Goren v. New Vision International, Inc.

156 F.3d 721
CourtCourt of Appeals for the Seventh Circuit
DecidedSeptember 2, 1998
DocketNo. 97-3785
StatusPublished
Cited by97 cases

This text of 156 F.3d 721 (Goren v. New Vision International, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Goren v. New Vision International, Inc., 156 F.3d 721 (7th Cir. 1998).

Opinion

RIPPLE, Circuit Judge.

Judith Goren initiated this action against ten defendants: New Vision International, Inc. (“New Vision”), Benson Boreyko, Jason Boreyko, Ben Boreyko, Karen Boreyko and Lynne Boreyko (collectively, “the Borey-kos”), Dr. Joel Wallach, Kelly Enterprise (“Kelly”), October Dynamics (“October”) and Direct Marketing Services (“Direct”). In four separate counts in her amended complaint, Ms. Goren alleges that defendants Wallach, October, Direct and the Boreykos, respectively, violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968, by collaborating with the other defendants in a scheme to sell bogus health care products. In another count, Ms. Goren alleged that all defendants violated the Michigan Consumer Protection Act, Mich. Comp. Laws § 445.903, by virtue of their participation in the same scheme. The district court dismissed all of Ms. Goren’s RICO claims pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) for failure to plead fraud with particularity and failure to state a claim for relief. Having dismissed all of the claims over which it had original jurisdiction, the district court dismissed Ms. Goren’s state law elaim for lack of subject matter jurisdiction. For the reasons set forth in the following opinion, we affirm the district court’s judgment of dismissal.

I

BACKGROUND

A. Facts1

In September 1996, Ms. Goren sent for a free audio tape entitled “Dead Doctors Don’t [725]*725Lie,” which contains a speech by Dr. Wal-lach. The tape was sent by Kelly and was manufactured by Direct. On the tape, Dr. Wallaeh claims that almost all health problems are the result of mineral deficiencies. Dr. Wallaeh then promotes mineral supplements manufactured by New Vision as a panacea for the listener’s ailments. After listening to the tape, Ms. Goren called a toll-free number provided on the label of the tape and purchased two bottles of New Vision’s “Essential Minerals.” A few weeks later she received her order in the mail, along with two copies of Dr. Wallach’s tape, an information pack from October and order forms from Direct and October. On three subsequent occasions, Ms. Goren received mail from October claiming that it specialized in health research and information and that it had tested New Vision’s products. She alleges that “Essential Minerals” is nothing more than overpriced tap water and that the material sent to her by the various defendants contained many misrepresentations.

Ms. Goren alleges that her experience with the defendants is but one example of the fraudulent conduct regularly engaged in by the defendants. Specifically, she alleges that New Vision and the other defendants are engaged in a scheme to market bogus heath care products. This scheme is carried out by means of a multi-level marketing plan or “pyramid scheme.” New Vision and the other defendants recruit individuals not only to sell New Vision’s products but also to recruit other distributors. These “distributors” are then compensated on the basis of their sales and the sales of any other individuals whom they recruit. The defendants encourage the distributors to purchase bulk quantities of promotional materials manufactured by the defendants, including Dr. Wallach’s tape “Dead Doctors Don’t Lie.” In addition, October offers the distributors the option of using it as a “business partner” by having it handle telephone inquiries or orders from individuals who received the distributors’ promotional tapes.

B. Proceedings in the District Court

Based on the alleged facts set forth above, Ms. Goren filed an amended class action complaint against the Boreykos, New Vision, Direct, October, Kelly and Dr. Wallaeh. In Count I, Ms. Goren alleged that all defendants violated the Michigan Consumer Protection Act by virtue of their participation in the scheme to market New Vision’s bogus health care products. In Counts II-V, relying on the same factual predicate, Ms. Goren brought RICO claims against Dr. Wallaeh, the Boreykos, Direct and October, respectively.

The district court dismissed Ms. Goren’s amended complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) for failure to plead fraud with particularity and failure to state a claim upon which relief could be granted. Specifically, the court held that, with respect to the RICO complaints against the Boreykos, Direct and October, the amended complaint failed to allege with particularity two predicate acts of fraud committed by those defendants. In addition, the court held that the amended complaint failed to adequately allege RICO claims against Dr. Wallaeh, Direct and October because that complaint did not allege that those defendants played some role in the direction of the New Vision enterprise. See Reves v. Ernst & Young, 607 U.S. 170, 177-78, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993) (holding that, in order to plead adequate RICO complaint, plaintiff must allege that defendant had some part in the direction of the alleged enterprise’s affairs).

II

DISCUSSION

We review de novo the district court’s decision to dismiss, taking Ms. Goren’s factual allegations as true and drawing all reasonable inferences in her favor. See Kauthar SDN BHD v. Sternberg, 149 F.3d 659, (7th Cir.1998). We shall affirm the district court’s order of dismissal only if “ ‘it appears beyond doubt that [Ms. Goren] can prove no [726]*726set of facts in support of [her] claim which would entitle [her] to relief.’” Strasburger v. Board of Educ., 143 F.3d 351, 359 (7th Cir.1998) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Allegations of fraud, however, are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires a plaintiff to plead “all averments of fraud ... with particularity.” Rule 9(b) is of course applicable to allegations of fraud in a civil RICO complaint. See Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir.1994); Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir.1992). Accordingly, a RICO plaintiff “must, at a minimum, describe the predicate acts [of fraud] with some specificity and state the time, place, and content'of the alleged communications perpetrating the fraud.” Midwest Grinding, 976 F.2d at 1020. Moreover, in a multiple defendant case, Rule 9(b) requires a RICO plaintiff to plead sufficient facts to notify each defendant of his alleged participation in the scheme. See Vicom, 20 F.3d at 778.

A.

When Congress enacted RICO, it chose to supplement criminal enforcement of its provision by providing that “[a]ny person injured in his business or property by reason of a violation of section 1962” may bring a civil action under RICO. 18 U.S.C. § 1964(c).

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