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FORUM PUBLS., INC. v. P.T. PUBLRS.

October 27, 1988

FORUM PUBLICATIONS, INC.,
v.
P.T. PUBLISHERS, INC., et. al



The opinion of the court was delivered by: MCGLYNN

 JOSEPH L. McGLYNN, JR., UNITED STATES DISTRICT JUDGE.

 Plaintiff, Forum Publications, Inc. is the publisher of Physical Therapy Forum, a newspaper circulated to physical therapists throughout the United States. Defendants P.T. Publishers, Inc. ("P.T.P.") and George E. Ludlow, President of P.T.P., publish P.T. Bulletin, another newspaper for physical therapists, under a license agreement with Defendant American Physical Therapy Association ("A.P.T.A."), the principal professional association for physical therapists in the United States. The complaint alleges that Defendants incorrectly and fraudulently made certain statements *fn1" in P.T. Bulletin over the period of several years. The complaint alleges that these fraudulent statements were made pursuant to a conspiracy to "[monopolize] the market for physical therapy job placement advertising, [force] plaintiff out of business, and [obtain] for themselves all revenues which could be derived from regional and national physical therapy job placement advertising." Cplt. paragraph 8. Count One of the Complaint is based on the Racketeer Influenced Corrupt Organizations Act, 18 U.S.C. section 1961 et seq.; Count Two on the Antitrust Laws of the United States, 15 U.S.C. section 1 et seq.; Count Three and Count Four on the common law doctrines of Injurious Falsehood and Interference with Contractual and Business Relations. All three Defendants have moved for dismissal of the Complaint for failure to state a claim, or in the alternative, for summary judgment. In addition, Defendant Ludlow seeks dismissal for lack of personal jurisdiction under Fed. R. Civ. P. 12(b) (2).

 Count One: RICO

 The Racketeer Influenced Organizations Act, 18 U.S.C. sections 1961 et seq., makes it unlawful, inter alia, "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." 18 U.S.C. section 1962(b). It is also 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 . . . ." 18 U.S.C. section 1962(c). "Racketeering activity" is defined in 18 U.S.C. section 1961 as including "any act which is indictable under any of the following provisions of title 18, United States Code: . . . section 1341 (relating to mail fraud), section 1343 (relating to wire fraud) . . ." Plaintiff alleges that Defendants violated sections 1341 and 1343 of the United States Code by making false and fraudulent statements in P.T. Bulletin as well as on the telephone. It seeks civil damages under section 18 U.S.C. section 1964(c).

 Although Congress enacted RICO primarily to eliminate "the infiltration of organized crime and racketeering into legitimate organizations'," S. Rep. 617, 91st Cong., 1st Sess., at 76, RICO in practice "is evolving into something quite different from the original conception of its enactors." Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 500, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985). The Supreme Court in Sedima explained that RICO has begun to be used "against respected businesses allegedly engaged in a pattern of specifically identified criminal conduct . . ." Id., 473 U.S. at 499. *fn2" A bare majority of the Court accepted the expanded RICO application:

 
It is true that private civil actions under the statute are being brought almost solely against such defendants, rather than against the archetypal, intimidating mobster [footnote omitted]. Yet this defect -- if defect it is -- is inherent in the statute as written, and its correction must lie with Congress. It is not for the judiciary to eliminate the private action in situations where Congress has provided it simply because plaintiffs are not taking advantage of it in its more difficult applications . . . . The 'extraordinary' uses to which civil RICO has been put appear to be primarily the result of the breadth of the predicate offenses, in particular the inclusion of wire, mail, and securities fraud, and the failure of Congress and the courts to develop a meaningful concept of 'pattern.'

 Id., 473 U.S. at 499-500.

 After Sedima, courts have restricted the application of RICO in civil cases by focussing on the requirement of section 1962 that there be a "pattern" of racketeering activity. Certain language in Sedima3 "has been widely viewed as a signal to the federal courts to fashion a limiting construction of RICO around the pattern requirement and the concepts of 'continuity' and 'relationship.'" Barticheck v. Fidelity Union Bank/First Nat. State, 832 F.2d 36 (3d Cir. 1987). *fn4" The court in Barticheck "concluded that a case-by-case analysis should be undertaken to determine 'the extent of the racketeering activity.'" Saporito v. Combustion Engineering Inc., 843 F.2d 666, 676 (3d Cir. 1988), citing Barticheck, 832 F.2d at 40. Furthermore, the Barticheck court

 
indicated that a determination of whether the facts alleged comprise a RICO pattern with the requisite 'continuity plus relationship,' Sedima, 473 U.S. at 496 n. 14, 105 S. Ct. at 285 n. 14, 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, 843 F.2d at 676, citing Barticheck 832 F.2d at 39.

