Saine v. AIA, INC., Civ. A. No. 83-K-1726.

Citation582 F. Supp. 1299
Decision Date21 March 1984
Docket NumberCiv. A. No. 83-K-1726.
PartiesRichard G. SAINE, Plaintiff, v. A.I.A., INC., an Idaho corporation, d/b/a Agriculture Insurance, Defendant and Third-Party Plaintiff, v. NATIONAL HEALTH INSURANCE COMPANY, a Texas corporation, Third-Party Defendant.
CourtUnited States District Courts. 10th Circuit. United States District Court of Colorado


David W. Stark and Ira M. Long, Jr., Roath & Brega, P.C., Denver, Colo., for plaintiff.

Russell P. Kramer and Mark A. Nadeau, Calkins, Kramer, Grimshaw & Harring, P.C., Denver, Colo., for defendant and third-party plaintiff.

Don Lively, Coghill & Goodspeed, P.C., Denver, Colo., Patrick F. McManemin, Newman, Shook & Newman, Dallas, Tex., for third-party defendant.


KANE, District Judge.

This action was instituted by Richard Saine against A.I.A., Inc., to recover commissions allegedly due him for the sale of AIA insurance policies. AIA counterclaimed and impleaded National Health Insurance Co. (NHI) who hired Saine after he left AIA. In its counterclaim and third-party complaint the defendant asserts claims (1) under the Racketeer Influenced and Corrupt Organizations Act (RICO); (2) for fraud; (3) for unfair competition; (4) under the Lanham Act; (5) for interference with contractual relations; (6) for disparagement; and (7) for wrongful appropriation.

Saine, the plaintiff has moved to dismiss the first, second and fourth of these claims. NHI, the third-party defendant, has moved to dismiss the first, second and third of these claims. In addition, NHI argues that as it cannot be derivatively liable for any of AIA's potential liability to Saine, it is not a proper third-party defendant. Therefore, it moves to dismiss the third-party complaint in its entirety.

The counterclaim and third-party complaint allege that while Saine was still subject to an employment contract with AIA, he entered into negotiations with NHI, a competitor of AIA. These negotiations were allegedly in breach of his contract with AIA. Saine also allegedly recruited some of his co-employees at AIA to defect to NHI. AIA maintains that the NHI sales force disparaged AIA in part by making fraudulent representations as to AIA's financial stability and in part by impugning its business practices. This campaign was ostensibly directed at AIA policyholders. The counterclaim does not allege that Saine was one of the NHI representatives who conducted this campaign, or that Saine enabled the operation to occur by providing NHI with the names of the people contacted.

A. The Pattern of RICO

The civil remedies section of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961-1968 (RICO) provides for a private right of action for treble damages:

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States District Court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

18 U.S.C. § 1964(c). Section 1962(a) makes it unlawful to invest funds derived from a pattern of racketeering activity in an enterprise engaged in interstate commerce. Section 1962(b) prohibits the operation of or acquisition of an interest in an enterprise through a pattern of racketeering activity. Section 1962(c) makes it unlawful for any person associated with an enterprise which affects interstate commerce to conduct or participate in the affairs of such enterprise through a pattern of racketeering activity. Section 1962(d) states that it is forbidden to conspire to violate any of the substantive provisions of section 1962.

"Racketeering activity" includes any offense involving wire fraud. 18 U.S.C. § 1961(1)(B). A "pattern" consists of two or more of these predicate acts within 10 years of each other. 18 U.S.C. § 1961(5).

B. Pleading a Claim Under RICO — The Racketeering Claim Against Saine

The statutory pattern reveals eight elements that are critical to a RICO claim:

1) That the defendant
2) through the commission of two or more of the enumerated predicate acts
3) which constitute a "pattern"
4) of "racketeering activity"
5) directly or indirectly participates in the conduct of
6) an enterprise
7) the activities of which affect interstate or foreign commerce, and that
8) the plaintiff was injured in his business or property by reason of such conduct.

Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir.1983); Taylor v. Bear Stearns & Co., 572 F.Supp. 667, 682 (N.D.Ga.1983).

