Seville Indus. Machinery Corp. v. Southmost Machinery Corp.
| Decision Date | 17 September 1984 |
| Docket Number | No. 83-5575,83-5575 |
| Citation | 742 F.2d 786 |
| Parties | SEVILLE INDUSTRIAL MACHINERY CORP., Appellant v. SOUTHMOST MACHINERY CORP., Tri-State Machinery Corp., Norman Gellman, individually and doing business as Southmost Machinery Corp., and Tri-State Machinery Corp., and Paolo Alfieri, individually and doing business as Southmost Machinery Corp. |
| Court | U.S. Court of Appeals — Third Circuit |
Arthur H. Rosenberg (argued), New York City, for appellant.
Michael B. Himmel (argued), Alain Leibman, Greenbaum, Greenbaum, Rowe, Smith, Bergstein, Yohalem & Bruck, Newark, N.J., for appellees.
Before GIBBONS and HUNTER, Circuit Judges, and SYLVIA H. RAMBO, * District Judge.
This appeal arises from a dismissal with prejudice of a civil complaint charging violations of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968 (1982), along with pendent state claims for fraud, breach of contract, and conversion. These claims arose from a series of transactions spanning a twenty-one month period and involving the sale of some seven hundred pieces of industrial equipment.
Plaintiff, Seville Industrial Machinery Corp. ("Seville"), alleges that defendants, Southmost Machinery Corp. ("Southmost"), Tri-State Machinery Corp. ("Tri-State"), Norman Gellman, and Paolo Alfieri, 1 fraudulently induced Seville to enter into various purchase, consignment, joint venture and service agreements regarding this machinery, and that this fraud constituted a "pattern of racketeering" in violation of RICO, 18 U.S.C. Sec. 1962(b), (c), & (d) (1982).
The United States District Court for the District of New Jersey dismissed the complaint on defendants' motion. 567 F.Supp. 1146 (D.N.J.1983). The district court judge dismissed Count One for failing to plead the elements of a RICO offense properly, Fed.R.Civ.P. 12(b)(6), and for failing to plead the underlying acts of fraud with sufficient particularity, Fed.R.Civ.P. 9(b). The judge dismissed the remaining state law claims for lack of pendent jurisdiction. We believe that the district court erred in concluding that Count One did not state a cause of action under RICO, and in concluding that the underlying fraud was not pleaded with sufficient particularity. Consequently, we will reverse in part, affirm in part, and remand to the district court for further proceedings.
Seville is a New Jersey corporation engaged in the business of buying and selling industrial machinery. 2 Southmost, a Texas corporation, and Tri-State, a New Jersey corporation, are also in the business of buying and selling industrial machinery. Gellman is an officer and controlling person of Southmost and of Tri-State, and Alfieri is an officer and controlling person of Southmost.
Seville alleges that beginning in May, 1981, it was induced by defendants to enter into a number of sale and other transactions involving over seven hundred pieces of industrial machinery, listed in Exhibits A through E attached to the complaint. Specifically, Seville alleges that defendants caused Seville to ship to them the machinery described in Exhibits A to C on consignment, representing that when the machinery was resold defendants would remit to Seville its purchase price along with fifty percent of the profits from resale. Second, Seville alleges that defendants induced it to enter into a joint venture to purchase the equipment described in Exhibit B for resale by defendants, promising to pay to Seville its pro rata share of the profits and of the cost of acquisition. Third, Seville alleges that it sold the machinery described in Exhibit D to defendants, on defendants' promise to pay Seville its purchase price. Finally, Seville alleges that it agreed to provide certain services in connection with the sale of the equipment listed in Exhibit E, on defendants' promise of compensation for those services. App. at 5-8.
Defendants never fulfilled their promises to pay Seville under these consignment, joint venture, purchase and service contracts. Seville alleges in its complaint that defendants made numerous fraudulent misrepresentations and omissions of material facts in each of these transactions, and that Seville relied on these misrepresentations and omissions in shipping the seven hundred pieces of machinery to defendants.
Count One of Seville's complaint alleges that defendants have violated the provisions of RICO by these actions. That Act makes it unlawful, inter alia, for any person 3 to acquire or maintain any interest in or control of an "enterprise" through "a pattern of racketeering activity." 18 U.S.C. Sec. 1962(b) (1982). RICO also makes it unlawful for any person employed by or associated with any enterprise to conduct the affairs of the enterprise through a pattern of racketeering activity. 18 U.S.C. Sec. 1962(c) (1982).
