The opinion of the court was delivered by: Sand, District Judge.
This action involves a dispute between an author and a
publisher arising under their publishing agreement. The
publisher moves for partial summary judgment with respect to
the author's claims under the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. § 1962(a), for breach of
contract and for copyright infringement. For the reasons stated
below, defendant's motion is granted with respect to the RICO
claim, but denied with respect to the claims for copyright
infringement and breach of contract.
On May 15, 1982, defendant Simon & Schuster, a publisher,
entered into a written publishing agreement ("publishing
agreement") with plaintiff Porter B. Williamson, an author.
Under the agreement, defendant was to publish a book written by
plaintiff entitled Patton's Principles, A Handbook For Managers
Who Mean It! Plaintiff was paid $4,000 as an advance against
royalties which might accrue on sales of the book, and in
November 1982, defendant published a single edition of the
book. The parties disagree as to what type of edition defendant
actually published, with plaintiff claiming that it was a
"trade edition" and defendant suggesting it was a "quality
On November 21, 1983, plaintiff sought by letter to revoke
defendant's license to publish his book on the basis of various
alleged breaches of the publishing agreement. Plaintiff
subsequently commenced this action, asserting claims for
copyright infringement, breach of contract, for an accounting,
and for injunctive relief. Plaintiff's Second Amended Complaint
claims for rescission based upon fraudulent inducement and
infringement in consequence of rescission. In an "Amendment to
the Second Amended Complaint," plaintiff also added a RICO
claim. On August 7, 1989, this Court denied defendant's motion
to dismiss the RICO claim "without prejudice to the renewal of
the issue in a motion for summary judgment after completion of
discovery." Williamson v. Simon & Schuster, 87 Civ. 2277 (LBS)
(S.D.N.Y. August 7, 1989) (memorandum endorsement).
Fed.R.Civ.P. 56(c) stipulates that a motion for summary
judgment shall be granted if there is "no genuine issue as to
any material fact and . . . the moving party is entitled to a
judgment as a matter of law." Materiality of facts is
determined by the applicable substantive law, and a genuine
dispute exists over such a fact if a reasonable jury viewing
the evidence could decided in favor of the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106
S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
Defendant, citing this Court's decision in Vista Co. v.
Columbia Pictures Indus. Inc., 725 F. Supp. 1286 (S.D.N Y
1989), seeks summary judgment on plaintiff's claim under the
RICO statute, 18 U.S.C. § 1962(a).*fn1 In Vista we held that
Section 1962(a)*fn2 required a causal link between the
investment of income or proceeds derived from the pattern of
racketeering and the injury. Id. at 1299-1300. We also rejected
the plaintiffs' argument in that case that they had met this
causation standard by alleging that the defendant, which was
also the RICO enterprise, had used the income derived from its
pattern of racketeering to assist in its own general
operations, thereby permitting it to continue its pattern of
racketeering and further injure the plaintiff. Plaintiff in
this case alleges that:
Defendant . . . used such income indirectly (and
as part of its general funds) to pay salaries of .
. . employees who carried out the operations of
such schemes, and also to pay its general business
expenses (such as postage and rent) necessary to
operations of such schemes, all in violation of .
. . § 1962(a).
Plaintiff was injured . . . by the operation of
such schemes. Plaintiff was injured . . . by
reason of the facts alleged in the preceding
paragraph because the operation of the schemes was
facilitated and made possible by such payment of
such salaries and business expenses.
Amendment to Second Amended Complaint ¶¶ 104 & 105. While
plaintiff's allegations here are more specific than those in
Vista, plaintiff is attempting to meet the causation
requirement in precisely the same way.
In this circuit, there is no longer any doubt that "to state
a claim for civil damages under § 1962(a), a plaintiff must
allege injury from the defendants' investment
of racketeering income in an enterprise." Ouaknine v.
MacFarlane, 897 F.2d 75 (2d Cir. 1990). This Court adheres to
the view it expressed in Vista that when a defendant is also
the RICO enterprise and a racketeering scheme is not the
enterprise's sole purpose, investment of the proceeds from the
pattern of racketeering for general operations is too
attenuated a causal connection to satisfy Sections 1962(a) and
1964(c). Under these circumstances, the real cause of the
injury remains the racketeering acts, not the investment of the
proceeds in the enterprise. Moreover, in order for there to be
a violation of Section 1962(a) when a defendant is also a RICO
enterprise, the defendant will by definition have to use or
invest the proceeds of the pattern of racketeering in the
acquisition of or operation of itself. Once it is established
that there is a pattern of racketeering and that the defendant
is investing the proceeds from the racketeering in its own
general operations, any three acts of racketeering would
automatically fulfill the causation requirement for Section
1962(a). The first two acts would establish a pattern, and the
second act would "cause" the third by further financing the
racketeering activity that is causing injury to the plaintiff.
Where the defendant/enterprise has engaged in a pattern of
racketeering activity and invested the proceeds of such
activity, the causation requirement for Sections 1962(a) &
1964(c) would in effect be rendered meaningless. While use of
racketeering proceeds for general overhead purposes of an
enterprise not engaged solely in illegal activity may be
encompassed by the language of Section 1962(a), it does not
satisfy the Second Circuit's holding in Ouaknine that to state
an actionable claim under Section 1964(c) plaintiff must allege
injury by reason of the defendant's violation of Section
1962(a). Section 1962(a) standing alone does not state a cause
of action. To state a cause of action, plaintiff must satisfy
the requirements of both Sections 1962(a) and 1964(c).
Other courts have reached this same conclusion with respect
to Section 1962(a) and have implicitly identified other
instances where the causation requirement would be met. See
DeMuro v. E.F. Hutton, 662 F. Supp. 308, 308-09 (S.D.N.Y. 1986)
(allegation that brokerage house, the defendant/enterprise,
invested racketeering proceeds in one of its offices to pay the
racketeer/brokers' commissions and finance general office
expenses not sufficient to meet causation requirement; such a
holding would "turn every churning case into a RICO case"); In
re Rexplore, Inc., 685 F. Supp. 1132, 1141-42 (N.D.Ca. 1988)
(argument that payment of fees and commissions by brokerage
house from racketeering proceeds kept brokerage house alive and
permitted it to injure plaintiffs was merely "restatement that
predicate acts of fraud caused injury"); Galerie Furstenberg v.
Coffaro, 697 F. Supp. 1282, 1288-89 (S.D.N.Y. 1988) (even if
investment in itself permitted defendant to continue to injure
buyers of counterfeit art, injury caused by the production and
sale of counterfeit artwork, not by investment of proceeds from
this sale in ...