of

the postal system to carry it out, was made a federal offense by

Congress with the "purpose of protecting the public against all

such intentional efforts to despoil, and to prevent the post

office from being used to carry them into effect . . .." Id. at

314.

Judge Greenberg, in his dissent, queries whether

Congress intended RICO to be applied to a defendant,

participating in a scheme to defraud, who mails substantial

payments but not to a similar defendant who delivers the payments

by hand. See [typescript at 14]. The clear answer to this

question is "yes" because, first, the former example constitutes

mail fraud and the latter does not and, second, Congress has

chosen to include mail fraud as a RICO predicate act.

If we examine the language of the statute itself, in an

attempt to discern the scope of civil RICO, we find ourselves

lost in a land with few signposts. Section 1961(5) defines

"pattern" as requiring "at least two acts of racketeering

activity." The breadth of the predicate acts, described in §

1961(1), combined with § 1961(5)'s loose definition of pattern,

has led many courts to recoil from the inclusion within RICO of

offenses which were not considered to be the crimes of gangsters.

Such court-imposed limitations on the scope of civil RICO were

first reviewed by the Supreme Court in Sedima, S.P.R.L. v. Imrex

Co., 473 U.S. 479 (1985). In Sedima, the Supreme Court set out

an expansive definition of the concept of "pattern" in civil

RICO.

Sedima arose from an action filed in the Eastern

District of New York by a Belgian corporation, based on § 1964(c)

and (d) and predicate acts of mail fraud and wire fraud, charging

that Imrex, Sedima's partner in a joint venture, had presented

inflated bills and had cheated Sedima out of a portion of its

proceeds by collecting for nonexistent expenses. The district

court dismissed the RICO counts for failure to state a claim,

holding that a RICO-type injury must be based on allegations of

some sort of distinct "racketeering injury" or "competitive

injury." 574 F.Supp. 963, 965 (1983). The dismissal was

affirmed by a divided panel of the Second Circuit Court of

Appeals. 741 F.2d 482 (1984). The court of appeals clarified

the type of injury which it required to be alleged, finding that

"it is better to identify the RICO standing requirement as a

'racketeering injury' requirement rather than a 'competitive

injury' requirement . . .." Id. at 496. The court of appeals

further required that, before a private civil RICO action could

be brought, the plaintiff must show that the defendants had been

criminally convicted of the predicate acts. Id. at 503. The

Supreme Court rejected both of these holdings.

Justice White, writing for the majority in Sedima,

stated "we can find no support in the statute's history, its

language, or considerations of policy for a requirement that a

private treble-damages action under § 1964(c) can proceed only

against a defendant who has already been criminally convicted."

473 U.S. at 493. Concerning the requirement of racketeering

injury, Justice White stated that

[W]e perceive no distinct "racketeering

injury" requirement. Given that

"racketeering activity" consists of no more

and no less than commission of a predicate

act, § 1961(1), we are initially doubtful

about a requirement of a "racketeering

injury" separate from the harm from the

predicate acts. A reading of the statute

belies any such requirement. . . . If the

defendant engages in a pattern of

racketeering activity in a manner forbidden

by these provisions [§ 1962(a)-(c)], and the

racketeering activities injure the plaintiff

in his business or property, the plaintiff

has a claim under § 1964(c). There is no

room in the statutory language for an

additional, amorphous "racketeering injury"

requirement.

Id. at 495.

Justice White based this less restrictive reading of

the statute on prior case law and the general principles

surrounding the statute: "RICO is to be read broadly. This is

the lesson not only of Congress' self-consciously expansive

language and overall approach, but also of its express admonition

that RICO is to 'be liberally construed to effectuate its

remedial purposes.'" Id. at 497-98 (citations omitted).

The Court recognized that this interpretation of the

statute would permit its use not only against mobsters and

organized criminals but also against "respected and legitimate

'enterprises.'" Id. at 499. Nevertheless, the Court found that

Congress "wanted to reach both 'legitimate' and 'illegitimate'

enterprises. "The former enjoy neither an inherent incapacity

for criminal activity nor immunity from its consequences." Id.

(citation omitted). The Court concluded:

It is true that private civil actions

under the statute are being brought almost

solely against such defendants, rather than

against the archetypal, intimidating mobster.

Yet this defect--if defect it is--is inherent

in the statute as written, and its correction

must lie with Congress. It is not for the

judiciary to eliminate the private action in

situations where Congress has provided it

simply because plaintiffs are not taking

advantage of it in its more difficult

applications.

Id. at 499-500 (footnote omitted).

Justice White then suggested that Congress and the

courts develop a meaningful concept of "pattern" in order to

narrow the scope of civil RICO:

The "extraordinary" uses to which civil RICO

has been put appear to be primarily the

result of the breadth of the predicate

offenses, in particular the inclusion of

wire, mail, and securities fraud, and the

failure of Congress and the courts to develop

a meaningful concept of "pattern."

Id. at 500.

Despite this invitation from the Court, Congress to

date has not chosen to enact legislation which would narrow the

scope of civil RICO or to define more exactly what is "pattern."

Moreover, the efforts of the courts to do so have not been

entirely successful. Our attempts to design a meaningful concept

of pattern have continued to collide with the broad language of

the statute. In response, however, to Sedima, the various

circuits began to structure guidelines for determining whether a

RICO pattern had been established. In the Third Circuit, for

instance, in Barticheck v. Fidelity Union Bank/First Nat'l State,

832 F.2d 36 (3d Cir. 1987), we rejected the district court's

requirement in that case that there be two or more unlawful

schemes, and we then set forth six factors to be used in

determining whether a pattern of racketeering activity has been

established in a given case. These factors are: (1) the number

of unlawful acts; (2) the length of time over which the acts were

committed; (3) the similarity of the acts; (4) the number of

victims; (5) the number of perpetrators; and (6) the character of

the unlawful activity. Id. at 39.

Other circuits established other criteria. In the

Eighth Circuit, the test for a pattern of racketeering activity

was much more restrictive: proof of multiple illegal schemes was

required. See, e.g., Superior Oil Co. v. Fulmer, 785 F.2d 252

(8th Cir. 1986). Following this precedent, the Eighth Circuit

Court of Appeals affirmed the district's court's dismissal of

petitioners' complaint in H.J. Inc. v. Northwestern Bell Tel.

Co., 829 F.2d 648 (8th Cir. 1987). The Supreme Court granted

certiorari to resolve the conflict between the circuits over

whether single or multiple schemes were required to demonstrate a

RICO pattern.

In its opinion in H.J. Inc. v. Northwestern Bell Tel.

Co., 492 U.S. 229 (1989), the Court set out its second analysis

of the requirements of civil RICO. First, as to single versus

multiple schemes, the Court noted that the word "scheme" is not

found in the RICO statute and indeed that what constitutes a

"scheme" is to be found "in the eye of the beholder, since

whether a scheme exists depends on the level of generality at

which criminal activity is viewed." 492 U.S. at 241 and n.3.

The Court then examined the statute and its legislative history

in an attempt to determine the elements of the pattern

requirement. From this review, the Court concluded that "to

prove a pattern of racketeering activity a plaintiff must show

that the racketeering predicates are related, and that they

amount to or pose a threat of continued criminal activity." Id.

at 239.

Under the first, or "relatedness," requirement of the

RICO statute, as interpreted in H.J. Inc., predicate acts are

related if they "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." Id. at 240 (quoting the partially repealed

Title X of the Organized Crime Control Act of 1970, 18 U.S.C. §

3575, et seq.).16

As for the second, or "continuity," prong of the

analysis, the Court in H.J. Inc. attempted to promulgate a

somewhat flexible approach, based upon a "commonsense, everyday

understanding of RICO's language and Congress' gloss on it." Id.

at 241. With this analytical approach in mind, the Court decided

that "[w]hat a plaintiff or prosecutor must prove is continuity

of racketeering activity, or its threat, simpliciter." Id.

In explicating how a plaintiff could make this

continuity showing, the Court described continuity as "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." Id. "It

16

The parties do not dispute that the relatedness prong has

been met in the present case.

is, in either case, centrally a temporal concept," id. at 241-

42, so that a party may establish continuity as a closed-ended

concept by "proving a series of related predicates extending over

a substantial period of time." Id. at 242 (emphasis added).

Thus, H.J. Inc. makes clear that the continuity

requirement can be met by establishing long-term criminal conduct

but does not define what length of time qualifies as

"substantial" for this purpose. The Court in H.J. Inc. also gave

examples of how the threat of continued racketeering activity

might be demonstrated. One example is that of a hoodlum who

sells "insurance" to storekeepers to prevent the breaking of

their shop windows. Id. Another example is that of an ongoing

entity which commits the predicate acts or offenses as its

regular way of doing business. Id. In giving this last example,

the Court noted that such a business may be either a criminal or

a legitimate enterprise and concluded:

The continuity requirement is likewise

satisfied where it is shown that the

predicates are a regular way of conducting

defendant's ongoing legitimate business (in

the sense that it is not a business that

exists for criminal purposes), or of

conducting or participating in an ongoing and

legitimate RICO "enterprise."

Id. at 243 (footnote omitted). The clear implication of this

language is that the ambit of RICO may encompass a "legitimate"

businessman who regularly conducts his business through

illegitimate means, that is, who repeatedly defrauds those with

whom he deals and in the process commits predicate acts, for

instance by using the postal service as a means of accomplishing

his scheme.

The Court went on in H.J. Inc., at the urging of

various amici, to consider, and to reject, a requirement that "a

defendant's racketeering activities form a pattern only if they

are characteristic either of organized crime in the traditional

sense, or of an organized-crime-type perpetrator, that is, of an

association dedicated to the repeated commission of criminal

offenses." Id. at 243-44. The Court found that there was no

textual support in the statute for such a requirement and that

the statutory language did not support the limitation that

racketeering acts be the work of an association or group rather

than of an individual. Id. at 244.

