United States District Court, Northern District of Illinois, E.D
February 2, 1983
SATYA P. KAUSHAL, ET AL., PLAINTIFFS,
STATE BANK OF INDIA, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Satya Kaushal ("Kaushal"), Vinod Kaushal and Raja
Enterprises, Inc. and its subsidiaries (collectively "Raja
Companies") have sued the State Bank of India ("SBI"), several
of its officers and employees and several other individual and
corporate defendants for treble damages and injunctive relief
under 18 U.S.C. § 1964(c) ("Private RICO" or, consistently with
the manner in which all other sections of Title 18 are cited in
this opinion, "Section 1964(c)").*fn1 Plaintiffs have also
asserted pendent state law claims for damages and injunctive
relief. SBI and its officers and employees*fn2 have moved to
dismiss under Rule 12(b)(1).*fn3 For the reasons stated in
this memorandum opinion and order, defendants' motion is
granted in part and denied in part.
For a number of years before May 1981, SBI had an extensive
business relationship with Patson Enterprises, Inc. and its
affiliated corporations (collectively "Patson Companies").
During that time SBI officers N.G. Pallai ("Pallai") and
Annada Kumar ("Kumar") had close business and personal
relationships with Naren Soni ("Soni"), Patson Companies'
By late 1979 or early 1980 SBI had more than $2 million in
loans outstanding to Patson Companies. Pallai, Kumar and Soni
knew (1) Patson Companies could not repay those loans to SBI,
(2) Soni was personally liable to SBI on the loans and (3) SBI
officials in Bombay would judge unfavorably the performance of
Pallai and Kumar in making the loans to Patson Companies.
Pallai, Kumar and Soni conceived and executed a scheme to
defraud plaintiffs by conducting and operating SBI and Patson
Companies by a pattern of racketeering activities, including
numerous uses of the United States mails in violation of
Section 1341. Acting to benefit themselves, SBI and Patson
Companies, they presented Kaushal with false financial
that intentionally overstated the assets and understated the
liabilities of Patson Companies by more than $700,000. Thereby
the three induced Kaushal to organize Raja Companies and
through those companies, in May 1981, to purchase the assets
and to assume the liabilities of Patson Companies (including
the debt to SBI). With the participation of at least five
other SBI employees,*fn5 the three also used the mails to
induce Kaushal and his wife Vinod Kaushal to guarantee the
Raja debts personally, securing the debts with their personal
It was also part of the scheme that, as plaintiffs began
discovering the fraud, SBI would seize by foreclosure the one
solvent business in the Raja group, the Khyber India
Restaurant (the "Restaurant") and sell it to Chatwal Hotels &
Restaurants, Inc. ("Chatwal Corp.") and its principal, Sant
Chatwal ("Chatwal"), an important SBI customer in New York.
This aspect of the proposed scheme (not yet implemented) has
been conducted by seven persons*fn6 and also involved
numerous violations of Section 1341.
Scope of Private RICO
Private RICO, part of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), Sections 1961-68, reads:
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.
Section 1962 in turn specifies the activities prohibited under
RICO. Private RICO thus creates a private right of action tied
by its very terms to the proscription of certain criminal
As RICO's very name suggests, and as United States v.
Turkette, 452 U.S. 576, 591, 101 S.Ct. 2524, 2532, 69 L.Ed.2d
246 (1981) teaches, "the major purpose of [RICO] is to address
the infiltration of legitimate business by organized crime."
From this fact defendants argue (Dec. 8 Mem. 5-10) the present
action falls outside the spirit (if not the letter) of RICO
because there are no allegations defendants are in any way
connected with organized crime.
Most courts have an understandable intuitive reaction that
Private RICO was not intended — and should therefore not be
construed — to sweep up the entire universe of common law
fraud. Perhaps for that very reason, defendants' argument has
met with some success in the courts. See Bennett v. Berg,
685 F.2d 1053, 1063 (8th Cir. 1982) (citing cases), rehearing en
banc, Jan. 12, 1983. But the weight of both judicial and
scholarly authority is properly against employing such
reasoning. See id. at 1063-64. In the criminal context our own
Court of Appeals has held RICO does not require proof a
defendant is connected with organized crime. United States v.
