However, a short-form merger between Wabash and Kearney was by no
means inevitable; it could not have occurred until Kearney
acquired at least 95% of the Wabash stock. Moreover, this
argument ignores the fact that Swanson has alleged an illegal
arrangement to purchase stock independent of any delay in
carrying out the merger.
In short, we find each of the defendants' arguments concerning
the alleged violations of Rule 10b-13 unpersuasive. Accordingly,
the motion to dismiss Count II of the complaint is denied.
Swanson alleges in Counts VI, VII and VIII of her complaint
that the defendants have violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968. The
civil damage provision of RICO, Section 1964(c), creates a
private right of action with treble damage recovery for "[a]ny
person injured in his business or property by reason of a
violation of [Section 1962]." Section 1962 makes it unlawful for
any person (a) to invest income derived from a "pattern of
racketeering activity" in an enterprise engaged in, or whose
activities affect, interstate commerce; (b) to maintain or
acquire an interest, through a "pattern of racketeering
activity," in an enterprise engaged in or whose activities affect
interstate commerce; (c) to conduct the affairs of an enterprise
that is engaged in, or whose activities affect, interstate
commerce through a "pattern of racketeering activity"; or (d) to
conspire to commit any of these first three violations. A
"pattern of racketeering activity" is defined in Section 1961 as
at least two occurrences within ten years of any of several
predicate offenses, including mail fraud, bribery and fraud in
the sale of securities.
The defendants argue that Swanson has failed to state claims
under RICO for two reasons. First, they contend that the RICO
claims are defective because they do not allege the involvement
of "organized crime." Second, the defendants maintain that
Swanson is required to allege injury resulting from the operation
of an enterprise through racketeering activity, rather than
merely alleging injury caused by the predicate offenses
themselves. However, the Seventh Circuit Court of Appeals has
recently considered — and rejected — both of these arguments. The
defendants' motion to dismiss the RICO claims must therefore be
The defendants' first argument requires little discussion. It
is clear that Congress intended RICO to serve primarily as a
weapon in the fight against organized crime.*fn15 Nevertheless,
Congress did not limit the scope of RICO to persons connected
with organized crime; it focused instead on particular activities
and provided remedies against any persons engaging in them. Thus,
on its face the statute does not require any association between
RICO defendants and organized crime. The Court of Appeals for the
Seventh Circuit has repeatedly refused to add such a requirement.
United States v. Aleman, 609 F.2d 298, 303-304 (7th Cir. 1979),
cert. denied, 445 U.S. 946, 100 S.Ct. 1345, 63 L.Ed.2d 780
(1980); Schacht v. Brown, 711 F.2d 1343, 1356 (7th Cir. 1983),
cert. denied, ___ U.S. ___, 104 S.Ct. 509, 78 L.Ed.2d 698 (1983).
In its most recent opinion relating to RICO, the Seventh Circuit
labeled the argument that the statute requires some connection
with organized crime as "specious." Bunker Ramo Corp. v. United
Business Forms, Inc., 713 F.2d 1272, 1287 n. 6 (7th Cir. 1983).
The defendants' second argument cannot be stated so succinctly.
They assert that Swanson must allege a "racketeering enterprise
injury" — some injury above and beyond that caused by the
predicate acts which constitute the "racketeering activity." In
support of their assertion, the defendants point to the decisions
of several federal district courts as well as that of the Seventh
Circuit in Schacht v. Brown, 711 F.2d 1343 (7th Cir. 1983), cert.
denied, ___ U.S. ___, 104 S.Ct. 509, 78 L.Ed.2d ___ (1983).
However, Schacht actually controverts the defendants' position.
The defendants in Schacht made two similar, if not identical,
arguments which are relevant to this case. First, the defendants
claimed that the plaintiff must allege some "competitive" or
"indirect" injury to state a RICO claim. Id. at 1356. Second, the
defendants made the same assertion that we are now considering:
that the plaintiff must plead injury by reason of the operation
of an enterprise through the underlying pattern of racketeering,
not by reason of the predicate offense itself. Id. at 1358. The
Seventh Circuit did not expressly recognize the strong similarity
of these two claims. Rather, the Court discussed the claims in
separate sections of its opinion, rejecting the former argument
and determining that it need not reach the latter one. However,
in its discussion of the defendants' first argument (concerning
competitive or indirect injury) the Court also rejected, at least
implicitly, the racketeering enterprise injury claim.
The Court in Schacht noted that some district courts have
sought to limit RICO's private right of action by requiring an
allegation of competitive or indirect injury.*fn16 The Seventh
Circuit, however, rejected this "crabbed interpretation" of RICO,
because it neither agrees with the plain language of the statute
nor fulfills the purposes of RICO or the Congressional intent.
Id. at 1357, 1358. The Court also pointed out that the majority
of courts and commentators have rejected a competitive injury
requirement. Id. at 1357.
Many of the courts and commentators cited by the Seventh
Circuit have also discussed — and rejected — the argument that a
RICO plaintiff must allege a racketeering enterprise injury.
Indeed, several of these authorities have considered the
competitive injury and racketeering enterprise injury arguments
to be essentially the same. See, e.g., Strafer, Massumi &
Skolnick, Civil RICO in the Public Interest: "Everybody's
Darling", 19 Am.Crim.L.Rev. 655, 707 (1982) (the racketeering
enterprise injury argument is "a more elaborate version" of the
competitive injury limitation); Note, Civil RICO: The Temptation
and Impropriety of Judicial Restriction, 95 Harv.L.Rev. 1101,
1110 n. 51 (1982) (the two requirements are "hard to
distinguish," even given one court's explanation of how they
differ). One of the four cases which the Schacht Court criticized
for accepting the competitive injury argument treated the ideas
of "competitive injury" and "racketeering enterprise injury"
interchangeably, while another did not even refer to "competitive
injury" but spoke in terms of requiring injury other than from
the predicate acts of racketeering. North Barrington Development,
Inc. v. Fanslow, 547 F. Supp. 207 (N.D.Ill. 1980); Erlbaum v.
Erlbaum, [Current] Fed.Sec.L.Rep. ¶ 98,772 (E.D.Pa. 1982). Thus,
although the Seventh Circuit did not pass expressly on the need
for racketeering enterprise injury in RICO cases, many of the
authorities upon which it relied had considered the question.
Even if the Court in Schacht did not intend to implicitly
reject the racketeering enterprise injury argument, we agree with
those authorities which state that no such restriction should be
judicially imposed upon the RICO statute. In the first place, we
have found no basis for requiring a racketeering enterprise
injury in the statutory language. As one New York district judge
Part (b), for instance, of section 1962, simply makes
it unlawful to conduct the affairs of an enterprise
engaged in interstate commerce through a pattern of
racketeering injury. A brokerage enterprise
infiltrated by organized crime and engaged in
defrauding its customers through acts like those
alleged here might injure no one but the customers of
the enterprise. There would be no injury above and
beyond that caused by the
predicate acts of fraud forming the "pattern of
racketeering activity." Such conduct, however, would
violate RICO and would be near the center of
Congress' concern. In addition, § 1964(c) simply
provides that "any person . . . injured by reason of
a violation of section 1962" may invoke RICO's civil
remedies. I can imagine no construction of those
words which would exclude from their coverage the
primary victims of such a scheme and which would
render such defendants immune from civil sanctions.
Mauriber v. Shearson/American Express, Inc., 567 F. Supp. 1231,
1240 (S.D.N.Y. 1983).