VAN DORN CO., CENT. STATES CAN. CO. v. Howington

• Decision Date: 24 December 1985
• Docket Number: No. C85-1327A.,C85-1327A.
• Citation: 623 F. Supp. 1548
• Parties: VAN DORN COMPANY, CENTRAL STATES CAN CO. DIVISION, Plaintiff, v. John D. HOWINGTON, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

623 F. Supp. 1548

VAN DORN COMPANY, CENTRAL STATES CAN CO. DIVISION, Plaintiff, v. John D. HOWINGTON, et al., Defendants.

No. C85-1327A.

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

December 24, 1985.

COPYRIGHT MATERIAL OMITTED

Leslie W. Jacobs, Thompson, Hine & Flory, Cleveland, Ohio, for plaintiff.

Ralph E. Cascarilla, Thomas C. Schrader, Cleveland, Ohio, for defendants.

ORDER

BELL, District Judge.

On May 6, 1985, the plaintiff Van Dorn Company, Central States Can Co. Division (hereinafter Central States) filed the above-entitled action against Texas Can, Inc. (hereinafter Texas Can) and three of its officers. The plaintiff alleged a cause of action based upon Title IX, § 901(a) of the Organized Crime Control Act of 1970, commonly known as the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (hereinafter RICO). In addition, the complaint, as amended on July 14, 1985, asserted claims under Ohio law in which plaintiff contends defendants breached a contract between the parties, interfered with the plaintiff's business relations, breached a fiduciary duty, and misappropriated various trade secrets held by Central States.

Presently before the court is the defendants' motion to dismiss the amended complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, for want of subject matter jurisdiction, and pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for failure to state a claim upon which relief can be granted. The defendants also seek an award of their expenses incurred in defending this action, including attorneys fees, as a sanction under Rule 11 of the Federal Rules of Civil Procedure for the filing of a complaint which defendants perceive as being one unwarranted in either fact or law.

When considering a motion to dismiss a claim pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, the court is constrained to accept as true the allegations in the complaint. Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 525, 103 S.Ct. 897, 902, 74 L.Ed.2d 723 (1983). To dismiss the complaint against the defendants, the court must find as a matter of law that the plaintiff can prove no set of facts in support of its claim which would justify the relief sought. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). Therefore, a summary of the facts as set forth in the amended complaint follows.

The plaintiff is a corporation which manufacturers specialty easy-open metal cans in its plants located in Ohio, Canada and Puerto Rico. In 1981, Central States entered into discussions with the Ralston Purina Company for the purpose of evaluating and possibly purchasing Ralston Purina's Van Camp can manufacturing operation. At that time the plaintiff sought to ascertain its future requirements for cans of the types and sizes then being produced by Central States, and further to determine if the acquisition of the Van Camp can operation would enhance plaintiff's ability to supply certain other types of cans for resale to third parties. During these negotiations Central States was represented by its Senior Vice President of Sales and Marketing, defendant John D. Howington.

A portion of Central States' business involves supplying two-piece cans to tuna packagers in Puerto Rico. In 1982 and 1983, Central States entered into contractual agreements with these tuna packagers to supply all of the customers' can requirements, including can sizes not being manufactured by the plaintiff at that time. Mr. Howington was a participant in these contract negotiations on behalf of the plaintiff. In light of the contractual obligation to supply cans to the tuna packagers, Central States, in January, 1983, proposed a longterm agreement with Ralston Purina for the purchase of cans to be resold to the plaintiff's customers.

Plaintiff contends that during the period of the negotiations between Central States and Ralston Purina, defendants John E. Koenig, John B. Wertz and Mr. Howington began the planning and preparation necessary to establish a company which would manufacture cans in direct competition with the plaintiff. Mr. Koenig had been an employee of Central States until his employment ended in May, 1983. Thereafter, Mr. Koenig acted as a consultant with the plaintiff until August, 1984. Mr. Wertz was not associated with the plaintiff in any manner.

In May, 1983, Howington, Koenig and Wertz incorporated Texas Can as a Delaware Corporation. Thereafter, Texas Can began to purchase cans from a direct competitor of Central States for re-sale to a seafood cannery in Texas. This operation was allegedly developed by Howington and Koenig while they were still employed at Central States, and was conducted by these same defendants without the plaintiff's knowledge or consent. Central States was not advised by any of the defendants of the possible business opportunity involving the selling of cans to the Texas cannery.

In June, 1983, for reasons not set forth in the complaint, Mr. Howington's employment was terminated by Central States. Also at this time, plaintiff states, Mr. Howington advised one of his subordinates at Central States to accept a job offer in Texas with the seafood cannery that was doing business with Texas Can. Thereafter, this employee left the plaintiff to accept employment at that company.