These determinations in H.J. Inc., that the predicate

acts may be the regular way in which a legitimate business

operates and that the racketeering activities may form a pattern

even though they are the acts of an individual rather than of a

group or of an association, enforce the Court's holding in Sedima

that RICO reaches both "legitimate" and "illegitimate"

enterprises. The Court in H.J. Inc. also rejected the employment

of a definitional device, such as "scheme," to delineate

racketeering activity, when the device employed, like "scheme,"

may be manipulated to satisfy the necessary criterion. See id.

at 241 and n.3.

Whatever view we may have of Congress's original intent

in enacting the RICO statute, we feel constrained, in applying

the statute today, to follow the directives given by the Court in

Sedima and H.J. Inc.

Since H.J. Inc., this court has faced the question of

continued racketeering activity in several cases, each time

finding that conduct lasting no more than twelve months did not

meet the standard for closed-ended continuity. See Hughes v.

Consol-Pennsylvania Coal Co., 945 F.2d 594, 610-11 (3d Cir. 1991)

(fraudulent conduct lasting twelve months does not establish

closed-ended continuity); Hindes v. Castle, 937 F.2d 868, 875 (3d

Cir. 1991) (eight month period of predicate acts without a threat

of future criminal conduct does not satisfy continuity

requirement); Kehr Packages v. Fidelcor, Inc., 926 F.2d 1406,

1413 (3d Cir. 1991) (same); Banks v. Wolk, 918 F.2d 418, 422-23

(3d Cir. 1990) (same); Marshall-Silver Constr. Co. v. Mendel, 894

F.2d 593 (3d Cir. 1990) (seven month single-victim, single-injury

scheme does not satisfy continuity requirement).17 In Hughes, we

17

In Marshall-Silver, we considered whether Congress intended

RICO to apply in the situation of an extended scheme which posed

no "significant societal threat" beyond its extended duration.

894 F.2d at 597. Because the scheme there lasted only seven

months and posed no threat of recurrence, we stated that we would

not resolve the "societal threat" issue. In view, however, of

the Court's refusal in Sedima and H.J. Inc. to require

racketeering injury, or prior conviction of the predicate acts,

or multiple schemes, or racketeering acts by an association or

group rather than by an individual, we cannot conclude that, in

order to satisfy the RICO continuity requirement, the Court would

require the existence of a "societal threat," whatever exactly

that may be, beyond the commission of the criminal predicate

distinguished cases in other circuits in which closed-ended

continuity had been established, noting that those cases involved

conduct lasting "years, sometimes over a decade." Hughes, 945

F.2d at 611.

In evaluating the present case in accord with this

precedent, we will first consider whether closed-ended continuity

has been established. At the outset, we note that in civil RICO

complaints based on predicate acts of mail fraud

the continuity test requires us to look beyond the

mailings and examine the underlying scheme or artifice.

Although the mailing is the actual criminal act, the

instances of deceit constituting the underlying

fraudulent scheme are more relevant to the continuity

analysis.

acts. To the extent that Marshall-Silver can be read to hold

otherwise, it is overruled.

Kehr Packages, 926 F.2d at 1414.18 Consequently, in determining

18

Defendants' assertion that the mailings involved must

themselves be relied upon by the victim of the fraud in order for

a RICO claim to be established is inaccurate. As this Court

stated in Kehr Packages, "completely 'innocent' mailings can

satisfy the mailing element." 926 F.2d at 1415 (citing Schmuck

v. United States, 489 U.S. 705, 715 (1989)). Indeed, mailings

"designed to lull [fraud] victims into a false sense of security,

postpone their ultimate complaint to the authorities, and

therefore make the apprehension of the defendants less likely

than if no mailings had taken place" have been found to

constitute actionable mail fraud. Kehr Packages, 926 F.2d at

1416 n.3 (quoting United States v. Lebovitz, 669 F.2d 894, 896

(3d Cir.), cert. denied, 456 U.S. 929 (1982)).

Additionally, the use of the mails need not be an

essential element of the fraudulent scheme. Rather, so long as

the mailings are "incident to an essential part of the scheme,"

Pereira v. United States, 347 U.S. 1, 8 (1954), the mailing

element is satisfied. This principle is elucidated by a review

of the facts in Schmuck v. United States, 489 U.S. 705 (1989).

In that case, Wayne Schmuck was engaged in a fraudulent scheme in

which he would purchase used cars, roll back their odometers, and

sell the cars to retailers for a price higher than their actual

worth. After purchasing an automobile from Schmuck and selling

it to a customer, the dealers, in order to complete the resale of

each automobile, would submit a title application form to the

Wisconsin Department of Transportation. The mailing of these

forms constituted the mailing element of Schmuck's indictment on

12 counts of mail fraud. The Supreme Court found that those

mailing were sufficient to sustain Schmuck's indictment on mail

fraud charges, reasoning that

Schmuck's scheme would have come to an abrupt halt if

the dealers either had lost faith in Schmuck or had not

been able to resell the cars obtained from him. These

resales and Schmuck's relationship with the retail

dealers naturally depended on the successful passage of

title among the various parties. Thus, although the

registration-form mailings may not have contributed

directly to the duping of either the retail dealers or

the customers, they were necessary to the passage of

title, which in turn was essential to the perpetuation

of Schmuck's scheme.

Id. at 712.

whether or not continuity has been established in the present

case, we must focus on the duration of the underlying scheme.

Just as the mailings are an element of the federal offense of

mail fraud, so too is the scheme or artifice to defraud. See 18

U.S.C. § 1341, set out in footnote 15 supra. Each time

defendants misrepresented the business nature of an expense, made

a questionable charge, or received compensation to which they

were not entitled, they lessened the income available to the

Estate. Plaintiffs have provided evidence that these activities,

which implemented defendants' purported scheme to defraud the

Estate, lasted more than three and a half years, from November

10, 1987, to July 1991. We conclude that a scheme lasting over

three years extends over a "substantial" period of time and

therefore constitutes the type of "long-term criminal conduct"

that RICO was enacted to address. See United States v. Pelullo,

964 F.2d 193, 209 (3d Cir. 1992) (holding that a jury could find

a nineteen month period of racketeering activity sufficient to

In the instant case, it is clear that the mailings were

incident to an essential part of the scheme. Had the defendants

failed to mail disbursement checks to plaintiffs, plaintiffs

would have immediately been alerted to defendants' alleged

scheme. Consequently, by virtue of the disbursements mailed to

plaintiffs, defendants were allegedly able to delay discovery of

their scheme to misappropriate an excessive share of the

partnership's profits. The scheme could not have continued

unless the checks were delivered by one means or another. As

long as the method of delivery was through the United States

Postal Service, defendants' alleged scheme satisfied the elements

of the federal offense of mail fraud.

satisfy continuity requirement); Swistock v. Jones, 884 F.2d 755,

759 (3d Cir. 1989) (fourteen month period of conduct may be

sufficient to establish closed-ended continuity). Accordingly,

we find, from the strictly durational aspect of the scheme, that

plaintiffs in the present case have made a sufficient showing to

survive summary judgment on the "continuity" prong of the pattern

analysis.

The Supreme Court cautions us, however, in H.J. Inc.,

that the existence of continuity may not always be apparent. 492

U.S. at 243. For example, the statutory definition of pattern is

"at least two acts of racketeering activity" within a ten year

period. 18 U.S.C. § 1961(5). It is clear that ten years is a

period of long duration. Yet, would two related predicate acts,

one committed in February 1982 and one committed in January 1992,

be sufficient to form a pattern? It would seem unlikely.

Indeed, Justice White noted in a footnote that, while § 1961(5)

defines a pattern of racketeering activity as requiring at least

two acts of racketeering activity, two acts may not be

sufficient. Id. at 496 n.14.

The question remains, then, what more is required in

order to evaluate whether continuity has been established when

predicate acts have occurred over a period of several years. One

helpful consideration can be found in the Court's requirements

for open-ended continuity. In H.J. Inc. the Court states that

open-ended continuity is established when the commission of the

predicate acts is "a regular way of conducting defendant's

ongoing legitimate business." 492 U.S. at 243. It would seem a

valid analogy that, if the predicate acts have been a regular way

of conducting defendant's legitimate business over a long period

in the past, the RICO pattern has been satisfied.19 In such a

case, the relatedness and the frequency of the predicate acts

would have created the pattern of racketeering activity. From

our review of the record in the present case, we find that the

allegations made by plaintiffs concerning defendants' manner of

doing business over this period satisfy such a RICO continuity

requirement.20

19

In making this analogy, we in no way imply that the

predicate acts must constitute a "regular way" of a defendant's

doing business. We merely give one example of the manner in

which "pattern" may be demonstrated.

20

The district court, in granting summary judgment to

defendants, found that "[t]his is not a case where the predicate

acts are 'part of an entity's regular way of doing business,'

such as would affect others doing business with the entity."

App. at 1377. (citing H.J. Inc., 492 U.S. at 242). See supra at

page [typescript at 16].

To the extent that the district court suggests that

effects upon others doing business with the entity are relevant

to a finding of "continuity," we are not certain if the district

court is requiring that those affected be outsiders doing

business with the entity, as opposed to investors or partners in

or beneficiaries of the entity. If so, we find no support in

H.J. Inc. for such a requirement. The implication of the cited

passage in H.J. Inc. does not limit its holding to require that

the effect be on those who are doing business with the entity.

