77 F.3d 951 (7th Cir. 1996), 94-3970, Gagan v. American Cablevision, Inc.

Docket Nº:94-3970, 94-3982.
Citation:77 F.3d 951
Party Name:RICO Bus.Disp.Guide 9098 James L. GAGAN, Plaintiff-Appellee, v. AMERICAN CABLEVISION, INC., Allwave Cable Construction Co., Inc., James A. Monroe, Hans D. Theurer, Charles M. Trimble, James Gouyd, and Victor E. Sharar, Defendants-Appellants.
Case Date:February 27, 1996
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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77 F.3d 951 (7th Cir. 1996)

RICO Bus.Disp.Guide 9098

James L. GAGAN, Plaintiff-Appellee,


AMERICAN CABLEVISION, INC., Allwave Cable Construction Co.,

Inc., James A. Monroe, Hans D. Theurer, Charles M.

Trimble, James Gouyd, and Victor E.

Sharar, Defendants-Appellants.

Nos. 94-3970, 94-3982.

United States Court of Appeals, Seventh Circuit

February 27, 1996

Argued Oct. 27, 1995.

Rehearing Denied April 1, 1996.

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Consolidated Appeals from the United States District Court for the Northern District of Indiana, Hammond Division, No. 87 CV 732; Andrew P. Rodovich, Magistrate Judge.

C. Joseph Yast (argued), Northfield, IL, for James L. Gagan.

Kenneth D. Reed (argued), Abrahamson, Reed & Adley, Hammond, IN, for Hans D. Theurer.

George J. Glendening (argued), Hammond, IN, E. Day Carman, E. Day Carman & Associates, Newport Beach, CA, for American Cablevision, Incorporated, James A. Monroe, Charles M. Trimble, James Gouyd, Victor E. Sharar, Allwave Cable Construction Company, Incorporated.

Before FLAUM, ROVNER, and EVANS, Circuit Judges.

TERENCE T. EVANS, Circuit Judge.

The recent advent of direct satellite television, with its seemingly limitless access to hundreds of different channels, makes it somewhat hard to believe that just a short time ago most Americans only had access to the three major television networks and PBS. However, as cable television (CATV) grew from its infancy in 1949 in rural America (where broadcast signals were too faint to receive) to most urban areas in the late 1970's and early 1980's, so did the variety and number of television channels, thereby changing forever the television-watching options for American viewers. The ensuing race to wire the country with cable television spurred numerous CATV business ventures. This case arises from one such undertaking; the investment by the plaintiff, James L. Gagan, in a cable television limited partnership, known as South Hesperia, in 1982. In 1987, after Gagan's investment turned sour, he filed a complaint against 14 individuals, corporations, and limited partnerships alleging claims under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, and other claims under state law.

When the case was filed it was assigned to Chief Judge Allen Sharp of the United States District Court for the Northern District of Indiana. Judge Sharp ordered bifurcation of the RICO claims from the state law claims, and a trial began in September 1990. At the conclusion of the plaintiff's evidence, Judge Sharp directed a verdict in the defendants' favor on the substantive RICO claims under § 1962(b) and § 1962(c). The remaining RICO conspiracy claim under § 1962(d) was submitted to a jury, which deliberated but could not reach a verdict. A mistrial was declared, and the case was transferred, with the consent of the parties, to Magistrate Judge Andrew P. Rodovich for a second trial.

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Prior to the start of the second trial in 1994, Judge Rodovich issued an order defining the scope of Judge Sharp's prior ruling on the RICO claims. Judge Rodovich would not allow relitigation of the substantive RICO claims (§§ 1962(b) and (c)), and he ordered that the § 1962(d) conspiracy claim be limited to a charge that the defendants violated RICO when South Hesperia's assets were sold. The judge also ordered that all other claims, including Gagan's state law claims and the defendants' counterclaims, be tried at the same time to the new jury. Finally, he settled a state choice of law issue, ordering that Indiana law apply to the fraud claim and that the law of Arizona govern the contract claim.

After a two-week trial, the jury returned a verdict in favor of Gagan on the RICO claim and most of the state law claims. The jury also shut the defendants out on their counterclaims. This appeal followed.

Losers in a trial can go hunting for relief on appeal with a rifle or a shotgun. The rifle is better. As we have noted, the shotgun approach may hit the target with something but it runs the risk of obscuring significant issues by dilution. United States v. Levy, 741 F.2d 915, 924 (7th Cir.), cert. denied, 469 U.S. 1021, 105 S.Ct. 440, 83 L.Ed.2d 366 (1984). The defendants here, apparently not impressed with our statement in Levy, have brought their shotgun to Chicago.

