Unpublished Dispositionmorris H. Wolf; Wolfland, Inc., Plaintiffs-appellants, v. Gerald S. Klein; Chase Manhattan Corporation; Chase Bankof Maryland; Middle States Financial Corporation;chatterley Land Development Corporation; Institutionalservices Corporation; Chatterleigh Limited Partnership,defendants-appellees,andmerritt Commercial Savings and Loan Association, Inc.;milton Sommers; Gilbert Cullen; Eugenehettleman, Defendants.morris H. Wolf; Wolfland, Inc., Plaintiffs-appellees, v. Chase Manhattan Corporation; Chase Bank of Maryland;institutional Services Corporation, Defendants-appellants,andgerald S. Klein; Middle States Financial Corporation;merritt Commercial Savings and Loan Association, Inc.;chatterley Land Development Corporation; Chatterleighlimited Partnership; Milton Sommers; Gilbert Cullen;eugene Hettleman, Defendants, 907 F.2d 1141 (4th Cir. 1990)

An opinion of the Supreme Court, H.J. Inc. v. Northwestern Bell Telephone Co., 109 S. Ct. 2893 (1989), which was announced after the district court dismissed this action pursuant to Fed. R. Civ. P. 12(b) (6), requires us to vacate the judgment of the district court and remand the case for further proceedings.

Although the parties' briefs range far afield replete with charges and countercharges, the primary issue before us is whether Morris H. Wolf and his corporation, Wolfland (Wolf), have stated a cause of action based on the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. Subsidiary issues are whether Wolf should be allowed to amend his complaint, whether the district court should retain jurisdiction over the state law claims, and whether the district court's decision concerning sanctions is erroneous.

* Although the district judge to whom the case had been initially assigned denied a motion to dismiss, the judge to whom the case was reassigned perceived a lack of merit in the first amended complaint. Accordingly, sua sponte, he wrote counsel, invited another motion to dismiss, and called attention to precedent that would support it. The defendants accepted the invitation. Wolf responded with a brief in opposition and a motion to file a second amended complaint that he believed addressed the concerns expressed by the judge.

Predictably, the judge dismissed the complaint for failure to state a cause of action. He found that the complaint described a scheme "far too narrow" to establish a pattern of racketeering activity.

[T]he plaintiffs allege injury only from a single scheme to defraud Wolf of his interest in the Chesterfield/Chatterleigh development venture, or to devalue such interest. The limited objective of the scheme does not raise the pattern of purported criminal conduct to the threshold of pervasive and repeated criminal activity necessary to survive scrutiny.

The judge concluded: "No matter how embellished, this is no more than a case of ordinary business fraud, limited to one development venture." Detecting the same fault in the proffered second amended complaint, the judge did not allow Wolf to file it.

The district judge's reasoning is understandable, for we had voiced virtually the same rationale in Walk v. Baltimore and Ohio R.R., 847 F.2d 1100, 1105 (4th Cir. 1988), on which he relied. In that case we held:

[A] scheme, limited in scope to the accomplishment of a single discrete objective--forcing out the minority in a single corporate structure--does not pose a sufficient threat of continuing criminal activity to justify imposition of RICO's extraordinary penalties.

Similarly, in Eastern Publishing and Advertising, Inc. v. Chesapeake Publishing and Advertising, Inc., 831 F.2d 488, 492 (4th Cir. 1987), we affirmed the dismissal of a RICO claim because although sufficient acts of mail and wire fraud were alleged, the result was simply "a single, non-recurring scheme to defraud a single entity by taking unfair competitive advantage in a quite narrow business context." The Supreme Court vacated the judgments in these cases and remanded them for consideration in light of H.J. Inc. v. Northwestern Bell Telephone Co., 109 S. Ct. 2893 (1989).

For our present purposes, it is sufficient to note that the Supreme Court has explained that the "continuity" element in a "pattern of racketeering activity" proscribed by RICO can be shown by a closed-ended or single scheme if the predicate illegal acts extend over a substantial period of time. See H.J. Inc., 109 S. Ct. at 2901-02. Our understanding of this aspect of H.J. Inc. is illustrated by our consideration of the two remanded cases. We reversed Walk, holding that allegations of a single, closed-ended scheme accomplished by mail and wire fraud over a 10-year period stated a RICO cause of action. See Walk, 890 F.2d 688 (4th Cir. 1989). In contrast, we affirmed dismissal of the RICO claim in Eastern Publishing because the predicate acts of mail and wire fraud lasted only three months. See Eastern Publishing, 895 F.2d 971 (4th Cir. 1990).

