Opinion
Civil No. 03-3037 (JBS).
August 16, 2004
Christopher D. Mannix, Esquire, SIDKOFF, PINCUS, GREEN, PC, Philadelphia, Pennsylvania, Attorney for Plaintiff Atlantic Bakery Expo, a partnership comprised of the New Jersey Bakers Board of Trade, Inc. and the New York State Association of Manufacturing Retail Bakers, Inc., a/k/a Atlantic Bakery Expo 2004.
Nancy Axilrod, Esquire, Marshall D. Bilder, Esquire, STERNS WEINROTH, PC, Trenton, New Jersey, Attorneys for Defendants Boardwalk Exhibit Services Team, Inc., Exposition Contractors, Inc., and Jack Penman.
Dennis M. Tuohy, Esquire, TUOHY TUOHY BLEE, Atlantic City, New Jersey, Attorney for Third-Party Defendant Patricia Blair.
OPINION
This matter comes before the Court upon a motion to dismiss or, alternatively, for partial summary judgment filed by defendant Jack Penman and third party defendants John Penman, Jr. and Patricia Blair ("RICO Defendants"). The RICO Defendants seek dismissal of claims brought against them by plaintiff Atlantic Bakery Expo and third party plaintiffs New Jersey Bakers Board of Trade, Inc., the New York State Association of Manufacturing Retail Bakers, Inc., and the Atlantic Bakery Expo Committee ("the Bakers"), alleging violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1961 et. seq. The Court will deny the motion for partial summary judgment for the reasons stated herein.
I. BACKGROUND
The procedural and factual history for this case has been previously described by the Court in an opinion filed on February 3, 2004, in which the Court denied the Defendants' motion to dismiss the Plaintiff's Lanham Act claim regarding the mark for the Atlantic Bakery Expo, a trade show for retail bakers held every other year in Atlantic City, New Jersey. The Court will incorporate here its prior case history, and will here include only facts pertinent to this motion.
Plaintiff Atlantic Bakery Expo, a partnership of the New Jersey Bakers Board of Trade, Inc., and the New York State Association of Manufacturing Retail Bakers, Inc., filed its original Complaint on June 25, 2003, seeking preliminary injunctive relief against defendants Boardwalk Exhibit Services, Inc., Exposition Contractors, Inc., and Jack Penman because it believed that they intended to use their "Atlantic Bakery Expo" mark to hold a competing baking trade show in 2004. Defendants opposed the preliminary injunction and filed a motion to dismiss, arguing that the plaintiffs had failed to state a claim under the Lanham Act. [Docket Item 7-1.] The Court denied the request for a preliminary injunction, finding that plaintiff had not demonstrated a reasonable likelihood of success on the merits and had not established that it would suffer irreparable harm absent an injunction, [Docket Items 12-1, 13-1], and denied the motion to dismiss because the plaintiffs had alleged the necessary elements of a Lanham Act claim.
While the motion to dismiss was pending, the defendants filed an Answer, an Amended Answer, and a Third-Party Complaint against the New Jersey Bakers Board of Trade, Inc., the New York State Association of Manufacturing Retail Bakers, Inc., and the Atlantic Bakery Expo — which in turn filed an Answer to the Third Party Complaint, a Counterclaim against the defendants, and a Third-Party Complaint against John Penman, Jr. and Patricia Blair. [Docket Items 15-1, 16-1.]
The RICO claims which are the subject of the present motion were asserted by the Bakers in their Answer and Third-Party Complaint against Jack Penman, John Penman, Jr., and Patricia Blair. The Bakers claim that Jack Penman, as an agent for the Bakers, was charged with arranging the decorating services for the Atlantic Bakery Expo from 1994 through 2002. (Third Party Compl. ¶ 26.) According to the Bakers' Complaint, Jack Penman demanded bribes from Atlantic Exhibition Services, Inc. ("AES") in exchange for his providing it with exclusive decorating rights to the Atlantic Bakery Expo in 1994, 1996, 1998, and 2000. (Id.) During that time, Penman allegedly used Boardwalk Exhibit Services ("Boardwalk") as a legitimate front to solicit and receive those bribes. (Id. ¶ 27.) The Bakers claim that bribes were also made in the form of 1) monthly payments from AES to Patricia Blair and John Penman, Jr.; and 2) AES buying Patricia Blair a new car and paying the car's monthly insurance costs. (Id. ¶ 29.)
The RICO Defendants, denying these alleged RICO violations, filed the present motion to dismiss or, alternatively, for partial summary judgment of the Bakers' RICO claims on March 3, 2004.
