Behunin v. Dow Chemical Co.

• Decision Date: 29 December 1986
• Docket Number: 86-K-331,86-K-680,86-K-1178,Civ. A. No. 86-K-281,86-K-1234,86-K-526,86-K-1900 and 86-K-2566.
• Citation: 650 F. Supp. 1387
• Parties: Gage and Barbara BEHUNIN, et al., Plaintiffs, v. DOW CHEMICAL COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Colorado

650 F. Supp. 1387

Gage and Barbara BEHUNIN, et al., Plaintiffs, v. DOW CHEMICAL COMPANY, et al., Defendants.

Civ. A. Nos. 86-K-281, 86-K-331, 86-K-526, 86-K-680, 86-K-1178, 86-K-1234, 86-K-1900 and 86-K-2566.

United States District Court, D. Colorado.

December 29, 1986.

Frank D. Plunkett, Jr., Richard E. Young, P.C., Denver, Colo., and Robert J. Tansey, Jr., William E. Dorigan, David E. Oslund, Janet Pollish-Forsberg, Kristin N. Lockhart, Alfred H. Edwall, Jr., Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., Garth Rogers, Donald E. Johnson, Allen, Rogers Metcalf & Vahrenwald, Fort Collins, Colo., Darwin Poyfair, Richard Laungesen, Philip Lorenzo, Anderson, Campbell, Laugensen, James A. Clark, Darwin Poyfair, Baker & Hostetler, Denver, Colo., Wiley Daniel, Gorsuch, Kirgis, Campbell, Walker & Grover, Denver, Colo., Alan F. Pendleton, Terrence E. Bishop, Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., Robert Connelly, Issacson, Rosenbaum, Woods, Levy & Snow, Denver, Colo., A. Craig Fleishman, Haligman, Zall, Lottner, Englewood, Colo., Dean R. Vanatta, Vanatta and Sullan, P.C., Eugene R. Commander, Hall & Evans, Denver, Colo., plaintiffs.

Walter A. Steele, Michael L. O'Donnell, Sandra L. Spencer, White & Steele, P.C., Denver, Colo., Bruce D. Drucker, J. Richard Hoel, Jr., Dale R. Crider, Hillary Anschel, Rivkin, Radler, Dunne & Bayh, Chicago, Ill., Stanley A. Doten, Morrison & Foerster, Denver, Colo., Leonard L. Rivkin, James B. Rather, Rivkin, Radler, Dunne & Bayh, Uniondale, N.Y., for defendants.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

INTRODUCTION

Plaintiffs in these consolidated actions seek damages arising from the manufacture and marketing of a product called Sarabond. Sarabond was designed to increase the bond strength between brick and mortar. The product, however, allegedly corrodes metal materials used in construction.

Many claims for relief have been alleged. They include strict liability in tort, breach of warranty, negligence, negligent misrepresentation, fraud, breach of continuing duty to warn, punitive damages, and treble damages under various provisions of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.

As expected from litigation of this magnitude, several pending motions await decision: Dow Chemical Company's (Dow's) motion to dismiss and strike the complaint in 86-K-281; Dow's motion to dismiss or for a more definite statement on the fraud claim (claim number six) in 86-K-680; Dow's motion to dismiss the RICO claims (claims one through three) in 86-K-331, 86-K-526, and 86-K-680 and to dismiss the fraud claim in 86-K-331; and Dow's motion to dismiss the RICO claims (claims one through three) in 86-K-1178 and 86-K-1234 as well as to dismiss the fraud claim (number 6) in 86-K-1178 and 86-K-1234.¹

An amended complaint has been filed, with leave of the court, in 86-K-680. The amended complaint moots Dow's motion to dismiss or for a more definite statement in that case. Therefore, that motion is denied.

The other motions make several common arguments. Rather than resolve each motion separately, I will decide them by subject matter. The first area to be discussed is dismissal of the RICO claims. RICO allegations are found in claims nine through sixteen of 86-K-281 and in claims one through three of 86-K-331, 86-K-526, 86-K-680, 86-K-1178, 86-K-1234 and 86-K-2566. The complaint in 86-K-1900 does not assert any RICO claims.

The second area of analysis will center on Dow's motion to dismiss the fraud claims in 86-K-331, 86-K-1178, and 86-K-1234. The final portion of the opinion will address the five non-RICO arguments Dow has propounded in its motion to dismiss and strike the complaint in 86-K-281.

THE RICO CLAIMS

All the federal RICO claims raised in the consolidated complaints assert a cause of action under the different subsections of 18 U.S.C. § 1962. Each subsection requires a finding of the existence of a pattern of racketeering activity. I fully examined the meaning of the phrase "pattern of racketeering activity" in Garbade v. Great Divide Mining and Milling Corporation, 645 F.Supp. 808 (D.Colo.1986). A complaint which sets forth only one fraudulent scheme does not allege a pattern of racketeering activity. Id. at 815. A multiplicity of underlying predicate acts cannot constitute a pattern of racketeering activity where the acts are only directed toward accomplishment of a single fraudulent scheme. Id.

