Source: https://law.justia.com/cases/federal/appellate-courts/F2/943/297/86294/
Timestamp: 2019-07-16 00:52:26
Document Index: 521607732

Matched Legal Cases: ['§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1961', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1964', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1961']

R.r. Brittingham, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporation and Mobil Oil Corporation D/b/a Mobilchemical Company, Inc.r.r. Brittingham, Appellant in 90-1989.matthew D. Roazen, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporation, Mobil Oil Corporation D/b/a Mobil Chemical Companymatthew D. Roazen, Appellant in 91-1019.jack Dorf, Individually and on Behalf of All Others Similarly Situated v. Mobil Corporation, Mobil Oil Corporation D/b/a Mobil Chemical Companyjack Dorf, Appellant in 91-1025.beth Dunnington, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporationbeth Dunnington, Appellant in 91-1034.s.a. Poncet-pitkow, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporations.a. Poncet-pitkow, Appellant in 91-1035.leo Geiger, Individually and on Behalf of All Others Similarly Situated v. Mobil Corporation, Mobil Oil Corporation D/b/a Mobilchemical Company, Inc.leo Geiger, Appellant in 91-1041, 943 F.2d 297 (3d Cir. 1991) :: Justia
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R.r. Brittingham, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporation and Mobil Oil Corporation D/b/a Mobilchemical Company, Inc.r.r. Brittingham, Appellant in 90-1989.matthew D. Roazen, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporation, Mobil Oil Corporation D/b/a Mobil Chemical Companymatthew D. Roazen, Appellant in 91-1019.jack Dorf, Individually and on Behalf of All Others Similarly Situated v. Mobil Corporation, Mobil Oil Corporation D/b/a Mobil Chemical Companyjack Dorf, Appellant in 91-1025.beth Dunnington, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporationbeth Dunnington, Appellant in 91-1034.s.a. Poncet-pitkow, Individually and on Behalf of All Otherssimilarly Situated v. Mobil Corporations.a. Poncet-pitkow, Appellant in 91-1035.leo Geiger, Individually and on Behalf of All Others Similarly Situated v. Mobil Corporation, Mobil Oil Corporation D/b/a Mobilchemical Company, Inc.leo Geiger, Appellant in 91-1041, 943 F.2d 297 (3d Cir. 1991)
U.S. Court of Appeals for the Third Circuit - 943 F.2d 297 (3d Cir. 1991)
Argued May 21, 1991. Decided Aug. 23, 1991. As Amended Aug. 30, 1991. Rehearing and Rehearing In Banc Denied Sept. 20, 1991
Defendants filed a motion to dismiss under Fed. R. Civ. P. 12(b) (6). The district court did not rule on that motion, but directed the parties to conduct discovery on the limited issue of whether plaintiffs could demonstrate facts sufficient to sustain the RICO claims. Following this discovery, defendants filed a motion for summary judgment as to the RICO counts. The district court granted this motion and dismissed the remaining counts for lack of subject matter jurisdiction. This appeal followed.
We may affirm the grant of summary judgment only if "after considering the record evidence in the light most favorable to the nonmoving party, no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law." Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990). Our review is plenary. Id.
A § 1962(c) violation requires a finding that the defendant "person" conducted or participated in the affairs of an "enterprise" through a pattern of racketeering activity. In B.F. Hirsch v. Enright Refining Co., Inc., 751 F.2d 628, 633-34 (3d Cir. 1984), we held that the "person" charged with violation of § 1962(c) must be distinct from the "enterprise." In addition to noting that the plain language of the statute provides that the person must be "employed by or associated with"--and therefore separate from--the enterprise, we stated that:
We reaffirmed this holding in Petro-Tech, Inc. v. Western Co. of North America, 824 F.2d 1349 (3d Cir. 1987), where we noted that " § 1962(c) was intended to govern only those instances in which an 'innocent' or 'passive' corporation is victimized by the RICO 'persons,' and either drained of its own money or used as a passive tool to extract money from third parties." Id. at 1359. In Petro-Tech, we extended the Enright rule, holding that a corporate "enterprise" cannot be held vicariously liable for the § 1962(c) violations of its employees, either for aiding and abetting, or under a theory of respondeat superior. We noted that a contrary holding would circumvent the holding in Enright by making the "victim" enterprise liable. We recognized that the enterprise may often benefit from the RICO violations, but noted that a plaintiff may recover only from the actual violators. Id. at n. 11.
