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Swistock v. Jones

filed: September 15, 1989.

JAMES W. SWISTOCK, INDIVIDUALLY, JAMES W. SWISTOCK AND PETER R. SWISTOCK, SR., TRADING AS PETER R. SWISTOCK, SR., AND JAMES W. SWISTOCK, PARTNERSHIP, A PENNSYLVANIA GENERAL PARTNERSHIP, AND SWISTOCK ASSOCIATES COAL CORPORATION, APPELLANTS
v.
E.L. JONES, HAZEL A. JONES, ACE DRILLING COMPANY, INC., AND SOUTH FORK EQUIPMENT, INC.



Appeal from the United States District Court for the Western District of Pennsylvania D.C. Civil No. 88-718

Sloviter and Becker, Circuit Judges, and Barry, District Judge.*fn*

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Circuit Judge.

I.

This appeal presents the now-familiar issue of what constitutes a "pattern of racketeering activity" for purposes of civil RICO. Plaintiffs/appellants argue that their complaint alleging defendants' commission of various acts of wire and mail fraud as part of a scheme to defraud in connection with defendants' lease of coal producing properties to plaintiffs adequately pleads a pattern of racketeering activity under the principles articulated in Barticheck v. Fidelity Union Bank/First National State, 832 F.2d 36 (3d Cir. 1987). The district court held otherwise and dismissed the complaint.

Because the issue of what constitutes sufficient allegations of a RICO pattern was then pending before the Supreme Court, we held the appeal in abeyance. Now that the Supreme Court has announced its judgment in H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989), we turn to the merits of plaintiffs' claim. Our review is plenary and we must treat the facts alleged in the complaint as true and affirm the dismissal only if it is beyond doubt that the plaintiffs could prove no set of facts that would entitle them to relief. Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273 (3d Cir. 1985).

II.

Defendants E.L. and Hazel Jones owned real property and coal reserves in Blair County, Pennsylvania, which they mined through Ace Drilling Company and Southfork Equipment Company, two corporations owned and controlled by one or both of them (hereinafter "the Joneses"). Plaintiffs James and Peter Swistock, their partnership, and their corporation, Swistock Associates Coal Corp. (hereinafter "the Swistocks"), leased the land and purchased machinery and processing facilities from the Joneses pursuant to an Acquisition Agreement executed November 30, 1983.

As alleged in the complaint, after the Swistocks consummated the Acquisition Agreement, they discovered that the actual condition of the leased property and coal reserves differed from the earlier representations made by the Joneses with respect to the quality and quantity of coal and that the Joneses had falsely represented that they knew of no facts which could result in violations of Pennsylvania Department of Environmental Resources regulations, when in fact they had committed a variety of such violations.

The Swistocks brought suit in federal court alleging that the Joneses had violated and conspired to violate RICO, 18 U.S.C. §§ 1961-1968 (1982 & Supp. V 1987). The RICO counts were predicated on six acts of mail fraud as evidenced by letters sent in the course of the lease negotiations and eight acts of wire fraud as evidenced by eight telephone conversations in connection with the lease. The complaint also contained a number of pendent state law claims for fraudulent misrepresentation, negligent misrepresentation, and breach of contract. The Joneses moved for dismissal for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6). The district judge granted the Joneses' motion on the ground that under this court's precedents, the complaint failed to allege a legally sufficient pattern of racketeering activity within the meaning of 18 U.S.C. § 1962(c).

III.

In H.J. Inc., the Supreme Court established that a single scheme could support a pattern of racketeering activity as required by 18 U.S.C. § 1962(c), 109 S. Ct. at 2901, a conclusion which this court had previously reached in Barticheck. However, the mere fact that two or more predicate acts are committed in furtherance of a fraudulent scheme is not by itself sufficient to establish a RICO pattern. The predicate acts must display continuity and relationship. See H.J. Inc., 109 S. Ct. at 2900 (racketeering predicates must be "related, and. . . amount to or pose a threat of continued criminal activity") (emphasis in original); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985) (citing legislative history).

The Supreme Court held that relationship for RICO purposes is defined in the same way as it is in the Dangerous Special Offender Sentencing Act, 18 U.S.C. § 3575 et seq. (now partially repealed). 109 S. Ct. at 2900-01. Thus, defendants' acts must have some relationship to one another by virtue of having similar "'purposes, results, participants, victims, or methods of commission, or otherwise are interrelated ...


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