Richmond v. Nationwide Cassel L.P.

• Decision Date: 11 April 1995
• Docket Number: No. 94-1540,94-1540
• Citation: 52 F.3d 640
• Parties: RICO Bus.Disp.Guide 8783 Adrienne L. RICHMOND, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. NATIONWIDE CASSEL L.P., Nationwide Acceptance Corporation, and N.A.C. Management Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 640

52 F.3d 640

RICO Bus.Disp.Guide 8783

Adrienne L. RICHMOND, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. NATIONWIDE CASSEL L.P., Nationwide Acceptance Corporation and N.A.C. Management Corporation, Defendants-Appellees.

No. 94-1540.

United States Court of Appeals Seventh Circuit.

Submitted Oct. 12, 1994.

Decided April 11, 1995.

Daniel A. Edelman (submitted), Cathleen M. Combs, Tara G. Redmond, J. Eric Vander Arend, Michelle A. Weinberg, Edelman & Combs, Chicago, IL, for plaintiff-appellant.

Bonita L. Stone, Stewart T. Kusper, Katten, Muchin & Zavis, Chicago, IL, for defendants-appellees.

Before ESCHBACH, RIPPLE and ROVNER, Circuit Judges.

RIPPLE, Circuit Judge.

Adrienne Richmond brought an amended complaint against defendants Nationwide Cassel L.P. ("Cassel"), Nationwide Acceptance Corporation ("Nationwide Acceptance"), and N.A.C. Management Corporation ("NAC"). She alleged that they forced her to pay for excessive automobile insurance and therefore violated 18 U.S.C. Sec. 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). She now appeals the district court's dismissal of her claim. For the reasons presented in this opinion, we affirm the judgment of the district court.

I BACKGROUND

A. Facts

Ms. Richmond purchased a 1984 Nissan Maxima from Let's Make A Deal Auto Sales. She traded in her old car, made a down payment of $500 in cash, and financed the remaining amount owed through a retail installment sales contract that set up twenty-one monthly payments of $187.28. The installment contract required Ms. Richmond to keep the car fully insured for the term of the contract. It authorized Ms. Richmond to furnish her own insurance if she so chose, but provided that the contract holder would purchase insurance for her at her expense if she did not provide it. ¹ Ms. Richmond's installment contract was subsequently assigned to defendant Cassel by Let's Make A Deal.

Ms. Richmond did not purchase her own insurance for the financed car. On March 11, 1991, Cassel and Nationwide Acceptance sent a notice to her stating that the required insurance had been obtained on her behalf from Balboa Insurance Company, but that, "should you or your agent forward evidence that you currently have insurance which protects our collateral, we will cancel the attached insurance, effective the date of your policy." Ms. Richmond paid for the insurance procured by Cassel and Nationwide Acceptance. The cost of the insurance was added to her monthly payments for the remainder of the installment contract. Ms. Richmond then filed a class action against the defendants. The amended complaint alleged that the defendants fraudulently charged her for this "forced placed insurance."

B. The Amended Complaint ²

Ms. Richmond's amended complaint is comprised of four counts. Count I alleges a RICO violation under 18 U.S.C. Sec. 1962(c). ³ The remaining counts are state law claims: violation of the Illinois Consumer Fraud Act (Count II); breach of contract (Count III); and violation of the Illinois Sales Finance Agency Act (Count IV). Because the dismissal of the amended complaint was based on failure to state a RICO claim, we focus on the allegations of Count I.

The factual basis for this complaint is summarized in the introductory allegation. ⁴ It alleges that Cassel and Nationwide Acceptance, without authorization under the contract, fraudulently required Ms. Richmond to purchase "forced placed insurance," insurance of the defendant's choosing that provided more coverage than she needed. The excessive coverage in the "forced placed insurance" included premiums based on the full outstanding balance, rather than on the remaining principal balance, and coverage against acts of default by the obligor. As a result of the conduct of Cassel and Nationwide Acceptance, Ms. Richmond claims that she suffered a loss of money, and that other members of her class also suffered creation of fictitious debt, repossession of vehicles, and injury to their credit. The amended complaint further alleges that, because they used the mails to demand payment for these unauthorized insurance premiums, the defendants violated the federal mail fraud and RICO statutes.

