which represent counts II and III of their complaint. To say that one is
seeking "special damages . . . that are unrecoverable as contract
damages" merely because a separate count in a multi-count complaint prays
for damages not available in a single-count contract action would be a
formalistic and illogical reading of precedent. It is illogical to think
that a plaintiff, by merely appending a RICO or other such claim to his
complaint, may instantly render his fraud claim nonduplicative of the
contract claim. It is much more logical to reason that a plaintiff seeks
"special damages . . . that are unrecoverable as contract damages" when
the plaintiff can point to damages caused by the contract's breach that,
under applicable contract law, would be nonrecoverable in a single-count
contract action. The plaintiffs in the instant case point to no such
Thus, to summarize, the Court finds that the plaintiffs' fraud claim
fails as a matter of law. The claim is duplicative of the breach of
contract claim. Even if the claim were not duplicative, however, the
claim would still fail with respect to the individual parties. Mark
Parrella, as an individual pay phone user, was not personally owed any
duty by Cleartel. Similarly, Ulysses G. Auger, Barton R. Groh, and
Stephen Roberts did not personally defraud Regency or Actel in any way.
See Defendants' Motion for Judgment on the Pleadings, or in the
Alternative for Summary Judgment, Nov. 13, 2000, Exhibit E (affidavits of
Ulysses G. Auger. Barton R. Groh, and Stephen Roberts).
2. The Defendants' Motion for Summary Judgment
As the foregoing discussion suggests, the Court finds the defendants'
motion for summary judgment is merited. The fraud claim is duplicative of
the breach of contract claim. Further, even if it were not, the
plaintiffs' claims with respect to the individual parties must fail. There
is insufficient evidence Mark Parrella was defrauded in his personal
capacity, and insufficient evidence that Ulysses G. Auger, Barton R.
Groh, and Stephen Roberts defrauded Regency and Actel in their personal
capacity. See Defendants' Motion for Judgment on the Pleadings, or in the
Alternative for Summary Judgment, Nov. 13, 2000, Exhibit E (affidavits of
Ulysses G. Auger, Barton R. Groh, and Stephen Roberts).
E. The Plaintiffs' RICO Claims
The plaintiffs claim that the defendants violated 18 U.S.C. § 1962
(c) and 1962(d). The defendants move for summary judgment on several
grounds. The Court rejects all of the defendants' arguments, and
accordingly denies the defendants' motion.*fn5 Before explaining its
reasoning, however, the Court first undertakes a sua sponte evaluation of
whether the dismissal of the plaintiffs' fraud claim affects the
viability of its RICO claims.
1. The Plaintiffs' RICO Claims in Light of the Dismissed Fraud Claim
The plaintiffs allege that the defendants' "pattern of racketeering
activity" was made up of a series of mail frauds. Given the Court's
dismissal of the plaintiffs common law fraud claim, it might be thought
that the plaintiffs are without a fraudulent act necessary for their RICO
claims. The Court finds otherwise.
In the RICO context, it is well-accepted that "the scope of fraud under
[the wire and mail fraud] statutes is broader than common law fraud."
McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786 (1st
Cir. 1990). It is also well-accepted that a simple breach of contract
claim, uncolored by any acts of deception, does not constitute a mail
fraud. See Gregory P. Joseph, Civil RICO, A Definitive Guide 86 (2d. ed.
2000) ("A simple breach of contract, breach of fiduciary duty,
anticompetitive behavior, and even violation of statute do not constitute
actionable wire or mail fraud, unless the plaintiff has been deceived.")
(emphasis added); see also Morda v. Klein, 865 F.2d 782 (6th Cir. 1989)
("[A] breach of fiduciary duty alone, without the `something more' of
fraudulent intent, cannot constitute mail fraud.") (emphasis added);
Hilton, Sea, Inc. v. DMR Yachts, Inc. 750 F. Supp. 35 (D.Me. 1990) ("A
failure to perform [a contract] as promised does not, without more,
constitute fraud.") (emphasis added). Thus, the touchstone question for
the Court in this case is whether the defendants' breach of contract was
accompanied by "something more" which amounted to deception.
