Source: cases/18usc1962/f2d-976-1016-midwest-grinding-v-spitz.case
Case source: https://www.neochart.com/catalog/cases/f2d/volume_976/1016_01/index.html
To satisfy the continuity element in a closed-ended case, the plaintiff must prove a series of related predicates enduring a “substantial period of time.”
According to Mor gan, continuity is a function of the duration of time over which the predicate acts were committed, the number and variety of predicate acts, the number of victims, the presence of separate schemes, and the occurrence of distinct injuries.
Although the sheer number of predicate acts might appear at first glance to prove continuity, when it comes to a pattern premised on acts of mail or wire fraud, the volume of mailings is not dispositive.
This closed-ended scheme has none of the trappings of a long-term criminal operation that carries with it a threat to society; it is, in short, a run-of-the mill fraud case that belongs in state court.
Absent a non-competition or confidentiality clause, Spitz owed no duty to Midwest; thus, the alleged scheme to fraudulently divert business and employees to U.S. Grinding ceased to exist in August 1986 when Spitz left Midwest.
Second, Midwest has failed to present any evidence that the predicate acts here are part of the defendants’ “regular way of doing business,” or that Spitz and Grunfeld routinely raided competitors in this fashion.
A conspiracy ends when the design to commit substantive misconduct ends; it does not continue beyond that point “merely because the conspirators take steps to bury their traces, in order to avoid detection and punishment after the central criminal purpose has been accomplished.”
even if we assume actions to hide Spitz’s involvement with U.S. Grinding qualify as predicate acts, they do nothing to extend the duration of the underlying diversion scheme
We limit our discussion to the continuity prong of this test because all parties agree that the relationship prong is satisfied here.
the complaint must, at minimum, describe the predicate acts with some specificity and “state the time, place, and content of the alleged communications perpetrating the fraud.”
First, the specificity standard, at minimum, requires a plaintiff to identify the time and place of the alleged predicate acts, see Graue Mill, 927 F.2d at 992; accord Feinstein v. Resolution Trust Corp., 942 F.2d 34, 42 (1st Cir.1991) (dismissing RICO complaint for failure to plead predicate acts with specificity), and Midwest failed to do so here.
For starters, we know that telling a lie or committing perjury is not per se a RICO predicate act for one simple reason: it is not included among the list of predicate acts in 18 U.S.C. § 1961(1).
We need not decide that issue because, as we discuss more fully below, even assuming the defendants’ deeds qualify as predicate acts, Midwest still fails to show the requisite pattern of racketeering.
A few loose ends: First, the § 1962(d) RICO conspiracy claim is also premised on the existence of a pattern of racketeering; therefore, we need not further address that issue or Grunfeld’s dismissal from the suit as a co-conspirator.
casedsl 1
case /f2d/976/1016-01
name Midwest Grinding Co. v. Spitz
cite 976 F.2d 1016 (1992)
court United States Court of Appeals for the Seventh Circuit
date 1992-09-16
url catalog/cases/f2d/volume_976/1016_01/index.html
source ir/caselaw/f2d_976.jsonl sha1=e16da7c8ec71adef8f875aa06774fdc68c3fb435 chars=36045
law 18usc1962 (c),(d)
role applied
posture civil; plaintiff appeals partial Rule 12(b)(6)/9(b) dismissal and later summary judgment for defendants on the (c) and (d) counts; defendants cross-appeal
result claimant-lost
element pattern.continuity : not-satisfied [no-evidence]
count the diversion scheme (customers and employees moved from Midwest to U.S. Grinding)
theory closed-ended continuity
variant continuity/closed-ended-too-short
fact @2245..2410 [supports] | in June 1986, for example, Spitz fired or laid off Midwest’s entire night shift of six workers, several of whom mysteriously reappeared as employees of U.S. Grinding
fact @24647..24910 [cuts-against] | Here, the effort to divert Midwest’s customers and employees was a one-shot scheme that lasted, at most, nine months, from the time Spitz and Grun-feld began doing the groundwork to establish U.S. Grinding (December 1985) to the time Spitz resigned (August 1986).
