
USCA1 Opinion

	




                           UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                ____________________       No. 96-2082                                 ANNETTE B. DeMAURO,                                Plaintiff, Appellant,                                         v.                JOSEPH M. DeMAURO, EDWARD MARTIN, DeMAURO CO., INC.,          NICHOLAS DeMAURO, TRI-AREA DEVELOPMENT CO., INC. and JOAN MARTIN,                               Defendants, Appellees.                                ____________________                    APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Reginald C. Lindsay, U.S. District Judge]                                ____________________                                       Before                                Boudin, Circuit Judge,                            Bownes, Senior Circuit Judge,                              and Lynch, Circuit Judge.                                ____________________            S. James Boumil for appellant.            Kathleen M.  Morrissey  with  whom  Bernard  A. Dwork,  Roger  T.       Manwaring, Barron & Stadfeld, P.C., Richard L. Fox and Carragher & Fox       were on brief for appellees Edward Martin, DeMauro Co., Inc., Nicholas       DeMauro, Tri-Area Development Co., Inc. and Joan Martin.                                ____________________                                    June 11, 1997                                ____________________                 BOUDIN,  Circuit  Judge.   In  this  case,  one  of  the            participants in  a  pending divorce  action has  invoked  the            federal racketeering statute to challenge asset transfers  by            her spouse.   The district court responded by dismissing  the            complaint without prejudice  on abstention grounds.   Because            dismissal  was on  the  pleadings,  we assume  the  truth  of            statements in the complaint, cautioning that they have yet to            be proved.                 Annette and Joseph DeMauro were married in 1979.  Joseph            worked                   in                      the construction business and, according to Annette,            earned "millions of dollars," promising to share monies  with            Annette.  But  the marriage proved  less successful than  his            business.  The couple separated, and in 1994, Annette--a  New            Hampshire resident--sued for  divorce in New Hampshire  state            court.                 The divorce  action  has  been a  bitter  and  prolonged            contest.  At various times, Joseph has refused to pay spousal            support                    orders (which total more than $250,000), has failed to            appear for court proceedings, has resisted discovery requests            concerning his income and property interests by invoking  the            Fifth                  Amendment,                             and                                has                                    been held in contempt of court.  After            more than two years, the divorce action remains unresolved.                 In                    May                        1996,                             Annette                                     filed the instant suit in the federal            district court in Massachusetts.  The complaint named  Joseph            and                five                     other defendants:  Joseph's 42-year-old son, Nicholas                                         -2-                                         -2-            DeMauro; Joseph's sister and brother-in-law, Joan and  Edwar                                   ons allegedly controlled by Joseph and             icholas--DeM                        auro Co., Inc. and Tri-Area Development Co., Inc.            Joseph                                                                        d            Martin;                    and                       two                           corporati            N      was alleged  to have a residence in Massachusetts  and            both corporations had offices in the state.                 The                     complaint                               set                                  forth                                        a RICO claim for civil conspiracy,            18 U.S.C. S 1961  et seq., specifying predicate  racketeering            acts of (1) mail fraud, 18 U.S.C. S 1341, (2) wire fraud,  18            U.S.C. S  1343,  and (3)  "extortionate threats,"  18  U.S.C.            S 1951.  The complaint also alleged pendent state-law claims1            for intentional infliction  of emotional distress, breach  of            fiduciary                      duty,                           conspiracy, fraudulent conveyances, and illegal            telephone recordings.                 In                    support                            of the RICO claim, the complaint charged inter            alia  that  Joseph  and  the  other  defendants  fraudulently            concealed                      from                          Annette                                  separate and marital property to prevent            her                from                     sharing in these assets.  Annette alleged that Joseph            and the other defendants                 by means of  false pretenses, representations,  and                 devices established bank and investment accounts in                 Switzerland,    [the]    Middle    East,    France,                 Liechtenstein, several states of the United  States                 and                     various                             and sundry other locations most of which                 accounts                          were established under the names of straws,                 sham   trusts,    shell   companies    and    phony                                                                           1                 Diversity                           jurisdict                                   ion was not available because although            Joseph                   is                      apparently not a New Hampshire resident, Annette and            the Martins are New  Hampshire residents, thus defeating  the            complete                     diversity                              requirement.  Casas Office Machines, Inc. v.            