The opinion of the court was delivered by: Gettleman, District Judge.
MEMORANDUM OPINION AND ORDER
Plaintiff Williams Electronics Games, Inc. has brought an eight
count second amended complaint ("complaint") against defendants
Gregory S. Barry ("Barry"), Lorna Barry, Donald G. Barry,
Kathleen M. Barry, James M. Garrity, Arrow Electronics, Inc.
("Arrow"), Lawrence J. Gnat ("Gnat"), Richard S. Slupik, Milgray
Electronics, Inc. ("Milgray"), Microcomp, Inc., Linda J. Gnat,
Etak, Ltd., and American Progressive Circuits, Inc. ("APC").
Counts I and II, brought against all defendants, allege
violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO"), 18 U.S.C. § 1961 et seq. Count III, against
Arrow, Garrity, Milgray, Gnat and Slupik, allege Sherman Act
violations, 15 U.S.C. § 1 et seq. Count IV, against all
defendants, alleges state law claims for breach of fiduciary duty
and inducement to breach fiduciary duty. Count V*fn1 against
all defendants, alleges common law fraud and conspiracy, and
Count VI alleges violations of the Illinois Consumer Fraud Act,
815 ILCS 505/1 et seq. (Count VI), breach of contract and
restitution against Barry (Count VII), and accounting and
constructive trust (Count VIII). Defendants Arrow, Milgray and
APC (the "corporate defendants") and defendant Garrity have moved
to dismiss the RICO counts for failure to state a claim pursuant
to Fed. R.Civ.P. 12(b)(6). In addition, APC has moved for summary
judgment on Counts IV, V and VI. For the reasons set forth below,
defendants' motions are granted in part and denied in part.
Pursuant to Fed.R.Civ.P. 12(b)(6), a motion to dismiss should
not be granted unless it appears beyond doubt that plaintiff can
prove no set of facts in support of its claim. Conley v.
Gibson, 355 U.S. 41, 456, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The
court accepts as true all of the plaintiff's well-pleaded factual
allegations, and gives plaintiff the benefit of every reasonable
inference that may be drawn from those facts. Scheuer v.
Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974).
For the period 1989 to 1997 plaintiff manufactured and sold
coin operated pinball and video amusement games. It used
electronic components manufactured or sold to it by defendants
Arrow, Milgray and Microcomp. Defendant Barry was employed by
plaintiff from August 1989 until January 1997 as either a Senior
Buyer or Purchaser Manager. Barry was responsible for purchasing
the electronic components to be used in amusement games.
Arrow is the world's largest distributor of electronic
components and computer products to industrial and commercial
customers such as plaintiff. Garrity was an Arrow salesman whose
duties included selling electronic components to plaintiff.
Plaintiff alleges that Garrity acted in furtherance of those
duties as Arrow's agent and representative. According to the
complaint, in the fourth quarter of 1990, beginning no later than
January 1991, Garrity and Barry reached an agreement pursuant to
which Barry would purchase on behalf of plaintiff products from
Garrity at inflated prices. In return, Garrity provided Barry
with monthly and annual year-end cash kickbacks.
During the period in question, Milgray also provided plaintiff
with electronic component parts. Gnat was Milgray's branch
manager for the northern district of Illinois. As such, Gnat's
duties included supervising defendant Slupik, who was the Milgray
salesman in charge of selling to plaintiff. Plaintiff alleges
that Slupik, with the knowledge and encouragement of Gnat, also
sold components to Barry at inflated prices and in return paid
Barry monthly and year-end cash kickbacks.
Plaintiff further alleges that between 1992 and sometime in
1996 APC authorized Metro Teluse, Inc. and later Dyna Tech Sales,
Inc. and their employees, particularly Harold Krause and Michael
Iatomasi, to act as APC's agents to obtain and accept orders from
plaintiff for purchase of electronic circuit boards. According to
the complaint, APC sold electronic parts to plaintiff through
orders that its agents, including Krause and Iatomasi, obtained
under an arrangement in which they paid Barry consulting fees
and/or commissions to obtain the orders.
Although the complaint is replete with factual detail as
required by Fed.R.Civ.P. 9(b), reduced to its bare bones, the
complaint alleges two fairly simplistic schemes. First, for most
of the period in question Barry was plaintiff's primary buyer of
electronic components. His duty was to purchase such components
in the proper
quantities at the lowest prices available. Starting sometime in
early 1990 and continuing through March 1997, Barry devised a
scheme in which he disregarded those duties by placing orders
with defendants Arrow, Milgray, Microcomp, APC and others for
components that were priced above those available from approved
vendors, and for parts that Williams did not need. The result was
increased commissions to the corporate defendants' salesmen
(Gnat, Slupik and Garrity) who in turned paid Barry and / or his
family members cash kickbacks. In addition, Barry concealed the
excessive pricing by failing and refusing to bargain with
defendants or other vendors to obtain price concessions and by
instructing vendors to increase price quotations to create a
false impression that market prices were higher than they
actually were. Each summer from 1991 through 1995 Barry would
meet with the salesmen, Garrity for Arrow and Slupik for Milgray,
to review the level of purchases from the companies and determine
the anticipated future purchases Barry could cause plaintiff to
make, and to determine the amounts of payments to be made to
Barry. Although the scheme worked slightly differently with APC
than with the other corporate defendants, the basic concept, cash
kickbacks for orders at inflated prices, was the same.
The second scheme alleged involved price fixing. During 1994
through 1996 plaintiff used thousands of erasable programmable
read-only memory chips ("EPROMs") in its video games. Starting in
the fourth quarter of 1994 through 1996 EPROMs were available
from a variety of sources including franchised distributors as
well as directly from one of the manufacturers of the EPROMs that
Arrow and Milgray sold to plaintiff. Market prices for EPROMs
generally declined during this period. From late 1990 and
continuing until Barry left plaintiff in January 1997, Garrity
knew that Slupik and Gnat were paying Barry for purchase orders
for Microcomp and Milgray, and Slupik and Gnat knew that Garrity
was paying Barry to obtain purchase orders for Arrow. Plaintiff
alleges that Slupik, Gnat and Garrity agreed with each other that
they would cause Barry to place with Milgray approximately
one-half of the dollar value of plaintiff's purchase orders that
Barry placed with Arrow, and that Arrow and Milgray would not
compete with each other or with Microcomp for orders from
plaintiff. Sometime in September 1994, Slupik, Gnat and Garrity
agreed that instead of reducing Arrow's and Milgray's prices to
plaintiff for EPROMs, they would "fix, raise, stabilize and
maintain prices." Therefore, from August 1994 through June 1996,
Arrow and Milgray charged plaintiff identical prices for EPROMS
and changed those prices simultaneously in equal amounts.
As noted, the corporate defendants (Arrow, Milgray and APC) and
Garrity have moved to dismiss Counts I and II for failure to
state a claim pursuant to Fed. R.Civ.P. 12(b)(6). The corporate
defendants argue that the counts are defective because:
1. they rely on the doctrine of respondeat superior;
2. the alleged enterprise is an "association-in-fact" devoid of
any structure separate and apart from the racketeering acts that
defendants allegedly committed; and
3. the counts fail to allege a "pattern of racketeering
activity" as defined by the Seventh Circuit.
Garrity's motion relies on points two and three above, lack of
an enterprise and failure to allege a ...