fact @27087..27201 [supports] | The predicate acts consisted primarily of hundreds of invoices sent through the mails to former Midwest customers.
fact @28395..28721 [cuts-against] | There was only one victim (Midwest), see, e.g., J.D. Marshall, 935 F.2d at 819, one scheme (the diversion of customers and employees from Midwest to U.S. Grinding), see, e.g., Sutherland, 882 F.2d at 1204 (no pattern where defendant engaged in a “one-shot” effort to inflict injury), and one type of injury (loss of business).
rule @19762..19916 | To satisfy the continuity element in a closed-ended case, the plaintiff must prove a series of related predicates enduring a “substantial period of time.”
rule @24093..24349 | According to Mor gan, continuity is a function of the duration of time over which the predicate acts were committed, the number and variety of predicate acts, the number of victims, the presence of separate schemes, and the occurrence of distinct injuries.
rule @27202..27405 | Although the sheer number of predicate acts might appear at first glance to prove continuity, when it comes to a pattern premised on acts of mail or wire fraud, the volume of mailings is not dispositive.
held @28766..28967 | This closed-ended scheme has none of the trappings of a long-term criminal operation that carries with it a threat to society; it is, in short, a run-of-the mill fraud case that belongs in state court.
gloss Single scheme, single victim, single injury, at most nine months (footnote: really three to four); hundreds of similar mailings do not add continuity. Summary judgment for defendants: plaintiff's evidence insufficient as a matter of law.
element pattern.continuity : not-satisfied [no-evidence]
count the diversion scheme
theory open-ended continuity (threat of repetition after Spitz left Midwest)
variant continuity/open-ended-no-threat-scheme-ended-with-employment
fact @2905..3029 [cuts-against] | That reassurance notwithstanding, Spitz resigned from Midwest in August 1986 and immediately went to work for U.S. Grinding.
fact @941..1193 [cuts-against] | As will later become relevant, Spitz’s relationship with Midwest was not governed by a non-competition or confidentiality agreement, which would have prevented him from competing with Midwest or soliciting its customers in the event he left its employ.
rule @20458..20760 [quoted] | Such a threat of continuity exists when the plaintiff can show (1) a “specific threat of repetition,” (2) that the “predicate acts or offenses are part of an ongoing entity’s regular way of doing business,” or (3) that the defendant operates a “long-term association that exists for criminal purposes.”
held @22064..22290 | Absent a non-competition or confidentiality clause, Spitz owed no duty to Midwest; thus, the alleged scheme to fraudulently divert business and employees to U.S. Grinding ceased to exist in August 1986 when Spitz left Midwest.
held @22291..22504 | Second, Midwest has failed to present any evidence that the predicate acts here are part of the defendants’ “regular way of doing business,” or that Spitz and Grunfeld routinely raided competitors in this fashion.
gloss Disloyal-insider scheme has a natural end point: once the insider resigns, competing is lawful, so no threat of future racketeering.
element pattern.continuity : not-satisfied [no-evidence]
count the litigation cover-up (false deposition testimony and mailed responses to requests to admit)
theory later concealment extends the duration of the scheme
variant continuity/cover-up-does-not-extend-scheme
fact @16657..16782 [supports] | For example, Spitz and Grunfeld denied under oath that they went to Michigan together to acquire machinery for U.S. Grinding.
fact @16914..17080 [supports] | Midwest contends that the responses to their requests to admit, which were sent through the mails, constituted mail fraud and, therefore, can serve as predicate acts.
rule @26383..26662 | A conspiracy ends when the design to commit substantive misconduct ends; it does not continue beyond that point “merely because the conspirators take steps to bury their traces, in order to avoid detection and punishment after the central criminal purpose has been accomplished.”
held @25848..26021 | even if we assume actions to hide Spitz’s involvement with U.S. Grinding qualify as predicate acts, they do nothing to extend the duration of the underlying diversion scheme
gloss Predicate status of the cover-up acts assumed arguendo; later concealment does not lengthen a closed-ended scheme unless plotted in advance.
gloss Was [assumed]: what is assumed arguendo is only the predicate status of the cover-up acts (see racketeering.obstruction). The continuity ruling itself is summary judgment -- "not a trace of evidence" that concealment was plotted in advance.
