Full opinion text
MEMORANDUM OPINION AND ORDER REGARDING DEFENDANTS’ MOTION TO DISMISS BENNETT, District Judge. TABLE OF CONTENTS I. PROCEDURAL AND FACTUAL BACKGROUND....................................954 A. Procedural Background..........................................................954 B. The Amended Complaint.........................................................955 C. The Third-Party Complaint......................................................957 D. Factual Background.............................................................957 II. LEGAL ANALYSIS.................................................................959 A The Motion To Dismiss And Plaintiffs’ Federal Claims............................959 B. Standards For Dismissal Pursuant to Rule 12(b)(6) ...............................959 C. The RICO Claim................................................................960 1. Scope And Purpose Of RICO.................................................960 2. Elements Of Plaintiffs’ § 1962(c) RICO Claim .........................'........962 a. “Conduct ...” ...........................................................962 b. “Of an enterprise ...”....................................................966 e. “Through a pattern ...”..................................................968 d. “Of racketeering activity ...”.............................................970 i. Mail and wire fraud.................................................970 ii. Securities fraud. ....................................................974 in. Bankruptcy fraud....................................................974 D. Securities Laws Violations.......................................................975 1. The Definition Of “Securities”.................■...............................977 2. “Investment Contracts” And The Howey Test..................................977 a. Investment of money.....................................................978 b. Common enterprise.......................................................978 c. Expectation of profit from the effort of others..............................980 d. Other cattle investment schemes...........................................982 8. Definition Of A “Seller” Of Securities.........................................984 a. Liability for solicitation..................................................984 b. “Control person” liability.................................................986 c. Liability for failure to make disclosures...................................987 E. Common Law Fraud............................................................989 F. Common Law Wrongful Conversion Or Set-Off....................................990 1. Standards For Dismissal Pursuant to Rule 12(b)(7)............................990 2. Are The Trustees Indispensable Parties?.......................................995 a. Necessary party under Rule 19(a).........................................995 b. Indispensable party under Rule 19(b)......................................997 G. Lack Of A Federal Question.....................................................997 III. CONCLUSION .....................................................................998 This lawsuit raises probing and nettlesome questions of whether parties injured by the collapse of a cattle investment scheme have stated claims against the banks that allegedly crossed the line dividing mere provision of banking services from intimate involvement in and control of the investment scheme. Plaintiffs also allege that when collapse of the investment scheme became imminent, the banks moved ruthlessly to protect their own financial interests to the substantial injury of investors in and suppliers to the investment scheme. Many of the issues involved in this motion to dismiss boil down to the essential question of with what specificity must plaintiffs identify the particular defendant or defendants involved in wrong-doing and allege the nature and circumstances of that wrongdoing in order to defeat a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6)? Plaintiffs, investors in and suppliers to a cattle investment scheme called “Adventure Cattle,” filed this lawsuit on behalf of two proposed classes: the first class is defined as investors in the investment scheme, and the second is defined as persons who sustained losses as the result of defendants’ banking practices. The classes have not yet been certified by the court. Defendants are a bank holding company and subsidiary banks that provided banking services for Adventure Cattle and its principal, and the bank officer responsible for the accounts in question. Plaintiffs allege violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), the Securities Acts of 1933 and 1934, and assert state common law claims of wrongful conversion or set-off and fraud. Defendants have moved to dismiss the complaint for failure to state a claim upon which relief can be granted and for failure to join necessary parties. I. PROCEDURAL AND FACTUAL BACKGROUND A. Procedural Background Plaintiffs filed their original complaint in this matter on June 27,1994, as the result of the collapse of a cattle investment scheme called “Adventure Cattle.” The investment scheme giving rise to the claims in this matter was operated by John Morken through his company, Spring Grove Livestock Exchange (SGLE). However, Morken and SGLE are not parties to this lawsuit, as each is currently in bankruptcy. A first amended complaint, asserting a class action in five counts, was filed on September 8,1994. The named plaintiffs are Don De Wit, an Iowa resident, High Line Pork, an Iowa partnership, Robert Cash, a resident of Nevada, Dan Murphy, a resident of California, and Double V Dairy, a/k/a Double V Cattle, an Oregon partnership consisting of Arthur Van Veldhuizen and Mary Ann Van Veldhuizen. Defendants are Firstar Corporation, identified as a bank holding company that owns the other defendant national banks, those banks, identified as Firstar Bank Milwaukee, N.A. (Firstar Milwaukee), Firstar Bank Wausau, N.A. (Firstar Wausau), Firstar Bank Sioux City, N.A. (Firstar SC), and, finally, Mark J. Miley, alleged to be an officer and agent of Firstar Milwaukee, Firstar Wausau, and Firstar Corporation. Throughout the complaint, the defendants are referred to collectively as “Firstar,” and only rarely are any of the defendants identified individually. The amended complaint asserts that each of the named plaintiffs was “victimized by the Defendants’ conduct as an investor in Adventure Cattle and as a person or business who sustained loss by reason of the Firstar banking practices” described in the complaint. Complaint, ¶ 18. The amended complaint also asserts that the named plaintiffs, as representative parties, “can and will fairly and adequately protect the interest of the class.” Complaint, ¶ 19. Although paragraph 19 refers only to “the class,” the complaint identifies two classes of plaintiffs on whose behalf the complaint has been brought: “1) all persons, businesses, or other entities investing in the investment scheme called “Adventure Cattle” ... and 2) all persons, businesses, or other entities who sustained losses as a result of [defendants’] banking practices____” Complaint, ¶ 15. The complaint further asserts that Class 1 includes