RE Davis Chemical Corp. v. Nalco Chemical Co., 89 C 1182.
| Decision Date | 13 November 1990 |
| Docket Number | No. 89 C 1182.,89 C 1182. |
| Parties | R.E. DAVIS CHEMICAL CORPORATION, Plaintiff, v. NALCO CHEMICAL COMPANY, Clarence R. Davis, John C. Kisalus, Robert W. Reynolds, and Wesley E. Cravey, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
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Sherwin J. Malkin, Sherwin J Malkin, Ltd, Chicago, Ill., for plaintiff.
Kenneth J. Jurek, Mary Jean Dolan, Rosanne J. Faraci, Mayer, Brown & Platt, Patrick Joseph Falahee, Jr., Connelly, Mustes & Schroeder, Chicago, Ill., Christian L. Campbell, Nalco Chemical Corp., Naperville, Ill., for defendants.
R.E. Davis Chemical Corporation, the plaintiff in this action ("Davis Chemical" or "plaintiff"), alleges that the defendants, Nalco Chemical Company ("Nalco"), Clarence R. Davis ("Clarence Davis"), John C. Kisalus ("Kisalus"), Robert W. Reynolds ("Reynolds"), and Wesley E. Cravey ("Cravey"), misappropriated Davis Chemical's formula for a chemical compound used in the gasoline refining and re-refining industry and that Nalco currently sells a compound based upon the same chemical principle as that formula. Davis Chemical's complaint is framed in two counts: Count One asserts three separate claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ? 1961 et seq. ("RICO"); and Count Two asserts a state law claim of unfair competition. Pending before the Court is defendants' motion pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the complaint for failure to state a claim upon which relief can be granted. For the reasons set forth below, the Court grants defendants' motion.1
The Court has assumed for purposes of the pending motion to dismiss that the facts alleged in Davis Chemical's complaint are true. W.E. O'Neil Const. Co. v. National Union Fire Ins. Co. of Pittsburgh, 721 F.Supp. 984, 986 (N.D.Ill.1989) (Rovner, J.), citing Conley v. Gibson, 355 U.S. 41, 78 C.St. 99, 2 L.Ed.2d 80 (1957).2
In 1961 Robert E. Davis ("Davis"), the president of Davis Chemical, invented REX-121A, a chemical additive compound used in the gasoline refining and re-refining industry to process alkylate.3 That same year, Davis assigned his rights and interest in REX-121A to Davis Chemical, of which he and his spouse are the sole shareholders. REX-121A is based upon a unique formulation known only to Davis, and Davis Chemical has consistently maintained the confidentiality of the formula for the additive as a trade secret.4
Davis Chemical has marketed and sold REX-121A to refiners and re-refiners throughout the country since 1963. Sales of REX-121A are made pursuant to written secrecy agreements pursuant to which the purchaser agrees not to analyze the additive or to disclose anything which the purchaser might learn about the additive in the course of using it. In 1985, Mobil Oil Corporation purchased REX-121A pursuant to such a secrecy agreement.
Nalco is a competitor of Davis Chemical.5 In late 1984, Reynolds, the marketing manager of Nalco, decided that Nalco should develop and market its own alkylation additive. In February, 1985, Nalco hired Kisalus as a chemist for its "RPC Group", which developed new products. Defendant Cravey was Kisalus' supervisor. On or about February 11, 1985, Cravey directed Kisalus to develop an alkylation additive.
Defendant Clarence Davis was a Nalco salesman whose principal responsibility was to manage Nalco's sales account with Mobil Oil Corporation at Mobil's refinery in Beaumont, Texas. On or about April 11, 1985, Clarence Davis, with the knowledge and consent of Reynolds, removed a sample of REX-121A from a pump which belonged to Davis Chemical and which was located at Mobil's Beaumont refinery. This was done without the knowledge or consent of either Mobil or Davis Chemical. Clarence Davis "sent or delivered" the sample to Nalco's laboratory in Sugar Land, Texas for an analysis of its contents. The sample "was thereupon delivered" to Kisalus, who, with Cravey's knowledge and consent, had it evaluated by the analytical department of Nalco's RPC Group. Mark A. Ward, a Nalco chemist, performed the analysis, and the results were "thereupon delivered" to Kisalus, Reynolds, and Cravey. At this time, Kisalus and Nalco had not yet developed their own alkylation additive.