 The meaning of the Barticheck test has been fleshed out in three Third Circuit cases. In Marshall-Silver Const. Co., Inc. v. Mendel, 835 F.2d 63 (3d Cir. 1987), the Court of Appeals upheld the dismissal of a RICO claim for failure to allege a sufficient "pattern" of racketeering activity. In Marshall-Silver, a general contractor alleged that an engineering firm, its officers, and its law firm fraudulently forced the plaintiff into bankruptcy over the course of a year by filing a petition for involuntary bankruptcy against the general contractor and by notifying the press, who subsequently reported that the general contractor was bankrupt. The Third Circuit concluded:

 
The target of the RICO statute, as its name suggests, is criminal activity that, because of its organization, duration, and objectives poses, or during its existence posed, a threat of a series of injuries over a significant period of time. Here we have a single victim, a single injury, and a single, short-lived scheme with only two active perpetrators [footnote omitted]. This is not a criminal activity with the kind of continuity of which we spoke in Barticheck.

 Marshall-Silver, 835 F.2d at 67. (Emphasis added).

 The next Third Circuit case to discuss the "pattern" requirement was Saporito v. Combustion Engineering Inc., 843 F.2d 666 (3d Cir. 1988). In Saporito, the plaintiffs alleged that the employer company and four of its officers "induced [them] to retire under one retirement plan while at the same time concealing from them but disclosing to certain other employees the development of a second, more generous plan." Id. at 667. The court concluded that the plaintiffs had alleged a "pattern" of racketeering in that there were at least five perpetrators, more than thirty-two unlawful acts, thirty-two victims, and virtually identical fraudulent acts committed over a six-month period.

 Finally, in Environmental Tectonics v. W.S. Kirkpatrick, Inc., 847 F.2d 1052 (3d Cir. 1988), one manufacturer of aeromedical equipment sued another manufacturer for bribing Nigerian officials in order to receive a contract from the Nigerian government. Plaintiff alleged that Defendant formed two Panamanian corporations to receive and distribute bribe money to Nigerian officials, as well as made four bribe payments to that corporation totalling over $ 1.7 million. Although there were only four or five specific "acts," the Court found a "pattern" of racketeering by focussing on the complexity, nature and scope of the scheme, as well as the large class of Nigerian and American citizen-victims. *fn5"

 Applying the Barticheck test (as fleshed out in the Third Circuit cases) to the facts of this case, I conclude that there is no "pattern" of racketeering alleged in Plaintiff's Complaint. First, I view the Complaint as alleging only one "act" -- the continued exaggerated assertion of P.T. Bulletin's quality and circulation. Judge Pollack's language in Environmental Tectonics6 suggests that the complexity and seriousness of the alleged illegal conduct should influence a court's application and evaluation of the Barticheck factors. The alleged scheme is a relatively simple one and involves conduct much less egregious than the bribery of foreign officials. These reasons, as well as the ease with which one or a few exaggerated statements might come to be considered hundreds of "acts" when repeated in a printed medium, convinces me that the Complaint alleges one single "act."

 The second factor -- the length of time over which the acts were committed -- and third factor -- the similarity of the acts -- become irrelevant if the exaggerated assertions are considered one continuous "act." Therefore, the fact that the statements were almost identical in nature and made over a three year period does not suggest that a "pattern" of racketeering existed. This conclusion is supported by factor number four -- the fact that there were only two alleged perpetrators: A.P.T.A. and George Ludlow.

 Furthermore, Plaintiff is the only "victim" directly injured by the alleged misconduct. *fn7" Finally, the character of the unlawful activity is not egregious and the fraudulent scheme not complex. The activity alleged by Plaintiff was mere "puffing" at best, false advertising at worst; and no great plan was required to print the misstatements. This is clearly not the type of activity that, "because of its organization, duration, and objectives poses . . . a threat of a series of injuries over a significant period of time." Marshall-Silver, 835 F.2d at 66-67. *fn8" Indeed, if the facts in the instant case were deemed sufficient to satisfy RICO's "pattern of racketeering" requirement, then every advertiser would be at risk of being hauled into federal court for allegedly making exaggerated claims.

 "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.' Marshall-Silver Constr. Co. v. Mendel, 835 F.2d 63, 65 (3d Cir. 1987) (citing Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985))." For the reasons stated above, I conclude that the complaint fails to allege a "pattern" of racketeering. Consequently, COUNT ONE is DISMISSED for Failure to State a Claim.

 Count Two: Antitrust Violations

 Defendants next move for dismissal of Plaintiff's Antitrust claim. Since the Complaint does not make clear whether Plaintiff alleges violations of section one or section two of the Sherman Act, and since Plaintiff did not clarify its position in its Reply Brief, I will proceed as if Plaintiff has alleged violations of both sections.

 Section One of the Sherman Act prohibits illegal restraints of trade. That section, however, was enacted for "the protection of competition, not competitors " as individual businesses. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977). As Defendant P.T. Publishers correctly points out:

 
The Complaint in this case fails to allege facts that would support the conclusion that defendants' conduct has had a substantially adverse effect upon competition, as distinct from an adverse effect upon Forum as a competitor. Indeed, the reverse is true: as plaintiff describes things, competition appears to have benefited from defendants' alleged conduct. To begin with, according to plaintiff's view of the relevant market, Forum occupied the field as a monopolist before defendants decided to begin printing a competition ...

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