United States District Court, N.D. Illinois
January 30, 2004.
ANGELIA M. WHITEHEAD, Plaintiff,
GATEWAY CHEVROLET, OLDSMOBILE, INC., CRAIG ANDREA, LEE DRYZBEK, and THOMAS OKIMOTO, Defendants
The opinion of the court was delivered by: SUZANNE CONLON, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Angelia M. Whitehead ("Whitehead") sues Gateway Chevrolet,
Oldsmobile, Inc. ("Gateway"), Craig Andrea ("Andrea"), Lee Dryzbek
("Dryzbek"), and Thomas Okimoto ("Okimoto") (collectively "defendants")
for violations of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. § 1962(c) [Count I], and common Jaw fraud [Count
II]. Thereafter, this court ordered Whitehead to file a RICO case
statement. In the interim, defendants moved to dismiss Whitehead's
complaint for lack of subject matter jurisdiction pursuant to
Fed.R.Civ.P. 12(b)(1). In response, Whitehead filed a combined response to
defendants' motion to dismiss and her RICO case statement. Defendants'
motion, construed as a Fed.R.Civ.P. 12(b)(6) motion to dismiss, was
granted, and Whitehead was given leave to file an amended complaint in
order to incorporate the allegations from her RICO case statement.
Defendants now move to strike and dismiss Whitehead's amended complaint
pursuant to Fed.R.Civ.P. 12(f) and 12(b)(6). Specifically, defendants
claim that ¶¶ 64, 68-93, 96-133 and 137 of the amended complaint (as
well as portions of the RICO case statement) should be
stricken because Whitehead has included Gateway's confidential
information in those paragraphs, violating an agreed protective order
entered by Judge Bucklo in Isaiah Beene v. Gateway Chevrolet,
Oldsmobile, Inc., Case No. 02 C 830, Minute Order 7/11/2003, Doc.
No. 26 (hereinafter, "Beene protective order"). Defendants
further claim that Whitehead's amended complaint is fatally defective in
the absence of the protected allegations. Finally, defendants request
sanctions against Whitehead's attorney Christopher V. Langone
("Langone") pursuant to Fed.R.Civ.P. 37(b) for his violation
of the Beene protective order.
I. Whitehead Transaction
Underlying Whitehead's RICO claim is her purchase of a 1996 Mercury
Mystique from an unidentified Gateway employee on August 14, 1999. Compl.
¶ 16. Whitehead signed a retail installment sales contract to finance
the car. Id. ¶ 16. According to Whitehead, the Gateway
employee obtained financing for her contract by misrepresenting to Triad
Financial that she made a $1000 down payment ("phantom down payment").
Id. ¶¶ 17, 63. In addition, Whitehead maintains that the
Gateway employee falsely represented that the annual percentage rate
("APR") of interest would be 12.95%. Id. ¶¶ 16, 21-22, 63.
Whitehead then signed a second retail installment sales contract many
days later that set the APR at 20.50% after she was informed that the
12.95% rate was unavailable. Id. ¶¶ 21, 24. Whitehead
maintains that an unnamed Gateway employee falsely back-dated the second
contract. Id. ¶ 25. This second contract "on
information and belief" was then allegedly mailed and/or faxed to
an unnamed finance company. Id. ¶ 26. Whitehead alleges that
her name was forged on a title document by an unidentified Gateway title
clerk. Id. ¶ 63.
II. RICO Allegations
The predicate racketeering acts are not restricted to Whitehead. The
amended complaint alleges purported predicate acts of mail fraud, wire
fraud, financial institution fraud, and title forgery aimed at other
Gateway consumers in a scheme to defraud them. The propriety of the
overwhelming majority of those allegations is the subject of defendants'
motion to strike. Whitehead contends that Gateway uses phantom down
payments and title forgery in order to induce third party finance
companies to finance retail installment contracts on behalf of consumers
that they would otherwise reject, thereby binding consumers to
economically disadvantageous contracts. In addition to those allegations
that are the subject of defendants' motion to strike, Whitehead points to
five other retail installment contract disputes involving Gateway, namely
those of: (1) Donna Beene; (2) Isaiah Beene; (3) Jason Knight and Tiffany
Peake; (4) Rose Tully; and (5) Pearlie Smith.
