Opinions of the United 1994 Decisions States Court of Appeals for the Third Circuit

11-1-1994

Gasoline Sales, Inc. v. Aero Oil Co., et al. Precedential or Non-Precedential:

Docket 93-7555

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Recommended Citation "Gasoline Sales, Inc. v. Aero Oil Co., et al." (1994). 1994 Decisions. Paper 174. http://digitalcommons.law.villanova.edu/thirdcircuit_1994/174

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N0. 93-7555

GASOLINE SALES, INC.

Appellant

v.

AERO OIL COMPANY; GETTY PETROLEUM CORPORATION; .... JERRY T. LANK; ALVIN SMITH; RECO PETROLEUM, INC.

On Appeal From the United States District Court For the Middle District of Pennsylvania (D.C. Civil Action No. 92-01771)

Argued March 1, 1994

BEFORE: STAPLETON and SCIRICA, Circuit Judges, and SMITH, District Judge*

(Opinion Filed November 1, 1994)

Frederick J. Fanelli (Argued) 221 Mahantongo Street Pottsville, PA 17901 Attorney for Appellant

Joseph M. Hankins (Argued) Joseph A. Dougherty BRITT, HANKINS, SCHAIBLE & MOUGHAN Two Penn Center Plaza Suite 515 Philadelphia, PA 19102 Attorneys for Appellees

*Honorable D. Brooks Smith, United States District Judge for the Western District of Pennsylvania, sitting by designation. OPINION OF THE COURT

STAPLETON, Circuit Judge:

Gasoline Sales, Inc. ("Gas Sales") sued three related

corporations and officers of two of the corporations. Gas Sales

alleged that the defendants injured Gas Sales in the course of

violating the Racketeer Influenced and Corrupt Organizations

("RICO") chapter of the Organized Crime Control Act of 1970,

. The district court dismissed Gas Sales'

second amended complaint pursuant to Fed. R. Civ. Pro. 12(b)(6)

for failure to state a claim upon which relief could be granted.

Gas Sales appeals from this dismissal. It also appeals from the

district court's ruling refusing to grant it leave to file a

third amended complaint. The primary question raised on appeal

is whether Gas Sales has satisfied the "person/enterprise"

pleading requirement which we have held applies in RICO suits

premised on

(c). See B.F. Hirsch v. Enright

Refining Co.,

(3d Cir. 1984). We hold that Gas

Sales has failed to satisfy this requirement, and we will

therefore affirm the judgment of the district court. I.

A.

Because the district court dismissed Gas Sales' second

amended complaint at the pleading stage pursuant to Rule

12(b)(6), we must consider whether relief could be granted to Gas

Sales "under any set of facts that could be proved consistent

with the allegations" in its complaint. National Organization For Women, Inc. v. Scheidler, ___ U.S. ___,

(1994) quoting Hishon v. King & Spalding,

(1984).

The relevant allegations are as follows.

The defendants are a corporation, Getty Petroleum Corp.

("Getty"); Getty's two wholly-owned subsidiaries, Aero Oil

Company ("Aero"), and Reco Petroleum, Inc. ("Reco"); Getty's

senior vice-president, Alvin Smith; and Aero's general manager,

Jerry T. Lank. Getty, Aero, and Reco are engaged in the leasing

of retail gasoline stations and the sale of petroleum products.

Getty acquired Aero in 1986, and acquired Reco on June 30, 1989.

Getty originally was incorporated under the name of

Power Test Corporation ("Power Test"), but changed its name in

1985. Between 1982 and 1985, Getty -- then called Power Test --

violated New York State statutes by defrauding 182 New York

gasoline-station lessees. In 1986, the New York Attorney General

filed a civil suit against Getty on behalf of the 182 lessees.

Getty settled the suit for a large monetary payment.

In 1990, in the District Court for the Eastern District

of New York, a Getty subdivision named Getty Terminals Corp. (which is not a party to this lawsuit) was convicted of tax

evasion and conspiracy to defraud the United States.

