The opinion of the court was delivered by: SWEET
Defendants National Caucus of Labor Committees ("NCLC"), Campaigner Publications ("Campaigner"), New Solidarity International Press Service ("New Solidarity"), New Benjamin Franklin Publishing House ("Franklin Publishing"), Publications and General Management, Inc. ("PGM"), Pepper Fine Arts ("Pepper Arts"), Fusion Energy Foundation ("Fusion Foundation"), PMR Printing ("PMR"), Nancy Spannaus ("Spannaus"), Molly Kronberg ("Kronberg"), Uwe Parpart ("Parpart"), Criton Zoakos ("Zoakos"), David Goldman ("Goldman"), and D. Stephen Pepper ("Pepper") have moved, pursuant to Fed.R.Civ.P. 12(b)(1), 12(b)(6), and 9(b), to dismiss the complaint of plaintiff Michael Hudson ("Hudson"), or in the alternative, for a more definite statement pursuant to Fed.R.Civ.P. 12(e). Defendants also seek attorneys' fees and costs under Fed.R.Civ.P. 11 for the bringing of a bad faith claim. For the reasons stated below, the motion to dismiss will be granted and the motion for costs will be denied.
In order for defendants to succeed on their motion to dismiss, they must demonstrate "beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-102, 2 L. Ed. 2d 80 (1957). The complaint at issue alleges four causes of action, a federal cause for a violation of section 1962 of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., under which Hudson seeks treble damages under 18 U.S.C. § 1964(c), and three state law claims alleging fraud, failure to pay promissory notes and breach of contract. Of course, for purposes of this motion, Hudson's factual allegations will be accepted as true.
The NCLC is an unincorporated national political association dedicated to the advancement of the political ideas and career of Lyndon LaRouche. All others named as defendants -- both corporate and individual -- are affiliated in some way with LaRouche and NCLC. In December, 1980, following the sale of his home, Hudson was urged by LaRouche, Parpart, Goldman, and Zoakos to lend the proceeds of the sale "to some arm of the NCLC." On January 2, 1981, Hudson loaned Franklin Publishing $75,000 in return for three promissory notes. The notes were payable in three months at 20% interest and were signed by Spannaus and Kronberg as officers of Franklin Publishing. Spannaus and Kronberg allegedly told Hudson that the money was needed "to shore up Franklin Publishing's balance sheet and to finance publication of several books dedicated to the purposes of LaRouche and NCLC."
Repayment was not made in April as promised. Between April, 1981 and November, 1982, Franklin Publishing issued ten checks (representing partial payments) which were returned either because of insufficient funds or stop payment orders. Five additional checks written to Hudson on Campaigner and PGM accounts during 1982 and early 1983 were also returned by the issuing banks. Several of these bad checks were received by Hudson through the mail. Throughout the period in question, Spannaus and Kronberg, as chief executive officers of Franklin Publishing, made promises and representations to Hudson as to the repayment and refinancing of the loan. After attempting to renegotiate the promissory notes in April and August of 1981, Hudson filed this action on April 29, 1983.
Hudson contends that Franklin Publishing and the other named corporate defendants operate as part of an interstate network of ostensibly legitimate front organizations through which LaRouche, NCLC, and the other named individual defendants conduct a pattern of racketeering activity. Hudson claims that the defendants engaged in a scheme to defraud him through the use of mail and wire fraud. Specifically Hudson maintains that LaRouche and the NCLC "with the connivance of the other individual defendants", defrauded him of $75,000, and in addition, engaged in extortion and threats of violence against officers, directors and employees of the various affiliated organizations in an effort to siphon money into the LaRouche and NCLC political activities. The complaint cites Computron Technologies Corporation, a computer software company formed in the 1970s, as an example of a victim of the LaRouche-NCLC network, alleging that the defendants' pattern of racketeering activity defrauded Computron's creditors and drove the company into bankruptcy.
In their consolidated memorandum of law, defendants maintain that this is a straight-forward commercial note claim, disguised as civil RICO, and as such belongs in state rather than federal court. They further maintain that this lawsuit is being financed by political opponents of NCLC who, through the maintenance of this suit and this court's rules of liberal discovery, hope to harrass and discredit the LaRouche political organization. As a result, defendants raise First Amendment objections. They also seek costs and attorneys' fees for the institution of a bad faith claim.
RICO was enacted "to seek the eradication of organized crime in the United States by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime." Pub.L. No. 91-452, 84 Stat. 922, 923 (1970). While primarily creating a criminal statute aimed specifically at the infiltration of business enterprises by organized crime, Congress included a private right of action for treble damages to anyone injured "by reason of" a violation of the Act.
The Court of Appeals in this Circuit has recently set forth the two pleading burdens imposed upon a plaintiff seeking to state a claim for damages under civil RICO. See Moss v. Morgan Stanley, Inc., 719 F.2d 5 at 17 (2d Cir.1983). A plaintiff must first allege adequately that defendants have violated the substantive RICO statute, 18 U.S.C. § 1962, commonly known as "criminal RICO," before turning to the second burden of alleging that he was injured in his business or property " by reason of a violation of section 1962." Id. The complaint in this action is defective at both levels of inquiry.
The Substantive 1962(c) Violation
Although the standard of proof differs, the essential elements of a substantive RICO offense, § 1962, are the same in both criminal and civil RICO actions.
The applicable language for the alleged violation in the instant case prohibits any "person" (including a corporation) employed by or associated with any interstate "enterprise," from conducting the affairs of that enterprise through a "pattern of racketeering activity." 18 U.S.C. § 1962(c). "Enterprise" includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity. 18 U.S.C. § 1961(4). A "pattern of racketeering activity" is defined as the commission of two or more specific criminal acts within a ten-year period, including extortion, mail and wire fraud. 18 U.S.C. § 1961(5).
Since the gravamen of a RICO offense is the conduct of an enterprise through a pattern of racketeering activity and not merely the commission of the predicate acts, there must be a nexus between the enterprise and the pattern of racketeering activity. Moss v. Morgan Stanley, Inc., supra at 21-22; United States v. Cauble, 706 F.2d 1322, 1332-33 (5th Cir.1983), citing United States v. Phillips, 664 F.2d 971, 1011 (5th Cir.1981), cert. denied, 459 U.S. 906, 103 S. Ct. 208, 74 L. Ed. 2d 166 (1982). See also United States v. Riccobene, 709 F.2d 214, 224 (3d Cir.1983) (it is an agreement "to conduct or participate . . . in the conduct of an enterprise's activities . . . not an agreement to commit a pattern of racketeering activity alone" which is necessary to support a ...