OPINION
I. Introduction
This is a civil action brought by plaintiff, Standard Chlorine of Delaware, Inc. (“Standard”), against various individuals and companies which, according to Standard’s pleadings, engaged in a long-term scheme aimed at defrauding Standard of millions of dollars. The original Complaint named as party-defendants two individuals, Anthony R. Sinibaldi (“AS”) and Michael O. Sinibaldi (“MS”), AS’s brother, as well as eight companies 1 , Dover Steel Company, Inc. (“Dover”) 2 , Comma Corporation, Lorraine Rental & Equipment Company, Inc. (“Lorraine Rental”), Delaware Rental Company (“Delaware Rental”), SS & H Realty (“SS & H”), SHS Holding Corp. (“SHS”), A.M.B. Construction Company, Inc. (“AMB”) and All-American Promotions, Inc. (“All-American”). 3 Standard subsequently filed an Amended Complaint which, inter alia, added an additional individual defendant, George Mantakounis (“Mantakounis”), as well as another company defendant, Mantas Painting (“Mantas”). 4
Presently before the Court are a number of motions, including discovery-related motions and motions to dismiss Standard’s pleadings for,
inter alia,
failure to state a claim upon which relief may be .granted. The factual averments set forth in the Amended Complaint, which must be taken as true for purposes of the pending motions to dismiss Standard’s pleadings,
Marshall-Silver Construction Company, Inc. v. Mendel,
A. Brief Summary of Standard’s Allegations of Fact .
Standard is a Delaware corporation with its principal manufacturing facility (the “Plant”) located in Delaware City, Delaware. Standard is a major producer of chlorinated benzenes, which it first began producing at its Plant in 1966. AS and MS both are former employees of Standard. Standard employed AS from 1966 until December 1990, when he was terminated. During his employment at Standard, AS ^held various positions at different times, including the position of Assistant Plant Manager, which he held from 1974 until 1977, when AS became Standard’s Vice President for Manufacturing. MS worked for Standard from 1966 until May 1987, when he retired. MS also held several different positions at Standard during his employment, including the position of Maintenance Superintendent, which he held from 1977 until 1983, when MS became Plant Engineer and Manager of the Plant’s Maintenance Department.
The allegations underlying Standard’s claim that Defendants and Mantas Defendants defrauded plaintiff and engaged in a pattern of racketeering which injured plaintiff and, according to Standard, violated various provisions of RICO briefly are as follows:
AS and MS, while executives of Standard, acting in concert with the Company Defendants and others, set up a scheme to defraud Standard by secretly becoming the owners of several “outside” contractors, in order to profit from Standard’s periodic needs for steel fabrication, maintenance and repair services. Hiding from Standard their interests in these contractors for a period of over 10 years, AS and MS willfully and repeatedly injured Standard and profited at Standard’s expense, by awarding various kinds of work to these contractors, by overcharging Standard for the work done, by permitting these contractors to do work of poor quality, and by retaliating against Standard employees who were in a position to make defendants’ wrongdoing' known to Standard’s senior management.' In addition, AS and MS (as well as [Mantakounis]) further profited improperly at Standard’s expense by directing large" amounts of business to Mantas Painting in exchange for substantial payments to them, directly or indirectly, from Mantas Painting. Defendants succeeded in concealing their scheme until 1990, when an investigation into possible improprieties at the Plant revealed the history [of misconduct] described [in Standard’s pleadings].
(D.I. 72 at ¶ 21) 5
B. Pending motions
There are numerous motions pending before the Court which will be resolved herein.
Defendants initially filed a motion to dismiss (D.I. 18) the original Complaint (D.I. 1), which was fully briefed by the parties. (See D.I. Nos. 22, 35, 38, 54, 59, 60, 101, 102) Standard, however, filed an Amended Com
Defendants then filed a motion to dismiss (D.I. 75) Standard’s Amended Complaint (D.I. 72). Although it appears from the record that Defendants did not submit any briefs in support of their motion to dismiss the Amended Complaint, Defendants have incorporated by reference their various briefs filed in connection with their initial motion to dismiss into their motion to dismiss Standard’s amended pleading. (See D.I. 75 at ¶¶ 4-6) The court record indicates that Standard similarly has decided to rely on its briefs responsive to Defendants’ motion to dismiss the original Complaint in opposing Defendants’ motion to dismiss the Amended Complaint.
Mantas Defendants also moved to dismiss (D.I. 83, 85) the Amended Complaint as to them. This motion was fully briefed by Mantas Defendants and Standard. (See D.I. Nos. 84, 86, 88, 91, 92) In addition, Mantas Defendants filed an application (D.I. 93) for oral argument on its motion to dismiss. The Court will deny the application since the parties’ briefs provided sufficient information for the Court to resolve this motion without oral argument.
A number of discovery-related motions are also presently pending before the Court.
AS moves the Court to compel Standard’s production of certain insurance policies. The parties have indicated that Standard complied with AS’s discovery request. Accordingly, this motion will be denied as moot.
Standard moves for entry of a confidentiality order. (D.I. 62). The parties completed briefing on this motion. (D.I. Nos. 62, 64, 66)
Standard and Defendants both filed motions to compel compliance with their respective document production requests. These motions were fully briefed by the parties as well. (D.I. Nos. 67, 68, 69, 71)
Mantas Defendants move for a protective order staying discovery as to them. (D.I. 94) Standard and Mantas Defendants filed briefs on this motion. (D.I. Nos. 95, 96, 97) Additionally, Mantas Defendants submitted an application for oral argument on this motion. (D.I. 98) The Court will deny Mantas Defendants’ application since the parties’ briefs sufficiently addressed the issues relevant to this motion such that the Court can resolve it without oral argument.
Wilmington Trust Company (“Wilmington Trust” or “the bank”) filed a non-party motion for a protective order (D.I. 63) which seeks to quash or modify a subpoena duces tecum which Standard served on the bank. This motion was briefed by Standard as well as the bank and, like the other motions still pending in this case, is ripe for judicial action. (D.I. 63 and D.I. 65)
II. Defendants’ Motion to Dismiss the Amended Complaint
Defendants move to dismiss the Amended Complaint on a variety of grounds.
A. RICO “Enterprise”
In seeking dismissal of the Complaint for failure to state a RICO claim, defendants contend, inter alia, that plaintiffs failed “to inform Defendants, and this Court, who or what is the RICO ‘enterprise’ with respect to each separate RICO Count.” (D.I. 22 at 13, n. 9)
Plaintiff clearly alleged in its Complaint
7
, however, that “[t]he association in
Defendants’ contention that plaintiff failed to plead a RICO enterprise, therefore, is without merit.
B. The RICO “Separate Existence” Requirement
The essential elements of a civil RICO claim are “(1) the existence of a RICO ‘enterprise’; (2) the existence of ‘a pattern of racketeering activity’; (3) a nexus between the defendant, the pattern of racketeering activity or the RICO ‘enterprise’; and (4) resulting injury to plaintiff, in his business or property.”
Klapper v. Commonwealth Realty Trust,
Defendants rely on this third element, the separate existence requirement, in moving to dismiss plaintiffs RICO claims. Defendants’ reliance on the separate existence requirement, in this context, is misplaced. The Third Circuit expressly held in Seville that these three requirements are necessary to prove—not to plead—the existence of a RICO enterprise. Indeed, the Third Circuit in Seville reversed the district court’s decision to dismiss the complaint for failure to plead the Riccobene-Turkette requirements. In reversing, the court held as follows:
[T]he district court confused what must be pleaded with what must be proved. Riccobene and Turkette certainly stand for the proposition that a plaintiff, to recover, must prove that an alleged enterprise possesses the three described attributes. But neither case speaks to what must be pleaded in order to state a cause of action. The district court erred in applying the Riccobene-Turkette proof analysis to the allegations of the complaint.
We need cite no authority for the proposition that the Federal Rules of Civil Procedure were designed to eliminate the vagaries of technical pleading that once plagued complainants, and to replace them with the considerably more liberal requirements of so-called “notice” pleading. Under the modern federal rules, it is enough that a complaint put the defendant on notice of the claims against him. It is the function of discovery to fill in the details,and of trial to establish fully each element of the cause of action.
Seville,
In an effort to rebut the obvious impact of the Seville decision on their position, Defendants contend that their argument is based on a footnote in Seville which, according to Defendants, requires dismissal of Standard’s RICO claims. The Third Circuit stated the following in the footnote upon which Defendants base their argument:
In the district court and in its brief on appeal, [plaintiff] attempts to argue that it properly pleaded more enterprises than [the four entities which it had identified in its complaint as the RICO enterprise], and that its complaint should be read to allege as an enterprise any possible combination of the four named enterprises. To support this position, [plaintiff] relies on its allegations in the complaint that the four defendants/enterprises conspired with each other to defraud [plaintiff].