Consistent with Koenig's duties as consultant for Central States, he conducted several market studies at the plaintiff's expense. One such study involved the market for cans to be sold to cheese dip manufacturers. This study, the plaintiff contends, is a valuable trade secret which the defendants have misappropriated. It is asserted by Central States that since the defendants acquired this "very valuable and highly confidential trade secret," they have successfully outbid the plaintiff on major contracts.

Central States further alleges that, during the period of at least June, 1981 until the filing of this action, defendants have used interstate wires and mails to engage in a scheme to defraud, or to obtain by false pretense, property belonging to the plaintiff. The property in question includes Central States trade secrets, corporate opportunities, travel expenses and the working time of Mr. Koenig and other employees. These activities pursuant to the plaintiff's allegations are actions indictable under 18 U.S.C. §§ 1341 and 1343 and constitute a pattern of racketeering under 18 U.S.C. § 1961(5).

It cannot be disputed that the subject matter jurisdiction of this court hinges on whether the plaintiff's claim of a RICO violation can survive the defendants' motion to dismiss. Absent this federal claim this court cannot exercise jurisdiction over the pendant state law claims set forth in the amended complaint since there is no independent jurisdiction over the state law claims. United Mine Workers v. Gibbs, 383 U.S. 715, 725-26, 86 S.Ct. 1130, 1138-39, 16 L.Ed.2d 218 (1966); Ohio Inns, Inc. v. Nye, 542 F.2d 673 (6th Cir.1976). Thus, the sole issue before this court concerns whether the allegations stated in the amended complaint are sufficient to state a federal cause of action under RICO.

I

In enacting RICO it was the expressed purpose of Congress "to seek the eradication of organized crime in the United States by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime." 84 Stat. 923. Also see United States v. Turkette, 452 U.S. 576, 589, 101 S.Ct. 2524, 2532, 69 L.Ed.2d 246 (1981). To help achieve this purpose, Congress created a private right or cause of action with treble damages and an award of attorney fees to any prevailing plaintiff "injured in his business or property by reason of a violation of section 1962 of this Chapter." 18 U.S.C. § 1964(c).

In reviewing RICO claims, various courts have opined, and this court agrees, that a plaintiff must first allege that some racketeering activity has occurred. This pleading requirement is met by alleging that one or more of the subsections of 18 U.S.C. § 1962 were violated by the conduct of the defendants. Sedima SPRL v. Imrex Co., 473 U.S. ___, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); Alexander Grant & Co. v. Tiffany Industries, Inc., 770 F.2d 717 (8th Cir.1985); Seville Industrial Machinery v. Southmost Machinery, 742 F.2d 786 (3d Cir.1984); Alcorn County Miss. v. U.S. Interstate Supplies, 731 F.2d 1160 (5th Cir.1984) (quoting United States v. Phillips, 664 F.2d 971, 1011 (5th Cir. Unit B 1981), cert. denied, 457 U.S. 1136, 102 S.Ct. 2965, 73 L.Ed.2d 1354 (1982)); Moss v. Morgan Stanley, Inc., 719 F.2d 5 (2d Cir. 1983), cert. denied sub. nom. Moss v. Newman, 465 U.S. 1025, 104 S.Ct. 1280, 79 L.Ed.2d 684 (1984); Schacht v. Brown, 711 F.2d 1343 (7th Cir.1983), cert. denied, 464 U.S. 1002, 104 S.Ct. 508, 78 L.Ed.2d 698 (1983); Cole v. Circle R. Convenience Stores, Inc., 602 F.Supp. 1108 (M.D.La. 1985); Banowitz v. State Exchange Bank, 600 F.Supp. 1466 (N.D.Ill.1985).

The plaintiff must also allege that it has sustained some injury to its business or property which injury was caused by the violation of the subsection of section 1962. However, the plaintiff need not plead or establish a racketeering injury distinct from the damages occurring as a result of racketeering activities of the defendants. Sedima, SPRL v. Imrex Co., 473 U.S. at ___, 105 S.Ct. at 3285, 87 L.Ed.2d at 358; Alcorn County Miss. v. U.S. Interstate Supplies, supra 731 F.2d at 1167; Hirt v. UM Leasing Corp., 614 F.Supp. 1066 (D.C. Neb.1985); Wilcox v. Ho-Wing Sit, 586 F.Supp. 561 (D.C.Cal.1984); Clute v. Davenport Co., 584 F.Supp. 1562 (D.Conn. 1984). In sum, to state a valid claim under RICO, a plaintiff must meet the pleading requirements of alleging a racketeering activity that injures the...