Aleman, 609 F.2d 298, 303-04 (7th Cir. 1979), cert. denied,
445 U.S. 946, 100 S.Ct. 1345, 63 L.Ed.2d 780 (1980). It should also
follow that a cause of action under Private RICO, predicated on
violations of Section 1962, would lie though there is no
allegation defendants are involved with organized crime or
Although it too rejects that entirely unfounded limitation
on Private RICO, this Court has expressed its own concern lest
Section 1964(c) become a vehicle for asserting "garden variety
fraud claims" in federal court. Parnes v. Heinold Commodities,
Inc., 548 F. Supp. 20, 23 (N.D.Ill. 1982); see also Fields v.
National Republic Bank of Chicago, 546 F. Supp. 123, 124-25
(N.D.Ill. 1982); Salisbury v. Chapman, 527 F. Supp. 577, 579-81
& nn. 2-6 (N.D.Ill. 1981). However, this Court has not
permitted that concern
to override reasoned statutory construction. Instead the
analysis it has employed avoids both potential vices: (1)
judicial emasculation of the broad language Congress actually
used in RICO (see Parnes, 548 F. Supp. at 22-23) and (2)
illegitimate transformation of common law fraud claims into
federal claims by use of the RICO mold (see Fields, 546 F. Supp.
Section 1962 sets out three basic patterns of prohibited
activities and a related conspiracy provision:
(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
debt in which such person has participated as a
principal . . . 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. . . .
(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
(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
(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.
Those patterns do sweep broadly, especially given the
expansive definitions of "racketeering activity," "person,"
"enterprise" and "pattern of racketeering activity" in
Sections 1961(1) and 1961(3)-(5) ("Section 1961").
Nevertheless it is against those patterns that Private RICO
claims must be tested. Strict adherence to Congress' language
will sustain only claims meeting Congress' own tests. Such an
approach ("strict constructionism," if you will) both accepts
the breadth of Congress' language and honors the limits of
Congress' provision of a federal cause of action.
In other words, a defendant should face Private RICO
liability only if alleged to have assimilated himself by his
own conduct to the patterns of conduct Congress
proscribed.*fn7 Plaintiffs' Complaint will be measured by
Count I: Private RICO Damages
Section 1964(c) grants a damages remedy to those injured "by
reason of a violation of section 1962." It is only logical to
couple such "violation" with the law violator under Section
1962: the "person" whose activity is labeled as "unlawful" in
that section. See Parnes, 548 F. Supp. at 23-24.*fn8 Thus the
proper question is whether the Complaint sufficiently alleges
facts that, if true, would place defendants in violation of
Plaintiffs have focused on Section 1962(c). That section's
violation requires (Parnes, 548 F. Supp. at 23):
(1) two parties, a "person" employed by or
associated with an "enterprise"; and
(2) participation by the "person" in the
conduct of the "enterprise" via a "pattern of
Certainly the Complaint's allegations are sufficient to place
SBI, Pallai, Kumar and Soni in violation of Section 1962(c)
or, in other words, to identify them as potentially liable
Private RICO "persons."*fn10
Complaint ¶ 17 alleges Soni, Pallai and Kumar, the latter two
acting of course as SBI officers and for SBI's benefit (id. ¶
18), conducted and operated Patson Companies, "enterprises"
allegedly engaged in interstate commerce (id. ¶ 8), by a
pattern of "racketeering activity" (numerous acts of mail fraud
aimed at Kaushal). Thus those allegations have set out four
RICO "persons," a RICO "enterprise," the character of their
"association,"*fn11 and the unlawful acts that are predicates
for RICO liability. See Section 1961(1)(B) (including mail
fraud in list of "racketeering activity") and Section 1961(5)
(defining "pattern" as at least two acts of racketeering
activity within a specified time frame).*fn12
No allegations tie the other SBI officers to actual
participation (direct or indirect) in the conduct of Patson
Companies' affairs. Complaint ¶ 19 says C. Gupta, Angle, Deepa,
Sadasivan and Sridhran participated in causing Kaushal and his
wife to guarantee the Raja Companies' loans from SBI, but there
is no indication this aspect of the alleged scheme involved
Patson Companies at all. Similarly Complaint ¶ 20 says
Sadasivan, Sridhran, B. Gupta and Padnaban participated in
SBI's plan to reclaim the Restaurant, but here too no
involvement with Patson Companies is indicated.
Moreover, there is no allegation those seven SBI officials
conspired to conduct Patson Companies' affairs through
racketeering activities, as contrasted with conspiring in the
plans to obtain the loan guaranties and to reclaim the
Restaurant. Thus Section 1962(d) is not available to connect
those seven to the SBI-Pallai-Kumar-Soni violation of Section
That is not the end of the Private RICO story, however. It
is surely conceptually possible for two RICO "enterprises" to
have been involved here — not only Patson Companies but SBI
itself. From the latter perspective, shifting SBI
chameleon-like from "person" to "enterprise," the same analysis
would involve those seven officers*fn13 as "persons" engaged
in the "conduct of
[SBI's] affairs through a pattern of racketeering
activity . . .": obtaining the loan guaranties and planning
reclamation of the Restaurant through Section 1341 violations.
