source: Caselaw Access Project

author: LAFFITTE, District Judge.

license: Public Domain

text:
    The ARCHBISHOP OF the ROMAN CATHOLIC APOSTOLIC ARCHDIOCESE OF SAN JUAN, His Eminence Luis Cardenal Aponte Martinez, et al., Plaintiffs, v. Miguel GUARDIOLA and Ferdinand Ferrer, et al., Defendants.
    Civ. No. 82-1289 HL.
    United States District Court, D. Puerto Rico.
    Dec. 16, 1985.

      Jose Guillermo Vivas, Carlos Martinez Texidor, Jose Hector Vivas, Vivas & Martinez Texidor, Ponce, Puerto Rico, for plaintiffs.
    Hector Reichard De Cardona, Sec. of Justice, E.L. Buso, Director Federal Litigation Div., Kathleen R. Guillermety, Atty., Federal Litigation Div., Dept, of Justice, San Juan, Puerto Rico, for defendants.
   OPINION AND ORDER

LAFFITTE, District Judge.

I.

This action for declaratory judgment and injunctive relief was instituted by the hierarchy of the Roman Catholic Church responsible for its administration and management requesting that the Puerto Rico Minimum Wage Board be enjoined from establishing a minimum wage for the Church’s lay employees and from investigating Church financial records for that purpose. Plaintiffs allege that application of the Puerto Rico Minimum Wage Act (the Act) to the lay employees of the Roman Catholic Apostolic Church and its organizations violates the Establishment and Free Exercise Clauses of the First Amendment of the Constitution of the United States of America, and seek declaratory action from this Court pursuant therewith.

The Minimum Wage Act of Puerto Rico, 29 L.P.R. Sections 245-246, creates the Minimum Wage Board, establishes its procedures, and recites the motivations for setting minimum wages. The Act is a response to the existence of substandard wages, hours of work, and other working conditions which are detrimental to the health, efficiency and well being of workers, and the progressive development of the Puerto Rican economy, which represents a state of manifest social injustice, Section 245(a). The policy is to eliminate substandard working conditions, step up development, eliminate unfair competition, and achieve the highest possible wage level compatible with such development without substantially curtailing employment, Section 245(b). In order to accomplish this goal, minimum wages shall be revised every two years in each business, industry or occupation “until attaining, as rapidly as possible, a wage which is equal to the prevailing statutory minimum wage fixed in the Federal Fair Labor Standards Act,” Section 245(c).

Charged with effecting this policy, the Minimum Wage Board has a duty to study and investigate economic and labor conditions in industry, Section 245b(a). Every employer has a duty to furnish the Board with all information available about wages, working hours, labor and financial conditions which the Board may consider pertinent, including payrolls, records of wages and hours of work, pay lists, assets and liability statements, profit and loss statements, and accounting books, Section 245d(a)(3). When the Board decides it is necessary to fix or revise a wage rate in any industry, it appoints a Minimum Wage Committee to draft a Mandatory Decree, Section 245i(a). The Board shall make available to the Committee all surveys, reports, statistics, and any other pertinent data for the proper discharge of its duties, Section 245j(e). In order to fix minimum wage rates, the Committee must conduct a public hearing so that all interested persons may participate in the promulgation of a decree by submitting pertinent data or arguments. Subject to Board regulations, the Committee shall determine to what extent cumulative information may be received, Section 245j(b).

The Board is empowered to define the industry over which the Minimum Wage Committee recommends the pertinent wage rates. Section 245J(a). In line with the foregoing, the Board promulgated Mandatory Decree No. 70, Fifth Revision (1978), applicable to the Miscellaneous Activities Industries. The industry is defined as follows:

"Article I — Definition of the Industry
This mandatory decree shall be applicable to all the employees of the Miscellaneous Activities Industry as defined below:
The Miscellaneous Activities Industry shall include the activities necessary or incidental to the support, operation or functioning of centers, enterprises, establishments or organizations such as those specified below, whether they are operated for profit or nonprofit purpose.
A. Social, Fraternal, Cultural, Religious, or Similar Organizations
Associations, professional colleges or institutions for social, cultural, scientific, religious, fraternal, charitable purposes or to stimulate or improve the conduct, interests, welfare or advancement of their members or affiliates; or nonprofit organizations such as professional, artistic, agricultural, industrial or commercial entities or fraternities, sororities, labor unions or political parties. All religious personnel invested with ecclesiastical faculties engaged in teaching or other religious or charitable activities is excluded. (Our emphasis.)
B. . . .
C. . . .
Article II — Minimum Wage
Every employer shall pay his employees a minimum wage per hour not lower than that provided hereinafter for the different classifications of the industry:
Classifications and Occupations
Minimum Wage per Hour
1. . . .
2. . . .
3. . . .
4. . . .
5. . . .
6. Religious Associations and Institutions Lay Employees
a. Office Clerks 2.50
b. All Other Workers 2 40
7. . . .
8. . . .
9. . . .
Classifications and Occupations Minimum Wage per Hour
10. . . .
11. . . .

On March 23, 1982, under the authority of the Act, defendants; the president and other officials of the Board, sent plaintiffs a letter and questionnaire to the various dioceses on the Island requesting certain financial data. The Church had been placed in the Miscellaneous Activities Industry, which is regulated by Mandatory Decree Number 70, fifth revision (1978). The information was requested so that the Board could prepare an economic study to help a soon-to-be-appointed Committee set a minimum wage rate in the industry. The Board seeks to compel disclosure of copies of the statement of income and expenses, including salaries of all employees, lay and religious, of the balance statement, including the value of such fixed assets as property, and of the payroll detailed by occupation.

Plaintiffs commenced this action for injunctive and declaratory relief in March 1983. The case is submitted on both parties’ briefs and replies. All facts have been stipulated, and the matter is now ripe for disposition.

II.

Before considering possible violations of the Religion Clauses of the First Amendment it is necessary to consider whether the statutes grant jurisdiction over the Church, which argues it is not an industry within the meaning of the Act. Section 245(c) extends coverage, however, to industries, businesses, and occupations. The Puerto Rico Supreme Court has repeatedly held that the essential basis for fixing wages and defining industries “is the nature of the services rendered by the employee who performs them, no matter in what type of occupation the enterprise or employer employing him is engaged.” Secretary of Labor v. A.W.I., Inc., 97 P.R.R. 340 (1969); Sierra Nunez v. Construction Equipment Corporation, 90 P.R.R. 136 (1964) . Section 245o (a). This construction obtains especially because of the important social development aims of the statute. See also, Secretary of Labor v. Cementerio Catolico Porta Coeli, 92 P.R.R. 512 (1965) ; Hospital San Jose, Inc. v. Minimum Wage Board, 63 P.R.R. 717 (1944).

The Church cites NLRB v. The Catholic Bishop Of Chicago, 440 U.S. 490, 99 S.Ct. 1313, 59 L.Ed.2d 533 (1979), for the principle that where there is a significant risk the First Amendment will be infringed, an “affirmative intention of Congress clearly expressed” is needed to include certain groups under coverage of a statute. Denying jurisdiction based on that holding depends, of course, on how one views the seriousness of the risk of infringing the First Amendment. As violation of the First Amendment determination is the central allegation brought by plaintiffs, it will be dealt with later in this opinion. In addition, the social development aims of the Act have jurisdictional ramifications not encountered in Catholic Bishop and the National Labor Relations Act. There the goal was industrial peace, which may or may not be advanced by recognizing lay teacher unions in secular schools. Here, it is to better the lot of workers in all covered occupations, which is being directly addressed by application of the Act to lay employees of the Church.

Minimum wages coverage has been held to extend to lay teachers, bus drivers, kitchen workers, and day care employees of church affiliated schools under the Fair Labor Standards Act, 29 U.S.C.A. 201 et seq. Donovan v. Shenandoah Baptist Church, 573 F.Supp. 320, 321 (W.D.Va.1983), Marshall v. First Baptist Church, 23 BNA Wage and Hour Cases 386 (D.C.S.C.1977). The types of employees of the Church covered by Mandatory Decree No. 70, such as janitors and office clerks, have similar duties.

The Salvation Army was found to be an employer in an industry affecting commerce based on the magnitude of its operations — 3,000 employees earning $7 million per year administering $147 million. McClure v. Salvation Army, 460 F.2d 553 (5th Cir.1972). The Catholic Church surely dwarfs the Salvation Army in terms of its size, its number of employees, its effect on commerce. Organizations affecting commerce may not escape the coverage of social legislation by showing they were created for fraternal or religious purposes. Mitchell v. Pilgrim Holiness Church Corporation, 210 F.2d 879 (7th Cir.1954).

If lay employees of church-related schools are covered by FLSA, as in Shenandoah and First Baptist, we see no reason why lay employees of churches standing alone should not be likewise covered. Courts have often stated that schools are an integral instrument of a church’s ideological function. Lemon v. Kurtzman, 403 U.S. 602, 92 S.Ct. 2105, 29 L.Ed.2d 745 (1971); Meek v. Pittenger, 421 U.S. 349, 95 S.Ct. 1753, 44 L.Ed.2d 172 (1975); Surinach v. Pesquera De Busquets, 604 F.2d 73 (1st Cir.1979). This “thorough religious permeation of the entire curriculum of parochial schools” is the reason forwarded for denying such government involvement as subsidies, Meek, supra, 421 U.S. at 368, 95 S.Ct. at 1765; Lemon, supra, 403 U.S. at 615, 91 S.Ct. at 2113, and NLRB jurisdiction, Catholic Bishop of Chicago v. NLRB, 559 F.2d 1112, 1122 (7th Cir.1977), for church-affiliated schools. The school is part of the church. It follows then that if certain employees of a church school are subject to minimum wage standards, so are employees in similar occupations working for the nonscholastic parts of the church. Both sets of employees are working for the church, and both sets are covered occupations. “There is no explicit exemption in FLSA for churches or church-related schools.” Donovan v. Central Baptist Church, 25 BNA Wage and Hour Cases 815, 816 (S.D.Texas 1982).

