Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., Inc.
| Citation | 46 F.3d 258 |
| Decision Date | 14 February 1995 |
| Docket Number | 93-5784,Nos. 93-5783,s. 93-5783 |
| Parties | , RICO Bus.Disp.Guide 8722 JAGUAR CARS, INC. v. ROYAL OAKS MOTOR CAR COMPANY, INC.; Theodore J. Forhecz, Sr.; Mark M. Forhecz; Theodore J. Forhecz, Jr.; Richard Kirsh; Jack Rusher; Edward Zeller, Mark M. Forhecz, Appellant. JAGUAR CARS, INC. v. ROYAL OAKS MOTOR CAR COMPANY, INC.; Theodore J. Forhecz, Sr.; Mark M. Forhecz; Theodore J. Forhecz, Jr.; Richard Kirsh; Jack Rusher; Edward Zeller, Theodore J. Forhecz, Sr., Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (3rd Circuit) |
Carl J. Chiappa (argued), Townley & Updike, New York City, for Jaguar Cars, Inc.
Gary R. Battistoni (argued), Drinker, Biddle & Reath, Philadelphia, PA, for Theodore J. Forhecz, Sr.
Martin G. Margolis (argued), Stuart Pobereskin, Margolis, Meshulam & Pobereskin, Verona, NJ, for Mark M. Forhecz.
Before: BECKER, ALITO, Circuit Judges, and BRODY, District Judge. *
This appeal arises out of a civil RICO action, 18 U.S.C.A. Sec. 1961 et seq. (1984), brought by plaintiff, Jaguar Cars, Inc. ("Jaguar"), against Theodore Forhecz, Sr., and his sons Theodore Forhecz, Jr. and Mark Forhecz, alleging that they had perpetrated a scheme to systematically submit fraudulent warranty claims to Jaguar through their jointly owned Jaguar dealership, Royal Oaks Motor Car Company, Inc. ("Royal Oaks") in violation of RICO sections 1962(c) and (d). A jury awarded Jaguar damages of $550,000 against Theodore Forhecz, Sr. ("Theodore, Sr.") and $450,000 against Mark Forhecz ("Mark"). 1 In its final judgment, the district court molded the verdict to reflect treble damages for the RICO violations, as required by 18 U.S.C.A. Sec. 1964(c) (1984).
Theodore, Sr. contends that the evidence was legally insufficient to find him liable of the RICO predicate acts of aiding and abetting mail fraud. Additionally, Theodore, Sr. and Mark ("the defendants") contend that Jaguar's RICO claims were legally insufficient because Jaguar failed to establish sufficient distinctiveness between the defendant "persons," allegedly liable for the RICO violations, and the "enterprise" through which those persons acted. This latter contention requires us to reconsider our interpretation of the civil RICO statute in light of evolving Supreme Court precedent. More particularly, we are faced with the question whether this court's jurisprudence concerning the distinctiveness requirement of 18 U.S.C.A. Sec. 1962(c) (1988), see Glessner v. Kenny, 952 F.2d 702, 710 (3d Cir.1991), survived the Supreme Court's opinions in Reves v. Ernst & Young, --- U.S. ----, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993) and National Organization for Women v. Scheidler, --- U.S. ----, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994).
Because we decide that this court's application of the distinctiveness requirement of Sec. 1962(c) to corporate officers and directors does not survive Reves and Scheidler, and because we are, therefore, satisfied that corporate officers/employees, such as the defendants, may properly be held liable as persons managing the affairs of their corporation as an enterprise through a pattern of racketeering activity, we will affirm.
Theodore, Sr. was the 51% owner and president of the Royal Oaks dealership. The remaining 49% of the dealership was owned by Mark and Theodore, Jr. Mark was the general manager of Royal Oaks and ran the day-to-day operations of the dealership. In managing Royal Oaks, Mark reported to his father, who was the president and majority shareholder. Theodore, Sr. was actively involved in the operation of the dealership, earning a salary of roughly one-half million dollars a year for his services. Theodore, Sr. spent between twenty-five and thirty hours a week at Royal Oaks and met with Mark on a daily basis to discuss the dealership's operations.
