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NUNDY v. PRUDENTIAL-BACHE SECURITIES

April 22, 1991

DOROTHY NUNDY, INDIVIDUALLY AND AS EXECUTRIX OF THE LAST WILL AND TESTAMENT OF JAMES NUNDY, DECEASED, PLAINTIFF,
v.
PRUDENTIAL-BACHE SECURITIES, INC., AND DAVID KLASS, DEFENDANTS.



The opinion of the court was delivered by: Telesca, Chief Judge.

DECISION AND ORDER

Presently before the court are defendants' motions to dismiss Counts VI and VII of plaintiff's complaint which allege violations of 18 U.S.C. § 1962(a), (c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). For the reasons discussed below, the defendants' motions are granted.

BACKGROUND

The facts of this case were extensively discussed in a prior opinion of this court and therefore need only be briefly recounted here. This action arose out of a broker customer relationship between the plaintiff, a 71 year old widow, the brokerage firm of Prudential-Bache, and one of its employees, David Klass. The accounts which served as the basis of that relationship (hereinafter referred to as the "Estate," "Margin" and "Investment" accounts) were originally opened by the plaintiff's husband and were under his exclusive control and direction until the time of his death in July of 1986. Soon after his death, the plaintiff, as the Executrix of her husband's estate and sole legatee under his will, took responsibility for those accounts and advised defendant Klass that because she did not understand the securities market, she would rely on him "to do the right thing" for her.

Plaintiff alleges, however, that between the fall of 1986 and the fall of 1988, defendant Klass nonetheless "knowingly, intentionally and without plaintiff's authorization and knowledge," executed 90 purchase and sale securities transactions for the Estate Account and 142 such transactions for the Investment Account. All but six of these were confirmed as "principal" transactions through a notice stating that: "We sold to or bought from you for our own account as Principal." Complaint at ¶¶ 23-29. The defendants did not disclose to the plaintiff any interest or profit they may have had in these transactions.

In her original RICO count, plaintiff alleged that defendants' conduct violated 18 U.S.C. § 1962(c), which essentially prohibits any "person" "employed by or associated with an enterprise" from conducting the affairs of that enterprise through a pattern of racketeering activity. By Decision and Order dated November 13, 1990, I dismissed this count with leave to replead, holding that the "plain language [of § 1962(c)] clearly envisions liability only where there is a specified interaction between two entities, and that the same defendant-`person' may therefore not serve in two roles at the same time." Nundy v. Prudential-Bache, et al., slip op. at 15 (unpublished disposition); see also Official Publications, Inc. v. Kable News Co., 884 F.2d 664, 668 (2d Cir. 1989).

In attempt to avoid this infirmity, the plaintiff has since amended her § 1962(c) claim to allege a cause of action solely against defendant Klass and has added a separate claim under § 1962(a) against defendant Prudential-Bache. The defendants now move to dismiss these two counts.

DISCUSSION

1. Section 1962(a) Claim Against Prudential-Bache

Section 1962(a) provides, in relevant part:

  It shall be unlawful for any person who has
  received any income derived . . . from a pattern of
  racketeering activity . . . to invest . . . such
  income . . . in the acquisition . . ., . . .
  establishment or operation of . . . any enterprise
  which is engaged in . . . interstate . . .
  commerce.

18 U.S.C. § 1962(a) (emphasis added).

Relying on the language of the statute, Prudential-Bache argues initially that plaintiff's § 1962(a) claim must fail because it alleges that Prudential-Bache is both the "person" who received racketeering income and the "enterprise" into which such income was invested. I find this argument unavailing. Although the Second Circuit has yet to rule on this issue, the majority of circuits that have done so have held that a corporate-"enterprise" may be held liable under subsection (a) when it also acts as a perpetrator of the alleged predicate acts. See, e.g., Yellow Bus Lines, 839 F.2d 782, 790 (D.C.Cir. 1988), reh'g denied, en banc (D.C.Cir. 1988), cert. denied, 488 U.S. 926, 109 S.Ct. 309, 102 L.Ed.2d 328 (1989); Haroco v. Amer. Nat. Bank & Trust Co. of Chicago, 747 F.2d 384, 402 (7th Cir. 1984), aff'd on other grounds, 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985); see generally Solovy, et. al., Current Issues in Civil RICO Litigation, at 33 (1989). These courts have reasoned, and I agree, that such a construction of § 1962(a) is consistent both with the overall framework of the RICO statute, as well as the terms of the provision itself which, unlike subsection (c), contain no language suggesting that the "person" and the "enterprise" must be separate. See Schofield v. First Commodity Corp. of Boston, 793 F.2d 28, 31-32 & n. 2 (1st Cir. 1986);

The defendant alternatively argues that the plaintiff has also failed to plead the type of special racketeering injury necessary to sustain a cause of action under § 1962(a). I find this argument more persuasive. Under the plain language of the RICO statute, a plaintiff alleging a violation of § 1962(a) must demonstrate that she suffered an "injury `by reason of' defendant['s] investment of racketeering income in an enterprise," and not merely as a result of defendant's participation in the predicate acts themselves. Ouaknine v. MacFarlane, 897 F.2d 75, 83 (2d Cir. 1990) (emphasis ...


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