The opinion of the court was delivered by: ELAINE E. BUCKLO, District Judge
MEMORANDUM OPINION AND ORDER
In 1995, plaintiff Lynne A. Carnegie, a citizen of New York,
responded to an advertisement and patronized an H&R Block store in
New York. She purchased a refund anticipation loan ("RAL") and paid
charges of $110 on a nine-day loan of $500. Ms. Carnegie alleges that she
was duped into buying the RAL through a complex and illegal scheme
involving various arms of H&R Block (collectively, "Block") and arms
of its co-conspirator bank (collectively "Beneficial"). In brief, the
scheme alleged is as follows. Block runs a tax preparation and advising
service with numerous branches throughout the country. Block also
performs electronic filing of
tax returns, which greatly speeds up the arrival of patrons' refund
checks. Block made a bargain with Beneficial whereby Block would
advertise and sell Beneficial's RALs to its customers. Block provided its
customers with the loan documentation and even printed the check, but the
funds came from Beneficial, and the obligation to repay via refund check
was likewise to Beneficial. Block received a payment from Beneficial for
each RAL customer it recruited.
This case, then titled Zawikowski v. Beneficial, Reynolds v.
Beneficial, and Turner v. Beneficial, reached settlement.
That settlement was approved by Judge Zagel, but remanded by the Seventh
Circuit for further consideration. Reynolds v. Beneficial Nat'l
Bank, 288 F.3d 277 (7th Cir. 2002). I subsequently rejected the
settlement and required that new counsel represent the class.
Reynolds v. Beneficial Nat'l Bank, 260 F. Supp.2d 680 (N.D.
Ill. 2003). New counsel (objectors to the earlier settlement) filed a
second amended complaint in which they substituted Ms. Carnegie as the
only named plaintiff. The defendants now move to dismiss that complaint.
The parties have also addressed class certification issues, with the
defendants arguing that the class should be decertified.
On a motion to dismiss, I accept as true all well-pleaded facts in the
complaint, and grant the motion only if the plaintiff can prove no set of
facts to support his claim. Strasburger v. Bd.
of Educ., 143 F.3d 351, 359 (7th Cir. 1998).*fn1 I deny
the motion to dismiss Count II as to the racketeering and conspiracy
provisions of RICO, but grant it as to the investment injury and
enterprise control provisions. The motion to dismiss Counts III, IV, V,
and VIII (consumer fraud, breach of fiduciary duty, subornation of breach
of fiduciary duty, and unjust enrichment) is denied as moot; I withdraw
certification of the class as to those claims. The motion to dismiss
Counts VI and VII (breach of contract) is granted as to Block. I deny the
motion to dismiss Count VI as to Beneficial. The motion to dismiss Count
VII as to Beneficial is denied as moot; the plaintiff has voluntarily
withdrawn that count.
The defendants move to dismiss Count II, which alleges violations of
four different provisions of the Racketeer Influenced and Corrupt
Organizations act ("RICO"), 18 U.S.C. § 1961, 1962(a)-(d), et
seq. (addressing investment injury, enterprise control,
racketeering, and conspiracy, respectively). The defendants argue that
this count fails to state a claim for numerous reasons, including lack of
Fed.R.Civ.P. 9(b) particularity, failure to allege a RICO enterprise,
failure to plead an investment injury, failure to plead an injury
stemming from the defendants' acquisition or control of an enterprise,
failure to plead that each
defendant conducted the affairs of the enterprise, failure to
allege conspiracy, and failure to comply with the statute of limitations.
Ms. Carnegie responds that each of these arguments either has no merit or
is barred from consideration by judicial estoppel because Judge Zagel
denied a motion to dismiss RICO claims earlier in the case. I find that
the complaint adequately states a claim against all defendants under the
racketeering and conspiracy provisions of RICO, but not under the
investment injury or enterprise control provisions.*fn2
The law of the case doctrine bars reconsideration of Judge Zagel's
ruling in Turner v. Beneficial, No. 98 C 2550 (Mar. 30, 1999),
which held that the plaintiff class adequately alleged a RICO enterprise,
stated a claim under § 1962(c), the racketeering provision of RICO,
and satisfied the heightened pleading requirements of Fed.R.Civ.P.
9(b). See Parts & Elec. Motors, Inc. v. Sterling Elec.,
Inc., 866 F.2d 228 (7th Cir. 1988) (prior decisions in a case should
not be overruled unless they strike the reviewing court as wrong "with
the force of a five-week-old, unrefrigerated dead fish"). Although the
named plaintiff in this case has changed since the time of that ruling,
the plaintiff class and the central allegations of the claim have not.
defendants are bound by that ruling. However, Block had been
dismissed from this case at the time of Judge Zagel's ruling, and the
RICO claim against Block must be evaluated on its merits.
Block argues that Count II fails to comply with the heightened pleading
requirement of Fed.R.Civ.P. 9(b). The predicate acts that form the
basis of Ms. Carnegie's RICO claim are acts of consumer fraud, and thus
must be pleaded with particularity. This requirement "must be relaxed
where the plaintiff lacks access to all facts necessary to detail his
claim," Corley v. Rosewood Care Ctr., 142 F.3d 1041, 1051 (7th
Cir. 1998). This case is unique in that not only has it been ongoing for
over five years, but one of Block's counsel participated in drafting a
previous complaint alleging violations of RICO. Under the circumstances
of this case, Rule 9(b) is satisfied.
Turning to the other issues raised in the motion to dismiss, Block
argues that Ms. Carnegie failed to allege a RICO enterprise, an element
of her claim under § 1962(c). That provision addresses injuries to
the plaintiff resulting directly from the defendants' predicate acts.
