Petition for Writ of Certiorari — Delta Truck & Tractor, Inc. v. J. I. Case Co.
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NO.
SUPREME COURT OF THE UNITE
OCTOBER TERM, 1988
DELTA TRUCK & TRACTOR, INC.,
PETITIONERS
VERSUS
\
44);
J.1. CASE COMPANY
TENNECO, INC.
NAVISTAR INTERNATIONAL CORPORATION
(FORMERLY INTERNATIONAL HARVESTER COMPANY)
RESPONDENTS
ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE FIFTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
HENRY B. BRUSER, III
POST OFFICE BOX 6118
ALEXANDRIA, LA 71307-6118
(318) 445-6471
JACK _N. PRICE
410 CONGRESS AVENUE
AUSTIN, TX 78701
ATTORNEYS FOR PETITIONERS
I. THE QUESTIONS PRESENTED FOR REVIEW:
1. Has petitioner alleged an enterprise, or
must petitioner assert in its pleadings as a
matter of law that the defendants posed a
continuous threat as RICO persons?
2. Can an associated-in-fact enterprise engage
in a pattern of racketeering activity
effectively infiltrating hundreds of
legitimate businesses and nonetheless fall
outside RICO’s ambit because the enterprise
does not display sufficient "ongoing
continuity"?
3. Must an association-in-fact enterprise be
alleged to have an existence separate and
apart from the racketeering activity in
which it engages or may the enterprise be in
effect, no more than the sum of the
predicate acts?
Il. THE LIST OF ALL PARTIES:
Petitioner: Delta Truck and Tractor, Inc.
Respondents: J.I. Case Company; Tenneco, Inc.;
Navistar International Corporation (formerly
International Harvester Company)
a er
IItl. TABLE OF CONTENTS:
The Questions Presented for Review........... i
The List of All PartiesS.....ccccccccccccvcces i
TABLES GE COMEONCS. 2. clecccccccccasccsccssecs ii
Designation of Corporate Relationships...... ii
Table of Authorities. .....ccccccccccccccces iii
Reference to Official & Unofficial
ED PERM gow cc cceeesesceecsceeceseceos vi
The Jurisdiction of the Court............... vi
Tee BOA ASCOMLS SCACUCES. 2 ccc ccccccnsevsecess vi
A Concise Statement of the Case.............. 1
PNG s ccc esccccecses SCOSCHS DEES OOK OSE SE HOHOS 9
PE e sa can cccccces peas eeeeeeeeedawascae’ 31
"A" Delta Truck & Tractor, Inc. v.
J.I. Case Co., 855 F.2d 241
(Sth Cir. 1988)
Designation of Corporate Relationships
Delta Truck & Tractor, Inc. is not owned by
any parent corporations, does not have an
Ownership interest in any subsidiaries, and
does not have any affiliates.
- 24 =
IV. TABLE OF AUTHORITIES:
Associated General Contractors Of California,
Inc. vs. California State Council Of
Carpenters, 459 U.S. 519, 525, 103 S.Ct. 897,
902, 74 L. Ed. 2d 723 (1983) . » « 6-2 3-8 eee
Barticheck vv. Fidelity Union Bank/First
National State, 832 F.2d 36 (3rd Cir. 2967) « «
Any B2”E9
Beauford v. Helmsley, 843 F.2d 103 (2nd Cir.
19663 6 6 6 6 oR ek ee eee ee eee
Beck v. Manufacturers Hanover Trust Co., 820
F.2d 46 (2nd Cir. 1987), cert denied, __ U.S.
, 108 S.Ct. 698, 98 L.Ed.2d 650 (1988) o« ae
Cohen v. United States, __ U.S. __, 107 S.Ct.
3229, L.Ed.2d __ (1987)].
. dl id dl . . 7 7 . . * dl . . * 7 . . 2 . . 23
Conley vs. Gibson, 355 U.S. 41, 45-46, 78 S.Ct.
99, 101-102, 2 L. Ed. 20 (31957) . « «© «© «© « « ©
Creative Bath Products, Inc. v. Conn. General
Life Ins. Company, 837 F.2d 561 (2nd Cir.
1988), petition for cert. filed, 56 U.S.L.W.
3755 (U.S. Apr. 19, 1988) (No.87-1738) ... 24
Delta Truck & Tractor v. J.I.Case, et al, 855
P.2a@ 241, 244 (Sth Cir. 1968) . + « » « « ay SO
Mo és Inc. v. Northwestern Bell Telephone
Company, 829 F.2d 648 (8th Cir. 1987), cert
granted, 56 8.8.L.48- 3647 (U.S. Mar. ahs
£968) (06. O7-42308) Poss 6s Ss ee ee
Hofstetter v, Fletcher, RICO Bus.Disp.Guide
Par. 7065 (6th Cir.1988) ee lee ee oe 17
Lewis v. Sporck, 612 F. Supp. 1316 (N.D. Cal.
arr eas er ee
Liquid Air Corporation v. Rodgers, 834 F.2d
1297 (7th Cir. 1987), petition for cert. filed,
56 U.S.L.W. 3531 (U.S. Jan. 28, 1988) (No.87-
1262) . . a . . . . . . . . . . . . * . . 9, 10
Manax v. McNamara, 842 F.2d 808 (5th Cir. 1988)
23
Marshall-Silver Construction Company, Inc. v.
Mendel, 835 F.2d 63 (3rd Cir. 1987), petition
for cert. filed, 56 U.S.L.W. 3592 (U.S. Feb.
55 aees Cs CPPS as ko i ele es
McNally v. United States, 483 U.S. 5 eae
$.C&. 2875, 2681, 97 L.Ba.24 292 (1987) ...8
Moss vs. Morgan Stanley, Inc., 719 F.2d 5, 22
(2nd Cir. 1983), cert. denied, 465 U.S. 1025,
104 S.Ct. 1280, 79 L.Ed. 2d 684 (1984) . « $oee
R.A.G.S. Couture, Inc. vs. Hyatt, 774 F.2d
1350, 1353 (5th Cir. 1985) a oe a a oe ee ee
Sedima, S.P.R.L. vs. Imerex Company, Inc., 473
U.S. 479, 105 &§.Ct. 3275, 87 Le Bd.20 346
co: er ar a ae or
Seville Industrial Machinery Corp. vs.
Southmost Machinery Corp., 742 F.2d 786, 790
(32g Cir. Se ae ee ee 20, 22
Terra Du Lac Association, Inc. v. Terra Du Lac,
Inc., 834 F.2d 148 (8th Cir. 1987), petition
for cert. filed, 56 U.S.L.W. 3755 (U.S. Apr.
21,1988) (No. 87-1742) a ae a a a a a ee 12
U.S. vs. DeRosa, 670 F. 2d 889, 895-96 (9th
Cir. 1982), cert. denied, 464 U.S. 856, 104 S.