The district court rejected this argument on the ground that a conspiracy to perform the underlying criminal offenses, standing alone, is not sufficient to allege the existence of an enterprise. We’ agree. It is an essential element of the RICO cause of action that the “enterprise” be apart from the underlying pattern of racketeering activity. By limiting its allegations of conspiracy to the underlying offenses, [plaintiff] has affirmatively negated the existence of the third Riccobene factor: an enterprise separate and apart from the pattern of activity in which it engages. By its pleading, [plaintiff] has precluded itself from proving at trial that the four defendants together, or any lesser combination, formed an “enterprise.” Unless the district court allows [plaintiff] to amend its complaint, [plaintiff] will be permitted to establish as enterprises only the four entities it specifically identified as such in its complaint.
Seville,
Defendants’ reliance on this portion of the
Seville
opinion is misplaced for at least two reasons. First, Standard does not attempt, as the plaintiff did in
Seville,
to argue that it properly pleaded more RICO enterprises than the entities which it identified in its pleading as the RICO enterprise. Furthermore, Standard does not, as did the plaintiff in
Seville,
“suggest on the face of the complaint that the enterprise is the same thing as the pattern of racketeering activity— which it cannot be under Seville.”
Klapper,
For the reasons stated in the foregoing, the Court rejects Defendants’ argument that Standard’s RICO claims should be dismissed on the ground that it failed to satisfy the separate existence requirement.
C. Pleading Predicate Acts of Fraud with Specificity
Defendants contend that Standard’s RICO counts should be dismissed on the ground that plaintiff failed to plead the underlying predicate acts of mail and wire fraud with sufficient particularity.
Under RICO section 1961(1)(B), racketeering activity is defined to include any act indictable either under the mail fraud statute, 18 U.S.C. § 1341
10
, or under the wire fraud statute, 18 U.S.C. § 1343
11
. In
In Seville, another civil RICO case where the underlying RICO predicate acts were grounded on allegations of mail and wire fraud in violation of the federal mail and wire fraud statutes, the Third Circuit set forth what even Defendants recognize to be a “liberal standard for applying Rule 9(b) 12 to RICO predicate acts of mailings or wirings....” (D.I. 22 at 18) Specifically, the court held as follows regarding this issue:
We approach this question mindful of our recent admonition that in applying Rule 9(b), “focusing exclusively on its ‘particularity’ language ‘is too narrow an approach and fails to take account of the general simplicity and flexibility contemplated by the rules.’ ” We conclude that the district court subjected [plaintiff’s] allegations of fraud to too s'trict a scrutiny. Rule 9(b) requires plaintiffs to plead with particularity the “circumstances” of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior. It is certainly true that allegations of “date, place or time” fulfill these functions, but nothing in the rule requires them. Plaintiffs are free to use alternative means of injecting precision and some measure of substantiation into their allegations of fraud.-
The Court finds that the Amended Complaint at bar sufficiently “injeet[ed] precision and some measure of substantiation into [Standard’s] allegations of fraud”, thereby satisfying the Rule 9(b) standard as interpreted by the Third Circuit in
Seville.
First, as Defendants apparently concede, Standard alleges with specificity that AS used the telephone two times, once in April 1986 and once in March 1987, purportedly in furtherance of the alleged fraudulent scheme against Standard. (D.I. 1 at ¶¶ 42, 46) Second, Standard alleges that AS caused fraudulent purchase orders to be sent via interstate wire from Standard’s Delaware plant to its executive offices in New Jersey. (D.I. at ¶ 131) Third, Standard alleges that various members of the alleged RICO enterprise had various telephone conversations over interstate telephone lines in connection with the fraudulent contract proposals which were submitted by Defendants to Standard. (D.I. 1 at ¶ 132) Fourth, the Complaint (as well as the Amended Complaint) contains numerous averments indicating that fraudulent contract proposals, fraudulent invoices and fraudulent time sheets were sent by U.S. mail, all allegedly in furtherance of Defendants’ racketeering scheme. (See D.I. 1 at ¶¶ 130, 131, 141, 72, 73) Fifth,' the Complaint (and, likewise, the Amended Complaint)' alleges that both interstate wire facilities and the federal mail service were utilized in defendants’ efforts to fraudulently conceal from and misrepresent to Standard the fact of the Sinibaldi brothers’ ownership interest in Dover, and to conceal Defendants’ role in the chemical spill result
Although Standard has not alleged a substantial number of specific instances when Defendants and Mantas Defendants utilized the federal mail service or interstate wire facilities in furtherance of their alleged fraud scheme, it is obvious to the Court that if Standard’s allegations are true, which must be assumed for present purposes, then clearly the U.S. mail service and interstate wire facilities were substantially utilized to further this elaborate, prolonged scheme. The Court, therefore, rejects Defendants’ contention that Standard failed to allege underlying racketeering acts of fraud with adequate specificity. 14
D. Pattern of Racketeering: Relationship and Continuity
T9] Defendants’ contention that Standard does not allege in its pleadings a pattern of related and continuous predicate racketeering acts similarly must fail. In order to succeed on a civil RICO claim, which requires proof of a pattern of racketeering-activity, the plaintiff “must show that the racketeering acts are related,
and
that they amount to or pose a threat of continued criminal activity.”
H.J. Inc. v. Northwestern Bell Telephone Co.,
Predicate acts are considered related and continuous, combining to produce a pattern of racketeering activity, if they “ ‘have the same or similar purposes, results, participants, victims, or methods of commission, or are otherwise ... interrelated by distinguishing characteristics,’ so as not to be ‘isolated incidents.’ ”
United States v. Grayson,
The averments of the pleading at bar, which must be taken as true for purposes of this motion,
Marshall-Silver Construction Company,
E. RICO Section 1962(a): Injury Resulting from Investment of Income Derived from a Pattern of Racketeering Activity
Defendants contend that Standard’s section 1962(a) 15 claim should be dismissed because “there is no possible scenario under which Plaintiff could plead that its alleged injuries were caused by a ‘use or investment’ of income.” (D.I. 22 at 23) Although Defendants’ sweeping proposition clearly goes too far, the Court agrees that controlling precedent in this circuit requires dismissal of Standard’s section 1962(a) claim.
To sustain a civil RICO claim under any of the subsections of RICO section 1962, the plaintiff must plead and prove that his alleged injury was caused by the violative conduct described in the particular section 1962 subsection upon which he relies. 18 U.S.C. § 1964(c). The Third Circuit has held that in pleading a section 1962(a) claim specifically, the plaintiff must allege an injury that was “caused -by the use or investment of income in the enterprise, rather than by the predicate racketeering acts or pattern.”
Rose v. Bartle,
In an obvious effort to state a section 1962(a) claim comporting with the just-quoted language from Brittingham, Standard sets forth the following allegation in its Amended Complaint:
Defendants’ use or investment of racketeering income, as aforesaid, constituted a substantial factor in the sequence of responsible causation of injuries to Standard’s business or property over a 15-year period of time. Such use of reinvestment did not constitute a normal reinvestment of corporate, profits, in that, among other things, each- successive Company Defendant tvould not have ,been created and, therefore would not have been capable of perpetrating its own forms of fraud against Standard, if income from each earlier fraud against Standard had not been used to underwrite and operate each successive new company involved in the enterprise, causing, Standard to pay each successive member of the enterprise excessive and unnecessary amounts for the various services that Company Defendant purported to provide to Standard. Standard’s injuries, therefore, constituted a reasonably foreseeable or a natural consequence of such use or investment of income.
(D.I. 72 at ¶ 180) (emphasis supplied).
The Court recognizes that Standard has alleged that investment of racketeering in
As discussed above, a plaintiff “who allege[s] injury resulting from defendants’ fraudulent business practices ha[s] not pled a valid section 1962(a) claim.”
Glessner v. Kenny,
Although it appears that investment of racketeering income played a role in some of Standard’s injuries in that it allegedly was a factor in Defendants’ perpetration of additional racketeering acts of fraud against plaintiff, the Amended Complaint nonetheless indicates that “[t]he direct cause of [Standard’s] alleged injuries was the fraudulent conduct.” Id. In the case at bar, the mere investment of racketeering income into the new enterprise members would not have resulted in financial injury to Standard unless these entities were utilized by the enterprise to perpetrate new frauds against plaintiff. Because the Amended Complaint indicates that Standard’s injuries were caused by the alleged racketeering acts themselves, rather than by the mere investment of racketeering income into the enterprise, section 1962(c), not section 1962(a), is the “proper avenue to redress [Standard’s alleged] injuries .... ” Id.
For the foregoing reasons, the Court will dismiss Standard’s section 1962(a) claims.
F. RICO Section 1962(b): Injury Resulting from Acquisition or Maintenance of an Enterprise through a Pattern of Racketeering Activity
Defendants contend that “[sjince the [Amended] Complaint is fatally deficient in failing to plead injuries caused by Defendants’ ‘acquisition or maintenance’ of the enterprise, Count IV [of the Amended Complaint] fails to state a claim under § 1962(b) 16 .” (D.I. 22 at 25)
The Third Circuit has opined that to state a claim “under § 1962(b), a plaintiff must allege a specific nexus between control of a named enterprise and the alleged racketeering activity.”
