United States District Court, Northern District of Illinois, Eastern Division
May 25, 2001
ANGIE CHEN, PLAINTIFF/COUNTER DEFENDANT,
MAYFLOWER TRANSIT, INC., DEFENDANT/COUNTER PLAINTIFF.
The opinion of the court was delivered by: Geraldine Soat Brown, Magistrate Judge
MEMORANDUM OPINION AND ORDER
This cause is before the Court on the Plaintiff's Motion for Leave to
file Instanter Plaintiff's Second Amended Complaint. [Dkt #42.] The
defendant filed its Response to Plaintiff's Motion to Amend [Dkt #38],
the plaintiff filed a Reply in Support of her Motion [Dkt #40], and the
Court heard oral argument. For the reasons set out below, the Plaintiff's
Motion is GRANTED.
PROCEDURAL BACKGROUND AND JURISDICTION
This case arises from a 1999 contract between Plaintiff Angie Chen
("Chen") and Defendant Mayflower Transit, Inc. ("Mayflower") for the
movement of Chen's furniture and household goods from Atlanta, Georgia to
Chicago, Illinois. Chen alleges, inter alia, as follows: Mayflower,
Admiral Moving and Storage, Inc. ("Admiral"), its agent in
Georgia, gave Chen a "not to exceed" estimate of $1,741.89 for the move.
Chen's property did not arrive in Chicago as scheduled, causing Chen to
incur expenses. When the property did arrive, Mayflower, again through a
local agent Century Moving and Storage, Inc. ("Century"), would not
release Chen's goods unless she paid $2,641.19 in cash or certified
check. Because Century would not accept a credit card, Century placed
Chen's goods in storage and threatened to auction them to pay both the
moving costs and storage costs, totaling $5,122.83. Chen's property
remained in storage for three months. (Proposed 2nd Am. Compl. at ¶¶
6-57.) Chen alleges three other similar occurrences in which Mayflower
and its local agents issued cost estimates to individuals — Craig
Pietrowiak, Kate Rice, and Gerald and Minna Aronoff — and
subsequently refused to release the individual's property unless the
individual agreed to pay more than the original estimate. (Id. at ¶¶
Jurisdiction exist pursuant to 28 U.S.C. § 1331. Chen's breach of
contract and conversion claims are brought pursuant to the Carmack
Amendment (49 U.S.C. § 14706), and thus, there is jurisdiction under
28 U.S.C. § 1331 for those claims and the proposed RICO claim. There
is supplemental jurisdiction under 28 U.S.C. § 1367 for plaintiff's
state law claims of negligent and intentional infliction of emotional
Chen initially filed her Complaint on September 23, 1999, alleging
breach of contract, conversion, and both intentional and negligent
infliction of emotional distress. [Dkt #1.] She filed an Amended
Complaint on November 23, 1999. [Dkt #10.] On January 13, 2000, Mayflower
filed its Answer and Counterclaim for $5,573.38 allegedly due and owing
from Chen. [Dkt #15.] When this case was reassigned to this Court in June
2000, expert discovery was underway and a trial date had been set. [Dkt
#22.] In September 2000, Mayflower was given leave to file an Amended
Answer and Counterclaim [Dkt #31, 32], which it filed on November 13,
2000. [Dkt #35.]
On December 8, 2000, Chen filed the present motion for leave to file a
Second Amended Complaint, in order to add proposed Count V, a claim under
the Racketeer Influenced Corrupt Organizations Act (18 U.S.C. § 1961,
et seq. (RICO)). Mayflower objected to Chen's proposed amendment, and
filed Defendant's Response to Plaintiff's Motion to Amend Complaint.
Federal Rule of Civil Procedure 15(a) requires that, once a responsive
pleading has been filed, a party may amend its pleading only by consent of
the adverse party or by leave of court, and "leave shall be freely given
when justice so requires." On the other hand, leave to amend may be
denied if there is "undue
delay, bad faith or dilatory motive on the part
of the movant, . . . undue prejudice to the opposing party by virtue of
allowance of the amendment, [or] futility of amendment." Foman v. Davis,
371 U.S. 178, 182 (1962).
"Futility" means that the complaint, as amended, would
fail to state a claim upon which relief could be
granted. In reviewing for "futility," the district
court applies the same standard of legal sufficiency
as applies to a Rule 12(b)(6) motion.
Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996)
(citations omitted.) A complaint may not be dismissed for failure to
state a claim unless it appears beyond doubt that the plaintiff can prove
no set of facts in support of her claim which would entitle her to
relief. Conley v. Gibson, 355 U.S. 41, 45 (1957).
Chen's proposed amendment was not dilatory and will not
result in undue delay.
Mayflower first argues that Chen should not be permitted to amend
because Chen's motion was filed after fact discovery had closed.
However, viewed in light of the history of this case set out above, that
argument does not overcome Rule 15's directive that leave to amend should
be "freely given." Chen's present motion to amend was filed a little over
a year after her initial complaint, and less than a month after Mayflower
filed its Amended Answer and Counterclaim. Chen argues that her counsel
first learned of the facts that might give rise to a RICO claim in late
October 2000 when he learned of the case Pietrowiak v. Century Moving &
Storage, Inc., 99 C 7419, 1999 WL 1295133 (N.D. Ill., Dec. 20, 1999). In
that case, Judge James Moran of this Court dismissed an action brought
against Century because the proper defendant was Mayflower. According to
Chen, the similarity between Pietrowiak's allegations and Chen's claims
prompted counsel to investigate the possibility of a RICO claim. (Pl.'s
Mot. at 3-4.) Plaintiffs present motion was filed promptly after counsel
completed his investigation. (Id. at 4.) Mayflower argues that Chen
should have learned of Pietrowiak earlier (Def.'s Resp. at 4), but the
facts do not demonstrate Chen was dilatory in the sense of failing to
plead a claim based on facts known to her.
Mayflower has not claimed that it will be prejudiced by the delay in
resolution of its counterclaim if Chen's motion is granted and the trial
of this case delayed. As Mayflower admits, its counterclaim is "nominal"
and the amount claimed was actually reduced in its latest amendment.
(Def.'s Resp. at 4.) The gravamen of Mayflower's argument is that Chen's
proposed amendment may transform a relatively simple lawsuit in which
Mayflower contemplated a motion for summary judgment into a more complex
litigation that will require additional discovery. (Def.'s Resp. at 4-5.)
However, Mayflower does not argue that Chen's RICO claim is time-barred.
Thus, if Chen is not permitted to file her RICO claim in this
litigation, she presumably could bring it as a separate action, which
would result in more duplication of effort and expense than if the claim
is brought in this proceeding. This case is distinguishable from Sanders
v. Venture Stores, Inc., 56 F.3d 771 (7th Cir. 1995), cited by
Mayflower, where the plaintiff filed her motion to amend after the
defendant filed an ultimately-successful motion for summary judgment, and
the plaintiff sought in its amendment to assert federal claims that would
be time-barred but for the relation-back doctrine. 56 F.3d at 775, n.2.
The Federal Rules of Civil Procedure favor resolving all of the disputes
between the same parties that arise out of the same transaction in a
single action where possible to bring about the "just, speedy and
inexpensive determination of every action."
Fed.R.Civ.P. 1. Thus, there
is no reason to deny Chen's motion on the basis of undue prejudice or
Chen's Proposed Amendment is not Futile.
Mayflower's second argument is that Chen has failed to plead the
necessary elements of a RICO claim. The statute under which Chen seeks to
bring Count V, 18 U.S.C. § 1962(c), makes it unlawful for "any person
employed by or associated with [an] enterprise . . . to conduct or
participate, directly or indirectly, in the conduct of such enterprise's
affairs through a pattern of racketeering activity or collection of
unlawful debt." Mayflower argues that Chen's proposed Count V does not
allege "an enterprise," a "pattern" or "racketeering activity."
1. The enterprise requirement.
With respect to the enterprise requirement, Chen's proposed Count V
alleges, in essence, the following: Mayflower contracts with regional
shipping companies that act as local disclosed agents of Mayflower and
provide marketing, sales, pick-up, hauling, storage and delivery services
pursuant to Mayflower's authority. (Proposed 2nd Am. Compl. ¶ 59.)