Ct. 175, 78 L.Ed. 2d 157 (1983) “<a & » 19
United States v.Qaoud, 777 F.2d 1105, 1115 (6th
Ch See ko aa a ae ee ee ee
~ io «
f
“+ &
_ = ea
_ a aes:
ah oe nee ci
- La
on
aj
ats f
s,,
1e
oe.»
ee
— - a
—
_— —
i
i eh ee
: '
United States v. Ianniello, 808 F.2d 184, 191
(2nd Cir. 1986), cert denied sub nom Cohen v.
United States, wae .» Bet B.88s BeaP,
L.Ed.2d __ (1987)].
Po ae ae ee ee ee eee ee ee ee ee ar 23
United States vs. Bagnariol, 665 F.2d 877, 891
eg gy gt ie me ee
United States vs. Bdrgaric, 706 F.2d 42, 55
(2nd Cir.), cert. denied, 464 U.S. 840 (1983)
19
United States vs. Bledsoe, 674 F.2d 647, 665
(8th Cir. 1982), cert. denied, 459 U.S. 1040
ht ieee Tal oe eT eg gg gl ge
United States vs. Cagnina, 697 F.2d 915, 921
Pus A ge ee ga ke le hl ee
United States vs. Turkette, 452 U.S. 576, 583,
101 S.Ct. 2324, 69 L. Ed. 24 246 (1981) .. 6,
18-20
Weft, Inc. vs. G.C. Investment Associates, 630
F.Supp. 1138 (E.D. H.C. i960) . ..-+« s+ 21, 22
a
:
V. REFERENCE TO OFFICIAL & UNOFFICIAL OPINIONS
BELOW:
Delta Truck & Tractor, Inc. v. J.I. Case
Company, et al., 855 F.2d 241 (5th Cir.
1988).
VI. THE JURISDICTION OF THE COURT:
The jurisdiction of this Honorable Court is
established by 28 U.S.C. 2101(c). The date of
the judgment rendered by the Fifth Circuit
Court of Appeals for the United States of
America is September 20, 1988.
Vil. THE APPLICABLE STATUTES:
a 18 U.S.C. § 1961(1)-(5) - Definitions
As used in this chapter--
(1) “racketeering activity" means (A) any
act or threat involving murder, kidnaping,
gambling, arson, robbery, bribery, extortion,
dealing in obscene matter, or dealing in
narcotic or other dangerous drugs, which is
chargeable under State law and punishable by
imprisonment for more than one year; (B) any
» 2 =
act which is indictable under any of the
following provisions of title 18, United
States Code: Section 201 (relating to
bribery), section 224 (relating to sports
bribery), sections 471, 472, and 473 (relating
to counterfeiting), section 659 (relating to
theft from interstate shipment) if the act
indictable under section 659 is’ felonious,
section 664 (relating to embezzlement’ from
pension and welfare funds), sections 891-894
(relating to extortionate credit
transactions), section 1084 (relating to the
transmission of gambling information) section
1341 (relating to mail fraud), section 1343
(relating to wire fraud) sections 1461-1465
(relating -to obscene matter), section 1503
(relating to obstruction of justice), section
1510 (relating to obstruction of criminal
investigations), section 1511 (relating to the
Obstruction of State or local law
enforcement), section 1512 (relating to
tampering with a witness, victim, or an
informant), section 1513 (relating to
- vii -
retaliating against a witness, victim, or an
informant), section 1951 (relating to
interference with commerce, robbery, or
extortion), section 1952 (relating to
racketeering), section 1953 (relating to
interstate transportation of wagering
paraphernalia), section 1954 (relating to
unlawful welfare fund payments), section 1955
(relating to the prohibition of illegal
gambling businesses), section 1956 (relating
to the laundering of monetary instruments),
section 1957 (relating to engaging in monetary
transactions in property derived from specified
unlawful activity), sections 2312 and 2313
relating to interstate transportation of
stolen motor vehicles), sections 2314 and 2315
(relating to interstate transportation of
stolen property), section 2320 (relating to
trafficking in certain motor vehicles or motor
vehicle parts), sections 2341-2346 (relating to
trafficking in contraband cigarettes),
sections 2421-24 (relating to white slave
traffic), (C) any act which is indictable under
- viii -
m~(_e—'"——,
title 29, United States Code, section 186
(dealing with restrictions on payments’) and
loans to labor organizations) or section
501(c) (relating to embezzlement from union
funds), (D) any offense involving fraud
connected with a case under title 11, fraud in
the sale of securities, or the felonious
manufacture, importation, receiving,
concealment, buying, selling, or otherwise
dealing in narcotic or other dangerous drugs,
punishable under any law of the United States,
or (E) any act which is indictable under the
Currency and Foreign Transactions Reporting
Act;
(2) "State" means any State of the United
States, the District of Columbia, the
Commonwealth of Puerto Rico, any territory or
possession of the United States, any political
Subdivision, or any department, agency, or
instrumentality thereof;
(3) "person" includes any individual or
« iw «
|
entity capable of holding a legal or
beneficial interest in property;
(4) “enterprise" includes any individual,
partnership, corporation, association, or
other legal entity, and any union or group of
individuals associated in fact although not a
legal entity;
(5) “pattern of racketeering activity"
requires at least two acts of racketeering
activity, one of which occurred after the
effective date of this chapter and the last of
which occurred within ten years (excluding any
period oof imprisonment) after the commission
of a prior act of racketeering activity;
2 18 U.S.C. § 1962. Prohibited
activities
(a) It shall be unlawful for any person who
has received any income derived, directly or
indirectly, from a pattern of racketeering
activity or through collection of an unlawful
ha oa x wt
€
debt 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. A
purchase of securities on the open market for
purposes of investment, and without’ the
intention of controlling or participating in
the control of the issuer, or of assisting
another to do so, shall not be unlawful under
this subsection if the securities of the
issuer held by the purchaser, the members of
his immediate family, and his or their
accomplices in any pattern or _ racketeering
activity or the collection of an unlawful debt
after such purchase do not amount in the
aggregate to one percent of the outstanding
securities of any one class, and do not confer,
either in law or in fact, the power to elect
- xi-
one or more directors of the issuer.
(b) It shall be unlawful for any person
through a pattern of racketeering activity or
through collection of an unlawful debt 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 or collection
of unlawful debt.
(d) It shall be unlawful for any person to
conspire to violate any of the’ provisions of
Subsections (a), (b), or (c) of this section.
- xli-
’ '
3. 18 U.S.C. § 1964(c) - Civil remedies
(c) Any person injured in his business or
property by reason of a violation of section
1962 of this chapter may sue therefor in any
appropriate United States district court and
shall recover threefold the damages he sustains
and the cost of the suit, including a
reasonable attorney’s fee.
- xlii -
VIIl. A_ CONCISE STATEMENT OF THE CASE:
A. THE BASIS FOR FEDERAL JURISDICTION IN THE
COURT OF FIRST INSTANCE:
Federal district court jurisdiction was
based on 28 U.S.C. 1332 (a) and jurisdiction
over the Civil RICO count obtained under 18
U.S.C. 1964 and 28 U.S.C. 1331(a).
