First Nat. Bank and Trust Co. v. Hollingsworth, s. 90-1336
| Decision Date | 01 May 1991 |
| Docket Number | Nos. 90-1336,s. 90-1336 |
| Citation | 931 F.2d 1295 |
| Parties | , RICO Bus.Disp.Guide 7746, 33 Fed. R. Evid. Serv. 54 FIRST NATIONAL BANK AND TRUST COMPANY, Rogers, Arkansas, Appellee, v. A.L. HOLLINGSWORTH, Jr.; Sam Swanson, a/k/a Sam Berg, a/k/a Sam Berger; Don Gore; Judy Gore; Network Clearing Service, Inc.; Consumer Home Marketing, Inc.; Romano Schreiber, Appellant, Jodie Nicholson; The Schedule; Big Jule's Sports Service of Las Vegas, Inc., Appellants, Billy Gene Ashworth; John Doe # 1; John Doe # 2. FIRST NATIONAL BANK AND TRUST COMPANY, Rogers, Arkansas, Appellee, v. A.L. HOLLINGSWORTH, Jr.; Lorene Hollingsworth, Appellant, Sam Swanson, a/k/a Sam Berg, a/k/a Sam Berger; Don Gore; Judy Gore, Appellants, Network Clearing Service, Inc.; Consumer Home Marketing, Inc.; Romano Schreiber; Jodie Nicholson; The Schedule; Big Jule's Sports Service of Las Vegas, Inc.; Billy Gene Ashworth; John Doe # 1; John Doe # 2. FIRST NATIONAL BANK AND TRUST COMPANY, Rogers, Arkansas, Appellee, v. A.L. HOLLINGSWORTH, Jr., Appellant, Sam Swanson, a/k/a Sam Berg, a/k/a Sam Berger, Don Gore; Judy Gore; Network Clearing Service, Inc.; Consumer Home Marketing, Inc.; Romano Schreiber; Jodie Nicholson; The Schedule; Big Jule's Sports Service of Las Vegas, Inc.; Billy Gene Ashworth; John Doe # 1; John Doe # 2. FIRST NATIONAL BANK AND TRUST COMPANY, Rogers, Arkansas, Appellee, v. A.L. HOLLINGSWORTH, Jr.; Sam Swanson, a/k/a Sam Berg, a/k/a Sam Berger, Don Gore; Judy Gore; Network Clearing Service, Inc.; Consumer Home Marketing, Inc.; Romano Schreiber; Jodie Nicholson, Appellant, The Schedule; Big Jule's Sports Service of Las Vegas, Inc.; Billy Gene Ashworth; John Doe # 1; John Doe # 2. to 90-1339. |
| Court | U.S. Court of Appeals — Eighth Circuit |
James E. Evans, Springdale, Ark., for appellant.
David R. Matthews, Rogers, Ark., for appellee.
Before LAY, Chief Judge, BRIGHT and TIMBERS, * Senior Circuit Judges.
Defendants A.L. Hollingsworth and Romano Schreiber appeal the judgment of the district court in favor of First National Bank and Trust Company of Rogers, Arkansas, under the civil provisions of the Racketeer Influenced Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-68 (1988). Schreiber and Hollingsworth allegedly operated a credit card fraud scheme under the auspices of Consumer Home Marketing, Inc. (CHM). Hollingsworth and Schreiber, as well as defendants Jodie Nicholson, Big Jule's Sports Service of Las Vegas, Inc. and Judy Gore, appeal related judgments rendered against them for receiving CHM funds allegedly transferred in violation of Arkansas fraudulent conveyance law, Ark.Code Ann. Secs. 4-59-201 to 213 (Supp.1989). A.L. and Lorene Hollingsworth appeal the district court's grant of judgment notwithstanding the jury's verdict awarding damages in the Hollingsworths' counterclaim for wrongful attachment. Finally, Lorene Hollingsworth and Don and Judy Gore appeal the district court's denial of their various motions for sanctions pursuant to Fed.R.Civ.P. 11. For the reasons expressed below, we vacate the RICO judgment against Hollingsworth and remand for further proceedings. We also vacate the fraudulent transfer judgment against Judy Gore. We affirm the district court in all other respects.
The disputes leading to these appeals arise from the activities of CHM, an Arkansas telemarketing corporation which A.L. Hollingsworth and Romano Schreiber founded in August 1987. Schreiber, a Las Vegas oddsmaker and telemarketer, provided the start-up capital and initially held a ninety percent stake in CHM and the title of President. Hollingsworth, an Arkansas computer consultant and programmer, provided the technical expertise. He initially held a five percent stake in CHM and the title of Secretary. 1
Shortly after founding CHM, Hollingsworth and Schreiber attempted to secure a bank merchant account which would enable CHM to conduct credit card transactions. The First National Bank of Springdale, Arkansas, rejected their first application in September 1987 because of the high incidence of fraud associated with telemarketing ventures like CHM. Without a merchant account, CHM remained inactive through the end of 1987. Late in 1987, Schreiber transferred his interest in CHM to Hollingsworth, apparently for no consideration. Consequently, Hollingsworth became the principal owner and President of CHM.