If, on the other hand, the district court was making a

finding of fact on the scope of the defendants' regular way of

doing business, i.e., that the alleged scheme to defraud the

Estate and its beneficiaries, through the repeated actions

described by Price Waterhouse, did not constitute defendants'

regular way of doing business, then in view of the facts of

Moreover, even if we were not to have found that

conduct lasting three and one-half years was sufficient to

establish closed-ended continuity, we conclude that continuity

still would have been established for the purposes of summary

judgment in the present case under an "open-ended" continuity

analysis. Under H.J. Inc., if a RICO action is brought before a

plaintiff can establish long-term criminal conduct, the

"continuity" prong may still be met if a plaintiff can prove a

threat of continued racketeering activity. Whether the predicate

acts constitute a threat of continued racketeering activity

depends on "the specific facts of each case," id. at 242, but

H.J. Inc. suggests that open-ended continuity may be satisfied

"where it is shown that the predicates are a regular way of

conducting defendant's ongoing legitimate business . . . or of

conducting or participating in an ongoing and legitimate RICO

'enterprise.'" Id. at 243.

Mindful that Kehr Packages instructs us, in determining

continuity, to focus on the mail fraud element of the underlying

fraudulent activity as well as on the element of the mailings, we

are persuaded that the evidence here meets the standard for open-

ended continuity. Plaintiffs have presented evidence that

defendants continuously took questionable expenses, which

directly affected the partnership income available to the Estate.

record, we must conclude that such a finding of fact is clearly

erroneous.

Both Price Waterhouse reports are replete with examples of

expense charges taken by defendants for which there is not

adequate documentation or explanation to substantiate an ordinary

and necessary business purpose. These included trips, meals,

home services, cars, gasoline, insurance expenditures, and

telephone bills.

At this stage of the litigation, we must view the facts

in the light most favorable to plaintiffs, the non-movants, i.e.,

that as a regular way of doing business, defendants were

fraudulently misrepresenting expenditures to benefit themselves

and to deprive the Estate and its beneficiaries of their

legitimate share of the profits of Tabas Enterprises. The

evidence in the record is clear that these practices, defendants'

regular way of doing business, continued even after plaintiffs'

complaint was filed. As a consequence, plaintiffs have

established a threat of continuing fraudulent conduct as required

under an "open-ended" continuity analysis.

Because we have found a pattern of racketeering

activity in both the duration of and the on-going threat implicit

in defendants' regular way of doing business, we will not go on

to analyze this case under the six Barticheck factors. The fact

that we do not employ the Barticheck factors in our analysis here

does not, however, mean that they might not be relevant in a

different case in determining if continuity exists. As the Court

noted in H.J. Inc., in those cases where relatedness and

continuity are in doubt, other factors should be examined to

discern if there is a "pattern of racketeering activity" under

RICO:

The limits of the relationship and continuity concepts

that combine to define a RICO pattern, and the precise

methods by which relatedness and continuity or its

threat may be proved, cannot be fixed in advance with

such clarity that it will always be apparent whether in

a particular case a "pattern of racketeering activity"

exists.

492 U.S. at 243. It is helpful, therefore, when determining

whether "relatedness" or "continuity" has been proven, to use a

fact-oriented, case-by-case approach to determine whether there

is a "pattern of racketeering activity."21

21

Although we decided Barticheck before H.J. Inc., we have

since noted that the six Barticheck factors are still relevant in

determining whether a pattern exists. See Hindes v. Castle, 937

F.2d 868, 873 n.3 (3d Cir. 1991) ("[T]he Barticheck factors, such

as the number of acts, victims, and perpetrators and the

character of the unlawful activity, may be relevant in some cases

in assessing the threat of continuing criminal conduct by

throwing light on whether the illegal activity was part of a

legitimate business' regular way of conducting business, or

whether the predicates were attributable to a 'long-term

association that exists for criminal purposes.'") (citation

omitted).

It remains clear, however, that "duration is the sine

qua non of continuity." Hindes, 937 F.2d at 873. For this

reason, the Barticheck factors are best viewed as analytical

tools available to courts when the issue of continuity cannot be

clearly determined under either a closed- or open-ended analysis.

It should also be noted that the H.J. Inc. decision

cites the Third Circuit's holding in Barticheck for two narrow

propositions only: (1) that continuity is both a closed- and

open-ended concept, 492 U.S. at 238, and (2) that "scheme" is not

a self-defining term, 492 U.S. at 241 n.3. Nowhere in H.J. Inc.

does the Supreme Court expressly adopt the Barticheck factors as

being required elements in the "continuity" analysis.

In the present case, we find that plaintiffs have

clearly presented evidence that is legally sufficient to survive

summary judgment on the issue of continuity through the

defendants' alleged commission of the predicate acts and of the

underlying fraudulent activity as an ongoing way of doing

business. Accordingly, we do not need to concern ourselves with

the applicability of the Barticheck factors to the specific facts

of this case.

We recognize that our ruling means that RICO, with its

severe penalties, may be applicable to many "garden-variety"

fraud cases, see Marshall-Silver, 894 F.2d at 597, particularly

considering the judiciary's broad interpretation of the mail

fraud statute. See Kehr Packages, 926 F.2d at 1413-14. We are

bound, however, by the language of RICO itself and the Supreme

Court's instruction that "RICO is to be read broadly." Sedima,

473 U.S. at 497. Indeed, the Supreme Court has consistently

struck down efforts by the courts of appeals to narrow RICO's

scope. See NOW v. Scheidler, 114 S. Ct. 798, 806 (1994)

(rejecting Seventh Circuit holding that RICO requires proof that

either the racketeering enterprise or the predicate acts of

racketeering were motivated by an economic purpose); H.J. Inc.,

492 U.S. at 250 (rejecting Eighth Circuit holding that RICO

requires proof of multiple "schemes"); Sedima, 473 U.S. at 495

(rejecting Second Circuit holding that RICO requires proof of

prior conviction on predicate act and that plaintiff must

demonstrate specific "racketeering injury").

We share the Supreme Court's concern over the broad

application of the civil RICO statute. We are nonetheless bound

by the language of the statute and the Supreme Court's

interpretation of it. Accordingly, it is for Congress to decide

whether to narrow the scope of RICO; we are not in a position to

do so by requiring that parties prove elements of a threat or of

an injury, presented by predicate racketeering activity, beyond

what is expressed in the language of the statute itself.22

V.

Defendants have raised a number of alternative grounds

for summary judgment claiming that insufficient causation and

injury have been pleaded and that some of the defendants are not

22

The dissent relies upon our recent holding in Jordan v.

Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250 (3d Cir. 1994)

for the proposition that civil RICO should not be applicable in

cases lacking a significant societal threat. But see footnote 17

in regard to our position that there is no requirement in civil

RICO that the predicate acts pose a "societal threat." We find

several significant differences, however, between Jordan and the

dispute here. First, the duration and continuing nature of the

underlying fraudulent activity alleged here is much greater. In

addition, the district court in Jordan questioned the

"relatedness" of the predicate acts, see Jordan v. Berman, 792 F.

Supp. 380, 385-86 (E.D. Pa. 1992), and further held that

plaintiffs had failed to establish that they had sustained any

injury from the purported predicate acts. Id. at 388. Finally,

and perhaps most importantly, the district court in Jordan found

that there was no evidence presented that would lead a jury to

believe that mail fraud had been committed. Id. at 387. As

discussed above, we have come to a different conclusion in the

present dispute.

potentially liable under RICO. Because discovery has not been

completed, we find that it would be premature to address these

alternative grounds. Plaintiffs have sought to take additional

depositions that could have substantial bearing upon these

issues. Additionally, the district court did not rule on any of

the alternative grounds, and, as a consequence, it would be

inappropriate for us to consider them at this stage.23

VI.

For the foregoing reasons, we will reverse the district

court's decision granting summary judgment against plaintiffs on

their RICO claims, we will vacate the dismissal of plaintiffs'

supplemental state claim, and we will remand this case to the

district court for further proceedings consistent with this

opinion.24

BECKER, Circuit Judge, Concurring.

I

I join in almost all of Judge Roth's lead opinion

(including Parts I, II, V, and VI in their entirety), and I

23

We note that on remand the court should consider whether

the decision in Reves v. Ernst & Young, 113 S. Ct. 1163 (1993)

has any bearing on this case. In Reves, the Supreme Court held

that only defendants who participate in the operation or

management of an enterprise can be held liable for violating 18

U.S.C. § 1962(c).

24

In view of our vacatur of the dismissal of plaintiffs'

supplemental state claims, we do not need to rule on defendants'

cross-appeal.

concur in the judgment. I write separately, however, because I

believe that the opinion has "stopped short," and not carried the

logic of its argument to its ultimate conclusion. More

specifically, while Judge Roth's opinion makes clear that the

"Barticheck factors" cannot be the sine qua non of the continuity

determination, and its opinion undoubtedly erodes Barticheck's

precedential value, the court's logic -- as Judge Greenberg's

dissent recognizes, see Dissenting Op. at page 7, especially

lines 6-10 -- compels the conclusion that Barticheck should be

abandoned. Yet Judge Roth leaves it breathing and thereby will,

I fear, cause mischief by engendering confusion in the district

courts, in addition to a round of further appeals.

I recognize that Judge Roth's opinion does not in terms

rest on application of the six Barticheck factors. It is a fact,

however, that these factors have been at the heart of this

court's civil RICO jurisprudence for the past seven years, and

most district court opinions struggling with the existence vel

non of civil RICO continuity use Barticheck as their polestar.

In my view, now that we are in banc on a civil RICO case, it is

incumbent upon us to clarify the status of Barticheck, and the

lead opinion's avoidance of the issue is not grounds for putting

it off to another day. I therefore write separately in order to

set forth my understanding of the implications of this court's

decision.