Mita                 Copystar America, Inc., 42 F.3d 668, 673 (1st Cir. 1994).                                         -3-                                         -3-                 "foundations,                             " all designed to conceal the location,                 extent, and existence of assets from [Annette]  and                 persons with whom [Joseph] did business.                 The  alleged activity  was undertaken  not by  Annette's            husband                    alone,                           but                              also                                   by others who comprised an alleged RICO            "enterprise," and it  involves alleged concealments "well  in            excess                   of                      a                        million dollars."  And, allegedly, Joseph not only            threatened to deprive Annette of assets but also boasted that            he had  bribed foreign officials  to secure  himself a  false            identity and foreign passport.                 In June 1996, all the defendants except Joseph moved  to            dismiss                    the                        suit                            on                               various grounds, including lack of standing            to               bring                     RICO claims and failure to plead fraud with requisite            particularity,                           Fed.                               R.                                  Civ. P. 9(b).  Joseph did not join these            motions because he  had not yet been served process,  despite            efforts                    by                       Annette                              to                                 locate and serve him.  Joseph was finally            served  with process  while  appearing involuntarily  in  New            Hampshire state court, having been arrested and brought there            for a hearing on his failure to pay ordered spousal support.                 On July 26, 1996, the district judge issued a seven-page            order.                                       He                      expressed                                doubt whether Annette had shown a property            interest protectible  under the  civil RICO  statute; but  he            ultimately did  not decide this  issue and instead  dismissed            without                    prejudice Annette's claims against all the defendants.            The dismissal  was  based  upon the  doctrine  of  abstention            established in Burford v.  Sun Oil Co., 319 U.S. 315  (1943).                                         -4-                                         -4-            Rather  than  staying  the  federal  proceedings,  the  court            dismissed, noting that Annette could                 replead if and when she can show a "property" right                 which . . . has been denied her by the  defendants'                 allegedly  illegal transfers--that  is,  after  the                 resolution of the divorce action and the  attendant                 allocation of marital assets.                 The  parties  had  not  addressed  the  possibility   of            abstention                       in                         their                               filings.  In August 1996, Annette moved for            reconsideration, arguing that  abstention was not proper  and            that, if it  were proper, the  court should stay  proceedings            rather                   than                       dismissing                                  the action.  The court denied her motion            without comment.  Annette now appeals.                 1.  For reasons that will become evident, we begin  with            the threshold issue bypassed  by the district court,  namely,            whether the plaintiff has made out a claim of "injury" to her            "business                      or                        property,"                                   as is required for a civil RICO damages            action.  18 U.S.C. S 1964(c).  This is sometimes described as            a "standing" issue.   There is plainly a case or  controversy            under                  Article III; but the statutory precondition of injury to            business or property must  also be met.  Sedima, S.P.R.L.  v.            Imrex Co., 473 U.S. 479, 496 (1985).                 One  might think  it obvious  that a  precondition in  a            federal                    statute                            would                                 be                                    defined uniformly by federal law.  Cf.            Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483  U.S.            143, 147-49 (1987) (civil RICO statute of limitations).  This            is especially so where the same phrase--injury to business or                                         -5-                                         -5-            property--is also a long-standing requirement under section 4            of  the  Clayton Act,  15  U.S.C. S  15(a).   Yet,  the  RICO            precedents are filled with references to state property  law,            which is  often said to  govern by implicit  cross-reference.            E.g., Doe v. Roe, 958  F.2d 763, 768 (7th Cir. 1992)  (citing            cases).                 Some role does exist for state law.  There is no general            federal law of property transfers, so the question who owns a            piece                  of                     property                             is                                likely to be settled by state law.  On the            other hand, one might expect federal law to decide whether  a            given                  interest, recognized by state law, rises to the level of            "business                      or                        property,"                                   or whether "injury" has been done to it            by               the                   acts                        alleged.2  Where to set the "business or property"            threshold  depends on  federal  statutory purpose,  and  that            purpose is  likely to support  a definition  that is  uniform            throughout the country.                 