Summary
In Hvostal, plaintiff was a consumer who alleged that he had been defrauded by defendants. Plaintiff based his RICO claims entirely on the fraud perpetuated against him in his stature as a consumer.
Summary of this case from Hughes v. Technology Licensing ConsultantsOpinion
Civ. A. No. 91-1724.
March 23, 1992
Memorandum Opinion
*1 Presently before this Court is defendants' motion to dismiss the complaint for failure to state a claim upon which relief can be granted, pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons stated below, that motion will be granted, without prejudice to the plaintiff to bring an action in state court.
A court may grant a motion to dismiss for failure to state a claim where it appears beyond doubt that no relief could be granted under any set of facts which could be proved consistent with the allegations. Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990); Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988). In deciding such a motion to dismiss for failure to state a claim, all allegations of the plaintiff must be taken as true and viewed in the light most favorable to the plaintiff. Gomez v. Toledo, 446 U.S. 635, 636 (1980); Markowitz, 906 F.2d at 103.
I. Facts
Plaintiff alleges the following:
Plaintiff, in response to solicitations from the defendants, entered into an agreement for the defendants to aid plaintiff in patenting and marketing his invention. Plaintiff initially paid $500 for a feasibility study, and, thereafter, being assured that there were no already-existing products like his, paid $8,700 for additional work.
Plaintiff asserts that when the additional money was paid, there were similar products on the market which would have precluded the patenting of plaintiff's invention. In this way, plaintiff asserts that defendants committed fraud and misrepresentation upon him in violation of the Federal Trade Commission Act, 15 U.S.C. § 45, the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1964(c), and the Unfair Trade Practices, Consumer Protection Law, 73 P.S. § 201-1.
II. Federal Trade Commission Act Claim
III. Racketeering Influenced and Corrupt Organizations (RICO) Act Claims
15 U.S.C. § 45727 F.Supp. 1512 1514 495 U.S. 920 669 F.Supp. 722726669 F.Supp. at 726485 F.2d 9861002 473 U.S. 479497-98 952 F.2d 702715
A. 18 U.S.C. § 1962(a)
*2 Under 18 U.S.C. § 1962(a), it is illegal to use or invest income derived "from a pattern of racketeering activity" to acquire an interest in or to operate an, enterprise engaged in interstate commerce. 18 U.S.C. § 1962(a); H.J., Inc. v. Northwestern Bell, 492 U.S. 229, 23 (1989). A person who has been injured by such a violation may bring a civil cause of action under 18 U.S.C. § 1964(c).
Defendants seek dismissal of plaintiff's claim under § 1962(a) on two grounds. First, defendants assert that Count Two "does not aver that plaintiff suffered an injury as a result of the defendants' investment or use of money obtained by pattern of racketeering activity." (Defendants' motion to dismiss at II, ¶ 6). Secondly, defendants assert that plaintiff has failed to allege a "pattern of rack teering activity." Id. at ¶ 5.
The Third Circuit has held that "§ 1962(a) is directed specifically at the use or investment of racketeering income, and requires that a plaintiff's injury be caused by the use or investment of income by the enterprise." Brittingham v. Mobile Corp., 943 F.2d 297, 303 (3d Cir. 1991). See also Kenny, supra; Princeton Economics Group v. AT T, 768 F.Supp. 1101, 1111-12 (D.N.J. 1991). "[R]equiring the allegation of income use or investment injury is consistent with both the literal language and the fair import of the [language of § 1962(a)]." Rose v. Bartle, 871 F.2d 331, 358 (3d Cir. 1989) (citation omitted). See generally AT T, 768 F.Supp. at 1111-15.
Plaintiff's complaint fails to plead the necessary "investment injury." Kenny, 952 F.2d at 708. Plaintiffs who allege injuries resulting from a defendant's fraudulent business practice have not pled a valid § 1962(a) claim. Id. at 709 (citing Kehr Packages v. Fidelcor, Inc., 926 F.2d 1406, 1411 (3d Cir.), cert. denied, 111 S.Ct. 2839 (1991)). Cf. Busby v. Crown Supply, Inc., 896 F.2d 833, 836-40 (4th Cir. 1990) (rejecting "investment injury" rule). In the instant case, plaintiff has alleged injury based on:
Plaintiff is a consumer and has suffered substantial damages and injury as a result of defendants' violations of the various acts, including, but not limited to payment of monies for services of the defendants, which plaintiff would not have purchased but for the representations; plaintiff has expended great amounts of his time and effort and other expenses incidental to his course of conduct with defendants; plaintiff has suffered other losses.
(Complaint at ¶ 22). In his RICO statement, plaintiff asserts that "Plaintiff was injured by giving to defendants $8,320 for the work to be performed by the defendants. Plaintiff knows, or has reason to believe that there have been others involved who were also harmed based on the FTC involvement and the consent decree." (Plaintiff's RICO statement at ¶ 4).