II

Perhaps the most serious example of the uncertainty

needlessly sown by the jurisprudential reticence of Judge Roth's

opinion concerns Barticheck factor #6, the "character of the

unlawful activity." In my view, the opinion can be read as

leaving open the possibility that this factor, along with the

other Barticheck factors, survives today's decision. See Lead

Op. at page 40 ("The fact that we do not employ the Barticheck

factors in our analysis here does not, however, mean that they

might not be relevant in a different case in determining if

continuity exists.") (emphasis supplied); id. at 41 n.21 ("The

Barticheck factors . . . may be relevant in some cases in

assessing the threat of continuing criminal conduct . . . .")

(internal quotation marks omitted, emphases supplied). This is

apparently the conclusion drawn by Judge Greenberg, whose dissent

treats "character of the unlawful activity" as the most important

of the factors. See Dissenting Op. at pages 12, 15. But Judge

Roth's opinion does not explain how to distinguish this factor

from "societal threat," which, she properly holds (if less

emphatically than is warranted), cannot survive Sedima and H.J.,

Inc. See Lead Op. at page 34 n.17.

This reluctance to overrule Barticheck thus has the

unfortunate potential for contributing to doctrinal confusion,

for as Judge Greenberg argues in dissent, see Dissenting Op. at

page 7, a given factor either is or is not relevant to the

existence of a "pattern" of racketeering activity. The RICO

statute does not have one provision for cases where relatedness

and continuity (or their absence) are clear and another for

"those cases where relatedness and continuity are in doubt."

Lead Op. at page 40. Accordingly, I believe that we should inter

Barticheck as a whole, and should forthrightly announce which, if

any, Barticheck factors remain relevant to the continuity

analysis and which do not.

A.

As I read Judge Roth's opinion, it properly treats the

length of time over which the predicate acts were committed

(Barticheck factor #2), the number of unlawful acts (factor #1),

and the routineness or customariness of the acts (which in my

view is, as I explain below, the only permissible interpretation

of factor #6, the character of the unlawful activity) as relevant

for the continuity inquiry. Although Judge Roth does not discuss

Barticheck factors #3-#5 (similarity of acts, number of victims,

and number of perpetrators), I believe that its analysis shows

that these factors are irrelevant to the continuity inquiry.

As Judge Roth notes, continuity is "centrally a

temporal concept." Lead Op. at page 31 (quoting H.J., Inc., 492

U.S. at 242). It simply "refer[s] either to a closed period of

repeated conduct [closed-ended continuity], or to past conduct

that by its nature projects into the future with a threat of

repetition [open-ended continuity]." Id. (quoting H.J., Inc.,

492 U.S. at 241) (alterations supplied here). Thus duration,

whether established duration or likely duration, is central to

the "continuity" aspect of a RICO "pattern." As a result, the

length of time over which the predicate acts occurred (Barticheck

factor #2) is of primary significance.

I agree with Judge Roth's view that something more is

needed to make out a "pattern," and that two related predicate

acts almost ten years apart are unlikely to suffice. See Lead

Op. at page 37. But the number of predicate acts (Barticheck

factor #1), on which her opinion properly relies in finding

continuity here, provides all that is needed for closed-ended

continuity. In conjunction with duration, the number of acts

suffices to show frequency -- a concept that, as Judge Roth's

opinion agrees, see Lead Op. at 6, provides an adequate

interpretation of "pattern" where completed, related acts are

concerned.

As the Supreme Court has explained, the definition of a

RICO "pattern" should accord with the plain meaning of that term.

In particular,

[a] "pattern" is an "arrangement or order of things or

activity," and the mere fact that there are a number of

predicates is no guarantee that they fall into any

arrangement or order. It is not the number of

predicates but the relationship that they bear to each

other or to some external organizing principle that

renders them "ordered" or "arranged."

H.J., Inc., 492 U.S. at 238, 109 S. Ct. at 2900 (citation

omitted).

As I see it, the continuity prong of pattern analysis

should be explicitly directed toward ruling out RICO liability

premised on two or more predicate acts that are related but

nonetheless "isolated" or "sporadic." See H.J., Inc., 492 U.S.

at 239, 109 S. Ct. at 2900 (discussing legislative history of the

"pattern" requirement). Courts then would be in a better

position to engage in reasonably meaningful discussions of

whether -- in the concrete circumstances of the case --

continuing racketeering activity had been adequately alleged.

But the Barticheck factors fail to provide the needed

guidance, and any attempt to use all six in continuity analysis,

in my view, is destined for failure, in part because these

factors were not originally intended to govern the continuity

inquiry. Rather, they originated as an attempt to distill our

case law on the RICO pattern requirement, simpliciter, not as an

explication of separate relatedness and continuity requirements.

See Barticheck, 832 F.2d at 38-39 ("Those cases . . . recognized

that the existence of a RICO pattern . . . turn[s] on . . . " a

combination of specific factors . . . .") (emphasis supplied).

Some of the Barticheck factors are relevant to this general

notion of pattern.25 Once "pattern" is analytically severed into

"relatedness" and "continuity," however, there is no reason to

25

I do not mean to suggest that the number of perpetrators or

victims, while irrelevant to continuity, is relevant to

relatedness, for it is not. The identity or other defining

characteristics of the victims and perpetrators, however, may

help establish relatedness of predicate acts.

insist that all six of the factors will logically bear on both

continuity and relatedness. Barticheck did not do so. Rather,

it discussed the various factors and concluded simply that the

plaintiffs had adequately alleged a RICO pattern. See id. at 39.

What Barticheck did do, however, was recognize that

continuity might be either open-ended or closed-ended, rejecting

the defendants' argument that RICO reached only conduct that was

potentially ongoing. See id. at 39-40. Furthermore -- and this

accords with my view that the factors should be analyzed as they

bear on screening out isolated or sporadic activity -- the

Barticheck panel said that the "continuity" language in the

legislative history cited in Sedima

simply call[ed] for an inquiry into the extent of the

racketeering activity. Although temporal open-

endedness may be one measure of extent, it is not the

only one. We decline to adopt a verbal formula for

determining when unlawful activity is sufficiently

extensive to be "continuous."

832 F.2d at 40. I would explicitly hold, therefore, that

although the duration of the predicate acts does not without more

show continuity, if the acts occurred (as shown by the number of

acts) or establish a threat of occurring (as shown by also

considering whether they are repetitive in nature) with some

frequency, they satisfy the continuity requirement, and, provided

they are related, a pattern is shown.

"A party alleging a RICO violation may demonstrate

continuity over a closed period by proving a series of related

predicates extending over a substantial period of time." H.J.,

Inc., 492 U.S. at 242, 109 S. Ct. at 2902. What constitutes a

"substantial" period of time for these purposes (as long as in

excess of "a few weeks or months," see infra) should vary with

the number of acts in "the series" of predicates. As the number

of acts in a given period of time increases, the predicates begin

to look less sporadic and a pattern begins to emerge. The only

(relative) absolute here should be that the predicates must

stretch out at least for more than three or four months to

establish closed-ended continuity in light of the Court's

instruction that "[p]redicate acts extending over a few weeks or

months and threatening no future criminal conduct do not satisfy"

the continuity requirement. Id. at 242, 109 S. Ct. at 2902.

For open-ended continuity, in contrast, we are looking

for "conduct that by its nature projects into the future with a

threat of repetition." Thus, while I agree with Judge Roth that

the two types of continuity are cognate, I believe that to see

whether open-ended continuity is established, what we should ask

is simply whether the activity threatens to demonstrate close-

ended continuity at some future time. This, I believe, is the

point of the three examples of open-ended continuity in the H.J.,

Inc. opinion, including the scenario where the defendant's

commission of predicate acts is "a regular way of conducting

defendant's ongoing legitimate business." 492 U.S. at 242-43,

109 S. Ct. at 2902.

To return to Barticheck factor #6, in my view, threat

of recurrence is also the only respect in which the "character"

of the predicate acts is relevant to the continuity inquiry. As

the Supreme Court and Judge Roth's opinion have explained, open-

ended continuity merely refers to "past conduct that by its

nature projects into the future with a threat of repetition."

Majority Op. at page 31 (quoting H.J., Inc., 492 U.S. at 241, 109

S. Ct. at 2902) (emphasis supplied here). For example, if

extortion is a defendant's regular way of conducting business,

then the nature or character of the conduct in the sense of its

routineness or literal open-endedness makes it likely to continue

into the future. That is the sense in which the character of the

activity is relevant to continuity.26

As Judge Roth's opinion correctly holds, "character of

the unlawful activity" may not refer to some notion of "societal

threat." Lead Op. at page 34 n.17. Because the opinion does not

clarify the extremely limited sense in which "character" of the

26

This interpretation of "character" of the unlawful activity

as "repetitive character" also makes sense of the admonition in

Kehr Packages to consider the underlying scheme in mail fraud

cases. To the extent that the underlying scheme indicates a

likelihood of a defendant's continuing to commit predicate acts,

it may be relevant to open-ended continuity. (Of course, the

underlying scheme also may supply an "organizing principle" that

establishes relatedness. See supra at page 50 (quoting H.J.,

Inc. 492 U.S. at 238, 109 S. Ct. at 2900).) In all cases,

however, we are looking for a pattern (and thus continuity and

relatedness) of the predicate acts of racketeering activity, see

H.J., Inc., 492 U.S. at 237-40, 109 S. Ct. at 2900-01; id. at

242, 109 S. Ct. at 2902.

predicate acts is relevant to the continuity inquiry, the dissent

unfortunately devotes great energy to arguing that the

"character" of the predicate acts, meaning the species of act

involved, weighs against a finding of continuity. See Dissenting

Op. at pages 12-18. I believe that this effort is fundamentally

at odds with the RICO statute and Supreme Court precedent

interpreting it.

B.