Mayflower itself does not provide any packing, unpacking, or hauling
services directly to customers. (Id. at ¶ 60.) Mayflower requires
that its local agents comply with written guidelines regarding line haul
charges, discounts and other standards. (Id. at 59.) Mayflower's local
agents, in turn, contract with individual shippers to transport household
goods across interstate lines. (Id. at ¶ 61.) The communications
between and among Mayflower, the local agents and individual shippers
take place through Mayflower's central database and computer system using
interstate wires. (Id. at ¶ 61.) Chen defines the "Enterprise" as
Mayflower and the local disclosed agents associated together on an
ongoing basis and joined in the common goal of marketing, booking,
packing, hauling, storing and delivering interstate shipments of household
goods. (Id. at ¶ 62.) Mayflower participates in the Enterprise by
issuing guidelines, providing a means of centralized communication,
maintaining a customer service line for the Enterprise's shipping
customers, approving credit transactions, overseeing operations, taking
in and distributing all revenues, and providing the authority (pursuant
to federal regulations) under which it and the other members of the
Enterprise operate. (Id. at 64.) The local agents participate by booking
shipments for the Enterprise, issuing estimate orders, determining what
discounts apply and performing services such as packing, hauling, loading
and unloading. (Id. at 65.)
Mayflower argues that these allegations do not properly plead the
enterprise requirement because Mayflower and its agents are one person,
citing Wagner v. Magellan Health Services, Inc., 121 F. Supp.2d 673
(N.D. Ill. 2000) for the proposition that a corporation cannot conspire
with its employees or agents. (Def.'s Resp. at 9-10.) However, as Chen
notes, the statement that Mayflower cites from Wagner was made in
connection with Sherman Act claims. 121 F. Supp. 2d at 673. Further, in
that opinion, the District Court stated that a firm and its employees
cannot be a RICO enterprise. 121 F. Supp. 2d at 683-84, emphasis
At issue is whether Mayflower (the RICO "person") is distinct enough
from the alleged Enterprise to meet the requirements of RICO. The case
law demonstrates that the issue is more complex than suggested by
Mayflower's argument. Chen's allegations meet the "distinctness
requirement" that the RICO person to be an entity separate from the
enterprise whose affairs it conducts. Haroco, Inc. v. American Nat'l Bank
& Trust Co., 747 F.2d 384, 400 (7th Cir. 1984). However, under Seventh
Circuit precedent, the RICO enterprise must be more than an association
to conduct the normal affairs of the RICO person. Majchrowski v. Norwest
Mortgage, Inc., 6 F. Supp.2d 946, 955 (N.D. Ill. 1998) (collecting
cases). It is not correct that a RICO enterprise cannot consist of a
corporation and its disclosed agents. See Fitzgerald v. Chrysler Corp.,
116 F.3d 225, 228 (7th Cir. 1997): "Maybe a manufacturer could use its
dealers or other agents or affiliates in such a way as to bring about the
sort of abuse at which RICO is aimed, in which event it might be possible
to characterize the assemblage as a RICO enterprise." However,
distinctness is not found where a corporation deals with its agents in
the ordinary way so that the agents' role in the corporation's illegal
acts is entirely incidental. (Id.) The focus is whether the person and
the other alleged participants in the enterprise are legally distinct
entities and each played a distinct role within the purported scheme.
Majchrowski, 6 F. Supp. 2d at 956-58.
Here, the alleged participants in the Enterprise are separate corporate
entities, and Chen alleges distinct roles in the RICO Enterprise for the
local agents and for Mayflower. The local agents conduct activities, such
as hauling and packing, that Mayflower does not do. Under the scheme
alleged by Chen, the local agents' refusal to relinquish the victim's
goods unless the allegedly improper price is paid is critical to the
success of the scheme. Mayflower allegedly provides the interstate
authority and the communication links (including computer system) via
interstate wire, and receives and disburses the receipts from the
Enterprise to the other participants in the Enterprise. Significantly,
Chen's RICO claim can fairly be read to allege that the wrongful
activities that the agents perform for the Enterprise are beyond the
activities they undertake as agents for Mayflower: The activity of the
Enterprise is the extortion and sharing of improper additional amounts
beyond the initial estimates that would be the proper contract
compensation for Mayflower and its agents. Chen has sufficiently pleaded
the enterprise requirement of a RICO claim.
2. Racketeering activity.
Mayflower also argues that Chen has not pleaded illegal activities.
Chen's proposed Count V alleges that the Enterprise engaged in mail and
wire fraud (in violation of 18 U.S.C. § 1341 and 1343) by way of
false promises and misrepresentations that the cost of her move was
guaranteed not to exceed $1741.89; theft from interstate shipment (in
violation of 18 U.S.C. § 659) by taking Chen's goods by fraud or
deception after she had placed them in possession of a common carrier
traveling in interstate commerce, with intent to convert the goods to the
Enterprise members' use; and extortion (in violation of
18 U.S.C. § 1951) by use of threatened force against her property in
an effort to obtain more than the estimated cost. (Proposed 2nd Am.