An "enterprise" is defined to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact though not a legal entity." 18 U.S.C. Sec. 1961(4) (1982). 4 "Racketeering activity" is defined to include state law crimes such as murder, bribery, and extortion, and a specified list of federal crimes that includes mail fraud, 18 U.S.C. Sec. 1341 (1982), wire fraud, id. Sec. 1343 (1982), and interstate transportation and sale of stolen and fraudulently obtained goods, id. Secs. 2314-2315 (1982). 18 U.S.C. Sec. 1961(1) (1982). A "pattern of racketeering activity" requires at least two acts of racketeering activity within a ten year period. 18 U.S.C. Sec. 1961(5) (1982).
In brief, RICO makes it unlawful to acquire or maintain control of an enterprise--broadly defined to include virtually any de facto or de jure association--through a pattern of criminal activity, or to use such an enterprise to engage in a pattern of criminal activity. 18 U.S.C. Sec. 1962(b), (c) (1982). It is also unlawful to conspire to perform these acts. 18 U.S.C. Sec. 1962(d) (1982). While RICO is primarily a criminal statute, it also provides for civil remedies, including a cause of action for treble damages, available to "[a]ny person injured in his business or property by reason of a violation of section 1962 ...." 18 U.S.C. Sec. 1964(d) (1982). Count One of Seville's complaint is stated to have been brought pursuant to this section.
Seville alleges that the four defendants, Southmost, Tri-State, Gellman, and Alfieri, are "enterprises" within the meaning of the Act, and that defendants in the course of their scheme violated federal laws prohibiting wire fraud, mail fraud and interstate transportation of stolen or fraudulently obtained goods. Seville alleges that defendant Gellman, through this pattern of racketeering activity, maintained an interest in or control of Southmost and Tri-State in violation of section 1962(b). Seville further alleges that Gellman, through his employment and association with Southmost and Tri-State, conducted their activities through this pattern of racketeering activity in violation of section 1962(c). Seville alleges similar violations with respect to Alfieri and his control of and association with Southmost.
The district court ruled that Count One did not properly plead the existence of any "enterprise," and further that the underlying allegations of fraud lacked the particularity required by Fed.R.Civ.P. 9(b). He dismissed the complaint without leave to amend, stating, "A RICO cause of action has not been pleaded and probably cannot be pleaded in the circumstances set forth in the complaint." 567 F.Supp. at 1158.
Seville in its complaint alleged that "[d]efendants Southmost, Tri-State, Gellman and Alfieri are enterprises ...." App. at 4. The district court conceded that each of the defendants fell within the literal meaning of the definition of "enterprise" provided in section 1961(4). But, the court concluded, Seville's complaint was deficient because it did not further allege the three attributes of an enterprise outlined by this court in United States v. Riccobene, 709 F.2d 214 (3d Cir.), cert. denied sub nom. Ciancaglini v. United States, --- U.S. ----, 104 S.Ct. 157, 78 L.Ed.2d 145 (1983).
Riccobene analyzed and explained a Supreme Court case, United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981), which like Riccobene involved an appeal from conviction under RICO's criminal provisions. In Riccobene this court stated that in order to establish the existence of an enterprise, the government must demonstrate 1) that the enterprise is an ongoing organization with some sort of framework or superstructure for making or carrying out decisions; 2) that the members of the enterprise function as a continuing unit with established duties; and finally 3) that the enterprise must be separate and apart from the pattern of activity in which it engages. 709 F.2d at 221-24. The court below ruled that because Seville failed to plead these three attributes, Count One did not state a cause of action under RICO and must be dismissed.
In so ruling, the district court confused what must be pleaded with what must be proved. Riccobene and Turkette certainly stand for the proposition that a plaintiff, to recover, must prove that an alleged enterprise possesses the three described attributes. But neither case speaks to what must be pleaded in order to state a cause of action. The district court erred in applying the Riccobene-Turkette proof analysis to the allegations in Seville's complaint.
We need cite no authority for the proposition that the Federal Rules of Civil Procedure were designed to eliminate the vagaries of technical pleading that once plagued complainants, and to replace them with the considerably more liberal requirements of so-called "notice" pleading. Under the modern federal rules, it...
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