Friday, August 03, 2007
RICO Suit/ Plaintiffs objections to magistrate Nelsons order of July 16, 2007
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Frank J. Steinhauser, III, et al., Civil No. 04-2632
JNE/SRN
Plaintiffs,
v. PLAINTIFFS’ OBJECTIONS TO MAGISTRATE NELSON’S ORDER OF JULY 16, 2007
City of St. Paul, et al.,
Defendants.
Sandra Harrilal, et al., Civil No. 05-461
JNE/SRN
Plaintiffs,
v.
Steve Magner, et al.,
Defendants.
Thomas J. Gallagher, et al., Civil No. 05-1348
JNE/SRN
Plaintiffs,
v.
Steve Magner, et al.,
Defendants.
TO THE HONORABLE JUDGE ERICKSEN:
NOW COMES the Plaintiffs, in order to file their Objections to Magistrate Nelson’s
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July 16, 2007, Order (04-2632, ECF 112; 05-461, ECF 88; and 05-1348, ECF Doc. No. 82), pertaining to Plaintiffs’ Motion to Compel Discovery (05-1348, ECF Doc. Nos. 39 and 40), and to respectfully show the Court:
INTRODUCTION
Magistrate Nelson denied Plaintiffs’ joint motion to compel the production of the tax records, banking records and cell phone records of Defendant Steve Magner, a supervisor of vacant buildings for the Neighborhood Housing and Property Improvement office (N.H.P.I.) of St. Paul and a member of the Problem Property Unit of N.H.P.I.
Plaintiffs sought these personal records to support claims that Defendant Magner had committed the predicate acts of “attempted extortion” and “extortion” under the federal Racketeering Act, 18 U.S.C. Section 1961, et seq. (hereinafter referred to as “RICO Act”).
Plaintiffs submit that the affidavits and sworn statement from four individuals that were presented to the Magistrate on Plaintiffs’ Joint Motion to Compel, constituted direct evidence of “attempted extortion” by Defendant Magner in his official position as a supervisor of code enforcement for Defendant City. Plaintiffs RICO claims include extortion and attempted extortion as pleaded in Plaintiffs’ Complaints (see for example, Steinhauser Third Amended Complaint, ECF 60-1, Count I, paragraph 213 (a)).
Plaintiffs were seeking Magner’s personal records as further evidence that Magner had committed the RICO predicate act of “attempted extortion” and for evidence that he had committed “extortion” under the RICO Act.
On the issue of tax and banking records, Magistrate Nelson held that Plaintiffs had not
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produced evidence that Magner had derived any income from the alleged pattern of racketeering (Order, page 3) and refused to order the production of those records.
Plaintiffs were also seeking Magner’s personal cell phone records as further evidence of the RICO predicate acts of “attempted extortion” and “extortion.”
Magistrate Nelson held that while these personal cell phone records would show phone numbers and the length of calls made by Magner, these records “could not show any improper conduct, which would depend on a showing of the particular content of those conversations” and therefore these records were not discoverable (Order, page 3).
Plaintiffs submit that Magistrate Nelson’s decision is erroneous, misplaced, and contrary to law.
FACTUAL BACKGROUND
Prior to the close of discovery, Plaintiffs’ specifically requested Defendant Magner to produce: “The state and federal and state tax returns, personal bank records, and personal cell phone records … for the years 1999 through 2006.” See Defendants’ Response to Plaintiffs’ Request for Production of Documents (Set II) in Steinhauser, et al., Response No. 9, attached as Exhibit 6 to the Affidavit of John R. Shoemaker (05-1348, ECF Doc. No. 72 and attachments); and Defendants’ Response to Plaintiffs Harrilal and Johnson’s Request for Production of Documents, No. 46, attached as Exhibit 7 to the Affidavit of John R. Shoemaker (05-1348, ECF Doc. No. 72 and attachments).