A. Donna Beene
In January 2000, Donna Beene purchased a vehicle at Gateway from Scott
Falcone, one of its finance managers. Id. ¶ 52. Beene, like
Whitehead, entered into a retail installment sales financing contract
that misrepresented she made a $1000 down payment. Id. ¶¶
52-53. In fact, Beene made no down payment. Id. ¶ 53.
Instead, Gateway knowingly accepted a bad check from Beene in the amount
of $1000. Id. ¶ 53.
Gateway then purportedly mailed the contract to Triad Financial
Corporation, a third party finance company, on January 31, 2000.
Id. ¶ 53. At the same time, a Gateway title clerk, Barb
Flores, forged Beene's name on a title document. Id. ¶ 55.
According to Whitehead, Triad later learned about the phantom down
payment, and required Gateway to re-purchase the
contract. Id. ¶ 56. Gateway then attempted to sell the
contract to another finance company using "fraudulent means."
Id. ¶¶ 57-58. Unable to do so, Gateway through
defendant Okimoto and at the behest of defendant Andrea-sent Beene a
letter that stated "to avoid arrest you are instructed to return the
vehicle immediately." Id. ¶ 58. Beene did not return the
vehicle on advice of counsel. Id. ¶ 52.
Gateway repossessed the car. Id. ¶ 58. In order to sell
the car to another customer, Gateway title clerk Stacy Scalise forged
Beene's name on a title on October 14, 2000, and "used the mails to
register the forged title. . . . and sell the contract" to an unnamed
finance company. Id. ¶ 59.
B. Isaiah Beene
Within "several days" of Donna Beene's purchase, Isaiah Beene
her father bought a car from Gateway. Id. ¶ 54. Like
his daughter, Isaiah Beene signed a retail installment contract that
misrepresented he made a $1000 down payment. Id. ¶ 54. In
order to do so, Gateway used the personal check received from Donna
Beene. Id. ¶ 54. Isaiah Beene's retail installment contract
was purchased by Auto One, a finance company. Id. ¶ 54.
Whitehead does not allege that Gateway used the mails or wires to
effectuate Isaiah Beene's purchase.
C. Jason Knight and Tiffany Peake
According to Whitehead, on May 17, 2001, Jason Knight and his friend
Tiffany Peake went to Gateway after Knight spoke on the telephone with
Gateway employee Sam Hamden. Id. ¶¶ 60-61. During that
conversation, Hamden told Knight that he was approved for up to
$500/month financing for a car purchase. Id. ¶ 60. Upon
their arrival, Peake was asked and agreed to co-sign
Knight's purchase agreement. Id. ¶ 61. However, the retail
contract was prepared with Peake identified as the primary buyer.
Id. ¶ 61. According to Whitehead, the retail installment
contract misrepresented the actual amount Gateway received as a down
payment. Id. ¶ 61. Don Hund, a Gateway finance manager,
purportedly used "the mails and wires to sell this contract" to a finance
company, Consumer Portfolio Services, Id ¶ 61. Like
Whitehead and Beene, Knight and Peake's names were forged on the title.
Id. ¶ 61. Whitehead further alleges that Hund "used the
wires" to arrange for phone service for Peake and Knight at their
residence, a prerequisite for obtaining financing, without their
authorization. Id. ¶ 61.
D. Rose Tully
Several months later, Rose Tully went to Gateway in July 2001,
intending to co-sign a car purchase for a friend. Id. ¶ 49.
According to Whitehead, an unidentified Gateway finance manager induced
Tully to make false representations on her GMAC credit application due to
her vulnerable state. Id. ¶ 49. As a result of these
misrepresentations, Tully's purchase was approved. Id. ¶ 50.
Immediately thereafter, Tully contacted Gateway to attempt to cancel the
contract. Id. ¶ 50. Gateway refused. Id. ¶ 50.
Tully then contacted a lawyer, and obtained a TRO from another judge of
this court, preventing assignment of the contract to GMAC. Id.
¶¶ 50-51. In the interim, Gateway purportedly forged Tully's name on
the title and attempted to register the vehicle. Id. ¶ 50.
