Horwitz v. Alloy Automotive Co.
| Decision Date | 23 March 1987 |
| Docket Number | No. 84 C 10909.,84 C 10909. |
| Citation | 656 F. Supp. 1039 |
| Parties | Donald A. HORWITZ and Wesco Products Company, Plaintiffs, v. ALLOY AUTOMOTIVE COMPANY; Sheldon Gray; and Avrum Gray, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
J. Barton Kalish, Kenneth W. Bley, Anthony V. Ponzio, John E. Geirum, J. Douglas Weingarten, Chicago, Ill., for plaintiffs.
Lionel G. Gross, Rex A. Logemann Altheimer & Gray, Chicago, Ill., for defendants.
Before this court is defendants' motion to dismiss Counts I-IV of plaintiffs' Second Amended Complaint for failure to state a claim upon which relief can be granted. Plaintiffs' complaint is based primarily on the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962. Jurisdiction is based on 28 U.S.C. §§ 1331 and 1337, and 18 U.S.C. § 1964. For the reasons stated herein, defendants' motion is denied.
The following facts are alleged in plaintiffs' complaint. For purposes of this order they are considered to be true.
Plaintiff Wesco Products Company (Wesco), an Illinois corporation, manufactured and sold automotive parts. Defendant Alloy Automotive Company (Alloy), an Illinois corporation, manufactures and sells automotive parts that are identical to the parts Wesco manufactured.
Prior to 1980, Wesco and Alloy had been direct competitors. In 1980, Wesco suffered financial problems and defaulted on loans made by Continental Bank of Illinois. Unable to restore its financial health, Wesco filed a petition for reorganization under Chapter 11 on October 10, 1980.
In March 1981, Wesco and Alloy entered into an agreement (1981 Agreement). Alloy agreed to purchase a portion of Wesco's assets and obtain a license from Wesco to use Wesco's trademark and trade name. In return, Alloy agreed to manage Wesco's daily operations. The bankruptcy court approved the 1981 Agreement.
Wesco commenced an adversary proceeding in the bankruptcy court against Alloy and Continental Bank on September 21, 1981. This action was consolidated with the original bankruptcy proceeding. Wesco voluntarily amended its adversary complaint in response to Alloy's motion to dismiss.
On February 3, 1982, Wesco filed an amended adversary complaint alleging breach of contract, breach of fiduciary duty, fraud, negligence, and conversion. Wesco contended Alloy committed the following acts: (1) caused Wesco to mail bulletins announcing the combination of the two companies; (2) compelled Wesco to purchase useless, unneeded products from Alloy; (3) sold goods to Wesco at prices higher than those normally charged to Alloy's customers; (4) compelled Wesco to pay unearned compensation to Alloy; (5) directed the discharge of numerous Wesco employees; and (6) misappropriated the Wesco trademark. The above acts were allegedly performed to gain control and domination over Wesco.
On June 3, 1982, the bankruptcy court granted Alloy's motion to dismiss the amended adversary complaint. The bankruptcy court concluded that Wesco failed to state a claim upon which relief can be granted under federal Rule 12(b)(6). The court reasoned that Wesco's amended complaint was insufficient since it was framed in a general and conclusory fashion. In addition, the court found that those claims based on fraudulent conduct were not pled with sufficient particularity as required by Rule 9(b).
Wesco filed a second amended adversary complaint. Wesco ceased doing business soon thereafter. Its assets were sold in the course of the bankruptcy proceedings. Consequently, on January 11, 1985, the bankruptcy court dismissed the underlying Chapter 11 proceeding because the debtor failed to file a plan of reorganization and the estate's only remaining asset was the potential proceeds of the adversary proceeding itself. The remaining adversary proceeding was dismissed because it was rendered moot by the dismissal of the bankruptcy case.
On December 12, 1984, Wesco commenced the action before this court. After a hearing on defendants' motion to dismiss, Wesco voluntarily amended its complaint. This court granted defendants' revised motion to dismiss, but allowed plaintiffs to file a second amended complaint.
In the Second Amended Complaint, Wesco asserts both federal claims and pendent common law claims. Count I alleges RICO violations, 18 U.S.C. § 1962. Wesco seeks damages in Counts II, III, and IV under several common law theories: breach of contract, unjust enrichment, constructive trust, and resulting trust. In addition, Counts V and VI, the sufficiency of which Alloy does not contest, allege Trade Mark and Unfair Competition violations, 15 U.S.C. §§ 1114 and 1125(a). Finally, in Count VII, Wesco alleges violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121½, ¶¶ 262-272 and 311-317 and the Illinois Anti-Dilution Act, Ill.Rev.Stat. ch. 140, ¶ 22.
