88 F.3d 563 (8th Cir. 1996), 94-3380, United HealthCare Corp. v. American Trade Ins. Co., Ltd.

Docket Nº:94-3380, 94-3496.
Citation:88 F.3d 563
Party Name:RICO Bus.Disp.Guide 9062 UNITED HEALTHCARE CORPORATION, A Minnesota Corporation, Appellee/Cross-Appellant, v. AMERICAN TRADE INSURANCE COMPANY, LTD.; American Atlantic Insurance Company, Ltd.; Mitzi Alden King, individually, Defendants, Edmund Hugh Benton, individually, Appellant/Cross-Appellee, Paragon Enterprises, Inc., an Arizona Corporation, De
Case Date:July 02, 1996
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 563

88 F.3d 563 (8th Cir. 1996)

RICO Bus.Disp.Guide 9062





Insurance Company, Ltd.; Mitzi Alden King,

individually, Defendants,

Edmund Hugh Benton, individually, Appellant/Cross-Appellee,

Paragon Enterprises, Inc., an Arizona Corporation, Defendant,

BFT Management, Inc., an Oklahoma Corporation,


Alan Teale, Defendant.

Nos. 94-3380, 94-3496.

United States Court of Appeals, Eighth Circuit

July 2, 1996

Submitted Jan. 11, 1996.

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[Copyrighted Material Omitted]

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John W. Hollis, Newbury Park, CA, argued (Michael J. Stoller, Los Angeles, CA, on the brief), for appellant/cross-appellee.

Lewis A. Remele, Jr., Minneapolis, MN, argued (Kevin P. Hickey, on the brief), for appellee/cross-appellant.

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Before BOWMAN, BEAM, and MURPHY, Circuit Judges.

BEAM, Circuit Judge.

Edmund Benton (Benton) appeals from the district court's entry of judgment on a jury verdict awarding United HealthCare Corporation (UHC) damages for Benton's violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) (RICO). Benton argues tat UHC was not a real party in interest to the litigation, and that the district court erred in denying his motion for judgment as a matter of law. Benton also challenges several of the district court's evidentiary rulings and its refusal to submit Benton's proposed special verdict form to the jury. UHC, in turn, cross appeals the district court's denial of its petition for attorney's fees and costs. We affirm the judgment on the verdict, but reverse and remand for a determination of costs and attorney's fees.


In the 1980s, Congress responded to a perceived crisis in certain insurance markets by passing the Liability Risk Retention Act, 15 U.S.C. §§ 3901-06 (Act). The Act loosened previous restrictions on the ability of non-traditional insurers to provide liability insurance through "risk retention groups" and "purchase groups." 1 Under the Act and its subsequent amendments, risk retention groups and purchase groups are exempt from state laws prohibiting their operation or regulating their membership. 15 U.S.C. §§ 3902 & 3903.

UHC is the parent company of United HealthCare Management Corporation (United HealthCare Management), a management company which owns and manages a number of Health Maintenance Organizations (HMOs) across the United States. 2 According to its management agreements, United HealthCare Management is responsible for obtaining liability insurance coverage for these HMOs. In 1987, United HealthCare Management sought this coverage from Healing Arts National Association (HANA), a purchase group formed to take advantage of the exemptions provided by the Act. Over the next two years, UHC, through its subsidiary, paid nearly $300,000 in premiums to the HANA program to obtain insurance coverage on behalf of the HMOs it owned or managed.

During the period at issue in this case, HANA insureds were to be covered by master insurance policies provided by either Diversified Insurers Corporation (Diversified) or Victoria Insurance Company (Victoria). After purchasing insurance through HANA for two years, however, UHC discovered that the insurance premiums it had paid had never in fact reached these insurance companies and that the policies purporting to provide insurance coverage were worthless. UHC instigated this lawsuit, naming over 40 individuals and entities as defendants. Originally, UHC focused its litigation efforts on the recovery of costs associated with defending lawsuits brought against one of its HMOs, Physician's Health Plan of Arizona, which was to be insured through the HANA program. By the time of trial, however, UHC had abandoned this course of action and elected, instead, to seek reimbursement of insurance premiums. Most of the defendants either defaulted or settled with UHC, leaving only defendant Benton and one of Benton's corporations, BFT Management, in the litigation at the time of trial.