Whitehead does not allege that Gateway used the mails or wires in
handling Tully's purchase.
E. Pearlie Smith
According to Whitehead, Pearlie Smith went to Gateway on October 17,
2001, intending to co-sign a car purchase for her god-daughter Tonja
Treadway. Id. ¶ 62. Instead of preparing the retail
installment contract with Smith as co-signor, an unidentified Gateway
employee listed Smith as primary buyer and sold the contract to
Household, a finance company. Id. ¶ 62. When it learned
Treadway, not Smith, was the primary buyer, Household forced Gateway to
repurchase the contract. Smith and Treadway sustained "out of pocket loss
and credit damage." Id. ¶ 62. Whitehead fails to allege that
Gateway used the mails or wires to sell the installment contract.
I. Motion to Strike
Preliminarily, Whitehead misunderstands the import of defendants'
motion. Defendants do not seek dismissal of the amended complaint as a
sanction under Rule 37(b). Rather, defendants' motion seeks to strike
¶¶ 64, 68-93, 96-133 and 137 of the amended complaint pursuant to
Rule 12(f). Defendants' motion then seeks dismissal of the remainder of the
amended complaint for failure to state a claim [Count I] pursuant to
Rule 12(b)(6) and lack of subject matter jurisdiction [Count II] pursuant to
Rule 12(b)(1). Accordingly, it is unnecessary to address arguments about
the propriety of dismissal under Rule 37(b).
Rule 12(f) provides that a court, upon its own initiative or a motion
by any party, "may order stricken from any pleading any insufficient
defense or any redundant, immaterial, impertinent, or scandalous matter."
Allegations in a complaint predicated on confidential information in
violation of a protective order may be stricken under Rule 12(f). DEV
Inc. v. Rockwell Graphic Systems, Inc., No. 91 C 7197, 1992 WL
100908 at * 2 (N.D. Ill. 1992) (striking portions of a complaint based
upon confidential information in violation of protective order).
Defendants' motion to strike arises out of Langone's inclusion of
Gateway's confidential information in ¶¶ 64, 68-93, 96-133, and 137 of
Whitehead's amended complaint, Langone obtained this information during
the course of his representation of plaintiff in Isaiah Beene v.
Gateway Chevrolet, Oldsmobile, Inc., Case No. 02 C 830. Langone, a
signatory to the Beene protective order, agreed that "[n]either the
confidential documents, in whole or in part or in any form, nor the
information contained therein shall be used or disseminated except as
intended in this litigation (Case No. 02 C 0830) only." Def. Mot. to
Strike Ex. A ¶ 4. Langone does not challenge defendants' contention
that ¶¶ 64, 68-93, 96-133 and 137 incorporate confidential information
subject to the Beene protective order. Instead, he argues
that:(1) the contractual legal principle of course of dealing allows for
the use of the information in this litigation based on the informal
agreement of the parties' counsel of record in the Beene
litigation; (2) the Beene protective order requires Gateway to
attempt informal resolution of this dispute prior to the filing of any
motion; (3) the determination of whether the Beene protective
order has been violated is solely for Judge Bucklo upon application by
Gateway's counsel of record in that litigation; and (4) confidentiality
was waived when defendants failed to object to the inclusion of the
information in the RICO case statement. These arguments are groundless.
Langone's first argument is not supported by law or fact. He claims his
use of Gateway's confidential information was proper in this case under
the parties' course of dealing. Poliquin v. Garden Way, Inc.,
989 F.2d 527, 537 (1st Cir. 1993) ("[R]esolution of any dispute over the
protective order should be resolved under contract principles.").
However, because the express terms of the protective order unambiguously
prohibit the use of confidential information in ¶¶ 64, 68-93, 96-133
and 137, it is unnecessary to resort to course of dealing. American
Nat'l Trust Co. of Chicago v. Kentucky Fried Chicken of Southern
California, Inc., 308 Ill. App.3d 106, 119, 719 N.E.2d 201, 210 (Ill
App. Ct. 1st Dist. 1999) (contractual terms must be accorded "their
plain, ordinary, popular and natural meaning" and in the absence of an
ambiguity "the intention of the parties . . . must be ascertained by the
language utilized in the contract itself, not by the construction
placed upon it by the parties") (citations omitted). In any event,
the affidavit of Alison M. Harrington Gateway's counsel of record
in the Beene litigation directly contradicts the course
of dealing Langone suggests. Def. Reply Ex. A ¶ 5.
