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DE MURO v. HUTTON

January 13, 1986

Theodore F. De Muro and Linda De Muro, Plaintiffs,
v.
E. F. Hutton, Defendant



The opinion of the court was delivered by: KNAPP

MEMORANDUM AND ORDER

WHITMAN KNAPP U.S.D.J.

 Theodore and Linda De Muro, "plaintiffs" bring this complaint against E. F. Hutton, "defendant" alleging fraud, violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(a), (c), and (d), "RICO", and various pendent state law claims. Defendant has moved to dismiss the complaint pursuant to F.R. Civ. P. Rule 12(b). Defendants claims that plaintiffs have failed to allege fraud with sufficient particularity, that plaintiffs' RICO claims suffer from a host of fatal defects, and that after the fraud and RICO claims have been dismissed, the pendent state law claims no longer enjoy federal jurisdiction. Prior to oral argument on this motion, the parties agreed that the fraud had been alleged with sufficient particularity but that plaintiffs' RICO claim brought under 18 U.S.C. § 1962(c) and (d) could not stand. Accordingly, all that remains before the Court at this time is the motion to dismiss the claim brought under 18 U.S.C. § 1962(a).

 Defendant claims that two defects in this claim make its susceptible to a motion to dismiss pursuant to F.R. Civ. P. Rule 12(b)(6). First, defendant claims that plaintiffs' allegation that E. F. Hutton is the "person" and E. F. Hutton's Red Bank New Jersey office is the "enterprise" fails to state a claim under 18 U.S.C. § 1962(a). Further, defendant claims that subsection (a) requires that plaintiffs allege that their injury was caused by the use or investment of the racketeering proceeds by Hutton (the person) in the Red Bank, New Jersey office (The enterprise). We find that under subsection (a), the person and the enterprise need not be distinct, and deny the motion on that ground. However, since under that same subsection plaintiffs must allege that their injury has somehow been caused by the investment of the racketeering proceedings and have not done so, we dismiss the claim under subsection (a) without prejudice to plaintiffs to plead, within twenty days, a set of facts which will realistically establish that plaintiffs were injured by Hutton's investment of racketeering proceeds in its Red Bank New Jersey office.

 FACTS

 A detailed recital of the factual allegations contained in plaintiffs' complaint is not necessary at this point. What follows is a brief synopsis of those allegations.

 On November 21, 1983, the partially retired Theodore DeMuro and Linda De Muro, his elderly, retired and senile mother, opened a $ 78,000 account at the Red Bank, New Jersey office of E. F. Hutton. Their investment objectives rendered risk investments insuitable, as their account executive, Fred Manger, knew or should have known. Nonetheless, Manger recommended investing in options, to which plaintiffs did not object until January 4, 1984, and Manger repeatedly reassured plaintiffs over the telephone that these investments were suitable, considering plaintiffs' investment objectives.

 On January 5, 1984, Hutton purchased a large number of options and sent a confirmation statement to the plaintiffs. Upon receipt of this confirmation on January 9, 1984, plaintiff Theodore De Muro telephoned Manger and "complained vociferously." He also told Manger not to engage in transactions without prior consultation. Hutton then purported to liquidate these positions for plaintiffs' account, but did actually debit the account for these transactions as if they had been authorized, for a total loss to plaintiffs of $ 11,250.13. [Complaint at p. 5].

 On January 10, 1984 Hutton purchased more options without consulting plaintiffs and sent plaintiffs confirmation slips. Upon receipt of these confirmations on January 13, 1984, Theodore De Muro called Manger, complained vociferously and again demanded prior consultation. Manger assured De Muro that Hutton would carefully monitor the investments in plaintiffs' account and stated that the January 10 transactions were making money.

 De Muro never spoke to Manger again. When he called Manger's office in the third week of January, 1984, he told that Manger was "out sick and that someone else would contact De Muro about the account. Plaintiffs allege that this statements was false in that Manger had already been fired by Hutton at that point.

 Thereafter, Susan Musantry of E. F. Hutton's Red Bank, New Jersey office took over the account and called plaintiffs. She explained to them how the "deficit" in their account caused by previous options trading could be solved by initiating a new transaction. Musantry then recommended to plaintiffs a short sale of certain options, which was executed on February 1, 1984. Plaintiffs emphasized to Musantry the need for close attention to their account and consultation prior to trading. At this point plaintiffs had lost $ 32,918.15 since opening their account with Hutton.

 On February 2, 1984 De Muro called Musantry back and asked her to buy back the put contracts that had been sold short the previous day. Musantry convinced De Muro not to do so.

 The next morning, prior to the opening of trading, De Muro called Musantry again and ordered Musantry to buy back the short sales. At noon, when he called her again, she stated that she had not executed his earlier order. He repeated the order. At approximately 2:45 p.m. he called back. Musantry claimed there had been a misunderstanding and have never placed the order. De Muro complained vociferously. He called superiors of Musantry in Hutton's New York office, but was unable to reach them and they did not return his call. De Muro then registered a complaint with the office of manager of the Red Bank office, Mr. Palleteri. he told De Muro not to complain because "we have a lot ...


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