element pattern.relatedness : satisfied [conceded]
variant relatedness/single-scheme-against-one-victim
held @19389..19522 | We limit our discussion to the continuity prong of this test because all parties agree that the relationship prong is satisfied here.
element racketeering.mail-fraud : not-satisfied [pleaded]
count the undercharging scheme (invoices to Cardinal Metals, 1985-86)
variant rule-9b-particularity/no-who-what-when-where-how
fact @4095..4354 [supports] | According to Midwest, Spitz and Grunfeld maintained a secret 50% stake in Cardinal and, as part of the scheme to defraud Midwest, Spitz routinely undercharged Cardinal for metal grinding services via invoices sent through the mails (the undercharging scheme).
fact @11708..11933 [cuts-against] | Second, Midwest, not the defendants, had peculiar access to the invoices on which the undercharging scheme was based: Spitz sent those invoices while employed at Midwest and Midwest presumably retained those business records.
rule @9815..9991 | the complaint must, at minimum, describe the predicate acts with some specificity and “state the time, place, and content of the alleged communications perpetrating the fraud.”
held @11356..11707 | First, the specificity standard, at minimum, requires a plaintiff to identify the time and place of the alleged predicate acts, see Graue Mill, 927 F.2d at 992; accord Feinstein v. Resolution Trust Corp., 942 F.2d 34, 42 (1st Cir.1991) (dismissing RICO complaint for failure to plead predicate acts with specificity), and Midwest failed to do so here.
gloss No dates for the allegedly false invoices although plaintiff held the records; leave to amend a third time properly denied. Removing this scheme shortened the alleged pattern from 35 months.
element racketeering.obstruction : not-reached
role rule-announced
count the litigation cover-up
variant perjury-as-predicate/only-via-mail-fraud-or-section-1503
rule @14743..14939 | For starters, we know that telling a lie or committing perjury is not per se a RICO predicate act for one simple reason: it is not included among the list of predicate acts in 18 U.S.C. § 1961(1).
held @17495..17695 | We need not decide that issue because, as we discuss more fully below, even assuming the defendants’ deeds qualify as predicate acts, Midwest still fails to show the requisite pattern of racketeering.
element conspiracy : not-satisfied [no-evidence]
variant derivative-of-substantive-claim/no-pattern
held @32241..32474 | A few loose ends: First, the § 1962(d) RICO conspiracy claim is also premised on the existence of a pattern of racketeering; therefore, we need not further address that issue or Grunfeld’s dismissal from the suit as a co-conspirator.
element enterprise : not-reached
element conduct : not-reached
element injury : not-reached
element causation : not-reached
misfit Continuity is decided by a MULTIFACTOR balance (duration, number/variety of acts, victims, schemes, injuries) plus two alternative routes (closed-ended OR open-ended), all of which must fail. v1 `theory` now types the three repeated pattern.continuity blocks as routes, but the any-of/all-of structure (the element fails only because every route fails) and the weighing of factors are still not expressible.
misfit Holdings at different procedural stages in one opinion (undercharging scheme: 12(b)(6)/9(b) dismissal; diversion scheme: summary judgment; cover-up: assumed arguendo), and the earlier rulings change the INPUT to the later element (dropping two schemes cuts the pattern from 35 to 9 months). Cross-block dependency and per-block posture are not representable; `posture` is per-law.
misfit Fact lines for a failed element are partly the court's characterisations ("one-shot scheme", "only one victim") rather than raw events; the raw events (visits, phone calls, laid-off night shift) are evidence of the predicate fraud, which the court never rules on -- the diversion predicates themselves (mail fraud by invoices) have no holding, they are simply taken as given for the pattern analysis.
misfit Policy rationale that drives the result (civil RICO is not for "garden-variety" business disputes; court notes it has never found continuity post-H.J. Inc.) has no slot.
misfit Derivative conspiracy holding (falls with the pattern) is a dependency, not an independent decision on the (d) element. Defendant Grunfeld's earlier dismissal for lack of specificity is not separately reviewed and is not recorded.