II. DISCUSSION
C. Standard of Review
Under a Rule 12(b)(6) motion to dismiss, this Court is "required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn from them after construing them in the light most favorable to the non-movant."Jordan v. Fox, 20 F. 3d 1250, 1261 (3d Cir. 1994). The presiding court should look "only to the facts alleged in the complaint and its attachments without reference to other parts of the record." Id. at 1261. The Court should not dismiss the complaint "unless it clearly appears that no relief can be granted under any set of facts that could be proved consistently with the plaintiff's allegations." Id. at 1261. A Rule 12(b)(6) motion can be converted into a Rule 56 motion for summary judgment if "matters outside the pleading are presented to and not excluded by the court." Fed.R.Civ.P. 12(b).
A Rule 56 motion for summary judgment is applicable if "the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."Celotex Co., v. Catrett, 477 U.S. 317, 322 (1986). This standard requires the existence of a "genuine issue of material fact" for the non-moving party to survive the motion, and not just some "alleged factual dispute." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In order to successfully resist a summary judgment motion, the "opposing party must come forward with specific facts showing that there is a genuine factual issue for trial." United States v. One 107.9 Acre Parcel of Land, 898 F.2d 393, 398 (3d Cir. 1990). A failure to do so means that "the full record, taken together, could not lead a rational trier of fact to find for the non-moving party." Id. at 398.
B. The Bakers' RICO Claim
The RICO Defendants, namely defendant Jack Penman and third party defendants John Penman, Jr. and Patricia Blair, assert that the Bakers' Complaint should be dismissed because 1) the Bakers cannot prove the commission of predicate acts/racketeering activity by the RICO Defendants; 2) there is no "enterprise" separate from the "person" whom is alleged to have violated the RICO statute; 3) there is no "pattern" of racketeering activity; and 4) no commercial enterprise was acquired or maintained through a pattern of racketeering activity. The Court will consider each argument in turn.
1. Predicate Acts
The RICO Defendants argue that the Complaint should be dismissed because the Bakers cannot prove that the RICO Defendants committed the underlying predicate act/racketeering activity of bribery necessary to support a valid RICO claim. (Def. Br. at 10.) Under the RICO statute, "an injury sufficient to support a civil action under section 1964(c) must arise out of wrongful conduct proscribed by the substantive provisions of section 1962 (i.e., in the context of a section 1962(c) violation, the injury must arise out of the predicate acts)."Smith v. Berg, 247 F.3d 532, 539 (3d Cir. 2001). The Third Circuit has held that bribery falls under the category of "wrongful conduct", and is sufficient to support a civil action under the RICO statute. Environmental Tectonics v. W.S. Kirkpatrick, Inc., 847 F.2d 1052, 1067 (3d Cir. 1988).
Under New Jersey law, bribery occurs when "[a] person . . . solicits, accepts or agrees to accept any benefit as consideration for knowingly violating or agreeing to violate a duty of fidelity to which he is subject." N.J.S.A. 2C:21-10. The RICO Defendants argue that the Bakers cannot prove their bribery allegations as a matter of law because any payments between AES and Penman could not have been made in "consideration for knowingly violating or agreeing to violate a duty of fidelity."Id. Instead, the RICO Defendants allege that there was a contract between AES and Penman that guaranteed AES the exclusive right to provide decorating services for the Atlantic Bakery Expo from 1996 through 2004, (Def. Br. at 11), meaning that any payments between the two parties could not have been made to secure the Expo decorating job for AES, as there was no need for bribes so long as the contract was in place. (Id.) The RICO Defendants further argue that the payments between AES and Penman were actually made in exchange for proper purposes, such as for the leasing of warehouse space, for equipment sales, and for consulting services. (Def. Br. at 12.)
The Bakers respond with an affidavit from an ex-owner of AES, Howard J. Casper, who claims that the contract was a sham he executed in furtherance of the bribery scheme between AES and Penman. (Casper Decl. at ¶ 1A.) Casper's affidavit states that, as the contract was a sham designed to perpetuate the scheme until 2004, AES still had to bribe Penman every other year to secure the Expo decorating job. (Id.) Contrary to Penman's statements, Casper also claims that AES made payments in excess of any services provided by Penman, and that the majority of cash was still given as bribes. (Id. at 7.)
The validity of this purported contract is the subject of pending litigation in the Superior Court of New Jersey, Atlantic County. [Docket No. ATL-C-97-03]. For purposes of this motion, the Court need not determine the contract's validity or invalidity. Instead, because it is clear that there is a factual dispute concerning the alleged contract for services between AES and Penman and the payments Penman received, and because both the validity of the contract and the purpose of the payments are material issues in this RICO dispute, the Court cannot enter summary judgment based on this argument.