Kehr Packages, Inc. v. Fidelcor, Inc.,
The Court interprets the above-quoted language from the Third Circuit’s opinion in
Kehr Packages
as requiring a plaintiff claiming a section 1962(b) violation to show that his alleged injury resulted not from underlying racketeering acts committed by the RICO enterprise, which are redressable under section 1962(c), but from the defendant’s acquisition or maintenance of an inter
In the instant case, plaintiffs section 1962(b) claim, according to the Amended Complaint, is grounded on the following allegation:
Defendants’ acquisition or maintenance of an interest in or control over the enterprise constituted a substantial factor in the sequence of responsible causation of injuries to Standard’s business or property,, over a 15-year period, in that, among other things, each of the Company Defendants was enabled to defraud and injure Standard solely by having been acquired by or brought under the control of one or more of the other defendants. Moreover, Standard would have refused to accept services from, and thus would not have been defrauded and injured by, any of the defendants, if it had been informed of the true facts with respect to the ownership and control of each of the Company Defendants. Standard’s injuries, therefore, constituted a reasonably foreseeable or a natural consequence of such acquisition or maintenance of an .interest or control.
(D.I. 72 at ¶ 184) (emphasis supplied). This allegation, like Standard’s pleading in support of its section 1962(a) claim, indicates that plaintiff seeks to recover damages under section 1962(b) for injuries allegedly resulting from predicate racketeering acts of fraud. Although Standard clearly has alleged that Defendants’ acquisition and control of enterprise members allowed the enterprise to further injure plaintiff through additional fraudulent activities, the Court finds that injuries resulting from said underlying racketeering acts cannot serve as a basis for section 1962(b) liability. Rather, these injuries are properly redressed under section 1962(e). “To analyze [Standard’s] failure in this count at any great length would be redundant to [the Court’s] analysis of the failure of [Standard’s section 1962(a) claims].”
Danielsen,
For the reasons stated, the Court will dismiss Standard’s RICO section 1962(b) claims.
G. RICO Section 1962(c): Liability for Conducting an Enterprise’s Affairs through a Pattern of Racketeering
Under section 1962(c), it is unlawful for any “person”
17
employed by or associated with any “enterprise” from conducting or participating in the “conduct of such enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). Defendants seek dismissal of Standard’s section 1962(c) claims because, according to defendants, plaintiff failed to satisfy the so-called “distinctiveness” requirement, first enunciat
The
Enright
distinctiveness requirement originates both from the language of the statute -itself as well as from sound interpretation of legislative purpose. First, “the plain language of [section 1962(c) ] provides that the person must be ‘employed by or associated with’—and therefore separate from—the enterprise.... ”
Brittingham,
[o]ne of the Congressional purposes in enacting RICO was to prevent the takeover of legitimate businesses by criminals and corrupt organizations. It is in keeping with that Congressional scheme to orient section 1962(c) toward punishing the infiltrating criminals rather than the legitimate corporation which might be an innocent victim of the racketeering activity in some circumstances.
In
Brittingham,
the court “clarified the law in this circuit as to the status of claims under section 1962(c) that allege an association in fact among a corporation and its employees, agents, and affiliated entities.”
Glessner,
[A] § 1962(c) enterprise must be more than an association of individuals or entities conducting the normal affairs of a defendant corporation. A corporation must always act through its employees and agents, and any corporate act will be accomplished through an “association” of the individuals or entities. Consequently, the Enright rule would be eviscerated if a plaintiff could successfully plead that the enterprise consists of a defendant corporation in association with employees, agents, or affiliated entities acting on its behalf.
The plaintiffs in
Brittingham
“sued Mobil and Mobil Chemical, rather than the individuals who may have committed the alleged fraud on behalf of these corporations.”
Id.
at 300. The court affirmed the district court’s dismissal of the plaintiffs’ section 1962(c) claims on summary judgment, finding that the advertising agencies, which together with the corporate defendants constituted the alleged association in fact enterprise, “did no more than conduct the normal affairs of the defendant corporations.”
Id.
at 303. The court rejected the plaintiffs’ section 1962(c) claims against Mobil and its subsidiary because,
inter alia,
the alleged association in fact enterpi’ise was no “more than an association of individuals or entities conducting the normal affairs of a defendant corporation.”
See id.
at 301-303. The court indicated that to allow such a claim would “circumvent” the distinctiveness requirement and potentially result in a corporation improperly being- held vicariously liable for the racketeering acts of its employees, agents, affiliates or others acting on its behalf.
See id.
It should be noted that
Brittingham,
as well as
Glessner,
in sharp contrast to the allegations at bar, merely involved “an alleged marketing fraud in which the corporations ... had no separate active roles in the alleged racketeering activity apart from the actions of their agents and affiliates that also comprise part of [the]
Defendants submitted two letter-briefs bringing Brittingham and Glessner to this Court’s attention and setting forth their arguments for dismissal of Standard’s section 1962(c) claims on the basis of these obviously controlling authorities. The following excerpt from Defendants’ second letter-brief essentially summarizes their position:
Plaintiff herein pleads that which Glessner and Brittingham prohibit—an association of companies with their several officers, affiliates or subsidiaries—and seeks to hold these same enterprise members liable as the “persons” who conducted the enterprise’s affairs through alleged racketeering acts. See Complaint ¶ 166 (pleads association in fact of all Defendants). Plaintiff repeatedly alleges throughout the complaint that the interrelated company defendants/enterprise members were “acting in concert with” the individual defendant/enterprise members who were officers of employees of the companies. Under Glessner and Brittingham, Plaintiff would be holding the enterprise liable for conducting the enterprise’s affairs, which is not permitted under § 1962(c).
(D.I. 101 at 3)
Contrary to Defendants’ argument, the issue at bar, in this Court’s view, is not whether the “persons” charged in the Amended Complaint with section 1962(c) violations collectively are non-distinct from the alleged association in fact enterprise composed of those same individuals and entities. 18 Rather, the question here is whether a particular “person” sued under section 1962(c) is distinctive from the “enterprise.” 19 When the issue is framed properly in this manner, it becomes clear that each of the individual defendants and each of the Company Defendants is singularly distinct from the alleged association-in-fact enterprise collectively composed of these individuals and entities. 20
According to the Amended Complaint, MS and AS, two of the three individual defendants, own common stock, including some majority interests, in at least three, but not all, of the nine closely-held corporations named as party defendants. Plaintiff avers that other Company Defendants, including Dover and Delaware Rental are owned by other Defendants. The alleged association-in-fact enterprise, however, includes at least one company, Mantas Painting, which is owned by individual defendant George Mantas and which, according to the Amended Complaint, is not affiliated with any of the other company or individual defendants. Furthermore, it is significant to note that individual defendants AS and MS did not merely act as officers or employees of enterprise members, but instead acted in their dual roles as Standard employees and enterprise associates.' Therefore, the association-in-fact enterprise, as plead in the Amended Complaint, is distinct from any of the particular company or individual defendants. In other words, the alleged enterprise does not “consistí ] of a defendant corporation in association with employees, agents, or affiliated entities acting on its behalf’,
Brittingham,
There are additional grounds upon which the Court finds that Defendants’ position should be rejected. As discussed above, the
Enright
distinctiveness rule arises, at least in part, from the notion that “RICO sanctions [should be] directed at the persons who conduct the racketeering activity, rather than the enterprise through which the activity is conducted.”
Brittingham,
Even assuming that this case involved an association-in-fact enterprise which is nothing more than an association of individuals and entities conducting the affairs of a defendant corporation, which certainly is not the case here, the following passage from the Third Circuit’s recent opinion in
Brittingham,
[^individual defendants, in contrast to collective entities, are generally distinct from the enterprise through which they act. Unlike a collective entity, it is unlikely that an individual by himself would constitute a valid enterprise. Cf. United States v. Benny,786 F.2d 1410 , 1415-16 (9th Cir.) (sole proprietorship with four employees is distinct from defendant owner), cert. denied,479 U.S. 1017 ,107 S.Ct. 668 ,93 L.Ed.2d 720 (1986). Thus, distinctiveness concerns are generally not present when an individual defendant is also part of an association-in-fact that constitutes the enterprise. See, e.g., Jacobson v. Cooper,882 F.2d 717 , 720 (2d Cir.1989) (upholding [section 1962(c) ] claims where individual defendants were named as part of association-in-fact enterprise); United States v. Perholtz,842 F.2d 343 , 353-54 (D.C.Cir.) (same), cert. denied,488 U.S. 821 ,109 S.Ct. 65 ,102 L.Ed.2d 42 (1988).
