421 U.S. at 852 (same).
Although nominal and insignificant efforts by defendants do not necessarily destroy the option's status as a security, see, e.g., Lino v. City Investing Co., 487 F.2d 689, 693 (3d Cir. 1973), because defendants efforts with respect to the provision of training, on-going advice on operations, and marketing and promotional services for plaintiffs' 25 restaurants were more than nominal, the option is not a security. Plaintiffs themselves considered defendants' marketing and promotional services so significant that they sued defendants for breach of contract, alleging that their failure to provide adequate marketing and promotional services caused them substantial losses. Complaint paras. 65-67. More importantly, defendants agreed to give plaintiffs training and on-going advice on operations. The success of this advice and training would have a direct affect on the profitability of plaintiffs' 25 Rustler Steak Houses and the profits would be used to reduce the debt being carried by said restaurants. Thus, the value of the option would increase as plaintiffs' restaurants became more profitable and less debt-ridden. Because the value of the option was at least partially dependant on the efforts and advice of defendants, the option is not a security. See, e.g., SEC v. W.J. Howey Co., 328 U.S. at 301 (the profits from the option must come solely from the efforts of persons other than the investors); Forman, 421 U.S. at 852 (same). Accordingly, the securities fraud claim must be dismissed.
VI. BECAUSE PLAINTIFFS HAVE NOT ALLEGED AN ESSENTIAL ELEMENT OF A RICO CLAIM, A PATTERN OF RACKETEERING ACTIVITY, THE RICO COUNT MUST BE DISMISSED.
To state a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), it is essential to allege a pattern of racketeering activity. 18 U.S.C. §§ 1962(b) & (c). While a pattern requires at least two acts of racketeering activity, 18 U.S.C. 1961(5), two acts may not be sufficient. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S. Ct. 3275, 3285 n.14, 87 L. Ed. 2d 346 (1985); International Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 154-55 (4th Cir. 1987); District Telecommunications Development Corp., v. District Cablevision, 638 F. Supp. 418, 421 (D.D.C. 1985). A series of acts form a pattern only where there is "continuity plus relationship." Sedima, 105 S. Ct. at 3285 n.14; Zepkin, 812 F.2d at 154-55; District Cablevision, 638 F. Supp. at 421. Thus, a single effort or scheme to defraud does not constitute a pattern. Zepkin, 812 F.2d at 155; District Cablevision, 638 F. Supp. at 421.
To satisfy the pattern requirement, plaintiffs strain to divide what was a single business deal into a series of acts, alleging that defendants' misrepresentations that they would retain Tenly and that Tenly would preserve the Rustlers constitute a pattern. Complaint paras. 50-57. Any single scheme or effort can be viewed as a series of component acts. This alone, however, does not make a pattern.
Plaintiffs' RICO claim is grounded on a single business deal embodied in the Agreement. There was a single transaction with one result and one set of parties. Because plaintiffs' allegations are more in the nature of a single scheme they do not constitute a pattern to defraud. Zepkin, 812 F.2d at 155; District Cablevision, 638 F. Supp. at 421. Accordingly, plaintiffs' RICO claim must be dismissed for failing to allege a pattern of racketeering activity.
VII. THE COMPLAINT DOES NOT STATE A CLAIM FOR BREACH OF CONTRACT AND EVEN IF DEFENDANTS BREACHED THE CONTRACT, PLAINTIFFS DID NOT COMPLY WITH THE AGREEMENT'S NOTICE REQUIREMENTS.
A. The Allegations in the Complaint Do Not State a Claim for Breach of Contract.
Plaintiffs' last count alleges that defendants breached the Agreement's marketing clause by failing "to provide advertising and promotional support for [plaintiff's] Rustler units of the kind, quantity or quality that the agreement requires." Complaint para. 66. The marketing clause of the Agreements states:
[Defendants'] shall be responsible for providing the marketing and promotion programs of [plaintiffs' Rustlers], which shall be conducted in a manner essentially consistent with the marketing and promotion programs of the current or then existing Rustler Steak Houses in the Baltimore and Washington, D.C. markets.
Complaint, Exhibit E (emphasis added). Plaintiffs argue that the Agreement was breached because the level of advertising after the Agreement was executed was substantially reduced from the level of advertising during the negotiations. Complaint para. 35. Because the Agreement states that the level of advertising "shall be . . . consistent with . . . the current or then existing" Rustlers in the Baltimore-Washington area, whether plaintiffs have stated a claim depends on the meaning of "shall be . . . consistent with . . . the current or then existing [Rustlers]."
If "shall be . . . consistent with . . . the current or then existing [Rustlers]" refers to the Rustlers in existence during the negotiations, plaintiffs have stated a claim since they allege that the level of advertising was substantially reduced after the Agreement was executed. Complaint para. 35. If, however, "shall be . . . consistent with . . . the current or then existing [Rustlers]" means that the level of advertising provided plaintiffs' Rustlers and other Rustlers in the Baltimore-Washington area must be consistent at any given time, plaintiffs have not stated a claim because they do not allege a disparity between the level of advertising provided plaintiffs' Rustlers and the other Rustlers. To the contrary, plaintiffs allege that the advertising for all Rustlers was reduced, Complaint para. 36, suggesting that there was no disparity in the level of advertising.
What the Agreement does not say sheds some light on what it does say. The Agreement does not say that the level of advertising may not fall below the level being provided at the time the Agreement was executed. The parties are sophisticated businessspersons with competent counsel. If they intended to say that the level of advertising may not fall below the level being provided on February 4, 1985, when the Agreement was executed, they could have clearly said so. Instead, the parties used relative terms such as "consistent with," "current" and "then existing"; terms that do not refer to a particular date. These terms, as used in the sentence "shall be . . . consistent with . . . the current or then existing [Rustlers]," make clear that the level of future advertising for plaintiffs' Rustlers must be consistent with the level of advertising for the other Rustlers. Therefore, because plaintiffs do not allege that any disparity exists between the level of advertising for plaintiff's Rustlers and the other Rustlers, plaintiffs have not stated a claim for breach of contract.
B. Even If Defendants Breached the Contract, Plaintiffs Have Not Complied With the Agreement's Notice Requirements.
The Agreement states that a defaulting party, a party who has not performed its obligations under the Agreement, Complaint, Exhibit E, § 22, has 30 days from the date of notice to remedy such default. Complaint, Exhibit E, § 23. Even if plaintiffs stated a claim that defendants failed to perform their obligations to provide advertising for plaintiffs' Rustlers, plaintiffs have not alleged that defendants have been given notice of such default. Thus, plaintiffs have not complied with remedy provisions of the very Agreement they charge defendants with breaching. Accordingly, the breach of contract claim must be dismissed.
Upon review of the entire complaint in the light most favorable to plaintiffs, the Court finds that plaintiffs have failed to state a claim of fraud, securities fraud, RICO or breach of contract. Accordingly, the Court will grant without prejudice defendants' motion to dismiss for failure to state a claim and dismiss as moot defendants' motion to dismiss for improper venue. An Order shall issue herewith.
For the reasons set forth in the Court's Opinion issued herewith, it is, this 31st day of August, 1987,
ORDERED that defendants' motion to dismiss for failure to state a claim is granted without prejudice with respect to the fraud, securities fraud, RICO, and breach of contract counts; and, it is
FURTHER ORDERED that defendants' motion to dismiss for improper venue is is dismissed as moot.