R.A.G.S. Couture, Inc. v. Hyatt
| Decision Date | 30 October 1985 |
| Docket Number | No. 84-3827,84-3827 |
| Citation | 774 F.2d 1350 |
| Parties | RICO Bus.Disp.Guide 6101 R.A.G.S. COUTURE, INC., Plaintiff-Appellant, v. Mary M. HYATT and Oren M. Welborne, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
McGlinchey, Stafford, Mintz, Cellini & Lang, John Gregory Odom, Victoria L. Knight, New Orleans, La., for plaintiff-appellant.
Hess & Washofsky, Keith R. Credo, Leonard A. Washofsky, Jacqueline Mae Goldberg, New Orleans, La., for defendants-appellees.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before WISDOM, POLITZ and TATE, Circuit Judges.
This case raises questions concerning the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-1968, in the wake of the Supreme Court's decision in Sedima, S.P.R.L. v. Imrex Co., 1985, 473 U.S. ----, 105 S.Ct. 3275, 87 L.Ed.2d 346. In Sedima, the majority opinion relied heavily on the broad language of the statute. The present case stretches the statutory language to its limit. The complaint minimally complies with the requirements sufficient to support a civil RICO violation: two individual defendants are termed an "enterprise" 1 and two acts of mail fraud they allegedly committed constitute a pattern of "racketeering activity". 2 The district court granted the defendants' motions to dismiss and for summary judgment. We conclude that we are compelled to reverse in the light of the Sedima decision and the procedural setting of this case.
The plaintiff, R.A.G.S. Couture, Inc. (R.A.G.S.), filed this suit against the defendants who allegedly attempted to defraud the company. Defendant Mary Hyatt was the president and a stockholder of R.A.G.S., a clothing manufacturer in Louisiana, from April 1982 to March 1983. Her daughter Kellie was a stockholder and employee of the company during that period. Defendant Oren Welborne is alleged by the defendants to own industrial sewing machines that he rented to R.A.G.S. while Hyatt was president. Hyatt, her daughter, and the two other stockholders of the company had a meeting on March 13, 1983, at which Hyatt and her daughter terminated their employment with R.A.G.S. and released their interest in the company. On the same day, Hyatt and Welborne told the two remaining stockholders that the sewing machines used by R.A.G.S. were owned by Welborne and rented to the company. The stockholders allege that Hyatt had previously told them that the company owned the sewing machines. Welborne took possession of the machines on March 14th after signing a statement in which he claimed that he owned all of them.
R.A.G.S. alleges that on March 30, 1983, either Welborne or Hyatt mailed or caused to be mailed to the plaintiff copies of invoices, signed by Hyatt, for repair services performed by Welborne on the sewing machines and for rental fees. The plaintiff maintains that both defendants knew of the mailing. The invoices had various dates from July 1982 to February 1983, but the plaintiff alleges that the invoices were fraudulently prepared by the defendants after March 13, 1983. On August 24, 1983, counsel for Welborne mailed copies of the invoices and a demand for payment to counsel for R.A.G.S.
R.A.G.S. filed suit under the civil provision of RICO, 18 U.S.C. Sec. 1964(c), 3 against Hyatt and Welborne. The gravamen of the plaintiff's complaint is that the defendants combined to defraud R.A.G.S. by submitting false invoices. The plaintiff alleges that it had no contract to rent the sewing machines. Furthermore, the plaintiff contends that Welborne did not service the machines, as the defendants have asserted. R.A.G.S. contends that it is entitled to relief because the defendants formed an enterprise--the association of Hyatt and Welborne--that affects interstate commerce and conducted the affairs of the enterprise "through a pattern of racketeering activity" in violation of 18 U.S.C. Sec. 1962(c). 4 The pattern of racketeering activity consisted of two alleged acts of mail fraud, the mailings on March 30, 1983 and August 24, 1983. The plaintiff seeks damages under Sec. 1964(c) and an order prohibiting the defendants from attempting to defraud the company.
Before trial, each defendant moved to dismiss and for summary judgment. The district court granted the defendants' motions and the plaintiff has appealed.
