Cofacredit v. Windsor Plumbing Supply

• Decision Date: 01 August 1997
• Docket Number: Docket No. 96-9302
• Citation: 187 F.3d 229
• Parties: (2nd Cir. 1999) COFACREDIT, S.A., Plaintiff-Appellee, v. WINDSOR PLUMBING SUPPLY CO. INC.; WINDSOR WORLD, INC.; SHOLAM WEISS; MOSHE (MOSES) WEISS; HERSCH (HESHY) LIPSZYC; and HOLLEVILLE ET DUVERGER U.S.A., INC., Defendants-Appellants, SOCIETE INDUSTRIELLE ET COMMERCIALE HOLLEVILLE ET DUVERGER and ERICH BRANDLI, Defendants
• Court: U.S. Court of Appeals — Second Circuit

Page 229

187 F.3d 229 (2nd Cir. 1999)

COFACREDIT, S.A., Plaintiff-Appellee, v. WINDSOR PLUMBING SUPPLY CO. INC.; WINDSOR WORLD, INC.; SHOLAM WEISS; MOSHE (MOSES) WEISS; HERSCH (HESHY) LIPSZYC; and HOLLEVILLE ET DUVERGER U.S.A., INC., Defendants-Appellants, SOCIETE INDUSTRIELLE ET COMMERCIALE HOLLEVILLE ET DUVERGER and ERICH BRANDLI, Defendants.

Docket No. 96-9302

August Term, 1997

UNITED STATES COURT OF APPEALS SECOND CIRCUIT

Argued: March 30, 1998

Decided: Aug. 3, 1999

Appeal from a judgment, entered September 24, 1996, of the United States District Court for the Eastern District of New York (Sterling Johnson, Judge)in the amount of $5,123,196 plus interest, costs, and attorney's fees in favor of Plaintiff on claims alleging common-law fraud and conspiracy, as well as substantive and conspiracy civil RICO violations, following a three week bench trial.

Affirmed in part, Reversed in part, and Remanded.

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Lawrence S. Hirsh, New York, NY, (Leo Fox, Reid & Priest, New York, NY, of counsel) for Defendants-Appellants.

Kathleen M. Kundar, New York, NY (Carl L. Distefano and Oleg Rivkin, Fox & Horan, New York, NY, of counsel) for Plaintiff-Appellee.

Before: PARKER, Circuit Judge, and EGINTON^*. and GLASSER,^**. District Judges.^***

PARKER, Circuit Judge:

Defendants-Appellants Windsor Plumbing Supply ("Windsor"), Windsor World, Inc. ("Windsor World"), Sholam Weiss, Moshe Weiss, Hersch Lipszyc, and Holleville et Duverger U.S.A ("HED-US") (collectively, the "Windsor Defendants") appeal from a judgment, entered in the Eastern District of New York (Sterling Johnson, Judge) following a three week bench trial.

The district court found in favor of Plaintiff-Appellee Cofacredit, S.A. ("Cofacredit") on claims of common-law fraud and conspiracy, and substantive and conspiracy violations of the civil Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68, against the Windsor Defendants, as well as Erich Brandli and Societe Industriale et Commerciale Holleville et Duverger ("HED-France") (collectively, with the Windsor Defendants, the "Defendants"). Cofacredit's claims arose out of an alleged scheme whereby the Defendants obtained financing from Cofacredit and others based on fraudulent invoices. In accordance with its findings, the district court entered judgment for Cofacredit in the amount of $5,123,196, a sum which included treble damages under RICO and an award of pre-judgment interest. The district court also awarded Cofacredit costs and attorney's fees.

On appeal, the Windsor Defendants argue that the district court erred in finding them liable for the common-law and civil RICO violations. They also challenge the court's award of pre-judgment interest.

I. BACKGROUND

A. Parties

Cofacredit is a French financial concern which provides various financial services to French manufacturers engaged in selling goods abroad. These services include factoring the manufacturers' invoices. Factoring is a form of financing that allows a manufacturer to obtain immediate payment for the goods it sells even though the buyer is not obligated to pay for those goods until the conclusion of a credit period, usually months after the sale. As soon as the manufacturer ships goods to a buyer, the factor pays the manufacturer the purchase price evidenced by the invoice. In return, the factor obtains the right to receive payment on the invoice from the buyer at the conclusion of the credit period, as well as the right to collect related expenses from the manufacturer. As a condition of factoring invoices, a factor may require the manufacturer to guarantee the invoices against non-payment should the buyer become insolvent. The manufacturer can provide this guarantee by obtaining credit insurance. In order to guarantee that it would receive payment on the invoices it factored, Cofacredit required its customers to obtain credit insurance through a company called COFACE, an affiliate and 36% owner of Cofacredit.

