Decision Date10 May 1988
Docket NumberCiv. No. B-86-108 TFGD.
CourtU.S. District Court — District of Connecticut
PartiesCELPACO, INC., Plaintiff, v. MD PAPIERFABRIKEN, et al., Defendants.


Charles T. Lee, Paul, Hastings, Janofsky & Walker, Stamford, Conn., Bruce Topman, pro hac vice, Steven M. Nachman, pro hac vice, Webster & Sheffield, New York City, for plaintiff.

William Rush, Thomas W. Witherington, L. Douglas Shrader, Beverly Stauffer Knapp, Zeldes, Needle & Cooper, Bridgeport, Conn., Thomas J. O'Sullivan, Paul J. Bschorr, pro hac vice, Kathryn L. Bedke, pro hac vice, White and Case, New York City, Patricia M. Gaug, Pullman, Comley, Bradley & Reeves, Bridgeport, Conn., for defendants.


DALY, Chief Judge.

Celpaco, Inc. brought this action in March, 1986 to redress alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, the Connecticut Unfair Trade Practices Act (CUTPA), CONN.GEN.STAT. § 42-110a et seq., and a variety of common law claims including breach of contract and fiduciary duty, and misappropriation of corporate assets. The amended complaint, filed in December, 1986, contains sixteen counts, eight of which are founded in RICO, the plaintiff's jurisdictional ticket to this Court. See 28 U.S.C. § 1331. Pendent jurisdiction is sought over the remaining eight counts.

Magistrate Latimer initially issued a proposed ruling on the defendants' motions to dismiss the RICO claims, but withdrew and reconsidered the ruling in light of the then recent decision of the Second Circuit in United States v. Ianniello, 808 F.2d 184 (1986), cert. denied, ___ U.S. ___, 107 S.Ct. 3229, 97 L.Ed.2d 736 (1987). In ultimately denying the motions, the Magistrate rejected defendants' arguments that the plaintiffs had failed properly to allege a pattern of racketeering activity, or that the predicate acts were neither indictable nor pleaded with the required particularity. Ruling on Reconsidered Motions to Dismiss (June 24, 1987); see 18 U.S.C. § 1961; Fed.R. Civ.P. 9(b). After a de novo review by the Court the Proposed Ruling Upon Reconsideration was then affirmed. Mem. of Affirmance (Sept. 11, 1987). Following the Second Circuit's decision in Furman v. Cirrito, 828 F.2d 898 (1987), the Court, cognizant of the considerable fluctuation in the judicial interpretation of RICO claims throughout the circuit, granted the defendants' motion for reconsideration. The instant ruling comes on the heels of another de novo review of defendants' motions to dismiss, as well as a survey of current RICO case law. See 28 U.S.C. § 636(b)(1).


When reviewing a motion to dismiss, the Court must treat as true plaintiff's well pleaded factual allegations, Miree v. DeKalb County, 433 U.S. 25, 27 n. 2, 97 S.Ct. 2490, 2492 n. 2, 53 L.Ed.2d 557 (1977); Fifth Avenue Peace Parade Commn. v. Gray, 480 F.2d 326, 331 (2d Cir.1973), cert. denied, 415 U.S. 948, 94 S.Ct. 1469, 39 L.Ed.2d 563 (1974), and may grant the motion only if "it appears beyond doubt that plaintiff can prove no set of facts in support of its claim which would entitle it to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

A fair reading of the complaint indicates that Celpaco is a Connecticut corporation engaged in the business of importing and selling printing paper throughout the United States. In May, 1983 it contracted with a West German Firm, MD Papierfabriken ("MD")1, to develop a market for MD in the United States, to sell MD's paper products to Celpaco's customers, and to administer those sales, for which Celpaco was to receive a commission. Through the efforts of Celpaco's employees and their use of Celpaco's customer contacts (the list of which was protected under the contract), the endeavor was a successful one that occasioned the growth of both the Celpaco firm and MD's sales in the United States. Two of the larger customers attracted by Celpaco for MD were R & R Donnelley & Sons Company of Chicago ("Donnelley") and Greater Buffalo Press of Buffalo ("Buffalo"), with whom Celpaco negotiated agreements for purchases through December 1988 of substantial quantities of MD products.

The initial agreement between Celpaco and MD was for a one year term that thereafter was extended several times, and was due to terminate in December, 1988. During the course of these extended terms, the parties agreed to increases in Celpaco's commission rates. Obviously, the last extended agreement, as well as the Donnelley and Buffalo agreements, never came to fruition, as the instant action was precipitated by the untimely termination of the venture and the falling out between Celpaco, its key employees, and MD.

