ORDER AND OPINION
SOTOMAYOR, District Judge.
Defendants Theatrical Protective Union, Local No. One, I.A.T.S.E.,
AFL-CIO ("Local One" or the "Union"), Kevin McGarty ("McGarty"), and
Ronald Lynch ("Lynch"), move to dismiss causes of action two through
seven of the Second Amended Complaint (the "Complaint"), pursuant to
Fed.R.Civ.P. 12(b)(6). For the reasons discussed below, the Court grants
the motion in part, and denies it in part.
BACKGROUND
This action arises out of the Union's picketing of plaintiffs' job
site with the conceded purpose of compelling plaintiffs to enter into a
collective bargaining agreement. Plaintiff A. Terzi Productions, Inc.
("ATP") is a contractor of technical and production services. Plaintiff
Anthony Terzi ("Terzi") was at all relevant times ATP's "principal."
Defendants McGarty and Lynch, who are sued here both in their individual
and representative capacities, were at all relevant times Local One's
president and junior business agent, respectively.
For purposes of this motion, the Court must assume that the facts alleged in the Complaint are true.
See Walker v. New York, 974 F.2d 293,
298 (2d Cir.1992). These facts are as follows. On September 12 and 13,
1996, approximately 200 of Local One's members picketed a televised
fashion show held at the Armory in New York City to pressure ATP into a
labor agreement. ATP had been hired by the show's producer (the
"Producer") to set-up and dismantle the show's stage materials, among
other things. At the time, ATP's employees were not members of Local
One, nor did they seek or want Local One's representation. (Complaint ¶
18.)
Local One's picketers demonstrated around-the-clock on both days of
the show, bearing signs and distributing leaflets. (Complaint ¶¶ 19-20,
22.) The picketers also engaged in violent and disruptive behavior. They
threatened the Producer with bodily harm and financial ruin to compel
him to remove ATP from the show; they verbally assaulted ATP's and the
Producer's employees and interfered with their ingress and egress at the
show; and they made racist statements such as "ATP uses `niggers.'"
(Complaint ¶¶ 21-25.) Police officers were deployed to the picketing
site to prevent violence, although plaintiffs do not allege that anyone
was arrested. (Complaint ¶ 22.)
In addition, McGarty, Local One's president, made threatening calls
to Terzi prior to and during the show warning that the Union would cause
"problems" for plaintiffs at the show and at other job sites unless ATP
immediately signed a collective bargaining agreement. (Complaint ¶¶
26-27.) Upon information and belief, Local One and its agents also tried
to persuade other businesses not to do business with ATP and Terzi.
(Complaint ¶ 28.)
ATP signed a collective bargaining agreement with Local One on
September 13, 1996 (the "Agreement"), directly following the show.
(Complaint ¶ 40.) However, ATP claims its was "forcibly coerced" into
doing so by threats that, if the Agreement were not signed immediately,
defendants would slash the
tires of ATP's vehicles and prevent Terzi and ATP's employees from
safely exiting the area. (Complaint ¶¶ 41-42.) Picketers placed nails
under ATP's vehicles' tires for this purpose. (Complaint ¶ 42.) However,
once the Agreement was signed, all picketing and threatening conduct
ceased. (
Id.)
The Complaint, which seeks recovery based upon seven causes of
action, claims that plaintiffs have suffered substantial damages as a
result of defendants' conduct, including the loss of present and future
business opportunities, and harm to their good will and reputation
within the industry. The first cause of action alleges that defendants
engaged in illegal and unfair labor practices in violation of Section
303(b) of the Labor Management Relations Act of 1947 ("LMRA"), 29 U.S.C.
§ 187(b), and Section 8(b)(4)(ii)(B) of the National Labor Relations
Act ("NLRA"), 29 U.S.C. § 158(b)(4)(ii)(B). The second, third, fourth,
sixth and seventh causes of action allege various state law tort claims
against defendants, specifically, fraudulent inducement with respect to
the Agreement, tortious inference with plaintiffs' contractual
relationships, tortious inference with plaintiffs' business and
prospective contractual relations, defamation, and prima facie tort. The
fifth cause of action alleges that McGarty and Lynch, through Local
One, engaged in a pattern of racketeering activity under the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961
et seq.
("RICO"), in violation of the Hobbs Act, 18 U.S.C. § 1951, the federal
wire fraud statute, 18 U.S.C. § 1343, and the Travel Act, 18 U.S.C. §
1952. By the present motion, defendants seek to dismiss all but the
first cause of action.
DISCUSSION
A district court's function on a motion to dismiss under Fed.R.Civ.P.
12(b)(6) is to assess the legal feasibility of the complaint.
Kopec v. Coughlin, 922 F.2d 152,
155 (2d Cir.1991). The issue "is not whether a plaintiff will
ultimately prevail, but whether the claimant is entitled to offer
evidence to support the claims."
Scheuer v. Rhodes, 416 U.S. 232,
236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). Allegations contained in the
complaint must be accepted as true construed favorably to the plaintiff.
See Walker v. New York, 974 F.2d 293,
298 (2d Cir.1992). Dismissal is warranted only where "it appears beyond
doubt that the plaintiff can prove no set of facts in support of his
claim which would entitle him to relief."
Ricciuti v. NYC Transit Authority, 941 F.2d 119, 123 (2d Cir.1991) (quoting
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (footnote omitted)).
The Court will first address the adequacy of plaintiffs' state law claims and then turn to their RICO claim.
I. Plaintiffs' State Claims
A. Ratification
Defendants argue that all of plaintiffs' state tort claims—counts
two, three, four, six and seven of the Complaint—must be dismissed as
against Local One because the Complaint does not adequately allege that
Local One's members unanimously authorized or ratified the alleged
tortious conduct after having actual notice, as required by the holding
of
Martin v. Curran, 303 N.Y. 276, 101 N.E.2d 683 (1951).
In
Martin, the New York Court of Appeals held that the
officers of the National Maritime Union, an unincorporated association,
were not liable for the unlawful acts of some of its union members
because plaintiffs failed to plead and were unable to establish "that
the individual members of the union authorized or ratified the tort
complained of."
Id., 303 N.Y. at 280, 101 N.E.2d at 684. The Court stated:
A voluntary, unincorporated membership association is neither a
partnership nor a corporation. It is not an artificial person, and has
no existence independent of its members. A part of the members of a
voluntary organization cannot bind the other without their consent
before the act which it is claimed binds them is done, or they, with
full knowledge of the facts, ratify and adopt it.
Id., 303 N.Y. at 280, 101 N.E.2d at 685 (internal citations omitted).
The Court of Appeals in
Martin also concluded that N.Y. Gen. Ass'n Law § 13
(McKinney 1994), which permits suits to be brought against the officers
of an unincorporated association (such as a labor union) in their
representative capacity, did not alter the unanimous authorization or
ratification requirement.
1
The Court explained that § 13 was not meant to effect a substantive
change in the law of associational liability but rather only simplified
service of process by eliminating the need to join every member of the
union in an action. Thus,
Martin interpreted § 13 as a mere
procedural tool and held that where association officers are named as
representative defendants, the plaintiff must still allege and prove the
individual liability of each member of the association.
Id., N.Y. at 281, 101 N.E.2d at 685.
This Court acknowledged in
Modeste v. Local 1199, Drug, Hospital, and Health Care Employees Union, 850 F.Supp. 1156, 1166 (S.D.N.Y.),
aff'd, 38 F.3d 626 (2d Cir.1994), that "the
Martin
rule makes it very difficult for a plaintiff to maintain a cause of
action against an unincorporated labor union in the State of New York."
See also Jund v. Town of Hempstead, 941 F.2d 1271,
1281 (2d Cir. 1991) (noting that, given the large size of many unions
"and the unlikelihood that a formal vote would be taken to authorize
patently illicit activity,"
Martin's requirement of unanimous authorization or ratification is "a virtually impossible burden to meet").
While often criticized, the
Martin rule has been consistently followed and remains good law.
See People v. Newspaper and Mail Deliverers' Union of New York and Vicinity, 649 N.Y.S.2d 760, 768, 770,
170 Misc.2d 790,
802, 805 (Sup.Ct. New York County 1996) (noting that, in contrast to
federal law, New York "still adheres" to the rule established in
Martin "limit[ing] union liability to two situations: the authorization or the ratification of conduct by the union membership");
Building Indus. Fund v. Local Union No. 3, Int'l Bhd. of Elec. Workers, AFL-CIO, 1996 WL 935625 at *2 (E.D.N.Y. May 29, 1996) (recognizing the
Martin rule's continuing vitality in New York);
Purnell v. Diesso,
1996 WL 37770 at *3 n. 2 (S.D.N.Y. Jan.31, 1996) (dismissing
plaintiff's claim against union for infliction of emotional distress
under
Martin rule);
R.M. Perlman Inc. v. New York Coat, Suit, Dresses, Rainwear & Allied Workers' Union Local 89-22-1, 789 F.Supp. 127, 132 (S.D.N.Y.1992) (collecting state cases evincing
Martin rule's broad application);
Modeste, 850 F.Supp. at 1163 n. 5 (same);
Jund, 941 F.2d at 1278 n. 1, 1281.