From 1986 to 1991, in Pennsylvania and Maryland, the

defendants have engaged in a widespread fraudulent scheme,

through the use of both mail and wire communications, to induce

the plaintiff Gas Sales and at least twenty others to enter into

retail-gasoline-station lease-agreements with the defendants.

Once the lessees entered into the contracts, the defendants would

embark on a course of fraudulent conduct designed to render the

retail gasoline-stations unprofitable and thereby "squeeze" the

lessees out of business. B.

The district court had jurisdiction over Gas Sales'

complaint pursuant to RICO,

(c). We have

jurisdiction over this appeal pursuant to

.

II.

A.

In

(c), RICO provides a private civil

right of action to "any person injured . . . by reason of a

violation of" the substantive RICO provisions contained in

. Gas Sales alleges that it was injured by

violations of one of these substantive provisions -- section

1962(c). A "person" violates section 1962(c) by conducting an "enterprise" through a pattern of racketeering activity.1

Sedima, S. P. R. L. v. Imrex Co.,

(1985).

"Racketeering activity" is defined by RICO as any of a host of

enumerated crimes, including mail and wire fraud.

(1). "Pattern" is defined as the commission of at least

two acts of "racketeering activity" within a ten-year period.

(5).

The parties do not dispute whether Gas Sales has

alleged facts sufficient to satisfy the "racketeering" and

"pattern" elements of a section 1962(c) violation. They dispute

whether Gas Sales has alleged facts sufficient to establish that

any of the defendants engaged in the "conduct of an enterprise."

Since B.F. Hirsch v. Enright Refining Co.,

(3d Cir.

1984), we have held that to plead a claim successfully under

section 1962(c), a complaint must be capable of being read to

allege that a "person" was "conducting a pattern of racketeering

through a separate and distinct enterprise." Glessner v. Kenny,

(3d Cir. 1991) (emphasis added); see also Banks

v. Wolk,

(3d Cir. 1990); Kehr Packages, Inc. v. Fidelcor, Inc.,

(3d Cir. 1991); Brittingham

1 . In its entirety, section 1962(c) states: "It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect,

interstate or foreign commerce, to conduct or participate,

directly or indirectly, in the conduct of such enterprise's

affairs through a pattern of racketeering activity or collection

of unlawful debt." v. Mobil Corp.,

, 300 (3d Cir. 1991); Lorenz v. CSX

Corp.,

, 1413 & n.4; Lightning Lube, Inc. v. Witco

Corp.,

(3d Cir. 1993).

Gas Sales has pled that Getty, Lank, and Smith were

"persons" who conducted the "enterprise" or "enterprises" of Aero

and Reco.2 RICO's definitions of "person" and "enterprise" are

quite broad. Each includes human beings and legal entities, and

"enterprise" also includes unofficial "associations" of human

beings and/or legal entities.3 Thus, in RICO terms, any of the

defendants could be a "person," and any of the defendants or any

combination of the defendants could be an "enterprise." However,

under our precedents, none of the defendants is sufficiently

distinct from the "enterprises" Aero and Reco to have conducted

them within the meaning of section 1962(c). 1.

Only "persons" can be sued for violating RICO

§ 1962(c). Petro-Tech, Inc. v. Western Co. of North America,

, 1358 n.* (3d Cir. 1987). Because Gas Sales has

alleged that Aero and Reco were conducted as "enterprises" in

violation of section 1962(c), and because we have held that

enterprises cannot conduct themselves within the meaning of

2 . Gas Sales has not stated whether it alleges Reco and Aero constitute one or two enterprises. 3 . "Person" is defined to "include[ ] any individual entity capable of holding a legal or beneficial interest in property."

(3). "Enterprise" is defined to "include[ ] any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity."

(4). section 1962(c), Gas Sales cannot sue Aero or Reco under section

1962(c). B.F. Hirsch v. Enright,

; Banks v.

Wolk,

; Kehr Packages,

. For the

same reason, Aero cannot be vicariously liable for any 1962(c)

violation committed by Lank, its vice president, in conducting

Aero through a pattern of racketeering. Petro-Tech,

; Kehr Packages,

. 2.

