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October 20, 1988

ILENE T. SCHWARTZ and STEVEN SCHWARTZ, on behalf of themselves and all others similarly situated

The opinion of the court was delivered by: NEWCOMER


 This is an action by two dissatisfied securities customers against their broker and others who allegedly failed to place their trading orders in a timely fashion. Plaintiff's amended complaint consists of ten counts. Counts VI and VIII are federal claims brought under the Racketeer Influenced and Corrupt Organizations Act (RICO) and under Rule 10b-5 of the Securities Exchange Act of 1934; the eight remaining claims are pendent state law claims.

 Presently before the court are motions filed by defendants Philadelphia National Bank (PNB) and its broker-employee Kevin Kelly, National Financial Services Corporation (National), and the Pershing Division of Donaldson, Lufkin, & Jenrette Securities Corp. (Pershing). The motions seek dismissal of the federal claims under Fed.R.Civ.P. 9(b) and 12(b)(6), and then dismissal of the remaining state law claims under Fed.R.Civ.P. 12(b)(1) because the court would lack subject matter jurisdiction over the state claims if the federal claims are dismissed.

 In reviewing a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the court must accept the allegations in the complaint as true. The complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273 (3d Cir. 1985).

 I. RICO Count

 Count VI of the amended complaint alleges violations of RICO Sections 1962(a), (b), and (c) as prohibited by 18 U.S.C. § 1962(d). *fn1" I will address each of these sections in turn.

 Sections 1962(a) and (b) proscribe certain uses of the proceeds of racketeering activity. In order to state a claim under these sections, plaintiffs must allege that they suffered an injury by reason of a violation of these subsections. Leonard v. Shearson Lehman/American Express, Inc., 687 F. Supp. 177, 181 (E.D. Pa. 1988) (citing Gilbert v. Prudential-Bache Securities, Inc., 643 F. Supp. 107, 109 (E.D. Pa. 1986)); Rich Maid Kitchens v. Pa. Lumbermens Mut. Ins. Co., 641 F. Supp. 297, 311 (E.D. Pa. 1986), aff'd, 833 F.2d 307 (3d Cir. 1987). In their amended complaint, plaintiffs allege that defendants' pattern of racketeering activities "were used either to acquire an interest in an enterprise [§ 1962(a) and (b)] or to conduct the affairs of an enterprise [§ 1962(c)]. Amended Complaint, para. 67(b). Beyond this conclusory allegation, plaintiffs do not demonstrate any causal relationship between alleged violations of sections (a) and (b) and plaintiffs' alleged damages. On the present record, the court is unable to conceive of any injury that plaintiffs might have suffered as a result of alleged violations of sections 1962(a) and (b). Plaintiffs' claimed injuries were caused by the alleged pattern of racketeering activities; "whether defendants did or did not invest the proceeds in a business affecting commerce cannot have been causally related to any injury to plaintiff." Gilbert, 643 F. Supp. at 109. Thus, the court finds that plaintiffs lack standing to bring a RICO action under § 1962(a) or (b).

 B. Section 1962(c)

 Section 1962(c) prohibits any person employed by or associated with an enterprise from conducting or participating in that enterprise's affairs through a pattern of racketeering activity. "To survive a Rule 12(b)(6) motion, a civil RICO claim must allege (1) the conducting of, (2) an enterprise, (3) through a pattern, (4) of racketeering activity." Saporito v. Combustion Engineering, Inc., 843 F.2d 666, 673 (3d Cir. 1988) (petition for cert. filed July 28, 1988) (citations omitted). Defendants' motions cite numerous alleged defects in plaintiffs' section 1962(c) claim including plaintiffs' failure: (1) to identify the culpable RICO "person" and "enterprise"; (2) to plead sufficient facts showing the existence of an enterprise; and (3) to set forth sufficient facts to show a "pattern of racketeering activity." In response, plaintiffs have cited LSC Associates v. Lomas & Nettleton Fin. Corp., 629 F. Supp. 979 (E.D. Pa. 1986), for the proposition that defendants have improperly confused plaintiffs' burden to state a claim and the burden they have to prevail on a RICO claim. For the most part, plaintiffs claim that they need not "prove" the RICO requirements at this point, and that "allegations" will suffice.

 As defendants note, LSC was decided before the Third Circuit's decisions in Barticheck v. Fidelity Union Bank/First National State, 832 F.2d 36 (3d Cir. 1987); Marshall-Silver Constr. Co. v. Mendel, 835 F.2d 63 (3d Cir. 1987) (petition for cert. filed Feb. 12, 1988); and Saporito v. Combustion Eng'g Inc., 843 F.2d 666 (3d Cir. 1988) (petition for cert. filed July 28, 1988). In Marshall-Silver, the court of appeals affirmed the district court's dismissal of a RICO complaint, finding that it failed to allege a pattern of racketeering activity. In addition, the court rejected the plaintiff's claim that it should have been allowed to amend the complaint. Marshall-Silver, 835 F.2d at 67, 67 n.5. In Barticheck and Saporito, the Third Circuit reversed district court dismissals of RICO complaints. These reversals were based on analysis of specific factors used to determine whether the facts alleged comprised a RICO pattern, however, and not on a refusal to address the sufficiency of the allegations contained in the complaint. Based on these recent decisions of the Third Circuit, I believe it entirely proper for the district court judge to examine the sufficiency of RICO allegations in a complaint. See also Salvador v. Mazzocone, 1988 U.S. Dist. LEXIS 259, No. 86-7605 (E.D. Pa. Jan. 11, 1988) (Newcomer, J.) (granting motion to dismiss when complaint failed to satisfy the "pattern of racketeering activity" requirement in section 1962).

 1. "Pattern" Requirement

 Under Third Circuit precedent, determination of "whether the facts alleged comprise a RICO pattern with the requisite 'continuity plus relationship' . . . turns on a combination of the following factors: (1) the number of unlawful acts; (2) the length of time over which the acts were committed; (3) the similarity of the acts; (4) the number of victims; (5) the number of perpetrators; and (6) the character of the unlawful activity." Saporito v. Combustion Eng'g ...

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