Opinion
21-374-cv
09-29-2021
ONE WORLD, LLC and GABRIEL CHALEPLIS, Plaintiffs-Appellants, v. NIKOLAOS ONOUFRIADIS and MICHAEL KARLOUTSOS, Defendants-Appellees, JAMES M. RODGERS and CANNCORE, INC., Defendants.
FOR PLAINTIFFS-APPELLANTS: Bob Kasolas, Brach Eichler LLC, Roseland, NJ. FOR DEFENDANT-APPELLEE ONOUFRIADIS: Mackenzie L. Dimitri, Einbinder & Dunn LLP, New York, NY. FOR DEFENDANT-APPELLEE KARLOUTSOS: Randall L. Rasey, Barton LLP, New York, NY.
UNPUBLISHED OPINION
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 29th day of September, two thousand twenty-one.
Appeal from an order and judgment entered January 19, 2021, by the United States District Court for the Southern District of New York (Colleen McMahon, then Chief Judge).
FOR PLAINTIFFS-APPELLANTS: Bob Kasolas, Brach Eichler LLC, Roseland, NJ.
FOR DEFENDANT-APPELLEE ONOUFRIADIS: Mackenzie L. Dimitri, Einbinder & Dunn LLP, New York, NY.
FOR DEFENDANT-APPELLEE KARLOUTSOS: Randall L. Rasey, Barton LLP, New York, NY.
PRESENT: José A. Cabranes, Rosemary S. Pooler, Joseph F. Bianco, Circuit Judges.
UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the order and judgment of the District Court be and hereby is AFFIRMED.
Plaintiffs One World, LLC ("One World") and Gabriel Chaleplis appeal the District Court's order and judgment dismissing their Amended Complaint against Defendants Nikolaus Onoufriadis, James M. Rodgers, Michael Karloutsos, and Canncore, Inc. ("Canncore"). The District Court dismissed with prejudice Plaintiffs' two claims raised under the Racketeering and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and dismissed their remaining state-law claims without prejudice to refiling in state court. On appeal, Plaintiffs argue, inter alia, that the District Court erred in finding that they failed to adequately plead a "pattern of racketeering activity" as required by the RICO statute, and by declining to grant them leave to amend their complaint. We assume the parties' familiarity with the underlying facts, the procedural history of the case, and the issues on appeal.
By letters to the Clerk of this Court dated February 26, 2021, and March 2, 2021, respectively, counsel for Rodgers and Canncore indicated that they did not intend to participate in the present appeal. ECF Nos. 24 & 27.
We review a district court's dismissal of a complaint under Federal Rule of Civil Procedure 12(b)(6) de novo. See Com. Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374, 380 (2d Cir. 2001). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. "In addressing the sufficiency of a complaint we accept as true all factual allegations and draw from them all reasonable inferences; but we are not required to credit allegations that are speculative or conclusory." Rothstein v. UBS AG, 708 F.3d 82, 94 (2d Cir. 2013).
"To state a claim for damages under RICO a plaintiff . . . must allege the existence of seven constituent elements: (1) that the defendant (2) through the commission of two or more acts (3) constituting a 'pattern' (4) of 'racketeering activity' (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an 'enterprise' (7) the activities of which affect interstate or foreign commerce." Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir. 1983) (quoting 18 U.S.C. § 1962(a)-(c)). Moreover, to adequately plead a RICO conspiracy under 18 U.S.C. § 1962(d), "a plaintiff must allege the existence of an agreement to violate RICO's substantive provisions." Williams v. Affinion Grp., LLC, 889 F.3d 116, 124 (2d Cir. 2018) (internal quotation marks omitted).
