Because the Plan is not a resulting trust, it is not a legal entity enterprise.
ii) Association in Fact
The City also argues that the Plan is an "association in fact" enterprise. PEBSCO challenges this assertion, and avers that the Plan is little more than a contract between the City and Plan participants. The City attempts to characterize the Plan more broadly, but has done so in an inconsistent and incoherent fashion.
First, the City's amended complaint asserts that the "Plan and the City are the 'enterprises' for the purposes of the RICO claim." Am. Compl. at P 79. On March 8, 1993, the City was ordered to file a RICO case statement describing in detail the alleged enterprise, stating the names of the associations that constitute the enterprise, and stating the structure of the enterprise. The City's RICO case statement, however, simply restates that the Plan and the City are the alleged enterprises. RICO Case Stmt. at P 5(a).
Second, in response to PEBSCO's motion for judgment on the pleadings, the City articulates a more expansive, yet inconsistent, description of the alleged association in fact enterprise. In its memorandum of law in opposition to PEBSCO's motion, the City first asserts that "the Plan constitutes an association in fact," and that "the Plan consists of an ongoing organization of individuals who invest their money under the framework established by federal and Pennsylvania statutes and the Plan Document." Pl. Mem. Opp. Mot. J. Pl. at 16. In this context, the City seems to be alleging that the employees who participate in the deferred compensation program constitute the association. Yet in the very next paragraph, the City asserts that "the City is in a position to establish that it and the Plan Participants function as a continuing unit." Id. (emphasis added). This suggests that the alleged associates are the City and the employees who participate in the program. One page later, however, the City backtracks, stating that "the Plan Participants, as a group, are separate and apart from the pattern of racketeering activity in which PEBSCO has engaged." Id. at 17.
The City's position was no clearer at oral argument, where the City seemingly asserted that the alleged association in fact encompassed not only the Plan participants, but also the City's finance director and the employees within the City who work on the plan. Tr. at 24. Although I must view the facts in the City's pleadings in the light most favorable to the City, I am not required to be a mindreader. I cannot determine whether the City has adequately alleged an association in fact enterprise because the City has never coherently set forth the constituency of the alleged association.
Cf. United States v. Turkette, 452 U.S. 576, 101 S. Ct. 2524, 2528, 69 L. Ed. 2d 246 (1981) (stating that an association in fact is "a group of persons associated together for a common purpose of engaging in a course of conduct . . . [and] is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit").
Because the City has failed to adequately allege an association in fact, I grant PEBSCO's motion for judgment that the Plan is not a valid RICO enterprise. Should the City choose to do so, it may seek leave to amend its amended complaint in a timely fashion.
b. The City as an Enterprise
PEBSCO next argues that although the City is a valid RICO enterprise,
PEBSCO did not participate in the operation or management of the City. Because the exact nature of PEBSCO's participation in the City's affairs is not clear, judgment on the pleadings in favor of PEBSCO is unwarranted.
Section 1962(c) requires that the defendant "conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs." 18 U.S.C.A. § 1962(c) (West 1984). The Supreme Court has held that liability under § 1962(c) only attaches to persons who "participate in the operation or management of the enterprise itself." Reves v. Ernst & Young, 122 L. Ed. 2d 525, 113 S. Ct. 1163, 1173 (1993). The Court noted that "RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise's affairs is required." Id. at 1170. Further, the Court held that liability under § 1962(c) "depends on showing that the defendants conducted or participated in the conduct of the 'enterprise's affairs,' not just their own affairs." Id. at 1173 (quoting § 1962(c)).
The Third Circuit has recently formulated its interpretation of Reeve's operation or management requirement:
Simply because one provides goods or services that ultimately benefit the enterprise does not mean that one becomes liable under RICO as a result. There must be a nexus between the person and the conduct in the affairs of an enterprise. The operation or management test goes to that nexus. In other words, the person must knowingly engage in "directing the enterprise's affairs" through a pattern of racketeering activity.
University of Maryland v. Peat, Marwick, Main & Co., 996 F.2d 1534 (3d Cir. 1993) (emphasis added) (citation omitted). Viewing the allegations in the pleadings in the light most favorable to the City, there remains an unresolved factual dispute: namely, the extent of PEBSCO's involvement in the operation and management of the Plan and the City with respect to its Plan-related functions. The City has averred that PEBSCO assumed responsibility not only for performing the Plan's ministerial functions, but also for marketing the Plan to City employees, answering employees' questions about the investment options, and counseling the City with respect to optimal investment media included in the Plan. Further, the City has alleged that PEBSCO performed these tasks in a fashion that permitted PEBSCO employees to elicit substantial commissions from the sale of Peoples policies. This suggests the type of knowing direction of an enterprise through a pattern of racketeering activity described in University of Maryland. Because a factual dispute remains as to the nature and extent of PEBSCO's participation in the operation and management of the City with respect to its Plan-related functions, I deny PEBSCO's motion for judgment on the pleadings.
An appropriate order follows.
AND NOW, this 13th day of January 14, 1994, it is hereby ORDERED that defendant's motion for judgment on the pleadings (Document No. 21) is GRANTED IN PART and DENIED IN PART as set forth in the accompanying opinion.
BY THE COURT:
JOHN R. PADOVA, J.