approximately 78 members, while Class 2 includes at least 150 members. Members of both classes are allegedly dispersed throughout the United States. Although plaintiffs have moved for certification of the classes, the court has not yet ruled on certification. Defendants answered the amended complaint on October 11, 1994, and at the same time filed a third-party complaint against Lee Van Veldhuizen and the present motion to dismiss. The third-party defendant answered the third-party complaint on December 9, 1994. Defendants were granted leave to file an overlength brief in support of the motion to dismiss, and filed such a brief on October 19, 1994. The plaintiffs were granted an extension of time to resist the motion, and ultimately filed their resistance to the motion to dismiss on December 2, 1994. Defendants then filed a reply brief on December 8, 1994. The court held telephonic oral arguments on defendants motion to dismiss on February 23, 1995. Plaintiffs were represented at oral arguments by counsel William P. Dixon of Davis, Miner, Barnhill & Galland, in Madison, Wisconsin, and Randall A. Roos of the Roos Law Office, P.C., in Sioux Center, Iowa. Defendants were represented at the oral arguments by Thomas L. Shriner, Jr., and James M. Caragher of Foley & Lardner, in Milwaukee, Wisconsin. Third-Party defendant Lee Van Veldhuizen was also present telephonically at the oral arguments, but did not offer any argument on the matters presented in defendants’ motion to dismiss. This matter is now fully submitted. The court therefore turns to the allegations of the amended complaint and the grounds defendants urge for dismissal. B. The Amended Complaint Count I of the amended complaint alleges a violation of the provision of the Racketeer Influenced And Corrupt Organizations Act, 18 U.S.C. § 1962(e), which pertains to interest in or control of a RICO enterprise. The complaint alleges that “[f]rom at least September 30, 1993, and through June 3, 1994,” defendants, identified collectively as “Firs-tar,” participated “directly and/or indirectly” in and were associated with Morken’s RICO enterprise. Complaint, ¶ 43. The “pattern” of racketeering alleged in this count includes mail and wire fraud, fraud in the sale of securities, a scheme to defraud investors, and filing of false affidavits in bankruptcy. Complaint, ¶ 44. The plaintiffs seek, on behalf of the plaintiffs in proposed Classes 1 and 2, as remedies for the violations alleged in this count, an injunction against further racketeering activity, treble damages for the losses plaintiffs incurred, prejudgment interest, costs, and reasonable attorney fees. Defendants assert as grounds for dismissal of this count that they did not “conduct” Morken’s enterprise, even if it was a “RICO enterprise,” that there is no “pattern” of racketeering activity upon which to found the claim, and that there are no “predicate acts” supporting the RICO claim. Counts II and III of the amended complaint allege violations of the Securities Acts of 1933 and 1934. The gravamen of Count II is that “Firstar” was a “seller,” along with Morken, of unregistered securities in the form of Adventure Cattle investment contracts in violation of §§ 5 and 12(1) of the 1933 Act. Plaintiffs seek, on behalf of the plaintiffs in Class 1, recision or its equivalent, prejudgment interest, costs, and attorney fees. Count III alleges violation of § 12(2) of the 1933 Act, and § 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder. More specifically, it alleges that “Firstar” and Morken issued the Adventure Cattle contracts in violation of the securities acts, because they “failed to disclose material facts to purchasers in connection with the sale and issuance” of the contracts, thereby violating the cited provisions. Complaint, ¶ 52. Further, it asserts that “Firstar” knew of and connived in Morken’s breach of his fiduciary duty to investors by failing to disclose Morken’s and SGLE’s insolvent financial condition in order to enhance Firstar’s own financial position, Complaint, ¶ 53 & ¶ 56, that “Firs-tar” used its “controlled disbursement” services as a “manipulative and deceptive device or scheme” in connection with the purchase or sale of securities, Complaint, ¶ 54, and that “[bjoth Morken and Firstar” used the means of interstate commerce to operate the “controlled disbursement” system. Complaint, ¶55. Thus, Count III alleges that “Firstar” was a joint venturer, “controlling person,” or “underwriter” in the Adventure Cattle program. Complaint, ¶ 57. This count seeks, on behalf of the plaintiffs in Class 1, damages equal to their losses, prejudgment interest, costs, and attorney fees. In their motion to dismiss Counts II and III, defendants assert that the Adventure Cattle contracts were not “securities,” that defendants were not “sellers” of the contracts even if they were “securities,” and that there has consequently been no violation of either § 12 of the 1933 Act or § 10(b) of the 1934 Act by these defendants. Firstar was a "seller,” along with Morken, of the Adventure Cattle contracts, or it conspired with Morken in the sale of unregistered securities, by its solicitation of prospective purchasers, its financing of such purchasers, and its payment of finders' fees to persons for finding purchasers who would finance their participation in the program through Firstar Bank Sioux City; or it was a joint venturer with Morken in the sale and issuance of said unregistered securities; or it was an underwriter of said securities. Count IV of the amended complaint is a state common-law claim of wrongful conversion or set-off. Specifically, it alleges that “Firstar” set-off Adventure Cattle proceeds against the overdraft balances of Morken’s and SGLE’s accounts in wilful disregard of the rights of investors who had an immediate, possessory right to those proceeds greater than any rights of Morken, SGLE, or Firstar. Complaint, ¶ 59-62. This count prays as relief, on behalf of the Class 1 plaintiffs, disgorgement and return by the defendants of all the proceeds received from the sales of cattle owned by Adventure Cattle, punitive damages, prejudgment interest, costs, and attorney fees. Defendants assert as grounds for dismissal of this claim failure to join necessary parties defendants identify as the trustees in bankruptcy of both Morken’s and SGLE’s estates. Count V of the amended complaint alleges state common-law fraud by the defendants in the continued “prop[ping] up” of Morken’s ventures from September 1993 through June 2, 1994, upon which plaintiffs of both classes relied to their detriment. Complaint, ¶ 64 & 65. Plaintiffs assert that defendants conduct with respect to this count was wilful and outrageous. Complaint, ¶ 67. Plaintiffs seek the same remedies, on behalf of both classes of plaintiffs, which they sought in Count IV. Defendants assert as grounds for dismissal of this count that the allegations of fraud are insufficiently pleaded. As an alternative to dismissal of the entire complaint, defendants argue for a stay, so that any and all allegations may be litigated through the proper forum, the bankruptcy court, where all necessary parties can be joined. C. The Third-Party Complaint On October 11, 1994, along with their answer and motion to dismiss, defendants filed a third-party