In all events, the assets that Annette ultimately claims            to have been concealed are "property" by any definition:  the            complaint                      alleges fraudulent concealment and transfers of real            property                     and                         bank account funds by Joseph.  One difficulty--so            far as we can tell from the undeveloped record--is that  most            (perhaps all)  of this property may  have been held from  the                                                                           2                 E.g.                     ,                        A                        ssociated Gen. Contractors of California, Inc. v.            California State Council of Carpenters, 459 U.S. 519,  529-45            (1983) (examining the meaning of "injury" under section 4  of            the Clayton Act); compare Roma Constr. Co. v. aRusso, 96 F.3d            566, 579-80 n.10 (1st Cir. 1996) (Lynch, J., concurring).                                         -6-                                         -6-            outset in  Joseph's name  or in the  name of  others such  as            foundations                        that he controls.  The complaint also implies that            most                 (perhaps all) of the underlying assets were the result of            the success of Joseph's construction business.                 New                     Hampshire                               is                                 not                                     a                                       community property state, see Baker            v.               Baker                   ,                      421 A.2d 998, 1000 (N.H. 1980), and much of the real            property and monies described in the complaint may not yet be            Annette's property.  To  this extent, what Annette has is  an            expectancy:  in the divorce proceedings, some or much of this            property may be awarded  to Annette.  State law provides  for            "equitable division" in divorce actions of "all tangible  and            intangible property and assets  . . . belonging to either  or            both                 parties,                         whether                                 title to the property is held in the name            of either or both parties."  N.H. Rev. Stat. Ann. S 458:16-a.            An equal division is presumptively equitable.  Id. S  458:16-            a(II).                 If the real and other tangible property, or most of  it,            belongs                    to                       Joseph,                              can                                  it still be said that Annette's divorce-            suit claim to a share is also "property" protectible by RICO?            Possibly so.  Some precedent, at least under the Clayton Act,            extends                    protection                              to                                 intangibles under certain circumstances.3                 3E.g., E.A. McQuade Tours, Inc. v. Consolidated Air Tour            Manual                   Comm.,                         467 F.2d 178, 184 (5th Cir. 1972), cert. denied,            409 U.S.  1109  (1973) (contracts  are "property"  under  the            Clayton Act); cf. Logan v. Zimmerman Brush Co., 455 U.S. 422,            430-33                   (1982) (right to use adjudicatory procedures created by            state                  Fair                       Employment Practices Act is "property" protected by            the Due Process Clause).                                         -7-                                         -7-            But even if we assume arguendo that Annette's claim is itself            protected property,  the  question remains  whether  Joseph's            alleged efforts to  conceal what is still his property  (real            property  and cash)  has  "injured" Annette's  property  (her            inchoate claim).                 Certainly, Annette  may  be  worse off  because  of  the            concealment;                         but her legal claim remains intact, together with            various                    remedies directed at concealment of assets.  (In fact,            she has already obtained attachments in state court totalling            $33                million                        on property owned partly or solely by Joseph.)  No            one                knows                      what                          Annette                                  will be awarded in the divorce action or            whether Joseph's alleged efforts  to conceal will hamper  her            ability to collect.  In sum, any claim of present "injury" to            her                claim                      is                         speculative, so long as we are concerned with the            movement  of real property  or cash that  for now belongs  to            Joseph.                 Pertinent here  is a  decision of  this court  upholding            dismissal of  a civil RICO claim  brought by a plaintiff  who            alleged injury based on a "hypothetical inability to recover"            if it won its pending contract lawsuit against the defendant.            The                defendant                         had                             allegedly made fraudulent transfers of assets            to his wife; but we held that the RICO claim was not ripe for            adjudication because the claimed injury was too  speculative.                                         -8-                                         -8-            Lincoln  House, Inc. v.  Dupre, 903 F.2d  845, 847 (1st  Cir.            1990).  This and like decisions4 seem directly on point.                 To be sure, there is a certain arbitrariness in  drawing            the line here.   But while RICO  is to be construed  broadly,            Sedima, 473  U.S. at  498,  "injury to  property" is  not  an            infinitely                       elastic                              concept.  And in cases like this, it is hard            to               see                   how                       a                         court would calculate damages now, given the dual            uncertainties of what Annette will be awarded and how it will            be               affected                        by concealment.  See First Nationwide Bank v. Gelt            Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994), cert. denied,            115                S.                   