Atlas Pile Driving Co. v. DiCon Financial Co.

• Decision Date: 14 September 1989
• Docket Number: 88-5434,Nos. 88-5170,s. 88-5170
• Citation: 886 F.2d 986
• Parties: RICO Bus.Disp.Guide 7304 ATLAS PILE DRIVING CO. and Olson Concrete Co., both Minnesota corporations, Appellees, v. DiCON FINANCIAL CO., a Minnesota limited partnership, Lake Minnetonka Homes, Inc., a Minnesota business corporation, and Richard Conry, Appellants. DiCON FINANCIAL CO., Lake Minnetonka Homes, Inc., Richard Conry, v. ATLAS PILE DRIVING CO., Olson Concrete Company, Koenig, Robin, Johnson & Wood, William R. Koenig, James G. Robin, Peter W. Johnson and John W. Wood, Jr. Curtis ANDERSON, v. ATLAS PILE DRIVING CO., Olson Concrete Company, Koenig, Robin, Johnson & Wood, William R. Koenig, James G. Robin, Peter W. Johnson & John W. Wood, Jr. ATLAS PILE DRIVING CO., and Olson Concrete Company, Appellees, v. DiCON FINANCIAL CO., Lake Minnetonka Homes, Inc., and Richard Conry, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 986

886 F.2d 986

RICO Bus.Disp.Guide 7304

ATLAS PILE DRIVING CO. and Olson Concrete Co., both

Minnesota corporations, Appellees, v. DiCON FINANCIAL CO., a Minnesota limited partnership, Lake

Minnetonka Homes, Inc., a Minnesota business

corporation, and Richard Conry, Appellants.

DiCON FINANCIAL CO., Lake Minnetonka Homes, Inc., Richard Conry, v. ATLAS PILE DRIVING CO., Olson Concrete Company, Koenig,

Robin, Johnson & Wood, William R. Koenig, James G.

Robin, Peter W. Johnson and John W. Wood, Jr.

Curtis ANDERSON, v. ATLAS PILE DRIVING CO., Olson Concrete Company, Koenig,

Robin, Johnson & Wood, William R. Koenig, James G.

Robin, Peter W. Johnson & John W. Wood, Jr.

ATLAS PILE DRIVING CO., and Olson Concrete Company, Appellees, v. DiCON FINANCIAL CO., Lake Minnetonka Homes, Inc., and Richard Conry, Appellants.

Nos. 88-5170, 88-5434.

United States Court of Appeals,

Eighth Circuit.

Submitted May 8, 1989.

Decided Sept. 14, 1989.

Paul Enge, Minneapolis, Minn., for appellants.

Peter W. Johnson, Wayzata, Minn., for appellees.

Before LAY, Chief Judge, HENLEY, Senior Circuit Judge, and BEAM, Circuit Judge.

BEAM, Circuit Judge.

Richard Conry, DiCon Financial Company, and Lake Minnetonka Homes, Inc., hereinafter collectively referred to as the appellants, appeal from the district court's ¹ entry of judgment on the jury verdict and the denial of their motion for judgment n.o.v. or, in the alternative, a new trial. 697 F.Supp. 1058. Atlas Pile Driving Company (Atlas) and Olson Concrete Company (Olson) alleged that the appellants defrauded them in connection with subcontracting work they performed on a residence and that the fraud constituted a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-1968. We affirm.

I. BACKGROUND

In this case, two subcontractors claim that two individuals and the companies they formed engaged in a scheme to defraud residential housing subcontractors. The subcontractors allege that the seller of land, the lender, and the general contractor devised a scheme whereby the general contractor falsely promised payment for work completed on residential housing projects, the lender foreclosed its prior lien on the property, and the misled subcontractors were unable to collect from the general contractor or obtain relief against the value of the property.

Richard Conry is the sole owner of Lake Minnetonka Homes, Inc. (LMH), a real estate development corporation conducting business as a general contractor which deals in residential construction projects. Conry also owns and controls American Engineering Services (AES), a company which performs the carpentry subcontracting on residences constructed by LMH. Occasionally, AES provided carpentry work on residences built by other general contractors. LMH is a general partner of DiCon Financial Company (DiCon), owning 99.9 percent of DiCon. DiCon is engaged in the business of making loans to companies which develop real property. Curtis Anderson was an employee of AES, working full-time as an onsite carpentry supervisor. Anderson owned and controlled Curtis Anderson Construction Company, Inc. (CACC) and Stroth Construction Company, Inc. (Stroth). Anderson formed the corporations to purchase real estate and to act as general contractors in building single-family homes on the purchased real estate.

Conry decided to develop a portion of his family's land in 1981. This subdivision was to be known as Countryside Manor (Countryside). In September 1982, Anderson, on behalf of the newly-formed CACC, purchased three Countryside lots from LMH for $120,000. To finance the purchase and development of the lots, Anderson obtained a loan of $420,000 from DiCon in exchange for mortgages on the properties. DiCon funded the land purchase of $120,000 and borrowed $300,000 from B.T. Investors for the construction financing on the lots. DiCon then assigned the mortgages to B.T. Investors. B.T. Investors in turn assigned the mortgages to First National Bank of St. Paul which advanced $300,000 to B.T. Investors.