Defendants objected to production of these personal documents on the basis that the request sought, “information which is irrelevant, immaterial and not likely to lead to the
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discovery of admissible evidence and requests information protected by the Minnesota Government Data Practices Act, Minn. Stat. 13.43, Subd.4, as non-public.” See Defendants’ Response No. 9 (Steinhauser, et al.), attached as Exhibit 6 to the Affidavit of John R. Shoemaker; and Defendants’ Response, No. 46 (Harrilal, et al), attached as Exhibit 7 to the Affidavit of John R. Shoemaker (05-1348, ECF Doc. No. 72 and attachments).
Plaintiffs filed as part of their motion, three (3) affidavits and one (1) sworn statement from four individuals relating to two different properties describing Mr. Magner’s commission of, at the very least, the predicate RICO acts of attempted extortion. Part of the evidence before Magistrate Nelson was as follows:
Affidavit of Nancy Osterman.
Nancy Osterman provided a sworn Affidavit dated 6/22/05[Exhibit 2, Affidavit of John R. Shoemaker]. Ms. Osterman’s home at 14 Jessamine East was condemned and a code compliance demanded by Magner. After substantial repairs totaling about $10,000, Magner told her that he would not allow her to complete the renovation but she would be required to sell her home to someone of Magner’s choosing and if she refused, her home would be demolished. See Paragraphs 8-10, Affidavit of Osterman.
Affidavit of Julian Jayasuriya.
Julian Jayasuriya has provided a sworn Affidavit dated 6/22/05 [Exhibit 3, Affidavit of Shoemaker]. Mr. Jayasuriya purchased a property owned by Nancy Osterman in 2003 after Ms. Osterman informed him that Magner had threatened to demolish her condemned home if she did not sell her home to a buyer of Magner’s choosing at a price drastically below the fair market value of her home. See Paragraphs 5 and 6, Affidavit of Jayasuriya. Mr. Jayasuriya states that he purchased Osterman’s home for approximately $90,000 in value. Paragraph 5, Affidavit of Jayasuriya. Mr. Jayasuriya stated that Inspector Magner has on occasion threatened him with dire consequences including condemnation of his properties when Mr. Jayasuriya expressed disagreement with Magner’s methods of code enforcement and ethics. See Paragraph 7, Affidavit of Jayasuriya. Mr. Jayasuriya met with the St. Paul City Council on June
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15, 2005, and stated that no one from the City ever answered his questions as to who was really benefiting from the forced demolition of his property or how Magner could operate his own real estate placement firm or tie forcing sales of properties into Code Compliance. See Paragraph 16, Affidavit of Jayasuriya. Mr. Jayasuriya stated that it was his belief that the City had a problem controlling Magner and other code enforcement, Paragraph 17, Affidavit of Jayasuriya, and that Mr. Jayasuriya was concerned that Magner may be able to continue to retaliate against him for not giving into his demands that Magner control the sale of14 Jessamine or other properties, under cover of enforcing City Codes. See Paragraph 21, Affidavit of Jayasuriya.
Statement of Douglas Hayes.
Douglas Hayes has provided a notarized statement dated 6/10/07, wherein he supports the claims made by Osterman in her affidavit [Exhibit 4, Affidavit of Shoemaker]. Mr. Hayes was living with Osterman at 14 Jessamine when condemned and a code compliance required. Page 1, Statement of Hayes. Mr. Hayes worked on trying to meet Magner’s code compliance demands. Magner stopped by the house periodically to check on the progress. Magner eventually told Hayes that he might as well quit working on the home as the home was going to the City Council and the home will be demolished. Page 3, Statement of Hayes. Mr. Hayes informed Magner that he and Osterman were thinking of selling the home. Magner replied that they could not just sell the home to anyone but that they had to sell their home to someone Magner had worked with before. Page 3, Statement of Hayes. Magner told Hayes that if he and Osterman did not sell the home as directed, they would be left with a hole in the ground. Page 4, Statement of Hayes. Magner told Hayes that Magner knew a guy who he had worked with before who buys vacant homes and was someone who could get the work done. Page 4, Statement of Hayes. Magner told Hayes that he and Osterman should take whatever they could get or they would be left with a hole in the ground. Hayes then called the buyer that Magner suggested and that buyer came to the 14 Jessamine home to look it over while Hayes was present. Page 4, Statement of Hayes. Hayes showed the buyer the code compliance inspection report, and the buyer then prepared a purchase agreement proposal to buy the home for $40,000.00 that he handed to Hayes. Page 4, Statement of Hayes. Hayes states that he and Osterman rejected the proposal because the home was worth approximately $150,000.00. Pages 4 and 5, Statement of Hayes. Hayes states that the 8-15-03 Purchase Agreement that is attached to his statement is the same purchase agreement presented to him by Magner’s buyer. Page 5, Statement of Hayes. Wally Nelson admitted in his deposition that this Purchase Agreement was in fact his purchase proposal. See Nelson’s Deposition, pages 79-80, Exhibit 3, Matthew Engel Affidavit.