Langone's second argument also lacks merit. He contends that ¶ 12
of the Beene protective order required Gateway to confer
informally regarding this dispute prior to filing a motion. However, as
explained above, it is undisputed that the information incorporated into
¶¶ 64, 68-93, 96-133 and 137 is subject to the Beene
protective order. Nothing in the plain and unambiguous language of the
Beene protective order requires Gateway to seek resolution of Langone's
violation of the protective order informally prior to filing this motion.
The language of the protective order actually required Langone to seek an
informal resolution under these circumstances, i.e., where
modification of the terms of the protective order is sought. Def. Mot. to
Strike Ex. A ¶ 12 ("a party [is not precluded] from seeking and
obtaining, on an appropriate showing, additional protection with respect
to the confidentiality of documents, testimony, or other matters. A party
to the action may obtain relaxation of the terms of this Order or
challenge the designation of a document as confidential[.] However, the
parties shall try first to dispose of
such disputes in good faith on an informal basis"). Langone failed
to do so, choosing instead to flagrantly incorporate confidential
information in the amended complaint in violation of the Beene
Contrary to Langone's third argument, this court has the authority to
enforce the Beene protective order entered by Judge Bucklo. No
other result is tenable. DEV Industries, Inc., 1992 WL 100908 at
* 2 (in strikingly similar circumstances, a judge of this court enforced
a protective order issued by another judge of this court and struck
portions of a complaint based on confidential information). Gateway is
well within its right to protect its confidential information through its
counsel, regardless of the identity of the specific attorney who signed
the protective order or the judge of this court who issued the order.
Finally, this court rejects the notion that Gateway waived its right to
enforce the Beene protective order by failing to object when
Whitehead included the same information in her RICO case statement.
Rule 12(f) authorizes this court to strike objectionable material on its own
initiative at any time. Langone fails to provide any justification for
the outright violation of the Beene protective order entered by
Accordingly, ¶¶ 64, 68-93, 96-133 and 137 are stricken from the
amended complaint. The following portions of the RICO case statement are
stricken: (1) the first sentence on page 12; (2) the last two sentences
on page 13; (3) the entirety of pages 14 through 16; (4) the entirety of
page 17 with the exception of the last sentence; (5) the bulleted
sentences on page 18; (6) the entirety of pages 19 through 22; (7) the
bulleted sentences on page 22; (8) the first two sentences on page 23;
and (9) the bulleted sentences on page 23. The issue of appropriate
pursuant to Rule 37(b) for Langone's violation of the
Beene protective order will be referred to a magistrate judge
for a report and recommendation.
II. Motion to Dismiss
Defendants contend the amended complaint fails to state a RICO claim in
the absence of the stricken allegations. For purposes of a motion to
dismiss, the court accepts all well-pleaded allegations in the complaint
as true and draws all reasonable inferences in favor of the plaintiff.
Travel All Over the World, Inc. v. Kingdom of Saudi Arabia,
73 F.3d 1423, 1429 (7th Cir. 1996). Whitehead's RICO claim will not be
dismissed unless "it is clear that no relief could be granted under any
set of facts that could be proved consistent with the allegations."
Johnson Controls, Inc. v. Exide Corp., 132 F. Supp.2d 654, 657
(N.D. Ill. 2001) (quoting Hishon v. King & Spaulding,
467 U.S. 69, 73 (1984)) (citations omitted).
A. RICO Claim
The RICO claim is directed against individual defendants Andrea,
Dryzbek and Okimoto for violation of § 1962(c), requiring Whitehead
to establish "(1) conduct (2) of an enterprise (3) through a pattern (4)
of racketeering activity." Lachmund v. ADM Investors Servs,
Inc., 191 F.3d 777, 783 (7th Cir. 1999). The heightened pleading
standard of Federal Rule of Civil Procedure 9(b) requires allegations of
fraud in a civil RICO complaint to be plead with particularity.
