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WILLIAMSON v. SIMON & SCHUSTER

April 17, 1990

PORTER B. WILLIAMSON, PLAINTIFF,
v.
SIMON & SCHUSTER, A DIVISION OF GULF & WESTERN CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Sand, District Judge.

OPINION

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.

I. Background

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 paperback edition."

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 included 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).

II. Discussion

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).

A. RICO Claim

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 ...


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