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Lois Jacobs, a St. Paul property owner has provided a sworn Affidavit dated 6/11/07 [Exhibit 5, Affidavit of Shoemaker]. Ms. Jacobs details her experience with Magner during 2004 and thereafter. Ms. Jacobs owns a home located at 1008 Farrington Street that she purchased for her grandson to live in. She says that her home was in good condition. In May 2004, her home was condemned by the City because the electricity had been turned off for non-payment. Paragraph 3, Jacobs’Affidavit. Even though Ms. Jacobs paid the overdue bill, the City would not remove the condemnation. She says that after her home was condemned, Magner told her that her home could not be re-occupied until she completed a code compliance. See Paragraph 4, Jacobs’ Affidavit. Following the inspection results of the code compliance inspection, Ms. Jacobs discovered that she would have approximately $32,000.00 in renovation costs. She also states that she had considerable expenses in repairing damages caused to her doors and windows from forced entries and boarding by the City. While Ms. Jacobs home was under Magner’s control, he offered to buy her home for $50,000.00 cash. Ms. Jacobs refused his offer. Paragraph 5, Jacobs’ Affidavit. Ms. Jacobs states that she notified certain City officials about her experience with Magner and his offer to purchase her home. See Paragraph 7, Jacobs’ Affidavit. She told City officials that she thought it was improper for a City employee involved in condemnation of her home to then make an offer to purchase the home. Even though she pleaded with City officials, her home remained condemned and the City has continued to require a code compliance. See Paragraph 8, Jacobs’ Affidavit.
ISSUE
Plaintiffs submit that Magistrate Nelson’s decision is erroneous, misplaced, and contrary to law in denying Plaintiffs’ motion to compel. The discovery issue presented to Magistrate Nelson was whether it was proper to compel the production of personal tax returns, bank records and cell phone records of Defendant Magner. Plaintiffs submit that discovery of Mr. Magner’s tax returns, bank records and cell phone records is reasonably calculated to lead to the discovery of admissible evidence related to Plaintiffs’ claims of “attempted extortion” and/or “extortion.”
ARGUMENT AND AUTHORITIES Case 0:05-cv-01348-JNE-SRN Document 84 Filed 07/30/2007 Page 6 of 13
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Plaintiffs direct the Court’s attention to Plaintiffs’ Joint Letter Brief in Support of Plaintiffs’ Motion to Compel and supporting affidavits and exhibits (05-1348, ECF Doc. Nos. 65, 71 and 72) for a more complete statement of Plaintiffs’ arguments and authorities.
Magistrate Nelson stated in her Order that, “Parties generally are entitled to conduct liberal discovery into any relevant non-privileged material. Fed. R. Civ. P. 26(b)(1) (Order, page 2). Rule 26 of the Federal Rules of Civil Procedure, provides that where the requested discovery “appears reasonably calculated to lead to the discovery of admissible evidence, the discovery request is proper.” Fed. R. Civ. P. 26(b)(1) (West 2007).
Given the nature of Plaintiffs RICO claims of mail fraud, wire fraud, bank fraud, attempted extortion and extortion, Magner’s tax, banking and personal cell phone records fall within the proper scope of discovery as promulgated by the Rules. Plaintiffs’ request is not unreasonable, overbroad, or unduly burdensome. Plaintiffs are seeking the bank records, tax returns and personal cell phone records from one of the Defendants from three (3) cases and only where the evidence clearly shows “attempted extortion” by Magner in his code enforcement role against owners of single family properties, properties similar to Plaintiffs’ properties.