It is Celpaco's claim upon "information and belief"—and the Court assumes its truth for purposes of this motion—that, at some point, four officers and employees of Celpaco (known in the complaint as the "individual defendants"), who constituted nearly all of Celpaco's sales and marketing force, and who each had acquired knowledge of Celpaco's confidential and proprietary business information, conspired with each other and MD to supplant Celpaco in the sale and distribution of MD products, and to put Celpaco out of business. The conspiracy was furthered by the repudiation by MD of its agreements with Celpaco, the "en masse" resignation by the individual defendants from Celpaco, the formation by the defendants of the defendant Soundview Graphic International Corporation ("Soundview") to assume Celpaco's position, and the utilization by the defendants of plaintiff's confidential and proprietary business information to solicit Celpaco's customers and to propel Soundview into the market.

Against this background rest the RICO allegations, each of which are founded upon the same "predicate" racketeering acts. In an effort to meet the threshold requirements of RICO, Celpaco has alleged a number of fraudulent communications and transactions by the defendants in furtherance of their scheme that supposedly constitute indictable mail and wire fraud violations:2

1) that on December 30, 1985, MD incorporated Soundview (¶ 34(a));
2) by telex on December 30, 1985, MD terminated its agreement with Celpaco effective January 15, 1986 (¶ 34(a));
3) in December, 1985 MD caused the cessation of commission payments due Celpaco (¶ 34(b));
4) on January 2, 1986, the individual defendants resigned en masse by submitting backdated letters of resignation (¶ 34(c));
5) in January, 1986 MD breached the Donnelley and Buffalo agreements by terminating them prematurely (¶ 34(d));
6) the individual defendants, aided and abetted by MD and Soundview, and through the use of Celpaco's confidential business information, have solicited and continue to solicit Celpaco customers, including customers for whom MD guaranteed protection under their initial agreement with Celpaco, and have attempted to sell MD products to those customers (¶ 34(e)); and 7) on or about December 30, 1985, one of the individual defendants, John Marks, telephoned the Connecticut National Bank and instructed it to transfer the balance of a checking account maintained by Celpaco, to an account maintained by MD in New York (¶ 35).3

Apparently taking advantage of the alternative pleading provision of Fed.R.Civ.P. 8(e)(2), the plaintiff has pleaded two different enterprises — one as a conglomeration of all the defendants, and the other as Soundview — and for both has alleged a violation of each of the four activities prohibited by RICO. See 18 U.S.C. § 1962.

I. RICO "Pattern" Requirement

To set forth a viable claim for damages under RICO, the plaintiff must properly allege that the "defendants committed two or more `predicate' acts, 18 U.S.C. § 1961(1), constituting a `pattern of racketeering activity,'" Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46, 49 (2d Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 698, 98 L.Ed.2d 650 (1988), "done in the conduct of the affairs of an enterprise." United States v. Weisman, 624 F.2d 1118, 1122 (2d Cir.), cert. denied, 449 U.S. 871, 101 S.Ct. 209, 66 L.Ed.2d 91 (1980); see also Beck, 820 F.2d at 49; United States v. Ianniello, 808 F.2d at 190; 18 U.S.C. §§ 1961(4) & (5), 1962, 1964(c).4 The defendants have claimed that the allegations in the amended complaint support neither the "enterprise" nor the "pattern" components of the RICO statutory scheme.

The issues presented in the instant case are not unlike those that have triggered a debate among litigants, academics, and ultimately, the courts concerning the definition and application of the "enterprise" and "pattern" concepts.5 A catalyst, though certainly not the sole agent, of the clouded understanding that has evolved in this area, is the description of "pattern" conjured by the Supreme Court in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). In footnote 14 of that opinion, the Court focused on the legislative history of the act, which indicated that the target of RICO was not sporadic activity, but the infiltration of legitimate businesses that is the product of "more than one `racketeering activity'" and the threat of similar such activity continuing. Id. at 496, 105 S.Ct. at 3285. Apparently attempting to paraphrase this view, the Senate report went on to note that "it is this factor of continuity plus relationship which combines to produce a pattern." Id. (quoting S.Rep. No. 91-617, p. 158 (1969)).

Many courts since have struggled with the task of applying this amorphous concept to a variety of scenarios, though few, if any, have succeeded in articulating a cogent approach. The disparity of approaches taken by courts in other circuits is typical of the divergent paths taken by district courts within the Second Circuit. See, e.g., Furman, 828 F.2d at 908-09 (Pratt, J., dissenting) (survey of the diverse and various approaches by district courts in the circuit to...

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