Compl. at ¶¶ 67-82.)
Mayflower claims that Chen fails to plead mail or wire fraud because
she has not pleaded a misrepresentation of fact. (Def's Resp. at 6.)
However, Mayflower also cites Richards v. Combined Insurance Co.,
55 F.3d 247, 251-52 (7th Cir. 1995), in which the Seventh Circuit stated
fraud does not encompass all of the strict requirements of
common law fraud, and, thus, false pretenses and promises as well as
misrepresentations of present fact are within the scope of RICO liability
for mail or wire fraud. Chen pleads with specificity that Admiral,
Mayflower's local agent in Georgia, represented that the cost of the move
was "guaranteed not to exceed" $1,741 and that Chen could pay with a
credit card, and also pleads that Mayflower and its agents Century and
Admiral "had a specific intent to defraud Ms. Chen." (Proposed 2nd Am.
Compl. at ¶¶ 9, 12 and ¶ 71.) Chen includes similar detailed
allegations with respect the other claimed predicate acts, the alleged
wrongful activities toward Craig Pietrowiak, Kate Rice, and Gerald and
Minna Aronoff. (Id. at ¶¶ 86-112.)
The fraud allegations in this case are similar to those in Corley v.
Rosewood Care Center, Inc. of Peoria, 142 F.3d 1041 (7th Cir. 1998). in
which the Seventh Circuit reversed summary judgment entered against the
plaintiffs. The plaintiffs alleged that the defendants engaged in a "bait
and switch" scheme in which the defendants made false promises about the
quality of care that the residents of a nursing home would receive and a
false promise that a resident would be permitted to stay in the Peoria
facility as a Medicaid patient even if she were to exhaust her private
funds. The Seventh Circuit agreed with the district court that the
complaint adequately alleged a pattern of racketeering activity. 142 F.3d
at 1050. Likewise, Chen's allegations of a "bait and switch" scheme of
false promises upon which Chen allegedly relied sufficiently allege mail
and wire fraud.
Mayflower also argues that the actions alleged are not criminal
offenses, but cites no authority to support its position that Chen's
allegations of extortion and theft from interstate shipment are
inadequate as a pleading matter. (Def.'s Resp. at 7.)*fn3
Finally, Mayflower argues that the acts that Chen alleges are illegal
are, in fact, authorized by Mayflower's tariff. (Def.'s Resp. at 7-9). In
support of that argument, Mayflower attaches certain exhibits to its
Response, including a copy of its tariff and urges the Court to "go
beyond the proposed pleading and look at the evidence." (Def.'s Resp. at
7, n.3.) However, there is no express authority in Rule 15 for converting
a plaintiff's motion for leave to amend under Rule 15 into a defendant's
motion for summary judgment under Rule 56. Cf. Fed.R.Civ.P. 12(b).
Following Mayflower's suggestion would also eliminate the useful format
for summary judgment motions mandated by Local Rule 56.1. Thus, this
Court excludes from consideration on this motion the exhibits attached to
Defendant's Response. For the same reason, the Court disregards exhibit B
(certain Superceding Indictments) attached to the Plaintiff's Reply.
3. A pattern.
Mayflower argues that no "pattern and practice" (sic) is alleged in
Chen's proposed Count V. (Deft's Resp. at 10.) However, Corley,
142 F.3d 1041,
demonstrates that Chen has sufficiently alleged a pattern
of racketeering activity. The pattern requirement means that
in addition to at least two predicate acts, a RICO
plaintiff must show "that the racketeering predicates
are related, and that they amount to or pose a threat
of continued criminal activity."
Corley, 142 F.3d at 1048, quoting H.J. Inc. v. Northwestern Bell Tel.
Co., 492 U.S. 229, 239 (1989). The predicate acts here are related, in
that they have the same or similar purposes, results, participants,
victims, or methods of commission or otherwise are interrelated by
distinguishing characteristics and are not isolated incidents. The
participants are Mayflower and its local agents. The purpose and result is
to obtain monies in excess of the original estimates by holding the
individual's property until the individual pays the additional amounts.
The method is to obtain the individual's property and subsequently demand
additional amounts for claimed additional services, refusing to release
the property until the amounts are paid.
