Fogie v. THORN Americas

• Decision Date: 10 May 1999
• Docket Number: 98-24472,A-C,No. 98-244,98-244
• Citation: 190 F.3d 889
• Parties: (8th Cir. 1999) Vickie Fogie, Joan Leonard, and Angela Adams, on behalf of themselves and all others similarly situated; Plaintiffs - Appellees, v. THORN Americas, Inc.,.Defendant - Appellant THORN EMI North America Holdings, Inc., a Delaware corporation, Defendant - Appellant. Vickie Fogie, Joan Leonard, and Angela Adams, on behalf of themselves and all others similarly situated; Plaintiffs - Appellants, v. THORN Americas, Inc., formerly known as Rent-enter, Inc., Defendant - Appellee, THORN EMI North America Holdings, Inc., A Delaware corporation, Defendant - Appellee. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 889

190 F.3d 889 (8th Cir. 1999)

Vickie Fogie, Joan Leonard, and Angela Adams, on behalf of themselves and all others similarly situated; Plaintiffs - Appellees, v. THORN Americas, Inc.,.Defendant - Appellant

THORN EMI North America Holdings, Inc., a Delaware corporation, Defendant - Appellant.

Vickie Fogie, Joan Leonard, and Angela Adams, on behalf of themselves and all others similarly situated; Plaintiffs - Appellants, v. THORN Americas, Inc., formerly known as Rent-A-Center, Inc., Defendant - Appellee, THORN EMI North America Holdings, Inc., A Delaware corporation, Defendant - Appellee.

No. 98-244, 98-24472

United States Court of Appeals FOR THE EIGHTH CIRCUIT

Submitted: May 10, 1999

Filed: August 20, 1999

Appeals from the United States District Court for theDistrict of Minnesota [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before RICHARD S. ARNOLD, JOHN R. GIBSON, and BOWMAN, Circuit Judges.

BOWMAN, Circuit Judge.

Vickie Fogie, Joan Leonard, and Angela Adams filed a class-action lawsuit against THORN Americas, Inc. and its parent companies, including THORN EMI North America Holdings, Inc. (TEMINAH),¹ alleging the companies had violated Minnesota and federal law while operating a rent-to-own business. The District Court entered judgment for the plaintiff class on its claim that THORN Americas and TEMINAH committed usury in violation of Minnesota law by charging excessive interest rates on credit sales of consumer goods. The plaintiffs recovered approximately $30 million in damages on their usury claim, and the District Court dismissed their other claims. THORN Americas and TEMINAH appeal several aspects of the District Court's damage award on the usury claim. The plaintiffs cross-appeal, claiming the District Court erred when it dismissed their claims that the defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1961-1968 (1994).

I.

As described in this Court's previous opinion, Fogie v. THORN Americas, Inc., 95 F.3d 645 (8th Cir. 1996), appellant THORN Americas operates stores called Rent-A- Centers (RAC)² that offer household goods, including furniture and appliances, for sale or lease. Customers choosing to lease goods enter rent-to-own agreements with RAC. Under the agreements, customers pay a portion of the goods' purchase price plus interest and take possession of the goods for an initial period of a week or month. At the end of this period, a customer either returns the goods or renews the agreement. Once a rent-to-own agreement has been renewed a designated number of times, the customer obtains ownership of the goods.

In 1991, several RAC customers in Minnesota (plaintiff class representatives Fogie, Leonard, and Adams) filed a class-action lawsuit against RAC, alleging that RAC had engaged in usury and deceptive and unlawful business practices. The plaintiffs claimed these practices violated several Minnesota statutes, including the Consumer Credit Sales Act (CCSA), Minn. Stat. 325G.15-.16 (1998), and the General Usury Statute, Minn. Stat. 334.01-.20 (1998). The plaintiffs also claimed. that THORN Americas and its parent companies' actions violated several federal statutes, including RICO, 18 U.S.C. 1961-1968. Defending its practices, RAC argued that its rent-to-own agreements complied with Minnesota and federal law, in particular with Minnesota's Rental Purchase Agreement Act (RPAA), Minn. Stat. 325F.84-.97 (1998).

In March 1993, the District Court certified the plaintiff class to include "all persons who have entered into rent to own contracts on or after August 1, 1990 in the State of Minnesota with the defendants or any of their predecessors or successors in interest in a written form substantially similar to that executed by plaintiff Fogie." Fogie v. Rent-A-Center, Inc., Civ. 867 F.Supp. 1398, 1407 (D. Minn. Mar. 2, 1993) (Memorandum Opinion and Order). The class certification encompasses individuals who entered approximately 58,000 agreements. The District Court also determined the rent-to-own agreements were "consumer credit sales" governed by the CCSA and entered partial summary judgment for the plaintiffs on their CCSA claim. See id. at 17. The court's decision to treat rent-to-own agreements as consumer credit sales governed by the CCSA was subsequently endorsed by the Minnesota Supreme Court in its response to the District Court's certified questions, Fogie v. Rent-A-Centers, Inc., 518 N.W.2d 544 (Minn. 1994), and in a separate case, Miller v. Colortyme, Inc., 518 N.W.2d 544 (Minn. 1994).

