RICO continuity requirement applied to bank fraud: Brandenburg v. Seidel

This case involved the continuing requirement in RICO cases.

“The district court found these allegations insufficient
to set forth a RICO pattern. The court reasoned
that while the predicate acts alleged were sufficient in
number, adequately related, and spread out over time,
they lacked the requisite “continuity” to make out a
RICO pattern. See Brandenburg v. First Maryland
Sav. & Loan, 660 F.Supp. 717, 727 (D.Md.1987).
This was so, said the district court, because they were
all in furtherance of a single “limited” scheme to encourage
the public to deposit money in First Maryland
and other MSSIC-insured savings and loans by
representing deposits in those institutions to be more
secure than they actually were. See id. at 727-28. In
the district court’s view, this scheme-which it characterized
as a “one-time plan to accomplish a single
goal”-did not “set forth the type of continuous criminal
endeavor that will establish a pattern of racketeering.”

OPINION
Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir. 1988)
Julian SEIDEL; Frank, Phillips Circuit Judge:

Plaintiffs, depositors in the insolvent First Maryland
Savings and Loan Association (First Maryland),
appeal the dismissal of their action against certain
former officers, directors, and senior management
personnel of First Maryland (the First Maryland defendants),
as well as certain former officers and directors
of the Maryland Savings-Share Insurance
Corporation (MSSIC) and the individual savings and
loan institutions with which those individuals were
affiliated during their tenure at MSSIC (the MSSIC
defendants). Their amended complaint contained two
counts based on the civil provisions of the Racketeer
Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1961-1968, as well as several pendent
state law claims. The district court dismissed the action
prior to trial. The court dismissed the civil RICO
count against the MSSIC defendants for failure to
state a claim and declined to exercise its discretionary
jurisdiction over the pendent state claims against
those defendants. It then dismissed the claims-both
federal and state-against the First Maryland defendants
on abstention grounds, in deference to the ongoing
state receivership proceedings. We affirm,
though on somewhat different grounds as to the
MSSIC defendants.
I
The Maryland Savings-Share Insurance Corporation
(MSSIC) was a quasi-public non-profit corporation
established by the Maryland legislature in 1962
to insure accounts in state-chartered savings and loan
associations. MSSIC was given substantial regulatory
control over its member institutions, which by 1985
numbered approximately 100.FN1 In May 1985, rumors
of financial instability at two savings and loans
insured by MSSIC-Old Court and Merritt-triggered a
general run on MSSIC-insured thrifts. The resulting
panic threw MSSIC itself into financial peril and
threatened to lead to the collapse of the state’s savings
and loan industry. In response, the Governor of
Maryland declared a state of public crisis, issued an
Executive Order limiting withdrawals from all
MSSIC-insured institutions to a maximum of $1,000
per account per month, and called the Maryland General
Assembly into emergency session. In special
sessions held in May and October-November of
1985, the General Assembly passed a package of
legislation designed to deal comprehensively with the
crisis in the state’s savings and loan industry. See
1985 Md.Laws, 1st Sp.Sess., ch. 1-11; 1985
Md.Laws, 2d Sp.Sess., ch. 3-6. Further refinements
were added in the legislature’s regular session in
1986. See 1986 Md.Laws, ch. 11-12.
FN1. MSSIC was governed by an elevenmember
Board of Directors. Three of the
eleven directors were appointed by the Governor;
the remainder were elected by
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MSSIC’s member institutions.
*1182 This legislative effort had two principal
components. First was the creation of a state-operated
deposit insurance fund, the Maryland Deposit Insurance
Fund (MDIF), to replace the ruined MSSIC.
MDIF was given all of MSSIC’s powers, duties, and
responsibilities and assumed all of its assets and liabilities,
including its insurance obligations to depositors
at member institutions. See generally
Md.Fin.Inst.Code Ann. §§ 10-101 to 10-121 (establishing
and defining structure and powers of MDIF).
Second, and of particular importance here, was the
establishment of a comprehensive framework for the
administration of conservatorship and receivership
proceedings for insolvent savings and loan associations.
See Md.Fin.Inst.Code Ann. §§ 9-701 to 9-712.
Section 9-709 gave MDIF the right to be appointed
conservator or receiver of any savings and loan association
insured by it. Section 9-710 gave the state
court administering the conservatorship or receivership
of such an institution “exclusive and plenary
jurisdiction over all claims, actions, and proceedings
that are brought by any person and that are related to
the assets, property, powers, rights, privileges, duties
and liabilities” of that institution or of MDIF in its
capacity as conservator or receiver.FN2 To implement
this comprehensive scheme, the Maryland Court of
Appeals appointed a single judge, Judge Joseph Kaplan
of the Circuit Court for the City of Baltimore, to
adjudicate all claims arising out of the conservatorship/
receivership proceedings for the failed savings
and loan associations.
FN2. Section 9-710 reads as follows:
§ 9-710. Jurisdiction of circuit court.
(a) In general.-(1) Notwithstanding any
other provision of law and to the maximum
extent permitted under the federal
and State constitutions, the circuit court
administering a conservatorship or receivership
under this title shall have exclusive
and plenary jurisdiction over all claims,
actions, and proceedings that are brought
by any person and that are related to the
assets, property, powers, rights, privileges,
duties, and liabilities of:
(i) The savings and loan association and
its subsidiaries, affiliates, or holding company;
(ii) The receivership or conservatorship
estate; and
(iii) The State of Maryland Deposit Insurance
Fund Corporation in its capacity as
receiver or conservator of the savings and
loan association.
(2) A court other than a court administering
a conservatorship or receivership under
this title may exercise jurisdiction
over claims and actions if:
(i) The court would have jurisdiction over
the claims or actions but for this section;
and
(ii) The court administering the conservatorship
or receivership approves:
1. The initiation and prosecution, or the
continued prosecution, of the claims or actions
in the other court by the conservator
or receiver; or
2. The continued prosecution of claims or
actions in the other court by any person
other than the conservator or receiver.
(b) Transfers.-Except as otherwise ordered
by the court administering the conservatorship
or receivership, any action or
proceeding described in subsection (a)(1)
of this section that is pending at the time
the conservatorship or receivership is established
under this title shall be transferred
to the circuit court administering
the conservatorship or receivership.
(1986, ch. 11, § 2.)
First Maryland was a state-chartered savings and
loan association formerly insured by MSSIC. In November
1985, Judge Kaplan found First Maryland to
be in an impaired condition and appointed MDIF as
its conservator. The conservatorship order froze the
interest rates on most First Maryland accounts at 5
1/2 % per annum. But First Maryland’s financial
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problems proved insurmountable, and on June 19,
1986, Judge Kaplan formally placed First Maryland
in receivership, appointing MDIF receiver and giving
it total control over First Maryland’s assets. The receivership
order terminated the continuing accrual of
interest of all First Maryland accounts as of that date.
No appeal was taken from that order.
In carrying out its statutory duty as receiver to
consolidate First Maryland’s assets for distribution to
its depositors and other creditors, MDIF has filed
actions in state court against various parties believed
to have participated in the misappropriation of the
institution’s assets. Chief among these is an action
against First Maryland’s former officers and directors
seeking $45 million in compensatory and punitive
damages for their wrongful depletion of the thrift’s
assets, based on theories of fraud, *1183 breach of
fiduciary duty, conspiracy, negligence, gross negligence,
waste, and conversion. MDIF v. Seidel, No.
13408 (Cir.Ct. of Mont.Co). MDIF has also instituted
a state court action against certain former directors of
MSSIC, seeking damages for their alleged complicity
in the fraud perpetrated by the former directors of
First Maryland and other insolvent thrifts. MDIF v.
