Bache Halsey Stuart Shields v. Tracy Collins Bank

• Decision Date: 14 February 1983
• Docket Number: Civ. No. C 82-0251J.
• Citation: 558 F. Supp. 1042
• Court: U.S. District Court — District of Utah
• Parties: BACHE HALSEY STUART SHIELDS INCORPORATED, a Delaware corporation, Plaintiff, v. TRACY COLLINS BANK & TRUST COMPANY, a Utah banking corporation, Defendant.

558 F. Supp. 1042

BACHE HALSEY STUART SHIELDS INCORPORATED, a Delaware corporation, Plaintiff, v. TRACY COLLINS BANK & TRUST COMPANY, a Utah banking corporation, Defendant.

Civ. No. C 82-0251J.

United States District Court, D. Utah, C.D.

February 14, 1983.

L.R. Curtis, Jr., David R. Money, Salt Lake City, Utah, for plaintiff.

Daniel L. Berman, Gary F. Bendinger, Salt Lake City, Utah, for defendant.

MEMORANDUM OPINION and ORDER

JENKINS, District Judge.

Defendant, Tracy Collins Bank & Trust, brought this Motion to Amend Answer pursuant to Rules 13(f) and 15(a) of the Federal Rules of Civil Procedure. The Court heard oral arguments on the motion on December 23, 1982. L.R. Curtis, Jr., Esq. and David R. Money, Esq. appeared on behalf of the plaintiff, Bache Halsey Stuart Shields, and Daniel L. Berman, Esq. and Gary F. Bendinger, Esq. represented the defendant. At the hearing, the Court granted the Motion to Amend as to counts 1 through 7 of the counterclaim, but took the motion under advisement as to counts 8 through 11. After careful consideration of the arguments made and briefs submitted, this Court issues the following Memorandum Opinion and Order in regard to the remaining causes of action in the counterclaim.

Plaintiff, Bache Halsey Stuart Shields, Inc. (Bache), filed this action against defendant, Tracy Collins Bank & Trust (Tracy Collins) on March 31, 1982. Bache sought judgment against Tracy Collins for the amount by which two securities accounts,¹ established in Tracy Collins' name with the plaintiff, were overdrawn. Defendant filed its Answer on May 21, 1982. Subsequently, Tracy Collins brought the present motion to amend the answer to include counterclaims against Bache. This Court reserved on that motion as to the counts in the counterclaim involving the State and Federal Racketeering Acts.

Rule 15(a) of the Federal Rules of Civil Procedure provides:

A party may amend his pleadings once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within 20 days after it is served. Otherwise a party may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.

In cases where "justice so requires" the federal courts have shown liberality in permitting parties to amend their pleadings. E.g., Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962); Polin v. Dun & Bradstreet, Inc., 511 F.2d 875, 877 (10th Cir.1975). Leave to amend, however, is properly denied when the pleading, as amended, would be subject to dismissal. E.g., Concepts, Inc. v. Western Life Ins. Co., 639 F.2d 1108, 1114 (5th Cir.1981); DeLoach v. Woodley, 405 F.2d 496, 497 (5th Cir.1968); Local No. 552, United Brick and Clay Workers of America AFL-CIO v. Hydraulic Press Brick Co., 371 F.Supp. 818, 828 (S.D. Mo.1974); Kaplan v. United States, 42 F.R.D. 5, 7 (D.Cal.1967). The authorities recognize that when the "proposed charge is frivolous or advances a claim or defense that is legally insufficient on its face, the court may deny leave to amend." 6 Wright & Miller, Federal Practice and Procedure, § 1487 (1971). Accord, 3 Moore, Federal Practice ¶ 15.084 (3d ed. 1975).

The proposed amendments taken under advisement in the case at bar are counts 8, 9, 10 and 11 of defendant's counterclaim. In count 8, Tracy Collins alleges that Bache violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-68 (Supp.1982). Count 9 alleges that Bache engaged in a conspiracy to violate RICO. In count 10, Tracy Collins alleges that Bache violated the Utah Racketeering Influences and Criminal Enterprise Act, Utah Code Ann. §§ 76-10-1601-08 (Supp. 1981), and count 11 alleges conspiracy to violate the Utah Racketeering Act.

1. The Federal Racketeering Act

A. Violation of RICO

RICO provides for private civil remedies, as follows:

(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

18 U.S.C. § 1964(c) (Supp.1982). To be eligible for treble damages under § 1964(c), a plaintiff must have been injured by a violation of § 1962. Section 1962 makes it unlawful for any person (a) to derive income from a "pattern of racketeering activity" and to invest any part of such income in any enterprise whose activities affect interstate commerce; (b) to acquire through a "pattern of racketeering" any interest or control in any enterprise whose activities affect interstate commerce; (c) to conduct affairs of an enterprise whose activities affect interstate commerce through a "pattern of racketeering activity"; and (d) to conspire to violate any of the provisions of subsections (a), (b) or (c) of the section. 18 U.S.C. § 1964 (Supp.1982).

