Opposition Brief — Kehr Packages, Inc. v. Fidelcor, Inc.

——————

Supreme Court, U.S.

FirLED

MAY 23 199)

No. 90-1643

a

the Thy i HE CLERK

IN THE

Sipreme Court of the United States

October Term, 1990

KEHR PACKAGES, INC.

JAMES MCMURTRIE,

CHARLES MCMUuRrTRIE AND EMILy MCMurTRIE,

Petitioners,

V.

FIDELCOR, INC.,

FipeuiTy BANK, NATIONAL ASSOCIATION,

THOMAS DONNELLY, JAMES NOON,

Nett COHEN AND MARrio. GIANINNI,

Responaents.

Petition for Writ of Certiorari

to the United States Court of Appeals

for the Third Circuit

BRIEF FOR RESPONDENTS

WALTER Weir, JR., ESQUIRE

Suite 1200, Land Title Building

Broad and Chestnut Streets

Philadelphia, Pennsylvania 19110

(215) 665-8181

Counsel for Respondents

72 p.

a

STATEMENT OF THE QUESTIONS PRESENTED

1. Whether the Third Circuit’s holding that Fidelity Bank

could not be both a “person” engaged in racketeering activity

and an “enterprise”, where the enterprise is alleged to be

comprised of an “association in fact” of Fidelity Bank, its

commercial loan and asset recovery departments, and _ its

parent and bank holding companies, is consistent with the

decisions of other Courts of Appeals?

2. Whether the Third Circuit’s focus on factors other than

the duration of the predicate acts to determine whether the

“pattern” requirement of the RICO statute nas been met, is

consistent with this Court’s holding in HJ. Inc. v. Northwestern

Bell Telephone Co., 492 U.S. 229 (1989)?

PARTIES TO THE PROCEEDING

The caption of this case in the Court of Appeals for the

Third Circuit is

Kehr Packages, Inc., James McMurtrie,

Charles McMurtrie and Emily McMurtrie

V.

Fidelcor, Inc., Fidelity Bank, National Association

Thomas Donnelly, James Noon,

Neil Cohen and Mario Gianinni

Fidelity Bank, National Association is a wholly owned

subsidiary of Fidelcor, Inc. Fidelcor, Inc. is a wholly owned

subsidiary of First Fidelity Bancorporation.

TABLE OF CONTENTS

Statement of the Questions Presented. ...............

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2. The Third Circuit’s holding that Fidelity cannot

be both a “person” and an “enterprise” under

18 U.S.C. §1962(c) is consistent with the

decisions of other Courts of Appeals ............

3. The Third Circuit’s application of the RICO

pattern requirement is consistent with this

Court’s holding in Hj. Inc. v. Northwestern Bell

Telephone Co., 492 US. 229 (1989).............

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12

17

TABLE OF AUTHORITIES

Cases: Page

Atkinson v. Anadarko Bank & Trust Co., 808 F.2d

438 (Sth Cir. 1987) cert. denied 483 U.S.

ee ee si as wa invade nsne eds 10

Atlas Pile Driving Co. v. Di Con Financial Co., 886

F.20 966 (6th Cr. 1969) ..................... 10

HJ. Inc. v. Northwestern Bell Telephone Co.,

os acts tcuecivciesesa 4,.6,7,12,

13,14,15,16

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

Te en whe canna abcc nde 2

Marshall-Silver Construction Co. v. M. Mark

Mendel, 894 F.2d 593 (3d Cir. 1990) ......... 14

Montesano v. Seafirst Commercial Corp., 818 F.2d

ee 10,11

Sedima, S.P.R.L. v. IMREX Co., Inc., 473 U.S. 479

ee ras cas caka keira bieeapae esse’ 6

Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162

a eer a 9

United States v. Adams, 759 F.2d 1099 (3d Cir.

1985) cert. denied 474 U.S. 971 ............. 12

United States v. Bledsoe, 674 F.2d 647 (8th Cir.

1982) cert. denied 459 U.S. 1040 (1982) ..... 10

United States v. Riccobene, 709 F.2d 214 (3d Cir.

1983) cert. denied 464 U.S. 849 (1983)....... g

United States Textiles, Inc. v. Anheuser-Busch

Companies, 911 F.2d 1261 (7th Cir. 1990)... . 15

United States v. Turkette, 452 U.S. 576 (1981) .... 8,11

TABLE OF AUTHORITIES — Continued

Statutes: Page

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W USS. STIG .......... PONS re eT ee Teer T 1,11

STATUTORY PROVISIONS

In addition to those provisions of the Racketeering

Influenced and Corrupt Organizations Act set forth by the

petitioners, the following statutory provisions are applicable to

the instant petition.