Hogg, No. 113102 (Cir.Ct. Anne Arundel Co.).
To date, MDIF has distributed over $110 million
in First Maryland assets to the institution’s depositors.
In July 1986, MDIF returned up to $5,000 of principal
to each depositor, depending on the amount in his
or her account. In December 1986, MDIF distributed
another $41 million generated through the sale of
First Maryland’s assets to its depositors. As additional
assets are collected and liquidated, MDIF will distribute
the proceeds to the depositors. MDIF estimates,
however, that the depositors may not be repaid
the entire principal of their accounts until 1990 or
thereafter, and that they may never be compensated
for the interest lost on their accounts during First
Maryland’s insolvency.
Not satisfied with MDIF’s efforts, the plaintiffs
filed this action in federal court on behalf of themselves
and a class consisting of all persons who had
money deposited in First Maryland as of August 23,
1985.FN3 Named as defendants are First Maryland and
a number of its former officers, directors, and senior
management personnel (the First Maryland defendants),
as well as 12 former officers and directors of
MSSIC and the various savings and loan associations
with which those individuals were affiliated during
their tenure at MSSIC (collectively, the MSSIC defendants).
In this action, the plaintiffs seek damages
to compensate them for being deprived of the use of
their savings-and of the interest thereon-during the
period in which First Maryland has been in conservatorship
or receivership.
FN3. According to the amended complaint,
the class consists of more than 22,000 individuals.
The amended federal complaint, which is the
subject of this appeal, contains seven counts. Count I
asserts a civil RICO claim against both the First
Maryland defendants and the MSSIC defendants,
based on allegations that they used the mails and interstate
wires to make a series of fraudulent misrepresentations
about the security of deposits at First
Maryland and other MSSIC-insured savings and
loans, in order to induce the public to deposit money
in those institutions. Count II asserts a civil RICO
claim against the First Maryland defendants only,
based on allegations that they misappropriated the
thrift’s assets through numerous acts of self-dealing
extending over a number of years. The remaining
counts assert a number of pendent state claims.
Counts III and IV assert claims against the MSSIC
defendants for fraud, deceit, negligent and intentional
misrepresentation, and civil conspiracy, based on
their dissemination of allegedly false information
about the security of accounts at First Maryland and
other MSSIC-insured institutions. Count V asserts
claims against First Maryland for conversion and
breach of contract arising out of its failure “through
its conservator MDIF,” to release or pay interest on
the plaintiffs’ accounts.FN4 Counts VI and VII assert
claims against the MSSIC defendants for negligence,
gross negligence, and breach of fiduciary duty, based
on their alleged failure to exercise adequate regulatory
control over financial practices at First Maryland
and other MSSIC-insured institutions.
FN4. First Maryland has been voluntarily
dismissed from the action and is not a party
to this appeal.
The district court dismissed the plaintiffs’ claims
against all defendants prior to trial. The court held
first that the civil RICO count against the MSSIC
defendants should be dismissed under Fed.R.Civ.P.
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12(b)(6) for failure to allege a legally sufficient pattern
of racketeering activity and that the pendent state
claims against those defendants should be dismissed
under United Mine Workers v. Gibbs, 383 U.S. 715,
86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). The court then
concluded that the claims against the First Maryland
defendants-under both civil RICO and state lawshould
be dismissed on abstention grounds, *1184 in
deference to the ongoing state receivership proceedings.
This appeal followed.
II
We consider first the dismissal of the counts
against the MSSIC defendants. We agree with the
district court that the civil RICO count against those
defendants fails to state a claim, but we reach that
conclusion by a somewhat different route.
The district court dismissed on the basis that the
complaint failed adequately to allege a RICO “pattern.”
It did not address an alternative basis urged by
defendants: that even were a pattern sufficiently alleged,
an adequate causal connection between pattern
and cognizable injury to plaintiffs was not.
Because we have serious reservations about the
district court’s “no-pattern” conclusion, we rest affirmance
on the alternative “no-causal connection”
ground, a theory advanced by defendants both in the
district court and here. See Stern v. Merrill Lynch,
Pierce, Fenner and Smith, Inc., 603 F.2d 1073, 1093
(4th Cir.1979) (proper to affirm on alternative ground
advanced but not considered in trial court).
Though in the end we rest affirmance on the alternative
ground, we believe it nevertheless prudent
first to discuss in some detail the “no-pattern” basis
relied upon by the district court in order to indicate
why we decline to affirm on that basis. We do so out
of considerations of fairness to the litigants, concern
for the doctrinal integrity of our ongoing applications
of the difficult “pattern” concept, and, most importantly,
because of the special need in this case to emphasize
the conceptual independence, despite their
close relationship, of the pattern and causation elements
of the civil RICO claim.
A
To discuss the “pattern” issue, we begin at the
beginning. 18 U.S.C. § 1964(c) provides a private
action for treble damages and attorneys’ fees to
“[a]ny person injured in his business or property by
reason of a violation of section 1962 of this chapter.”
The civil RICO claim at issue here is based on alleged
violations of §§ 1962(a), (c), and (d). All of
these subsections require a showing that the defendants
engaged in a “pattern of racketeering activity.”
FN5 The RICO statute defines “racketeering activity”
to include, inter alia, any act indictable under certain
provisions of the federal criminal code, including 18
U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1343 (wire
fraud), and 18 U.S.C. § 2314 (interstate transportation
of fraudulently obtained funds). See 18 U.S.C. §
1961(1). A “pattern of racketeering activity” is in
turn *1185 defined as at least two acts of racketeering
activity within ten years of each other. See 18 U.S.C.
§ 1961(5). In Sedima, SPRL v. Imrex Co., 473 U.S.
479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), the Supreme
Court noted that while two such acts are necessary
to make out a RICO pattern, they may not be
sufficient. Id. at 496 n. 14, 105 S.Ct. at 3285 n. 14.
To constitute a pattern, the Court indicated, predicate
acts of racketeering activity must reflect both “continuity”
and “relationship.” Id.
FN5. 18 U.S.C. § 1962 provides:
§ 1962. Prohibited Activities
(a) It shall be unlawful for any person
who has received any income derived, directly
or indirectly, from a pattern of
racketeering activity or through collection
of an unlawful debt in which such person
has participated as a principal within the
meaning of section 2, title 18, United
States Code, to use or invest, directly or
indirectly, any part of such income, or the
proceeds of such income, in acquisition of
any interest in, or the establishment or operation
of, any enterprise which is engaged
in, or the activities of which affect,
interstate or foreign commerce. A purchase
of securities on the open market for
purposes of investment, and without the
intention of controlling or participating in
the control of the issuer, or of assisting
another to do so, shall not be unlawful under
this subsection if the securities of the
issuer held by the purchaser, the members
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of his immediate family, and his or their
accomplices in any pattern or [sic] racketeering
activity or the collection of an unlawful
debt after such purchase do not
amount in the aggregate to one percent of
the outstanding securities of any one class,
and do not confer, either in law or in fact,
the power to elect one or more directors of
the issuer.
(b) It shall be unlawful for any person
through a pattern of racketeering activity
or through collection of an unlawful debt
to acquire or maintain, directly or indirectly,
any interest in or control of any enterprise
which is engaged in, or the activities
of which affect, interstate or foreign
commerce.
(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.
(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.
Since Sedima, this court has wrestled with the
concept of a RICO pattern on a number of occasions,
see, e.g., Walk v. Baltimore & Ohio RR, 847 F.2d
1100 (4th Cir.1988); Eastern Publishing & Advertising,
Inc. v. Chesapeake Publishing & Advertising,
Inc., 831 F.2d 488 (4th Cir.1987); HMK Corp. v.
