Landon v. GTE Communications Services Inc., 88 C 0932.
Decision Date | 27 September 1988 |
Docket Number | No. 88 C 0932.,88 C 0932. |
Citation | 696 F. Supp. 1213 |
Parties | Wayne LANDON and Janel Landon, Plaintiffs, v. GTE COMMUNICATIONS SERVICES INCORPORATED, a Delaware corporation, and US Telecom, Inc., a Kansas corporation, Defendants. |
Court | U.S. District Court — Northern District of Illinois |
J. Reed Millsaps, Stephanie J. Hayes, Phyllis W. Monks, Lewis F. Matuszewich, P.C., Chicago, Ill., for plaintiffs.
Michael W. Ward, Henry T. Kelly, O'Keefe, Ashenden, Lyons & Ward, Gregory J. Schroedter, Eric J. Avram, Charles G. Albert, Laurie D. Jaffe, Bell Boyd & Lloyd, Chicago, Ill., for defendants.
Plaintiffs Wayne and Janel Landon bring this four-count action against GTE Communications Services, Inc. ("GTE") and U.S. Telecom, Inc. ("US Telecom") charging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. (1978), and breaches of various state law duties. Defendants move to dismiss all counts and seek reimbursement for costs and fees under Fed.R. Civ.P. 11. For the following reasons, we grant the motion to dismiss and deny the motion for sanctions.
GTE and US Telecom marketed through US Telecom's subsidiary ISA Communication Service, Inc. ("ISACOMM") and later through U.S. Sprint, successor to ISACOMM, a video services package called "the Meeting Channel" that allows organizations and companies to arrange conferences in which participants at specified locations throughout the United States communicate via satellite. In late 1983, Wayne Landon and ISACOMM discussed the possibility that Travelbound, Inc., a travel agency owned by the Landons, would act as a broker for ISACOMM, selling conference time at ISACOMM's Chicago facility. On February 17, 1984, and again in later telephone conversations, ISACOMM representatives told Wayne Landon that ISACOMM would set up the Chicago facility at the Olympia & York Centre. Based on this representation as well as other representations as to a broker's projected revenues and the expected facilities that would be available nationally, Travelbound signed an agreement with ISACOMM ("Broker Agreement"). In furtherance of their duties under the Broker Agreement, the Landons prepared brochures to advertise the Meeting Channel and began to seek customers.
ISACOMM failed to establish a conference facility at the Olympia & York Centre and then proposed in April 1985 that the Landons host a Chicago facility — i.e., arrange a location and operate the facility. Before accepting the proposal, the Landons asked ISACOMM to provide information as to current and projected public use of such facilities. Despite results of its own survey indicating unfavorable public use, ISACOMM stated that it could not accurately determine public use but that in general current and projected use were good. The Landons then organized Electronics Meetings, Inc. ("EMI") to operate a Chicago facility for the Meeting Channel, and on August 13, 1985, ISACOMM and EMI entered into a Teleconference Equipment and Communications Services Agreement ("Services Agreement").
In furtherance of their obligations under this contract, the Landons obtained loans from the Small Business Administration, executed a new lease for EMI and Travelbound, hired additional staff and incurred various other expenses in preparation of the facility. On January 1, 1986, Travelbound and EMI moved into the facility. ISACOMM, now US Sprint, promised to install all of the required equipment for the facility by January 15, 1986, but did not actually install the equipment until three months later. US Sprint also failed to fulfill its promise to advertise the Meeting Channel locally and to assist in the operation of the facility. In June 1987, the Landons closed EMI and the Meeting Channel facility, and on February 1, 1988, filed this four-count action charging a violation of RICO, fraudulent misrepresentation, negligent misrepresentation and breach of the Services Agreement's covenant of good faith and fair dealing. Defendants move to dismiss all counts.
