and its only shareholder, thereby controlling and dominating its
From April 18, 1977 to February 15, 1985, Mark Johnson was any
employment counselor for both plaintiffs. As an employment
counselor, Johnson was paid a percentage of the applicant's gross
salary when a job position was filled. By virtue of his position,
Mark Johnson stood in a fiduciary relationship with both
plaintiffs, owing them the duties of loyalty and fidelity.
Johnson became acquainted with defendant Nordness on about June
15, 1979. Nordness allegedly began to devise and participate in
a scheme to defraud plaintiffs as early as April 1982, with the
help of Johnson. According to the complaint, this scheme
consisted of the payment of money or promises of such payment to
Mark Johnson for making available to Nordness the names of
applicants without plaintiffs' consent. The complaint further
alleges that once these names were made available to Nordness, he
would contact the applicant and arrange an interview with the
respective hiring company. Upon a successful placement, Nordness
would collect a percentage of the applicant's gross salary.
In their complaint, plaintiffs allege that the names of
applicants contacted by the defendants, the placement fee charged
by defendants, and the scheme to defraud was furthered by use of
the mails and the telephone, in violation of 18 U.S.C. § 1341
and § 1343. Plaintiffs further allege that these violations
constitute participation in an enterprise which affected
interstate commerce, thus violating 18 U.S.C. § 1961(4), the
Racketeer Influenced and Corrupt Organizations Act ("RICO").
Plaintiffs allege an aggregate loss of $37,800 and allege that
defendants used this income, derived from a pattern of
racketeering activity, in violation of 18 U.S.C. § 1962(a).
Several pendent state claims arising under the common law of
Illinois are also alleged.
Defendants contend, initially, that plaintiffs fail to plead a
"pattern of racketeering activity" as required by 18 U.S.C. § 1961
and, alternately, that the complaint fails to plead the acts
of mail and wire fraud with sufficient particularity under
A. Count I — Failure to Allege a Racketeering Enterprise Injury
In defendants' brief in support of their motion to dismiss,
defendants contend that Count I of the complaint fails to allege
a racketeering enterprise injury in accordance with 18 U.S.C. § 1964(c)
which provides that "any person injured in his business
or property by reason of a violation of § 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." 18 U.S.C. § 1964(c).
While this motion was being briefed by the parties, the
existing case law surrounding what kind of injury is required to
satisfy "by reason of a violation of § 1962" was unclear. The
Second Circuit, in Sedima, S.P.R.L. v. Imrex Company, Inc.,
741 F.2d 482 (2d Cir. 1984), rev'd, ___ U.S. ___, 105 S.Ct. 3275, 87
L.Ed.2d 346 (1985), held that a plaintiff, in order to allege a
"racketeering injury," must show injury "different in kind from
that occurring as a result of the predicate acts
themselves. . . ." Id. at 496. Under this definition, the injury
must have been caused by "an activity which RICO was designed to
deter." Id. The Seventh Circuit, however, in Haroco v. American
National Bank, 747 F.2d 384 (7th Cir. 1984), aff'd, ___ U.S. ___,
105 S.Ct. 3291, 87 L.Ed.2d 437 (1985), chose to follow the less
demanding "pattern resulting from the predicate acts" standard.
Obviously the two are not consistent and defendants implore this
Court to either follow the Second Circuit or stay its
determination until the Supreme Court has decided the issue. As
the Supreme Court has timely made its determination in favor of
the Seventh Circuit interpretation, this is no longer an issue.
In Sedima, S.P.R.L. v. Imrex Co., Inc., ___ U.S. ___, 105 S.Ct.
3275, 87 L.Ed.2d 346 (1985), the Supreme Court reversed the
Second Circuit's holding in Sedima, stating that racketeering
activity is to be construed as "no more and no less than
commission of a predicate act" and that if the defendant "engages
in a pattern of racketeering activity forbidden by these
provisions, and the racketeering activities injure the plaintiff
in his business or property, the plaintiff has a claim under §
1964(c)." Id. at ___, 105 S.Ct. at 3286. The Court held that "a
violation of § 1962(c) . . . requires (1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity."
Id. at ___, 105 S.Ct. at 3286 (footnote omitted).
Applying this standard to the instant case, it is clear that
the plaintiffs have alleged a sufficient pattern of racketeering
activity to satisfy the Seventh Circuit, and now the Supreme
Court, standard. In order to "conduct or participate," a
defendant must be "enabled to commit predicate offenses solely by
virtue of his position in the enterprise or involvement in or
control over the affairs of the enterprise." United States v.
Scotto, 641 F.2d 47 (2d Cir. 1980). Plaintiffs allege in
paragraph 13 of the complaint that defendant is the president and
single shareholder of Random and that he controls all its
activities. The second requirement, that of conducting an
"enterprise," is defined by the statute as "any individual,
partnership, corporation, association, or other legal entity, and
any union or group of individuals associated in fact although not
a legal entity." 18 U.S.C. § 1961(4). Plaintiffs satisfy this
requirement by alleging, in paragraph 9 of the complaint, that
the defendant is a corporation under Illinois law. Finally, a
pattern of racketeering activity must be alleged. The Court in
Sedima held that the predicate acts alleged must be sufficiently
related to constitute a pattern and that the acts be of the kind
RICO was designed to deter or, more precisely, those listed in
the statute. Sedima, supra, ___ U.S. at ___, 105 S.Ct. at 3286.
In paragraphs 24 and 25 of the complaint, plaintiffs allege that
on two or more occasions defendants used the mails and the wires
in conducting the enterprise involved. Since mail and wire fraud
are listed under § 1962 as prohibited activities, and are alleged
to be related to the scheme to divert applicants from the
plaintiffs, this element is satisfied.
B. Count I — Sufficiency of the Allegations — Particularity and
Defendants alternately contend that the complaint fails to
satisfy the particularity requirement for pleading fraud under
Rule 9(b), of the Federal Rules of Civil Procedure. Defendants
argue that plaintiffs' complaint is insufficient because it does
not identify each of the mailings and telephone conversations
used in furtherance of the fraud. In order to determine the
adequacy of the pleadings in this respect, the Court must
consider both Rule 9(b) and the statutes governing mail fraud
(18 U.S.C. § 1341) and wire fraud (18 U.S.C. § 1343).
Rule 9(b) governs the pleading of a violation involving fraud
and reads as follows:
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
It is important, however, to note that since the motion before
the court is one of dismissal for failure to state a claim, the
allegations must be taken as true and the facts must be viewed in
a light most favorable to the plaintiff. Powe v. City of Chicago,
664 F.2d 639, 642 (7th Cir. 1981).
The court in Tomera v. Galt, 511 F.2d 504 (7th Cir. 1975),
explained the purpose of Rule 9(b):
Rule 9 must be read together with Rules 8(a)(2),
8(e)(1), and 8(f), Federal Rules Civil Procedure.
Rule 8 requires that a plaintiff gives through his
pleadings notice to defendant of the nature of his
claims. It urges the plaintiff to make known his
claims simply and concisely in short, plain
statements. With these principles in mind, the
purpose of Rule 9
becomes clear. Rule 9 lists the actions in which
slightly more is needed for notice. In a fraud
action, a plaintiff need also state `with
particularity' the circumstances constituting the
Id. at 508 (citations omitted).