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UNIROYAL GOODRICH TIRE CO. v. MUTUAL TRADING CORP.

September 27, 1990

UNIROYAL GOODRICH TIRE COMPANY, Plaintiff,
v.
MUTUAL TRADING CORPORATION, MOHAMMAD SHAFIQ, JOHN P. HAUPER and RICHARD K. GERMANO, Defendants


Marvin E. Aspen, United States District Judge.


The opinion of the court was delivered by: ASPEN

MARVIN E. ASPEN, UNITED STATES DISTRICT JUDGE

 Uniroyal Goodrich Tire Co. ("Uniroyal Goodrich") has sued Mutual Trading Corp. ("Mutual Trading"), Mohammad Shafiq ("Shafiq"), John P. Hauper ("Hauper"), and Richard K. Germano ("Germano") under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (1988) ("RICO"), and various pendent state claims. Mutual Trading, Shafiq, and Hauper now move to dismiss. For the reasons set forth below, we grant that motion only with respect to one aspect of the RICO allegations, and to the count seeking recovery on an "account stated" theory. We otherwise deny the motion to dismiss.

 I. Allegations

 Uniroyal Goodrich, a tire manufacturer and retailer, seeks damages for losses sustained as a result of the defendants' alleged fraudulent activity. Mutual Trading is an Illinois corporation that did business with Uniroyal Goodrich between 1982 and 1990. Shafiq is Mutual Trading's president and sole shareholder; Hauper is Mutual Trading's vice-president and director of finance. Germano worked for Uniroyal Goodrich in its international sales division from 1970 until 1990; he has not yet appeared in this matter.

 Specifically, Uniroyal Goodrich lists seven "unlawful schemes" allegedly perpetrated by defendants. They maintain defendants: 1) submitted credit invoices for nonexistent billboard advertising in West Africa; 2) claimed a "volume discount" for which they did not qualify; 3) purchased tires from Uniroyal Goodrich at unauthorized prices; 4) took advantage of wrongfully waived interest charges; 5) made false claims of tire defects and received warranty credits for unblemished tires; 6) engaged in "short shipping" tactics; and 7) wrongfully requested "downgrade credits" for certain tire shipments.

 II. Rule 9(b) Particularity

 Defendants argue that Uniroyal Goodrich's RICO allegations must be dismissed for failure to plead with the particularity required by the Federal Rules of Civil Procedure. Fed. R. Civ. P. 9(b) ("in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity").

 Rule 9(b)'s requirements are certainly applicable to fraud claims in civil RICO complaints. See Haroco, Inc. v. American Nat'l Bank & Trust Co., 747 F.2d 384, 405 (7th Cir. 1984), aff'd, 473 U.S. 606, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985). These requirements, however, are not absolute or unbounded; defendants need not be given a "pretrial memorandum containing all the evidentiary support for plaintiffs' case." Pellman v. Cinerama, Inc., 503 F. Supp. 107, 111 (S.D.N.Y. 1980); accord Bruss Co. v. Allnet Communication Servs., Inc., 606 F. Supp. 401, 405 (N.D. Ill. 1985) ("plaintiff . . . need not plead detailed evidentiary matters").

 Uniroyal Goodrich's complaint need only set forth "a brief sketch of how the fraudulent scheme operated, when and where it occurred, and the participants." Tomera v. Galt, 511 F.2d 504, 509 (7th Cir. 1975). This the plaintiff's complaint has done; it "adequately details, in broad strokes, the nature and essential factual elements of the alleged fraud. . . . The defendants are not left guessing as to the outlines of the fraud, its purposes, or the critical facts. . . ." Adair v. Hunt International Resources Corp., 526 F. Supp. 736, 744 (N.D. Ill. 1981).

 Defendants correctly point out that, generally speaking, a complaint naming multiple defendants must provide adequate notice of the role each individual defendant allegedly played in the scheme. Lincoln National Bank v. Lampe, 414 F. Supp. 1270, 1278 (N.D. Ill. 1976); see also Adair, 526 F. Supp. at 744-45. Where the defendants are all "corporate insiders," however, the general rule does not apply. Banowitz v. State Exchange Bank, 600 F. Supp. 1466, 1469 (N.D. Ill. 1985). The attribution of specific fraudulent acts to specific defendants is unnecessary where the individual defendants are insiders if, as here, "the complaint sufficiently describes the fraudulent acts and provides the individuals with sufficient information to answer the allegations." Id. (citing Pellman, 503 F. Supp. at 111); accord Swanson v. Wabash, Inc., 577 F. Supp. 1308, 1321 (N.D. Ill. 1983); Helfant v. Louisiana & S. Life Ins. Co., 82 F.R.D. 53, 57 (E.D.N.Y. 1979); Barotz v. Monarch General, Inc., [1974-1975 Transfer Binder] Fed. Sec. L. Rep. (CCH) P94,933 (S.D.N.Y. 1975). Because Shafiq and Hauper are clearly insiders in Mutual Trading, Uniroyal Goodrich need not specifically attribute fraudulent acts to them beyond the attributions already contained in its complaint.