Walsey, 828 F.2d 1071 (4th Cir.1987); International
Data Bank v. Zepkin, 812 F.2d 149 (4th Cir.1987). In
these cases, we have deliberately declined to adopt
any mechanical rules to determine the existence of a
RICO pattern, holding instead that the issue is a
“matter of criminal dimension and degree” to be decided
on a case-by-case basis. See Zepkin, 812 F.2d
at 155. Factors relevant to this inquiry include the
number and variety of predicate acts and the length of
time over which they were committed, the number of
putative victims, the presence of separate schemes,
and the potential for multiple distinct injuries. See
Morgan v. Bank of Waukegan, 804 F.2d 970, 975
(7th Cir.1986). These factors are not exclusive, and
no one of them is necessarily determinative; instead,
a carefully considered judgment taking into account
all the facts and circumstances of the particular casewith
special attention to the context in which the
predicate acts occur-is required. See Walk, 847 F.2d
at 1103-04; HMK, 828 F.2d at 1074. The mere fact
that the predicate acts alleged can be characterized as
part of the same overall scheme does not automatically
prevent their constituting a RICO pattern. See
Walk, 847 F.2d at 1106; Zepkin, 812 F.2d at 155.
Similarly, the fact that a scheme to defraud requires
several acts of mail or wire fraud in order to accomplish
its objective does not automatically make it a
RICO pattern. See Walk, 847 F.2d at 1104; Zepkin,
812 F.2d at 154-55. With us, the pattern inquiry remains
a flexible one whose ultimate focus must always
be on whether the related predicate acts indicate
“ongoing criminal activity of sufficient scope and
persistence to pose a special threat to social wellbeing.”
Walk, 847 F.2d at 1106; See Zepkin, 812 F.2d
at 155.
In this case, the civil RICO count against the
MSSIC defendants is based on allegations that they
made a series of misleading statements in order to
induce the public to deposit money in First Maryland
and other MSSIC-insured institutions, including:
(1) running print and broadcast advertisements designed
to create the misimpression that MSSIC was
an agency of the state of Maryland;
(2) distributing various documents-including a brochure
entitled “We Have the Answers” and a letter
entitled “An Open Letter to a Potential MSSIC
Saver”-designed to create the misimpression that
MSSIC was an agency of the state of Maryland and
that it effectively regulated its member institutions
to insure the safety of deposits therein;
(3) giving false assurances of security, both in writing
and over the telephone, to depositor inquiries
about the safety of accounts in MSSIC-insured institutions;
(4) encouraging member institutions to use the
MSSIC seal, which is similar to the State of Maryland’s
seal, in print and broadcast ads, in order to
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create the misimpression that their accounts were
insured by the state of Maryland;
(5) deliberately concealing adverse information
about member institutions from the press; and
(6) distributing documents and running print and
broadcast advertisements misrepresenting the nature
and value of the insurance offered by MSSIC.
See Amended Complaint paragraphs 81-84. The
plaintiffs allege that the MSSIC defendants thereby
committed multiple acts of mail and wire fraud, as
well as interstate transportation of fraudulently obtained*
1186 funds, all of which are proper predicate
offenses under the RICO statute.
The district court found these allegations insufficient
to set forth a RICO pattern. The court reasoned
that while the predicate acts alleged were sufficient in
number, adequately related, and spread out over time,
they lacked the requisite “continuity” to make out a
RICO pattern. See Brandenburg v. First Maryland
Sav. & Loan, 660 F.Supp. 717, 727 (D.Md.1987).
This was so, said the district court, because they were
all in furtherance of a single “limited” scheme to encourage
the public to deposit money in First Maryland
and other MSSIC-insured savings and loans by
representing deposits in those institutions to be more
secure than they actually were. See id. at 727-28. In
the district court’s view, this scheme-which it characterized
as a “one-time plan to accomplish a single
goal”-did not “set forth the type of continuous criminal
endeavor that will establish a pattern of racketeering
as defined in Sedima and [Zepkin ].” Id. at 727.
Though the issue is a close one and the district
court’s analysis arguably faithful to our precedents,
we are sufficiently concerned with its accuracy that
we choose not to rest affirmance upon it. The predicate
acts alleged here spanned a period of more than
three years and were directed at more than 22,000
putative victims. Though they can be characterized as
part of a single scheme, it was not a scheme that is
easily treated as one limited in scope to the accomplishment
of a single discrete objective. This is not a
case, for example, like Zepkin, where the predicate
acts alleged were all designed to defraud a small
group of victims in connection with a single transaction.
Instead, the predicate acts of fraud, as alleged
here, were directed at an enormous group of personsthe
investing public-in connection with a virtually
limitless number of deposit transactions. Nor is this
case easily likened to Walk, where the predicate acts
alleged, though occurring in connection with several
related transactions spread out over a number of
years, were all steps in the path to the accomplishment
of a single limited goal-squeezing out the minority
in a particular corporate structure. Unlike the
scheme in Walk, the scheme as alleged here did not
involve the commission of multiple preparatory acts
aimed at the infliction of a single basic injury, but the
commission of a series of independent acts that were
distinct criminal ends in themselves.FN6 In contrast to
the scheme in Walk, this scheme as alleged had no
limiting goal whose accomplishment would bring the
criminal activity it spawned to an end. Indeed, the
criminal activity as pleaded here threatened to continue
unabated, driven by the possibility of repeated
economic gain, until the defendants were caught.
Such a scheme-though “single”-is arguably of the
type whose very scope and persistence poses a special
threat to social well-being, a possibility we have
recognized. See Zepkin, 812 F.2d at 155; see also
Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1304-05
(7th Cir.1987) (allegations that defendants mailed 19
separate false shipping invoices over a period of
seven months were sufficient to state a pattern, because
each false invoice threatened an independent
economic injury); Illinois Dept. of Revenue v. Phillips,
771 F.2d 312, 313 (7th Cir.1985) (allegations
that defendant mailed nine separate fraudulent sales
tax returns to the state were sufficient to state a pattern,
because each false return threatened an independent
economic injury).
FN6. The fact that the discrete objectives of
each of the predicate acts were all of the
same basic type would not, of course, prevent
the predicate acts from constituting a
pattern. As we said in Walk, the pattern requirement
cannot be avoided by “ ‘the semantical
game of generalizing th [e] illegal
objective’ ” of the related predicate acts. See
847 F.2d at 1106, quoting Montesano v. Seafirst
Comm. Corp., 818 F.2d 423, 426 (5th
Cir.1987).
As this analysis indicates, the district court’s
conclusion that a RICO pattern had not been sufficiently
alleged is open at least to serious question
under our precedents. Because the issue therefore is
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close, the pattern concept a difficult one whose outer
bounds are yet unclear, and the question as presented
here one of the sufficiency of bare-bones pleading
allegations, we decline to pass upon it. We may
*1187 do so because of our conclusion that affirmance
is compelled on the much firmer, alternative
causation ground.
Accordingly, we assume, without deciding, that
a RICO pattern was sufficiently alleged and turn, as
this assumption requires, to the causation question.
Before doing so, we emphasize that to find, or assume,
that a RICO pattern of racketeering activity
consisting of acts of mail and wire fraud has been
shown does not also establish that its intended victims
were injured, nor beyond that, that any injury
suffered by them was sufficiently caused by the acts
to create RICO liability. This follows because indictable
acts of mail or wire fraud may be proven without
any proof of detrimental reliance by, hence of injury
to, the intended victims. See Armco Indus. Credit
Corp. v. SLT Warehouse Co., 782 F.2d 475, 481-82
(5th Cir.1986).
B.