complaint against Lee Van Veldhuizen. That third-party complaint alleges that the Adventure Cattle program was conceived by Van Veldhuizen, and that it was Van Veldhuizen who solicited and received “finders’ fees” from lenders in return for steering investors to them. Third-Party Complaint, ¶ 5. The third-party complaint also alleges that Van Veldhuizen knew more about Morken’s operations than did defendants. Third-Party Complaint, ¶ 6. Therefore, the third-party complaint asserts that if defendants are liable at all on the plaintiffs’ claims, Van Veldhuizen is liable to the defendants for contribution. Third-Party Complaint, ¶ 7. Because this third-party complaint only seeks contribution from the third-party defendant in the event the principal defendants are found liable to the plaintiffs, if the plaintiffs’ amended complaint must be dismissed in its entirety for any reason, then the third-party complaint should also be dismissed. D. Factual Background The amended complaint alleges the following facts to be true. Beginning in 1992, Morken made an agreement with defendants to permit Morken and SGLE to market investment contracts in cattle by establishing a banking system from which defendants would be able to reap huge fees, thus circumventing loan and interest regulations. Under this system, defendants with Morken established three bank accounts to generate a “float” as an open-ended line of credit maintained through “controlled disbursement services,” for which defendants were able to charge substantial fees, thereby creating a de facto loan relationship but falling outside the scope of normal banking rules and regulations for loans. Complaint, ¶ 23. Furthermore, under the banking scheme, Firstar allowed Morken to write checks on one account without sufficient good or collected funds in that account to cover overdrafts in other of Morken’s accounts. Complaint, ¶ 24. The banking scheme was designed to facilitate. Morken’s Adventure Cattle investment program, which involved sale of a specific group of cattle to the investor with a guaranteed 25% annualized return. Firstar was fully aware of the manner in which Morken conducted his business, and at least until June 2, 1994, participated in expansion of Morken’s investment scheme. Complaint, ¶28. Specifically, plaintiffs assert that defendants promoted and solicited participation of investors in Adventure Cattle through Firstar SC, encouraged loans by that subsidiary to finance investments in the scheme up to an aggregate of $20 million, and encouraged other lenders to finance investors. Complaint, ¶ 28(a). Defendants are also alleged to have extended substantial amounts of unsecured credit to Morken, allowed him to write insufficient fund checks on his various accounts, and encouraged his use of the “float.” Complaint, ¶ 28(b). At the same time, defendants controlled the flow of cash among the various accounts and among investors, banks, and suppliers of the scheme, Complaint, ¶ 28(c), paid finders fees for qualified investors, Complaint, ¶ 28(d), and thus actively promoted the belief that Morken was financially strong and good for his guarantees even in a deteriorating cattle market. Complaint, ¶ 28(e). Plaintiffs assert that at least by September 30, 1993, defendants knew that Morken’s investment scheme was unravelling in the face of a continuing slump in the cattle market and Morken’s huge overdrafts. Defendants then began a program to enhance their own financial position at the expense of all other parties involved in the investment scheme either as investors or suppliers. Even though defendants knew as early as September of 1993 that funds including sale proceeds from Morken’s cattle transactions and proceeds from sale of Adventure Cattle animals were being commingled in the SGLE accounts, and further knowing how Morken conducted his financial operations, Complaint, ¶30, defendants continued to solicit investors and portray Morken as financially sound, while preparing to collapse the “float” and seize all available funds to service Morken’s overdrafts. Complaint, ¶ 34-37. The decision to collapse the “float” was made in April of 1994, but no action to do so was taken until June 2, 1994, when defendants began selectively to dishonor checks drawn on Morken’s accounts. Complaint, ¶ 37-38. As a result, Morken and SGLE were forced into bankruptcy, and investors and suppliers were left with millions of dollars of losses on their investments or unpaid accounts. Defendants assert that far from conducting Morken’s “RICO enterprise” or otherwise engaging in any of Morken’s wrong-doing, they are Morken’s principal victims. They assert that Morken’s banking scheme involved massive cheek-kiting, which has cost them severe damage.. II. LEGAL ANALYSIS A. The Motion To Dismiss And Plaintiffs’ Federal Claims Defendants have moved to dismiss plaintiffs’ federal claims, alleging violations of RICO (Count I) and provisions of the Securities Acts (Counts II and III) on the ground that these counts fail to state claims upon which relief can be granted. The court will therefore consider first the standards for dismissal for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), then turn to a legal analysis of the adequacy of each of the federal claims. . B. Standards For Dismissal Pursuant to Rule 12(b)(6) The Eighth Circuit Court of Appeals has long recognized that motions pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss for failure to state a claim upon which relief can be granted “can serve a useful purpose in disposing of legal issues with the minimum of time and expense to the interested parties.” Hiland Dairy, Inc. v. Kroger Co., 402 F.2d 968, 973 (8th Cir.1968), cert. denied, 395 U.S. 961, 89 S.Ct. 2096, 23 L.Ed.2d 748 (1969). The issue is not whether a plaintiff will ultimately prevail, but rather whether the plaintiff is entitled to offer evidence in support of the plaintiffs claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); United States v. Aceto Agrie. Chem. Corp., 872 F.2d 1373, 1376 (8th Cir.1989). The Rule provides that [e]very defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: ... (6) failure to state a claim upon which relief can be granted---- FedR.Civ.P. 12(b)(6). The standards for dismissal under Rule 12(b)(6) were recently restated in Carney v. Houston, 33 F.3d 893 (8th Cir.1994): We must construe the allegations in the complaint in the light most favorable to [plaintiff], see [Concerned Citizens of Neb. v. United States Nuclear Reg. Comm’n, 970 F.2d 421, 425 (8th Cir.1992)], and should not approve dismissal of his complaint for failure to state a claim unless “it appears beyond doubt that [he] can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 2 L.Ed.2d 80, 78 S.Ct. 99 (1957). Carney, 33 F.3d at 894. Thus, in considering a motion to dismiss under Rule 12(b)(6), the court must assume that all facts alleged in the plaintiffs complaint are true, and must liberally construe those allegations. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). The Rule does not countenance dismissals based on a judge’s disbelief of a complaint’s factual allegations. Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 1832, 104 L.Ed.2d 338 (1989). Thus, it is only in the “unusual case” where the complaint on its face reveals some insuperable bar to relief that a dismissal under Rule 12(b)(6) is warranted. Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir.1982). A motion to dismiss ordinarily requires the court to review only the pleadings to determine whether the pleadings state a claim upon which relief can be granted. Fed. R.Civ.P. 12(b). However, where on a Rule 12(b)(6) motion to dismiss “matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56.” Fed.R.Civ.P. 12(b)(6); see also Osborn v. United States, 918 F.2d 724, 729 (8th Cir.1990) (distinguishing between standards for dismissal under Rule 12(b)(1) and Rule 12(b)(6), and stating that “Rule 12 requires that Rule 56 standards be applied to motions to dismiss for failure to state a claim under Rule 12(b)(6) when the court considers matters outside the pleadings. [Citations omitted.]”). The partiesen this case have restricted themselves to the face of the pleadings, and have argued the motion to dismiss solely on the basis that, assuming plaintiffs’ allegations to be true, they do not state a claim on which relief can be granted. With the standards articulated above in mind, therefore, the court will consider defendants’ motion to dismiss plaintiffs’ federal claims for failure to state a claim pursuant to FedR.Civ.P. 12(b)(6). C. The RICO Claim Defendants make several challenges pursuant to Fed.R.Civ.P. 12(b)(6) to plaintiffs’ RICO allegations. Defendants assert as grounds for dismissal of this count that they did not “conduct” Morken’s enterprise, even if it was a “RICO enterprise,” that there is no “pattern” of racketeering activity upon which to found the claim, and that there are no “predicate acts” supporting the RICO claim. Plaintiffs contend that they have adequately pleaded each of these elements of a RICO claim. 1. Scope And Purpose Of RICO The Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961— 1968, imposes criminal and civil liability upon those who engage in certain “prohibited activities.” Each prohibited activity is defined in 18 U.S.C. § 1962 to include, as one necessary element, proof either of “a pattern of racketeering activity” or of “collection of an unlawful debt.” “Racketeering activity” is defined in RICO to mean “any act or threat involving” specified state-law crimes, any “act” indictable under various specified federal statutes, and certain federal “offenses,” 18 U.S.C. § 1961(1) (1982 ed., Supp. V); but of the term “pattern” the statute says only that it “requires at least two acts of racketeering activity” within a 10-year period, 18 U.S.C. § 1961(5). H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 232, 109 S.Ct. 2893, 2897, 106 L.Ed.2d 195 (1989); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 481, 105 S.Ct. 3275, 3277, 87 L.Ed.2d 346 (1985); Manion v. Freund 967 F.2d 1183, 1185 (8th Cir.1992) (quoting H.J. Inc.); Diamonds Plus, Inc. v. Kolber, 960 F.2d 765, 768 (8th Cir.1992). Crimes not specified in § 1961 cannot support a RICO claim. Manion, 967 F.2d at 1186 (breach of fiduciary duty is not one of the specified state crimes listed in the definition of “racketeering activity,” 18 U.S.C. § 1961(1), and thus could not support a civil RICO claim). The Supreme Court identified the purpose of RICO as follows: The occasion for Congress’ action was the perceived need to combat organized crime. But Congress for cogent reasons chose to enact a more general statute, one which, although it had organized crime as its focus, was not limited in application to organized crime. In Title IX, Congress picked out as key to RICO’s application broad concepts that might fairly indicate an organized crime connection, but that it fully realized do not either individually or together provide anything approaching a perfect fit with “organized crime.” See, e.g., [116 Cong.Ree.] at 18940 (Sen. McClellan) (“it is impossible to draw an effective statute which reaches most of the commercial activities of organized crime, yet does not include offenses commonly committed by persons outside organized crime as well”). H.J. Inc., 492 U.S. at 248, 109 S.Ct. at 2905; Atlas Pile Driving Co. v. DiCon Financial Co., 886 F.2d 986, 990 (8th Cir.1989) (citing United States v. Turkette, 452 U.S. 576, 591, 101 S.Ct. 2524, 2533, 69 L.Ed.2d 246 (1981)). Thus, RICO also imposes civil liability on other types of organizations that have no alleged ties to organized crime. Atlas Pile Driving Co., 886 F.2d at 990. However, the reach of' RICO beyond the activities of organized crime has caused courts some distress: Underlying the Court of Appeals’ holding was its distress at the “extraordinary, if not outrageous,” uses to which civil RICO has been put____ Instead of being used against mobsters and organized criminals, it has become a tool for everyday fraud cases brought against “respected and legitimate ‘enterprises.’ ” Yet Congress wanted to reach both “legitimate” and “illegitimate” enterprises. United States v. Turkette, [452 U.S. at 591, 101 S.Ct. at 2533]. The former enjoy neither an inherent incapacity for criminal activity nor immunity from its consequences.... It is true that private civil actions under the statute are being brought almost solely against such defendants, rather than against the archetypal, intimidating mobster. Sedima, 473 U.S. at 499, 105 S.Ct. at 3286. The Supreme Court regarded this extensive reach of RICO as an indication of the breadth Congress intended the statute to have, not as a defect in its drafting. Id. Nearly a decade ago, the Court observed, however, that “[t]he initial dormancy of this provision and its recent greatly increased utilization are now familiar history.” Id. at 481, 105 S.Ct. at 3277. Specifically, the Court found that “[o]f 270 District Court RICO decisions prior to [1985], only 3% (nine cases) were decided throughout the 1970’s, 2% were decided in 1980, 7% in 1981, 13% in 1982, 33% in 1983, and 43% in 1984.” Id. (citing the Report of the Ad Hoc Civil RICO Task Force of the ABA Section of Corporation, Banking and Business Law 55 (1985) (hereinafter “ABA Report”)); Christopher D. McDemus, Comment: Reves v. Ernst & Young: The Supreme Court’s Recent Restrictive Standard Concerning § 1962(c) of the Civil RICO Statutes, 19 Del.J.Corp.L. 1027, 1038 (1994) (hereinafter “McDemus”) (“Although Congress enacted the Organized Crime Control Act of 1970, nearly a decade passed before there were more than ten reported decisions discussing RICO.”). During the 1980s, private use of RICO increased exponentially, and the increased use was not limited to criminal suits, but in fact was based on more prominent use of RICO as a cause of action in civil suits. McDemus, 19 Del.J.Corp.L. at 1038 (citing ABA Report). A RICO action can be distinguished from an anti-trust action on two grounds. First, RICO requires multiple acts, or a pattern of predicate acts, while the Clayton Act has no such pattern requirement. Granite Falls Bank v. Henrikson, 924 F.2d 150, 153 (8th Cir.1991). Furthermore, the anti-trust laws attack harms of a different nature: Unlike the Clayton Act, which targets harm to competition induced by force rather than fraud, racketeering injuries by definition include harms from fraud (securities, wire or mail fraud) and harms resulting from force (e.g., extortion). Id. (quoting Humes, RICO and a Uniform Rule of Accrual, 99 YALE L.J. 1399, 1407 (1990)). RICO contains a civil enforcement scheme permitting private individuals harmed by criminal RICO activity to recover damages in a civil action. Bowman v. Western Auto Supply Co., 985 F.2d 383, 384 (8th Cir.), cert. denied, — U.S.