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Seville Industrial Machinery Corp. v. Southmost Machinery Corp.

September 6, 1984


Appeal From the United States District Court For the District of New Jersey - Newark

Author: Hunter

Before: GIBBONS, HUNTER, Circuit Judges, and SYLVIA H. RAMBO,*fn* District Judge


HUNTER, Circuit Judge:

1. This appeal arises from a dismissal with prejudice of a civil complaint charging violations of the federal Racketerring Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 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.

2. Plaintiff, Seville Industrial Machinery Corp. ("Seville"), alleges that defendants, Southmost Machinery Corp. ("Southmost"), Tri-State Machinery Corp. ("Tri-State"), Norman Gellman, and Paolo Alfieri,*fn1 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. § 1962(b), (c), & (d) (1982).

3. 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.


4. Seville is a New Jersey corporation engaged in the business of buying and selling industrial machinery.*fn2 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.

5. 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.

6. 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.

7. 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*fn3 to acquire or maintain any interest in or control of an "enterprise" through "a pattern of racketeering activity." 18 U.S.C. § 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. § 1962(c) (1982).

8. 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. § 1961(4) (1982).*fn4 "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. § 1341 (1982), wire fraud, id. § 1343 (1982), and interstate transportation and sale of stolen and fraudulently obtained goods, id. §§ 2314-2315 (1982). 18 U.S.C. § 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. § 1961(5) (1982).

9. 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. § 1962(b), (c) (1982). It is also unlawful to conspire to perform these acts. 18 U.S.C. § 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 "any person injured in his business or property by reason of a ...

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