See Peterson v. H & R Block Tax Servs., Inc., 22 F. Supp.2d 795,
802 (N.D. Ill. 1998) (in order to state a § 1962 claim, the
plaintiff must allege that the defendants "(1) conducted (2) an
enterprise through (3) a pattern (4) of racketeering activity"). A RICO
enterprise is "a group of persons associated together for a common
purpose of engaging in a course of conduct."
United States v. Turkette, 452 U.S. 576, 583 (1981). An
enterprise is shown by "evidence of an ongoing organization, formal or
informal, and by evidence that the various associates function as a
continuing unit." Id. An enterprise must be more than simply a group of
people who get together to commit crimes, or a group of associated
businesses operated in concert; it must have structure and continuity, as
well as "differentiation of the roles within it." Richmond v.
Nationwide Cassel L.P., 52 F.3d 640, 645. However, an enterprise
need not have the complexity of a corporation. "There must be some
structure, to distinguish an enterprise from a mere conspiracy, but there
need not be much." Burdett v. Miller, 957 F.2d 1375, 1379 (7th
This is exactly what Ms. Carnegie alleges. The complaint states that
the Block defendants and the Beneficial defendants operated a scheme to
defraud customers, distinct from the other ordinary business dealings
each conducted, whereby Block would attract and mislead consumers into
purchasing extremely expensive loans from Beneficial in exchange for a
cut of the profits. The defendants' argument that mere contractual
relations between entities cannot create a RICO enterprise is accurate,
but misplaced. Ms. Carnegie does not rely solely on the contractual
relationship between the parties to support her RICO claim. Rather, the
contractual relationship is simply one fact among many which together
constitute an adequate allegation of a RICO enterprise.
The Block defendants argue that Ms. Carnegie failed to adequately
allege that each defendant conducted the affairs of the enterprise, an
additional element crucial to a 1962(c) claim. Goren, 156 F.3d
at 727. They base this argument on the fact that the complaint does not
distinguish among the Block defendants, who are alleged to have operated
the enterprise. This argument is unpersuasive. At the pleading, stage,
prior to discovery, a plaintiff cannot be expected to determine which of
the various Block entities was in control of which aspects of the
enterprise. It is sufficient to plead the acts complained of and
attribute them to "H & R Block," even if the plaintiff does not know
whether "H & R Block, Incorporated" or "H & R Block Services,
Incorporated" was the entity technically in charge of the disputed
transaction. Block cannot evade liability by hiding behind its
multi-faced corporate identity.
Next, defendants argue that Ms. Carnegie has failed to plead an
investment injury, an element of her claim under § 1962(a). This
section covers injuries which are caused by the use or investment of
racketeering income. Although the Seventh Circuit has yet to make a
definitive ruling on the question, "the majority of circuits hold that
the use or investment of the racketeering income must proximately cause
the plaintiff's injury; injury caused by the predicate racketeering acts
is inadequate." Vicom, Inc. v. Harbridge Merch. Servs., Inc.,
20 F.3d 771, 779, n.6 (7th Cir.
1994). Since Vicom, "each court in this district addressing the
issue has adopted the majority use or investment rule." Shapo v.
O'Shaughnessy, 246 F. Supp.2d 935, 965 (N.D. Ill. 2002) (collecting
cases). I agree with my colleagues that this interpretation is most
faithful to the plain wording of the statute. See, e.g., Rose v. Mony
Life Ins. Co., 82 F. Supp.2d 920, 923 (N.D. Ill. 2000). Thus, in
order to state a claim under § 1962(a), Ms. Carnegie must allege an
investment injury which can be distinguished from the injuries resulting
from the predicate acts of fraud. Id. The complaint does not meet this
standard. Ms. Carnegie alleges that the defendants used racketeering
income "to acquire an interest in, establish, or operate the RAL
enterprise . . . which has caused injury to plaintiff." 2d Am. Compl. at
217. In other words, it is the enterprise, not the investment, which
caused the alleged injury. The motion to dismiss is granted as to the
alleged violations of § 1962(a).
The defendants argue next that Ms. Carnegie has failed adequately to
plead injury stemming from enterprise control. Like § 1962(a), a
claim relying on § 1962(b) must allege that the plaintiff's injury
resulted from the defendants' acquisition or control of the RICO
enterprise, rather than from the predicate acts. Midwest Grinding
Co., Inc. v. Spitz, 716 F. Supp. 1087, 1091 (N.D. Ill. 1989)
(comparing § 1962(a) and § 1962(b) and concluding that the same
standard applies to both); Roger Whitmore's Auto.
Servs., Inc. v. Lake County, No 99-C2504, 2002 U.S. Dist.
LEXIS 8289, at *30 (N.D. Ill. May 9, 2002) (citing Midwest
Grinding). Here, Ms. Carnegie does not allege separate injury
proximately caused by the defendants' ownership of the enterprise; the
complaint states only that the defendants owned the enterprise and the
enterprise harmed the plaintiffs.2d Am. Compl. at 218. The motion to
dismiss is granted as to the alleged violations of § 1962(b).
Finally, the defendants contend that Ms. Carnegie fails to plead a
conspiracy under § 1962(d). That section covers conspiracy to violate
provisions (a), (b), or (c) of § 1962. The defendants argue that the
language in Count II is merely a "naked and insufficient legal
conclusion" and does not satisfy the standard. While it is true that
Count II itself does not contain detailed allegations, it incorporates
the preceding paragraphs in the body of the complaint, which contain
numerous explicit statements spelling out the who, what, and when of the
alleged agreement between the Block defendants ...