Northern Trust Bank/O'Hare, NA v. Inryco, Inc.

• Citation: 615 F. Supp. 828
• Decision Date: 29 July 1985
• Docket Number: No. 84 C 2077.,84 C 2077.
• Parties: NORTHERN TRUST BANK/O'HARE, N.A. as Trustee, etc., Plaintiff, v. INRYCO, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

615 F. Supp. 828

NORTHERN TRUST BANK/O'HARE, N.A. as Trustee, etc., Plaintiff, v. INRYCO, INC., et al., Defendants.

No. 84 C 2077.

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

July 29, 1985.

Arthur T. Susman, Michael P. Myers, Joseph, Susman & Myers, Chicago, Ill., for plaintiff.

Stanley J. Parzen, Jonathan C. Medow, Mayer, Brown & Platt, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Northern Trust Bank/O'Hare, N.A. as Trustee under Trust No. 74 L 214 ("Trustee") charges Inryco, Inc. ("Inryco") and others violated 18 U.S.C. §§ 1964(c) and (d) (part of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968¹), as well as state law, when they participated in a construction contract kickback scheme. Inryco now moves under Fed.R.Civ.P. ("Rule") 9(b), 12(b)(1) and 12(b)(6) to be dismissed from the Complaint. For the reasons stated in this memorandum opinion and order, the motion is granted.

Facts²

On October 22, 1979 Trustee contracted with Inryco for construction of a warehouse addition (the "Project") in Franklin Park, Illinois (Complaint ¶ 11(a)³). Inryco designated its employee Jerry Ranke ("Ranke") as Senior Project Manager in charge of construction (¶ 11(b)). Ranke's duties included soliciting bids from subcontractors and awarding subcontracts (¶ 3(b)).

Ranke and Inryco hired Century Concrete Construction Company ("Century") to act as concrete subcontractor for the Project (¶ 11(c)). Ranke then worked out a kickback scheme with Century and its President Nat D'Angelo ("D'Angelo"). That scheme was implemented through a number of payments:

1. On November 19, 1979 Ranke issued a phony work order to Century in the amount of $35,049 (¶ 14(a)). Inryco released funds in that amount to Century, but Century never performed the specified work. On December 20 Century issued a $35,049 check to Ranke under the alias Tom Mann. Ranke converted the funds to his own use through a bank account he had established under the Mann name at First Bank and Trust Company of Palatine ("Palatine Bank") (¶¶ 12(a), 14(c)).

2. Century and D'Angelo later funneled three more kickbacks to Ranke (¶ 15):

                  (a) July 1, 1980       —   $190,000
                  (b) October 27, 1980   —     20,840
                  (c) October 27, 1980   —     18,939
                

Each of those payments also took the form of a Century check made out to Mann and deposited in the Palatine Bank account (id.).

Century did not perform its work in accordance with the Project specifications (¶ 19(b)). Much of the concrete work was performed in an unworkmanlike manner (id.). Trustee charges Ranke is responsible for the defects because he either failed adequately to supervise the work or knowingly permitted Century to perform it in an unsatisfactory manner. Trustee alleges no other injury.

Inryco's Contentions

In support of its motion Inryco asserts a congeries of flaws in the Complaint:

1. It fails to allege sufficient facts to permit a determination whether Trustee is the "real party in interest" (Rule 17(a)) and is hence the proper party to prosecute this action.

2. It alleges injuries not proximately caused by the claimed racketeering activity.

3. It improperly names Inryco as a RICO defendant, because Inryco was a victim of the fraud.

4. It fails to allege a proper "enterprise."

5. It fails properly to allege Inryco conspired to violate RICO.

6. It fails to set out the alleged fraudulent activity with the specificity required by Rule 9(b).

This opinion will not treat with the first of those issues, which is the subject of no more than a footnote in the current briefing (Inryco Mem. 3 n. *) and plainly requires more substantial treatment.⁴ On the other hand, the Complaint's deficient allegations of a "pattern" of racketeering — which were not discussed at all in the parties' briefs⁵ — are dispositive of Inryco's motion and mandate Inryco's dismissal from the Complaint.⁶ Inryco's other grounds will also be discussed briefly, against the possibility Trustee may be able to cure the "pattern" defect in the Complaint.

Lack of a Pattern of Racketeering Activity

Section 1962(c) renders unlawful the conduct, "though a pattern of racketeering activity," of the affairs of an enterprise engaged in, or whose activities affect, interstate commerce. Sections 1962(a) and (b) define other RICO-prohibited activities, each of which also shares the common thread of a "pattern of racketeering activity." Section 1961(1) defines "racketeering activity" as any of a large number of specified illegal acts, including "any act which is indictable under ... 18 U.S.C. section 1341 (relating to mail fraud)." Finally, Section 1961(5) is the only RICO provision that speaks at all to the concept of a "pattern":

"Pattern of racketeering" requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.

