McIntyre's Mini Computer v. Creative Synergy Corp.

• Decision Date: 30 July 1986
• Docket Number: No. 86CV70620DT.,86CV70620DT.
• Citation: 644 F. Supp. 580
• Parties: McINTYRE'S MINI COMPUTER SALES GROUP, INC., Plaintiff/Counter-Defendant v. CREATIVE SYNERGY CORPORATION, Defendants/Counter-Plaintiff, Van Brocklin, Stewart, Mannings, Chalmers, Hanson Data Systems, Inc. and Computer Repair Center, Defendants and COMPUTER REPAIR CENTER, Cross-Plaintiffs, v. CREATIVE SYNERGY, Van Brocklin, Stewart and Mannings, Cross-Defendants, and CREATIVE SYNERGY CORP., Cross-Plaintiff, v. Michael VAN BROCKLIN and Kevin Stewart, Cross-Defendants.
• Court: U.S. District Court — Western District of Michigan

644 F. Supp. 580

McINTYRE'S MINI COMPUTER SALES GROUP, INC., Plaintiff/Counter-Defendant v. CREATIVE SYNERGY CORPORATION, Defendants/Counter-Plaintiff, Van Brocklin, Stewart, Mannings, Chalmers, Hanson Data Systems, Inc. and Computer Repair Center, Defendants and COMPUTER REPAIR CENTER, Cross-Plaintiffs, v. CREATIVE SYNERGY, Van Brocklin, Stewart and Mannings, Cross-Defendants, and CREATIVE SYNERGY CORP., Cross-Plaintiff, v. Michael VAN BROCKLIN and Kevin Stewart, Cross-Defendants.

No. 86CV70620DT.

United States District Court, E.D. Michigan, S.D.

July 30, 1986.

Richard A. Rossman, Detroit, Mich., Michael T. Scott, Philadelphia, Pa., for plaintiff.

Francis P. Ortiz, Detroit, Mich., Robert N. Berg, Atlanta, Ga., for Creative Synergy Corp.

Thomas F. Wieder, Ann Arbor, Mich., for Newman.

Robin K. Andrews, Detroit, Mich., Ronald F. Kehoe, Boston, Mass., Edward C. Saltzburg, Woburn, Mass., Robert H. Janover, Bloomfield Hills, Mich., for Hanson Data Systems.

Thomas G. Smith, Rochester, N.Y., for Delta Computer.

Dennis A. Dettmer, Detroit, Mich., for Kevin Stewart.

MEMORANDUM OPINION AND ORDER

PHILIP PRATT, Chief Judge.

This is an action arising out of the alleged theft of trade secrets from the plaintiff by some of the defendants which were then sold to other of the defendants. The plaintiff filed a multiple-count complaint, charging violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and of Michigan common law. The defendants now move for dismissal pursuant to Fed.R. Civ.P. 12(b)(6).

McIntyre's Mini Computer, the plaintiff, is a distributor of used computer equipment. It maintains a list of accounts, potential customers and other information in a computer program. In November of 1984, plaintiff sought the advice of defendant Creative Synergy, a software consulting firm, regarding possible modifications of its systems. It is alleged that Creative Synergy, through its employees, defendants Michael Van Brocklin, Kevin Stewart, Gerry Manning and Geoffrey Chalmers, stole the plaintiff's confidential customer list in the process of doing work for the plaintiff. The plaintiff claims that the purloined list was then sold to the remaining defendants, Hanson Data Systems ("Hanson"), Delta Computech, Inc. ("Delta"), Computer Repaid Center ("CRC") and Newman Computer Exchange ("Newman").¹

Six of the eight counts of this complaint allege RICO violations. The defendants are in each count alleged to have violated both the substantive provisions of RICO, 18 U.S.C. § 1962(c), and to have conspired to violate RICO, 18 U.S.C. § 1962(d). Creative Synergy and its employees are named in each count. Delta is named in Count 2, Hanson in Count 3, CRC in Count 4, CRC and Newman in Count 5, and all defendants are named in Count 6.² In addition, all the defendants are charged with the misappropriation of trade secrets (Count 7) and fraud (Count 8).

When deciding a motion to dismiss for failure to state a claim upon which relief can be granted brought pursuant to Fed.R. Civ.P. 12(b)(6), the plaintiff's allegations must be accepted as true, and the complaint dismissed only "if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1983). As the several motions to dismiss are all brought on similar grounds, the court will treat them as one.³

