Maryland Staffing Services, Inc. v. Manpower, Inc.

• Decision Date: 19 August 1996
• Docket Number: No. 95-C-1315.,95-C-1315.
• Citation: 936 F. Supp. 1494
• Parties: MARYLAND STAFFING SERVICES, INC., John Chandonnet, Nancy Chandonnet, Plaintiffs, v. MANPOWER, INC., Mitchell S. Fromstein, Jon F. Chait, Terry A. Hueneke, Douglas H. Krueger, James J. Katte, Joseph Long, Milt Berland, Gil Palay, John Does 1-4, et al., Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

936 F. Supp. 1494

MARYLAND STAFFING SERVICES, INC., John Chandonnet, Nancy Chandonnet, Plaintiffs, v. MANPOWER, INC., Mitchell S. Fromstein, Jon F. Chait, Terry A. Hueneke, Douglas H. Krueger, James J. Katte, Joseph Long, Milt Berland, Gil Palay, John Does 1-4, et al., Defendants.

No. 95-C-1315.

United States District Court, E.D. Wisconsin.

August 19, 1996.

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Eric J. Szoke, Monica & Szoke, Far Hills, NJ, for Plaintiffs.

William H. Levit, Jr., Godfrey & Kahn, Milwaukee, WI, for Defendants.

DECISION AND ORDER

WARREN, District Judge.

This case involves a commercial dispute over the appropriate rates of insurance to be charged by a franchisor to a franchisee. In crafting their lawsuit against the defendants, the plaintiffs have chosen the shotgun approach; they have filed an 84-page, 231-paragraph, nineteen-count complaint. A rifle would have provided a better model. See Gagan v. American Cablevision, Inc., 77 F.3d 951, 955 (7th Cir.1996). The defendants might have moved to dismiss the entire prolix complaint on the ground that it fails to include a "short and plain statement of the claim showing the pleader is entitled to relief" as required by Federal Rule 8(a)(2). See Vicom, Inc. v. Harbridge Merchant Services, Inc., 20 F.3d 771, 775-76 (7th Cir. 1994). Instead, they have chosen a more narrowly focused approach and have asked the Court to dismiss each and every count of the complaint for reasons specific to each. For the reasons that follow, the defendants' motion will be granted in part and denied in part, and Counts 1, 2, 4, 5, 6, 7, 9, 10, 11, 12, 13, 14, 15, and 19 of the complaint will be dismissed.

I. BACKGROUND

According to the complaint, plaintiff Maryland Staffing Services, Inc. (Maryland Staffing) entered into a franchise agreement with defendant Manpower, Inc. (Manpower) in 1974. Under the terms of this agreement (which was renewed in 1976, 1978, 1984 and 1994), Maryland Staffing was given exclusive rights to use the corporate name and resources of Manpower and to engage in the business of providing temporary workers to customers under the corporate authority of Manpower in the State of Maryland.

Manpower compensated Maryland Staffing by paying it a percentage of Maryland Staffing's gross profit. The franchise agreement provides that gross profit is to be calculated by deducting certain expenses from Maryland Staffing's total monthly sales. Among these expenses are the costs of all necessary employer liability and workers' compensation insurance coverage for Maryland Staffing's temporary workers. (Franchise Agreement ¶ 5a.) According to the terms of the agreement, Manpower was obligated to provide the funds for this insurance coverage. (Franchise Agreement ¶ 3i.) Manpower then deducted the costs of this insurance from the total sales of Maryland Staffing as part of determining Maryland Staffing's gross profit.

The complaint alleges that beginning in 1987, Manpower began overcharging Maryland Staffing for workers compensation and liability insurance. Thus, the plaintiffs allege, Manpower wrongfully reduced Maryland Staffing's compensation by artificially raising its expenses and thus reducing its gross profit.

On December 27, 1995, the plaintiffs filed this suit asserting nineteen separate causes of action. They assert that Manpower and its employees violated the Racketeer Influenced and Corrupt Organizations Act (RICO), violated federal and state antitrust laws, violated Wisconsin and Maryland franchising laws, and breached numerous common law duties. On February 26, 1996, the defendants filed this motion seeking to dismiss all of the plaintiffs' claims for various deficiencies. The motion is now fully-briefed and ready for resolution.

II. LEGAL STANDARD

Rule 12(b)(6) of the Federal Rules of Civil Procedure permits a district court to dismiss a claim for "failure to state a claim upon which relief can be granted." In evaluating a motion filed under this rule, the Court must accept as true all well-pleaded factual allegations contained in the plaintiffs' complaint and must draw all reasonable inferences in favor of the plaintiffs. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232-33, 81 L.Ed.2d 59 (1984); Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785, 787 (7th Cir.1995); Janowsky v. United States, 913 F.2d 393, 395 (7th Cir. 1990). The Court must deny a motion to dismiss unless it appears beyond doubt that the plaintiffs are unable to prove any set of facts which would entitle them to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Baxter Healthcare, 69 F.3d at 787.