The "societal threat" requirement can be traced back to

this court's opinion in the first Marshall-Silver case, 835 F.2d

63 (3d Cir. 1987). There, we reasoned that "the target of RICO

. . . is criminal activity that, because of its organization,

duration, and objectives poses, or during its existence posed, a

threat of a series of injuries over a significant period of

time." Id. at 66-67 (emphases supplied). The panel dismissed

the case in part because it involved "a single victim, a single

injury, and a single short-lived scheme with only two active

perpetrators," id. at 67, and thus did not pose the appropriate

sort of threat. This was an eminently prudent attempt to make

sense of the RICO pattern requirement. It appears to be an

effort to get at the ongoing or potentially ongoing criminal

activity that concerned Congress. It was essentially an extent

requirement.

In the cases after H.J., Inc., however, the concern

over extent of injury was transmogrified to a focus on societal

injury. Rather than worry about a "series of injuries," we have

come to focus on a normative evaluation of the injuries alleged

in a civil RICO case. Such focus is the basis for Judge

Greenberg's dissent in this case, but with all due respect, given

what Congress and the Supreme Court have said about the RICO

statute, see Lead Op. at page 34 n.17, I believe that the focus

is inappropriate in this context.

Congress in the RICO statute specified an extensive

laundry list of serious and arguably less serious acts that all

constitute racketeering activity, and so it strikes me as

improper to maintain that the statute's "pattern" requirement

builds in a normative evaluation of the seriousness of the

predicate acts. The concern about federalizing and attaching

drastic penalties to "garden variety fraud," see Dissenting Op.

at pages 20-21, is a legitimate one, but one that must be

addressed by Congress rather than the courts. And Congress has

told us what sorts of acts to worry about. Our concern with the

pattern requirement is simply to insure that RICO liability is

not attached to "isolated" or "sporadic" predicate acts. That

task requires no inquiry into the seriousness of the acts. The

"threat" for which we are looking is the threat of repeated

prohibited conduct, not the threat of grievous harm.

With this in mind, I believe that this court should

plainly state that the number of victims (factor #4) and number

of perpetrators (factor #5) do not bear on the continuity

inquiry. Certainly, neither the number of victims nor the number

of perpetrators should affect the analysis of duration which, as

the majority explains, the Supreme Court has rendered the

centerpiece of the continuity jurisprudence. Indeed, these

factors seem to inform the notion of societal threat, and hence

are out of bounds.

Nor does the number of victims or perpetrators go to

making out a pattern. For example, one office-tower bomb

triggered during business hours could result in a tragically

large number of victims, but just because the bombing happened

during the day instead of at night when few people were there

does not make it more likely that the bombing reflects non-

isolated or non-sporadic activity. Similarly, three bombings by

several conspirators trying to eliminate one target would not (if

successful) reflect a greater threat of continuing racketeering

activity than would three bombings by the Unabomber, because it

is only the repetitive nature of the activity and not the number

of victims or perpetrators that helps establish a threat of

continuity.

The number of predicate acts could indicate an extent

of activity that would bear on whether the activity is sporadic

or frequent, and extent of the predicate activity is therefore

relevant to continuity, as Judge Roth seems to recognize. See

Lead Op. at page 38 ("[If] the predicate acts have been a regular

way of conducting defendant's legitimate business over a long

period in the past, the RICO pattern been satisfied."). But

number of victims is not relevant, for, under the present

congressional scheme, we are looking for continuity in order to

show a pattern of racketeering acts, not harm from the acts. See

supra page 54 n.26.

C.

We have previously held that "similarity" (factor #3)

does not bear on continuity, see, e.g., Marshall-Silver, 894 F.2d

at 595 n.1, and Judge Roth has already made length of time

(factor #2) and number of unlawful acts (factor #1) part of her

core analysis, irrespective of Barticheck. In my view, the lead

opinion leaves virtually nothing of Barticheck and I believe --

along with Judge Greenberg in dissent, see Dissenting Op. at page

7, especially lines 6-10 -- that we should say so. While I share

Judge Roth's uneasiness as to where this leaves the law, I can

only hope that its eloquent and clarion call will not be ignored

by Congress.

Judges Stapleton and McKee join in this concurrence.

ALITO, Circuit Judge, concurring:

I concur in the judgment, and I join parts I, II, V,

and VI of the opinion of the court While the discussion of the

"continuity" requirement in part IV of Judge Roth's opinion is a

welcome step away from the approach taken in some of this court's

prior decisions, I do not agree with certain portions of that

discussion. I set out my understanding of the concept of

"continuity" in Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d

1406, 1419-26 (3d Cir. 1991) (Alito, J., concurring and

dissenting), and pursuant to that analysis, I think that closed-

ended continuity was sufficiently established here to defeat

summary judgment. My principal points of disagreement with the

discussion in part IV of Judge Roth's opinion are as follows.

First, I do not agree with the intimation (Typescript

at 34) that closed-ended continuity requires activity lasting

years. See Kehr Packages, Inc., 926 F.2d at 1421-22 (Alito, J.,

concurring and dissenting).

Second, I do not agree with the suggestion (Typescript

at 36-37) that a plaintiff who establishes "closed-ended

continuity" may also be required to show that the predicate acts

were part of the defendant's regular way of conducting its

business. I see no support for this requirement in the language

of the RICO statute or relevant Supreme Court decisions.

Third, I do not agree that, in a RICO case based on

mail fraud predicates, we must "focus on the underlying

fraudulent activity, rather that on the otherwise innocent

mailings, in determining continuity." (Typescript at 38.) In my

view, we must focus on the duration of the predicate violations.

See Kehr Packages, Inc., 926 F.2d at 1422-23 (Alito, J.,

concurring and dissenting).

Finally, I do not think that the Barticheck factors

should be considered except to the extent that they have some

logical bearing on "relatedness" or "continuity." See Kehr

Packages, 926 F.2d at 1421 (Alito, J., concurring and

dissenting).

GREENBERG, Circuit Judge, dissenting.

In its amended complaint, the Estate of Charles L.

Tabas seeks to transform its state-law dispute with the

defendants over the proper allocation of a partnership's profits

into a federal RICO case simply by alleging that the defendants

used the United States mail to communicate with it over a

substantial period of time. While we have not considered

directly whether a plaintiff can bring a RICO action in such

circumstances, our precedents clearly forbid such alchemy. See

Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d 594, 609-11 (3d

Cir. 1991), cert. denied, 501 U.S. 1222, 112 S.Ct. 2300 (1992);

Hindes v. Castle, 937 F.2d 868 (3d Cir. 1991); Kehr Packages,

Inc. v. Fidelcor, Inc., 926 F.2d 1406 (3d Cir.), cert. denied,

111 S.Ct. 2839 (1991); Banks v. Wolk, 918 F.2d 418 (3d Cir.

1990); Marshall-Silver Constr. Co. v. Mendel, 894 F.2d 593 (3d

Cir. 1990); Swistock v. Jones, 884 F.2d 755 (3d Cir. 1989).

Therefore, I would affirm the grant of summary judgment in favor

of the defendants, and I respectfully dissent.27

I agree with the majority that the central issue in

this appeal is whether the Estate has alleged that the defendants

engaged in a "pattern of racketeering activity" as defined in 18

27

The Estate may have valid claims under state law, but I

would hold that the district court did not abuse its discretion

in dismissing these claims pursuant to 28 U.S.C. § 1367.

U.S.C. § 1961(5).28 Majority typescript at 24. As noted by the

majority, to establish a pattern of racketeering activity, 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. v. Northwestern Bell Tel. Co., 492

U.S. 229, 239, 109 S.Ct. 2893, 2900 (1989) (emphasis in

original). Thus, a plaintiff seeking to bring a RICO claim must

allege, among other things, relatedness and continuity.

As the majority states, the predicate acts are 41

instances of alleged mail fraud. Of these, 39 were the mailing

of $15,000 checks to the Estate, totalling $585,000, representing

monthly distributions from Tabas Enterprises. The remaining two

were the mailing of yearly tax forms to the Estate. Amended

Complaint ¶ 49, App. at 43-46. According to the amended

complaint, the checks were sent from December 22, 1987, to

February 19, 1991, a period of over three years.29 The Estate

also alleges as predicate acts that the defendants used the

United States mail to send checks to members of Daniel Tabas's

family for work not performed. Amended Complaint ¶ 51, App. at

28

I also agree with the majority that the 1987 settlement and

the subsequent mutual release do not preclude the Estate from

bringing this case. I mention this point because, as the

majority notes, this issue was considered by the panel only and I

was a member of the panel.

29

The amended complaint recites that the last two checks were

sent on January 18, 1990, and February 19, 1990. Amended

Complaint at 34. However, these dates appear to be typographical

errors because they are listed in an otherwise chronological

sequence in which the next preceding date was December 14, 1990.

46-47.30 The majority, however, does not rely on these

allegations as the Estate did not provide evidence that these

checks were mailed, and the evidence on the motion for summary

judgment established that a courier delivered them. I agree with

this disposition and thus conclude that we are concerned only

with the mailing of the $15,000 checks and the tax forms.

I would hold that these mailings are related.31 See

Kehr Packages, 926 F.2d at 1414 (noting that relatedness test

almost always will be satisfied "in cases alleging at least two

acts of mail fraud stemming from the same fraudulent

transaction"). However, in my view these mailings do not satisfy

the continuity requirement as defined by the Supreme Court's and

our precedents. In H.J. Inc., the Supreme Court stated that

continuity "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." 492 U.S. at 241, 109 S.Ct. at 2902 (citing

Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36,

30

In their brief, the defendants maintain that this

allegation does not satisfy the pleading requirements of Fed. R.

Civ. P. 9(b). Brief at 30 n.6; see Banks v. Wolk, 918 F.2d at

422 n.1 (noting that allegations of mail fraud must be plead with

specificity required by Fed. R. Civ. P. 9(b)). I do not address

this contention because even assuming that the pleading

requirement is met, the allegations were refuted and, in any

event, the Estate's allegations as a whole do not state a claim

under RICO.

