The opinion of the court was delivered by: HANNUM
The plaintiff, Temple University, brought this action pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1964(a)
to recover damages which it allegedly suffered as a result of the defendants' alleged conspiracy and scheme to defraud it by bribing some of its employees to procure business, by overcharging it for goods the defendants sold to it, and by charging it for goods the defendants sold to it but did not deliver.
The defendants are Salla Brothers, Inc., trading as General Air; Universal General Associates, Inc.; Air Filter Service of Philadelphia, Inc.; Berlin Associates; and two individuals, Vincent J. Salla and Joseph A. Salla, who are alleged to be shareholders, directors, officers, employees, and/or agents of the corporate defendants.
Presently before the Court are the following motions: (1) the defendants' motion to dismiss the complaint;
(2) the plaintiff's motion for partial summary judgment;
(3) the defendant's application for a preliminary injunction;
and (4) the plaintiff's motion to compel discovery.
I. Defendants' motion to dismiss the complaint
In support of their motion to dismiss the complaint, the defendants raise the following four grounds:
1. The RICO claims do not state a claim upon which relief can be granted;
2. The complaint fails to particularize allegations of fraud and to set forth a plain statement of the facts on which the claims for relief are based;
3. The pendent claims should not be heard in the absence of a viable federal claim, especially when a state court proceeding between the same parties is pending; and
4. The service on their receptionist was improper because she was unauthorized to receive process.
The Court will dispose of the defendants' claims seriatim.
A. Sufficiency of the RICO allegations to state a claim upon which relief can be granted
1. Failure to allege an injury which flows from a "pattern of racketeering activity" and failure to allege that the defendants were convicted of the predicate acts
The defendants contend that the plaintiff failed to allege the "racketeering enterprise injury" which they assert is required by 18 U.S.C. § 1964(c)
and that the plaintiff failed to plead that convictions resulted from the alleged predicate acts. The defendants submitted their brief before the Supreme Court handed down its decision in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), and expressly rejected the defendants' argument that a plaintiff must allege a "racketeering injury." The Court further held that it could find no support in RICO's history or language, or from considerations of policy for a requirement that a private treble damages action under 18 U.S.C. § 1964(c) can proceed only against a defendant who has already been convicted of the predicate acts.
2. Failure to allege enterprises which are distinct from the "pattern of racketeering injury" and the "person "
In Count I of the complaint, the plaintiff alleges that it is an "enterprise" within the meaning of 18 U.S.C. § 1961(4)
and § 1962(c), that each defendant is a "person" as defined by 18 U.S.C. § 1961(3),
and that the defendants violated 18 U.S.C. § 1962(c) based on predicate acts of mail fraud, commercial bribery, and a violation of the Travel Act. 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.
With respect to Count I, the defendants argue that the identity between the victim and the enterprise cannot withstand scrutiny. The Court notes that contrary to the defendants' argument, there is no prohibition that an enterprise may not also be a victim of the pattern of racketeering injury. United States v. Provenzano, 688 F.2d 194 (3d Cir.), cert. denied, 459 U.S. 1071, 74 L. Ed. 2d 634, 103 S. Ct. 492 (1982); United States v. Scotto, 641 F.2d 47 (2d Cir. 1980), cert. denied, 452 U.S. 961, 69 L. Ed. 2d 971, 101 S. Ct. 3109 (1981). The Court therefore rejects the defendants' contention.
The defendants also contend generally and with respect to Count V that the plaintiff failed to plead the existence of an enterprise separate and apart from the underlying prohibited activity. In support of their argument, the defendants rely on United States v. Turkette, 452 U.S. 576, 583, 69 L. Ed. 2d 246, 101 S. Ct. 2524 (1981), in which the Court stated that "the 'enterprise' is not the 'pattern of racketeering activity'; it is an entity separate and apart from the pattern of activity in which it engages." The Court further stated that:
The enterprise is an entity, for present purposes a group of persons associated together for a common purpose of engaging in a course of conduct. The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute. 18 U.S.C. § 1961(1) (1976 ed., Supp. III). The former is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit. The latter is proved by evidence of the requisite number of acts of racketeering committed by the participants in the enterprise.
This Court observes that the plaintiff alleges the existence of an "enterprise" in Counts I-IV and VI consisting of the plaintiff, all of the corporate defendants, Salla Brothers, Inc., and that in Count V, the plaintiff alleges that the enterprise consists of a union associated in fact although not a legal entity which is composed of the plaintiff's former employees and the defendants. The plaintiff further alleges that the defendant corporations supplied goods and services to it and that the pattern of racketeering activity includes repeated acts of mail fraud and commercial bribery and violations of the Travel Act.
The Court believes that with respect to Counts I-IV and VI the plaintiff has sufficiently alleged in each count that the enterprise was an ongoing organization with a framework or structure for making decisions; that its members functioned as a continuing unit; that the defendants engaged in a pattern of racketeering activity consisting of repeated acts of mail fraud and commercial bribery and violations of the Travel Act; and that therefore the plaintiff has sufficiently alleged an enterprise that is separate and apart from the acts of racketeering committed by the defendants.
