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December 29, 1989

LANCE CURLEY, et al., Plaintiffs,
CUMBERLAND FARMS DAIRY, INC., et al., Defendants

The opinion of the court was delivered by: BROTMAN

Presently before the court are several motions. First, plaintiffs move for class certification pursuant to Fed. R. Civ. P. 23(b)(3). In response, defendants have filed a cross-motion to compel discovery on the class certification issue. Second, plaintiffs move to reinstate two types of claims: the claims of specific plaintiffs dismissed as untimely under the applicable statute of limitations, and the claims of all plaintiffs under § 1962(c) and § 1962(d) against the corporate defendants. Third, defendants move to dismiss portions of plaintiffs' complaint. In response, plaintiffs have filed a cross-motion to strike defendants' motion to dismiss. The fourth motion presently pending before the court is plaintiffs' appeal of the magistrate's protective order.


 On December 24, 1986, plaintiffs filed a class action suit asserting claims under federal and state anti-racketeering laws, 18 U.S.C. § 1962 and N.J.Stat. Ann. § 2C:41-2 (West 1982), along with a host of common law tort claims. Plaintiffs are all former employees of Cumberland Farms, Inc., a closely held Delaware corporation, which, through its subsidiaries, operates 1300 retail convenience stores throughout the Northeast and Florida. The crux of plaintiffs' claim is that defendant Cumberland Farms and the individually named defendants, who are present and former officers and employees of Cumberland Farms, carried out a scheme by which low-level employees were wrongfully charged with stealing money and merchandise from the stores. These employees were then allegedly coerced into signing confessions through threats of immediate arrest, notification of family members, other employers, or the media. Plaintiffs allege this activity has gone on for more than twelve years. Second Amended Complaint para. 54.

 On April 15, 1987, before defendants had filed an answer, plaintiffs amended their complaint and added new parties both as plaintiffs and defendants. A scheduling conference was held before United States Magistrate Jerome Simandle on June 16, 1987, and a scheduling order was issued. That order directed that the class certification issue should await resolution of the defendants' dispositive motions. On July, 30, 1987, all defendants except Colleen Walsh moved to dismiss the amended complaint for failure to state a claim upon which relief could be granted.

 In an opinion filed November 17, 1987, this court granted in part and denied in part defendants' motion to dismiss. Specifically, the court found that plaintiffs had failed to allege an "enterprise" distinct from defendant Cumberland Farms under the § 1962(c) claim. Curley v. Cumberland Farms, No. 86-5057(SSB) slip op. at 6-8 (citing, inter alia, B. F. Hirsch v. Enright Refining Co., 751 F.2d 628 (3d Cir. 1984)). The court also dismissed the conspiracy claim under § 1962(d) because the court found that a corporation was incapable of conspiring with its own officers or employees. Id. at 18 (citing, inter alia, McLendon v. Continental Group, Inc., 602 F. Supp. 1492, 1510, 1512 (D.V.I. 1987); Yancoski v. E.F. Hutton & Co., Inc., 581 F. Supp. 88, 97 (E.D.Pa. 1983)). The court likewise dismissed plaintiffs' claims against Cumberland Farms under the analogous provisions of the New Jersey RICO statute. Id. at 21-22.

 Also before the court in November, 1987 were the motions of all defendants to dismiss the RICO claims of plaintiffs Bayer, Cox, Friedman, Gruner, Capner, and Boguslav. The court found that the four year statute of limitations barred these claims because they had occurred more than four years before the filing of the complaint and there had been no fraudulent concealment by defendants.

 Finally, also before the court were other motions to dismiss various other claims asserted by plaintiffs. These were all denied, except in that plaintiffs were given thirty days in which to amend the complaint so as to comply with the loose notice-pleading requirement of Fed. R. Civ. P. 8(a). Plaintiffs filed a second amended complaint on December 14, 1987.

 This litigation focuses on the legitimacy and legality of Cumberland's loss-prevention techniques. Cumberland employs approximately 12,000 people at any given time; during the course of a year, the work force turns over three times. Transcript of Commonwealth of Pennsylvania v. Alan Hass, (Feb. 3, 1987) M.C. No. 86-03-3050 (testimony of Arthur Gordon) at 23. The increasingly competitive nature of the industry, due to the influx of stores owned by oil companies, is widely known, see "Rethinking the Convenience Store," (C. Deutsch) N.Y. Times Section 3 p. 1 (Sunday, October 8, 1989), and the profitability of any given store depends in part on the inventory shrinkage that the store experiences. Cumberland loss prevention specialists considered any store experiencing inventory loss that exceeded one percent to be a problem store. See Deposition of Gordon at 18. A loss as high as two percent was considered to be a high loss. Id. at 29.