Ct.                       728 (1995) ("[A]s a general rule, a cause of action            does                 not                     accrue under RICO until the amount of damages becomes            clear and definite.").                 This conclusion--that Annette has not adequately alleged            injury to her  property--applies only to the extent that  the            concealed  property currently  belongs  solely to  Joseph  or            others.  However, the complaint also asserts that Joseph  has            sought to conceal  "marital" or "separate" property.  To  the            extent that Annette is claiming a present ownership interest,            she appears to be asserting injury to her property within the            terms                  of                     the                        RICO                             statute.  Cf. Grimmett v. Brown, 75 F.3d 506,                 4See  Barnett v. Stern, 909 F.2d 973, 977 n.4 (7th  Cir.            1990); Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1106  (2d            Cir. 1988), cert.  denied, 490 U.S.  1007 (1989); Capasso  v.            Cigna Ins. Co., 765 F. Supp. 839, 842 (S.D.N.Y. 1991).                                         -9-                                         -9-            516-17                   (9th                        Cir.),                              cert.                                    granted, 116 S. Ct. 2521 (1996), cert.            dismissed, 117 S. Ct. 759 (1997).                 Admittedly,  Annette's  allegations  of  ownership   are            confusing                      and                          in                            certain                                    respects lack supporting detail.  They            certainly could be explored through inquiry and discovery and            could be tested,  if doubtful, by a  motion to dismiss or  by            summary  judgment.   Still,  on  the  present  pleadings  the            possibility remains  that Annette  already owns  some of  the            property allegedly concealed  by Joseph and others.  On  that            premise, we turn to the issue of abstention.                 2.                                         We                        note                            at                               the                                   start                                         that the district court's remedy-            -dismissal                       on                         abstention                                    grounds--is not permissible.  Just two            months                   before                         the                             district court issued its ruling, the Supreme            Court                  held                       that abstention, under Burford or otherwise, may be            appropriate                        in                           suits                                for                                    damages.  Quackenbush v. Allstate Ins.            Co.              ,                 116                     S.                        Ct. 1712, 1728 (1996).  But the Court further held            that in a damages action, the district court may only order a            stay                 pending                         resolution of state proceedings; it cannot invoke            abstention to dismiss the suit altogether.  Id.                 The rationale of  Quackenbush is  that damages  actions,            unlike suits for equitable relief, do not invoke the  court's            equitable                      discretion.  Id. at 1727.  This rule may seem rather            wooden,                    given                          the                             merger                                    of law and equity, but the Court means            what                 it                    says:                                                    Quackenbus                                   h held that the dismissal of a damages            action  on Burford  grounds  was  reversible  error,  without                                        -10-                                        -10-            deciding whether "a more limited abstention-based stay  order            would have been warranted on the facts of this case."  Id. at            1728.  There  is no question that  the present RICO claim  is            primarily a damages action.  See complaint, qq 62-67.  It  is            uncertain                      whether                             equitable relief is even available to private            plaintiffs under civil RICO.  Lincoln House, 903 F.2d at 848.                 The  question remains  whether  the district  court  has            authority                      at                         least                              to                                 stay Annette's federal suit on abstention            grounds,  pending resolution  of  the New  Hampshire  divorce            proceeding.    In that  proceeding,  the  state  court  might            determine what property  is currently owned by Annette.   See            N.H.                 Rev.                      Stat. Ann. S 458:16-a(II).  For this reason, another            district court--cited by the district court in this case--has            abstained                      from adjudicating a federal RICO action brought by a            spouse involved  in pending divorce  proceedings.  Farkas  v.            D'Oca, 857  F. Supp. 300, 303-04  (S.D.N.Y. 1994).  See  also            Dibbs v. Gonsalves, 921 F. Supp. 44, 52 (D.P.R. 1996).                 This                      is                         not                            a                              wholly                                     persuasive reason given New Hampshire            law's stress  on an equitable  division of  all the  parties'            property.                                             The                          New                              Hampshire decree may just as well not decide            who owned specific property  prior to the divorce:  its  main            concern                    is                       with who will own what after the divorce.  And, the            Supreme Court has discouraged abstention based solely on  the            ground that a related state court action may address  similar            issues,  Colorado River  Water Conservation  Dist. v.  