With respect to Count V, however, the Court believes that the allegations show that the plaintiff's former employees and the defendants were associated together for no other purpose than to defraud the plaintiff. The Court therefore concludes that with respect to Count V, the plaintiff fails to allege the existence of an enterprise separate and apart from the pattern of racketeering activity and that Count V must be dismissed.
Concerning Counts II through VI, the defendants argue that the plaintiff failed to allege what racketeering activity was conducted through the enterprises. On the contrary, the plaintiff alleges in Counts II through VI that the racketeering activity perpetrated by the enterprises involved repeated acts of mail fraud and commercial bribery and violations of the Travel Act.
In this case, the Court concludes that the defendants properly invoke B.F. Hirsch to dismiss Count IV of the complaint insofar as it contains allegations of violations of 18 U.S.C. § 1962(c) because the plaintiff alleges that each defendant is a person and that the corporate defendants are each an enterprise, and that each defendant violated 18 U.S.C. § 1962(c).
With respect to Count IV, the Court observes that although the holding of B.F. Hirsch prohibits the corporate defendants from being named as a person and as an enterprise and charged with a section 1962(c) RICO violation, it does not preclude the plaintiff from alleging in Count IV that the individual defendants, Joseph A. Salla and Vincent J. Salla, are persons, that the corporate defendants are each an enterprise, and that the individual defendants violated 18 U.S.C. § 1962(c). Nevertheless, the Court will dismiss Count IV because the allegation concerning the individual defendants is identical to the allegation in Count II.
The Court notes further that the plaintiff has drafted Count IV to include an allegation that each defendant violated 18 U.S.C. § 1962(d) by conspiring to violate 18 U.S.C. § 1962(c). While the holding of B.F. Hirsch does not preclude such an allegation, the Court is unable to dismiss the 18 U.S.C. § 1962(c) allegation without also dismissing the allegation regarding conspiracy. The Court will therefore dismiss Count IV without prejudice to the plaintiff to replead this Count.
In contrast to Count IV, which alleges that the defendants violated 18 U.S.C. 1962(c), Count VI alleges that each defendant violated 18 U.S.C. 1962(a). The holding of B.F. Hirsch, however, applied to 18 U.S.C. § 1962(c) and not to 18 U.S.C. § 1962(a), which makes it unlawful for any person to use money derived from a pattern of racketeering activity to invest in an enterprise. Indeed, the court in B.F. Hirsch noted with approval statements contained in Haroco, Inc. v. American National Bank and Trust Company of Chicago, 747 F.2d 384 (7th Cir. 1984), aff'd on other grounds, 473 U.S. 606, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985), to the effect that in the case of a violation of 18 U.S.C. § 1962(a), the defendant enterprise may be charged with a RICO offense. In Haroco, the court observed that with respect to 18 U.S.C. § 1962(c), the "enterprise" and the "person" must be distinct and that:
[A] corporation-enterprise may be held liable under subsection (a) when the corporation is also a perpetrator. As we parse subsection (a), a "person" (such as a corporation-enterprise) acts unlawfully if it receives income derived directly or indirectly from a pattern of racketeering activity in which the person has participated as a principal within the meaning of 18 U.S.C. § 2, and if the person uses the income in the establishment or operation of an enterprise affecting commerce. Subsection (a) does not contain any of the language in subsection (c) which suggests that the liable person and the enterprise must be separate. Under subsection (a), therefore, the liable person may be a corporation using the proceeds of a pattern of racketeering activity in its operations. This approach to subsection (a) thus makes the corporation-enterprise liable under RICO when the corporation is actually the direct or indirect beneficiary of the pattern of racketeering activity.
Id. at 402 (footnote omitted). This Court's reading of Haroco and B.F. Hirsch leads the Court to conclude that the defendants might be held liable under section 1962(a).
The defendants cite only B.F. Hirsch v. Enright Refining Company, Inc., 751 F.2d 628 (3d Cir. 1984), as authority for their position. B.F. Hirsch holds that the plain meaning of the language of 18 U.S.C. § 1962(c) compels the conclusion that a "person" charged with an 18 U.S.C. § 1962(c) violation cannot be the same entity as the "enterprise" which employed it or with which it was associated. B.F. Hirsch does not hold that an officer of the corporate enterprise may not be a "person" when the corporation for which the officer works is the "enterprise" within the meaning of 18 U.S.C. § 1962(c) nor does it refer to the party from whom the plaintiff may recover damages. This Court does not read B.F. Hirsch to compel the dismissal of Counts II and III for the vague reasons suggested by the defendants. (The Court concluded above that it would dismiss Count IV.)
3. Failure to allege a nexus with organized crime
The defendants contend that the plaintiff has failed to state a valid RICO claim because it failed to allege that any of the defendants' activities involved organized crime. Civil actions under RICO, however, are not limited to situations in which there is a tie to organized crime. ...