“Attempted extortion” is an illegal predicate act under the RICO Act. 18 U.S.C. § 1961. Under the RICO Act, “Racketeering activity” is defined as, “(A) any act or threat involving…extortion, or (B) any act which is indictable under any of the following provisions of title 18, United States Code §1951 (relating to interference with commerce, robbery, or extortion). 18 U.S.C. §1961 (emphasis added).
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The Hobbs Act provides that: “(a) Whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion or attempts or conspires so to do, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section shall be fined under this title or imprisoned not more than twenty years, or both.” See 18 U.S.C. §1951(a). The Hobbs Act further defines extortion as “the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.” 18 U.S.C. § 1951(b)(2) (emphasis added).
Federal Courts have also recognized “attempted extortion” as a predicate act within the RICO Act. See McLaughlin v. Anderson, 962 F.2d 187, 194 (2nd Cir. 1992) ( financing officer alleged threat to lose successful bidder's forms unless bidder entered joint venture H.U.D. project, was use of fear of economic loss needed for Hobbs Act extortion claim and predicate act of attempted extortion for civil RICO claim); see also Dooley v. Crab Boat Owners Ass'n., 271 F.Supp.2d 1207, 1214 (N.D.Cal.2003) (defendants attempts through threats and property damage to obtain control over fishing company's intangible property could amount to attempted extortion, Hobbs Act violation, and RICO predicate acts).
The predicate acts of “attempted extortion” and “extortion” relate to the other predicate acts detailed by Plaintiffs in their Complaints to show relatedness and continuity, including mail fraud, wire fraud and bank fraud, and other acts of Magner and other Defendants, many of who were members of NHPI. In order to prove a pattern of racketeering activity, Plaintiffs must show that “the racketeering predicates are related, and that they
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amount to or pose a threat of continued criminal activity.” H.J. Inc. v. Northwestern Bell Tel., 492 U.S. 229, 239 (1989). The “relatedness” element of the pattern test embraces “criminal acts that have the same or similar purposes, results, participants, victims or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” Id. at 240.
Tax returns and banking records
In seeking the tax returns and bank records of Magner, Plaintiffs were seeking additional evidence that Magner had committed a RICO predicate act of “attempted extortion”. The bank records, for example, could in fact show that at the time Jacobs claims Magner offered her $50,000 in cash to buy her condemned property subject to code compliance requirements by Magner, that Magner in fact had $50,000 in available funds. That would constitute evidence to support a claim of attempted extortion. Magner’s tax returns could show “other income” that would have been available to him for carrying out his attempt at extorting Jacobs.
Plaintiffs are seeking the evidence that Magistrate Nelson states Plaintiffs do not have – the bank records and tax returns - that would show Magner derived income and committed “extortion,” a second RICO predicate act. These financial records clearly fall within the requirement that a party’s request be “reasonably calculated to lead to the discovery of admissible evidence,” and be related to their claims, as these records could show that Magner has derived income from the alleged extortion and pattern of racketeering.
In Dooley v. Crab Boat Owners Ass’n, the Defendants contended that none of the acts,
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even if proved, could be considered extortion or attempted extortion because defendants did not obtain or try to obtain property. 271 F.Supp.2d at 1212. The court held that defendants attempted to acquire “something of value” through their threats, warnings and property damage. Id. at 1214.
The Federal District Court for the Eastern District of New York has held that where claims of fraud, unjust enrichment, and RICO conspiracy were brought against physicians who allegedly performed unnecessary diagnostic testing on automobile insureds, the physician's financial records, including tax returns, were discoverable as relevant to show that the physicians profited from the willingness to order tests that were billed to an insurer as reimbursable personal injury protection (PIP) benefits by medical clinics. See State Farm Mut. Auto. Ins. Co. v. CPT Medical Services, P.C, 375 F.Supp.2d 141 (E.D.N.Y.2005). The Federal District for the Eastern District of Pennsylvania has held that given the broad definition of "relevance" articulated in Rule of Civil Procedure pertaining to discovery, financial records requested by a plaintiff from a defendant were relevant in a civil RICO action against the defendant and members of his family, where the financial records pertained to the transaction involving family members and the suit was based on their allegedly fraudulent transactions. See Constitution Bank v. Levine, 151 F.R.D. 278 (E.D.Pa.1993).
