Ross v. Omnibusch, Inc.

Decision Date09 November 1984
Docket NumberNo. K 84-72.,K 84-72.
Citation607 F. Supp. 835
PartiesElbert E. ROSS and Beatrice M. Ross, Plaintiffs, v. OMNIBUSCH, INC., a foreign corporation; R.E. Busch d/b/a Dr. R.E. Busch, Dr. R.E. Busch Research Institute and Chicago Grain & Financial Futures, a foreign corporation, formerly Chicago Grain Company, Defendants.
CourtU.S. District Court — Western District of Michigan

Barry Crown, Lansing, Mich., John Dolkert, Chicago, Ill., for plaintiffs.

Thomas Luning, Chicago, Ill., Grant Gruel, Grand Rapids, Mich., for defendants.

OPINION

ENSLEN, District Judge.

On October 22, 1984, the Court ruled from the Bench concerning several bases for dismissal or transfer raised by the Defendants in their Motion to Dismiss and their reply to Plaintiffs' response. The Court reserved for written Opinion those grounds Defendants assert in their motion for dismissing Count 7 of Plaintiffs' Complaint. This Opinion now addresses those grounds.

Count 7 alleges a violation of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. In their Motion to Dismiss, filed May 7, 1984, and their reply memorandum filed September 17, 1984, Defendants assert five bases for dismissing Count 7. These are, first, that Count 7 fails to allege fraud with the particularity required by Federal Rule of Civil Procedure (F.R.C.P.) 9(b); second, that Plaintiffs fail to allege an enterprise pursuant to 18 U.S.C. § 1962(c) and § 1961(4) which is separate from the Defendants and the pattern of racketeering; third, that Plaintiffs fail to assert the racketeering injury they argue is required by 18 U.S.C. § 1964(c); fourth, that no civil RICO action lies where there has been no criminal conviction of the predicate acts that constitute the pattern of racketeering activities; and fifth, that no civil RICO action can survive without an allegation of organized crime's involvement. The Court will address each of these seriatum.

Standard

In reviewing the instant motion, the Court's inquiry at this point of the proceedings is limited to whether or not the challenged pleadings set forth allegations sufficient to make out the elements of a right to relief. In making this determination, all allegations in the pleadings are to be taken at "face value" and should be construed in a light most favorable to the pleader. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); California Motor Transport Company v. Trucking Unlimited, 404 U.S. 508, 515, 92 S.Ct. 609, 614, 30 L.Ed.2d 642 (1972). As stated by the Court of Appeals for the Sixth Circuit: "Well pleaded facts are taken as true, and the complaint is construed liberally in favor of the party opposing the motion." Davis H. Elliot Co., Inc. v. Caribbean Utilities Company, 513 F.2d 1176, 1182 (CA6 1975). All reasonable inferences which might be drawn from the pleadings must be indulged. Fitzke v. Shappel, 486 F.2d 1072, 1076 n. 6 (CA6 1972). No Complaint should be dismissed for failure to state a claim unless it appears that Plaintiffs can prove no set of facts in support of their claim which would entitle them to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957).

Fraud

The Court's October 22, 1984, oral ruling is dispositive of Defendants' argument that Plaintiffs fail to specifically plead fraud. Plaintiffs allege in Count 7 that Defendants violated RICO by using the mails two or more times in furtherance of their scheme to cheat and defraud them. Plaintiffs do not specify in Count 7 those facts which support their "scheme and defraud" allegation. However, in ¶¶ 10 and 11, and in Counts 1 and 2, Plaintiffs set out the basic facts of their fraud allegations. In its oral Opinion, the Court held these to meet the requirements of F.R.C.P. 9(b) pursuant to Hagstrom v. Breutman, 572 F.Supp. 692, 697 (DC Ill 1983). These factual allegations, together with the entire rest of the Complaint, are incorporated into Count 7 by ¶ 41. Therefore, Count 7 meets the requirements of F.R.C.P. 9(b) and Defendants' Motion to Dismiss on this ground is denied.

Enterprise

18 U.S.C. § 1962(c) provides:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1961 defines "enterprise", among other terms contained in 18 U.S.C. § 1962(c):

"Enterprise" includes 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).

The existence of an enterprise is one of the elements which a plaintiff must prove to establish a RICO violation. Bennett v. Berg, 685 F.2d 1053, 1060 (CA8 1982). U.S. v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (1981).