B. THE STATEMENT OF THE CASE:
Delta alleges respondents formed an
associated-in-fact enterprise and engaged in
the conduct of that enterprise through a
pattern of racketeering activity aimed at
appropriating petitioner’s business assets and
the assets of over 400 other dealerships at
less than fair market value. Its RICO count
was dismissed for failing to assert respondents
posed a continuous threat as RICO persons. The
infiltration of 400 legitimate business
entities reflects exactly that sort of
invidious stealth meant to be snared by RICO.
Any continuity requirement engrafted on the
enterprise aspect of a RICO claim must be met
by these facts. The three corporate
-l|-
respondents can not have engaged in the pattern
of racketeering activity, effectively
victimizing hundreds of legitimate businesses,
and not pose the kind of threat to this
nation’s economic wellbeing RICO was enacted
to curb.
THE PROCEDURAL POSTURE
Petitioner ("Delta") instituted this action
on September 5, 1985. On January 15, 1986,
plaintiff added Count Eleven (the "RICO" count)
in its first amended complaint. The RICO
count was asserted against respondents’) and
individuals no longer in the suit.1
Defendants filed a motion to dismiss the RICO
count on February 28, 1986 under FRCP 12(b) (6)
and 9(b) for purported failure to allege with
sufficient particularity the circumstances of
fraud underlying the claims and a "pattern of
racketeering activity."
In July, 1986, plaintiff sought to amend to
Jerome K. Green, John A. Borden, R.A.
Rosen, James L. Kettlesen and James
Gill; they were dismissed pursuant to a
stipulation no ultra vires defense
would be raised.
:
) a
- +
3
3
4
i
x
specify with more particularity the predicate
acts. The second amended complaint April 8,
1987 was allowed by the same Ruling granting
defendants’ 12(b)(6) motion to dismiss. Final
judgment, signed on June 2, 1987, was filed on
June 3, 1987. On June 16, 1987 plaintiff filed
Notice of Appeal to Fifth Circuit, who affirmed
the 12(b)(6) dismissal of the RICO count on
September 20, 1988. The opinion held that as a
matter of law, since "the pleadings do not
assert that the corporate defendants posed a
continuous threat as RICO persons",
petitioner’s claim failed to state a RICO cause
of action. Delta Truck & Tractor v. J.1I.Case,
et al, 855 F.2d 241, 244 (5th Cir. 1988).
STATEMENT OF THE FACTS
Delta is involved in the agricultural
equipment business (sales and repairs of farm
equipment, implements and supplies). Delta’s
business regularly and systematically affects
both interstate and foreign commerce. Delta,
formed in 1962 as an International Harvester
franchised dealer, became eligible in 1976 to
become an exL* dealer under IH’s "XL"
dealership program. Delta was required to
meet IH requirements relating to capital
structure, buildings, computerized
accountings, parts inventory, sales and sales
quotas, schooling and training, etc. The quid
pro was that the dealership was to continue
indefinitely unless specific cause, as defined
in the dealership agreement, existed for
termination. This contract could not be
assigned without the written consent of the
"XL" dealer. Delta complied and was made an
"XL" dealer on April 7, 1977. This dealership
contract was in effect when Delta’s dealership
was terminated on January 15, 1985.
In 1984, IH began negotiations with Tenneco
and Case which culminated in a November 26,
1984 purchase agreement. IH agreed to sell
Tenneco and Case IH’s agricultural equipment
business. Respondents prior to and during this
time frame falsely and fraudulently misled
petitioner and other IH dealerships, their
creditors, customers and business associates
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. was aan
saa A sti eed Heit Bie). 5p
Sie a gh Sa LMR bh Sore
ee Ee ee ee es
through misrepresentations that IH fully
intended and would in fact continue as a solid
business concern in the agricultural equipment
business. The crux of the RICO claim involves
the pattern of racketeering activity employed
by defendants to deal with approximately 400
Situations where IH and Case dealers were
competing with each other in specific
geographical markets. Defendants formed an
associated-in-fact enterprise which engaged in
a pattern of racketeering activities to
appropriate businesses and assets of
terminated dealers by intimidation, coercion,
extortion, wrongful acts/omissions’7 and
misleadingly false and fraudulent statements.
These acts and/or omissions were to gain the
terminated dealers’ release of contractual and
property rights and all other claims’ for
Substantially less than fair compensation.
Prior to the actual termination of the
dealerships defendants wrongfully and
fraudulently misled the dealers defendants
intended to terminate in order to have those
dealers (1) continue maintenance of their
customer relationships, contacts and good will;
and (2) induce them to supply defendants with
confidential business and financial information
to assist defendants in assessing a dealer’s
bargaining position. A series of meetings
beginning on or about November 28, 1984 in
Dallas, Texas were held, preceded by a national
mailing of airline tickets to dealers. The
defendants represented to Delta and other IH
dealers that competing IH and Case dealers in
the roughly 400 conflict areas would be
consolidated, merged or _ purchased. They
falsely misrepresented that (1) the surviving
dealer in each conflict area would be selected
fairly and objectively; (2) the terminated
dealers would be compensated fairly in good
faith negotiations; (3) financing would be made
available for sales from existing inventories;
and (4) all dealers would be permitted to
continue in business as before during the
transition period. Defendants never intended
to fulfill or otherwise comply with these
ate
representations, and had, as a matter of fact,
already determined many, if not all, of the
dealerships which would be terminated, but
fraudulently misled Delta and other dealers
concerning this fact.
On or about December 21, 1984 defendants
Case and Tenneco submitted nationwide letters
through the United States Mail soliciting, in
part, "{a]ny information you may have which you
feel could be helpful to our valuation" of
which dealer in a conflict area should be
chosen as the survivor. Relying upon the
misrepresentation that the decision as to the
survivor had not been made, Delta, as did
numerous other dealers receiving this
correspondence, furnished detailed
confidential business and personal financial
information to defendants in support of their
applications to be granted new dealership
agreements. Delta alleges it was fraudulently
misled by these misrepresentations into
divulging highly confidential business and
financial information which defendants later
on Fee
used in bad faith negotiations and/or
litigation with it and other terminated
dealers. Delta’s business assets have been
appropriated by defendants, and Delta has not
been compensated for the good will of its
dealership and other assets, contrary to the
material misrepresentations made to that
effect. Contrary to other representations,
Delta has not been favored with the
compensation it was entitled to receive upon
termination of its IH contract. To this date,
the accomplished scheme stands’ relatively
intact, while hundreds of legitimate American
businesses lay financially bereft if not slain
by the pervasive and insidious workings of the
enterprise created by these defendants.
On January 14, 1985, the day before Delta’s
dealership was terminated, defendants used the
interstate telephone system to threaten another
dealership that it would be forced out of
business if it did not agree to terminate its
IH dealership agreement on defendants’ terms.
Case and Tenneco refused to allow plaintiff to
quote on substantial orders for IH equipment on
January 17, 1985, two days after Delta was
advised it would not be offered a new
dealership, but while its IH contract remained
in force. On February 17, 1985, Delta was
informed that all allowed purchases by it would
have to be on a cash basis. Case and Tenneco
furnished the surviving dealership with
Delta’s customer list thereby appropriating
Delta’s good will, customers, and its parts
“and service business without paying any
compensation. Defendants used the United
States Mails and telephone systems on
numerous occasions to accomplish the
enterprise’s illegal objectives and purposes.
