The opinion of the court was delivered by: DUFF
This case is before the Court on the Plaintiff/Counter-Defendants' ("Buchbinder's")
motion to dismiss Count II of the Defendant/Counter-Plaintiff's ("UBS'") Amended Counterclaim. In support of the motion, Buchbinder argues that UBS failed to allege the elements of a civil RICO claim. Buchbinder offers three grounds in support of the motion to dismiss. First, Buchbinder claims that UBS impermissibly alleged that the RICO "enterprise" and the RICO Counter-Defendants are identical entities. Second, Buchbinder claims that UBS failed to plead with specificity the predicate acts required to establish a "pattern" of racketeering activity. Finally, Buchbinder claims that UBS failed to plead the "continuity" required to establish a "pattern" of racketeering activity. This Court grants the motion in part and denies it in part. The Court dismisses Bankcard America, Inc. as a Counter-Defendant, but leaves the rest of the Amended Counterclaim intact.
For the purposes of this motion to dismiss, we take the facts that UBS alleges in the Amended Counterclaim as true. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232, 81 L. Ed. 2d 59 (1984). Those facts are as follows. When a customer makes a credit card purchase from a merchant, the customer's credit card account is debited based on a communication from the processing terminal. At the end of the business day, the merchant transmits the total of his sales from the processing terminal to a data collection service. The data collection service effects a wire transfer to the merchant's account at the bank where the merchant owns a credit card sales account.
Counter-Defendant Bankcard America, Inc. ("BAI"), is a closely held Illinois corporation that provides credit transaction processing services to banks. BAI uses an assumed name, "American Bankcard Center." Counter-Defendant American Bankcard Systems, Inc., is also a closely held Illinois corporation that provides credit transaction processing services to banks. Samuel Buchbinder and Paul Alperstein are each shareholders, officers, and directors of both American Bankcard Systems, Inc. and BAI.
UBS is a New York corporation. It entered an agreement on October 8, 1991 with Buchbinder to provide marketing services as an independent sales organization ("ISO"). On behalf of Buchbinder, they were to solicit applications from merchants to open credit card sales accounts at the client bank. In return for acquiring a merchant base for the Counter-Defendants and their bank, UBS was to receive a cut of the commissions, or residuals, that each credit transaction would generate. Those residuals were to be payable to UBS in perpetuity, as long as the merchant remained with the client bank.
The Counter-Defendants had control over the timing of merchant approvals, over the distribution of processing equipment to merchants, and over the distribution of residuals to the ISOs. Whenever a new merchant would apply to open a credit card sales account at the client bank, it would remit to UBS a $ 95 application fee, which was then forwarded to the Counter-Defendants. Once the application was approved, the Counter-Defendants would provide the processing equipment to UBS to distribute to the approved merchant.
According to the Amended Counterclaim, Buchbinder customarily dragged out the application approval and equipment distribution times. Irate merchants awaiting their equipment and wondering where their $ 95 had gone would call Buchbinder to complain about poor customer service by the ISOs. Buchbinder used this as a pretext to cut off all residual payments to the ISOs. Additionally, Buchbinder placed telephone calls to the ISOs' merchants to falsely claim that the ISOs were crooked and under investigation by state and federal agencies. Some of these targeted merchants voluntarily terminated relations with the ISOs, thereby terminating their rights to even more residual payments. Without residuals, ISOs went out of business quickly for failure to pay their workforce and business expenses. To accelerate the decline of the ISO businesses, Buchbinder filed peremptory declaratory judgment actions on the ISO agreements. This litigation typically lasted long enough for many ISOs to run out of money with which to pay their attorneys, resulting in default judgments. Also, once the ISOs were bankrupt, Buchbinder raided the ISOs' former workforce and rehired the employees as its own.
UBS claims to be one of these targeted ISOs. It has filed the instant RICO action as a counterclaim to Buchbinder's earlier filed breach of contract action in this Court. UBS alleges the above scheme constitutes conduct of an enterprise in furtherance of a pattern of racketeering activity. UBS bases the allegations of racketeering activity on alleged predicate acts of mail and wire fraud involving communications concerning the formation and termination of ISO agreements.
Ordinarily, Rule 12(b) (6) motions address the face of the complaint. See Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985). In this case, more than just the face of the Amended Counterclaim is at issue. UBS has attached three exhibits to its Amended Counterclaim that it would like the Court to consider in evaluating Buchbinder's Motion to Dismiss. Exhibit A, incorporated by reference in paragraph 23, is a copy of the 1991 agreement between UBS and Buchbinder. Exhibit B, incorporated by reference in paragraph 40, is a copy of the Government's Motion for Rule to Show Cause Why Probation Should Not be Revoked, filed on April 19, 1991, in U.S. v. Samuel Buchbinder, 84 CR 951. Exhibit C, incorporated by reference in paragraph 40, is a copy of the transcript of the deposition of Paul Hook, taken on June 20, 1991.
A complaint is deemed to include documents attached to it as an exhibit or documents incorporated in it by reference. Id.; Fed. R. Civ. P. 10(c); 5 Wright & Miller, § 1327. Since Rule 10(c) allows a party to incorporate exhibit material by reference into the complaint, this Court considers these three exhibits to be part of UBS' Amended Counterclaim. Therefore, UBS is permitted to rely on them to show it has alleged a claim for which relief can be granted.
In Count II of its Amended Counterclaim, UBS alleges civil violations of RICO based on predicate acts of mail, wire, and bank fraud. The Racketeer Influenced and Corrupt Organizations Act ("RICO" or "Act"), Pub.L. 91-452, Title IX, 84 Stat. 941, as amended, 18 U.S.C. §§ 1961-1968, imposes civil and criminal liability on those who engage in certain prohibited activities. See H.J. Inc. v. Northwestern Bell Telephone Co., 492 ...