HG Gallimore, Inc. v. Abdula

• Decision Date: 22 January 1987
• Docket Number: 85 C 8767 and 86 C 2742.,No. 85 C 7190,85 C 7190
• Parties: H.G. GALLIMORE, INC., an Illinois corporation, et al., Plaintiffs, v. Fred ABDULA, et al., Defendants. Everett R. LAUER, Plaintiff, v. Dean HUDDLESTON, et al., Defendants. HIDDEN COVE MARINA, INC., a corporation, Plaintiff, v. VILLAGE OF FOX LAKE, a municipal corporation, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

652 F. Supp. 437

H.G. GALLIMORE, INC., an Illinois corporation, et al., Plaintiffs, v. Fred ABDULA, et al., Defendants.

Everett R. LAUER, Plaintiff, v. Dean HUDDLESTON, et al., Defendants.

HIDDEN COVE MARINA, INC., a corporation, Plaintiff, v. VILLAGE OF FOX LAKE, a municipal corporation, et al., Defendants.

Nos. 85 C 7190, 85 C 8767 and 86 C 2742.

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

January 22, 1987.

COPYRIGHT MATERIAL OMITTED

Paul J. Pettit, Phillip J. Zisook, Betar & Petit, P.C., Chicago, Ill., for plaintiffs H.G. Gallimore, Inc., Hal Gallimore, and Virginia Gallimore.

Frederick V. Lochbihler, Richard A. Wohlleber, David T.B. Audley, Chapman & Cutler, Chicago, Ill., for defendants Fred Abdula, Charles Ofenloch, George Harlow and Bank of Waukegan.

Jack F. Clifford, Jack F. Clifford & Associates, Ltd., Chicago, Ill., for plaintiff Everett R. Lauer.

L. Dean Huddleston, pro se.

Joan M. Eagle, Lawrence J. Weiner, Lawrence Jay Weiner & Associates, Chicago, Ill., for defendant Ronald Freund.

Jerome C. Brezinsky, Burton I. Weinstein, Baskin, Server, Berke & Weinstein, Chicago, Ill., for plaintiff Hidden Cove Marina, Inc.

Miriam L. Miquelon, Miquelon & Associates, Ltd., Chicago, Ill., for defendant Robert Schweiss.

MEMORANDUM AND ORDER

MORAN, District Judge.

Three complaints alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., are now pending in this court. In H.G. Gallimore, Inc. et al., v. Abdula, No. 85 C 7190, the plaintiffs allege that the defendants engaged in mail fraud as part of a scheme to induce the individual plaintiffs to encumber personal assets to secure corporate debt. In Lauer v. Huddleston, et al., No. 85 C 8767, the plaintiff alleges that the defendants engaged in mail and wire fraud to induce him to invest in certain oil leases and oil exploration projects in Kentucky. In Hidden Cove Marina, Inc. v. Village of Fox Lake, et al., No. 86 C 2742, the plaintiff alleges that the defendants bribed public officials to secure an exclusive towing contract for the Village of Fox Lake and unincorporated areas of Lake County, Illinois, depriving the plaintiff of a source of business.

Motions to dismiss the RICO claims have been filed in Lauer and Hidden Cove. A motion for judgment on the pleadings has been filed in Gallimore. Because the cases present recurring issues involving the sufficiency of RICO allegations, the court will address all three cases together.

I. GENERAL PLEADING REQUIREMENTS FOR CIVIL RICO CLAIMS

The civil RICO provisions are "constructed on the model of a treasure hunt." Sutliff, Inc. v. Donovan Companies, Inc., 727 F.2d 648, 652 (7th Cir.1984); see Haroco v. American Nat'l Bank & Trust Co. of Chicago, 747 F.2d 384, 386-87 (7th Cir.1984), aff'd, 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). Section 1964(c) provides that "any person injured in his business or property by reason of a violation of section 1962" may recover treble damages from the violator. Section 1962 can be violated in four different ways. It is unlawful (a) "for any person who has received any income ... from a pattern of racketeering activity ... to use any part of such income ... in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce"; (b) "for any person through a pattern of racketeering activity ... to acquire or maintain, directly or indirectly, any interest in or any control of any such enterprise"; (c) "for any person employed by or associated with any such enterprise ... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity"; or (d) "for any person to conspire to violate any of the provisions of" the previous subsections.

A. Elements Essential to All RICO Claims

Certain elements are essential to state a claim under all four subsections of § 1962. These elements consist of (1) a person; (2) an enterprise; (3) racketeering activity which (4) occurred in a pattern, and (5) caused injury.

1. Person

A defendant in a civil RICO claim must be a "person" as that term is defined in § 1961(3):

"person" includes any individual or entity capable of holding a legal or beneficial interest in property....

The "person" need not be associated with organized crime. See, e.g., Cenco Inc. v. Seidman & Seidman, 686 F.2d 449, 457 (7th Cir.), cert. denied, 459 U.S. 880, 103 S.Ct. 177, 74 L.Ed.2d 145 (1982); Bennett v. Berg, 685 F.2d 1053, 1063-64 (8th Cir. 1982), cert. denied, 464 U.S. 1008, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983).