RICO provides that a:

(5) "pattern of racketeering activity" requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.

18 U.S.C. § 1961(5) (Supp.1982). The definition of "Racketeering activity" includes any act which is indictable under certain provisions of the United States Code. See, 18 U.S.C. § 1961(1) (Supp.1982). In summary, to recover treble damages a plaintiff must prove a violation of section 1962. Section 1962 prohibits the commission of two or more indictable acts through which any person invests in, controls, or acquires a business affecting interstate commerce. Defendant, Tracy Collins, suggests that its amended Answer sufficiently alleges a counterclaim under the RICO treble damages provision. This Court does not agree.

For a private civil action to lie, the plaintiff must have been injured by a "pattern of racketeering activity." Such a pattern is established by a showing that a party has committed at least two "indictable" acts. 18 U.S.C. § 1961(1) (Supp.1982). A federal grand jury should return an indictment, only where there is probable cause or a reasonable probability that a crime has been committed. E.g., Talamante v. Romero, 620 F.2d 784, 789 (10th Cir.) cert. denied, 449 U.S. 877, 101 S.Ct. 223, 66 L.Ed.2d 99 (1980); Silverthorne v. United States, 400 F.2d 627, 634 (9th Cir. 1968) cert. denied, 400 U.S. 1022, 91 S.Ct. 585, 27 L.Ed.2d 633 (1970); United States v. Cox, 342 F.2d 167, 170 (5th Cir.) cert. denied, 381 U.S. 935, 85 S.Ct. 1767, 14 L.Ed.2d 700 (1965). Thus, to properly plead an action under the treble damages provision of RICO, a party must allege two acts of "racketeering" with enough specificity to show there is probable cause the crimes were committed. An offense is not "indictable" merely because it is alleged. Rather, to be indictable it must be "well-founded" and based on probable cause. Brazburg v. Hayes, 408 U.S. 665, 688, 92 S.Ct. 2646, 2660, 33 L.Ed.2d 626 (1972).

One way to assure that the charge is based on probable cause, is to require a bill of particulars in the pleadings. "A bill of particulars amplifies the indictment by providing additional information.... `to inform the defendant of the nature of the charge against him with sufficient precision to enable him to prepare his defense, and to avoid or minimize the danger of surprise at trial." United States v. Johnson, 575 F.2d 1347 (5th Cir.1978) cert. denied, Harelson v. United States, 440 U.S. 907, 99 S.Ct. 1214, 59 L.Ed.2d 454 (1979), (quoting, United States v. Martinez, 466 F.2d 679, 686 (5th Cir.1972) cert. denied, Berman v. United States, 414 U.S. 1065, 94 S.Ct. 571, 38 L.Ed.2d 469 (1973)). This circuit recognizes broad discretion in the trial court to determine the necessity of a bill of particulars. In United States v. Moore, 556 F.2d 479 (10th Cir.1977), the Court of Appeals for the Tenth Circuit stated:

The granting, or denial, of a motion for a bill of particulars is a matter lying within the sound discretion of the trial court, and its exercise of that discretion will not be grounds for reversal on appeal in the absence of an abuse of that discretion.

Id. at 483. Accord, e.g., United States v. Martino, 648 F.2d 367, 383 (5th Cir.1981) cert. denied, Russello v. United States, 456 U.S. 943, 102 S.Ct. 2006, 72 L.Ed.2d 465 (1982); United States v. Barrentine, 591 F.2d 1069, 1077 (5th Cir.1979), rehearing denied, 599 F.2d 1054.

A private civil action under RICO is grounded upon the premise that a party has twice engaged in "racketeering activity". The Act defines "racketeering activity" as behavior "indictable" under specified provisions of the United States Code. Before a court can assess the merit of a plaintiff's treble damages claim it must determine whether there is probable cause to believe the named defendant committed the alleged predicate crimes. That determination is possible only if the factual basis of those "acts of racketeering" is set out with particularity. Thus, a factual statement similar to a bill of particulars is needed in pleadings that allege a violation of the RICO treble damages provision.

The need for specificity is intensified by the broad range of the federal Racketeering Act. Under RICO, a party can recover treble damages by proving the probability of violations that would be barred from criminal conviction by the statute of limitations. For example, a plaintiff under § 1964 could allege a "pattern of racketeering activity" based on two acts of mail fraud in violation of 18 U.S.C. § 1341 (Supp.1982). RICO requires only that the acts be committed within ten years of each other. 18 U.S.C. § 1961(5) (Supp.1982). Thus, although the criminal charge of...