-, 113 S.Ct. 2459, 124 L.Ed.2d 674 (1993). The relevant provision of the Act is as follows: Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee. 18 U.S.C. § 1964(c); Bowman, 985 F.2d at 384; Diamonds Plus, Inc., 960 F.2d at 768 (“RICO provides a civil cause of action to those who are injured by activities violative of 18 U.S.C. § 1962 (1988).”). Under § 1964, then, any individual who has experienced injury to his or her business or property “by reason of’ a RICO violation has standing to bring a private civil action. Bowman, 985 F.2d at 384. The litigant’s injury, however, must result from a violation of 18 U.S.C. § 1962. Sedima S.P.R.L. v. ImRex Co., 473 U.S. 479, 496-97, 105 S.Ct. 3275, 3285-86, 87 L.Ed.2d 346 (1985); Bowman, 985 F.2d at 385. 2. Elements Of Plaintiffs’ § 1962(c) RICO Claim Plaintiffs allege that defendants have violated 18 U.S.C. § 1962(e), which is the provision of RICO that makes it “unlawful for any person ... associated with an 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----” 18 U.S.C. § 1962(c); Bowman, 985 F.2d at 384 n. 1; Diamonds Plus, Inc., 960 F.2d at 768; Atlas Pile Driving Co., 886 F.2d at 990. Thus, to establish a RICO violation under 18 U.S.C. § 1962(c) a plaintiff must demonstrate “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity that must include at least two racketeering acts. Sedima, 473 U.S. at 496, 105 S.Ct. at 3285; United States v. Nabors, 45 F.3d 238, 239 (8th Cir.1995) (quoting Sedima for the elements of the violation in a criminal RICO prosecution); Nolte v. Pearson, 994 F.2d 1311, 1316-17 (8th Cir.1993); Bowman, 985 F.2d at 385 (quoting Sedima); Terry A Lambert Plumbing, Inc. v. Western Sec. Bank, 934 F.2d 976, 979 n. 4 (8th Cir.1991); Granite Falls Bank, 924 F.2d at 153; Atlas Pile Driving Co., 886 F.2d at 990; and compare United States v. Bennett, 44 F.3d 1364, 1373 (8th Cir.1995) (another criminal RICO prosecution in which the court stated that “[t]o prove a substantive RICO violation, the government must establish: 1) the existence of an enterprise affecting interstate or foreign commerce; 2) the defendant’s association with the enterprise; 3) that the defendant participated in the conduct of the enterprise’s affairs; and 4) that the defendant’s participation was through a pattern of racketeering activity,” citing United States v. Sinito, 723 F.2d 1250, 1260 (6th Cir.1983), cert. denied, 469 U.S. 817, 105 S.Ct. 86, 83 L.Ed.2d 33 (1984), and United States v. Phillips, 664 F.2d 971, 1011 (5th Cir.1981), cert. denied sub nom. Meinster v. United States, 457 U.S. 1136, 102 S.Ct. 2965, 73 L.Ed.2d 1354 (1982)). The court in Sedima concluded that the statute requires no more than this. Where the plaintiff allegés each element of •the violation, the compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the violation is the commission of those acts in connection with the conduct of an enterprise____ Any recoverable damages occurring by reason of a violation of § 1962(c) will flow from the commission of the predicate acts. Sedima, 473 U.S. at 496-97, 105 S.Ct. at 3285-86 (footnotes omitted); Bowman, 985 F.2d at 385 (quoting Sedima). The Eighth Circuit Court of Appeals describes this as a “proximate cause” requirement that the injury asserted be proximately caused by the predicate acts alleged. Bowman, 985 F.2d at 387 (citing Holmes v. Securities Investor Protection Corp., 503 U.S. 258, -, 112 S.Ct. 1311, 1318, 117 L.Ed.2d 532 (1992), and Schiffels v. Kemper Fin. Serv., 978 F.2d 344, 351 (7th Cir.1992)). The court therefore turns to examination of plaintiffs’ allegations of each of these elements of a § 1962(c) violation by the defendants in this case. a. “Conduct ...” Where the record is “devoid of evidence that defendants participated, either directly or indirectly, in the conduct of the affairs of the enterprise,” the court need not reach any other element of the § 1962(e) RICO claim before dismissing it. Nolte, 994 F.2d at 1317. The “conduct” element is the distinguishing element of a § 1962(c) claim, because [i]n their comments on the floor, members of Congress consistently referred to subsection (c) as prohibiting the operation of an enterprise through a pattern of racketeering activity and to subsections (a) and (b) as prohibiting the acquisition of an enterprise. Representative Cellar, who was Chairman of the House Judiciary Committee that voted RICO out in 1970, described § 1962(c) as proscribing the “conduct of the affairs of a business by a person acting in a managerial capacity, through racketeering activity.” 116 Cong. Rec. 35196 (1970) (emphasis added). Reves v. Ernst & Young, — U.S. -, ---, 113 S.Ct. 1163, 1171-72, 122 L.Ed.2d 525 (1993) (emphasis in the original). The court recognized that these remarks did not mean that § 1962(c) was limited to the operation or management of an enterprise, but that liability under § 1962(c) required that “one has participated in the operation or management of the enterprise itself.” Id. at -, 113 S.Ct. at 1172. The standards for allegations of the “conduct” element of a RICO violation employed by the Eighth Circuit Court of Appeals are those recently articulated by the Supreme Court in Reves v. Ernst & Young, — U.S. -, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993): Reves addressed the requisite degree of participation in the conduct of the affairs of the enterprise to impose liability under RICO. In Reves, a partner in the defendant accounting firm was placed in charge of the audits of a Co-op gasohol plant. Id. at-, 113 S.Ct. at 1167. The accountant relied on existing Co-op records in preparing the audits, reviewed a series of completed Co-op transactions, certified the Coop’s records as fairly portraying its flnancial status, and presented the reports to the Co-op’s directors and shareholders. Id. at---, 113 S.Ct. at 1167-68. The Supreme Court affirmed the test articulated in Bennett v. Berg, 710 F.2d 1361, 1364 (en banc) (8th Cir.), cert. denied sub nom. Prudential Ins. Co. of America v. Bennett, 464 U.S. 1008, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983), and held “one must participate in the operation or management of the enterprise itself’ to be subject to liability under section 1962(c). Reves, — U.S. at---,-, 113 S.Ct. at 1168-69, 1173. Applying this test to the defendant’s conduct in the enterprise, the Court concluded it was not sufficient to impose liability. Id. at-, 113 S.Ct. at 1174. Nolte, 994 F.2d at 1317. In Nolte, the Eighth Circuit Court of Appeals also found that the defendants’ conduct in that case was insufficient to impose RICO liability. Id. The defendants were attorneys who had prepared an opinion letter and accompanying memorandum advising investors of federal income tax consequences, a defense letter agreeing to render legal assistance to investors, and two documents explaining whether changes in federal tax laws would have a material effect on an investor’s income tax consequences. Id. at 1314. The court concluded that “there is no evidence suggesting that the attorneys participated in