In this case, plaintiffs sued Mobil and Mobil Chemical, rather than the individuals who may have committed the alleged fraud on behalf of these corporations. The § 1962(c) enterprise is alleged to be " [t]he association in fact of Mobil and Mobil Chemical, the advertising agencies engaged by them, including, without limitation, Wells, Rich, Greene, Inc., and other agencies which participated in the marketing of Hefty 'Degradable' trash and garbage bags and Kordite and Marketote 'degradable' bags." Complaint at 10-11. Under 18 U.S.C. § 1961(4), an enterprise may consist of a "group of individuals associated in fact although not a legal entity." However, this definition does not affect the separate inquiry into whether the alleged enterprise is distinct from the defendant. Plaintiffs assert that since the "association-in-fact" enterprise is facially distinct from the defendants, the Enright rule is inapplicable. The district court disagreed. It noted that a corporation always acts through its employees and agents, and found that " [a]ccepting plaintiffs' contention would also be akin to 'read [ing] the enterprise requirement out of the statute entirely, whenever a corporate defendant is involved.' " Memorandum Op. at 13 (quoting Gilbert v. Prudential-Bache Sec., Inc., 643 F. Supp. 107, 109 (E.D. Pa. 1986)).
Atlas Pile Driving Co. v. DiCon Financial Co., 886 F.2d 986, 995 (8th Cir. 1989) (upholding enterprise allegation consisting of two non-defendant corporations and three other corporations related to each other, two of which were defendants).
However, individual defendants, in contrast to collective entities, are generally distinct from the enterprise through which they act. Unlike a collective entity, it is unlikely that an individual defendant by himself would constitute a valid enterprise. Cf. United States v. Benny, 786 F.2d 1410, 1415-16 (9th Cir.) (sole proprietorship with four employees is distinct from defendant owner), cert. denied, 479 U.S. 1017, 107 S. Ct. 668, 93 L. Ed. 2d 720 (1986). Thus, distinctiveness concerns are generally not present when an individual defendant is also part of an association-in-fact that constitutes the enterprise. See, e.g., Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989) (upholding claims where individual defendants were named as part of association-in-fact enterprise); United States v. Perholtz, 842 F.2d 343, 353-54 (D.C. Cir.) (same), cert. denied, 488 U.S. 821, 109 S. Ct. 65, 102 L. Ed. 2d 42 (1988). In the example used in Atlas Pile Driving, there is little doubt that the racketeers are distinct from the enterprise.
Plaintiffs rely primarily on a portion of Petro-Tech where we confronted an enterprise allegation consisting of an association-in-fact of the defendant Western corporation and its employees. We held that this allegation was sufficient to survive a motion to dismiss, noting that " [b]ecause Western is alleged to have attempted to benefit from its employees' activity, it is appropriate to allow the victims of that activity to recover." 824 F.2d at 1361. Plaintiffs assert that this language requires us to uphold the claims against the corporate defendants here.
We do not read Petro-Tech as broadly as plaintiffs suggest. Petro-Tech clearly reaffirmed the holding in Enright that a corporate enterprise, even though it may benefit from its employees' § 1962(c) violations, cannot be held liable for those violations. The Petro-Tech court clearly did not intend for plaintiffs to circumvent this rule merely by alleging the enterprise as an association-in-fact consisting of the corporation and the individual employees who acted on its behalf. Rather, Petro-Tech, which involved a motion to dismiss, held only that the allegation at issue was permissible under our liberal pleading requirements. It is theoretically possible for a corporation to take a separate "active" role in RICO violations also committed by its employees. The corporation would not be the passive victim of racketeering activity, but the active perpetrator. See also Rose v. Bartle, 871 F.2d 331, 359 (3d Cir. 1989) (entity can be "person" with respect to some racketeering acts and "enterprise" with respect to others). We decline at this time to speculate on the precise circumstances that might give rise to such a claim.
Moreover, the Petro-Tech court recognized that claims will not always survive a motion to dismiss even when the defendant is facially distinct from the alleged enterprise. Even under the standards of Rule 12(b) (6), we upheld the dismissal of claims against Western when a Western subsidiary was named alternatively as the enterprise. See 824 F.2d at 1358-60 (dismissing vicarious liability claims against Western although Western Petroleum Services named alternatively as enterprise). Without additional allegations, therefore, a subsidiary corporation cannot constitute the enterprise through which a defendant parent corporation conducts racketeering activity. Thus, Petro-Tech recognizes that in limited circumstances claims against a corporate defendant may survive a motion to dismiss even though the enterprise is an association-in-fact including the defendant, but that claims will be dismissed when the enterprise and defendant, although facially distinct, are in reality no different from each other.3
Unlike § 1962(c), there is no requirement that a § 1962(a) defendant be distinct from the enterprise. Petro-Tech, 824 F.2d at 1360. Section 1962(a) does not contain any language requiring that the defendant be associated with or employed by the enterprise. However, § 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 in the enterprise. Rose v. Bartle, 871 F.2d 331, 358 (3d Cir. 1989). Under § 1962(c), there is no such limitation. A plaintiff may recover under that provision for any injuries suffered as a result of a defendant's racketeering activity. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 493-500, 105 S. Ct. 3275, 3283-3287, 87 L. Ed. 2d 346 (1985).
