Opinion
CIVIL ACTION No. 91-2133-EEO, CIVIL ACTION No. 95-2267-EEO.
August 26, 1997.
MEMORANDUM AND ORDER
This matter is before the court on defendants' motion for summary judgment and motion to dismiss (Doc. #180). Plaintiffs have responded and oppose the motions, defendants have filed a reply, and both parties have filed supplemental memoranda. The court has carefully considered the parties' arguments, the record, and the applicable law, and is now prepared to rule. For the reasons set forth below, both motions are denied.
I. Motion for Summary Judgment.
A. Background.
Defendants seek summary judgment on Count I of plaintiffs' complaint in consolidated case 95-2267-EEO, which alleges various violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961,et seq. ("RICO"). Defendants assert that plaintiffs' RICO claim is barred by the statute of limitations. The statute of limitations for RICO actions is four years. Agency Holding Corp. v. Malley-Duff Assocs., 483 U.S. 143, 156 (1987). More specifically, a civil RICO claim must be brought within four years after the earliest time the cause of action accrued. See Phelps v. Wichita Eagle-Beacon, 886 F.2d 1262, 1273 n. 12 (10th Cir. 1989) (following Malley-Duff). This action was filed on June 13, 1995. If plaintiffs' RICO claim accrued before June 13, 1991, defendants are entitled to summary judgment. Thus, the threshold question in ruling on the instant motion for summary judgment is: when does a civil RICO claim accrue so as to begin the running of the statute of limitations?
At the time the motion for summary judgment was first ripe for ruling, the United States Supreme Court had declined to reach the question of when a RICO cause of action accrues. Malley-Duff, 483 U.S. at 157. In the absence of any direction from the Supreme Court, the circuits had adopted different methods for deciding when the statute of limitations begins to run for civil RICO claims. A majority of the circuits — the First, Second, Fourth, Fifth, Seventh, and Ninth — adhere to the "injury discovery rule," in which accrual begins when the plaintiff discovered or should have discovered each injury caused by the challenged action. See, e.g., Bankers Trust v. Rhoades, 859 F.2d 1096, 1102-03 (2d Cir. 1988) (adopting "injury discovery rule" for accrual of RICO actions), cert. denied, 111 S.Ct. 1695 (1991).
The Sixth, Eighth, Tenth, and Eleventh Circuits have adopted the "injury/pattern discovery rule," under which the statute of limitations commences on a civil RICO action when the plaintiff discovers, or reasonably should have discovered, both the existence and source of his injury and that the injury is part of a pattern of racketeering. See, e.g., Bivens Gardens Office Bldg., Inc. v. Barnett Bank of Florida, Inc., 906 F.2d 1546 (11th Cir. 1990), cert. denied, 500 U.S. 910 (1991),overruled in part on other grounds by Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, 501 U.S. 350 (1991); Bath v. Bushkin, Gaims, Gaines Jonas, 913 F.2d 817, 820 (10th Cir. 1990) (quoting Bivens Gardens, 906 F.2d at 1554-55); Granite Falls Bank v. Henrikson, 924 F.2d 150 (8th Cir. 1991).
The Third Circuit has adopted a slight variation of the "injury/pattern discovery rule." Under the Third Circuit's rule, if the plaintiff suffers a later injury, or a later predicate act occurs, the accrual period begins when the plaintiff knew or should have known of the last injury or the last predicate act constituting the same pattern of racketeering. Under this "last predicate act rule," if a plaintiff files a complaint within four years of the last injury suffered or the last predicate act, the plaintiff can potentially recover for additional injuries caused by predicate acts which occurred in an earlier limitations period but that are nevertheless part of the same pattern. See Keystone Ins. Co. v. Houghton, 863 F.2d 1125 (3d Cir. 1988).