the operation or management of the enterprise,” and the trial court had therefore properly directed a verdict in favor of the defendants on the RICO claim. Id. at 1317. Because whether plaintiffs have adequately pleaded this element of a RICO violation is perhaps the most hotly contested issue in the motion to dismiss, the court must consider both the parties arguments and the Supreme Court’s decision in Reves with some care. Defendants argue strenuously that, like the defendants in Reves and Nolte, they did no more than provide services to the RICO enterprise, and therefore did not “participate” in the “operation or management of the enterprise.” Plaintiffs argue that defendants participated directly and indirectly in the establishment and operation of the banking scheme which allowed Morken’s RICO enterprise to operate. In response, defendants argue that, far from being the architects and operators of this banking scheme which allowed the RICO enterprise to operate, they were the principal victims of Morken’s operation and manipulation of the banking scheme. Plaintiffs allege that defendants managed the banking scheme itself, thus participating in the conduct, of the RICO enterprise. The court must therefore decide whether, assuming plaintiffs’ allegations to be true, the defendants’ operation of a tangential albeit essential function, which was the cornerstone upon which a RICO enterprise’s operations was based, is sufficient “participation” in the “operation and management” of the RICO enterprise itself to incur RICO liability. The Supreme Court undertook a careful analysis of the language and legislative history of § 1962(c) in order to determine the proper test for liability under that RICO subsection. Reves, — U.S. at---, 113 S.Ct. at 1169-1172. The Supreme Court found particular significance in the fact that Congress had required “participation” in the “conduct” of the RICO enterprise’s affairs, not merely “participation” in those affairs. Id. at---, 113 S.Ct. at 1169-70. The Court concluded that [o]n the one hand, “to participate ... in the conduct of ... affairs” must be broader than “to conduct affairs” or the “participate” phrase would be superfluous. On the other hand, as we already have noted, “to participate ... in the conduct of ... affairs” must be narrower than “to participate in affairs” or Congress’ repetition of the word “conduct” would serve no purpose. It seems that Congress chose a middle ground, consistent with a common understanding of the word “participate”— “to take part in.” Webster’s Third New International Dictionary 1646 (1976). Once we understand the word “conduct” to require some degree of direction and the word “participate” to require' some part in that direction, the meaning of § 1962(e) comes into focus. In order to “participate, directly or indirectly, in the conduct of such enterprise’s affairs,” one must have some part in directing those affairs. Of course, the word “participate” makes clear that RICO liability is not limited to those with primary responsibility for the enterprise’s affairs, just as the phrase “directly or indirectly” makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise’s affairs is required. The “operation or management” test expresses this requirement in a formulation that is easy to apply. Id. at-, 113 S.Ct. at 1170. The Supreme Court next found this “operation or management” test to be supported by the legislative history. Id. at---, 113 S.Ct. at 1171-72. The Court then considered whether this test improperly limited the reach of § 1962(c) to extend liability to “outsiders” to the enterprise. Id. at-, 113 S.Ct. at 1173. The court found four grounds for rejecting this concern: First, it ignores the fact that § 1962 has four subsections. Infiltration óf legitimate organizations by “outsiders” is clearly addressed in subsections (a) and (b), and the “operation or management” test that applies under subsection (c) in no way limits the application of subsections (a) and (b) to “outsiders.” Second, § 1962(c) is limited to persons “employed by or associated with” an enterprise, suggesting a more limited reach than subsections (a) and (b), which do not contain such a restriction. Third, § 1962(c) cannot be interpreted to reach complete “outsiders” because liability depends on showing that the defendants conducted or participated in the conduct of the “enterprise’s affairs,” not just their o'wn affairs. Of course, “outsiders” may be liable under § 1962(c) if they are “associated with” an enterprise and participate in the conduct of its affairs — that is, participate in the operation or management of the enterprise itself____ In sum, we hold that “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs,” § 1962(c), one must participate in the operation or management of the enterprise itself. Id. at-, 113 S.Ct. at 1173 (emphasis in the original). The court concludes that plaintiffs have not alleged that defendants participated in the conduct of Morken’s RICO enterprise itself. Rather, they have alleged only that defendants conducted that enterprise’s banking scheme. As alleged, the court concludes that defendants’ conduct was one step removed from management of the RICO enterprise itself, and thus liability will not lie under § 1962(e). This is not to say that plaintiffs have necessarily failed to allege that defendants’ conduct was wrongful, either because it might be contrary to acceptable banking practices, fraudulent, or otherwise tortious. However, that conduct, if wrongfifi, is not cognizable under RICO’s § 1962(c). Defendants have not been alleged to have had some part in directing the affairs of Morken’s enterprise itself; rather, they have been alleged to have had some part only in directing conduct of the “banking scheme.” Plaintiffs asserted, both in their brief and at oral argument, that the decision in Nebraska Security Bank v. Dain Bosworth Inc., 838 F.Supp. 1362 (D.Neb.1993), found that the conduct element had been met in circumstances similar to those they have alleged here. In Nebraska Security Bank, the court found the following: This case particularly involves the claim that Dain sold warrants it knew were destined for default. By possessing and exercising the right to control the interest rate on the warrants, Dain, not the [Sanitary Improvement Districts or SIDs], controlled whether the warrants were marketable. The decision regarding what rate of interest a corporation is willing to pay on its securities is central to the operation and management of the corporation. Thus, when control of the rate of interest the warrants would pay was shifted from the trustees of the SIDs to Dain, and Dain exercised that control, I believe the test set forth in Reves was satisfied. ■ Id. at 1367. In the present case, there is nothing like this control by defendants of a central characteristic of the investment itself. Morken alone controlled what return he would pay on investors’ Adventure Cattle contracts. Furthermore, defendants did not have the other elements of control identified by the court in Nebraska Security Bank, such as the right to approve or withhold approval for contracts related to investment properties, control the amount and interest rate for bonds issued, or when and in what amount warrants would be issued, the right