Accordingly Count I stands not only against the
SBI-Pallai-Kumar-Soni group but against the seven SBI officers
as well.*fn14 Only Sharma among the SBI cast of characters is
Count H: Private Equitable Relief under RICO
Complaint Count II seeks to block SBI's sale of the
Restaurant and to divest defendants of any interest they have
acquired in the Restaurant. That prayer for broad equitable
relief under RICO forces consideration of the threshold
question whether Section 1964 makes equitable remedies
available to Private RICO plaintiffs. In turn that "difficult
question"*fn15 involves complex issues of statutory
construction and legislative intent that, so far as this Court
is aware, have not been fully explored by any court.*fn16
Section 1964 provides (although quoted earlier, Private RICO
is repeated for ease of comparison and analysis):
(a) The district courts of the United States
shall have jurisdiction to prevent and restrain
violations of section 1962 of this chapter by
issuing appropriate orders, including, but not
limited to: ordering any person to divest himself
of any interest, direct or indirect, in any
enterprise; imposing reasonable restrictions on
the future activities or investments of any
person, including, but not limited to,
prohibiting any person from engaging in the same
type of endeavor as the enterprise engaged in,
the activities of which affect interstate or
foreign commerce; or ordering dissolution or
reorganization of any enterprise, making due
provision for the rights of innocent persons.
(b) The Attorney General may institute
proceedings under this section. In any action
brought by the United States under this section,
the court shall proceed as soon as practicable to
the hearing and determination thereof. Pending
final determination thereof, the court may at any
time enter such restraining orders or
prohibitions, or take such other actions,
including the acceptance of satisfactory
performance bonds, as it shall deem proper.
(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
(d) A final judgment or decree rendered in favor
of the United States in any criminal proceeding
brought by the United States under this chapter
shall estop the defendant from denying the
essential allegations of the criminal offense in
any subsequent civil proceeding brought by the
No clear indication is given by the statute itself as to how
the express grant of a private damages remedy in Private RICO
is related to the broad grant of courts' equitable
"jurisdiction" in Section 1964(a).
Two commentators have asserted the use of "and [shall]"
(instead of "to") before the treble-damages recovery clause in
Private RICO implies the private damages remedy is in addition
to other equitable remedies. Blakey and Gettings, Racketeer
Influenced and Corrupt Organizations (RICO): Basic Concepts —
Criminal and Civil Remedies, 53 Temple L.Q. 1009, 1038 & n. 133
(1980) ("Basic Concepts").*fn17 This Court finds that
reading bizarre and wholly unconvincing as a matter of plain
English and the normal use of language.*fn18 Moreover, even
were the word "and" so unexpectedly pregnant with meaning (as
it is not), the commentators' argument would not explain why
the "implied" equitable remedies would encompass those listed
in Section 1964(a), including divestiture. Section 1964(a) by
its terms confers "jurisdiction" on the federal courts but
speaks neither of a "cause of action" nor of "relief." As Davis
v. Passman, 442 U.S. 228, 99 S.Ct. 2264, 60 L.Ed.2d 846 (1979)
teaches, those concepts are distinct, and confirmation of court
jurisdiction does not in itself indicate who may invoke the
court's power or what remedies are available to him.*fn19]
Section 1964(c) certainly in terms grants only a private
treble-damages remedy. True, it does not expressly say "only"
the damages remedy is granted,*fn20 and Section 1964(a) does
not say "only" the government may seek its illustrative
equitable remedies. See Strafer, Massumi and Skolnick, Civil
RICO in the Public Interest: "Everybody's Darling," 19
Amer.Crim.L.Rev. 655, 710 (1982)
("Public Interest"). But the fair reading of the statute is its
literal one — that Section 1964(b) defines who "may institute
proceedings under this section ": the Attorney General.
At most the statute is arguably ambiguous.
To the extent the statute may be viewed as ambiguous, this
Court must turn to the legislative history to divine
legislative intent. In this instance, as in many others, the
legislative history is not precise. On the whole, however,
that history strongly indicates Congress did not intend to
grant private RICO plaintiffs equitable remedies in addition
to the legal remedy provided in Section 1964(c). That
conclusion is compelled if this Court follows, as it must,
applicable Supreme Court guidelines.