We agree with the district court that these allegations are insufficient to establish use or investment injury, and note that most other district courts have reached similar conclusions.4 Particularly on a motion for summary judgment, mere recitals of injury due to use or investment will not suffice. A plaintiff must allege and prove more than a remote connection between the use or investment of racketeering income and the injury suffered. Although characterized as a rule of standing, see Rose, 871 F.2d at 357 n. 40, the use or investment injury requirement involves questions of causation. A civil RICO plaintiff may recover only if injured "by reason of" a § 1962 violation. 18 U.S.C. § 1964(c) (1988). A § 1962(a) violation occurs not when the defendant engages in the predicate acts, but only when he uses or invests the proceeds of that activity in an enterprise. Consequently, to recover under § 1962(a), the plaintiff must demonstrate that his injuries were proximately caused by that violation. Courts have similarly imposed a proximate cause requirement for § 1962(c) claims, although a plaintiff may recover under that section for injury caused by the predicate acts themselves. See O'Malley v. O'Neill, 887 F.2d 1557, 1561 (11th Cir. 1989), cert. denied, --- U.S. ----, 110 S. Ct. 2620, 110 L. Ed. 2d 641 (1990); Zervas v. Faulkner, 861 F.2d 823, 834-35 (5th Cir. 1988); Brandenburg v. Seidel, 859 F.2d 1179, 1189 (4th Cir. 1988); Sperber v. Boesky, 849 F.2d 60, 64-65 (2d Cir. 1988); Haroco, Inc. v. American Nat'l Bank and Trust Co., 747 F.2d 384, 398 (7th Cir. 1984), aff'd, 473 U.S. 606, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985) (per curiam). See generally Note, After Sedima: The Lower Courts' Use of Proximate Cause as a Limitation on Civil RICO, 16 Del.J.Corp.L. 607 (1991).
Following traditional concepts of causation, we believe § 1962(a) requires the plaintiff to demonstrate that the use or investment of racketeering income was a "substantial factor" in causing the injury. As the Court of Appeals for the Second Circuit has held in connection with the § 1962(c) standing requirement, "the RICO pattern or acts proximately cause a plaintiff's injury if they are a substantial factor in the sequence of responsible causation, and if the injury is reasonably foreseeable or anticipated as a natural consequence." Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 23-24 (2d Cir. 1990). We believe the evidence is insufficient to create a material issue of fact as to whether defendants' use or investment of racketeering income was a substantial factor in causing plaintiffs to pay higher prices for the degradable bags. The causal connection is tenuous at best. The direct cause of plaintiffs' alleged injuries was the fraudulent conduct. Plaintiffs have neither alleged nor demonstrated a connection with the use or investment of racketeering income other than the normal reinvestment of corporate profits.
If this remote connection were to suffice, the use-or-investment injury requirement would be almost completely eviscerated when the alleged pattern of racketeering is committed on behalf of a corporation. RICO's pattern requirement generally requires long-term continuing criminal conduct. See H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989). Over the long term, corporations generally reinvest their profits, regardless of the source. Consequently, almost every racketeering act by a corporation will have some connection to the proceeds of a previous act. Section 1962(c) is the proper avenue to redress injuries caused by the racketeering acts themselves. If plaintiffs' reinvestment injury concept were accepted, almost every pattern of racketeering activity by a corporation would be actionable under § 1962(a), and the distinction between § 1962(a) and § 1962(c) would become meaningless.
