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GALLAGHER v. CANON U.S.A.

July 24, 1984

PATRICK J. GALLAGHER, PLAINTIFF,
v.
CANON U.S.A., INC., DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Patrick Gallagher (Gallagher") has moved pursuant to Fed.R.Civ.P. ("Rule") 12(b) to dismiss the Amended Counterclaim of Canon U.S.A., Inc. ("Canon"). Gallagher contends Canon has failed (1) to allege standing to sue under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968, and (2) to plead fraud with sufficient particularity as required by Rule 9(b). For the reasons stated in this memorandum opinion and order, Gallagher's motion is granted and Canon's Counterclaim is dismissed without prejudice.

Facts*fn1

Gallagher's Complaint alleges Canon orally agreed to make Gallagher an authorized dealer of Canon office equipment, then breached that agreement, causing Gallagher to go out of business after he had spent over $250,000 opening a dealership. Canon assertedly breached its agreement by refusing to permit its majority-owned subsidiary Ambassador Office Equipment, Inc. ("Ambassador") to sell Gallagher Canon office equipment. Gallagher seeks not only reliance damages but also more than $1 million in lost profits and appreciation.

After this Court granted Gallagher's motion for a more definite statement of the original Counterclaim, Canon filed an Amended Counterclaim. Canon's Amended Counterclaim charges Gallagher participated in a pattern of racketeering activity in violation of RICO, alleging:

    1. Gallagher formed and is responsible for the
  operation of various business enterprises engaged in
  interstate commerce, including Command Duplicating
  Services, Inc. in Illinois and Command Duplicating
  Services, Inc. in Nevada (Amended Counterclaim ¶¶
  5-7).
    2. Gallagher and other agents of Gallagher's
  enterprises "unlawfully caused the transfer of
  substantial amounts of equipment and other assets of
  CANON or Ambassador to said business enterprises
  without reasonable compensation therefor and with the
  intent to defraud CANON and Ambassador" (id. ¶ 8).
    3. Gallagher and other agents of Gallagher's
  enterprises "unlawfully received cash payments,
  reimbursements for personal expenses and other
  valuable benefits from Ambassador without CANON's
  knowledge or consent which were not related to any
  legitimate business purpose all with the intent to
  defraud CANON and Ambassador" (id. ¶ 9).
    4. That scheme to defraud described in Amended
  Counterclaim ¶¶ 8-9 "was accomplished through the use
  of the United States mails in violation of
  18 U.S.C. § 1341 and the wires in violation of
  18 U.S.C. § 1343" (id. ¶ 10).
    5. That scheme to defraud also "included the
  knowing transportation or receipt in interstate
  commerce by the above-stated business enterprises of
  photocopying machines and other goods and equipment
  belonging to CANON or Ambassador having a value in
  excess of Five Thousand Dollars ($5,000.00), in
  violation of 18 U.S.C. § 2314 and 2315" (id. ¶ 11).
    6. Canon suffered damages in excess of $2 million
  because "Ambassador's ability to function as an
  effective dealer of Canon office equipment was
  seriously impaired, which has resulted in substantial
  damage to CANON in the form of lost sales of Canon
  brand office equipment, injury to CANON's business
  reputation and good will in the Chicago area, and a
  decline in the value of shares of Ambassador stock
  held by CANON" (id. ¶ 13).

Canon has thus added very little since this Court required it to provide a more definite statement. It has made some wording changes and has added allegations reported in the third and fourth numbered paragraphs above. That is not enough to escape dismissal without prejudice.

RICO Standing

Canon urges it can bring a RICO claim because it is a "person injured" under 18 U.S.C. ยง 1964(c) ("Section 1964(c)"). Where however Canon seeks RICO standing simply as a shareholder of an injured corporation, it stretches RICO far beyond standing notions employed for any other type of action. Accordingly, the Amended Counterclaim does not survive unless it can be recast to allege only ...


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