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.
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.
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