to draw upon funds of the enterprise to pay its obligations, the right to change the interest rate on the warrants, obtain assurance of payment of warrants, and file income taxes on behalf of the enterprise. Id. The court concludes that the defendants in Nebraska Security Bank exercised direct control over some aspects of the operations and management of the enterprise itself — something lacking in the present case. • It is not enough that Morken’s RICO enterprise might not have been able to function without the banking scheme in place. In Reves, it might not have been possible for the RICO enterprise to conduct its affairs without the certification of the defendant accountants that its records fairly represented the enterprise’s financial condition. However, the defendant accountants did not thereby participate in the enterprise itself by creating the financial reports upon which the enterprise relied. Reves, —— U.S. at-, 113 S.Ct. at 1169. Similarly, in Nolte it might not have been possible for the RICO enterprise to conduct its investment scheme without the participation of the defendant attorneys. Nonetheless, the attorneys did not participate in the operation or management of the enterprise itself by providing legal services to it or to its investors, and therefore could not incur RICO liability. Nolte, 994 F.2d at 1317. In each of these cases, the defendants provided only services to the enterprises, as did defendants in the present case, and even provision of services essential to the operation of the RICO enterprise itself is not the same as participating in the conduct of the affairs of the enterprise. Plaintiffs argue that defendants’ conduct in the banking scheme here crosses the line drawn in Reves and Nolte for the further reason that defendants exercised control of Morkeris enterprise that was so extensive that they “had the ability to decide who among Morken’s investors and creditors would be paid” and that no. other lending institution “who knew what Firstar knew would have agreed to lend Morken the money he needed in the manner he needed it to keep his ventures afloat.” Complaint, ¶43. The fact that a bank is selective in honoring or dishonoring checks of one of its customers, again, may be wrongful conduct, but it does not amount to control of the underlying .RICO enterprise. It is merely incidental to a bank’s conduct of its own affairs when faced with an overextended account.- Similarly, the fact that a bank can “walk away” from a customer, and that customer may have no other avenue for obtaining certain services, is a matter of the bank’s conduct of its own affairs, not the affairs of the customer. The court concludes that plaintiffs have failed to allege the first and threshold element of a RICO claim under § 1962(c), conduct of a RICO enterprise, and therefore defendants’ motion to dismiss the RICO claim should be granted. Nonetheless, the court will consider, as alternatives to this holding, the adequacy of plaintiffs’ allegations of the other elements of such a claim. b. “Of an enterprise ...” The- decisions of the Eighth Circuit Court of Appeals consistently define a RICO enterprise as exhibiting three basic characteristics: (1) a common or shared purpose; (2) some continuity of structure and personnel; and (3) an ascertainable structure distinct from that inherent in a pattern of racketeering. Nabors, 45 F.3d at 240 (quoting Atlas Pile Driving Co., 886 F.2d at 995); Diamonds Plus, Inc., 960 F.2d at 770-71 (also quoting Atlas Pile Driving Co.); Atlas Pile Driving Co., 886 F.2d at 995. Although the first of these three characteristics has apparently not troubled courts, the second and third have prompted further clarification from the Eighth Circuit Court of Appeals. The second characteristic, continuity of structure and personnel, does not require that members remain consistent. Nabors, 45 F.3d at 240. The fact that members of the enterprise withdrew from it after the enterprise allegedly began the racketeering acts alleged does not defeat the continuity requirement, because “old members [of an enterprise] may leave, and new members may join, ... [but] the personnel of an enterprise may undergo alteration without loss of the enterprise’s identity as an enterprise.” Id. (quoting United States v. Kragness, 830 F.2d 842, 856 (8th Cir.1987)). “Indeed, this circuit’s definition of an enterprise specifically includes the phrase ‘some continuity ... of personnel’ (emphasis supplied), Atlas Pile Driving Co., 886 F.2d at 995, not ‘complete continuity.’ ” Id. However, it is not necessary that the enterprise consist of more than the defendants. Id. In Nabors, the court reiterated that “the ease law of this circuit specifically holds that a ‘collective entity is something more than the members of which it is comprised’ and that individual defendants who are members of an enterprise may indeed be found guilty (or liable) under 18 U.S.C. § 1962(c) even if the enterprise is made up solely of those defendants.” Id. (citing Atlas Pile Driving Co., 886 F.2d at 995). Continuity of structure, like continuity of predicate acts discussed below, also requires something more than “sporadic crime.” Id. Continuity of structure has been defined in this circuit as: “an organizational pattern or system of authority that provides a mechanism for directing the group’s affairs on a continuing, rather than an ad hoc basis.” United States v. Kragness, 830 F.2d at 856. See also United States v. Lemm, 680 F.2d 1193, 1198 (8th Cir.1982), cert. denied, 459 U.S. 1110, 103 S.Ct. 739, 74 L.Ed.2d 960 (1983) (“[t]o guarantee that RICO will be utilized against its intended target, the ‘enterprise’ alleged must involve more than an association of criminals for the commission of sporadic crime”). Id. at 240-41 (reserving until trial proof that at least 15 different illegal acts committed over a seven-month period were more than “sporadic crime”). The third characteristic, distinct structure, has required the most clarification: Th[e] distinct structure might be demonstrated by proof that a group engaged in a diverse pattern of crimes or that it has an organizational pattern or system of authority beyond what was necessary to perpetrate the predicate crimes. The command system of a Mafia family is an example of this type of structure as is the hierarchy, planning, and division of profits within a prostitution ring. Diamonds Plus, Inc., 960 F.2d at 770 (quoting United States v. Bledsoe, 674 F.2d 647 (8th Cir.), cert. denied sub nom. Phillips v. United States, 459 U.S. 1040, 103 S.Ct. 456, 74 L.Ed.2d 608 (1982)). Thus, the “focus of the inquiry” on this characteristic is “whether the enterprise encompasses more than what is necessary to commit the predicate RICO offense.” Id. In conducting this inquiry, the court may consider the facts used to support the showing of predicate offenses. Id. (citing United States v. Leisure, 844 F.2d 1347, 1363 (8th Cir.), cert. denied, 488 U.S. 932, 109 S.Ct. 324, 102 L.Ed.2d 342 (1988)). A “complicated organizational pattern” involving staffing of an office to respond to inquiries from “customers,” and disguising of who made operational decisions by presenting one person to the public as being in charge, while behind the scenes another person actually made the key decisions, is one