liable for all acts of its agents pursuant to the Carmack Amendment, it necessarily follows that
National is liable for Defendant Schiesser’s and Apex’s RICO violations. Second, Plaintiff
argues that vicarious liability is “the rule, not the exception, under RICO.” Specifically, Plaintiff
contends that her claim survives §1962(c) because National and the alleged RICO enterprise are
distinct entities. Although Plaintiff fails to allege liability against National pursuant to 1962(a)
and (b) of the RICO statute, she uses the standards of these subsections to argue that National is
vicariously liable because National derived a benefit from the racketeering acts if its agents and
because vicarious liability is consistent with congressional intent, See Liquid Air v. Rogers, 834
F.2d 1297, 1306 (7"" Cir. 1987).

1 Apex and Schiesser Engaged in a Pattern of Racketeering

Defendant National argues in support of its motion to dismiss that Plaintiff failed to state
a RICO claim against Defendants Apex and Schiesser because she did not allege that they
committed two predicate acts of racketeering as mandated under the RICO statute. Defendant’s
argument, however, fails.

A plaintiff alleging a RICO violation must prove that the defendant’s allegedly corrupt
actions constitute a pattern of racketeering. See Ashland Oil v. Arnett, 875 F.2d 1271, 1276 (7"
Cir. 1989). A pattern of racketeering requires two predicate acts committed by a defendant
within a 10-year period. Liguid Air, 834 F.2d at 1304. Further, there must be some continuity
and relationship between the acts to establish a “pattern.” See id. Criminal acts that have similar
schemes, purposes, and victims constitute a “pattern” for purposes of the statute. See id.
According to Ashland Oil, “neither the presence of a single scheme or a single victim has

precluded the finding of a pattern of racketeering.” 875 F.2d at 1277. Plaintiff's complaint notes


Schiesser’s ability to steal shippers’ household goods may compel more corrupt agents to work
for National and thus increase National’s overall profit.

Even if Plaintiff had alleged vicarious liability under sections (a) and (b), the benefit that
Plaintiff alleges National derived does not constitute a “benefit” sufficient to impose vicarious
liability under the RICO statute, Seventh Circuit case law indicates that for a corporation to
“benefit” for purposes of the RICO statute, the corporation must use the proceeds or otherwise
profit from the specific racketeering activity. See Haroco, 747 F.2d at 402.

National does not allege that it benefitted from Apex’s and Defendant Schiesser’s illegal
conduct. Rather, Apex and Schiesser used National as an instrument through which to conduct
their criminal scheme.

Even if Plaintiff had brought a claim against National pursuant to subsections (a) and (b)
of the RICO statute, Plaintiff failed to properly allege that National derived a benefit from its
agents’ pattern of racketeering, Therefore, the imposition of vicarious liability upon National is

improper under subsections (a) and (b) of the RICO statute.


“Tt shall be unlawful for any person employed by or associated with any enterprise
engaged in, or the activities which affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of such enterprises affairs through a
pattern of racketeering activity...”

Section 1962(c) requires that the RICO “person” and the RICO “enterprise” be separate entities
because an enterprise cannot associate with or be employed by itself. See D&S Auto Parts, Inc.
vy. Schwartz, 838 F.2d 964, 967 (7" Cir. 1987); Haroco, Inc. v. American Nat’! Bank and Trust
Co. of Chicago, 747 F.2d 384, 402 (7" Cir. 1984). Thus, subsection (c) shields corporate
enterprises from liability for the corrupt acts of their employees. See Liquid Air, 834 F.2d at
1306. The purpose of subsection (c) is to protect those corporations that are “merely the passive
instrument for the [employee’s] wrongdoing.” See Haroco, 747 F.2d at 402. If the corporation-
enterprise perpetrates illegal conduct, it may be held vicariously liable under subsection (a) or (b)
which have no non-identity requirement. See Liquid Air, 834 F.2d at 1306.

Defendant National contends that subsection (c) of the RICO statute proscribes vicarious
liability in the instant case because the Seventh Circuit only imposes liability upon a corporation
when it is somehow involved in the criminal scheme. See D&S, 838 F.2d at 967. Plaintiff
alleges that vicarious liability is entirely appropriate under § 1962(c) because National is distinct
from the alleged enterprises.

