B.F. Hirsch v. Enright Refining Co., Inc.
| Decision Date | 31 December 1984 |
| Docket Number | No. 84-5087,84-5087 |
| Citation | 751 F.2d 628 |
| Parties | B.F. HIRSCH, Appellee, v. ENRIGHT REFINING COMPANY, INC., Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
John L. McGoldrick (argued), John F. Brenner, McCarter & English, Newark, N.J., for appellant.
David M. Brodsky, Robert M. Abrahams (argued), Aegis J. Frumento, Schulte, Roth & Zabel, New York City, Ronald M. Sturtz, Lawrence T. Neher, Hannoch, Weisman, Stern, Besser, Berkowitz & Kinney, P.A., Newark, N.J., for appellee.
Before SEITZ, and BECKER, Circuit Judges, and TEITELBAUM, District Judge. *
The defendant, Enright Refining Company, Inc., appeals from a judgment entered after a bench trial. The district court found that the defendant was liable for breach of contract, fraud, and civil violation of title IX of the Organized Crime Control Act, Racketeer Influenced and Corrupt Organizations (RICO), 18 U.S.C. Sec. 1961-1968 (1983). This court has jurisdiction under 28 U.S.C. Sec. 1291 (1983).
Thomas Hood, Miss Kilmansegg and Her Precious Leg. Her Moral.
The plaintiff, B.F. Hirsch, is a jewelry manufacturing firm in New York City specializing in the production of gold rings. As a by-product of its manufacturing process, the plaintiff produces scrap gold. This scrap gold, usually in the form of 10 and 14 karat gold, is accumulated and periodically sent to a refiner to be melted down and refined into fine gold of at least 99.95% purity. The refiner returns either an agreed amount of the fine gold or pays cash for the metals.
Gold refiners generally use one or both of two forms of payment for their services. First, there are often refining and handling fees based on the weight of the refined metal and whether gold or cash is to be returned. Second, some refiners account for less than 100% of the precious metal that is sent to them. This second charge is defined in terms of an "accountability" or "retainage." Thus, a refiner with a 98% accountability would have a 2% retainage and would return or pay for 98% of the assayed amount of gold in the material shipped to the refiner.
Between 1973 and September 1976, the plaintiff sent 47 shipments of scrap gold to the defendant's predecessor, the Enright Refining Company, a New Jersey refiner. The district court found that during this period, the Enright Refining Company maintained a 100% accountability and charged only refining and handling fees.
In September 1976, the assets of the Enright Refining Company were sold to an unrelated corporation, the Enright Refining Company, Inc., the defendant in this action. The new company, although under different ownership, continued operation with basically the same personnel and facilities.
Between October 1976 and December 1977, the plaintiff sent 21 shipments to the defendant. The defendant, without disclosing that it had what the district court found was a new policy, began charging a 0.5% retainage for gold and a 1.5% retainage for silver. The parties stipulated that the value of the gold and silver not returned to the plaintiff during this period was $12,196.19. At the conclusion of each transaction, the defendant would send a report letter stating the contents of the gold shipment and sometimes the assay results. Both the contents and the assay figures were calculated after deducting the retainage, although there was no indication that any retainage was being assessed.
From December 1977 to October 1980, the plaintiff did not employ the services of the defendant, but sent their scraps to a competing refiner. In October and November of 1980, the plaintiff sent two large shipments to the defendant. The defendant, in addition to the refining and handling fees, and without disclosure to the plaintiff, assessed a 2% retainage for gold and a 5% retainage for silver. The value of the gold and silver not returned in these two shipments was stipulated to be $98,979.65.
The plaintiff became suspicious when the return of gold in the second shipment was much lower than expected. When confronted, the defendant disclosed its retainage policy, but refused to return the value of the retained metals. This action then ensued.