In the instant case, the Amended Complaint clearly alleges that AS and MS, who are named as defendant “persons” for section 1962(c) purposes, were associated with or employed by various component-members of the association-in-fact-enterprise and that they conducted the enterprise’s affairs through a pattern of racketeering. Furthermore, as Standard has appropriately argued, the fraudulent actions of AS and MS were not performed solely in their capacity as enterprise employees “conduct[ing] the normal affairs of the defendant corporations”,
Brittingham,
There is authority which indicates also that even the corporate defendants named in Standard’s Amended Complaint may be liable under section 1962(c), even if it were assumed that the alleged association-in-fact enterprise was- a mere combination of employees, agents and affiliates acting on behalf of a defendant corporation. The Third Circuit has held that “[wjithout allegations or evidence that the defendant corporation had a .role in the racketeering activity that was distinct from the undertakings of those
acting
on its behalf, the distinctiveness requirement is not satisfied.” Brittingham,
Standard properly contends that in the case at bar, section 1962(c) is an appropriate theory of liability as to some if not all of the named corporate defendants since it is alleged in the Complaint (and the Amended Complaint) that these entities, in addition to being members of the association-in-fact enterprise, played an active and distinct role in the alleged racketeering activity apart from the actions of their employees, affiliates and agents. (See, e.g., D.I. 1 at ¶¶ 54-58, 67-68, 73, 84) Additionally, there are allegations in the Amended Complaint indicating that at least some of these entities sought to benefit from the racketeering activities of their employees and directors. Since Defendants have not even attempted to address these issues, and since the Court is unwilling to sift through the averments of Standard’s lengthy Amended Complaint to determine which, if any, corporate defendants cannot be liable under section 1962(c) on the ground that they did not play an active and distinct role in the alleged racketeering activity apart from the actions of their employees, affiliates and agents, the Court will deny defendants’ motion to dismiss Standard’s section 1962(c) claims.
H. RICO Section 1962(d): Liability for Conspiring to Violate RICO Sections 1962(a), (b) and (c)
Defendants’ only argument in favor of dismissal of Standard’s section 1962(d) claim is that such a claim cannot be sustained in the absence of a viable claim under sections 1962(a), (b) or (c). (D.I. 22 at 29)
22
Since
I. Dismissal of Standard’s RICO Claims Against Defendants AMB, SS & H Realty, SHS Holding, and All-American for Failure to Allege a Pattern of Racketeering Activity on the Part of these Defendants
Defendants contend that dismissal from this action is proper as to a number of the Company Defendants on the ground that “the [Amended] Complaint fails to allege sufficient predicate RICO acts, or even mention any actionable conduct whatsoever, on the part of AMB, SS & H Realty, SHS Holding Corp. and All-American Productions, Inc.” (D.I. 22 at 30) In support of this contention, Defendants correctly posit that “[t]o state a RICO claim against a defendant, the Complaint must plead at least two predicate acts of racketeering activities by that defendant, which amount to a ‘pattern’ of racketeering activity.” (D.I. 22 at 30) (citing 18 U.S.C. § 1962(c);
Jordan v. Berman,
Standard correctly argues, however, that a plaintiff can sustain a section 1962(d) RICO conspiracy claim despite the fact that the defendant did not commit two or more predicate racketeering acts. (D.I. 35 at 45—48) The following excerpt from the Third Circuit’s opinion in
Shearin,
Predicate acts for [RICO] conspiracy do not of necessity consist of section 1961(1) racketeering activity. To the contrary, a conspiracy to commit the other RICO violations may occur absent the actual commission of the other violations or the racketeering activities that underpin them. All that need be shown is that the conspirators agreed to engage in a pattern of racketeering activity. See United States v. Brooklier,685 F.2d 1208 , 1222 (9th Cir.1982). Acts that further a section 1962(d) conspiracy thus may cause harm even when they do not themselves qualify as racketeering activity. Taking into account all the provisions of section 1962, either racketeering activity or classic overt conspiracy acts may qualify as “predicate acts” to a RICO violation that causes injury.
Defendants have not sought dismissal of Standard’s RICO conspiracy claims on any grounds other than the failure to state claims under sections 1962(a), (b) and (c). .See supra at note 10.
Because these Company Defendants may have committed “classic overt conspiracy acts”, which may qualify as underlying predicate acts to a section 1962(d) violation, and because Defendants have not contended nor demonstrated that Standard did not allege sufficient predicate acts of conspiracy as to these parties, dismissal of Standard’s section 1962(d) claims against these Company Defendants will not be granted at this time.
J. Standard’s Punitive Damages Claims
Defendants contend that Standard’s demand for punitive damages must be stricken because, according to Defendants, punitive damages cannot be collected under RICO since the statute specifically provides for treble damages. At least one court in this Circuit has so held.
See Moravian Dev. Corp. v. Dow Chemical Co.,
K. Dismissal of Standard’s State law Claims for Lack of Subject Matter jurisdiction
Defendants seek dismissal of Standard’s state law claims on the ground that the Court should not exercise its discretionary pendent jurisdiction over these claims unless Standard’s RICO claims can withstand Defendants’ motion to dismiss. Because the Court already has determined that some of Standard’s RICO claims cannot be dismissed, at least not at this early stage of the proceedings and on the record as it stands today, the Court will retain jurisdiction over Standard’s state law claims for the time being.
L. Whether Standard’s Negligence Claim is Barred by the Principle of Claims Preclusion
Standard seeks damages from Dover which allegedly resulted from Dover’s negligent repair of one of Standard’s chemical storage tanks, i.e., “Tank 404”. Defendants contend that this claim is barred by principles of res judicata because, according to Defendants, Standard brought a Delaware state court action seeking damages from Dover in connection with the same repair incident.
The parties cite arguably conflicting authorities on the issue of whether the Court is permitted to take judicial notice of the prior state court proceedings, which are not mentioned in Standard’s pleadings, when ruling on a motion to dismiss. Defendants contend that the Court may take judicial notice of the prior action despite the fact that Standard’s pleadings, which of course must be taken as true, do not contain any indication of this prior state court proceeding. (D.I. 22 at 38 (citing,
inter alia, Oneida Motor Freight, Inc. v. United Jersey Bank,
Standard contends that res judicata does not apply here because Dover obtained the prior favorable court judgment by fraudulently concealing from Standard facts indicating that Dover performed the negligent repairs on Tank 404. (D.I. 35 at 56 (citing Restatement (Second) of Jtidgments § 70, comment d (1982)) Since defendants concede, consistent with Standard’s version of the facts, that the state court dismissed Standard’s case against Dover because Standard was unable to prove that Dover had performed any repair's on Tank 404, and because the Amended Complaint clearly alleges that Dover fraudulently concealed the fact that it had actually performed repairs on Tank 404, the Court will not grant Defendants’ motion to dismiss Standard’s negligence claim on res judicata grounds.
M.Standard’s Claim Against MS for Breach of Fiduciary Duty
Defendants contend that “a mere employee does not ordinarily occupy a position of trust and confidence toward his employer.” (D.I. 22 at 40 (citing
Brophy v. Cities Service Co.,
As an initial matter, it must be stated that Defendants’ characterization of MS as “only a maintenance employee” misconstrues the averments of the Amended Complaint as to MS’s actual level of responsibility and discretion while he was employed by Standard as a Plant Engineer and Manager of the Plant’s Maintenance Department. Furthermore, Defendants have construed Delaware law too narrowly on the issue of when an employee can be liable for breach of a fiduciary duty.
In
Brophy,
Standard contends that MS acted—not as a mere employee—but as an agent for Standard when he dealt with outside companies such as Dover and Mantas Painting. Standard also contends that whether an employee owes a fiduciary duty to his employer turns on the application of the law of agency and trust to the particular facts as well as to the employee’s particular duties, responsibilities and actions.
Cf. Science Accessories Corp. v. Summagraphics Corp.,
N. Standard’s Demands for Unjust Enrichment, Constructive Trust and an Accounting
Defendants move for dismissal of Standard’s unjust enrichment claims as well as its demands for the equitable remedies of constructive trust and an accounting. As to Standard’s request for imposition of a constructive trust, Defendants argue that this remedy is only “used to recover specific, identifiable property which rightfully belongs to the plaintiff, but is in the possession of the defendant; thus, the defendant is deemed to hold the property in trust for the plaintiff.” (D.I. 22 at 41-42 (emphasis in original) (citing
Woodock v. Neel,
Civ. Action. No. 11409,
Defendants’ interpretation of Delaware caselaw on the equitable remedy of constructive trust is not entirely accurate. Athough a constructive trust typically is imposed when the defendant wrongfully obtained specific property or identifiable proceeds of specific property from the plaintiff, this equitable remedy also can be applied to the recovery of money when the right asserted by the plaintiff is distinctly equitable in nature, including a right arising from breach of a fiduciary duty.
See McMahon v. New Castle Associates,
Standard alleges that “AS and MS used their positions of trust and confidence [with respect to Standard], as well as confidential business information and other property of Standard, in order to induce Standard to enter into numerous contracts with and pay substantial sums of money to the Company Defendants and others.” (D.I. 72 at
As to Standard’s demand for an accounting of all profits obtained by Defendants and Mantas Defendants in connection with AS’s and MS’s alleged abuse of their fiduciary duty to Standard, Defendants’ move for dismissal on the ground that an “accounting is.not an available remedy in commercial disputes between non-fiduciaries.” (D.I. 22 at 43) Defendants contend also that since Standard’s “only possible claims against defendants arise from contract,” Standard is not entitled to an accounting remedy under Delaware law.
