Rylewicz v. Beaton Services, Ltd.

• Decision Date: 21 July 1988
• Docket Number: No. 85 C 10535.,85 C 10535.
• Citation: 698 F. Supp. 1391
• Parties: Richard RYLEWICZ, Thomas Cummings and Barbara Cummings, Plaintiffs, v. BEATON SERVICES, LTD.; United States Security Services Corporation; Financial and Technical Investigations, Inc.; Beaton & Associates, Inc.; Search International, Inc. d/b/a Recon, Inc. and S.I. Services; Fred Turner; Shelby Yastrow; McDonald's Corporation; International Intelligence, Inc. d/b/a Intertel; John Burke; Desnoyers & Associates, Defendants.
• Court: U.S. District Court — Northern District of Illinois

698 F. Supp. 1391

Richard RYLEWICZ, Thomas Cummings and Barbara Cummings, Plaintiffs, v. BEATON SERVICES, LTD.; United States Security Services Corporation; Financial and Technical Investigations, Inc.; Beaton & Associates, Inc.; Search International, Inc. d/b/a Recon, Inc. and S.I. Services; Fred Turner; Shelby Yastrow; McDonald's Corporation; International Intelligence, Inc. d/b/a Intertel; John Burke; Desnoyers & Associates, Defendants.

No. 85 C 10535.

United States District Court, N.D. Illinois, E.D.

July 21, 1988.

COPYRIGHT MATERIAL OMITTED

Lowell E. Sachnoff, Arnold A. Pagniucci, Jeffrey T. Gilbert, Sachnoff, Weaver & Rubenstein, Clifford J. Shapiro, Theodore M. Becker, J. Samuel Tenenbaum, Becker & Tenenbaum, Chicago, Ill., for plaintiffs.

James R. Figliulo, Steven H. Gistenson, Thomas A. Foran, Richard Schultz, Kenneth W. Sullivan, John J. Foran, Foran, Wiss & Schultz, Alan H. Silberman, Frederic S. Lane, Robert H. King Jr., Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., Peter F. Vaira, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., Evan A. Burkholder, John M. Huges, Lord, Bissell & Brook, Michael P. Connelly, Chadwell & Kayser, Michael H. King, Eric S. Palles, Jon K. Stromsta, Ross & Hardies, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ANN C. WILLIAMS, District Judge.

The allegations in this case arise from the latest round of a titanic struggle that the two opposing camps of litigants have engaged in.¹ The plaintiffs Barbara and Thomas Cummings and Richard Rylewicz bring this four-count amended complaint against the defendants alleging violations of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, 42 U.S.C. §§ 1985(2), 1986, the Fair Credit Reporting Act ("Act"), 15 U.S.C. §§ 1681-1681t, and a state law breach of contract claim. The defendants have responded by bringing several motions which contain myriad attacks on the plaintiffs' complaint. The plaintiffs countered by bringing a summary judgment motion of their own and by vigorously opposing the defendants' motions. The court will begin by ruling on the defendants' motions to dismiss Counts I, II, and III of the amended complaint.

When ruling on these motions pursuant to Federal Rule of Civil Procedure 12(b)(6), the court will "take the allegations in the complaint to be true and view them, along with the reasonable inferences to be drawn from them, in the light most favorable to the plaintiff(s)." Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir.1985), cert. denied, 475 U.S. 1047, 106 S.Ct. 1265, 89 L.Ed.2d 574 (1986). A complaint should be dismissed only when "it appears beyond doubt that the plaintiff is unable to prove any set of facts which would entitle plaintiff to relief." Id. A "court must construe pleadings liberally, and mere vagueness or lack of detail does not constitute sufficient grounds for a motion to dismiss." Strauss v. City of Chicago, 760 F.2d 765, 767 (7th Cir.1986).

The pertinent facts as alleged in the amended complaint are as follows. On November 14, 1977 Central Ice Cream Company ("Central") filed a lawsuit against McDonald's Corporation and McDonald's System, Inc. ("McDonald's") alleging a breach of contract, fraud and other related claims in Illinois state court. In April, 1980, Central was adjudged a bankrupt and a trustee was appointed for the Central bankruptcy estate. The state court trial, which began on October 24, 1983, ended on January 20, 1984 when the jury returned a fifty-two million dollar verdict in favor of Central and its trustees in bankruptcy. During the trial, the plaintiff Thomas Cummings was the primary witness against McDonald's. Thomas Cummings is the President of Central and his wife Barbara is the owner of a substantial number of Central shares. McDonald's filed a post-trial motion seeking judgment notwithstanding the verdict or, in the alternative, a new trial.