 Related to defendants' particularity argument is the contention that allegations in the complaint "made solely on 'information and belief'" must be disregarded. Defendants' Memorandum of Law at 3 (emphasis added) (citing, inter alia, Duane v. Altenburg, 297 F.2d 515, 518 (7th Cir. 1962)); Reply Memorandum at 4 (same). In Altenburg, the court dismissed plaintiff's complaint because it alleged fraud "on information and belief only and without any statement of or reference to any facts upon which such beliefs supposedly rest." Altenburg, 297 F.2d at 519. Here, Uniroyal Goodrich does adequately refer to the facts upon which its fraud allegations rest; to dismiss the "information and belief" allegations simply because its counsel included that phrase in particular paragraphs of the complaint is entirely inappropriate.

 Similarly, defendants fail to show precisely why Uniroyal Goodrich has not alleged sufficient acts of mail and wire fraud in support of its RICO counts. The complaint itself alleges fraudulent activity by Mutual Trading and its top officers, Shafiq and Hauper. The alleged success of that activity depended, according to Uniroyal Goodrich, on a confederation between the defendants and Germano, a key Uniroyal Goodrich employee. The two companies had a business relationship stretching over several years.

 As such, the mailings alleged could easily have been "part of the execution of the fraud. . . ." Schmuck v. United States, 489 U.S. 705, 109 S. Ct. 1443, 1447, 103 L. Ed. 2d 734, reh'g denied, 490 U.S. 1076, 109 S. Ct. 2091, 104 L. Ed. 2d 654 (1989). Indeed, as Uniroyal Goodrich notes, the federal mail fraud statute reaches mailings that are "'incident to an essential part of the scheme'" or are merely "'a step in [the] plot.'" Id. (quoting Badders v. United States, 240 U.S. 391, 394, 36 S. Ct. 367, 368, 60 L. Ed. 706 (1916)). Further, "'where one does an act with knowledge that the use of the mails will follow in the ordinary course of business, or when such use can be reasonably foreseen, even though not actually intended, then he "causes" the mails to be used.'" United States v. Bonansinga, 773 F.2d 166, 168 (7th Cir. 1985) (quoting Pereira v. United States, 347 U.S. 1, 8-9, 74 S. Ct. 358, 362-63, 98 L. Ed. 435 (1954)), cert. denied, 476 U.S. 1160, 106 S. Ct. 2281, 90 L. Ed. 2d 723 (1986).

 The wire fraud allegations, while certainly less detailed than the mail fraud allegations, also follow, in part, from the nature of the Uniroyal Goodrich-Mutual Trading relationship. In the eight years the two parties did business together, interstate telephone wires were occasionally, if not frequently, used. Uniroyal Goodrich alleges, in fact, that many phone calls over the years "were for the purpose and with the intent of effectuating the scheme to defraud." Complaint para. 10. The federal wire fraud statute implicates wire transmissions, like telephone communications, used to execute a scheme to defraud; it is "not necessary that the use of the telephone be central or essential to the scheme." United States v. Brennan, 629 F. Supp. 283, 293 (E.D.N.Y.), aff'd, 798 F.2d 581 (2d Cir. 1986).

 Defendants' motion to dismiss, as grounded in Rule 9(b)'s particularity requirements, is denied.

 III. RICO Counts

 A. Pattern of Racketeering Activity

 Uniroyal Goodrich must prove that defendants engaged in a "pattern of racketeering activity." 18 U.S.C. § 1962(a)-(c). A "'pattern of racketeering activity' requires at least two acts of racketeering activity" within a ten-year time period. § 1961(5). Acts of mail and wire fraud constitute racketeering activity under RICO. § 1961(1)(B).

 Two significant Supreme Court decisions have endeavored to flesh out just what a plaintiff must show to satisfy the "pattern of racketeering activity" requirement. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S. Ct. 3275, 3285 n. 14, 87 L. Ed. 2d 346 (1985) ("'It is this factor of continuity plus relationship which combines to produce a pattern.'"); see also H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 109 S. Ct. 2893, 2899, 106 L. Ed. 2d 195 (1989) ("Congress intend[ed] a more stringent requirement than proof simply of two predicates, but also envision[ed] a concept of sufficient breadth that it might encompass multiple predicates within a single scheme that were related and that amounted to, or threatened the likelihood of, continued criminal activity").

 Defendants' argument to dismiss for failure to allege a "pattern of racketeering activity" has two prongs. First, they allege that Uniroyal Goodrich "has failed to allege with particularity that either [Shafiq or Hauper] committed at least two predicate acts." Defendants' Memorandum of Law at 10. Defendants recognize that this contention depends on whether Uniroyal Goodrich's complaint satisfies ...


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