Id. Defendants specifically target Whitehead's purported failure
to allege the requisite "pattern of racketeering activity" in the absence
of the stricken allegations. This is not surprising, given that
"[i]nsufficiently pleading the `crucial' element of pattern of
racketeering activity `rings the death knell' for RICO claims under §
1962." Brandon Apparel Group, Inc. v. Quitman Mfg. Co.,
52 F. Supp.2d 913, 917 (N.D. Ill. 1999) (citing J.D. Marshall
Int'l, Inc. v. Redstart, Inc., 935 F.2d 815, 820 (7th Cir. 1991)).
Whitehead premises her RICO claim on defendants' commission of numerous
"predicate acts" of title forgery in violation of 625 ILCS 5/4-105,
financial institution fraud in violation of 18 U.S.C. § 1344,
extortion in violation of 18 U.S.C. § 1951, wire fraud in violation
of 18 U.S.C. § 1343, and mail fraud in violation of
18 U.S.C. § 1341. However, Whitehead's allegations of title forgery, financial
institution fraud, and extortion cannot serve as the requisite predicate
acts for her § 1962(c) RICO claim. First, title forgery is not a
delineated racketeering activity. 18 U.S.C. § 1961(1)(A) (defining
racketeering activity to include only specific offenses under state law:
"murder, kidnapping, gambling, arson, robbery, bribery, extortion,
dealing in obscene matter, or dealing in a controlled substance or listed
chemical"). Second, only financial institutions have standing to allege
violations of financial institution fraud under 18 U.S.C. § 1344 as
predicate acts for RICO purposes. Honorable v. Easy Life Real Estate
Sys., Inc., 182 F.R.D. 553, 562 (N.D. Ill. 1998) (granting motion to
dismiss RICO counts predicated on financial institution fraud in
violation of § 1344 because plaintiffs who were not financial
institutions lacked standing to bring RICO claim based on
defendants' false statements to banks). Third, extortion for purposes of
§ 1951 requires the "wrongful use of actual or
threatened . . . fear." 15 U.S.C. § 1951(b)(2) (emphasis added). The
amended complaint does not allege why the particular letter sent to Beene
was "wrongful." An extortionate act has not
been sufficiently pleaded.*fn1 Cf. Rothman v. Vedder Park
Mgmt., 912 F.2d 315, 318 (9th Cir. 1990) (complaint alleging that
landlord who threatened to increase tenants' rent failed to sufficiently
plead a predicate act of extortion for purposes of RICO because "[a]s a
general rule, even if subject to some exceptions, what you may do in a
certain event you may threaten to do, that is, give warning of your
intention to do in that event, and thus allow the other person the chance
of avoiding the consequences.") (citations omitted). The Beene letter
merely states Gateway's intention to seek legal recourse for Whitehead's
default. Whitehead's reliance on the transactions involving Isaiah Beene,
Rose Tully and Pearlie Smith, as well as the so-called extortion of Donna
Beene, are immaterial because no predicate acts of racketeering are
The only remaining predicate acts of racketeering activity
specifically mail and wire fraud in violation of 18 U.S.C. § 1341 and
1343 arise out of the August 1999 transaction between Gateway and
Whitehead, the January 2000 transaction between Gateway and Donna Beene,
and the May 2001 transaction between Gateway, Knight and Peake. However,
the allegations regarding mail and wire fraud in connection with
Whitehead's transaction with Gateway are deficient under Rule 9(b). First
and foremost, Whitehead cannot allege mail and wire fraud "on information
and belief." Emery v. American Gen. Fin., Inc., 952 F. Supp. 602,
604 (N.D. Ill. 1997) ("Allegations upon information and belief . . .
are insufficient to allege fraud under Rule 9(b) even if the facts are
inaccessible to the plaintiff, unless the plaintiff states the grounds
for her suspicions."). Moreover, Whitehead fails to allege "the who,
what, when and
where" of the alleged fraud. Uni*Quality, Inc. v. Infotronx,
Inc., 974 F.2d 918, 923 (7th Cir. 1992). In particular, Whitehead
has not alleged the identity of the employee with whom she dealt
regarding her retail installment contract, the date on which the second
retail reinstallment contract was mailed or wired, or the identity of the
finance company to whom the second retail installment contract was sent.
