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ALBANESE v. CITY FED. S&L ASSN.

April 11, 1989

VINCENT and JOANNE ALBANESE, et al., Plaintiffs,
v.
CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Defendants; PAT and ANN BERARDI, Plaintiffs, v. CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Defendants; ROBERT and GERTRUDE COLONNA, Plaintiffs, v. CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Defendants; DENNIS and LINDA DiSABATINO, et al., Plaintiffs, v. CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Defendants; ROBERT and ANN PANEK, et al., Plaintiffs, v. CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Defendants; JAMES and CARMELLA PAPPERT, Plaintiffs, v. BENCHMARK CORPORATION, et al., Defendants; LOUIS and ALICE PENNA, et al., Plaintiffs, v. CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Defendants; SALVATORE and CLARE VOLPE, Plaintiffs, v. CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, et al., Defendants



The opinion of the court was delivered by: BROTMAN

 Plaintiffs are homeowners who purchased property near a municipally owned landfill in Gloucester Township, Camden County, New Jersey. They filed these eight lawsuits against the Township of Gloucester ("the Township") and other defendants seeking damages stemming from alleged fraud inducing their purchases, and from operation of the landfill. Presently before the court is the Township's motion for summary judgment on plaintiffs' claims based on the Racketeer Influenced and Corrupt Organizations law ("RICO"), 18 U.S.C. §§ 1961-1968 (1982 & Supp. IV 1986). For the reasons set forth below, the court will grant the Township's motion and will dismiss the RICO claims against it.

 I. FACTS AND PROCEDURE

 Between 1975 and 1980 the Township owned and Gloucester Environmental Management Services, Inc. ("GEMS") operated the GEMS landfill. The plaintiffs each purchased real estate in or near the Briar Lake subdivision near the landfill between 1978 and 1982. Plaintiffs charge that the Township and other defendants -- including a developer and a mortgage lender -- knew that the landfill presented a health hazard but nonetheless sanctioned and facilitated the development of residential housing in its vicinity. In addition to their real estate fraud claims, plaintiffs seek damages from the Township and other defendants based on those defendants' use and control of the GEMS landfill. The court has stayed plaintiffs' use and ownership claims against all defendants pending resolution of their real estate fraud claims. Plaintiffs' allegations are quite detailed; however, a more thorough recitation of the facts underlying these cases is unnecessary to deciding the instant motion.

 Plaintiffs charge that the Township and other real estate fraud defendants violated RICO, 18 U.S.C. § 1962(a), (c), and (d), and seek to recover from them treble damages, costs, and attorney's fees pursuant to RICO's civil liability provision, 18 U.S.C. § 1964(c). Plaintiffs contend that the Township engaged in a pattern of racketeering activity by fraudulently facilitating development of the Briar Lake subdivision and by covering up the hazard presented by the landfill. The Township has now moved for summary judgment on plaintiffs' RICO claims. Neither the plaintiffs nor the Township addressed in their original submissions the issue of whether a municipality could be liable under section 1962, and the court requested further briefing on that question. The court now finds that issue dispositive of the Township's motion.

 II. DISCUSSION

 The question squarely before the court is whether a municipality can violate 18 U.S.C. § 1962(a), (c), and (d), and therefore be subject to civil RICO liability under section 1964(c). *fn1" The Township argues that it cannot be held liable for violating any of those three subsections because a municipality cannot have criminal intent, and therefore it is incapable of committing a predicate racketeering offense. It further argues that public policy considerations bar municipal liability for treble damages. Plaintiffs respond by drawing an analogy to antitrust law and by arguing that, even if municipal liability were precluded under section 1962(c) (prohibiting conduct of an enterprise through racketeering), it is nonetheless permissible under section 1962(a) (prohibiting person to cause an enterprise to benefit from racketeering activity), and therefore under the conspiracy provision of section 1962(d). The court will first examine whether a municipality can be liable under section 1962(c), it will then address whether the same analysis is appropriate for section 1962(a), and finally it will address the question of municipal liability under section 1962(d). Because the court will conclude that a municipality is incapable of violating section 1962(a), (b), and (d), and therefore cannot be civilly liable under section 1964(c), it need not address whether a municipality can be liable for treble damages under RICO.

