§ 1961(1). The third count of the Complaint incorporates all prior allegations and then proceeds to allege the pattern of racketeering, based on the earlier counts, expressly. Consequently, defendants' contention that a pattern is not pleaded is futile.
A more substantial question is raised by the nature of the injury required to state a civil RICO claim. Federal courts have expressed divergent opinions on this issue. The kernel of the debate is whether the federal courts should import a standing requirement into RICO in order to prevent the federalization of a large body of state law fraud.
Some courts have refused to impose any standing requirement on the civil RICO claimant. See, e.g., Bennett v. Berg, 685 F.2d 1053, 1059 (8th Cir.1982), aff'd on rehearing en banc 710 F.2d 1361 (8th Cir.1983); Eisenberg v. Gagnon, 564 F. Supp. 1347 at 1352 (E.D.Pa.1983); Kimmel v. Peterson, 565 F. Supp. 476, 493-95 (E.D.Pa.1983). Other courts have insisted that the plaintiff must show a competitive injury, analogous to that needed to state an antitrust claim, in order to satisfy RICO. See, e.g., Van Schaick v. Church of Scientology, 535 F. Supp. 1125, 1137 (D.Mass.1982); North Barrington Dev., Inc. v. Fanslow, 547 F. Supp. 207, 210-11 (N.D.Ill.1980). Still other courts have purportedly eschewed the competitive injury requirement while demanding that the RICO claimant show a racketeering injury. Smith v. Nationwide Mutual Fire Ins. Co., 564 F. Supp. 350, 358 (N.D.Fla.1983); Harper v. New Japan Securities International, Inc., 545 F. Supp. 1002, 1007-08 (C.D.Cal.1982); Landmark Savings & Loan v. Loeb Rhoades, Hornblower & Co., 527 F. Supp. 206, 208 (E.D.Mich.1981). All of these cases arrive at their respective results by interpreting the same statutory language: "Any person injured in his business or property by reason of a violation of section 1962 of this chapter [proscribing certain activities involving racketeering,] may sue therefor . . . ." 18 U.S.C. § 1964(c) (emphasis added).
RICO was originally designed and drafted in the image of the federal antitrust laws. Blakely, The RICO Civil Fraud Action in Context: Reflections on Bennett v. Berg, 58 Notre Dame L.Rev. 237, 249-56 (1982). In fact, some of RICO's predecessor bills were drafted as amendments to the Sherman Act. The Antitrust Section of The American Bar Association submitted a report to Congress commenting on the propriety of using the antitrust laws to combat organized crime -- the objective of RICO. See 115 Cong.Rec. 6994-95 (1969). Based on the concerns that private litigants would have to contend with the concepts of "standing" and "proximate cause" developed under the antitrust laws, the report recommended, "that any such legislation be enacted as an independent statute and not be included in the Sherman Act, or any other antitrust law." Id. at 6995. Congress heeded the report's warning and RICO was enacted as a separate statute.
As a result of its consideration of the legislative history of RICO,
this Court concurs in the conclusion of Professor Blakely that "any suggestion that RICO actions be limited by antitrust-type limitations -- 'competitive,' 'commercial,' or 'direct/indirect' injuries -- flies in the face of the very consideration that led to the drafting of RICO as a separate statute from the antitrust statutes that are so limited." Blakely, The RICO Civil Fraud Action in Context: Reflections on Bennett v. Berg, 58 Notre Dame L.Rev. 237, 255 (1982). Consequently, this Court will not require a showing of competitive injury before a claim under 18 U.S.C. § 1964(c) can be stated.
Whether some middle ground between no standing requirement and an antitrust standing requirement should be used in civil RICO cases is best addressed by considering the purpose of RICO.
It is the purpose of this Act 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.
Pub.L. 91-452, § 1 (1970) (emphasis added). Additionally, the Court heeds the Congressional exhortation that "the provisions of this title shall be liberally construed to effectuate its remedial purposes." Id. at § 904.
RICO's provisions are aimed at behavior that is characteristic of organized crime, but its applicability extends beyond persons who can be shown to be involved in organized crime. See United States v. Cauble, 706 F.2d 1322, 1330 & n. 7 (5th Cir.1983). The Act seeks to protect interstate and foreign commerce from activities that are characteristic of organized crime even when they are engaged in by a single individual. United States v. Aleman, 609 F.2d 298, 303 (7th Cir.1979), cert. denied, 445 U.S. 946, 100 S. Ct. 1345, 63 L. Ed. 2d 780 (1980).
Its civil and criminal provisions, therefore, seek to protect both "innocent investors and competing organizations." Pub.L. 91-452, § 1 (1970).
