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SPIEGEL v. CONTINENTAL ILLINOIS NAT. BANK

April 16, 1985

MARSHALL C. SPIEGEL, INDIVIDUALLY AND AS A REPRESENTATIVE OF A CLASS OF PERSONS SIMILARLY SITUATED, PLAINTIFF,
v.
CONTINENTAL ILLINOIS NATIONAL BANK, ROBERT PAULSEN, SAMUEL HUNT, CHARLES R. HALL, EDWARD BOTTUM AND UNKNOWN DEFENDANTS, DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

This is a "civil RICO" action,*fn1 filed under 18 U.S.C. § 1961 et seq. In brief, the complaint alleges that the defendants Continental Bank ("Continental") and several bank officials used a pattern of mail fraud to hide Continental's use of trust income for its own benefit. The plaintiff Marshall Spiegel ("Spiegel") is the sole income beneficiary of the "Oscar Spiegel Trust" ("the Trust"), and he has sued on behalf of a purported class of trust beneficiaries similarly defrauded by Continental. Continental moved to dismiss the case as barred by res judicata. In a minute order the Court previously reserved decision on the res judicata issue and directed the parties to file supplemental memoranda about whether the complaint states a claim upon which relief can be granted. The parties have done so. For the reasons stated below, the Court grants Continental's motion to dismiss, basing the dismissal in part on the doctrine of res judicata and in part on Spiegel's failure to state a claim for relief under RICO.

I.

The following undisputed history is taken from the complaint and from the papers submitted by the parties.*fn2 In 1972 Spiegel's father Oscar created a trust which named Spiegel as sole income beneficiary. Continental and a private individual were named as Trustees. Spiegel was to become a trustee upon reaching age 25, which he did in 1981. During that year Spiegel stated that he wanted to act as sole trustee. Continental refused to yield its position as corporate trustee, citing a provision of the trust agreement requiring a corporate trustee.

This dispute spawned suits. In December 1981 Spiegel filed a replevin action against Continental in the Circuit Court of Cook County. Continental reacted by filing a suit in Circuit Court, seeking a declaration that the Trust Agreement required there to be a corporate trustee. The two suits were consolidated, and Spiegel counterclaimed, alleging various breaches of fiduciary duty by Continental. These alleged breaches of fiduciary duty overlap the allegations of fraud in this case.

The Circuit Court upheld Continental's position that the Trust Agreement required a corporate trustee. Spiegel appealed, lost, and the Illinois Supreme Court denied him leave to appeal to that court. So far as we know, Spiegel's fiduciary duty counterclaims are still pending in state court.

On June 15, 1983, while the state court appeal was pending, Spiegel sued Continental in federal court ("Spiegel I"), basing jurisdiction on RICO. Like the complaint in this case ("Spiegel II"), the complaint there alleged that the defendants engaged in a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c). Spiegel's theory was that the trustees, in effect, converted trust funds for the benefit of Continental. They did this by transferring trust income to principal quarterly. During any given quarter, Continental would use this available income for its own benefit. Spiegel charges that this scheme to use such "float" money was not disclosed to him, and that when he later learned of it, defendants made misleading statements to cover up.*fn3

Spiegel I was heard by Judge Roszkowski, who granted Continental's motion for summary judgment*fn4 on the basis that the complaint failed to state a claim for relief under RICO. Spiegel now concedes that Judge Roszkowski was right in that respect. See Spiegel's Response to Memorandum in Support of Motion to Dismiss at 4. In particular, the Court held that Spiegel had not alleged "a pattern of racketeering activity."*fn5 Spiegel's RICO claim was predictated solely on alleged violations of the federal mail fraud statute, 18 U.S.C. § 1341. The Court found that Spiegel had not alleged two or more acts of mail fraud and thus had not satisfied RICO's requirement that a violation be based on at least two acts of racketeering activity within a ten-year period. See 18 U.S.C. § 1961(5). The Court assumed that a letter written by defendant Paulsen, concerning Continental's policy of reinvesting trust income quarterly, was a predicate act of mail fraud, but held that this act was the only one alleged.

After the Spiegel I complaint had been filed, counsel for both parties had exchanged correspondence relating to the state court suit, which we will detail later. Spiegel argued to Judge Roszkowski that two of the letters penned by Continental's counsel were predicate acts of mail fraud. The Court rejected these arguments because the statements were not alleged in the complaint. It added in dictum that false statements made between attorneys in the context of pending litigation fall outside the scope of the mail fraud statute. Spiegel I, slip op. at 11.

On September 13, 1984, the court in Spiegel I denied Spiegel's motion to reconsider the previous dismissal. Eight days later, Spiegel filed Spiegel II. The complaint essentially mirrors that of Spiegel I, except that it alleges two additional predicate acts of mail fraud — the two letters written by Continental's lawyer Scott Davis ("Davis"). Continental promptly moved to dismiss Spiegel II, claiming that it was res judicata in light of the recent dismissal of Spiegel I.

II.

Although this case does have an aura of deja vu about it, we cannot agree with Continental that the complaint on its face is barred by res judicata. Res judicata, or "claim preclusion," contains three elements: (1) the final judgment in the previous case must have been "on the merits"; (2) the parties or their privies to the two suits must be identical; (3) the causes of action in both suits must be identical. See, e.g., Mandarino v. Pollard, 718 F.2d 845, 849 (7th Cir. 1983), cert. denied, ___ U.S. ___, 105 S.Ct. 116, 83 L.Ed.2d 59 (1984); Green v. Illinois Dept. of Transportation, 609 F. Supp. 1021, 1024 (N.D.Ill. 1985) (Aspen, J.). While the first and second elements were met in this case,*fn6 the third one was not. "`[A] cause of action consists of a single core of operative facts which give[s] the plaintiff a right to seek redress for the wrong concerned.'" Green, 609 F. Supp. at 1024, quoting Lee v. City of Peoria, 685 F.2d 196, 200 (7th Cir. 1982). Res judicata bars claims for relief which were actually raised in the first suit and also claims which could have been raised. Id.

The problem with Continental's res judicata defense is that Spiegel II is based on acts which occurred after Spiegel I was filed. These acts could not have been raised in the Spiegel I complaint, and indeed, Judge Roszkowski prevented Spiegel from relying on these acts in contesting the summary judgment motion. In Green we rejected a proposed rule of res judicata that would impose on a plaintiff a duty to amend a suit to include new causes of action as they accrue. 609 F. Supp. at 1025-1026. While Continental is correct that the Court of Claims imposes a duty to amend in cases before it,*fn7 we rejected that rule as unsound. Id.; see generally 18 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure, § 4409 (1981) at 76-77. In sum, then, we believe that the doctrine of res judicata does not bar Spiegel II to the extent it is based on acts which occurred after Spiegel I was filed.

However, the only thing sparing Spiegel II from clutches of res judicata is the allegation of two new predicate acts of mail fraud. In all other relevant respects, Spiegel II is a reincarnation of Spiegel I and satisfies the three elements of res judicata. As noted earlier, Judge Roszkowski remarked in dictum that those two alleged predicate acts of mail fraud could not be the basis of a mail fruad violation and, it follows, a RICO claim. In light of that strong dictum, and of the fact that this suit survives only by virtue of those two alleged acts, we directed the ...


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