Antitrust Law Daily Wrap Up, RICO—EDPa: RICO claims dismissed for failing to allege predicate racketeering activities , (Jun 24, 2013)

By Peter Reap, J.D., LL.M.

A claim under the federal RICO statute brought by Patricia Murphy, individually and as administrator for the estate of Edward Turner, against The International Druidic Society (IDS) and six individuals was dismissed against the three individuals, Jamie Taylor, Steven Turner, and Judy Ellen Taylor who filed a motion to dismiss because Murphy failed to allege predicate racketeering activities, the federal district court in Philadelphia has decided (Murphy v. International Druidic Society, June 20, 2013, Bartle, H.). Since there was no longer a basis for subject matter jurisdiction over Murphy’s remaining state law claims against those three, Murphy’s state law claims were also dismissed.

Murphy was a long-time friend of Edward Turner. Defendant IDS is a Pennsylvania non-profit corporation. Defendants Judy Ellen Taylor, Steven Turner, Allen Turner, and Russell Turner are the children of Edward Turner, and defendants Jamie Taylor and Marlow Taylor are his grandchildren.

From 1987 through September 2006, Edward Turner handled Murphy's financial affairs. He deposited funds from the salary she received, from the sale of real estate she owned, and from the sale of several stocks she had acquired into one or more bank accounts titled in the name of IDS or IDS and Edward Turner. In these accounts, Edward Turner co-mingled his funds with Murphy's funds.

In 2006, Edward Turner used Murphy's funds to purchase two certificates of deposit at TD Bank North N.A., a federally insured bank, in the joint name of IDS and Edward Turner, in the amount of $114,633.53. In September 2006, Murphy noticed that Edward Turner's health was beginning to deteriorate. She told him that she was concerned about the security of her money. He reassured her and on September 22, 2006 issued a promissory note verifying the total that Murphy would be repaid by him when the certificates of deposit reached their maturity in April 2008.

On August 3, 2006, Edward Turner signed a power of attorney naming Judy Ellen Taylor as his attorney-in-fact. On or about July 12, 2007, a corporate resolution of IDS, signed by Edward Turner, Judy Ellen Taylor, and Marlow Taylor, was filed with TD Bank North, N.A. This resolution authorized Judy Ellen Taylor to sign checks for IDS and to withdraw funds from its account. Following the signing of this resolution, Judy Ellen Taylor "began systematically looting and depleting the funds in the IDS account in a common scheme with the other named defendants," by drawing checks made payable to herself and the other defendants, according to the complaint.

After repeated demands for payment that went unheeded, Murphy sued Edward Turner and IDS in the Court of Common Pleas of Philadelphia, Pennsylvania to enforce her rights under the promissory note and to compel payment. On April 28, 2010, Murphy learned that Edward Turner had died on March 3, 2010 in Burlington County, New Jersey.

Murphy filed a petition in Burlington County, New Jersey to have an administrator for the estate of Edward Turner appointed by the court. On July 29, 2011, an order was entered in the Superior Court of New Jersey, Burlington County, appointing Murphy as the administrator of the estate of Edward Turner.

Following this appointment, Murphy amended her complaint in the Court of Common Pleas to substitute herself as the administrator of the estate of Edward Turner as the proper party defendant in that action. Accordingly, Murphy was both plaintiff and defendant in that action. The court ruled in favor of plaintiff Murphy and against the estate of Edward Turner in the amount of $315,798, which included interest on the promissory note at the statutory rate of 6% per year from April 2008 to August 2012.

On November 29, 2012, Murphy filed this action, both individually and as the administrator for the estate of Edward Turner, in the Court of Common Pleas of Philadelphia County, seeking to recover that $315,798, plus interest and costs. The action was later removed to the federal district court in Philadelphia, and Jamie Taylor, Steven Turner, and Judy Ellen Taylor filed the present motions to dismiss.

RICO

RICO makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." 18 U.S.C. § 1962(c).

To establish a § 1962(c) RICO violation, the plaintiff must prove the following four elements: (1) the existence of an enterprise affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated..., either directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that he or she participated through a pattern of racketeering activity.

Murphy sufficiently pled that the defendants constituted an enterprise, the court held. Judy Ellen Taylor, Steven Turner, Allen Turner, Russell Turner, Jamie Taylor, and Marlow Taylor were a family. That is, they were the children and grandchildren of Edward Turner. Accordingly, there were clear relationships among them, and those relationships had longevity, according to the court. As for the purpose of the enterprise, Murphy alleges it was to "convert plaintiffs' money to their own use and to deplete the estate of Edward F. Turner."

The pattern of racketeering activity set forth in paragraph 44 was "writing of checks" by members of the enterprise so as to deplete and convert the money belonging to the estate of Edward Turner and/or Murphy, the court noted. "Racketeering activity" is defined by 18 U.S.C. § 1961(1) to include "any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical ... which is chargeable under State law and punishable by imprisonment for more than one year" as well as numerous federal crimes including "any act which is indictable under ... section 1341 (relating to mail fraud) [or] 18 U.S.C. § 1343 (relating to wire fraud)...."

The amended complaint alleged theft and fraud throughout. However, the RICO statute did not list these as racketeering activities. 18 U.S.C. § 1961(1). Theft and its analogues have not been read into the list of crimes in § 1961(1), the court observed.

The only possible predicate racketeering activity mentioned in the amended complaint appears to be federal mail fraud, the court explained. To state a claim for mail fraud under 18 U.S.C. § 1341, plaintiffs must allege (1) a scheme or artifice to defraud, (2) participation by the defendants with specific intent to defraud, and (3) use of the mails in furtherance of the scheme. Further, to satisfy the pleading requirements of Rule 9(b) of the Federal Rule of Civil Procedure, a complaint could either describe the circumstances of the alleged fraud with precise allegations of date, time, or place or use some other means of injecting precision and some measure of substantiation into their allegations of fraud.

Paragraph 69 of the amended complaint, which contained the only reference to the use of the mail, did not provide the specificity required under Rule 9(b) to allege mail fraud under § 1341, the court ruled. Murphy did not identify the documents or their fraudulent contents and did not specify the dates, times, or places when any mail fraud took place.

Murphy alleged in her opposition to the defendants' motions that one of the predicate acts of racketeering committed by the defendants was "the fraudulent use of an ATM network." However, fraudulent use of an ATM network is not listed as a predicate crime in § 1961. Accordingly, Murphy failed to allege any predicate racketeering activities.

Even if Murphy had properly alleged predicate racketeering activities, she must do more, the court reasoned. The RICO statute requires that to prove a pattern, a plaintiff must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity. Here, any continuity would be "closed" since there was nothing in the amended complaint averring any threat of future repetition. "Closed-ended continuity" could be established by proving a series of related predicates extending over a substantial period of time, according to the court.

However, Murphy did not allege the requisite closed-ended continuity. She did not plead the dates when any alleged mail fraud occurred and thus failed to plead that racketeering activity extended over a substantial period of time, the court held. The dates of any theft or conversion could not be factored into this potential time period since, as discussed previously, they did not qualify as racketeering activities.

The case is No. 13-511.

Attorneys: Dennis L. Friedman for Patricia J. Murphy.

Cases: RICO PennsylvaniaNews