In the hope of finding error, either by the judge or the jury, the defendants raise many arguments, several of which are either undeveloped or waived. First, they assert that Gagan lacked RICO standing and, generally, that the evidence is insufficient to support the RICO finding. They allege insufficiency of evidence to support the state law claims and resulting inconsistencies in the verdict. They contend the district court erred in granting Gagan's motion in limine which sought to exclude certain evidence. They assert further error by the court in denying their summary judgment motion, and they challenge the verdict against them on their counterclaim. Finally, defendant Hans D. Theurer, who proceeded at trial pro se, challenges the verdict against him on the breach of fiduciary duty claim and the court's refusal to grant him leave to plead the affirmative defense of discharge in bankruptcy.

The resolution of these issues requires a rather lengthy review of the facts which we review in the light most favorable to Gagan, who prevailed at the trial of this case. We start with the South Hesperia limited partnership, which we divide into three phases: organizational, operational, and sale. The "organizational" phase began in 1981 when defendant Victor Sharar was contacted by Paul Skulsky. Skulsky proposed setting up a bunch of tax-sheltered limited partnerships to fund, build, and operate cable television systems in Hesperia, an unincorporated area of San Bernardino County, California. Skulsky gave Sharar $225,000 in "seed money" to get the venture moving. In exchange, Skulsky was given a 25% share of profits to be realized. An associate of Skulsky's, Marc Pozner, 1 instructed Sharar to set up about a dozen Nevada corporations, including Security Cable Consulting Company, Inc. and defendant Allwave Cable Construction Company, Inc. Skulsky contacted defendant James Monroe, Sharar's son-in-law, and got him involved in the CATV limited partnerships. Monroe became the general partner of South Hesperia.

Meanwhile, investors were solicited for the South Hesperia CATV limited partnerships. Ultimately, 20 limited partnership units were sold, including 3 to Gagan. The purchase of each unit required $40,000 in cash and short-term notes, and an $85,000 long-term note payable to South Hesperia on December 31, 1992. Gagan's investment for three units consisted of $120,000 in cash paid in three installments over two years, plus execution of a $255,000 long-term note. The total investment from all unit holders in South Hesperia was $2,500,000--$800,000 in cash and short-term notes and $1,700,000 in noninterest-

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bearing, long-term notes. One of the investors dropped out early in 1982, reducing the number of limited partnerships to 18. Gagan's three units gave him a 16.6% ownership interest in South Hesperia.

The second or operational phase of the venture related to the actual construction and operation of South Hesperia. It covered the period from late 1981 to June of 1986. In 1981, South Hesperia signed a construction contract with Allwave for $1,800,000 ($100,000 cash and $1,700,000 in long-term notes) to construct South Hesperia as a turnkey operation. Despite the contract price, the actual cost to build South Hesperia was no more than $600,000. Allwave, a shell company lacking the equipment and resources to construct a CATV system, subcontracted all construction work to defendant American Cablevision, Inc. (ACI) for cost plus $340,000 (20% of the $1,700,000 in long-term notes). ACI was a related entity owned entirely by Sharar, Charles Trimble, and James Gouyd. Like its affiliate Allwave, ACI lacked the resources to build the CATV system and so it subcontracted the work out. On December 15, 1991, Monroe appointed ACI as the managing agent for South Hesperia.

Starting in 1982, Monroe, the general partner, periodically informed the limited partners, including Gagan, of South Hesperia's ongoing activities. He sent them a series of reports describing the success of the partnership. Despite these favorable reports, the $1,700,000 contract with Allwave, coupled with interest on that amount, left no cash flow for the limited partners.

From the inception of South Hesperia in 1981, and with Monroe's knowledge and consent, Pozner directly controlled the operations, and particularly all financial operations, of South Hesperia, Allwave, Security Cable, and the other Hesperia limited partnerships 2 and construction companies. Skulsky was in on the deal with Pozner, and together they controlled all facets relating to the limited partnerships, including the issuance of directives to Sharar to sign construction contracts with all of the Hesperia limited partnerships and assignment of those contracts to ACI. In September 1984, Skulsky and Pozner told Sharar that the Hesperia cable operation was in shambles. They asked Sharar to help salvage it. Pozner withdrew from further participation in the Hesperia partnerships at this time, citing personal reasons. Sharar's initial efforts to salvage the Hesperia operation included the November 15, 1984, hiring of Theurer as a financial consultant. Theurer came to represent not only the Hesperia entities, but also Allwave, ACI, and Sharar, Trimble, and Gouyd personally.

The third and last phase of South Hesperia, the period from 1985 to 1988, relates...

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