Defendants’ position must fail because (1) this case is not merely a “eommercial[ ] dispute between non-fiduciaries”; (2) it is not true that Standard’s “only possible claims against defendants arise from contract”; (3) Standard asserts that AS and MS “owed a fiduciary duty to Standard” and that Defendants wrongfully obtained “secret profits” at plaintiffs expense as a result of the Sinibaldi brothers’ alleged breach of their fiduciary duty; and (4) the Court can compel an accounting where a fiduciary relationship exists between the parties.
See Ibach v. Dolle’s Candyland, Inc.,
Civ. Action no. 1425,
Defendants offer two arguments in support of their position that Standard’s unjust enrichment claims should be dismissed. First, Defendants contend that Standard’s unjust enrichment claim is “a contract claim in disguise” and further contend that “[w]here [a] claim is based on contract, [the] equitable remedy of unjust enrichment is not available.” (D.I. 22 at 42) In support of its unjust enrichment claims, Standard alleges that Defendants improperly obtained substantial benefits from Standard by virtue of numerous mistakes of fact on the part of Standard, which, according to Standard’s allegations, were knowingly caused by defendants. (See D.I. 72 at ¶ 213) The Amended Complaint indicates, therefore, that plaintiffs unjust enrichment demands are not necessarily “contract claim[s] in disguise.” Accordingly, the Court will allow Standard to proceed with its unjust enrichment claim for the time being.
Defendants second argument is that Standard has not alleged, with sufficient particularity, the specific facts underlying its claim that Defendants were unjustly enriched because of Standard’s mistake or fraudulently induced payments to Defendants. The Court firmly disagrees. As discussed in some detail above, Standard sets forth with considerable specificity the manner in which Defendants allegedly were unjustly enriched at Standard’s expense as a result of Standard’s mistaken or fraudulently induced payments to Defendants.
For these reasons, the Court will deny Defendants’ motion to dismiss Standard’s demands for unjust enrichment, imposition of a constructive trust and an accounting.
III. Standard’s Motion for Entry of a Confidentiality Order
Standard and Defendants are in dispute over the precise terms of an appropriate confidentiality stipulation and order for this case. The issue of confidentiality first arose in this litigation when counsel for the- First Complaint defendants contacted plaintiffs counsel in writing and proposed a confidentiality stipulation and order (hereafter “the confidentiality stipulation” or “the stipulation”). (See D.I. 66, Exhibit H) First Complaint defendants’ counsel stated in his letter to Standard’s counsel that a confidentiality stipulation “is justified under the circumstances of this case.” (See D.I. 66, Exhibit H) Unfortunately, the parties since that time have been unable to reach an agreement regarding the precise terms of the stipulation.
Both Standard and Defendants agree in principle that a confidentiality stipulation and order is proper in this case. Although Defendants oppose Standard’s instant motion, they have indicated in their answering brief
First, Defendants seek to modify their proposed confidentiality stipulation such that “[p]leadings, motions and applications filed with the court” which contain discovery information designated as confidential would not be “subject to the confidential treatment provided for [in the confidentiality stipulation]”. (See D.I. 62, Exhibit K) Under defendants’ proposed stipulation, said “pleadings, motions and applications” would not have to be filed under seal. (See D.I. 62, Exhibit K) This modification would make the confidentiality stipulation worthless and hollow since confidential information discovered in this litigation then could be disclosed simply by including it in a “pleading, motion or application” filed with this Court. Accordingly, the Court rejects defendants’ argument that any confidentiality stipulation or order entered in this case must contain such a provision.
Second, Defendants seek to modify their proposed confidentiality stipulation so that “[n]othing in [the stipulation] restricts the use of information related to tax law violations or other 'inappropriate or fraudulent conduct.” (D.I. 62, Exhibit K) Given the course of this litigation thus far and the uncooperative and contentious nature of the parties to this action, the Court predicts that many disputes would arise between the parties as to whether a particular piece of information may be disclosed on the ground that it relates to some form of “inappropriate or fraudulent conduct” on the part of an opposing party. Furthermore, this proposal would render the confidentiality stipulation essentially meaningless since any discovery information designated as confidential could be revealed whenever the would-be disclosing party determines that the information relates to any form of “inappropriate or fraudulent conduct” on the part of another. The Court, therefore, rejects defendants’ contention that any confidentiality order entered in this case should include such language.
The remainder of Defendants’ argument in opposition to Standard’s motion for entry of a confidentiality order primarily concerns issues regarding whether particular information is properly designated as “confidential”. It appears to the Court that various types of business and financial information already discovered in this litigation should be'given confidential treatment.
See, e.g., Zenith Radio Corp. v. Matsushita Elec. Indus. Co.,
There are a number of different methods by which the Court can effectively manage this confidentiality dispute. One method is to require a party to move for a protective order each time it believes that confidentiality treatment is appropriate in this action. This approach is extremely inefficient and burdensome to the Court because it will require extensive and repeated judicial intervention. Another method is for the Court to enter an “umbrella” protective order providing a mechanism by which any party may designate discovery matters as confidential under the proper circumstances. This approach.would allow for objection to any confidentiality designation and would provide for judicial intervention only if the parties were unable to resolve the matter independently. The Court finds that under all the. circumstances of this case, such, an “umbrella” -confidentiality order would best serve the interests of just, prompt and efficient resolution of this complex action. Accordingly, the Court is inclined to exercise its discretion to enter an “umbrella” protective order by which either party can designate information discovered in this litigation as
Defendants have stated that if the Court decides to enter a confidentiality order in this case, then any such order “should make clear that the burden is on the party seeking confidentiality to file a Motion for a Protective Order which must show good cause for such a designation as required by the Federal Rules of Civil Procedure and the law of this Circuit.” (D.I. 64, Answering Brief at 20 (citing
Republic of Philippines v. Westinghouse Elec. Corp.,
The protective order proposed by Standard, however, requires the
objecting
party to “apply to the Court for a ruling that the document or testimony shall not be considered ‘Confidential.’ ” (D.I. 62, Exhibit A at 3) The Court finds this procedure to be unacceptable in the instant case. Additionally, the Court finds that under an appropriate confidentiality stipulation and order for this action, a party may designate discovery material as “confidential” “‘only upon a good faith belief that the material is entitled to' protection under the Federal Rules of Civil Procedure.’ ”
See Republic of Philippines,
Hence, although Standard’s proposed confidentiality order appears to be reasonable and proper in all other respects, Standard’s proposed order nonetheless is unacceptable since it does not include these provisions. Accordingly, the Court will deny Standard’s motion without prejudice to renew and will allow the parties an additional opportunity to enter into a confidentiality stipulation and order consistent with this Opinion. If the parties are unable to reach such an agreement within fifteen days after the issuance of this Opinion, then the Court will entertain a renewed motion by Standard for entry of a confidentiality order. 23
IV. Motions to Compel Production of Documents
Standard and Defendants both filed motions to compel document production by the other. The record indicates that document production and other discovery in this case is at an impasse, largely because of the parties’ failure to cooperate and engage in proper discovery procedures—without judicial intervention.
A. Standard’s Motion to Compel
Standard moves to compel Defendants’ compliance with its document production requests on the ground that its requests concern relevant matters and are within the permissible scope of discovery. In addition, Standard asserts that Defendants improperly conditioned their compliance with plaintiffs document requests on Standard’s “good faith production of documents responsive to [Defendants’] requests.” (D.I. 69, Exhibit D)
Standard sufficiently detailed the relevance of its various document requests and demonstrated to this Court’s satisfaction that these requests are well within the permissible scope of discovery. (See D.I. 69 at 3-5) Significantly, Defendants have not suggested in their motion papers nor at oral argument on this matter that Standard’s motion to compel should be denied on relevancy grounds or on other grounds related to the proper scope of discovery. (See D.I. 67; D.I. 70; D.I. 79 at 61-75)
Rather, Defendants have steadfastly maintained, both during discovery negotiations and in their motion papers filed with this Court, that they “agree[ ] to produce virtually all documents in their possession
subject to [Standard’s] good faith production of the documents requested by Defendants."
(D.I. 70 at 5 (emphasis supplied)) Other than this misplaced conditional offer to comply with Standard’s discovery requests, which obviously does not provide a sound legal basis for opposing Standard’s motion to compel, and
Since Standard’s document requests seek to discover clearly relevant matters, and since Defendants offer no sound legal basis for their non-compliance with Standard’s document requests or for denial of Standard’s motion to compel, the Court will grant Standard’s motion.
B. Defendants’ Motion to Compel
Standard has represented to the Court that it is willing to comply substantially with Defendants’ document requests. (D.I. 79 at 62; D.I. 68 at 3) As to thirteen particular document requests, however, Standard vigorously objects to production because, according to Standard, “they are extremely broad and burdensome and are not justified under the [federal] rules [of Civil Procedure].” (D.I. 68 at 4) Because Standard agrees to comply wdth many of Defendants’ discovery demands, the Court will grant in part, i.e., only as to the document requests other than the thirteen opposed requests, Defendants’ motion to compel.