way of showing this characteristic. Id. However, it is “not necessary to show that the enterprise has some function wholly unrelated to the racketeering activity,” id. (quoting United States v. Kragness, 830 F.2d 842, 857 (8th Cir.1987), in turn quoting United States v. Riccobene, 709 F.2d 214, 223-24 (3d Cir.), cert. denied sub nom. Ciaxiaglini v. United States, 464 U.S. 849, 104 S.Ct. 157, 78 L.Ed.2d 145 (1983)), nor is it necessary that there be “some proof of lawful activity on the part of the enterprise.” Id. (citing United States v. Lemm, 680 F.2d 1193, 1197-98 (8th Cir.1982), cert. denied, 459 U.S. 1110, 103 S.Ct. 739, 74 L.Ed.2d 960 (1983)). However, the enterprise must be more than “an instance of a sporadic and temporary criminal alliance to commit one of the enumerated RICO crimes.” Id. (quoting Lemm, 680 F.2d at 1201). The court has considered the requirements of this element of a § 1962(c) offense only for the purpose of demonstrating the interplay of the elements. Defendants do not assert that Morken’s enterprise was not a RICO enterprise. They argue that, even if Morken’s enterprise was a RICO enterprise, and they assert that it was certainly a means of eon-ducting criminal activity or wrongful activity, they did not conduct that enterprise through a pattern of racketeering activity. The court concluded above that defendants did not conduct Morken’s enterprise. Assuming, arguendo, that they did conduct the enterprise, the question becomes whether or not they did so through a pattern of racketeering activity. The court concludes that this question, like the one regarding the first element of a § 1962(c) violation, must ultimately be answered in the negative. This final question concerning RICO liability is in two parts: was there an allegation of a pattern of activity, and was that activity racketeering activity? c. “Through a pattern ...” Liability under RICO is premised upon conduct involving a “pattern” of racketeering activity. 18 U.S.C. § 1962; Manton, 967 F.2d at 1185. Allegation of a “pattern of racketeering” has been described as “the heart of any RICO complaint.” Agency Holding Corp. v. Malley-Dujf & Assoc., 483 U.S. 143, 154, 107 S.Ct. 2759, 2766, 97 L.Ed.2d 121 (1987); Granite Falls Bank v. Henrikson, 924 F.2d 150, 154 (8th Cir.1991) (quoting Malley-Duff). This pattern requirement is the primary source of RICO’s unique character. Granite Falls Bank, 924 F.2d at 153. The Act defines a “pattern” as requiring at least two acts of racketeering or predicate acts. 18 U.S.C. § 1961(5); Manion, 967 F.2d at 1185; Diamonds Plus, Inc., 960 F.2d at 769. The Eighth Circuit Court of Appeals has noted that In H.J. Inc., the Supreme Court held that, by the term “pattern,” Congress intended to require that “to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.” 492 U.S. at 239, 109 S.Ct. at 2900 (emphasis in original). Predicate acts are “related” if they “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.” Sedima, 473 U.S. at 496 n. 14, 105 S.Ct. at 3285 n. 14 citing 18 U.S.C. § 3575(e). Continuity requires proof of “related predicates extending over a substantial period of time” or “involving a specific threat of repetition extending indefinitely into the future.” H.J. Inc., 492 U.S. at 242, 109 S.Ct. at 2902 (proof that predicate acts are “part of an ongoing entity’s regular way of doing business”). Manian, 967 F.2d at 1185-86; Terry A Lambert Plumbing, 934 F.2d at 979 (relatedness and continuity of acts is required by the legislative history, citing H.J. Inc., 492 U.S. at 239, 109 S.Ct. at 2900). The “at least two acts of racketeering activity” requirement in 18 U.S.C. § 1961(5) “is only a minimum requirement.” Diamonds Plus, Inc., 960 F.2d at 769 (citing H.J. Inc., 492 U.S. at 238, 109 S.Ct. at 2900). The requirements that the acts be related and pose a threat of continued criminal activity are also essential. Id. After defining relatedness and continuity as above, id. (citing First National Bank & Trust Co. v. Hollingsworth, 931 F.2d 1295, 1304 (8th Cir.1991), which defines the relationship between the acts as “similar in method, purpose, and result,” and H.J. Inc., 492 U.S. at 242-43,109 S.Ct. at 2902-03, which defines continuity as demonstrated by “a series of related predicates extending over a substantial period of time” or a showing that the “acts or offenses are part of an ongoing entity’s regular way of doing business”), the court noted that “[u]ltimately, the existence of a pattern is a question of fact.” Id. (citing Terry A. Lambert Plumbing, 934 F.2d at 980). The requirements for demonstrating a pattern of RICO activity were met, for example, where [t]here was evidence that in an approximately two year span, between 125 and 350 people flew to Houston to meet with [defendants in response to advertisements in national newspapers] — and paid one thousand dollars each for [defendants’] “services” — yet none of these people were provided with financing. The district court’s conclusion that this constituted a “pattern of racketeering activity” is clearly correct and does not remotely approach being clearly erroneous. Id. The continuity requirement involves the court’s examination of the length of time during which the conduct occurred. Terry A. Lambert Plumbing, 934 F.2d at 980; Atlas Pile Driving Co., 886 F.2d at 994. The Eighth Circuit Court of Appeals has declined to determine what period of time is needed to establish continuity. Terry A. Lambert Plumbing, 934 F.2d at 980. Instead, the court has held that a period of “over three years” was sufficient, Atlas Pile Driving Co., 886 F.2d at 994, but a single transaction, with only one victim, taking place over a short period of time does not constitute a “pattern of racketeering” sufficient to sustain a RICO claim. Terry A. Lambert Plumbing, 934 F.2d at 981. However, the Eighth Circuit Court of Appeals allowed a criminal RICO prosecution to go to trial on allegations of 15 different illegal acts within only a seven-month period, finding that the government would bear the burden of demonstrating that these acts constituted more than “sporadic crime.” Nabors, 45 F.3d at 241. Defendants argue strenuously that plaintiffs have alleged predicate acts spanning only a ten month period, see Complaint, ¶44 (“From September 1, 1993 through at least June 3, 1994”), and that this period is insufficient as a matter of law, citing Primary Care Inv., Seven, Inc. v. PHP Healthcare Corp., 986 F.2d 1208, 1215-16 (8th Cir.1993). In Primary Care, the Eighth Circuit Court of Appeals wrote: No Eighth Circuit case has set a minimum period of time over which the predicate acts must extend in order to be “substantial.” Other Circuits have consistently held that the requirement of continuity over a closed period is not met when the predicate acts extend less than a year. See, e.g., Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 922 (7th Cir.1992) (seven to eight months insufficient); Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan Benefits Committee, 953 F.2d 587, 593 (11th Cir.) (six months to a year insufficient), rehearing denied, 961 F.2d 224 (11th Cir.1992); Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d 594, 609-11 (3rd Cir.1991) (“twelve months is not a substantial period of time”), cert. denied, 504 U.S. 955, 112 S.Ct. 230