 A. Section 1962(c)

 To prove a violation of section 1962(c) *fn2" plaintiffs must establish that the Township (1) conducted (2) an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985). Racketeering activity means any of several criminal acts proscribed by state or federal law and enumerated in section 1961(1). *fn3" To determine whether the Township can violate section 1962(c), the court must determine whether a municipality is capable of committing a crime and therefore capable of committing one of the predicate racketeering acts enumerated in section 1961(1).

 At least three courts recently passing on the precise question presently before this court have held that a municipality is incapable of the criminal intent required for conviction of any of the acts constituting racketeering activity, and therefore cannot be charged with violating section 1962(c). In re CitiSource, Inc. Securities Litigation, 694 F. Supp. 1069, 1079-80 (S.D.N.Y. 1988); Thacker Eng'g Inc. v. Chicago Housing Auth., 1988 U.S. Dist. LEXIS 8857 (N.D. Ill. 1988) (available on LEXIS); Massey v. City of Oklahoma City, 643 F. Supp. 81 (W.D. Okla. 1986). The court in CitiSource explained, "The issue of intent is the Achilles' heel of the plaintiff seeking to impose RICO liability upon a municipal corporation under 18 U.S.C. § 1962(c). Unlike an ordinary corporation, a municipal corporation is incapable of the criminal intent necessary to support the alleged predicate offenses." 694 F. Supp. at 1079. The CitiSource court further noted, "This result obtains because the criminal intent of its agents will not be imputed to a municipal corporation, as it would to an ordinary corporation." Id. at 1080. As the Massey court explained, a municipality

 
is incapable of forming the mens rea or criminal intent necessary to perform an act of racketeering activity as defined by § 1961 of the RICO statute. The officials of the City, the mayor, the City councilmen, etc., have the capacity to perpetrate this type of activity, but the City, the body politic, could not.

 643 F. Supp. at 85; see also City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 261, 69 L. Ed. 2d 616, 101 S. Ct. 2748 (1981) (summarizing case that noted "the existence of 'respectable authority' to the effect that municipal corporations 'can not, as such, do a criminal act or a willful and malicious wrong . . .'") (quoting Hunt v. City of Boonville, 65 Mo. 620, 624 (1887)).

 Plaintiffs urge the court not to follow CitiSource, Thacker, and Massey by analogizing to antitrust law. *fn4" They cite two antitrust cases, Community Communications Co. v. City of Boulder, 455 U.S. 40, 70 L. Ed. 2d 810, 102 S. Ct. 835 (1982), and Duke & Co. v. Foerster, 521 F.2d 1277 (3d Cir. 1975), for the proposition that a municipal corporation can be criminally liable. The court finds that neither case stands for that proposition. The Supreme Court in City of Boulder held that the federalism-based doctrine of Parker v. Brown, 317 U.S. 341, 87 L. Ed. 315, 63 S. Ct. 307 (1943), which immunizes states from civil antitrust liability, does not insulate home-rule cities from such liability. 455 U.S. at 56-57. The Third Circuit in Duke & Co. held that the same federalism-based doctrine did not immunize certain municipal defendants from civil antitrust liability. There is no question that in these cases the plaintiffs could maintain a civil cause of action for money damages for a violation of section 1 of the Sherman Act, 15 U.S.C. § 1. *fn5" However, these cases do not hold that a municipal corporation can be criminally liable for an antitrust violation, and they do not hold that a municipal corporation can be civilly liable under a theory requiring as an element of proof that they were chargeable with a criminal offense.

 Pursuant to section 4(a) of the Clayton Act, 15 U.S.C. § 15(a), "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States. . . ." Similarly, pursuant to RICO's section 1964(c), "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court. . . ." The Clayton Act deems a violation of any antitrust provision a civil wrong, and RICO deems violation of 18 U.S.C. § 1962 a civil wrong; however, that is where the similarity ends. To establish a prima facie civil case under the Clayton Act for a violation of section 1 of the Sherman Act, as charged in City of Boulder and Duke & Co., a plaintiff must "allege and prove that two or more parties have entered into a contract, combination or conspiracy that unreasonably restrains interstate or foreign commerce, resulting in injury to his business or property." Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 88 F.R.D. 38, 42 (S.D.N.Y. 1980) (citing Northern Pacific Ry. v. United States, 356 U.S. 1, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958)). In contrast, as part of a prima facie civil case under RICO a plaintiff must prove "conduct that is 'chargeable' or 'indictable,' and 'offense[s]' that are 'punishable,' under various criminal statutes." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 488, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985) (quoting 18 ...


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