Brandt v. Schal Associates, Inc.

• Citation: 664 F. Supp. 1193
• Decision Date: 06 July 1987
• Docket Number: No. 85 C 357.,85 C 357.
• Court: U.S. District Court — Northern District of Illinois
• Parties: William A. BRANDT, Jr., Plaintiff, v. SCHAL ASSOCIATES, INC., et al., Defendants.

664 F. Supp. 1193

William A. BRANDT, Jr., Plaintiff, v. SCHAL ASSOCIATES, INC., et al., Defendants.

No. 85 C 357.

United States District Court, N.D. Illinois, E.D.

July 6, 1987.

David L. Campbell, St. Louis, Mo., for plaintiff.

Jeff Harris, John J. Foran, Karen A. Suizzo of Foran, Wiss & Schultz, Chicago, Ill., for Schal Assoc.

Robert A. Downing, David F. Graham, Eugene A. Schoon, John A. Heller of Sidley & Austin, Chicago, Ill., for Northwestern.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Suing as the assignee of Crescent Corporation ("Crescent"), William A. Brandt, Jr. ("Brandt") charges Schal Associates, Inc. ("Schal"), Richard C. Halpern ("Halpern") and Evans N. Spileos ("Spileos") (collectively "Schal Defendants") and Northwestern University ("Northwestern") with having violated:

1. the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(a), (b), (c) and (d) (each further citation to Title 18's RICO provisions will simply take the form "Section —"); and

2. state common law.¹

Despite the nearly 2½ year life of this action, it still remains in the pleading stage.² Now Schal Defendants and Northwestern have again moved under Fed.R. Civ.P. ("Rule") 12(b)(6) for dismissal of the RICO claims. For the reasons stated in this memorandum opinion and order, Northwestern's motion is granted and Schal Defendants' motion is denied.

Facts³

Schal manages the construction of high-rise buildings (¶ 3). Both Halpern and Spileos are officers, directors, employees and principal shareholders of Schal (¶¶ 5 and 6). Schal was engaged to act as agent for:

1. M.O.W. in procuring the design and construction of the "One Mag Mile Project" (¶ 24);

2. Northwestern in procuring the design and construction of its law school building ("Northwestern Project") (¶ 7); and

3. Chicago Board Options Exchange ("CBOE") in procuring the design and construction of the "CBOE Project" (¶ 29).

One Mag Mile Project

On January 22, 1981 Schal, acting for M.O.W., hired Crescent to furnish and install the window wall system for the One Mag Mile Project for $4,885,000 (¶¶ 8 and 24). After Crescent had begun work on the project, Schal issued numerous directives calling for extra work (¶ 43), including 26 change orders that added $491,996.69 to the contract amount (¶¶ 26 and 36(g)). Those directives were "coupled with promises to pay Crescent for the goods and services provided" (¶ 36(g)).

In connection with the One Mag Mile Project, Schal also issued six backcharges to Crescent (totaling $9,956.10) between March 17, 1983 and February 1, 1984 (¶¶ 36(a)-(f)). Each backcharge represented that Schal had incurred additional costs because of Crescent's actions, so the backcharge amounts would be deducted from the monies due Crescent upon completion of the project (id.).

Crescent has completed all contract and extra work on the One Mag Mile Project. It is still owed $731,268.59 for that work (¶¶ 27 and 28).

Northwestern Project

On August 27, 1982 Schal, acting for Northwestern, hired Crescent to furnish and install a complete interior and exterior curtainwall and store front system (the "curtainwall system") for the Northwestern Project at a cost of $3,855,000 (¶¶ 10 and 14). As it turned out, the structural steel framing for the Northwestern Project had design defects, causing the framing to be inadequate for the curtainwall system (¶ 17). Defendants knew of those defects when they negotiated and executed the contract with Crescent. but they concealed the flaws from Crescent until October 1982 (id.).

At Schal's request Crescent undertook the redesign of the curtainwall system and assisted Northwestern in finding a satisfactory solution to the engineering and design problems (¶¶ 19-20). Schal and Northwestern assured Crescent that upon completion of the project change orders would be issued to cover Crescent's increased costs of $3,639,888 (¶¶ 20-21 and 35(a)).

Schal also issued 26 backcharges to Crescent (totaling $285,606.51) between October 11, 1983 and November 16, 1984 (¶¶ 35(b)-(aa)). Here too, each backcharge represented that Schal had incurred additional costs because of Crescent's actions, so the backcharge amounts would be deducted from the monies due Crescent upon completion of the project (¶ 34(a)(3)).

Crescent has also fully performed all contract and extra work on the Northwestern Project. It is still owed $4,086,146.40 for that work (¶ 23).

