impose a racketeering injury requirement above and beyond the injury that resulted from the predicate acts themselves.
Further, what the Supreme Court rejected in Sedima was "an additional, amorphous 'racketeering injury' requirement." Sedima, 473 U.S. at 495. The Court expressly recognized that a RICO plaintiff has standing only if he has been injured in his business or property " by the conduct constituting the violation." Id. at 496 (emphasis added). In this case, the conduct constituting the violation of Section 1962(a) is the use or investment of racketeering proceeds, not the racketeering activity itself. Ouaknine, 897 F.2d at 83; Grider, 868 F.2d at 1150.
The policy of liberally construing RICO does not bestow upon courts carte blanche to ignore statutory language. This Court follows the leads of the majority of courts to address this issue and holds that Section 1962(a) requires a plaintiff to allege injury from the defendant's use or investment of racketeering income.
Plaintiff asserts that even if this Court adopts defendant's interpretation of Section 1962(a), Concord has standing because the complaint "when read in its entirety" alleges that Harris's investment and use of its unlawfully obtained funds directly injured Concord. The Court disagrees. Even the most strained reading of the complaint does not produce any allegation that defendant's use and investment of its alleged racketeering proceeds injured Concord. Further, plaintiff argues that defendant's ability to reinvest its ill-gotten gains kept it afloat, and thus market forces could not operate to force it to correct the press's defects. This "reinvestment injury" theory has already been rejected by at least one court as simply another way of stating that the predicate acts of fraud caused plaintiff's injury. See, e.g., Rexplore, 685 F. Supp. at 1142.
B. Section 1962(b)
Much the same analysis governs plaintiff's claim under Section 1962(b). Concord alleges that Harris acquired and maintained an interest in and control of the RICO enterprise through racketeering activities, in violation of Section 1962(b).
Defendant urges the Court to dismiss this claim because plaintiff has alleged injury only by reason of the alleged racketeering activities, and not by reason of defendant's acquisition of an interest in itself.
Again, Section 1964(c) provides a civil remedy for plaintiffs injured "by reason of" a violation of Section 1962. A violation of Section 1962(b) itself hinges on whether a defendant acquired or maintained an interest in or control of an enterprise. Therefore, to state a claim under Sections 1962(b) and 1964(c), a plaintiff must allege injury from the defendant's acquisition or control of an interest in a RICO enterprise. Midwest Grinding Co. v. Spitz, 716 F. Supp. 1087, 1090-91 (N.D. Ill. 1989); Airlines Reporting Corp. v. Barry, 666 F. Supp. 1311, 1315 (D. Minn. 1987).
A fair reading of the complaint reveals no such allegation.
C. Section 1962(d)
Plaintiff alleges that defendant conspired with its employees and representatives to violate Sections 1962(a) and (b), in violation of Section 1962(d).
Defendant moves to dismiss this claim on the ground that a corporation cannot conspire with its own employees to violate RICO. The point is well-taken.
A corporation and its officers cannot conspire with each other for purposes of a RICO violation. Medallion TV Enterprises, Inc. v. SelecTV of California, Inc., 627 F. Supp. 1290, 1301 n. 7 (C.D. Cal. 1986). Plaintiff appears to concede this (Memorandum in Opposition, at 17), but mysteriously argues that a corporation can conspire with its "employees and representatives." This is a distinction without a difference. Under common-law conspiracy rules, a corporation cannot conspire with itself or its employees because it can act only through its officers and employees. Jagielski v. Package Machine Co., 489 F. Supp. 232, 233 (E.D. Pa. 1980). The fact that the alleged conspiracy arises under RICO does not alter this result. Gaudette v. Panos, 650 F. Supp. 912, 913-14 (D. Mass. 1987), rev'd on other grounds, 852 F.2d 30 (1st Cir. 1988). Further, alleging conspiracy with some unnamed representative is not tantamount to alleging that Harris is conspiring with another.
D. Mail and Wire Fraud
Plaintiff's RICO claims are based on defendant's alleged predicate acts of mail and wire fraud. Defendant argues that plaintiff has failed to comply with Federal Rule of Civil Procedure 9(b)'s particularity requirements in setting forth the basis for this allegation. The Court agrees.
The Ninth Circuit has held that allegations of predicate acts under RICO must comply with Rule 9(b)'s specificity requirements. Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1400-01 (9th Cir. 1986). Plaintiff's mail and wire fraud allegations fall far short of the mark. Plaintiff alleges that defendant committed mail fraud by mailing correspondence, proposals, and agreements, including the recourse and indemnity agreements, that contained false representations designed to induce Concord to finance S&G's purchase of the press. Complaint, para. 41. Nowhere does the complaint designate this correspondence or the manner in which it was false. Moreover, although plaintiff argues in its memorandum that the indemnity and recourse agreements misrepresented that the press would be sold new, the complaint itself makes no mention of this representation.