These courts which have imposed a requirement of racketeering injury have done so in order to prevent federalization of state law fraud. First, this concern is unwarranted because RICO addresses only offenses which have an effect on interstate or foreign commerce. Second, the requirement of showing racketeering-type injury is meaningless in light of the manner in which the statute was drafted.
The statute provides its own standing requirement for civil plaintiffs in 18 U.S.C. § 1964(c).
RICO provides a civil action only to persons "injured in [their] business or property by reason of a violation of section 1962 . . . ." Section 1962(c), upon which plaintiff predicates liability, requires that a "pattern of racketeering" be involved. The pattern can only be established by the commission of two or more of the predicate acts of racketeering activity listed in 18 U.S.C. § 1961(1). The requirement of injury by reason of a violation of section 1962 should therefore be read as simply requiring that the plaintiff was injured by at least two acts of racketeering activity -- a pattern -- charged to the defendant. This interpretation provides a meaningful standing requirement by preventing an individual who was injured by one act of the type listed in 18 U.S.C. § 1961(1) from making out a RICO claim by alleging other unrelated acts of racketeering activity committed by the same defendant.
By construing the statute in this manner, the Court gives recognition and effect to the fact that "Congress deliberately redrafted RICO outside of the antitrust statutes, so that it would not be limited by antitrust concepts like 'competitive,' 'commercial,' or 'direct or indirect' injury;" and " both immediate victims of racketeering activity and competing organizations were contemplated as civil plaintiffs for injunction, damage and other relief, . . ." Blakely, The RICO Civil Fraud Action In Context, Reflections on Bennett v. Berg, 58 Notre Dame L.Rev. 237, 280 (1982). Under the allegations of the Complaint, plaintiff has met the standing requirement just stated and, therefore, defendants' contentions on this ground are dismissed.
2. Can Hutton Be Both "Person" and "Enterprise" Under Section 1962(c)?
Plaintiff claims E. F. Hutton violated 18 U.S.C. § 1962(c) through the events alleged. Section 1962(c) prohibits "a person employed by or associated with any enterprise engaged in, . . ., interstate or foreign commerce," from participating in the enterprise's activities through racketeering. 18 U.S.C. § 1962(c). While E. F. Hutton is an entity capable of fitting the statutory definition of either "person" or "enterprise," 18 U.S.C. § 1961(3), (4), in any given situation, it may not be used in the same case to fit both. United States v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th Cir.1982), cert. denied 459 U.S. 1105, 103 S. Ct. 729, 74 L. Ed. 2d 953 (1983).
"RICO quite clearly envisions a relationship between a 'person' and an 'enterprise' as an element of the offense which 1962(c) proscribes and for which 1964(c) would subject the 'person' to treble damages." Van Schaick v. Church of Scientology, 535 F. Supp. 1125, 1135-36 (D.Mass.1982). In this case, the Court concludes that the only possible relationship of person and enterprise possible is the one where Krakovitz is the person and E. F. Hutton is the enterprise. Since the enterprise cannot be liable to the plaintiff in a civil RICO claim predicated on a violation of 18 U.S.C. § 1962(c), Parnes v. Heinold Commodities, Inc., 548 F. Supp. 20, 23-24 (N.D.Ill.1982); Van Schaick, 535 F. Supp. at 1135-36; see United States v. Computer Sciences Corp., 689 F.2d at 1190, plaintiff fails to state a civil RICO claim against E. F. Hutton based on 18 U.S.C. § 1962(c).
3. Is Conspiracy a Possible Claim?
Plaintiff alleges a conspiracy between Krakovitz and E. F. Hutton to violate RICO. The Court deals with this allegation briefly by noting that a corporation and its employees are not capable of a civil conspiracy. "[A] corporation and its employee do not constitute the 'two or more persons' required for a civil conspiracy. Other courts have also held that a conspiracy cannot exist involving only a corporation and its officers or employees." Zelinger v. Uvalde Rock Asphalt Co., 316 F.2d 47, 52 (10th Cir.1963). See Jagielski v. Package Machine Co., 489 F. Supp. 232, 233-34 (E.D.Pa.1980).
Consequently, plaintiff's claim for civil conspiracy under 18 U.S.C. §§ 1962(d), 1964(c) is dismissed as to both Krakovitz and E. F. Hutton.
Counts V -- X are state law claims. Defendants seek dismissal of these counts on the assumption that Counts I -- IV, the only bases of federal jurisdiction, will be dismissed. Since at least one of the earlier counts has survived defendants' motion to dismiss, pendent jurisdiction is still applicable as a proper basis of jurisdiction for the claims of Counts V -- X.