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Shearin v. E.F. Hutton Group Inc.

filed as amended october 11 1989.: September 20, 1989.

K. KAY SHEARIN, APPELLANT,
v.
THE E.F. HUTTON GROUP, INC., E.F. HUTTON & COMPANY INC. AND E.F. HUTTON TRUST COMPANY, APPELLEES



On Appeal from the United States District Court for the District of Delaware, (Civil No. 87-00469).

Gibbons, Chief Judge, Hutchinson, Circuit Judge, and Reed, District Judge.*fn*

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Chief Judge

Plaintiff K. Kay Shearin, a former employee of E.F. Hutton Trust Company (Hutton Trust), appeals from a judgment dismissing her amended complaint against Hutton Trust, E.F. Hutton & Company Inc. (Hutton Inc.) and The E.F. Hutton Group, Inc. (Hutton Group). The complaint alleges that the defendants violated the Racketeer Influenced and Corrupt Organizations statute (RICO), 18 U.S.C. §§ 1961-1968 (1989), in four respects, and that those violations injured her in a manner for which that act provides a remedy. 18 U.S.C. § 1964(c). The district court held that, assuming her amended complaint properly pleaded violations of 18 U.S.C. § 1962, Shearin lacked standing to assert a claim under 18 U.S.C. § 1964 for damages for any such violations. We conclude that while the district court properly dismissed with respect to three of the alleged violations, it erred in holding that Shearin lacks standing to pursue a civil RICO remedy for the alleged violation of 18 U.S.C. § 1962(d). Thus we will reverse the judgment appealed from and remand for further proceedings.

I.

Shearin's amended complaint alleges that on April 30, 1984, she was hired by Hutton Trust as Trust Counsel, Corporate Secretary, and Assistant Vice President. Hutton Trust is a limited purpose trust company organized under Del.Code Ann. tit. 5, §§ 773-779 (1988), with its principal place of business in Wilmington, Delaware. Hutton Trust and Hutton Inc., a brokerage firm, were at relevant times wholly-owned subsidiaries of Hutton Group. In April of 1985 Shearin was promoted to Vice President of Hutton Trust. On March 6, 1986, she was dismissed.

Shearin alleged that Hutton Inc. and Hutton Group agreed upon a scheme whereby Hutton Trust would be created as a front for the purpose of charging fees to customers of Hutton Inc. for trust services which were never performed, thereby bilking customers of the brokerage firm. Pursuant to this scheme, Shearin alleges, she was induced by telephone and mail to leave her previous employment and enter into an employment contract with Hutton Trust so that it would have the facade of a genuine trust company. In March of 1986, she alleges, she was abruptly dismissed in order to prevent her from making disclosures about the defendants' illegal activities to the Delaware bank examiners.

Shearin pleads that the defendants have thereby violated 18 U.S.C. § 1962(a),(b),(c) and (d). These violations are actionable, she pleads, under 18 U.S.C. § 1964(c), which provides:

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue there for in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

Recovery under section 1964(c) thus requires the pleading of (1) a section 1962 violation, and (2) an injury to business or property by reason of such violation. The latter pleading requirement is in common parlance referred to as RICO standing.

Our review of the dismissal of Shearin's complaint is plenary.*fn1 Accepting Shearin's allegations as true we must determine whether she has alleged any set of facts which would entitle her to recover under 18 U.S.C. § 1964(c).

A. Shearin Pleaded RICO Violations

Shearin alleges that the defendants (1) used money derived from a pattern of racketeering to invest in an enterprise, 18 U.S.C. § 1962(a); (2) conducted an enterprise through a pattern of racketeering, 18 U.S.C. § 1962(c); and (3) conspired to violate sections 1962(a) and (c) in violation of 18 U.S.C. § 1962(d).

(1) Section 1962(a)

Shearin's complaint adequately alleges that the Hutton companies used money derived from a pattern of racketeering to invest in an enterprise. The statute in relevant part provides:

It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of any unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, in acquisition of any interest in, or the establishment or ...


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