31

While the majority does not hold explicitly that they are

related, it implicitly reaches this conclusion.

39 (3d Cir. 1987)). If a plaintiff does not allege that the

predicate acts lasted over a "substantial period of time," then

it must allege a threat of continued criminal activity. Id. at

242, 109 S.Ct. at 2902; Marshall-Silver, 894 F.2d at 596.

Conversely, if a plaintiff alleges that the predicate acts lasted

a substantial period of time, then it need not allege a threat of

future criminal conduct. Therefore, a plaintiff alleging a

closed-ended scheme has both a lesser burden in that it does not

have to demonstrate a threat of future harm, and a greater burden

in that it must establish that the predicate acts continued over

a substantial period of time.

Although we do not have a bright-line rule establishing

how long the predicate acts must last to constitute a

"substantial period of time," I will assume that the period of

over three years in this case would satisfy any such

definition.32 Yet, simply by clearing this duration hurdle the

Estate does not establish continuity for we have stated clearly

and repeatedly that duration is a necessary but not sufficient

condition to proving continuity. In Hindes v. Castle, for

example, we stated:

The post-H.J. Inc. cases decided by this

court which have focused on pattern all make

clear that duration is the sine qua non of

continuity. While it is not in itself

sufficient to establish a pattern, a

determination that must be made in light of

32

While I treat this case as a closed-ended case, obviously

if I considered it as open-ended my result would be the same.

all of the Barticheck factors, no pattern can

be shown without the required duration.

937 F.2d at 873 (emphasis added). Likewise, in Marshall-Silver

we recognized:

[I]f the Court in H.J. Inc. intended that the

duration of the predicate acts or the threat

arising therefrom should be determinative

. . . we would not have expected the Court to

eschew providing a specific standard in favor

of a fact oriented, case-by-case development.

894 F.2d at 597 (emphasis in original) (dicta); see also Kehr

Packages, 926 F.2d at 1412 (noting that "the length of time over

which the criminal activity occurs or threatens to occur is an

important factor," but not stating that it is dispositive).

Accordingly, a more detailed analysis of the complaint is

required.33

33

Our rule that duration is a necessary but not sufficient

condition to establish continuity is consistent with the Supreme

Court's statement in H.J. Inc.: "petitioners claim that the

racketeering predicates occurred with some frequency over at

least a 6-year period, which may be sufficient to satisfy the

continuity requirement." 492 U.S. at 250, 109 S.Ct. at 2906

(emphasis added). By using the word "may," the Court implicitly

rejected the notion that duration alone establishes continuity.

Precedents in other circuits could be read to suggest

that duration alone can satisfy continuity. See, e.g., Dana

Corp. v. Blue Cross & Blue Shield Mutual, 900 F.2d 882, 886-87

(6th Cir. 1990) (stating that in a single-scheme, single-victim

case "the allegations of fraud occurring for a period of

seventeen years, along with the specific mailings evidencing such

a scheme, are sufficient to state a claim of a pattern of

racketeering activity"); Fleet Credit Corp. v. Sion, 893 F.2d

441, 446-47 (1st Cir. 1990) (finding that 95 fraudulent mailings

sent over a four and one-half year period are sufficient to

establish continuity); Walk v. Baltimore & Ohio & R., 890 F.2d

688, 690 (4th Cir. 1989) (reversing dismissal where complaint

alleged 10-year scheme to defraud plaintiffs); Jacobson v.

In Barticheck v. Fidelity Union Bank/First Nat'l State,

832 F.2d 36, we set forth six factors that a court should address

in considering whether the plaintiff has alleged a pattern of

racketeering: (1) the number of unlawful acts; (2) the length of

time over which the acts were committed (duration); (3) the

similarity of the acts; (4) the number of the victims; (5) the

number of perpetrators; and (6) the character of the unlawful

activity. Id. at 39. The majority nevertheless concludes that

having "found a pattern of racketeering activity in both the

duration of and the on-going threat implicit in defendants'

regular way of doing business [it] will not go on to analyze this

case under the six Barticheck factors." Majority typescript at

40. The majority then indicates that its decision not to employ

the Barticheck factors does not mean that they are irrelevant in

determining where there is continuity, as a court may consider

the factors if relatedness and continuity are in doubt.

Cooper, 882 F.2d 717, 720 (2d Cir. 1989) (stating that continuity

existed because predicate acts alleged occurred over "a matter of

years"). However, it is not clear that in any of these cases,

the courts of appeals faced a factual situation analogous to the

one presented here, i.e., a dispute over the profits of a

partnership. This case most similar to this one is Jacobson. In

Jacobson, the plaintiff alleged that the two defendants, one of

which was his son, attempted to defraud him out of real estate

holdings that he owned. While the nature of the dispute is

somewhat similar, the alleged predicate acts went beyond mail

fraud and included extortion, larceny, offering false instruments

for filing, and usury. 882 F.2d at 719. Thus, the character of

the unlawful activity in Jacobson is vastly different than that

alleged here. In any event, we are not bound by Jacobson.

I reject the majority's approach. To start with,

continuity is in doubt here. But quite aside from that

consideration it seems to me that the majority's approach

inevitably leads to analytical looseness in determining whether

there has been a pattern of racketeering activity. While I do

not doubt that in practice the Barticheck factors cannot be

applied with mathematical precision, at least the factors are

guidelines in determining whether the plaintiff has demonstrated

continuity and relatedness.

The majority opinion would be more justifiable if it

were to say that after H.J., Inc., the earlier explicated

Bartichek factors are no longer relevant in any continuity

analysis. While I would disagree with that holding, such a

result would have some analytical consistency. But by saying the

Bartichek factors are relevant in some cases but not in others,

see majority typescript at 40-41 & n.21, the majority winds up

saying that the Bartichek factors -- which are designed to answer

the broader question of whether particular facts fairly can be

characterized as a RICO case -- may shed light on whether a

three-month long scheme constitutes a pattern of racketeering

activity but not on whether a three-year long scheme constitutes

such a pattern. It seems to me self-evident that there are

three-month long schemes that clearly fall within RICO's purview

and three-year schemes that clearly do not. Thus, if the

Bartichek factors are relevant at all, they are relevant in

shedding light on all cases. The majority's approach to the

complex statute does injustice to the Supreme Court's admonitions

to courts to take a "flexible approach" when interpreting the

"continuity" prong of the statute and to develop the concepts

behind "pattern of racketeering activity" on a case by case

basis. See H.J. Inc., 492 U.S. at 238, 243, 109 S.Ct. at 2900,

2902-03. See also Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479,

500, 105 S.Ct. 3275, 3287 (1985) (Congress "and the courts"

should "develop a meaningful concept of 'pattern.'") (emphasis

added).

Of course, as I have indicated, we decided Barticheck

before the Supreme Court's decision in H.J. Inc. Nevertheless,

we have noted in post-H.J. Inc. cases that the Barticheck factors

are still relevant and must be considered "'as they bear upon the

separate questions of continuity and relatedness.'" Hindes, 937

F.2d at 873 (quoting Banks, 918 F.2d at 423); accord Midwest

Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1023-25 (7th Cir.

1992) (noting that factors set forth in Morgan v. Bank of

Waukegan, 804 F.2d 970, 975 (7th Cir. 1986), which are similar to

Barticheck factors, apply even after H.J. Inc.). In Marshall-

Silver, we recognized that all of the Barticheck factors except

the third, the similarity of criminal acts, are relevant to the

question of continuity. 894 F.2d at 595 n.1; see also Hindes,

937 F.2d at 873 (reaffirming this view). Thus, the question of

continuity is an "'inquiry into the extent of the [defendant's]

racketeering activity,'" Marshall-Silver, 894 F.2d at 595

(quoting Barticheck, 822 F.2d at 40), and requires an examination

of the five Barticheck factors relevant to continuity. Moreover,

in applying these factors, we must take a "natural and common

sense approach" to continuity. H.J. Inc., 492 U.S. at 237, 109

S.Ct. at 2899. In view of these precedents in which so many of

the judges of this court have joined, I am perplexed at the

majority's subordination of Barticheck.

Inasmuch as I would apply Barticheck in this case I

will now make an analysis of the factors it set forth. The first

factor, the number of unlawful acts, might appear to weigh in

favor of continuity as the Estate alleged that the defendants

engaged in over 40 predicate acts. However, as we stated in Kehr

Packages, "the continuity question should not be affected by the

fact that a particular fraudulent scheme involved numerous

otherwise 'innocent' mailings, rather than only a few." 926 F.2d

at 1414. Rather, what needs to be considered is the underlying

scheme: "Although the mailing is the actual criminal act, the

instances of deceit constituting the underlying fraudulent scheme

are more relevant to the continuity analysis." Id.; see also

Midwest Grinding Co., 976 F.2d at 1024 ("Although the sheer

number of predicate acts might appear at first glance to prove

continuity, when it comes to a pattern premised on acts of mail

or wire fraud, the volume of mailings is not dispositive.").

In this case, the alleged underlying scheme was an

attempt to defraud the Estate out of its rightful share of the

partnership income. Thus, the allegations of fraud relate to a

discrete dispute, rather than to numerous distinct attempts to

defraud. To paraphrase Kehr Packages, "[i]t should not be

relevant . . . that [the defendants] sent [checks] on a monthly

basis, rather than quarterly or yearly." 926 F.2d at 1414.

Thus, "the sizable number of mailings does not show that the

defendants operated a long-term criminal operation." Midwest

Grinding Co., 976 F.2d at 1025. Accordingly, this factor weighs

against a finding of continuity.

The second factor is duration. As I noted above, the

alleged fraudulent activity lasted for at least three years.

