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SHAW v. MANCUSO INVESTMENT CORP.

United States District Court, N.D. Illinois


April 12, 2004.

SHAW
v.
MANCUSO INVESTMENT CORP., et al

The opinion of the court was delivered by: PHILIP REINHARD, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Chester Shaw, filed this action against defendants, Mancuso Investment Corp. ("MIC") and Dewey J. Mancuso, in the Southern District of California, alleging a violation of the Racketeer Influenced and Corrupt Practices Act ("RICO"), 18 U.S.C. § 1961 et seq. (Count I) and breach of fiduciary duty and conflict of interest in violation 805 ILCS 5/8.60, a provision of Illinois' s Business Corporations Act (Count II). The case was transferred to this court by order dated November 21, 2003. Jurisdiction is proper under 28 U.S.C. § 1331 as to Count I and the court has supplemental jurisdiction under 28 U.S.C. § 1367 over Count II.*fn1 Defendant's move to dismiss pursuant to Fed.R.Civ.P. 12(b)(6).

Plaintiff's claims against defendants arise from plaintiff's investment in MIC in 1972 (Compl. ¶ 12). The crux of these claims is that Mancuso made false and misleading representations to plaintiff to induce him to invest in MIC (Id. ¶¶ 13-17) and has continued to make false and misleading representations over the course of more than thirty years to plaintiff and other investors in MIC concerning performance of MIC and return on investment to shareholders (Id. ¶ 18).

  Defendant argues that plaintiff has failed to state a RICO claim because an amendment to the RICO statute effected by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 18 U.S.C. § 1964 (c), bars securities fraud-based RICO claims. Plaintiff contends the PSLRA amendment does not apply to actions taken prior to its enactment date and, therefore, plaintiff's RICO claim is not barred.*fn2 Seventh Circuit dicta indicates that unless a case was pending on December 22, 1995, the date of PSLRA's enactment, securities fraud-based RICO claims, even if based on actions occurring before the enactment date, are barred. Fujisawa Pharmaceutical Co., Ltd. v. Kapoor, 115 F.3d 1332, 1337-38 (7th Cir. 1997). The district courts that have considered this matter directly "consistently have held that the PSLRA bars preenactment conduct unless the plaintiff's action was pending prior to enactment," Scott v. Steingold, No. 97 C 7871, 1998 WL 704287, * 5 (N.D. Ill. Sept. 30, 1998) (Manning, J.) (collecting cases), as a basis for a securities fraud-based RICO claim. "The plain text of § 1964(c), as amended, clearly and unambiguously states that no person may rely on securities fraud as a predicate act for purposes of RICO. Congress did not place a temporal restriction on the PSLRA, nor, in light of the PSLRA's legislative history [indicating an intent to prevent abuses of RICO by securities litigants], did it even remotely intend to." Id. (internal quotation marks and citations omitted). The PSLRA amendment applies to plaintiff's claim, which is barred because the action was not pending on December 22, 1995. Count I is dismissed with prejudice.

  Count II is a state law claim. Because all federal claims have been disposed, the court declines to exercise supplemental jurisdiction over this claim. See Contreras v. Suncast Corp., 237 F.3d 756, 766 (7th Cir.), cert. denied, 534 U.S. 824 (2001).

  For the foregoing reasons, plaintiff's RICO claim is dismissed with prejudice. Plaintiff's state law claim is dismissed for lack of subject matter jurisdiction without prejudice to being filed in state court.


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