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BRUSS CO. v. ALLNET COMMUNICATION SERVICES

April 4, 1985

THE BRUSS COMPANY, AN ILLINOIS CORPORATION, AND HINCKLEY & SCHMITT, INC., AN ILLINOIS CORPORATION, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS SIMILARLY SITUATED, PLAINTIFFS,
v.
ALLNET COMMUNICATION SERVICES, INC., AN ILLINOIS CORPORATION, MICHAEL P. RICHER, MELVYN J. GOODMAN, ROBERT F. DOWNING, AND JULIA A. VINSON, DEFENDANTS.



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

  MEMORANDUM OPINION AND ORDER

This action is before the court on joint motion of all defendants to dismiss plaintiffs' Second Amended Complaint. For the reasons set forth below, defendants' motion is granted in part and denied in part.

Facts

Defendant Allnet Communication Services, Inc. ("Allnet") is a provider of long distance telephone service. It is subject to the Federal Communications Act of 1934, 47 U.S.C. § 201 et seq., and to the rules, regulations, directions and orders of the Federal Communications Commission ("FCC"). The individual defendants, Michael P. Richer, Melvyn J. Goodman, Robert F. Downing, and Julia A. Vinson, are executives, officers and/or directors of Allnet. Plaintiffs, The Bruss Company and Hinckley & Schmitt, Inc., are both former subscribers to Allnet's long distance telephone service.

Plaintiffs have sued under various legal theories, on behalf of themselves and others similarly situated, for alleged overcharges by Allnet for long distance service. In Counts I and II, plaintiffs allege alternate violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968. Count III alleges a cause of action under the Federal Communications Act of 1934 ("Communications Act"), 47 U.S.C. § 201 et seq. The remaining counts allege state law claims for common law fraud (Count IV), violations of the Uniform Deceptive Trade Practices Act, Ill.Rev.Stat. ch. 121 1/2, § 311 et seq. (Count V), and violations of the Illinois Consumer Fraud & Deceptive Business Practices Act, Ill.Rev.Stat. ch. 121 1/2, § 261 et seq. (Count VI).

All six counts are based on the same principal allegations of overcharge and fraud. Plaintiffs essentially allege that defendants charged plaintiffs and other long distance subscribers rates in excess of the tariffs filed with the FCC. These overcharges were allegedly accomplished in three ways: (1) by inflating the distance in miles for "800 service" calls, for which charges are based on the distance between the network switching center and the place called; (2) by inflating the mileage component for normal calls placed through new switching centers, and (3) by billing calls to cities in the Allnet systems, for which lower rates were to be charged, at the higher rates for cities not within the Allnet system. Plaintiffs allege that all the defendants conspired together to conceive, and then implemented, the overcharge system as a scheme to defraud class members.

Motion to Dismiss

The defendants have moved to dismiss all six counts of the complaint on various grounds. In considering a Rule 12(b)(6) motion to dismiss, a complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to the relief requested. Cruz v. Beto, 405 U.S. 319, 323, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The court must accept as true all material facts well pleaded in the complaint, and must make all reasonable inferences in the light most favorable to the plaintiff. City of Milwaukee v. Saxbe, 546 F.2d 693, 704 (7th Cir. 1976). The court need not strain, however, to find inferences available to the plaintiff which are not apparent on the face of the complaint. Coates v. Illinois State Board of Education, 559 F.2d 445, 447 (7th Cir. 1977).

Counts I and II — RICO

In their original motion to dismiss, filed before the 7th Circuit Court of Appeals issued its decision in Haroco, Inc. v. American National Bank & Trust Company, 747 F.2d 384 (7th Cir. 1984), defendants argued that plaintiffs' RICO counts were deficient for failure to allege a "RICO injury." The Haroco decision squarely rejected any requirement of alleging a "RICO injury," and defendants have since abandoned this argument.