Plaintiff's wire allegations are equally sparse. Not one specific wire communication is mentioned in the complaint. Incredibly, in its opposition memorandum plaintiff refers the Court to paragraph 8 of the complaint as a specific example of wire fraud. This paragraph, however, makes no mention of the use of the wires. Accordingly, if plaintiff wishes to amend its RICO claims under Sections 1962(a) and (b), it must also amend its mail and wire fraud allegations to comply with Rule 9(b).
IV. Implied Indemnity (Count Four)
In its implied indemnity claim, plaintiff charges that if the allegations in the S&G complaint are found to be true, defendant should indemnify plaintiff for any damages and costs it incurs.
Defendant moves to dismiss this claim on the ground that if Concord were found liable to S&G, it would not be entitled to indemnity from Harris. Defendant correctly states the law.
A party may seek indemnity only when it is not personally at fault. J. Lee & B. Lindahl, Modern Tort Law: Liability & Litigation § 20.06 (Rev. ed. 1990). Thus "it follows that a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefit of the [implied indemnity] doctrine." McHam v. Whitney, 143 Misc. 2d 441, 540 N.Y.S.2d 416, 417 (Sup. Ct. 1989). The S&G complaint alleged intentional fraud against Concord and conspiracy with Harris to intentionally defraud.
If the allegations in the S&G complaint are found to be true, Concord necessarily would be guilty of intentional wrongdoing. Hence its implied indemnity claim is barred as a matter of law.
V. Breach of Warranty (Counts Seven, Eight, and Nine)
Plaintiff alleges breach of express warranty, implied warranty of merchantability, and implied warranty of fitness. Defendant moves to dismiss each on the ground that Harris and Concord were not in privity. Each withstands the motion.
New York has long ago abolished its privity requirement with regard to express warranties. Randy Knitwear, Inc. v. American Cyanamid Co., 11 N.Y.2d 5, 181 N.E.2d 399, 226 N.Y.S.2d 363 (1962). However, New York still requires privity of contract before a party may assert implied warranties against a manufacturer. County of Westchester v. General Motors Corp., 555 F. Supp. 290, 294 (S.D.N.Y. 1983). As discussed in connection with the negligent misrepresentation claim, the relationship between the parties was the "functional equivalent of privity." Therefore, plaintiff may maintain its warranty claims against defendant.
VI. Breach of Third-Party Beneficiary Contract (Count Ten)
Plaintiff sues for breach of a third-party beneficiary contract between defendant and S&G. Defendant challenges this claim on the ground that defendant and S&G must have intended that Concord benefit from the agreement at the time of contracting. Defendant's challenge is without merit because the complaint alleges that Harris's representations and warranties "were made for the benefit of Concord in that the Press was to serve as collateral to secure the Note." Complaint, para. 107. On a motion to dismiss, this Court is required to accept the allegations of the complaint as true.
IT IS HEREBY ORDERED that:
(1) Defendant's motion to dismiss plaintiff's fraud claim is GRANTED in part and DENIED in part. The motion is granted with leave to amend as to all of plaintiff's allegations of misrepresentation, save for that regarding defendant's 1985 annual report. The motion is denied as to plaintiff's allegations of fraudulent concealment.
(2) Defendant's motion to dismiss plaintiff's negligent misrepresentation claim is GRANTED in part and DENIED in part. The motion is granted with leave to amend as to all of plaintiff's allegations of misrepresentation, save for that regarding defendant's 1985 annual report.
(3) Defendant's motion to dismiss plaintiff's RICO claims under 18 U.S.C. §§ 1962(a) & (b) is GRANTED with leave to amend. Its motion to dismiss plaintiff's claim under 18 U.S.C. § 1962(d) is GRANTED with prejudice.
(4) Defendant's motion to dismiss plaintiff's claim for implied indemnity is GRANTED with prejudice.
(5) Defendant's motion to dismiss plaintiff's claims for breach of express warranty, breach of implied warranty of merchantability, breach of implied warranty of fitness, and breach of a third-party beneficiary contract is DENIED.
(6) If it chooses to file an amended complaint, plaintiff must do so within 20 days of the date of this Order. If it fails to amend within such period, its fraud, negligent misrepresentation, and remaining RICO claims will be deemed dismissed with prejudice.