That a plaintiff must plead a "pattern of racketeering activity" - as required by the text of each of RICO's substantive provisions, 18 U.S.C. § 1962(a)-(c) - is meant to prevent the application of the statute to "isolated or sporadic" criminal acts. United States v. Indelicato, 865 F.2d 1370, 1382 (2d Cir. 1989). A "pattern of racketeering activity" must consist of at least two predicate acts, "the last of which occurred within ten years . . . after the commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5). Further, racketeering activities must "amount to or pose a threat of continued criminal activity." Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 242 (2d Cir. 1999) (emphasis added) (quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989)). To meet this continuity requirement, a "plaintiff in a RICO action must allege either an open-ended pattern of racketeering activity (i.e., past criminal conduct coupled with a threat of future criminal conduct) or a closed-ended pattern of racketeering activity (i.e., past criminal conduct extending over a substantial period of time)." First Cap. Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 180 (2d Cir. 2004) (quoting GICC Cap. Corp. v. Tech. Fin. Grp., Inc., 67 F.3d 463, 466 (2d Cir. 1995)). And "[g]iven the routine use of . . . wire communications in business operations, . . . RICO claims premised on . . . wire fraud" - as is the case here - "must be particularly scrutinized because of the relative ease with which a plaintiff may mold a RICO pattern from allegations that, upon closer scrutiny, do not support it." Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 489 (2d Cir. 2014) (internal quotation marks omitted).
We note, as a preliminary matter, that in arguing that they established a "pattern of racketeering activity," Plaintiffs point to evidence obtained after the District Court entered judgment and therefore not present in the record below. See, e.g., Br. 38-40. "Generally, 'a federal appellate court does not consider an issue not passed upon below.'" Amalgamated Clothing & Textile Workers Union v. Wal-Mart Stores, Inc., 54 F.3d 69, 73 (2d Cir. 1995) (quoting Singleton v. Wulff, 428 U.S. 106, 120 (1976)). Even if this evidence was unavailable to Plaintiffs before the District Court issued judgment, "[w]e will not consider new evidence absent extraordinary circumstances" and find "no such circumstances are present here." Matos v. Comm'r of Soc. Sec., 618 Fed.Appx. 14, 15 (2d Cir. 2015) (summary order) (quoting Munn v. Hotchkiss Sch., 795 F.3d 324, 330 (2d Cir. 2015)). And in light of the fact that Plaintiffs have made no motion to modify the record, see Fed. R. App. P. 10(e), we decline to consider the effect, if any, that this new evidence may have on the viability of Plaintiffs' RICO claims.
Whether or not the subsequently discovered materials constitute "new evidence" sufficient to justify reconsideration of the dismissal is a matter to be decided, if properly raised, by the District Court. See Doe v. N.Y.C. Dep't of Soc. Servs., 709 F.2d 782, 789 (2d Cir. 1983).
On the record before it, the District Court found that Plaintiffs failed to allege a "pattern of racketeering activity" on either a closed-ended or open-ended theory of continuity, a conclusion with which we agree. As for closed-ended continuity, the inquiry is "primarily a temporal concept" as a plaintiff must show "a series of related predicates extending over a substantial period of time." Spool v. World Child Int'l Adoption Agency, 520 F.3d 178, 184 (2d Cir. 2008) (internal quotation marks omitted). "Since the Supreme Court decided H.J. Inc." in 1989, we have "never held a period of less than two years to constitute a substantial period of time." Id. (internal quotation marks omitted). And although the two-year threshold is not "a bright-line requirement," it is "rare" that conduct lasting less than two years will qualify, especially when "the activities alleged involve[] only a handful of participants and do not involve a complex, multi-faceted conspiracy." Id. (cleaned up).
Plaintiffs do not contest the District Court's conclusion that their Amended Complaint alleges predicate acts of wire fraud spanning, at most, approximately fifteen months. Instead, they argue that the alleged scheme was "highly complex," thus justifying a finding of closed-ended continuity. We disagree. As the District Court summarized, "[t]he alleged scheme was a focused and cohesive effort by a handful of people, using corporations they controlled, to obtain money from Chaleplis over a period of far less than two years, under the false pretense that the money was being invested in legitimate business ventures." App. 183. There were a discrete number of predicate acts - all wire transfers - and a single victim, Chaleplis. See Cofacredit, 187 F.3d at 242 (noting that "factors such as the number and variety of predicate acts, the number of both participants and victims, and the presence of separate schemes are . . . relevant in determining whether closed-ended continuity exists"). In sum, this was not a complex, multi-faceted scheme justifying a departure from the two-year benchmark.