To prove a violation of 18 U.S.C. Sec. 1962(c) a plaintiff must show that (1) an enterprise existed that affected interstate commerce; (2) the defendant was associated with the enterprise; (3) the defendant participated in the conduct of the enterprise's affairs; and (4) the participation was through a "pattern of racketeering activity". See United States v. Phillips, 5 Cir.1981, 664 F.2d 971, 1011, cert. denied, 1982, 457 U.S. 1136. The term "enterprise" is defined broadly to include any "group of individuals associated in fact". 18 U.S.C. Sec. 1961(4). A pattern of racketeering activity is "at least two acts" indictable under an enumeration of state and federal criminal laws. 5
In their motions to dismiss and for summary judgment the defendants asserted that the plaintiff failed to allege or offer any proof of an enterprise that affects interstate commerce or of a "pattern of racketeering activity". The district court granted the motions to dismiss on the grounds that the plaintiff failed to allege a sufficient nexus between the enterprise and interstate commerce. Also, the court dismissed the complaint because the plaintiff failed to allege a "racketeering injury". The parties had not raised this issue. The court granted the motions for summary judgment because it found that the plaintiff had failed to offer proof of two acts of mail fraud and thus could not show a pattern of racketeering activity.
R.A.G.S.'s complaint alleged that Hyatt and Welborne were "associated in fact" and thus constituted an enterprise for purposes of the RICO Act. The district court denied the defendants' motions to dismiss and for summary judgment on this issue. The court found that a material question of fact exists as to whether the defendants formed an association. This ruling is correct in the light of this circuit's broad interpretation of the definition of "enterprise" in 18 U.S.C. Sec. 1962(c). See Alcorn County v. U.S. Interstate Supplies, Inc., 5 Cir.1984, 731 F.2d 1160, 1168.
The district court dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6) because the court found that the plaintiff had failed to allege a sufficient nexus between the association of Hyatt and Welborne and interstate commerce. It is axiomatic that a motion to dismiss for failure to state a claim should not be granted unless it appears to a certainty that the plaintiff would be entitled to no relief under any set of facts which could be proved in support of the claim. Thompson v. Allstate Insurance Co., 5 Cir.1973, 476 F.2d 746, 749. We must reverse the district court on this issue because we are unable to hold that the plaintiff could not prove a set of facts to support a nexus between the enterprise and interstate commerce.
The nexus with interstate commerce required by RICO is "minimal". See United States v. Rone, 9 Cir.1979, 598 F.2d 564, 573, cert. denied, 1980, 445 U.S. 946, 100 S.Ct. 1345, 63 L.Ed.2d 780. The plaintiff has alleged that the defendants used an instrumentality of interstate commerce, the United States Postal Service, to execute their fraudulent scheme. Moreover, the plaintiff apparently was involved in interstate commerce and the defendants' scheme adversely affected it. These facts, if proved at the trial, would provide the link with interstate commerce necessary under the statute.
The district court stated in dictum that it is the enterprise, and not the predicate acts, that must affect interstate commerce. That statement is erroneous. Undoubtedly, RICO requires that the enterprise be engaged in or its "activities" affect interstate or foreign commerce, 18 U.S.C. Sec. 1962(c); however, the word "activities" is not limited to legitimate or nonpredicate acts. The Supreme Court's Sedima decision cautions us not to place barriers before RICO plaintiffs that are not found in the text of the statute. Moreover, the Court has held that an enterprise may be organized solely for illegitimate purposes, and that evidence of the existence of the enterprise may coalesce with evidence of the underlying pattern of racketeering. United States v. Turkette, 1981, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246. If an enterprise engages only in illegal activities, then certainly these acts must provide the requisite nexus with interstate commerce. Other circuits that have addressed the issue agree that the predicate acts supporting a RICO violation may provide the nexus with interstate commerce. See Bunker Ramo Corp. v. United Business Forms, Inc., 7 Cir.1983, 713 F.2d 1272, 1289; United States v. Barton, 2 Cir., 647 F.2d 224, 233-34, cert. denied, 1981, 454 U.S. 857, 102 S.Ct. 307, 70 L.Ed.2d 152; United States v. Bagnariol, 9 Cir.1981, 665 F.2d 877, 893, cert. denied, 1982, 456 U.S. 962, 102 S.Ct. 2040, 72 L.Ed.2d 487.
For these reasons, the district court should consider the alleged predicate acts of mail fraud and any other illegal activities of the defendants in determining whether the enterprise was connected with interstate commerce.
The district court also dismissed the complaint because the plaintiff failed to allege a "racketeering injury". The Sedima decision requires us to reverse the court on this issue. 105 S.Ct. at 3286. Any injury to business or property caused by a violation of 18 U.S.C. Sec. 1962(c) is sufficient. The plaintiff has alleged business interruptions and expenses as a result of the defendants' alleged scheme to defraud the company. These allegations are sufficient to withstand a motion to dismiss under Federal Rule 12(b)(6).
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