Combs v. Bakker

• Decision Date: 08 August 1988
• Docket Number: No. C-C-87-333-P.,C-C-87-333-P.
• Citation: 692 F. Supp. 596
• Court: U.S. District Court — Western District of North Carolina
• Parties: David T. COMBS and Sarah E. Combs, Plaintiffs, v. James O. BAKKER, Tamara Faye Bakker, and Richard Dortch, Defendants.

692 F. Supp. 596

David T. COMBS and Sarah E. Combs, Plaintiffs, v. James O. BAKKER, Tamara Faye Bakker, and Richard Dortch, Defendants.

No. C-C-87-333-P.

United States District Court, W.D. North Carolina, Charlotte Division.

August 8, 1988.

COPYRIGHT MATERIAL OMITTED

Edward G. Connette, Louis L. Lesesne, Jr., Gillespie, Lesesne & Connette, Charlotte, N.C., for plaintiffs.

Mark T. Calloway, James McElroy & Diehl, P.A., Charlotte, N.C., James H. Toms, Hendersonville, N.C., for defendants.

ORDER

ROBERT D. POTTER, Chief Judge.

THIS MATTER is before the Court on all Defendants' Motions to dismiss the action against them pursuant to Rule 12(b)(1), (2), (3), (4), (5), (6), (7), and Rule 19(b) and, by the Bakker Defendants, pursuant to Rule 9(b) of the Federal Rules of Civil Procedure.

Plaintiffs' Amended Complaint, filed July 20, 1988, alleges in substance that Defendants were principals in Heritage Village Missionary Fellowship, Inc. ("PTL"), an enterprise engaged in interstate commerce; that its activities affect interstate commerce within the meaning of RICO; that Defendants were directors on the board of PTL; that Plaintiffs, at all times citizens and residents of West Virginia, paid $1,000 to PTL in consideration of a "lifetime partnership," the purchase being induced by repeated representations by Defendants by means of mail, telephone, and television that such purchase would entitle Plaintiffs and others to three free nights per year at the Grand Hotel at Heritage Village, South Carolina; that the mail solicitations were made in part from a Charlotte, North Carolina address and on information and belief the televised broadcasts were from stations in the Western District of North Carolina; that Plaintiffs talked by telephone with Defendants' agents from Plaintiffs' home in West Virginia; that Plaintiffs have been unable to obtain a free room at the Grand Hotel as promised by Defendants; that a substantial number of lifetime partnerships were sold to individuals residing in the Western District of North Carolina; that Defendants knew they were selling more partnerships than could be accommodated by the Grand Hotel and that Defendants knew they were misrepresenting and overselling the partnerships and that they used the mails, wire, and television to further the scheme of selling partnerships; that Defendants acted intentionally and specifically intended to induce Plaintiffs to purchase partnerships, and that Plaintiffs relied on such statements by Defendants; that Defendants were engaged in two or more predicate acts of mail and wire fraud, i.e., engaged in selling over 55,000 such lifetime partnerships; that the solicitation of each such lifetime partnership through mail or wire fraud constituted an unlawful offense or "predicate act" in furtherance of Defendants' "pattern of racketeering activity" within the meaning of RICO; that Defendants received substantial salaries and benefits from PTL and its related enterprises and used or invested the proceeds of income derived from the pattern of racketeering activity to establish or operate PTL and related enterprises; further, Defendants conducted the affairs of PTL and its related enterprises through this pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(a), (c), and (d).

Plaintiffs' Amended Complaint contains three other claims:

(a) Defendants' actions constitute fraud under applicable state law.

(b) Defendants' actions constitute unfair and deceptive acts and practices in the conduct of trade or commerce in violation of the South Carolina Unfair Trade Practices Act, S.C.Code of Law, Section 35-9-10, et seq.

(c) Defendants have breached their contractual obligation to give Plaintiffs three free nights of lodging in the Grand Hotel each year for the remainder of Plaintiffs' lives.

Plaintiffs' prayer for relief is for actual damages, treble damages, punitive damages, and attorney's fees.

I. MOTION TO DISMISS — RULE 12(b)(6)

The Court will first consider Defendants' Motions to dismiss for failure to state a RICO Claim, Rule 12(b)(6).

This Motion only tests whether the claim has been adequately stated in the Complaint. For purposes of the Motion to dismiss, the Complaint is construed in the light most favorable to Plaintiffs and its allegations are taken as true. Wright & Miller, Federal Practice and Procedure, §§ 1356, 1357.

