Vemco, Inc. v. Camardella

• Citation: 23 F.3d 129
• Decision Date: 07 July 1994
• Docket Number: No. 93-1412,93-1412
• Parties: RICO Bus.Disp.Guide 8545 VEMCO, INC., Plaintiff-Appellant, v. John CAMARDELLA, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 129

23 F.3d 129

RICO Bus.Disp.Guide 8545

VEMCO, INC., Plaintiff-Appellant, v. John CAMARDELLA, et al., Defendants-Appellees.

No. 93-1412.

United States Court of Appeals Sixth Circuit.

Argued March 8, 1994.

Decided April 29, 1994.

Rehearing and Suggestion for Rehearing

En Banc Denied July 7, 1994.

Donald McG. Rose (argued and briefed), Frost & Jacobs, Cincinnati, OH, Paul Lieberman, Bloomfield Hills, MI, for plaintiff-appellant.

Lita Masini Popke, Raymond C. McVeigh, Denis C. Monahan (argued and briefed), Magar, Monahan, Donaldson & Alber, Detroit, MI, Patrick M. Kirby, Flint, MI, for defendants-appellees.

Before: KENNEDY and MILBURN, Circuit Judges; and ALDRICH, District Judge. ^*

ANN ALDRICH, District Judge.

The plaintiff filed this action in the district court alleging violations of 18 U.S.C. Sec. 1962(a) & (c) (RICO); conspiracy to commit fraud; and common law fraud. The defendants moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6). The district court referred the motion to dismiss to the magistrate judge, for preparation of a report and recommendation. The district court subsequently adopted in its entirety the report and recommendation of the magistrate judge, and dismissed the counts under Sec. 1962(a) & (c), and the count for conspiracy to defraud, for the failure to state a claim. The district court dismissed without prejudice the pendant state law fraud claim.

Plaintiff-appellant Vemco appeals the dismissal of Counts I and II, the claims under Sec. 1962(a) & (c). Vemco does not appeal the dismissal of the conspiracy claim. We affirm the judgment of the district court.

I.

The allegations of Vemco's amended complaint, which we accept as true for the purposes of a motion to dismiss under Rule 12(b)(6), see Scheuer v. Rhodes, 416 U.S. 232, 235-37, 94 S.Ct. 1683, 1686-87, 40 L.Ed.2d 90 (1974), are as follows.

Plaintiff-appellant Vemco, Inc. is a Michigan Corporation which manufactures and paints plastic automotive trim parts. In 1987, Vemco desired to build a new manufacturing facility which would include a "paint finishing system." On November 15, 1987, Vemco contracted with defendant-appellee Flakt, Inc., a Delaware corporation, to have Flakt build the paint finishing system for $15 million. At the time of the contract, defendant-appellee John Camardella was president of the division of Flakt which entered into the contract with Vemco; defendant-appellee Thomas Mark was the director of finance and business development of the division; and defendant-appellee Richard Aquino was vice president of sales for the division.

Vemco alleges that when negotiating the contract, Flakt knowingly misrepresented that it could build a system which would meet the specified system performance requirements for a total cost of $15 million dollars. Flakt guaranteed the system would be fully operational by September, 1989. In December, 1987, Flakt also communicated by letter its allegedly fraudulent $15 million estimate to Vemco's lenders, inducing those lenders to fund the purchase price of the equipment and services Vemco bought from Flakt.

Various disputes arose over the project beginning in January, 1988. Flakt demanded that Vemco pay certain OCR charges, which Vemco believed Flakt was obligated to pay under the contract. Vemco was also dissatisfied with the progress of Flakt's work. In May, 1988, Flakt demanded payment of $2.8 million. Vemco alleges that it made that payment in reliance on Flakt's misrepresentations about how close the project was to completion. In July, 1988, Flakt demanded payment of an additional $4 million, and threatened litigation against Vemco and Vemco's lenders if the money was not paid.

Beginning in July, 1988, Flakt sent Vemco quarterly billing statements demanding that Vemco pay Flakt $6 million plus interest. In August, 1988, Flakt left the worksite and took with it the specifications for the project's electrical system, which made it impossible for Vemco to complete the project without great additional expense. Litigation began soon afterward. In September, 1988, the district court (in a separate action from this case) ordered Flakt to produce the plans to Vemco. Flakt failed to comply with the district court's order until July, 1991, when Flakt finally produced the documents. In December, 1988, Flakt allegedly threatened that it would run Vemco out of business if Vemco did not pay the money.

Vemco filed this RICO action in June, 1991.

II.