See also Vincent C. Alexander, Practice Commentaries to McKinney's C.P.L.R. § 1025 (1997) (citing
Martin
for proposition that "liability lies against an [unincorporated]
association and its individual members only in narrow circumstances").
2
Turning to the instant case, the Complaint alleges that "[e]ach
member of defendant Local One authorized and ratified the tortious acts
of defendants McGarty and Lynch by approving the Agreement that
plaintiffs ATP and Terzi were coerced into signing."
3 (Complaint ¶¶ 44, 53, 61, 98, 107.) Defendants argue that this curt pleading is insufficient under the
Martin rule to sustain state tort claims against the Union. I agree.
Plaintiffs' conclusory allegation that Local One's members "ratified
the tortious acts of defendants ... by approving the Agreement" wants
this Court to assume that simply because Local One's members approved
the Agreement, they necessarily knew of and ratified McGarty's and
Lynch's allegedly tortious conduct. Such a leap finds no support in the
Complaint's allegations. Under basic agency principles, ratification of
another's actions requires "full knowledge [of] ... the specific acts in
question."
Martin, 303 N.Y. at 282, 101 N.E.2d at 686.
See also New York State Medical Transporters Ass'n v. Perales, 77 N.Y.2d 126,
131, 564 N.Y.S.2d 1007, 1010, 566 N.E.2d 134, 137 (1990) ("ratification
of an agent's acts requires knowledge of the material facts concerning
the allegedly binding transaction");
Monarch Ins. Co. v. Insurance Corp. of Ireland Ltd., 835 F.2d 32,
36 (2d Cir.1987) ("[r]atification requires acceptance by the principal
of the benefits of an agent's acts, with full knowledge of the
facts....") (applying New York law); 2 N.Y.Jur.2d Agency § 174
(ratification is possible only if one has "knowledge of the act and
opportunity to dissent or repudiate").
Here, plaintiffs have not alleged that Local One's members had any
knowledge, let alone "full knowledge," of the allegedly tortious conduct
of the picketers or their union principals when they approved the
Agreement. For instance, the Complaint does not allege that each and
every one of Local One's members had full knowledge of the alleged death
threats made to the Producer, of the content of McGarty's phone calls
to Terzi, or of the allegedly defamatory statements made by the
picketers. Yet this is precisely what plaintiffs need to allege to meet
Martin's
stringent ratification requirement for union liability. The bald
allegation that union members signed the Agreement and therefore
ratified the conduct falls far short of the requisite pleading standard.
Similarly in
Martin, where the plaintiff sued for libelous
statements published in a union's newspaper, the Court dismissed the
claim against the union, finding that the mere allegation that the union
had published the newspaper and circulated it to union membership fell
"far short of asserting that the union members themselves authorized or
ratified the particular libels." 303 N.Y. at 280, 101 N.E.2d at 684-85.
See also Stefania v. McNiff, 49 Misc.2d 480,
483, 267 N.Y.S.2d 854, 858 (Sup.Ct. Queens County 1966) (defamation
claim against union dismissed where record did not show that libelous
letter by union's president was authorized or ratified by entire union
membership).
The Complaint is also deficient in that, while alleging that union
members ratified "the tortious acts of ... Lynch," it does not specify a
single tortious act by Lynch. Plaintiffs thus improperly want this
Court to assume that Local One's members knew of and unanimously
ratified acts which the Complaint does not even identify. Furthermore,
although the Complaint alleges that numerous tortious acts were
committed by McGarty and Lynch in connection with the picketing,
plaintiffs have made no effort to allege that union members knew of and
ratified each specific act, as required by New York law.
See N.Y.Jur.2d § 177 ("[t]he ratification of one unauthorized act is not the ratification of another and entirely distinct act").
Accordingly, the Court hereby dismisses plaintiffs' state tort
claims—causes of action two, three, four, six and seven—as against Local
One. Under the
Martin rule, these claims may be maintained (if at all) against McGarty and Lynch in their individual capacities only.
B. Fraudulent Inducement
Defendants further argue that plaintiffs' second cause of action, for
fraudulently coercing ATP to enter the Agreement, is preempted by LMRA §
301(a), 29 U.S.C.A. § 185(a), the federal law that gives district
courts subject matter jurisdiction over "[s]uits for violation of contracts between an employer and a labor organization."
Before the Court can determine whether § 301(a) preempts plaintiffs'
state law fraudulent inducement claim, the Court must first determine
whether challenges to labor agreements based on fraudulent inducement
are even cognizable under § 301(a). This very question, which has been
answered differently by Circuit courts around the country,
4 is now being considered by the Supreme Court in
United Automobile, Aerospace and Agric. Implement Workers of Am. v. Textron Lycoming Reciprocating Engine Div., 117 F.3d 119 (3d Cir.),
cert. granted, ___ U.S. ___, 118 S.Ct. 439, 139 L.Ed.2d 338 (1997). The Supreme Court heard oral argument in
Textron on February 23, 1998, but has not yet issued its decision in the case.
There is no reason for this Court to decide this legal question prior to the Supreme Court's decision in
Textron.
Neither party will be harmed by the delay because plaintiffs' action is
going forward in any event on the Complaint's first cause of action.
Accordingly, the Court reserves decision on defendants' motion to
dismiss the second cause of action of the Complaint pending the outcome
of
Textron.5
C. Interference with Contractual Relations
Plaintiff's third cause of action alleges that, to pressure
plaintiffs into entering a labor agreement with Local One, defendants
"intentionally sought to interfere with plaintiff ATP's performance of
its contractual obligations to the Producer by ... using verbal threats
and abusive language to intimidate the Producer and thereby to
unlawfully persuade the Producer to discontinue his business
relationship with plaintiff ATP." (Amended Complaint ¶ 50.) Plaintiffs
further allege that, upon information and belief, Local One's agents
"made death threats to the Producer ... to frighten the Producer into
breaching his contractual relationship with plaintiff ATP." (Amended
Complaint ¶ 51.)
Defendants correctly argue that these allegations do not state a
claim for tortious interference with contractual relations under New
York law for a very simple reason: plaintiffs have not alleged that the
Producer or ATP actually breached their contract with one another.
A claim for tortious interference with contractual rights "requires
the existence of a valid contract between the plaintiff and a third
party, defendant's knowledge of that contract, defendant's intentional
procurement of the third-party's breach of the contract without
justification,
actual breach of the contract, and damages resulting therefrom."
Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 424,
646 N.Y.S.2d 76, 82,
668 N.E.2d 1370, 1375 (1996) (emphasis added) (citing
Israel v. Wood Dolson Co., 1 N.Y.2d 116, 120 151 N.Y.S.2d 1, 134 N.E.2d 97 (1956)). If no actual breach is alleged, the claim must be dismissed.
See NBT Bancorp Inc. v. Fleet/Norstar Financial Group, Inc., 87 N.Y.2d 614, 620-624,
641 N.Y.S.2d 581, 584-586,
664 N.E.2d 492,
495-497 (1996) (absent an allegation of breach, a plaintiff cannot
sustain a claim for interference with contractual relations, no matter
how unlawful the defendant's conduct may have been);
Baylis v. Marriott Corp., 906 F.2d 874,
877 (2d Cir.1990) ("Under traditional principles of New York law, a
party may not recover for tortious inducement of a breach of contract
without proving that the contract has been breached.");
Fonar Corp. v. Magnetic Resonance Plus, Inc., 957 F.Supp. 477,
481 (S.D.N.Y.1997) (rulings of New York Court of Appeals and Second
Circuit have consistently held that to establish claim for tortious
interference with contractual relations, a third party must breach the
contract after being induced to do so by the defendant).
Here, there is no allegation in the Complaint that either ATP or the
Producer breached any contract between them because of defendants'
actions. To the contrary, it is clear from the face of the Complaint
that defendants' alleged death threats to the Producer did not result in
ATP's removal from the fashion show. Nor does the Complaint allege that
ATP was unable to perform any of its contractual duties in connection
with the show.
To avoid dismissal of this claim, plaintiffs attempt to argue that
their third cause of action alleges tortious interference with "business
relations," not merely contractual relations, and therefore they need
not allege breach. This argument is specious, particularly because
plaintiffs allege tortious interference with business relations in their
fourth cause of action. By contrast, their third cause of action alleges that ATP "had a
contractual relationship with the Producer," and that defendants sought to interfere with "ATP's performance of its
contractual obligations" by frightening the Producer "into breaching his
contractual
relationship with plaintiff ATP." (Complaint ¶¶ 49-51) (emphasis
added). Quite clearly, plaintiffs have attempted to state a claim for
tortious interference with contractual relations. However, plaintiffs'
having failed to allege an actual breach, the Court dismisses this
claim.
D. Interference with Prospective Contractual Relations
Tortious interference with prospective contractual relations applies
to those situations where a third party would have entered into a
contractual relationship with the plaintiff but for the defendant's
intentional and wrongful acts.
