Opinion
02 C 8768
August 22, 2003
OPINION
Pro-Fit seeks dismissal of the complaint. It challenges the RICO complaint on every major ground on which one can attack a RICO pleading. I reject the challenge to pattern and enterprise. The allegations are thin but, in the context of this case, not fatally so. I am willing to believe, for now, that racketeering activity has been alleged. The crucial issue is standing. Weldbend says that Pro-Fit brings Chinese carbon steel pipe fittings into this country with the knowledge that their origin in China will be concealed. In essence a Chinese enterprise smuggles these fittings into the United States with the assistance of cut-outs in Korea and Los Angeles. This conduct, if it occurs as alleged, is good for Pro-Fit because the Chinese fittings are cheaper than other fittings. But Chinese fittings, clearly labeled as such, won't sell very well because, it is alleged, they are widely perceived to be of lower quality than other fittings. Moreover, if Chinese fittings enter this country openly they are subject to certain antidumping duties. So the price is higher than most would be willing to pay for goods thought to be of lesser quality. Weldbend's brief says that Pro-Fit is "engaged in a transshipment scheme . . . designed to circumvent . . . duties . . . to enrich itself at the expense of the U.S. Treasury, customers and end users of Pro-Fit's products . . ."
This would, if I am right about enterprise, activity and pattern, be a violation of RICO but Weldbend is not a proper plaintiff because it is neither the Treasury, a customer or an end-user. But Weldbend's brief does not end with the language I quoted above. The end of the line is " . . . and U.S. producers like Weldbend."
The answer to whether this is enough is found in Israel Travel Advisory Service v. Israel Identity Tours, 61 F.3d 1250 (7th Cir. 1995).
In that case, plaintiff pioneered a specialized kind of tourism. Its success led to the founding of the defendant by disaffected employees who recruited some of plaintiff's workers. The competition was unfriendly. Defendant slandered plaintiff, misrepresented itself, and ran ads that were misleading. Plaintiff won a substantial judgment for compensatory and punitive damages which was affirmed. On appeal it sought more by invoking RICO. On appeal the Court noted that the frauds were perpetrated against customers and not against the plaintiff. But it found no barrier to RICO liability simply because the predicate offense injured a business rival even though the offenses did nothing more than influence customers to take their business elsewhere. But the issue is not simple because in RICO cases the courts must look to the purpose of the particular predicate offense. When the predicate offense is mail fraud (or wire fraud) the persons within the ambit of the statute's protection are, the Court held, customers and not competitors. The Court of Appeals, I think, did not regard the question as one without difficulty but it decided the question clearly and its decision runs against Weldbend. I am unpersuaded that a different result is called for here because the very purpose of the alleged offenses was to damage Weldbend. The ambit of the statute is decided by Congress and courts, not by the offender's intent. If this is a loophole, Congress can fix it as it has fixed other gaps. Even without RICO, the plaintiff is left with remedies.
The other claims are challenged on the grounds that the fraud allegations are inadequate. Part of the attack is based on the notion that a series of e-mails from China can be parsed in a less incriminating way than the plaintiff reads them. But, on dismissal motions, I accept a reasonable reading supporting the claims. There is a reasonable reading that supports, quite strongly, the allegations of the complaint. Leaving aside the fact that defendant's reading may ultimately turn out to be right, it could be a lie. If the author of the e-mail is trying to persuade Weldbend to import Chinese fittings and conceal their origin, he might well encourage Weldbend by saying that our method works and your competitors are doing it so you better get on board. But this is not a 12(b)(6) question.
The fraud allegations are not as specific as ordinarily as they ought to be. But courts have recognized that where the key facts are largely in the hands of the defendant and its alleged co-actor, the rule is relaxed. The e-mails lay out a scheme to smuggle fittings into this country and says (based apparently on the writer's personal knowledge) that defendant participated in an illegal transshipment. In these circumstances the allegations are sufficient.
The motion to dismiss is denied as to Counts I and II and granted as to Count III.