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PENN v. ALAMO RENT-A-CAR

September 25, 1989

BARRY F. PENN, individually and on behalf of all others similarly situated
v.
ALAMO RENT-A-CAR, INC. Shari B. Deghi, individually and on behalf of all others similarly situated v. Alamo Rent-A-Car, Inc. Beth Ervais, individually and on behalf of all others similarly situated v. Alamo Rent-A-Car, Inc.



The opinion of the court was delivered by: POLLAK

 BENCH OPINION

 LOUIS H. POLLAK, UNITED STATES DISTRICT JUDGE

 What is before us is a Motion to Dismiss the Complaint in this matter. The Complaint was filed in January. A Motion to Dismiss for failure to state a claim was filed in late April, concurrent with the filing of an Answer. As noted, I conclude that the Motion to Dismiss is to be deemed timely and I will therefore address it.

 The Complaint in this action is one which is brought on behalf of three plaintiffs who present themselves as members of a class. A Motion For Class Certification has been filed and is pending. The plaintiffs are persons who allege that they have rented cars from the defendant, Alamo Rent-A-Car ("Alamo"), which is alleged to be one of the largest automobile rental agencies in the United States. It is incorporated in Florida, has its principal place of business there, and does business in a great many states, including Pennsylvania.

 It is alleged in the Complaint that beginning on or about January 1, 1985, and continuing up until the date of the filing of the Complaint, which, as I stated, was in early January of this year, the defendant has engaged in certain fraudulent practices in the operation of its automobile rental business.

 The substance of the alleged fraud can, I think, be fairly simply described. The claim is that Alamo pursued the practice of advising potential customers who called in by telephone that the rental terms with respect to a particular automobile added up to a particular amount, only to have the customer, having made a telephone reservation on the basis of that representation, discover on arriving at the Alamo rental agency, which typically is adjacent to but not on the premises of the airport, that the rental costs are in fact in excess of those which have been represented to the customer over the telephone.

 The Complaint commences with three counts which are counts asserted under RICO, that is to say they are Federal claims, followed by four counts which are Common Law or State statutory claims. The four State Law claims are pendent to the three Federal claims.

 The question raised by the Motion to Dismiss for failure to state a claim is whether the three Federal Causes of Action are viable or whether any of the three is viable. If any of the three is viable, it is common ground, as a matter of Subject Matter Jurisdiction, that the four State Law Claims can be heard in connection with the Federal Cause (or causes) of Action. The problems explored on argument today, and to which I will confine myself, relate to the sufficiency of the asserted Federal Causes of Action.

 In defining the RICO claims, the Complaint asserts that the fraudulent representations or failures of disclosure which commonly were made by telephone to would-be customers, including the named plaintiffs, constituted acts of Wire Fraud within the meaning of the relevant Federal Criminal Statute, it is further alleged that various mailings, the contents of which are not specified in the Complaint, all auxiliary to the pattern of fraud alleged, constituted Mail Fraud within the companion Federal Criminal Statute. This fraudulent conduct is alleged to be, for RICO purposes, the relevant pattern of racketeering activity.

 The three RICO counts allege respectively civil Causes of Action arising under 18 U.S.C. § 1962(a); 18 U.S.C. Section 1962(b); and 18 U.S.C. Section 1962(d). As the placement of that list of prohibited activities in Title 18 suggests, these Subsections of Section 1962 are Federal crimes. But, as Section 1964 makes plain, "Violations of the respective Subsections of 1962 are grounds for a Civil Action under 1964(c) to be brought by "any person injured in his business or property by reason of a violation of Section 1962" in a civil suit in which the victorious plaintiff may recover threefold the damages suffered.

 Count One -- § 1962(a)

 Count one makes a claim under Section 1962(a). The pertinent language of 1962(a) is:

 
"It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity . . . in which such person has participated as a principal within the meaning of Section 2, Title 18, United States Code, 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."

 Id. The claim is that Alamo has derived income from the described pattern of racketeering activity and Alamo has, as stated in Paragraph 15 of the Complaint, "used and invested [that income] in the operation of the aforesaid enterprises, in violation of 18 U.S.C. Section 1962(a)." Now, though Paragraph 15 uses the word "enterprises" in the plural, it appears that the enterprises aforesaid actually constitute the single entity Alamo, the defendant itself, since we are advised in Paragraph 11 that with respect to plaintiffs' claims under 18 U.S.C. Section 1962(a) only, defendant Alamo constitutes an "enterprise."

 The central thrust of the Motion to Dismiss for failure to state a claim with respect to Count One is that Count One as formulated does not allege in any factual sense injury "by reason of a violation of Section 1962," within the meaning of Section 1964(c).

 The position taken, however, by the defendant is that the loss which arises from the pattern of racketeering activity, in this instance mail or Wire Fraud, is not the loss which can trigger civil liability under section 1964(c). What Section 1962(a) makes unlawful, so it is contended, is not the predicate activity, the pattern of racketeering activity, but the "investment" or use of the proceeds in the acquisition of an interest in an enterprise or in its establishment or operation. Further, the argument runs, the injury of which the plaintiff has complained must flow from that investment or use -- to use the two statutory words -- in the enterprise of the unlawfully-derived income. That the defendant is right in its statutory analysis is clear from the decision of the Court of Appeals for this Circuit in Rose v. Bartle, 871 F.2d 331 (3rd Cir. 1989), a decision announced on March 20, 1989, somewhat over two months after the filing of the Complaint in this case. The Appellate Opinion sustained the position to that effect taken by my colleague Judge Giles in the District Court, Rose v. Bartle, 692 F. Supp. 521 (E.D.Pa. 1988), in an Opinion announced in July of 1988.

 Judge Giles and the Court of Appeals relied on the decision of Chief Judge Fullam in Gilbert v. Prudential-Bache Securities, Inc., 643 F. Supp. ...


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