Smith v. MCI Telecommunications Corp.

• Decision Date: 17 December 1987
• Docket Number: Civ. A. No. 87-2110.
• Citation: 678 F. Supp. 823
• Parties: Catherine M. SMITH, Plaintiff, v. MCI TELECOMMUNICATIONS CORPORATION, Defendant.
• Court: U.S. District Court — District of Kansas

678 F. Supp. 823

Catherine M. SMITH, Plaintiff, v. MCI TELECOMMUNICATIONS CORPORATION, Defendant.

Civ. A. No. 87-2110.

United States District Court, D. Kansas.

December 17, 1987.

Robert P. Numrich, Field, Gentry, Benjamin & Robertson, P.C., Overland Park, Kan., William G. Beck, Field, Gentry, Benjamin & Robertson, P.C., Kansas City, Mo., for plaintiff.

Roger D. Stanton, Mark D. Hinderks, Stinson, Mag & Fizzell, Overland Park, Kan., Robert L. Driscoll, Christopher F. Pickering, Stinson, Mag & Fizzell, Kansas City, Mo., Marianne Geeker, MCI Telecommunications, Washington, D.C., for defendant.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Chief Judge.

This matter is before the court on the motion of defendant MCI Telecommunications Corporation (hereinafter "MCI") to dismiss the first amended complaint of plaintiff Catherine M. Smith (hereinafter "Smith").

The gravamen of Smith's class action against MCI is that MCI systematically cheated its salespersons by failing to pay them proper commissions. The amended complaint includes the following counts: (1) a claim under the Racketeer Influenced and Corrupt Organizations Act (hereinafter "RICO"), 18 U.S.C. §§ 1961-1968, (2) a common law fraud claim based on MCI's acts underlying the RICO claim, (3) a claim for breach of contract based on MCI's failure to pay employees' commissions, (4) a common law fraud claim related to MCI's employment contracts, and (5) a breach of contract claim based on the employment contracts.

MCI moves for dismissal, alleging that Count 1 fails to state a claim for relief under RICO, that Counts 2 and 4 fail to state claims on which relief may be granted, and that the court lacks subject matter jurisdiction over Counts 3 and 5.

The court may not dismiss a complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). In considering a motion to dismiss, all well-pleaded facts, as distinguished from conclusory allegations, must be accepted as true, and all reasonable inferences must be drawn in favor of the plaintiff. Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir.1984). Our inquiry in reviewing the sufficiency of Smith's complaint is not whether she will ultimately prevail, but whether she is entitled to offer evidence to support her claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

I. Count 1: The RICO Claim.

MCI asserts that Smith's RICO claim should be dismissed because it fails to identify with sufficient particularity MCI's alleged wrongdoing, establish a pattern of alleged racketeering activities, identify an enterprise separate from MCI, and establish that Smith's injuries were caused by MCI's alleged racketeering activities. MCI's motion and both parties' memoranda primarily address Smith's alleged RICO injuries and whether claims arise from them; the class and its claims are not discussed in detail. Thus this portion of the court's order will focus only on Smith's claims.

Smith must plead her RICO allegations based on fraud with particularity. See Fed.R.Civ.P. 9(b); Smith v. Mark Twain Bankshares, 84-4282-S (D.Kan., unpublished, Mar. 27, 1986) (citing Otto v. Variable Annuity Life Ins. Co., 611 F.Supp. 83, 89 (N.D.Ill.1985). She must describe with specificity "the circumstances constituting the fraud, including such matters as the time, place, and content of the false representations, as well as the identity of the person making the representation and what was obtained or given thereby." Smith v. Heim, 85-1970-K (D.Kan., unpublished, April 15, 1986) Available on WESTLAW, 1986 WL 15397 (citing Van Dorn Co. v. Howington, 623 F.Supp. 1548 (N.D.Ohio 1985)).