The final element is continuity, the threat of continued or continuing
Continuity, the Court observed, is both a closed- and
open-ended concept, in that it refers "either to a
closed period of repeated conduct or to past conduct
that by its nature projects into the future with a
threat of repetition."
Corley, 142 F.3d at 1048, quoting H.J. Inc., 492 U.S. at 241. Closed-end
continuity can be proven by a series of related predicates extending over
a substantial period of time, usually not merely a few weeks or months.
Corley, 142 F.3d at 1048. Open-end continuity may involve predicate acts
occurring over a short period of time so long as there is a threat that
the conduct will occur in the future. (Id.) Here, Chen's allegations
arguably fit both types. She alleges acts that occurred in 1994 (Rice and
Aronoff) and 1999 (Chen and Pietrowiak) and also alleges that the members
of the Enterprise associate "on an ongoing basis." (Proposed 2nd Am.
Compl. at ¶ 62.) She further alleges that, on information and
belief, the Enterprise used mail or interstate wire to further additional
schemes to induce other individuals to contract with the participants in
the Enterprise for moving services and to surprise these individuals with
additional charges after the individuals have surrendered control over
their property to the participants in the Enterprise. (Id. at ¶ 113.)
Mayflower dismisses this as "a thinly veiled pitch for more discovery,"
(Def.'s Resp. at 13), however, the similarities between Chen's pleading
and that of the plaintiffs in Corley are striking, and the Seventh
Circuit's conclusion in Corley compels the result here:
Corley's complaint identifies certain other Rosewood
residents to whom various misrepresentations were
communicated, and with respect to the identified
residents, he details the circumstances of the alleged
frauds with sufficient particularity. To the extent
the complaint makes allegations relating to other
classes of unidentified Rosewood residents, however,
we believe that Rule 9(b)'s particularity requirement
must be relaxed it at the time the complaint was
filed, Corley had been denied access in discovery to
information that would identify those residents.
Predicate acts of racketeering relating to those
residents may be pled more generally, as Corley has
done here by referencing his own experiences with
Rosewood in contracting for the car of his mother and
alleging in some detail that other residents and their
relatives also were victimized by the identical
scheme. In sum, then, we agree with the district court
that Corley's fourth amended complaint
particularity requirements of Rule 9(b) and
sufficiently alleges a pattern of racketeering
activity. It was therefore not subject to dismissal
for failure to state a claim.
Corley, 142 F.3d at 1051. Chen has adequately alleged a RICO claim, and
is entitled to move forward with discovery on it.
Chen has adequately pleaded a claim under Section 1962(d).
Mayflower's arguments against Chen's Section 1962(d) conspiracy claim
merely reiterate Mayflower's previous arguments that Chen has not stated
a substantively sufficient RICO claim, and that Mayflower cannot conspire
with its agents. As discussed above, Chen's allegations sufficiently
plead a RICO claim. Mayflower's second argument consists of the single
sentence that "Mayflower and its agents [are] one person in the eyes of
the law," referring back to its single citation of the Wagner case.
(Def.'s Response at 15.) Again, Mayflower's argument is far too
simplistic. The intracorporate conspiracy doctrine, which provides that a
generally corporation cannot conspire with its officers or employees
acting within the scope of their employment, or with its unincorporated
divisions or wholly owned subsidiaries (Copperweld Corporation v.
Independence Tube Corp., 467 U.S. 752, 769-70 (1984) (alleged conspiracy
to violate Sherman Act)) is itself as the Seventh Circuit has noted,
subject to a number of exceptions. See Hartman v. Board of Trustees of
Community College, 4 F.3d 465, 470 (7th Cir. 1993); Payton v.
Rush-Presbyterian-St. Luke's Medical Center, 184 F.3d 623, 632-33 (7th
Cir. 1999) (applying doctrine to in claims pursuant to
42 U.S.C. § 1985).*fn4 In this case, Chen's RICO claim can be fairly
read to plead that Century and Admiral, which are separately-owned
corporate entities that are engaged from time to time to act for some
purposes as local agents for Mayflower, conspired with Mayflower and other
local agents to commit illegal acts to obtain additional monies from
customers for their own benefit and for the benefit of the Enterprise,
not solely for the benefit of the principal Mayflower. Mayflower has
failed to demonstrate that there are no set of facts that Chen can prove
that would enable her to prove a conspiracy among those entities.
For the foregoing reason, plaintiff's Motion for Leave to File
Instanter Plaintiff's Second Amended Complaint is GRANTED.
IT IS SO ORDERED.