However, the significance of the length of the alleged scheme is

diminished by the nature of the scheme itself. In this regard, I

reiterate that the defendants repeated the same allegedly

fraudulent act over three years. Thus, this is not a case in

which each mailing constituted a new fraudulent act. See Kehr

Packages, 926 F.2d at 1415 (distinguishing Fleet Credit Corp. v.

Sion, 893 F.2d 441 (lst Cir. 1990), because in Fleet Credit "each

mailing constituted a new fraudulent act"). As we noted in

Marshall-Silver:

Where such a fraudulent scheme inflicts or

threatens only a single injury, we continue

to doubt that Congress intended to make the

availability of treble damages and augmented

criminal sanctions dependent solely on

whether the fraudulent scheme is well enough

conceived to enjoy prompt success or requires

pursuit for an extended period of time.

894 F.2d at 597. Therefore, while the second factor, duration,

does weigh in favor of continuity, it is not a heavy weight on

the scale. I will not discuss the third factor, the similarity

of the alleged criminal acts, as that factor concerns

relatedness, which I have found in this case.

The fourth factor, number of victims, weighs against a

finding of continuity for, as the district court correctly

indicated, this is a single-victim case. The Estate disputes

this conclusion, contending that all six of the beneficiaries of

the Estate are victims, including a charitable foundation that

ultimately benefits hundreds, if not thousands, of people. Brief

at 27 n.18. Yet, this argument is supported neither by the case

law nor the amended complaint itself. In Kehr Packages, we

addressed an analogous situation and found that the only victim

of the defendants' alleged criminal activity was the company and

not its shareholders or its guarantors. We reached this

conclusion because "Kehr's individual shareholders and

guarantors, and the holders of pledged collateral, were affected

only indirectly." 926 F.2d at 1418-19; see also Hughes, 945 F.2d

at 611 (noting that alleged scheme affected single victim,

"albeit a class of victims," in rejecting RICO claim).

Similarly, here the scheme affected the beneficiaries of the

Estate only indirectly.

Additionally, throughout its amended complaint, the

Estate maintains that the fraudulent conduct deprived it, the

Estate, of its rightful share of the income. Indeed, according

to the 1964 Partnership Agreement, the deceased party's share of

the income is payable to his estate, not to his heirs. App. at

155. While it is true that the presence of only one victim, like

the existence of only one scheme, does not necessarily preclude

the finding of a RICO pattern, this fact clearly weighs against

the finding of continuity. See United States Textiles, Inc. v.

Anheuser-Busch Cos., 911 F.2d 1261, 1268 (7th Cir. 1990).

Indeed, when there is only one victim and that victim is engaged

in a business relationship with the defendant, the dispute

between the parties may be nothing more than a civil controversy.

The fifth factor, the number of perpetrators, does

appear to weigh in the Estate's favor. The district court stated

that there was only one perpetrator, "Daniel Tabas or individuals

under his control." Opin. at 8-9. But this conclusion is

inherently contradictory for even if the other perpetrators are

under Daniel's control, they still existed. In fact, the

district court's description could be used to describe an

organized crime family, yet clearly Congress meant RICO to cover

organized crime. Nonetheless, this error is not significant, for

even if the number were as large as the Estate argues, the fact

that more than one person was involved in a scheme to defraud

that lasted a substantial period of time cannot without more

establish continuity. Indeed, in some ways this is the least

important factor. Cf. Wade v. Hopper, 993 F.2d 1246, 1251 (7th

Cir.) (per curiam) (listing factors relevant for continuity

determination similar to those listed in Barticheck but not

including number of perpetrators), cert. denied, 114 S.Ct. 193

(1993); Morgan v. Bank of Waukegan, 804 F.2d at 975 (listing same

factors in pre-H.J. Inc. case). Thus, this factor does not place

a heavy weight on the continuity side of the scale.

The final factor, the character of the unlawful

activity, is perhaps most important in assuring that RICO is

applied in a manner consistent with congressional intent.

Congress aimed to prevent long-term criminal activity, but not to

federalize every garden-variety claim of fraud. "The concept of

'continuity' plays an important constraining role in the

operation of the RICO statute" by requiring a court to examine

not only the "period of time over which the predicate acts

occurred or . . . during which any threatened criminal activity

would be likely to last," but also the character of the predicate

acts and the extent of the injury generated by the acts.

Marshall-Silver, 894 F.2d at 596-97. In this case the character

of the alleged acts of mail fraud and the confined extent of the

injury weigh heavily against the Estate. "Repeated mailings in

furtherance of a single scheme to inflict one fraudulent injury

may be no indication of the underlying fraud's continuity."

Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1295

(7th Cir. 1992).

As I already have noted, this case evolves from an

ongoing dispute regarding the appropriate split of a

partnership's profits. The allegations of fraud do not pertain

to how Tabas Enterprises conducts its business, but only to its

internal functioning. Moreover, unlike other conduct which can

constitute racketeering activity, such as extortion, robbery, or

murder, there is nothing inherently criminal in mailing a letter

containing a check or a tax form. See 18 U.S.C. § 1961(1).

Indeed, the vast majority of mailings undoubtedly are lawful.

Thus, in this case the mailings could be regarded as racketeering

activity only by reference to matters beyond the letters and

their contents.

The unreasonableness of regarding the mailing of the

thirty-nine $15,000 checks as RICO predicate acts in this case is

demonstrated by considering what would have happened if the

defendants had delivered the checks rather than mailed them. In

that case, they could not have committed mail fraud and the

Estate could not have pleaded a RICO case, as there would have

been no predicate acts on which to base the complaint. Rather

than seeking threefold damages under RICO, 18 U.S.C. § 1964(c),

the Estate would have been limited to a state law claim -- even

though at bottom the unlawful activity in both that hypothetical

case and this case involves conduct of precisely the same

character. I thus ask the following question: is it conceivable

that Congress intended that RICO could be applied to a defendant

who mails substantial payments to the plaintiff, but not to the

same defendant if it delivers the payments?34 The question

answers itself. Thus, the fact that this case involves mail

fraud rather than some other type of fraud is entirely

fortuitous, and that fortuity should not result in a windfall to

the plaintiffs. But by ignoring the Bartichek factors, and

therefore failing to inquire into the character of the unlawful

activity, the majority endorses just that counterintuitive

result.

I recognize that the complaint is rife with contentions

that the defendants' activity defrauded the Estate out of its

fair share of the partnership's income. Yet the Estate does not

allege that the defendants' conduct has ramifications outside the

confines of the immediate dispute regarding the division of the

partnership's profits. Thus, the broader threat is minimal at

most. See Meade v. Meade, 1991 WL 243539, *5 (E.D. Pa. Nov. 18,

1991) ("This is a dispute between a small number of parties, and

34

While the majority answers that Congress did intend to

distinguish between mailings and hand deliveries as the former

but not the latter could be mail fraud, this answer misses my

point. My point is that in considering the character of the

unlawful acts in accordance with the sixth Barticheck factor, the

use of the mails was purely fortuitous in this particular case

and it was the alleged fraud and not how the checks were

delivered which injured the Estate.

neither directly affects nor has wider implications for a large

number of people. Actual and threatened societal injury is

little, if any. Finally, each alleged act of mail and wire fraud

forms part of one, extended scheme, reinforcing the essentially

isolated nature of the alleged racketeering activity."),

reconsideration denied, 1992 WL 6929 (E.D. Pa. 1992), aff'd, 998

F.2d 1004 (3d Cir. 1993) (table); Rumbaugh v. Chandler, 1991 WL

169046, *4 (E.D. Pa. Aug. 27, 1991) (App. at 1893-900) ("This

action does not concern an extensive criminal enterprise whose

long-standing, repeated conduct has caused and will continue to

cause a severe injury to the community. Rather, it is a private

dispute between two ex-partners that has continued over twelve

years in various forms.").

I make one final but critical point with respect to the

character of the unlawful activity in this case. I focus on this

point because I regard the character of the activity as the most

significant Barticheck factor in this case. As the majority

points out, 39 of the predicate acts consist of the mailing of

$15,000 checks to the Estate and the other two concern mailing

tax forms. Reliance on such predicate acts is problematic

because the Estate is pleading in essence that the defendants

committed "mail fraud" by sending it money. I can conceive of

cases in which a defendant's act of sending money may constitute

fraud; perhaps, even, the defendants' activities (as alleged in

this case) theoretically could be prosecuted under the mail fraud

statute,35 although it must be remembered that "not every use of

the mails . . . in connection with a scheme is punishable" as

mail fraud. United States v. Frey, 42 F.3d 795 (3d Cir. 1994),

slip op. at 3 (3d Cir. Dec. 13, 1994). But three undisputed

facts belie the conclusion that this is therefore a RICO case.

First, between March 1983 and September 1986, "Tabas Enterprises

paid for various personal expenses incurred by Harriette [as well

as] Daniel." Majority typescript at 4. Second, "[p]rior to

Charles's death . . . the brothers appeared to have an

arrangement under which Tabas Enterprises paid for many personal

and business expenses." Majority typescript at 4 n.2 (emphasis

added). Finally, as the majority indicates, plaintiffs

acknowledge that as of the time of the state court lawsuit, "they

believed Daniel was taking more than he was entitled to under the

partnership agreement . . . They contend [only] that they did not

know the extent to which they were being short-changed . . . ."

Majority typescript at 5 n.3 (emphasis added).

