156 F.3d 721 (7th Cir. 1998), 97-3785, Goren v. New Vision Intern., Inc.
| Citation | 156 F.3d 721 |
| Party Name | RICO Bus.Disp.Guide 9555 Judith GOREN, individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. NEW VISION INTERNATIONAL, INCORPORATED, Joel Wallach, Doctor, D.V.M., Kelly Enterprises, et al., Defendants-Appellees. |
| Case Date | September 02, 1998 |
| Court | United States Courts of Appeals, U.S. Court of Appeals — Seventh Circuit |
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Argued April 16, 1998.
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Daniel A. Edelman (argued), Adam B. Goodman, Edelman & Combs, Chicago, IL, for plaintiff--appellant.
Robert E. Miles (argued), James A. Ryan, Phoenix, AZ, Bradley B. Falkof, Scott T. Longman, Barnes & Thornburg, Chicago, IL, Edwin B. Wainscott, Phoenix, AZ, for New Vision International Inc.
Paul F. Donahue, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for Kelly Enterprise and October Dynamics.
Bradley B. Falkof, Scott T. Longman, Barnes & Thornburg, Chicago, IL, Edwin B. Wainscott, Robert E. Miles, James A. Ryan, Phoenix, AZ, for Direct Marketing Services, Inc.
Dawn M. Cassie, Hamman & Benn, Chicago, IL, Elena L. Haskins, Bonita, CA, for Joel Wallach.
Before FLAUM, RIPPLE and DIANE P. WOOD, Circuit Judges.
RIPPLE, Circuit Judge.
Judith Goren initiated this action against ten defendants: New Vision International, Inc. ("New Vision"), Benson Boreyko, Jason Boreyko, Ben Boreyko, Karen Boreyko and Lynne Boreyko (collectively, "the Boreykos"), Dr. Joel Wallach, Kelly Enterprise ("Kelly"), October Dynamics ("October") and Direct Marketing Services ("Direct"). In four separate counts in her amended complaint, Ms. Goren alleges that defendants Wallach, October, Direct and the Boreykos, respectively, violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, by collaborating with the other defendants in a scheme to sell bogus health care products. In another count, Ms. Goren alleged that all defendants violated the Michigan Consumer Protection Act, Mich. Comp. Laws § 445.903, by virtue of their participation in the same scheme. The district court dismissed all of Ms. Goren's RICO claims pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) for failure to plead fraud with particularity and failure to state a claim for relief. Having dismissed all of the claims over which it had original jurisdiction, the district court dismissed Ms. Goren's state law claim for lack of subject matter jurisdiction. For the reasons set forth in the following opinion, we affirm the district court's judgment of dismissal.
I
BACKGROUND
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Facts 1
In September 1996, Ms. Goren sent for a free audio tape entitled "Dead Doctors Don't
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Lie," which contains a speech by Dr. Wallach. The tape was sent by Kelly and was manufactured by Direct. On the tape, Dr. Wallach claims that almost all health problems are the result of mineral deficiencies. Dr. Wallach then promotes mineral supplements manufactured by New Vision as a panacea for the listener's ailments. After listening to the tape, Ms. Goren called a toll-free number provided on the label of the tape and purchased two bottles of New Vision's "Essential Minerals." A few weeks later she received her order in the mail, along with two copies of Dr. Wallach's tape, an information pack from October and order forms from Direct and October. On three subsequent occasions, Ms. Goren received mail from October claiming that it specialized in health research and information and that it had tested New Vision's products. She alleges that "Essential Minerals" is nothing more than overpriced tap water and that the material sent to her by the various defendants contained many misrepresentations.
Ms. Goren alleges that her experience with the defendants is but one example of the fraudulent conduct regularly engaged in by the defendants. Specifically, she alleges that New Vision and the other defendants are engaged in a scheme to market bogus heath care products. This scheme is carried out by means of a multi-level marketing plan or "pyramid scheme." New Vision and the other defendants recruit individuals not only to sell New Vision's products but also to recruit other distributors. These "distributors" are then compensated on the basis of their sales and the sales of any other individuals whom they recruit. The defendants encourage the distributors to purchase bulk quantities of promotional materials manufactured by the defendants, including Dr. Wallach's tape "Dead Doctors Don't Lie." In addition, October offers the distributors the option of using it as a "business partner" by having it handle telephone inquiries or orders from individuals who received the distributors' promotional tapes.
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Proceedings in the District Court
Based on the alleged facts set forth above, Ms. Goren filed an amended class action complaint against the Boreykos, New Vision, Direct, October, Kelly and Dr. Wallach. In Count I, Ms. Goren alleged that all defendants violated the Michigan Consumer Protection Act by virtue of their participation in the scheme to market New Vision's bogus health care products. In Counts II-V, relying on the same factual predicate, Ms. Goren brought RICO claims against Dr. Wallach, the Boreykos, Direct and October, respectively.
The district court dismissed Ms. Goren's amended complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) for failure to plead fraud with particularity and failure to state a claim upon which relief could be granted. Specifically, the court held that, with respect to the RICO complaints against the Boreykos, Direct and October, the amended complaint failed to allege with particularity two predicate acts of fraud committed by those defendants. In addition, the court held that the amended complaint failed to adequately allege RICO claims against Dr. Wallach, Direct and October because that complaint did not allege that those defendants played some role in the direction of the New Vision enterprise. See Reves v. Ernst & Young, 507 U.S. 170, 177-78, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993) (holding that, in order to plead adequate RICO complaint, plaintiff must allege that defendant had some part in the direction of the alleged enterprise's affairs).
II
DISCUSSION
We review de novo the district court's decision to dismiss, taking Ms. Goren's factual allegations as true and drawing all reasonable inferences in her favor. See Kauthar SDN BHD v. Sternberg, 149 F.3d 659, (7th Cir. 1998). We shall affirm the district court's order of dismissal only if " 'it appears beyond doubt that [Ms. Goren] can prove no
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set of facts in support of [her] claim which would entitle [her] to relief.' " Strasburger v. Board of Educ., 143 F.3d 351, 359 (7th Cir.1998) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Allegations of fraud, however, are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires a plaintiff to plead "all averments of fraud ... with particularity." Rule 9(b) is of course applicable to allegations of fraud in a civil RICO complaint. See Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir.1994); Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir.1992). Accordingly, a RICO plaintiff "must, at a minimum, describe the predicate acts [of fraud] with some specificity and state the time, place, and content of the alleged communications perpetrating the fraud." Midwest Grinding, 976 F.2d at 1020. Moreover, in a multiple defendant case, Rule 9(b) requires a RICO plaintiff to plead sufficient facts to notify each defendant of his alleged participation in the scheme. See Vicom, 20 F.3d at 778.
A.
When Congress enacted RICO, it chose to supplement criminal enforcement of its provision by providing that "[a]ny person injured in his business or property by reason of a violation of section 1962" may bring a civil action under RICO. 18 U.S.C. § 1964(c). The conduct prohibited by RICO is set forth in 18 U.S.C. § 1962, which provides as follows:
§ 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 of his immediate family, and his or their accomplices in any pattern or 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...
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