This Court reviews de novo the district court's dismissal of the amended complaint under Rule 12(b)(6). Dugan v. Brooks, 818 F.2d 513, 516 (6th Cir.1987). The complaint should not be dismissed under Rule 12(b)(6) unless it appears without a 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, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

Vemco argues on appeal (1) that the district court erred in finding that Vemco had not sufficiently alleged an "investment injury" to state a claim under Sec. 1962(a) of RICO; and (2) that the district court erred in finding that Vemco had not alleged acts of sufficient "continuity" to constitute a pattern of racketeering activity under Sec. 1962(c) of RICO.

A. Dismissal of Count I: Sec. 1962(a)

Section 1962(a) of RICO provides in part:

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, 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. Sec. 1962(a).

This Court has held that in order to state a claim under Sec. 1962(a), a plaintiff must plead a specific injury to the plaintiff caused by the investment of income into the racketeering enterprise, distinct from any injuries caused by the predicate acts of racketeering. Craighead v. E.F. Hutton & Co., Inc., 899 F.2d 485, 494 (6th Cir.1990) (dismissing Sec. 1962(a) claim when plaintiffs alleged "only injuries traceable to the alleged predicate acts"). This Circuit's pleading requirement of a so-called "investment injury" is consistent with the holdings in all but one of the circuits which have addressed the question. See Ouaknine v. MacFarlane, 897 F.2d 75, 82 (2d Cir.1990); Glessner v. Kenny, 952 F.2d 702, 708-10 (3d Cir.1991); Parker & Parsley Petroleum v. Dresser Indus., 972 F.2d 580, 584 (5th Cir.1992); Nugget Hydroelec. L.P. v. Pacific Gas & Elec. Co., 981 F.2d 429, 437-38 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 2336, 124 L.Ed.2d 247 (1993); Grider v. Texas Oil & Gas Corp., 868 F.2d 1147 (10th Cir.), cert. denied, 493 U.S. 820, 110 S.Ct. 76, 107 L.Ed.2d 43 (1989); Danielson v. Burnside-Ott Training Ctr., 941 F.2d 1220, 1239-40 (D.C.Cir.1991); but see Busby v. Crown Supply, Inc., 896 F.2d 833, 836-40 (4th Cir.1990).

Here, Vemco did allege reinvestment of racketeering proceeds:

[Defendants] received income derived directly ... and ... indirectly in the form of wages and, possibly other means, ... from a pattern of racketeering activity as detailed above.

Upon information and belief this income was used, directly or indirectly, in the operation of the enterprise [described above].

Amended Complaint pp 72-73. Nowhere in the amended complaint, however, did Vemco allege an injury stemming from the investment, distinct from injuries stemming from predicate acts. In fact, in a section of the amended complaint entitled "Injuries to Plaintiff," Vemco specifically alleged only a list of damages it suffered "[a]s a result of the Predicate Acts herein alleged which were part of a pattern of racketeering activity...." Amended Complaint p 68. Such allegations do not meet this Circuit's requirement of a distinct "investment injury."

Vemco's reliance on this Court's opinion in Newmyer v. Philatelic Leasing, Ltd., 888 F.2d 385 (6th Cir.1989), is misplaced. In Newmyer, this Court held that a district court had improperly dismissed for lack of an investment injury a Sec. 1962(a) claim involving an investment plan. The district court had reasoned that the plaintiffs could not be injured by what the defendants did with the plaintiffs' money after they gave it up. We disagreed, noting that the Newmyer plaintiffs could have been injured by the investment itself if the investment plan into which they put their money (i.e., the enterprise) was itself funded with monies from prior racketeering against prior victims. This Court thus reversed the dismissal of the complaint, since an injury resulting from the investment of racketeering proceeds itself was possible.

Newmyer is distinguishable from the case at hand. Unlike the plaintiffs in Newmyer, Vemco does not allege that Flakt itself was built with racketeering proceeds amassed from others prior to Vemco's association with Flakt. Such an allegation would make Vemco's claim against Flakt analogous to that against the investment plan in Newmyer. Rather, Vemco alleges that the income Flakt derived from its racketeering against Vemco was subsequently used to operate the enterprise. Vemco never alleges that the reinvestment into the enterprise resulted in an injury separate from the "predicate acts" injuries.

The district court properly concluded that Vemco failed to plead an investment injury to state a claim under Sec. 1962(a). Therefore, we affirm the district court's dismissal of Count I of the amended complaint.

B. Dismissal of Count II: Sec. 1962(c)

Section 1962(c) of RICO provides in part:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of an unlawful debt.

18 U.S.C....