To state a civil cause of action under RICO, the plaintiff must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of "racketeering activity" which has caused injury to the plaintiff. Sedima, S.P.R.L. v. Imrex Co., Inc., ___ U.S. ___, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). On its face, the plaintiff's complaint appears to have met three of the four elements. Creative Synergy, along with its employees, Van Brocklin, Stewart, Manning and Chalmers, arguably operated in the form of an enterprise. The Supreme Court has held that to establish an enterprise under 18 U.S.C. §§ 1961(4) and 1962(c), there must be evidence that the defendants function as a "continuing unit," and that the enterprise must have an existence "separate and apart from the pattern of activity in which it engages." United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (1981). The circuits are divided as to how to interpret the "separate and apart" requirement, with some holding that a RICO enterprise have an ascertainable existence apart from the alleged wrongful conduct, United States v. Bledsoe, 674 F.2d 647 (8th Cir.1982), cert. denied, 459 U.S. 1040, 103 S.Ct. 456, 74 L.Ed.2d 608 (1982); United States v. Riccobene, 709 F.2d 214 (3rd Cir.1983), cert. denied, 464 U.S. 849, 104 S.Ct. 157, 78 L.Ed.2d 145 (1983); United States v. Tillett, 763 F.2d 628 (4th Cir. 1985); Allington v. Carpenter, 619 F.Supp. 474 (D.Cal.1985), while others have held that an enterprise existed where it was no more than the sum of the predicate racketeering acts. United States v. Bagaric, 706 F.2d 42 (2d Cir.1983), cert. denied, 464 U.S. 840, 104 S.Ct. 134, 78 L.Ed.2d 128; United States v. Weinstein, 762 F.2d 1522 (11th Cir.1985), cert. denied ___ U.S. ___, 106 S.Ct. 1519, 89 L.Ed.2d 917 (1986). This split in authority does not impact this case, as Creative Synergy and its employees certainly form an ongoing enterprise which has an existence separate and distinct from the conduct with which they are charged.

The plaintiff has also properly alleged that the defendants engaged in racketeering activity. Racketeering activity is defined in 18 U.S.C. § 1961 as including any act indictable under certain criminal statutes. The defendants are accused of having used the mails and wire communications to perpetrate their scheme, in violation of 18 U.S.C. §§ 1341 and 1343, and with having transported stolen property in interstate commerce in violation of 18 U.S.C. §§ 2314-15. Violation of any of these statutes are predicate acts to a RICO claim.⁴

The element which poses a problem in this case is that the plaintiff must allege that the defendants engaged in a pattern of racketeering activity. 18 U.S.C. § 1961(5) says that a pattern "requires at least two acts of racketeering activity, one of which occurred within ten years ... after the commission of a prior act of racketeering activity." In a rather lengthy footnote, the Supreme Court has invited courts to develop rigorous standards for what constitutes a pattern of racketeering activity.

As many commentators have pointed out, the definition of a "pattern of racketeering activity" differs from the other provisions in § 1961 in that it states that a pattern "requires at least two acts of racketeering activity," § 1961(5) (emphasis added), not that it "means" two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common parlance two of anything do not generally form a "pattern." The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: "The target of RICO is thus not sporadic activity. The infiltration of legitimate business normally requires more than one `racketeering activity' and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern." S.Rep. No. 91-617, p. 158 (1969) (emphasis added). Similarly, the sponsor of the Senate bill, after quoting this portion of the Report, pointed out to his colleagues that "the term `pattern' itself requires the showing of a relationship.... So, therefore, proof of two acts of racketeering activity, without more, does not establish a pattern...." 116 Cong.Rec. 18940 (1970) (statement of Sen. McClellan). See also id., at 35193 (statement of Rep. Poff) (RICO "not aimed at the isolated offender"); House Hearings at 665. Significantly, in defining "pattern" in a later provision of the same bill, Congress was more enlightening: "criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." 18 U.S.C. § 3575(e). This language may be useful in interpreting other sections of the Act. Cf. Iannelli v. United States, 420 U.S. 770, 789, 95 S.Ct. 1284, 1295, 43 L.Ed.2d 616 (1975).

Sedima, S.P.R.L. v. Imrex Co., Inc., ___ U.S. ___, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346.⁵ Many lower courts have accepted the Supreme Court's invitation, and have held that where the predicate acts all occurred in the course of a single scheme to defraud the victim, a pattern of racketeering activity had not been established. Northern Trust Bank/O'Hare, N.A. v. Inryco, Inc., 615 F.Supp. 828 (N.D.Ill.1985); Professional Assets Manage. v. Penn Square Bank, 616 F.Supp. 1418 (D.Okla. 1985); Allington v. Carpenter, 619 F.Supp. 474 (D.Cal.1985); Frankart Distributors, Inc. v. RMR Advertising, Inc., 632 F.Supp. 1198 (S.D.N.Y.1986); Superior Oil Co. v. Fulmer, 785 F.2d 252, (8th Cir. 1986).

The requirement that the predicate acts must have occurred in different criminal episodes is consistent with Congress' intent to exclude isolated criminal conduct from RICO liability. See Sedima, 105 S.Ct. at 3285 n. 14. While it is true that Congress intended RICO to reach both legitimate and illegitimate enterprises, Id., RICO ought not be used as a basis for federal question jurisdiction in every "garden variety" fraud case. As one court has noted, "most substantial business transactions involved two or more uses of the mail during negotiations. To hold that two such acts are sufficient to constitute a `pattern of racketeering activity' would be to sweep into federal courts, under RICO, the great majority of action for fraud in commercial transactions." Medallion T.V....