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DUDLEY ENTERPRISES v. PALMER CORP.

August 24, 1993

DUDLEY ENTERPRISES, INC., an Illinois corporation, and ELIZABETH M. SIMON, Plaintiffs,
v.
PALMER CORPORATION, a New Jersey corporation, PALMER VIDEO CORPORATION, a New Jersey corporation, PETER BALNER, PETER MARGARITONDO, aka PETER MARGO, PAUL M. GRASSI, SUSAN BAAR, STAN SIMMS, and GERT ELSTER, Defendants.


MORAN


The opinion of the court was delivered by: JAMES B. MORAN

Plaintiffs Dudley Enterprises, Inc. (Dudley) and Elizabeth Simon bring this action under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq., against defendants Peter Balner (Balner), Peter Margaritondo, aka Peter Margo (Margo), Paul Grassi (Grassi), Susan Baar (Baar), Stan Simms (Simms), and Gert Elster (Elster), alleging that defendants sold plaintiffs a franchise program as part of a scheme to defraud (counts I and II). In addition, plaintiffs allege that defendants Palmer Corporation (Palmer), Palmer Video Corporation (PVC) and the above-mentioned defendants committed the following state law violations: (1) violation of the Illinois Franchise Disclosure Act of 1987 (the Act) (count III); (2) intentional infliction of emotional distress (count IV); and (3) fraud (count V). Before us is defendants' motion to dismiss plaintiffs' complaint. Federal subject matter jurisdiction is based on 28 U.S.C. § 1331 and 28 U.S.C. § 1332 -- the parties being of diverse citizenship and the controversy exceeding $ 50,000. For the reasons stated below, defendants' motion is granted in part and denied in part.

 FACTS

 We include here only a brief recitation of the facts since in this court's February 3, 1993 memorandum and order the facts were stated in detail.

 PVC is a franchisor that grants franchisees the right to operate stores under the name "Palmer Video Stores." Some or all of the shares of stock of PVC are owned by Palmer Corporation. The other named defendants are current or former employees of PVC and/or Palmer, who were in some way involved in the PVC franchise operation.

 In 1988, plaintiffs decided to open a retail video store and contacted PVC in order to obtain additional information about its franchise operations. Over approximately a four-month period plaintiffs had several conversations with PVC employees and received several documents from PVC explaining and promoting the PVC franchise operation. On December 20, 1988, Simon entered into an agreement whereby she (and subsequently Dudley) became a PVC franchisee. *fn1" Simon opened her video store in Niles, Illinois.

 Plaintiffs refer to numerous conversations with and correspondence sent by defendants that, according to plaintiffs, constituted misrepresentations regarding PVC's expertise in operating a national franchise, and programs and other benefits available to a PVC franchisee. According to defendants, plaintiffs refused to pay the royalties and/or fees that were due the franchisor in accordance with the franchise agreement. PVC terminated plaintiffs' franchise agreement in August 1991. Plaintiffs continue to operate the video store.

 DISCUSSION

 I. Motion to Dismiss Pursuant to Fed.R.Civ.P. 9(b)

 On February 3, 1993, this court dismissed plaintiff's complaint in its entirety, without prejudice, holding that plaintiffs had not complied with Rule 8 or Rule 9 of the Federal Rules of Civil Procedure (with respect to plaintiffs' fraud claims). Dudley Enterprises, Inc. et al. v. Palmer Corporation et al., 822 F. Supp. 496, slip op. (N.D.Ill. 1993). This court afforded plaintiffs the opportunity to amend their complaint, and they have. Defendants now move to dismiss counts I, II and V of plaintiffs' amended complaint pursuant to Rule 9(b).

 Plaintiffs are not required to plead a wealth of evidentiary material, but must describe the outline of the fraudulent scheme and facts identifying the who, what, when and where of the fraud. This court has examined the amended complaint and finds that plaintiffs have pled sufficient detail necessary to put defendant on notice of the alleged fraud and have met Rule 9(b)'s pleading requirements. Defendants point to numerous examples in the amended complaint that they consider to be lacking in specificity. We agree that certain areas of the amended complaint lack exact details; however, that alone does not overcome the fact that plaintiffs have pled fraud with particularity and have satisfied Rule 9(b). Defendants' motion to dismiss pursuant to Rule 9(b) is therefore denied.

 II. Rico Claims

 A. Preliminary ...


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