CBOE Project

On November 2, 1982 Schal, acting as agent for CBOE, hired Crescent to furnish and install the window wall system for the CBOE Project for $700,000 (¶¶ 8 and 29). After Crescent began that work, Schal issued 18 change orders to the basic contract, covering additional work costing $172,498.37 (¶ 31).

Crescent completed all contract and extra work on the CBOE Project April 23, 1984. It is still owed $8,212.50 (¶¶ 32 and 33).

RICO Allegations

To some extent the Complaint's RICO allegations are not only fact-conclusory in nature (something both permissible and desirable under the Rules' notice-pleading regime) but also legal-conclusory (something that poses problems in meeting the "well-pleaded" standard—see n. 3). This recital will nevertheless credit the allegations as made, without any effort to cull out any that might be viewed as technically deficient:

1. On an unknown date Schal, Halpern and Spileos entered into a contract and association-in-fact ("Schal Enterprise") "whereby they undertook to use their position as Construction Manager of the Northwestern, One Mag Mile and CBOE Projects and the fact that there were common contractors and subcontractors on many of the same aspects of each of said Projects, so as to exert pressure on subcontractors to accept false and fraudulent backcharges with respect to such projects by the expedient of refusing to pay said contractors monies rightfully due to them on companion projects over which said defendants had control" (¶ 8).

2. Schal Defendants entered into an agreement in connection with the One Mag Mile Project (¶ 34):

(a) to induce Crescent to perform extra work on that project by authorizing the performance of extra work (for which they intended not to pay Crescent), making it economically impossible for Crescent to withdraw from, rather than perform extra work on, the project;

(b) "to attempt to enhance defendants' bargaining position at the time that the One Mag Mile Project would be completed and the negotiated close-out of the Crescent contract and compensation for its extra work become sic necessary," by mailing Crescent false backcharges; and

(c) to coerce Crescent into foregoing its claims for extra compensation and into accepting the false backcharges on the One Mag Mile Project by refusing to pay Crescent money owed it from work on the Northwestern and CBOE Projects unless Crescent accepted the backcharges.

3. Schal Defendants and Northwestern entered into an almost identical agreement in connection with the Northwestern Project (¶¶ 34(a) and 35(a)):

(a) to induce Crescent to perform extra work on that project by (1) concealing design defects, (2) falsely promising to issue change orders and (3) threatening unilaterally to terminate Crescent's contract and inflict harm on Crescent's business and reputation;

(b) to enhance their bargaining position at the time the Northwestern Project would be completed and compensation for Crescent's extra work would become necessary, again by mailing Crescent false backcharges; and

(c) to coerce Crescent into accepting the false backcharges by refusing to pay Crescent money due it from work on the One Mag Mile and CBOE Projects.

4. Schal Defendants committed the following racketeering acts to carry out the agreements just described in Paragraphs 2 and 3:

(a) They issued (through the mail and over the telephone) numerous directives to Crescent, instructing it to perform extra work and promising to pay for that extra work, but intending not to do so (¶¶ 35(a) and 36(g)).⁴

(b) Though they knew the stated reason for the contract price reduction in each backcharge was false, they mailed a series of backcharges to Crescent, with the intent of depriving Crescent of money due it under the contract (¶¶ 35(b)-(aa) and 36(a)-(f)).

(c) They coerced Crescent into accepting those false backcharges by:

(1) exerting unauthorized control over monies due Crescent from work on the other projects it had worked on, refusing to pay Crescent those monies unless Crescent accepted the fraudulent backcharges and paid Schal Defendants $100,000 to boot (¶¶ 35(bb) and 36(h)); and

(2) threatening (if Crescent did not accept the backcharges) (a) to terminate each contract with Crescent unilaterally, (b) to attempt to extract from Crescent all of the completion costs of the window wall curtainwall system (id.) and (c) (on the One Mag Mile Project only) to inflict harm on Crescent's business and reputation (¶¶ 35(a) and 36(h)).

As to the Northwestern Project, Schal Defendants did those things with Northwestern's knowledge and consent.

Pattern of Racketeering Activity

Each of Schal Defendants and Northwestern seeks dismissal of Brandt's RICO claims on the ground the Complaint does not adequately allege the existence of a "pattern of racketeering activity."⁵ All Section 1962 claims require such a pattern (Elliott v. Chicago Motor Club, 809 F.2d 347, 349 (7th Cir.1986)).⁶

In its decisions since Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985),⁷ our Court of Appeals has applied "a factually-oriented standard, not a set rule" (Morgan, 804 F.2d at 977), in determining whether RICO claims satisfy the "pattern of racketeering activity" requirement. Examination of those decisions and the standard as it has evolved from them makes it quite plain the Complaint in this case sufficiently alleges Schal Defendants'—but not Northwestern's—involvement in such a pattern.

Morgan, 804 F.2d at 975 (citations omitted) described the "pattern of racketeering...