Title 18, United States Code, Section 1962(c) provides:

(c) It shall be unlawful for any person employed by or

associated with any enterprise engaged in, or the

activities of which affect, interstate or foreign

commerce, to conduct or participate, directly or

indirectly, in the conduct of such enterprise’s affairs

through a pattern of racketeering activity or collection

of unlawful debt.

Title 18, United States Code, Section 1962(d) provides:

(d) It shall be unlawful for any person to conspire to

violate any of the provisions of subsections (a), (b),

or (c) of this section.

STATEMENT OF THE CASE

This petition involves an action brought under the

Racketeering Influenced and Corrupt Organizations Act,

18 U.S.C. § 1961 et seq. (“RICO”). The action was commenced

on August 24, 1989, by Kehr Packages, Inc. (“Kehr Packages’’),

James and Charles McMurtrie, individuals who purchased all of

the stock of Kehr Packages in a leveraged buyout in December,

1986, and Charles McMurtrie’s wife, Emily McMurtrie, the

Petitioners herein. The Petitioners charge a violation of RICO

and an assortment of state law claims against Fidelcor, Inc. (the

“Parent Company’), its subsidiary Fidelity Bank, National

Association (‘‘Fidelity’’), James Noon and Neil Cohen, two

former loan officers of Fidelity who were involved in the

making of a loan to Kehr Packages (the “Loan Officers’).

Thomas Donnelly, a Vice President of Fidelity who works in the

asset recovery group of Fidelity and who took over the

responsibility of monitoring the loan to Kehr Packages after

the Loan Officers left Fidelity, and Mario Gianinni, a former

associate counsel of Fidelity, the Respondents herein

1

2

Petitioners’ RICO claim is grounded upon predicate acts of

mail fraud. Specifically, Petitioners allege that the Loan Officers

engaged in a scheme to defraud them by luring them to close

on a $4,165,000.00 loan made by Fidelity to Kehr Packages with

the oral promise that an additional loan in the amount of

$185,000.00 would be made to Kehr Packages. (A54).

Petitioners allege that Donnelly thereafter made false

representations and omissions to them in order to lull them into

a false sense of believing that the additional financing promised

by the Loan Officers would be forthcoming. (A55, 56).

Respondents are alleged to have used the United States mails

to send statements setting forth the amount of principal and

interest due on the loans from Fidelity to Kehr Packages (A54),

and to notify Petitioners that the loans were in default (A56), in

furtherance of a scheme to defraud Petitioners.

On January 29, 1990, Respondents moved to dismiss this

case. Petitioners filed a response to Respondents’ motion to

dismiss, together with a motion for leave to file an amended

complaint in order to more particularly set forth their RICO

and pendent state law claims. Petitioners attached to their

motion their proposed amended complaint. The amendment

expanded their original one count RICO claim into four

separate counts alleging violations of §1962(a) through (d),

respectively. (AS8-62). The amended complaint dropped the

Parent Company and Mario Gianinni as defendants. (A48).

On May 14, 1990, the United States District Court for the

Eastern District of Pennsylvania granted Respondents’ motion,

holding that Petitioners failed to plead facts sufficient to satisfy

the “pattern’’ requirement of RICO. (A42, 47). The District

Court denied Petitioners’ motion for leave to file their amended

complaint because it did not establish a valid RICO claim and

failed to cure the deficiencies contained in their original

complaint. (A42).

On appeal, the United States Court of Appeals for the

Third Circuit affirmed the District Court’s dismissal of the case

and the denial of Petitioners’ motion for leave to file the

amended complaint. (A30). Kehr Packages, Inc., et al. v.

3

Fidelcor, Inc., et al., 926 F.2d 1406 (3d Cir. 1991). The Third

Circuit rejected Petitioners’ claim under §1962(a) because the

alleged fraudulent activity was not linked to the use or

investment of income in any enterprise. (A10). Petitioners’

§1962(b) claim was also dismissed because the proposed

amended complaint failed to allege a specific nexus between

the control of a named enterprise and the alleged racketeering

activity. (A10).'

The Third Circuit found that the alleged violation of

§1962(c) was deficient on two grounds. First, Petitioners

improperly named Fidelity both as the “enterprise’’ and the

“person” engaged in racketeering activity under §1962(c).

Because Fidelity could not be a RICO defendant, the Court

held that Fidelity cannot be liable under a respondeat superior

theory for RICO violations committed by its employees. (A11).