On or about July 16, 1985, Nalco "unlawfully received from a person or persons unknown" to Davis Chemical a copy of Davis Chemical's confidential manual describing REX-121A and the procedures for use of the additive. Davis Chemical furnishes this manual only to its customers and only pursuant to a written secrecy agreement. Nalco routed the manual to Kisalus.
After receiving the manual and the results of the analysis performed on the sample of REX-121A, and using the information he obtained from these sources, Kisalus developed an alkylation additive which contained ingredients either identical or comparable to those contained in REX-121A and which was based upon the same chemical principle as REX-121A.
Once the new additive was tested, Kisalus, at the request of Cravey, mailed data about the additive to Nalco's patent attorneys in Naperville, Illinois, who in turn prepared a patent application. In the course of preparing the application, Nalco's attorneys consulted with Kisalus by telephone and sent to him drafts as well as the final version of the application through the United States mail. On or about February 11, 1987, Kisalus signed the application and, on the same date, assigned to Nalco his entire proprietary interest in the new additive. On or about February 24, 1987, the patent application "was mailed" to the United States Patent and Trademark Office through the United States mail. Nalco's patent attorneys subsequently prepared a second patent application for the additive. After Kisalus signed this application, the attorneys "caused same to be mailed" to the Patent and Trademark Office via the United States mail.
On each of the patent applications, Kisalus indicated that he was the first and only inventor of the alkylation additive and that the information provided on the application with respect to the additive was accurate. The applications disclosed nothing about REX-121A or the similarities between it and Nalco's additive.
Nalco has sold its additive in competition with Davis Chemical since 1986. In connection with sales of the additive, Nalco has mailed invoices and other correspondence to its customers through the United States mail and has caused the additive itself to be transported in interstate commerce.
In February and March of 1988, Nalco induced two of Davis Chemical's customers, Marathon Oil Company and Mobil Oil Corporation, to begin purchasing Nalco's alkylation additive instead of Davis Chemical's REX-121A. As a result, Davis Chemical lost anticipated sales of $46,362 to Marathon from February 1, 1988 through November 22, 1988, and $262,000 from March 9, 1988 through January 31, 1989.
On various occasions within the past ten years, Nalco has also obtained samples of products manufactured by other competitors for the purpose of analyzing the composition of those products and using the information in the development of its own products. In each instance, Nalco obtained the sample without the knowledge or consent of its competitor.6
Defendants have moved to dismiss the complaint, contending that the RICO allegations in Count One, which supply the basis for federal jurisdiction over this case, are defective on a variety of grounds. Although phrased as a single count, Count One actually asserts multiple claims under three separate provisions of RICO ?€” subsections (a), (c), and (d) of ? 1962. Each of these provisions prohibits a different type of conduct which is associated with or furthers racketeering activity.7 Subsection (a) makes it unlawful for any person who has received income from a pattern of racketeering activity to invest the proceeds of such income in the establishment, operation, or acquisition of an interest in an enterprise which is engaged in or affects interstate commerce. Subsection (b), which is not at issue in this case, makes it unlawful for any person to acquire or maintain an interest in an interstate enterprise through a pattern of racketeering activity. Subsection (c) makes it unlawful for any person employed by or associated with an interstate enterprise to conduct or participate in the affairs of the enterprise through a pattern of racketeering activity. Finally, subsection (d) makes it unlawful for any person to conspire to violate the provisions of subsections (a), (b), or (c).
Although each of the four subsections of ? 1962 addresses a distinct type of racketeering-related conduct, they have in common three fundamental elements: a "person", an "enterprise", and a "pattern of racketeering activity". Each of these elements must be pleaded separately. See Chicago HMO v. Trans Pacific Life Insurance Co., 622 F.Supp. 489, 495 (N.D.Ill. 1985) (Rovner, J.). The RICO statute defines the term "person" to include "any individual or entity capable of holding a legal or beneficial interest in property." The term "enterprise" is defined 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." Although the terms "person" and "enterprise" as defined both embrace individuals and entities, they are distinct in terms of the roles they play in a RICO cause of action. Id. at 495. Within the RICO framework, "persons" are the individuals or entities which commit the statutorily proscribed acts, and only they are subject to liability under RICO. Id. at 494. The "enterprise," although it too may be an individual or an entity, is the vehicle through which the "person" or "pers...
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