During the pendency of this motion, McDonald's along with the defendants Fred Turner, Shelby Yastraw, International Intelligence, Inc. d/b/a Intertel, Desnoyers & Associates and the USSC Group and SI Group "engaged in a multi-factual scheme and conspiracy involving the investigation, surveillance harassment and intimidation" of the plaintiffs.² Amended Complaint at 5, ¶ 24. The defendants engaged in their conspiracy to retaliate against Thomas Cummings for his trial testimony, to deter him from testifying again in the event of a new trial, to induce the Cummings not to oppose and to cooperate in the settlement of the Central litigation, and to influence any testimony that Mr. Cummings might give before the Bankruptcy Court. During the course of the conspiracy, the defendants compiled dossiers on the plaintiffs, obtained a consumer report concerning the plaintiff Rylewicz under false pretenses, and threatened to publicly disclose derogatory information concerning the plaintiffs. Amended Complaint at 7-8, ¶¶ 27-31. There were also acts of physical intimidation. Id. at 9-11, ¶¶ 37-43. The causes of action alleged in the first three counts of the amended complaint stem from the acts committed in furtherance of the defendants' conspiracy.

I RICO

The defendants move to dismiss the Cummings' Count I RICO claim on several grounds. The defendants argue, among other things, that the Cummings lack standing to bring this RICO action and that the injuries claimed are not compensable under RICO. The court agrees. To state a claim under 18 U.S.C. § 1964(c), the plaintiffs must allege a violation of 18 U.S.C. § 1962 and an injury to their business or property "directly resulting from some or all of the activities constituting the violation."³ Marshall & Ilsley Trust Co. v. Pate, 819 F.2d 806, 809 (7th Cir.1987) (emphasis added); 18 U.S.C. § 1964(c). The causation requirement must be satisfied to provide a prospective plaintiff with standing to sue under § 1964(c). Pujul v. Shearson/American Express, Inc., 829 F.2d 1201, 1205 (1st Cir.1987); Nodine v. Textron, Inc., 819 F.2d 347, 348 (1st Cir. 1987). Moreover, "the compensable injury necessarily is the harm caused by the predicate acts" which constitute the violation of § 1962. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496-97, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). As the Supreme Court held, "`a defendant who violates section 1962 is not liable to everyone he might have injured by other conduct, nor is the defendant liable to those who have not been injured.'" Sedima, 473 U.S. at 496-97, 105 S.Ct. at 3285, quoting Haroco, 747 F.2d at 398 (emphasis added).

The Cummings allege that they were injured in three ways as a result of the activities complained of in Count I. See Plaintiffs' Memo in Opposition to the Defendants' Motion to Dismiss at 8, 20. First Mr. and Mrs. Cummings allege that McDonald's injured them in their respective capacities as President and major shareholder of Central by spending a large amount of money to conduct its racketeering campaign thereby reducing the amount of funds available to settle the Central Ice Cream litigation. Amended Complaint at 14, ¶ 57. This is precisely the type of indirect, derivative injury that does not confer standing on RICO plaintiffs. The Cummings were not parties to the state court litigation involving Central. Cf. Miller v. Glen & Helen Aircraft, Inc., 777 F.2d 496, 498 (9th Cir.1985) (the plaintiff, who was a party to the settled litigation, was found to have standing to bring a private civil RICO action). Central, and not the Cummings, was the victim of the breach of contract and fraud that resulted in the favorable jury verdict. Moreover, the Central estate, and not the Cummings, would be the direct recipient of any funds generated by the settlement. It is certainly possible that the harm inflicted on Central had adverse effects on the Cummings. It is also possible that the Cummings would have been among the ultimate beneficiaries of an increased settlement in the event that McDonald's had not depleted its potential settlement funds by engaging in the alleged pattern of racketeering.

Notwithstanding the above, it is clear that standing is conferred only on the real party in interest. Life of Mid-America Insurance, 805 F.2d at 764-65; Fed.R.Civ. P. 17(a). The "real party in interest is the one who `by the substantive law, possesses the right sought to be enforced, and not necessarily the person who will ultimately benefit from the recovery.'" Life of Mid-America Insurance, 805 F.2d at 764, quoting C. Wright, Law of Federal Courts § 70 (4th ed. 1983). Central is the real party in interest with respect to this particular injury. Therefore, the Cummings, as President and major stockholder of Central, lack standing to assert Central's claim. Numerous courts from this Circuit and others have declined to find standing where the plaintiffs, as here, alleged only an indirect, derivative injury. See n. 3 and the cases cited within; See also Warner v. Alexander Grant & Co., 828 F.2d 1528, 1530 (11th Cir.1987); Warren v. Manufacturers National Bank of Detroit, 759 F.2d 542, 544 (6th Cir.1985).

The Cummings also allege that they were injured in their business and property when the defendants Turner, Yastrow, and McDonald's maliciously and intentionally induced Borden, Inc. to break its employment contract with Thomas Cummings. Amended Complaint at 9, ¶ 35. This injury is also insufficient to confer standing on the Cummings. As stated above, compensable RICO injuries must be caused by the commission of one or more of the predicate acts constituting a violation of § 1962. See Sedima, 473 U.S. at 496-97, 105 S.Ct. at 3285. The Cummings allege a variety of predicate acts. See Amended Complaint at 12-14, ¶¶ 48, 49, 50, 54. None of these acts, however, were directed toward Borden. Consequently, Borden's dismissal of Cummings, even if wrongful, did not result from the commission of any predicate act. Accordingly, Cummings' loss of his employment at Borden is not...