RENNELL v. ROWE (MARCH 25, 2011)
Richard Rennell and Randall Rowe created a joint venture in 2004 to own and manage manufactured-housing communities in several states. Rowe provided the financing and Rennell managed the properties. After a few years, notwithstanding excellent results from Rennell, Rowe hired someone to manage the properties and no longer needed Rennell. In 2007, Rowe told Rennell that he was terminating the joint venture. He offered Rennell approximately $300,000 for his share in the venture, notwithstanding that they had recently valued it at $3.5 million. Rowe also demanded an answer within 24 hours and threatened to make the termination public if Rennell did not accept the offer. Rennell did sign the termination agreement and promised not to sue Rowe. Notwithstanding that promise, Rennell filed suit alleging two different theories of RICO liability. Judge Pallmeyer (N.D. Ill.) dismissed the complaint. Rennell appeals.
In their opinion, Judges Posner, Kanne, and Wood affirmed. The Court began its analysis with RICO's definition of "racketeering activity" as "any act or threat involving . . . extortion." Thus, the critical question for the Court was whether the complaint’s allegations described an act of extortion. The Court’s own jurisprudence establishes that extortion exists when one uses violence or threat of violence to obtain property, even if one has a claim to the property. In addition, if one has no claim to property, the use of fear, even economic fear, may amount to extortion. Economic pressure is not extortion if one has a claim to the property issue. Turning first to the question whether Rowe had a claim on Rennell's joint venture interest, the Court examined the contractual relationship between the parties. The joint venture agreement itself could be terminated only for cause -- but one of the "causes" was the termination of any one of the property management agreements. The property management agreements could be terminated without cause. Therefore, Rowe was contractually entitled to terminate a property management agreement and then terminate, for cause, the joint venture agreement. Rennell argued that even if the termination was proper, Rowe's conduct was improper because of the small payment offered, the narrow time frame for acceptance, and the threat to make the termination public. The Court rejected this argument. Rowe was a hard bargainer. But Rennell was free to reject the offer and sue for what he thought he was owed. And the threat to make the termination public, even if it would negatively impact Rennell’s business, is not extortion. The Court ended by noting that Rennell could still pursue his state law claims in state court.