IX. ARGUMENT
The dismissal of plaintiff’s 22 page Count
Eleven presents this court with a dismissal
under 12(b)(6) which must be reversed. Taking
the complaint’s allegations as true, it is
certainly not beyond a doubt that plaintiff can
prove no set of facts which would entitle
plaintiff to relief under RICO. Associated
-9-
LLL
General Contractors Of California, Inc. vs.
California State Council Of Carpenters, 459
U.8. S19, 5325, 103 8.Ct. 897, 902, 74 L. Ed. 24
723 (1983); Conley vs. Gibson, 355 U.S. 41,
45-46, 76 §.Ct. 99, 101-102, 2 Le EG. 264
(1957).
"CONTINUING/ONGOING" ENTERPRISE REQUIREMENT
There is no requirement that the _ persons
comprising an associated-in-fact enterprise
must pose a threat of continuous harm as RICO
persons before they can be held liable under
RICO. Petitioner rejects the notion that
"persons" can develop ae fraudulent’ scheme,
collectively collaborate in the execution and
perpetration of the scheme on literally
hundreds of victimized legitimate businesses,
and not be subject to RICO liability because
petitioner didn’t assert the defendants posed a
continuous threat as RICO persons. Petitioner
disputes the notion that RICO does not sanction
enterprises who have completed their schemes,
infiltrated the legitimate businesses and,
therefore purportedly no longer pose a
«100
continuing threat as RICO persons.
The Fifth Circuit affirmed the FRCP
12(b) (6) dismissal of petitioner’s RICO count
against respondents, after holding that a
sufficient pattern of racketeering activity was
alleged. The holding that petitioner’s
complaint was legally insufficient seems to be
based in part upon United States vs. Turkette,
452 U.S. 5376, 583, 101 §.Ct. 2524, 69 L. Ed.
2d 246 (1981), on operative language which
reads as follows:
"In order to secure a conviction under RICO,
the government must prove both the existence
of an ‘’enterprise* and the connected
‘pattern* of racketeering activity." The
enterprise is an entity, for present
purposes a group of persons’ associated
together for a common purpose of engaging in
a course of conduct. The pattern of
racketeering activity is, on the other hand,
a series of criminal acts as defined by the
statute [citation omitted]. The former is
proved by evidence of an on-going
organization, formal or informal, and by
evidence that the various associates
function as a continuing unit. The latter is
proved by evidence of the requisite number
of acts of racketeering committed by the
participants in the enterprise. While the
proof used to establish these separate
elements may in particular cases coalesce,
proof of one does not necessarily establish
the other. The ‘enterprise’ is not the
‘pattern of racketeering activity’; it is an
entity separate and apart from the pattern
ah Bie
eee ee
smectite iasias aint
of activity in which it engages. The
existence of an enterprise at all times
remains a separate element which must be
proved..."
[Emphasis supplied]; Id., 101 S.Ct. @ 2528-29.
The crux of petitioner’s Writ is the meaning
to be given to the requirements that an
enterprise be an "ongoing organization" and a
"continuing unit". The Fifth Circuit has
imposed a requirement that unless the defendant
persons are still involved at the time of the
complaint in the activities of an enterprise
and therefore continue to pose a continuing
threat as RICO persons, no enterprise exists as
a matter of law. Such an interpretation leads
to unjust results under the facts of this case.
Defendant persons used federal mail and
interstate telephone systems in the
furtherance of a scheme which involved false
promises and misrepresentations about existing
facts and future events, all calculated to
deprive hundreds of businesses of valuable
property rights by trick, deceit, chicane and
overreaching. See. e.g., McNally v. United
States, 483 U.S. , 107 S.Ct. 2875, 2881, 97
L.Ed.2d 292 (1987).
Does the fact that persons, in order to
realize their enterprise objectives, do not
engage in the pattern of activity for a long
time allow them to escape RICO liability? Can
persons engage in blitzkrieg tactics and
infiltrate hundreds of businesses quickly so as
to avoid being an enterprise under the "ongoing
organization" and/or "continuing unit"
doctrine? There is a definite conflict in the
Circuits as to this premise. Petitioner argues
that there is no proscription of liability
under RICO for completed schemes, whether
blitzkrieg in nature or more slowly
accomplished.
In Liguid Air Corporation v. Rodgers, 8:34
F.2d 1297 (7th Cir. 1987), petition for cert.
filed, 56 U.S.L.W. 3531 (U.S. Jan. 28, 1988)
(No.87-1262), the appellate panel rejected an
argument by defendants that no liability could
exist unless they posed some kind of
continuing threat as RICO persons:
Defendants object because the charge failed
to advise the jury that there be "some
=13-
continuing threat of racketeering activity."
Defendants argue that the continuity
requirement of Sedima mandates that there be
a threat that defendants would engage in
future acts of racketeering after
completion of their scheme. This is an
untenable interpretation of the requirement
of continuity. The requirement of
continuity was not intended to force a court
to guess the likelihood of future criminal
conduct nor was it intended to _ proscribe
liability for completed schemes. Continuity
refers instead to the duration of the
predicate acts.
[Emphasis supplied]; Liquid Air, supra, 8:34
F.2d @ 1308.
The Liquid Air panel affirmed a_ RICO
conviction for a pattern of racketeering
activity involving a single scheme which lasted
seven months and defrauded a single victim.
Id., 834 F.2d @ 1304. Its holding is clearly
in conflict with that in the present case,
where the Fifth Circuit has held this
petitioner’s RICO count is defective because
petitioner did not assert at the pleading stage
that the respondents posed a continuous threat
as RICO persons. This holding is remarkably
Similar to the argument rejected in Liquid Air
- i.e. unless it were asserted and proved
defendants would engage in future acts of
4
Y
racketeering after completion of their scheme,
defendants could not be liable under RICO.
Petitioner argues not only was there no need to
assert defendants posed a threat of continuing
harm as RICO persons,’ there was no need to even
prove such. Just because these persons did in
a short time what others may have taken longer
to accomplish does not change the result-
hundreds of legitimate businesses were
infiltrated effectively by the enterprise’s
executed pattern. The target of RICO
expressed in the Senate Report quoted in the
now-legendary footnote 14 of Sedima, S.P.R.L.
VS. imerex Company, inc., 473 U.S. 479, 105
S.Ct. 3275, 87 L. Ed.2d 346 (1985) is clear-
preventing effective infiltration of legitimate
businesses by RICO persons:
-.-As the Senate Report explained: "The
target of [RICO] is thus’ not_- sporadic.
activity. The infiltration of legitimate
businesses normally requires more than one
‘racketeering activity’ and the threat of
continuing activity to be effective. It is
this factor of continuity plus relationship
which combines to produce a pattern." S.Rep.
No. 91-617, p. 158 (1969)....
(Emphasis supplied by Court]; Sedima, supra,
65 &. CG. at 3265, nm. 14.