To make out a civil action for damages under the
RICO statute a private plaintiff must demonstrate not
only that the defendants have violated § 1962, but
also that he has been “injured in his business or property
by reason of [the alleged] violation of section
1962.” 18 U.S.C. § 1964(c).FN7 The quoted language
requires the plaintiff to make two closely related
showings: (1) that he has suffered injury to his business
or property; and (2) that this injury was caused
by the predicate acts of racketeering activity that
make up the violation of § 1962. See Nodine v. Textron,
Inc., 819 F.2d 347, 348 (1st Cir.1987).FN8 As the
Seventh Circuit has said, “[a] defendant who violates
section 1962 is not liable for treble damages to everyone
he might have injured by other conduct, nor is
[he] liable to those who have not been injured.” See
Haroco, Inc. v. American Nat’l Bank & Trust Co.,
747 F.2d 384, 398 (7th Cir.1984), aff’d, 473 U.S. 606,
105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). The Supreme
Court has explained these injury and causation requirements
as aspects of standing, rather than elements
of the civil RICO plaintiff’s prima facie case.
See Sedima, 473 U.S. at 496-97, 105 S.Ct. at 3285
(Under § 1962(c), a “plaintiff only has standing if,
and can only recover to the extent that, he has been
injured in his business or property by the conduct
constituting the violation.”). In any event, it is clear
that a civil RICO complaint is vulnerable to a motion
to dismiss if it fails to allege either an adequate injury
to business or property, see, e.g., Drake v. BF Goodrich
Co., 782 F.2d 638, 644 (6th Cir.1986), or an
adequate causal nexus between that injury and the
predicate acts of racketeering activity alleged, see,
e.g., Pujol v. Shearson/American Express, Inc., 829
F.2d 1201, 1204-06 (1st Cir.1987); Nodine, 819 F.2d
at 348-49; Morast v. Lance, 807 F.2d 926, 932-33
(11th Cir.1987); In re Gas Reclamation, Inc. Securities
Litigation, 663 F.Supp. 1123, 1124-26
(S.D.N.Y.1987).
FN7. Section 1964(c) reads in full as follows:
Any person injured in his business or
property by reason of a violation of
section 1962 of this chapter may sue
therefor in any appropriate United States
district court and shall recover threefold
the damages he sustains and the cost of
the suit, including a reasonable attorney’s
fee.
18 U.S.C. § 1964(c).
FN8. The civil RICO claimant need not,
however, plead and prove a distinct “racketeering
injury.” Sedima, 473 U.S. at 495, 105
S.Ct. at 3284.
The civil RICO count at issue here contains an
adequate allegation of injury to the plaintiffs’ business
or property: the loss of interest income on their
First Maryland savings accounts and certificates of
deposit during the period in which First Maryland has
been in conservatorship and receivership. See
Amended Complaint paragraphs 102-107. But the
MSSIC defendants argue that the plaintiffs have
failed adequately to plead the requisite causal connection
between this injury and the predicate acts of
racketeering activity that they are alleged to have
committed. We agree.
The only predicate acts of racketeering activity
of which the MSSIC defendants stand accused are
acts of mail and wire fraud and interstate transportation
of fraudulently obtained funds committed in
connection with their dissemination of certain*1188
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PHILLIPS, Circuit Judge:
Plaintiffs, depositors in the insolvent First Maryland
Savings and Loan Association (First Maryland),
appeal the dismissal of their action against certain
former officers, directors, and senior management
personnel of First Maryland (the First Maryland defendants),
as well as certain former officers and directors
of the Maryland Savings-Share Insurance
Corporation (MSSIC) and the individual savings and
loan institutions with which those individuals were
affiliated during their tenure at MSSIC (the MSSIC
defendants). Their amended complaint contained two
counts based on the civil provisions of the Racketeer
Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §§ 1961-1968, as well as several pendent
state law claims. The district court dismissed the action
prior to trial. The court dismissed the civil RICO
count against the MSSIC defendants for failure to
state a claim and declined to exercise its discretionary
jurisdiction over the pendent state claims against
those defendants. It then dismissed the claims-both
federal and state-against the First Maryland defendants
on abstention grounds, in deference to the ongoing
state receivership proceedings. We affirm,
though on somewhat different grounds as to the
MSSIC defendants.
I
The Maryland Savings-Share Insurance Corporation
(MSSIC) was a quasi-public non-profit corporation
established by the Maryland legislature in 1962
to insure accounts in state-chartered savings and loan
associations. MSSIC was given substantial regulatory
control over its member institutions, which by 1985
numbered approximately 100.FN1 In May 1985, rumors
of financial instability at two savings and loans
insured by MSSIC-Old Court and Merritt-triggered a
general run on MSSIC-insured thrifts. The resulting
panic threw MSSIC itself into financial peril and
threatened to lead to the collapse of the state’s savings
and loan industry. In response, the Governor of
Maryland declared a state of public crisis, issued an
Executive Order limiting withdrawals from all
MSSIC-insured institutions to a maximum of $1,000
per account per month, and called the Maryland General
Assembly into emergency session. In special
sessions held in May and October-November of
1985, the General Assembly passed a package of
legislation designed to deal comprehensively with the
crisis in the state’s savings and loan industry. See
1985 Md.Laws, 1st Sp.Sess., ch. 1-11; 1985
Md.Laws, 2d Sp.Sess., ch. 3-6. Further refinements
were added in the legislature’s regular session in
1986. See 1986 Md.Laws, ch. 11-12.
FN1. MSSIC was governed by an elevenmember
Board of Directors. Three of the
eleven directors were appointed by the Governor;
the remainder were elected by
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MSSIC’s member institutions.
*1182 This legislative effort had two principal
components. First was the creation of a state-operated
deposit insurance fund, the Maryland Deposit Insurance
Fund (MDIF), to replace the ruined MSSIC.
MDIF was given all of MSSIC’s powers, duties, and
responsibilities and assumed all of its assets and liabilities,
including its insurance obligations to depositors
at member institutions. See generally
Md.Fin.Inst.Code Ann. §§ 10-101 to 10-121 (establishing
and defining structure and powers of MDIF).
Second, and of particular importance here, was the
establishment of a comprehensive framework for the
administration of conservatorship and receivership
proceedings for insolvent savings and loan associations.
See Md.Fin.Inst.Code Ann. §§ 9-701 to 9-712.
Section 9-709 gave MDIF the right to be appointed
conservator or receiver of any savings and loan association
insured by it. Section 9-710 gave the state
court administering the conservatorship or receivership
of such an institution “exclusive and plenary
jurisdiction over all claims, actions, and proceedings
that are brought by any person and that are related to
the assets, property, powers, rights, privileges, duties
and liabilities” of that institution or of MDIF in its
capacity as conservator or receiver.FN2 To implement
this comprehensive scheme, the Maryland Court of
Appeals appointed a single judge, Judge Joseph Kaplan
of the Circuit Court for the City of Baltimore, to
adjudicate all claims arising out of the conservatorship/
receivership proceedings for the failed savings
and loan associations.
FN2. Section 9-710 reads as follows:
§ 9-710. Jurisdiction of circuit court.
(a) In general.-(1) Notwithstanding any
other provision of law and to the maximum
extent permitted under the federal
and State constitutions, the circuit court
administering a conservatorship or receivership
under this title shall have exclusive
and plenary jurisdiction over all claims,
actions, and proceedings that are brought
by any person and that are related to the
assets, property, powers, rights, privileges,
duties, and liabilities of:
(i) The savings and loan association and
its subsidiaries, affiliates, or holding company;
(ii) The receivership or conservatorship
estate; and
(iii) The State of Maryland Deposit Insurance
Fund Corporation in its capacity as
receiver or conservator of the savings and
loan association.