It is axiomatic that a motion to dismiss an action for failure to state a claim upon which relief can be granted admits the facts alleged in the complaint, but challenges Plaintiff's right to relief based on those facts.

Ward v. Hudnell, 366 F.2d 247 (5th Cir. 1966).

Plaintiffs' first claim for relief is that Defendants violated RICO, 18 U.S.C. § 1962(a), (c), and (d).

As to this claim, Plaintiffs essentially allege that they, together with over 55,000 others, were solicited via television to purchase and did purchase lifetime partnerships.

Plaintiffs further allege that Defendants in their solicitation and sale of lifetime partnerships concealed the fact that Defendants were grossly overselling partnerships in a manner that would ban Plaintiffs and others from exercising the benefits of the partnerships and that Defendants used the mail, wire, and television to further the scheme of selling partnerships on behalf of the PTL enterprise, that the misrepresentations of Defendants were tantamount to fraud, that the solicitation of each such lifetime partnership through the use of mail, wire, and television constituted a predicate act in furtherance of Defendants' "pattern of racketeering activity" and that Defendants were therefore engaged in a pattern of racketeering activity within the meaning of RICO, and that Defendants received substantial salaries from PTL and its related enterprises, "thereby using and investing the income derived from the commission of their illegal acts."

II. RACKETEER INFLUENCED AND CORRUPT ORGANIZATION ACT (RICO)

The Racketeer Influenced and Corrupt Organizations Act (RICO), Title 18, United States Code, Sections 1961-68 (1982), in pertinent part, provides:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1962(c) (1982).

For purposes of this statute "racketeering activity" is defined as:

(A) any act or threat involving ... extortion, ... which is chargeable under State law and punishable by imprisonment for more than one year;

(B) any act which is indictable under any of the following provisions of Title 18, United States Code: ... section 1341 (relating to mail fraud), section 1343 (relating to wire fraud),....

18 U.S.C. § 1961(1) (Supp. II 1984). Other terms pertinent to the instant case are defined as follows:

(3) "Person" includes any individual or entity capable of holding a legal or beneficial interest in property;

(4) "enterprise" includes any individual, partnership, corporation, association or other legal entity ... or group of individuals associated in fact although not a legal entity;

(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 ... after the commission of a prior act of racketeering activity; ....

Thus, in order to survive a Motion to dismiss the Complaint pursuant to Rule 12(b)(6), Plaintiffs must allege: (1) the existence of an enterprise which affects interstate commerce; (2) that the defendants were employed by or associated with the enterprise; (3) that the defendants participated in the conduct of the enterprise's affairs; and (4) that such participation was through a pattern of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985).

"Racketeering activity" includes extortion, mail fraud and wire fraud. 18 U.S.C. § 1961(1) (Supp. II 1984). The elements of an indictable offense under the federal mail and wire fraud statutes are: (1) the existence of a scheme to defraud, and (2) the use of the mails or interstate wires in furtherance of the fraudulent scheme. See 18 U.S.C. §§ 1341 (mail fraud) & 1343 (wire fraud); United States v. Murr, 681 F.2d 246, 248 (4th Cir.) (the common element of mail fraud cases is that the accused attempted to use the mail as an instrument of his crime), cert. denied, 459 U.S. 973, 103 S.Ct. 307, 74 L.Ed.2d 286 (1982); United States v. Condolon, 600 F.2d 7, 8 (4th Cir.1979) (must show a scheme to defraud and use of an interstate communication facility, such as a telephone, to execute that scheme). See also Virden v. Graphics One, 623 F.Supp. 1417 (C.D.Cal.1985). A "scheme to defraud" must seek to deprive one of property through fraudulent or deceptive means, such as material misrepresentation, concealment, breach of duty to disclose information or taking of bribes or kickbacks. United States v. Pintar, 630 F.2d 1270 (8th Cir.1980).

A "pattern" of racketeering activity "requires at least two acts of racketeering activity." 18 U.S.C. § 1961(5) (1982). "Two isolated acts of racketeering activity do not constitute a pattern." Sedima, 473 U.S. at 496 n. 14, 105 S.Ct. at 3285 n. 14. "`The infiltration of legitimate business normally requires more than one `racketeering activity' and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern.'" Id., quoting S.Rep. No. 817, 91st Cong., 2d Sess. 158 (1969) (emphasis in original).

"Scheme" is defined as "a design or plan formed to accomplish some purpose; a system." Black's Law Dictionary 1206 (5th ed. 1979).

As long as more than one racketeering activity is sufficiently alleged, a "pattern" may exist even if

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