II

The second amended complaint alleged that certain named defendants repeatedly used the United States mails and interstate wires in violation of 18 U.S.C. §§ 1341 and 1343 from May 1982 until October 25, 1985, to defraud Wolf. We believe that the allegation that the defendants engaged in the predicate acts during a period of more than three years demonstrates continuity over a substantial period of time. The allegations therefore are sufficient to withstand a motion to dismiss even though the single scheme to defraud identified by Wolf was closed-ended. See H.J. Inc., 109 S. Ct. at 2902.

The defendants also rely on H.M.K. Corp. v. Walsey, 828 F.2d 1071 (4th Cir. 1987), in which we held that a single scheme involving misrepresentations in a zoning-highway controversy did not constitute a pattern of racketeering activity.

Apart from the aspect of a single scheme, which in itself is no longer an impediment to a RICO claim, H.M.K. Corp. differs significantly from Wolf's action. H.M.K. Corp. involved a single land use dispute involving local officials. Wolf, in contrast, alleges false misrepresentations to the Maryland legislature to acquire a savings and loan institution resulting in loss to creditors, investors, and depositors. RICO does not expressly exempt those who by illegal predicate acts influence a governmental institution. For example, H.J. Inc. involved claims by customers of a telephone company arising out of the alleged bribery of a utility commission. 109 S. Ct. at 2897. H.M.K. Corp. did not purport to create a per se rule that all disputes involving fraud or other predicate acts to wrongfully secure governmental action fail to state a cause of action based on RICO. 828 F.2d at 1075. We conclude, therefore, that H.M.K. Corp. does not require dismissal of Wolf's complaint.

III

Denial of Wolf's motion to file a second amended complaint was based on the district court's view that it lacked merit. Generally, a timely motion to amend should not be denied unless it is frivolous. See Buder v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 644 F.2d 690, 695 (8th Cir. 1981). It is much better to allow the amendment and then consider it in the context of an adversary proceeding. Here the amendment was neither frivolous nor untimely. It was submitted in response to the district court's sua sponte invitation to the defendants to file another Rule 12(b) (6) motion to dismiss the first amended complaint. The amendment addressed concerns voiced by the district court when it returned the case to the pleading stage. Under these circumstances, the interest of justice requires allowing the amended complaint to be filed. See Fed. R. Civ. P. 15(a).

IV

After dismissing the RICO claim, the district court declined to retain jurisdiction over Wolf's pendent state claims and dismissed them as well. Inasmuch as the RICO claim is before the district court again, we reverse the dismissal of the state claims and remand them for reconsideration. See United Mine Workers v. Gibbs, 383 U.S. 715 (1966). There is a second reason, distinct from the revival of the RICO claim, that counsels the district court to exercise its jurisdiction. The statute of limitations might have run on the state claims. Wolf moved to dismiss without prejudice all of his remaining state suits after the district court initially accepted jurisdiction over the pendent claims in 1986. As a result, Wolf contends several claims will never be decided in state court because they are time-barred. If Wolf is correct, the loss of the state forum is an appropriate basis for the exercise of subject matter jurisdiction. See 13B C. Wright, A. Miller and E. Cooper, Federal Practice & Procedure Sec. 3567.1 (1984).

V

Finally, the parties appeal and cross appeal orders imposing limited discovery sanctions on the defendants and denying attorney's fees for a successful motion to compel discovery brought by Wolf. District courts operate with broad discretion in such matters. The district court chose to punish the parties with moderate fines for their discovery abuses. "Rule 37 is flexible. ... The sanctions enumerated in the rule are not exclusive and arbitrary but flexible, selective and plural. The court may, within reason, use as many and as varied sanctions as are necessary...." 8 C. Wright and A. Miller, Federal Practice & Procedure Sec. 2284 (1970). We find that the district court acted well within its discretion.

VI

The defendants seek dismissal on alternative grounds not yet decided by the district court. We express no opinion about these, believing that the district court is best suited to consider them initially on remand. We, of course, express no view on the ultimate outcome of Wolf's claims.

VACATED IN PART AND REMANDED; AFFIRMED IN PART.