The Landons charge in Count I that US Telecom and GTE operated ISACOMM and US Sprint through a pattern of racketeering activity in furtherance of a scheme to defraud the Landons in violation of RICO, § 1962(c).2 Defendants contend that the Landons have failed to satisfactorily plead a pattern of racketeering activity and predicate acts of mail and wire fraud. We address each contention in turn and dismiss the claim for failure to plead acts of fraud with particularity.
Congress defined a "pattern" to be "at least two acts of racketeering activity ... the last of which occurred within ten years of the first." 18 U.S.C. § 1961(5). This conceptually simple definition has been the source of extensive litigation since the Supreme Court rejected two isolated acts as a basis for RICO liability and suggested that the acts must have "continuity plus relationship which combines to produce a pattern." Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985). The Seventh Circuit recently reviewed its line of decisions that establish the factual allegations necessary to plead "continuity plus relationship" and summarized their holdings:
In order for the predicate acts to be sufficiently continuous to amount to a pattern of racketeering activity, "the predicate acts must be ongoing over an identified period of time so that they can fairly be viewed as constituting separate transactions, i.e., `transactions somewhat separated in time and place.'" And at the same time, there must be a "relationship among activities — i.e., activities leading up to coordinated action." (Citations omitted). Medical Emergency Service Associates, S.C. v. Foulke, 844 F.2d 391, 395 (7th Cir.1988).
In balancing the continuity and relationship requirements to determine whether the plaintiff has pled a pattern, a court must focus on the following factors:
the number and variety of predicate acts and the length of time over which they were committed, the number of victims, the presence of separate schemes, and the occurrence of distinct injuries. Id.
The Seventh Circuit has provided some guidelines to aid in this fact-specific inquiry. Generally, in cases such as this in which there is a single victim of the alleged racketeering, the plaintiff must be able to reasonably characterize the several predicate acts "as amounting to separate and distinct transactions in time and place" (relationship) that together can be considered to constitute a scheme to defraud the plaintiff (continuity). Id. In Morgan v. Bank of Waukegan, 804 F.2d 970 (7th Cir.1986), the court found a pattern in allegations that the multiple acts of fraud could be grouped as part of three separate transactions —two foreclosure sales and a loan transaction, each injuring the plaintiff. Similarly, in Appley v. West, 832 F.2d 1021 (7th Cir.1987), the court held that two acts of concealing the conversion of funds from two separate bank accounts constituted a pattern since each act related to an independent transaction and independently injured the plaintiff in a single scheme to defraud the plaintiff. See also Liquid Air Corp. v. Rogers, 834 F.2d 1297 (7th Cir. 1987) ( ); Illinois Department of Revenue v. Phillips, 771 F.2d 312 (7th Cir.1985) ( ); Ghouth v. Conticommodity Services, Inc., 642 F.Supp. 1325 (N.D.Ill.1986) ( ).3
For purposes of this inquiry, the Landons are a single victim since it is essentially their joint interests in Travelbound and EMI that were affected as a result of the defendants' actions. Defendants contend that the alleged predicate acts of racketeering relate solely to a single transaction — "the conduct of GTE and US Telecom in relation to Travelbound and EMI under the Broker Agreement and the Teleconference Equipment Agreement." This mischaracterizes the four-year relationship between the parties. Reading the complaint as a whole, we view the alleged racketeering acts4 as related to at least two separate and distinct transactions and resulting in independent injuries to the Landons. First, through misrepresentations in 1983 and 1984 as to projected broker revenues and the availability of Meeting Channel facilities nationally and in Chicago, defendants induced the Landons to enter into a Broker Agreement and thereby expend funds for marketing the channel. Second, through misrepresentations as to host profitability and the public use of facilities, defendants induced the Landons to enter into the Services Agreement and thereby assume various loan and lease obligations and expend funds to operate EMI. Each transaction involved a separate contract and took place during separate time periods. That both transactions arose out of the parties' common interest in the Meeting Channel does not deprive them and the accompanying injuries to the Landons of their distinctiveness for purposes of this analysis. Accordingly, the Landons have satisfactorily pled a pattern.
The Landons have, however, failed to plead predicate acts of racketeering by the defendants with...
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