Averbach v. Rival Mfg. Co.

• Decision Date: 20 January 1987
• Docket Number: No. 86-1196,86-1196
• Citation: 6 Fed.R.Serv.3d 1144,809 F.2d 1016
• Parties: , RICO Bus.Disp.Guide 6515 Sylvia AVERBACH, Appellant, v. RIVAL MANUFACTURING CO.
• Court: U.S. Court of Appeals — Third Circuit

Page 1016

809 F.2d 1016

6 Fed.R.Serv.3d 1144, RICO Bus.Disp.Guide 6515

Sylvia AVERBACH, Appellant, v. RIVAL MANUFACTURING CO.

No. 86-1196.

United States Court of Appeals Third Circuit.

Argued Oct. 14, 1986.

Decided Jan. 20, 1987.

John J. O'Brien, III (argued), Philadelphia, Pa., for appellant.

William T. Campbell, Jr. (argued), Robert B. Mulhern, Jr., Swartz, Campbell & Detweiler, Philadelphia, Pa., for appellee.

Before GIBBONS, Chief Judge, BECKER, Circuit Judge and BROWN, District Judge. ^*

OPINION OF THE COURT

GIBBONS, Chief Judge:

Sylvia Averbach appeals from an order dismissing, pursuant to Fed.R.Civ.P. 12(b), her complaint seeking relief from a judgment. The judgment from which she seeks relief was entered in favor of the defendants in a product liability action in the United States District Court for the Eastern District of Pennsylvania, Averbach v. Rival Manufacturing Company, Civil No. 78-1350, following a jury verdict on June 5, 1981. No appeal was taken from that judgment. On September 28, 1984 Averbach filed a Fed.R.Civ.P. 60(b) motion seeking a new trial. That motion was denied because it was filed more than a year after the judgment from which relief was sought, and this court affirmed on November 1, 1985. While the appeal was pending this separate action was filed in May, 1985. It pleads two counts: violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sec. 1961, et seq. (1982 & Supp. III 1985) (RICO), and common law fraud. We hold that the RICO count fails to state a claim upon which Averbach may obtain relief from a judgment. We also hold that the common law fraud count would permit proof of facts which could afford relief from a judgment, that there was subject matter jurisdiction of that count, and that it should not have been dismissed at the pleading stage.

I.

In the underlying action Averbach sought to recover damages resulting from a fire in her home which, she claimed, was caused by a defective Rival electric can opener. During discovery in that action Averbach served on Rival Manufacturing Company an interrogatory asking:

If the Defendant has within the past five years received any complaints of an occurrence similar to that allegedly experienced by the Plaintiff, please state for each such complaint:

(a) Its date;

(b) Its substance, including a description of the factual circumstances;

(c) The name and address of the person making the complaint.

Plaintiff's Interrogatories, Civ. No. 78-1350 at 10. Rival Manufacturing Company, on July 1, 1979, responded:

(a) December 7, 1976.

(b) The claim was for property damage to a house. It was alleged that a Rival Model 731/1 Can Opener/Knife Sharpener caused a fire. The evidence did not support the claimant's allegations, the claim was denied by the Company and dropped by the claimant.

(c) This was a subrogation claim by State Farm Fire and Casualty Company, 5725 Foxridge Drive, Shawnee Mission, Kansas 66202.

Defendant Rival's Answers to Plaintiff's Interrogatories, Civ. No. 78-1350 at 5-6. No other occurrence was disclosed. A similar interrogatory served on Rival Manufacturing Company by a cross-claimant, the retail seller of the can opener, S. Klein Department Stores, was answered identically. Thus Averbach was informed of a single fire damage claim, made on behalf of a fire insurer, which that insurer apparently dropped after inquiry. At trial the jury decided in favor of the defendant.

In the instant action the complaint alleges that in August, 1983 Averbach's counsel learned that the Consumer Products Safety Commission had information about Rival electric can openers causing fires. Counsel obtained copies of the Commission's records which disclosed that between 1968 and 1974 Rival Manufacturing Company received 23 complaints of fires, 22 of which involved Rival electric can openers. In 1975 two more fires were brought to Rival's attention and in 1976 two others were reported. In addition, after the date of the answer to the interrogatory but before trial Rival received reports of fires started by can openers in California, Chicago, and Philadelphia. All of these reports indicated that the arrangement of the electric switch was such that the device remained on at low speed when not in use, causing a heat buildup to the point of combustion.

If the information from the files of the Consumer Products Safety Commission about fires begun by Rival electric can openers is true, the answers to interrogatories served in the underlying action are grossly false. Rival would have had complaints, as of July 1, 1979, of at least 26 similar occurrences, not the one incident that was disclosed. The complaint alleges that, had truthful answers been given, Averbach's presentation to the jury would have been much stronger, and could have produced a different verdict.

