Associates v. Lomas & Nettleton Financial Corp., 629 F. Supp. 979, 981-82 (E.D. Pa. 1986); United States v. Freshie Co., 639 F. Supp. 442, 445 (E.D. Pa. 1986). Thus, I find that plaintiff has sufficiently pleaded a pattern of racketeering activity.
D. The Existence of a Conspiracy
Defendants argue that Moravian cannot state a cause of action under either a statutory or common law conspiracy theory because neither Dow Chemical U.S.A. or Amspec, Inc. are entities that can conspire with Dow Chemical Company or with each other. Defendants argue that Dow Chemical U.S.A. is merely an operating unit of Dow Chemical Company, and is not an entity capable of holding a legal or beneficial interest in property, and therefore is not a person under RICO section 1961(3). Defendants argue that Amspec, Inc. is a wholly owned subsidiary of Dow Chemical. Defendants argue that both a wholly owned subsidiary and an operating unit of a company are legally incapable of conspiring with the parent company or with each other. In addition, defendants argue that Dow Chemical, U.S.A. and Amspec, Inc. are not entities capable of being sued.
The issues presented here are complex and important ones. As a threshold matter, the court must determine the exact nature of the relationship between these entities. This relationship is not apparent from the pleadings. Defendants have submitted the affidavit of Paul Wright. On a motion to dismiss, I am not required to consider such evidence. Moreover, as is pointed out by the plaintiff, the record does not show whether Dow, Dow U.S.A. and Amspec maintain common officers and/or directors, have similar marketing images, or have similar trademarks and/or logos. Because I find, in this case, that these issues may be more fully considered by the court on a motion for summary judgment, I decline to decide the issues at the present time.
E. Pleading Conspiracy and Fraud with Sufficient Specificity
Defendants argue that the RICO conspiracy count and the counts relating to common law fraud should be dismissed for failure to plead fraud with sufficient particularity, as required by Fed.R.Civ.P. 9(b).
In order to properly allege a RICO conspiracy, plaintiff must "assert that each defendant so charged has 'by his words or actions . . . objectively manifested an agreement to participate, directly or indirectly, in the affairs of an enterprise through the commission of two or more predicate crimes.'" Eaby v. Richmond, 561 F. Supp. 131, 137 (E.D. Pa. 1983) (quoting United States v. Boffa, 688 F.2d 919, 937 (3d Cir. 1982), cert. denied, 460 U.S. 1022, 75 L. Ed. 2d 494, 103 S. Ct. 1272 (1983)) (emphasis omitted). Moreover, as the Eaby court went on to state, a civil RICO conspiracy must be plead "'with enough specificity to inform multiple defendants of the facts forming the basis of the conspiracy charge. Such allegations must delineate among the defendants as to their participation or responsibilities in making the statements which are the subject of the suit. Conspiracies described in sweeping or general terms cannot serve as the basis for a cause of action and may be dismissed.'" 561 F. Supp. at 137 (quoting Van Schaick v. Church of Scientology of California, Inc., 535 F. Supp. 1125, 1141 (D. Mass. 1982)).
Of course, rule 9 applies as well to the common law claims of fraud. The primary purpose of the rule is to "place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir. 1984), cert. denied, 469 U.S. 1211, 84 L. Ed. 2d 327, 105 S. Ct. 1179 (1985).
I agree that the allegations in Moravian's complaint concerning fraud are not sufficiently specific under rule 9(b). Plaintiff asserts that defendants manufactured, marketed and sold Sarabond, and that they misrepresented the product. Count IX alleges that "on numerous occasions" defendants caused letters to be mailed and information to be transmitted by wire containing false information about Sarabond. Count X contains general allegations of conspiracy. These allegations do not show that each defendant objectively manifested an agreement to participate in an enterprise through the commission of two or more predicate crimes. Count VI contains general allegations of intentional misrepresentation. Count VII provides greater detail of the substance of the alleged fraudulent representations, but does not allege the circumstances surrounding them. Count VIII, alleging conspiracy, also sets forth general allegations of fraud.
In Eaby, plaintiffs argued that they were unable to plead fraud with particularity because the facts underlying their claim were particularly within the defendant's knowledge. The court granted leave to take discovery for sixty days, after which the defendants could renew the motion to dismiss if the complaint had not been properly amended. Id.