Defendant National relies on the outcome in D&S which stated that vicarious liability is
inconsistent with the Seventh Circuit’s approach to RICO liability. As subsequent decisions
have noted, however, D&S should not be read as a blanket rejection of vicarious liability under

RICO because the D&S court only focused on the inapplicability of vicarious liability under

subsection (c) when the corporation and enterprise are not distinct entities and the corporation


that while retrieving her property in Texas, she discovered stolen goods belonging to a number of
other shippers who also entrusted Defendants Apex and Schiesser to transport their household
goods interstate. Thus, because Plaintiff states that Defendants Apex and Schiesser engaged in a
pattern of similar thefts of interstate commerce and transportation of stolen goods with respect to
numerous other shippers, she properly alleged that Defendants Apex and Schiesser committed at
least two predicate acts for the purposes of the RICO statute. Accordingly, because Defendants
Apex and Schiesser allegedly engaged in a pattern of similar criminal acts, targeting similar
victims, over a period of time, Defendant National’s argument that Plaintiff failed to allege a
pattern of racketeering under RICO fails.
IL. Vicarious Liability Under RICO

The applicability of vicarious liability to RICO is a topic of debate among the circuits.
Because the purpose of RICO is to reach those who profit from a pattern of racketeering,
vicarious liability only applies to civil RICO in limited circumstances in order to avoid holding
innocent corporations liable for the wrongdoing of their employees. See Liquid Air, 834 F.2d at
1306, Thus, the Seventh Circuit only imposes vicarious liability in RICO actions when (1) the
corporation has derived some benefit from the alleged RICO action; and (2) imposing vicarious
liability does not circumvent congressional intent. See id. To determine congressional intent, the
Court looks to the express language of each subsection of the statute. See id. Here, vicarious
liability is not consistent with congressional intent. Further, Plaintiff does not properly allege
that National derived a benefit from the racketeering acts of its agents. Therefore, vicariously
liability is not appropriate in the instant case.

Section 1962(c) of the RICO statute provides:



corporation may be held liable for the racketeering acts of its agents. Plaintiff fails however, to
acknowledge that in both of the cited cases, the defendant corporation was somehow involved in
or benefitted from the criminal scheme of the RICO enterprise. See Ashland Oil, 875 F.2d at
1281; Williams, 42 F. Supp. 2d at 792-793. There is no allegation in Plaintiff's complaint that
Defendant National was involved in or knew of Defendant Schiesser’s or Defendant Apex’s
scheme to steal Plaintiff's household goods.

Accordingly, because Plaintiff fails to allege that Defendant National knew of or
participated in the racketeering acts of its agents, she has not properly stated a claim for vicarious
liability against Defendant National under RICO."

Ill. Defendant National Did Not “Benefit” From its Agents’ Pattern of Racketeering

Although Plaintiff does not seek to impose liability on National under subsections (a) or
(b) of the RICO statute, she proceeds to use the standards of these subsections to support her
argument that vicarious liability is proper under RICO. Subsections (a) and (b) do not require the
alleged RICO enterprise and person to be district entities and cover those situations in which the
enterprise itself is guilty of wrongdoing. See Liquid Air, 834 F.2d at 1306. Vicarious liability is
entirely appropriate under both subsections when the corporate-enterprise benefits from the
corrupt acts of its employees or agents. See id. Defendant National argues that it did not benefit
from the racketeering activities of its agents because the corporation only benefits when its
agents provide lawful transportation services. Plaintiff asserts that National indirectly benefitted

from its agents’ RICO violations because knowledge of Defendant Apex’s and Defendant

1 Plaintiff has provided no basis for the court to nonetheless impose vicarious liability
under §1962(c) pursuant to 42 U.S.C, §13907.


«

Minute Oryer For (06/97)

United States District Court, Northern District of Illinois

nang Magirate Jude Amy J. St. Eve “than Assigned Sudge

CASE NUMBER 03 C 7096 DATE 7/1/2004
CASE Schwartz vs. National Van Lines
TITLE

{In the following box (a) indicate the party filing the motion, e.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.)

e))

MOTION:

DOCKET ENTRY:

03) Q Filed motion of [ use listing in “Motion” box above.]

(2) G Brief in support of motion due

(3) ‘oO Answer brief to motion due___. Reply to answer brief due.