-1|5-
In Barticheck v. Fidelity Union Bank/First
National State, 832 F.2d 36 (3rd Cir. 1987),
the Third Circuit reversed a district court’s
decision granting a motion to dismiss a RICO
count. The district court found the complaint
alleged only a single scheme which was not
open-ended because the enterprise had fully
obtained its objective and, hence, the
defendants posed no threat of further unlawful
activity. Id., $32 F.2d -@ 38. The Third
Cireui¢c ftirst rejected the notion two
distinct unlawful schemes are required:
-.-a rule requiring two or more schemes would
exempt from RICO liability defendants who
engage in only a single unlawful scheme,
however extensive and injurious. Such an
outcome is plainly inconsistent with the
purposes of the statute.
Id., 832 F.2d @ 39.
This court should also reject this notion,
if it has not already done so in H.J., Inc. v.
Northwestern Bell Telephone Company, 829 F.2d
648 (8th Cir. 1987), cert granted, 56 U.S.L.W.
3647 (U.S. Mar. 21, 1988) (No.87-1252) and/or
Terra Du Lac Association, Inc. v. Terra Du Lac,
yO a Cee
Inc., 834 F.2d 148 (8th Cir. 1987), petition
for cert. filed, 56 U.S.L.W. 3755 (U.S. Apr.
21,1988) (No. 87-1742).
The Barticheck court went on to deal with
the premise there can be no liability unless
the scheme is continuously ongoing or open-
ended:
We do not believe, however, that the notion
of continuity compels a requirement of
"open-endedness." At the very least, such a
requirement would produce anomalous results.
This approach would allow ae party to
maintain a RICO claim if he brought suit
before the unlawful scheme had attained its
objective; in such a case the scheme would
presumably be considered open-ended. This
same interpretation, though, would deny a
RICO cause of action in a case where the
scheme had fully accomplished its goal. Yet
it is the completed scheme that inflicts the
greater harm and more strongly implicates
the remedial purposes of RICO.
We read the legislative history’s
reference to "continuity" as simply calling
for an inquiry into the extent of the
racketeering activity. Although temporal
open-endedness may be one measure of
extent, it is not the only one. We decline
to adopt a verbal formula for determining
when unlawful activity is sufficiently
extensive to be "continuous." This
determination necessarily depends on the
circumstances of the particular case.
[Emphasis supplied]; Id., 832 F.2d @ 39-40.
It is the completed scheme that confronts
this court. The accomplished scheme has indeed
Pied rants «ais en uhg 1h Laine
inflicted great harm and strongly implicates
the remedial purposes of RICO. The anomaly
described in the hypothetical by Barticheck has
crystallized in the facts of this case.
Petitioner suggests that the "continuity"
requirement, whether discussed in terms of
"pattern" and/or "enterprise", requires a
detailed analysis of the facts of any given
case. Simply because the respondents engaged
in but a single mammoth scheme which was
expeditiously executed poses no bar to RICO
recovery under these _ facts. This scheme
victimized literally hundreds of similarly
situated businesses subjected to similar acts
accomplished by respondents. The fact that
multiple victims were present in Barticheck
influenced that panel:
Most significantly, the scheme involved the
repetition of similar misrepresentations to
more than twenty investors. To refer to
such conduct as a "pattern’ of fraudulent
activity certainly comports with the
ordinary understanding of the term, and we
believe that this conduct properly falls
within the reach of the RICO statute.
[Emphasis supplied]; Id., 832 F.2d @ 39.
If conduct where misrepresentation to
«iG
twenty investors properly falls within the
reach of RICO, can conduct involving
misrepresentations to 400 do otherwise?
In Marshall-Silver Construction Company,
Inc. v. Mendel, 835 F.2d 63 (3rd Cir. 1987),
petition for cert. filed, 56 U.S.L.W. 3592
(U.S. Feb. 12,1988) (No. 87-1358), another
Third Circuit panel quoted the Barticheck
language cited verbatim above and then
identified the kind of activity targeted by
RICO:
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 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. This is not criminal
activity with the kind of continuity of
which we spoke in Barticheck.
[Emphasis supplied]; Id., 835 F.2d @ 66-67.
Under the facts of the instant case, 400
victims were injured by a scheme perpetrated
by three corporate defendants and their
employees. This case shows the kind of
Criminal activity that during its existence
-19-
inflicted a series of injuries over a
Significant period of time, and continues to
this date. Until the last dealer termination,
negotiation or lawsuit is concluded, the
defendants will not have accomplished their
entire scheme (albeit 95% of the terminated
dealers succumbed to their artifices and
threats within a year). Successful
infiltrators of legitimate businesses should
not escape RICO liability because they
perpetrate one complex scheme to defraud over
400 businesses of their assets, on the premise
that they may not have done it before, and may
not do it again. In Hofstetter v, Fletcher,
RICO Bus.Disp.Guide Par. 7065 (6th Cir.1988),
the Sixth Circuit rejected the argument that
proof was needed at trial of an "ongoing,
separate enterprise", holding the argument was
without merit, then stating:
We note that some appellate courts have
adopted a narrow definition of the term
"enterprise" by requiring the plaintiff to
establish that the "enterprise" was engaged
in "continuing" criminal activity involving
more than a "single criminal episode." See,
e.g., Beauford v. Helmsley, 843 F.2d 103
(2nG@- Cir. -198s8). In discussing the
= 20
enterprise requirement under RICO, this
court has stated, "RICO applies both to
legitimate enterprises conducted through
racketeering operations as well as
illegitimate enterprises." United States v.
Qaoud, 777 F.2d 1105, 1115 (6th Cir. 1985)
(citing United States v. Turkette, 452 U.S.
576 (1981)). ‘In Qaoud we held that
although "enterprise" and "pattern of
racketeering activity" are separate
elements, they may be proved by the same
evidence.
[Emphasis supplied]; Id., RICO Bus. Disp.Guide
7065 @ 8607.
It is this narrow definition of
"enterprise" represented by cases’ like
Beauford and the Fifth Circuit’s Delta decision
petitioner faults.
The Sixth Circuit is not alone in applying
Turkette’s teaching in this’ manner. Other
circuits, including the Second, Ninth and
Eleventh Circuits, have rejected the
proposition that there necessarily needs to be
evidence to show the enterprise beyond that
necessary to show the pattern. See, e.g.,
United States vs. Bargaric, 706 F.2d 42, 55
(2nd Cir.), cert. denied, 464 U.S. 840 (1983);
U.S. vs. DeRosa, 670 F. 2d 889, 895-96 (9th
Cir. 1982), cert. denied, 464 U.S. 856, 104 S.
stir Bia
Ct. 175, .78 Lake. 20 157 (1983); United
States vs. Cagnina, 697 F.2d 915, 921 (11th
Cis... 4O03i> In Bargaric, the court noted
that they have applied RICO to situations
where an enterprise was no more than the sum
of the predicate acts:
These decisions reflect the common sense
recognition that a group of individuals may
join together, and therefore be ’associated
in fact’, although not a_ legally cognizable
entity in one of the traditional forms,
solely for the purpose of conducting their
activities.
Id., 706 F.2@ @ SS.