As to the remaining thirteen document requests, the Court agrees with Standard that many of these requests are extremely broad and excessively burdensome, and are not proper even under today’s liberal discovery rules. For example, Defendants’ document request No. 1 seeks “[a]ll documents relating to any agreements, loans, purchases, sales, transfers, commissions, transactions, contracts, deals, financing or any other professional or business relationship by and between [plaintiff] and [its parent company,] Standard Chlorine Company.” (D.I. 68 at 4) Similarly, request No. 26 seeks “[ajll sales invoices, purchases invoices, or documents relating to operating expenses of Standard.” (D.I. 68 at 5)
Defendants, the parties moving to compel discovery of these documents, have failed to fulfill their burden of showing the permissibility and relevance of these extremely broad discovery requests. Although it is true, as Defendants contend, that Standard’s allegations against Defendants are wide-ranging and cover a lengthy period, clearly Defendants’ overly-broad document requests are not justified thereby. Accordingly, the Court will deny (without prejudice to renew) Defendants’ motion to compel Standard’s compliance with their document request Nos. 1, 2, 3, 6, 10, 15, 16, 22, 24, 25, 26, 27 and 28. The Court will thus afford the parties an additional opportunity to resolve, without judicial intervention, the proper scope of these particular thirteen document requests.
V. Defendants’, George Mantakounis and Mantas Painting, Motion to Dismiss Standard’s Amended Complaint
Defendants, George Mantakounis and Mantas Painting (collectively referred to herein as “the Mantas Defendants”), move to dismiss the Amended Complaint as to them on the following grounds: (1) Standard violated this Court’s Rule 16 Scheduling Order in connection with its joinder of the Mantas defendants to this action with the filing of its Amended Complaint on May 29, 1992; (2) Standard failed to comply with Rule 15(a) in its efforts to add the Mantas Defendants as party-defendants to this ease; (3) lack of subject matter jurisdiction; (4) lack of personal jurisdiction; (5) failure to join an indispensable party under Rule 12(b)(7), (6) the Amended complaint is “vague and ambiguous” entitling the Mantas Defendants to a more definite statement under rule 12(e); and (7) the Amended Complaint fails to state a claim upon which relief can be granted against George Mantakounis. 24
Mantas Defendants correctly state that “[ujnder Rule 15 a party may amend the party’s pleading once as a matter of course at any time before a responsive pleading is served.” (D.I. 84 at 26) 25 They then assert, however, that since the original Complaint did not name the Mantas Defendants as parties, “no responsive pleading was required as to [them].” (D.I. 84 at 26-27) Mantas Defendants conclude that the portion of Rule 15 giving a party the right to amend its pleading as a matter of right any time prior to the filing of a responsive pleading is, therefore, “of no avail to the Plaintiff.” (D.I. 84 at 27)
Standard responds that it was permitted under Rule 15(a) to file an amended pleading on May 29, 1992 because the only response to the original Complaint was a motion to dismiss. (D.I. 88 at 8) It is settled that a motion to dismiss is not deemed a “responsive pleading” for Rule 15(a) purposes.
See, e.g. Centifanti v. Nix,
Furthermore, in the instant case, as in the above-cited cases where this Court addressed the issue at hand, even if plaintiff could not properly join the Mantas Defendants in this manner, the Court would exercise its discretion and allow joinder of these parties pursuant to Rule 15. Leave is “freely granted” under the federal rules unless the non-moving party can demonstrate that unfair prejudice will result if the amendment is permitted.
See, e.g., Sturgess v. Negley,
(1) in the absence of ... Romano complete relief cannot be accorded among those already parties to this action ...; Land! (2) ... that the disposition of the action without the estate ... as [a party] [defendant herein would impair [Mantas Defendants’] ability to protect [their] interest[s] and would expose [them] ... to a substantial risk of having to incur additional ... financial burdens on any [potential] judgment rendered in this matter. In short, the [Mantas Defendants] could possibly be saddled with additional financial obligations which should have been shared in whole or in part by ... Romano____”
(D.I. 84 at 38-39)
Standard responds that a defendant’s right to contribution or indemnity from an absent party who may be jointly liable to the plaintiff does not render the absentee an indispensable party under Rule 19. (D.I. 88 at 14 (citing authorities))
27
The Court agrees.
See, e.g., Gold v. Johns-Man-mile Sales Corp,
Mantas Defendants contend also that the claims against Mantakounis should be dismissed for failure to state a claim upon which relief can be granted. This argument is grounded on Mantas Defendants’ overly narrow reading of the Amended Complaint. In particular, Mantas Defendants assert, quite inaccurately, that the “Amended Complaint fails to allege or set forth any specific ... actions that ... Mantakounis ... personally engaged in or performed ... in the alleged scheme to defraud ... [Standard].” (D.I. 84 at 44)
According to the Amended Complaint, Mantakounis is the owner of Mantas Painting. (D.I. 72 at ¶¶ 15, 152) It is averred that Mantas Painting performed painting work for Standard on a legitimate basis prior to the alleged participation of Mantas Painting and Mantakounis in the scheme to defraud Standard. The Amended Complaint indicates that said participation took the form of a “kickback” scheme whereby AS and MS awarded business to Mantas Painting and allowed Mantas to overcharge Standard for its work in exchange for payments by Mantas Painting and Mantakounis to AS and MS as well as their families. (See D.I. 72 at ¶¶ 152-158) It is further alleged that these alleged kickbacks, which were paid an
Contrary to Mantas Defendants’ reading of Standard’s Amended Complaint, it is clear that many of the averments of fact contained in the Amended Complaint regarding the above-described Mantas branch of the alleged fraud scheme are directed both against Mantas Painting and against Mantakounis himself. (See, e.g., D.I. 72 at ¶¶ 140, 157, 165) Hence, Mantakounis’ assertion that the Amended Complaint should be dismissed as to him for failure to allege specific facts against him is without merit.
For the reasons stated, the Court will deny Mantas Defendants’ motion to dismiss the Amended Complaint.
VI. The Mantas Defendants’ Motion for a Protective Order
Mantas Defendants move for entry of a protective order staying discovery in this action as to them. (D.I. 94) Mantas Defendants contend that discovery should not proceed at this stage of the action because, if the pursuant to their motion to dismiss, Mantas Defendants “are dismissed by the court as parties, then the Plaintiff would not be entitled to discovery from said Defendants.” (D.I. 95 at 10) Mantas Defendants also appear to contend that they are entitled to entry of a protective order on the ground that Standard’s discovery request is “an extremely burdensome, comprehensive, and detailed Request for Production of documents which will entail significant 'legal and accounting expenses to complete.” (D.I. 95 at 4)
Defendants’ argument that they are entitled to a protective order staying discovery as to them during the pendency of their motion to dismiss is without merit. This Court recently confronted a similar request and resolved the issue as follows:
Defendant’s argument assumes that the moment it has .filed a motion to stay discovery on the damages, issue, it need no longer obey basic discovery rules. Defendant is in effect granting itself a stay of discovery. Simple logic teaches that defendant has put the presumption on the wrong side: unless and until it is granted a stay, defendant should be required to conduct discovery as if no motion had been filed at all.
Willemijn Houdstermaatschaapij BV v. Apollo Computer, Inc.,
‘[40] Standard’s discovery request was served oh Mantas Defendants on June 24, 1992. Mantas Defendants failed to respond to said request until oh or around September 28, 1992, when they filed their motion fór a protective order. Defendants’ failure to provide a proper and timely response to Standard’s discovery request constitutes a waiver of any and all objections to said request.
See, e.g., Daumer v. Allstate Ins. Co.,
Civ. No. 91-7570,
In any event, Mantas Defendants’ contention that they are entitled to entry of a protective order because Standard’s discovery request is “an extremely burdensome, comprehensive, and detailed Request for Production of documents which will entail significant legal and accounting expenses to complete” (D.I. 95 at 4) is not a proper basis for refusing to comply with Standard’s appropriate document request. Mantas Defendants accordingly will be ordered to respond fully and promptly (within thirty days) to Standard’s discovery requests.
VII. Wilmington Trust Company’s Non-Party Motion for a Protective Order
Standard served a subpoena duces tecum on non-party Wilmington Trust Company requesting production of bank records and financial statements concerning the party-defendants named in Standard’s original Complaint. This request covered documents and records for the last fifteen years. Wilmington Trust staff, seeking to comply with the subpoena, retrieved approximately . 2,500 pages of documents. (D.I. 63, Exhibit B at ¶ 3) It is alleged that bank staff “spent 56 hours collecting the information described by the Subpoena.” (D.I. 63, Exhibit B at ¶ 4) Wilmington Trust allowed counsel for Standard to review the documents, but the parties have reached an impasse over who should bear the costs associated with this document request.