6 See RSA Distributors, Inc. v. Contract Furniture Sales Ltd., ___ A.D.2d ___,
669 N.Y.S.2d 842, 843 (2d Dep't 1998);
WFB Telecomms., Inc. v. NYNEX Corp., 188 A.D.2d 257,
257, 590 N.Y.S.2d 460, 461 (1st Dep't 1992). To state a claim for this
tort, a plaintiff must allege that the defendant acted either (i) with
the sole purpose of harming the plaintiff, or (ii) by unlawful or
improper means.
See Alexander & Alexander v. Fritzen, 68 N.Y.2d 968, 503 N.E.2d 102, 510 N.Y.S.2d 546 (1986);
Prestige Foods, Inc. v. Whale Securities Co., L.P. 243 A.D.2d 281,
663 N.Y.S.2d 14, 15 (1st Dep't 1997);
Purgess v. Sharrock, 33 F.3d 134, 141 (2d Cir.1994).
In their fourth cause of action, plaintiffs allege several acts which
they contend amount to tortious interference with their prospective
contractual relations with third parties. First, the Complaint alleges
that, in late 1996 and 1997, plaintiffs were negotiating contracts with
Viacom and several other companies but that, because of Local One's
picketing on September 12 and 13, 1996, these companies refused to enter
into contracts with plaintiffs for fear of violent reprisals from the
Union. (Complaint ¶¶ 32, 59-63.) The Complaint further alleges that
Local One and its agents, by threatening the Producer with serious
bodily harm and financial ruin, and by committing other unlawful acts
during the picketing, "severely affected plaintiff ATP's potential for
soliciting and attaining future contracts with th[e] Producer."
(Complaint ¶¶ 21, 25.) Finally, the Complaint alleges that "[u]pon
information and belief, Local One and its agents contacted
individuals and business entities which Local One was aware plaintiffs
were anticipating entering into contracts and/or doing business with in
the future, in order to persuade these individuals and business entities
not to do business with plaintiffs ATP and Terzi." (Complaint ¶ 28.)
The Court has already dismissed the fourth cause of action as to
Local One on ratification grounds. I now dismiss the claim as to McGarty
and Lynch, with leave to replead if a good faith basis exists, because
the Complaint does not allege that McGarty or Lynch themselves committed
any the tortious acts of interference in question. Rather, the
Complaint alleges that "Local One and its agents" threatened the
Producer, contacted plaintiff's prospective business relations, and so
forth. While Lynch and McGarty certainly were agents of Local One,
plaintiffs must name them specifically if they are to maintain a
tortious interference claim against them in their individual capacities.
See discussion of
Martin supra (there can be no liability
against union officers in their representative capacity absent
unanimous authorization or ratification by union members). Indeed, the
Court notes that plaintiffs had no problem specifically naming McGarty
in connection with other tortious acts alleged in the Complaint, such as
McGarty's threatening phone calls to Terzi.
E. Defamation
Similarly, the Court dismisses plaintiffs' defamation claim against
McGarty and Lynch, with leave to replead if a good faith basis exists,
because the Complaint does not specifically accuse either of them of
making any defamatory statements. They cannot be held individually
liable for statements made by other union members simply because they
are union officers.
See discussion of
Martin, supra; Stefania v. McNiff, 49 Misc.2d 480,
267 N.Y.S.2d 854 (Sup.Ct. Queens County 1966) (absent evidence of union
authorization or ratification of libelous statement, plaintiff could
recover only against the individual union member who made the
statement).
F. Prima Facie Tort
Defendants further move to dismiss plaintiffs' seventh cause of
action for prima facie tort for insufficient pleading. Prima facie tort
is designed to provide a remedy for intentional and malicious actions
when no traditional tort claim is available.
See Curiano v. Suozzi, 63 N.Y.2d 113,
118, 480 N.Y.S.2d 466, 469, 469 N.E.2d 1324, 1327 (1984). It consists
of four elements: "(1) intentional infliction of harm, (2) causing
special damages, (3) without excuse or justification, (4) by an act or
series of acts that would otherwise be lawful."
Curiano, 63
N.Y.2d at 117, 480 N.Y.S.2d at 469, 469 N.E.2d at 1327 (citations
omitted). Moreover, to state a claim for prima facie tort, a plaintiff
must allege that defendants' "
sole motivation ... was disinterested malevolence."
Id. (emphasis added) (internal quotation omitted).
See also Burns Jackson Miller Summit & Spitzer v. Lindner, 59 N.Y.2d 314,
333, 464 N.Y.S.2d 712, 721, 451 N.E.2d 459, 468 (1983) ("there is no
recovery in prima facie tort unless malevolence is the sole motive for
defendant's otherwise lawful act");
Marcella v. ARP Films, Inc., 778 F.2d 112,
119 (2d Cir.1985) (To sustain a prima facie tort claim, "the sole
motivation for the damaging acts must have been a malicious intention to
injure the plaintiff. When there are other motives, such as profit,
self-interest, or business advantage, there is not recovery under the
doctrine of prima facie tort.") (citing New York law);
Sharma v. Skaarup Ship Management Corp., 699 F.Supp. 440,
445 (S.D.N.Y.1988) ("[f]or plaintiffs to recover for prima facie tort,
they must allege and prove that defendants acted with `exclusive
malicious motivation'").
Here, not only have plaintiffs not pled that defendants acted solely
with malicious motivation, but, to the contrary, the Complaint alleges
that defendants' conduct "was motivated by the desire to coerce
plaintiffs ATP and Terzi into agreeing with Local One and its agents'
unlawful bargaining demands." (Complaint ¶ 104.) Defendants'
self-interest and the existence of a business or profit motive is
therefore apparent from the face the Complaint. Accordingly, there can
be no recovery under the prima facie tort doctrine and the Court
dismisses plaintiffs' seventh cause of action.
See Burns Jackson,
59 N.Y.2d at 333, 464 N.Y.S.2d at 721, 451 N.E.2d at 468 (dismissing
prima facie tort claim where, "although [plaintiffs] allege[d]
intentional and malicious action, they d[id] not allege that defendants'
sole motivation was `disinterested malevolence'");
Sharma, 699
F.Supp. at 446 (dismissing claim "where it is clear from the face of the
complaint that plaintiffs will not be able to prove that defendants
acted with exclusive malicious motivation").
II. The Adequacy of Plaintiffs' Claim Under
the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961
et seq. ("RICO")
Plaintiffs allege in their fifth cause of action that defendants
McGarty and Lynch violated § 1962(c) of the RICO statute by engaging in
repeated acts of wire fraud and other illegal racketeering activity. 18
U.S.C. § 1962(c).
7
To state a claim under § 1962(c), plaintiffs must allege that the
defendants, while "`employed by or associated with' an enterprise
affecting interstate or foreign commerce, conducted or participated in
the conduct of this enterprise's affairs `through a pattern of
racketeering activity.'"
S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629 (2d Cir.1996).
See also Salinas v. United States,
___ U.S. ___, 118 S.Ct. 469, 476, 139 L.Ed.2d 352 (1997) ("[t]he
elements predominant in a [§ 1962] subsection (c) violation are: (1) the
conduct (2) of an enterprise (3) through a pattern of racketeering
activity") (citing
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479,
496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)). Defendants do not dispute
that Local One is an "enterprise" within the meaning of RICO, or that
McGarty and Lynch were associated with Local One during the relevant
time period. However, defendants argue that plaintiffs' RICO claim must
be dismissed because the Complaint fails to allege facts constituting "a
pattern of racketeering activity." Furthermore, defendants contend that
Terzi lacks standing to assert a RICO claim. The Court addresses the
standing issue first.
A. Standing
RICO's provision for civil actions grants standing to sue to "[a]ny
person injured in his business or property by reason of a violation of
section 1962 of this chapter." 18 U.S.C. § 1964(c). In
Holmes v. Securities Investor Protection Corp., 503 U.S. 258,
265-70, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), the Supreme Court
interpreted this language narrowly, limiting standing to plaintiffs
whose injuries were proximately caused by the alleged RICO violation.
Thus, a plaintiff must show a "direct relation between the injury
asserted and the injurious conduct alleged."
Manson v. Stacescu, 11 F.3d 1127 (2d Cir.1993) (quoting
Holmes, 503 U.S. at 268, 112 S.Ct. 1311).
See also In re American Express Co. Shareholder Litig., 39 F.3d 395, 399 (2d Cir.1994) (
Holmes endorsed the proximate cause requirement earlier adopted by the Second Circuit);
Hecht v. Commerce Clearing House, Inc., 897 F.2d 21,
23 (2d Cir.1990) ("By itself, factual causation (e.g., `cause-in-fact'
or `but for' causation) is not sufficient" to establish RICO standing).
Applying these principles, the Second Circuit has consistently denied
RICO standing to persons who sustained injuries in their capacities as
creditors, shareholders or employees of a company, but where the company
itself was the primary target of the alleged RICO activity.
See, e.g., Manson,
11 F.3d at 1130-33 (no RICO standing for company's president and
shareholder who alleged that defendant's looting of company injured his
earnings, reputation and business credit);
Hecht, 897 F.2d at 24
(no standing for company employee who alleged loss of employment and
commissions for refusing to participate in employer's racketeering
conduct);
In re American Express Co. Shareholder Litig., 39 F.3d 395 (2d Cir.1994) (no standing where shareholders were not the intended targets of the RICO violations).
