motions to dismiss for failure to state a claim. This matter
will be addressed as a motion pursuant to Rule 12(b)(6).
See Bogosian, 561 F.2d at 444 (district court entered summary
judgment against plaintiff prior to completion of discovery,
but properly did so by limiting itself to analysis of the
sufficiency of the allegations of the complaint; on review,
Third Circuit reviewed entry of summary judgment under standard
used for motions to dismiss).
1. Standard of Review
A court may grant a motion to dismiss for failure to state
a claim where it appears beyond doubt that no relief could be
granted under any set of facts which could be proved
consistent with the allegations. Hishon v. King & Spalding,
467 U.S. 69, 73, 104 S.Ct. 2229, 2232-33, 81 L.Ed.2d 59 (1984);
Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2
L.Ed.2d 80 (1957); Markowitz v. Northeast Land Co.,
906 F.2d 100, 103 (3d Cir. 1990); Ransom v. Marrazzo, 848 F.2d 398, 401
(3d Cir. 1988). In deciding such a motion to dismiss for
failure to state a claim, all allegations of the plaintiff must
be taken as true and viewed in the light most favorable to the
plaintiff. Gomez v. Toledo, 446 U.S. 635, 636, 100 S.Ct. 1920,
1921-22, 64 L.Ed.2d 572 (1980); Markowitz, 906 F.2d at 103;
Melikian v. Corradetti, 791 F.2d 274, 277 (3d Cir. 1986); Robb
v. Philadelphia, 733 F.2d 286, 290 (3d Cir. 1984).
The Supreme Court has stated that "RICO is to be read
broadly," in light of "Congress' . . . express admonition that
RICO is to `be liberally construed to effectuate its remedial
purposes' . . . [which] are nowhere more evident than in the
provision of a private action for those injured by
racketeering activity." Sedima, S.P.L.R. v. Imrex Co.,
473 U.S. 479, 497-98, 105 S.Ct. 3275, 3285-86, 87 L.Ed.2d 346 (1985)
(quoting Pub.L. 91-452, section 904(a), 84 Stat. 947). See also
Northeast Women's Center, Inc. v. McMonagle, 868 F.2d 1342,
1348 (3d Cir.) ("[W]e are not free to read additional limits
into RICO once a plaintiff has made out all of the elements
required for a finding of liability under the statute's
explicit provisions."), cert. denied, ___ U.S. ___, 110 S.Ct.
261, 107 L.Ed.2d 210 (1989).
Under 18 U.S.C. § 1962(a), it is illegal to use or invest
income derived "from a pattern of racketeering activity" to
acquire an interest in or to operate an enterprise engaged in
interstate commerce. See 18 U.S.C. § 1962(a); H.J. Inc. v.
Northwestern Bell Telephone Co., 492 U.S. 229, 233, 109 S.Ct.
2893, 2897, 106 L.Ed.2d 195 (1989). A person who has been
injured by such a violation may bring a civil cause of action
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 therefor 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." 18 U.S.C. § 1964(c).
There is a split among the circuits on the issue of whether
standing to sue for a violation of section 1962(a) is
sufficiently stated by alleging an injury caused by predicate
acts or whether it is necessary to allege an injury caused by
the actual investment or use of the proceeds of the
racketeering activity. The majority view, and that adopted by
the Third Circuit, is that in order to have standing to sue
for violations of section 1962(a), a plaintiff must show
injury by reason of the use or investment of racketeering
income. See, e.g., Quaknine v. MacFarlane, 897 F.2d 75 (2d Cir.
1990); Craighead v. E.F. Hutton & Co., Inc., 899 F.2d 485 (6th
Cir. 1990); Grider v. Texas Oil & Gas Corp., 868 F.2d 1147
(10th Cir.) cert. denied, ___ U.S. ___, 110 S.Ct. 76, 107
L.Ed.2d 43 (1989); Rose v. Bartle, 871 F.2d 331 (3d Cir. 1989).
But see Busby v. Crown Supply, Inc., 896 F.2d 833, 836-40 (4th
Cir. 1990) (finding that injury from predicate acts is
sufficient to give rise to standing to sue for violations of
The Third Circuit has adopted the majority view that
standing is created only by an injury caused by the investment
or use of proceeds from racketeering activity.
Princeton Economics does not contest this requirement.
See Opposition Brief at 26 ("[A] plaintiff must allege not only
the elements of § 1962(a), but also that the RICO violation
caused injury in plaintiff's business or property"). In Rose v.
Bartle, 871 F.2d at 357-58, the Third Circuit held:
"[R]equiring the allegation of income use or investment injury
`is consistent with both the literal language and the fair
import of the language [of section 1962(a)].'" Id. at 358
(citation omitted). In Rose, the court found that the plaintiff
adequately alleged use or investment of proceeds from
racketeering activity but found the plaintiff did not
sufficiently allege standing because the complaint contained no
allegations as to injury by virtue of the defendants' use or
investment of racketeering income. Id. at 357. See also Kehr
Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1411 (3d
Cir.), cert. denied, ___ U.S. ___, 111 S.Ct. 2839, 115 L.Ed.2d
1007 (1991); Banks v. Wolk, 918 F.2d 418, 421 (3d Cir. 1990).
Courts adopting this approach find that injury caused by
predicate acts of racketeering will not give rise to standing
to sue for a violation of section 1962(a). In
Quaknine, a number of investors sued defendants who had
allegedly induced them to enter into a number of financial
transactions, to their loss, through allegedly false
representations. The plaintiffs sued the defendants under
section 1962(a), alleging predicate acts consisting of
securities fraud. The Second Circuit held the RICO claim was
properly dismissed by the district court because the complaint
did not allege facts "asserting injury by reason of defendants'
investment of racketeering income. . . ." Quaknine, 897 F.2d at
In Grider, the plaintiff held a working interest in a group
of oil and gas wells and sued the well operators for violations
of section 1962(a). The plaintiff alleged that the defendants
had engaged in a scheme to reduce his profit by, inter alia,
illegally venting natural gas, stealing natural gas from the
wells for drilling operations, selling gas without paying him
the appropriate revenue and unlawfully fixing prices. As to a
second scheme, the plaintiff alleged the defendants, inter
alia, breached their fiduciary duty to him, conspired to fix
prices, failed to pass on his share of rebates and discounts
and withheld his share of production revenues. The plaintiff
alleged the defendants carried out these schemes by engaging in
predicate acts of mail fraud. In rejecting an approach to
standing whereby injury caused by predicate acts was deemed
sufficient and in denying the plaintiff standing, The Tenth
[W]e find no justification for disregarding the
clear language of either section 1962(a), which
prohibits the use or investment of income from
racketeering activity, or section 1964(c), which
requires injury by reason of such a violation.
Accordingly, we hold that, because [the
plaintiff] has failed to allege any facts showing
injury from the use or investment of racketeering
income, he has no standing to assert a claim for
damages based on a violation of section 1962(a).
Grider, 868 F.2d at 1150-51.