Reiter's Beer Dist., Inc. v. Christian Schmidt Brewing Co.

• Citation: 657 F. Supp. 136
• Decision Date: 10 March 1987
• Docket Number: No. 86 CV 534.,86 CV 534.
• Parties: REITER'S BEER DISTRIBUTORS, INC., Plaintiff, v. CHRISTIAN SCHMIDT BREWING CO., Defendants.
• Court: U.S. District Court — Eastern District of New York

657 F. Supp. 136

REITER'S BEER DISTRIBUTORS, INC., Plaintiff, v. CHRISTIAN SCHMIDT BREWING CO., Defendants.

No. 86 CV 534.

United States District Court, E.D. New York.

March 10, 1987.

COPYRIGHT MATERIAL OMITTED

Parker, Chapin, Flattau & Klimpl, New York City (Barry J. Brett, Martin J. Bunin, of counsel), for plaintiff.

Golenbock & Barell, New York City (Leonard W. Wagman, Leonard A. Benowich, of counsel), for defendants.

McLAUGHLIN, District Judge.

Plaintiff's motion to amend its complaint was referred to United States Magistrate Carol Bagley Amon. I have carefully reviewed her Report and Recommendation ("R & R") and the objections thereto, and it is hereby adopted as the Opinion of the Court in all respects except one.

The Magistrate recommended that plaintiff not be permitted to amend the complaint to add a RICO claim, see 18 U.S.C. § 1962(c). In doing so she noted that the mail fraud predicate acts were not pleaded with the particularity required under Fed. R.Civ.P. 9(b), and that the complaint was deficient in its allegations as to the existence of a pattern of racketeering activity. Plaintiff argues that the latter holding is undercut by United States v. Ianniello, 808 F.2d 184 (2d Cir.1986), which was decided after the issuance of the Magistrate's report. I agree, and therefore do not adopt the portion of the Report and Recommendation addressed to the pattern requirement.

The Magistrate held, based on cases in this Circuit decided after Sedima S.P. R.L. v. Imrex Co., Inc., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), that it was no longer the rule that a RICO violation could be established through proof of two predicate acts in furtherance of a single scheme to defraud: "Since Sedima, a number of decisions have held that predicate acts of mail fraud that all arise from one alleged unlawful scheme do not constitute a pattern of racketeering activity, at least in the absence of a threat of continuing activity" (R & R at 23-24). She concluded that plaintiff had failed to satisfy the pattern requirement because the "predicate acts alleged in the amended complaint possibly involved, at most, a single fraudulent scheme to terminate Reiter's and obtain its business" (R & R at 24).

In Ianniello, however, the Court held that "an enterprise with `a single purpose' ... can provide the basis for a section 1962(c) violation." 808 F.2d at 191. It expressly rejected the cases that required two or more schemes under the definition of pattern. See id. at 192 n. 15.

The Second Circuit stated that the concern of the Supreme Court in Sedima footnote 14, see 105 S.Ct. at 3285 n. 14—that a RICO violation requires continuity plus relationship—was "best addressed in the context of the concept of `enterprise.'" Ianniello, 808 F.2d at 191. The enterprise must be a continuing operation, and the predicate acts must be related to its common purpose. Accordingly, "when a person commits at least two acts that have a common purpose of furthering a continuing criminal enterprise with which that person is associated, the elements of relatedness and continuity which the Sedima footnote construes section 1962(c) to include are satisfied."¹Id. at 192. Thus, because the Magistrate's holding that the pattern had not been established rested on the now-discredited view that a single scheme or purpose was insufficient, I decline to adopt her holding on that point.

That does not end the matter, however. The Magistrate also found fault with the RICO allegation because the mail fraud predicates were not pleaded with particularity. Because she also found, based on her analysis of the pattern requirement, that the proposed amended complaint failed to state a claim under RICO, she concluded that amendment would be futile. I am, however, constrained by the intervening Ianniello decision to find that a claim has been stated, and I also therefore hold that plaintiff may attempt to cure the particularity defect by amending the RICO allegations of the complaint. The Magistrate's Report and Recommendation is adopted in all other respects.

SO ORDERED.

CAROL BAGLEY AMON, United States Magistrate.

Plaintiff Reiter's Beer Distributors, Inc. ("Reiter's"), a New York Corporation, filed suit in the Supreme Court of the State of New York against defendant, Christian Schmidt Brewing Company ("Schmidt"), a Pennsylvania Corporation, for a declaratory judgment stating that the contractual agreements between Reiter's and Schmidt are in full force and effect, and for a permanent injunction to prevent Schmidt from terminating Reiter's as a distributor of Schmidt's beer products. On February 7, 1986, Reiter's obtained a temporary restraining order from the Honorable Gerald Adler of the Supreme Court of New York enjoining Schmidt from terminating Reiter's. Thereafter, the case was removed to federal district court on Schmidt's motion, on the grounds of diversity of citizenship and the fact that the amount in controversy exclusive of interest and costs exceeds $10,000. Plaintiff then moved for a preliminary injunction to enjoin defendant from terminating Reiter's, and moved to file an amended complaint to add two new claims, a cause of action under the Sherman Act, 15 U.S.C. §§ 1 and 2, and the Donnelly Act, Gen.Bus.Law § 340 (McKinney's 1968), and a cause of action under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"). The proposed amended complaint contains a third claim alleging breach of contract.