(2) A court other than a court administering
a conservatorship or receivership under
this title may exercise jurisdiction
over claims and actions if:
(i) The court would have jurisdiction over
the claims or actions but for this section;
and
(ii) The court administering the conservatorship
or receivership approves:
1. The initiation and prosecution, or the
continued prosecution, of the claims or actions
in the other court by the conservator
or receiver; or
2. The continued prosecution of claims or
actions in the other court by any person
other than the conservator or receiver.
(b) Transfers.-Except as otherwise ordered
by the court administering the conservatorship
or receivership, any action or
proceeding described in subsection (a)(1)
of this section that is pending at the time
the conservatorship or receivership is established
under this title shall be transferred
to the circuit court administering
the conservatorship or receivership.
(1986, ch. 11, § 2.)
First Maryland was a state-chartered savings and
loan association formerly insured by MSSIC. In November
1985, Judge Kaplan found First Maryland to
be in an impaired condition and appointed MDIF as
its conservator. The conservatorship order froze the
interest rates on most First Maryland accounts at 5
1/2 % per annum. But First Maryland’s financial
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problems proved insurmountable, and on June 19,
1986, Judge Kaplan formally placed First Maryland
in receivership, appointing MDIF receiver and giving
it total control over First Maryland’s assets. The receivership
order terminated the continuing accrual of
interest of all First Maryland accounts as of that date.
No appeal was taken from that order.
In carrying out its statutory duty as receiver to
consolidate First Maryland’s assets for distribution to
its depositors and other creditors, MDIF has filed
actions in state court against various parties believed
to have participated in the misappropriation of the
institution’s assets. Chief among these is an action
against First Maryland’s former officers and directors
seeking $45 million in compensatory and punitive
damages for their wrongful depletion of the thrift’s
assets, based on theories of fraud, *1183 breach of
fiduciary duty, conspiracy, negligence, gross negligence,
waste, and conversion. MDIF v. Seidel, No.
13408 (Cir.Ct. of Mont.Co). MDIF has also instituted
a state court action against certain former directors of
MSSIC, seeking damages for their alleged complicity
in the fraud perpetrated by the former directors of
First Maryland and other insolvent thrifts. MDIF v.
Hogg, No. 113102 (Cir.Ct. Anne Arundel Co.).
To date, MDIF has distributed over $110 million
in First Maryland assets to the institution’s depositors.
In July 1986, MDIF returned up to $5,000 of principal
to each depositor, depending on the amount in his
or her account. In December 1986, MDIF distributed
another $41 million generated through the sale of
First Maryland’s assets to its depositors. As additional
assets are collected and liquidated, MDIF will distribute
the proceeds to the depositors. MDIF estimates,
however, that the depositors may not be repaid
the entire principal of their accounts until 1990 or
thereafter, and that they may never be compensated
for the interest lost on their accounts during First
Maryland’s insolvency.
Not satisfied with MDIF’s efforts, the plaintiffs
filed this action in federal court on behalf of themselves
and a class consisting of all persons who had
money deposited in First Maryland as of August 23,
1985.FN3 Named as defendants are First Maryland and
a number of its former officers, directors, and senior
management personnel (the First Maryland defendants),
as well as 12 former officers and directors of
MSSIC and the various savings and loan associations
with which those individuals were affiliated during
their tenure at MSSIC (collectively, the MSSIC defendants).
In this action, the plaintiffs seek damages
to compensate them for being deprived of the use of
their savings-and of the interest thereon-during the
period in which First Maryland has been in conservatorship
or receivership.
FN3. According to the amended complaint,
the class consists of more than 22,000 individuals.
The amended federal complaint, which is the
subject of this appeal, contains seven counts. Count I
asserts a civil RICO claim against both the First
Maryland defendants and the MSSIC defendants,
based on allegations that they used the mails and interstate
wires to make a series of fraudulent misrepresentations
about the security of deposits at First
Maryland and other MSSIC-insured savings and
loans, in order to induce the public to deposit money
in those institutions. Count II asserts a civil RICO
claim against the First Maryland defendants only,
based on allegations that they misappropriated the
thrift’s assets through numerous acts of self-dealing
extending over a number of years. The remaining
counts assert a number of pendent state claims.
Counts III and IV assert claims against the MSSIC
defendants for fraud, deceit, negligent and intentional
misrepresentation, and civil conspiracy, based on
their dissemination of allegedly false information
about the security of accounts at First Maryland and
other MSSIC-insured institutions. Count V asserts
claims against First Maryland for conversion and
breach of contract arising out of its failure “through
its conservator MDIF,” to release or pay interest on
the plaintiffs’ accounts.FN4 Counts VI and VII assert
claims against the MSSIC defendants for negligence,
gross negligence, and breach of fiduciary duty, based
on their alleged failure to exercise adequate regulatory
control over financial practices at First Maryland
and other MSSIC-insured institutions.
FN4. First Maryland has been voluntarily
dismissed from the action and is not a party
to this appeal.
The district court dismissed the plaintiffs’ claims
against all defendants prior to trial. The court held
first that the civil RICO count against the MSSIC
defendants should be dismissed under Fed.R.Civ.P.
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12(b)(6) for failure to allege a legally sufficient pattern
of racketeering activity and that the pendent state
claims against those defendants should be dismissed
under United Mine Workers v. Gibbs, 383 U.S. 715,
86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). The court then
concluded that the claims against the First Maryland
defendants-under both civil RICO and state lawshould
be dismissed on abstention grounds, *1184 in
deference to the ongoing state receivership proceedings.
This appeal followed.
II
We consider first the dismissal of the counts
against the MSSIC defendants. We agree with the
district court that the civil RICO count against those
defendants fails to state a claim, but we reach that
conclusion by a somewhat different route.
The district court dismissed on the basis that the
complaint failed adequately to allege a RICO “pattern.”
It did not address an alternative basis urged by
defendants: that even were a pattern sufficiently alleged,
an adequate causal connection between pattern
and cognizable injury to plaintiffs was not.
Because we have serious reservations about the
district court’s “no-pattern” conclusion, we rest affirmance
on the alternative “no-causal connection”
ground, a theory advanced by defendants both in the
district court and here. See Stern v. Merrill Lynch,
Pierce, Fenner and Smith, Inc., 603 F.2d 1073, 1093
(4th Cir.1979) (proper to affirm on alternative ground
advanced but not considered in trial court).
Though in the end we rest affirmance on the alternative
ground, we believe it nevertheless prudent
first to discuss in some detail the “no-pattern” basis
relied upon by the district court in order to indicate
why we decline to affirm on that basis. We do so out
of considerations of fairness to the litigants, concern
for the doctrinal integrity of our ongoing applications
of the difficult “pattern” concept, and, most importantly,
because of the special need in this case to emphasize
the conceptual independence, despite their
close relationship, of the pattern and causation elements
of the civil RICO claim.
A
To discuss the “pattern” issue, we begin at the
beginning. 18 U.S.C. § 1964(c) provides a private
action for treble damages and attorneys’ fees to
“[a]ny person injured in his business or property by
reason of a violation of section 1962 of this chapter.”
The civil RICO claim at issue here is based on alleged
violations of §§ 1962(a), (c), and (d). All of
these subsections require a showing that the defendants
engaged in a “pattern of racketeering activity.”
FN5 The RICO statute defines “racketeering activity”
to include, inter alia, any act indictable under certain
provisions of the federal criminal code, including 18
U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1343 (wire
fraud), and 18 U.S.C. § 2314 (interstate transportation
of fraudulently obtained funds). See 18 U.S.C. §
1961(1). A “pattern of racketeering activity” is in
turn *1185 defined as at least two acts of racketeering
activity within ten years of each other. See 18 U.S.C.