II.

In Count I Averbach alleges that by serving through the mails its false answers to interrogatories, Rival Manufacturing Company engaged in a pattern of racketeering activity, thereby corrupting an enterprise, the United States District Court for the Eastern District of Pennsylvania. The theory of the complaint is that the district court is an enterprise and that Rival Manufacturing Company, by serving the false answers to interrogatories, participated in the conduct of that enterprise's affairs, all within the meaning of 18 U.S.C. Sec. 1962(c) (1982).

We agree that a court may be an enterprise within the meaning of RICO. See United States v. Bacheler, 611 F.2d 443, 450 (3d Cir.1979) (Philadelphia Traffic Court); United States v. Herman, 589 F.2d 1191 (3d Cir.1978), cert. denied, 441 U.S. 913, 99 S.Ct. 2014, 60 L.Ed.2d 386 (1979) (Pittsburgh Magistrates); United States v. Vignola, 464 F.Supp. 1091, 1095 (E.D.Pa.), aff'd mem., 605 F.2d 1199 (3d Cir.1979), cert. denied, 444 U.S. 1072, 100 S.Ct. 1015, 62 L.Ed.2d 753 (1980), (Philadelphia Traffic Court). In those cases in which courts have been recognized as RICO enterprises, however, the participants engaged in patterns of activities designed to corrupt the operation of the courts' own processes. Whereas litigants before courts call upon the courts to exercise the judicial process, they do not participate in it in the sense intended by Congress in 18 U.S.C. Sec. 1962(c) (1982). Such litigants do not share with the court's personnel a common purpose with respect to the activity complained of. Indeed Averbach's allegations suggest that while those responsible for conducting Rival Manufacturing Company's defense of product liability litigation may have had a common or shared purpose, that purpose was quite at variance with those of the judges and support personnel of the district court. If Averbach's allegations are true, no more occurred with respect to the enterprise in question than to mislead those who conducted it. That is not, in our view, equivalent to the participation in its affairs which is required by 18 U.S.C. Sec. 1962(c) (1982).

Since Averbach's allegations fall short of a charge that Rival Manufacturing Company participated in the affairs of the district court, that court properly dismissed Count I of her complaint for failure to state a claim upon which relief could be granted. ¹

III.

The district court, having dismissed the RICO count as to which there was federal question subject matter jurisdiction under 28 U.S.C. Sec. 1331 (1982), treated Averbach's common law fraud claim as a pendent state law claim. That claim was dismissed based on United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966), which held that if federal claims are dismissed before trial, pendent state claims ordinarily should be dismissed as well. Thereafter Averbach moved to amend her complaint to rely upon diversity jurisdiction. The district court ruled that leave to amend was required because a Rule 12(b) motion had already been granted. See Fed.R.Civ.P. 15(a). In deciding the motion, the court considered whether the complaint as amended would survive a motion to dismiss, and concluded that it would not. Thus, purporting to apply the pleading standard of Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), the court ruled that the complaint failed to state a claim on which relief from a judgment could be obtained on the ground of common law fraud.

In our view, leave to amend probably was not required because the complaint, although mentioning only 28 U.S.C. Sec. 1331 (1982) and 28 U.S.C. Sec. 1337 (1982), on its face may satisfy 28 U.S.C. Sec. 1332 (1982), which confers diversity jurisdiction on the federal courts. It alleges that Averbach is a citizen of Pennsylvania and the amount in controversy exceeds $10,000. It pleads Rival's address in Kansas City, Missouri and refers to the underlying action which was a diversity suit. Thus Averbach's motion to amend may have been surplusage. Whether or not it was necessary, however, the motion must be considered in light of the direction that "[d]efective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." 28 U.S.C. Sec. 1653 (1982). Since there unquestionably is diversity jurisdiction, and Rival Manufacturing Company always was aware of that fact, we will treat the complaint accordingly.

The next question we must address, therefore, is whether the complaint states a claim upon which relief from the instant judgment can be obtained on the ground of fraud. The district court, citing Thomas v. Seaman, 451 Pa. 347, 304 A.2d 134 (1973), referred to the five standard elements of a cause of action for fraud: (1) a misrepresentation of fact, (2) fraudulently uttered, (3) with intent to induce reliance, (4) and inducing justifiable reliance, (5) and to the injury of the injured party. The court concluded that "[t]he complaint fails to allege that defendants intended to induce action on the part of the plaintiff or that plaintiff justifiably relied upon the alleged misrepresentations."...