The Supreme Court, in the 1996-1997 term, granted certiorari in a case to resolve the issue of when a civil RICO claim accrues. See Grimmett v. Brown, 75 F.3d 506 (9th Cir.), cert. granted, ___U.S.___, 116 S.Ct. 2521 (1996). The questions presented to the Supreme Court were: (1) whether a civil RICO cause of action accrues when the plaintiff knows or should know that she has been injured, or only when she knows or should know that her injury was caused by the defendant and is part of a pattern of racketeering activity; and (2) whether a cause of action accrues under RICO before the amount of damages, if any, becomes clear. This court was advised by the Clerk of the United States Supreme Court that oral arguments in the case were scheduled for January 6, 1997.
By order dated December 16, 1996, this court determined that it should stay ruling on the motion for summary judgment, in light of the fact that the Supreme Court would soon resolve the split among the circuits on an issue potentially dispositive to plaintiff's RICO claims. The court stayed ruling on the motion for summary judgment until the Supreme Court rendered its decision.
After hearing oral arguments in Grimmett, the Supreme Court dismissed the appeal as improvidently granted, ___U.S. ___, 117 S.Ct. 759 (Jan. 14, 1997), and granted certiorari in a second appeal raising the same question. See Klehr v. A.O. Smith Corp., 87 F.3d 231 (8th Cir. 1996),cert. granted, ___U.S. ___, 117 S.Ct. 725 (Jan. 10, 1997). This court consequently maintained the stay, pending the Supreme Court's decision inKlehr.
B. Klehr v. A.O. Smith Corporation .
On June 19, 1997, the Supreme Court handed down its decision in Klehr v. A.O. Smith Corporation, ___U.S. ___, 117 S.Ct. 1984 (1997). In Klehr, the Supreme Court focused upon, and disapproved, the accrual rule followed in the Third Circuit — the "last predicate act" rule.Klehr, 117 S.Ct. at 1987. The court concluded that the "last predicate act" rule is not a proper interpretation of the law. Id. at 1989. The Supreme Court in Klehr acknowledged that the opinion does not resolve the conflict among the circuits applying the "injury discovery" rule and the "injury/pattern discovery" rule. Id. at 1991. As justification for not addressing this split among the circuits, the Supreme Court noted that the major difference among the circuits, to wit, whether a discovery rule includes knowledge about a "pattern," was "clearly not at issue," inasmuch as the Klehrs had not claimed lack of knowledge of a "pattern."Id. at 1992. The court refused to review the Eighth Circuit's conclusion that the Klehrs reasonably should have discovered the "source" of their injury before 1989 and that no reasonable factfinder could conclude to the contrary. Id. As explanation, the Supreme Court observed that such a determination is "highly fact-based," and that the writ of certiorari required the court to decide only the purely legal question of whether or not a claim accrues "`where the Respondent continues to commit predicate acts' in the four-year period immediately preceding suit." Id.
The court then considered the final question contained in the writ of certiorari, namely whether "affirmative continuing acts of fraud . . . coupled with active cover up of the fraud, act to equitably toll the statute of limitations . . . whether or not Petitioners have exercised reasonable diligence to discover their claim." Id. at 1992-93 (citing Petition for Certiorari, i.). The court noted that such question refers to the doctrine of "fraudulent concealment," which some courts have said "equitably tolls" the running of a limitations period, while other courts consider it a form of equitable estoppel. Id. at 1993. In resolving the difference among the circuits with respect to the requirement of reasonable diligence on the part of the plaintiff, the court held:
We limit our consideration of the question to the context of civil RICO. In that context, we conclude that "reasonable diligence" [of the plaintiff's to uncover fraud] does matter, and a plaintiff who is not reasonably diligent [in trying to uncover fraud] may not assert "fraudulent concealment."Id. The court, however, refused to examine whether the Eighth Circuit properly applied the "due diligence" requirement to the evidentiary materials before it, finding, once again, that such a "fact-based" question was beyond the scope of the Supreme Court's writ. Id. at 1994.
C. Standards for Summary Judgment.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir. 1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248.