At trial, UHC traced the premiums it paid to HANA through various entities, including several owned by Benton. The premiums were initially sent to IMACO, an insurance brokerage company. That company would deduct its commission and forward the remaining premium to Robis International, a

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re-insurance intermediary. Robis would subtract its commission and wire the premium balance to Comtell, a defendant corporation which began its association with HANA in 1986. Benton was Comtell's vice president and a signator on Comtell's bank accounts. Benton also owned approximately twenty-five percent of Comtell through one of his corporations.

Comtell provided "administrative services" to HANA, and thus was responsible for securing insurance coverage for the HANA members, forwarding premiums to the participating insurers, and issuing insurance certificates. By 1987, however, two other companies, SUMI, Inc. and Purchase Group Management (PGM), were established to assume some of Comtell's responsibilities. Both of these companies were owned and controlled by Benton. With the establishment of these entities, Comtell was no longer responsible for forwarding premiums to the insurance companies. Instead, Comtell transmitted the premiums it received to PGM to forward on to the insurers.

Despite this arrangement, the evidence demonstrated that neither Victoria nor Diversified received premiums from either Comtell or PGM. Financial records and bank statements showed that after the premiums reached Comtell and PGM, approximately $600,000 went into brokerage accounts controlled by Benton, several hundred thousand dollars worth of checks were made out to "cash" and individual defendants, including Benton, and over one million dollars of premium monies disappeared and remain untraceable.

After UHC completed its case, Benton and BFT Management moved for judgment as a matter of law. The court granted the motion as to all counts except UHC's RICO claims, brought under 18 U.S.C. § 1962(a)-(d). Benton and BFT Management then presented their defense, claiming that Benton was merely a computer consultant to Comtell and challenging UHC's basic premise that, because none of the premiums reached Victoria and Diversified, UHC's HMOs were never, in fact, insured. After presentation of their defense, Benton and BFT Management renewed their requests for judgment as a matter of law. The district court granted BFT's motion and dismissed it from the case, and granted Benton's motion as to all of UHC's claims except its claim under 18 U.S.C. § 1962(c). The court allowed this claim to go to the jury, and the jury returned a verdict for UHC in the amount of $188,426.80. The court trebled the damage award as required by 18 U.S.C. § 1964(c) and entered judgment in the amount of $565,280.40.

After trial, the district court considered Benton's renewed motion for judgment as a matter of law and UHC's petition for attorney's fees and costs. The district court denied Benton's motion and UHC's request for fees and costs, and both parties appeal.

On appeal, Benton contends that UHC was not a proper party to bring this lawsuit. Benton further argues that judgment as a matter of law should have been granted because UHC failed to establish the elements required to prove a RICO violation under 18 U.S.C. § 1962(c). Finally, Benton contends that the district court abused its discretion in making several of its trial rulings, including: 1) its exclusion of evidence pertaining to the lawsuits brought against Physician's Health Plan of Arizona; 2) its admission of testimony by Charles Huff, investigator for the Georgia Department of Insurance; 3) its admission of testimony by accounting expert Arthur Cobb; 4) its admission of testimony by David Gates, UHC's insurance expert; 5) its admission of assignments of claims executed by HMOs managed by United HealthCare Management; 6) its admission of Comtell's computer records; and 7) its refusal to present Benton's proposed special verdict form to the jury. UHC cross appeals the district court's decision denying attorney's fees and costs, arguing that an award of reasonable fees and costs is mandatory under RICO.


A. Real Party in Interest

We first address the threshold issue of whether UHC is a real party in interest in this matter. Rule 17(a) of the Federal Rules of Civil Procedure provides that "[e]very action shall be prosecuted in the name of the

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real party in interest." This rule requires that the party who brings an action actually possess, under the substantive law, the right sought to be enforced. See Iowa Public Service Co. v. Medicine Bow Coal Co., 556 F.2d 400, 404 (8th Cir.1977). Such a requirement is in place "to protect the defendant against a subsequent action by the party actually entitled to recover, and to insure generally that the judgment will have its proper effect as res judicata." Fed.R.Civ.P. 17(a), Advisory Committee Note.

Benton argues that UHC is not the real party in interest but is actually asserting claims on behalf of third parties, namely, its subsidiary and the HMOs which its subsidiary owned or managed. Benton further argues that the assignments of claims obtained by UHC from the non-party HMOs were barred by the statute of limitations and worked unfair surprise upon Benton, who had assumed that UHC would only be seeking to recover the costs of defending lawsuits brought against Physician's Health Plan of Arizona. UHC argues, in response, that Benton's objection to UHC on real party in interest grounds was untimely and was...

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