 Inventory loss could be for any of several reasons. Accounting problems, including the misdelivery of goods meant for one store to another, could explain discrepancies between the inventory on paper and the actual inventory in the store. Id. at 22, 24. Included in accounting problems was vendor dishonesty, which occurs when, for example, a soft drink seller bills a store for thirty cases of soda when only twenty-five were delivered. Id. at 24. Shoplifting was not a common source of inventory discrepancies. Id. at 25. Loss prevention specialists were able to resolve as many as fifty percent of the inventory problems through auditing the paperwork. When the problem could not be attributed to accounting problems, suspicion turned to individual employees.

 Loss prevention specialists had three basic methods for investigating employees in problem stores. First, loss prevention specialists could send in hired shoppers to make prearranged purchases. At the end of the day, the purchases made would be compared to the purchases recorded, to see if the employee was simply pocketing some of the sales. The second method was physical surveillance from outside the store. A loss prevention specialist would station himself *fn1" outside the store and watch through high powered binoculars the employee under investigation. Id. at 47-48. The third method of investigation was internal surveillance from a hidden observation space with which most stores were equipped.

 If an investigation produced evidence of dishonesty, the loss prevention specialist would confront the employee. The other bases for an interview with an employee were failing to observe company policy with respect to filling out drop sheets, keeping too much cash in the drawer, failing to inventory cigarettes on a daily basis, and bank deposit irregularities. Id. at 81-93. Interviews typically were conducted in a back room with no one present except the employee and the loss prevention specialist, although on occasion a loss prevention specialist in training would listen from outside the door.


 By letter dated September 28, 1989, the court directed the parties to address the certification issue with respect to the complaint as it then stood. The court also informed the parties that it would explain in a more formal manner the reasons for its selection of such a schedule for briefing. Those reasons are as follows.

 Fed. R. Civ. P. 23(c) (1) provides:

As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this subdivision may be conditional, and may be altered or amended before the decision on the merits.

 Rule 23(c) is mandatory. It directs the district court to determine as soon as practicable whether to certify a class. It is now past the third anniversary of the filing of the original complaint. Discovery limited solely to class certification has proceeded since June 18, 1987, when Judge Simandle entered an order limiting discovery to class certification. As is clear from Judge Simandle's letter opinion, dated March 29, 1989, this litigation has been characterized by delay. To further delay the class certification determination would only serve to postpone indefinitely the resolution of this dispute.

 There would be no end to the delay where, as here, the purported basis for postponing the certification determination is that the law has changed. Plaintiffs have moved to reinstate claims in the complaint and defendants have moved to dismiss certain counts in the complaint. Both motions are based on changes in the law. Defendants claim that they cannot properly address the class certification issues unless they know what allegations contained in the complaint will control the class certification inquiry. The court must at this time reject these arguments.

 The law is always changing, and to recognize this to be a basis for postponing class certification would be never to decide whether to certify a class. Parties who wish to drag out litigation would always be able to unearth some recent case that sheds some ray of new light on aspects of the case that the court has already addressed. In the instant case, plaintiffs filed the Second Amended Complaint on December 14, 1987. Defendants cannot seriously contend that this is the first opportunity that they have had to move to dismiss new counts in the second amended complaint.

 A. Class Certification

 As this court has noted on at least one prior occasion, "class actions may not be approved lightly. The Supreme Court has recently emphasized that a class action 'may only be certified if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.'" Seiler v. E.F. Hutton, 102 F.R.D. 880, 887 (D.N.J. 1984) (citing General Telephone Co. v. Falcon, 457 U.S. 147, 161, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982)). Before turning to the requirements of Rule 23, the court notes that the burden of proof rests with the proponent of the class action. Zlotnick v. Tie Communications, Inc., 123 F.R.D. 189, 190 (E.D. Pa. 1988); Gavron v. Blinder Robinson & Co., 115 F.R.D. 318, 321 (E.D.Pa. 1987); Seiler, 102 F.R.D. at 887 (citing 3B Moore's Federal Practice § 23.02-2 at 23-96 n.35 (2d ed. 1984)).

 Although the court may not look to the merits when determining whether to certify a class, Seiler, 102 F.R.D. at 889 n.4 (citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 40 L. Ed. 2d 732, 94 S. Ct. 2140 (1974)), the court must look beyond the bald allegations in the complaint to determine whether plaintiff has satisfied the requirements of Rule 23. Glictronix Corp. v. American Telephone & Telegraph, Co., 603 F. Supp. 552, 584 (D.N.J. 1984) (citation omitted). Out of fairness to potential members of the class who may have their claims extinguished if the court certifies a class as to all claims in the second amended complaint only then to dismiss some of those claims, *fn2" it is appropriate for the court to look at the allegations of the complaint only enough to determine whether the cause of action may survive a motion to dismiss. In re Orfa Securities Litigation, 654 F. Supp. 1449, 1459 (D.N.J. 1987). Thus, the court will consider the defendants' motion to dismiss simultaneously with the class certification motion.

