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SYSTEMS RESEARCH, INC. v. RANDOM

August 1, 1985

SYSTEMS RESEARCH, INC. AND SYSTEMS CONTROL, INC., PLAINTIFFS,
v.
RANDOM, INC. AND ORVIN NORDNESS, JR., A/K/A SKIP NORDNESS, DEFENDANTS.



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

MEMORANDUM ORDER

Before the Court is defendants' motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Jurisdiction is invoked pursuant to 18 U.S.C. § 1964(a) and the doctrine of pendent jurisdiction. For the reasons stated below, defendant's motion to dismiss is denied.

FACTS

Plaintiffs, Systems Research ("Research") and Systems Control ("Control") are both licensed employment agencies engaged in the business of securing employment for persons seeking employment and for employers seeking employees. Since January 1, 1981, Control has been counseling and advising solely on behalf of employers. Both agencies employ placement counselors who interview, advise applicants and employers, and arrange contacts between employers and employees. The plaintiffs are cooperative corporations and are not competitors.

Defendant, Random, Inc. ("Random") is an executive recruiting agency engaged in the business of securing employees for employers. Random has been a direct competitor of both plaintiffs since September 20, 1980. Defendant Nordness was an employee of plaintiff Control from June 15, 1979 to September 19, 1980. Defendant Nordness is currently the president of Random and its only shareholder, thereby controlling and dominating its corporate activities.

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 Fed.R.Civ.P. 9(b).

DISCUSSION

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) ...


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