2. Separate Commercial Enterprise
The RICO Defendants contend that the Bakers' complaint should still be dismissed because Boardwalk has no identity separate from the person behind the alleged pattern of racketeering activity. Under section 1962(c), it is unlawful for any person to conduct the affairs of an enterprise through a pattern of racketeering activity. See 18 U.S.C. § 1962(c). In its interpretation of this section of the RICO statute, the Supreme Court has held that plaintiffs "must allege and prove the existence of two distinct entities: (1) a `person'; and (2) an `enterprise' that is not simply the same `person' referred to by a different name." Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 160 (2001) (quoting 18 U.S.C. § 1962(c)).
In Cedric, the Supreme Court was presented with a civil RICO claim where the named defendant was the sole shareholder in a tightly controlled corporation (an enterprise allegedly controlled and maintained by the defendant's pattern of racketeering activity). In deciding whether the defendant and the corporation constituted one entity or two, the Court decided on the latter and held that "[t]he corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status. And we can find nothing in the statute that requires more `separateness' than that." Id. at 265. See also Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., Inc., 46 F.3d 258 (3d Cir. 1995) (cited by the Supreme Court in Cedric for the proposition that both regular employees as well as corporate officers are separate legal entities from the corporations in which they work).
The RICO Defendants argue that Boardwalk Exhibit Services, one of the companies allegedly infiltrated by racketeering activity, is not a separate entity from John Penman, a named defendant, because Penman is the sole shareholder and owner of the company. Under Cedric, the issue of whether Penman is the sole owner of Boardwalk loses significance, as in either case Penman retains a status equivalent to that of a "corporate employee, `acting within the scope of his authority.'" Cedric, 533 U.S. at 163 (quoting United States v. DeJesus, 219 F.3d 117 (2d Cir. 2000)). As an employee of Boardwalk, he would be "a natural person . . . distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status." Id.
The RICO Defendants also claim that Boardwalk was "irrelevant to the bribery scheme that plaintiffs' allege," and therefore could not satisfy the separate enterprise requirement in the RICO statute. (Def. Reply Br. at 6.) However, the Bakers do specifically allege that Boardwalk was used for the "demanding and receiving [of] bribes from AES, and concealing the bribes through the covert payments to, and laundering by the RICO DEFENDANTS . . . which were to enrich the RICO DEFENDANTS through the ongoing criminal activity conducted through the enterprise."
(Pls.' Amend. Compl. ¶ 62.) As the record shows only conflicting affidavits — one set alleging bribery using Boardwalk as a front for illegal activity, (Casper Decl. at ¶ 2F), and one set claiming that Boardwalk was never involved in any alleged bribery scheme, (Penman Decl. at ¶ 3) — there remains a genuine issue of material fact as to whether Boardwalk was an enterprise controlled and maintained through a pattern of racketeering activity by the RICO Defendants. For these reasons, the Bakers' RICO claims cannot be dismissed at this time for failure to name an enterprise separate from the person charged in the RICO Complaint.
3. Pattern of Racketeering Activity
The RICO Defendants also contend that the Bakers fail to meet the requirements of a valid RICO claim because they cannot prove the existence of a pattern of racketeering activity through the commission of sufficient predicate acts. Under the RICO statute, it is "unlawful for any person through a pattern of racketeering activity . . . to acquire or maintain . . . any interest or control of any enterprise" or "for any person employed by or associated with any enterprise . . . to conduct or participate . . . in the conduct of such enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c) and (d). Furthermore, it is "unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of [Section 1962]." 18 U.S.C. § 1962(c).
The Supreme Court has ruled extensively on the issue of what constitutes a pattern of racketeering activity. In terms of the predicate acts underlying a RICO claim, "while two acts are necessary" to establish a pattern, "they may not be sufficient."H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 237 (1989). Instead, in order "to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." Id. at 239.
This two prong test of relatedness and continued criminal activity has been adopted by the Third Circuit. In the first prong, "predicate acts are related if they `have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.'" Tabas v. Tabas, 47 F.3d 1280, 1292 (3d Cir. 1995) (quoting H.J. Inc., 492 U.S. at 240). In the second prong, "[w]hat a plaintiff or prosecutor must prove is continuity of racketeering activity, or its threat," which includes "both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." Id. (quoting H.J. Inc., 492 U.S. at 241).
With regards to the continuity requirement, both the Supreme Court and the Third Circuit have "rejected the theory that a RICO pattern requires proof that a defendant engaged in multiple criminal `schemes.'" Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1412 (3d Cir. 1412) (quoting H.J. Inc., 492 U.S. at 240). "[R]elated predicate acts in furtherance of a single scheme can constitute a pattern if the acts constitute or present the threat of long-term continuous criminal activity." Id. Thus, while proof of multiple schemes can be highly relevant towards continuity, it is not a prerequisite for the filing of a RICO claim.
