Formax, Inc. v. Allan C. Hostert, Kris Hostert, Gary L. Jugles and the Dale Service Group

841 F.2d 388
CourtCourt of Appeals for the Federal Circuit
DecidedFebruary 26, 1988
Docket87-1389
StatusPublished
Cited by18 cases

This text of 841 F.2d 388 (Formax, Inc. v. Allan C. Hostert, Kris Hostert, Gary L. Jugles and the Dale Service Group) is published on Counsel Stack Legal Research, covering Court of Appeals for the Federal Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Formax, Inc. v. Allan C. Hostert, Kris Hostert, Gary L. Jugles and the Dale Service Group, 841 F.2d 388 (Fed. Cir. 1988).

Opinions

NICHOLS, Senior Circuit Judge.

Formax, Inc. appeals from the decision of the United States District Court for the Northern District of Illinois, No. 86 C 2648, dismissing on motion Formax’s Racketeer Influenced and Corrupt Organizations Act (RICO) count and denying Formax’s request for a preliminary injunction. We affirm that section of the opinion and order denying Formax’s preliminary injunction, and reverse and remand that section of the opinion and order dismissing the RICO count.

Facts

Appellee, Hostert, is a former employee of Formax, Inc., alleged to have stolen some drawings claimed to be trade secrets and to have infringed Formax’s patent. A theft of appellant’s drawings allegedly occurred at Hostert’s employment termination. He acquired others from one of Formax’s vendors. Formax says all its drawings include the proper notice that they are proprietary information. The complaint includes a count asserting that Hostert violated the RICO statute through a pattern of racketeering activity. The patent count is not involved in the present appeal. The main question at hand is whether the court erred in finding that appellant’s complaint insufficiently pled a RICO violation.

In reviewing the trial judge’s decision, this court must focus on a two-fold inquiry:

1. whether the trial court applied the correct standard in construing appellant’s complaint in light of appellee’s motion; and
2. what elements of RICO must be pled in order to satisfy notice pleading as construed in the Seventh Circuit.

At the outset, we find some confusion in the record inasmuch as the court said it was acting on a motion for summary judgment, yet the entire focus of its fairly lengthy opinion is, with respect to the RICO count, on the allegations of the complaint. These too are lengthy and elaborate. The court holds them insufficient. There is not a word about any evidence being considered, submitted by either side, supporting or opposing the motion, that entered into the determination. We consider, therefore, for purposes of our review, that the court determined the complaint itself, in count 1, to be deficient and therefore dismissed it on motion. Appellant’s complaint, when properly construed, requires reinstatement of appellant’s RICO count.

The trial court misconstrued the requirements of a RICO violation. Sections 1962(b) and 1964(c), respectively, define the elements of a RICO violation. 18 U.S.C. § 1962(b) provides:

(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

18 U.S.C. § 1964(c) provides:

(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.

Therefore, in order to plead a RICO count successfully, the plaintiff must allege, [390]*390among other elements, an injury to his business or property by reason of a violation of section 1962. The complaint requires sufficient specificity so as to satisfy Fed.R.Civ.P. 9(b). See, e.g., Systems Research, Inc. v. Random, Inc., 614 F.Supp. 494 (N.D.Ill.1985) (complaint was sufficiently specific so as to satisfy the requirements of Fed.R.Civ.P. 9(b)). We hold the RICO count was sufficiently pled so as to defeat a motion to dismiss.

The trial court held:

Formax has not alleged that defendants made any fraudulent misrepresentation or omission to the public as to the Formax prints. [Footnote omitted.] Neither has Formax shown how defendants’ collection efforts furthered defendants’ alleged fraudulent scheme. In short, defendants’ alleged conduct did not involve any fraudulent misrepresentation or omission reasonably calculated to deceive persons of ordinary prudence or comprehension. App. at 8.

In so holding, the trial court imposed an inappropriate burden on appellant in its pleading of a RICO count and thus incorrectly granted appellees’ motion. See, e.g., Sedima, S.P.R.L. v. Imrex Company, 473 U.S. 479, 496-96, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985) (“If the defendant engages in a pattern of racketeering activity in a manner forbidden by these provisions, and the racketeering activities injure the plaintiff in his business or property, the plaintiff has a claim under § 1964(c). * * * The plaintiff must, of course, allege each of these elements to state a claim”). While recognizing mail/wire fraud as possible predicate acts to support a violation of RICO, the trial court misapplied the law. That court apparently construed the mail fraud statute to require a fraud to be exercised upon the recipients of the mail sent and that such a fraud be proven. However, the Supreme Court in Carpenter v. United States, — U.S. —, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987) (commonly referred to as the Winans case), succinctly dispenses with such an interpretation by broadly defining property and fraud under the terms of the mail and wire fraud statutes. According to the Supreme Court, Winans defrauded his employer, the Wall Street Journal, by stealing the content of his as yet unpublished comments on the value of stocks, and selling the information to parties not entitled to have it, by using the mails or wires.

In Carpenter, the Court reacknowledged that confidential business information is property. Carpenter, 108 S.Ct. at 320; Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001-04, 104 S.Ct. 2862, 2871-73, 81 L.Ed.2d 815 (1984); Board of Trade of Chicago v. Christie Grain & Stock Co., 198 U.S. 236, 250-51, 25 S.Ct. 637, 639-40, 49 L.Ed. 1031 (1905). The Court then held that defrauding one out of such property by theft of a business secret satisfies “the ‘common understanding’ of ‘wronging one in his property rights by dishonest methods or schemes’ and ‘usually signifies] the deprivation of something of value by trick, deceit, chicane or overreaching.’ ” [Citation omitted.] Carpenter, 108 S.Ct. at 320. Activities such as those alleged in the instant case — misappropriation of trade secrets — fall within the definition of property and fraud under the mail and wire fraud statutes and thus can fulfill some elements of a RICO violation. Spiegel v. Continental Illinois Nat’l Bank, 790 F.2d 638, 649 (7th Cir.), cert. denied, — U.S. —, 107 S.Ct. 579, 93 L.Ed.2d 582 (1986). The Supreme Court does not require any fraud necessarily to be exercised upon the recipients of the mail in order to satisfy the elements of mail fraud.

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Bluebook (online)
841 F.2d 388, Counsel Stack Legal Research, https://law.counselstack.com/opinion/formax-inc-v-allan-c-hostert-kris-hostert-gary-l-jugles-and-the-dale-cafc-1988.