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December 21, 1994

VERNA EMERY, on behalf of herself and all others similarly situated, Plaintiff,


The opinion of the court was delivered by: ROBERT W. GETTLEMAN

Plaintiff Verna Emery brings this one count putative class action against American General Finance, Inc., alleging a violation of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1961 et. seq. The Court's jurisdiction is invoked pursuant to 18 U.S.C. § 1964 and 28 U.S.C. § 1331. Defendant has moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief may be granted.

 Motions to dismiss for failure to state a claim should not be granted unless it appears beyond doubt that 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, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The Court shall accept as true all of plaintiff's well-pleaded factual allegations and otherwise liberally construe the complaint. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1979). In addition, the Court shall give plaintiff the benefit of every reasonable inference that may be drawn from the facts. Powe v. City of Chicago, 664 F.2d 639, 642 (7th Cir. 1981). After applying these standards to plaintiff's complaint, for the reasons set forth below, the Court grants defendant's motion to dismiss.


 The complaint alleges that on July 14, 1992, plaintiff received a loan from defendant, and signed a note indicating the amount financed as $ 1983.81, with a finance charge of $ 1327.08 and an Annual Percentage Rate ("APR") of 36%. The note was secured by various items of personal property. Of the amount financed, $ 51.03 was a premium for credit life insurance, $ 120.82 represented the premium for credit disability insurance, $ 64.42 represented the premium for personal property insurance, and $ 6.00 was the premium for "non-filing insurance."

 In late January 1993, plaintiff received a flyer from defendant soliciting her to borrow more money. The flyer provides as follows:

Dear Verna:
I have extra spending money for you.
Does your car need a tune-up? Want to take a trip? Or, do you just want to pay off some of your bills? We can lend you money for whatever you need or want.
You're a good customer. To thank you for your business, I've set aside $ 750.00* in your name.
Just bring the coupon below into my office and if you qualify, we could write your check on the spot. Or, call ahead and I'll have the check waiting for you.
Jeff Siegler, Branch Manager
(312) 263-2030
* Subject to our normal credit policies.

 (An exact copy of the flyer is attached to this Opinion.)

 On January 29, 1993, plaintiff signed a new note with defendant, with an amount financed of $ 2399.83, a finance charge of $ 1641.28, and an APR of 35.69%. The new note was apparently secured by the same personal property as the first note. Of the amount financed, $ 61.75 represented the premium for credit life insurance, $ 146.20 represented the premium for credit disability insurance, $ 77.99 represents the premium for personal property insurance and $ 6.00 represents the premium for "non-filing insurance." An additional $ 96.80 went to "CU for IN," which is unidentified in the documents signed by plaintiff.

 According to plaintiff, the second note was a "refinancing" of her original loan, and that had defendant simply made a second loan to plaintiff for the additional amount requested, it would have cost plaintiff over $ 800.00 less. Plaintiff further alleges that defendant never told her that it would be cheaper for her simply to obtain a second loan rather than refinancing the original loan.

 Plaintiff's complaint is an attack on defendant's alleged policy or practice of what plaintiff terms "loan flipping." Defendant solicits by mail its current loan customers to request additional funds, and then documents the loan of the additional funds as a refinancing of the original loan plus the additional money. Defendant does not tell the borrower that the cost of refinancing is enormously greater than the cost of obtaining an additional loan. According to plaintiff, defendant's actions amount to a scheme or artifice to defraud by use of the mails (mail fraud), which in turn constitutes a predicate act under RICO.

 Defendant has moved to dismiss under Rule 12(b)(6), arguing that the complaint: (1) fails to allege sufficiently the elements of mail fraud as the predicate act for a RICO violation; (2) fails to allege sufficiently that defendant, as the alleged RICO "person," conducted or participated in the operation or management of an alleged "enterprise," as section 1962(c) requires; and (3) fails to allege that defendant's mailing was the proximate cause of RICO injury. Because the Court finds the first argument to be dispositive, this Opinion will not address the other two.


 Plaintiff has brought her complaint in one count alleging a RICO violation. Although not set forth with the appropriate specificity, *fn1" plaintiff appears to allege a violation of section 1962(c), which provides:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect interstate or foreign commerce, to conduct or participate in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

 18 U.S.C. 1962(c).

 Thus, to state a claim under section 1962(c) a complaint must allege sufficiently: (1) the existence of an enterprise that affects interstate or foreign commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated in the conduct of the enterprise's affairs; and (4) that the defendant participated through a pattern of racketeering activity. Dennis v. Peoples Gas Light & Company, 1990 U.S. Dist. LEXIS 5751, 1990 WL 70372 (N.D. Ill. 1990). While defendant has challenged all four elements, it is the last which the Court finds dispositive.

 "Racketeering activity" under RICO can consist only of the various criminal acts set forth in 18 U.S.C. § 1961(1). There must be at least two such predicate acts properly pled in order to even address whether other precedential requirements ...

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