The trial record demonstrated that the Royal Oaks dealership, through the actions of its employees, perpetrated a widespread scheme from as early as 1987 through May 1991 to defraud Jaguar through the submission of thousands of fraudulent warranty claims. Under this scheme, warranty claims were continuously submitted to Jaguar for the cost of labor and parts for alleged repairs that were either unnecessary, were never actually performed, or were performed on cars that were no longer under warranty. The scheme included submitting fictitious timesheets, doctoring the warranty paperwork submitted to Jaguar, and altering new parts to make them look old and in need of replacement. Additionally, an outside sublet paint-and-body shop, Kolorworks, and its owner, Linda Kucharski, assisted the defendants by helping them construct fraudulent warranty claims for Royal Oaks to submit to Jaguar.
In total, Royal Oaks defrauded Jaguar in an amount of between one and two million dollars, 2 enabling Royal Oaks to generate hundreds of thousands of dollars of warranty income per month and to maintain extremely lucrative salaries for the defendants through periods of declining sales income even though its work bays were often empty and its technicians idle. The evidence presented at trial demonstrated that actual work had declined to a point where there were few, if any, cars in the service department.
Correspondingly, in order to occupy their time, the dealership's ten service technicians regularly sat at their workbenches reading magazines, or congregated to pitch coins, play ping-pong, softball, or operate electronic cars.
In October 1990, Jaguar began to suspect fraud at Royal Oaks and, in an unprecedented move, sent a team of officials into the dealership for an entire week to watch every repair being made. In order to avoid detection, the defendants placed a load of new cars in the service areas for mock repairs, so that the area looked full and technicians were kept busy while Jaguar's representatives were at the dealership. Such actions along with other modifications and refinements to the fraudulent scheme allowed the fraud to continue until May of 1991.
After discovering the fraud and terminating the dealership in May of 1991, Jaguar brought suit in the District Court for the District of New Jersey alleging violations of RICO sections 1962(c) and (d). Section 1962(d) prohibits conspiring to violate sub-section (c). 18 U.S.C.A. Sec. 1962(d) (West Supp.1994). Accordingly, the viability of Jaguar's section (d) claim depends on the legal sufficiency of its Sec. 1962(c) claim.
As noted above, the jury awarded damages against Theodore, Sr. and Mark on Jaguar's RICO claims. The district court upheld the jury's award in response to the defendants' post-trial motions for judgment as a matter of law under Fed.R.Civ.Proc. 50(a) or for a new trial under Fed.R.Civ.Proc. 59. This appeal from the judgment and from the district court's order denying the defendants' post-trial motions followed.
The defendants contend that Jaguar's RICO claims were legally insufficient in that Jaguar failed to allege a violation of Sec. 1962(c) by "persons" operating or managing a distinct "enterprise." Since this is a question of law, we exercise plenary review. See Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir.1993). Section 1962(c) provides, in relevant part:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities 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.A. Sec. 1962(c) (1984).
It is uncontested, on appeal, that Royal Oaks conducted "a pattern of racketeering activity" which affected interstate commerce. Given that Sec. 1962(c) requires conduct by a "person employed by or associated with any enterprise," the issue is whether Jaguar has alleged activity by both a person and an enterprise. "Person" includes "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C.A. Sec. 1961(3) (1984). "Enterprise" includes "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C.A. Sec. 1961(4) (1984).
This court first addressed Sec. 1962(c)'s requirement to plead persons distinct from an enterprise in Hirsch v. Enright Refining Co., 751 F.2d 628, 633 (3d Cir.1984). In Enright, a jewelry manufacturer brought an action alleging fraudulent misrepresentation and a corresponding violation of Sec. 1962(c) against a lone defendant--a corporation engaged in metal refining. In Enright we concluded that the defendant corporation could not be liable under Sec. 1962(c) in that "the 'person' subject to liability cannot be the same entity as the 'enterprise.' " Id. at 633. Because the person charged with liability in Enright, the corporate defendant, was "the same entity as the entity fulfilling the enterprise requirement," we reversed the Sec. 1962(c) RICO judgment in favor of the plaintiff. Id. at 633.
In Enright we articulated two grounds in support of our holding. The first was a literal reading of the statute: "the language contemplates that the 'person' must be associated with a separate 'enterprise' before there can be RICO liability on the part of the 'person.' " Id. The second ground was a belief that Congress intended to limit RICO's application to preventing the infiltration of legitimate organizations by criminal and corrupt organizations: "[i]t is in keeping with that Congressional scheme to orient section 1962(c) toward punishing the infiltrating criminals rather than the legitimate corporation which might be an innocent victim of the racketeering activity in some circumstances." Id.
In Sedima v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), the Supreme Court...
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