Defendants also advance a number of other arguments for dismissal of the RICO counts. They assert that plaintiffs have failed to plead the fraud alleged against the individual defendants with sufficient particularity to satisfy Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) provides that:

  In all averments of fraud or mistake the
  circumstances constituting fraud or mistake shall
  be stated with particularity. Malice, intent,
  knowledge, and other conditions of mind of a
  person may be averred generally.

This requirement of greater specificity is intended to protect defendants from the harm that results from charges of serious wrongdoing, and to give the defendants notice of the conduct complained of. D & G Enterprises v. Continental Illinois National Bank, 574 F. Supp. 263, 266-67 (N.D.Ill. 1983); Todd v. Oppenheimer & Co., Inc., 78 F.R.D. 415, 419 (S.D.N.Y. 1978), citing Segan v. Dreyfus Corp., 513 F.2d 695, 696 (2nd Cir. 1975). As the court in D & G Enterprises noted, complaints alleging fraud should seek redress for a wrong, rather than attempt to discover unknown wrongs. 574 F. Supp. at 266, citing Gross v. Diversified Mortgage Investors, 431 F. Supp. 1080, 1087 (S.D.N.Y. 1977), affirmed, 636 F.2d 1201 (2nd Cir. 1980).

However, Rule 9(b) must be read together with Rule 8, which requires a plain and concise statement of the claim. Tomera v. Galt, 511 F.2d 504, 508 (7th Cir. 1975). Therefore, although a plaintiff must allege with particularity the specific acts comprising the fraud, he need not plead detailed evidentiary matters. The allegations should describe the circumstances constituting the fraud, including the time, place and contents of the false representations, as well as the identity of the party making the misrepresentation. D & G Enterprises, 574 F. Supp. at 267.

Moreover, when there are allegations of a fraudulent scheme with multiple defendants, the complaint must inform each defendant of the specific fraudulent acts which constitute the basis of the action against each particular defendant. Id.; Adair v. Hunt International Resources, 526 F. Supp. 736, 744 (N.D.Ill. 1981); Lincoln National Bank v. Lampe, 414 F. Supp. 1270, 1278-79 (N.D.Ill. 1976).

In this case, plaintiffs have made specific allegations of the manner in which the alleged fraud or overcharges were carried out by Allnet as a corporation. As noted above, the complaint specifies the three ways in which Allnet allegedly overcharged its customers. Viewing these allegations in light of the standards under Rules 9(b) and 8 discussed above, the court finds that these allegations plead fraud with sufficient particularity with respect to Allnet. However, with respect to the individual defendants, the complaint fails to include any allegation as to how any individual defendant participated in the fraud. The complaint merely alleges that Allnet and the individual defendants schemed to defraud customers by overcharging them, and then describes the types of overcharges. Nowhere does the complaint specify any act by any particular defendant through which the fraud was carried out. The individual defendants are merely "lumped" together with Allnet and accused of performing the same fraudulent acts. Under Rule 9(b) and the cases discussed above, these allegations are clearly insufficient to support claims of fraud against the individual defendants.

Plaintiffs' response to their failure to plead any individual acts by individual defendants is that defendants have destroyed documents which would support their claim of fraud, and otherwise hindered detection of their wrongdoing. These unsupported allegations are insufficient to withstand scrutiny under Rule 9(b). As the court in D & G Enterprises noted, plaintiff should not make serious accusations of fraud until they have ascertained what wrongs have been committed; fraud should not be alleged in the hope of later discovering some. 574 F. Supp. at 266.

The Seventh Circuit has relaxed the requirement of pleading fraud with particularity in cases where matters are particularly within the knowledge of the opposing party. In these circumstances, allegations based "on information and belief" may be sufficient, but the allegations must be accompanied by a statement of facts upon which the belief is founded. Duane v. Altenburg, 297 F.2d 515, 518 (7th Cir. 1962); D & G Enterprises, 574 F. Supp. at 267. Thus, even when particular facts are solely within the knowledge of the defendant, the plaintiff must still make sufficient particular allegations based "on information and belief," and submit a statement of the facts upon which the belief is based.


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