River City Markets, Inc. v. Fleming Foods West, Inc.

• Decision Date: 03 April 1992
• Docket Number: Nos. 90-16623,90-16624,s. 90-16623
• Citation: 960 F.2d 1458
• Parties: RICO Bus.Disp.Guide 7982 RIVER CITY MARKETS, INC., John Perchaz, Cynthia Perchaz, Howard Dugger, Judith Dugger, Leonard Smith, and Shirley Smith, Plaintiffs-Appellants, v. FLEMING FOODS WEST, INC., a California corporation; United Grocers Ltd.; United Fairway Fleming Foods of California, Inc.; Fleming Companies, Inc.; Fleming Finance Co.; Alpha Beta Co., a Delaware corporation; American Stores Co., a California corporation; and Does 1 through 100, inclusive, Defendants-Appellees. Wesley FONG, Gladys Fong, Ronald Fong, and Times Supermarket, Inc., Plaintiffs-Appellants, v. FLEMING FOODS WEST, INC., a California corporation; United Grocers Ltd.; United Fairway Fleming Foods of California, Inc.; Fleming Companies, Inc.; Fleming Finance Co.; Alpha Beta Co., a Delaware corporation; American Stores Co., a California corporation; and Does 1 through 100, inclusive, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1458

960 F.2d 1458

RICO Bus.Disp.Guide 7982

RIVER CITY MARKETS, INC., John Perchaz, Cynthia Perchaz, Howard Dugger, Judith Dugger, Leonard Smith, and Shirley Smith, Plaintiffs-Appellants, v. FLEMING FOODS WEST, INC., a California corporation; United

Grocers Ltd.; United Fairway Fleming Foods of California,

Inc.; Fleming Companies, Inc.; Fleming Finance Co.; Alpha

Beta Co., a Delaware corporation; American Stores Co., a

California corporation; and Does 1 through 100, inclusive,

Defendants-Appellees.

Wesley FONG, Gladys Fong, Ronald Fong, and Times

Supermarket, Inc., Plaintiffs-Appellants, v. FLEMING FOODS WEST, INC., a California corporation; United

Grocers Ltd.; United Fairway Fleming Foods of California,

Inc.; Fleming Companies, Inc.; Fleming Finance Co.; Alpha

Beta Co., a Delaware corporation; American Stores Co., a

California corporation; and Does 1 through 100, inclusive,

Defendants-Appellees.

Nos. 90-16623, 90-16624.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 9, 1991.

Decided April 3, 1992.

Robert A. Susk and Jeffrey A. Glick, San Francisco, Cal., for plaintiffs-appellants.

Dale E. Fredericks, Darryl M. Woo, and Laura L. Goodman, Sheppard, Mullin, Richter & Hampton, Thomas Peterson, Brobeck, Phleger & Harrison, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of California.

Before: ALDISERT, ^* GOODWIN, and NOONAN, Circuit Judges.

GOODWIN, Circuit Judge:

Disappointed purchasers of certain Alpha Beta retail grocery stores sought treble damages under RICO for losses they incurred when the stores they bought failed to measure up to representations allegedly made by Alpha Beta and American Stores (Alpha Beta) and by Fleming Foods West, United Fairway, Fleming Companies, and Fleming Finance (Fleming), Alpha Beta's alleged co-conspirator in a fraudulent scheme to unload unprofitable properties on unsuspecting purchasers.

In this consolidated appeal, River City Markets, Inc., et al., and Wesley Fong, et al., challenge the district court's dismissal of their civil RICO claims. Though the district court erred in dismissing plaintiffs' complaints under Fed.R.Civ.P. 12(b)(6) for failure to state a claim, we affirm the result because we conclude that the district court should have granted defendants' summary judgment motions.

I. BACKGROUND

The plaintiffs originally filed separate actions alleging state law tort, contract and antitrust claims against Alpha Beta and Fleming in Sacramento County Superior Court in 1987. After several amendments, plaintiffs finally attempted to plead violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. Alpha Beta and Fleming promptly removed the cases to federal court pursuant to 28 U.S.C. § 1441(c). After the River City plaintiffs filed their Third Amended Complaint and the Fong plaintiffs filed their Fourth Amended Complaint, the defendants filed separate, concurrent motions to dismiss and motions for summary judgment on the RICO claims and on most of the pendent state law claims.

The district court dismissed both cases pursuant to Fed.R.Civ.P. 12(b)(6), without leave to amend, on the ground that the plaintiffs had failed to plead the existence of a RICO "enterprise" separate and apart from the defendants themselves, as supposedly required by 18 U.S.C. § 1962(c). The court also ruled that because plaintiffs had failed to allege an enterprise under section 1962(c), they also had failed to state a cause of action for conspiracy under section 1962(d). The district court then remanded plaintiffs' pendent state law claims to California superior court.

II. THE MOTIONS TO DISMISS

In their Ninth and Tenth Causes of Action, plaintiffs claim that Alpha Beta and Fleming conducted and conspired to conduct a pattern of mail and wire fraud activity through an association-in-fact enterprise, in violation of 18 U.S.C. § 1962(c) & (d). Section 1962(c) provides in pertinent part:

It shall be unlawful for any persons ... associated with any enterprise ... the activities of which affect interstate commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity....