RICO began as a Senate bill, S.30, 91st Cong., 1st Sess.
(1969). As reported by the Senate Judiciary Committee S.30
§ 1964 did not contain a private right of action provision at
all, and the committee report therefore discussed only civil
RICO actions by the United States. S.Rep. No. 617, 91st Cong.
1st Sess. 24, 34, 80-83, 160 (1969).*fn21 Some nine months
later, when S.30 was reported as amended by the House Judiciary
Committee, a private treble damages remedy had been added to
its Section 1964. H.R.Rep. No. 1549, 91st Cong., 2d Sess.,
reprinted in 1970 U.S.Code Cong. & Ad. News 4007, 4010, 4034.
Thus the private damages remedy was engrafted onto a statutory
scheme that had been complete on its own terms (with Section
1964(a) conferring jurisdiction and Section 1964(b) defining
who could invoke it).
Two inferences may logically be drawn from the legislative
history (both the statutory structure and the committee
1. Section 1964(c) is quite independent of
2. Section 1964(a)'s provisions spell out the
governmental equitable remedies available under
Section 1964(b), not the private remedy available
under Section 1964(c).
Additionally persuasive is the fact the House Committee's
description of S.30 § 1964(a) follows almost verbatim the
Senate Committee's description of that subsection (without the
slightest hint of any expansion of coverage to parallel the
newly-added private damages remedy). Compare H.R.Rep. No. 1549,
reprinted in 1970 U.S. Code Cong. & Ad.News at 4034, with
S.Rep. No. 617 at 160. The House's repetition of the language
that "the list [of remedies] is not exhaustive," first
expressed by the Senate when only the government could sue at
all, belies the effort by Basic Concepts at 1038 n. 132 to find
in that language the implication of private equitable remedies.
Plainly the House Committee's addition of the private damages
remedy had not altered the public-action thrust of the other
subsections of S.30 § 1964.
Moreover the Senate Committee Report emphasizes the analogy
of Section 1964 to the antitrust laws. S.Rep. No. 617 at
81-82. That general analogy was clearly behind much of
Congress' thinking in enacting the civil RICO provisions.
See Basic Concepts at 1040-43; Public Interest at 688-89, 712.
But by sharp contrast with Section 1964, the antitrust laws
specifically and in terms provide a separate private equity
action in addition to a private treble damages remedy.
15 U.S.C. § 15 and 26.*fn22 Had it so desired, Congress could
have completed the analogy of Private RICO to the antitrust
laws by including a private equitable relief remedy. It did not
do so, contrary to the expressed wishes of certain Congressmen,
see Public Interest at 712 nn. 388-89, and despite the fact
earlier "RICO" proposals had included such private equitable
remedies, id. at 712-13 & nn. 393, 395.
At least two other courts have expressed strong doubts
Section 1964(c) grants private plaintiffs an injunctive
remedy. Dan River (cited at n. 15); Ashland Oil, Inc. v.
Gleave, 540 F. Supp. 81, 85 (W.D.N.Y. 1982). One district court
has entered a preliminary injunction in an action brought in
part under RICO, USACO Coal Co. v. Carbomin Energy, Inc.,
539 F. Supp. 807, 814-16 (W.D.Ky. 1982), but the court did not at
all address the question discussed in this opinion. Indeed, in
affirming the district court the Court of Appeals for the Sixth
Circuit linked the preliminary injunction solely to plaintiffs'
rights to reach defendants' property under the complaint's
state law claim. As the Court of Appeals specifically stated,
689 F.2d 94, 97 (6th Cir. 1982):
The injunction was not issued in order to secure
a RICO treble damages award. . . .
USACO surely does not aid plaintiffs here (in fact it suggests
Section 1964(c) does not authorize creative equitable relief
for Private RICO plaintiffs).
In a forthcoming article Professor Blakey (co-author of
Basic Concepts) returns to his study of Private RICO and
asserts (The RICO Civil Fraud Action in Context: Reflections on
"Bennett v. Berg",  Notre Dame L.Rev. , ):
It is difficult to see how a court could conclude
that RICO does not provide equitable relief for
private parties. . . . Section 1964 ought to be
read as authorizing both governmental and private
suits to obtain equitable relief. To the degree
that any ambiguity might be thought to exist in
the choice of language, the liberal construction
clause and the remedial purpose of the statute
come down on the side of finding private suits to
be authorized and that full relief can be
granted. No satisfactory rationale can be
offered, in short, to explain why a court ought
to feel itself circumscribed in doing full
justice for a victim under RICO.
