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July 12, 2000


The opinion of the court was delivered by: Milton Pollack, Senior District Judge.


Credit Lyonnais, S.A. ("CL") and Credit Lyonnais Rouse ("CLR") (collectively referred to as the "Credit Lyonnais Defendants") each move, pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure, to dismiss the Sixth Amended Consolidated Class Action Complaint (the "Complaint") against them for failure to state a claim upon which relief can be granted and for failure to allege fraud with sufficient particularity.


In the Complaint, plaintiffs assert claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. and the common law of New York alleging that the prices of copper futures contracts traded on the Commodity Exchange Inc. and the Comex division of the New York Mercantile Exchange Inc. were artificially inflated between June 24, 1993 and June 15, 1996, inclusive, by an alleged conspiracy of certain defendants herein.

A motion to dismiss under Rule 12 must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). For the purposes of this motion, the factual allegations of the Complaint are accepted as true, and all inferences are drawn in favor of the pleader. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993).



A. Sufficiency of RICO Allegations

1. Sufficiency of Section 1962(c) Allegations

To state a RICO claim, a plaintiff must allege that defendants "conduct[ed] or participat[ed] . . . in the conduct of [an] enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). RICO defines "enterprise" as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The enterprise may be "proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Defendants cite various Seventh Circuit cases to support their contention that to properly allege an association-in-fact, there must be a structure and goals separate from the predicate acts themselves. However, this Circuit construes the enterprise element of RICO liberally; "[T]he language and the history [of RICO] suggest that Congress sought to define the term as broadly as possible . . ." United States v. Indelicato, 865 F.2d 1370, 1382 (2d Cir.), cert. denied, 493 U.S. 811, 110 S.Ct. 56, 107 L.Ed.2d 24 (1989) (en banc).

In Moss v. Morgan Stanley, 719 F.2d 5 (2d Cir. 1983), this Circuit held that a RICO enterprise need not have an "`economic goal . . apart from the commission of the predicate acts,'" but simply "an ascertainable structure distinct from the pattern of racketeering, and [which] cannot simply be the sum of the predicate acts." Schmidt v. Fleet Bank, 16 F. Supp.2d 340, n. 5 (S.D.N.Y. 1998). This Circuit has explicitly rejected the view that evidence offered to prove the "enterprise" and the "pattern of racketeering" must necessarily be distinct. See id.

Plaintiffs allege several alternative associations-in-fact comprised of various combinations of Sumitomo, Global, Winchester, CLR and the alleged Winchester-CLR joint venture. At this juncture in the proceedings, the agreement, dated May 20, 1991, between Winchester and CLR, which establishes a "group of companies . . . for the purpose of carrying on, inter alia, the buying and selling of non-ferrous metals, the buying and selling of commodities in general, the buying and selling of foreign exchange whether in the spot or the futures market and introducing clients to CLR" (the "Winchester-CLR Agreement") alone serves as sufficient evidence of enterprise structure distinct from the alleged particular acts, which constitute the defendants' alleged pattern of racketeering. Plaintiffs have sufficiently alleged the existence of a RICO enterprise. At this time, this Court does not address plaintiffs' assertions regarding CLR's vicarious liability for acts of Winchester.

Moreover, to be subject to RICO liability, a defendant must have participated, directly or indirectly, in the operation or management of the enterprise. Reves v. Ernst & Young, 507 U.S. 170, 183, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). As this Court has noted before, liability is not limited to those primarily responsible for an enterprise's affairs, in upper management, or who occupy a formal position in the enterprise, but may attach even to "lower-rung participants in the enterprise who are under the direction of upper management." Id. at 183-84, 113 S.Ct. 1163. However, "some part in directing the enterprise's affairs is required." Id. at 184, 113 S.Ct. 1163.

