Police Retirement System v. Midwest Inv. Ad. Serv., 87-1076 C (5).

CourtUnited States District Courts. 8th Circuit. United States District Court (Eastern District of Missouri)
Citation706 F. Supp. 708
Docket NumberNo. 87-1076 C (5).,87-1076 C (5).
Decision Date10 February 1989

706 F. Supp. 708


No. 87-1076 C (5).

United States District Court, E.D. Missouri.

February 10, 1989.

706 F. Supp. 709
706 F. Supp. 710
The Stolar Partnership, Charles Alan Seigel, Andrew F. Puzder, St. Louis, Mo., for plaintiff

Albert A. Michenfelder Jr., Steven W. Koslovsky, St. Louis, Mo., for Guar. Trust and Finch.

Byron E. Francis, Catherine D. Perry, Armstrong, Teasdale, Kramer, Vaughan & Schlafly, St. Louis, Mo., for E.F. Hutton & Co., Inc.

Thomas J. DeGroot, Alan Popkin, Susan Sherberg, Popkin & Stern, Clayton, Mo., for James Bridges, and Midwest Inv.

Barry A. Short and Richard B. Walsh Jr., Lewis & Rice, St. Louis, Mo., for I.M. Simon & Co., Inc.

David V. Capes, Rosenblum, Goldenhersh, Silverstein & Zafft, St. Louis, Mo., for Angelo Parato.

Edward L. Dowd, Dowd & Dowd, St. Louis, Mo., for Thomas D. Pixley.

Kenton E. Kickmeyer, Thompson & Mitchell, St. Louis, Mo., for Paine Webber, Jackson & Curtis.

Arthur S. Margulis, Richard Eisen, Margulis & Grant, St. Louis, Mo., for Diversified Consultants, Donald Anton and Dotto Enterprises.

Thomas Flynn, St. Louis, Mo., for Klein.

Lewis C. Green, St. Louis, Mo., for U.S. A. Continental.

James J. Maloney, New York City, Donald L. Wolff, Clayton, Mo., for Anthony Daniele.

Susan L. Seigel, Memphis, Tenn., for Vining-Sparks.


LIMBAUGH, District Judge.

Plaintiff, The Police Retirement System of St. Louis (Retirement System), filed a 21-count amended complaint on September 7, 1988, alleging that the 17 defendants participated in various schemes to defraud the Retirement System and divert its assets

706 F. Supp. 711
to certain individuals and entities. The complaint includes allegations of RICO violations, securites fraud, churning, fraud, breach of fiduciary duty and breach of contract. The federal law claims are brought under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (Counts 1 through 3) and Section 27 of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78aa (Counts 4 through 8). The remainder of the complaint is premised on the Court's pendent jurisdiction over state claims. The Court has before it for disposition the motions to dismiss of 13 defendants and three motions to compel

The Court is bound by a stringent standard in passing on a motion to dismiss. A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). The complaint must be viewed in the light most favorable to the plaintiff and should not be dismissed merely because the court doubts that a plaintiff will be able to prove all the necessary factual allegations. Bennett v. Berg, 685 F.2d 1053, 1058 (8th Cir.1982). "Thus, as a practical matter, a dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegation that show on the face of the complaint that there is some insuperable bar to relief." Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir.1982).

I. The RICO Claims.

Section 1964(c) of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968, authorizes civil recovery for violations of § 1962 of that Act. Plaintiff alleges in Counts 1, 2 and 3 that defendants (excluding Paine Webber, Daniele and Vining-Sparks) violated 18 U.S.C. §§ 1962(c) and (d). The RICO Act makes it unlawful for a person associated with an enterprise to conduct the affairs of an enterprise through a pattern of racketeering activity. 18 U.S.C. § 1962(c). Section 1962(d) makes it illegal for any person to conspire to violate § 1962(c). In their motions to dismiss, defendants argue that plaintiff has failed to state a RICO claim and that it has not been pled with the particularity required by Fed.R.Civ.P. 9(b).

A. Enterprise Requirement.

To state a claim under RICO, plaintiff must allege that the racketeering activity is connected with an "enterprise." The RICO statute defines "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4).

In United States v. Lemm, 680 F.2d 1193 (8th Cir.1982), cert. denied, 459 U.S. 1110, 103 S.Ct. 739, 74 L.Ed.2d 960 (1983), the Eighth Circuit outlined the three basic characteristics of a RICO enterprise: "(1) common or shared purpose; (2) some continuity of structure and personnel; and (3) an ascertainable structure distinct from that inherent in the conduct of a pattern of racketeering." Id. at 1198. The Retirement System is a statutorily created pension trust which provides retirement and death benefits to City of St. Louis police officers and their beneficiaries. It has a legitimate, legal purpose separate and apart from the fraudulent acts alleged in plaintiff's complaint. The Court holds, therefore, that the Retirement System is an "enterprise" within the meaning of 18 U.S. C. § 1961(4).