But see Ceribelli v. Elghanayan, 990 F.2d 62
(2d Cir.1993) (shareholders had standing to bring RICO claim where the
defendant violated independent duty to disclose material information to
shareholders before they purchased shares, thereby causing injury to
those individuals separate and distinct from company's injury).
Here, the Complaint alleges that Terzi suffered the same injuries as
ATP as a result of McGarty's and Lynch's RICO activities, namely, "harm
to plaintiffs ATP's and Terzi's goodwill and reputation in the show
production industry and business community as a whole, resulting in loss
of present and future business opportunities to plaintiffs." (Complaint
¶ 89.) In
Manson, the Second Circuit held that similar allegations were insufficient to grant individual standing.
Manson involved a RICO suit brought by a company's director,
president and fifty percent shareholder against twenty-six defendants
both inside and outside the company who allegedly looted the company and
drove it into bankruptcy.
Manson, 11 F.3d at 1129. The plaintiff
claimed that the defendants threatened him with financial ruin and
bodily harm when he tried to protect the company's interests. Like
Terzi, the plaintiff in
Manson also claimed that the defendant's
racketeering acts personally injured him by causing him to lose present
and future earnings and by hurting his business reputation.
Id. Finally, the plaintiff claimed that he sustained damages by virtue of his personal liability on the company's $450,000 loan.
The Second Circuit held that none of these allegations gave the plaintiff in
Manson
individual standing to sue under RICO. Regardless of the plaintiff's
prominent role and personal investment in the company, the Court found
that the defendants' acts had been directed at the company, not the
plaintiff, such that any harm to the plaintiff had been caused
indirectly. With respect to the plaintiff's claim that he had standing
as a fifty-percent shareholder, the Court declared that even sole
shareholder status would have been insufficient to establish standing
because the plaintiff had not alleged "that any [defendant] owed [him]
an independent duty that is distinguishable from the duty owed to the
corporation."
Id. at 1131. Nor had the plaintiff claimed "that
any [defendant] owed [him] a duty that was separate and distinct from
the duty owed to the other shareholder."
Id.
The
Manson Court also rejected the plaintiff's claim that he
had standing to sue as president and director of the company, stating,
"[t]he employee's injury generally is derivative of that of the
corporation and does not satisfy RICO's proximate cause requirement."
Id. at 1132 (citing
Holmes, supra).
In that regard, the Court found that the defendants' threats to injure
the plaintiff had been directed at the plaintiff only "because of his
positions of employment with the [c]ompany" and therefore did not afford
him standing.
Id. at 1132 ("The threats ... were part of a RICO scheme that was directed at the Company, not [him]").
Terzi's superficial attempts to distinguish
Manson from the instant case are to no avail. Like the plaintiff in
Manson,
Terzi does not allege that he suffered any injuries distinct from those
suffered by ATP, or that McGarty or Lynch breached any duty to him
independent of a duty owed to ATP. To the contrary, the Complaint
consistently alleges that defendants' actions were undertaken with the
purpose of pressuring ATP into signing a labor agreement, and that the
unlawful conduct ceased as soon as ATP signed the Agreement. (Complaint
¶¶ 21, 43, 74, 82, 84-86, 97.) Thus, on the face of the Complaint, Local
One's actions were directed primarily at ATP with the ultimate goal of
having ATP's employees become union members. If follows that, however
misguided and injurious defendants' acts may have been to Terzi
personally, these acts injured him indirectly, by virtue of his position
at ATP, and do not give him individual standing under RICO.
8
Strict application of the proximate cause requirement in this case also heeds the Supreme Court's concern in
Holmes
that liberal granting of RICO standing would increase the potential for
duplicative or multiple recoveries that were "simply unjustified by the
general interest in deterring injurious conduct." 503 U.S. at 268-70,
112 S.Ct. 1311.
See also Manson, 11 F.3d at 1131 ("The proximate
cause requirement serves the interests of judicial economy by allowing
courts to determine ... one damage award that will restore the
corporation and, therefore, its shareholders, creditors, and
employees."). Here, where ATP appears to be a company owned and operated
by Terzi, recovery by both ATP and Terzi is unjustifiable. In any
event, because Terzi lacks standing for the reasons stated above, the
Court dismisses the fifth cause of action as to him.
B. Pattern of Racketeering Activity
Defendants further argue that plaintiffs' RICO claim must be
dismissed for failure to plead predicate acts constituting a "pattern of
racketeering activity." The phrase "pattern of racketeering activity"
is a term of art under the RICO statute, requiring a plaintiff to plead
at least two predicate acts of "racketeering activity," which must have
occurred within ten years of each other. 18 U.S.C. § 1961(5). The two
predicate acts must also be "related and ... amount to, or pose a threat
of continuing criminal activity."
GICC Capital Corp. v. Tech. Fin. Group, Inc., 67 F.3d 463, 465 (2d Cir.1995) (citing
H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229,
109 S.Ct. 2893, 106 L.Ed.2d 195 (1989)). "Racketeering activity," in
turn, is defined as an act which violates any of the state or federal
laws specifically enumerated in the RICO statute. 18 U.S.C. § 1961(1).
Here, plaintiffs predicate their RICO claim on McGarty's and Lynch's
alleged violation of three federal statutes, all of which are included
in the Act's definition of "racketeering activity": the federal wire
fraud statute, 18 U.S.C. § 1343; the Hobbs Act, 18 U.S.C. § 1951; and
the Travel Act, 18 U.S.C. § 1952.
9
Defendants contend that plaintiffs have failed to state a claim under
any of these statutes, and therefore have not satisfied the predicate
act requirement of a RICO claim. Defendants also contend that, even if
predicate acts have been sufficiently stated, these acts neither amount
to, nor pose a threat of, continued criminal activity. While I agree
that plaintiffs have not plead predicate acts of wire fraud, I find that
plaintiffs have sufficiently plead more than two predicate acts under
the Hobbs Act and Travel Act, and further, that plaintiffs' RICO
allegations satisfy the statute's continuity requirement.
1. Wire Fraud Predicates
Plaintiffs claim that, as part of defendants' scheme to coerce
plaintiffs into submitting to their bargaining demands, McGarty placed
threatening phone calls to Terzi during the week preceding September 12,
1996, and between the evening hours of September 12 and the morning
hours of September 13, 1996, and left threatening messages on Terzi's
home answering machine. (Complaint ¶¶ 73-76.) The Complaint alleges
that, in these wire communications, McGarty identified himself as the
speaker and warned Terzi that if plaintiffs did not accede to Local
One's bargaining demands then plaintiffs would experience
"problems" at various job sites into the indefinite future. (Complaint
¶¶ 77-78.) McGarty is specifically alleged to have stated: "I know you
have other jobs coming up and you will have problems at those jobs too."
(Complaint ¶ 79.) For the reasons discussed below, these allegations
are insufficient to state a claim for wire fraud.
The federal wire fraud statute prohibits the use of interstate wires
in furtherance of "any scheme or artifice to defraud, or for obtaining
money or property by means of false and fraudulent pretenses,
representations, or promises." 18 U.S.C. § 1343. The statute's language
has been interpreted in the same way as the identical language of the
federal mail fraud statute.
See United States v. Schwartz, 924 F.2d 410,
416 (2d Cir.1991) (mail and wire fraud statutes use the same relevant
language and are analyzed the same way). The elements of a wire fraud
claim are: (1) the existence of a scheme to defraud, (2) with specific
intent to defraud, and (3) the use of interstate wires in furtherance of
the scheme.
See S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629, 633 (2d Cir.1996);
United States v. Wallach, 935 F.2d 445, 461 (2d Cir.1991).
As with any fraud claim, to survive a motion to dismiss, a wire fraud
claim must also meet Rule 9(b)'s standard for particularity.
10
"All of the concerns that dictate that fraud be pleaded with
particularity exist with even greater urgency in civil RICO actions."
Plount v. American Home Assurance Co., Inc., 668 F.Supp. 204,
206 (S.D.N.Y.1987). To satisfy this higher pleading standard, "the
complaint must adequately specify statements it claims were false or
misleading, give particulars as to the respect in which plaintiffs
contend the statements were fraudulent, state when and where the
statements were made, and identify those responsible for the
statements."
McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir. 1992) (quoting
Cosmas v. Hassett, 886 F.2d 8,
11 (2d Cir.1989)). Also, where, as here, multiple defendants are
involved, the complaint must specifically describe each defendant's
alleged participation in the fraud.
See DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir.1987);
O'Brien v. Price Waterhouse, 740 F.Supp. 276,
279 (S.D.N.Y.1990) (Rule 9(b) "is designed to provide the defendant
fair notice of the plaintiff's claims, and to enable the defendant to
prepare a suitable defense").