Anderson testified that he invested around $20,000 of his own money in CACC and outside investors provided additional capital of $27,000. Anderson estimated that his construction costs for the Countryside lots would be $1,066,000. Construction on the lots was commenced in September 1982 and completed in August 1983. Anderson promised the subcontractors that they would be paid soon after the completion of their work. However, a number of subcontractors were never paid or were paid amounts only sufficient to ensure that they would finish their work. Since a number of subcontractors were not paid by CACC, they filed mechanics' liens on all three properties. In contrast, AES was paid over $166,000, the full amount due it, for the carpentry work it furnished on the three Countryside residences.

Following default on the loans by Anderson, DiCon initiated foreclosure proceedings. At the three foreclosure sales, DiCon bid the amount of its encumbrance ² on each property as follows: (1) $161,232 on the first property; (2) $166,480 on the second property; and (3) $199,836 on the third property. During the redemption period, some of the subcontractors joined together and exercised their right of redemption. One lot was redeemed for $183,000 and the other for $200,000. The remaining property was sold by DiCon for $185,000.

In May 1983, Anderson, on behalf of Stroth, purchased an undeveloped lot in the St. Alban's Green (St. Alban's) subdivision from LMH for $210,000. The parties to this action dispute the value of the St. Alban's property, and Atlas's and Olson's expert testified that the fair market value of the lot was $71,000. The financing arrangement was quite similar to the method utilized to finance the Countryside lots. Anderson financed the purchase and development of the lot by securing a loan of $350,000 from DiCon. According to Robert Harding, a certified public accountant, the loan agreement provided for an annual interest rate of 31.08 percent. DiCon funded the purchase of the lot, and B.T. Investors provided construction financing in the amount of $140,000. DiCon assigned the mortgage to B.T. Investors which then assigned it to First National Bank of St. Paul.

Due to delays in securing a design for the home and other problems, construction at the St. Alban's property did not begin until March 1984. The St. Alban's land was marshy. So, Atlas built pilings and installed a specialized foundation for the proposed residence. Olson constructed the concrete foundation for the home. Atlas's bill for the work it completed amounted to $24,935, and Olson charged $25,522.33 for the foundation. Neither subcontractor has ever been paid for the work completed at St. Alban's. Atlas and Olson were not alone in their collection problems. Like the situation at Countryside, a number of other subcontractors at St. Alban's were not paid or received only partial payment and filed mechanics' liens. Likewise, AES was paid $78,000 for the carpentry work it completed on the residence.

When Stroth defaulted on its loan for the St. Alban's project, DiCon again commenced foreclosure proceedings. DiCon bid $430,000 at the foreclosure sale, and no one redeemed. At the time of trial, the home had not yet been sold.

Alleging that there was a scheme to defraud subcontractors who provided labor and materials for the projects at Countryside and St. Alban's, Atlas and Olson filed this action, claiming commonlaw fraud and violations of RICO and the Minnesota Fraudulent Conveyances Act. The court dismissed the claims grounded on common-law fraud and the Fraudulent Conveyances Act. The jury returned a verdict for Atlas and Olson, finding that the appellants violated 18 U.S.C. Sec. 1962(a), (c), and (d) (1982). The court, pursuant to RICO, assessed treble damages in excess of $150,000 and awarded attorney's fees of over $50,000. The court denied the appellants' timely motion for judgment n.o.v. or, in the alternative, a new trial.

On appeal, the appellants argue that the judgment n.o.v. should have been granted because Atlas and Olson did not demonstrate that racketeering activity was present, that a pattern of such activity existed, that there was an enterprise distinct from the person alleged to have violated RICO, that there existed an enterprise distinct from the pattern of racketeering activity, and that their damages were caused by RICO violations. The appellants next argue that the motion, in the alternative, for a new trial should have been granted because the evidence was insufficient to show that Conry conspired to violate RICO and because of numerous discovery violations. Finally, the appellants assert that attorney's fees should not have been awarded.

II. DISCUSSION

A. Judgment n.o.v.

1. Standard of Review

In determining whether to grant a judgment n.o.v., both the trial court and this court must consider the evidence in the light most favorable to the prevailing party, assume that the jury resolved all conflicts of evidence in favor of that party, assume as true all facts which the prevailing party's evidence tended to prove, give the prevailing party the benefit of all favorable inferences which may reasonably be drawn from the facts, and deny the motion, if in light of the foregoing, reasonable jurors could differ as to the conclusion that could be drawn from the evidence. Northside Mercury Sales & Serv., Inc. v. Ford Motor Co., 871 F.2d 758, 760 (8th Cir.1989) (citations omitted).

2. Introduction to RICO

The major purpose behind RICO is to curb the infiltration of legitimate business organizations by racketeers. United States v. Turkette, 452 U.S. 576, 591, 101 S.Ct. 2524, 2532-33, 69 L.Ed.2d 246 (1981). Although the initial aim may have been to thwart organized crime, RICO also imposes civil liability on other types of organizations. See Bennett v. Berg, 685 F.2d 1053, 1063 (8th Cir.1982) (determining that RICO suits are...