In paragraphs 6-13 this complaint describes each defendant. Cassel, a limited partnership, is a sales finance agency that purchases car retail installment contracts and enforces the contracts against consumers. NAC is the general partner and 1% owner of Cassel. Nationwide Acceptance, the other partner and 99% owner of Cassel, is also a sales finance agency. Cassel and Nationwide Acceptance, which present themselves to the public as indistinguishable entities, have ongoing relationships with certain car dealers from which they purchase motor vehicle retail installment contracts. The amended complaint also alleges that Cassel, Nationwide Acceptance and NAC are part of "Nationwide Group," a group of corporations and entities "associated in fact on an ongoing basis for the purpose of conducting business in selling and financing automobiles," warranties and insurance, and are under common control of the Lutz family. The group includes the Wix Auto Company, Total Financial American Life Insurance Company, Illinois Founders Insurance Company and Hercules Insurance Agency, L.P., and may also include several other companies.

Under Count I, the amended complaint alleges that there are two "enterprises" ⁵ in this case: the Nationwide Group (as described in pp 14-17) and the "Nationwide Group and the car dealers with which it maintains relationships and from which it purchases retail installment contracts." Amended compl. at p 44. Although this complaint does not identify which entities are "persons" within RICO, ⁶ it is the actions of Cassel and Nationwide Acceptance that form the basis of Ms. Richmond's RICO allegations under Sec. 1962(c):

Cassel and Nationwide [Acceptance] conducted or participated in the affairs of the enterprises through a pattern of mail fraud.... In particular, Cassel's and Nationwide [Acceptance]'s fraudulent conduct continued through at least 1990-1993, a period of three years. The conduct was directed to a large number of related victims, all of whom are consumers who purchased vehicles on credit. The acts of fraud were all related in that they involved charges for the same improper and unauthorized insurance, and the same misleading and fraudulent statements to the victims regarding the nature of the insurance and the victims' purported obligation to pay were made to all.

Amended complaint at p 47. Because the defendants used the United States mails in furtherance of its pattern, Ms. Richmond seeks to recover treble damages, fees, costs, and other relief under RICO.

C. District Court Opinion

The district court dismissed the amended complaint. The ground for dismissal was the complaint's failure to satisfy the RICO requirement of Sec. 1962(c): The "persons" allegedly perpetrating the RICO violation were not separate from the two "enterprises" alleged in the complaint. ⁷ 847 F.Supp. 88 (N.D.Ill.1994).

The district court came to this conclusion by applying the "separateness test" established by Haroco v. American National Bank & Trust Company, 747 F.2d 384, 400-01 (7th Cir.1984), aff'd on other grounds, 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985), to the amended complaint at issue. It noted that the descriptions of the two enterprises were meager, and that the auto dealers of the second enterprise were mentioned only in the most conclusory fashion. 847 F.Supp. at 91. Searching the complaint for a "person" that was distinct from the RICO "enterprise," the court found only a listing of entities "strung together" by the label "enterprise," and determined that such a listing was not sufficient under RICO.

What section 1962(c) renders illegal is the conduct of the "person" that is associated with the "enterprise" in "conducting or participating, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity...." ... Richmond cannot meet the demands of RICO just by naming a string of entities that assertedly make up an "association of fact" (even though under proper circumstances such an association can indeed be an "enterprise" for RICO purposes). Instead, it is necessary that the complaint identify such an "association in fact" that is meaningfully different in the RICO context from the units that go to make it up--and that has not been done here at all.

Id. The district court found that the amended complaint failed to suggest how the defendants conducted the affairs of the enterprise, over and above their own affairs. It noted that only the three named defendants (and none of the other affiliate entities) have any tie to the alleged fraudulent conduct that was said to have harmed Ms. Richmond, and also that the insurance company that provided the insurance to Ms. Richmond under the installment contract was not even a party to this action. The district court concluded that the three defendants were both the target "persons" and the "association in fact" that made up the purported "enterprise," and thus were in no way separate. Ms. Richmond's second "association in fact," the combination of the original "enterprise" plus car dealers with which that group maintains relationships, was equally infirm. 847 F.Supp. at 93. Therefore, the court concluded that the allegation did not state a claim under the RICO rubric and dismissed the amended complaint.

II DISCUSSION

Ms. Richmond submits that the district court erred in dismissing her amended complaint. We review the district court's decision de novo. Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 775 (7th Cir.1994). Thus we, like the district court, take all of the well-pleaded factual allegations contained in the amended complaint as true, and construe them in a light most favorable to the plaintiff. H.J....