Plaintiff argues that here, as in Eaby, the facts of the agreement are particularly within the control of the defendants, and that the court should therefore allow time for discovery and amendment of the complaint. Defendants respond that amended Fed.R.Civ.P. 11 requires that attorneys certify with their signature that the complaint is well-grounded in fact, and argue that a complaint which is not well-grounded should be dismissed.
Rule 11 is not designed to block suits in which pertinent information is largely under the control of the opposing party; what is required by the rule is a reasonable inquiry into the facts under the circumstances of each particular case. Kinee v. Abraham Lincoln Federal Savings & Loan Ass'n., 365 F. Supp. 975, 982-83 (E.D. Pa. 1973); Fed.R.Civ.P. 11 note on 1983 Amendment. Furthermore, defendants' argument is contrary to the liberal federal policy in favor of allowing amendments. Eaby, 561 F. Supp. at 137.
Therefore, I will deny without prejudice the motion to dismiss counts V - X of the complaint. Defendant may renew this motion following the completion of discovery and an opportunity to amend the complaint.
II. Punitive Damages in a RICO Action
Moravian has sought punitive damages in conjunction with its RICO claims. Defendants contend that punitive damages are inappropriate in a RICO claim because treble damages are themselves punitive. Defendants support their argument by analogy to the Sherman Act. Under the Sherman Act, the policy is clearly established that "punitive and treble damages cannot both be awarded for violation of antitrust laws." Arnott v. American Oil Co., 609 F.2d 873, 888 (8th Cir. 1979), cert. denied, 446 U.S. 918, 64 L. Ed. 2d 272, 100 S. Ct. 1852 (1980).
The issue of punitive damages in RICO claims has not yet been directly addressed by the courts. None of the cases plaintiff has marshalled in support of punitive damages involved RICO claims. One court has ruled against dismissing a claim for punitive damages in a complaint involving several counts, including a RICO count, but the court did not single out the RICO count or analyze the issue of whether treble and punitive damages should both be assessed. Kranzdorf v. Green, 582 F. Supp. 335, 338 (E.D. Pa. 1983). When the fifth circuit was confronted with this issue, the court avoided it by disallowing punitive damages on other grounds. Alcorn County, Miss. v. U.S. Interstate Supplies, 731 F.2d 1160, 1170 & n.16 (5th Cir. 1984).
Defendants' argument that punitive damages are not appropriate in addition to the treble damages provided by RICO is compelling. In this context, the analogy to the Sherman Act is helpful. The legislative history of RICO describes the RICO treble damages provision as "another example of the antitrust remedy being adapted for use against organized criminality." 116 Cong. Rec. 35295 (1970). I find no basis for allowing punitive damages in addition to treble damages. The claims for punitive damages in Counts IX and X will be stricken.
III. Attorneys' Fees
Defendant moves to strike the claims for attorneys' fees from all counts alleging common law violations. Plaintiff concedes that Pennsylvania law does not provide for the recovery of attorneys' fees on its common law claims. I therefore strike the claim for attorneys' fees from Counts I - VIII.
The motion to dismiss counts VIII, IX and X for failure to state a claim on which relief can be granted will be denied. The defendants may raise its argument that the three defendants are not capable of forming an enterprise or conspiracy in a motion for summary judgment. The motion to dismiss counts V - X for failure to plead with sufficient specificity will be dismissed without prejudice to its renewal following the completion of discovery and an opportunity to amend the complaint. The motion to dismiss Dow Chemical U.S.A. and Amspec, Inc. as parties will be denied without prejudice to its renewal as a motion for summary judgment. The claims for punitive damages in counts IX and X, and for attorneys' fees in counts I - VII, will be stricken.
An appropriate order is attached.
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 651 F. Supp.]
Upon consideration of the defendants' motion to dismiss, the plaintiff's response, the memoranda submitted by the parties, and for the reasons stated in the attached memorandum, IT IS ORDERED that:
1. The motion to dismiss counts VIII, IX and X for failure to state a claim on which relief can be granted is denied.
2. Defendants have leave to renew their claim that the three defendants in this case are not capable of forming an enterprise or of conspiring with each other on a motion for summary judgment.
3. The motion to dismiss counts V - X for failure to plead with sufficient specificity is dismissed without prejudice to its renewal following the completion of discovery and an opportunity to amend the complaint.
4. The motion to dismiss Dow Chemical U.S.A. and Amspec, Inc. as parties to this action is denied without prejudice to its renewal as a motion for summary judgment.
5. The claims for punitive damages in counts IX and X are stricken.
6. The claims for attorneys' fees in counts I - VIII are stricken.
IT IS SO ORDERED.