These circuits have seized on Turkette’s
"coalesce" language to apply RICO "to
Situations where’ the enterprise was, in
effect, no more than the sum of the predicate
racketeering acts." United States vs. Bledsoe,
674 F.2d 647, 665 (8th Cir. 1982), cert.
denied, 459 U.S. 1040 (1983). It is
respectfully argued that Turkette certainly
stands for the proposition that the existence
of the separate enterprise element must be
proved, but that it may be proved with the same
evidence that is used to prove the distinct
pattern element. No language in Turkette
begins to indicate a complaint would be
inadequate if there was no allegation such as
was required herein by the Fifth Circuit. As
was noted in R.A.G.S. Couture, Inc. vs. Hyatt,
774 F.2d 1350, 1353 (5th Cir. 1985):
The Supreme Court’s Sedima decision
cautions us not to place barriers before
RICO plaintiffs that are not found in the
text of the statute. Moreover, the court
has held that an enterprise may be organized
Solely for illegitimate purposes, and that
evidence of the existence of the enterprise
may coalesce with evidence of the underlying
pattern of racketeering.
Id., 774 F.2a @ 1353.
The Fifth Circuit decision at issue has done
just what Sedima and R.A.G.S. caution them not
to do: it has erected barriers before this
RICO plaintiff not found in the text of the
statute.
In Seville Industrial Machinery Corp. vs.
Southmost Machinery Corp., 742 F.2d 786, 790
(3rd Cir. 1984) the Third Circuit overruled a
district court, holding it had "confused what
must be pleaded with what must be proved."
Citing the proposition that the Federal Rules
— >
of Civil Procedure were designed to eliminate
the vagaries of technical pleading that once
plagued complainants, and to replace them with
the considerably more liberal requirements of
so-called "notice" pleading, the court held it
is enough that a complaint put the defendant
on notice of the claims against him. The
pleading of a valid RICO claim should not
place a plaintiff in the posture of a medieval
necromancer seeking to summon some demon from
the darkness through rigid adherence to some
exact word-for-word incantation. As was noted
in Weft, Inc. vs. G.c. Investment Associates,
630 F.Supp. 1138 (E.D. N.C. 1986), such a
requirement is unnecessary. The Weft court
stated this as follows:
"Although the complaint does not use
the terms contained in RICO, it is
clear that the plaintiffs have alleged
elements two and six or, in other
words, the existence of an enterprise
conducted through two or more acts
constituting a pattern of
racketeering...Although plaintiffs did
not use the word "enterprise" to
describe the actions of defendants, it
is clear that they have alleged enough
facts to constitute an enterprise
Thus, the same facts which constitute
the “unlawful acts" also establish the
iid hernia i
"enterprise" requirement. Moss vs.
Morgan Stanley, Inc., 719 F.2d 5, 22
(2nd Cir. 1983), cert. denied, 465 U.S.
1025, 104 S.Ct. 1280, 79 L.Ed. 2d 684
(1984)." Weft, supra, 630 F. Supp. at
1142.
Id., 630 F.Supp. @ 1142.
In Lewis v. Sporck, 612 F. Supp. 1316 (N.D.
Cal. 1985), the court dealt with the
particularity with which a plaintiff must plead
the enterprise:
As to the pleading of the
"enterprise", defendants assert that
the complaint must describe with
specificity an organized entity that
has an on-going existence that is
separate and apart from the
racketeering activity which it is
alleged to have performed. [citations
omitted ] However, the Third Circuit
has recently held that a civil
plaintiff need not plead all these
attributes with specificity. Seville,
Supra at 790. The Ninth Circuit does
not require such a detailed showing of
an “enterprise". United States vs.
Bagnariol, 665 F.2d 877, 891 (9th Cir.
1981). Absent a special reason to
impose a stringent standard on the
pleading of a RICO enterprise, the
basic liberal pleading rule set forth
in Rule 8 must govern.
Id., 612 F. Supp. @ 1324.
Rule 8 should have governed the instant
dispute. The 12(b)(6) motion should have been
denied.
-25-
THE A ie} x F CIRCU
The Fifth Circuit cited several prior
decisions of the Fifth Circuit as authority,
including Manax _v. McNamara, 842 F.2d 808 (5th
Cir. 1988). Of great interest to petitioner is
the citation by Manax of Beck v.
Manufacturers Hanover Trust Co., 820 F.2d 46
(2nd Cir. 1987), cert denied, __ U.S. __, 108
S.Ct. 698, 98 L.Ed.2d 650 (1988) as
persuasively reasoned authority. Manax, supra,
842 F.2d @ 812. Petitioner wishes to point out
that Beck recognized the following important
premise:
As Ianniello recognized, whether one looks
for the requisite continuity and relatedness
by examining the pattern or the enterprise
is really a matter of form, not substance.
Id., 820 F.2d @ 51 [citing United States v.
Ianniello, 808 F.2d 184, 191 (2nd Cir. 1986),
cert denied sub nom Cohen v. United States, _
U.S. __, 107 S.Ct. 3229, __ L.Ed.2d __ (1987) ].
Petitioner urges this Court to place substance
over the form. The Second Circuit has granted
en banc rehearing to reconsider its law on the
continuing enterprise doctrine in Beauford v.
Helmsley, 843 F.2d 103, RICO Bus.Disp.Guide
-?6-
6900, 6919 (2nd Cir. 1988). As was noted in
Beauford:
Although ... we speak in terms of
"enterprise" rather than "pattern", we
nonetheless require continuity in any event,
and find insufficient evidence of continuity
in a single criminai episode regardless how
many fraudulent acts it entails. In other
words, a single criminal episode or scheme
does not charge a claim under RICO because
it lacks sufficient continuity to constitute
an enterprise, even if its fraudulent acts
constitute a pattern.
Id. @ 110.
The continuing enterprise requirement is also
placed at issue in Creative Bath Products, Inc.
v. Conn. General Life Ins. Company, 837 F.2d
561 (2nd Cir. 1988), petition for cert. filed,
56 U.S.L.W. 3755 (U.S. Apr. 19, 1988) (No.87-
1738). This doctrine must be addressed.
CONCLUSION
It is respectfully submitted that the
“continuing enterprise" theory used by both the
Second Circuit and now the Fifth Circuit must
be addressed. It is respectfully argued that
if the continuity requirement of an enterprise
is focused on whether the continuing activity
of the enterprise is of the sort allowing
successful infiltration of legitimate
businesses, then the inquiry must be resolved
in petitioner’s favor. Congress spread a broad
but tightly meshed net with RICO. As noted in
Sedima, supra, 105 S.Ct. @ 3286, RICO is to be
read broadly, due to both the express
admonition mandating liberal construction and
due to Congress’ self-consciously expansive
language and overall approach. The RICO
statute does not impose the artificial
requirement at the pleading stage erected in
this case. This august body must not allow a
group of persons such as respondents to avoid
RICO exposure for accomplishing a _ complex,
multi-million dollar scheme to defraud
terminated franchisees of their businesses and
assets , merely because petitioner’s complaint
does not allege conclusionary language that
tenmanianin pose a continuing threat of
conducting such activities in the future
and/or other racketeering schemes perpetrated
by defendants. The conduct which RICO was
enacted to punish has been accomplished in
=
this case - legitimate businesses have been
effectively invaded.
