Cook County v. MidCon Corp.
Decision Date | 24 September 1985 |
Docket Number | 83-3160,No. 83-3125,83-3125 |
Citation | 773 F.2d 892 |
Parties | The COUNTY OF COOK, a body politic and corporate, and The People of Cook County, ex rel. Richard M. Daley, State's Attorney of Cook County, and City of Chicago, a municipal corporation and a body politic, Plaintiffs-Appellants, v. MIDCON CORPORATION, et al., Defendants-Appellees. |
Court | U.S. Court of Appeals — Seventh Circuit |
John Touhy & Joseph Witkowski, Shea, Rogal & Assoc. Frank J. Parkerson, Asst. State's Atty., Chicago, Ill., for plaintiffs-appellants.
Michael M. Conway, Hopkins & Sutter, Charles W. Boand, Wilson & McIlvaine, Chicago, Ill., for defendants-appellees.
Before WOOD, CUDAHY and FLAUM, Circuit Judges.
These appeals concern events related to a 1981 corporate reorganization involving Peoples Energy Corporation, MidCon Corporation and their corporate subsidiaries. Plaintiffs, the City of Chicago and the County of Cook, brought a class action on behalf of gas consumers against the various corporate defendants, their officers and directors, and their independent auditor, Arthur Andersen & Co., alleging that defendants had violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-1968, ("RICO") by conducting the affairs of MidCon, Peoples Energy and their subsidiaries through a pattern of racketeering. Specifically, plaintiffs claim that Peoples Energy's two utility subsidiaries, Peoples Gas Light and Coke Company and North Shore Gas Company, engaged in a scheme to defraud which began when those subsidiaries obtained rate increases between 1977 and 1980 on the basis of intentional misrepresentations that such increases were necessary to provide adequate and efficient utility service. Thereafter, plaintiffs allege, the utility subsidiaries diverted the revenues derived from the rate increases by paying excessive dividends to Peoples Energy, which invested the proceeds in nonutility subsidiaries. The scheme allegedly came to fruition in the 1981 reorganization, in which Peoples Energy divested the nonutility subsidiaries to MidCon. Plaintiffs also brought various pendent state claims.
While this suit was pending, a judgment was rendered in a state court action which also concerned the reorganization. Thereafter, the district court granted defendants' motions to dismiss the RICO claims, on the alternative grounds of collateral estoppel and failure to state a claim. The court also dismissed the state law claims on the basis of res judicata and collateral estoppel. Plaintiffs now appeal.
The district court's opinion dismissing plaintiffs' actions is reported at 574 F.Supp. 902 (N.D.Ill.1983). For the convenience of the reader we reprint the district court's statement of facts in its entirety:
(1) Defendants caused the utility subsidiaries to pay excessive dividends to Peoples Energy.
(2) They then used Peoples Energy to invest these dividends in subsidiaries which were nonutilities.
(3) Meanwhile, defendants made misrepresentations to the Illinois Commerce Commission and to the public, stating that these dividends were not excessive and that their investment program would benefit the utility subsidiaries and their consumers.
(4) Defendants made plans to reorganize by transferring the nonutilities to a newly incorporated MidCon Corporation without disclosing those plans to the public until January 1981.
(5) Misrepresentations were made that the reorganization would not result in higher gas rates for the customers of Peoples Gas Light and North Shore and would have no adverse effect on the financial condition of either company.
(6) Finally, in late 1981, the scheme to defraud was consummated when the reorganization took place, leaving the nonutilities with a new corporate parent, MidCon, while North Shore and Peoples Gas Light remained subsidiaries of Peoples Energy. As a result of all the foregoing, plaintiffs allege, the utilities had become under-capitalized and the public, having been deprived of the benefits of assets generated by the utilities, has had to pay higher prices for less efficient...
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