Defendants make two arguments concerning Plaintiffs' asserted failure to sufficiently allege the enterprise element. In their first, Defendants rely principally on Bennett, supra, and assert that Plaintiffs must allege an enterprise distinct from the Defendants but have not done so. Defendants misstate the holding in Bennett, supra. The Court of Appeals did not hold that an enterprise cannot be a defendant, but rather that an enterprise must be alleged apart from the culpable "person" who "associated with" it for racketeering purposes. Bennett, supra at 1061. As the court in Van Schaick v. Church of Scientology, 535 F.Supp. 1125, 1136 (DC Mass 1982) stated, RICO

quite clearly envisions a relationship between a "person" and an "enterprise" as an element of the offense which 1962(c) proscribes for which 1964(c) would subject the "person" to treble damages.

Therefore, while the RICO enterprise may be a named defendant, one or more of the Defendants must be the "person" who acts upon the enterprise in such a way that the enterprise's affairs are conducted in the pattern of racketeering. Bennett, supra at 1061.

Here, Plaintiffs have asserted and incorporated into Count 7, allegations that Defendant R.E. Busch acted as the agent of both Defendant Omnibusch and Defendant Chicago Grain. In addition, Plaintiffs assert that Defendant Omnibusch acted as agent of Defendant Chicago Grain. Both Omnibusch and Chicago Grain, as corporations, fall within the definition of an enterprise. 18 U.S.C. § 1961(4). Both Omnibusch and R.E. Busch meet the definition of "person" since both are entities "capable of holding a legal or beneficial interest in property". 18 U.S.C. § 1961(3). The agency relationships which are asserted to exist between these Defendants are sufficient to indicate that Defendant R.E. Busch and/or Defendant Omnibusch may be the persons who acted upon the enterprises of Defendant Omnibusch and/or Defendant Chicago Grain. Therefore, I am unable to find that Plaintiffs can prove no set of facts which would establish an enterprise distinct from a culpable person. Plaintiffs would be free at trial, of course, to develop facts which would establish other "persons" or "enterprises" as defined by RICO.

Defendants' second argument concerning the enterprise element asserts that Plaintiffs have failed to allege an enterprise distinct from the pattern of racketeering activity. 18 U.S.C. § 1961(5) defines a pattern of racketeering activity as at least two acts of racketeering activity which occur within 10 years of each other. A pattern of racketeering is a distinct element of a RICO claim which must be proven, and is not synonomous with the enterprise which also must be proven. The Supreme Court in U.S. v. Turkette, supra, explained the relationship between these two elements:

An enterprise is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit. A pattern of racketeering activity is proved by evidence of the requisite number of acts of racketeering committed by the participants in the enterprise. While the proof used to establish the separate elements may in particular cases coalese, proof of one does not necessarily establish the other. The "enterprise" is not the "pattern of racketeering activity; it is an entity separate and apart from the pattern of activity in which it engages. The existence of an enterprise at all times remains a separate element which must be proved. U.S. v. Turkette, at 583, 101 S.Ct. at 2528.

Plaintiffs allege in ¶¶ 42 and 43 that Defendants employed the US Postal Service mail and communications by wire two or more times thereby violating 18 U.S.C. §§ 1341, 1343 and 1962(c). Plaintiffs thus adequately plead a pattern of racketeering activity. They make no attempt to equate this pattern as synonomous with the enterprises of Defendant Omnibusch and/or Defendant Chicago Grain. I find, therefore, that Plaintiffs have alleged an enterprise or enterprises sufficiently distinct from the pattern of racketeering activity which they assert. For these reasons, Defendants' Motion to Dismiss on the ground that Plaintiffs failed to sufficiently allege an enterprise is denied.

RICO Injury

As their third basis for dismissal, Defendants maintain that Plaintiffs must allege an injury which results from a pattern of racketeering activity, not merely those injuries which result from the separate acts composing the pattern. In RICO parlance, these separate acts are known as "predicate acts", and an injury resulting from a pattern of racketeering activity as a "racketeering injury".

In making this argument, Defendants are in respected company. Both Defendants and Plaintiffs have supplied the Court with copies of recently issued but still unpublished opinions on this issue, and the Court is grateful for the instruction which these cases provide. The recently issued Second Circuit Court of Appeals'...

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