III. DISCUSSION

A. Standing of Individual Plaintiffs.

The defendants first move to dismiss the claims of individual plaintiffs John and Nancy Chandonnet, the owners and officers of Maryland Staffing, on the ground that they lack standing to pursue these claims.

"As a general principle, a corporate shareholder does not have an individual right of action against third persons for damages to the shareholder resulting indirectly from injury to the corporation." Flynn v. Merrick, 881 F.2d 446, 449 (7th Cir.1989). See also Twohy v. First Nat. Bank of Chicago, 758 F.2d 1185, 1194 (7th Cir.1985). There are certain exceptions to this general rule, "such as where a special contractual duty exists between the wrongdoer and shareholder or where the shareholder suffers an injury separate and distinct from that suffered by other shareholders." Twohy, 758 F.2d at 1194 (citations omitted).

The plaintiffs claim that the Chandonnets fit within this latter exception; they claim to have suffered numerous injuries independent from those suffered by the corporation, Maryland Staffing. According to the plaintiffs, "In every count of the complaint, the individual Plaintiffs allege personal pain, suffering, humiliation, emotional distress and mental anguish. These claims arise from mental and physical injuries sustained by the individual plaintiffs as a result of the Defendants' alleged conduct." (Plaintiffs' Brief in Opposition to Defendants' Motion at p. 8.)

The Court rejects the plaintiffs' characterization and concludes that the injuries alleged by the individual plaintiffs are not separate and distinct from those suffered by the corporation. The individual plaintiffs' alleged injuries are derivative of the alleged injuries to Maryland Staffing; the complaint alleges that the individual plaintiffs suffered mental and physical injuries as a result of the financial damages incurred by the corporation. Obviously investors in a firm suffer when the firm incurs a loss, "yet only the firm may vindicate the rights at issue." Flynn, 881 F.2d at 449 (quoting Carter v. Berger, 777 F.2d 1173, 1175 (7th Cir.1985)). As was the case in Flynn, here "it is clear that the alleged injury is an injury to the corporation — an injury to the shareholders was an indirect result of the damage done to the corporation as such, it does not create the necessary direct and independent harm required to maintain shareholder standing." Flynn, 881 F.2d at 449. Maryland Staffing is the only party authorized to vindicate its rights vis a vis Manpower. Accordingly, the defendants' motion will be granted in this regard, and the Chandonnets' claims will be dismissed.

B. Plaintiffs' RICO Claims.

To state a claim upon which relief can be granted under RICO, 18 U.S.C. § 1962(c), plaintiffs must allege that the defendants (1) conducted (2) an enterprise (3) through a pattern (4) of racketeering activity. Sedima S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). The defendants move to dismiss the plaintiffs' RICO claims (Counts 1, 2, 6, and 7) because the plaintiffs have failed to adequately allege the third and fourth elements of the RICO cause of action.¹

1. Racketeering activity.

"Before a RICO plaintiff can allege a `pattern of racketeering activity,' he must plead particular instances of `racketeering activity' or `predicate acts.'" Grove Holding v. First Wisconsin Natl. Bank, 803 F.Supp. 1486, 1501 (E.D.Wis.1992). Here, the plaintiffs allege mail and wire fraud by the defendants as the predicate acts of racketeering activity to support their RICO claims.

In order to establish mail or wire fraud under 18 U.S.C. §§ 1341 and 1343, the plaintiffs must ultimately prove (1) that the defendants devised a scheme to defraud the plaintiffs; (2) that the defendants used the United States mails or caused interstate wire communications to take place for the purpose of executing that scheme; and (3) that the defendants did so knowingly and with the intent to defraud. See Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 362-63, 98 L.Ed. 435 (1954); United States v. Walker, 9 F.3d 1245, 1249 (7th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 1863, 128 L.Ed.2d 485 (1994). The defendants claim that the complaint fails to adequately allege these elements because it fails to allege that the defendants acted with the requisite intent to defraud and because it fails to allege fraud with particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure.

a. Intent to defraud.

In order to adequately allege mail or wire fraud as RICO predicate acts, the plaintiffs must plead scienter; they must allege that the defendants intentionally deceived the plaintiffs. See Grove Holding, 803 F.Supp. at 1501. In support of their motion to dismiss, the defendants claim that "Maryland Staffing does not allege that any one of the individual defendants possessed the requisite scienter. Rather, it simply claims that, by virtue of their positions with Manpower, one or more of the defendants ... knew Manpower was overcharging for insurance." (Memorandum of Defendants at p. 8.) Therefore, according to the defendants, the "Complaint does not allege which defendant(s) allegedly had the necessary criminal intent. Thus, it...