§ 1961(5). In Sedima, SPRL v. Imrex Co., 473 U.S.
479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), the Supreme
Court noted that while two such acts are necessary
to make out a RICO pattern, they may not be
sufficient. Id. at 496 n. 14, 105 S.Ct. at 3285 n. 14.
To constitute a pattern, the Court indicated, predicate
acts of racketeering activity must reflect both “continuity”
and “relationship.” Id.
FN5. 18 U.S.C. § 1962 provides:
§ 1962. Prohibited Activities
(a) It shall be unlawful for any person
who has received any income derived, directly
or indirectly, from a pattern of
racketeering activity or through collection
of an unlawful debt in which such person
has participated as a principal within the
meaning of section 2, title 18, United
States Code, to use or invest, directly or
indirectly, any part of such income, or the
proceeds of such income, in acquisition of
any interest in, or the establishment or operation
of, any enterprise which is engaged
in, or the activities of which affect,
interstate or foreign commerce. A purchase
of securities on the open market for
purposes of investment, and without the
intention of controlling or participating in
the control of the issuer, or of assisting
another to do so, shall not be unlawful under
this subsection if the securities of the
issuer held by the purchaser, the members
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of his immediate family, and his or their
accomplices in any pattern or [sic] racketeering
activity or the collection of an unlawful
debt after such purchase do not
amount in the aggregate to one percent of
the outstanding securities of any one class,
and do not confer, either in law or in fact,
the power to elect one or more directors of
the issuer.
(b) It shall be unlawful for any person
through a pattern of racketeering activity
or through collection of an unlawful debt
to acquire or maintain, directly or indirectly,
any interest in or control of any enterprise
which is engaged in, or the activities
of which affect, interstate or foreign
commerce.
(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.
(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.
Since Sedima, this court has wrestled with the
concept of a RICO pattern on a number of occasions,
see, e.g., Walk v. Baltimore & Ohio RR, 847 F.2d
1100 (4th Cir.1988); Eastern Publishing & Advertising,
Inc. v. Chesapeake Publishing & Advertising,
Inc., 831 F.2d 488 (4th Cir.1987); HMK Corp. v.
Walsey, 828 F.2d 1071 (4th Cir.1987); International
Data Bank v. Zepkin, 812 F.2d 149 (4th Cir.1987). In
these cases, we have deliberately declined to adopt
any mechanical rules to determine the existence of a
RICO pattern, holding instead that the issue is a
“matter of criminal dimension and degree” to be decided
on a case-by-case basis. See Zepkin, 812 F.2d
at 155. Factors relevant to this inquiry include the
number and variety of predicate acts and the length of
time over which they were committed, the number of
putative victims, the presence of separate schemes,
and the potential for multiple distinct injuries. See
Morgan v. Bank of Waukegan, 804 F.2d 970, 975
(7th Cir.1986). These factors are not exclusive, and
no one of them is necessarily determinative; instead,
a carefully considered judgment taking into account
all the facts and circumstances of the particular casewith
special attention to the context in which the
predicate acts occur-is required. See Walk, 847 F.2d
at 1103-04; HMK, 828 F.2d at 1074. The mere fact
that the predicate acts alleged can be characterized as
part of the same overall scheme does not automatically
prevent their constituting a RICO pattern. See
Walk, 847 F.2d at 1106; Zepkin, 812 F.2d at 155.
Similarly, the fact that a scheme to defraud requires
several acts of mail or wire fraud in order to accomplish
its objective does not automatically make it a
RICO pattern. See Walk, 847 F.2d at 1104; Zepkin,
812 F.2d at 154-55. With us, the pattern inquiry remains
a flexible one whose ultimate focus must always
be on whether the related predicate acts indicate
“ongoing criminal activity of sufficient scope and
persistence to pose a special threat to social wellbeing.”
Walk, 847 F.2d at 1106; See Zepkin, 812 F.2d
at 155.
In this case, the civil RICO count against the
MSSIC defendants is based on allegations that they
made a series of misleading statements in order to
induce the public to deposit money in First Maryland
and other MSSIC-insured institutions, including:
(1) running print and broadcast advertisements designed
to create the misimpression that MSSIC was
an agency of the state of Maryland;
(2) distributing various documents-including a brochure
entitled “We Have the Answers” and a letter
entitled “An Open Letter to a Potential MSSIC
Saver”-designed to create the misimpression that
MSSIC was an agency of the state of Maryland and
that it effectively regulated its member institutions
to insure the safety of deposits therein;
(3) giving false assurances of security, both in writing
and over the telephone, to depositor inquiries
about the safety of accounts in MSSIC-insured institutions;
(4) encouraging member institutions to use the
MSSIC seal, which is similar to the State of Maryland’s
seal, in print and broadcast ads, in order to
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create the misimpression that their accounts were
insured by the state of Maryland;
(5) deliberately concealing adverse information
about member institutions from the press; and
(6) distributing documents and running print and
broadcast advertisements misrepresenting the nature
and value of the insurance offered by MSSIC.
See Amended Complaint paragraphs 81-84. The
plaintiffs allege that the MSSIC defendants thereby
committed multiple acts of mail and wire fraud, as
well as interstate transportation of fraudulently obtained*
1186 funds, all of which are proper predicate
offenses under the RICO statute.

The district court found these allegations insufficient
to set forth a RICO pattern. The court reasoned
that while the predicate acts alleged were sufficient in
number, adequately related, and spread out over time,
they lacked the requisite “continuity” to make out a
RICO pattern. See Brandenburg v. First Maryland
Sav. & Loan, 660 F.Supp. 717, 727 (D.Md.1987).
This was so, said the district court, because they were
all in furtherance of a single “limited” scheme to encourage
the public to deposit money in First Maryland
and other MSSIC-insured savings and loans by
representing deposits in those institutions to be more
secure than they actually were. See id. at 727-28. In
the district court’s view, this scheme-which it characterized
as a “one-time plan to accomplish a single
goal”-did not “set forth the type of continuous criminal
endeavor that will establish a pattern of racketeering
as defined in Sedima and [Zepkin ].” Id. at 727.
Though the issue is a close one and the district
court’s analysis arguably faithful to our precedents,
we are sufficiently concerned with its accuracy that
we choose not to rest affirmance upon it. The predicate
acts alleged here spanned a period of more than
three years and were directed at more than 22,000
putative victims. Though they can be characterized as
part of a single scheme, it was not a scheme that is
easily treated as one limited in scope to the accomplishment
of a single discrete objective. This is not a
case, for example, like Zepkin, where the predicate
acts alleged were all designed to defraud a small
group of victims in connection with a single transaction.
Instead, the predicate acts of fraud, as alleged
here, were directed at an enormous group of personsthe
investing public-in connection with a virtually
limitless number of deposit transactions. Nor is this
case easily likened to Walk, where the predicate acts
alleged, though occurring in connection with several
related transactions spread out over a number of
years, were all steps in the path to the accomplishment
of a single limited goal-squeezing out the minority
in a particular corporate structure. Unlike the
scheme in Walk, the scheme as alleged here did not
involve the commission of multiple preparatory acts
aimed at the infliction of a single basic injury, but the
commission of a series of independent acts that were
distinct criminal ends in themselves.FN6 In contrast to
the scheme in Walk, this scheme as alleged had no
limiting goal whose accomplishment would bring the
criminal activity it spawned to an end. Indeed, the
criminal activity as pleaded here threatened to continue
unabated, driven by the possibility of repeated
economic gain, until the defendants were caught.