In their motion to dismiss, the RICO Defendants focus primarily on deficiencies in the second prong of the test, claiming that the Bakers cannot show a continuity of racketeering activity. (Def. Br. at 16.) The Bakers respond that their Complaint, together with the Casper affidavit, sufficiently supports a claim of both closed- and open-continuity. (Pl. Br. at 34.)
There is evidence from which a reasonable factfinder could conclude that a pattern of racketeering activity existed. AsKehr demonstrates, the Bakers do not have to prove that multiple schemes existed, only that the predicate acts together "constitute or present the threat of long-term continuous criminal activity." Kehr Packages, Inc., 926 F.2d at 1412. In this matter, the Court is once again presented with conflicting affidavits concerning the length and nature of the alleged predicate acts; the Bakers provide evidence showing that the RICO Defendants were already devising new bribery schemes for future Expos, (Casper Decl. at ¶ 1K), while the RICO Defendants' affidavits claim that there never was any bribery scheme. (Penman Decl. at ¶ 8.)
Regarding open-ended continuity, based on the conflicting affidavits, it remains a factual issue as to whether the alleged predicate acts would continue if Penman regained his position as manager of the Expo, thereby extending the threat of criminal repetition. The same problem exists for closed-ended continuity, as a rational trier of fact presented with the same conflicting evidence could find that there were repeated predicate acts in furtherance of the alleged bribery scheme over a substantial period of time. As the continuity requirement is satisfied, the question of whether there existed a pattern of racketeering activity remains in factual dispute, and the Bakers' RICO claim cannot be dismissed on these grounds at this time.
4. Acquisition or Control of a Commercial Enterprise
The RICO Defendants also argue that the Complaint should be dismissed because the Bakers have not alleged an injury resulting from the RICO Defendants' acquisition or control of an enterprise. Under the RICO statute, it is "unlawful for any person through a pattern of racketeering activity . . . to acquire or maintain, directly or indirectly, any interest in or control of any enterprise." 18 U.S.C. § 1962(b). The Third Circuit has interpreted this language to mean that "[i]n order to recover under this section, a plaintiff must show injury from the defendant's acquisition or control of an interest in a RICO enterprise." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1190 (3d Cir. 1993).
The RICO Defendants claim that there was no alleged acquisition or control of Boardwalk through racketeering activity because it is impossible for the sole owner of a corporation to infiltrate his own company. The RICO Defendants believe that this defense bars the possibility of a showing of injury, as there can be no subsequent injury without initial proof that a company was acquired or maintained.
This Court's interpretation of the statutory requirement differs because RICO only requires a showing of "injury from the defendant's acquisition or control of an interest in a RICO enterprise." Id. (emphasis added). The Bakers' Complaint passes this muster, as they have alleged an injury resulting from Jack Penman's control of Boardwalk through racketeering activity, and Jack Penman, as the sole owner of the company, clearly had control of Boardwalk during the time of the alleged bribery. Furthermore, the Supreme Court in Cedric was faced with a similar scenario and found no bar on the showing of injury even though the defendant was the sole owner of the RICO enterprise.
Given that the record shows a genuine issue of material fact as to the infiltration claim, and it is of a nature sufficient to support a valid RICO claim, the Bakers' complaint will not be dismissed at this time.
The RICO Defendants contend that once the Bakers' federal RICO claim is dismissed, the entire Complaint should be dismissed for lack of subject matter jurisdiction pursuant to 28 U.S.C. § 1331. As the Bakers' federal RICO claim has survived the motion for partial summary judgment, the Court will not consider the subject matter jurisdictional issue at this time.
III. CONCLUSION
For the foregoing reasons, this Court will deny the defendants' motion to dismiss or, alternatively, for partial summary judgment because the defendant has set forth a valid claim under the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1961 et. seq. The accompanying order is entered.
ORDER
This matter having come before the Court upon the motion of defendant Jack Penman and Third-Party defendants John Penman, Jr. and Patricia Blair to dismiss or, alternatively, for summary judgment of the RICO claims alleged in Counts 1 and 2 of plaintiffs' Amended Complaint, [Docket Item No. 42-1]; the Court having reviewed the submissions of the parties; for the reasons stated in the Opinion of today's date and for good cause;
IT IS this 16th day of August, 2004, hereby
ORDERED that Defendants' motion to dismiss or, alternatively, for summary judgment shall be, and hereby is, DENIED.