The moving party bears the initial burden of showing that there is an absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Hicks v. Watonga, 942 F.2d 737, 743 (10th Cir. 1991). Essentially, the inquiry as to whether an issue is genuine is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52. An issue of fact is genuine if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party. Id. at 248. This inquiry necessarily implicates the substantive evidentiary standard of proof that would apply at trial. Id. at 252.
Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof."Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241.
"[W]e must view the record in the light most favorable to the parties opposing the motion for summary judgment." Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir. 1991). "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial."Conaway v. Smith, 853 F.2d 789, 793 (10th Cir. 1988). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Anderson, 477 U.S. at 256. Where the nonmoving party fails to properly respond to the motion for summary judgment, the facts as set forth by the moving party are deemed admitted for purposes of the summary judgment motion. D. Kan. Rule 56.1.
D. Discussion.
RICO authorizes civil suits by any person injured in his business or property by reason of a violation of 18 U.S.C. § 1962. 18 U.S.C. § 1964 (c). The plaintiffs allege a violation of 18 U.S.C. § 1962 (c), which provides:
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.
The plaintiffs allege that the defendants engaged in a pattern of racketeering activity, not the collection of an unlawful debt.
In order to state a RICO claim under § 1962(c), the plaintiffs must prove: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985).
The Tenth Circuit holds that a RICO claim accrues as soon as the plaintiff discovered or reasonably should have discovered all the elements of the cause of action: the existence and source of the injury; and that the injury was part of a pattern of racketeering. Bath v. Bushkin, Gaims, Gaines, Jonas, 913 F.2d 817, 820 (10th Cir. 1990) (quotingBivens Gardens Office Bldg., Inc. v. Barnett Bank of Fla., Inc., 906 F.2d 1546, 1554-55 (11th Cir. 1990), cert. denied, 500 U.S. 910 (1991), overruled in part on other grounds by Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, 501 U.S. 350 (1991)). The Supreme Court in Klehr v. A.O. Smith, ___U.S. ___, 117 S.Ct. 1984 (1997), left undisturbed the Tenth Circuit's "injury/pattern discovery" rule for determining when a RICO cause of action accrues.
In Bivens, the Tenth Circuit cited Keystone Insurance v. Houghton, 863 F.2d 1125 (3d Cir. 1988) in a footnote. The court did not distinguishKeystone, or explain its reference to Keystone, but merely recited the Third Circuit's phrasing of the accrual rule. It is now clear, after the Supreme Court's decision in Klehr, that whatever possible weight the Tenth Circuit accorded Keystone in its Bath decision should be disregarded as "not a proper interpretation of the law." Klehr, 117 S.Ct. at 1989.
When a cause of action accrued is a question of fact. Maughan v. SW Servicing, Inc., 758 F.2d 1381, 1387 (10th Cir. 1985). The court's task, then, is to determine whether any genuine issues of material fact exist regarding when plaintiffs' RICO cause of action accrued. Viewing the record in the light most favorable to plaintiffs, the court finds that disputed issues of fact remain for trial as to when plaintiffs discovered or reasonably should have discovered all the elements of the RICO cause of action. For example, while it is undisputed that plaintiffs knew before June 13, 1991, that Midland had affixed labels bearing the "Quick-Phos" mark to aluminum phosphide fumigants not manufactured by United and sold these fumigants in interstate commerce, genuine issues of fact exist as to when plaintiffs discovered or reasonably should have discovered that their injuries resulted from a pattern of racketeering activity, i.e., mail and/or wire fraud. Existence of a pattern is a question of fact for the jury. Resolution Trust Corp. v. Stone, 998 F.2d 1534, 1542 (10th Cir. 1993).
Plaintiffs also assert the doctrine of fraudulent concealment. The doctrine of fraudulent concealment requires the plaintiff to show: (1) the use of fraudulent means by the party who raises the ban of the statute of limitations; (2) successful concealment from the injured party; and (3) that the party claiming fraudulent concealment did not know or by the exercise of due diligence could not have known that he might have a cause of action. Ballen v. Prudential Bache Securities, Inc., 23 F.3d 335, 336 (10th Cir. 1994).