CLR contends that its role in the alleged enterprise was attenuated as it can show that it did not have knowledge of the underlying business of Sumitomo and Global and was thus unaware of the lack of commercial justification for the trades it cleared on their behalf. It further argues that its position as an "outsider" is determinative of the Reves test. However, "[o]nce a RICO enterprise is established, a defendant may be found liable even if he does not have specific knowledge of every member and component of the enterprise." Mason Tenders District Council Pension Fund v. Messera, 1996 WL 351250 at *6 (S.D.N.Y. 1996) ("Whether or not this conduct is viewed as being at the core of the enterprise . . ."). Furthermore, "[t]he RICO statute has been repeatedly construed to cover both insiders as well as those peripherally connected to a RICO enterprise, particularly where the "outsiders" are alleged to have engaged in kickbacks in order to influence the enterprise's decision." Id. See also Azrielli v. Cohen Law Offices, 21 F.3d 512, 514-15, 521 (2d Cir. 1994) (Judge Kearse held that the district court should not have dismissed the § 1962(c) claim against defendant who served as "the middle person in [a] flip sale" of a building "`by allowing his name to be used on the bogus contract and showing up at the closing.'").

Plaintiffs' allegations regarding the profit and loss share agreement between CLR and Winchester and regarding the various forms of reciprocal assistance between Hamanaka or Sumitomo and CLR and Winchester are at a minimum sufficient to allege "substantial assistance on the part of CLR in the overall manipulation scheme." See Napoli v. United States, 45 F.3d 680, 683 (2d Cir.) cert. denied, 514 U.S. 1084, 115 S.Ct. 1796, 131 L.Ed.2d 724 and 514 U.S. 1134, 115 S.Ct. 2015, 131 L.Ed.2d 1014 (1995). At this early stage, these allegations are sufficient to satisfy Reves.

Allegations of the existence of a RICO enterprise must meet only the "notice pleading" requirements of Fed.R.Civ.Pro. 8. Trustees of Plumbers and Pipefitters Nat'l Pension Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1144-45 (S.D.N.Y. 1995); Azurite Corp. v. Amster & Co., 730 F. Supp. 571 (S.D.N.Y. 1990). At this time, nothing more than those allegations made herein is required of plaintiffs.

2. Sufficiency of Mail and Wire Fraud Allegations.

Under RICO, a "pattern of racketeering activity" consists of "at least two acts of racketeering activity" within a ten year period. See 18 U.S.C. § 1961(5); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). Among the predicate acts enumerated in § 1961(1) are any acts of mail fraud indictable under the federal mail fraud statute, 18 U.S.C. § 1341, and any acts of wire fraud indictable under the federal wire fraud statute, 18 U.S.C. § 1343.*fn1

Plaintiffs allege that the Credit Lyonnais defendants have committed the predicate acts of mail fraud and wire fraud in carrying out an ongoing pattern of concerted activity to manipulate and artificially impact the price of copper and Comex futures and options contracts. The elements of a claim of mail or wire fraud are: (1) the existence of a scheme to defraud involving money or property; and (2) the use of the mails or wires in furtherance of the scheme. See United States v. Trapilo, 130 F.3d 547, 551-52 (2d Cir. 1997); McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir. 1992) (citing Schmuck v. United States, 489 U.S. 705, 712, 109 S.Ct. 1443, 103 L.Ed.2d 734 (1989)).

In pleading a violation of the mail and wire fraud statutes, Rule 9(b) of the Federal Rules of Civil Procedure must be satisfied. Mills, 12 F.3d at 1176; German de La Roche v. Calcagnini, 95 Civ. 6322, 1997 WL 292108, at *7 (S.D.N.Y. 1997). Rule 9(b) provides: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge and other condition of mind of a person may be averred generally." Fed.R.Civ.P. 9(b).

This Court has recognized the significance of Rule 9(b) in civil RICO actions. See In re Sumitomo Copper Litigation, 995 F. Supp. 451, 455 (S.D.N.Y. 1998) (Pollack, J.). The rationale underlying a strict application of the pleading requirements in civil RICO actions is that simply bringing a RICO action against a defendant can unfairly brand him as a "racketeer." Id. However, while Rule 9(b) should be construed strictly in the context of civil RICO actions, it should not be exercised in such a manner as to obstruct even plaintiffs with valid claims from initiating such actions. Moreover, this Court has held that Rule 9(b) must still be read along with Rule 8(a), which requires a plaintiff to plead only a short, plain statement upon which he is entitled to relief. See Connolly v. Havens, 763 F. Supp. 6, 12 (S.D.N.Y. 1991).

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