Furman v. Cirrito

• Decision Date: 27 July 1984
• Docket Number: No. 1261,D,1261
• Citation: 741 F.2d 524
• Parties: Fed. Sec. L. Rep. P 91,663, 3 Fed.R.Serv.3d 1284 Aaron J. FURMAN, Alvin Katz, Francis P. Maglio, Martin J. Joel, Jr., Harvey Sheid, Everard M.C. Stamm, Robert C. Stamm, Plaintiffs, Martin J. Joel, Jr., Harvey Sheid, Everard M.C. Stamm, Robert C. Stamm, Plaintiffs-Appellants, v. John CIRRITO, Harold S. Coleman, John A. Miller, Francis G. Rea, Peter M. Toczek, A.J. Yorke, Defendants-Appellees. ocket 84-7113.
• Court: U.S. Court of Appeals — Second Circuit

Page 524

741 F.2d 524

Fed. Sec. L. Rep. P 91,663, 3 Fed.R.Serv.3d 1284

Aaron J. FURMAN, Alvin Katz, Francis P. Maglio, Martin J Joel, Jr., Harvey Sheid, Everard M.C. Stamm Robert C. Stamm, Plaintiffs Martin J. Joel, Jr., Harvey Sheid, Everard M.C. Stamm Robert C. Stamm, Plaintiffs-Appellants, v. John CIRRITO, Harold S. Coleman, John A. Miller, Francis G. Rea, Peter M. Toczek, A.J. Yorke, Defendants-Appellees.

No. 1261, Docket 84-7113.

United States Court of Appeals, Second Circuit.

Argued May 16, 1984.

Decided July 27, 1984.

Seymour Shainswit, New York City (Melanie L. Golden, Kronish, Lieb, Shainswit, Weiner & Hellman, New York City, of counsel), for plaintiffs-appellants.

Max Gitter, New York City (William P. Farley, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, of counsel), for defendants-appellees.

Before CARDAMONE, PRATT, JJ., and DANIEL M. FRIEDMAN, of the United States Court of Appeals for the Federal Circuit, sitting by designation, Circuit Judges.

GEORGE C. PRATT, Circuit Judge.

The main issue on this appeal is one of considerable importance in view of the rapidly growing number of civil actions based on 18 U.S.C. Sec. 1964(c), commonly known as "civil RICO". That issue is whether a plaintiff, in order to state a claim under Sec. 1964(c), must allege a "separate, distinct racketeering enterprise injury", above and beyond the injury caused by the predicate acts of racketeering activity. Noting that the damage allegations in plaintiffs' RICO cause of action were identical to those in their common law fraud claims, the district court, 578 F.Supp. 1535, concluded that no "separate, distinct racketeering enterprise injury" had been alleged, that the RICO claim was therefore legally deficient, and, there being no other basis for federal jurisdiction, that the complaint should be dismissed. Although this panel concludes that neither the language of the statute nor its legislative history imposes such a requirement, we are compelled to affirm the district court's judgment based on the two recently filed, controlling opinions in this court: Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir.1984), and Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir.1984). Both of these cases were argued before the case now before us. The filings of the opinions in all three cases were held up pending a vote by the entire court on a request made within the court for in banc consideration of all three cases. When the in banc request was denied, the opinions were filed, by agreement of the court, in the order in which they were completed. We publish this opinion to express our disagreement with the majority views of the panels in those two cases and to reaffirm the views expressed by Judge Cardamone in his dissents in Sedima, S.P.R.L., and Bankers Trust Co. This opinion will also serve as a record of the dissents by Judge Cardamone and Judge Pratt to this circuit's denial of in banc consideration to Sedima, S.P.R.L., Bankers Trust Co., and the instant case. Without necessarily accepting the rationale of this opinion, Judge Winter also dissents from the denial of in banc consideration.

BACKGROUND

This lawsuit arises out of the sale of the brokerage firm of Bruns, Nordeman, Rea & Co. ("Bruns") to Bache, Halsey, Stewart, Shields, Inc. ("Bache"). Plaintiffs and defendants were all general partners of Bruns. Defendants Rea and Coleman were the managing directors of Bruns; the other defendants, along with Rea and Coleman, comprised the executive committee which formulated Bruns's policies, exercised exclusive control over its affairs, and negotiated the sale to Bache.

Plaintiffs allege that until it was too late in the sale negotiations to help them, defendants did not reveal that Bache had refused to complete the sale unless each partner of Bruns, including the plaintiffs, signed the purchase agreement; that defendants Rea and Coleman made payments, in the form of severance pay, to the other members of the executive committee in order to induce certain misrepresentations to plaintiffs; that defendants negotiated for themselves "sweetheart" employment arrangements with Bache, simultaneously misrepresenting to plaintiffs that these arrangements could not be altered; and that defendants made no effort to explore the merits of another offer to buy Bruns.