Continuity requirements for purposes of
pleading an enterprise should not become
artificial barriers releasing enterprises from
RICO liability because multiple racketeering
schemes/episodes (each composed of a pattern of
racketeering activity) have not been asserted.
This should not be allowed under either the
"pattern" or "enterprise" element of RICO. If
such is the law, enterprises like respondents
will bloom secure in the knowledge that they
will escape, if nothing else, RICO liability.
In the shadow of such blooms will lie hundreds
of legitimate businesses who have been
infiltrated by enterprises whose _ persons
allegedly did not pose the threat of continuing
harm.
Petitioner wishes to clearly articulate it
has not asserted and does not assert nor
aquiesce in the proposition that the
enterprise it sues has concluded or
accomplished its goals. The enterprise is
=29=
AA alti dec deed Ss pe
ongoing and injuries continue to be sustained
by petitioner to this very date. It is
respecfully submitted that even assuming the
scheme was completed on the date suit was
filed, the remedial’ purposes of RICO are
nonetheless implicated by the infiltration of
hundreds of legitimate businesses.
Accordingly, and with all due respect,
Petitioner Delta Truck and Tractor Inc. humbly
prays for relief.
Respectfully submitted,
GOLD, WEEMS, BRUSER, SHARP,
SUES & RUNDELL
Zhan, (3 Jehan
a B. Bruser,
P.O. Box 6118
Alexandria, LA 71307
(318) 445-6471
LAW OFFICE OF JACK N. PRICE
Jack N. Price
410 Congress Avenue
Austin, TX 78701
ATTORNEYS FOR DELTA TRUCK &
TRACTOR, INC.
~ 3x
CERTIFICATE
I hereby certify that a copy of the above
and foregoing has been served by mailing the
Same upon opposing counsel of record, Mr. Miles
P. Clements and Mr. Michael Fischer by United
States Mail, First Class postage prepaid.
Alexandria, Louisiana this 19th day of
December, 1988.
OS One
SF COUNSEL
DELTA TRUCK & TRACTOR, INC.,
Plaintiff-Appellant
Vv.
ON ee ae
J.I. CASE COMPANY, et al
Defendants-Appellees
No. 87-4449
United States Court of Appeals
Fifth Circuit
Sept. 20, 1988
Franchisee brought civil RICO action against
franchisor, corporation which acquired
franchisor, and parent of acquiring
corporation. The United States District Court
for the Western District of Louisiana, Nauman
S. Scott, J., dismissed, and franchisee
appealed. The Court of Appeals, Clark, Chief
Judge, held that franchisee’s allegations were
insufficient to state RICO cause of action
because pleadings did not assert that
defendants posed continuous threat as RICO
GS a ee ee OY. es
persons.
) Affirmed.
Reavley, Circuit Judge, concurred in the
result.
=3ia
1. Commerce 82.71
Civil sanctions of RICO were not
intended to extend to fraudulent commercial
transactions affecting interstate commerce.
18 U.S.C.A. Sections 1962(a-d), 1964(c).
2. Commerce 82.70
RICO “person" must be one that either
poses or has posed continuous threat of
engaging in acts of racketeering; "continuous
threat" requirement may not be satisfied if no
more is pled than that person has engaged in
limited number of predicate racketeering acts.
18 U.S.C.A: Section 1961(3).
See publication Words’ and
Phrases for other judicial
constructions and definitions.
3. Commerce 82.71
Critical features of RICO pattern of
racketeering activity-continuity and
relationship-cannot exist in pattern of
racketeering activity alone, and are instead
reciprocal values that must function with at
least one of the other essential elements of a
RICO claim. 18 U.S.C.A. Section 1961(5).
-32-
4. Commerce 82.71
Acts of mail and wire fraud that were
part of single, otherwise lawful corporate
merger could constitute pattern of
racketeering activity under RICO. 18 U.S.C.A.
Section 1961(5).
5. Commerce 82.70
Under RICO, association-in-fact
enterprise must have existence separate and
apart from pattern of racketeering, must be
ongoing organization, and its members’. must
function as continuing unit as_ shown by
hierarchical or consensual decision-making
structure, enterprise must not be one that
briefly flourishes and _ fades. is vU.8.C.A.
Section 1962.
6. Commerce 82.72
Franchisee’s allegations against
franchisor, corporation which acquired
franchisor, and acquiring corporation’s parent,
failed to state RICO cause of action as matter
of law because pleadings did not assert that
corporate defendants posed continuous threat as
ihe
‘ICO persons; franchisee alleged as pattern of
‘acketeering activity nothing more than
umercus predicate acts which were necessary
segments oof otherwise lawful commercial
ndeavor, and claim that method of franchise
ermination fraudulently violated contractual
‘ights or legal duties did not plead RICO
riolation. is wee 2 Sections 1961(3, 4),
962(a-d), 1964(c).
Appeal from the United States District Court
‘or the Western District of Louisiana.
Before CLARK, Chief Judge,
-EAVLEY, Circuit Judge, and
UNTER, District Judge
CLARK, Chief Judge:
Delta Truck & Tractor, Inc. (Delta) appeals
he district court’s dismissal of its civil
ICO action.! We affirm.
1 The Racketeering, Influence and Corrupt
Organizations Act (RICO), 18 U.S.C.
Sections 1961-1968, creates a civil
cause of action under section 1964(c)
against those injured by violations of
section 1962(a)-(d). The portions of
section 1962 relevant to this case can
be abstracted as’ follows. Section
1962(a) makes it "unlawful for any
person who has received any income
derived ... from a pattern of
(continued...)
othe
he
Review of a dismissal on the pleadings
requires that we accept as true the non-moving
party’s well-pleaded allegations. Delta, a
company involved in the,’sale and repair of farm
equipment, operated under a franchise agreement
with International Harvester Company (IH), a
manufacturer of farm machinery. The dispute in
this case arises out of the acquisition of IH
By J.t; Case Company (Case), itself a
manufacturer of agricultural equipment, and its
parent company, Tenneco, Inc. (Tenneco). As
part of the merger, Case, Tenneco and IH sought
to create one cohesive dealership network by
eliminating duplicative Case and IH dealers.
The gravamen of Delta’s RICO claim alleges that
these three corporate defendants consolidated
1(.. continued)
racketeering activity ... to use or
invest ... any part of such income
in acquisition of any interest in, or
the establishment or operation of, any
enterprise." Section 1962(c) makes it
"unlawful for any person employed by
Or associated with any enterprise ...
to conduct or participate ... in the
conduct of such enterprise’s affairs
through a pattern of racketeering activity."
-35-
the dealerships through numerous acts of wire
and mail fraud designed to appropriate the
business assets of Delta and over 400 other
terminated Case and IH dealers. After twice
allowing Delta to amend its complaint, the
district court granted the defendant’s motion
to dismiss.
II.