In early 1988, Hollingsworth again attempted to secure a merchant account for CHM and submitted applications to First National Bank of Springdale and Bank of Fayetteville. In each application, Hollingsworth represented that CHM intended to use the merchant account for telemarketing purposes. Both banks rejected the applications, again, because of the high incidence of fraud in the telemarketing industry.
In February 1988, Hollingsworth submitted another merchant account application, this time with plaintiff First National Bank and Trust of Rogers, Arkansas (First National). In this fourth merchant account application, Hollingsworth represented CHM as a retailer of computer equipment and software. First National approved the application and opened a merchant account in CHM's name. Hollingsworth signed a merchant account agreement prohibiting the use of the merchant account for any purpose other than selling computer equipment and software. The agreement also specified that First National would hold Hollingsworth and CHM liable for any deficits in the account.
CHM almost immediately began receiving credit card charge slips and depositing them into the merchant account. However, unbeknownst to First National, none of the charges arose from the sale of computer equipment or software. Apparently, most of CHM's business activities involved the "factoring" 2 of credit card charges generated by telemarketing merchandisers. This activity breached CHM's agreement with First National which prohibited the use of the merchant account for purposes other than direct sales of computer equipment.
CHM procured factoring clients through Schreiber who, despite having severed his formal relationship with CHM, referred Las Vegas telemarketing merchandisers to CHM. Schreiber, along with Jodie Nicholson, Schreiber's Las Vegas associate, and Big Jule's Sports Service of Las Vegas, Inc. d/b/a The Schedule, an oddsmaking corporation which Schreiber and Nicholson owned and operated, also provided CHM with advice and operational support in February and March of 1988 as CHM began to conduct business. In April 1988, customers of the Las Vegas telemarketing enterprises which Schreiber had referred to CHM filed requests for over $87,000 in chargebacks after complaining that they had not received merchandise they had ordered despite having been billed for it. CHM and Hollingsworth refunded the entire amount.
Between May and August of 1988, CHM sporadically continued to factor charges for telemarketers. However, CHM severed its relationship with its principal client, Diamond Enterprises, in the summer of 1988 due to continuing problems with fraudulent telemarketing transactions. During this period, First National finally determined that CHM had not been selling computer equipment as it had represented, but instead had been factoring charges for telemarketers in violation of the merchant account agreement. Consequently, on August 17, 1988, First National gave Hollingsworth notice that it would terminate CHM's merchant account in sixty days.
In the meantime, Hollingsworth began making inquiries about selling CHM. Although the volume of CHM's business had dropped precipitously and it was about to lose its merchant account, Schreiber again provided Hollingsworth with critical assistance and found a buyer for CHM. Schreiber introduced Hollingsworth to Sam Swanson who, on August 26, 1988, purchased the moribund CHM from Hollingsworth for $30,000.
First National, in response to Hollingsworth's direct inquiries, had informed Hollingsworth on two previous occasions that it would not transfer the merchant account to a new owner in the event Hollingsworth sold CHM. It further informed him that the sale of CHM would result in the immediate termination of the merchant account. Hollingsworth nonetheless transferred CHM's merchant and checking accounts to Swanson without notifying appropriate bank officials about the sale of CHM.
Hollingsworth continued to work with CHM following the sale and throughout September 1988, purportedly to ease the transition of ownership. Just prior to and immediately after the sale of CHM to Swanson, CHM began to factor charges for various new clients associated with Swanson. Later events revealed that many of the charges were fraudulent. Schreiber, who flew to Arkansas from Las Vegas shortly after the sale of CHM to Swanson, also actively participated in the post-sale activities and was frequently seen at the CHM office throughout September 1988. Trial testimony revealed that in September 1988 CHM not only processed charges from Schreiber's Las Vegas company, Big Jule's, but also that some of the fraudulently generated charges were billed to consumers who previously had been victims of unauthorized charges by another company associated with Schreiber.
In addition to factoring a large number of fraudulently generated charges, CHM, through Swanson, also withdrew large sums of money from the First National merchant account. In addition to transferring money to Big Jule's and Schreiber for factored charges generated by Big Jule's, Swanson also wrote a number of checks transferring approximately $35,000 in CHM funds to Schreiber and his Las Vegas operations. Schreiber, in turn, signed the checks over to Nicholson for deposit into various personal and business bank accounts. Schreiber claimed that these transfers represented payments for finder's fees and commissions for arranging the sale of CHM and bringing in new business. He also claimed that...
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