In the absence of these allegations, the alleged mail or wire fraud
committed against Whitehead must also be disregarded for purposes of
determining whether the requisite pattern of racketeering activity has
Only the transactions between Gateway and Donna Beene, as well as
between Gateway, Knight and Peake, may be considered for purposes of
determining whether Whitehead sufficiently alleges a pattern of
racketeering activity. To effectuate those transactions, Gateway
allegedly committed the following five violations of 18 U.S.C. § 1341
and 1343: (1) mail fraud on January 31, 2000 in the sale of Donna Beene's
retail installment contract to Triad; (2) mail fraud on October 14, 2000
in connection with the forgery of Donna Beene's name on a title document
and sale of a retail installment contract to unidentified finance company
after repossessing the car; (3) wire fraud on May 17, 2001 in Sam
Hamden's telephone conversation with Knight; (4) wire fraud on May 17,
2001 in Don Hund's telephone conversation with MIT to arrange phone
service for Knight and Peake; and (5) mail and wire fraud on May 17, 2001
in connection with sale of the Knight and Peake retail installment
contract to Consumer Portfolio Services.
The fact that Whitehead is able to allege multiple instances of mail
and wire fraud over the course of two transactions is insignificant. The
Seventh Circuit has long looked with disfavor upon reliance on mail and
wire fraud in order to support a RICO pattern of racketeering activity:
Mail fraud and wire fraud as perhaps unique among
the various sorts of "racketeering activity"
possible under RICO in that the existence of a
multiplicity of predicate acts . . . may be no
indication of the requisite continuity of the
underlying fraudulent activity. Thus, a
multiplicity of mailing does not necessarily
translate into a "pattern" of racketeering
Sutherland v. O'Malley, 882 F.2d 1196
, 1205, n. 8 (7th
Cir. 1989) (citations omitted); see also Pizzo v. Bekin Van Lines
Co., 258 F.3d 629
, 632 (7th Cir. 2001) ("`RICO plaintiffs are
mistaken to emphasize the raw number of mail and wire fraud violations.'")
(quoting Ashland Oil, Inc. v. Arnett, 875 F.2d 1271
1278 (7th Cir. 1989)). In Pizzo, plaintiff's allegations of several
acts of mail and wire fraud were rejected for purposes of determining
whether a pattern of racketeering activity existed. 258 F.3d at 632.
Instead, the court determined that defendant had "only a single dispute
with [plaintiff] . . . and likewise a single dispute with the other
dissatisfied customer, making a total of only two `acts' relevant to
whether the defendants' behavior can be characterized as patterned."
Id. Moreover, Whitehead's allegations of wire fraud are
insufficiently pleaded under Rule 9(b). Whitehead fails to allege that
the use of wires involved interstate communications. American Auto.
Accessories, Inc. v. Fishman, 991 F. Supp. 987, 992, n. 5 (N.D. Ill.
1998) ("[t]he federal wire fraud statute extends only to interstate
communications."). As in Pizzo, Whitehead's allegations of
multiple acts of mail and wire fraud is immaterial; the transactions
between Gateway and Beene, and Gateway, Knight and Peake, only constitute
two predicate acts for RICO purposes.
These two predicate acts do not constitute a pattern of racketeering
activity. A pattern of racketeering activity consists of at least two
predicate acts of racketeering committed within a ten-year period.
18 U.S.C. § 1961(5). The Supreme Court has emphasized, however, that
"the section 1961(5) requirement of two predicate acts is a minimum
requirement and that, while two
may be necessary, two may not always be sufficient," Bajorat v.
Columbia-Breckenridge Dev. Corp., 944 F. Supp. 1371, 1378 (N.D. Ill.