The Court finds that enough evidence exists for a reasonable jury to
find that the defendants utilized the mail to deceive the plaintiffs.
There is credible evidence that the defendants, on successive occasions
over a many year period, omitted material information from the reports
submitted to the plaintiffs. Further evidence permits the reasonable
inference that this omission enabled the defendants to withhold monies
contractually due to the plaintiffs.
Thus, there is ample evidence to conclude that the defendants intended
to take the plaintiffs' money by deception. As such, the dismissal of the
plaintiffs' fraud claim does not require the dismissal of the plaintiffs'
2. The Defendants' Intended Target Argument
The defendants argue that the plaintiffs' RICO claims must fail because
the plaintiffs were not the intended targets of the alleged racketeering
activities. The Court disagrees.
To state a valid RICO claim, a plaintiff must allege, inter alia, two
or more predicate acts that constitute a "pattern of racketeering
activity." 18 U.S.C. § 1961. On its face, the RICO statute does not
require proximate causation; that is, the statute does not expressly
require the "predicate acts" designated in section 1961 to proximately
cause the "injury" designated in section 1962. The United States Supreme
Court, however, read such a clause into the statute in Holmes v.
Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 117
L.Ed.2d 532 (1992).
Since Holmes, lower courts have explored the nature of proximate
causation in the RICO context. One factor that has emerged is the
"target" requirement; that is, for proximate causation to exist, the
plaintiff must have been the "intended target of the RICO violation." In
re American Express Co. Shareholder Litigation, 39 F.3d 395, 400 (2d
Cir. 1994). American Express involved the repercussions of a scheme by
American Express executives to defame one of its competitors. The scheme
backfired, and eventually forced American Express to pay a $10 million
settlement. Faced with a shareholders' derivative claim under RICO, the
Second Circuit found causation lacking, explaining that
the shareholders of American Express were certainly
not the intended targets of the RICO violations. Quite
contrary, the RICO violations were intended to benefit
American Express by injuring one of its competitors.
Id. Since American Express, the "intended target" requirement has been
repeatedly endorsed. See Abrahams v. Young & Rubicam, Inc.,
79 F.3d 234, 239 (2d Cir. 1996); Meng v. Schwartz, 116 F. Supp.2d 92
(D.D.C. 2000); BCCI Holdings (Luxembourg), Societe Anonyrne v. Pharaon.
43 F. Supp.2d 359, 366 (S.D.N.Y. 1999); Medgar Evers Houses Tenants
Association v. Medgar Evers Houses Associates, 25 F. Supp.2d 116, 122
In the instant case, the Court has little hesitation finding that
Regency and Actel were the intended targets of the alleged RICO
violations. Every dollar that Cleartel failed to pay to Regency and Actel
under the contract was a dollar that Cleartel itself retained. Thus,
Regency and Actel were directly affected by the alleged violation.
Cleartel argues that, since the disputed charges were levied against the
end users, not Regency and Actel, the targets of the charging scheme were
the end users, not Regency and Actel. This argument entirely misses the
point. By charging end users extra fees, and not reporting or paying on
these fees, Cleartel was able to retain funds it would otherwise owe to
Regency and Actel. Thus, Regency and Actel were the specific victims of
3. The Defendants' Remaining RICO Arguments
The defendants make several arguments, all of which the Court rejects.