At least until recently, commentators and courts have differed in their readings of "pattern" for RICO purposes. Some courts have taken the position that any two acts of racketeering by the same enterprise, no matter how unrelated, establish the requisite pattern. United States v. Weisman, 624 F.2d 1118, 1122-23 (2d Cir.), cert. denied, 449 U.S. 871, 101 S.Ct. 209, 66 L.Ed.2d 91 (1980); United States v. Bright, 630 F.2d 804, 830 n. 47 (5th Cir.1980). By contrast other courts, including our own Court of Appeals, have applied some such requirement of relatedness as this (United States v. Stofsky, 409 F.Supp. 609, 614 (S.D.N.Y.1973), aff'd on other grounds, 527 F.2d 237 (2d Cir.1975), cert. denied, 429 U.S. 819, 97 S.Ct. 65, 50 L.Ed.2d 80 (1976)):

Racketeering acts must have been connected with each other by some common scheme, plan or motive so as to constitute a pattern and not simply a series of disconnected acts.

See United States v. Starnes, 644 F.2d 673, 677-78 (7th Cir.1981), which held acts taken in furtherance of a single criminal end are sufficiently related to satisfy the "pattern" requirement. Starnes, 644 F.2d at 678, like the same court's earlier decision in United States v. Weatherspoon, 581 F.2d 595, 601-02 (7th Cir.1978), rejected the contention that constituent acts do not form a pattern unless they are performed in the course of separate criminal events.

In logical terms, such cases as Starnes and Weatherspoon were only partly right in fleshing out the concept of "pattern." True enough, "pattern" connotes similarity, hence the cases' proper emphasis on relatedness of the constituent acts. But "pattern" also connotes a multiplicity of events: Surely the continuity inherent in the term presumes repeated criminal activity, not merely repeated acts to carry out the same criminal activity. It places a real strain on the language to speak of a single fraudulent effort, implemented by several fraudulent acts, as a "pattern of racketeering activity."

United States v. Moeller, 402 F.Supp. 49, 57-58 (D.Conn.1975) (emphasis in original) made precisely that point in urging both logic and RICO's legislative history require a showing of similar racketeering acts occurring in different criminal episodes:

Three issues arise in considering whether Count 8 states an offense. The first is whether the statutory requirement of a "pattern of racketeering activity" is adequately alleged by an allegation of two acts that occurred in the course of a single criminal episode.

Were the question open, I would have seriously doubted whether the word "pattern" as used in § 1962(c) should be construed to mean two acts occurring at the same place on the same day in the course of the same criminal episode. While the statutory definition makes clear that a pattern can consist of only two acts, I would have thought the common sense interpretation of the word "pattern" implies acts occurring in different criminal episodes, episodes that are at least somewhat separated in time and place yet still sufficiently related by purpose to demonstrate a continuity of activity. I would further have thought that the normal canon of narrowly construing penal statutes points toward such an interpretation. Finally, I would have thought the legislative history made such an interpretation clear. Thus, the Senate Report explains:

The concept of "pattern" is essential to the operation of the statute.... The target of Title IX 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. 91-617, 91st Cong., 1st Sess. 158. (Emphasis added).

It is difficult to see how the threat of continuing activity stressed in the Senate Report could be established by a single criminal episode.

Moeller's analysis was mere dictum. District Judge Newman was foreclosed from applying the rule he advocated because the Court of Appeals for the Second Circuit, like our own Court of Appeals, had previously ruled a pattern could be shown by acts constituting a single criminal transaction. United States v. Parness, 503 F.2d 430, 441-42 (2d Cir.1974), cert. denied, 419 U.S. 1105, 95 S.Ct. 775, 42 L.Ed.2d 801 (1975). But Moeller has now been vindicated, and such cases as Starnes and Parness have been vitiated by the Supreme Court's opinion in Sedima, S.P.R.L. v. Imrex Co., ___ U.S. ___, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985).

To be sure, Sedima, 105 S.Ct. at 3285 n. 14 and 3287 also spoke in dictum. But its message was both plain and deliberate: Lower courts concerned about RICO's expansive potential would be best advised to focus on the hitherto largely ignored "pattern" concept. As Sedima, 105 S.Ct. at 3287 put it:

The "extraordinary" uses to which civil RICO has been put appear to be primarily the result

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