[1] Congress wrote RICO in broad, sweeping
terms to combat the many, varied, anfractuous
ways in which racketeers operate. Reduced to
its three essentials, a civil RICO claim must
involve: (1) a person who engages in (2) a
pattern of racketeering activity (3) connected
to the acquisition, establishment, conduct, or
control of an enterprise. The Act’s sanctions,
however, were not intended to extend to
fraudulent commercial transactions affecting
interstate commerce. In the following ways,
the principle of continuity limits the types of
persons, patterns and enterprises that civil
RICO actions may reach.
-36-
eae ennai
A.
[2] The object of all civil and criminal
RICO actions is the RICO "person," the
defendant. RICO defines person broadly to
include "any individual or entity capable of
holding a legal or beneficial interest in
property." 18 U.S.C. Section 1961(3). If we
are to restrict RICO to the type of conduct
Congress intended to proscribe, the RICO person
must be one that either poses or has posed a
continuous threat of engaging in acts of
racketeering. In most cases, pleading the
existence of a "pattern of racketeering
activity" will supply this element of
continuity to the RICO person. The continuous
threat requirement may not be satisfied if no
more is pled than that the person has engaged
in a limited number of predicate racketeering
acts. Two isolated acts of racketeering have
been held sufficient to constitute a pattern
under this Circuit’s unique precedent. @ But
two such acts alone may fail to satisfy the
2 See infra Part IIB of this opinion.
-37-
continuous threat requirement. Cf. Mastercraft
Indus., v. Breining, 664 F.Supp. 859, 861
(S.D.N.Y. 1987) ("plaintiff has alleged no
continuing enterprise other than the
defendants’ lawful business, of which the
particular fraud alleged is at best a minor
part"); Proctor & Gamble Co. v. Big Apple
Indus. Bldgs., Inc., 655 F.Supp. 1179, 1184
(S.D.N.Y. 1987) ("[{T]he RICO defendants in this
case were engaged in a single lawful project of
finite scope and duration-constructing a
television studio for a customer. Allegations
of numerous instances of fraud in carrying out
this project does not bring it within the scope
of the RICO statute.").
B.
[3] A pattern of racketeering activity
"requires at least two acts of racketeering."
18 U.S.C. Section 1961(5). Predicate acts of
racketeering are defined to include wire and
mail fraud. Id. at Section 1961(1) (B). In
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479,
496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87
-38-
L.Ed.2d 346 (1985), the Supreme Court noted
that "while two acts [of racketeering] are
necessary, they may not be sufficient." The
critical features of a pattern of racketeering
activity are continuity and relationship. Id.
This continuity and relationship cannot exist
in the pattern of racketeering activity alone.
Continuity and relationship are reciprocal
values that must function with at least one of
the other essential elements of a RICO claim.
[4] One ground given by the district court
for dismissing Delta’s complaint was’ the
failure to plead a pattern of racketeering
activity. In any circuit other than ours, it
may have been proper to dismiss Delta’s
complaint on the ground that the, numerous
alleged acts of mail and wire fraud were parts
of a single, otherwise lawful corporate merger
not constituting a pattern of racketeering.
But in R.A.G.S. Couture, Inc. v. Hyatt, 774
F.2d 1350, 1355 (5th Cir. 1985), a panel of
this court held that two acts of mail fraud
that related to a single business transaction
«Pm
PO ENED,
constituted a pattern of racketeering activity.
The district court declined to follow R.A.G.S.
because of its lack of analysis and because of
the statement in Armco Industrial Credit Corp.
v. SLT-Warehouse Co., 782 F.2d 475, 481 (5th
Cir. 1986), that the "’pattern of racketeering
activity’ language" in the RICO statute is
something that must be interpreted in "the
future." Several panels of this court have
been critical of R.A.G.S.,2 but each has been
bound as we are by the fule of R.A.G.S. A
request to reconsider R.A.G.S. "can only be
made to the entire court sitting en banc, not
to another panel." Smith v. Cooper/T. Smith
Corp., 846 F.2d 325, 329 (5th Cir. 1988)
[vacated by August 1, 1988 order for rehearing
en banc]. The district court was not free to
depart from R.A.G.S. We must assume a
3
See e.g., Crocker v. FDIC, 826 F.2d
347, 348 n. 2 (5th Cir. 1987) cert. denied,
U.S. P 108 §.Cct. 1075, 99 L.Ed.2a 35
(1988); Montesano v. Seafirst Commercial Corp.,
818 F.2d 423, 426 (5th Cir. 1987). In our
view, the criticism is warranted.
wha
sufficient pattern of racketeering activity
was alleged.
is
[5] The concept of continuity as a means of
controlling the scope of RICO has also been
incorporated into the enterprise element of
section 1962. An enterprise "includes any
individual, partnership, corporation,
association, or other legal entity, and any
union or group of individuals associated in
fact although not a legal entity." is U.S.C.
Section 1961(4). In United States v. Turkette,
452 U.S. 576, 583, 101 S.Ct. 2524, 2528-29, 69
L.Ed.2d 246 (1981), the Supreme Court stressed
that continuity is a necessary attribute of an
association-in-fact enterprise. We have
incorporated this notion of continuity into our
definition of such enterprises. An
association-in-fact enterprise (1) must have an
existence separate and ipart from the pattern
of racketeering, (2) must be an_= ongoing
organization and (3) its members must function
as a continuing unit as shown by a hierarchical
wh tn
eee
or consensual decision making structure. Manax
v. McNamara, 842 F.2d 808, 811 (5th Cir. 1988);
Foval v. First Nat’l Bank of Commerce, 841 F.2d
126, 129-30 (5th Cir. 1988); Montesano _v.
Seafirst Commercial Corp., 818 F.2d 423, 426-27
(Sth Cir. 1987); Atkinson v. Anadarko Bank &
Trust Co., 808 F.2d 438, 440-41 (5th Cir.),
cert. denied, U.S. , 307 -$.68. 3276, BF
L.Ed.2d 780 (1987); Shaffer _ v. Williams, 794
F.2d 1030, 1032 (5th Cir. 1986). Thus, the
enterprise must not be one that briefly
flourishes and fades. It must be one that, in
the words of Turkette, "functions as a
continuing unit." 452 U.S. at 583, 101 $.Ct.
at 2528.
Iii.
[6] The district court properly dismissed
Delta’s second amended complaint. Delta has
attempted to state a RICO claim by alleging
multiple acts of fraud that were part and
parcel of a single, discrete and otherwise
lawful commercial transaction. This claim
fails to state a RICO cause of action as a
mi to
matter of law because the pleadings do not
assert that the corporate defendants posed a
continuous threat as RICO persons. Delta has
alleged as a pattern of racketeering activity
nothing more than numérous predicate acts which
were necessary segments of an otherwise
legitimate and singular commercial endeavor-the
Case/Tenneco aceaieltion of IH and related
efforts to combine the dealer network. Delta’s
claim that the method of termination of one or
all dealerships fraudulently violated
contractual rights or legal duties does not
plead a RICO violation.
The judgment appealed from is
AFFIRMED.
REAVLEY, Circuit Judge, concurs in the result.
oh 3=
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