A hearing was conducted on June 6 and June 9, 1986 on the preliminary injunction motion, and a separate Report and Recommendation was filed on July 29, 1986, containing the undersigned's findings with respect to that motion. The factual background of the case, and the history of dealings between the parties are provided in greater detail in that Report.

Schmidt opposes Reiter's motion to amend to add the antitrust and RICO claims, contending that the antitrust claims are largely composed of immaterial and prejudicial material, and that the RICO claim is deficient.

Reiter's avers the following facts in support of its inclusion of these new claims, which, for purposes of considering the defendant's motion are assumed to be true.

The Antitrust Claim

By written agreement dated February 10, 1978, Schmidt appointed Reiter's as "the wholesaler" for Rheingold beer distribution in Brooklyn. Reiter's paid Schmidt a royalty on each case of Rheingold it bought over the next three years. Amended Complaint, ¶ 13. The term of the agreement was never specified but it was orally agreed between the parties that Reiter's would retain its rights "as long as it did a good job". ¶ 14. In 1981 a second agreement was made whereby Schmidt appointed Reiter's as one of two exclusive distributors of Schmidt's beer in Kings County. Again, it was agreed that Reiter's would continue to serve as one of two exclusive distributors for Schmidt's beer as long as it did a satisfactory job. ¶ 15.

In 1981 Schmidt acquired Midway Distributors, Inc. ("Midway"), a competitor of Reiter's. ¶ 17. Reiter's alleges that Schmidt and/or Midway then sought to buy Reiter's, and further, sought to coerce Reiter's into selling out "for inadequate consideration". ¶¶ 17-19. Schmidt sought to coerce Reiter's to "enter into unlawful agreements" and "unlawful combinations". ¶ 17.

In December 1985 Schmidt wrote to Reiter's announcing its intention to terminate their relationship as of February 7, 1986. Schmidt continued to negotiate to buy Reiter's as late as January 1986. ¶ 19.

The essence of Reiter's antitrust claim is contained in paragraphs 21 and 22 of its Amended Complaint. Reiter's claims that Schmidt has

a) Given Midway the ability to sell in Brooklyn;

b) Given Midway the ability to sell Rheingold in Brooklyn at predatorily low price levels;

c) Caused or permitted Midway to demand that Reiter's cease and desist from competing for Midway customers on threat of termination by Schmidt;

d) Coerced Reiter's with respect to its willingness "to sell to customers from other boroughs than Brooklyn at your Reiter's dock" and demanded "You Reiter's are going to discontinue that practice and Midway Beverage is going to decide whether to discontinue selling Rheingold in Brooklyn."¹

e) Met with members of the "Thrifty" group of beer retailers and conspired with them to fix prices and allocate territories at the wholesale and retail levels of beer distribution;

f) Otherwise sought to allocate territories and facilitate Midway's efforts to allocate territories and destroy competition with such distributors as Four Star Beer Distributors, Inc. and Prospect.

In the Fall of 1985 Rogers La Prairie, a manager of Midway, demanded that Reiter's stop competing with Midway or he would cause Schmidt to terminate Reiter's. ¶ 22.

Reiter's claims that competition has been restrained by the course of events reiterated above and that Reiter's has incurred incalculable damages. ¶¶ 17, 23, 24.

The RICO Claim

In support of its RICO claim, Reiter's alleges that Schmidt devised and undertook fraudulent schemes to appropriate Reiter's business. It claims that Schmidt made false representations and used false pretenses in attempting to purchase Reiter's business at a low price or without any payment. Further, Reiter's asserts that Schmidt "vitiated Reiter's right to distribute ... Rheingold and Schmidt ... exclusively in Brooklyn". ¶ 33. Schmidt attempted to coerce Reiter's to relinquish its exclusive distributorship of Rheingold in Brooklyn to Midway; and to obtain an agreement from Reiter's to cease competing with Midway outside of Brooklyn. ¶ 33. The appointment of Midway as a distributor of Schmidt, and the allowance of Midway's distribution of Rheingold in Brooklyn, were part of the fraudulent scheme. ¶¶ 33, 38.

This scheme was effected through the mails, viz., letters and memoranda sent to officers of Reiter's by Schmidt. ¶ 34. Reiter's alleges that each of seven mailings by...