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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1991
- **Citation:** 501 U.S. 1222

## Text

——————

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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Oe er er rere ap ore: aren ery 6
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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

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_1978%3A3. Public record. Not legal advice.