(4) Qa Ruling/Hearing on setfor_____at

(5) a Status hearing{held/continued to] [set for/re-set for}on__setfor__—_at

(6) Oo Pretrial conference[held/continued to] [set for/re-setfor]on___——s set for at

(©) o Trial[set for/re-set for] on_ saat.

(8) iat} (Bench/Jury trial] [Hearing] held/continued to _aat.

(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to)
CUFRCP4(m) CLocalRule 41.1 CFRCP41(a)(1) CFRCP41(a)(2).

ce | (Other docket entry] Enter Memorandum Opinion and order. Defendant Nationai’s motion to

dismiss Counts VII and VIII of Plaintiffs complaint is granted.

Gas

a [For further detail see order attached to the original minute order.]

No notices required, advised in open court,

No notices required.
umber of notices

Notices mailed by judge’s staff.

JUL 0 2 2004

Notified counsel by telephone.
Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.

/ courtroom
TH deputy's
initials

Date/time receive 3h”

central Clerk’s Office rriling deputy initials

cusses?



CONCLUSION

‘The application of vicarious liability under RICO is improper in the instant case under
§1962(c). Plaintiff's complaint does not allege that National knew of Defendant Apex’s and
Defendant Schiesser’s scheme to steal shippers’ household goods, nor does she allege that
National was the aggressor or the central figure in its agents’ racketeering activity. Further, even
if Plaintiff had sought to hold National vicariously liable under §1962 (a) and (b), her claim
would still fail because National did not derive a “benefit” from the corrupt acts of its agents,
Apex and Schiesser. Accordingly, Defendant National’s motion to dismiss Counts Vil and VIL

of Plaintiff's complaint is granted.

Dated: July 1, 2004 ENTERED

AMY. ST. BY’
United States District Court Judge

10



has no knowledge of its employees RICO violations. See Williams Elec. Games, Inc. v. Barry,
42 F. Supp. 2d 785, 793 (N.D. Ill. 1999). Further, as the Williams court points out, if the Court
read D&S as a blanket rejection of vicarious liability, the outcome would overrule the Seventh
Cireuit’s decision in Liquid Air decided only two months earlier which stated that vicarious
liability is entirely appropriate under subsections (a) and (b) of the RICO statute when the
corporation benefits from its employee’s alleged RICO violations. See Williams, 42 F. Supp. 2d
at 793.

Although Plaintiff properly alleges that Defendant National is a distinct entity from the
RICO enterprise for the purposes of §1962(c), courts have suggested that imposing vicarious
liability is still inconsistent with the congressional intent behind this subsection when the
corporation has no knowledge of the criminal behavior of its agents or employees. In Aspacher v.
Kretz, 1997 U.S. Dist. LEXIS 8000, *31-32 (N.D. Ill. June 5, 1997), the court noted that
vicarious liability is not applicable to a non-enterprise corporation, such as National, unless the
corporation is a central figure in the scheme. See also Ash v. Wallenmeyer, 1986 U.S. Dist.
LEXIS 20260, *6 (N.D. Ill. Sept. 18, 1986) (holding that there must be some inference that the
corporation consented or took part in the racketeering activity to be held liable under §1962(c));
Nystrom y, Assoc. Plastic Fabricators, Inc., Profit-Sharing and Savings Plans and Trust, No. 98
C 134, 98 C 4282, 1999 WL 417848 (N.D. Ill. June 18, 1999) (stating that a corporation only
becomes vicariously liable for the intentional acts of its agents under §1962(c) where it is the
aggressor or central figure in the alleged criminal activity). The Court agrees with the reasoning
of these courts.

Plaintiff relies on Ashland Oil and Williams for the proposition that a non-enterprise


finally delivered Plaintiff's household goods to her home in Salem. (Jd. at § 77.)
LEGAL STANDARDS

A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of a complaint, not the
merits of the case. Triad Assoc., Inc. y. Chicago Hous. Auth., 892 F.2d 583, 586 (7" Cir. 1989).
When considering a motion to dismiss, a court must accept all factual allegations as true and
draw all reasonable inferences in the plaintiff's favor. Schuer v. Rhodes, 416 U.S. 232, 236, 40
L. Ed. 2d 90, 94 S. Ct. (1983). A motion to dismiss should not be granted unless it appears
beyond doubt that no set of facts would entitle the plaintiff to relief. Hernandez v. City of
Goshen, 324 F.3d 656, 658 (7" Cir. 2002).