At the time this action was filed, Chaleplis was the sole "member" of One World. And though Onoufriadis was - until April 2020 - a twenty-percent "member" of One World, Chaleplis was at all times its sole "profit member."
As for open-ended continuity, a plaintiff "must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed." Id. "This threat is generally presumed when the enterprise's business is primarily or inherently unlawful." Spool, 520 F.3d at 185; see also United States v. Aulicino, 44 F.3d 1102, 1111 (2d Cir.1995) ("[W]here the acts of the defendant or the enterprise were inherently unlawful, such as murder or obstruction of justice, and were in pursuit of inherently unlawful goals, such as narcotics trafficking or embezzlement, the courts generally have concluded that the requisite threat of continuity was adequately established . . . ."). Alternatively, "[w]here the enterprise primarily conducts a legitimate business, there must be some evidence from which it may be inferred that the predicate acts were the regular way of operating that business, or that the nature of the predicate acts themselves implies a threat of continued criminal activity." Cofacredit, 187 F.3d at 243.
Here, too, Plaintiffs fail to adequately allege open-ended continuity. They allege that Chaleplis made discrete capital contributions to One World between March and December 2018 for the purpose of investing in Greece's nascent medical cannabis market, and that Defendants fraudulently transferred several million dollars' worth of those funds for their own benefit. Plaintiffs now argue that "Defendants would have continued their scheme . . . if not for Plaintiffs' discovery and actions cutting off Defendants' further fraud." Br. 47. Even if true, the extent of Defendants' alleged fraud was limited by Chaleplis's capital contributions to One World; in other words, the scheme would have terminated once One World's funds were depleted. See GICC Cap. Corp., 67 F.3d at 466 ("Even if we assume that defendants' scheme was designed to deprive TFG of its assets, it is clear that the scheme was inherently terminable. It defies logic to suggest that a threat of continued looting activity exists when, as plaintiff admits, there is nothing left to loot.").
Plaintiffs suggest that "[t]he nature of the enterprise's course of dealing implies that it would have continued to induce Plaintiffs into investing additional monies under false pretenses, and to then engage in further misappropriation of those investments," Reply Br. 13 (emphasis added), but this argument is not supported by allegations in the Amended Complaint and is purely speculative. See Grace Int'l Assembly of God v. Festa, 797 Fed.Appx. 603, 606 (2d Cir. 2019) (summary order) (noting that "speculative claims regarding how long the fraud would continue do not, on their own, support a showing of open-ended continuity"); GICC Cap. Corp., 67 F.3d at 466 (rejecting as "entirely speculative" plaintiff's attempts to argue that defendant would have continued the scheme had plaintiff not commenced litigation). In sum, Plaintiffs have failed to adequately allege that Defendants' scheme "pose[d] a threat of continuing conduct." Spool, 520 F.3d at 186.
CONCLUSION
Because dismissal of the RICO claims is well supported, we decline to reach Plaintiffs' remaining arguments concerning those claims. Moreover, because Plaintiffs failed to demonstrate how a second amended complaint would cure these pleading defects, the District Court properly denied leave to amend as futile. See Mortimer Off Shore Servs., Ltd. v. Fed. Republic of Germany, 615 F.3d 97, 113-14 (2d Cir. 2010). As for Plaintiffs' arguments concerning the dismissal of their state-law claims, we have reviewed them and find them to be without merit. The January 19, 2021 order and judgment of the District Court are AFFIRMED.
[*] The Clerk of Court is directed to amend the caption of this case as set forth above.