Applying these principles, the Court straightaway dismisses the wire
fraud claim asserted against Lynch for its complete failure to satisfy
Rule 9(b)'s particularity standard. While the Complaint makes the
conclusory statement that "McGarty and Lynch engaged in wire
communications in furtherance of a fraudulent scheme" (Complaint ¶ 74),
all factual allegations of the wire fraud involve McGarty only. The
Complaint fails to describe a single instance of Lynch's participation
in any wire communication or any act committed by Lynch in furtherance
of a wire fraud scheme.
See Schmidt v. Fleet Bank, 1998 WL 47827,
*5-10 (S.D.N.Y. Feb.4, 1998) (dismissing plaintiffs' wire fraud claims
under Rule 9(b) for failure to plead defendants' involvement in
fraudulent scheme with particularity);
Atlantic Gypsum Co., Inc. v. Lloyds Int'l Corp., 753 F.Supp. 505,
512 (S.D.N.Y.1990) (dismissing wire fraud claim where plaintiffs set
forth no specific facts in support of conclusory allegations against
defendants).
Plaintiffs' wire fraud claim must also be dismissed as to McGarty
because the allegations in the Complaint do not satisfy the first
element of wire fraud: the existence of a "scheme to defraud." A scheme
to defraud requires "fraudulent or deceptive means, such as material
misrepresentation or concealment."
Center Cadillac, Inc. v. Bank Leumi Trust Co., 808 F.Supp. 213, 227 (S.D.N.Y.1992),
aff'd, 99 F.3d 401 (2d Cir. 1995) (quoting
In re Gas Reclamation, Inc. Secur. Litig., 659 F.Supp. 493, 512 (S.D.N.Y. 1987).
See also Naso v. Park, 850 F.Supp. 264, 274 (S.D.N.Y.1994)) ("[t]o establish a scheme to defraud, an element of deception must be present");
United States v. Altman, 48 F.3d 96,
102 (2d Cir.1995) ("The Supreme Court over seventy years ago determined
that the words `to defraud' commonly `signify the deprivation of
something of value by trick, deceit, chicane, or overreaching.'")
(quoting
Hammerschmidt v. United States, 265 U.S. 182, 44 S.Ct. 511, 68 L.Ed. 968 (1924)).
The scheme alleged here—that defendants coerced plaintiffs into
entering a labor agreement through threatening and abusive
conduct—contains no element of deception whatsoever. Accepting the
allegations as true, McGarty's threats to cause "problems" for
plaintiffs unless they gave in to Local One's demands may have been
wrongful, even reprehensible, but they were not deceptive. Indeed,
nothing in the Complaint suggests any element of dishonesty, trickery or
concealment either in McGarty's telephone calls to Terzi, or in his
conduct toward plaintiffs. If anything, plaintiffs' allegations warrant
the inference that McGarty was direct and frank in his threats, and that
he intended to do exactly what he threatened.
It is long settled that, absent any element of deception, allegations
of threats and abusive conduct simply do not constitute a "scheme to
defraud."
Fasulo v. United States, 272 U.S. 620, 47 S.Ct. 200, 71 L.Ed. 443 (1926). In
Fasulo,
the defendant used the mails for the purpose of obtaining money by
means of threats or bodily harm. Holding that this conduct did not
constitute a "scheme to defraud" within the meaning of the mail fraud
statute, the Supreme Court stated.
Undoubtedly the obtaining of money by threats to injur[e] or kill is
more reprehensible than cheat, trick or false pretenses; but that is
not enough to require the court to hold that a scheme based on such
threats is one to defraud.... The only means employed by [defendant] to
obtain the money demanded was the coercion of fear.... But broad as are
the words `to defraud,' they do not include threat and coercion through
fear or force.
Id. at 628, 47 S.Ct. 200.
Accord United States v. Altman, 48 F.3d 96, 101 (2d Cir. 1995).
See also McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786,
791 (1st Cir.1990) ("[N]ot every use of the mails or wires in
furtherance of an unlawful scheme to deprive another of property
constitutes mail or wire fraud.... Rather, the scheme must be intended
to
deceive another, by means of false or fraudulent pretenses,
representations, promises, or other deceptive conduct.") (emphasis in
original) (citations omitted). Even reading the Complaint generously,
plaintiffs here have not alleged a "scheme to defraud." According, they
cannot predicate their RICO claim on acts of wire fraud.
11 Accord C & W Construction Co. v. Brotherhood of Carpenters and Joiners of America, 687 F.Supp. 1453,
1468 (D.Haw.1988) (dismissing RICO predicate claims of wire fraud
against union officials for failure to establish scheme to defraud,
where union officials "were candid" in their threats and demands).
In so holding, I note that the Second Circuit recently passed upon what constitutes a "scheme to defraud" in
United States v. Trapilo, 130 F.3d 547,
550 n. 3 (2d Cir.1997). Asked in that case whether the act of smuggling
came within the term's meaning, the Court stated in a footnote:
The term "scheme to defraud" is measured by a "`nontechnical
standard. It is a reflection of moral uprightness, of fundamental
honesty, fair play and right dealing in the general [and] business life
of members of society.'"
United States v. Von Barta, 635 F.2d 999, 1005 n. 12 (2d Cir.1980) (quoting
Gregory v. United States, 253 F.2d 104, 109 (5th Cir.1958)),
cert. denied, 450 U.S. 998, 101 S.Ct. 1703, 68 L.Ed.2d 199 (1981);
accord United States v. Ragosta, 970 F.2d 1085, 1090 (2d Cir.),
cert. denied, 506 U.S. 1002, 113 S.Ct. 608, 121 L.Ed.2d 543 (1992). "The scheme exists although no misrepresentation of fact is made."
Gregory, 253 F.2d at 109 (citation and internal quotation marks omitted);
accord United States v. Richman, 944 F.2d 323, 331-32 (7th Cir.1991);
McEvoy Travel Bureau v. Heritage Travel, 904 F.2d 786, 791 (1st Cir.),
cert. denied,
498 U.S. 992, 111 S.Ct. 536, 112 L.Ed.2d 546 (1990). Because the act of
smuggling violates fundamental notions of honesty, fair play and right
dealing, it is an act within the meaning of a "scheme to defraud."
Nothing in
Trapilo's holding or dicta contravenes my finding today that plaintiffs here have not alleged a "scheme to defraud." I read
Trapilo
as underscoring the accepted notion that a defendant, by his conduct
alone, can intend to deceive another and engage in a scheme to defraud,
even though the defendant's statements themselves contain no
misrepresentations.
12
Smuggling is the perfect example of such conduct because, while
smuggling might involve no statement at all, its sole purpose is to
conceal what the smuggler is carrying; it is thus inherently a dishonest
and deceptive act. Accordingly, in
Trapilo, where defendants had
smuggled large quantities of liquor across the Canadian border to avoid
paying Canadian taxes and duties, the Court found that the defendants
had engaged in a "scheme to defraud" the Canadian government, even
though the defendants had made no fraudulent statements. By contrast, in
the instant case, the element of deception or dishonesty is completely
lacking both in defendants' communications and in their conduct.
13
2. Hobbs Act and Travel Act Predicates
Plaintiffs also predicate their RICO claim on defendants' alleged acts of extortion
in violation of the Hobbs Act, 18 U.S.C. § 1951 and the Travel Act, 18
U.S.C. § 1952. The Hobbs Act outlaws interference or attempted
interference with commerce by extortion or robbery. "Extortion" is
defined by the Act as "the obtaining of property from another, with his
consent, induced by the wrongful use of actual or threatened force,
violence, or fear, or under color of official right." 18 U.S.C. §
1951(b)(2).
See O'Malley v. New York City Transit Auth., 896 F.2d 704, 708 (2d Cir.1990).
The Travel Act, in turn, is violated when a person (1) travels in
interstate commerce, (2) with intent to "commit any crime of violence to
further any unlawful activity," and (3) thereafter performs an
additional act in furtherance of the specified unlawful activity. 18
U.S.C. § 1952(a)(2).
See United States v. Jenkins, 943 F.2d 167,
172 (2d Cir.1991). The Travel Act defines "unlawful activity" to
include acts of extortion under federal law (i.e. acts that violate the
Hobbs Act). 18 U.S.C. § 1952(b).
In support of their Hobbs Act and Travel Act claims, plaintiffs
allege that defendants committed numerous extortionate acts by
threatening plaintiffs with violence and vandalism, and by actually
assaulting a policeman, to coerce plaintiffs to enter a collective
bargaining agreement. (Complaint ¶¶ 69, 83.) Plaintiffs further allege
that, out of fear, they succumbed to defendants' bargaining demands,
signed the Agreement, and thereby enabled McGarty and Lynch to obtain
their property with consent. (
Id.) The property obtained,
according to the Complaint, was in the form of plaintiffs' right to
conduct and solicit business. (Complaint ¶ 70.) In addition, to satisfy
the interstate travel element of the Travel Act, plaintiffs allege that
"McGarty and Lynch traveled from New Jersey to the [picketing site] with
the intent to engage in the wrongful use of actual or threatened force,
violence, and fear." (Complaint ¶ 82.)
