UNITED STATES DISTRICT COURT FOR THE
MIDDLE DISTRICT OF ALABAMA, NORTHERN DIVISION

I. INTRODUCTION

This cause comes before the court on Objections to the Magistrate Judge's Recommendation entered on June 2, 2000, filed by the Plaintiffs on June 15, 2000.

The Magistrate Judge has recommended that the Defendants' Motion to Dismiss the Second Amendment to the Verified Complaint be granted because the Plaintiffs have failed to plead a violation of the Racketeer Influenced and Corrupt organizations Act (RICO). For reasons to be discussed, the Magistrate Judge's Recommendation is due to be ADOPTED with modification.

II. STANDARD OF REVIEW

In a civil action, the district court may refer motions to dismiss to a United States Magistrate Judge for a recommendation. 28 U.S.C. § 636(b)(1)(B). The district judge must conduct a de novo review of the portions of the Magistrate Judge's recommendation to which a party has objected.

III. DISCUSSION

To state a claim under RICO a plaintiff must allege each of the following: 1) conduct 2) of an enterprise 3) through a pattern 4) of racketeering activity. Sedima S.P.R.L. v. Imrex. Co.. Inc., 473 U.S. 479 (1985). To establish a pattern of racketeering activity there must be at least two predicate acts of racketeering activity. 18 U.S.C. § 196 1(5). A racketeering activity is any act indictable under certain provisions of the United States Code, including mail fraud and money laundering. 18 U.S.C. § 1961(1). In this case, the Plaintiffs have alleged that the Defendants engaged in mail fraud. The essential elements of mail fraud are a scheme to defraud, that the defendant "caused" a use of the mails, and that the mailing was for the purpose of executing the scheme. United States v. Hewes, 729 F.2d 1302 (11th Cir.1984), cert. denied, 469 U.S. 1110 (1985).

The Magistrate Judge issued her Recommendation, finding that the Plaintiffs have failed to allege that the Defendants engaged in any racketeering activity as defined by RICO. Specifically, the Magistrate Judge determined that the Plaintiffs have failed to allege the intent of the actor and the purpose of the scheme. In so stating, the Magistrate Judge has referred to excerpts from the Plaintiffs' Second Amended Complaint. In reviewing these excepts, it appears that the Magistrate Judge has relied on some allegations which the Plaintiffs may have added as background information, and which may not be intended to be factual allegations in support of their claims.⁽¹⁾ It is, however, difficult to comprehend exactly what the nature of the Plaintiffs' claims are. Although the Plaintiffs have already been given leave to amend their Complaint to state a RICO claim once, since the Magistrate Judge has essentially concluded that the Amended Complaint should be dismissed based, in part, on a pleading deficiency, the court finds that the Plaintiffs must be given an additional opportunity to plead a RICO claim, if the Plaintiffs wish to pursue this claim. Toward that end, the court will discuss briefly the pleading requirements for mail fraud as part of a RICO claim.

Mail fraud as a predicate act of RICO is reviewed under the standard of Rule 9(b) of the Federal Rules of Civil Procedure. See Durham v. Business Management Assoc., 847 F.2d 1505 (11th Cir. 1988). The Rule requires that in averments of fraud, "the circumstances constituting fraud ... shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed.R.Civ.P. 9(b). The particularity rule is said to "serve an important purpose in fraud actions by alerting defendants to the precise misconduct with which they are charged." Durham, 847 F.2d at 1511. While this is an important purpose, the application of the rule "must not abrogate the concept of notice pleading." Id. Because one cannot know another's subjective intent, circumstantial evidence must be relied upon to indicate intent. Cf Pelletier v. Zweifel, 921 F.2d 1465 (11th Cir.), cert. denied, 502 U.S. 855 (1991).

In this case, the Plaintiffs have included so many factual allegations in their second Amended Complaint that it is nearly impossible to tell what the Plaintiffs contend are factual allegations which indicate that there is circumstantial evidence of intent to defraud and what the Plaintiffs are including merely as background information. If the Plaintiffs intend to pursue their RICO claim, they are to omit any discussion of the background facts in this case in the allegations of the RICO violation itself, and are to plead only those facts which they contend are circumstantial evidence of the intent to defraud.

The Magistrate Judge also concluded that the Plaintiffs had not pointed to any loss of property. While it is true that the Plaintiffs have not pointed to any loss of tangible property, they have pointed to the loss of their right to participate in the process as allegedly created by the Consent Decree. An intangible property right can be the basis of a RICO action. See 18 U.S.C. § 1346. Therefore, while the court is not determining whether or not the Plaintiffs have such an interest, this court cannot conclude that, for purposes of the Motion to Dismiss, there are no facts which. can be proven consistent with the Plaintiffs' allegations which will support their claim.

Finally, in their Second Amended Complaint, the Plaintiffs have asserted a claim for violation of 18 U.S.C. §1513(a)(1). The Plaintiffs were not given leave to plead such an additional claim under this court's previous Order. See Memorandum Opinion and Order, 2/16/2000. The Plaintiffs are DIRECTED not to include, without leave of court, a claim under 18 U.S.C. § 1513, or any other new claim, in any amendment they may choose to file to allege a RICO claim.

Accordingly, the court finds that the Recommendation of the Magistrate Judge that the Amended Complaint should be dismissed is due to be ADOPTED with certain modifications.

IV. CONCLUSION

It is hereby ORDERED as follows:

1. The Magistrate Judge's Recommendation is ADOPTED with modification.

2. The Defendant's Motion to Dismiss (Doc. #43) is GRANTED. The Second Amendment to the Complaint is DISMISSED without prejudice.

3. The Plaintiffs are given until July 13, 2000 to file a new Amended Complaint, should they choose to do so. If the Plaintiffs file a new Amended Complaint they are DIRECTED to plead facts from which to draw an inference of intent to defraud and to omit purely background facts.

Done this 3rd day of July, 2000.

W. Harold Albritton

CHIEF UNITED STATES DISTRICT JUDGE

Footnote #1. The Magistrate Judge quoted language that the Plaintiffs "believed that the C. S. Committee under the direction of Dorrough, was involved in and [sic] overt operation or scheme to defraud the plaintiffs, that included extorting money and property." Recommendation at page 7. This allegation in the Amended Complaint is found along with other statements explaining the basis for the Plaintiffs' 1993 lawsuit. See Amended Complaint at page 3.

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