United                                        -11-                                        -11-            States                 ,                    424                       U.S.                            800,                                 817 (1976), with only limited exceptions,            e.g., Railroad Comm'n of  Texas v. Pullman Co., 312 U.S.  496            (1941).                  A more  plausible basis for  abstention is the  possible            interference                         that a civil RICO action at this time might cause            to the state court's decision as to how to divide property in            the divorce.  The so-called domestic relations exception does            not preclude federal  courts from  adjudicating tort  actions            merely                   because the parties were married and are in the process            of               divorce.                                                 Ankenbrandt                                                                      v. Richards, 504 U.S. 689, 704 (1992).            But this  case is  not just a  tort action between  divorcing            parties:                                           the                         civil                               RICO                                    claim is directed to the same property            that is going to be allocated between the parties as a result            of the decree.  Cf. Colorado River, 424 U.S. at 819.                 In                    this                         instance,                                  the                                      state court may be unlikely to award            Joseph any interest in property now owned solely by  Annette,            but that  is hardly so clear  with respect to property  owned            jointly.  Suppose  Annette were awarded  the value (or  three            times                  the                      value)                            of                               disputed jointly owned property in the RICO            case                 and                     the                        state                              court                                    then determined that the same property            ought to be allocated to Joseph.  At the very least, there is            a    possibility     of    conflict    between     judgments,                  requiring one of them to be modified to take account of            the other.   Otherwise, the  state divorce decree's  intended            allocation of property could easily be frustrated.                                        -12-                                        -12-                 Another                         potential                                  conflict is Annette's expressed interest            in               seeking                      interim                              relief from the federal court, presumably by            way                of                  provisional                              attachments or other ad litem remedies.  Cf.            Fed. R. Civ. P. 64; Teradyne, Inc. v. Mostek Corp., 797  F.2d            43, 53 (1st Cir. 1986).  The federal court's ability to reach            and freeze out-of-state property may well be greater than the            New Hampshire  divorce court's.   At the  same time,  interim            allocations of property are standard fare for divorce courts,            and the obvious potential for interference with this function            is an extremely serious matter.                 Our                     case,                           and those kinds of threatened interference, are            not a  perfect fit  with the  Burford doctrine.   There,  the            Supreme Court  approved abstention to  avoid conflict with  a            comprehensive  state regime  of  business regulation.5    But            abstention                       doctrines are not "rigid pigeonholes," Pennzoil Co.            v. Texaco Inc., 481 U.S.  1, 11 n.9 (1987), and the  ultimate            question is whether there are "exceptional circumstances"  in            which  abstention "would  clearly serve  an important  . .  .            interest."                                               Colorado                                Rive                                   r, 424 U.S. at 813 (citation omitted).            Such an interest is potentially present here.  See also Minot            v. Eckardt-Minot, 13 F.3d 590, 593-95 (2d Cir. 1994).                  5Burford, 319  U.S. at 326 (allocation of oil  drilling            rights).                                           See                         also Alabama Public Serv. Comm'n v. Southern Ry.            Co.              ,                 341                     U.S. 341, 346-48 (1951) (scheduling of local railroad            service);                      All                        state Ins. Co. v. Sabbagh, 603 F.2d 228, 229 (1st            Cir. 1979) (setting of automobile insurance rates).                                        -13-                                        -13-                 Not                     only                          divorce, but the allocation of property incident            to a  divorce, are longstanding  local functions governed  by            state  law.    Ankenbrandt,  while  curtailing  the  domestic            relations                      exception,                                nevertheless made clear the priority given            the state resolution of family law issues, including  alimony            determinations.  504 U.S. at  704, 706.  See also Friends  of            Children, Inc.  v. Matava, 766 F.2d  35, 37 (1st Cir.  1985).            Divorces                     are                        frequently                                   accompanied by disputes about property,            including                      both                          interim                                  and final allocations.  Such state court            authority                      would be threatened if civil RICO actions become the            shadow proceeding for policing such disputes.                 