Defendants argue that plaintiffs' Hobbs Act and Travel Act claims
fail on two grounds: first, because they are preempted by the NLRA under
the doctrine articulated in
San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 79 S.Ct. 773, 3 L.Ed.2d 775 (1959), and second, because they are precluded by the Supreme Court's ruling in
United States v. Enmons, 410 U.S. 396, 93 S.Ct. 1007, 35 L.Ed.2d 379 (1973). As discussed below, the Court finds that neither of these arguments has merit.
(a) Garmon Preemption
Defendants contend that the extortionate acts upon which plaintiffs
predicate their RICO claim are at most unfair labor practices and, as
such, are preempted by the NLRA pursuant to the so-called
Garmon doctrine. In
San Diego Building Trades Council v. Garmon, 359 U.S. 236,
79 S.Ct. 773, 3 L.Ed.2d 775 (1959), a case involving attempted state
regulation of conduct constituting an NLRA unfair labor practice, the
Supreme Court stated that "[w]hen an activity is arguably subject to § 7
or § 8 of the [NLRA], the States as well as the federal courts must
defer to the exclusive competence of the [NLRB] if the danger of state
interference with national policy is to be averted."
Id. at 245, 79 S.Ct. 773. Accordingly,
Garmon
held that the State of California had no jurisdiction to award damages
under state law for injuries caused by a union's picketing where to do
so would require the State to decide whether the union's conduct
constituted an unfair labor practice, an issue reserved for the NLRB.
Id.
Defendants argue that, pursuant to
Garmon, the NLRA likewise
preempts RICO claims where the charges of racketeering activity involve
allegedly unfair labor practices. While this argument might find support
in other jurisdictions, courts in this Circuit have consistently
rejected the notion that
Garmon preemption applies to federal claims, including RICO claims.
See, e.g., United States v. International Bhd. of Teamsters, Chauffeurs, Warehousemen and Helpers of America, 948 F.2d 98, 105 (2d Cir.),
vacated on other grounds sub nom. Yellow Freight System, Inc. v. United States, 506 U.S. 802, 113 S.Ct. 31, 121 L.Ed.2d 4 (1992) ("where federal laws and policies other than the NLRA are implicated, the
Garmon rule is frequently considered inapplicable") (citing Second Circuit and Supreme Court cases). The Second Circuit held in
International Bhd. of Teamsters
that the district court had jurisdiction to decide a claim under the
All Writs Act, 28 U.S.C. § 1651 despite the claim's clear implication of
unfair labor practices under the NLRA. Significantly, in so holding,
the Court cited to
United States v. Boffa, 688 F.2d 919, 931 (3d Cir.1982),
cert. denied, 460 U.S. 1022, 103 S.Ct. 1272, 75 L.Ed.2d 494 (1983), in which the Third Circuit held that
Garmon
preemption did not apply to a RICO prosecution predicated on mail fraud
violations, even though the defendant's conduct was arguably prohibited
by § 8 of the NLRA.
In a lengthy analysis, the
Boffa Court proffered two reasons for its holding. First, the Court noted that the Supreme Court's decision in
Garmon was grounded, at least in part, on considerations of federal supremacy.
See Garmon,
359 U.S. at 244, 79 S.Ct. 773 ("To leave the States free to regulate
conduct so plainly within the central aim of federal regulation involves
too great a danger of conflict between power asserted by Congress and
requirements imposed by state law.") However, these constitutional
considerations come into play only when a case involves a conflict
between federal and state laws, not when the conflict is between two
federal statutes (i.e. between the NLRA and RICO claims predicated on
violations of federal law).
Boffa, 688 F.2d at 932. Second, the
Third Circuit reasoned that when conduct is regulated both by the NLRA
and separate federal statutes, the issue is whether "by enacting the
NLRA, Congress intended to work an implied repeal of existing federal
criminal statutes insofar as they regulate `arguably prohibited'
conduct.'"
Boffa, 688 F.2d at 932. Because the Court found no
evidence that Congress intended the NLRA to displace other federal laws,
it held there was no preemption.
Id.See also International Bhd. of Teamsters, 948 F.2d at 105 (citing
Boffa
for proposition that "prohibition of defendant's conduct by § 8 of NLRA
would not preclude the `enforcement of a federal statute that
independently proscribes that conduct'").
Following
Boffa and
International Bhd. of Teamsters,
district courts in this Circuit have routinely permitted the litigation
of civil RICO claims against unions and union officers, even where such
claims arose in the context of labor disputes and involved allegations
of unfair labor practices.
See, e.g., Gregory v. American Guild of Musical Artists,
1993 WL 179110, *5 (S.D.N.Y. May 24, 1993) ("Although in other
jurisdictions, courts have occasionally—although far from
universally—dismissed RICO claims on the basis of preemption, . . .
courts in this Circuit have not.") (rejecting argument that
Garmon preempted RICO claim);
United States v. International Bhd. of Teamsters, 708 F.Supp. 1388,
1395 (S.D.N.Y.1989) (there is "no doubt that Congress did not intend
that RICO be given limited application in the labor context,
notwithstanding the labor statutes cited by the [defendant]") (holding
that RICO claims based on wire fraud and mail fraud were not preempted
by federal labor law);
Rodonich v. House Wreckers Union Local 95 of Laborers' Int'l Union of North Am., 624 F.Supp. 678, 686 (S.D.N.Y.1985) (refusing to dismiss RICO claim despite causes of action asserting violations of federal labor laws);
National Electrical Benefit Fund v. Heary Bros. Lightning Protection Co., Inc., 931 F.Supp. 169 (W.D.N.Y.1995) (allowing RICO claim against union and its officials predicated on Hobbs Act and LMRA violations);
Amendolare v. Schenkers Int'l Forwarders, Inc., 747 F.Supp. 162
(E.D.N.Y. 1990) (allowing RICO claim against union locals and officials
predicated on Hobbs Act and Travel Act violations). Indeed, this Court
is aware of no case in this Circuit dismissing a RICO claim against a
union or its officials on
Garmon preemption grounds.
This Court recognizes, however, that numerous courts outside of this
Circuit have held that the NLRA preempts RICO in whole or in part when
labor disputes are involved.
See, e.g., Butchers' Union, Local No. 498, United Food and Commercial Workers v. SDC Investment, Inc., 631 F.Supp. 1001
(E.D.Cal.1986) (holding that while NLRA does not preempt RICO claims
predicated on specific LMRA violations, it does preempt RICO claims
predicated on "generic statutes," like mail and wire fraud);
Brennan v. Chestnut, 973 F.2d 644, 646 (8th Cir.1992) (NLRA preempted RICO claim predicated on extortion);
Tamburello v. Comm-Tract Corp., 67 F.3d 973, 977-78 (1st Cir.1995) (RICO claim preempted under
Garmon
where reviewing court would be forced to decide whether some portion of
defendant's conduct violated federal labor laws to determine whether
plaintiff had established a RICO predicate act);
Teamsters Local 372 v. Detroit Newspapers, 956 F.Supp. 753,
761 (E.D.Mich.1997) (NLRA preempted RICO predicate acts based on
threats of violence, obscenities and "garden variety" labor dispute
conduct, but did not preempt "obviously illegal" predicate acts such as
robbery, arson and actual violence).
But see Smith v. National Steel & Shipbuilding Co., 125 F.3d 751, 755-56 (9th Cir.1997) (agreeing with Second and Third Circuit decisions that "
Garmon preemption analysis is inapplicable when the NLRA potentially conflicts with another federal statute");
C & W Construction Co. v. Brotherhood of Carpenters and Joiners of America, Local 745, AFL-CIO, 687 F.Supp. 1453,
1470 (D.Haw. 1988) (federal labor law did not preempt RICO claim
against union predicated on union's extortionate acts to compel employer
to sign collective bargaining agreement);
MHC, Inc. v. International Union, United Mine Workers of America, 685 F.Supp. 1370,
1380 (E.D.Ky.1988) ("a RICO action may proceed where the alleged
predicate offenses occurred in a labor context if the acts are offenses
independent of labor law").
This disparity among federal courts—the unsurprising outgrowth of
Congress's failure to articulate what boundary lines, if any, should be
drawn between the NLRA and RICO—must ultimately be resolved by Congress
or the Supreme Court. Until that time, however, this Court sees no
reason to diverge from the rationale expressed in
Boffa, which the Second Circuit endorsed in
International Bhd. of Teamsters
and which district courts in this Circuit have since followed, that the
NLRA does not preempt the enforcement of RICO where both statutes
independently proscribe the same conduct. Accordingly, I reject
defendants'
Garmon argument.
14
(b) Enmons
Defendants further contend that plaintiffs' allegations of extortion
under the Hobbs Act are precluded by the Supreme Court's holding in
United States v. Enmons, 410 U.S. 396, 93 S.Ct. 1007, 35 L.Ed.2d 379 (1973). I disagree.
In
Enmons, the defendants fired high powered rifles at three
transformers belonging to their employer and blew up a transformer
substation in the course of an employee strike for higher wages. By a
5-4 vote, the Supreme Court held that these acts did not constitute
extortion under the Hobbs Act because Congress had not intended the
Hobbs Act to "apply to the use of force to achieve legitimate labor
ends."