 Plaintiffs propose the following class definition:

All persons at any convenience store or gasoline station owned or operated by a subsidiary of Cumberland Farms, Inc., or Cumberland Farms Dairy, Inc., who were at any time from October 15, 1970 through the present, the subject of questioning or attempted questioning by field agents of the corporate defendant's Loss Prevention Department (formerly known as the Security Department) and who suffered injury to their business or property as a result.

 Plaintiffs' Motion for Class Certification at 1. *fn3"

 Fed. R. Civ. P. 23(a) sets forth the following prerequisites to maintaining a class action:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

 The court will address these requirements seriatim.

 1. Numerosity

 Plaintiffs claim that the proposed class contains approximately 14,000 members in the Northeast part of the country and Florida. Plaintiffs Memorandum In Support of Class Certification at 9. Defendants do not contest this figure. Other courts which have discussed the numerosity requirement for class certification have considered certification appropriate where the members of the proposed class were far less numerous. E.g., Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.) (declining to decide to certify class on other grounds, but noting that "allegation of more than 90 geographically dispersed defendants met the numerosity requirement"), cert. denied, 474 U.S. 946, 106 S. Ct. 342, 88 L. Ed. 2d 290, 106 S. Ct. 343 (1985); In re Orfa Securities Litigation, 654 F. Supp. 1449, 1464 (D. N.J. 1987) (joinder of 1,593 potential class members impracticable). Thus, the court concludes that plaintiffs have satisfied the numerosity requirement of Rule 23(a)(1).

 2. Common Questions of Law or Fact

 The Second Amended Complaint alleges that defendants' "pattern of racketeering activity involves systematic and repeated acts of extortion in violation of state laws, extortionate collection of credit in violation of 18 U.S.C. § 894, mail fraud in violation of 18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 1343." Second Amended Complaint para. 387. The determinative issue is whether plaintiffs have shown that there are legal or factual issues common to the class concerning the alleged predicate acts.

 There are some aspects of the practices of the loss prevention department's operations that are clearly common to the class. Each year the department conducts approximately 2,000 interviews. Deposition of James Mumma at 73. To give some idea of the magnitude of the claims and the proposed class, plaintiffs contend that in 1988, the last year for which there is complete information, there were 2,197 questionings which resulted in 1,163 confessions. Cf. Deposition of Arthur Gordon at 107 (statements obtained in two-thirds of all questionings). Those confessions were for a total amount of $ 916,000, of which $ 401,000 was received. *fn4"

 The loss prevention department was a fairly loosely run organization. Meetings with all the field agents were rare; one occurred every two or three years. Mumma Deposition at 127. All field agents were trained on-the-job, and there were no manuals. Declaration of Eugene Epperson at 2. Most of the specialists were trained by either Arthur Gordon or Charles Brink. Deposition of James Mumma at 99. The method for obtaining confessions was part of that training. Id. at 99-100.

 According to Eugene Epperson, formerly a loss prevention specialist, Cumberland Farms trained its employees to conduct the interview in a back room where the loss prevention specialist and the employee were alone. Deposition of Epperson at para. 11-13. Once there, the employee was to sit on a carton while the loss prevention specialist remained standing at the door; this was done to intimidate the employee. Id. On some occasions, an employee would be questioned only because the store in which that employee worked had a bad inventory report. Id. at para. 29. In one instance, Arthur Gordon testified that he had witnessed and signed contemporaneously the confession of Alan Hass, see Commonwealth v. Hass, M.C. # 86-03-3050 (Feb. 3, 1987) transcript at 9, when it appears from Cumberland records that there was originally no witness' signature on the confession. See Exhibit G to Declaration of Fredric Gross (Memo from James Mumma to Arthur Gordon concerning the prosecution of Alan Hass) (criticizing Gordon for the lack of signature).

 There were some policies concerning the content of the confessions, although these policies were not written. Loss prevention specialists were trained to have the employee acknowledge the Miranda rights, state the number of the store at which the theft occurred, state the highest amount stolen, the average per week, and the total amount stolen. Deposition Gordon at 122. Thus, from the testimony and the twenty-six confessions submitted, the standard confession, the form of which was in all likelihood dictated, was as follows:

I, (employee's name), born on , living at , have been advised of my legal rights (the basic Miranda warnings). I believe this statement to be true. From to , while working at store # , I consumed while working or gave away merchandise not paid for. Typical items included (candy, cigarettes, etc.). The average amount per week or shift was $ , ...

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