III.

Having established the Minimum Wage Board’s coverage over certain lay employees of churches, we must consider whether the manner or ends of imposing minimum wage standards infringes on First Amendment guarantees.

The First Amendment specifies that Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof. Some aspects of religion are completely immune from state interference. The government may not compel or foster any creed or religious practice, Braunfeld v. Brown, 366 U.S. 599, 81 S.Ct. 1144, 6 L.Ed.2d 563 (1961), and one has absolute freedom to hold any religious belief or opinion, Cantwell v. Connecticut, 310 U.S. 296, 303, 60 S.Ct. 900, 903, 84 L.Ed. 1213 (1940). This does not mean, however, that churches remain completely free of government regulations. “The First Amendment ... does not say that in every and all respects there shall be a separation of Church and State.” Zorach v. Clauson, 343 U.S. 306, 312, 72 S.Ct. 679, 683, 96 L.Ed. 954 (1952). Some relationship between church and state is inevitable. The line of separation is not a wall, but a blurred, indistinct, and variable barrier depending on the circumstances of the relationship. Lemon, supra, 403 U.S. at 614, 91 S.Ct. at 2112. Examples of legal restrictions on churches include fire inspections, building and zoning regulations, and compulsory school attendance standards. Id. See, also, Gillete v. United States, 401 U.S. 437, 462, 91 S.Ct. 828, 842-43, 28 L.Ed.2d 168 (1971) (denial of conscientious objector status when objection based on “unjust wars”); Prince v. Massachusetts, 321 U.S. 158, 168-69, 64 S.Ct. 438, 443, 88 L.Ed. 645 (1944) (protection of children from street proselytizers); Jehovah’s Witnesses v. King County Hospital, 390 U.S. 598, 88 S.Ct. 1260, 20 L.Ed. 158 (1968) (per curiam), aff'd. 278 F.Supp. 488 (W.D.Wash.1967) (override parents religiously motivated decision to withhold blood transfusion necessary to save baby’s life).

Having summarized the general constitutional principles, we now turn to the more particularized standards which have accreted over the years to test whether the Free Exercise and Establishment Clauses have been violated. Though these tests appear specific, application of them overlaps somewhat and is further complicated by separate consideration of the ends and means of the challenged statute.

Whether the Establishment Clause has been violated depends upon the application of a three-pronged test. First, the law must have a secular purpose. Second, its primary effect must not advance or inhibit religion. Third, its operation must not result in an excessive government entanglement with religion. Lemon, supra, 403 U.S. at 613, 91 S.Ct. at 2111.

The first two prongs are not troubling. The clearly expressed legislative intent of the Puerto Rico Minimum Wage Act is to better working conditions and aid development by securing a fair, uniform minimum wage for all workers. Any inhibition that could occur would be indirect and completely monetary, rather than ideological. Payment of a minimum wage is separable from religious practice. It is the third prong, excessive entanglement, that the Church maintains is involved in the Minimum Wage Board’s decree. In determining excessive entanglement with religion the courts will examine the character of the affected institution, the nature of the burden, and the resulting relationship between church and state. Id. at 614, 91 S.Ct. at 2112.

One form of excessive entanglement to which the courts have been sensitive occurs when the administration of a statute involves the government in making extensive classifications of what is and what is not religious. Lemon, supra, at 620, 91 S.Ct. at 2114-15; Walz v. Tax Commission of New York, 397 U.S. 664, 698, 90 S.Ct. 1409, 1426, 25 L.Ed.2d 697 (1970); Catholic Bishop, supra, 559 F.2d at 1120. Fine attempts to distill nonsectarian functions from sectarian and ritualistic are to be avoided.

The operational character of the Church and the occupational emphasis of the challenged legislation combine to make classification a relatively simple matter. Janitors clean the premises, messengers deliver messages. Office clerks maintain records. Such identification does not involve the extensive, convoluted line drawing contemplated in the IRS attempting to determine which church functions are not religious for property tax purposes. Walz, supra. While church janitors clean articles and sites involved in religious ritual, and office clerks may help maintain membership records, as well as more strictly temporal, administrative and financial records, their connection with religious practice in the performance of the duties for which they are remunerated are so attenuated as to become detached given the job classification focus of the Act. These employees are support staff, engaged in administerial and maintenance functions. They are specifically distinguished from religious orders in Church Canons. They do not perform ceremonial or ritual work. Janitors and clerks are engaged by the plaintiffs, so that plaintiffs may “properly carry out” plaintiffs’ religious purposes, Stipulation 13. Plaintiffs retain control of all decision-making. The parish priest is responsible for maintaining sacramental records, Canon 470, Section l, while “all those concerned” should strive to keep churches clean, Canon 1178. Employment of janitors, clerks, secretaries, and other nonritual lay employees is a concession to the mundane, bureaucratic world in which the church must function. Government regulation of certain aspects of that world through state police power and social legislation is necessary for society to exist in collective safety and well-being. We therefore feel that the imposition of minimum wage rates to lay employees of the Church does not affect the religious facet of the Catholic Church. Universidad, Central De Bayamon v. N.L.R.B., 778 F.2d 906 (1st Cir.1985).

Another aspect of entanglement the state must avoid is becoming involved in a continuing surveillance to an impermissible degree in order to maintain the separation between church and state. Walz, supra, 397 U.S. at 675, 90 S.Ct. at 1414; Lemon, supra, 403 U.S. at 616, 91 S.Ct. at 2114. Courts have been wary of schemes with “self perpetuating and expanding propensities,” Surinach, supra, at 78. The ease and assuredness with which the religious/nonreligious distinction may be made in this case ensures the state will not become excessively entangled with the day-to-day operations of the church. As far as requiring the payroll records of covered lay employees, and using them to impose and ensure compliance with minimum wage standards, the Board runs no risk of transgressing the well defined line into religious functions.

The situation presented in Surinach would have involved the state, imbued with ongoing, ill-defined powers, in the school accounting process in order to ensure compliance with its orders aimed at controlling the spiralling cost of private (including church) education. In the subsidy cases, Lemon, Meek, supra, state funded teacher salaries for secular subjects, instructional equipment and materials loans, and certain state provided remedial services have all been struck down due to the continuing entanglement that would be occasioned by the state surveillance necessary to ensure they were not used for religious purposes. Even such facially neutral things as movie projectors could foster religion if they were used to show religious films.

On the other hand, textbook loans to private sectarian schools have been generally upheld. Board of Education v. Allen, 392 U.S. 236, 88 S.Ct. 1923, 20 L.Ed. 1060 (1968). One can easily determine based on their content whether textbooks are religious. Meek, supra, 95 S.Ct. at 1761. Whereas math teachers may deliver religious instruction, math books, per se, cannot. The positions of the occupations of janitors, office clerks, and secretaries, in relation to religion, their duties, what they get paid for, are more closely analogous to math books than math teachers. Cleaning and filing are just that, and cannot be accorded a religious function except as a kind of devotion. Attempts to broaden the term “religious order” to include all employees of all church operations have failed the test of “economic reality” and been rejected on factual grounds. Tony and Susan Alamo Foundation v. Secretary Of Labor, — U.S. -, 105 S.Ct. 1953, 1961, 85 L.Ed.2d 278 (1985); Shenandoah, supra, at 323.

Because of the ease and assuredness with which the religious/nonreligious distinction may be made in this case and the resulting lack of a need for a high degree of state surveillance, the payroll records of covered lay employees should be made accessible to the Board. Perusing these records to ensure compliance is a straightforward, simple task, noticeably devoid of self-expanding propensities and religious practice entanglement. Some type of job description, in order to determine coverage under the statute, perhaps includable in the payroll record, is also proper. EEOC v. Southwestern Baptist Theological Seminary, 651 F.2d 277, 287 (5th Cir.1981). See also, EEOC v. Mississippi College, 626 F.2d 477 (5th Cir.1980), cert. denied, 453 U.S. 912, 101 S.Ct. 3143, 69 L.Ed.2d 994 (1981). Since the Church has already compiled payroll records, Stipulation 9, requiring it to make them available to the Board does not impose a significantly greater burden on church administration, Alamo, supra, 105 S.Ct. at 1964.

The Archbishop argues, and this Court agrees, that separate constitutional concerns obtain in the collection of financial data by the Board and in the purpose for such collection, imposition of minimum wage standards. Surinach, supra at 75 declared such a bifurcation artificial and constitutionally unsound, unless the power to regulate is conceded. There the court could not conceive “of any rational end product use of this information which will not encroach on appellant’s First Amendment rights.” If the imposition of minimum wage standards itself then does not necessarily violate the First Amendment, this Court may proceed with a bifurcated analysis. In Pacific Union Conference of Seventh Day Adventists v. Marshall, 434 U.S. 1305, 1309, 98 S.Ct. 2, 5, 54 L.Ed.2d 17 (1977) the Court rejected that church’s objection to the government’s discovery request to examine payrolls to determine applicability of the equal pay section of the FLSA, saying the full record must be compiled before review on the merits of the constitutional issue is possible. Collection of limited data — job descriptions, employment contracts, salaries, gender and race of employees — was sanctioned in Southwestern Baptist as a means of determining to which employees the statute was applicable.

The analysis in this case has proceeded along this path. Limited records have been allowed to determine that the Board has jurisdiction over the Church. The power to require payment of minimum wages to lay employees of the Church does not violate the Establishment Clause of the First Amendment as an excessive entanglement with religion. Turning down the second of the bifurcated paths, it is necessary to subject the Board’s request to investigate other financial records, not directly related to ensuring compliance, to the same scrutiny.

The Board has requested that it be permitted access to the Church’s records of balance statements, income and expense statements, and salaries of. non-religious. The Board seeks these records, not needed for the imposition of minimum wages, pursuant to the procedures detailed in the Act for revising and setting industry-specific wage rates. Requiring submission of detailed information about the financial structure of the Church has the “self-perpetuating and self-expanding propensities” which trigger a greater risk of an unconstitutional degree of entanglement. Surinach, supra, at 78. This information, in the hands of the government, would be subject to public perusal, and possible governmental entanglement in administration other than ensuring compliance with minimum wage rates. Compelled production of the entire financial universe of the Church thus violates the First Amendment.

