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STATE WIDE PHOTOCOPY, CORP. v. TOKAI FIN. SERVS.

August 3, 1995

STATE WIDE PHOTOCOPY, CORP., Plaintiff, against TOKAI FINANCIAL SERVICES, INC., ATLANTIC BUSINESS PRODUCTS, INC., and ROBERT COHEN, Defendants.


The opinion of the court was delivered by: SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.

 Plaintiff State Wide Photocopy, Corp. ("State Wide") commenced this action against Tokai Financial Services, Inc. ("Tokai"), Atlantic Business Products, Inc. ("Atlantic") and an Atlantic employee, Robert Cohen ("Cohen"), on November 21, 1994. State Wide filed an amended complaint ("the complaint") on January 18, 1995, alleging violations of (i) the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq. against all defendants and (ii) the Electronic Communications Privacy Act ("ECPA"), 18 U.S.C. §§ 2701 et seq. against Tokai and (iii) several pendent state law causes of action. Defendants now seek, pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6), to dismiss the federal claims against them, thereby depriving this Court of pendent jurisdiction to hear the remaining claims. *fn1"

 Deeming the factual allegations contained in the complaint to be true, as the Court must, Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994), the relevant facts are as follows. *fn2"

 Plaintiff is in the business of selling and leasing office equipment and is a competitor of Atlantic. Complaint at PP 9, 18. When State Wide customers choose to lease equipment, State Wide frequently submits financing applications to companies providing lease financing such as Tokai. Id. at PP 10-12. Since 1990, when a customer chose to lease from State Wide, an employee faxed Tokai a lease application on behalf of the customer, listing name, address, telephone number, indicators of creditworthiness, the equipment to be leased and its price. Id. at PP 13, 15. As the information contained in the application is confidential, Tokai agreed that its only use of the confidential information would be to evaluate the creditworthiness of State Wide's customers. Id. at PP 14-16.

 In or about February, 1994, State Wide discovered that "individuals" at Tokai were appropriating confidential information in the financing applications and were providing that information to Atlantic. Id. at P 17. State Wide alleges upon information and belief that "certain officers and/or directors at Tokai" authorized these acts. Id. State Wide discovered the diversion of information when it submitted a lease application for a customer who was subsequently contacted by Atlantic, quoted information from the lease application and offered a lower price than that offered by State Wide. Id. at P 19.

 In an attempt to end Tokai's actions, State Wide contacted Tokai's regional representative, but Tokai's representatives dismissed the allegations without investigation, and upon information and belief, permitted the scheme to continue. Id. at PP 20-21. State Wide began monitoring lease applications closely, and it learned that the next two customers that submitted applications to Tokai were contacted by Atlantic within forty-eight hours. Id. at PP 22-23.

 On July 1, 1994, State Wide sent a letter to the Chief Executive Officer of Tokai, detailing the scheme and offering Tokai the opportunity to conduct an internal investigation. Id. at P 24. Tokai "purportedly investigated" State Wide's allegations from July through October, 1994. Id. at P 25.

 On or about Friday, October 7, 1994, a test application for State Wide customer Trinity Managers International was submitted to Tokai, and Tokai's General Counsel and selected executives were given a copy of that application to monitor the information as it entered Tokai's information system. Id. at P 26. On approximately October 12, 1994, Trinity Managers International was contacted by Mr. Cohen of Atlantic, who quoted information appearing on the application submitted by State Wide and offered to undercut State Wide's price. Id. at P 27. Upon information and belief, several unnamed individuals at Tokai received a share of increased revenues from Atlantic in exchange for their participation in the scheme. RICO Statement at P 9.

 State Wide alleges, upon information and belief, that, due to the scheme, it lost at least four large contracts as well as goodwill with at least four other customers. Complaint at P 28; RICO Statement at PP 4(c), 17. Further, State Wide alleged that the actual number of customers contacted by Atlantic, and how much revenue and goodwill was lost during the four years is unknown; it approximates that lost revenue and goodwill stands in excess of $ 10,000,000. Complaint at P 28.

 II. DISCUSSION

 In addition to accepting the factual allegations of the complaint as true on a motion to dismiss, the Court must draw all inferences in favor of the pleader. IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052 (2d Cir. 1993), cert. denied, 130 L. Ed. 2d 38, 115 S. Ct. 86 (1994). The action cannot be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [the] claim which would entitle [plaintiff] to relief." Cohen, 25 F.3d at 1172 (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)).

 A. The RICO Claim

 To state a civil RICO claim under 18 U.S.C. § 1962, plaintiff must allege injury resulting from "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985); see also Azrielli v. Cohen Law Offices, 21 F.3d 512 (2d Cir. 1994).

 1. The Pattern Element

 The requirement that RICO allegations constitute a pattern mandates that the complaint set forth at least two predicate acts within a period of ten years. H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 237, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989) ("H.J. Inc."). Further, as clarified below, there must be "relationship and continuity" between the predicate acts. Id. at 239.

 a. Relatedness

 The Supreme Court, in H.J. Inc., described relationship between predicate acts as "having the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Id. at 240. The Second Circuit has expanded on the principle:

 
an interrelationship between acts, suggesting the existence of a pattern, may be established in a number of ways. These include proof of their temporal proximity, or common goals, or similarity of methods, or repetitions. The degree to which these factors establish a pattern may depend on the degree of proximity, or any similarities in goals or methodology.

 Azrielli, 21 F.3d at 520 (quoting U.S. v. Indelicato, 865 F.2d 1370, 1382 (2d Cir. 1989)). Defendants do not offer a pointed argument that plaintiff failed to fulfill the relatedness requirement. Indeed, such an argument would almost certainly fail. The "relatedness" element is supported by allegations that several acts were committed close in time (during the early 1990's, especially during several months in 1994), proceeded under virtually identical methods (diversion of information over the wires) and sought common goals (to lure clients of State Wide). See e.g., Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. 1989).

 b. Continuity

 H.J. Inc. also provided guidance on continuity, noting that it may exist in the form of "a closed period of repeated conduct, or [] past conduct that by its nature projects into the future with a threat of repetition." H.J. Inc., 492 U.S. at 241. Continuity's broad definition lends RICO plaintiffs several approaches for establishing it.

 
[Continuity] may be proved in a variety of ways. For example, "[a] party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time." Alternatively, the continuity requirement may be met by demonstrating a threat of continuity, for example, by showing that. . . the predicates are a "regular way of conducting defendant's ongoing legitimate business."

 Azrielli, 21 F.3d at 521 (quoting H.J. Inc., 492 U.S. at 242-243)).

 Plaintiff argues that the alleged RICO acts constitute a closed ended scheme. Plaintiff's Brief in Opposition ("Op. Br.") at p. 23. Plaintiff alleged that defendants committed, over the course of approximately four to five years, specific RICO predicate acts. As noted above, these alleged acts were clearly related. Further, they involved systematic and repeated attempts to induce State Wide into transmitting client information and continuous conversion of the information to State Wide's rival. Clearly, these acts were not sporadic. Compare e.g., Barsam v. Pure Tech Intern., Inc., 864 F. Supp. 1440, 1450 (S.D.N.Y. 1994) (discussing dismissed RICO cases "based upon a single fraudulent end with a limited goal, lasting over a limited period of time"). While, ...


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