The opinion of the court was delivered by: Decker, Senior District Judge.
MEMORANDUM OPINION AND ORDER
Defendant Goldie W. Lee (Lee) was the sole shareholder of Rifco
Auto Leasing Co. (Rifco) and its wholly-owned subsidiary, Modern
Cars, Inc. (Modern). On February 15, 1982, Lipin entered into a
stock acquisition agreement with Lee to purchase all of her
shares of stock in these companies for a price of $100,000 above
their current net worth or, as finally formulated, $960,149.11.
Unbeknownst to plaintiff at the time of the transaction,
however, Rifco and Modern owed defendant banks and other
creditors over $2,300,000. Complaint at ¶ 18. In 1981, defendant
banks and their directors allegedly became concerned about the
companies' ability to repay this debt under Lee's management and
concluded that a sale to Lipin would significantly improve the
probability of repayment. Id. at ¶ 20. Consequently, all of the
defendants — including Lee, the banks, their directors, and the
attorneys and accountants for Lee and Rifco — purportedly
participated in a scheme to defraud Lipin by inducing it to
purchase the companies' stock at an inflated price and repay
their substantial indebtedness. Id. at ¶ 19.
The complaint asserts that the defendants associated with one
another and conducted their affairs to effect the sale of Lee's
stock in the companies to Lipin. Id. at ¶¶ 21, 23. Pursuant to
this so-called "enterprise," each defendant made fraudulent
misrepresentations concerning the financial condition of the
companies. Id. at ¶¶ 23, 25-39. These alleged misrepresentations
— ranging from oral statements and written correspondence to
legal opinion letters and accountants' financial statements —
exaggerated the companies' net worth and omitted most of their
liabilities. In conjunction with this scheme, defendants sent or
received communications through the United States mails on at
least twelve separate occasions. Id. at ¶ 40. These mailings
supposedly constitute a "pattern of racketeering activity."
Counts I and II of the complaint assert that defendants
conducted the affairs of an enterprise, and conspired to conduct
those affairs, through a pattern of racketeering activity in
violation of 18 U.S.C. § 1962(c) and (d). The remaining three
counts allege pendent state claims.
In response, defendants move to dismiss plaintiff's RICO
claims. Although defendants proceed under Fed.R.Civ.P. 12(b)(1),
it is clear that they seek to dismiss Counts I and II for failure
to state a claim under Fed.R.Civ.P. 12(b)(6). Accordingly, the
court may not dismiss the complaint "unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of
his claim which would entitle him to relief." Conley v. Gibson,
355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).
To state a claim under § 1962(c), plaintiff must allege "(1)
conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity." Sedima, S.P.R.L. v. Imrex Co., ___ U.S.
___, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985) (footnote
omitted). It is well-settled that a RICO "enterprise" is an
"entity separate and apart from the pattern of activity in which
it engages." U.S. v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524,
2528, 69 L.Ed.2d 246 (1981). Furthermore, the "mere commission of
the predicate offenses" is clearly not in itself a civil RICO
violation. Sedima, 105 S.Ct. at 3285.
With respect to the "enterprise" requirement, Lipin alleges
that all of the defendants "associated in fact" for a common
purpose — to effect the sale of Lee's stock to Lipin. See
18 U.S.C. § 1961(4). The Supreme Court has held that the enterprise
requirement is proved "by evidence of an ongoing organization,
formal or informal, and by evidence that the various associates
function as a continuing unit." Turkette, 452 U.S. at 583, 101
S.Ct. at 2528 (emphasis supplied). Although the courts of appeals
differ as to what constitutes a RICO "enterprise," all seem to
agree that continuity is a necessary, if not sufficient,
condition.*fn2 Lipin's complaint, as well as its brief,
completely ignores the element of continuity.
The court is well aware that it may not compel a civil RICO
plaintiff to "plead essentially evidence and prove the case in
the complaint." See Haroco, Inc. v. American National Bank and
Trust Co., 747 F.2d 384, 404 (7th Cir. 1984), aff'd, ___ U.S.
___, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). Nevertheless, nothing
in the complaint indicates that the defendants' alleged
association was ongoing or that they functioned as a continuing
unit. Therefore, plaintiff has not sufficiently alleged a RICO
As an alternative, Lipin makes a bare assertion that the two
companies, Rifco and Modern, constitute an "enterprise."
Complaint at ¶ 21. This makeweight allegation is also
insufficient to sustain a RICO complaint. Although a corporation
is literally an "enterprise" under 18 U.S.C. § 1961(4), Lipin has
not alleged, and is unable to allege, that each of the defendants
conducted or participated "in the conduct of such enterprise's
affairs through a pattern of racketeering activity." Id. at §
1962(c) (emphasis added). First, with the exception of Lee — the
president and sole owner of the companies, it is not clear that
any of the defendants, particularly the banks, conducted or
participated in the direction or management of the companies'
affairs. See, e.g., Bennett v. Berg, 710 F.2d 1361, 1364 (8th
Cir. 1983) (en banc), cert. denied, 464 U.S. 1008, 104 S.Ct. 527,
78 L.Ed.2d 710 (1984); U.S. v. Kaye, 586 F. Supp. 1395, 1400
Furthermore, plaintiff fails to allege facts which would
reasonably show that the defendants participated in the conduct
of the affairs of the companies through a pattern of racketeering
activity. In particular, Lipin has not sufficiently alleged a
connection between the predicate acts and the affairs of the
companies. See U.S. v. Nerone, 563 F.2d 836, 852, cert. denied,
435 U.S. 951, 98 S.Ct. 1577, 55 L.Ed.2d 801 (1978). The simple
transfer of Lee's stock in the companies does not in itself
constitute the conduct of the business through a pattern of
racketeering activity even if the transfer is part of ...