The Church also alleges a general violation of the Free Exercise Clause of the First Amendment. In determining whether a neutrally based statute violates the Free Exercise Clause the test consists of 1) the impact on the exercise of religious belief, 2) the compellingness of the state interest, and 3) the extent exemption from coverage would impede state objectives. EEOC v. Mississippi College, 626 F.2d 477, 488 (5th Cir.1980).

The impact on exercise of religious belief was considered in Catholic Bishop of Chicago, supra, 559 F.2d at 1123. Lay teachers protected by the NLRA could claim the right to take pro-abortion stances as a term or condition of employment. This would impede the Bishop’s ecclesiastical authority to direct Church dogma. Personnel decisions would be chilled. Surinach, supra, at 77 held similar impediments to exercise of religious belief exist in state regulated allocation and curriculum decisions. A church-affiliated school has the right to spend as much of its money as it chooses on religious subjects or religious aspects of nonsectarian subjects.

Here no such danger exists. The dogmatic aspects of the Church are left untouched. The only effect on Church administration and religious decisions would be indirect. The Church might have to dismiss some employees and curtail its activities if forced to pay minimum wage, Stipulation # 17. The Court of Appeals in Alamo v. Secretary Of Labor, 722 F.2d 397, ruled this to be no direct restraint on the freedom to worship. Moreover, the Church itself believes in paying its workmen a “decorous and fair salary”, Canon 1524.

Not all burdens on churches are unconstitutional. Many examples were listed earlier. The state may justify a burden on religious liberty by showing an overriding governmental interest. Wisconsin v. Yoder, 406 U.S. 205, 220-21, 92 S.Ct. 1526, 1535-36, 32 L.Ed.2d 15 (1972); Sherbert v. Verner, 374 U.S. 398, 406, 83 S.Ct. 1790, 1795, 10 L.Ed.2d 965 (1963). The social development aims of the Minimum Wage Act fall into this category. The high unemployment in Puerto Rico, the lower standard of living and lower minimum wage rate than on the mainland, make protection of workers more crucial. The size of the Catholic Church, its high number of lay employees not engaged in religious activity, make exemption of it from this legislation a significant impediment to compelling state social objectives. On the other hand, blanketly exempting churches from having to pay minimum wages may constitute special treatment in violation of neutrality principles. See U.Pitt.L.R. 465 (1979). The second prong of the test for violation of the Establishment Clause prohibits advancement, as well as inhibition of religion.

IV.

In addition to justifying a burden on the free exercise of, or threatened entanglement with religion by showing a compelling state interest, the Commonwealth must show there exists a no less restrictive or entangling alternative. Sherbert v. Verner, supra, at 407, 83 S.Ct. 1790; Walz, supra, 397 U.S. at 674-75, 90 S.Ct. 1409. This the Commonwealth has not done. A less entangling alternative would be to require only payroll records of covered employees in order to ensure compliance, which we have held does not violate the Establishment Clause of the First Amendment.

While the statutory framework empowers the Board to collect other data such as balance sheets, income and expenses, and salaries, as well as impose minimum wage rates, the First Amendment precludes exercise of certain of these powers. See Shenandoah v. Pesquera De Busquets, supra. Limited application does not violate the principle of separation of church and state. In EEOC v. Southwestern, supra, the arguments and ruling were limited to the Equal Pay provisions of FLSA. The selective and bifurcated powers of the Minimum Wage Board of Puerto Rico were affirmed in Cerveceria Corona, Inc. v. M.W.B., 98 P.R.R. 784 (1970), where it was ruled that the Board retained the power to determine which classes of employees in an industry were and which were not subject to those parts of a Mandatory Decree concerning vacations and sick leave.

Compelling the Church to produce balance statements, statements of income and expenses, salaries paid to religious personnel, depreciation of lots and buildings and other equipment, creates the likelihood of entanglement that the First Amendment proscribes.

Accordingly, plaintiffs motion for injunctive and declaratory relief is denied in part and granted in part. The compelled production of wage rates for lay employees of the Roman Catholic Church to the Minimum Wage Board of Puerto Rico and the enforcement of minimum wage rates on and by the same parties, is declared constitutionally sound. The compelled production of the other requested documents and data constitutes an excessive entanglement with religion and as such violates the Establishment Clause of the First Amendment of the Constitution of the United States of America, and is hereby enjoined.

The Clerk shall enter judgment in line with the foregoing.

IT IS SO ORDERED.

      . The Puerto Rico Minimum Wage Act closely followed the statutory scheme provided in the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. The Minimum Wage Board is also empowered to establish working conditions, vacations, and sick leave. For a comprehensive discussion of these bifurcated powers of the Board, see Cerveceria Corona, Inc. v. M. W.B., 98 P.R.R. 784 (1970).

      . The Church does not challenge the statutory power of the Board to classify industries and obtain information pursuant to the statutory scheme. Rather, it asserts that application to the Church by the Board of its statutory powers violates the Religion Clauses of the First Amendment.

      . "Office Clerks" and “all other workers” were increased to $3.25 and $3.15 respectively by virtue of the Sixth Revision (1982) to Mandatory Decree No. 70.

       These employees- shall not be covered by the minimum wage rates stipulated herein when they participate in ceremonies, liturgies or religious rituals.”

      . Paragraph 15 of the Stipulation of Facts of the parties provides in relevant part: “Defendants are enforcing and applying, and will continue to enforce and apply Minimum Wage Decree Number 70 upon the Roman Catholic Apostolic Church and its various organizations described in this stipulation such as janitors, clean up men and women, maintenance employees, messengers, office clerks, secretaries, social workers, and other employees who perform the nonceremonial or nonritual work for the said church and its various organizations.”

      . Canon 470. Section 1. The parish priest must keep the following records (books): one for baptisms, one for confirmations, one for marriages and deaths; he should also endeavor to keep with great care, whenever possible, a record (book) related to the state of souls; and should record and keep all these records (books) diligently, pursuant to the use approved by the Church or prescribed by his own Bishop.

      . Canon 1178. All those concerned should strive for the maintenance of the cleanliness in the churches as is becoming to the house of God, to keep away from the same the traffic and markets, even though held for a pious purpose, and in general, everything that is not in accord with the sanctity of the place.

      . Canon 1524 provides in pertinent part: "All, and especially the clergymen, the religious and the administrators of ecclesiastical goods, must assign to their workmen in their work contract a decorous and fair salary;..."


author: KANE, District Judge.

text:
    Alois T. WAGNER and Adeline E. Wagner, Plaintiffs, v. UNITED STATES of America, Defendant.
    Civ. A. No. 84-K-2065.
    United States District Court, D. Colorado.
    Dec. 19, 1985.

      James A. Mundt, Warren, Mundt, Martin & O’Dowd, Colorado Springs, Colo., for plaintiffs.
    Janice Brown Teague, Trial Atty., Tax Div., U.S. Dept, of Justice, Washington, D.C., Robert N. Miller, U.S. Atty., Denver, Colo., for the Government.
   MEMORANDUM OPINION AND ORDER OF DISMISSAL

KANE, District Judge.

The United States and Saudi Arabia executed a construction contract in accordance with the Arms Export Control Act, 22 U.S.C. § 2751 et. seq., and the Engineering Assistant Agreement of 1965, which provided for the United States Army Corps of Engineers to construct various facilities in Saudi Arabia. Plaintiff Alois Wagner was employed in Saudi Arabia under this contract.

Before commencement of the construction work, Saudi Arabia deposited an irrevocable letter of credit with the Chase Manhattan Bank in New York for an amount sufficient to fund the construction project. This amount included compensation for employees such as Alois Wagner.

Plaintiffs Alois and Adeline Wagner resided in the Kingdom of Saudi Arabia from 1976 to 1980. Alois Wagner was a federal civil servant employee of the Corps of Engineers with a rating of GS-12 in 1978, the subject year of this lawsuit.

Plaintiffs brought this suit against the United States, alleging that they were entitled to exclude their foreign earned income for 1978 from their gross income pursuant to 26 U.S.C. § 911. Plaintiffs claim, therefore, that they should have received a refund for the tax year 1978. This matter is now before me on cross motions for summary judgment. No facts are in dispute. Hence, summary judgment is appropriate.

Plaintiffs claim that their foreign earned income for 1978 is exempt from their gross income for that year pursuant to § 911, entitling them to a $5,991.00 refund from the government. Section 911(a) provides that under certain circumstances, a citizen of the United States who resides in a foreign country may exclude from his gross income amounts received while residing outside of the United States. In 1978, § 911(a)(1) provided in relevant part:

§ 911. Earned income from sources without the United States.
(a) General Rule.
The following items shall not be included in gross income and shall be exempt from taxation under this subtitle:
(1) Bona fide resident of foreign country. In the case of an individual citizen of the United States who establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) which constitute earned income attributable to services performed during such uninterrupted period.

26 U.S.C. § 911(a)(1) (emphasis supplied).

In McComish v. Commissioner of Internal Revenue, 580 F.2d 1323 (9th Cir.1978), the Ninth Circuit thoroughly analyzed the legislative history of this section of the Internal Revenue Code and concluded that:

The purpose of section 116(a) [the precursor of § 911(a)] was to place Americans who reside and work outside the United States in an equal taxpaying position with citizens of other foreign countries and to encourage United States citizens to go abroad to provide technical expertise.

580 F.2d 1323, 1326.

Regarding the exception to the § 911 exemption, the Ninth Circuit further concluded:

It is also clear that the exception for employees of the United States or any agency thereof was designed to prevent United States government employees from obtaining a windfall under subsections 911(a)(1) or 911(a)(2).

580 F.2d 1323, 1326; see also S.Rep. No. 665, 72d Cong., 1st Sess. 31 (1932) and H.R.Rep. No. 1492, 72d Cong., 1st Sess. (1932).

