The opinion of the court was delivered by: CURTIN
John T. Curtin, United States District Judge.
This action arises out of a contract between the parties to construct a single family home for plaintiffs. By that contract, plaintiffs made defendant the general contractor and gave him the right to hire subcontractors to perform parts of the work.
Plaintiffs allege that defendant violated the terms of the contract by, among other things, requiring certain subcontractors to increase their bills with "kickback" commissions for defendant, resulting in overcharges to plaintiffs. Count One of plaintiffs' complaint (Item 1) alleges that defendant's alleged demands for these "kickback" commissions violated the Racketeer Influenced and Corrupt Organizations [RICO] statute, 18 U.S.C. § 1961, et seq. The jurisdiction of this court is invoked solely pursuant to this first claim. Counts Two through Six of plaintiffs' complaint allege other violations related to the contract for which state law is controlling.
Defendant now moves for summary judgment (Items 15 and 19),
claiming that plaintiffs have shown neither the "pattern of racketeering activity" nor the type of predicate offense required for establishing liability under RICO. Since I find that the record does not show the requisite "pattern of racketeering activity"
by defendant, I grant defendant's motion against Count One of the complaint on that ground, and address it only.
The contract in question here called for plaintiffs to pay defendant 5 percent of the total cost of construction as defendant's general contractor's fee. Plaintiffs allege that in addition to this 5 percent payment, and contrary to the terms of the contract, defendant demanded of certain subcontractors that they include a hidden 10 percent commission for defendant as part of their bill. These bills, plaintiffs allege, were then submitted to plaintiffs without any indication of the commission charge.
In support of this allegation, plaintiffs offer affidavits from two subcontractors who performed work under the contract (Items 21 and 22). Each states that the defendant told them to include a 10 percent commission for defendant in their final bill to plaintiffs. One of the subcontractors stated that he included the commission charge in his bill; the other refused to. The latter said that he thereafter "began experiencing difficulties with [the defendant]." (Item 23, p.2.) The "difficulty" cited consisted of defendant's allegedly failing to keep the subcontractor advised, once defendant's construction work fell behind schedule, of when subcontract work could proceed. The subcontractor estimated that as a result, it took him many weeks longer than expected to complete his share of the work, with resulting loss of profit (Item 23).
Plaintiffs contend that these alleged demands for "kickback" commissions by defendant, and the "difficulties" caused for the subcontractor who refused to pay the commission, constitute "extortion," a criminal predicate constituting "racketeering activity" under 18 U.S.C. § 1961(1).
Defendant's actions are alleged to have violated 18 U.S.C. § 1962(a)
or, in the alternative, 18 U.S.C. § 1962(c),
thereby giving this court jurisdiction over plaintiffs' claims and entitling plaintiffs to sue defendant for treble damages on Count One of the complaint.
In order to state a claim under RICO, a plaintiff must allege the existence of seven constituent elements. Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983), cert. denied, 465 U.S. 1025, 104 S. Ct. 1280, 79 L. Ed. 2d 684 (1984). These elements are:
(1) that the defendant (2) through the commission of two or more acts (3) constituting a "pattern" (4) of "racketeering activity" (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an "enterprise" (7) the activities of which affect interstate or foreign commerce.
Id., citing 18 U.S.C. § 1962(a-c).
In Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985), the Supreme Court observed that Congress and the courts had failed to develop a "meaningful concept" of the "pattern" requirement of RICO. That failure, the Court stated, was a primary reason why "in its private civil [application], RICO is evolving into something quite different from the original conception of its enactors." Id. at 3287. The Court noted in dicta that while "two acts of racketeering activity" are necessary to form a pattern under RICO, they may not be sufficient. Id. at 3285, n.14. The Court quoted at length from RICO's legislative history, which indicates that RICO requires not only more than one "racketeering activity," but also the threat of continuing activity. "The target of [RICO]," the Senate Report explained, "is . . . not sporadic activity." Thus, it is "the factor of continuity plus relationship which combines to produce a pattern." Id. (citing Senate Report 91-617, 91st Cong., 1st Sess. 158, emphasis supplied by Supreme Court).
Numerous district courts since Sedima have focused on the Supreme Court's language in order to more clearly define the pattern requirement of RICO. The strong consensus of the courts, including several in this circuit,
has been that Sedima's "continuity" element requires that the predicate acts alleged to constitute a "pattern of racketeering activity" must have occurred in different criminal episodes, i.e., in transactions "somewhat separated in time and place." Graham v. Slaughter, 624 F. Supp. 222, 225 (N.D. Ill. 1985), citing United States v. Moeller, 402 F. Supp. 49, 57-58 (D. Conn. 1975). In this view, the alleged occurrence of two or more related predicate acts is a necessary but not sufficient basis for a RICO claim; the acts must also have occurred in different criminal episodes, thereby denoting the threat of continuing criminal activity. This combination of "continuity plus relationship" (Sedima, supra at 3285 n.14) is the warp and woof of "pattern," and the absence of either element means there is no "pattern of racketeering activity." Thus, for example, two or more predicate acts committed in connection with a simple business transaction or in the furtherance of an isolated scheme would not suffice to constitute a pattern.
I concur that this is a proper understanding of the "pattern" requirement of RICO. As the court in Allington v. Carpenter, 619 F. Supp. 474, 478 (C.D. Cal. 1985) noted, distinguishing between acts in a singular criminal episode and a pattern of racketeering activity "gives meaning to Congress' intended rejection of RICO liability predicated upon isolated or sporadic criminal acts." The need for such a distinction is illustrated by the present case, which is essentially a breach of contract action, and a classic example both of the "increasing divergence" between the use of RICO in civil cases and the "original conception of its enactors" (Sedima, supra at 3287) and of a single episode which fails to meet the RICO "pattern" requirement set forth above.
In United States v. Turkette, 452 U.S. 576, 589, 69 L. Ed. 2d 246, 101 S. Ct. 2524 (1981), and in Russello v. United States, 464 U.S. 16, 27, 78 L. Ed. 2d 17, 104 S. Ct. 296 (1983), the Supreme Court found that the "declared purpose" of Congress in enacting the RICO statute was "to seek the eradication of organized crime in the United States." However, the use of RICO in the present case clearly diverges form any such purpose. Plaintiff Richard Maussner, who had employed the defendant ...