But what is apparently invisible to the academic eye is
readily discernible by this Court's: For better or worse,
current Supreme Court doctrine sharply limits the implication
of rights of action or remedies where Congress has not
provided them. As Professor Blakey quietly admits, the issue
here is really one of finding a congressional implication
where there is no explicit congressional declaration — and the
Supreme Court's guidelines for directing that judicial
enterprise provide a mandate, not only a "satisfactory
rationale," for not vivifying Professor Blakey's theories.
In Transamerica Mortgage Advisors, Inc. v. Lewis,
444 U.S. 11, 19, 100 S.Ct. 242, 246, 62 L.Ed.2d 146 (1979) the Supreme
[I]t is an elemental canon of statutory
construction that where a statute expressly
provides a particular remedy or remedies, a court
must be chary of reading others into it.
Accord, Touche Ross & Co. v. Redington, 442 U.S. 560
99 S.Ct. 2479, 2486-88, 61 L.Ed.2d 82 (1979). In reaffirming
the same principle in Middlesex County Sewerage Authority v.
National Sea Clammers Ass'n, 453 U.S. 1
, 14-15, 101 S.Ct. 2615,
2623-24, 69 L.Ed.2d 435 (1981), the Supreme Court taught a
court may read additional judicial remedies into "elaborate
[statutory] enforcement provisions" only where "strong indicia
of a contrary congressional intent" negate the implication
"Congress provided precisely the remedies it considered
In the case of Private RICO there are no "strong indicia"
— in the structure of Section 1964, in its legislative
history, in the absence of explicit language of exclusivity in
subsection (c), or in any combination of those elements — of
Congress' intent to infer private equitable remedies under
RICO. In fact the evidence points precisely in the opposite
direction. See Sea Clammers, 453 U.S. at 17-18, 101 S.Ct. at
2624-25. Contrast the circumstance in Herman & MacLean v.
Huddleston, ___ U.S. ___, ___ — ___, 103 S.Ct. 683, 686-92, 74
L.Ed.2d 548 (1983), where the Supreme Court found indications
of a specific congressional intent to cumulate remedies
available under federal securities laws. Count II must be
Count III: State Law Damages
Count III advances a state law fraud claim for compensatory
and punitive damages. Under United Mine Workers v. Gibbs,
383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966) this
Court has the constitutional power to hear nonfederal claims
between federal action parties so long as both federal and
nonfederal claims arise from a "common nucleus of operative
fact." Actual exercise of that power, however, is a matter of
this Court's discretion. Id. at 726, 86 S.Ct. at 1139.
Here the state law fraud claims clearly derive from the same
"nucleus of operative fact" that gives rise to plaintiffs'
RICO damages claims. Moreover the factors involved in the
exercise of this Court's discretion — judicial economy,
convenience and considerations of fairness to litigants (id.)
— all point toward allowing the state fraud claims to be
asserted pendent to plaintiffs' Private RICO damages claims.
Count IV. State Law Injunctive Relief
Complaint Count IV's prayer for relief repeats the prayer
for RICO injunctive relief under Count II. Yet plaintiffs have
identified no state law authority for ordering divestiture of
SBI's security interest in the Restaurant. Indeed Count IV on
the whole (¶ 21) seems aimed at future action by SBI: possible
sale of the Restaurant.
On the latter score, plaintiffs simply assert
(id.), without any supporting facts, "no adequate remedy at law
exists" for their possible loss of the Restaurant. To the
contrary, the Complaint itself confirms damages is an adequate
remedy.*fn23 Although possible availability of legal remedies
may not bar the granting of divestiture or other equitable
remedies to the United States under Section 1964(a), United
States v. Cappetto, 502 F.2d 1351, 1358-59 (7th Cir. 1974),
cert. denied, 420 U.S. 925, 95 S.Ct. 1121, 43 L.Ed.2d 395
(1975), that does not extend to the state equitable claims.
Consequently, on both the divestiture prayer and the prayer for
state law injunctive relief, Count IV as pleaded is
1. Counts I and III are dismissed as to
defendant Sharma, but stand as to all other named
2. Counts II and IV are dismissed in their
By its terms the December 6, 1982 TRO has remained in effect
as to SBI pending issuance of this opinion. Because this Court
has concluded Section 1964(c) does not provide private RICO
plaintiffs equitable remedies, the TRO will be treated as
having expired at 5 p.m. today.*fn24 Moving defendants are
ordered to answer the Complaint on or before February 22,