Enmons, 410 U.S. at 401, 93 S.Ct. 1007. However, the Court
emphasized that when labor union officials use force for a wrongful
purpose, e.g. to obtain wages for "imposed, unwanted, superfluous and
fictitious services of laborers," prosecution under the Hobbs Act is
appropriate.
Id. at 408, 93 S.Ct. 1007 (internal quotation omitted).
The majority's decision, written by Justice Stewart, relied
principally on two considerations: the statute's wording and its
legislative history. Looking first to the statute's wording, the Court
focused on the inclusion of the word "wrongful" in the Hobbs Act, which
defines "extortion" as the obtaining of property "by
wrongful use
of actual or threatened force, violence, or fear ...." (emphasis
added). The Court reasoned that the word "wrongful" in the statute would
be meaningless and redundant unless understood to limit the statute's
coverage "to those
instances where the obtaining of the property would itself be `wrongful'
because the alleged extortionist has no lawful claim to that property."
Id. at 399-400, 93 S.Ct. 1007. Thus, for union misconduct to be
actionable under the Hobbs Act, the Court found that it had to be
wrongful both in its means and in its ends. Violence occurring during a
lawful employee strike for higher wages does not meet this threshold,
the Court stated, because "[i]n that type of case, there has been no
`wrongful' taking of the employer's property; he has been paid for the
services he bargained for, and the workers receive the wages to which
they are entitled in compensation for their services."
Id. at 400, 93 S.Ct. 1007.
If the Hobbs Act's wording left any doubt as to the correctness of
this interpretation, according to the Court such doubt was dispelled by
the statute's legislative history. The predecessor of the Hobbs Act,
Section 2 of the Anti-Racketeering Act of 1934, 48 Stat. 979, while
similar to the Hobbs Act, contained an exception for the payment of
wages by an employer to an employee.
Id. at 401, 93 S.Ct. 1007. On the basis of this wage exception, in
United States v. Local 807, 315 U.S. 521,
62 S.Ct. 642, 86 L.Ed. 1004 (1942), the Supreme Court held that the
Anti-Racketeering Act did not cover a scheme by New York City teamsters
to coerce payments for themselves from out-of-town truckers in return
for the unwanted service of having teamsters drive the trucks into the
city, or alternatively, allowing the out-of-town truckers to drive into
the city themselves.
Id. Alarmed by the Court's decision, members
of Congress swiftly introduced what became the Hobbs Act, for the
purpose of eliminating the wage exception that had been the basis for
the
Local 807 decision.
The
Enmons majority emphasized, however, that "by eliminating
the wage exception to the Anti-Racketeering Act, the Hobbs Act did not
sweep within its reach violence during a strike to achieve legitimate
collective-bargaining objectives."
Id. at 404, 93 S.Ct. 1007.
Statements made during the Congressional debates preceding the Act's
passage stressed that the Act "does not have a thing in the world to do
with strikes," and that it would not "interfere in any way with any
legitimate labor objective or activity."
Id. at 404, 93 S.Ct.
1007 (quoting Congressional record). The Court also voiced its own
concern that if the Hobbs Act were not interpreted to exclude strike
violence, it would work "an extraordinary change in federal labor law"
by requiring the federal government to police orderly strike conduct,
and by subjecting "the worker who threw a punch on the picket line, or
the striker who deflated the tires on his employer's truck" to stiff
criminal penalties of up to 20 years' imprisonment.
Id. at
410-11, 93 S.Ct. 1007. The Court determined that neither the statutory
language nor legislative history justified this result.
Id.
Significantly,
Enmons did not discuss what besides striking
for higher wages constitutes "legitimate labor ends." The Court also
gave only two examples of what constitutes "illegitimate objectives" by
union members: "the exaction of personal payoffs, or the pursuit of
`wages' for unwanted or fictitious services."
Id. at 407, 93 S.Ct. 1007.
In the twenty-five years since
Enmons was decided, courts have applied it restrictively.
See United States v. Zappola, 677 F.2d 264, 269 (2d Cir.1982) (declining to extend
Enmons doctrine beyond labor context);
United States v. Porcaro, 648 F.2d 753, 760 (1st Cir.1981) (
Enmons limited "to the labor context and more specifically to the strike context");
United States v. Cerilli, 603 F.2d 415, 419 (3d Cir.1979) (same).
Even within the labor context, some courts, the Sixth Circuit in particular, have been reluctant to extend
Enmons to union activities beyond the scope of traditional employer-employee labor disputes. For instance, in
United States v. Debs, 949 F.2d 199
(6th Cir.1991) (en banc), in which one union member committed acts of
violence against another during an election campaign, the Sixth Circuit
rejected the defendant's argument that he could not be prosecuted under
the Hobbs Act because campaigning in union elections "is a legitimate
labor end."
Id. at 200. The Court stated that if every union activity were held to be "within the orbit of
Enmons ..., [s]uch a holding would immunize union members from sanction so long as their otherwise illegal action is committed in the context of labor activity. We decline to expand
Enmons this far."
Id. at 201.
See also United States v. Jones, 766 F.2d 994, 1002-03 (6th Cir.1985) (doubting whether
Enmons
covers the use of violence to persuade employees of non-union employer
to join union, because such conduct is "outside of the
collective-bargaining context and in pursuit of goals other than higher
wages and against individuals other than the strikers' employer");
United States v. Stofsky, 409 F.Supp. 609, 616 (S.D.N.Y.1973) (doubting whether
Enmons
applies to force used against neutral, non-union employer caught in the
middle of labor dispute between union and unionized sub-contractor: "it
must be recognized that
Enmons deals specifically with employer-employee disputes").
The question posed here is whether
Enmons protection should
apply to a union's actual and threatened use of force to compel an
employer to recognize and bargain with the union where the union is not
authorized to represent any of the employer's employees. I conclude that
Enmons does not extend this far.
By its own terms,
Enmons exempts from Hobbs Act coverage only force that is used "to achieve legitimate labor ends."
Id.
at 401. Defendants here argue that, because the objective of their
conduct was to achieve a collective bargaining agreement with ATP, a
legitimate goal, their alleged use of force or threats cannot constitute
a Hobbs Act violation. While this argument is compelling at first
blush, what it omits is the critical fact that defendants were not
authorized to negotiate an agreement on behalf of any of ATP's employees
when they committed the alleged extortionate acts. To the contrary, the
Complaint alleges that ATP's employees were not members of Local One,
had not authorized Local One to represent them, and did not want Local
One's representation. (Complaint ¶¶ 16-18.) It is a basic tenet of
federal labor law that a union has no right to demand that an employer
recognize or bargain collectively with the union unless it has first
obtained the majority backing of that employer's employees and been
certified as their bargaining representative.
15
Thus, while McGarty and Lynch certainly may have wanted to procure a
collective bargaining agreement with ATP, the clear objective of their
conduct was to force ATP to recognize and bargain with the Union
notwithstanding the fact that Local One had no lawful basis for
demanding that ATP do so. Defendants' collective-bargaining demands of
ATP, therefore, were not legitimate and
Enmons does not apply. While
Enmons
might apply to violence incident to the recognition and bargaining
demands of a properly authorized union, because in that instance the
employer has a legal duty to recognize and bargain with the union,
see 29 U.S.C. § 158(a)(5), that is not this case.
The few courts that have addressed this question have reached similar conclusions. In
C & W Construction Co. v. Brotherhood of Carpenters and Joiners of America, Local 745, AFL-CIO, 687 F.Supp. 1453 (D.Haw. 1988), a case strikingly similar to this one,
the defendant-union officials threatened a company with violence if it
did not immediately sign a union contract. When the company refused, the
union commenced picketing at the employer's job-sites and pressured
neutral suppliers not to deliver materials to the company.
Id. at
1457. Significantly, these actions were taken despite the fact that the
company's employees had earlier voted unanimously to reject the union
as their representative.
Id. Finding that
Enmons protection did not apply in this situation, the Court stated that:
the union's threatened violence against [the company] and its
employees was not to secure legitimate collective bargaining objectives.
Unlike the union in
Enmons, the union in this case did not have a
contract with [the employer]. Moreover, the union here was not on
strike against [the employer]. The boycott was secondary, not primary.
Thus, ... [p]laintiffs' alleged violations of the Hobbs Act constitute
predicate acts supporting the plaintiffs' RICO claim.
Id. at 1469.
Similarly, In
United States v. Jacobs, 543 F.2d 18
(7th Cir.1976), asked whether a union's use of force to gain an
employer's recognition was exempt from Hobbs Act prosecution under
Enmons,
the Court answered: "Presumably a demand for recognition, on behalf of a
union authorized to represent the majority of employees albeit at
gunpoint, cannot, under
Enmons violate the Hobbs Act. We think
the same demand on behalf of a union which does not have authority to
represent any of them could violate it."
Id. at 21.
See also United States v. Quinn, 514 F.2d 1250, 1259-60 (5th Cir.1975) (
Enmons
did not protect defendant's extortion of money through threats of labor
picketing, in part because defendant "was never authorized by [the
company's] employees to represent them in a bona fide labor dispute or
in the attainment of a legitimate labor objective").