Such a scheme-though “single”-is arguably of the
type whose very scope and persistence poses a special
threat to social well-being, a possibility we have
recognized. See Zepkin, 812 F.2d at 155; see also
Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1304-05
(7th Cir.1987) (allegations that defendants mailed 19
separate false shipping invoices over a period of
seven months were sufficient to state a pattern, because
each false invoice threatened an independent
economic injury); Illinois Dept. of Revenue v. Phillips,
771 F.2d 312, 313 (7th Cir.1985) (allegations
that defendant mailed nine separate fraudulent sales
tax returns to the state were sufficient to state a pattern,
because each false return threatened an independent
economic injury).
FN6. The fact that the discrete objectives of
each of the predicate acts were all of the
same basic type would not, of course, prevent
the predicate acts from constituting a
pattern. As we said in Walk, the pattern requirement
cannot be avoided by “ ‘the semantical
game of generalizing th [e] illegal
objective’ ” of the related predicate acts. See
847 F.2d at 1106, quoting Montesano v. Seafirst
Comm. Corp., 818 F.2d 423, 426 (5th
Cir.1987).
As this analysis indicates, the district court’s
conclusion that a RICO pattern had not been sufficiently
alleged is open at least to serious question
under our precedents. Because the issue therefore is
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close, the pattern concept a difficult one whose outer
bounds are yet unclear, and the question as presented
here one of the sufficiency of bare-bones pleading
allegations, we decline to pass upon it. We may
*1187 do so because of our conclusion that affirmance
is compelled on the much firmer, alternative
causation ground.
Accordingly, we assume, without deciding, that
a RICO pattern was sufficiently alleged and turn, as
this assumption requires, to the causation question.
Before doing so, we emphasize that to find, or assume,
that a RICO pattern of racketeering activity
consisting of acts of mail and wire fraud has been
shown does not also establish that its intended victims
were injured, nor beyond that, that any injury
suffered by them was sufficiently caused by the acts
to create RICO liability. This follows because indictable
acts of mail or wire fraud may be proven without
any proof of detrimental reliance by, hence of injury
to, the intended victims. See Armco Indus. Credit
Corp. v. SLT Warehouse Co., 782 F.2d 475, 481-82
(5th Cir.1986).
B.
To make out a civil action for damages under the
RICO statute a private plaintiff must demonstrate not
only that the defendants have violated § 1962, but
also that he has been “injured in his business or property
by reason of [the alleged] violation of section
1962.” 18 U.S.C. § 1964(c).FN7 The quoted language
requires the plaintiff to make two closely related
showings: (1) that he has suffered injury to his business
or property; and (2) that this injury was caused
by the predicate acts of racketeering activity that
make up the violation of § 1962. See Nodine v. Textron,
Inc., 819 F.2d 347, 348 (1st Cir.1987).FN8 As the
Seventh Circuit has said, “[a] defendant who violates
section 1962 is not liable for treble damages to everyone
he might have injured by other conduct, nor is
[he] liable to those who have not been injured.” See
Haroco, Inc. v. American Nat’l Bank & Trust Co.,
747 F.2d 384, 398 (7th Cir.1984), aff’d, 473 U.S. 606,
105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). The Supreme
Court has explained these injury and causation requirements
as aspects of standing, rather than elements
of the civil RICO plaintiff’s prima facie case.
See Sedima, 473 U.S. at 496-97, 105 S.Ct. at 3285
(Under § 1962(c), a “plaintiff only has standing if,
and can only recover to the extent that, he has been
injured in his business or property by the conduct
constituting the violation.”). In any event, it is clear
that a civil RICO complaint is vulnerable to a motion
to dismiss if it fails to allege either an adequate injury
to business or property, see, e.g., Drake v. BF Goodrich
Co., 782 F.2d 638, 644 (6th Cir.1986), or an
adequate causal nexus between that injury and the
predicate acts of racketeering activity alleged, see,
e.g., Pujol v. Shearson/American Express, Inc., 829
F.2d 1201, 1204-06 (1st Cir.1987); Nodine, 819 F.2d
at 348-49; Morast v. Lance, 807 F.2d 926, 932-33
(11th Cir.1987); In re Gas Reclamation, Inc. Securities
Litigation, 663 F.Supp. 1123, 1124-26
(S.D.N.Y.1987).
FN7. Section 1964(c) reads in full as follows:
Any person injured in his business or
property by reason of a violation of
section 1962 of this chapter may sue
therefor in any appropriate United States
district court and shall recover threefold
the damages he sustains and the cost of
the suit, including a reasonable attorney’s
fee.
18 U.S.C. § 1964(c).
FN8. The civil RICO claimant need not,
however, plead and prove a distinct “racketeering
injury.” Sedima, 473 U.S. at 495, 105
S.Ct. at 3284.
The civil RICO count at issue here contains an
adequate allegation of injury to the plaintiffs’ business
or property: the loss of interest income on their
First Maryland savings accounts and certificates of
deposit during the period in which First Maryland has
been in conservatorship and receivership. See
Amended Complaint paragraphs 102-107. But the
MSSIC defendants argue that the plaintiffs have
failed adequately to plead the requisite causal connection
between this injury and the predicate acts of
racketeering activity that they are alleged to have
committed. We agree.
The only predicate acts of racketeering activity
of which the MSSIC defendants stand accused are
acts of mail and wire fraud and interstate transportation
of fraudulently obtained funds committed in
connection with their dissemination of certain*1188
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allegedly misleading information about the security
of deposits in MSSIC-insured thrifts. See Amended
Complaint paragraphs 93-97.FN9 The causal connection
between these acts and the plaintiffs’ loss of interest
is not at all clear from the pleadings themselves.
The Amended Complaint alleges simply that:
FN9. As the district court noted, the great
bulk of the allegations against the MSSIC
defendants concern their allegedly negligent
or grossly negligent failure to carry out their
statutory duty to regulate the financial practices
of MSSIC’s member institutions. See
Amended Complaint paragraphs 58-80.
As a result of defendants’ violations of law, a run
did take place on MSSIC institutions, including
First Maryland, and First Maryland was unable to
meet and did not meet its obligations to First Maryland
depositors, and MSSIC was unable to meet
and did not meet its insurance obligations to First
Maryland depositors, including the plaintiffs and
class members herein.
See id. paragraph 102. There is no explanation of
how the MSSIC defendants’ misrepresentations
caused the run-nor could there be, for the cause of
the run was obviously the public’s discovery that
certain MSSIC-insured institutions were teetering
on the brink of insolvency because of self-dealing
by their officers and directors. While the MSSIC
defendants’ negligent failure to prevent unsound financial
practices at MSSIC’s member institutions
may have contributed to the run, and thus to the
plaintiffs’ injury, acts of negligence are not predicate
acts under the RICO statute, and § 1964(c)
provides no cause of action to individuals injured
by conduct other than predicate acts of racketeering
activity. See Nodine, 819 F.2d at 349.
The plaintiffs argue that the Amended Complaint
alleged two causal nexus between the MSSIC defendants’
misrepresentations and their loss of interest,
either of which is sufficient to satisfy § 1964(c). First,
they claim to have alleged that the misrepresentations
caused a huge influx of deposits into MSSIC’s member
institutions, stretching MSSIC’s insurance commitments
far beyond their limits and resulting in
MSSIC’s inability to meet its insurance obligations to
the plaintiffs when the run occurred. See Reply Brief
for Appellants at 21-22, citing Amended Complaint,
paragraphs 102-106. But while MSSIC’s overextension
may well have contributed to the plaintiffs’ lossin
the sense that it removed the safety net of insurance
that should have protected them upon First
Maryland’s insolvency-that overextension was not
caused by the MSSIC defendants’ misrepresentations
but by their negligent failure to maintain adequate
reserves.