Second, Petitioners did not satisfy the statute’s

requirement that a “pattern of racketeering activity’’ be

alleged. To reach this result, the Third Circuit focused

separately on the alleged deceptive acts of Donnelly and the

Loan Officers. It concluded that Donnelly’s conduct did not

constitute mail fraud and added nothing to the alleged scheme

to defraud the Petitioners. (A25). As against the Loan Officers,

the Third Circuit held that the amended complaint failed to

allege that they engaged in a “pattern of racketeering activity”

because it did not contain facts showing long-term criminal

activity or a threat of future criminal activity on their part.’

(A28, A29).

One of the judges on the panel concurred with the

dismissal of Petitioners’ claims under §1962(a) and (b), but

dissented on the dismissal of the claims under § 1962(c) and (d).

1. Petitioners do not challenge the dismissal of their § 1962(a) and § 196 2(b)

daims. They seek only the reinstatement of the portions of the amended

complaint which purport to allege violations of §1962(c) and §1962(d),

respectively.

2. Having found that Petitioners did not state a claim under §1962(c), the

Third Circuit did not consider whether Petitioners’ daim under § 1962(d) was

properly alleged (A11)

4

(A30). Although he agreed that the amended complaint did not

allege facts showing a threat of future racketeering activity

(A34), he disagreed with the majority that the focus is on

anything other than the duration of the alleged racketeering

activity and its examination of Donnelly’s conduct in isolation

from that of the other Respondents. (A40).

Petitioners sought and were denied a rehearing en banc.

(A41). This petition followed.

SUMMARY OF THE ARGUMENT

The Third Circuit’s holding that Fidelity cannot occupy a

dual role of a ‘‘person” and an “enterprise’’ under §1962(c) is

consistent with the holdings of other Courts of Appeals. The

allegation that Fidelity is “associated in fact’’ with other legal

entities and departments within Fidelity does not satisfy the

“enterprise” element of §1962(c). The amended complaint fails

to establish that the enterprise is an ongoing, continuous

organization that has an ascertainable structure distinct from

the alleged racketeering activity.

The Third Circuit’s application of the RICO pattern

requirement to the alleged acts of Donnelly independent of the

alleged criminal acts of the Loan Officers is consistent with the

guidelines enumerated by this Court in HJ. Inc. v. Northwestern

Bell Telephone Co., 492 U.S. 229 (1989). The existence of

a “pattern of racketeering activity’’~depends upon the

circumstances of each case and requires something more than

the number and duration of the predicate acts. The predicate

acts must be related and amount to or pose a threat of

continued criminal activity. When the claim is based upon mail

fraud, the multiplicity of otherwise “innocent” mailings does

not necessarily transform the underlying fraudulent acts into

a pattern of racketeering activity. An examination of the

underlying fraudulent conduct is necessary to determine

whether the alleged acts form a “pattern of racketeering

activity”’ and fall within the purview of the RICO statute.

5

REASONS FOR DENYING THE WRIT OF CERTIORARI

1. Introduction

In their amended complaint, Petitioners allege that the

Respondent Loan Officers engaged in a scheme to defraud

them by inducing them to complete the closing of a

$4, 165,000.00 loan made by Fidelity to Kehr Packages in

December of 1986 by orally promising that an additional loan

of $185,000.00 would be made to Kehr Packages for working

capital (the ‘“‘Kehr Packages Scheme’’). (A54). The Loan Officers

left Fidelity in mid-1987 and the responsibility for monitoring

the loan was ultimately given to Donnelly. (A54). The amended

complaint does not allege that Donnelly promised Petitioners

anything or participated in any fraud other than the Kehr

Packages Scheme. Rather, Petitioners allege that from July of

1987 through December of 1988, Donnelly lulled them “into a

false sense of security in believing that [Fidelity] would fund

additional working capital’’ to Kehr Packages by: (1) telling

them that he would review the loan file to determine whether

additional funds could be advanced to Kehr Packages;

(2) having a liquidation value appraisal done on the machinery

and equipment of Kehr Packages; (3) asking Petitioner James

McMurtrie for a “plan of attack” to show him how Kehr

Packages could be turned around financially and make a profit;

(4) failing to tell Petitioners that he worked in the asset recovery

group of Fidelity; and (5) disclosing to a buyer interested in the

stock of Kehr Packages that the loan made to Kehr Packages by

Fidelity was in default. (A54, 55).

