United States District Court, Northern District of Illinois, Eastern Division
July 12, 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 coming to be heard on the defendant's Motion to Dismiss
Count V of the Second Amended Complaint, the Court having reviewed the
defendant's Motion and Brief in Support, defendant's motion to dismiss is
hereby DENIED, for the reasons set out herein.
When plaintiff Angie Chen ("Chen") sought to file a Second Amended
Complaint including a Count V alleging a claim under the Racketeer
Influenced Corrupt Organizations Act (18 U.S.C. § 1961 et seq.
(RICO)), defendant Mayflower Transit, Inc. ("Mayflower") filed a Response
to Plaintiff's Motion to Amend Complaint [Dkt #38], which included the
argument that such an amendment would be futile because Chen's Count V
failed to assert a claim under RICO. This Court heard oral argument on
Chen's motion, and on May 25, 2001, issued a Memorandum Opinion and Order
(the "May Opinion" [Dkt #49]) granting Chen leave to file the Second
Amended Complaint including Count V.
Mayflower has now filed a motion to dismiss the RICO claims of the
Second Amended Complaint, which is patently a motion for reconsideration
of the May Opinion that permitted the filing of the Second Amended
Complaint. As discussed in the May Opinion (at 3), in reviewing a
proposed amendment for futility, the court applies the same standard of
legal sufficiency as applies to a Rule 12(b)(6) motion to dismiss.
In its original Response to Chen's motion for leave to file its RICO
merely made the simplistic argument that a corporation and its agents can
never constitute an "enterprise." (Def.'s Resp. to Pl.'s Mot. to Am.
Compl. at 9.)*fn1 Obviously, that argument must be rejected, since the
Seventh Circuit has specifically refused to rule out that possibility.
See Fitzgerald v. Chrysler Corp., 116 F.3d 225, 228 (7th Cir. 1997),
discussed in May Opinion at 7. Mayflower now argues that the May Opinion
"clearly fails to follow numerous decisions of the Courts of Appeals,
particularly those of the Seventh Circuit" relating to the issue of the
distinctiveness of the RICO enterprise alleged. (Def's Br. in Supp. of
Mot. to Dismiss at 1.)
Contrary to Mayflower's implication, each of the Seventh Circuit
opinions discussed in Mayflower's current Brief — Haroco, Inc. v.
American National Bank and Trust Co. of Chicago, 747 F.2d 384 (7th Cir.
1984); Richmond v. Nationwide Cassel L.P., 52 F.3d 640 (7th Cir. 1995);
Fitzgerald v. Chrysler Corp., 116 F.3d 225 (7th Cir. 1997); and Emery v.
American General Finance, Inc., 134 F.3d 1321 (7th Cir. 1998) — was
considered prior to issuing the May opinion. Each of those opinions was
also thoroughly discussed by Judge Kennelly in Majchrowski v. Norwest
Mortgage, Inc., 6 F. Supp.2d 946, 953-958 (N.D.Ill. 1998), which was
discussed in the May Opinion at 7. The recent Supreme Court decision in
Cedric Kushner Promotions Ltd v. King, ___ U.S. ___, 121 S.Ct. 2087 (June
11, 2001), had not been issued at the time of the May Opinion, although
its pendency was noted. (May Opinion at 6, n. 2.) However, the Cedric
Kushner decision does not support dismissing Chen's RICO claim. While not
precisely on point to this case, in that decision the Supreme Court held
that the Second Circuit had construed the distinctiveness requirement too
narrowly. The Supreme Court rejected the Second Circuit's holding that a
corporate employee conducting the affairs of a corporation of which he is
the sole owner is not distinct enough from the corporation in order to
satisfy RICO. The defendant in Cedric Kushner cited the same principles
cited by Mayflower here: That a corporation acts only through its
employees and agents, and that a corporation cannot conspire with its
employees in violation of antitrust laws. ___ U.S. at ___, ___ S.Ct. at
2092. However, the Supreme Court stated that the formal legal distinction
created by incorporation is sufficient for the RICO statute. Id.
Mayflower now argues that "[t]he legal unity of the interstate carrier
and its agents is compelled by federal law." (Def.'s Br. in Supp. of
Mot. to Dismiss at 8.) However, Mayflower's argument does not dissolve
the legal distinction that exists between Mayflower and the other
corporations that Chen alleges constitute the association that is the
"enterprise." At most Mayflower cites authority suggesting that it may be
liable for actions by the associated local agents. That in itself is not
enough to demonstrate that Mayflower and its agents could never form an
association that would constitute a RICO enterprise.
Mayflower argues that a corporate defendant cannot be liable under RICO
for conducting its own affairs through its agents. (Def.'s Br. in Supp.
of Mot. to Dismiss at 4, emphasis in original.) The May Opinion made the
same point (May Opinion at 7), but concluded that Chen's Count V contains
allegations supporting the inference that Mayflower and its local agents
went beyond conducting the normal affairs of Mayflower.
Mayflower fails to consider Chen's pleading under the standard
applicable on a motion to amend (or a motion to dismiss): The Court can
deny an amendment (or dismiss a pleading) only if it is clear that no set
of facts consistent with its allegations would entitle the plaintiff to
relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Viewing Chen's
proposed pleading under the applicable standard, the allegations of Chen's
RICO claim can fairly be read to allege that Mayflower and its
local agents went beyond conducting the normal affairs of Mayflower, and
were acting on behalf of the enterprise with the goal of extorting
additional money out of Chen and others for their own benefit through the
device of the enterprise.
Mayflower's Brief (at 7) includes a quotation from the Seventh
Circuit's decision in Fitzgerald in which that Court asks the following
What possible difference, from the standpoint of
preventing the type of abuse for which RICO was
designed, can it make that Chrysler sells its products
to the consumer through franchised dealers rather than
through dealerships that it owns, or finances the
purchase of its motor vehicles through trusts, or
sells abroad through subsidies? . . . In the
prototypical case with which we began, it is easy to
see how the defendant gains additional power to do
evil by taking over a seemingly legitimate
enterprise. How, though, was Chrysler empowered to
perpetuate warranty fraud by selling through dealers
rather than directly to the public?
116 F.3d at 227.
In this case, those questions are answered by Chen's pleading. The use
of separately incorporated local agents permitted the enterprise (the
agents and Mayflower working together) to take Chen's goods representing
that certain terms of the agreement were as Chen understood them, and use
the fact that the goods were being held by employees of a different local
agent (Century) as a basis to refuse to honor the agreements that Chen
had made, requiring Chen to pay additional amounts in order to get the
local agent to release her goods. (2nd Am. Compl. ¶ 6-56.)*fn2
Contrary to Mayflower's argument, this Court has not "concluded that
there is a distinct `enterprise'." (Def.'s Br. in Supp. of Mot. to
Dismiss at 12.) The Court has concluded that it is possible that Chen
may be able to prove a set of facts that would entitle her to relief
That is all that is at issue on a motion for leave to amend or a motion
For the foregoing reasons, the defendant's motion to dismiss is denied.
IT IS SO ORDERED.