It appears genuine issues of fact also may exist as to whether plaintiffs exercised "reasonable diligence" in attempting to uncover the fraud. These questions are for the trier of fact to decide. See Wolf v. Preferred Risk Life Insurance Co., 728 F.2d 1304, 1306 (10th Cir. 1984) ("Questions of when a reasonable person would discover an injury and what a reasonable person would have done are generally within the province of the jury."); State of Ohio v. Peterson, 585 F.2d 454, 457 (10th Cir. 1978) ("a trial court should not grant summary judgment for a defendant if there is a `viable issue of fact' as to when the limitations period began"); Knight v. E.F. Hutton and Co., Inc., 750 F. Supp. 1109, 1113 (M.D. Fla. 1990) (issue of whether plaintiff had exercised sufficient due diligence in timely discovering the fraud surrounding a RICO claim is a question for the jury).
We are mindful that trial courts should act with caution in granting summary judgment, and may deny summary judgment where there is reason to believe that the better course would be to proceed to trial. Anderson v. Liberty Lobby, Inc., 477 U.S. at 255. See also Jones v. Nelson, 484 F.2d 1165, 1168 (10th Cir. 1973) (summary judgment is a drastic remedy, which should be approached cautiously). The court therefore will deny summary judgment, under the belief that we will be in a much better position to make any ruling after hearing the evidence at trial.
II. Motion to Dismiss
A. Standards for a Motion to Dismiss.
A court may not dismiss a cause of action for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of the claim that would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Jacobs, Visconsi Jacobs, Co. v. City of Lawrence, 927 F.2d 1111, 1115 (10th Cir. 1991). A court judges the sufficiency of the complaint by accepting as true the well-pleaded factual allegations and drawing all reasonable inferences in favor of plaintiff. Shaw v. Valdez, 819 F.2d 965, 968 (10th Cir. 1987). "[T]he court need accept as true only the plaintiff's well-pleaded factual contentions, not his conclusory allegations." Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991). The issue in resolving a motion to dismiss for failure to state a claim is not whether the plaintiff will ultimately prevail, but whether he or she is entitled to offer evidence to support the claims. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
Rule 8(a) of the Federal Rules of Civil Procedure requires "a short and plain statement of the claim showing that the pleader is entitled to relief." The statement need not be factually detailed, but it "must give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley, 355 U.S. at 47. If the complaint is "too general," then it will not provide fair notice to the defendant.Boston Maine Corp. v. Town of Hampton, 987 F.2d 855, 865 (1st Cir. 1993).
A plaintiff must "set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory." Gooley v. Mobil Oil Co., 851 F.2d 513, 515 (1st Cir. 1988). In short, Rule 8(a) relieves a plaintiff from pleading technicalities and from alleging detailed facts that establish its right to judgment. Trevino v. Union Pacific R. Co., 916 F.2d 1230, 1234 (7th Cir. 1990). Rule 8(a), however, still requires minimal factual allegations on those material elements that must be proved to recover on each claim. See Hall v. Bellmon, 935 F.2d at 1110. A court may not assume that a plaintiff can prove facts that it has not alleged, or that the defendant has violated laws in ways that plaintiff has not alleged. Associated General Contractors v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).
When pleading a RICO claim alleging mail or wire fraud as a basis for a predicate act, plaintiff must also plead such allegations so as to satisfy the requirements of Federal Rule of Civil Procedure 9(b). Cayman Exploration Corp. v. United Gas Pipe Line Co., 873 F.2d 1357, 1362 (10th Cir. 1989). That is, all averments of fraud must be stated with particularity. Id.