The mailing of monthly invoices from Fidelity to Kehr

Packages setting forth the amounts of principal and interest due

on the loans that were made to Kehr Packages, checks from

Kehr Packages to Fidelity for loan payments, and Donnelly’s

letters to Petitioners, notifying them that the loans were in

default, are alleged to have furthered the Kehr Packages

Scheme. (A54, 56). The instant petition concerns the sufficiency

of Petitioners’ claim under §1962(c) of RICO based upon these

allegations.

6

Section 1962(c) of the RICO statute makes it unlawful ‘for

any person employed by or associated with an enterprise

engaged in, or the activities of which affect, interstate or

foreign commerce, to conduct or participate, directly or

indirectly, in the conduct of such enterprise’s affairs through a

pattern of racketeering activity or collection of unlawful debt.”

18 U.S.C. §1962(c). In order to state a claim for a violation of

§1962(c), a RICO plaintiff must allege (1) the existence of an

enterprise; (2) that persons associated with or participated in

the conduct of the enterprise’s affairs; (3) through a pattern;

(4) of racketeering activity. Sedima, S.P.R.L. v. IMREX Co., Inc.,

473 US. 479, 489 (1985).

Each of these elements is defined in the statute. A

“person” is “any individual or entity capable of holding a legal

or beneficial interest in property.” 18 U.S.C. §1961(3). The term

“enterprise” is defined as including “any individual, partnership,

corporation or association, or other legal entity, and any union

or group of individuals associated in fact although sot a legal

entity.” 18 U.S.C. §1961(4). A “pattern of racketeering activity”

requires at least two predicate acts of racketeering activity.’

18 U.S.C. §1961(5).

The RICO statute does not define the word “‘pattern’’.

In HJ. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229

(1989), this Supreme Court held that the “pattern” requirement

is satisfied if the predicate acts of racketeering activity are

“related” and “amount to, or that they otherwise pose a threat

of, continuing racketeering activity,” the latter being described

as a requirement of “continuity.” HJ. Inc., 492 U.S. at 240.

In this case, the Third Circuit reviewed the validity of

Petitioners’ §1962(c) claims as against each of the Respondents.

It found that the amended complaint improperly named

Fidelity as both the “enterprise” and a ‘‘person” associated

with or participating in the affairs of the enterprise through a

3. Under §1961(1), “racketeering activity’’ can mean any of the state law

or federal offenses enumerated in this section, induding mail fraud under

18 USC. §1341. Petitioners’ RICO daim is based upon the predicate acts of

mail fraud under § 1341.

7

pattern of racketeering activity, and dismissed the §1962(c)

claim against Fidelity. (A10, 11). The Third Circuit’s holding is

consistent with the holdings of other Courts of Appeals.

As against Donnelly, the Third Circuit concluded that the

alleged predicate acts did not fall under the purview of the mail

fraud statute and, for the purposes of establishing the element

of a “pattern of racketeering activity” under RICO, added

nothing to the alleged Kehr Packages Scheme or the alleged

racketeering activity of the Loan Officers. (A25).

The Third Circuit found that the alleged misrepresenta-

tions made by the Loan Officers occurred over a short period

of time, were targeted only at Kehr Packages, and showed no

threat of further criminal activity. (A25). The Court held that

these allegations failed to establish a ‘‘pattern of racketeering

activity” under RICO. The Court’s dismissal of Petitioners’

§1962(c) claim against both Donnelly and the Loan Officers is

consistent with the principles enumerated by the Supreme

Court in HJ. Inc. v. Northwestern Bell Telepnone Co., 492 US.

229 (1989).

2. The Third Circuit’s holding that Fidelity cannot be both a

“person” and an “enterprise” under 18 U.S.C. §1962(c)

is consistent with the decisions of other Courts of

Appeals.

Petitioners describe the RICO ‘‘enterprise’”’ in paragraph 61

of the amended complaint as follows:

Fidelity Bank, and the parent holding companies,

Fidelcor, Inc. and First Fidelity Bancorporation, and the

Commercial Loan Departrnent and Asset Recovery

Group, together were all associated in fact and

formed an enterprise as defined in 18 U.S.C. Section

196 1(4). (A58).

The Third Circuit held that Fidelity cannot be named as both

the “person” and the “enterprise’’. Petitioners claim that a

conflict exists among the Courts of Appeals as to the

components of an “enterprise”, and they ask this Court to

8

resolve this conflict. The conflict perceived by Petitioners,

however, simply does not exist.