Garbade is controlling here.² Succinctly put, the consolidated complaints, even taken at their best, allege only a single scheme of Dow's efforts to market Sarabond for use in the construction industry. Dow has drawn my attention to the recent opinion in Savastano v. Thompson Medical Co., Inc., 640 F.Supp. 1081 (S.D.N. Y.1986). Thompson was sued for its fraudulent marketing of an over-the-counter appetite suppressant called Dexatrim. The court dismissed the RICO claims, and the entire complaint, on a motion to dismiss. The court held:

Logically, we must view defendant's alleged criminal activity as an attempt to intentionally misrepresent through packaging and advertisements the performance of a single product. As such, it could at best be characterized as "a single fraudulent effort, implemented by several fraudulent acts," ... and is insufficient to meet RICO's "pattern" requirement. Id. at 1085, citing Northern Trust Bank/O'Hare, N.A. v. Inryco Co., Inc., 615 F.Supp. 828, 831 (N.D.Ill.1985).³

In determining whether a pattern of racketeering activity exists, "the question is the nature of the conduct under all of the circumstances." Torwest DBC, Inc. v. Dick, et al., 628 F.Supp. 163, 165 (D.Colo. 1986).⁴ In taking the same legal stance as Garbade, Savastano provides a factually analogous situation to the circumstances posed by these Sarabond cases. Therefore, Savastano is instructive. The federal RICO claims are dismissed from all of the consolidated actions.⁵

Claims thirteen through sixteen in the 86-K-281 complaint are brought under Colo.Rev.Stat. § 18-17-104. This statute, a provision of the Colorado Organized Crime Control Act, is modelled after RICO. Benson v. Colorado, 703 P.2d 1274, 1276, n. 1 (Colo.1985). Like the federal statute, the Colorado provision requires the existence of a pattern of racketeering activity. The Colorado courts have yet to construe the pattern requirement of § 18-17-104 in a published decision. I find the pattern requirement of the state law to coincide with the meaning of its federal counterpart. Claims thirteen through sixteen are accordingly subject to the same analysis as the federal RICO claims. They are dismissed.

Claim seventeen in the 86-K-281 complaint, which alleges vicarious liability, will not be dismissed. Even if, as Dow argues, the seventeenth claim constitutes plaintiffs' "attempt to escape the separate `person'/`enterprise' requirement" of RICO's § 1962, Dow's Brief at 37, the claim also "applies to all claims for relief in the complaint, RICO and non-RICO." Plaintiffs' Brief at 22.

THE FRAUD CLAIMS

The plaintiff in 86-K-331, Penn Square Condominium Association, "has been appointed the irrevocable attorney-in-fact for all of the fee title owners of Penn Square Condominiums to protect and defend any part or all of Penn Square from loss and damage by suit or otherwise." Complaint in 86-K-331, ¶ 1. Similarly, Savings Building Condominiums Association, plaintiff in 86-K-1234, is empowered to vindicate the legal rights of all the fee title owners of the Savings Building. Complaint in 86-K-1234, ¶ 1. The plaintiff in 86-K-1178, C.A. Associates, is a limited partnership doing business as the Executive Tower Building. Complaint in 86-K-1178, ¶ 1.

In all three cases, the name plaintiff represents the interests of the various owners of buildings constructed with Sarabond. Dow contends the unit owners do not fall within the class of persons intended to be influenced by any misrepresentations. Hence Dow has moved to dismiss the claim for fraud, or intentional misrepresentation, in each case.

I listed the elements of a cause of action for fraudulent misrepresentation in Institute for Professional Development v. Regis College, 536 F.Supp. 632 (D.Colo.1982). They are:

1) A misrepresentation; 2) of material facts; 3) that is false; 4) made with knowledge of the falsity or with indifference to its truth or falsity; 5) the party claiming fraud must have relied on the representation; 6) have had a right to have relied on it; and 7) acted in accordance with the reliance; and 8) in doing so suffer damage.

Id. at 633.

In Saine v. A.I.A., Inc., 582 F.Supp. 1299 (D.Colo.1984), I was faced with the general issue of "whether an entity not a party to a fraud can nevertheless state a claim for relief if the entity is only indirectly damaged by the fraud." Id. at 1308. This is an issue of local law. Id.

"In Colorado the law is that a complaint based on fraud can only be made by one within the class of persons intended to be influenced by the misrepresentation." Id.; accord Mead & Mount Construction Company v. Fox Metal Industries, Inc., 511 P.2d 509, 510 (Colo.App.1973) ("it is necessary only that the plaintiff be in the class of persons that the defendant intended to influence"). For example, "one may not claim to have relied upon misrepresentations contained in a report when he was not aware of the existence of the report at the time he suffered injury." Strong v. Retail Credit Company, 38 Colo.App. 125, 552 P.2d 1025, 1028 (1976).

Neither side to this litigation has been able to refer me to a Colorado case which may be appropriately analogized to the factual scenario posed by these Sarabond cases. Given the operative standard on a motion to dismiss,⁶ I am loathe to dismiss the fraud claims absent a more developed factual record from which I can determine the proper class of misrepresented persons. In this vein, I note neither Strong nor Mead & Mount was decided on a motion to dismiss.⁷ Dow'...