1996) (citing Sedima, S.P.R.L v. Imrex Co., Inc., 473 U.S. 479,
496, n.14 (1985)). Sporadic activity does not form a pattern; instead, "a
plaintiff . . . must show that the racketeering predicates are related,
and that they amount to or pose a threat of continued criminal
activity." H.J., Inc. v. Northwestern Bell Tel Co.,
492 U.S. 229, 239; see also Sedima, 473 U.S. 479, 496, n. 14 (1985). The
relationship part of this "continuity plus relationship" test requires
that the predicate acts be "committed somewhat closely in time to one
another, involve the same victim, or involve the same type of
misconduct." Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th
Cir. 1986). Predicate acts are related if 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 events." H.J., Inc., 492 U.S. at 239 (quoting
18 U.S.C. § 3575(e)).
Continuity, on the other hand, "is both a closed- and open-ended
concept, referring 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." Id. at 241. In evaluating closed-ended continuity,
courts look to "the number and variety of predicate acts and the length
of time over which they were committed, the number of victims, the
presence of separate schemes and the occurrence of distinct injuries."
Morgan, 804 F.2d at 975. While duration must be shown to allege
close-ended continuity, "open-ended continuity may satisfy the continuity
prong of the pattern requirement regardless of its brevity." Vicom,
Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 782 (7th Cir.
1994). Open-ended continuity is present under any of the following three
circumstances: (1) a "specific threat of repetition" exists; (2) "the
predicates are a regular way of
conducting [an] ongoing legitimate business;" or (3) the
"predicates can be attributed to a defendant operating as part of a
long-term association that exists for criminal purposes." Id.
(quoting H.J., Inc., 492 U.S. at 242-43).
The amended complaint purportedly contains an array of predicate acts
to support a pattern of racketeering activity. However, upon careful
inspection, the overwhelming majority are wanting. The court is left with
only two transactions two predicate acts involving the
purchase of two cars occurring seven months apart.*fn2 While seemingly
sporadic, these two acts arguably do share similar types of misconduct.
Even so, the continuity portion of the "relationship plus continuity"
test is not satisfied.
Two predicate acts involving two car purchases spanning a time frame of
seven months are not sufficiently weighty to infer "closed-ended"
continuity. Pizzo, 258 F.3d at 632 (closed-ended continuity test
not met by allegations of two predicate acts over period of five months);
Vicom, 20 F.3d at 780 (closed-ended continuity test not met by
allegations of predicate acts over period of less than nine months);
Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1024 (7th Cir.
1992) (closed-ended continuity test not met by allegations of predicate
acts over period of nine months); Uni* Quality, Inc., 974 F.2d
at 923 (closed-ended continuity test not met by allegations of predicate
acts over period of "at most seven to eight months"). None of the other
Morgan factors (variety of predicate acts, the number of
victims, the presence of separate schemes and the occurrence of distinct
injuries) change this result. Whitehead relies solely upon mail and wire
fraud for predicate acts. While two separate forms of fraudulent
conduct are alleged (title forgery and phantom down payments), the
victims*fn3 Beene, Knight and Peake did not sustain
multiple economic injuries. Rather, each purported victim sustained a
single economic injury, i.e., contractual commitment to purchase
a car. Whitehead's meager allegations do not support a finding of
Nor are these acts sufficient to find "open-ended" continuity. In the
absence of the stricken allegations, there is no evidence of a "specific
threat of repetition" or that "the predicates are a regular way of
conducting [an] ongoing legitimate business." Pizzo, 258 F.3d at
632 (no open-ended continuity shown from two commercial disputes five
months apart despite allegations of multiple acts of mail and wire
fraud). Because the third way to show "open-ended" continuity
that the "predicates can be attributed to a defendant operating as part
of a long-term association that exists for criminal purposes" is
inapplicable here, Whitehead fails to show continuity. H.J.,
Inc., 492 U.S. at 242-43. Accordingly, the RICO count [Count I] is
dismissed for failure to state a claim upon which relief can be granted.
B. Fraud Claim
Because the RICO claim is fatally defective, the court declines to
exercise supplemental jurisdiction over Whitehead's common law fraud
claim [Count II]. 28 U.S.C. § 1367(c)(3); Wright v. Associated
Ins. Cos., 29 F.3d 1244, 1251 (7th Cir. 1994).
Defendants' motion to strike and to dismiss the first amended complaint
is granted. The issue of appropriate sanctions pursuant to Rule 37(b) for
violation of the Beene protective order is referred to the
assigned magistrate judge for a report and recommendation.