In the instant case, it is undisputed that plaintiffs fall within the general exemption provided by § 911(a). Alois Wagner was a bona fide resident of Saudi Arabia for an uninterrupted period including the entire taxable year of 1978. The issue, however, is whether the exception to this general exemption applies, precluding plaintiffs’ claim for a tax refund. In other words, the question to be determined is whether Alois Wagner was paid by the United States or an agency thereof for his services during that year.

Plaintiffs claim that neither the United States nor any of its agencies paid for Alois Wagner’s services in Saudi Arabia because he was paid with pre-deposited Saudi Arabian funds. It is asserted that the United States merely acted as an intermediary and bore no financial risk for the Saudi Arabian project.

The government, on the other hand, claims that Alois Wagner was, at all times during 1978, an employee of the United States and, as such, was paid by the United States; despite the fact that sums for his salary had already been paid by Saudi Arabia. The government points to several factors establishing that Alois Wagner was a United States employee in 1978. Based upon his status as a United States employee, the government asserts that it is presumed that he was paid by the United States for purposes of the exception to § 911. Accordingly, the government argues that this exception prohibits Alois Wagner from excluding his foreign earned income for 1978 and receiving a tax refund.

To begin with, it is clear from the following facts that Alois Wagner was employed by the United States in 1978: 1) Wagner remained a federal civil servant under the supervision of other American personnel (Defendant’s Exhibit C, Alois Wagner’s deposition at 7-8 and exhibit 1 of the deposition); 2) Wagner received the same health benefits as he did prior to working abroad (Defendant’s Exhibit C, Alois Wagner’s deposition at 7 and exhibit 1 of deposition); 3) the years spent working in Saudi Arabia contributed to Wagner’s career tenure with the United States government (Defendant’s Exhibit C, exhibit 1 of Alois Wagner’s deposition); 4) Wagner’s only contract was with the Department of the Army (Defendant’s Exhibit C, exhibit 1 of Alois Wagner’s deposition and Defendant’s Exhibit G); 5) Wagner’s salary was paid by a check drawn by the Corps of Engineers (Defendant’s Exhibit F) and was contingent upon the performance of his contractual employment obligation with the United States; 6) Wagner received a 20 per cent increase over his base salary in 1978, for working abroad (Defendant’s Exhibit C, Alois Wagner’s deposition at 15-16 and exhibit 1 of deposition); 7) the United States provided training sessions for Wagner during his stay in Saudi Arabia (Defendant’s Exhibit C at 5 and at 12); 8) new assignments for Wagner were made by the United States employing office (Defendant’s Exhibit C at 9-10); and 9) the transportation agreement signed by Alois Wagner and dated October 27, 1975 (Defendant’s Exhibit C, Alois Wagner’s deposition, Exhibit 1), expressly states, “I will remain in the employ of the Federal Government at the overseas post of duty to which I am assigned or reassigned for a minimum period of 24 months”. All of these factors establish that Alois Wagner was an employee of the United States during 1978.

As an employee of the United States, it is presumed that he was paid by the United States or one of its agencies. See United States v. Johnson, 386 F.2d 824, 825 (5th Cir.1967) (when one is an employee of the United States, the conclusion necessarily follows that his wages were paid by the United States or an agency thereof). Under existing caselaw, it is inconsequential whether the funds used to compensate the employee have already been provided by a private entity or a foreign government. For example, in Smith v. Commissioner of Internal Revenue, 701 F.2d 807 (9th Cir.1983), the taxpayer attempted to exclude overtime pay received while he was a customs inspector in the Bahamas from his gross income. The taxpayer argued that the United States was a mere conduit for funds paid to him by the private airlines. The Ninth Circuit concluded otherwise: “Smith was compensated at all times as an employee of the United States, so that all of his income came within the ambit of funds which Congress indicated were to be taxed.” Smith, 701 F.2d 807, 809.

Further, in a case nearly on point with the one at bar, Johnson, 386 F.2d 824, the taxpayer, a civil service employee of the United States Bureau of Public Roads, was assigned to Iran for two years to work on a highway construction program. The taxpayer sought to exclude his salary from gross income for those two years. The Fifth Circuit held that “[t]he fact that the amounts expended for the highway project were reimbursed by Iran did not make the United States a mere agent or paymaster for Iran”. Johnson, 386 F.2d 824, 825. Other courts have stated that when United States employees are performing services for a foreign government, they are not entitled to exclude income under § 911(a) even though the ultimate source of the funds received is foreign. Commissioner of Internal Revenue v. Mooneykan, 404 F.2d 522, 527 (6th Cir.1968); Johnson v. United States, 182 Ct.Cl. 593, 390 F.2d 715, 717 (Ct.Cl.1968); Commissioner of Internal Revenue v. Wolfe, 361 F.2d 62, 67 (D.C.Cir.1966), cert. denied 385 U.S. 838, 87 S.Ct. 86, 17 L.Ed.2d 72 (1966).

Moreover, as previously stated, the purpose for the exception to the § 911 exemption was to prevent United States employees from receiving a double tax benefit. It is undisputed that plaintiffs did not pay any taxes for 1978 to the Saudi Arabian government. If I were to rule that the plaintiffs were able to exclude their foreign earned income for that year, the legislative intent of § 911(a)(1) would be defeated.

For these reasons, I conclude that Wagner was indeed paid by the United States for purposes of the exception to § 911(a)(1). Alois Wagner is not entitled to a tax refund for 1978 under § 911. Accordingly, this case is dismissed.

IT IS THEREFORE ORDERED THAT;

1. Plaintiffs’ motion for summary judgment is denied.

2. Defendant’s cross motion for summary judgment is granted.

3. This case is dismissed with prejudice. Each party shall bear his own costs.

      . Plaintiff Adeline Wagner was joined as a party in this action because in 1978 she signed the income tax return jointly with her husband.

      . Pursuant to Rule 402(f) of the Local Rules of Practice, plaintiffs could have applied to this court for permission to file a reply brief, responding to the government’s cross motion for summary judgment. Plaintiffs failed to make a request and no reply brief was filed.

      . 26 U.S.C. § 911(a)(1) was amended in 1981. See Pub.L. No. 97-34, Title I, § 111(a), 95 Stat. 190 (1981).

      . The Foreign Military Construction Sales Act, 22 U.S.C. § 2769, mandates advance payment for work to be performed by United States employees. Wagner’s claim that he was hired and paid pursuant to this section further demonstrates that he was an employee of the United States or one of its agencies.


author: SWEET, District Judge.

text:
    R. Stockton RUSH, III, Plaintiff, v. OPPENHEIMER & CO., INC., and Scott Seskis, Defendants.
    No. 84 Civ. 3219 (RWS).
    United States District Court, S.D. New York.
    Dec. 24, 1985.

      Lovell & Stewart, New York City, for plaintiff; Christopher Lovell, Victor E. Stewart, of counsel.
    Gold, Farrell & Marks, New York City, for defendants; Martin R. Gold, Hugh M. McGovern, of counsel.
   SWEET, District Judge.

Plaintiff R. Stockton Rush III (“Rush”) commenced this action against co-defendants Oppenheimer and Co., Inc. and Scott Seskis (collectively “defendants”) seeking to recover for damages caused by the defendants’ alleged violations of the federal securities laws, violations of New York State common law principles of fraud and breaches of fiduciary duty, and violations of Section 901(a) of the Organized Crime Control Act of 1970. On July 19, 1985, Rush moved pursuant to Rule 15(a) of the Fed.R.Civ.P. to reinstate his RICO cause of action which was dismissed by this court on August 23,1984 for failure to state a claim upon which relief could be granted. Rush v. Oppenheimer & Co., Inc., 592 F.Supp. 1108 (S.D.N.Y.1984). For the reasons set forth below, the motion to reinstate the civil RICO claim is denied.

Prior Proceedings

On May 8, 1984, Rush filed this complaint claiming that the defendants (1) violated section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated under that section. 17 C.F.R. § 240.10b-5 (1983); (2) violated a fiduciary duty to Rush arising under the laws of New York; (3) engaged in an on-going “racketeering activity” prohibited by section 901(a) of the Organized Crime Control Act of 1970, entitled Racketeer Influenced and Corrupt Organizations Act 18 U.S.C. § 1961 et seq. (hereinafter “RICO”).

On June 25, 1984, the defendants moved for an order dismissing the complaint pursuant to Rule 9(b) Fed.R.Civ.P. for failure to allege fraud with sufficient particularity, and pursuant to Rule 12(b)(6) Fed.R.Civ.P. for failure to state a claim upon which relief could be granted. At oral argument on this motion, Rush consented to file an amended complaint to satisfy the particularity requirements of Rule 9(b) and filed this amended complaint on August 23, 1984. By opinion of August 23, 1984, this court granted the defendants 12(b)(6) motion with respect to the punitive damages claimed under the cause of action for common law fraud, and with respect to the civil RICO claim. The claim based on the alleged 10b-5 violations withstood the challenge of the 12(b)(6) dismissal motion.

On August 31, 1984, Rush filed a motion for reargument on the portion of the August 23, 1984 opinion which dismissed his claim for punitive damages under common-law fraud principles. This motion to reinstate the punitive damages claim was granted on November 9, 1985, Rush v. Oppenheimer & Co., Inc., 596 F.Supp. 1529 (S.D.N.Y.1984). The defendants’ subsequent motion to sever the pendent common law claims and compel arbitration of those claims was denied. Rush v. Oppenheimer & Co., Inc., 606 F.Supp. 300 (S.D.N.Y.1985), however, such denial of the motion to sever the common law claims was reversed on appeal. Rush v. Oppenheimer, 779 F.2d 885 (2d Cir.1985).

Facts

The facts set out in this court’s prior opinions must be reiterated here in order to evaluate whether Rush has properly pled his RICO claim. This action arises out of a two-year stock broker-customer relationship between Rush and the defendant Scott Seskis (“Seskis”) who was employed by defendant Oppenheimer & Co., Inc. (“Oppenheimer”), as a registered representative. Rush alleges that Seskis, under the control and supervision of Oppenheimer, a Delaware corporation engaging in the business of securities brokerage, excessively traded the stocks in Rush’s account (“churning”), and knowingly made unsuitable recommendations to Rush as to the purchases of stocks.