First, the defendants argue that the plaintiffs' second amended complaint
characterizes Cleartel as both a "person" and an "enterprise." This,
argues the defendants, violates Circuit precedent which holds that the
same entity cannot simultaneously serve as a RICO defendant and a RICO
enterprise. See Confederate Memorial Association, Inc. v. Hines,
995 F.2d 295, 300 (D.C.Cir. 1993). Although the plaintiffs do allege in
one place that "[e]ach of the defendants is a person within the meaning
of 18 U.S.C. § 1961 (3)", other portions of the complaint suggest
that Cleartel is not alleged to be a person for purposes of RICO
liability. See Complaint, Sept. 25, 1998, at ¶ 43. For instance,
paragraph 44 begins by alleging Cleartel to be an "enterprise as defined
in 18 U.S.C. § 1961 (4)" and then separately refers to the "RICO
defendants" as "Auger, Groh, and Roberts." See Second Amended Complaint,
at ¶ 44. While the list of RICO defendants is not purported to be
exhaustive, the Court finds that the best reading of the plaintiffs'
complaint is that Cleartel is alleged to be an "enterprise", and not a
RICO defendant with "person" status.
Second, the defendants argue that Cleartel, Regency, and Actel cannot
be considered a single enterprise. This argument is irrelevant, as the
plaintiffs' complaint clearly contemplates that Cleartel is an enterprise
in its own capacity. See Second Amended Complaint ¶ 44 ("Cleartel,
whether viewed as an isolated entity, or in conjunction with Actel and/or
Regency, constitutes an `enterprise' as defined 18 U.S.C. § 1961
Third, the defendants argue that the individually-named defendants do
not constitute an "association-in-fact" enterprise. Assuming, without
deciding, that this were true, it would not be fatal to the plaintiffs'
case. The plaintiffs clearly have designated Cleartel as the "enterprise"
for the purpose of RICO liability. It is thus irrelevant whether the
individually-named defendants also constitute an enterprise.
Fourth, the defendants argue that the acts alleged by the plaintiffs do
not constitute a "pattern of racketeering activity." 18 U.S.C. § 1962
(c), 1962(d). In
H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 109 S.Ct. 2893,
106 L.Ed.2d 195 (1989), the Supreme Court explained the requirements for
a showing of a "pattern of racketeering activity." First, a "plaintiff
must 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 (emphasis in original). Predicate acts are "related" where
the acts have "the same or similar purposes, results, participants,
victims, or methods of commission, or otherwise are interrelated by
distinguishing characteristics and are not isolated events." Id. at 240,
109 S.Ct. 2893. Continuity can be demonstrated either by "a closed period
of repeated conduct" or "past conduct which by its nature projects into
the future with a threat of repetition." Id. at 241, 109 S.Ct. 2893.
The Court finds that the plaintiffs have adequately alleged a "pattern
of racketeering activity." The plaintiffs allege that the defendants
deceived them by withholding information and monies multiple times over a
several year period. The alleged predicate acts all stemmed from
identical long distance service contracts between the parties. As such,
the predicate acts are clearly "related" and constitute a "closed period
of repeated conduct." The defendants' motion on this issue is therefore
Finally, the defendants argue that the plaintiffs have not sufficiently
shown that the individually-named defendants "conspired" to deceive the
plaintiffs, and therefore violated section 1962(d). To the extent the
defendants challenge the face of the plaintiffs' complaint, the
defendants' challenge must fail. The plaintiffs refer numerous times in
the complaint to the conspiratorial behavior of the individually-named
defendants. See Second Amended Complaint, Sept. 25, 1998, at ¶¶ 13,
16, 18, 44, 46, 53, 57. To the extent the defendants challenge the
sufficiency of the plaintiffs' evidence for summary judgment purposes,
the defendants' challenge must also fail. Numerous affidavits provide
extensive information which would enable a jury to reasonably infer that
the individually-named defendants conspired. See Affidavit of Mark
Parrella, Nov. 13, 2000; Affidavit of Arthur Cooper, Nov. 13, 2000.
F. The Plaintiffs' Motion for Summary Judgment on the Defendants'
The defendants make two counterclaims. First, they allege that the
plaintiffs violated the non-disclosure requirements of the four long
distance service contracts. Second, they allege that the plaintiffs
committed civil conspiracy by conspiring to violate the non-disclosure
requirements. The plaintiffs move for summary judgment on the
counterclaims, and the Court grants that motion.