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FLEET MNGT. SYS. v. ARCHER-DANIELS-MIDLAND

January 28, 1986

FLEET MANAGEMENT SYSTEMS, INC., D/B/A LOGISTIC SYSTEMS, PLAINTIFF,
v.
ARCHER-DANIELS-MIDLAND CO., INC., AND NIMS ASSOCIATES, INC., DEFENDANTS.



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

ORDER

The cardinal issue: RICO.

This matter is before the Court upon Defendant's motion to dismiss Count VI of Plaintiff's amended complaint, which alleges that Defendants have engaged in a "pattern of racketeering activity" in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Fleet Management Systems, Inc., d/b/a Logistics Systems (Logistics) charges that Archer-Daniels-Midland Co., Inc. (ADM), and NIMS Associates, Inc., (NIMS), violated 18 U.S.C. § 1964(c) and (d), as well as state common law and federal copyright law, when they participated in a scheme to fraudulently misappropriate and market a computer program that Logistics had licensed to ADM.

Also before the Court is Defendant's motion for partial summary judgment as to Count V of Plaintiff's complaint in which Logistics charges that Defendants' scheme to misappropriate the computer program violates the provisions of the Massachusetts Unfair Competition Statute, M.G.L.A., ch. 93A, § 2.

Facts

The property allegedly misappropriated by the Defendants is a computerized truck routing system called "CompuMap". The system allows a user to readily determine the most efficient route between any two of over 9,400 points in the United States and Canada (Complaint ¶ 4). The CompuMap system itself consists of a data base and a computer program by which the data base is accessed in order to provide the route information desired by the operator. (Complaint, Exhibit A)

According to Logistics' complaint, the CompuMap system is a highly innovative solution to the problem of routing in the trucking industry. In an effort to restrict access to the proprietary aspects of the system, Logistics requires each of its customers to sign a license agreement. Pursuant to this agreement, each customer agrees to take all steps necessary to maintain the confidentiality of the system; and that if requested by Logistics, the customer will immediately destroy all physical aspects of the system and purge all other media from its computers. (Complaint, ¶ 7, and Exhibit B)

In October of 1980, Logistics and ADM entered into a licensing agreement granting ADM a nontransferrable license to use the CompuMap program in its computer system. Logistics then installed the system on ADM's computer. Apparently the system did not satisfy ADM, and on December 7, 1981, a Mr. Crotinger (manager of Transportation Systems at ADM) sent a letter to Logistics cancelling the license agreement. In response to this letter, Ms. Broderick of Logistics wrote to Mr. Crotinger a letter specifying the following requirements for cancelling the contract:

  1. Please purge all Software (programs and data) from
  your computer.
  2. Please return all material, whether in hard copy,
  cards, disk, tape or other storage media to Logistics
  Systems.
  3. Please send a written notarized confirmation
  signed by a duly authorized representative of your
  company, certifying that steps 1 and 2 above have
  been taken, that no other copies of any of the
  materials exist, and that the material you have
  forwarded constitutes everything that was in your
  possession.

By a letter dated January 29, 1982, in which Mr. Crotinger's signature was notarized, ADM responded as follows:

  1. All CompuMap software has been purged from our
  computer.
  2. All hard copy material that we have accumulated
  has been boxed up and returned to you UPS.
  3. This letter has been notarized, thereby complying
  with your third requirement.

The letter further stated, "I am unable to send you our disk packs containing certain files relating to CompuMap; however, I certify with the notarized letter that all files have been purged."

The gravamen of Logistics' complaint is that ADM did not purge all information relating to CompuMap from its systems, and that ADM, in conjunction with NIMS, proceeded to use the system's information to market a truck routing system as the "NAI route system."

In support of its RICO claim, Logistics contends that the Defendants committed several acts of mail and wire fraud, and that the following such acts constitute a "pattern of racketeering activity" under 18 U.S.C. § 1962(c):

1. On September 25, 1980, Mr. Crotinger of ADM mailed to Logistics a letter and the original executed license agreement. (Complaint, Exhibits B and C.) Fraudulent representations in this correspondence include those provisions of the license agreement regarding ADM's intended use of the materials; and representations that Mr. Nims, to whom a copy of the correspondence was mailed, was an ADM employee. (Complaint, ¶¶ 15, 16, 50, and 51.)