The circuit courts do not differ on the components of a

RICO “enterprise.” In each of the cases cited by the Petitioners,

the Courts applied the principles set forth by this Supreme

Court in United States v. Turkette, 452 U.S. 576 (1981) that an

“enterprise” must be an ongoing organization that is separate

and distinct from the pattern of racketeering activity. The

difference in the make-up of the enterprises in those cases

before the Courts of Appeals arises from the facts of each case,

and nothing more. Indeed, not every RICO enterprise will be

comprised of a single entity or a group of individuals.

In United States v. Turkette, this Court addressed the issue

of whether a group of individuals who formed an association

for the purpose of engaging only in illegal activity constituted

an “enterprise’’ under RICO. The Suprerne Court held that a

RICO “enterprise” reaches both legitimate and _ illegitimate

enterprises. In reaching this conclusion, the Supreme Court

stated that §1961(4) of RICO describes two separate categories

of associations that fall under the definition of an “enterprise.”

The first category is those organizations that are legal entities

such as corporations and partnerships. The second category

encompasses groups or unions associated in fact that are not

legal entities. Turkette, 452 U.S. at 582.

The “enterprise” alleged in that case fell within the second

category of RICO enterprises, that is, a “group of persons

associated together for a common purpose of engaging in a

course of conduct.” Turkette, 452 U.S. at 583. The existence of

the enterprise, the Court held, must be shown by some

evidence of an “ongoing organization, formal or informal, and

by evidence that the various associates function as a continuing

unit.” Turkette, 452 US. at 583.

The Supreme Court further emphasized that under

§1962(c), the “enterprise” and the “‘pattern of racketeering

activity’ are not one and the same thing. The enterprise is a

separate element under §1962(c) and its existence must be

9

distinct and separate from the alleged racketeering activity.

id. at 583.

The Supreme .Court set forth the elements necessary to

establish an ‘enterprise’ under §1962(c): (1) an ongoing

organization whose members function as a continuing unit, and

(2) an existence separate and distinct from that inherent in the

conduct of racketeering activity. These principles have been

consistently followed by the Third Circuit and by other Courts

of Appeals.

Since Turkette was handed down, the Third Circuit has

twice decided cases where the issue of whether the facts were

sufficient to show the existence of an ‘association in fact’

RICO enterprise. In United States v. Riccobene, 709 F.2d 214,

222 (3d Cir. 1983) cert. denied 464 U.S. 849 (1983), the issue

was whether an enterprise was formed by the association of

various members of a “crime family”. The Third Circuit

employed the elements set forth in Turkette to determine

whether the facts in that case were sufficient to sustain a

finding that an enterprise existed. Adopting a variation of the

Turkette test for an ‘association in fact” enterprise, the Court

concluded that the association must have: (a) some guiding

mechanism for controlling and directing the affairs of the

association; (b) the existence of a continuing unit with

associates fulfilling roles consistent with the organizational

structure; and (c) an existence beyond what is necessary to

engage in racketeering activity. Riccobene, 709 F.2d at 222-223.

In Riccobene, the Third Circuit found sufficient facts to

satisfy all of these elements. The association was a hierarchy

presided over by the head of the alleged “crime family”;

each member of the ‘crime family’ occupied continuing

positions within the group; and the enterprise served as a

‘‘clearinghouse’”’ beyond what was necessary to accomplish

any single act of racketeering activity charged against the

individual defendants. /d. at 223-224.

In Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162 (3d Cir.

1989), the Third Circuit did not refer directly to the holding of

Turkette, but followed the Supreme Court’s direction and

10

looked to the statutory definition of an enterprise to determine

whether sufficient facts were pleaded to show that a group of

companies functioned as a continuous triparte unit. /d. at 1166.

The Third Circuit’s application of the principles set forth in

Turkette is consistent with the manner in which other Courts of

Appeals have applied the “enterprise” elements, enumerated

in Turkette, to the particular facts. In United States v. Bledsoe,

674 F.2d 647 (8th Cir. 1982) cert. denied 459 U.S. 1040 (1982)

the Eighth Circuit found that facts showing loose patterns of

associations among the members, short-lived arrangements,

nonparticipation in the planning and organization of the

association by various members, and the lack of an overall

structure or control over the association demonstrated the

absence of an ongoing, structured association that formed an

enterprise under RICO.

In Atlas Pile Driving Co. v. Di Con Financial Co., 886 F.2d

986, 995 (8th Cir. 1989), the Eighth Circuit again applied the

facts of the case to the principles set forth in Turkette but this

time found that an association of five interrelated companies

that had a distinct structure and an organizational system

beyond what was necessary to perpetrate the predicate acts of

racketeering activity did form an “enterprise” under the

statute. /d. at 996.