When answering the District Court's certified questions, the Minnesota Supreme Court also directed the District Court to apply the Minnesota General Usury Statute's limitation on interest rates to the rent-to-own agreements. See Fogie, 518 N.W.2d at 544. The District Court therefore declared RAC's rent-to-own agreements usurious as a matter of law under CCSA and the Minnesota General Usury Statute and "unlawful debt" under RICO. It permanently enjoined RAC from entering into rent-to-own agreements with interest rates exceeding the General Usury Statute's limits, voided the existing rent-to-own agreements with the plaintiff class ab initio, ordered rescission of all payments made by the plaintiff class to RAC, and prohibited RAC from collecting. or receiving future payments from class members under the voided agreements. RAC appealed the award of injunctive relief and this Court affirmed, conducting interlocutory review only of the injunctive relief and interdependent matters. See Fogie, 95 F.3d at 648, 654.

The District Court later modified its original order, directing the defendants to hold in escrow all payments received from rent-to-own customers during the litigation. Appointing a special master to determine the quantum of damages owed to the plaintiff class on its usury claim and to plan the damage distribution, the District Court also entered summary judgment for the defendants on the plaintiffs' non-usury claims, including their claims that THORN Americas and its parent companies had violated RICO.

The special master submitted his report and recommendations, and the District Court essentially adopted them. It entered judgment in favor of the plaintiffs in the amount of $29,898,250 plus $3418 per day from December 9, 1997, to April 15, 1998. The District Court also adopted the special master's recommended plan for depositing and distributing the damages, determined fees for the plaintiffs' attorneys, and ordered that all funds remaining unclaimed after complete distribution be placed in a cy pres fund. This appeal followed.

II.

We consider first the issues raised in the plaintiffs' cross-appeal, which challenges the District Court's dismissal of the plaintiffs' RICO claims. To recover in a civil suit for a violation of RICO, a plaintiff must prove: (1) that the defendant violated 18 U.S.C. 1962; (2) that the plaintiff suffered injury to business or property; and (3) that the plaintiff's injury was proximately caused by the defendant's RICO violation. See 18 U.S.C. 1964(c) (1994); Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 265-68 (1992); see also United HealthCare Corp. v. American. Trade Ins. Co., 88 F.3d 563, 572 (8th Cir. 1996). The plaintiffs alleged that RAC violated subsections (a), (c), and (d) of 1962 and that each of those violations caused the plaintiffs injuries for which they can recover under 1964(c). The District Court for various reasons dismissed the plaintiffs' claims for alleged violations of 1962(a), (c) and (d). We evaluate the plaintiffs' claims under each subsection separately.

A.

The District Court ruled the plaintiffs could not recover for alleged violations of 1962(a) because they did not have standing under 1964(c) to bring such claims. Section 1962(a) states that:

It shall be unlawful for any person who has received any income derived . . . from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal . . . to use or invest . . . any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in . . . interstate or foreign commerce.

18 U.S.C. 1962(a) (1994). Under 1964(c), only those injured "by reason of" a 1962 violation have standing to bring a civil suit. See 18 U.S.C. 1964(c); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985); Appletree Square I, L.P. v. W.R. Grace & Co., 29 F.3d 1283, 1286 (8th Cir. 1994). The District Court determined that RAC's usury constituted the collection of unlawful debts and that the plaintiffs were individuals injured by that unlawful debt collection. But the District Court concluded that only individuals injured by a completed violation of 1962(a), those injured by the use or investment of the racketeering income, have been injured "by reason of" a 1962(a) claim as 1964(c) requires. Therefore, since the collection of unlawful debts was not by itself a violation of 1962(a), the District Court dismissed the plaintiffs' 1962(a) claim for lack of standing.

Determining whether only those injured by the use or investment of racketeering income have standing to bring a civil suit for violation of 1962(a), or whether those injured by the predicate acts of the racketeering activity also have standing, involves an issue of first impression for this Court, one that has split the other circuits. Seven of the eight circuits that have addressed the issue -- the sectiond Third, Fifth, Sixth, Ninth, Tenth, and D.C. Circuits--agree with the District Court that 1962(a) and 1964(c) limit standing only to plaintiffs who have suffered injury from the use or investment of the racketeering income. See, e.g., Vemco, Inc. v. Camardella, 23 F.3d 129, 132 (6th Cir.), cert. denied, 513 U.S. 1017 (1994); Nugget Hydroelectric, L.P. v. Pacific Gas & Elec. Co., 981 F.2d 429, 437 (9th...