Although the definition of "person" is very broad, the plaintiff should identify each "person" who is alleged to be liable under RICO. See, e.g., Cashco Oil Co. v. Moses, 605 F.Supp. 70, 71 (N.D.Ill.1985) ("Collectivizing `defendants' in the alleged pattern of racketeering activity ... will not suffice."). This is important because an entity can be both a "person" and an "enterprise" under § 1961, but it may not be possible for it to fit both definitions for the same RICO claim. See Masi v. Ford City Bank & Trust Co., 779 F.2d 397, 401-02 (7th Cir.1985) (entity can be both "person" and "enterprise" under § 1962(a)); United States v. DiCaro, 772 F.2d 1314, 1319-20 (7th Cir.1985) (individual cannot be both "person" and "enterprise" under § 1962(c)), cert. denied, ___ U.S. ___, 106 S.Ct. 1458, 89 L.Ed.2d 716 (1986); Haroco, 747 F.2d at 400 (corporation cannot be both "person" and "enterprise" under § 1962(c)); Bruss Co. v. Allnet Communications Services, Inc., 606 F.Supp. 401, 407 (N.D.Ill.1985) (entity cannot be both the liable person and the enterprise under § 1962(b)).

2. Enterprise

Allegations of an "enterprise engaged in, or the activities of which affect, interstate or foreign commerce" are also essential to state a civil RICO claim. The term "`enterprise' includes any individual partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). In United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (1981), the Supreme Court explained that

the enterprise is an entity, for present purposes a group of persons associated for a common purpose of engaging in a course of conduct.... It is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.... The "enterprise" is not the "pattern of racketeering activity"; it is an entity separate and apart from the activity in which it engages.

As the Eighth Circuit summarized, a RICO "enterprise" must exhibit three basic characteristics: (1) common or shared purpose; (2) some continuity of structure and personnel; and (3) an ascertainable structure distinct from that inherent in the conduct of a pattern of racketeering. United States v. Lemm, 680 F.2d 1193, 1198-1201 (8th Cir. 1982), cert. denied, 459 U.S. 1110, 103 S.Ct. 739, 74 L.Ed.2d 960 (1983); see United States v. Neapolitan, 791 F.2d 489, 499 (7th Cir.1986) ("the term `enterprise' encompasses legitimate entities and de facto illegal enterprises...."), cert. denied, ___ U.S. ___, 107 S.Ct. 422, 93 L.Ed.2d 372 (1986); McCullough v. Suter, 757 F.2d 142 (7th Cir.1985) (sole proprietorship can be an "enterprise" with which its proprietor can be "associated"); Bunker Ramo Corp. v. United Business Forms, Inc., 713 F.2d 1272, 1285 (7th Cir.1983) (an enterprise includes the entities listed in § 1961(4) or any combination of them); Otto v. Variable Annuity Life Ins. Co., 611 F.Supp. 83, 89 (N.D.Ill.1985) (conclusory use of the term "enterprise" is insufficient).

The plaintiff must also allege some nexus between the enterprise and interstate commerce. Bunker Ramo, 713 F.2d at 1289. This requirement is met if an enterprise affects interstate commerce through its activities, even if it is the racketeering activities of the enterprise that affect interstate commerce. Id.; United States v. Conn, 769 F.2d 420, 423-24 (7th Cir.1985). The criteria for establishing this nexus are minimal. See United States v. Murphy, 768 F.2d 1518, 1531 (7th Cir.1985) (Circuit Court of Cook County was an enterprise that "affected commerce — in what it bought, in its effect on the lawyers and litigants who appeared before it."), cert. denied, ___ U.S. ___, 106 S.Ct. 1188, 89 L.Ed.2d 304 (1986); Bunker Ramo, 713 F.2d at 1289.

3. Racketeering Activity

All four subsections of § 1962 require allegations of "racketeering activity" to state a claim. Section 1961(1) sets forth a long list of offenses ("predicate offenses") that constitute "racketeering activity." To state a civil RICO claim the plaintiff must allege that the defendants committed offenses that are on the list, and each of those offenses have their own pleading requirements. As the Seventh Circuit held in Ray v. Karris, 780 F.2d 636 (7th Cir.1985):

A complaint is not sufficient if it does not specify the nature of the predicate acts to a degree that will allow the defendants to comprehend the specific acts to which they are required to answer.... The allegations of the criminal activity must ... comply with notice pleading requirements; pure assertions of a statutory violation standing alone are not sufficient.

780 F.2d at 645 (dismissing a RICO claim where mail and wire fraud allegations were insufficient and securities allegations under Rule 10b-5 failed to state a claim); Harris Trust & Savings Bank v. Ellis, 609 F.Supp. 1118, 1122 & n. 8 (N.D.Ill.1985) (complaint that failed to allege interstate wire transmissions did not establish wire fraud as a predicate offense).

In addition, Federal Rule of Civil Procedure 9(b), which requires that allegations of fraud specify "with particularity" the circumstances of the alleged fraud, applies to fraud allegations in a civil...