B. Pattern of Racketeering Activity.

The Eighth Circuit has taken an extremely narrow view of what constitutes a pattern of racketeering activity. The court discussed this element in Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir.1986). Drawing from language in the landmark Supreme Court case Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), the court held that "proof of a `pattern of racketeering activity' requires more than one `racketeering activity' and the threat of continued activity to be effective. It is this factor of continuity plus relationship which combines

706 F. Supp. 712
to produce a pattern." Superior Oil, 785 F.2d at 257 (citing Sedima, 473 U.S. 496 n. 14, 105 S.Ct. 3285 n. 14) (emphasis in original)

Since the court's decision in Superior Oil, the Eighth Circuit has consistently held that where all the predicate acts were committed in furtherance of a single scheme, there is not sufficient continuity among the acts to meet the pattern requirement. Holmberg v. Morrisette, 800 F.2d 205, 209-10 (8th Cir.1986), cert. denied, 481 U.S. 1028, 107 S.Ct. 1953, 95 L.Ed.2d 526 (1987). The test formulated by the Eighth Circuit is whether defendants have engaged in similar endeavors in the past, whether they were engaged in similar activities elsewhere, or whether they have been engaged in other criminal activities. Terre Du Lac Assoc. v. Terre Du Lac, Inc., 834 F.2d 148, 150 (8th Cir.1987), petition for cert. filed, (April 21, 1988); Deviries v. Prudential-Bache Securities, 805 F.2d 326, 329 (8th Cir.1986).1

Plaintiff's complaint alleges a pattern of racketeering as follows:

On information and belief, the pattern of fraudulent schemes included, without limitation, schemes to generate money through churning, making and/or receiving kickback payments and/or benefits and charging excessive fees and commissions (the Monetary Benefit Schemes") for the benefit of Defendants ... and to the detriment of the Retirement Systems and a scheme to improperly generate political contributions (the `Political Contribution Scheme').

Amended Complaint, Count I, ¶ 135, Count II, ¶ 148, Count III, ¶ 161.

Plaintiff's RICO case statement and other pleadings have set forth in greater detail the four different schemes it believes establish a pattern of racketeering activity:

(1) The Midwest/I.M. Simon Scheme;
(2) The Guaranty/I.M. Simon Scheme;
(3) The Guaranty/U.S.A. Continental/Vining-Sparks Scheme; and
(4) The Midwest/E.F. Hutton/PaineWebber Scheme.

Further, plaintiff alleges that defendants Midwest, Guaranty, I.M. Simon, Anton, U.S.A. Continental, Vining-Sparks and others were involved in similar schemes to defraud the Firemen's Retirement System, thereby satisfying the requirement set forth in Terre Du Lac and Deviries that defendants engaged in similar activities in the past, engaged in similar activities elsewhere or engaged in other criminal activities.

Recognizing the Eighth Circuit's strict holdings in civil RICO cases, plaintiff has artfully pleaded and alleged numerous fraudulent schemes and criminal activities in an attempt to show a pattern of racketeering activity. In some circuits, perhaps plaintiff's RICO claims would be allowed to stand. In the Eighth Circuit and in this Court, they cannot.

Plaintiff alleges that defendants participated in four or five different schemes to defraud the Retirement System, thereby establishing the requisite but elusive pattern of racketeering activity. Following Superior Oil and its progeny, the Court does not find a pattern to exist. The most that can be inferred from plaintiff's pleadings is that the Retirement System's investment advisors, Midwest and Guaranty, each attempted to defraud the Retirement System. This was accomplished by making deals with the other defendants to direct business their way at higher commissions in exchange for kickbacks or soft dollar

706 F. Supp. 713
benefits. Although the Court must accept as true the allegations of plaintiff's complaint, defendants' activities do not establish the pattern of racketeering activity that is required to state a claim under 18 U.S.C. § 1962(c)

C. Conspiracy Under § 1962(d)

Plaintiff also contends that defendants violated 18 U.S.C. § 1962(d), which makes it unlawful "for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section." The Eighth Circuit has not addressed the elements of a conspiracy claim under § 1962(d), but the Court believes the requirements have been adequately discussed by other courts. In United States v. Boldin, 772 F.2d 719 (11th Cir.1985), the court established the following criteria for a § 1962(d) claim: "(1) the existence of an...

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