We conclude  that abstention  by use  of a  stay may  be            permissible                        where                              a                               RICO                                    action is directed against concealment            or transfer of property that is the very subject of a pending            divorce                    proceeding.                                                                The                                    divorce proceedings might or might not            resolve  the   federal  dispute--there   are  many   possible            permutations and plenty of  unanswered legal questions.   But            staying  the federal  RICO  claim  will reduce  the  risk  of            interfering  with interim  state allocations  and permit  the            federal court to  tailor any final federal judgment to  avoid            undermining the divorce court's allocation of property.                   3.  While  abstention may be  permissible, it cannot  be            automatic in  a case  of this kind.   A  decision to  abstain            requires not only that certain preconditions be met, but also            that                 the                     district                             court                                   reasonably find that such abstention is                                        -14-                                        -14-            appropriate in the case at hand.6  Of course, this may not be            much of an issue when the particular abstention rubric itself             resumes                     stro            defendant  seeks a  federal  injunction interfering  with  an            ongoing state criminal trial.  Younger, 401 U.S. at 45, 54.                 Cases                       like                            the                               present                                       one differ markedly from situations            like Younger.  Not only  do we have far less experience  with            p           ngly in favor of abstention--for example, where a            civil  RICO actions  that  overlap divorce  proceedings,  but            extreme                    variations can be imagined both as to underlying facts            and equitable concerns.  Certainly in some instances a  civil            RICO claim  might be  so plausible  and so  distinct from  an            ordinary divorce action property dispute as to undermine  any            argument for a  stay; or even if  a trial were stayed,  there            might be a compelling argument for interim relief to  protect            the plaintiff's right to ultimate relief in the RICO action.                 In  sum,  abstention  here is  a  possible,  but  not  a            mechanical                       answer.                                                              The                                   district court's judgment cannot stand,            simply                   because it conflicts with Quackenbush.  Nor do we think            that  the  dismissal on  abstention  grounds  can  simply  be            transformed into  a stay;  such a stay  might in  the end  be            equitably justifiable, but not  without giving the parties  a                 6See Quackenbush, 116 S. Ct. at 1726-28; Colorado River,            424 U.S. at 818; Younger  v. Harris, 401 U.S. 37, 54  (1971);            Bath                 Memorial Hosp. v. Maine Health Care Fin. Comm'n, 853 F.2d            1007,                  1015                       (1st                           Cir.                                1988); Friends of Children, Inc., 766 F.2d            at 37.                                        -15-                                        -15-            chance to address the matter and not without an appraisal  by            the court that goes beyond the possible overlap in issues.                 In                    making                           such                               an                                  appraisal, the district court is free to            consider the  plausibility  of this  civil  RICO claim  as  a            freestanding cause of action, the actual threat in this  case            for                conflict                         between such a suit and the pending state divorce            action, any threat of immediate harm associated with  alleged            ongoing  civil RICO  violations,  and other  consequences  or            concerns                     that make it equitably reasonable to accelerate or to            defer consideration  of federal relief.   Once the  pertinent            factors  are mustered  and  assessed,  the  district  court's            exercise of  judgment  is  normally respected.    Friends  of            Children, Inc., 766 F.2d at 37.                 The district  court  has  no obligation  to  pursue  the            abstention issue at all if the matter can be disposed of more            appropriately on other grounds.  Motions to dismiss have been            made for  lack of standing  (an issue  discussed above),  for            failure to  plead  fraud with  particularity, and  for  other            reasons.   Possibly,  further  exploration will  reveal  that            Annette                    has                        no standing as to any of the property in question.            In all  events, the order  in which to  consider issues is  a            matter for the district judge.                 The treatment  of the pendent  state claims depends,  in            turn, on the outcome of the inquiries just described.  If the            district  court finds  no  basis for  a  claim of  injury  to                                        -16-                                        -16-            property,                      presumably                                it                                   will dismiss the pendent claims without            prejudice.  See 28 U.S.C. S 1367(c)(3).  If it determines  to            stay the  civil RICO claim  on abstention  grounds, then  the            treatment of the  pendent claims is  less clear-cut, see  id.            S 1367(c)(4), but the parties have not addressed that  issue,            and we express no view upon it.                 The judgment of  the district court  is vacated and  the            matter remanded for further proceedings consistent with  this            decision.                 It is so ordered.                                        -17-                                        -17-