As a result of this dispute, Wilmington Trust has refused to provide Standard with copies of the 2,500 pages of documents without receiving payment for its expenses. Wilmington Trust seeks payment in the amount of $4.00 per page for copies of these documents, which is the fee the bank normally charges its customers for copies of their own bank records. Standard offered to pay $.20 per page for document copies, but Wilmington Trust declined the offer. Wilmington Trust filed the instant motion for a protective order in an effort to resolve this controversy.
Both Standard and Wilmington Trust agree that Rule 45 of the Federal Rules of Civil Procedure, which governs the use of subpoenas in civil litigation, controls here. Rule 45 recently was amended, although neither party addressed whether the amendments, which are substantial, are applicable to' the instant motion. This parties have overlooked a significant issue since the new Rule 45 includes a provision, paragraph (2)(B) of subdivision (c), which states in part that “an order to compel production shall protect any person who is not a party ... from significant expense resulting from the inspection and copying commanded.”
The amendments to Rule 45 became effective as of December 1, 1991, subsequent to the issuance of the present subpoena. The controversy now under consideration and the motion papers filed with respect thereto, however, arose after the amendments became effective. Another district court considered a factually similar situation and concluded the following:
Although the present subpoena was issued before the [new] Rule [45] became effective on December 1, 1991, this motion was filed after that date. The implementing order for the 1991 amendments to the Rules states that they “shall govern all proceedings in civil actions thereafter commenced and, insofar as just and practicable, all proceedings in civil actions thenpending.” Supreme Court Order of April 30, 1991. Thus, no matter which date is taken as the commencement of this litigation, new Rule 45(c) should apply. Accordingly, any order requiring [the non-party subject to this subpoena] to comply with the subpoena must also require that [the non-party] ... be “protected from significant expense” in producing the requested documents.
In re Exxon Valdez,
Misc. Action No. 92-98,
The previous version of Rule 45 “gave district courts discretion to condition the enforcement of subpoenas on the [serving party’s] paying for the [non-party’s] costs of production.”
In re Exxon Valdez, supra,
The Court is fully aware that the documents which will be ordered produced, as indicated by the present record, are very numerous and the period covered extends over an inordinate number of years. The Court is also aware that the search and production of the broad category of documents will be time-consuming and expensive for DuPont which is not party to the Florida litigation. The Court, therefore, will- order that the search begin immediately, that the production be made weekly as the documents are collected, and that petitioners will be required to reimburse DuPont’s reasonable expenses for the search and production.
In resolving this issue under the former version of Rule 45, “courts generally review such factors as 1) the scope of the discovery; 2) the depth of the invasion involved in the request; 3) the extent to which the producing party must separate responsive information from privileged or even irrelevant material; and, 4) the reasonableness of the expenses involved in making the production.”
Onan Corp. v. GLT Industries,
No. 87 C 5592,
The Ninth Circuit explained the underpinnings of the discretionary rule which allows district courts to award non-parties production costs incurred in responding to a sub
Although party witnesses must generally bear the burden of discovery costs, the rationale for the general rule is inapplicable where the discovery demands are made on nonparties. Nonparty witnesses are powerless to control the scope of litigation and discovery, and should not be forced to subsidize an unreasonable share of the costs of litigation to which they are not a party. Although we decline to curtail district courts’ discretion over the discovery process by adopting formal guidelines favoring nonparty reimbursement ..., we nevertheless emphasize that a witness’s nonparty status is an important factor to be considered in determining whether to allocate discovery costs on the demanding or the producing party.
Columbia,
The Court thus finds that even under the prior unamended version of Rule 45, it is within this Court’s discretion to deny Wilmington Trust’s motion for a protective order,
32
and to order its compliance with the instant subpoena conditioned on Standard’s payment of reasonable production costs to the bank.
See, e.g., Onan Corp.,
Assuming in the alternative that the new Rule 45 applies, the Court nonetheless finds that it has discretion (or perhaps an obligation) to order Wilmington Trust’s compliance with the subpoena so long as Standard reimburses the bank for its reasonable production costs.
See In re Letters Rogatory Issued by Nat. Court of First Instance in Commercial Matters etc.,
As noted above, new Rule 45 contains a provision under which an order to compel document production by a non-party must “protect” the non-party “from significant expense resulting from the inspection and copying commanded.” Fed.R.Civ.P. 45(e)(2)(B). Significantly, the Advisory Committee Notes on the 1991 Amendments to Rule 45 state as follows with respect to an order which responds to a non-party motion to quash or modify a subpoena duces tecum: “Subparagraph (c)(3)(B) identifies circumstances in
Paragraph (2)(B) of subdivision (c) is the provision that explicitly requires the court, when it compels a nonparty to produce documents or other tangible things, to protect that person from ‘significant expense’ incurred in carrying out the direction. In its notes on paragraph (3)(B), the committee again calls attention to that situation, explicitly referring to paragraph (2)(B)— inadvertently identifying it as in subdivision (b) instead of subdivision (c)—and thus highlighting once again the committee’s concern, and perhaps even preoccupation, with protecting nonparties from undue expense connected with carrying out a subpoena duces tecum.
Accordingly, as indicated above, the Court finds that under the amended Rule 45, which presently is in effect, Wilmington Trust cannot be compelled by court order to comply with the subpoena at issue here unless the Court ensures that the non-party bank is “protected from significant expense” in producing the required documents.
Although the Court finds that the amount sought by Wilmington Trust, i.e., $4.00 per copy, the copying fee the bank charges to its customers, apparently at a profit to the bank, is unreasonable, the Court will order Standard to pay the bank $.50 per copy, which is the amount the District of Delaware clerk’s office charges for copying of documents. 34 It is unclear whether the “56 hours [spent by bank staff] collecting the information described by the Subpoena” (D.I. 63, Exhibit B at ¶ 4) includes time spent in making copies of the 2,500 pages of documents. For the reasons discussed at length in the foregoing, it appears, however, that the non-party bank is entitled to reimbursement of all reasonable charges incurred in both producing and copying these documents.
In order to resolve this matter promptly, the Court will order Wilmington Trust to comply with the subpoena by providing Standard with the requested 2,500 pages of documents. The Order, however, will be conditioned on Standard’s prepayment to Wilmington Trust of $1,750, an amount which the Court finds, on the record as it stands today, to be reasonable reimbursement for the bank’s production and copying costs.
VIII. Conclusion
For the reasons stated above, the Court will deny as moot the following motions and applications: (1) Defendants’ motion to dismiss (D.I. 18) the original Complaint; (2) Defendants’ application for oral argument (D.I. 40) on its motion to dismiss; and (3) AS’s motion to compel (D.I. 31) Standard’s production of certain insurance policies.
Consistent with the foregoing discussion, the Court will grant in part and deny in part Defendants’ motion to dismiss (D.I. 75) the Amended Complaint. The' Court will grant Defendants’ motion to dismiss the Amended Complaint as to Standard’s RICO section 1962(a) and section 1962(b) claims. The Court also will grant Defendants’ motion as to Standard’s section 1962(c) claims against Company Defendants AMB, SS & H Realty, SHS Holding and All-American. As to Standard’s remaining claims against Defendants, their motion to dismiss will be denied.
The Court will deny Mantas Defendants’ motions to dismiss (D.I. 83 and D.I. 85) the Amended Complaint and also will deny Mantas Defendants’ motion for a protective order (D.I. 94) because, as discussed above, the
The Court will deny Standard’s motion for entry of a confidentiality order (D.I. 62) with leave to renew without prejudice, thereby affording the parties an additional opportunity to enter into a confidentiality stipulation comporting with the Court’s findings and recommendations discussed in this Opinion.
The Court will grant in full Standard’s motion to compel (D.I. 69) Defendants’ compliance with its requests for production of documents. The Court will grant in part and deny in part Defendants’ motion to compel (D.I. 67) Standard’s compliance with its document requests. Specifically, the Court will grant Defendants’ motion to compel except as to Defendants’ document request Nos. 1, 2, 3, 6, 10, 15, 16, 22, 24, 25, 26, 27 and 28. As to these requests, the Court will deny Defendants’ motion without prejudice to renew, thereby affording the parties an opportunity to negotiate in good faith the proper scope of these discovery requests.
Finally, as to non-party Wilmington Trust’s motion for a protective order (D.I. 63) (which the Court has treated as a motion to quash or modify the subpoena duces tecum served on the bank by Standard), the Court will deny the motion and will order Wilmington Trust to comply with Standard’s document request by providing plaintiff with the requested 2,500 pages of bank documents. This order will be conditioned, however, on Standard’s prepayment to Wilmington Trust of $1,750, an amount which the Coui't finds to be reasonable reimbursement for the bank’s significant production and copying expenses that it allegedly incurred in its efforts to comply with the subpoena.
An Order consistent with this Opinion shall issue.
Notes
. Standard alleges that AS and MS have ownership interests in a number of the company defendants and also alleges that some of the company defendants are owned wholly or party by other company defendants.