Magistrate Nelson’s determination that, “Plaintiffs have produced absolutely no evidence that he has derived any income from the alleged pattern of racketeering” was clearly erroneous and contrary to law. Plaintiffs are seeking to show evidence Magner “derived income” from the alleged pattern of racketeering through his bank records and tax returns. Case 0:05-cv-01348-JNE-SRN Document 84 Filed 07/30/2007 Page 10 of 13
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Plaintiffs have already presented evidence of the predicate act of “attempted extortion.” Because “attempted extortion” is a RICO predicate act, Plaintiffs should be allowed to examine Magner’s bank records and tax returns to determine if in fact he has derived any income that would constitute the additional predicate act of “extortion.”
The fact the Magner was unsuccessful in his attempted extortion, or that he did not derive income from those individuals, does not mean that an illegal predicate act was not committed or that discovery of his bank records and tax returns should not be allowed. As the Court held in MacLaughlin, “that the extortion effort ultimately failed can not exonerate Anderson, since Macgall alleged, and the Hobbs Act forbids, attempted extortion.” See McLaughlin at 194 (citing 18 U.S.C. § 1951(a)).
Personal Cell Phone Records
Magistrate Nelson also denied Plaintiffs’ request to compel the production of Magner’s personal cell phone records because “the information that Plaintiffs seek – the number and frequency of their (Magner and Nelson’s) phone conversations – could not show any improper conduct, which would depend on a showing of the particular content of those conversations.” (Order, page 3). This determination is clearly erroneous and contrary to law.
Again, “Parties generally are entitled to conduct liberal discovery into any relevant non-privileged material,” and “Parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party.” Fed. R. Civ. P. 26(b)(1).
Plaintiffs contend that the number and frequency of Magner and Wally Nelson’s phone conversations – not just the content of those conversations - are in fact relevant to Plaintiffs’
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claims. The amount of time Magner was spending on his personal cell phone talking to Nelson during City business hours and the frequency of those calls during those hours, would be additional evidence of Magner’s improper involvement with Nelson, as Plaintiffs have claimed. Additionally, phone numbers of other property owners similarly subject to attempted extortion and/or extortion may be discovered in Magner’s cell phone records. Other phone numbers may lead to fellow conspirators involved in racketeering activity with Magner.
CONCLUSION
In sum, given the nature of the claims against Magner, his tax, banking and personal cell phone records fall within the proper scope of permissible discovery under the Federal Rules of Civil Procedure and the Court should allow such discovery. Plaintiffs are agreeable to subjecting Magner’s cell phone records and financial documents to provisions of a protective order to protect his privacy and financial security interests.
WHEREFORE, PREMISES CONSIDERED, Plaintiffs pray this Court:
(1)
Overrule Magistrate Nelson’s Order denying discovery of the tax records, banking records and personal cell phone records of Defendant Steve Magner;
(2)
Compel production of Magner’s state and federal tax returns, personal bank records, and personal cell phone records for the years 1999 through 2006, as this information is “reasonably calculated to lead to the discovery of admissible evidence” in support of Plaintiffs’ RICO claims;
(3)
Award reasonable attorney fees and costs in bringing this motion; and
(4)
Order such other and further relief, at law or in equity, to which Plaintiffs may be
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justly entitled.
Respectfully submitted,
SHOEMAKER & SHOEMAKER, P.L.L.C.
Dated: July 30, 2007 By: s/ John R. Shoemaker
John R. Shoemaker (#161561)
Centennial Lakes Office Park
7701 France Avenue South, Suite 200
Edina, Minnesota 55435
(952) 841-6375
Attorneys for Plaintiffs Steinhauser, et. al. Attorneys for Plaintiffs Harrilal, et. al.
THE ENGEL FIRM, PLLC
Dated: July 30, 2007 By: s/ Matthew A. Engel
Matthew A. Engel (#315400)
11282 86th Avenue North
Maple Grove, Minnesota 55369
(763) 416-9088
Attorneys for Plaintiffs Gallagher, et. al.
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