Continental Data Systems, Inc. v. Exxon Corp.
1986 U.S. Dist. LEXIS 30612, 638 F. Supp. 432 (1986)
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Rule of Law:
The doctrine of respondeat superior cannot be used to hold a corporate defendant liable under RICO § 1962(c) when the corporation's employees constitute the RICO 'enterprise,' because the statute requires the liable 'person' to be a distinct entity from the 'enterprise' through which the racketeering is conducted.
Facts:
- In 1982, Continental Data Systems, Inc. developed a unique software package for personal injury attorneys and took measures to protect its sales manual as a trade secret.
- Exxon Office Systems Co. (EOS), a division of Exxon Corporation, was a direct competitor whose Philadelphia branch was underperforming.
- In December 1982, EOS marketing manager James Geddes directed a prospective employee, Faith Halpern, to arrange a demonstration of Continental's software under false pretenses.
- During the demonstration, Geddes concealed his identity and employment with Exxon, posing as a consultant to gather competitive intelligence.
- After the demonstration, Halpern deceptively obtained Continental's confidential sales manual from its salesperson, Tom Licorish, by claiming her 'client' needed to review it.
- Halpern photocopied the manual and gave it to EOS sales representative Judith Raybuck.
- EOS employees, including Raybuck, used the information from the stolen manual to develop a competing software product.
- Geddes later admitted to Licorish that EOS had 'used' the manual and that the deception was something they 'had to do' because they were losing in the marketplace.
Procedural Posture:
- Continental Data Systems, Inc. filed a lawsuit against Exxon Corporation and several individual defendants in the U.S. District Court for the Eastern District of Pennsylvania.
- The complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) in addition to theft of trade secrets and other state law claims.
- The court had previously granted a motion by Exxon to dismiss Continental's claims under the Lanham Act and the Sherman Act.
- Exxon Corporation subsequently filed a motion for summary judgment, asking the court to dismiss the remaining RICO and state law claims against it.
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Issue:
Can a corporate employer be held liable under RICO § 1962(c) through the doctrine of respondeat superior for the racketeering acts of its employees, where the employees form the RICO 'enterprise'?
Opinions:
Majority - Newcomer, J.
No. A corporate employer cannot be held liable under RICO § 1962(c) through the doctrine of respondeat superior for the racketeering acts of its employees when those employees constitute the 'enterprise.' The court reasoned that RICO's statutory framework requires a strict distinction between the 'person' who commits the violation and the 'enterprise' that serves as the passive instrumentality for the wrongdoing. To apply respondeat superior would improperly merge these two distinct entities, making the employer 'enterprise' liable for the acts of the employee 'person.' This outcome would contradict the Third Circuit's precedent in B.F. Hirsch v. Enright Refining Co., Inc., which held that the 'person' and the 'enterprise' cannot be the same entity. The court concluded that allowing such vicarious liability would defeat Congress's intent to punish the infiltrating wrongdoer rather than the potentially innocent corporate victim.
Analysis:
This decision reinforces the strict separation between the 'person' and 'enterprise' elements required for a RICO § 1962(c) claim, particularly within the Third Circuit. By rejecting respondeat superior liability in this context, the court significantly limits the ability of plaintiffs to hold corporations vicariously liable for the RICO violations of their employees. This creates a substantial shield for corporations, forcing plaintiffs to prove that the corporation itself was the active wrongdoer (the 'person'), not merely the passive vehicle ('enterprise') or employer. The ruling makes it more difficult to bring RICO claims against 'deep-pocket' corporate defendants based solely on the misconduct of their agents.
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