These facts make difficult to accept the majority's

conclusion that the "mailings [were] 'designed to lull [the

Estate] into a false sense of security, postpone [its] ultimate

complaint to the authorities, and therefore make the apprehension

35

See Schmuck v. United States, 489 U.S. 705, 714-15, 109

S.Ct. 1443, 1450 (1989) ("To the extent that Schmuck would draw

from these previous cases a general rule that routine mailings

that are innocent in themselves cannot supply the mailing element

of the mail fraud offense, he misapprehends this Court's

precedents.").

of the defendants less likely than if no mailings had taken

place.'" Majority typescript at 35 n.18 (citation omitted). In

any event, no matter how the Estate characterizes this case, and

even if there were some fraudulent acts, this suit is first and

last a dispute about how the partnership income should have been

distributed. Seen in this context, the mailing of the checks was

so benign an act that it is a thin foundation on which to build

the continuity element. At bottom, regardless of the pejorative

words which the Estate uses to characterize the defendants'

conduct, this case involves a commercial dispute over a discrete

issue, the amount due to the Estate in its monthly draws. Such a

dispute is simply not a RICO controversy.36

I recognize that the majority has listed numerous

questionable expenses charged against Tabas Enterprises and I

further acknowledge that the defendants may have state law

liability for some of these expenses. But it is important in

considering this case to keep in mind that the incurring of these

expenses is not the predicate criminal conduct charged in this

case. Rather, the predicate acts to establish RICO jurisdiction

are the use of the mails to disburse checks and to distribute

forms. Overall, therefore, after consideration of the character

36

Keeping in mind that this case is really about who gets to

use the partnership income for what purpose, consider what would

have happened if the defendants had paid nothing to the Estate

over the three-year period in which they actually paid $585,000.

The Estate would have gotten nothing and there would not be a

RICO case.

of the unlawful activity, together with the other relevant

Barticheck factors, both qualitatively and quantitatively, I

conclude that the Estate has failed to establish a genuine issue

of material fact over continuity and that this case is yet

another attempt by a plaintiff "to fit a square peg in a round

hole by squeezing garden-variety business disputes into civil

RICO actions." Midwest Grounding Co., 976 F.2d at 1025.

In reaching my conclusions, I have taken particular

note of our opinion in Jordan v. Fox, Rothschild, O'Brien &

Frankel, 20 F.3d 1250 (3d Cir. 1994), which affirmed the district

court's judgment granting certain of the defendants "summary

judgment on the RICO claim against them for failure to show

relatedness and continuity . . . essentially for the reasons

given by the district court." Id. at 1254. The district court

opinion is reported as Jordan v. Berman, 792 F. Supp. 380 (E.D.

Pa. 1992). Jordan is a complex case involving a controversy

between tenants and a landlord, the details of which I need not

discuss. Germane here is the district court's conclusion that

the plaintiffs had not adduced "evidence from which one could

reasonably find a pattern of racketeering activity under

prevailing case law." Id. at 388. The district court explained

the basis for its decision as follows:

Few relationships in our society seem to

engender more conflict than that of landlord

and tenant. The aggressive landlord and the

disgruntled tenant have almost become

stereotypical. The instant case involves a

typical landlord-tenant dispute about the

construction of a lease and what sums or

services the respective parties are entitled

to. Permitting trash to accumulate for a

day, disrupting utility service for half a

day and vigorously pursuing a plausible

contract interpretation are generally not the

kind of things from which RICO cases are

made. The actions of defendants and their

agents, however characterized, do not pose

the type of significant societal threat that

RICO was designed to deter or penalize.

Id. (emphasis added). By affirming "essentially for the reasons

given by the district court," we approved the foregoing

statement, even though the case involved the use of the mails and

thus, in theory, could have been a RICO case.

If we substituted the relationship between partners for

the landlord-tenant relationship, the underscored language in the

above quotation would describe this case. Certainly the

partnership relationship, like the landlord-tenant relationship,

is a frequent source of disputes. The dispute in this case, to

quote from and to paraphrase Jordan v. Berman:

involves a typical [partnership] dispute

about the construction of a [partnership

agreement] and what sums . . . the respective

parties are entitled to. . . . The actions

of defendants and their agents, however

characterized, do not pose the type of

significant societal threat that RICO was

designed to deter or penalize.

Thus, this case is no more a RICO case than was Jordan.

In coming to my conclusions I also have found it useful

to consider United States v. Pelullo, 964 F.2d 193 (3d Cir.

1992), a case which the majority cites and on which the Estate

relies. Pelullo is a post-H.J. Inc. case in which we found that

a RICO violation could be proved based on a closed-ended scheme

that lasted 19 months. In Pelullo, the defendant was a chief

executive officer of The Royale Group, Ltd., a publicly held

corporation which through subsidiaries acquired six hotels in

Miami Beach. In June 1984, the hotels obtained a $13.5 million

loan from a subsidiary of American Savings and Loan Association.

Under the terms of the loan, $6.2 million was to be used for

renovation, with American retaining this portion and disbursing

the funds as renovation costs were incurred. To obtain a

disbursement, Royale was required to submit draw requests which

set forth a certified itemization of the costs.

The indictment charged Pelullo with three fraudulent

schemes: (1) defrauding American, Royale, and Royale's

shareholders by submitting false documents in connection with

certain draw requests; (2) defrauding Royale of $114,000 by

diverting cash from one of its subsidiaries to repay a debt

Pelullo owed; and (3) defrauding Royale of approximately $500,000

by diverting money for uses other than for the purposes of the

loans. Accordingly, the alleged number of schemes in Pelullo was

larger than the one scheme alleged here. And while the number of

victims in Pelullo could be characterized as small, the nature of

the unlawful activity had a different ring to it, because in

Pelullo the alleged perpetrator was an officer in a public

company and the main victims (American and Royale) were public

entities. Moreover, the alleged fraud was not confined to

Royale's internal operations, but took place in the context of

its normal external business operations. Thus, even though the

Estate relies on Pelullo, that case involved much more than a

dispute between partners and does not support the Estate's

position. Pelullo nevertheless is instructive to illustrate the

contrast between a real RICO case and the Tabas's dispute.

While I do not suggest that a plaintiff alleging a

single fraudulent scheme injuring a single victim in the context

of a private dispute never can maintain a RICO claim, it would be

unusual for such a case to be covered by RICO, especially where

the alleged predicate acts are mail fraud. In reaching this

conclusion, I am cognizant that "RICO's pattern requirement does

not require the existence of more than one 'scheme,'" Marshall-

Silver, 894 F.2d at 596, and that the Supreme Court has declared

that the RICO statute should be read broadly "to reach both

'legitimate' and 'illegitimate' enterprises," Sedima, S.P.R.L.

v. Imrex Co., 473 U.S. 479, 499, 105 S.Ct. 3275, 3286 (1985).

Furthermore, I recognize that the Court has noted that civil RICO

appears to be "evolving into something quite different from the

original conception of its enactors," and that this problem is

for Congress, not the courts, to correct. Id. at 499-500, 105

S.Ct. at 3287. See also NOW v. Scheidler, 114 S.Ct. 798, 806

(1994).

Yet our precedents clearly establish that Congress did

not intend RICO to cover every garden-variety fraud. See

Marshall-Silver, 894 F.2d at 597; accord Midwest Grinding Co.,

976 F.2d at 1025 ("[I]t is equally evident that RICO has not

federalized every state common-law cause of action available to

remedy business deals gone sour."). Rather, the Supreme Court,

"by refocusing the pattern requirement on the sort of long-term

criminal activity that carries some quantum of threat to

society," Midwest Grinding Co., 976 F.2d at 1025, has attempted

"to prevent RICO from becoming a surrogate for garden-variety

fraud actions properly brought under state law," id, at 1022; see

also Marshall-Silver, 894 F.2d at 596-97 (noting that continuity

plays an important role in constraining operation of RICO statute

to only those activities which threaten societal injury).

Moreover, the Supreme Court has confined the scope of RICO by

limiting the persons who can be liable under 18 U.S.C. § 1962(c).

See Reves v. Ernst & Young, 113 S.Ct. 1163 (1993).

In my view, the majority's opinion inexorably will

result in federalizing numerous internal business disputes in a

way that Congress never could have intended. The opinion as

applied in this circuit will lead attorneys to repackage as RICO

actions ordinary commercial controversies in which the parties

have communicated by mail or wire. Indeed, it seems obvious that

the principles of this case could be applied to routine

commercial disputes in many situations in which the parties have

been in an ongoing relationship, e.g., partnerships, tenancies,

employer-employee, service contracts, supply contracts, equipment

rentals, brokerage accounts, and others as well. A party in such

a relationship, dissatisfied with the other party's performance,

will be able to establish RICO jurisdiction by alleging fraud and

pointing to the other party's numerous mailings in furtherance of

its understanding of the terms of the relationship. For the

foregoing reasons, I dissent. Chief Judge Sloviter,37 and Judges

Hutchinson, Scirica, Cowen, and Nygaard38 join in this dissent.

37

Judge Sloviter joins with the following statement.

Although I do not agree with every detail of Judge Greenberg's

dissent, I join it because it comes closest to expressing my

frustration that the analytic litany that the courts must now

conduct in civil RICO cases leads to a result, the federalization

of garden variety fraud, that is directly contrary to Congress's

expressed intent.

38

Judge Nygaard joins in the dissent, believing that the

district court properly granted summary judgment in favor of the

defendants. He bases his conclusion that summary judgment was

proper, however, upon plaintiffs' failure to show facts giving

rise to mail fraud under RICO rather than upon a failure to

establish a pattern of racketeering activity. Under Judge

Nygaard's analysis, the mailings here were, as in United States

v. Maze, 414 U.S. 395, 94 S.Ct. 645 (1974), merely post-fraud

means of transmitting matter from one place to another. Judge

Nygaard believes that inasmuch as the fraud "had reached

fruition," at the time of the mailing, it cannot be said that the

mailings in question were for the purpose of executing the

scheme, as required by the statute. Kann v. United States, 323

U.S. 88, 65 S.Ct. 148 (1944). Hence, it was not "an essential

step" in the success of the fraud. Schmuck v. United States, 489

U.S. 705, 714, 109 S.Ct. 1443, 1450 (1989).