The complaint sets forth three causes of action, two of which are pendent state law claims based on common law fraud and breach of fiduciary duty. The civil RICO claim asserts that Bruns constituted an "enterprise" under 18 U.S.C. Sec. 1961(4); that by virtue of their positions defendants "conducted and participated in the affairs" of Bruns within the meaning of Sec. 1962(c); that defendants engaged in a fraudulent scheme of misrepresentations and concealments during their negotiations with Bache; that defendants conducted Bruns's affairs through "a pattern of racketeering activity", as that term is used in Sec. 1962(c); and that, as part of the pattern of racketeering activity and in furtherance of the fraudulent scheme, defendants committed the predicate acts of using mail and wire facilities in violation of 18 U.S.C. Secs. 1341 and 1343.

Plaintiffs allege "injury in their business and property" in that (1) had they been aware from the beginning that their consent was necessary to consummate the sale to Bache, they would have been able to bargain for and receive sums comparable to those received by members of the executive committee from Rea and Coleman; (2) these payments caused the committee members receiving them to refrain from seeking a higher price from an alternate purchaser; (3) had defendants negotiated in good faith on behalf of all the partners, instead of just themselves, each plaintiff could have obtained employment arrangements superior to those that they actually received; and (4) the consideration Bache paid to the partnership was substantially reduced, because Bache absorbed the cost of funding the lucrative employment arrangements negotiated by defendants for themselves. Plaintiffs seek the treble damages and attorney's fees authorized by 18 U.S.C. Sec. 1964(c).

Defendants moved in the district court to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Alternatively, they sought an order compelling plaintiffs to arbitrate the controversy as provided in the partnership agreement. The district court rejected most of defendants' arguments: it concluded that, on the allegations of the complaint, Bruns was an "enterprise", that the sale to Bache was part of the "affairs" of the enterprise, and that defendants had engaged in a "pattern of racketeering activity", all within the meaning of those terms in the RICO statute. However, on the sole ground that plaintiffs were required, but failed, to allege "a separate, distinct racketeering enterprise injury", the district court dismissed the complaint. It did not reach the arbitration question.

On appeal, therefore, we are presented with the narrow issue of whether, in order to state a claim under Sec. 1964(c), a plaintiff must allege "a separate, distinct racketeering enterprise injury". We are not considering whether plaintiffs must allege a connection to organized crime, cf. Moss v. Morgan Stanley, 719 F.2d 5, 21 (2d Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984), whether plaintiffs must show some "competitive injury" as a result of defendants' actions, cf. Schacht v. Brown, 711 F.2d 1343, 1356-58 (7th Cir.), cert. denied, --- U.S. ----, 104 S.Ct. 508, 78 L.Ed.2d 698 (1983); Bennett v. Berg, 685 F.2d 1053, 1059 (8th Cir.1982), aff'd in part and rev'd in part on other grounds, 710 F.2d 1361 (en banc), cert. denied, --- U.S. ----, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983), or whether the statute requires a criminal conviction of the predicate offenses, or of a RICO offense, before a civil RICO claim can be maintained, see Sedima, S.P.R.L. v. Imrex Co., at 497; cf. USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94, 95 n. 1 (6th Cir.1982); Farmers Bank of Delaware v. Bell Mortgage Corp., 452 F.Supp. 1278, 1280 (D.Del.1978).

DISCUSSION

In 1970 congress enacted the Organized Crime Control Act, Pub.L. No. 91-452, 84 Stat. 941. Title IX thereof, codified at 18 U.S.C. Secs. 1961-68, is entitled "Racketeer Influenced and Corrupt Organization Act" (RICO) and prescribes criminal penalties, 18 U.S.C. Sec. 1963, as well as civil remedies, 18 U.S.C. Sec. 1964, for violation of its substantive provisions, 18 U.S.C. Sec. 1962. The case before us concerns the private civil remedies under Sec. 1964(c), particularly treble damages and attorney's fees.

Our analysis must begin with the statutory language. Lewis v. United States, 445 U.S. 55, 60, 100 S.Ct. 915, 918, 63 L.Ed.2d 198 (1980). If unambiguous that language controls, absent "clearly expressed legislative intent to the contrary". United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981) (quoting Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 100 S.Ct. 2051, 64 L.Ed.2d 766 (1980)). Further, in construing this statute we should keep in mind that congress intended that its provisions "shall be liberally construed to effectuate its remedial purposes." Pub.L. No. 91-452, Sec. 904(a), 84 Stat. 947 (1970); see also United States v. Turkette, 452 U.S. at 587, 101 S.Ct. at 2531.

RICO's private civil remedies are authorized by Sec. 1964(c), which provides:

Any person injured in his business or property by reason of a violation of Section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover three fold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

Section 1962(c), the substantive provision that plaintiffs' claim was violated here, provides:

It shall be unlawful for any person employed by or associated with any...