We recognize that the Federal Rules of Civil Procedure erect a powerful presumption against rejecting pleadings for failure to state a claim. See id. (citing Morgan v. City of Rawlins, 792 F.2d 975, 978 (10th Cir. 1986)). We further recognize that granting a motion to dismiss is "a harsh remedy which must be cautiously studied, not only to effectuate the spirit of the liberal rules of pleading but also to protect the interests of justice." Morgan, 792 F.2d at 978.
B. Discussion.
Defendants argue that even if they are not entitled to summary judgment, the court should dismiss plaintiffs' RICO claim as to Midland Fumigant, Inc. Defendants argue that by naming Midland as a defendant, plaintiffs' RICO complaint fails to state a claim, because the alleged enterprise cannot be the same as the RICO defendant. In support, defendant cites Schroder v. Volcker, 646 F. Supp. 132, 135 (D. Cob. 1986), and Rae v. Union Bank, 725 F.2d 478 (9th Cir. 1984).
The court is at a loss as to why defendants cite authority from the Ninth Circuit and district of Colorado, when there is ample Tenth Circuit and district of Kansas case law directly on point.
In response, plaintiffs acknowledge that "in a § 1962(c) claim like this one, the enterprise and the defendant must be distinct entities." Plaintiffs' Brief, at 38. Plaintiffs contend, however, that defendants' argument is inapposite, inasmuch as plaintiffs simply do not identify Midland Fumigant, Inc., as a named defendant in their RICO cause of action. In support, plaintiffs note that "in the final paragraph of Count I of the complaint at 33-34 . . ., plaintiffs identify Donald Fox, Kaw Valley, and Phos-Fume as the defendants who acted alone and/or in association to affect the enterprise. The prayer for relief does not name Midland as a defendant." Plaintiffs' Brief, at 38-39. Plaintiffs' assertions are borne out by the complaint: Midland is named as a defendant in the caption of this suit for purposes of Count II of the complaint in consolidated case 95-2267-EEO, alleging common law fraud, and for purposes of the counts asserted in the complaint originally filed as case 91-2133, alleging causes of action for violation of the Lanham Act, false or fraudulent registration under 15 U.S.C. § 1120, common law trademark infringement, and common law unfair competition. Because it appears from the face of the complaint that Midland Fumigant, Inc., was not named as a defendant in the RICO claim, the court finds that defendants' motion to dismiss on this basis is without merit.
Defendants next contend that plaintiffs have not sufficiently pled the existence of an enterprise, one of the required elements of a RICO claim brought under section 1962(c). Defendants cite to Saine v. AIA, Inc., 582 F. Supp. 1299, 1303 (D. Cob. 1984), for the proposition that, in order to meet the enterprise requirement in pleading a RICO cause of action, "the enterprise must have an existence `separate and apart from the pattern of activity in which it engaged.'" Saine, 582 F. Supp. at 1304 (citing United States v. Turkette, 452 U.S. 576, 583 (1981)). InSaine, the court found that plaintiffs had not sufficiently pled the enterprise requirement because the complaint alleged that the "enterprise" is "NHI or, in the alternative, an association in fact of Saine and NHI representatives." The court concluded that the association between Saine and the NHI representatives could not be the enterprise because
that association has no identity separate from the pattern of racketeering. That leaves NHI as the enterprise. If NHI is the enterprise it cannot also be the "person" whom the Act penalizes for conducting the affairs of the "enterprise" by means of racketeering.582 F. Supp. at 1303. Consequently, the court dismissed the section 1962(c) claim against NHI. Id.
Such is not the situation in the complaint before us. Plaintiffs consistently allege throughout their RICO count that Midland is the enterprise. No RICO claims are asserted against Midland. The court has reviewed the complaint, and finds that plaintiff has sufficiently alleged that the defendants Fox, Kaw Valley, Inc., and Phosphume Chemical Company "were part of an enterprise which had an existence and purpose distinct from any one of them." Board of County Comm'rs v. Liberty Group, 965 F.2d 879, 885 (10th Cir.), cert. denied, ___U.S. ___, 113 S.Ct. 329 (1992). Plaintiffs do not allege that Fox, Kaw Valley, or Phosphume are the "enterprises" through which the racketeering activity was conducted.See, e.g., Independent Drug Wholesalers Group, Inc. v. Denton, 833 F. Supp. 1507, 1517 (D. Kan. 1993).