See, e.g., Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 883 F.2d 132, 139-141 (D.C. Cir. 1989) (enterprise alleged as association of defendant union with its business agent and trustee), adopted on reh'g, 913 F.2d 948, 951 (D.C. Cir. 1990) (en banc), cert. denied, --- U.S. ----, 111 S. Ct. 2839, 115 L. Ed. 2d 1007 (1991); Old Time Enters., Inc. v. International Coffee Corp., 862 F.2d 1213, 1217 (5th Cir. 1989) (association of officers or employees conducting business of corporation is not distinct from corporation); Odishelidze v. Aetna Life & Casualty Co., 853 F.2d 21, 23-24 (1st Cir. 1988) (enterprise alleged as association of defendant insurance company, its subsidiaries, and employees); NCNB Nat'l Bank v. Tiller, 814 F.2d 931, 936 (4th Cir. 1987) (parent of defendant bank), overruled on other grounds, Busby v. Crown Supply, Inc., 896 F.2d 833, 840-42 (4th Cir. 1990) (in banc); Atkinson v. Anadarko Bank and Trust Co., 808 F.2d 438, 440-41 (5th Cir. 1987) (association of defendant bank, its holding company, and employees), cert. denied, 483 U.S. 1032, 107 S. Ct. 3276, 97 L. Ed. 2d 780 (1987); United States v. Computer Sciences Corp., 689 F.2d 1181, 1290-92 (4th Cir. 1982) (unincorporated division of defendant corporation), overruled on other grounds, Busby v. Crown Supply, Inc., 896 F.2d 833, 840-42 (4th Cir. 1990) (in banc); Moffatt Enters., Inc. v. Borden, Inc., 763 F. Supp. 143, 149 (W.D. Pa. 1990) (association of defendant company, its employees, and advertising agency); Newfield v. Shearson Lehman Bros., 699 F. Supp. 1124, 1127 (E.D. Pa. 1988) (association of defendant company and two employees); Hanline v. Sinclair Global Brokerage Corp., 652 F. Supp. 1457, 1462 (W.D. Mo. 1987) (association of defendant corporation and three employees); Gilbert v. Prudential-Bache Sec., Inc., 643 F. Supp. 107, 109 (E.D. Pa. 1986) (association of defendant brokerage firm and its branches); Tarasi v. Dravo Corp., 613 F. Supp. 1235, 1236-37 (W.D. Pa. 1985) (association of defendant corporation and its agent)
Plaintiffs also rely on Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162 (3d Cir. 1989), where the alleged enterprise consisted of an association-in-fact of three related corporate defendants. In that case, we noted that plaintiff satisfied § 1961(4) by pleading that the three companies had associated to form an enterprise. Id. at 1166. However, we did not discuss the distinctiveness requirement
See, e.g., Princeton Economics Group, Inc. v. American Telephone & Telegraph Co., 768 F. Supp. 1101, 1106-07, (D.N.J. 1991); Uniroyal Goodrich Tire Co. v. Munnis, Nos. 89-2690, 89-4584, 1990 WL 45367 at * 3 (E.D. Pa., Apr. 12, 1990); Williamson v. Simon & Schuster, 735 F. Supp. 565, 568 (S.D.N.Y. 1990); Teti v. U.S. Healthcare, Inc., Nos. 88-9808, 88-9822, 1989 WL 157090 at * 1 (E.D. Pa. Nov. 21, 1989), aff'd mem., 904 F.2d 696 (3d Cir. 1990); Curley v. Cumberland Farms Dairy, Inc., 728 F. Supp. 1123, 1139 (D.N.J. 1989); Vista Co. v. Columbia Pictures Indus., Inc., 725 F. Supp. 1286, 1299-1300 (S.D.N.Y. 1989); Penn v. Alamo Rent-A-Car, Inc., 725 F. Supp. 1339, 1342-43 (E.D. Pa. 1989); Grove Fresh Distributors, Inc. v. Flavor Fresh Foods, Inc., 720 F. Supp. 714, 716-17 (N.D. Ill. 1989); Blue Line Coal Co. v. Equibank, No. 87-6150, 1989 WL 63203 at * 2 (E.D. Pa. June 12, 1989); Palumbo v. I.M. Simon & Co., 701 F. Supp. 1407, 1411 (N.D. Ill. 1988); Galerie Furstenberg v. Coffaro, 697 F. Supp. 1282, 1288-89 (S.D.N.Y. 1988); In re Rexplore, Inc. Sec. Litig., 685 F. Supp. 1132, 1141-42 (N.D. Cal. 1988); DeMuro v. E.F. Hutton, 643 F. Supp. 63, 67 (S.D.N.Y. 1986). Plaintiffs have cited to contrary authority, which we do not find persuasive. See Westinghouse Elec. Corp. v. Carolina Power & Light Co., Nos. 89-826, 89-1383, RICO Bus. Disp. Guide p 7494 at 10,455, 1990 WL 107428 at * 14 (W.D. Pa. May 2, 1990); Bauder v. Ralston Purina Co., No. 89-6513, RICO Bus. Disp. Guide p 7600 at 10,909, 1989 WL 143283 at * 3-4 (E.D. Pa. Nov. 22, 1989); Long Island Lighting Co. v. General Elec. Co., 712 F. Supp. 292, 297 (E.D.N.Y. 1989); King v. E.F. Hutton & Co., No. 86-0211, RICO Bus. Disp. Guide p 6578 at 6840, 1987 WL 8733 at * 10 (D.D.C. Mar. 13, 1987). See also Blue Cross v. Nardone, 680 F. Supp. 195, 198 (W.D. Pa. 1988)