. The Court is aware that Dover has filed a petition in the United States Bankruptcy Court for the District of Delaware, No. 92-1541, under Chapter 7 of Title 11 of the United States Code. (Sec D.I. 99) Accordingly, the continuation of this action against Dover is automatically stayed pursuant to section 362 of the Bankruptcy Code. The Court issued an Order (D.I. 100) requesting the parties’ views on the effect of the automatic stay on the motions presently pending in this case. . The parties' responses to the Order indicate that they believe the Court can resolve all pending motions notwithstanding the automatic stay as to Dover. (Sec D.I. 100, D.I. 101)
. The Court herein will refer collectively to these companies as the "Company Defendants”. Similarly, the Court will refer to AS and MS, together with the Company Defendants, collectively as "Defendants”.
. The Court herein will refer collectively to Mantakounis and Mantas as "the Mantas Defendants”. It should be noted that, according to the Amended complaint, Mantakounis is the owner of Mantas Painting.
. This discussion is intended to provide only a brief summary of some of Standard's allegations and claims against the defendants to this action. The Court will discuss additional factual allegations supplied by Standard’s pleadings as needed below.
. Defendants filed an applieation for oral argument on their motion to dismiss the original Complaint. (D.I. 40) Since the Court already held oral argument on said motion on June 18, 1992, Defendants’ application will be denied as moot.
. As indicated above, Standard has filed an Amended Complaint, (D.I. 72). It appears that Standard amended its original pleading primarily to add new parties, although some additional averments of fact and claims also were included in the Amended Complaint. When defendants moved to dismiss the Complaint pursuant to Rule 12(b)(6) and when the parties briefed this motion, Standard had not yet filed its Amended Complaint. Since the allegations of the Complaint appear to be fully incorporated into the Amended Complaint, and since the parties refer to Standard’s initial Complaint throughout their briefs, the Court
sometimes
will refer to Stan
. An "enterprise” is broadly defined under RICO 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."
18 U.S.C. § 1961(4) (emphasis supplied). Under this definition, a RICO enterprise may include "virtually any
de facto
or
de jure
association.”
Seville Indus. Machinery Corp. v. Southmost Machinery Corp.,
. According to defendants' own brief, "Standard pleads an 'association in fact' of two individuals, [AS] and [MS], and certain corporations some of which AS and MS had some interest in and some of which they did not.” (D.I. 22 at 2)
. The mail fraud statute provides, in relevant part:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations or promises ..., for the purpose of executing such scheme or artifice or attempting to do so, ... knowingly causes to be delivered by mail ac-. cording to the direction thereon ... any . such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years, or both.
18 U.S.C. § 1341.
. It is provided under the wire fraud statute, in relevant part, that:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire ... communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $1,000 or imprisoned not more than five years, or both.
18 U.S.C. § 1343.
. Rule 9(b) of the Federal Rules of Civil Procedure provides in relevant part: "In all averments of fraud ..., the circumstances constituting fraud ... shall be stated with particularity.”
. This discussion is not intended to be inclusive of all such allegations contained in the Complaint or the Amended Complaint.
. For these same reasons, the Court also rejects Defendants' argument that Standard's common law fraud claims must be dismissed for failure to plead fraud with sufficient particularity. (See D.I. 22 at 35-36)
. Under Section 1962(a), it is "unlawful for any person who has received any income derived, directly or indirectly,' from a pattern of racketeering activity .., to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged' in, or the activities of which affect, interstate of foreign commerce.”
. Under section 1962(b), it is "unlawful for any person through a pattern of racketeering activity ... to acquire or maintain, directly or indirectly, any interest or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.”
. '‘Person” is defined as "any individual or entity capable of holding a legal or beneficial interest in property.” 18 U.S.C. § 1961(4).
. If this were the question raised here, then it would be resolved against Standard because plaintiff clearly alleges in its Amended Complaint that .“the association in fact of all defendants constitutes [the RICO] 'enterprise,' " D.I. 72 at ¶ 173, and further alleges that all "defendants are jointly and severally liable” for their alleged section 1962(c) violations, D.I. 72 at ¶ 177.
. Both
Brittingham, see
.According to Defendants' own brief, "Standard pleads, an 'association in fact' of two individuals, [AS] and [MS], and certain corporations some of which AS and MS had some interest in and some of which they did not." (D.I. 22 at 2) (emphasis supplied)
. In
Glessner,
the Third Circuit rejected a similar contention, namely, that the individual party-defendants to that action might be distinct from the alleged association in fact enterprise, based on its finding,
inter alia,
that the individual defendants’ "activity [was] indistinguishable from that alleged as to the corporations....”
. Defendants have attempted to set forth a new argument supporting dismissal of this claim in a letter brief submitted to the Court on or around February 24, 1992. Specifically, defendants contend that Standard failed to satisfy the pleading requirements
purportedly
set forth by the Third Circuit in Glessner,
. Obviously the Court would be inclined to grant such a motion if the proposed protective order accompanying the motion contains the two requirements discussed here.
. The Mantas defendants further request "that the Court ... award reasonable attorneys fees and costs for the preparation of the Motion to Dismiss, this Brief, and any arguments scheduled by the Court on same....” (D.I. 86 at 45; D.I. 84 at 48) The Mantas defendants present no authority or grounds whatsoever for this extraordinary relief. It is curious that such a request was made because, as the Court will discuss herein, many, if not all, of the Mantas defendants' contentions and assertions raised at bar are meritless or, arguably, even frivolous. Clearly the request for attorneys fees, without even attempting to assert a basis in law or fact for this relief, is frivolous. This request accordingly is denied. Although it does not appear that Stan
. The motion papers filed on behalf of Mantakounis and Mantas Painting are, with few exceptions, verbatim copies of one another. Since the briefs filed for Mantakounis include all arguments raised in Mantas Painting's briefs, as well as one additional argument, the Court generally will make docket' item references to Mantakounis' briefs only.
. Mantas defendants’ subject matter jurisdiction and personal jurisdiction arguments are based entirely on Standard's purported failure to comply with the Court’s Rule 16 Scheduling Order
. Mantas defendants have not even attempted to cite any contrary authority nor have they attempted in any meaningful way to distinguish the cases cited by Standard from the case at bar. Defendants also have not cited any authorities indicating that a party is indispensable under Rule 19 if it may be jointly liable to the plaintiff or because the existing defendants may have contribution or indemnification claims against the absent party.
. Defendants properly contend that even if the ' estate were an indispensable party, Rule 19(a) requires merely that the party "shall be joined.” Mantas Defendants maintain that Romano's joinder in this action "would not deprive the Court of jurisdiction over the subject matter of this action.” (D.I. 84 at 39) They also assert that the Court would have personal jurisdiction over Romano. (D.I. 84 at 39) Accordingly, even assuming Romano were an indispensable party, it appears that joinder of Romano—not dismissal of Standard’s action—would be the appropriate remedy for this Rule 19 problem. It is curious to note in this regard that Mantas Defendants, despite their apparent insistence that they have valid third-party claims against Romano for contribution or indemnification and notwithstanding their explicit contention that Romano is an indispensable party to this litigation, inexplicably have not moved for leave to join Romano.
. This brief summary of Standard's claims against the Mantas defendants should make it obvious that the Court rejects defendants' contention that the Amended Complaint fails to comply with the modern "notice” pleading rules set forth in the Federal Rules of Civil Procedure. The averments against the Mantas defendants are not "vague or ambiguous” but instead are clear, specific and definite, providing a reasonably
. Mantas defendants argue that this case is not applicable hereto because it "presupposes that the Defendant is in the case and a proper party thereto.” (D.I. 97 at 3) As discussed at length in the foregoing, Mantas defendants became "proper” parties to this case as of May 29, 1992 when Standard filed its Amended Complaint. Defendants’ contention that the Apollo Computer case does not apply to the facts at bar is thus without merit.
. It should be noted that Standard's brief filed in response to Wilmington Trust’s motion indicates that plaintiff is aware that Rule 45 was recently amended. (Sec D.I. 65 at 2 n. 1) Nonetheless, as noted above, plaintiff's counsel failed to address whether the new Rule 45 applies here. The Court is convinced, consistent with the reasoning of the district court in the Exxon Valdez case, that if Standard moved to compel Wilmington Trust's compliance with the instant subpoena, then new Rule 45 would apply and any order requiring such compliance would be required to ensure .that this non-party be "protected from significant expense” in producing the requested documents.
. Although Wilmington Trust's motion is styled as a "Non-Party Motion for a Protective Order”, the Court will treat the motion as a motion to quash or modify the subpoena duces tecum.
. The former version of Rule 45(b) specifically provided as follows:
A subpoena may also command the person to whom it is directed to produce the books, papers, documents, or tangible things designated therein; but the court, upon motion made promptly and in any event at or before the time specified in the subpoena for compliance therewith, may (1) quash or modify the subpoena if it is unreasonable and oppressive or (2) condition denial of the motion upon advancement by the person in whose behalf the subpoena is issued of the reasonable cost of producing the books, papers, documents, or tangible things.
(Emphasis supplied).
. The Court notes that according to the clerk’s office, the $.50 per page copy fee charged by the court clerk takes into account all charges associated with document copying, including a reasonable amount for the services of the court employee who actually performs the copying.