Windsor is a Brooklyn-based plumbing supplier. Windsor World, now liquidated, was a Brooklyn-based retailer of plumbing supplies and maintained a showroom in Manhattan. Until Windsor World filed for bankruptcy protection in 1990, it was primarily supplied by Windsor. HED-US is a New York corporation formed to supply Windsor with plumbing fixtures manufactured by HED-France. HED-France was, until French liquidation proceedings, a French manufacturer of deluxe plumbing fixtures.

Sholam Weiss was the sole or majority owner of Windsor, Windsor World, and HED-US. Moshe Weiss, Sholam Weiss's brother, was President and 20% owner of Windsor World and an officer of Windsor. Lipszyc was Vice President of Windsor and showroom manager for Windsor World. Brandli was an executive of HED-France.

B. Facts

1. Summary of the Scheme to Defraud

In its Memorandum and Order, dated September 5, 1996, the district court found that the Defendants engaged in a scheme primarily designed to defraud Cofacredit and Societe Generale, a large French bank. In short, the Defendants submitted sham invoices to Cofacredit for factoring and assigned sham invoices to Societe Generale in exchange for similar financing. The invoices appeared to evidence firm sales of plumbing fixtures by HED-France to Windsor and thus to require payment of a certain sum. But HED-France was not selling plumbing fixtures to Windsor. Instead, unbeknownst to Cofacredit and Societe Generale, HED-France was consigning the plumbing fixtures to HED-US, which was, in turn, supplying the fixtures to Windsor and Windsor World. Under the consignment agreement, HED-US was not obligated to pay HED-France for the fixtures until they were sold to retail customers by Windsor World. Thus, while the invoices factored by Cofacredit and assigned to Societe Generale appeared to evidence firm sales to Windsor, in fact they did not. The Defendants misrepresented the invoices as true sales for approximately 11 months. During this time, HED-France obtained payment from Cofacredit and Societe Generale for goods it had not actually sold. For their part, the Windsor Defendants obtained cost-free inventory. In addition, the Windsor Defendants represented the consigned inventory as owned inventory and used it as collateral for loans from other financial institutions. Through these actions, the district court found, the Defendants conspired to commit and did commit common-law fraud and civil RICO violations.

2. The District Court's Findings of Fact

In support of its verdict, the district court made the following findings of fact, each of which finds ample support in the record. In late 1987, Shalom Weiss and HED-France began negotiations to enter into a consignment agreement, pursuant to which HED-France would export products on a consignment basis to HED-US, a company Weiss agreed to form. HED-US would supply these items to Windsor, which would, in turn, supply Windsor World for retail sale. Under the terms of the intended agreement, HED-US would not pay HED-France for the consigned items until Windsor World sold them to retail customers.

In preparation for shipping goods to HED-US, HED-France purchased credit insurance from COFACE. Pursuant to the terms of the credit insurance policy, COFACE approved Windsor as a buyer of the exported items and agreed to guarantee HED-France payment on outstanding invoices of up to $1.5 million in face value. Because HED-US had not yet been formed, COFACE did not approve it as a buyer. Thus, in order to obtain the insurance, Brandli informed COFACE that the plumbing fixtures were being purchased by Windsor. Although the formal consignment agreement had not yet been inked and HED-US had not yet been formed, HED-France began exporting plumbing fixtures to Windsor on January 1988 pursuant to an informal consignment arrangement. HED-France invoiced these exports as if they were firm sales.

HED-France wanted to obtain immediate payment for the goods it shipped, but, under the consignment arrangement, could not collect from Windsor until the goods were resold. So, in exchange for cash, it assigned its right to receive payment on $421,985 of Windsor invoices to Societe Generale. In February 1988, Societe Generale began to seek payment on the first $131,023 of Windsor invoices that HED-France had assigned to it.

On March 1, 1988, Brandli wrote Lipszyc and Moshe Weiss complaining that HED-France was receiving pressure from Societe Generale. Despite the informal consignment arrangement, on March 8, 1988, the Windsor Defendants agreed to pay the first Societe Generale invoice in order to "have [the bank's] confidence." Sholam Weiss sent a fax to Societe Generale stating:

We as customers of [HED-France] entered into an agreement to sell their products in the United States and Canada. [HED-France] shipped us some merchandise although the agreement had not yet been finalized and signed. Since Mr. Brandli is coming to New York this Sunday, March 13, 1988, we will sign the agreement and therefore on Monday we will be able to wire funds to his account.

Windsor subsequently paid HED-France on this invoice. As a result, from March 16 through March 26, 1988, Societe Generale financed four more HED-France/Windsor invoices.

Meanwhile, HED-France began to seek alternative financing for future invoices, eventually entering into a factoring agreement (the "Factoring Agreement") with Cofacredit on February 17, 1988. Pursuant to the terms of the Factoring Agreement, all factored invoices were required to represent "firm sales having already been delivered" and be subject to a "180 day maximum payment term." Further, all factored invoices had to be covered by credit insurance issued by COFACE, which, as noted above, had already issued insurance guaranteeing payments owed by Windsor on HED-France invoices. Cofacredit and HED-France subsequently agreed upon a procedure for factoring...