After a bench trial on the issues, the district court, applying New Jersey law, 1 found that the defendant breached its oral contract with the plaintiff when it assessed a retainage fee. Further, the district court found that the defendant had committed fraud because it intentionally misled the plaintiff and deliberately concealed the retainage through false and misleading report letters. Finally, the district court found that the defendant's fraudulent conduct violated 18 U.S.C. Sec. 1962(c), a provision of RICO, and that the defendant was liable for treble damages and attorney's fees under that statute. B.F. Hirsch, Inc. v. Enright Refining Co., Inc., 577 F.Supp. 339 (D.N.J.1983). This appeal followed.
The district court found that the terms of the oral contract between the plaintiff and the defendant provided for 100% accountability. It found this was true, even though the parties never discussed accountability, for two reasons: (1) as for the transactions between October 1976 and the end of 1977, the terms of the prior contract between the defendant's predecessor and the plaintiff continued as an implied term in the subsequent contracts with the defendant; and (2) as for the two 1980 transactions, there was the prior course of dealing and there was a price sheet that listed refining and handling charges but which did not mention any retainage fee.
The defendant does not dispute the district court's application of the law, but contends that the court's factual conclusions were clearly erroneous. Primarily, the defendant disputes whether the defendant's predecessor, owned by John Enright, maintained a 100% accountability. It argues, in essence, that 100% accountability could not have been an implied term of its contract with the plaintiff because the plaintiff never contracted with the defendant's predecessor to have 100% accountability.
The district court found that prior to the acquisition of the Enright Refining Company by the defendant, the plaintiff was never charged a retainage by Mr. Enright. This was not clearly erroneous. John Enright testified that he had a 100% accountability. This testimony is supported by the testimony of plaintiff's employees.
The defendant argues that Enright's testimony must be discounted because it is physically impossible to maintain a 100% accountability when some gold is inevitably unrecoverable in the refining process. The defendant confuses, however, the physical impossibility of recovering 100% of the gold with the business possibility of promising to account for 100% of the metal assayed in a shipment and making up for any physical loss through the refining fees. The testimony at trial indicated that the refining business is not like a dry cleaners where one sends a coat and receives the same, but cleaner, coat back. The plaintiff would send the defendant a shipment of gold and would not expect the same physical gold returned after refining. Rather, the plaintiff would expect only an agreed amount of fine gold in return; the agreed amount being stated as a percentage of the gold content of the original shipment. In this case, the district court found that the agreed percentage was 100%. Thus, the failure of the defendant to recover 100% of the gold in a shipment does not necessarily require that it account for less than 100% of the gold in settlement with the plaintiff under a tacit contractual term.
The defendant also contends that there was a usage of trade that would imply a term that some accountability would be assessed. The district court found that there was no such trade usage since there were several refiners that did not charge a retainage. Because a course of dealing between parties controls over a usage of trade, we need not address this contention. See N.J.Stat.Ann. Sec. 12A:2-205 (1962).
Because none of the grounds asserted by the defendant for reversal of the breach of contract claim succeed, we agree with the district court that the defendant breached its contract with the plaintiff.
There are four elements necessary for establishing a prima facie case of legal fraud under New Jersey law: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge of the falsity by the person making the misrepresentation; (3) intent that the misrepresentation be relied upon; and (4) reliance on the misrepresentation. Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 477 A.2d 1224, 1232 (N.J.1984).
On this appeal, the defendant contends that there was no misrepresentation, that there was no evidence of intent to defraud, and that the plaintiffs reliance was unreasonable.
As for the plaintiff's transactions with the defendant between 1976 and 1977, the district court found that the defendant misrepresented its fees by failing to disclose the retainage assessment and by affirmatively concealing the retainage through misleading report letters. The defendant, however, contends that there was no misrepresentation because it disclosed the retainage in some of its report letters. The defendant points to three report letters introduced into evidence which it claims show the retainage fee. The defendant argues that for the shipments reported upon by these letters, it was possible to calculate the expected yield of fine gold after refining since the pre-refined weight of the gold is known, and the purity of the gold before refining, reported in karatage, was also known. Further, the defendant argues, if one were to engage in these calculations, as the evidence indicated that the plaintiff regularly did, the expected yield would be larger than the reported yield. Thus, the defendant conc...
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