2. Also on September 25, 1980, Mr. Crotinger of ADM mailed to NIMS a copy of his letter to Logistics and the executed license agreement, in furtherance of a conspiracy between ADM and NIMS to obtain Logistics' CompuMap system under false pretense and to defraud Logistics. (Complaint, ¶ 51.)

3. On June 25, 1981, Mr. Hainline of ADM mailed to Logistics a certification that the CompuMap source code had been purged from ADM's computer. As alleged in the Complaint, this certification was a fraudulent misrepresentation in furtherance of "defendants' illegal and fraudulent taking of the CompuMap system in a manner otherwise than as permitted by Logistics." (Complaint, ¶¶ 18, 54, 55, 56, Ex. E.)

4. On December 7, 1981, Mr. Crotinger of ADM mailed a letter to Logistics cancelling the license agreement, allegedly because the CompuMap system "does not fit into our overall application structure adequately enough." In said letter, ADM represents that "we have taken the system out of production." (Complaint, ¶ 19, Ex. F.) Clearly, this letter was mailed in furtherance of Defendants' scheme to defraud Logistics.

5. On January 29, 1982, Mr. Crotinger of ADM mailed a letter to Logistics in which he gave sworn notarized certification that all CompuMap software and disk files had been purged from ADM's computer and that all hard copy material accumulated by ADM had been boxed up and returned to Logistics. These certifications are alleged in the complaint to be false and fraudulent misrepresentations, which were made to defraud Logistics. (Complaint, ¶¶ 21, 54, 55, 56, Ex. H.)

6. In or around August 1982, Mr. Rushton of NIMS had a series of telephone calls with Tri-State, a customer of Logistics, in which it is alleged that Mr. Rushton falsely represented himself to be a representative of NIMS and stated that he was interested in buying the CompuMap data base from Tri-State. (Complaint, ¶ 22.)

7. In November 1982, NIMS mailed promotional literature marketing its "NAI route system" to Ryder Systems, Inc. (a customer of Logistics) and to 1800-2100 other potential customers. (Complaint, ¶ 24, Ex. I.)

8. Mr. Winters of NIMS and Mr. Crotinger of ADM jointly engaged in a nationwide telephone campaign during 1982 to market the NIMS routing system.

According to Logistics, these allegations satisfy the RICO "pattern" requirement in that at least eight separate instances of mail or wire fraud have been charged spanning a period of more than two years. Conversely, ADM, citing Northern Trust Bank/O'Hare v. Inryco, Inc., 615 F. Supp. 828 (N.D.Ill. 1985) contends that even assuming Plaintiff has validly stated eight instances of mail or wire fraud, these cannot constitute a pattern because a pattern requires at least two fraudulent schemes, and the predicate acts are all in furtherance of a single alleged scheme — the scheme to misappropriate Plaintiff's CompuMap system.

The issue as joined, therefore, is whether a "pattern" requires more than one fraudulent scheme, regardless of the number of acts necessary to achieve the objective of that scheme and, if so, whether more than one scheme is involved in the case at bar.

"PATTERN OF RACKETEERING ACTIVITY"

I.

Section 1964(c) grants a private right of action to any person "injured in his business or property by reason of a violation of section 1962." Section 1962, in turn, makes it unlawful to invest, in an enterprise engaged in interstate commerce, funds "derived from a pattern of racketeering activity," to acquire or operate an interest in any such enterprise through "a pattern of racketeering activity," or to conduct or participate in the conduct of that enterprise "through a pattern of racketeering activity." Section 1961 defines "racketeering activity" to mean any of numerous acts "chargeable" or "indictable" under enumerated state and federal laws, including the federal mail and wire fraud statutes. Section 1961(5) further states that "a pattern" of racketeering activity requires proof of at least two acts of racketeering within ten years.