The Fifth Circuit has engaged in a similar analysis. In

Atkinson v. Anadarko Bank & Trust Co., 808 F.2d 438 (Sth Cir.

1987) cert. denied 483 U.S. 1032 (1987), the Court rejected

the claim that a bank, its holding company, and three bank

employees was an association in fact enterprise, finding no

facts to demonstrate that the “enterprise’’ (comprised of the

bank and the holding company) was separate and apart from

the alleged racketeering activity of the bank. In addition, there

were no facts showing that the bank, the bank holding

company and the bank’s employees functioned as a continuing

unit. The fact that the holding company purchased the

plaintiffs’ notes from the bank was insufficient to establish the

holding company’s association with the bank. Atkinson, 808

F.2d at 441. In Montesano v. Seafirst Commercial Corp., 818

eS ee

11

F.2d 423 (Sth Cir. 1987), the Fifth Circuit found that two

incividuals who joined together to commit one discrete

criminal act did not create the type of ongoing association

described by the Supreme Court in Turkette. Montesano, 818

F.2d at 427.

In this case, the Third Circuit’s holding that Fidelity cannot

be named as both a defendant and an enterprise is entirely

consistent both with its prior holdings and with the post-

Turkette cases handed down in other circuits. Implicit in the

Court’s holding is that the amended complaint does not

allege an ‘‘association in fact” enterprise; facts sufficient to

demonstrate the existence of an ongoing organization, that is

something separate and distinct from the alleged racketeering

activity of Fidelity, are absent. In fact, the allegation that

the Parent Company and First Fidelity Bancorporation, two

members of the alleged ‘enterprise’, did not merge until

February, 1988 — in the middle of the alleged Kehr Packages

Scheme — negates the existence of an ongoing organization.

There is no allegation in the amended complaint that the Parent

Company and First Fidelity Bancorporation were associated in

any way prior to the merger.

Petitioners’ allegation that the Parent Company audited

the loans of its subsidiaries, i.e. Fidelity, and that the reports

generated by those audits were used by the Respondents to

implement the Kehr Packages Scheme further demonstrates

the absence of an enterprise. The allegation retracts any

inference that the enterprise is separate and distinct from the

alleged racketeering activity.

The Third Circuit’s dismissal of Fidelity as a RICO

defendant is not in conflict with any holding of other Courts of

Appeals and is entirely consistent with the holding of United

States v. Turkette, supra. Accordingly, Petitioners’ request for a

writ of certiorari on this issue should be denied.‘

4. The Court of Appeals, having found no daim under §1962(c), did not

consider Petitioners’ §1962(d) conspiracy daim and petitioners do not address

this issue in their petition. Notwithstanding this, the proposed amended

(footnete continued on next page)

12

3. The Third Circuit’s application of the RICO pattern

requirement is consistent with this Court’s holding in

H.J. Inc. v. Northwestern Bell Telephone Co.

Mail fraud is the basis of Petitioners’ §1962(c) claims,

but the crux of the claims rests upon the allegation that

Respondents engaged in a scheme to defraud Petitioners by

making false promises that additional financing would be made

available to Kehr Packages. (See A54, 55). The racketeering

activity of the Loan Officers started at the closing of the loan in

December, 1987, when they allegedly made the commitment

that Kehr Packages would receive the additional financing.

It continued for the next seven months until the Loan Officers

left Fidelity. During this time and for sometime thereafter,

loan invoices and notices of default were sent by Fidelity to

Kehr Packages. (A54, 56).

Donnelly is alleged to have engaged in four separate

criminal acts after the Loan Officers left Fidelity. First, he told

Petitioners that he would review the loan file and asked

Petitioner James McMurtrie for a “plan of attack” as part of a

scheme to mislead Petitioners to believe that he would

“attempt to secure” working capital for Kehr Packages.

Second, he obtained a ‘‘knock down” appraisal of the assets of

Kehr Packages. Third, he failed to disclose to Petitioners that he

worked in the asset recovery department of Fidelity. Finally, he

delayed in approving the transfer of the stock of Kehr Packages

to a potential buyer. (A54, 55).

The Third Circuit found that Donnelly’s acts did not fall

under the purview of the mail fraud statute. Thus, the Court

concluded that only the acts of the Loan Officers were critical

to its analysis of the alleged ‘‘pattern of racketeering activity”

under the principles enumerated by this Court in HJ. Inc. v.

Northwestern Bell Telephone Co., 492 U.S. 229 (1989). (A27).

(footnote continued from preceding page)

complaint fails to state a §1962(d) conspiracy claim in that it does not contain

any allegations that Respondents agreed to either join the conspiracy or

commit the predicate acts. See United States v. Adams, 759 F.2d 1099 (3d Cir.