Defendants also rather vaguely contend that the complaint fails to state a RICO claim because it does not specifically allege any predicate acts in which Kaw Valley or Phosfume participated "with the other defendants for any particular common purpose." We have carefully reviewed the complaint, and note that paragraphs 29 and 34 of the complaint allege predicate acts as to Kaw Valley; paragraphs 47 and 49 allege predicate acts as to Phosphume. The allegations contained therein appear sufficient to overcome the perceived pleading deficiencies raised by defendants.
Defendants next maintain that the complaint fails to state a RICO claim because it does not sufficiently allege the "pattern" element of a RICO cause of action. 18 U.S.C. § 1961 (5) does not so much define a "pattern of racketeering activity" as it tends to state a minimum necessary condition for such a pattern. H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 237 (1989); Monarch Normandy Square Partners v. Normandy Square Assocs. Ltd. Partnership, 817 F. Supp. 908, 913 (D. Kan. 1993). Section 1961(5) provides that a "pattern of racketeering activity"
requires at least two acts of racketeering activity, one of which occurred after [October 15, 1970,] and the last of which occurred within ten years . . . after the commission of a prior act of racketeering activity.
While two predicate acts are necessary, they may not be sufficient. H.J. Inc.,, 492 U.S. at 237-38 (citing Sedima, 473 U.S. at 496, n. 14). InH.J. Inc., the Supreme Court explained:
In normal usage, the word "pattern" here would be taken to require more than just a multiplicity of racketeering predicates. A "pattern" is an "arrangement or order of things or activity," 11 Oxford English Dictionary 357 (2d ed. 1989), and the mere fact that there are a number of predicates is no guarantee that they fall into any arrangement or order. It is not the number of predicates but the relationship that they bear to each other or to some external organizing principle that renders them "ordered" or "arranged."
[A] pattern might be demonstrated by reference to a range of different ordering principles or relationships between predicates, within the expansive bounds set.Id. at 238-39. To prove a pattern of racketeering activity, a plaintiff must show that (1) the racketeering predicates are related, and (2) that they amount to or pose a threat of continued criminal activity. Id. at 239.
The Supreme Court in H.J. Inc. defined the relatedness prong of the pattern requirement as follows:
[C]riminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.Id. at 240. When acts are part of a common fraudulent scheme, they satisfy the relationship requirement of the pattern element. Torwest DBC, Inc. v. Dick, 810 F.2d 925, 927 (10th Cir. 1987) (citing Sedima).
With respect to the continuity requirement, the Supreme Court has instructed that "`[c]ontinuity' is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." H.J. Inc., 492 U.S. at 241. A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicate acts extending over a substantial period of time. Id. at 242; Resolution Trust Corp. v. Stone, 998 F.2d 1534, 1543 (10th Cir. 1993). In a close-ended scheme, predicate acts extending over a few weeks or months do not satisfy the pattern requirement. H.J. Inc., 492 U.S. at 242; Stone, 998 F.2d at 1543. Open-ended continuity depends upon the facts of each case, and may be established by showing that the predicate acts themselves involve a distinct threat of long-term racketeering activity, either implicit or explicit, or that the predicate acts are a regular way of conducting the defendant's ongoing legitimate business or the RICO enterprise. H.J., Inc., 492 U.S. at 242-43; Stone, 998 F.2d at 1543.