We have also held that a corporation generally cannot

be a defendant under section 1962(c) for conducting an

"enterprise" consisting of its own subsidiaries or employees, or

consisting of the corporation itself in association with its

subsidiaries or employees. Brittingham, 943 F.2d at 302-03;

Glessner,

; Lorenz,

. This is

because we have interpreted corporate identity expansively, so

that the actions of a corporation's agents conducting its normal

affairs are constructively its own actions for section 1962(c)

purposes. Brittingham, 943 F.2d at 302; Glessner,

. Under this "Brittingham rationale," Getty cannot be sued

by Gas Sales for conducting its subsidiaries Aero and Reco any

more than it could be sued for conducting itself.

We have hypothesized that a "narrow," "theoretical,"

and "rare" exception to the Brittingham rule might exist, when there are allegations that the defendant corporation "had a role

in the racketeering activity that was distinct from the

undertakings of those acting on its behalf." Brittingham, 943 F.2d at 302; see also Glessner,

; Lorenz, 1. F.3d at 1413 n.4. Gas Sales has not so alleged, however. As the

district court accurately recounted, Gas Sales has alleged that

Getty and its two subsidiaries acted in concert in furtherance of

a common scheme to defraud gasoline station lessees. Gas Sales'

complaints, far from distinguishing Getty's role in the scheme,

closely identify Getty's actions with the actions of Aero and

Reco. 3.

We have held that corporate employees who victimize

their employer by draining it of its own money or using it as a

passive tool to extract money from third parties are proper

section 1962(c) defendants. Glessner,

. Where

the employees merely participate in the corporation's own fraud

by acting as corporate agents, however, the employees may not be

sued under section 1962(c).

. We have stated that

this interpretation of 1962(c) "avoids the absurd result that a

corporation may always be pled to be the enterprise controlled by

its employees or officers."

.

Gas Sales has not alleged that Smith and Lank profited

personally from the conducting of Getty, Aero, or Reco's affairs

beyond the compensation they receive for their services to the

corporation or that they acted as anything other than Getty and

Aero's agents. Gas Sales therefore cannot sue Smith and Lank

under section 1962(c). B.

The third amended (i.e. fourth) complaint that Gas

Sales seeks to file, minimizes any allegation of an active

racketeering role by the subsidiaries Aero and Reco, and also

includes a new legal theory of liability for violation of RICO

§ 1962(b).4 The district court refused to permit the filing of

the amendment because it was repetitive, or, in the alternative,

because it was futile. This was not an abuse of discretion. See Foman v. Davis,

(1962); Lorenz,

-

14; Glessner,

.

First, as the district court stated, "three attempts at

a proper pleading is enough," and a "plaintiff has to carefully

consider the allegations to be placed in a complaint before it is

filed." Dist. Ct. Mem. Op. at 12. Gas Sales is not seeking to

add claims it inadvertently omitted from its prior complaints or

which it did not know about earlier. Rather, Gas Sales is

modifying its allegations in hopes of remedying factual

deficiencies in its prior pleadings, even to the point of

contradicting its prior pleadings.

Second, regarding Gas Sales' section 1962(c) theory of

liability, the third amended complaint still contains sufficient

4 .

(b) states: "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." Anyone injured by reason of a violation of section 1962(b), may sue the violator pursuant to

(c). allegations of concerted behavior by Getty, Aero, and Reco that

it fails to establish that Getty played a distinctive and

separate role in the alleged racketeering activity.

Finally, regarding section 1962(b), we have not yet

decided whether the "person/enterprise" distinction is a

necessary element of a violation of that section. Lightning

Lube,

. Nonetheless, we need not resolve the

issue now, because proof of a violation of that section requires

a showing that the plaintiff was injured by the defendant's

acquisition or control of an interest in an enterprise through

racketeering.

. Gas Sales does not allege in its

third amended complaint that it was injured by Getty's

acquisition or maintenance of control over Aero and Reco, or that

Getty's acquisition or maintenance of control over these

subsidiaries was accomplished through racketeering. It would be

futile, therefore, to permit Gas Sales to file its third amended

complaint on section 1962(b) grounds.

III.

For the foregoing reasons, the judgment of the district

court will be affirmed.