ANALYSIS

Plaintiff has admitted that she only seeks to impose liability on National for her §1962(c)
RICO claims under the doctrine of vicarious liability. National makes three arguments in support
of its motion to dismiss the RICO claims. First, National argues that Plaintiff failed to state a
RICO claim against Defendants Apex and Schiesser because she did not allege that they engaged
in a pattern of racketeering as required under the RICO statute. Accordingly, National asserts
that to hold a corporation vicariously liable for only one predicate act committed by an agent is
contrary to RICO requirements. Second, National contends that 49 U.S.C. §13907 does not
provide a basis to attribute RICO liability to a principal carrier. Lastly, National argues that
vicarious liability is inapplicable under §1962(c) of the RICO statute and that Plaintiff also fails
to state a claim under §1962 (a) and (b) because National did not benefit from the corrupt acts of
Defendants Schiesser and Apex.

Plaintiff's argument is twofold. First Plaintiff asserts that because National is vicariously


pattern of racketeering, as mandated by §1962(c) of the RICO statute, Plaintiff subsequently
filed a motion to reconsider or clarify portions of the Court’s May 20, 2004 Order. The Court
granted Plaintiff's motion in part, reinstating Counts VII and VIII against Defendants Schiesser
and Apex. The Court also decided to assess the original arguments made by Defendant National
that Plaintiff may not rely on the doctrine of vicarious liability to properly state a RICO claim
against National. For the reasons stated below, Plaintiff's RICO claim cannot reach Defendant
National through vicarious liability. Thus, Counts VI and VI of Plaintiff's first amended
complaint against National are dismissed.

BACKGROUND

The allegations in this case are set forth in detail in the Court’s prior opinion. See
Schwarz v. National Van Lines, Inc., No. 03 C 7096, 2004 WL 1166632 (N.D. Ill. May 21,
2004). The Court assumes the readers’ familiarity with them and will not repeat them here.

In early December, 2000, Plaintiff Sofia Schwarz hired National Van Lines, Inc., to
transport her household goods from Scottsdale, Arizona to Salem. (Jd. at 4.11.) National hired
its agents Dwayne Schiesser and Apex Relocation Services to ship Plaintiff's goods interstate.
(id, at $20.) On January 10, the scheduled delivery date, Schiesser failed to appear in Oregon
with Plaintiff's goods and subsequently disappeared. (/d. at § 39.)

On March 18, 2001, a third party contacted Plaintiff’s sister and informed her that
Plaintiff's goods appeared to be stored in a garage in Texas. (Jd. at 461.) On April 6, 2001,
Plaintiff traveled to Texas to retrieve her stolen property. (/d. at §73.) Upon inspection of her
goods, Plaintiff noted damages to electronic equipment, discovered many of her items missing,

and also found items belonging to other shippers. (/d. at 74.) On April 22, 2001, National


wy

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

SOFIA SCHWARZ, )

)

Plaintiff, )

)

v. ) No. 03 C 7096

)

NATIONAL VAN LINES, INC., )

DWAYNE SCHIESSER, and )

APEX RELOCATION SPECIALISTS, INC., )
DOCKETED

Defendants. }

JUL 0 2 2004
MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Court Judge:

Plaintiff, Sofia Schwarz, filed an eight-count amended complaint against Defendants
National Van Lines, Inc. (“National”), Dwayne Schiesser, and Apex Relocation Specialists, Inc.
(“Apex”) alleging breach of contract by National under 49 U.S.C. §14706 (the “Carmack
Amendments”) (Count I), conversion by National (Count II), intentional infliction of emotional
distress by National (Count III), negligent infliction of emotional distress by National (Count IV),
breach of the implied covenant of good faith and fair dealing by National (Count V), constructive
fraud based on breach of fiduciary duty by National (Count VJ), and claims against Schiesser and
Apex under Section 1961 of the Racketeer Influenced and Corrupt Organizations Act (“RICO”)
(Counts VII and VIII). Defendant National moved to dismiss all eight counts of Plaintiff's
amended complaint pursuant to Fed. R. Civ, P. 12(b)(6). Defendant National’s 12(b)(6) motion
to dismiss was denied in part and granted in part, dismissing Counts II, V, and VI of Plaintiff's
amended complaint, This Court also dismissed Counts VII and VIII of Plaintiff's complaint

without prejudice because Plaintiff failed to allege that National engaged or participated in a

2