According to Rush, Seskis began to solicit Rush’s business in November, 1981, and requested that Rush open an account with him at Oppenheimer. Rush alleges that he made it clear to Seskis from the start that he was a novice at investing, and that he was a financially unsophisticated eighteen-year old with no prior dealings with investment houses and no prior experience with the “devices of Wall Street.” Rush also claims that during the first two months of this business relationship, he informed Seskis that his primary concern was an inheritance of 20,000 fully-paid shares of Natomas Company common stock which was being held for him in trust, and which he could not sell for tax reasons.

Seskis allegedly made persistent efforts from November through December, 1981 to convince Rush to transfer his Natomas shares into his Oppenheimer account, where they could be used as collateral for purchases made on margin. Rush states that he refused such transfer requests, and claims that he clearly conveyed to Seskis his unwillingness to make investments on margin, a process which he did not understand and which he considered “dangerous.” Despite these expressed wishes of his customer, Seskis allegedly made the following untrue statements in an attempt to convince Rush to transfer his Natomas stock to Oppenheimer and permit Seskis to use these shares as collateral for risky stock transactions:

(a) that defendants were among the few brokers in the country who had the skill to invest in and “write” call options on equity securities in a conservative, risk-free system;
(b) that defendant Seskis had developed and refined a system of writing call options which was guaranteed to produce income as regularly as “dividends on blue chip stock”;
(c) that defendant Seskis had numerous large accounts trusting him to invest for them in securities and, particularly, options thereon pursuant to his system;
(d) that defendant Seskis was financially well-off, recommended profitable options and other investments on a consistent basis, and that “see, every day that goes by that you don’t get your Natomas stock in here, you lose money we would have made for you writing options on it”;
(e) that defendants had “excellent” skill, operations and integrity on which plaintiff could rely and in which he could place his trust and confidence, for investment advice in the nature of a fiduciary relationship as existed over his trust account; and
(f) that defendants intended to avoid the “margin” investments which plaintiff had stated he wanted to avoid, and intended to undertake a prudent Natomas options writing program against his Natomas stock, and that he should, therefore, transfer the Natomas shares out of his trust account where he would make more money.

Rush’s amended complaint also enumerates the omissions of material facts necessary to make Seskis’ representations misleading (K 16a-g). According to Rush, he entrusted his Natomas shares to the defendants on or about March 31, 1982 in reliance on these misrepresentations, with the understanding that Seskis would undertake only a strictly limited program of writing Natomas options against the Natomas stock. Rush asserts that in the 18 months following the transfer of control over the Natomas shares to defendants, the defendants purchases unauthorized, unsuitable securities for Rush’s account; charged Rush $92,000 in brokerage commissions and $47,-000 in margin interest on an average equity balance of $275,000; caused him in excess of $300,000 in “investment” losses; made 325 separate transactions in his account; transformed such account into defendant Seskis’ largest single and principal source of income; and “turned over” the $275,000 average account balance in excess of ten times. Throughout this period, and without Rush’s permission, defendants allegedly traded in unauthorized stocks and financed these purchases with “margin” loans on Rush’s account secured by Rush’s Natomas stock. Rush alleges that deféndants would only obtain his consent to these transactions subsequent to the transaction itself, and that such consent was obtained obliquely at best and by further untruthful assertions regarding the nature of the stocks purchased and the justification for such purchases.

Rush further alleges that in June, 1982, he informed Seskis that he would be out of touch for the summer and instructed him to limit activity in the account to the liquidation of existing non-Natomas positions or the writing of options against his Natomas stock. According to Rush, however, defendants escalated the prohibited activities in the period between June 14 and August 11, initiating numerous purchases and sales of securities financed by margin loans on Rush’s account. When Rush returned in August, he discovered and vigorously protested these continued violations of his understanding with Seskis. Rush claims that Seskis, in order to maintain Rush’s acquiescence in transactions violative of the pre-summer agreement and in order to maintain Rush as a client, began to deceive Rush about both the nature of the securities defendants were purchasing and the underlying profitability of Rush’s account, knowingly transforming large losses into apparent profits. Relying upon these false reports, Rush consented to defendants’ continued control over his account until September, 1983, during which time Seskis purchased unauthorized stocks and highly risky options through margin financing. Finally, in September, 1983, upon being informed of the nature of the defendants’ transactions over the prior period, Rush allegedly demanded a written profit and loss accounting. Rush maintains that defendants refused to produce such a document, falsely claiming several times to have sent him such an accounting.

Rush’s final allegation states that in September, 1983, the defendants convinced him to purchase 11,000 shares of “Computer Devices” by falsely and knowingly asserting that a French financing would bolster that company’s prospects. On or about October 31, 1983, Computer Devices filed for protection under Chapter 11 of the Bankruptcy Code, and Rush alleges that the financing of which defendants informed Rush was never a reality.

Soon after October 31, 1983, Rush claims to have ordered the liquidation of all his securities at Oppenheimer.

Discussion

Rush seeks to reinstate his civil RICO claim based upon a recent Supreme Court decision overturning the Second Circuit’s construction of the Racketeer Influenced and Corrupt Organizations Act in Sedima, S.P.R.L. v. Imrex Co., Inc., 741 F.2d 482 (2d Cir.), rev’d, — U.S. -, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). In Sedima, the Second Circuit held that the plaintiff’s complaint was insufficient to constitute a claim under civil RICO for two reasons. First, the Court held that the plaintiff failed to allege an injury stemming from an activity that RICO was designed to deter as distinguished from direct injury as a result of the predicate act violations. Second, Sedima’s claim failed to allege that the defendant had been criminally convicted of the predicate acts of mail fraud and wire fraud, a requirement which it inferred from the reference in the civil cause of action section to a “violation” of § 1962, the section providing a list of prohibited criminal activities under the statute. Id. at 495-503.

Relying on the Second Circuit’s construction of the civil RICO prerequisites in Sedima, this court dismissed Rush’s civil RICO claim on the following grounds:

Rush fails to allege the necessary requisites of a civil RICO case as recently redefined by this Circuit in Sedima, S.P.R.L. v. Imrex Co., Inc. [741 F.2d 482] 83-7965, slip op. (2d Cir. July 25, 1984). The prior criminal convictions of defendant that must be alleged as the predicate offenses are clearly not set forth. Nor is the special “racketeering injury,” as defined in Sedima, supra, at 5561 [496], alleged by Rush. Count three is consequently dismissed.

On July 1, 1985, the Supreme Court reversed the Second Circuit’s Sedima decision, holding that a plaintiff need not establish a “racketeering injury” as distinct from a violation of two or more predicate acts under the statute, and that civil RICO actions do not require that plaintiff demonstrate that defendant was previously convicted of a predicate act or a RICO violation. In view of the fact that Rush’s claim did not meet the Second Circuit’s requirements for the pleading of a civil RICO action, this court did not consider whether the remaining aspects of Rush’s claim met the substantive prerequisites for bringing such a claim.

Statutory Background

RICO was enacted as a criminal statute aimed at preventing the infiltration of business enterprises by organized crime. United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981); Russello v. United States, 464 U.S. 16, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983). Congress included a private right of action under the statute, “private civil RICO,” to protect anyone injured “by reason of” a violation of the act, 18 U.S.C. § 1964(c) which specifically requires a civil RICO plaintiff to establish the elements of the substantive RICO offense which it has allegedly been violated by the defendant, in this instance violations of sections 1962(a), (e), and (d). Section 1962(d) makes it unlawful for any person to conspire to violate any of the provisions of subsection (a), (b) or (c) of the same subsection, referring our inquiry back to section 1962(c) which provides:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1962(c). Such “enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact or not a legal entity. 18 U.S.C. § 1961(4). A “pattern of racketeering” is defined as the commission of two or more specified predicate criminal acts within a ten-year period, 18 U.S.C. § 1961(5), including the predicate acts which Rush alleges herein, mail fraud under 18 U.S.C. § 1341 and wire fraud under 18 U.S.C. § 1343. 18 U.S.C. § 1961(1)(A).

Discussion

From these interwoven sections the Second Circuit has fashioned a private civil RICO “checklist,” outlining the plaintiff’s burden in attempting to allege a substantive RICO violation:

First, he must allege that the defendant has violated the substantive RICO stabute, 18 U.S.C. § 1962 (1976), commonly known as “criminal RICO.” In so doing, he must allege the existence of seven constituent elements: (1) that the defendant (2) through commission of two or more acts (3) constituting a “pattern” (4) of “racketeering activity” (5) directly or indirectly invests in, or maintains an interest in, or participates in (6) an “enterprise” (7) the activities of which affect interstate or foreign commerce. 18 U.S.C. § 1962(aHc) (1976).

Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir.1983).

Rush contends that his amended complaint meets all these requirements for the pleading of a civil RICO claim. The defendants contend, however, that Rush’s RICO claim is defective because it (1) fails to demonstrate that Oppenheimer is a proper defendant as Oppenheimer was not a principal or participant in the alleged violations; (2) fails to distinguish between a “person” and “enterprise” under the statute; (3) fails to allege a “pattern of racketeering activity” in accordance with the Supreme Court’s Sedima opinion; and (4) fails to adequately plead the existence of a RICO conspiracy. Each of these contentions will be addressed in turn.

A. Oppenheimer as Defendant

Rush’s amended pleadings seek to add a civil RICO claim against defendants to this action, naming Oppenheimer as both an “enterprise” and a “person” conducting the enterprise’s affairs through a pattern of racketeering activity in violation of Section 1962(a) and (c). Rush contends that Oppenheimer can be both “enterprise” and “person” under the two sections of the statute because it received substantial income derived from Seskis’ racketeering pattern and used the proceeds of this racketeering activity in the operation of the New York Plaza Office of Oppenheimer in violation of section 1962(a) and conducted its own affairs through a pattern of racketeering in violation of section 1962(c). Oppenheimer contends that it cannot be named as a RICO defendant because Rush is required to differentiate between an enterprise and a person under § 1962(a) and (c), and that it cannot be a “person” who violated § 1962 because it did not actively or knowingly participate in Seskis’ alleged frauds.