Section 1962(d) makes it unlawful "for any person to conspire to violate the provisions of subsection ... (c)." ¹

The RICO statute defines an "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The alleged racketeering activity here consists of acts indictable under the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341 & 1343, which constitute predicate acts of racketeering under 18 U.S.C. § 1961(1).

Plaintiffs allege that Alpha Beta and Fleming engaged in a fraudulent scheme when they jointly induced the plaintiffs to purchase certain Alpha Beta stores while Alpha Beta secretly planned to raise prices and pursue draconian short-term cost-cutting strategies during the interim between the acceptance of plaintiffs' bids and the transfer of the stores. According to plaintiffs, Alpha Beta drastically curtailed inventories, cut store hours and in-store labor, reduced shelf stock by half, raised prices significantly, eliminated customer services, and transferred large quantities of unmerchantable goods to the new owners. These measures are alleged to have alienated customers and destroyed the business value of the stores. River City Complaint p 15; Fong Complaint p 15.

For Rule 12 purposes, plaintiffs' generalized allegations state a claim for which relief could be granted. See Republic of the Philippines v. Marcos, 862 F.2d 1355, 1358 (9th Cir.1989) (en banc). Plaintiffs allege that Alpha Beta and Fleming combined to form an "association-in-fact" enterprise under RICO. In United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981), the Supreme Court held that RICO applied not only to the infiltration of legitimate businesses by racketeers but also to the activities of informal associations that did not constitute legal entities. After quoting section 1961(4), the Court observed that "[t]here is no restriction upon the associations embraced by the definition: an enterprise includes any union or group of individuals associated in fact." Id. at 580, 101 S.Ct. at 2527. The Court later referred to the enterprise alleged in Turkette--an arson, narcotics and bribery ring--as "a group of persons associated together for a common purpose of engaging in a course of conduct." Id. at 583, 101 S.Ct. at 2528. Following Turkette, we have recognized that a group of individuals or corporations may together constitute a RICO enterprise even though they do not incorporate or otherwise form a legal entity. See, e.g., United States v. Bagnariol, 665 F.2d 877, 890-91 (9th Cir.1981), cert. denied, 456 U.S. 962, 102 S.Ct. 2040, 72 L.Ed.2d 487 (1982).

The district court dismissed the RICO counts under the mistaken belief that Rae v. Union Bank, 725 F.2d 478 (9th Cir.1984), requires that a RICO enterprise "must be an entity separate and distinct from the defendants." Memorandum of Decision and Order at 7. Rae does not so hold, and we find nothing in our RICO case law which instructs that two contracting business entities cannot form an "enterprise" for RICO purposes and still be named as individual RICO defendants, provided the enterprise otherwise falls within the statutory proscriptions.

Rae does not control the case at bar. Rather, it stands for the proposition that a single individual or entity cannot be both the RICO enterprise and an individual RICO defendant. Rae simply embodies the maxim that an individual cannot associate or conspire with himself, and in subsequent decisions we have adhered to this narrow reading of Rae. See United States v. Feldman, 853 F.2d 648, 656 (9th Cir.1988) (characterizing the Rae rule as providing that a defendant cannot be convicted of associating with himself); United States v. Benny, 786 F.2d 1410, 1415-16 (9th Cir.) (holding that although an individual defendant could not associate with himself for RICO purposes, he could associate with his own sole proprietorship), cert. denied, 479 U.S. 1017, 107 S.Ct. 668, 93 L.Ed.2d 720 (1986).

Contrary to the district court's analysis, plaintiffs do not allege that either Alpha Beta or Fleming is simultaneously a RICO enterprise and a RICO defendant. Each of plaintiffs' complaints pleads the existence of a RICO enterprise as follows:

During the period August 1, 1984 through January 14, 1985 and thereafter, said persons [Alpha Beta and Fleming] associated together to form an enterprise within the meaning of Section 1961(4) which devised a scheme to defraud Plaintiffs and other members of the public by inducing them to purchase ALPHA BETA stores based upon false information relating to the stores' sales volume, profits, leasehold interests and other elements as described herein.

River City Complaint 68; Fong Complaint 68. What plaintiffs allege is that Alpha Beta and Fleming associated together in a business relationship akin to a joint venture to market the grocery stores, and that it was this "enterprise" with which each individual defendant interacted in conducting the alleged pattern of mail and wire fraud activities.

Logically, one can associate with a group of which he is a member, with the member and the group remaining distinct entities. As plaintiffs correctly point out, we consistently have held that in multiple-defendant RICO cases, some of the individual defendants may also be identified as members of the alleged association-in-fact enterprise. See, e.g., Feldman, 853 F.2d at 657; United Energy Owners Comm. v. United Energy Management Sys., Inc., 837 F.2d 356, 362-63 (9th Cir.1988); Benny, 786 F.2d at 1415. Defendants nevertheless ask us to extend Rae...