In reviewing the sufficiency with which AIA pleads these elements, I apply F.R.Civ.P. 9(b) which requires that "the circumstances constituting fraud ... be stated with particularity." This Rule should clearly govern the pleading of a predicate offense if that offense involves fraud. Moss v. Morgan Stanley, Inc., 719 F.2d 5, 19 (2d Cir.1983); Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir.1982); County of Cook v. Midcon Corp., 574 F.Supp. 902, 920 (N.D.Ill.1983); Barker v. Underwriters at Lloyd's, London, 564 F.Supp. 352, 356 (E.D.Mich.1983); Windsor Associates, Inc. v. Greenfeld, 564 F.Supp. 273, 279-80 (D.Md.1983); Eaby v. Richmond, 561 F.Supp. 131, 136 (E.D.Pa.1983); Mauriber v. Shearson/American Express, Inc., 546 F.Supp. 391, 397 (S.D.N.Y.1982).

To meet the Rule 9(b) standard a claimant must identify the circumstances constituting the fraud. This in turn involves identification of the particular defendants with whom the plaintiff dealt; designation of the occasions on which the fraudulent statements were made, and by whom; and designation of what misstatements or half-truths were made and how. See Noland v. Gurley, 566 F.Supp. 210, 216 (D.Colo.1983); Trussell v. United Underwriters Ltd., 228 F.Supp. 757, 774 (D.Colo.1964).

The RICO counterclaim attempts to state three causes of action: one against each of NHI and Saine for conducting NHI's affairs through a pattern of racketeering activity, contrary to 18 U.S.C. § 1962(c); and one claim that NHI and Saine conspired to violate that section, contrary to § 1962(d). With respect to the § 1962(c) claim against Saine, I find that the predicate offense of wire fraud has been inadequately pleaded. The accusation of wire fraud is premised on the telephone calls to AIA policyholders in which false representations about AIA were allegedly made. Counterclaim ¶ 22-31. These calls were made by "NHI representatives." There is no allegation that Saine was one of these representatives or that he was responsible for the acts of these representatives. As one court has recently pointed out, a "plaintiff is under a Rule 9(b) obligation when dealing with more than one defendant to specify which defendant told which lie and under what circumstances." Mauriber v. Shearson/American Express, Inc., 546 F.Supp. 391, 394 (S.D.N.Y.1982). As the counterclaim fails to identify Saine as a person who might have committed any of the predicate offenses, the § 1962(c) claim must be dismissed as to him.

C. The Existence of an Enterprise—The Racketeering Claim Against NHI

The third-party complaint against NHI under § 1962(c) suffers from a different defect. It alleges, at ¶ 35, that the "enterprise" in this case is "NHI or, in the alternative, an association in fact of Saine and NHI representatives." I have concluded that the association between Saine and the NHI representatives cannot be the enterprise because that association has no identity separate from the pattern of racketeering. That leaves NHI as the enterprise. If NHI is the enterprise it cannot also be the "person" whom the Act penalizes for conducting the affairs of the "enterprise" by means of racketeering. Therefore, I dismiss the § 1962(c) claim against NHI.

Section 1962(c) makes it unlawful for any person to conduct the affairs of an enterprise through a pattern of racketeering activity. Thus, the statute only forbids the predicate acts insofar as an enterprise is involved. Bennett v. Berg, 710 F.2d 1361, 1362 (8th Cir.1983) (en banc) (approving panel discussion at 685 F.2d 1053, 1061 n. 10). Section 1961(4) defines an enterprise as including "any individual, partnership, corporation, association or other legal entity, and any union or group of individuals associated in fact although not a legal entity." Two elements are necessary to establish an enterprise in such a way as to comply with § 1961(4) and still make sense of § 1962(c). First, there must be "evidence that the various associates function as a continuing unit" for a common purpose, United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (1981); and second, the enterprise must have an existence "separate and apart from the pattern of activity in which it engaged." Id.

There is conflict among the circuits on the proper interpretation of these tests. The Eighth Circuit has held that the evidence needed to prove the "enterprise" must be different from that used to prove the "pattern of racketeering." In Bennett v. Berg, 685 F.2d 1053 (8th Cir.1982), aff'd en banc, 710 F.2d 1361 (8th Cir.1983), former and current residents of a retirement community brought an action under RICO alleging that their community had been subject to financial mismanagement and self-dealing such that they were in danger of losing "life-care" which they were promised. The district court dismissed the complaint for failure to state a claim. It held that as the community was characterized in the complaint as "pervasively fraudulent" it could not have an existence separate from the acts of racketeering. The Eighth Circuit reversed on this point. The test propounded by the court was that of "discrete existence" apart from the racketeering. 685 F.2d at 1060. Accord, United States v. Anderson, 626 F.2d 1358, 1372 (8th Cir.1980), cert. denied, 450 U.S. 912, 101 S.Ct. 1351, 67 L.Ed.2d 336 (1981) ("discrete economic association existing separately from the racketeering activity.") As...

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