1. Liability for a 1962(c) Violation

Section 1962, which defines the elements for both criminal and civil RICO offenses, prohibits any “person” (including a corporation), employed by or associated with any interstate “enterprise,” from conducting the affairs of this enterprise through a “pattern of racketeering activity.” 18 U.S.C. § 1962(c). This “pattern of racketeering activity” (established by the commission of at least two predicate acts defined by § 1961(5)) must have a nexus to the “enterprise” through which these acts are committed. Moss v. Morgan Stanley, 553 F.Supp. 1347, 1363 (S.D.N.Y.), aff'd, 719 F.2d 5, 17 (2d Cir.1983). The Second Circuit’s test for establishing this nexus between the violations of section 1962 and the enterprise which forms the vehicle for the violation was set out in United States v. Scotto, 641 F.2d 47, 54 (2d Cir.1980) which provided:

[o]ne conducts the activities of an enterprise through a pattern of racketeering when (1) one is enabled to commit the predicate offenses solely by virtue of his position in the enterprise or involvement in or control over the affairs of the enterprise, or (2) the predicate offenses are related to the activities of that enterprise. Simply committing predicate acts which are unrelated to the enterprise or one’s position within it would be insufficient.

The Second Circuit made it clear with the Scotto test that although a nexus exists between the “enterprise” and “person” violating the statute, they cannot be the same entity for the purpose of section 1962(c). The Supreme Court’s opinion in United States v. Turkette, supra, 452 U.S. at 583, 101 S.Ct. at 2528, concurred with this interpretation of this section concluding “while the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other ... the existence of an enterprise at all times remains a separate element which must be proved.” Id. at 583, 101 S.Ct. at 2528.

The portion of the amended complaint claiming a RICO violation under 1962(c) is therefore defective because it fails to distinguish between Oppenheimer as defendant “person” and Oppenheimer as the infiltrated “enterprise,” a defect which courts in this Circuit and elsewhere have found fatally at odds with the language of the statute. Bennett v. United States Trust Co., (and cases cited therein) 770 F.2d 308 (2d Cir.1985); Kaufman v. Chase Manhattan Bank, N.A., 581 F.Supp. 350 (S.D.N.Y.1984); Dakis ex rel. Dakis Pension Fund v. Chapman, 574 F.Supp. 757 (N.D.Cal.1983); Pames v. Heinold Commodities, Inc., 548 F.Supp. 20, 23 (N.D.Ill. 1982). As the Second Circuit explained in Bennett v. United States Trust Co. of New York, supra, the separation of the “entity” and “person” is consistent with both the policy and language of the statute:

As the above decisions point out, requiring a complaint to distinguish between the enterprise and the person conducting the affairs of the enterprise in the prohibited manner is supported by the plain language of section 1962(c), which clearly envisions two entities. Moreover, requiring a distinction between the enterprise and the person comports with legislative intent and policy. Such a distinction focuses on the culpable party and recognizes that the enterprise itself is often a passive instrument or victim of the racketeering activity.

770 F.2d at 315. (citations omitted).

Rush’s amended complaint attempts to circumvent this 1962(c) pleading requirement by distinguishing Oppenheimer the defendant from Oppenheimer the enterprise, claiming that the “person” engaged in a pattern of racketeering activity is the larger corporation, while the “enterprise” through which the racketeering acts were conducted was Oppenheimer’s One New York Plaza office. This distinction simply seeks to avoid the pleading requirements of section 1962.

The One New York Plaza office is Oppenheimer’s central office, and is for these purposes indistinguishable in structure from the corporation as a whole. We agree with the Fourth Circuit’s observations in United States v. Computer Sciences Corp., 689 F.2d 1181 (4th Cir.1982), that while a legally separate entity is not necessary to make out a separate enterprise, carving out a “piece” of a corporate defendant to create a distinct “enterprise” will not satisfy the pleading of a civil RICO claim:

There is however the remaining problem, ... of whether Congress ever intended, in 18 U.S.C. § 1962, that the statute prohibit activities by a person where the activities are described as occurring with any enterprise where there was identity between the person, on the one hand, and the enterprise, on the other. We conclude that enterprise was meant to refer to a being different from, not the same as or part of, the person whose behavior the act was designed to prohibit, and, failing that, to punish. To be sure, the analogy between individuals and fictive persons such as corporations is not exact. Still, we would not take very seriously, in the absence, at least, of very explicit statutory language, an assertion that a defendant could conspire with his right arm, which held, aimed and fired the fatal weapon. A corporation in common parlance is not regarded as distinct from its unincorporated divisions either.

689 F.2d at 1190. See also Moss v. Morgan Stanley, supra, 553 F.Supp. at 1360.

Further, Rush cannot rely on theories of respondeat superior to accomplish an end-run around this required distinction between person and enterprise under section 1962. Superimposing vicarious liability doctrines on the RICO criminality requirements would in this context permit the “enterprise” which is the conduit for these activities, to become the defendant by way of imputation, in a transparent attempt to reach a deeper pocket than the actual violator or perpetrator of the predicate racketeering acts.

Rejection of this reasoning in the civil RICO context is not a matter of first impression. Most courts considering the issue have prevented this attempt to blur the enterprise/person distinction. For example in Pames v. Heinold Commodities, Inc., supra, 548 F.Supp. at 23-24, the district court observed that it would make little sense to hold a corporation liable for the alleged crimes of its lower level employees when the corporation appears to be a passive conduit or victim of the racketeering activity. In reaching the conclusion the court stated “By elementary principles of construction, the Section 1964(c) cause of action — a suit for ‘violation’ of section 1962 —must be asserted against the violator under the latter section. The violator is the person’ that has engaged in the ‘unlawful’ conduct. It would be an obvious distortion to permit suit against the ‘enterprise’ that had itself been infiltrated by the ‘unlawful’ conduct or participation of the ‘person’ — the ‘enterprise’ that may itself have been a victim of the racketeering activity.” Id. at 23-24. The Pames Court noted, “That sort of respondeat superior application, perhaps reasonable to establish ordinary civil liability, would be bizzare indeed as a means to warp the facts alleged in this case into the RICO mold.” Id. at 24. The Seventh Circuit endorsed this resolution of the question of vicarious liability for civil RICO predicate acts in Haroco v. American National Bank & Trust Co., 747 F.2d 384, 402 n. 20 (7th Cir.1984), aff'd on other grounds, — U.S. -, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985), by dismissing the notion that respondeat superior liability could operate to make a corporate enterprise vicariously liable under section 1962(c) for violations of the predicate acts.

In a number of cases this analysis has been applied to dismiss claims which name the enterprise as co-defendant for the alleged predicate RICO act violations of its employees. See, e.g., Schofield v. First Commodity Corp., No. 83-4137-Z (D.Mass. April 29, 1985); Northern Trust Bank/O’Hare N.A. v. Inryco., 615 F.Supp. 828, 835 (D.C.Ill.1985). For example, in Dakis ex rel. Dakis Pension Fund v. Chapman, supra, 574 F.Supp. 757, the plaintiff charged two brokerage firms with vicarious RICO liability for the alleged “churning” of a customers’ account by the account executive. The Dakis Court, recognizing that the brokerage firms were only conduits for the churning, refused to make the “quantum leap” from the acts of a lower level corporate employee to vicarious corporate liability under civil RICO:

It would be an anomalous result indeed if, because Chapman had misused his authority to trade the accounts, and had actually violated internal guidelines of the firms by so doing, the firms were nonetheless deemed “aggressor” enterprises liable under RICO. At most plaintiff’s allegations portray the firms as essentially legitimate businesses which permitted themselves to act as the “conduits” for Chapman’s securities violations. The firms, as well as the plaintiff, suffered direct economic harm from Chapman’s deeds: the loss of her two accounts, as well as any liability to which they are held under the securities laws for plaintiff’s action here. Interestingly, we suggest that the firms, more than the plaintiff, may be proper plaintiffs of a RICO action against Chapman; under the present allegations, the firms would appear to satisfy the three-pronged standing requirement of (1) being otherwise legitimate business enterprises; (2) which have been either metaphysically infiltrated or competitively injured; (3) by another’s commission of two predicate offenses within a period of ten years.

The two cases upon which Rush relies to support his belief that Oppenheimer can be vicariously lible for Seskis’ acts are inapposite to this context. In Morley v. Cohen, 610 F.Supp. 798 (D.Md.1985), the district court of Maryland imputed liability under RICO for the predicate acts of its employees, however, the “person” (Cohen) was the sole shareholder of one of the “enterprises” and the general partner of the other two, a relationship so intertwined that the court could hold that “Cohen [and the corporate defendants] each conducted or participated in the conduct of the enterprises' affairs within the meaning of RICO” Id. at 811. Thus vicarious liability followed from the factual finding that the “enterprise” was controlled by the “persons” violating the RICO statute, an inter-relationship which approaches the [U.S. v.] Hartley [678 F.2d 961 (11th Cir.1982)] test (for a 1962(a) violation) of corporation as the “central figure” in the fraudulent acts, and which justifies the change in role from “passive instrument” to “central figure.” See Haroco v. American National Bank & Trust Co., supra 747 F.2d at 401. Discussed in Part B infra.

Similarly in Bernstein v. I.D.T. Corp., 582 F.Supp. 1079 (D.Del.1984) where the court found that vicarious liability in the civil RICO context, the non-corporate defendants in the case were leading officers and directors of the named corporations and were not lower level employees of the corporation. Furthermore, the vicarious liability analysis in Bernstein seems flawed by the court’s statement that it did not need to reach the question of implied criminal liability because the case at bar rested on civil RICO violations. Id. at 1083. This failure to perceive that the civil liability under RICO rests on the violations of the criminal predicate acts which form a pattern of racketeering activity under section 1962 undermines the policy analysis of this court. In short, under the fact alleged by Rush in his amended complaint, Oppenheimer cannot be named as both “enterprise” and “person” under 1962(c) and cannot be a vicarious violator of the criminal predicate acts.