Smith's complaint is sufficiently particular. She alleges three specific dates, September 7, 11, and 19, 1984, when MCI assertedly entered accounts she sold into the commission-calculating computer without crediting her with the sales. She also alleges four specific sales where she was told that the customer, upon whose usage her commission was based, had slight usage entitling her to little or no commission, whereas the customer was billed for much greater usage. The discrepancies occurred in the accounts for American World Travel, Ash Battery Systems, Inc., Peachtree Doors, and Exide Battery. Because these allegedly fraudulent acts are not the statements or writings of a particular person, Smith need not specify who within MCI committed the acts. Her pleadings as to the incidents sufficiently inform MCI of the specific nature of her allegations. See N.L. Industries, Inc. v. Gulf & Western Industries, 650 F.Supp. 1115, 1129-30 (D.Kan.1986).

We next address whether MCI's alleged acts constitute a pattern of racketeering activity. Smith asserts, and MCI denies, that the acts, which include perpetrating a fraud through use of the mail and wired communications, amount to a pattern of racketeering activity as defined by Title 18, United States Code, Section 1961(5). This section provides that a pattern requires at least two acts within ten years. 18 U.S.C. § 1961(5). The Supreme Court expounded on the pattern requirement in Sedima S.P. R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985):

The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common parlance two of anything do not generally form a "pattern." The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: "The target of RICO is thus not sporadic activity. The infiltration of legitimate business normally requires more than one `racketeering activity' and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern." S.Rep. No. 91-617, p. 158 (1969) (emphasis added).

Id. at 496 n. 14, 105 S.Ct. at 3285 n. 14.

In Torwest DBC, Inc. v. Dick, the Tenth Circuit held that a pattern requires continuous and related acts. Torwest, 810 F.2d 925, 928 (10th Cir.1987). Acts which are part of a common fraudulent scheme are related. Id. Here, the acts were related, as they were part of a common scheme to deprive Smith of the commissions she earned.

Continuity requires the threat of ongoing activity. Id. "A scheme to achieve a single discrete objective does not in and of itself create a threat of ongoing activity, even when that goal is pursued by multiple illegal acts, because the scheme ends when the purpose is accomplished." Id. at 929. The instant case involves a more difficult question: whether a pattern is presented where a scheme has no single objective and is directed toward one victim. Id. The Torwest court failed to answer the question, stating that it declined to "formulate a bright-line test" for determining whether a pattern exists. Id.

A review of decisions from other circuits does not yield a single approach. Some courts have held that fraudulent acts underlying RICO claims need not occur in different criminal episodes or schemes to satisfy the continuity requirement. See, e.g., Bank of America v. Touche Ross & Co., 782 F.2d 966, 971 (11th Cir.1986). Other courts have strictly required the predicate acts to be parts of different schemes. See, e.g., Superior Oil Co. v. Fulmer, 785 F.2d 252, 257 (8th Cir.1986).

We are persuaded by the Seventh Circuit's approach as stated in Morgan v. Bank of Waukegan, 804 F.2d 970 (7th Cir. 1986). There, the court steered a middle course, stating that "the predicate acts must be ongoing over an identified period of time so that they can fairly be viewed as constituting separate transactions, i.e., transactions somewhat separated in time and place." Id. at 975 (quotations omitted). The court continued:

Relevant factors include the number and variety of predicate acts and the length of time over which they were committed, the number of victims, the presence of separate schemes and the occurrence of distinct injuries. However, the mere fact that the predicate acts relate to the same overall scheme or involve the same victim does not mean that the acts automatically fail to satisfy the pattern requirement. The doctrinal requirement of a pattern of racketeering activity is a standard, not a rule, and as such its determination depends on the facts and circumstances of the particular case, with no one factor being necessarily determinative.

Id. at 975-76 (emphasis added). The court concluded that the plaintiffs had sufficiently pled a pattern of acts, including mail fraud related to a loan transaction and two foreclosure sales occurring over the course of four years.

In the instant case, applying the above standards, we find sufficient allegation of a pattern. Although MCI's acts relate only to a single scheme to deprive Smith of her commissions, the acts were themselves separate occurrences, and the scheme, which would continue as long as Smith was employed, was open-ended. Dismissal for failure to allege a pattern is therefore unwarranted.

We next address whether, under 18 U.S.C. § 1962(a), the provision on which Smith bases her claim, the defendant and the enterprise may be the same entity. This section provides:

It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

18 U.S.C. § 1962(a).

In this case, MCI is a person as defined by section 1961(3). It contends that the person and the enterprise mentioned in section 1962(a) must be distinct. Smith disagrees.

Courts generally hold...