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MEAD v. SCHAUB

March 1, 1991

JAMES D. MEAD, PLAINTIFF,
v.
SHERWOOD ANDREW SCHAUB A/K/A ANDREW SHERWOOD, STANLEY C. JOHNSON, RICHARD A. MINERS, MARGUERITE BISCHOFF AND ROBERT S. VAN DYKE, EXECUTORS OF THE ESTATE OF CHARLES BISCHOFF, GOODRICH & SHERWOOD COMPANY, A PARTNERSHIP, AND WILLIAM J. STRIZEVER, DEFENDANTS.



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

James D. Mead, a former employee of G & S Corp. ("G & S"), alleges that G & S, together with five individuals who are or were employed there (collectively "defendants") fraudulently induced him to accept employment with G & S in order to capture his client bases, all allegedly in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968 (1982). Mead sues under § 1964(c), for injuries allegedly sustained by reason of violations of § 1962(a), (b), (c) and (d).

Defendants move to dismiss the plaintiff's complaint for failure to state a claim upon which relief can be granted and for failure to adequately plead fraud.

I. BACKGROUND

Mead alleges that, between July 1982 and June 1985, defendant Stanley Johnson, then a partner and principal owner of G & S, induced him to leave his old employment in California to accept a position as a management consultant with G & S in New York. Commencing in June 1985, Mead worked at G & S first as an employee and later as a partner until his withdrawal in December 1987, at which time he started his own management consulting business in the New York metropolitan area.

According to Mead, after he commenced his employment at G & S, in or about the latter part of June 1985, defendants*fn1 furnished him with a draft of a written employment agreement which, after certain unspecified changes were made therein, Mead executed on June 24, 1985. The agreement provided for an annual salary of $125,000 plus forty-five percent of gross revenue for business Mead worked on or generated from management consulting. Mead maintains that he exceeded the production goals set by defendants, but despite this "unsurpassed performance," defendants failed to keep their promises. G & S did not provide Mead with advanced search training (in fact, no such program existed at G & S) and it failed to support the opening and development of a branch office in California, representations which Mead relied on as conditions to his accepting G & S's offer of employment. Moreover, G & S failed to pay any part of $187,500 due Mead for additional compensation and reimbursable business expenses.

Mead charges that defendants (1) induced him to defer receipt of sums due him as an employee, (2) fraudulently induced him to become a partner of G & S, (3) misrepresented the nature of the Partnership Agreement with G & S, (4) unlawfully and fraudulently falsified and manipulated G & S's books and records, and (5) fraudulently interfered with and misappropriated developed relationships Mead had established while at G & S and prior to that time.

Further, Mead alleges that when Stanley Johnson offered him a position as a management consultant, he represented that G & S's limited non-competition agreement with its employees was a mere formality, which had never been enforced against a departed employee and would never be enforced against Mead should his employment be terminated in the future. Moreover, as part of the Partnership Agreement, he asserts that he later requested and received a release from this restrictive covenant. See Exhibit "B".*fn2 As it turned out, G & S did not abide by this commitment; after Mead's departure from G & S, defendants sued Mead around July, 1989, seeking damages for Mead's alleged failure to pay an outstanding debt on a Note granted by the partnership and for his alleged breach of the restrictive covenant, presumably engendered when Mead started his own practice in the New York area.*fn3

II. RULE 9(b)

Defendants argue that the complaint must be dismissed because its claims fail to plead a RICO violation with the particularity required by Federal Rule of Civil Procedure 9(b).*fn4 Although it is not necessary to reach this argument, since as indicated below the complaint is found to be insufficient on other grounds, it may be noted that, although the complaint does specify the role some of the multiple defendants named in the complaint played in the alleged scheme to defraud Mead, it falls short of alleging that each defendant personally agreed to commit two or more predicate acts of mail or wire fraud. See United States v. Boylan, 898 F.2d 230, 242 (1st Cir. 1990) (elements of a conspiracy must be linked in such a way as to afford a plausible basis for the inference that an agreement existed). As stated in U.S. v. Bonanno Organized Crime Family, 683 F. Supp. 1411, 1441 (E.D.N Y 1988),

  In the Second Circuit, a required element of a RICO conspiracy
  is that the defendant himself have agreed to commit two or more
  predicate acts. Although the Amended Complaint has alleged the
  commission of two or more predicate acts by some, but not all,
  defendants, the commission of the acts is distinct from an
  agreement to commit them, and a violation of § 1962(d) requires
  different proof from a violation of § 1962(c). The RICO
  conspiracy claim in the instant action is insufficient because
  it does not allege an agreement by each defendant to commit two
  predicate acts. [citations omitted]

Furthermore, Rule 9(b) ostensibly rebukes using the convenience of discovery to find a basis for and to justify an action against multiple defendants for which there is no basis for alleging a conspiracy based on fraud. Thornock v. Kinderhill Corp., 712 F. Supp. 1123, 1129 (S.D.N.Y. 1989).

III. RICO

To state a viable RICO claim, a plaintiff must allege that the defendants committed two or more predicate acts within a ten year period and that such acts constituted a pattern of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). In Sedima the Supreme Court emphasized that "the definition of a `pattern of racketeering activity' differs from the other provisions in § 1961 in that it states that a pattern `requires at least two acts of racketeering activity,' Section 1961(5) (emphasis added), not that it `means' two such acts. The implication is that while two acts are necessary, they may not be sufficient." Id. at 496, n. 14, 105 S.Ct. at 3285, n. 14. In this regard, what is required is a showing that the predicate acts were related and amounted to, or threatened the likelihood of, continued criminal activity. H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, ___, 109 S.Ct. 2893, 2900-01, 106 L.Ed.2d 195, 208 (1989). As noted by the Court in Sedima, "`[i]t is this factor of continuity plus relationship which combines to produce a pattern.'" 473 U.S. at 483, n. 4, ...


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