B. The 1962(a) Claim

Rush contends that Oppenheimer received substantial income derived directly and indirectly from Seskis’ racketeering activities, and invested such proceeds in Oppenheimer the “enterprise” in violation of Section 1962(a). Rush claims that even if this court imposes a separate pleading requirement for “persons” and “enterprise” under section 1962(a), the same is not required for pleading violations of section 1962(a). According to Rush, the court should undertake an ad hoc analysis of the “role” which the corporation has played in the alleged fraudulent scheme to determine whether in each instance the corporation is both recipient of the racketeering profits and perpetrator of the fraud. While this type of inquiry might be appropriate if the statute had intended to punish the enterprises infiltrated by the racketeering activity, it is an inappropriate inquiry for a statute aimed at punishing the perpetrators of the criminal acts.

The language of section 1962(a) requires the presence of the same elements as a section 1962(c) claim — an “enterprise,” a “pattern of racketeering activity,” and a “person” violating the predicate acts — only the relationship among these elements differs. Section 1962(a) provides in relevant part “It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or establishment or operation of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce ...” Thus where section 1962(c) envisions the racketeering acts conducted through the enterprise, section 1962(a) portrays the enterprise as the investment object of the criminal violators. The Seventh Circuit Court of Appeals in Haroco v. American National Bank and Trust Company, 747 F.2d 384 (7th Cir.1984), aff'd on other grounds, — U.S. -, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985) focused on this difference to reconcile what it viewed as a statutory tension: the recognition that passive enterprises victimized by the fraudulent or racketeering acts of its employees should not be named as persons or violators of the statute, and the desire to prosecute corporations which are the alter-egos of the criminal perpetrators but which protect the racketeering profits from the reach of fraud victims. The Haroco court concluded that the language of section 1962(c) required the distinct pleading of “person” and enterprise, because the former had to accomplish its pattern of racketeering through the use of the latter, two different roles in the criminal scheme which could not be engaged in simultaneously by one actor.

According to the Seventh Circuit, section 1962(a), however, required no temporal nexus between the violator and the enterprise; the person merely had to invest the tainted proceeds in the enterprise. The absence of this nexus permits the defendant to be both the racketeer and the enterprise investing in itself:

Subsection (a) does not contain any of the language in subsection (c) which suggests that the liable person and the enterprise must be separate. Under subsection (a) therefore, the liable person may be a corporation using the proceeds of a pattern of racketeering activity in its operations. This approach to subsection (a) thus makes the corporation-enterprise liable under RICO when the corporation is actually the direct or indirect beneficiary of the pattern of racketeering activity, but not when it is merely the victim, prize, or passive instrument of racketeering. This result is in accord with the primary purpose of RICO, which after all, is to reach those who ultimately profit from racketeering, not those who are victimized by it.

Id. at 401-02 (footnotes omitted). Accord, Bruss v. Allnet Communication Services, Inc., 606 F.Supp. 401 (N.D.Ill.1985).

However, a review of this distinction between the language of sections 1962(a) and (c) leads this court to the opposite conclusion. One can interpret the lack of a required nexus between person and enterprise in section 1962(a) to indicate the need for a more distinct pleading of enterprise and statute violator because the statute contemplates an enterprise which can be entirely unrelated to the predicate acts. While section 1962(c) contemplates a perpetrator working through the legitimate or illegitimate enterprise in further of a racketeering scheme, a section 1962(a) “enterprise” can be the bounty purchased with the racketeering profits, the entity used to “launder” the ill-gotten gains. Therefore, if it is inappropriate to plead identity in 1962(c), it is then inappropriate to plead it under section 1962(a), particularly in light of our knowledge that the statute was not intended to convict the infiltrated enterprise but the violator of the predicate acts. See Cashco Oil v. Moses, 605 F.Supp. 70, 71 (N.D.Ill.1985) (Haroco permits the concepts of enterprise and person to be mixed in a somewhat doubtful fashion). The fact that these two subsections use exactly the same terms for each actor in the criminal episode further supports a belief that such a compromise between competing goals cannot be superimposed on different subsections of the same statutory section. This conclusion reiterates the court’s pre Haroco conclusion in Kaufman v. Chase Manhattan Bank N.A., 581 F.Supp. 350, 356-57 (S.D.N.Y.1984). This interpretation would aggravate the already hopeless deviation of the RICO statute from its intended purpose in ferreting out organized crime. See Sedima S.P.R.L. v. Imrex Co., Inc., supra, — U.S. -, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985).

In his amended complaint Rush has not pleaded such an infiltration or participation by Oppenheimer in the alleged Seskis fraud, but relies heavily on concepts of vicarious liability to hold Oppenheimer responsible for the acts of its employee. Rush asserts that Oppenheimer strenuously pushed Seskis to obtain brokerage income for Oppenheimer, that Seskis was eventually terminated because of his failure to produce sufficient brokerage commissions and that Oppenheimer’s good reputation induced the general public to rely on its employee Seskis. Even when viewed in a light most favorable to Rush’s claims, these allegations describe Oppenheimer as distant and demanding employer but not as a direct participant in the alleged fraud of its employee. These allegations do not support the contention that Oppenheimer participated as a principal in the predicate acts as required by the Haroco Court to permit Oppenheimer the “enterprise” to be equated with a “person” who has actively committed the predicate racketeering acts outlined in section 1961(5).

A Pattern of Racketeering Activity

The defendants contend that Rush has not adequately pleaded facts demonstrating the existence of a “pattern” of racketeering activity. Section 1961(5) defines a “pattern of racketeering activity” as at least two “acts of racketeering activity” within a ten-year period, and sections 1961(1)(A) and (D) and specify mail fraud, wire fraud, and fraud in the sale of securities as acts of racketeering. Oppenheimer and Seskis contend that Rush’s “churning” allegations, and the allegedly fraudulent sales of shares in Computer Devices do not meet the latest standards set by the Supreme Court in its Sedima opinion for the demonstration of such a pattern. However, Rush’s amended pleadings do meet the standards of both the Second Circuit and the Supreme Court’s Sedima footnote for the existence of a pattern of racketeering activity

Oppenheimer and Seskis contend that Footnote 14 of the Supreme Court’s Sedima opinion, endorsing a concept of “continuity plus relationship,” narrows this Circuit’s definition of a pattern and precludes a finding of a pattern in this instance. In Sedima the Court quoted with approval from a Senate and House Report:

The target of [RICO] is thus not sporadic activity. The infiltration of legitimate business normally requires more than one “racketeering activity” and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern ...
Significantly, in defining pattern in the same bill, Congress was more enlightening: ‘criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.’

Id. at n. 14 (emphasis in original).

This court agrees that the above quoted Sedima language signals the courts of this Circuit to place increased emphasis on certain competing strains of “pattern” analysis. The current Second Circuit standards for establishing a “pattern of racketeering activity” can be characterized as a continuum test. On one end of the spectrum is the requirement that the predicate acts bear some relationship to each other, so that the statute is not used to punish sporadic or disjointed criminal violations. Although the Second Circuit has not endorsed the specific requirement that the predicate acts be related to each other in the sense of possessing a “unitary character” United States v. Weisman, 624 F.2d 1118, 1122 (2d Cir.1980), the Court noted that the requirements that the pattern be done in the conduct of the enterprise and that the acts be temporally related prevents the application of the statute to sporadic and unrelated criminal acts. Id. While the Weisman Court criticized the district court’s opinion in United States v. Stofsky, 409 F.Supp. 609, 614 (S.D.N.Y.1973), holding that "pattern” should be construed to require that the predicate acts of racketeering be “connected with each other by some common scheme, plan or motive,” this criticism should be reconsidered in light of the Supreme Court’s observation that Congress emphasized in drafting the pattern requirement “criminal acts that have the same or similar purposes, results, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” Sedima S.P.R.L. v. Imex Co., supra, 105 S.Ct. at 3285 n. 14.

At the other end of the “pattern” spectrum is the Supreme Court’s “continuity” requirement, the requirement that the pattern be constituted by acts which evidence the “threat of continuing activity” which the statute was designed to prevent. Id. at 14. Prior to Sedima, the courts of this Circuit have held that when the predicate criminal acts are part of one scheme to defraud, the common victim provides a link between predicate acts which permit them to constitute a “pattern” under the statute, United States v. Chovanec, 467 F.Supp. 41, 44 (S.D.N.Y.1979) (six incidents of wire fraud over a four-week period in an attempt to defraud one victim is a pattern of racketeering activity), and that a pattern can be demonstrated by predicate acts which constitute a single criminal transaction. United States v. Parness, 503 F.2d 430 (2d Cir.1974), see also, Kaufman v. Chase Manhattan Bank, N.A., 581 F.Supp. 350 (S.D.N.Y.1984) (citing Chovanec to find a pattern of racketeering activity established from mail fraud in furtherance of one criminal scheme). However, the Supreme Court’s enhancement of the “continuity” aspect of the pattern requirement casts doubt on the continued validity of cases which carve one criminal episode into multiple predicate act “pieces” and allege a “pattern” within the meaning of the statute. The Second Circuit, even before the Supreme Court’s Sedima opinion, had begun to question the appropriateness of holding that a “pattern” can be comprised of predicate act segments of one criminal project. See, e.g., United States v. Weisman, 624 F.2d 1118, 1123 (discussing the specter of an unintended RICO application caused by the multiplicity of predicate acts arising from a single substantive offense); United States v. Young, 745 F.2d 733, 767 n. 1 (2d Cir.1984) (predicate violations required for a criminal enterprise offense under 21 U.S.C. § 848 must be substantially distinct in time and place and if too closely related might not be a “series” of three violations under the statute).

Whatever the outcome of these shifting emphases in the “pattern” requirement, the facts alleged in Rush’s amended complaint demonstrate that Rush has adequately pleaded the existence of a “pattern” under these standards.