1985) cert. denied 474 US. 971.

13

Petitioners contend that the Third Circuit’s approach to

the pattern inquiry obliterates the concept of ‘‘closed-end”

continuity as explained by this Supreme Court in Hj. Inc.

- According to the Petitioners, if Donnelly’s conduct was

bootstrapped to that of the Loan Officers, the alleged predicate

acts would have occurred over a nineteen month period rather

than the eight month period over which the conduct of only

the Loan Officers occurred, continuity would have been

satisfied, and a “pattern of racketeering activity’’ would have

been established. In addition, Petitioners argue that continuity

should be measured solely by the time period over which the

mailings occurred, not the underlying fraudulent acts of the

Respondents.

Petitioners overly simplistic durational threshold concept is

flawed for two reasons. First, it considers the mailings in

isolation regardless of whether criminal activity occurred over

that period of time. Second, it bootstraps the innocent conduct

of Donnelly to the alleged acts of the Loan Officers in order to

satisfy the ‘‘pattern’”’ requirement of RICO. This position is not

supported by the holding of HJ. Inc. v. Northwestern Bell

Telephone Co., 492 U.S. 229 (1989).

In Hj. Inc., this Court squarely addressed the standards

governing the pattern requirement. Rejecting the proposition

that a pattern is established by proving two predicate acts, the

Supreme Court stated: ‘[T]he mere fact that there are a

number of predicates is no guarantee that they fall into any

arrangement or order.” H.j. Inc., 492 U.S. at 238. Looking to the

legislative history of RICO for guidance, the Supreme Court

held that in order to satisfy the “pattern” requirement of the

statute, a RICO plaintiff had to show “‘that the racketeering

predicates are related, and that they amount to or pose a

threat of continued criminal activity.” /d. at 239.

The concept of relatedness was defined by the Supreme

Court as criminal acts that “have the same or similar purposes,

results, participants, victims, or methods of commission, or

otherwise are interrelated by distinguishing characteristics and

are not isolated events.” /d. at 240 (citation omitted). The

14

requirement of “continuity’’ was troublesome, but was

explained as being both a closed-end and open-ended

concept. /d. at 241.

Closed-end continuity refers to repetitious conduct that

extends over a substantial period of time. /d. at 241. Open-

ended continuity is conduct that is not repetitive, but by its

very nature poses a threat of long term criminal activity. /d. at

241. Predicate acts in furtherance of a single scheme can

constitute a pattern, but only if the acts present a threat of

future criminal activity. Predicate acts that span only a few

weeks or months and do not threaten future criminal activity

do not satisfy the “pattern’’ requirement. /d. at 242.

This Court declined to formulate a test for continuity in

the abstract or to fix a period of time over which criminal

activity must occur in order to satisfy the element of continuity

under its closed-end concept. That task was left to the courts

-to be decided on a case-by-case basis.

In an earlier decision, the Third Circuit noted that “‘virtually

every garden-variety of fraud is accomplished through a series

of wire or mail fraud acts that are ‘related’ by purpose and

spread over a period of at least several months.”’ Marshall-Silver

Consiruction Co. v. M. Mark Mendel, 894 F.2d 593 (3d Cir.

1990). Thus, the relatedness test described in Hj. Inc. is virtually

always satisfied in cases where acts of mail fraud are alleged.

But the continuity test is more difficult to apply, especially in

cases such as this one where the underlying fraudulent acts do

not themselves constitute racketeering activity.

In this case, the alleged criminal activities related to the

Kehr Packages Scheme. The mailing of bank statements and

notices of default were only happenstance to the scheme.

Thus, the critical question before the Court was whether the

underlying fraudulent acts, and not the mailings, amounted io

or posed a threat of continued criminal activity under the

guidelines enumerated by this Court in HJ. Inc.

The Third Circuit noted that the Supreme Court did not

address this issue in HJ. Inc. However, after HJ. Inc. was

handed down, the Seventh Circuit reviewed for the third time

15

the issue of whether the existence of multiple predicate acts of

mail and wire fraud demonstrated the requisite continuity. In

United States Textiles, Inc. v. Anheuser-Busch Companies, 911

F.2d 1261 (7th Cir. 1990), the Seventh Circuit reiterated its prior

position that ‘‘the multiplicity of mailings does not necessarily

translate into a ‘pattern’ of racketeering activity,”’ particularly

where the mailings are only incidental to the underlying alleged

wrongdoing. U.S. Textiles, 911 F.2d at 1268.