The plaintiffs also claim to have alleged that the
MSSIC defendants’ misrepresentations induced them
to deposit their money in First Maryland. See Brief
for Appellants at 22, citing Amended Complaint,
paragraphs 3-7. But the Amended Complaint contains
no specific allegation that the named or class plaintiffs
acted in reliance on any misrepresentations directly
made by the MSSIC defendants when they
decided to deposit their money in First Maryland.FN10
Instead, the plaintiffs allege that they deposited their
money in First Maryland in reliance on deceptive
newspaper ads placed by First Maryland itself. See
Amended Complaint paragraphs 3-7. The only connection
between these ads and the MSSIC defendants
is the fact that they contained the MSSIC seal, which
the plaintiffs contend created the misimpression that
MSSIC was an agency of the state of Maryland and
thus, by implication, that deposits in its member institutions
were insured by the state. Even assuming that
use of the seal by First Maryland can be considered a
representation by the MSSIC defendants, we do not
think that representation was sufficiently misleading
to serve as the basis for a predicate act of fraud.
Though not a state agency, MSSIC was *1189 created
by the Maryland legislature as part of a regulatory
response to the state’s first savings and loan crisis.
See Letter of Stephen Sachs, Attorney General of
the State of Maryland, to Wilbur D. Preston, Jr., Special
Counsel, JA 122-23. The MSSIC seal has been in
continuous use for over 23 years, with the knowledge
and blessing of both the legislative and executive
branches of the state government. Id. Under these
circumstances, we do not think any representations of
state involvement conveyed by the seal can serve as
the basis for predicate acts of mail and wire fraud.
Accordingly, any injury caused the plaintiffs by the
ads containing the seal was not caused by any predicate
acts of racketeering activity.
FN10. The defendants correctly point out
that while, as we have noted, it is not necessary
to establish detrimental reliance by the
victim in order to make out a violation of the
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federal mail fraud statute, see Armco Indus.,
782 F.2d at 481-82, such reliance is necessary
to establish injury to business or property
“by reason of” a predicate act of mail
fraud within the meaning of § 1964(c).
In sum, we conclude that the plaintiffs have alleged
at most a cause-in-fact connection between any
fraudulent misrepresentations made by the MSSIC
defendants and plaintiffs’ later loss of interest income
on their First Maryland deposits. It is obvious that, as
a factual matter, plaintiffs would not have lost any
interest on their deposits but for having made them in
the first place. Further, it may be inferred in this context,
though it is not so obvious, that their particular
losses would have been avoided in the end by insurance
coverage but for the fact that too many others
had also made deposits. To the extent therefore that
any misrepresentations by defendants may have
caused these particular plaintiffs to deposit in the first
place and other depositors then to have increased
overall deposits past the point of insurance coverage,
the plaintiffs have surely alleged a degree of causal
connection between defendants’ conduct and their
injury. But, as indicated, it is no more than a bare
cause-in-fact connection, and a most attenuated one
at that.
Such a cause-in-fact connection, standing alone,
does not suffice to establish liability. Civil RICO is
of course a statutory tort remedy-simply one with
particularly drastic remedies. Causation principles
generally applicable to tort liability must be considered
applicable. These require not only cause-in-fact,
but “legal” or “proximate” cause as well, the latter
involving a policy rather than a purely factual determination:
“whether the conduct has been so significant
and important a cause that the defendant should
be held responsible.” Prosser and Keeton Torts, § 42
p. 272 (general principle) (5th ed. 1984); see also id.,
§ 110 p. 767 (applicable in fraud cases); Restatement
(Second) of Torts, § 548A (legal cause required in
fraud cases). As such, the legal cause determination
is properly one of law for the court, taking into consideration
such factors as the foreseeability of the
particular injury, the intervention of other independent
causes, and the factual directness of the causal
connection. See generally Restatement (Second) of
Torts § 548A comments a, b.FN11
FN11. We are aware of the Sedima Court’s
admonitions that RICO’s civil remedy provisions
are to be “liberally construed” and that
Congress did not intend civil RICO claimants
to be unduly hampered by the interrelated
“strict requirements [of] ‘standing’ to
sue and ‘proximate cause’ ” appropriate in
the related antitrust context. Sedima, 473
U.S. at 498, 105 S.Ct. at 3286. But these
admonitions obviously were not intended to
read the traditional proximate cause concerns
of tort law completely out of civil
RICO, leaving only a cause-in-fact requirement.
They were made in the context of a rejection
of the view that RICO injury, like
antitrust injury, see Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701
(1977), must be of a special type causally
connected to the anti-competitive effects of
the basically proscribed conduct rather than
the normally compensable type of injury
flowing from the basically proscribed conduct
(predicate acts) itself. This rejection
clearly relaxes the RICO proximate cause
test from that applied in antitrust, by focussing
inquiry on more direct cause and effect
relationships than the necessarily more attenuated
ones implied by the amorphous
concepts of “anti-competitive” injury and
violation. But it is plain that with the matter
of RICO injury and RICO violation thus settled,
the Sedima Court assumed that the
normal proximate cause inquiry into their relationship
would be appropriate. See id. 473
U.S. at 497, n. 15, 105 S.Ct. at 3285, n. 15.
Our inquiry proceeds within those bounds.
Here we conclude as a matter of law that on the
facts as alleged the misrepresentations charged to
defendants were not so significant and important a
cause of the plaintiffs’ loss of income on their deposits
and accounts that these defendants should be held
responsible for them. In more *1190 specific terms of
the statutory causation requirement, we conclude that
plaintiffs have not been “injured in [their] business or
property by reason of [the defendants’ alleged] violation
of § 1962.” 18 U.S.C. § 1964(c).
As we have pointed out, the causal connection
was in factual terms an extremely attenuated one. It
rests on an assumption of actual reliance by the
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named plaintiffs (and the entire class) upon the defendants’
advertising, through the medium of their
seal’s use, of their insured institutions’ financial stability
as the effective cause of plaintiffs’ independent
decisions to deposit their money in those institutions
rather than do something else with it. That connection
is certainly alleged, albeit in conclusory terms in the
complaint, but this does not mean we may not take
into account the slim thread of causal connection
upon which it rests. More important is the consideration
of all that had to transpire thereafter in order to
bring upon plaintiffs the RICO injury they specifically
alleged. Obviously the two most immediate
causes were the alleged depredations of the insured
institution’s management, and the MSSIC defendants’
negligent or reckless failure to prevent those depredations.
That of course is what directly caused the run
and ruin that followed, and neither of these of course
constitute RICO predicate acts chargeable to these
defendants. That these are in practical terms the intervening
direct causes of the tragic losses sustained
is of course reflected in the fact that they provide the
basis for these plaintiffs’ related pendent state claims
in this action. We therefore hold that on the facts alleged,
defendants’ alleged misrepresentations may not
properly be held the legal cause of the RICO injuries
alleged by these plaintiffs.FN12
FN12. In light of this conclusion, we find it
unnecessary to address the alternative argument,
strenuously advanced before us by the
six MSSIC member institutions that are
joined as defendants, that they cannot be
held liable in any event for the alleged misconduct
of MSSIC’s officers and directors.
In terms of our analysis, it is plain that the
causal connection between their conduct and
the plaintiffs’ injury is even more attenuated-
“legal” cause less evident-than that of the
MSSIC directors themselves.
Since there are no other federal claims against
the MSSIC defendants, we conclude that the district
court did not abuse its discretion in dismissing the
pendent state claims against those defendants as well.
United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86
S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966).
* * * *
IV
For the reasons set forth above, the district
court’s order of dismissal is affirmed.
AFFIRMED.
C.A.4 (Md.),1988.
Brandenburg v. Seidel
859 F.2d 1179, 57 USLW 2251,

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