In
Domestic Linen Supply & Laundry Co. v. Central States, Southeast & Southwest Areas Pension Fund, 722 F.Supp. 1472 (E.D.Mich.1989), the Court applied the same reasoning to the question of whether
Enmons
covered a union's use of violence and threats to force an employer to
include supervisors in the collective bargaining unit. The Court
determined that, because under federal labor law the union had no lawful
right to demand that supervisors be included in the unit (the NLRA's
definition of "employee" excludes supervisory personnel), the union's
use of force was not in pursuit of a "legitimate collective bargaining
objective" and
Enmons did not apply.
Id. at 1475-77.
Indeed,
Enmons itself teaches that a union's use of militant
collective bargaining tactics is "wrongful" under the Hobbs Act, and
constitutes a misappropriation of an employer's property, only when the
union has no legitimate right to demand from the employer the concession
sought.
See Enmons, 410 U.S. at 400. Thus, a strike for higher
wages by employees providing genuine services is not a misappropriation,
but the same conduct to obtain personal payoffs is.
Id. See also United States v. Robilotto, 828 F.2d 940
(2d Cir.1987) (threatening employers into paying for unwanted,
fictitious labor services was clearly "illegitimate labor activity" not
protected by
Enmons). By the same token, forcing a collective
bargaining agreement upon unwilling employees and their employer is
"wrongful" within the Hobbs Act's meaning; the union is an outside
meddler with no lawful claim to the employer's property.
Compare Buck Creek Coal, Inc. v. United Workers of America, 917 F.Supp. 601, 612 (S.D.Ind.1995) (
Enmons
covered union violence during labor dispute where union was certified
bargaining representative for employees, and dispute erupted following
unsuccessful negotiations for collective bargaining agreement).
This Court also finds compelling the argument that
Enmons
should be read narrowly to apply only in the employer-employee context,
e.g. to violence or threats incident to bona fide labor disputes between
employers and employees engaged in the collective bargaining process.
However, because this Court had determined that, even under an expansive
reading of
Enmons, defendants' conduct was not in pursuit of "legitimate labor ends," the Court need not go that far.
Having rejected defendants'
Garmon and
Enmons arguments, the Court finds that plaintiffs have sufficiently pled two or more predicate acts of extortion under the Hobbs Act and Travel Act.
3. Threat of Continuity
Defendants' final argument is that, even if plaintiffs have stated
claims under the alleged predicate acts, their RICO claim must fail
because they have not satisfied RICO's continuity requirement. Again, I
disagree.
In
H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229,
109 S.Ct. 2893, 106 L.Ed.2d 195 (1989), the Supreme Court held that to
establish a "pattern" of racketeering activity under RICO, a plaintiff
must not only establish two predicate racketeering acts, but most also
show "that the racketeering predicates are related, and that they amount
to or pose a threat of continued criminal activity."
Id. at 239,
109 S.Ct. 2893. Defendants do not dispute that the predicate acts
alleged in the Complaint are related by their common purpose of inducing
plaintiffs to enter a labor agreement.
See H.J. Inc. at 240, 109
S.Ct. 2893 (predicate acts are related if they have "the same or
similar purposes, results, participants, victims, or methods of
commission....") (internal quotations omitted). However, it is the
continuity requirement which defendants claim is unmet.
H.J. Inc. provided that a plaintiff can satisfy RICO's
continuity requirement by alleging either a "closed-ended" or
"open-ended" pattern of racketeering activity. A "closed-ended" pattern
of racketeering requires a showing of past criminal conduct "extending
over a substantial period of time."
H.J. Inc., 492 U.S. at 241-42.
See also GICC Capital Corp. v. Tech. Fin. Group, Inc., 67 F.3d 463
(2d Cir.1995) (plaintiffs generally cannot establish closed-ended
continuity unless alleged racketeering conduct extended over a period of
years). Here, where the predicate acts are alleged to have occurred
over, at most, a two week period, plaintiffs cannot maintain their RICO
claim on a "closed-ended" theory. Rather, plaintiffs must demonstrate
that defendants' racketeering is "open-ended," which requires a showing
that defendants' past conduct carries the threat of future repetition.
Id.
Whether or not there exists a threat of continued racketeering activity depends on the specific facts of each case.
H.J. Inc.,
492 U.S. at 241, 109 S.Ct. 2893. In making this assessment, the Second
Circuit has directed courts to "look first to the nature of the
predicate acts alleged or to the nature of the enterprise at whose
behest the predicate acts were performed."
GICC Capital, 67 F.3d at 466 (citing numerous other Second Circuit decisions). Furthermore, the Supreme Court stated in
H.J. Inc.
that one way to establish a threat of continuity is "by showing that
the predicate acts or offenses are part of an ongoing entity's regular
way of doing business."
H.J. Inc., 492 U.S. at 243, 109 S.Ct. 2893.
In the case at bar, plaintiffs allege that defendants would have
continued their extortionate conduct indefinitely but for the fact that
plaintiffs succumbed to their bargaining demands. According to the
Complaint, McGarty repeatedly threatened to cause "problems" for
plaintiffs so long as they refused to enter into a collective bargaining
agreement. At the time these threats were made, therefore, defendants'
conduct was explicitly open-ended in nature and posed a distinct threat
of continuity. Indeed, plaintiffs claim that their fear of defendants'
continued criminal activity is what compelled them to sign an agreement.
See Morrow v. Black, 742 F.Supp. 1199, 1207 (E.D.N.Y.1990) (whether threat of continuity exists must viewed from vantage point of time of occurrence);
United States v. Busacca, 936 F.2d 232, 238 (6th Cir.) ("analysis of the threat of continuity cannot be made solely from hindsight"),
cert. denied, 502 U.S. 985, 112 S.Ct. 595, 116 L.Ed.2d 619 (1991);
Norstar Bank v. Pepitone, 742 F.Supp. 1209,
1211-12 (E.D.N.Y.1990) ("when the predicate acts only last a few weeks
in actuality but at the time of their occurrence threaten future
criminal activity, the continuity requirement is met");
Welch Foods Inc. v. Gilchrist,
1996 WL 607059, *6 (W.D.N.Y. Oct.18, 1996) ("the threat of continuity
in the context of an open-ended period of racketeering activity must be
viewed at the time the racketeering activity allegedly occurred").
Accordingly, this Court rejects defendants' argument that a threat of
continuity did not exist because the alleged unlawful activity terminated when ATP signed the Agreement.
See also Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36,
39 (3d Cir.1987) (remedial purposes of RICO would be disserved if the
continuity requirement "allow[ed] a party to maintain a RICO claim if he
brought suit before the unlawful scheme had obtained its objective,"
but prohibited the claim where the "scheme had fully accomplished its
goal"),
cited with approval in H.J. Inc., 492 U.S. at 241, 109 S.Ct. 2893.
A finding of continuity based on plaintiffs' allegations is further
warranted given the nature of the alleged predicate acts and the Union's
enterprise. Unlike schemes that aim to sell a parcel of land or block
of stock, which may be inherently terminable, the signing of a
collective bargaining agreement marks the
beginning of an ongoing
relationship between the union and an employer. As such, it would not
be unreasonable to fear that extortionate and coercive conduct by a
union's officers at the inception of the relationship might continue
even after a labor contract has been signed.
Compare, e.g., Continental Realty Corp. v. J.C. Penney Co., Inc., 729 F.Supp. 1452 (S.D.N.Y.1990) (no threat of continued racketeering posed by one-time fraudulent real estate transaction);
Gruntal & Co., Inc. v. San Diego Bancorp, 901 F.Supp. 607,
617 (S.D.N.Y.1995) (no threat of continuity in stock scheme where
"[s]elling previously issued shares into an artificially stimulated
market is a one-off scam" and where plaintiff alleged no basis for
believing that similar scheme existed with respect to other company
shares).
Alternatively, a threat of continued racketeering activity might be
established by plaintiffs at trial by showing that McGarty and Lynch
used extortionate tactics as a regular way of conducting Local One's
business.
See H.J. Inc., 492 U.S. at 243, 109 S.Ct. 2893.
Plaintiffs have alleged in their Amended Rico Statement that, in June
1992, officials and members of Local One were criminally charged with
extortion, fraud, theft and assault in connection with activities at the
Javits Convention Center. (Amended Rico Statement ¶ 20.)
16
Accepting these allegations as true, I find that plaintiffs have
sufficiently pled the continuity element of their RICO claim to
withstand a motion to dismiss. Defendants' motion to dismiss the fifth
cause of action is, therefore, denied.
CONCLUSION
For the foregoing reasons and consistent with this Opinion, the Court
dismisses plaintiffs' second, third, fourth, sixth and seventh causes
of action as to defendant Local One. As to defendants McGarty and Lynch,
the Court reserves decision on the second cause of action, dismisses
the third and seventh causes of action, and dismisses the fourth and
sixth causes of action with leave to replead within ten days if a good
faith basis exists for doing so. The Court denies the defendants' motion
to dismiss plaintiffs' fifth cause of action, but holds that this cause
of action may be maintained by plaintiff ATP only.
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