In U.S. Textiles, since the predicate acts of mail and wire

fraud related to the underlying crime of extortion, the-focus

was on the underlying wrongful acts for purposes of satisfying

the continuity test. Similarly, in this case, because the Kehr

Packages Scheme was allegedly carried out by the underlying

fraudulent acts of the Loan Officers and Donnelly, and not the

mailings, the relevant acts for purposes of establishing

continuity had to have been the alleged deceptive activities of

the Loan Officers and Donnelly.

Petitioners cite no authority to support their position that

the test for continuity depends solely on the duration of the

mailings in this case. The reason is clear — this Court declined

the invitation to develop rigid rules concerning RICO’s pattern

requirement, preferring the courts to examine the specific facts

of each case to determine whether the predicate acts relied

upon establish a “pattern of racketeering activity.” HJ. Inc., 492

U.S. at 242. It is unlikely that this Court in Hj. Inc. would have

so wholeheartedly reached this conclusion if closed-end

continuity depended solely on the duration of the combined

number of mailings as Petitioners contend.

Petitioners also present the novel theory that Donnelly’s

conduct should have been considered in conjunction with the

conduct of the Loan Officers for purposes of evaluating the

‘pattern’ requirement of RICO. The Third Circuit found that

Donneliy’s conduct did not amount to criminal activity under

the purview of the mail fraud statute since the alleged acts

could not be “reasonably calculated to deceive a person of

ordinary prudence and comprehension.” (A21, 22) (citations

omitted). It declined to bootstrap the allegations against

16

Donnelly to the alleged deceptive acts of the Loan Officers for

purposes of establishing continuity. To do so would eradicate

the intent of RICO to “reach activities that amount to or

threaten long-term criminal activity,” HJ. Inc., 492 US. at 243,

n. 4, and subject otherwise innocent persons to liability under

RICO who merely by circumstance become entwined in a

fraudulent scheme. Certainly Congress did not intend RICO to

apply in this manner.

In addition, Petitioners claim that the allegations of their

amended complaint meet the requirement of “open-ended”

continuity as described by this Court in HJ. Inc. They request,

however, Clarification of the concept of “open-ended”

continuity because, in their view, the guidelines set forth by this

Court in HJ. Inc. are “inadequate to foster a meaningful

concept of pattern’ in the context of open-ended continuity.

(Petitioners brief, p.15).

Petitioners are asking this Court to do what it expressly

refused to do in H/. Inc., that is, to provide a rigid test to

determine whether the alleged predicate acts pose a threat of

continued criminal activity. In HJ. Inc., this Court made it clear

that the specific facts of each case are to be reviewed to

determine this issue. /d. at 242. But the Court offered some

factual examples of how the continuity element might be

satisfied. The threat of continuity can be established where

“the predicates [are] attributed to a defendant operating as a

part of a long-term association that exists for criminal

purposes.” /d. at 242. In other cases, the Court stated, it can

be established ‘where it is shown that the predicates are a

regular way of conducting defendant’s ongoing legitimate

business.”” /d.

Utilizing these guidelines in this case, the Third Circuit

held that the amended complaint showed that the alleged

misrepresentations of the Loan Officers, which largely occurred

at the closing of the loan to Kehr Packages, were not made to

anyone other than Petitioners James and Charles McMurtrie,

nor were any other misrepresentations made, and there was

no threat that the Loan Officers would have continued to make

17

false promises after they left their employment with Fidelity.

(A28). There were no facts from which it could be even

remotely implied that fraud was their “regular way of doing

business.”” (A24).

In HJ. Inc., the Supreme Court emphasized that the

concepts of relatedness and continuity, and the methods of

proof thereof, cannot be fixed with any degree of certainty.

The courts are therefore left with the task of evaluating each

case to determine whether the alleged criminal activity meets

the pattern requirement of the statute.

The Petitioners here present the question of whether the

criminal acts of the Respondents constitute a ‘pattern of

racketeering activity” under RICO. This issue was resolved by

the Third Circuit through the use of the principles and

guidelines set forth by the Supreme Court. This Court’s review

of this question resolves no conflict among the courts and

would be of no significance or offer further guidance into the

scope of RICO.

CONCLUSION

For the foregoing reasons, Respondents respectfully

request that the writ of certiorari be denied.

Respectfully submitted,

WALTER Weir, JR., ESQuire

Walter Weir, Jr., Esquire

Patterson & Weir

Suite 1200

Land Title Building

Broad and Chestnut Streets

Philadelphia, PA 19110

(215) 665-8181

Counsel for Respondents