Since the initial passage of the RICO statute, federal courts have been highly concerned with the expansive potential of the plain wording of the statute, which at first glance would appear to allow a federal cause of action in any case involving two or more related acts "indictable" under state and federal law. Legislative history clearly indicates what Congress had in mind when it enacted RICO: to halt the infiltration of legitimate business by organized crime.*fn1 The problem Congress had was to word the statute so that it could achieve this goal without it being "void for vagueness" or overbroad in its application. See, e.g., United States v. Aleman, 609 F.2d 298, 302-06 (7th Cir. 1979) (responding to such arguments against RICO as enacted).

Apparently, the "pattern of racketeering activity" requirement of the statute solved the vagueness problem. But in doing so, it covered activity that many courts could not believe was intended by Congress. The ABA Report on civil RICO explains that:

    [i]n an attempt to insure the constitutionality of
  the statute, Congress made the central proscription
  of the statute the use of a "pattern of racketeering
  activities" in connection with an "enterprise,"
  rather than merely outlawing membership in the Mafia,
  La Cosa Nostra, or other organized criminal
  syndicates. "Racketeering" was defined to embrace a
  potpourri of federal and state criminal offenses
  deemed to be the type of criminal activities
  frequently engaged in by mobsters, racketeers and
  other traditional members of "organized crime". The
  "pattern" element of the statute was designed to
  limit its application to planned, ongoing, continuing
  crime as opposed to sporadic, unrelated, isolated
  criminal episodes. The "enterprise" element, when
  coupled with the "pattern" requirement, was intended
  by the Congress to keep the reach of RICO focused
  directly on traditional organized crime and
  comparable ongoing criminal activities carried out in
  a structured, organized environment. The reach of the
  statute beyond traditional mobster and racketeer
  activity and comparable ongoing structured criminal
  enterprises, was intended to be incidental, and only
  to the extent necessary to maintain the
  constitutionality of a statute aimed primarily at
  organized crime." ABA Report, at 71-72.

See Sedima v. Imrex Co., ___ U.S. ___, ___, 105 S.Ct. 3275, 3289, 87 L.Ed.2d 346 (Powell, J., dissenting).

The ABA Report makes it clear that RICO is intended to target organized crime, and not legitimate business. The wording of the statute, however, makes it possible for those involved in ordinary commercial disputes to file a racketeering charge against respected businessmen in federal court merely by alleging two acts of fraud involving the wires or mails. The reason for this is clear: the plain meaning of the statute in this circuit has traditionally been that any two acts of "racketeering activity" (such as mail and wire fraud) occurring within ten years of each other could constitute a "pattern of racketeering activity", so long as the acts are connected by some common scheme, plan, or motive. See United States v. Starnes, 644 F.2d 673, 677-78 (7th Cir. 1981); United States v. Weatherspoon, 581 F.2d 595, 601-02 (7th Cir. 1978).

A further problem is the presence of mail and wire fraud violations in the statute. This is probably the single most significant reason for RICO's broad sweep because in recent years, the Courts of Appeal have "tolerated an extraordinary expansion of mail and wire fraud statutes to permit federal prosecutions for conduct that some had thought was subject only to state criminal and civil law." United States v. Weiss, 752 F.2d 777, 791 (2d Cir. 1985) (Newman, J., dissenting). For instance, cases such as United States v. George, 477 F.2d 508, 511 (7th Cir. 1973), have held that a mail fraud violation requires only: (1) a scheme to defraud, and (2) use of the mails in furtherance of that scheme. The potential effects of reading two related mail or wire fraud violations as forming a "pattern" on our federal system are staggering and can lead to some totally unforeseeable results.*fn2

One result has been that litigators, lured by the prospect of treble damages, are now turning to federal court in garden-variety fraud claims that would in the past have proceeded in state court. The fact that RICO requires two mailing or phone calls hardly poses much of a problem in even the most simple fraud case. In Sedima v. Imrex Co., Inc., ___ U.S. ___, 105 S.Ct. 3292, 3293, 87 L.Ed.2d 361 (1985), Justice Marshall's dissenting opinion envisions the federalization of broad areas of state common law of frauds and a displacement of important areas of federal securities law by a continued expansive reading of the RICO statute. See, e.g., Ray v. Karris, 780 F.2d 636 (7th Cir. 1985) (Plaintiff alleges both securities fraud and RICO violations). In addition, the broad sweep of the statute's language has allowed it to be used more often against businesses with no ties to ...


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