Seskis’ alleged fraudulent acts have consisted of multiple predicate acts of racketeering under the statute, including discrete allegations of “churning,” misrepresentations as to the riskiness, the profitability, and the type of activity being conducted in the account, and deceptions as to Seskis’ own skills and the unique nature of his services. These predicate acts, stretching over a period of eighteen months, evidence the requisite continuity to constitute a pattern of racketeering activity, without consisting of one criminal act divided into component pieces in order to satisfy the quantitative demands of the statute. Furthermore, Seskis’ alleged actions satisfy the “relationship” prong of the pattern inquiry, as they possessed the same “purposes results, victims or methods”, namely the alleged attempt to defraud Rush out of his stock equity.

Pleading Fraud with Particularity

Defendants’ contention that Rush has not pleaded fraud with sufficient particularity to satisfy Federal Rule of Civil Procedure 9(b) is also without merit. While a vague reference to the underlying securities fraud allegations will not be sufficient exposition of the basis of a RICO allegation, Mauriber v. Shearson/American Express, Inc., 546 F.Supp. 391, 397 (S.D.N.Y.1982), Rush’s amended complaint, drafted in response to this court’s July 6, 1984 request for a more particular categorization of his claims, sets out sufficient detail to withstand a Rule 9(b) challenge. The amended complaint has given defendants fair notice of the nature and grounds of Rush’s claims, Ross v. A.H. Robins Co., 607 F.2d 545 (2d Cir.1979), and any reputational harm to Seskis which stems from the allegation of this RICO offense has already been caused by the allegations of fraud held properly plead by this court in its August 24, 1984 opinion. Rush v. Oppenheimer, supra, 592 F.Supp. at 1108 (S.D.N.Y.1984).

For the aforementioned reasons, Rush is granted leave to add a civil RICO claim only against defendant Seskis to his amended complaint.

IT IS SO ORDERED.

      . Section 1964(c) 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.

        . The Supreme Court in United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981) made it clear that "enterprise” includes both legitimate and illegitimate businesses, and that the existence of both an "enterprise” and a "pattern of racketeering activity” are separate elements to be proved.

      . Section 1962(a) entitled Prohibited Activities, provides in relevant part:
      § 1962. Prohibited activities
      (a) 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 an 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, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect. interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.

      . Rush contends that Oppenheimer can be held vicariously liable for RICO predicate acts of Seskis as a result of its status as "control person” under section 20 of the Securities Exchange Act, 15 U.S.C. Section 78t (1976). However, in Moss v. Morgan Stanley, 553 F.Supp. 1347, 1362 (S.D.N.Y.), aff'd 719 F.2d 5 (2d Cir.1983), the court stated that "There is no possible argument that Morgan Stanley is criminally liable for the acts of anyone by reason of section 20(b) of the securities Exchange Act, 15 U.S.C. Section 78t(b). That section has been construed as requiring a showing that the controlling person ... knowingly used the controlled person to commit the legal act.” (citations omitted). Vicarious liability for criminal acts under § 20(b) therefore requires allegations of knowledge and participation not present in Rush’s amended complaint.

      . Rush also claims that Oppenheimer violated section 1962(d) which provides: "It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section.” The above conclusions concerning Oppenheimer’s lack of participation in the predicate acts under sections 1962(a) and (c) also preclude a finding of conspiracy to violate those same subsections. In order to properly allege a conspiracy to violate subsections (a), (b) or (c), Rush must assert that Oppenheimer “by his words or his actions ... objectively manifested an agreement to participate directly or indirectly, in the affairs of an enterprise through the commission of two or more predicate acts.” Chambers Development Co. v. Browning Ferris Industries, 590 F.Supp. 1528 (W.D.Pa.1984) (quoting Eaby v. Richmond, 561 F.Supp. 131 (E.D.Pa.1983)). "Such allegations must delineate among the defendants ‘as to their participation or responsibilities in making the statements which are the subject of the suit.” Van Schaick v. Church of. Scientology, 535 F.Supp. 1125, 1141 (D.Mass.1982). Most courts have held a corporation incapable of a RICO conspiracy with its employees, see McClendon v. Continental Group, Inc., 602 F.Supp. 1492, 1510 (D.N.J.1985); Chambers Development Co. v. Browning Ferris Industries, supra, 590 F.Supp. 1528, 1541-42 (W.D.Pa.1984), except in instances when the corporate veil was acting to shield a corporation infiltrated at its highest levels by racketeering activity. Mauriber v. Shearson American Express, Inc., 567 F.Supp. 1231, 1241 (S.D.N.Y.1983). (Intra-corporate RICO conspiracy can exist because the underlying acts of the civil conspiracy occur in a criminal context). Furthermore, as the Third Circuit court succinctly stated in Seville Industrial Machinery Co. v. Southmost Machinery, 742 F.2d 786, 792 n. 8 (3d Cir.1984) "Seville’s complaint alleges only that the defendants conspired to commit the acts of fraud that constitute the alleged pattern of racketeering activity. As the district court correctly noted, § 1962(d) prohibits conspiracies to knowingly further the affairs of the enterprise.” Mere agreement to commit the predicate acts is not sufficient to support a charge of conspiracy under § 1962(d).

      . Rush lists the securities law violations found against Oppenheimer in Miley v. Oppenheimer & Co., Inc., 637 F.2d 318 (5th Cir.1981) as one predicate act of racketeering under the RICO statute. Because this court holds that Oppenheimer cannot be named here as a violator of RICO, this predicate act allegation will not be included in the "pattern” analysis.


author: ROBERT L. CARTER, District Judge.

text:
    RONALD M., Petitioner, v. Leonard DUNSTON, Director of the New York State Division for Youth, Respondent.
    No. 85 Civ. 3551 (RLC).
    United States District Court, S.D. New York.
    Jan. 2, 1986.

      Lenore Gittis, Attorney for Petitioner Legal Aid Soc., Juvenile Rights Div., New York City, for petitioner; Mary A. Clark, of counsel.
    Frederick A.O. Schwarz, Jr., Corp. Counsel of City of New York, New York City, for respondent; Diane Morgenroth, of counsel.
   OPINION

ROBERT L. CARTER, District Judge.

The petition for a writ of habeas corpus, filed on May 9, 1985, was referred to Magistrate Buchwald on July 9, 1985, for all purposes, including a report and recommendation. Magistrate Buchwald filed her report and recommendation on October 23, 1985, recommending that the petition be denied. Counsel for petitioner by letter dated November 1, 1985, requested an extension until November 15, 1985, to file objections to the Magistrate’s report “due to the press of work and scheduled appellate arguments.” The objections were duly and timely filed on November 15, 1985.

Because of the objections, the matter must be reviewed by the court de novo. However, there is full accord and agreement as to what happened so that the only issue raised for review is whether Magistrate Buchwald is correct in her analysis of the law governing the case. Since the court concludes that the Magistrate is correct on the law, her report and recommendation is accepted and adopted as the judgment of the court.

FACTS

On March 6, 1984, petitioner, then 15 years of age, was arraigned before Family Court in New York County on charges of third degree grand larceny and resisting arrest. He was paroled to his mother’s custody pending a fact-finding hearing scheduled for April 12,1984. The fact-finding hearing was later adjourned to May 11, 1984. A pretrial Wade hearing was held on the morning of May 11, 1984, and the fact-finding hearing was held in the afternoon.

On the morning of May 11, 1984, prior to the Wade hearing, the Law Guardian representing the juvenile informed the court that the youth’s mother had telephoned him at 8:30 that morning advising him that she was too ill to come to court that day and requested an adjournment so that she could be present at the hearing. The Corporation Counsel opposed the request alleging that her witnesses, one of whom had come from Woodstock, New York, were present and available to testify. Nothing was presented to the court to substantiate the illness of the mother, and no inquiry was made by the court concerning the future availability of prosecution witnesses. The Law Guardian objected to proceeding in the absence of the mother. The court overruled these objections and proceeded with the hearing.

At the conclusion of the fact-finding proceedings, the court found petitioner guilty of both charges and remanded the petitioner to secure detention facilities pending his dispositional hearing. On May 23, 1984, petitioner was placed in a Title III facility with the Division for Youth for a period not to exceed 18 months. Petitioner was paroled to his mother on December 6, 1984, but remains in respondent’s custody for the duration of his placement.

Petitioner appealed to the Appellate Division, First Department, of the Supreme Court of the State of New York. The Family Court order was affirmed. Petitioner sought leave to appeal to the New York State Court of Appeals on grounds of conflict between the First and Second Departments. The appeal was denied. He then appealed to the New York State Court of Appeals as of right, and the appeal was dismissed.

DETERMINATION

The sole question in this ease is whether proceeding with the hearing in the absence of the mother denied petitioner federal due process rights to parental notification of delinquency proceedings. The court has no difficulty in concluding that no due process rights were violated. Petitioner places undue reliance on In re Gault, 387 U.S. 1, 87 S.Ct. 1428, 18 L.Ed.2d 527 (1967). The Gault court enunciated a requirement that parents be notified in writing of specific charges against the juvenile “at the earliest practicable time and in any event sufficiently in advance of the hearing to permit preparation.” Id. at 33, 87 S.Ct. at 1446.

The thrust of Gault was advance notice to parents of the specific charges against juveniles so that they could take appropriate steps for the defense of their children who are being proceeded against in Family Court. Gault does not provide a basis for the contentions made here that a juvenile whose parent, having ample notice of the charges and of the hearing date, notifies the court that she cannot be present on the scheduled date, is denied basic constitutional rights if the court proceeds with the hearing. The due process protection Gault sought to preserve had already been accorded petitioner in this case. The parent had notice of the charges and the date of the hearing. The latter had been postponed almost one month from the time it was originally scheduled. The mother, accordingly, had ample opportunity to do whatever was in her means to assist in preparation of petitioner’s defense. That is all that is required under the due process clause.

The petition for a writ of habeas corpus is denied.

IT IS SO ORDERED.