The Tenth Circuit has not adopted a bright-line test of what satisfies the requirement of continuity, but instead has developed a flexible standard:
We find that two factors are particularly relevant to the determination of continuity. First, because continuity is "centrally a temporal concept," we consider the duration of the related predicate acts. Second, we consider the extensiveness of the RICO enterprise's scheme. Multiple on-going activities are more likely to satisfy the continuity requirement than would be several sporadic, albeit still related, acts. Under the rubric of "extensiveness," we consider a number of factors: the number of victims, the number of the racketeering acts, the variety of racketeering acts, whether the injuries caused were distinct, the complexity and size of the scheme, and the nature or character of the enterprise or unlawful activity. In assessing continuity, we analyze these factors with the goal of achieving a "natural and commonsense result."Stone, 998 F.2d at 1543. With respect to the various foregoing factors, the court explained that none of the factors need to be present in order to find continuity, but were enumerated "merely [to] provide indicia by which the continuity of specified racketeering activity may be judged . . ." Id. at 1544, n. 9.
Defendants assert that plaintiffs' complaint fails to sufficiently allege the relationship prong of the pattern element of a RICO claim. Defendants maintain that the complaint alleges only "a series of unrelated accusations" regarding defendants' activities. Defendants' Brief, at 34. In response, plaintiffs state that "all of the predicate acts are part of a common fraudulent scheme by the defendants to purchase an inferior product (L-Fume or Chinese product) at a low price ($212/case or less) and then pass it off as Quick-Phos at a higher price (up to $405/case or more) under a known tradename which implies a superior quality." Plaintiffs' Brief, at 42. Plaintiffs contend that each fraudulent act is part of one overall common fraudulent scheme.
In their complaint, plaintiffs allege that Fox, Phos-Fume, and Kaw Valley employed a pattern of racketeering activity through mail fraud and wire fraud to conduct the affairs of Midland, and thereby caused Midland to injure plaintiffs' business and property. The predicate acts plaintiffs allege in their complaint relate to: defendants causing Midland to file a fraudulent application for registration of the "Quick-Phos" mark with the United States Patent Trademark Office, despite defendants' knowledge of United's right to use the Quick-Phos mark; defendants' mislabeling of Excel's "L-Fume" product with "Quick-Phos" labels and sale of the misbranded product; Phos-Fume misrepresenting to the EPA the formulation of aluminum phosphide it was selling, by filing with the EPA statements of formula stating the formulation for Quick-Phos, when defendants were actually selling the formula of aluminum phosphide manufactured by Excel; and defendants' efforts to conceal their continued traffic in misbranded aluminum phosphide and breach of the settlement agreement. The court finds, based on a review of each of the predicate acts set forth in the complaint, that plaintiffs have sufficiently alleged the relatedness prong of the pattern element by alleging predicate acts which comprise one common fraudulent scheme. The criminal conduct alleged embraces criminal acts that have the same or similar purposes, participants, and victims, and are not isolated events. H.J. Inc., 492 U.S. at 240.
Defendants also assert that plaintiffs' complaint fails to sufficiently allege the continuity prong of the pattern element of a RICO claim. Plaintiffs' complaint alleges some three hundred thirty-nine predicate acts occurring over the span of five and one-half years. Plaintiffs' complaint alleges continuity over a closed period by stating "a series of related predicate acts extending over a substantial period of time,"H.J. Inc., 492 U.S. at 242. Alternatively, plaintiffs appear to have sufficiently alleged a threat of long-term racketeering activity so as to satisfy the pleading requirements of open-ended continuity. H.J. Inc., 492 U.S. at 242. The predicate acts alleged in the complaint regarding the settlement breach certainly involve a "threat of repetition extending indefinitely into the future." Id. We find plaintiffs' allegations regarding the continuity prong of the pattern element sufficient at the pleading stage to survive a motion to dismiss. We conclude that plaintiffs have sufficiently pled a pattern of RICO activity, both in terms of the relatedness prong, and the continuity prong. Accordingly, defendants' motion to dismiss will be denied.
Defendants did not file a dispositive motion as to plaintiffs' Count II for common law fraud; such claim remains for trial.
IT IS THEREFORE ORDERED that defendants' motion for summary judgment and motion to dismiss (Doc. #180) is denied.