On a motion to dismiss, the Federal Rules of Civil Procedure mandate that a complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to the requested relief. Thus, this court will construe the complaint in the light most favorable to Wesco, the allegations thereof being taken as true. Mathers Fund, Inc. v. Colwell Co., 564 F.2d 780, 783 (7th Cir.1977).
Alloy provides four grounds to support its motion to dismiss Counts I-IV: (1) the RICO count fails to state a claim; (2) the agreements which Alloy allegedly breached were unenforceable; (3) Wesco failed to plead fraud with sufficient particularity; and (4) the claims are time-barred, waived, or estopped. Alloy does not move to dismiss Counts V-VII. This court will discuss each count separately.
Defendants move to dismiss plaintiffs' RICO claims. (Hereinafter plaintiffs will be referred to collectively as Wesco.) Defendants argue that Wesco failed to properly allege the predicate acts necessary to support a RICO claim. In addition, defendants contend that Wesco failed to plead a pattern of racketeering activity. Defendants also maintain that Wesco's RICO claim is time-barred.
In contrast, Wesco refutes defendants' motion to dismiss. Wesco reasons that this court previously held that defendants' RICO claims were successfully alleged. Therefore, this court should not reconsider a decision made prior to final judgment absent clear and convincing reasons to reexamine the prior ruling.
This court finds that Wesco properly pled their RICO claims in the Second Amended Complaint under § 1962(a) through (d). Wesco set forth the predicate acts and alleged the requisite pattern of racketeering activity required for each RICO claim.
Section 1964 of the Racketeer Influenced and Corrupt Organizations Act enables a private plaintiff to bring a civil rights suit based on a violation of Section 1962. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). In the instant case, Wesco's RICO count attempts to state claims under Section 1962(a) through (d).
A violation of § 1962(a) requires the receipt of income from a pattern of racketeering, and the use of that income in the operation of an enterprise. Masi v. Ford City Bank and Trust Co., 779 F.2d 397, 401 (7th Cir.1985). A violation of § 1962(b) requires a person engaging in a pattern of racketeering activity to acquire or maintain an interest in an enterprise engaged in interstate commerce. A § 1962(c) violation requires a person employed by an enterprise to participate in the conduct of such enterprise's affairs through a pattern of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). Finally, a § 1962(d) violation requires a person to conspire to violate any subsection of § 1962. In all sections, a crucial element of the claim is the existence of a pattern of racketeering activity.
A pattern of racketeering activity requires at the barest minimum two predicate acts of racketeering activity. Wesco properly pled the predicate acts necessary to support an allegation that defendants engaged in a pattern of racketeering activity. Wesco specifically alleged acts of mail and wire fraud. Mail and wire fraud claims consist of two elements. The first element is a scheme to defraud. The second element is the use of the mails and wires in furtherance of the scheme to defraud. Systems Research, Inc. v. Randon, Inc., 614 F.Supp. 494, 498 (N.D.Ill. 1985). In the instant case, Wesco satisfied both elements of mail and wire fraud. First, Wesco alleged the existence of a scheme to defraud. Second, Wesco articulated the alleged scheme in detail in the Second Amended Complaint. Finally, Wesco alleged that defendants used the mails and wires in furtherance of defendants' scheme to defraud.
Wesco also satisfied the requirements for pleading a pattern of racketeering activity. The Seventh Circuit set forth the pleading requirements in Morgan v. Bank of Waukegan, 804 F.2d 970 (7th Cir.1986). In Morgan, defendants made false representations which induced plaintiffs to invest money and pledge security in a speculative venture. The defendant bank agreed to lend money to the venture. In return, plaintiffs were persuaded to enter into a land trust agreement conveying a beneficial interest in their home to the bank. Two years later, when the venture defaulted, the individual defendants formed a new corporation and with the bank's consent purchased the initial venture's remaining assets. The same scenario was repeated two years later to form another new corporation. Mailings were made in connection with the initial loan arrangement and the creation of both corporations. When this third corporation failed, the defendant bank foreclosed on plaintiffs' home.
Plaintiffs instituted an action alleging a RICO violation. Defendants moved to dismiss for...
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