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BLUE CROSS OF WESTERN PENNSYLVANIA v. NARDONE

February 23, 1988

Blue Cross of Western Pennsylvania, Plaintiff
v.
Joseph C. Nardone, an individual, Defendant



The opinion of the court was delivered by: MENCER

 Glenn E. Mencer, United States District Judge.

 On September 21, 1987, Blue Cross of Western Pennsylvania (Blue Cross) filed a complaint against Joseph Nardone alleging violations of the Racketeer Influenced and Corruption Act, 18 U.S.C. § 1961 et seq. (RICO). Nardone has filed a Motion to Dismiss, which is presently pending before this court.

 1. Facts

 For purposes of ruling on this Motion to Dismiss, we will accept Blue Cross's factual allegations. Blue Cross alleges that Nardone is licensed as a pharmacist in Pennsylvania. He operates Nardone's Pharmacy (Pharmacy), which engages in interstate commerce.

 In 1969, Blue Cross and Nardone entered into a contract under which the Pharmacy agreed to provide Blue Cross subscribers with prescription drugs and Blue Cross agreed to pay the Pharmacy. The parties performed the contract satisfactorily until July 1, 1983, at which time Nardone began submitting false and fraudulent claims to Blue Cross. These claims were for prescriptions that either were not filled or were not prescribed. Nardone used the U.S. Mails to carry out his scheme. He kept some of the proceeds himself, and used the balance to operate the Pharmacy. Nardone continued submitting false claims until August 30, 1984, when Blue Cross discovered the fraud.

 Blue Cross has asserted claims under 18 U.S.C. § 1964 for injuries resulting from Nardone's violations of 18 U.S.C. §§ 1962 (a), (b), and (c), which read as follows:

 
(a) 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, or the proceeds 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. . . .
 
(b) It shall be unlawful for any person through a pattern of racketeering activity . . . to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
 
(c) 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. . . .

 Nardone has arranged his arguments in favor of his Motion to Dismiss into eight issues, and we will address each of his issues in turn.

 A. Injury Causation under § 1962(a)

 Nardone's first argument is that Blue Cross has failed to allege the proper injury as required by 18 U.S.C. § 1964(c), which states in part that, "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor. . . ." Nardone asserts that Blue Cross was injured by the submission of false claims, not by the investment of the proceeds in the Pharmacy. Blue Cross contends that it was injured by the investment because the funds that Nardone invested in the Pharmacy toward its continued operation allowed Nardone to perpetuate the fraud.

 The case law defining the nature of the injury one must sustain to invoke § 1964(c) is ambiguous. Two recent district courts cases in Pennsylvania addressed this issue. In Gilbert v. Prudential-Bache Securities, Inc., 643 F. Supp. 107 (E.D. Pa. 1986), the defendant was a brokerage firm that allegedly made some improper securities transactions, then invested the proceeds. Although the court did not recite the facts in great detail, it seems that the defendants invested the proceeds of their scheme in stock of other companies, not their own firm. The ...


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