Even if plaintiff had alleged injury "from the use or investment of racketeering income only to the extent that reinvestment of the proceeds of prior frauds permitted defendants to continue their fraudulent scheme," this would be insufficient to survive a motion to dismiss. Brittingham, 943 F.2d at 304. The Third Circuit has specifically rejected this Court's prior holding in Westinghouse v. Carolina Power and Light, Nos. 89-826, 89-1383, slip op. (W.D.Pa. 1990) (adopting Report and Recommendation of Magistrate Judge Ila Jeanne Sensenich), wherein this Court denied a motion to dismiss a § 1962(a) claim because the plaintiff averred in its complaint "that the income [defendant] received from the pattern of racketeering activity has been invested in the operations which enables it to continue selling more steam generators and additional services and equipment to [plaintiff] and other utilities by fraudulent means." Id. at *14. See, e.g., Brittingham, 943 F.2d at 304 n. 4. This Court must dismiss plaintiff's § 1962(a) claim. Kenny, 952 F.2d at 709.
*3 The Court need not address defendants' second ground for dismissal of the § 1962(a) claim.
B. § 1962(d)
Defendants seek dismissal of the Count Two claim under § 1962(d) based on the assertion that "Count Two does not aver that the defendants agreed to participate in the affairs of an enterprise affecting interstate commerce." (Defendants' motion to dismiss at ¶ 12). Further, defendants assert that "Count Two does not aver that the defendants agreed to commit two or more acts," and "does not delineate specifically what acts each defendant took in participation in the conspiracy." Id. at ¶¶ 13-14.
Section 1962(d) states, in full, "It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." The Third Circuit requires the following in § 1962(d) claims:
To plead conspiracy adequately, a plaintiff must set forth allegations that address the period of conspiracy, the object of the conspiracy, and the certain actions of the alleged conspirators taken to achieve that purpose. Additional elements include agreement to commit predicate acts and knowledge that the acts were part of a pattern of racketeering activity.
Shearin v. E.F. Hutton, 885 F.2d 1162, 1166 (3d Cir. 1989) (emphasis added).
Subsection (d) adds nothing substantive to the law. Danielsen v. Burnside-Ott Aviation Training Center, 941 F.2d 1220, 1232 (D.C. Cir. 1991). Neither does plaintiff's § 1962 conspiracy claim in Count Two add anything substantive to plaintiff's complaint. This claim incorporates the § 1962(a) claim and adds that "defendants engaged in an enterprise and conspired to violate and did violate the provisions of 18 U.S.C. § 1962(a) and thus have violated 18 U.S.C. § 1962(d)." (Complaint at ¶ 25).
Plaintiff's claim under "§ 1962(d) either stand[s] or fall[s] depending on the fate of the [] claim [] under (a)." Gilbert v. Prudential-Bache Securities, Inc., 643 F.Supp. 107, 110 (E.D.Pa. 1986). See also Danielsen, 941 F.2d at 1232; Greek Radio Network of America v. Vlasopoulos, 731 F.Supp. 1227, 1236 (E.D.Pa. 1990); Richmaid Kitchens v. Pennsylvania Lumbermans, 641 F.Supp. 297, 311 (E.D.Pa. 1986), aff'd., 833 F.2d 307 (3d Cir. 1987). As in Kenny, supra, "plaintiff [has] failed adequately to allege the conspiracy elements of the agreement and knowledge that the defendants' acts were part of a pattern of racketeering activity." Kenny, 952 F.2d at 714. As the § 1962(a) claim does not set forth violations, the incorporation of that claim does not set forth a conspiracy to commit violations; therefore, it must fail as well. Danielsen, 941 F.2d at 1232.
IV. Conclusion
This case presents claims which would otherwise have been framed in terms of common law actions for misrepresentation and fraud. By today's decision, this Court does not intend to minimize either the seriousness of the alleged misrepresentations or the injuries they may have caused. However, "civil RICO does not become the claim of choice for every fraud suit." Kenny, 952 F.2d at 715. Plaintiff may have valid claims of common law fraud or breach of contract, but, based on the allegations of the complaint and the RICO statement, which this Court has assumed throughout to be true, they cannot maintain a RICO suit. Kehr, 926 F.2d at 1419. Thus, this Court will grant defendants' motion to dismiss the RICO claims. Dismissal of the FTC claim is also warranted since that statute does not recognize a private cause of action.
*4 The claim that remains is plaintiff's claim in Count One of violation of the Unfair Trade Practices, Consumer Protection Law, 73 P.S. § 201-1, et seq. Because this remaining claim is based on supplemental jurisdiction, and no federal claims remain, this claim will be dismissed for lack of subject matter jurisdiction. United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966); AT T, 768 F.Supp. at 1115. There remains no prejudice to the plaintiff to bring such a claim in state court.
An appropriate Order will be issued.